As filed with the Securities and Exchange Commission on December 28, 2004
File No. 333-103504
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 6
TO FORM S-3 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------------
AIG SUNAMERICA LIFE ASSURANCE COMPANY
("AIG SUNAMERICA LIFE")
(Exact name of registrant as specified in its charter)
California 6311 86-0198983
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Number)
organization)
1 SUNAMERICA CENTER
LOS ANGELES, CALIFORNIA 90067-6022
(800) 871-2000
(Address, including zip code, and telephone number,
including area code, or registrant's
principal executive offices)
CHRISTINE A. NIXON, ESQ.
AIG SUNAMERICA LIFE ASSURANCE COMPANY
1 SUNAMERICA CENTER
LOS ANGELES, CALIFORNIA 90067-6022
(800) 871-2000
(Name, address, including zip code, and telephone number, including area code
of agent for service)
----------------------
Approximate date of commencement of proposed dale to the public: As
soon after the effective date of this Registration Statement as is practicable.
If the only securities being registered on this form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ______________
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ______________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
----------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
shall determine.
VISTA CAPITAL ADVANTAGE
PROSPECTUS
DECEMBER 28, 2004
FLEXIBLE PAYMENT GROUP DEFERRED ANNUITY CONTRACTS
ISSUED BY
AIG SUNAMERICA LIFE ASSURANCE COMPANY
IN CONNECTION WITH
VARIABLE ANNUITY ACCOUNT TWO
The annuity has several investment choices - Variable Portfolios listed
below and available fixed account options. The Variable Portfolios are part of
the Anchor Series Trust ("AST") and the SunAmerica Series Trust ("SAST"):
STOCKS:
MANAGED BY DAVIS ADVISORS
- DAVIS VENTURE VALUE PORTFOLIO SAST
MANAGED BY MARSICO CAPITAL MANAGEMENT, LLC
- MARSICO GROWTH PORTFOLIO SAST
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS TOTAL RETURN PORTFOLIO SAST
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, LLC
- INTERNATIONAL GROWTH AND INCOME PORTFOLIO SAST
BONDS:
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLC
- GOVERNMENT AND QUALITY BOND PORTFOLIO AST
CASH:
MANAGED BY BANC OF AMERICA CAPITAL MANAGEMENT, LLC
- CASH MANAGEMENT PORTFOLIO SAST
AIG SunAmerica Life discontinued new sales of the contract as of the
close of business on October 11, 2000. AIG SunAmerica Life will continue to
accept subsequent payments on existing contracts.
Please read this prospectus carefully before investing and keep it for
future reference. It contains important information about the Vista Capital
Advantage Variable Annuity.
To learn more about the annuity offered by this prospectus, you can
obtain a copy of the Statement of Additional Information ("SAI") dated December
28, 2004. The SAI has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference into this prospectus. The Table of
Contents of the SAI appears in this prospectus. For a free copy of the SAI, call
us at (800) 445-SUN2 or write to us at our Annuity Service Center, P.O. Box
54299, Los Angeles, California 90054-0299.
In addition, the SEC maintains a website (http://www.sec.gov) that
contains the SAI, materials incorporated by reference and other information
filed electronically with the SEC by AIG SunAmerica Life Assurance Company.
ANNUITIES INVOLVE RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AND ARE
NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THEY ARE
NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
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AIG SunAmerica Life's Annual Report on Form 10-K for the year ended
December 31, 2003, and its quarterly report on Form 10-Q for the quarters ended
March 31, 2004, June 30, 2004 and September 30, 2004 file no. 033-47472 are
incorporated herein by reference.
All documents or reports filed by AIG SunAmerica Life under Section 13(a),
13(c), 14, or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") after the effective date of this prospectus are also
incorporated by reference. Statements contained in this prospectus and
subsequently filed documents which are incorporated by reference or deemed to be
incorporated by reference are deemed to modify or supersede documents
incorporated herein by reference.
AIG SunAmerica Life files its Exchange Act documents and reports, including
its annual and quarterly reports on Form 10-K and Form 10-Q, electronically
pursuant to EDGAR under CIK No. 0000006342.
AIG SunAmerica Life is subject to the informational requirements of the
Securities and Exchange Act of 1934 (as amended). We file reports and other
information with the SEC to meet those requirements. You can inspect and copy
this information at SEC public facilities at the following locations:
WASHINGTON, DISTRICT OF COLUMBIA
450 Fifth Street, N.W., Room 1024
Washington, D.C. 20549
CHICAGO, ILLINOIS
500 West Madison Street
Chicago, IL 60661
NEW YORK, NEW YORK
233 Broadway
New York, NY 10048
To obtain copies by mail contact the Washington, D.C. location. After you
pay the fees as prescribed by the rules and regulations of the SEC, the required
documents are mailed.
Registration statements under the Securities Act of 1933, as amended,
related to the contracts offered by this prospectus are on file with the SEC.
This prospectus does not contain all of the information contained in the
registration statements and exhibits. For further information regarding the
separate account, AIG SunAmerica Life and its general account, the Variable
Portfolios and the contract, please refer to the registration statements and
exhibits.
The SEC also maintains a website (http://www.sec.gov) that contains the
SAI, materials incorporated by reference and other information filed
electronically with the SEC by AIG SunAmerica Life.
AIG SunAmerica Life will provide without charge to each person to whom this
prospectus is delivered, upon written or oral request, a copy of the above
documents incorporated by reference. Requests for these documents should be
directed to AIG SunAmerica Life's Annuity Service Center, as follows:
AIG SunAmerica Life Assurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
Telephone Number: (800) 445-SUN2
3
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SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION
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Indemnification for liabilities arising under the Securities Act of 1933
(the "Act") is provided to AIG SunAmerica Life's officers, directors and
controlling persons. The SEC has advised that it believes such indemnification
is against public policy under the Act and unenforceable. If a claim for
indemnification against such liabilities (other than for AIG SunAmerica Life's
payment of expenses incurred or paid by its directors, officers or controlling
persons in the successful defense of any legal action) is asserted by a
director, officer or controlling person of AIG SunAmerica Life in connection
with the securities registered under this prospectus, AIG SunAmerica Life will
submit to a court with jurisdiction to determine whether the indemnification is
against public policy under the Act. AIG SunAmerica Life will be governed by
final judgment of the issue. However, if in the opinion of Anchor National's
counsel, this issue has been determined by controlling precedent, AIG SunAmerica
Life will not submit the issue to a court for determination.
4
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
ITEM ----
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 3
SECURITIES AND EXCHANGE COMMISSION POSITION ON
INDEMNIFICATION........................................... 4
GLOSSARY.................................................... 6
HIGHLIGHTS.................................................. 7
FEE TABLES.................................................. 8
MINIMUM AND MAXIMUM EXPENSE EXAMPLES........................ 9
PERFORMANCE................................................. 10
DESCRIPTION OF AIG SUNAMERICA LIFE, THE SEPARATE ACCOUNT AND
THE GENERAL ACCOUNT....................................... 10
AIG SunAmerica Life.................................... 10
Separate Account....................................... 10
General Account........................................ 11
VARIABLE PORTFOLIO OPTIONS.................................. 11
Voting Rights.......................................... 12
Substitution........................................... 12
FIXED ACCOUNT OPTIONS....................................... 12
Fixed Accounts......................................... 12
Dollar Cost Averaging Fixed Accounts................... 13
EXPENSES.................................................... 13
Separate Account Charges............................... 13
Withdrawal Charges..................................... 14
Investment Charges..................................... 14
Contract Maintenance Fee............................... 14
Transfer Fee........................................... 14
Premium Tax............................................ 15
Income Taxes........................................... 15
Reduction or Elimination of Charges and Expenses, and
Additional Amounts Credited........................... 15
Free Withdrawal Amount................................. 15
Nursing Home Waiver.................................... 15
DESCRIPTION OF THE CONTRACTS................................ 16
Summary................................................ 16
Ownership.............................................. 16
Annuitant.............................................. 16
Modification of the Contract........................... 16
Assignment............................................. 16
Death Benefit.......................................... 17
PURCHASES, WITHDRAWALS AND CONTRACT VALUE................... 18
Purchase Payments...................................... 18
Allocation of Purchase Payments........................ 18
Accumulation Units..................................... 18
Free Look.............................................. 19
Transfers During the Accumulation Phase................ 19
Dollar Cost Averaging Program.......................... 21
Automatic Asset Allocation Rebalancing Program......... 22
Return Plus Program.................................... 22
Withdrawals............................................ 23
Systematic Withdrawal Program.......................... 23
Minimum Contract Value................................. 24
INCOME PHASE................................................ 24
Annuity Date........................................... 24
Income Options......................................... 24
Transfers During the Income Phase...................... 25
Deferment of Payments.................................. 26
TAXES....................................................... 26
Annuity Contracts in General........................... 26
Tax Treatment of Distributions -- Non-qualified
Contracts............................................. 26
Tax Treatment of Distributions -- Qualified
Contracts............................................. 27
Minimum Distributions.................................. 27
Tax Treatment of Death Benefits........................ 28
Contracts Owned by a Trust or Corporation.............. 28
Gifts, Pledges and/or Assignments of a Non-qualified
Contract.............................................. 28
</Table>
5
<Table>
<Caption>
PAGE
ITEM ----
Diversification and Investor Control................... 29
ADMINISTRATION.............................................. 29
Distribution of Contracts.............................. 29
CUSTODIAN...................................................
LEGAL PROCEEDINGS........................................... 30
REGISTRATION STATEMENT...................................... 31
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM............... 31
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.... 31
APPENDIX A -- MARKET VALUE ADJUSTMENT ("MVA")............... A-1
APPENDIX B -- WITHDRAWALS AND WITHDRAWAL CHARGES............ B-1
APPENDIX C -- CONDENSED FINANCIAL INFORMATION............... C-1
</Table>
All financial representatives or agents that sell the contracts offered by this
prospectus are required to deliver a prospectus.
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GLOSSARY
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The following terms, as used in this prospectus, have the indicated
meanings:
ACCUMULATION PHASE -- The period during which you invest money in your contract.
ACCUMULATION UNIT -- A unit of measurement which we use to calculate the value
of the variable portion of your contract during the Accumulation Phase.
ANNUITANT(S) -- The person(s) on whose life (lives) we base income payments.
ANNUITY DATE -- The date on which income payments begin, as selected by you.
ANNUITY UNIT(S) -- A measurement we use to calculate the amount of income
payments you receive from the variable portion of your contract during the
Income Phase.
BENEFICIARY -- The person designated to receive any benefits under the contract
if you or the Annuitant dies.
COMPANY -- AIG SunAmerica Life Assurance Company, We, Us, the insurer that
issues this contract.
INCOME PHASE -- The period during which we make income payments to you.
IRS -- The Internal Revenue Service.
LATEST ANNUITY DATE -- Your 90(th) birthday or 10(th) contract anniversary,
whichever is later.
NON-QUALIFIED (CONTRACT) -- A contract purchased with after-tax dollars. In
general, these contracts are not under any pension plan, specially sponsored
program or individual retirement account ("IRA").
PURCHASE PAYMENTS -- The money you give us to buy the contract, as well as any
additional money you give us to invest in the contract after you own it.
QUALIFIED (CONTRACT) -- A contract purchased with pre-tax dollars. These
contracts are generally purchased under a pension plan, specially sponsored
program or IRA.
TRUSTS -- Refers to the Anchor Series Trust and the SunAmerica Series Trust
collectively.
UNDERLYING FUND(S) -- The underlying series of the Trust in which the Variable
Portfolios invest.
VARIABLE PORTFOLIO(S) -- The variable investment options available under the
contract. Each Variable Portfolio has its own investment objective and is
invested in the underlying investments of the Trust.
6
- ------------------------------------------------------
- ------------------------------------------------------
HIGHLIGHTS
- ------------------------------------------------------
- ------------------------------------------------------
The Vista Capital Advantage Variable Annuity is a contract between you and
AIG SunAmerica Life Assurance Company ("AIG SunAmerica Life"). It is designed to
help you invest on a tax-deferred basis and meet long-term financial goals.
There are minimum Purchase Payment amounts required to purchase a contract.
Purchase Payments may be invested in a variety of variable and fixed account
options. Like all deferred annuities, the contract has an Accumulation Phase and
an Income Phase. During the Accumulation Phase, you invest money in your
contract. The Income Phase begins when you start receiving income payments from
your annuity to provide for your retirement.
FREE LOOK: You may cancel your contract within 10 days after receiving it
(or whatever period is required in your state). You will receive whatever your
contract is worth on the day that we receive your request. The amount refunded
may be more or less than your original Purchase Payment. We will return your
original Purchase Payment if required by law. Please see PURCHASING A VISTA
CAPITAL ADVANTAGE VARIABLE ANNUITY in the prospectus.
EXPENSES: There are fees and charges associated with the contract. Each
year, we deduct a $30 contract maintenance fee from your contract. We also
deduct Separate Account charges which equal 1.40% annually of the average daily
value of your contract allocated to the Variable Portfolios. There are
investment charges on amounts invested in the Variable Portfolios. If you elect
optional features available under the contract we may charge additional fees for
those features. A separate withdrawal charge schedule applies to each Purchase
Payment. The amount of the withdrawal charge declines over time. After a
Purchase Payment has been in the contract for seven complete years, withdrawal
charges no longer apply to that portion of the Purchase Payment. Please see the
FEE TABLE, PURCHASING A VISTA CAPITAL ADVANTAGE VARIABLE ANNUITY and EXPENSES IN
THE PROSPECTUS.
ACCESS TO YOUR MONEY: You may withdraw money from your contract during the
Accumulation Phase. If you do so, earnings are deemed to be withdrawn first. You
will pay income taxes on earnings and untaxed contributions when you withdraw
them. Payments received during the Income Phase are considered partly a return
of your original investment. A federal tax penalty may apply if you make
withdrawals before age 59 1/2. As noted above, a withdrawal charge may apply.
Please see ACCESS TO YOUR MONEY and TAXES in the prospectus.
DEATH BENEFIT: A death benefit feature is available under the contract to
protect your Beneficiaries in the event of your death during the Accumulation
Phase. Please see DEATH BENEFITS in the prospectus.
INCOME OPTIONS: When you are ready to begin taking income, you can choose
to receive income payments on a variable basis, fixed basis or a combination of
both. You may also chose from five different income options, including an option
for income that you cannot outlive. Please see INCOME OPTIONS in the prospectus.
INQUIRIES: If you have questions about your contract call your financial
advisor or contact us at AIG SunAmerica Life Assurance Company Annuity Service
Center P.O. Box 54299 Los Angeles, California 90054-0299. Telephone Number:
(800) 445-SUN2.
AIG SUNAMERICA LIFE OFFERS SEVERAL DIFFERENT VARIABLE ANNUITY PRODUCTS TO
MEET THE DIVERSE NEEDS OF OUR INVESTORS. EACH PRODUCT MAY PROVIDE DIFFERENT
FEATURES AND BENEFITS OFFERED AT DIFFERENT FEES, CHARGES AND EXPENSES. WHEN
WORKING WITH YOUR FINANCIAL ADVISOR TO DETERMINE THE BEST PRODUCT TO MEET YOUR
NEEDS YOU SHOULD CONSIDER, AMONG OTHER THINGS, WHETHER THE FEATURES OF THIS
CONTRACT AND THE RELATED FEES PROVIDE THE MOST APPROPRIATE PACKAGE TO HELP YOU
MEET YOUR LONG-TERM RETIREMENT SAVINGS GOALS.
PLEASE READ THE PROSPECTUS CAREFULLY FOR MORE DETAILED INFORMATION REGARDING
THESE AND OTHER FEATURES AND BENEFITS OF THE CONTRACT, AS WELL AS THE RISKS OF
INVESTING.
7
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FEE TABLES
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THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY AT THE TIME THAT
YOU TRANSFER CASH VALUE BETWEEN INVESTMENT OPTIONS OR SURRENDER THE CONTRACT. IF
APPLICABLE, YOU MAY ALSO BE SUBJECT TO STATE PREMIUM TAXES.
MAXIMUM OWNER TRANSACTION EXPENSES
MAXIMUM WITHDRAWAL CHARGES (AS A PERCENTAGE OF EACH PURCHASE PAYMENT)(1)......6%
(1) Withdrawal Charge Schedule (as a percentage of each Purchase Payment)
declines over 7 years as follows
<Table>
YEARS:............................ 1 2 3 4 5 6 7 8
6% 6% 5% 5% 4% 3% 2% 0%
</Table>
<Table>
TRANSFER FEE.......... No charge for the first 15 transfers each
contract year; thereafter, the fee is $25
per transfer
</Table>
THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY PERIODICALLY
DURING THE TIME THAT YOU OWN THE CONTRACT, NOT INCLUDING UNDERLYING PORTFOLIO
FEES AND EXPENSES WHICH ARE OUTLINED IN THE NEXT SECTION.
CONTRACT MAINTENANCE FEE
$30
SEPARATE ACCOUNT ANNUAL EXPENSES
(DEDUCTED DAILY AS A PERCENTAGE OF YOUR AVERAGE DAILY NET ASSET VALUE)
<Table>
Mortality and Expense Risk Fees...................... 1.25%
Distribution Expense Fee............................. 0.15%
-----
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES............. 1.40%
=====
</Table>
THE FOLLOWING SHOWS THE MINIMUM AND MAXIMUM TOTAL OPERATING EXPENSES CHARGED
BY THE UNDERLYING PORTFOLIOS OF THE TRUSTS BEFORE ANY WAIVERS OR REIMBURSEMENTS.
MORE DETAIL CONCERNING THE TRUSTS' FEES AND EXPENSES IS CONTAINED IN THE
PROSPECTUS FOR THE TRUSTS. PLEASE READ IT CAREFULLY BEFORE INVESTING.
PORTFOLIO EXPENSES
<Table>
<Caption>
TOTAL ANNUAL UNDERLYING PORTFOLIO EXPENSES MINIMUM MAXIMUM
------------------------------------------ ------- -------
(expenses that are deducted from underlying portfolios of
the Trusts, including management fees, other expenses and
12b-1 fees, if applicable).................................. 0.54% 1.25%
</Table>
8
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MAXIMUM AND MINIMUM EXPENSE EXAMPLES
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These Examples are intended to help you compare the cost of investing in the
contract with the cost of investing in other variable annuity contracts. These
costs include owner transaction expenses, contract maintenance fee, separate
account annual expenses and fees and expenses of the underlying portfolios of
the Trusts.
The Examples assume that you invest $10,000 in the contract for the time periods
indicated; that your investment has a 5% return each year; and that the maximum
and minimum fees and expenses of the underlying variable portfolios of the
Trusts are reflected. Although your actual costs may be higher or lower, based
on these assumptions, your costs at the end of the stated period would be:
MAXIMUM EXPENSE EXAMPLES
(ASSUMING MAXIMUM SEPARATE ACCOUNT ANNUAL EXPENSES OF 1.40% AND INVESTMENT IN AN
UNDERLYING VARIABLE PORTFOLIO WITH TOTAL EXPENSES OF 1.25%)
(1) If you surrender your contract at the end of the applicable time
period:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$873 $1,337 $1,828 $3,028
</Table>
(2) If you annuitize your contract at the end of the applicable time
period:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$268 $ 823 $1,405 $2,983
</Table>
(3) If you do not surrender your contract:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$273 $ 837 $1,428 $3,028
</Table>
MINIMUM EXPENSE EXAMPLES
(ASSUMING MINIMUM SEPARATE ACCOUNT ANNUAL CHARGES OF 1.40% AND INVESTMENT IN AN
UNDERLYING VARIABLE PORTFOLIO WITH TOTAL EXPENSES OF 0.54%)
(1) If you surrender your contract at the end of the applicable time
period:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$802 $1,123 $1,471 $2,313
</Table>
(2) If you annuitize your contract at the end of the applicable time
period:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$197 $ 609 $1,047 $2,264
</Table>
(3) If you do not surrender your contract:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$202 $ 623 $1,071 $2,313
</Table>
EXPLANATION OF FEE TABLES AND EXAMPLES
1. The purpose of the Fee Tables is to show you the various expenses you would
incur directly and indirectly by investing in the contract. The tables
represent both fees at the separate account (contract level) as well as total
annual underlying variable account operating expenses. We converted the
contract maintenance fee to a percentage (0.05%). The actual impact of the
contract maintenance fee may differ from this percentage. Additional
information on the portfolio company fees can be found in the accompanying
Trust prospectuses.
2. In addition to the stated assumptions, the Examples also assume Separate
Account charges as indicated and that no transfer fees were imposed. Although
premium taxes may apply in certain states, they are not reflected in the
Examples.
3. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE HISTORICAL ACCUMULATION UNIT VALUES ARE CONTAINED IN
APPENDIX C -- CONDENSED FINANCIAL INFORMATION.
9
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PERFORMANCE
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We advertise the Cash Management Portfolio's yield and effective yield. In
addition, the other Variable Portfolios advertise total return, gross yield and
yield-to-maturity. These figures represent past performance of the Variable
Portfolios. These performance numbers do not indicate future results.
When we advertise performance for periods prior to the date the contracts
were first issued, we derive the figures from the performance of the
corresponding portfolios for the Trusts, if available. We modify these numbers
to reflect charges and expenses as if the Variable Portfolio was in existence
during the period stated in the advertisement. Figures calculated in this manner
do not represent actual historic performance of the particular Variable
Portfolio.
Consult the Statement of Additional Information for more detailed
information regarding the calculation of performance data. The performance of
each Variable Portfolio may also be measured against unmanaged market indices.
The indices we use include but are not limited to the Dow Jones Industrial
Average, the Standard & Poor's 500, the Russell 1000 Growth Index, the Morgan
Stanley Capital International Europe, Australasia and Far East Index ("EAFE")
and the Morgan Stanley Capital International World Index. We may compare the
Variable Portfolios' performance to that of other variable annuities with
similar objectives and policies as reported by independent ranking agencies such
as Morningstar, Inc., Lipper Analytical Services, Inc. or Variable Annuity
Research & Data Service ("VARDS").
AIG SunAmerica Life may also advertise the rating and other information
assigned to it by independent industry ratings organizations. Some of those
organizations are A.M. Best Company ("A.M. Best"), Moody's Investor's Service
("Moody's"), Standard & Poor's Insurance Rating Services ("S&P"), and Fitch
Ratings ("Fitch's"). Best's and Moody's ratings reflect their current opinion of
our financial strength and performance in comparison to others in the life and
health insurance industry. S&P's and Fitch's ratings measure the ability of an
insurance company to meet its obligations under insurance policies it issues.
These two ratings do not measure the insurer's ability to meet non-policy
obligations. Ratings in general do not relate to the performance of the Variable
Portfolios.
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DESCRIPTION OF AIG SUNAMERICA LIFE, THE SEPARATE ACCOUNT AND THE GENERAL ACCOUNT
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AIG SUNAMERICA LIFE
AIG SunAmerica Life is a stock life insurance company organized under the
laws of the state of Arizona. Its principal place of business is 1 SunAmerica
Center, Los Angeles, California 90067-6022. We conduct life insurance and
annuity business in the District of Columbia and all states except New York. We
are an indirect wholly-owned subsidiary of American International Group, Inc.
("AIG"), a Delaware corporation.
AIG SunAmerica Life and its affiliates, SunAmerica Life Insurance Company,
First SunAmerica Life Insurance Company, AIG SunAmerica Asset Management Corp.,
and the AIG Advisors Group, Inc. (comprising six wholly owned broker-dealers and
two investment advisors), specialize in retirement savings and investment
products and services. Business focuses include fixed and variable annuities,
mutual funds and broker-dealer services.
SEPARATE ACCOUNT
AIG SunAmerica Life originally established Variable Annuity Account Two
(the "separate account") on May 24, 1994. The separate account is registered
with the SEC as a unit investment trust under the Investment Company Act of
1940, as amended. AIG SunAmerica Life owns the assets
10
of the separate account. However, the assets in the separate account are not
chargeable with liabilities arising out of any other business conducted by AIG
SunAmerica Life. Income gains and losses (realized and unrealized), resulting
from assets in the separate account are credited to or charged against the
separate account without regard to other income, gains, or losses of AIG
SunAmerica Life. Assets in the separate account are not guaranteed by AIG
SunAmerica Life.
GENERAL ACCOUNT
Money allocated to the fixed account options goes into AIG SunAmerica
Life's general account. The general account consists of all of AIG SunAmerica
Life's assets other than assets attributable to a separate account. All of the
assets in the general account are chargeable with the claims of any AIG
SunAmerica Life contract holders as well as all of its creditors. The general
account funds are invested as permitted under state insurance laws.
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VARIABLE PORTFOLIO OPTIONS
- --------------------------------------------------------------------------------
VARIABLE PORTFOLIOS
The Variable Portfolios invest in shares of the Trusts listed below. The
Variable Portfolios are only available through the purchase of certain insurance
contracts.
The Trusts serve as the underlying investment vehicles for other variable
annuity contracts issued by AIG SunAmerica Life, and other
affiliated/unaffiliated insurance companies. Neither AIG SunAmerica Life nor the
Trusts believe that offering shares of the Trusts in this manner disadvantages
you. Each Trust's advisers monitor for potential conflicts.
The Variable Portfolios along with their respective subadvisers are listed
below:
ANCHOR SERIES TRUST -- CLASS 1
Wellington Management Company, LLP serves as subadviser to the Anchor
Series Trust Portfolios. Anchor Series Trust ("AST") contains investment
portfolios in addition to those listed here which are not available for
investment under this contract.
SUNAMERICA SERIES TRUST -- CLASS 1
Various subadvisers provide investment advice for the SunAmerica Series
Trust Portfolios. SunAmerica Series Trust ("SAST") contains investment
portfolios in addition to those listed here which are not available for
investment under this contract.
STOCKS:
MANAGED BY DAVIS ADVISORS
- Davis Venture Value Portfolio SAST
MANAGED BY MARSICO CAPITAL MANAGEMENT, LLC
- Marsico Growth Portfolio SAST
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Total Return Portfolio SAST
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, LLC
- International Growth and Income Portfolio SAST
11
BONDS:
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLC
- AST Government & Quality Bond Portfolio AST
CASH:
MANAGED BY BANC OF AMERICA CAPITAL MANAGEMENT, LLC
- Cash Management Portfolio SAST
You should read the accompanying prospectuses for the Trusts carefully.
These prospectuses contains detailed information about the Variable Portfolios,
including each Variable Portfolio's investment objective and risk factors.
VOTING RIGHTS
AIG SunAmerica Life is the legal owner of the Trusts' shares. However, when
a Variable Portfolio solicits proxies in conjunction with a vote of
shareholders, we must obtain your instructions on how to vote those shares. We
vote all of the shares we own in proportion to your instructions. This includes
any shares we own on our own behalf. Should we determine that we are no longer
required to comply with these rules, we will vote the shares in our own right.
SUBSTITUTION
We may amend your contract due to changes to the Variable Portfolios
offered under your contract. For example, we may offer new Variable Portfolios,
delete Variable Portfolios, or stop accepting allocations and/or investments in
a particular Variable Portfolio. We may move assets and re-direct future premium
allocations from one Variable Portfolio to another if we receive investor
approval through a proxy vote or SEC approval for a fund substitution. This
would occur if a Variable Portfolio is no longer an appropriate investment for
the contract, for reasons such as continuing substandard performance, or for
changes to the portfolio manager, investment objectives, risks and strategies,
or federal or state laws. The new Variable Portfolio offered may have different
fees and expenses. You will be notified of any upcoming proxies or substitutions
that affect your Variable Portfolio choices.
- --------------------------------------------------------------------------------
FIXED ACCOUNT OPTIONS
- --------------------------------------------------------------------------------
FIXED ACCOUNTS
Your contract may offer Fixed Account Guarantee Periods ("FAGP") to which
you may allocate certain Purchase Payments or contract value. Available
guarantee periods may be for different lengths of time (such as 1, 3 or 5 years)
and may have different guaranteed interest rates, as noted below. We guarantee
the interest rate credited to amounts allocated to any available FAGP and that
the rate will never be less than the minimum guaranteed interest rate as
specified in your contract. Once established, the rates for specified payments
do not change during the guarantee period. We determine the FAGPs offered at any
time in Our sole discretion and We reserve the right to change the FAGPs that We
make available at any time, unless state law requires Us to do otherwise. Please
check with your financial representative to learn if any FAGPs are currently
offered.
There are three interest rate scenarios for money allocated to the FAGPs.
Each of these rates may differ from one another. Once declared, the applicable
rate is guaranteed until the corresponding guarantee period expires. Under each
scenario your money may be credited a different rate of interest as follows:
- Initial Rate: The rate credited to any portion of the initial Purchase
Payment allocated to a FAGP.
12
- Current Rate: The rate credited to any portion of the subsequent Purchase
Payments allocated to a FAGP.
- Renewal Rate: The rate credited to money transferred from a FAGP or a
Variable Portfolio into a FAGP and to money remaining in a FAGP after
expiration of a guarantee period.
When a FAGP ends, you may leave your money in the same FAGP or you may
reallocate your money to another FAGP or to the Variable Portfolios. If you want
to reallocate your money, you must contact Us within 30 days after the end of
the current interest guarantee period and instruct Us as to where you would like
the money invested. We do not contact you. If We do not hear from you, your
money will remain in the same FAGP where it will earn interest at the renewal
rate then in effect for that FAGP.
If you take money out of any available multi-year FAGP, before the end of
the guarantee period, We make an adjustment to your contract. We refer to the
adjustment as a market value adjustment ("MVA"). The MVA reflects any difference
in the interest rate environment between the time you place your money in the
FAGP and the time when you withdraw or transfer that money. This adjustment can
increase or decrease your contract value. Generally, if interest rates drop
between the time you put your money into a FAGP and the time you take it out, We
credit a positive adjustment to your contract. Conversely, if interest rates
increase during the same period, We post a negative adjustment to your contract.
You have 30 days after the end of each guarantee period to reallocate your funds
without incurring any MVA. APPENDIX A SHOWS HOW WE CALCULATE AND APPLY THE MVA.
All FAGPs may not be available in all states. We reserve the right to
refuse any Purchase Payment to available FAGPs if we are crediting a rate equal
to the minimum guaranteed interest rate specified in your contract. We may also
offer the specific Dollar Cost Averaging Fixed Accounts ("DCAFA"). The rules,
restrictions and operation of the DCAFAs may differ from the standard FAGPs
described above, please see DOLLAR COST AVERAGING PROGRAM below for more
details.
DOLLAR COST AVERAGING FIXED ACCOUNTS
You may invest initial and/or subsequent Purchase Payments in the DCA fixed
accounts ("DCAFA"), if available. DCAFAs also credit a fixed rate of interest
but are specifically designed to facilitate a dollar cost averaging program.
Interest is credited to amounts allocated to the DCAFAs while your investment is
transferred to the Variable Portfolios over certain specified time frames. The
interest rates applicable to the DCAFA may differ from those applicable to any
available FAGPs but will never be less than the minimum annual guaranteed
interest rate as specified in your contract. However, when using a DCAFA the
annual interest rate is paid on a declining balance as you systematically
transfer your investment to the Variable Portfolios. Therefore, the actual
effective yield will be less than the annual crediting rate. We determine the
DCAFAs offered at any time in Our sole discretion and We reserve the right to
change to DCAFAs that we make available at any time, unless state law requires
us to do otherwise. See DOLLAR COST AVERAGING PROGRAM below for more
information.
- --------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------
There are charges and expenses associated with your contract. These charges
and expenses reduce your investment return. We will not increase the contract
maintenance fee or the insurance and withdrawal charges under your contract.
However, the investment charges under your contract may increase or decrease.
Some states may require that we charge less than the amounts described below.
SEPARATE ACCOUNT CHARGES
The Company deducts a mortality and expense risk charge in the amount of
1.40%, annually of the value of your contract invested in the Variable
Portfolios. We deduct the charge daily. This charge compensates the Company for
the mortality and expense risk and the costs of contract distribution assumed by
the Company.
13
Generally, the mortality risks assumed by the Company arise from its
contractual obligations to make income payments after the Annuity Date and to
provide a death benefit. The expense risk assumed by the Company is that the
costs of administering the contracts and the Separate Account will exceed the
amount received from the administrative fees and charges assessed under the
contract.
If these charges do not cover all of our expenses, we will pay the
difference. Likewise, if these charges exceed our expenses, we will keep the
difference. The insurance charge is expected to result in a profit. Profit may
be used for any legitimate cost/expense including distribution, depending upon
market conditions.
WITHDRAWAL CHARGES
The contract provides a free withdrawal amount every year. (SEE CONTRACT
CHARGES, FREE WITHDRAWAL AMOUNT BELOW.) Additionally, earnings in your contract
may be withdrawn free of withdrawal charges. If you take money out in excess of
the free withdrawal amount, you may incur a withdrawal charge.
We apply a withdrawal charge against each Purchase Payment you put into the
contract. After a Purchase Payment has been in the contract for seven complete
years, no withdrawal charge applies to that Purchase Payment. The withdrawal
charge equals a percentage of the Purchase Payment you take out of the contract.
The withdrawal charge percentage declines each year a Purchase Payment is in the
contract, as follows:
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------------
YEAR 1 2 3 4 5 6 7 8
- ------------------------------------------------------------------------------------------------------
WITHDRAWAL CHARGE 6% 6% 5% 5% 4% 3% 2% 0%
- ------------------------------------------------------------------------------------------------------
</Table>
When calculating the withdrawal charge, we treat withdrawals as coming
first from the Purchase Payments that have been in your contract the longest.
However, for tax purposes, your withdrawals are considered earnings first, then
Purchase Payments.
Whenever possible, we deduct the withdrawal charge from the money remaining
in your contract. If you withdraw all of your contract value, applicable
withdrawal charges are deducted from the amount withdrawn.
We do not assess a withdrawal charge for money withdrawn to pay a death
benefit or to begin the Income Phase of your contract. Withdrawals made prior to
age 59 1/2 may result in a 10% IRS penalty tax. SEE TAXES BELOW.
APPENDIX B provides more information on withdrawals and the withdrawal
charge.
INVESTMENT CHARGES
Charges are deducted from your Variable Portfolios for the advisory and
other expenses of the Underlying Funds. THE FEE TABLES ABOVE illustrate these
charges and expenses. For more detailed information on these investment charges,
refer to the attached prospectuses for the Trusts.
CONTRACT MAINTENANCE FEE
During the Accumulation Phase, we subtract a contract maintenance fee from
your account once per contract year. This charge compensates us for the cost of
contract administration. We deduct the $30 contract maintenance fee on a
pro-rata basis from your account value on your contract anniversary. If you
withdraw your entire contract value, the fee is deducted from that withdrawal.
TRANSFER FEE
Generally, We currently permit 15 free transfers between investment options
each contract year. After that, a charge of $25 applies to each additional
transfer in any one contract year ($10 in Pennsylvania and Texas). SEE TRANSFERS
DURING THE ACCUMULATION PHASE BELOW.
14
PREMIUM TAX
Certain states charge the Company a tax on the premiums you pay into the
contract ranging from 0% to 3.5%. We deduct from your contract these premium tax
charges where applicable. Currently, we deduct the charge for premium taxes when
you take a full withdrawal or begin the Income Phase of the contract. In the
future, we may assess this deduction at the time you put Purchase Payment(s)
into the contract or upon payment of a death benefit.
INCOME TAXES
We do not currently deduct income taxes from your contract. We reserve the
right to do so in the future.
REDUCTION OR ELIMINATION OF CHARGES AND EXPENSES, AND ADDITIONAL AMOUNTS
CREDITED
Sometimes sales of the contracts to groups of similarly situated
individuals may lower our administrative and/or sales expenses. We reserve the
right to reduce or waive certain charges and expenses when this type of sale
occurs. In addition, we may also credit additional interest to policies sold to
such groups. We determine which groups are eligible for such treatment. Some of
the criteria used to make a determination are: size of the group; amount of
expected Purchase Payments; relationship existing between us and prospective
purchaser; nature of the purchase; length of time a group of contracts is
expected to remain active; purpose of the purchase and whether that purpose
increases the likelihood that our expenses will be reduced; and/or any other
factors that we believe indicate that administrative and/or sales expenses may
be reduced.
We may make such a determination regarding sales to our employees, our
affiliates' employees and employees of currently contracted broker-dealers, our
registered representatives and immediate family members of all of those
described.
We reserve the right to change or modify any such determination or the
treatment applied to a particular group, at any time.
FREE WITHDRAWAL AMOUNT
Your contract provides for a free withdrawal amount each year. Purchase
Payments that are no longer subject to a withdrawal charge and not previously
withdrawn, plus earnings, may be withdrawn without penalty.
After the first full contract year, the contract provides for a free
withdrawal amount on your first withdrawal of the contract year. The free
withdrawal amount is the greater (1) 10% of your total Purchase Payments
invested for at least one year and not yet withdrawn; only available for first
withdrawal of contract year or (2) earnings in your contract. Total Purchase
Payments are equal to your total Purchase Payments invested in the contract less
any Purchase Payments withdrawn upon which a surrender charge was paid and the
amount of the surrender charge. Additionally, once a Purchase Payment is no
longer subject to withdrawal charges, it is no longer included when determining
total Purchase Payments.
Upon a full surrender of your contract, to the extent you previously
withdraw Purchase Payments free of a withdrawal charge under the free withdrawal
provision, we will recoup the full withdrawal charge on such amounts, as if that
money was still invested in the contract on the date of surrender.
We will waive the withdrawal charge upon payment of a death benefit. Where
legally permitted, the withdrawal charge may be eliminated when a contract is
issued to an officer, director or employee of the Company or its affiliates.
NURSING HOME WAIVER
If your contract was issued with the appropriate rider and you are confined
to a nursing home for 60 days or longer, we may waive the withdrawal charge
and/or the MVA on certain withdrawals prior to the Annuity Date (not available
in Texas). The waiver applies only to withdrawals made while you
15
are in a nursing home or within 90 days after you leave the nursing home. Your
rider prohibits use of this waiver during the first 90 days after purchase. In
addition, the confinement period for which you seek the waiver must begin after
you purchase your contract.
In order to use this waiver, you must submit with your withdrawal request,
the following documents: (1) a doctor's note recommending admittance to a
nursing home; (2) an admittance form which shows the type of facility you
entered; and (3) a bill from the nursing home which shows that you met the 60
day confinement requirement.
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DESCRIPTION OF THE CONTRACTS
- --------------------------------------------------------------------------------
SUMMARY
This contract works in two stages, the Accumulation Phase and the Income
Phase. Your contract is in the Accumulation Phase while you make payments into
the contract. The Income Phase begins when you request that we begin making
payments to you out of the money accumulated in your contract.
OWNERSHIP
The Vista Capital Advantage Variable Annuity is a Flexible Payment Group
Deferred Annuity Contract. AIG SunAmerica Life issues a group contract to a
contract holder for the benefit of the participants in the group. As a
participant in the group, you will receive a certificate which evidences your
ownership. As used in this prospectus, the term contract refers to your
certificate. In some states, a Flexible Payment Individual Modified Guaranteed
and Variable Deferred Annuity Contract is available instead. Such a contract is
identical to the contract described in this prospectus, with the exception that
we issue it directly to the owner.
ANNUITANT
The annuitant is the person on whose life we base income payments. You may
change the Annuitant at any time before the Annuity Date. You may also designate
a second person on whose life, together with the annuitant, income payments
depend. If the annuitant dies before the Annuity Date, you must notify us and
select a new annuitant.
MODIFICATION OF THE CONTRACT
Only the Company's President, a Vice President or Secretary may approve a
change or waive a provision of the contract. Any change or waiver must be in
writing. We reserve the right to modify the terms of the contract as necessary
to comply with changes in applicable law.
ASSIGNMENT
Contracts issued pursuant to Non-qualified plans that are not subject to
Title 1 of the Employee Retirement Income Security Act of 1974 ("ERISA") may be
assigned by the owner at any time during the lifetime of the Annuitant prior to
the Annuity Date. We will not be bound by any assignment until written notice is
received by us at our Annuity Service Center. We are not responsible for the
validity, tax or other legal consequences of any assignment. An assignment will
not affect any payments we may make or actions we may take before we receive
notice of the assignment.
If the contract is issued pursuant to a Qualified plan (or a Non-qualified
plan that is subject to Title 1 of ERISA), it may not be assigned, pledged or
otherwise transferred except under such conditions as may be allowed under
applicable law.
BECAUSE AN ASSIGNMENT MAY BE A TAXABLE EVENT, YOU SHOULD CONSULT A
COMPETENT TAX ADVISER SHOULD YOU WISH TO ASSIGN YOUR CONTRACT.
16
DEATH BENEFIT
If you die during the Accumulation Phase of your contract, we pay a death
benefit to your Beneficiary.
If you were less than age 70 when your contract was issued, the death
benefit is equal to the greater of:
1. the value of your contract at the time we receive satisfactory proof of
death; or
2. total Purchase Payments less any withdrawals (and any fees or charges
applicable to such withdrawals); or
3. the maximum anniversary value on any contract anniversary preceding your
death. The anniversary value equals the value of your contract on a
contract anniversary plus any Purchase Payments and less any withdrawals
(and any fees or charges applicable to such withdrawals) since that
contract anniversary.
If you were age 70 or older when your contract was issued, the death
benefit will equal the value of your contract at the time we receive
satisfactory proof of death.
We do not pay the death benefit if you die after you switch to the Income
Phase. However, if you die during the Income Phase, your Beneficiary receives
any remaining guaranteed income payments in accordance with the income option
you selected. (SEE INCOME PHASE, INCOME OPTIONS BELOW.)
You name your Beneficiary. You may change the Beneficiary at any time,
unless you previously made an irrevocable Beneficiary designation.
We pay the death benefit when we receive satisfactory proof of death. We
consider the following satisfactory proof of death:
1. a certified copy of the death certificate; or
2. a certified copy of a decree of a court of competent jurisdiction as to
the finding of death; or
3. a written statement by a medical doctor who attended the deceased at the
time of death; or
4. any other proof satisfactory to us.
We may require additional proof before we pay the death benefit.
The death benefit must be paid within 5 years of the date of death unless
the Beneficiary elects to have it payable in the form of an income option. If
the Beneficiary elects an income option, it must be paid over the Beneficiary's
lifetime or for a period not extending beyond the Beneficiary's life expectancy.
Payments must begin within one year of the date of your death. If a Beneficiary
does not elect a specific form of pay out within 60 days of our receipt of proof
of death, we pay a lump sum death benefit to the Beneficiary.
If the Beneficiary is the spouse of a deceased owner, he or she can elect
to continue the contract at the then current value. If the spouse continues the
contract, we do not pay a death benefit to him or her.
17
- --------------------------------------------------------------------------------
PURCHASES, WITHDRAWALS AND CONTRACT VALUE
- --------------------------------------------------------------------------------
PURCHASE PAYMENTS
A Purchase Payment is the money you give us to buy a contract. Any
additional money you give us to invest in the contract after purchase is a
subsequent Purchase Payment.
This chart shows the minimum initial and subsequent Purchase Payments
permitted under your contract. These amounts depend upon whether your contract
is Qualified or Non-qualified for tax purposes. SEE TAXES BELOW.
<Table>
<Caption>
- --------------------------------------------------------------------
MINIMUM
MINIMUM INITIAL SUBSEQUENT
PURCHASE PAYMENT PURCHASE PAYMENT
- --------------------------------------------------------------------
Qualified $2,000 $250
- --------------------------------------------------------------------
Non-Qualified $5,000 $250
- --------------------------------------------------------------------
</Table>
Prior Company approval is required to accept Purchase Payments greater than
$1,000,000. The Company reserves the right to refuse any Purchase Payment
including one which would cause Total Purchase Payments to exceed $1,000,000 at
the time of the Purchase Payment. Further, we reserve the right to aggregate all
contracts having the same owners' and/or annuitants' social security or federal
tax identification number for purposes of determining which contracts and/or
purchase payments require Company pre-approval. Also, the optional automatic
payment plan allows you to make subsequent Purchase Payments of as little as
$100.
We may refuse any Purchase Payment. In general, AIG SunAmerica Life will
not issue a Qualified contract to anyone who is age 70 1/2 or older, unless it
is shown that the minimum distribution required by the IRS is being made. In
addition, we may not issue a contract to anyone over age 85.
ALLOCATION OF PURCHASE PAYMENTS
We invest your Purchase Payments in the fixed and variable investment
options according to your instructions. If we receive a Purchase Payment without
allocation instructions, we invest the money according to your last allocation
instructions. SEE VARIABLE PORTFOLIO OPTIONS, AND FIXED ACCOUNT OPTIONS BELOW.
In order to issue your contract, we must receive your completed
application, Purchase Payment allocation instructions and any other required
paperwork at our principal place of business. We allocate your initial purchase
payment within two days of receiving it. If we do not have complete information
necessary to issue your contract, we will contact you. If we do not have the
information necessary to issue your contract within 5 business days we will:
- Send your money back to you, or;
- Ask your permission to keep your money until we get the information
necessary to issue the contract.
ACCUMULATION UNITS
When you allocate a Purchase Payment to the Variable Portfolios, we credit
your contract with Accumulation Units of the separate account. We base the
number of Accumulation Units you receive on the unit value of the Variable
Portfolio as of the day we receive your money if we receive it before 1 p.m.
Pacific Standard Time, or on the next business day's unit value if we receive
your money after 1 p.m. Pacific Standard Time. The value of an Accumulation Unit
will go up and down based on the performance of the Variable Portfolios.
18
We calculate the value of an Accumulation Unit each day that the New York
Stock Exchange ("NYSE") is open as follows:
1. We determine the total value of money invested in a particular Variable
Portfolio;
2. We subtract from that amount all applicable contract charges; and
3. We divide this amount by the number of outstanding Accumulation Units.
We determine the number of Accumulation Units credited to your contract by
dividing the Purchase Payment by the Accumulation Unit value for the specific
Variable Portfolio.
EXAMPLE:
We receive a $25,000 Purchase Payment from you on Wednesday. You allocate
the money to the MFS Total Return Portfolio. The value of an Accumulation
Unit for the MFS Total Return Portfolio is $11.10 when the NYSE closes on
Wednesday. Your Purchase Payment of $25,000 is then divided by $11.10 and
we credit your contract on Wednesday night with 2252.52 Accumulation Units
of the MFS Total Return Portfolio.
Performance of the Variable Portfolios and the charges and expenses under
your contract affect Accumulation Unit values. These factors cause the value of
your contract to go up and down.
FREE LOOK
You may cancel your contract within ten days after receiving it (or longer
if required by state law). AIG SunAmerica Life calls this a "free look." To
cancel, you must mail the contract along with your free look request to the
Annuity Service Center at P.O. Box 54299, Los Angeles, California 90054-0299. We
will refund the value of your contract on the day we receive your request. The
amount refunded to you may be more or less than the amount you originally
invested.
Certain states require us to return your Purchase Payments upon a free look
request. Additionally, all contracts issued as an IRA require the full return of
Purchase Payments upon a free look.
TRANSFERS DURING THE ACCUMULATION PHASE
Subject to our rules, restrictions and policies, during the Accumulation
Phase you may transfer funds between the Variable Portfolios and/or any
available fixed account options by telephone or through the Company's website
(http://www.aigsunamerica.com) or in writing by mail or facsimile. All transfer
instructions submitted via facsimile must be sent to (818) 615-1543, otherwise
they will not be considered received by us. We may accept transfers by telephone
or the Internet unless you tell us not to on your contract application. When
receiving instructions over the telephone or the Internet, we follow procedures
we have adopted to provide reasonable assurance that the transactions executed
are genuine. Thus, we are not responsible for any claim, loss or expense from
any error resulting from instructions received over the telephone or the
Internet. If we fail to follow our procedures, we may be liable for any losses
due to unauthorized or fraudulent instructions.
Any transfer request will be priced as of the day it is received in good
order by us if the request is processed before the close of the New York Stock
Exchange ("NYSE"), usually at 1:00 p.m. Pacific Time. If the transfer request is
processed after the NYSE closes, the request will be priced as of the next
business day.
Funds already in your contract cannot be transferred into the DCA fixed
accounts. You must transfer at least $100 per transfer. If less than $100
remains in any Variable Portfolio after a transfer, that amount must be
transferred as well.
TRANSFER POLICIES
This product is not designed for contract owners engaged in trading
strategies that seek to benefit from short-term price fluctuations or price
inefficiencies in the Variable Portfolios of this product
19
("Short-Term Trading"). Such Short-Term Trading may create risks that may result
in adverse effects on investment return of an underlying fund. Such risks may
include, but are not limited to: (1) interference with the management and
planned investment strategies of an underlying fund and/or (2) increased
brokerage and administrative costs due to forced and unplanned fund turnover;
both of which may dilute the value of the shares in the underlying fund and
reduce value for all investors in the Variable Portfolio. In addition to
negatively impacting the contract owner, a reduction in contract value may also
be harmful to annuitants and/or beneficiaries. We have adopted administrative
procedures to discourage Short-Term Trading.
We charge for transfers in excess of 15 in any contract year. Currently,
the fee is $25 ($10 in Pennsylvania and Texas) for each transfer exceeding this
limit. Transfers resulting from your participation in the DCA or Asset
Rebalancing programs are not counted towards the number of free transfers per
contract year.
In addition to charging a fee when you exceed 15 transfers as described in
the preceding paragraph, all transfer requests in excess of 15 transfers per
contract year must be submitted in writing by United States Postal Service
first-class mail ("U.S. Mail") until your next contract anniversary. We will not
accept transfer requests sent by any other medium except U.S. Mail until your
next contract anniversary. For purposes of determining the number of transfers
for the U.S. Mail requirement, contracts subject to certain asset allocation
services will be calculated on a calendar year instead of a contract year.
Transfer requests required to be submitted by U.S. Mail can only be cancelled by
a written request sent by U.S. Mail. Transfers resulting from your participation
in the DCA or Asset Rebalancing programs are not included for the purposes of
determining the number of transfers for the U.S. Mail requirement. We try to
ensure that the U.S. Mail Policy is uniformly and consistently applied to all
contract owners. However, as discussed below, our ability to detect and deter
Short-Term Trading may be limited. Therefore, Short-Term Trading may occur and
the Variable Portfolios may be negatively impacted.
In connection with our efforts to deter Short-Term Trading, we may become
aware of trading activity that appears detrimental to the Variable Portfolios.
If we determine that your transfer patterns among the Variable Portfolios and/or
available fixed accounts reflect what we consider to be Short-Term Trading, we
may require you to adhere to our U.S. Mail policy described above prior to
reaching the specified number of transfers within the defined period for a
period that we determine. To the extent we become aware of Short-Term Trading
activities which cannot be reasonably controlled by the U.S. Mail Policy, we
also reserve the right to impose further limits on the number and frequency of
transfers you can make, impose minimum holding periods, pass through to you
redemption fees imposed by the underlying funds and/or reject any transfer
request or terminate your transfer privileges. We will notify you in writing if
your transfer privileges are terminated. In addition, we reserve the right to
not accept transfers from a financial representative acting for you and not to
accept preauthorized transfer forms. We try to ensure that the restrictions and
policies applicable to Short-Term Trading are uniformly and consistently applied
to all contract owners. However, as discussed below, our ability to detect and
deter Short-Term Trading may be limited. Therefore, Short-Term Trading may occur
and the Variable Portfolios may be negatively impacted.
Some of the factors we may consider when determining whether to accelerate
the U.S. Mail policy, reject or impose other conditions on transfer privileges
include:
(1) the number of transfers made in a defined period;
(2) the dollar amount of the transfer;
(3) the total assets of the Variable Portfolio involved in the transfer
and/or transfer requests that represent a significant portion of the
total assets of the Variable Portfolio;
(4) the investment objectives and/or asset classes of the particular
Variable Portfolio involved in your transfers;
20
(5) whether the transfer appears to be part of a pattern of transfers to
take advantage of short-term market fluctuations or market
inefficiencies; and/or
(6) other activity, as determined by us, that creates an appearance, real
or perceived, of Short-Term Trading.
Notwithstanding the administrative procedures above, there may be
limitations on the effectiveness of these procedures. Our ability to detect and
deter Short-Term Trading may be limited by operational systems and technological
limitations. Despite our efforts, we cannot guarantee that we will detect all
Short-Term Trading. To the extent that we are unable to detect and deter
Short-Term Trading, the Variable Portfolios may be negatively impacted as
described above. Additionally, the Variable Portfolios may be harmed by transfer
activity related to other insurance companies and/or retirement plans or other
investors that invest in shares of the underlying fund. You should be aware that
the design of our administrative procedures involves inherently subjective
decisions, which we attempt to make in a fair and reasonable manner consistent
with the interests of all owners of this contract. We try to ensure that the
restrictions and policies applicable to Short-Term Trading are uniformly and
consistently applied to all contract owners. However, as discussed above, our
ability to detect and deter Short-Term Trading may be limited. Therefore,
Short-Term Trading may occur and the Variable Portfolios may be negatively
impacted. We do not enter into agreements with contract owners whereby we permit
Short-Term Trading in exchange for other investments in our products.
As stated above, we try to ensure that the Short-Term Trading restrictions
and policies apply uniformly and consistently to all contract owners with the
exception of transfers that occur through omnibus group contracts . The
Short-Term Trading policies and procedures, which include the U.S. Mail policy
are not applied to such contracts. Omnibus group contracts may invest in the
same underlying funds available in your contract but on an aggregate, not
individual basis. Thus, we have limited ability to detect Short-Term Trading in
omnibus group contracts and our inability to detect Short-Term Trading may
negatively impact the Variable Portfolios as described above.
WE RESERVE THE RIGHT TO MODIFY THE POLICIES AND PROCEDURES DESCRIBED IN
THIS SECTION AT ANY TIME. To the extent that we exercise this reservation of
rights, we will do so uniformly and consistently unless we disclose otherwise.
For information regarding transfers during the Income Phase, see INCOME
OPTIONS below.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging ("DCA") program allows you to invest gradually in
the Variable Portfolios. Under the program you systematically transfer a set
dollar amount or percentage of portfolio value from one Variable Portfolio or
DCAFAs (source account) to any other Variable Portfolio (target account).
Transfers may occur on certain periodic schedules such as monthly or weekly and
do not count against your 15 free transfers per contract year. You may change
the frequency to other available options at any time by notifying us in writing.
The minimum transfer amount under the DCA program is $100 per transaction,
regardless of the source account. Currently, there is no fee for participating
in the DCA program.
We may offer DCAFAs exclusively to facilitate the DCA program for a
specified time period. The DCAFAs only accept new Purchase Payments. You cannot
transfer money already in your contract into the DCAFAs. If you allocate new
Purchase Payments into a DCAFA, we transfer all your money into the Variable
Portfolios over the selected time period. You cannot change the option once
selected.
You may terminate the DCA program at any time. If money remains in the
DCAFAs, we transfer the remaining money according to your instructions or to
your current allocation on file. Upon termination of the DCA program, if money
remains in the DCA fixed accounts, we transfer the remaining money to the same
target account(s) as previously designated, unless we receive different
instructions from you. Transfers resulting from a termination of this program do
not count towards your 15 free transfers.
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The DCA program is designed to lessen the impact of market fluctuations on
your investment. However, we cannot ensure that you will make a profit. When you
elect the DCA program, you are continuously investing in securities regardless
of fluctuating price levels. You should consider your tolerance for investing
through periods of fluctuating price levels.
We reserve the right to modify, suspend or terminate this program at any
time.
EXAMPLE:
Assume that you want to gradually move $750 each quarter from the Cash
Management Portfolio to the Marsico Growth Portfolio over six months. You
set up dollar cost averaging and purchase Accumulation Units at the
following values:
<Table>
<Caption>
- -----------------------------------------------------------
ACCUMULATION UNITS
MONTH UNIT PURCHASED
- -----------------------------------------------------------
1 $ 7.50 100
2 $ 5.00 150
3 $10.00 75
4 $ 7.50 100
5 $ 5.00 150
6 $ 7.50 100
- -----------------------------------------------------------
</Table>
You paid an average price of only $6.67 per Accumulation Unit over six
months, while the average market price actually was $7.08. By investing an
equal amount of money each month, you automatically buy more Accumulation
Units when the market price is low and fewer Accumulation Units when the
market price is high. This example is for illustrative purposes only.
AUTOMATIC ASSET ALLOCATION REBALANCING PROGRAM
Earnings in your contract may cause the percentage of your investment in
each investment option to differ from your original allocations. The Automatic
Asset Rebalancing Program addresses this situation. At your election, we
periodically rebalance your investments to return your allocations to their
original percentages.
Asset rebalancing typically involves shifting a portion of your money out
of an investment option with a higher return into an investment option with a
lower return. At your request, rebalancing occurs on a quarterly, semiannual or
annual basis. Transfers made as a result of rebalancing do not count against
your 15 free transfers for the contract year.
We reserve the right to modify, suspend or terminate this program at any
time.
EXAMPLE:
Assume that you want your initial Purchase Payment split between two
Variable Portfolios. You want 50% in the Government & Quality Bond
Portfolio and 50% in the Marsico Growth Portfolio. Over the next calendar
quarter, the Government & Quality Bond Portfolio outperforms the Marsico
Growth Portfolio. At the end of the calendar quarter, the Government &
Quality Bond Portfolio now represents 60% of your holdings because it has
increased in value and the Marsico Growth Portfolio represents 40% of your
holdings. If you had chosen quarterly rebalancing, on the last day of that
quarter, we would sell some of your units in the Government & Quality Bond
Portfolio to bring its holdings back to 50% and use the money to buy more
units in the Marsico Growth Portfolio to increase those holdings to 50%.
RETURN PLUS PROGRAM
The Return Plus Program allows you to invest in one or more Variable
Portfolios without putting your principal at direct risk. The program
accomplishes this by allocating your investment strategically between the fixed
investment options and Variable Portfolios. You decide how much you want to
22
invest and approximately when you want a return of principal. We calculate how
much of your Purchase Payment to allocate to the particular fixed account option
to ensure that it grows to an amount equal to your total principal invested
under this program. The remaining principal is invested in the Variable
Portfolio(s) of your choice.
We reserve the right to modify, suspend or terminate this program at any
time.
EXAMPLE:
Assume that you want to allocate a portion of your initial Purchase Payment
of $100,000 to the fixed investment option. You want the amount allocated
to the fixed investment option to grow to $100,000 in 7 years. If the
7-year fixed investment option is offering a 5% interest rate, we will
allocate $71,069 to the 7-year fixed investment option to ensure that this
amount will grow to $100,000 at the end of the 7-year period. The remaining
$28,931 may be allocated among the Variable Portfolios, as determined by
you, to provide opportunity for greater growth.
WITHDRAWALS
You can access money in your contract in two ways:
- by making a partial or total withdrawal, and/or;
- by receiving income payments during the Income Phase. (SEE INCOME PHASE
BELOW.)
Generally, we deduct a withdrawal charge applicable to any total or partial
withdrawal and a MVA against withdrawals from the 3, 5, 7 or 10 year fixed
account options. If you withdraw your entire contract value, a deduction for
premium taxes and the contract maintenance fee also occurs. (SEE CONTRACT
CHARGES, WITHDRAWAL CHARGE ABOVE.)
Under certain Qualified plans, access to the money in your contract may be
restricted. Additionally, withdrawals made prior to age 59 1/2 may result in a
10% IRS penalty tax. (SEE TAXES BELOW.)
Under most circumstances, the partial withdrawal minimum is $1,000. We
require that the value left in any investment option be at least $100 after the
withdrawal. You must send a written withdrawal request. Unless you provide
different instructions, partial withdrawals will be made pro rata from each
Variable Portfolio and the fixed account option in which your contract is
invested.
We may be required to suspend or postpone the payment of a withdrawal for
any period of time when: (1) the NYSE is closed (other than customary weekend
and holiday closings); (2) trading with the NYSE is restricted; (3) an emergency
exists such that disposal of or determination of the value of shares of the
Variable Portfolios is not reasonably practicable; (4) the SEC, by order, so
permits for the protection of contract owners.
Additionally, we reserve the right to defer payments for a withdrawal from
a fixed account option. Such deferrals are limited to no longer than six months.
SYSTEMATIC WITHDRAWAL PROGRAM
During the Accumulation Phase, you may elect to receive periodic income
payments under the systematic withdrawal program. Under the program, you may
choose to take monthly, quarterly, semiannual or annual payments from your
contract. Electronic transfer of these funds to your bank account is available.
The minimum amount of each withdrawal is $250. There must be at least $100
remaining in each Variable Portfolio after a withdrawal from your contract at
all times. Withdrawals may be subject to a withdrawal charge, a MVA and
taxation, and a 10% IRS penalty tax may apply if you are under age 59 1/2. There
is no additional charge for participating in this program.
The program is not available to everyone. Please check with our Annuity
Service Center, which can provide the necessary enrollment forms. AIG SunAmerica
Life reserves the right to modify, suspend or terminate this program at any
time.
23
MINIMUM CONTRACT VALUE
Where permitted by state law, we may terminate your contract if both of the
following occur: (1) your contract is less than $500 as a result of withdrawals;
and (2) you have not made any Purchase Payments during the past three years. We
will provide you with sixty days written notice. At the end of the notice
period, we will distribute the contract value to you.
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INCOME PHASE
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ANNUITY DATE
During the Income Phase, we use the money accumulated in your contract to
make regular income payments to you. You may switch to the Income Phase any time
after your 2nd contract anniversary. You select the month and year in which you
want income payments to begin. The first day of that month is the Annuity Date.
You may change your Annuity Date, so long as you do so at least seven days
before the income payments are scheduled to begin. Once you begin receiving
income payments, you cannot change your income option. Except as indicated under
Option 5 below, once you begin receiving income payments, you cannot otherwise
access your money through a withdrawal or surrender.
Income payments must begin on or before your 90th birthday or on your tenth
contract anniversary, whichever occurs later. If you do not choose an Annuity
Date, your income payments will automatically begin on this date. Certain states
may require your income payments to start earlier.
If the Annuity Date is past your 85th birthday, your contract could lose
its status as an annuity under Federal tax laws. This may cause you to incur
adverse tax consequences.
In addition, most Qualified contracts require you to take minimum
distributions after you reach age 70 1/2. (SEE TAXES BELOW.)
INCOME OPTIONS
Currently, this contract offers five income options. If you elect to
receive income payments but do not select an option, your income payments will
be made in accordance with option 4 for a period of 10 years. For income
payments based on joint lives, we pay according to option 3.
We base our calculation of income payments on the life of the Annuitant and
the annuity rates set forth in your contract. As the contract owner, you may
change the Annuitant at any time prior to the Annuity Date. You must notify us
if the Annuitant dies before the Annuity Date and designate a new Annuitant.
OPTION 1 -- LIFE INCOME ANNUITY
This option provides income payments for the life of the Annuitant. Income
payments stop when the Annuitant dies.
OPTION 2 -- JOINT AND SURVIVOR LIFE ANNUITY
This option provides income payments for the life of the Annuitant and for
the life of another designated person. Upon the death of either person, we will
continue to make income payments during the lifetime of the survivor. Income
payments stop whenever the survivor dies.
24
OPTION 3 -- JOINT AND SURVIVOR LIFE ANNUITY WITH 10 YEARS GUARANTEED
This option is similar to option 2 above, with an additional guarantee of
payments for at least 10 years. If the Annuitant and the survivor die before all
of the guaranteed income payments have been made, the remaining payments are
made to the Beneficiary under your contract.
OPTION 4 -- LIFE ANNUITY WITH 10 OR 20 YEARS GUARANTEED
This option is similar to option 1 above. In addition, this option provides
a guarantee that income payments will be made for at least 10 or 20 years. You
select the number of years. If the Annuitant dies before all guaranteed income
payments are made, the remaining income payments go to the Beneficiary under
your contract.
OPTION 5 -- INCOME FOR A SPECIFIED PERIOD
This option provides income payments for a guaranteed period ranging from 3
to 30 years. If the Annuitant dies before all of the guaranteed income payments
are made, the remaining income payments will be made to the Beneficiary under
your contract. Additionally, if variable payments are elected under this option,
you (or the Beneficiary under the contract if the Annuitant dies prior to all
guaranteed payments being made) may redeem the contract value after the Annuity
Date. The amount available upon such redemption would be the discounted present
value of any remaining guaranteed payments.
Please read the SAI for a more detailed discussion of the income options.
You can choose income payments that are fixed, variable or both. If at the
date when income payments begin you are invested in the Variable Portfolios
only, your income payments will be variable. If your money is only in fixed
accounts at that time, your income payments will be fixed in amount. Further, if
you are invested in both the fixed and variable investment options when payments
begin your payments will be fixed and variable. If income payments are fixed,
AIG SunAmerica Life guarantees the amount of each payment. If the income
payments are variable, the amount is not guaranteed.
We make income payments on a monthly, quarterly, semiannual or annual
basis. You instruct us to send you a check or to have the payments directly
deposited into your bank account. If state law allows, we distribute annuities
with a contract value of $5,000 or less in a lump sum. Also, if the selected
income option results in income payments of less than $50 per payment, the
frequency of your payments may be decreased, state law allowing.
If you are invested in the Variable Portfolios after the Annuity Date your
income payments vary depending on four things:
- for life options, your age when payments begin, and;
- the value of your contract in the Variable Portfolios on the Annuity
Date, and;
- the 3.5% assumed investment rate used in the annuity table for the
contract, and;
- the performance of the Variable Portfolios in which you are invested
during the time you receive income payments.
If you are invested in both the fixed account options and the Variable
Portfolios after the Annuity Date, the allocation of funds between the fixed and
variable options also impacts the amount of your income payments.
TRANSFERS DURING THE INCOME PHASE
During the Income Phase, one transfer per month is permitted from the
Variable Portfolios to another Variable Portfolio or fixed account option. No
other transfers are allowed during the Income Phase.
25
DEFERMENT OF PAYMENTS
We may defer making fixed income payments for up to six months, or less if
required by law. Interest is credited to you during the deferral period.
- --------------------------------------------------------------------------------
TAXES
- --------------------------------------------------------------------------------
NOTE: WE PREPARED THE FOLLOWING INFORMATION ON TAXES AS A GENERAL
DISCUSSION OF THE SUBJECT. THE BASIC SUMMARY BELOW ADDRESSES BROAD FEDERAL
TAXATION MATTERS, AND GENERALLY DOES NOT ADDRESS STATE TAXATION ISSUES OR
QUESTIONS. IT IS NOT TAX ADVICE. WE CAUTION YOU TO SEEK COMPETENT TAX ADVICE
ABOUT YOUR OWN CIRCUMSTANCES. WE DO NOT GUARANTEE THE TAX STATUS OF YOUR
ANNUITY. TAX LAWS CONSTANTLY CHANGE, THEREFORE, WE CANNOT GUARANTEE THAT THE
INFORMATION CONTAINED HEREIN IS COMPLETE AND/OR ACCURATE. WE HAVE INCLUDED AN
ADDITIONAL DISCUSSION REGARDING TAXES IN THE SAI.
ANNUITY CONTRACTS IN GENERAL
The Internal Revenue Code ("IRC") provides for special rules regarding the
tax treatment of annuity contracts. Generally, taxes on the earnings in your
annuity contract are deferred until you take the money out. Qualified retirement
investments that satisfy specific tax and ERISA requirements automatically
provide tax deferral regardless of whether the underlying contract is an
annuity, a trust, or a custodial account. Different rules apply depending on how
you take the money out and whether your contract is Qualified or Non-Qualified.
If you do not purchase your contract under a pension plan, a specially
sponsored employer program or an individual retirement account, your contract is
referred to as a Non-Qualified contract. A Non-Qualified contract receives
different tax treatment than a Qualified contract. In general, your cost basis
in a Non-Qualified contract is equal to the Purchase Payments you put into the
contract. You have already been taxed on the cost basis in your contract.
If you purchase your contract under a pension plan, a specially sponsored
employer program or as an individual retirement account, your contract is
referred to as a Qualified contract. Examples of qualified plans are: Individual
Retirement Accounts ("IRAs"), Roth IRAs, Tax-Sheltered Annuities (referred to as
403(b) contracts), plans of self-employed individuals (often referred to as H.R.
10 Plans or Keogh Plans) and pension and profit sharing plans, including 401(k)
plans. Typically you have not paid any tax on the Purchase Payments used to buy
your contract and therefore, you have no cost basis in your contract. However,
you normally will have cost basis in a Roth IRA, and you may have cost basis in
a traditional IRA or in another Qualified Contract.
TAX TREATMENT OF DISTRIBUTIONS -- NON-QUALIFIED CONTRACTS
If you make a partial or total withdrawal from a Non-Qualified contract,
the IRC treats such a withdrawal as first coming from the earnings and then as
coming from your Purchase Payments. Purchase payments made prior to August 14,
1982, however, are an important exception to this general rule, and for tax
purposes are treated as being distributed before the earnings on those
contributions. If you annuitize your contract, a portion of each income payment
will be considered, for tax purposes, to be a return of a portion of your
Purchase Payment(s). Any portion of each income payment that is considered a
return of your Purchase Payment will not be taxed. Withdrawn earnings are
treated as income to you and are taxable. The IRC provides for a 10% penalty tax
on any earnings that are withdrawn other than in conjunction with the following
circumstances: (1) after reaching age 59 1/2; (2) when paid to your Beneficiary
after you die; (3) after you become disabled (as defined in the IRC); (4) when
paid in a series of substantially equal installments made for your life or for
the joint lives of you and your Beneficiary; (5) under an immediate annuity; or
(6) which are attributable to Purchase Payments made prior to August 14, 1982.
26
TAX TREATMENT OF DISTRIBUTIONS -- QUALIFIED CONTRACTS (INCLUDING GOVERNMENTAL
457(B) ELIGIBLE DEFERRED COMPENSATION PLANS)
Generally, you have not paid any taxes on the Purchase Payments used to buy
a Qualified contract. As a result, with certain limited exceptions, any amount
of money you take out as a withdrawal or as income payments is taxable income.
In the case of certain Qualified contracts, the IRC further provides for a 10%
penalty tax on any taxable withdrawal or income payment paid to you other than
in conjunction with the following circumstances: (1) after reaching age 59 1/2;
(2) when paid to your Beneficiary after you die; (3) after you become disabled
(as defined in the IRC); (4) in a series of substantially equal installments,
made for your life or for the joint lives of you and your Beneficiary, that
begins after separation from service with the employer sponsoring the plan; (5)
to the extent such withdrawals do not exceed limitations set by the IRC for
deductible amounts paid during the taxable year for medical care; (6) to fund
higher education expenses (as defined in IRC; only from an IRA); (7) to fund
certain first-time home purchase expenses (only from an IRA); and, except in the
case of an IRA; (8) when you separate from service after attaining age 55; (9)
when paid for health insurance if you are unemployed and meet certain
requirements; and (10) when paid to an alternate payee pursuant to a qualified
domestic relations order. This 10% penalty tax does not apply to withdrawals or
income payments from governmental 457(b) eligible deferred compensation plans,
except to the extent that such withdrawals or income payments are attributable
to a prior rollover to the plan (or earnings thereon) from another plan or
arrangement that was subject to the 10% penalty tax.
The IRC limits the withdrawal of an employee's voluntary Purchase Payments
to a Tax-Sheltered Annuity (TSA). Withdrawals can only be made when an owner:
(1) reaches age 59 1/2; (2) severs employment with the employer; (3) dies; (4)
becomes disabled (as defined in the IRC); or (5) experiences a hardship (as
defined in the IRC). In the case of hardship, the owner can only withdraw
Purchase Payments. Additional plan limitations may also apply. Amounts held in a
TSA annuity contract as of December 31, 1988 are not subject to these
restrictions. Qualifying transfers of amounts from one TSA contract to another
TSA contract under section 403(b) or to a custodial account under section
403(b)(7), and qualifying transfers to a state defined benefit plan to purchase
service credits, are not considered distributions, and thus are not subject to
these withdrawal limitations. If amounts are transferred from a custodial
account described in Code section 403(b)(7) to this contract the transferred
amount will retain the custodial account withdrawal restrictions.
Withdrawals from other Qualified Contracts are often limited by the IRC and
by the employer's plan.
MINIMUM DISTRIBUTIONS
Generally, the IRS requires that you begin taking annual distributions from
qualified annuity contracts by April 1 of the calendar year following the later
of (1) the calendar year in which you attain age 70 1/2 or (2) the calendar year
in which you retire. If you own an IRA, you must begin taking distributions when
you attain age 70 1/2, regardless of when you retire. If you own more than one
TSA, you may be permitted to take your annual distributions in any combination
from your TSAs. A similar rule applies if you own more than one IRA. However,
you cannot satisfy this distribution requirement for your TSA contract by taking
a distribution from an IRA, and you cannot satisfy the requirement for your IRA
by taking a distribution from a TSA.
You may be subject to a surrender charge on withdrawals taken to meet
minimum distribution requirements, if the withdrawals exceed the contract's
maximum penalty free amount.
Failure to satisfy the minimum distribution requirements may result in a
tax penalty. You should consult your tax advisor for more information.
You may elect to have the required minimum distribution amount on your
contract calculated and withdrawn each year under the automatic withdrawal
option. You may select either monthly, quarterly, semiannual or annual
withdrawals for this purpose. This service is provided as a courtesy
27
and we do not guarantee the accuracy of our calculations. Accordingly, we
recommend you consult your tax advisor concerning your required minimum
distribution. You may terminate your election for automated minimum distribution
at any time by sending a written request to our Annuity Service Center. We
reserve the right to change or discontinue this service at any time.
The IRS issued new regulations, effective January 1, 2003, regarding
required minimum distributions from qualified annuity contracts. One of the
regulations requires that the annuity contract value used to determine required
minimum distributions include the actuarial value of other benefits under the
contract, such as optional death benefits. This regulation does not apply to
required minimum distributions made under an irrevocable annuity income option.
We are currently awaiting further clarification from the IRS on this regulation,
including how the value of such benefits is determined. You should discuss the
effect of these new regulations with your tax advisor.
TAX TREATMENT OF DEATH BENEFITS
Any death benefits paid under the contract are taxable to the Beneficiary.
The rules governing the taxation of payments from an annuity contract, as
discussed above, generally apply whether the death benefits are paid as lump sum
or annuity payments. Estate taxes may also apply.
Certain enhanced death benefits may be purchased under your contract.
Although these types of benefits are used as investment protection and should
not give rise to any adverse tax effects, the IRS could take the position that
some or all of the charges for these death benefits should be treated as a
partial withdrawal from the contract. In such case, the amount of the partial
withdrawal may be includible in taxable income and subject to the 10% penalty if
the owner is under 59 1/2.
If you own a Qualified contract and purchase these enhanced death benefits,
the IRS may consider these benefits "incidental death benefits." The IRC imposes
limits on the amount of the incidental death benefits allowable for Qualified
contracts. If the death benefit(s) selected by you are considered to exceed
these limits, the benefit(s) could result in taxable income to the owner of the
Qualified contract. Furthermore, the IRC provides that the assets of an IRA
(including a Roth IRA) may not be invested in life insurance, but may provide,
in the case of death during the Accumulation Phase, for a death benefit payment
equal to the greater of Purchase Payments or Contract Value. This Contract
offers death benefits, which may exceed the greater of Purchase Payments or
Contract Value. If the IRS determines that these benefits are providing life
insurance, the contract may not qualify as an IRA (including Roth IRAs). You
should consult your tax adviser regarding these features and benefits prior to
purchasing a contract.
CONTRACTS OWNED BY A TRUST OR CORPORATION
A Trust or Corporation ("Non-Natural Owner") that is considering purchasing
this contract should consult a tax advisor. Generally, the IRC does not treat a
Non-Qualified contract owned by a non-natural owner as an annuity contract for
Federal income tax purposes. The non-natural owner pays tax currently on the
contract's value in excess of the owner's cost basis. However, this treatment is
not applied to a Contract held by a trust or other entity as an agent for a
natural person nor to Contracts held by Qualified Plans. See the SAI for a more
detailed discussion of the potential adverse tax consequences associated with
non-natural ownership of a non-qualified annuity contract.
GIFTS, PLEDGES AND/OR ASSIGNMENTS OF A NON-QUALIFIED CONTRACT
If you transfer ownership of your Non-Qualified contract to a person other
than your spouse (or former spouse incident to divorce) as a gift you will pay
federal income tax on the contract's cash value to the extent it exceeds your
cost basis. The recipient's cost basis will be increased by the amount on which
you will pay federal taxes. In addition, the IRC treats any assignment or pledge
(or agreement to assign or pledge) of any portion of a Non-Qualified contract as
a withdrawal. See the SAI for a more detailed discussion regarding potential tax
consequences of gifting, assigning or pledging a non-qualified contract.
28
The IRC prohibits Qualified annuity contracts including IRAs from being
transferred, assigned or pledged as security for a loan. This prohibition,
however, generally does not apply to loans under an employer-sponsored plan
(including loans from the annuity contract) that satisfy certain requirements,
provided that: (a) the plan is not an unfunded deferred compensation plan; and
(b) the plan funding vehicle is not an IRA.
DIVERSIFICATION AND INVESTOR CONTROL
The IRC imposes certain diversification requirements on the underlying
investments for a variable annuity. We believe that the management of the
Underlying Funds monitors the Funds so as to comply with these requirements. To
be treated as a variable annuity for tax purposes, the underlying investments
must meet these requirements.
The diversification regulations do not provide guidance as to the
circumstances under which you, and not the Company, would be considered the
owner of the shares of the Variable Portfolios under your Nonqualified Contract,
because of the degree of control you exercise over the underlying investments.
This diversification requirement is sometimes referred to as "investor control."
It is unknown to what extent owners are permitted to select investments, to make
transfers among Variable Portfolios or the number and type of Variable
Portfolios owners may select from. If any guidance is provided which is
considered a new position, then the guidance would generally be applied
prospectively. However, if such guidance is considered not to be a new position,
it may be applied retroactively. This would mean you, as the owner of the
Nonqualified Contract, could be treated as the owner of the underlying Variable
Portfolios. Due to the uncertainty in this area, we reserve the right to modify
the contract in an attempt to maintain favorable tax treatment.
These investor control limitations generally do not apply to Qualified
Contracts, which are referred to as "Pension Plan Contracts" for purposes of
this rule, although the limitations could be applied to Qualified Contracts in
the future.
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ADMINISTRATION
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We are responsible for the administrative servicing of your contract.
Please contact our Annuity Service Center at 1-800-445-SUN2, if you have any
comment, question or service request.
We send out transaction confirmations and quarterly statements. During the
accumulation phase, you will receive confirmation of transactions within your
contract. Transactions made pursuant to contractual or systematic agreements,
such as the annual maintenance fee and dollar cost averaging, may be confirmed
quarterly. Purchase payments received through the automatic payment plan or a
salary reduction arrangement, may also be confirmed quarterly. For all other
transactions, we send confirmations immediately.
During the accumulation and income phases, you will receive a statement of
your transactions over the past quarter and a summary of your account values.
It is your responsibility to review these documents carefully and notify us
of any inaccuracies immediately. We investigate all inquiries. To the extent
that we believe we made an error, we retroactively adjust your contract,
provided you notify us within 30 days of receiving the transaction confirmation
or quarterly statement. Any other adjustments we deem warranted are made as of
the time we receive notice of the error.
DISTRIBUTION OF CONTRACTS
Registered representatives of broker-dealers sell the contract. AIG
SunAmerica Life pays commissions to these representatives for the sale of the
contracts. We do not expect the total commissions to
29
exceed 6.5% of your Purchase Payments. We may also pay a bonus to
representatives for contracts which stay active for a particular period of time,
in addition to standard commissions. We do not deduct commissions paid to
registered representatives directly from your Purchase Payments.
From time to time, we may pay or allow additional promotional incentives in
the form of cash or other compensation. We reserve the right to offer these
additional incentives only to certain broker-dealers that sell or are expected
to sell, certain minimum amounts of the contract, or other contracts offered by
us. Promotional incentives may change at any time.
AIG SunAmerica Capital Services, Inc., Harborside Financial Center, 3200
Plaza 5, Jersey City, NJ 07311-4992, distributes the contracts. AIG SunAmerica
Capital Services, an affiliate of AIG SunAmerica Life, is registered as a
broker-dealer under the Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. No underwriting fees are paid in
connection with the distribution of the contracts.
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LEGAL PROCEEDINGS
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AIG SunAmerica Life engages in various kinds of routine litigation. In
management's opinion, these matters are not material in relation to the
financial position of the Company with the exception of the matters disclosed
below.
A purported class action captioned NIKITA Mehta, as Trustee of the N.D.
Mehta Living Trust vs. AIG SunAmerica Life Assurance Company, Case 04L0199,
filed on April 5, 2004 in the Circuit Court, Twentieth Judicial District in St.
Clair County, Illinois. The lawsuit alleges certain improprieties in conjunction
with alleged market timing activities. The probability of any particular outcome
cannot be reasonably estimated at this time.
On November 23, 2004, American International Group, Inc. (AIG), the parent
company and affiliated person of AIG SunAmerica Life Assurance Company
("Depositor") and AIG SunAmerica Capital Services, Inc. ("Distributor"),
consented to the settlement of an injunctive action instituted by the SEC. In
its complaint, the Securities and Exchange Commission (SEC) alleged that AIG
violated Section 10(b) of the Securities Exchange Act of 1934, as amended
(Exchange Act) and Rule 10b-5 promulgated thereunder and Section 17(a) of the
Securities Act of 1933 (Securities Act) and aided and abetted violations of
Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, and
13a-13 promulgated thereunder, in connection with certain structured
transactions between subsidiaries of The PNC Financial Services Group, Inc. and
certain subsidiaries of AIG, and similar transactions marketed by certain
subsidiaries of AIG to other publicly traded companies. The conduct described in
the complaint did not involve any conduct of AIG or its affiliates related to
their investment advisory, depository or distribution activities. Pursuant to a
final judgment entered on December 7, 2004, AIG, without admitting or denying
the allegations in the complaint (except as to jurisdiction), was ordered to pay
approximately $46 million in disgorgement, penalties and prejudgment interest.
In addition, the final judgment enjoins AIG from future violation of the
above-referenced provisions of the federal securities laws. Absent exemptive
relief granted by the SEC, the entry of the injunction would prohibit AIG and,
its affiliated persons, from, among other things, serving as an investment
advisor or depositor of any registered investment management company or
principal underwriter for any registered open-end investment company pursuant to
Section 9(a) of the Investment Company Act of 1940, as amended (the "1940 Act").
Certain affiliated persons of AIG, including the Depositor and Distributor,
received a temporary exemptive order from the SEC pursuant to Section 9(c) of
the 1940 Act on December 8, 2004 with respect to the entry of the injunction,
granting exemptive relief from the provisions of Section 9(a) of the 1940 Act.
The temporary order permits AIG and its affiliated persons to serve as
investment adviser, subadviser, depositor, principal underwriter or sponsor of
the separate accounts through which your variable
30
annuity is funded ("Separate Accounts"). The Depositor and Distributor expect
that a permanent exemptive order will be granted, although there is no assurance
the SEC will issue the permanent order.
Additionally, AIG and AIG Financial Products Corp. (AIG-FP), a subsidiary
of AIG, reached a similar settlement with the Fraud Section of the United States
Department of Justice (DOJ). The settlement with the DOJ consists of an
agreement with respect to AIG and AIG-FP and a complaint and deferred
prosecution agreement with AIG-FP PAGIC Equity Holding Corp. (a special purpose
entity) that will foreclose future prosecutions, provided that the companies
comply with the agreements. As part of the settlement, AIG-FP will pay a penalty
of $80 million to the DOJ.
The Depositor believes that the disgorgement and penalties are not likely
to have a material adverse effect on the Separate Accounts. Nor does the
Distributor believe that the disgorgement and penalties will materially affect
its ability to perform distribution services relating to the Separate Accounts.
- --------------------------------------------------------------------------------
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
A registration statement has been filed with the SEC under the Securities
Act of 1933 relating to the contract. This prospectus does not contain all the
information in the registration statement as permitted by SEC regulations. The
omitted information can be obtained from the SEC's principal office in
Washington, D.C., upon payment of a prescribed fee.
- --------------------------------------------------------------------------------
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
The consolidated financial statements of AIG SunAmerica Life Assurance
Company at December 31, 2003 and 2002, and for each of the three years in the
period ended December 31, 2003, and financial statements of Variable Annuity
Account Two at August 31, 2004 and for each of the two years in the period ended
August 31, 2004 are incorporated herein by reference in this prospectus in
reliance on the reports of PricewaterhouseCoopers LLP, independent registered
public accounting firm, given on the authority of said firm as experts in
auditing and accounting.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Additional information concerning the operations of the separate account is
contained in a Statement of Additional Information ("SAI"), which is available
without charge upon written request addressed to us at our Annuity Service
Center, P.O. Box 54299, Los Angeles, California 90054-0299 or by calling (800)
445-SUN2. The contents of the SAI are tabulated below.
<Table>
<Caption>
PAGE
----
Performance Data............................................ 1
Income Payments............................................. 3
Annuity Unit Values......................................... 3
Qualified Plans............................................. 6
Distribution of Contracts................................... 10
Financial Statements........................................ 11
</Table>
31
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX A - MARKET VALUE ADJUSTMENT ("MVA")
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The information in this Appendix applies only if you take money out of a
FAGP (with a duration longer than 1 year) before the end of the guarantee
period.
We calculate the MVA by doing a comparison between current rates and the
rate being credited to you in the FAGP. For the current rate We use a rate being
offered by Us for a guarantee period that is equal to the time remaining in the
FAGP from which you seek withdrawal (rounded up to a full number of years). If
we are not currently offering a guarantee period for that period of time, We
determine an applicable rate by using a formula to arrive at a number based on
the interest rates currently offered for the two closest periods available.
Where the MVA is negative, We first deduct the adjustment from any money
remaining in the FAGP. If there is not enough money in the FAGP to meet the
negative deduction, We deduct the remainder from your withdrawal. Where the MVA
is positive, We add the adjustment to your withdrawal amount. If a withdrawal
charge applies, it is deducted before the MVA calculation. The MVA is assessed
on the amount withdrawn less any withdrawal charges.
The MVA is computed by multiplying the amount withdrawn, transferred or
taken under an income option by the following factor:
[(1+I/(1+J+L)]N/12 - 1
where:
I is the interest rate you are earning on the money invested in the
FAGP;
J is the interest rate then currently available for the period of time
equal to the number of years remaining in the term you initially agreed
to leave your money in the FAGP;
N is the number of full months remaining in the term you initially
agreed to leave your money in the FAGP; and
L is 0.005 (some states require a different value. Please see your
contract.)
We do not assess an MVA against withdrawals from an FAGP under the
following circumstances:
- If a withdrawal is made within 30 days after the end of a guarantee
period;
- If a withdrawal is made to pay contract fees and charges;
- To pay a death benefit; and
- Upon beginning an income option, if occurring on the Latest Annuity Date.
EXAMPLES OF THE MVA
The purpose of the examples below is to show how the MVA adjustments are
calculated and may not reflect the Guarantee periods available or Surrender
Charges applicable under your contract.
The examples below assume the following:
(1) You made an initial Purchase Payment of $10,000 and allocated it to a
FAGP at a rate of 5%;
(2) You make a partial withdrawal of $4,000 when 1 1/2 years (18 months)
remain in the term you initially agreed to leave your money in the FAGP
(N=18);
(3) You have not made any other transfers, additional Purchase Payments, or
withdrawals; and
(4) Your contract was issued in a state where L=0.005.
POSITIVE ADJUSTMENT, NO WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for a
new Purchase Payments in the 1-year FAGP is 3.5% and the 3-year FAGP is 4.5%. By
linear interpolation, the interest rate for
A-1
the remaining 2 years (1 1/2 years rounded up to the next full year) in the
contract is calculated to be 4%. No withdrawal charge is reflected in this
example, assuming that the Purchase Payment withdrawn falls within the free look
amount.
The MVA factor is = [(1+I/(1+J+0.005)]N/12 - 1
= [(1.05)/(1.04+0.005)](18/12) - 1
= (1.004785)1.5 - 1
= 1.007186 - 1
= + 0.007186
The requested withdrawal amount is multiplied by the MVA factor to
determine the MVA:
$4,000 X (+0.007186) = +$28.74
$28.74 represents the positive MVA that would be added to the withdrawal.
NEGATIVE ADJUSTMENT, NO WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 5.5% and the 3-year FAGP is 6.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 6%. No
withdrawal charge is reflected in this example, assuming that the Purchase
Payment withdrawn falls with the free withdrawal amount.
The MVA factor is = [(1+I)/(1+J+0.005)](N/12) - 1
= [(1.05)/(1.06+0.005)](18/12) - 1
= (0.985915)(1.5) - 1
= 0.978948 - 1
= - 0.021052
The requested withdrawal amount is multiplied by the MVA factor to
determine the MVA:
$4,000 X (-0.021052) = -$84.21
$84.21 represents the negative MVA that will be deducted from the money
remaining in the 3-year FAGP.
POSITIVE ADJUSTMENT, WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 3.5% and the 3-year FAGP is 4.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 4%. A
withdrawal charge of 6% is reflected in this example, assuming that the Purchase
Payment withdrawn exceeds the free withdrawal amount.
The MVA factor is = [(1+I)/(I+J+0.005)](N/12) - 1
= [(1.05)/(1.04+0.005)](18/12) - 1
= (1.004785)(1.5) - 1
= 1.007186 - 1
= + 0.007186
The requested withdrawal amount, less the withdrawal charge ($4,000 - 6% =
$3,760) is multiplied by the MVA factor to determine the MVA:
$3,760 X (+0.007186) = +$27.02
$27.02 represents the positive MVA that would be added to the withdrawal.
A-2
NEGATIVE ADJUSTMENT, WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 5.5% and the 3-year FAGP is 6.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 6%. A
withdrawal charge of 6% is reflected in this example, assuming that the Purchase
Payment withdrawn exceeds the free withdrawal amount.
The MVA factor is = [(1+I)/(I+J+0.005)](N/12) - 1
= [(1.05)/(1.06+0.005)](18/12) - 1
= (0.985915)(1.5) - 1
= 0.978948 - 1
= - 0.021052
The requested withdrawal amount, less the withdrawal charge ($4,000 - 6% =
$3,760) is multiplied by the MVA factor to determine the MVA:
$3,760 X (-0.021052) = -$79.16
$79.16 represents the negative MVA that would be deducted from the
withdrawal.
A-3
APPENDIX B
WITHDRAWALS AND WITHDRAWAL CHARGES
PART 1 -- SEPARATE ACCOUNT (THE MVA DOES NOT APPLY TO THE SEPARATE ACCOUNT)
These examples assume the following:
(1) The initial Purchase Payment was $10,000, allocated solely to one
Variable Portfolio;
(2) The date of full surrender or partial withdrawal occurs during the
3rd contribution year;
(3) The contract value at the time of surrender or withdrawal is
$12,000; and
(4) No other Purchase Payments or previous partial withdrawals have
been made.
EXAMPLE A -- FULL SURRENDER:
(1) Earnings in the Variable Portfolio ($12,000 - $10,000 = $2,000)
are not subject to the withdrawal charge.
(2) The balance of the full surrender ($12,000 - $2,000 = $10,000) is
subject to a 5% withdrawal charge applicable during the 3rd contribution
year.
(3) The amount of the withdrawal charge is .05 X $10,000 = $500.
(4) The contract administration charge is deducted from the full
surrender amount. The amount of the full surrender is
$12,000 - $500 - $30 = $11,470.
EXAMPLE B -- PARTIAL WITHDRAWAL (IN THE AMOUNT OF $3,000):
(1) For the same reasons as given in Steps 1 and 2 of Example A,
above, $2,000 can be withdrawn free of the withdrawal charge.
(2) Although 10% of the Purchase Payment is available without
imposition of a withdrawal charge (.10 X $10,000 = $1,000), this free
withdrawal amount is, like the withdrawal charge, applied first to
earnings. Since the earnings exceed the free withdrawal amount, only the
earnings can be withdrawn free of the scheduled withdrawal charge.
(3) The balance of the requested partial withdrawal
($3,000 - $2,000 = $1,000) is subject to the withdrawal charge applicable
during the 3rd contribution year (5%).
(4) The amount of the withdrawal charge is equal to the amount
required to complete the partial withdrawal ($3,000 - $2,000 = $1,000)
divided by (1 - .05) = 0.95, less the amount required to complete the
partial withdrawal.
withdrawal charge = ($1,000/0.95) - $1,000
= $52.63
In this example, in order for the owner to receive the amount requested
($3,000), a gross withdrawal of $3,052.63 must be processed with $52.63
representing the withdrawal charge calculated above.
Examples C and D assume the following:
(1) The initial Purchase Payment was $20,000, allocated solely to one
Variable Portfolio;
(2) The full surrender or partial withdrawal occurs during the 3rd
contribution year;
B-1
(3) The owner's contract value at the time of surrender or withdrawal
is $21,500; and
(4) No other Purchase Payments or partial withdrawals have been made.
EXAMPLE C -- PARTIAL WITHDRAWAL (IN THE MAXIMUM AMOUNT AVAILABLE WITHOUT
WITHDRAWAL CHARGE):
(1) Earnings in the Variable Portfolio ($21,500 - $20,000 = $1,500)
are not subject to the withdrawal charge.
(2) An additional free withdrawal of 10% of the Purchase Payments less
earnings (.10 X $20,000 - $1,500 = $500) is also available free of the
withdrawal charge, so that
(3) The maximum partial withdrawal without withdrawal charge is the
sum of the earnings and the additional free withdrawal
($1,500 + $500 = $2,000).
EXAMPLE D -- FULL SURRENDER IMMEDIATELY FOLLOWING THE PARTIAL WITHDRAWAL IN
EXAMPLE C:
(1) The owner's contract value after the partial withdrawal in Example C
is $21,500 - $2,000 = $19,500.
(2) The Purchase Payment amount for calculating the withdrawal charge
is the original $20,000 (additional free withdrawal amounts do not reduce
the Purchase Payment amount for purposes of calculating the withdrawal
charge).
(3) The amount of the withdrawal charge is .05 X $20,000 = $1,000.
(4) The contract administration charge is deducted from the full
surrender amount. The amount of the full surrender is
$19,500 - $1,000 - $30 = $18,470.
B-2
APPENDIX C
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
- --------------------------------------------------------------------------------
<Table>
<Caption>
FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
PORTFOLIOS 08/31/99 08/31/00 08/31/01 08/31/02 08/31/03 08/31/04*
---------- ----------- ----------- ----------- ----------- ----------- -----------
International Growth and Income
Beginning AUV........................ $ 9.06 $ 11.17 $ 13.29 $ 9.86 $ 9.00 $ 9.52
Ending AUV........................... $ 11.17 $ 13.29 $ 9.86 $ 9.00 $ 9.52 $ 11.56
Ending Number of AUs................. 172,015 122,347 96,244 74,974 66,836 53,654
Marsico Growth
Beginning AUV........................ $ 6.51 $ 8.38 $ 10.58 $ 9.32 $ 7.20 $ 8.77
Ending AUV........................... $ 8.38 $ 10.58 $ 9.32 $ 7.20 $ 8.77 $ 9.03
Ending Number of AUs................. 600,016 430,405 382,117 308,664 250,526 195,909
Davis Venture Value
Beginning AUV........................ $ 26.42 $ 31.58 $ 34.37 $ 28.01 $ 23.28 $ 25.55
Ending AUV........................... $ 31.58 $ 34.37 $ 28.01 $ 23.28 $ 25.55 $ 28.59
Ending Number of AUs................. 191,670 138,405 127,654 103,707 84,804 61,759
MFS Total Return
Beginning AUV........................ $ 22.28 $ 24.56 $ 26.48 $ 22.13 $ 19.88 $ 21.16
Ending AUV........................... $ 24.56 $ 26.48 $ 22.13 $ 19.88 $ 21.16 $ 23.40
Ending Number of AUs................. 58,170 46,711 43,603 39,791 32,277 24,555
Government and Quality Bond
Beginning AUV........................ $ -- $ -- $ -- $ -- $ -- $ --
Ending AUV........................... $ -- $ -- $ -- $ -- $ -- $ 16.89
Ending Number of AUs................. -- -- -- -- -- 746
Cash Management
Beginning AUV........................ $ 10.80 $ 10.61 $ 11.27 $ 12.12 $ 12.85 $ 12.91
Ending AUV........................... $ 10.61 $ 11.27 $ 12.12 $ 12.85 $ 12.91 $ 12.85
Ending Number of AUs................. 118,385 90,833 87,786 75,247 50,366 32,307
</Table>
- ---------------
AUV -- Accumulation Unit Value
AU -- Accumulation Units
* On December 5, 2003, the six portfolios of the Mutual Fund Variable Annuity
Trust (the "old trust") were merged into five portfolios of the SunAmerica
Series Trust (the "new trusts). In addition to the mergers a new portfolio was
added of the Anchor Series Trust. As a result of this merger, the units
outstanding and unit values for all prior years have been retroactively
restated.
C-1
- --------------------------------------------------------------------------------
Please forward a copy (without charge) of the Statement of Additional
Information concerning Vista Capital Advantage issued by AIG SunAmerica
Life Assurance Company to:
(Please print or type and fill in all information.)
---------------------------------------------------------------------
Name
---------------------------------------------------------------------
Address
---------------------------------------------------------------------
City/State/Zip
<Table>
Date: ------------------------------------ Signed: ---------------------------------------
</Table>
Return to: AIG SunAmerica Life Assurance Company, Annuity Service Center,
P.O. Box 52499, Los Angeles, California 90054-0299
- --------------------------------------------------------------------------------
PART II
-------
Information Not Required in Prospectus
Item 14. Other Expenses of Issuance and Distribution.
-------------------------------------------
The following table sets forth the expenses in connection with the issuance
and distribution of the securities being registered, other than underwriting
discounts and commissions. All of the amounts shown are estimates, except the
SEC registration fee.
<Table>
SEC registration fee ................................. $12,135
Printing and engraving ............................... $50,000
Legal fees and expenses .............................. $10,000
Rating agency fees ................................... $ 7,500
Miscellaneous ........................................ $10,000
-------
Total ............................................ $89,635
</Table>
Item 15. Indemnification of Directors and Officers.
------------------------------------------
Section 10-851 of the Arizona Corporations and Associations law permits the
indemnification of directors, officers, employees and agents of Arizona
corporations. Article Eight of the Company's Restated Articles of Incorporation,
as amended and restated (the "Articles") and Article Five of the Company's
By-Laws ("By-Laws") authorize the indemnification of directors and officers to
the full extent required or permitted by the Laws of the State of Arizona, now
or hereafter in force, whether such persons are serving the Company, or, at its
request, any other entity, which indemnification shall include the advance of
expenses under the procedures and to the full extent permitted by law. In
addition, the Company's officers and directors are covered by certain directors'
and officers' liability insurance policies maintained by the Company's parent.
Reference is made to section 10-851 of the Arizona Corporations and Associations
Law, Article Eight of the Articles, and Article Five of the By-Laws, which are
incorporated herein by reference.
Item 16. Exhibits and Financial Statement Schedules.
-------------------------------------------
<Table>
<Caption>
Exhibit
No. Description
(1) Underwriting Agreement ++++
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession **
(3) (a) Amended Articles of Incorporation Dated
September 30, 2002 +++
(b) Articles of Incorporation +
(c) By-Laws +
(4) (a) Vista Capital Advantage Fixed and Variable Contract ***
(b) Application for Contract ***
(5) Opinion of Counsel re: Legality ***
(6) Opinion re Discount on Capital Shares **
(7) Opinion re Liquidation Preference **
(8) Opinion re Tax Matters **
(9) Voting Trust Agreement **
(10) Material Contracts **
(11) Statement re Computation of Per Share Earnings **
(12) Statement re Computation of Ratios **
(14) Material Foreign Patents **
(15) Letter re Unaudited Financial Information **
(16) Letter re Change in Certifying Accountant **
(21) Subsidiaries of Registrant ***
(23) (a) Consent of Independent Registered Public
Accounting Firm *
(b) Consent of Attorney ***
(24) Powers of Attorney ++
(a) December, 2003 +++++
(25) Statement of Eligibility of Trustee **
(26) Invitation for Competitive Bids **
(27) Financial Data Schedule ****
(28) Information Reports Furnished to State Insurance
Regulatory Authority **
(29) Other Exhibits **
</Table>
* Filed Herewith
** Not Applicable
*** Incorporated by Reference to Post-Effective Amendment No. 3 to
Registration Statement No. 33-81476 on Form S-1 filed on 12-24-97.
**** Incorporated by Reference to Post-Effective Amendment No. 5 to
Registration Statement No. 33-81476 on Form S-1 filed on 12-24-98.
***** Incorporated by Reference to Post-Effective Amendment No. 9 to
Registration Statement No. 33-81476 on Form S-3 filed on December 19,
2000.
+ Incorporated by Reference to Post-Effective Amendment 17 to Registration
Statement No. 33-81476 on Form S-3 filed on September 20, 2002,
accession number 0000950148-02-002275.
++ Incorporated by Reference to Initial Registration Statement No.
333-103504 on Form S-3 filed on December 20, 2002, Accession Number
000095014-03-000424.
+++ Incorporated by Reference to Post-Effective Amendment 1 to Registration
Statement No. 333-103504 on Form S-3 filed on May 1, 2003, Accession No.
0000950148-03-001099.
++++ Incorporated by Reference to Form N-14AE Registration Statement No.
333-108115 filed on August 21, 2003, Accession No. 0000
1206774-03-000644.
+++++ Incorporated by Reference to Post-Effective Amendment 3 to Registration
Statement No. 333-103504 on Form S-3 filed on December 8, 2003,
Accession Number 0000950148-03-002850.
Item 17. Undertakings.
------------
The undersigned registrant, AIG SunAmerica Life, hereby
undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement
to include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 and, where applicable, each
filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide
offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Post-Effective Amendment 6 to the Registration Statement File No. 333-103504
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Los Angeles, State of California on this 28th day of December, 2004.
By: AIG SUNAMERICA LIFE ASSURANCE COMPANY
By: /s/ JAY S. WINTROB
---------------------------------------
Jay S. Wintrob
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
JAY S. WINTROB* Chief Executive Officer December 28, 2004
- ----------------------- and Director
Jay S. Wintrob (Principal Executive Officer)
JAMES R. BELARDI* Director December 28, 2004
- -----------------------
James R. Belardi
MARC H. GAMSIN* Director December 28, 2004
- -----------------------
Marc H. Gamsin
N. SCOTT GILLIS* Senior Vice President, Chief December 28, 2004
- ----------------------- Financial Officer and Director
N. Scott Gillis (Principal Financial Officer)
JANA W. GREER* Director December 28, 2004
- -----------------------
Jana W. Greer
STEWART R. POLAKOV* Senior Vice President and December 28, 2004
- ----------------------- Controller
Stewart R. Polakov (Principal Accounting Officer)
*/s/ MALLARY L. REZNIK Attorney-in-Fact December 28, 2004
- -----------------------
Mallary L. Reznik
EXHIBIT INDEX
Number Description
- ------ -----------
23(a) Consent of Independent Registered Public Accounting Firm