As filed pursuant to Rule 424(b)(3)
under the Securities Act of 1933
Registration No. 333-103504
AIG SUNAMERICA LIFE ASSURANCE COMPANY
VARIABLE SEPARATE ACCOUNT
SUPPLEMENT TO THE
POLARIS CHOICE II VARIABLE ANNUITY (R-3043-PRO (R 4/03))
PROSPECTUS DATED MAY 1, 2003
THE DATE OF THE PROSPECTUS IS CHANGED TO OCTOBER 6, 2003.
ALL REFERENCES IN THE PROSPECTUS TO THE DATE OF THE STATEMENT OF ADDITIONAL
INFORMATION ARE HEREBY CHANGED TO OCTOBER 6, 2003.
THE FOLLOWING REPLACES THE FEE TABLES ON PAGE 5 OF THE PROSPECTUS:
FEE TABLES
The following describes the fees and expenses that you will pay at the time that
you buy the contract, surrender the contract, or transfer cash value between
investment options.
MAXIMUM OWNER TRANSACTION EXPENSES
MAXIMUM WITHDRAWAL CHARGES (AS A PERCENTAGE OF EACH PURCHASE PAYMENT)(1)......7%
TRANSFER FEE No charge for the first 15 transfers each
contract year; thereafter, the fee is $25 ($10 in
Pennsylvania and Texas) per transfer.
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
$35 ($30 in north Dakota) waived if contract value $50,000 or more
SEPARATE ACCOUNT ANNUAL EXPENSES
(DEDUCTED DAILY AS A PERCENTAGE OF YOUR AVERAGE DAILY NET ASSET VALUE)
Mortality and Expense Risk Fees 1.37%
Distribution Expense Fee 0.15%
Optional Enhanced Death Benefit Fee(2) 0.20%
Optional EstatePlus Fee(2) 0.25%
----
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES 1.97%
====
ADDITIONAL OPTIONAL FEATURE FEE
You may elect either the Income Protector or Capital Protector feature
described below.
OPTIONAL INCOME PROTECTOR FEE
Annual Fee as a % of your Income Benefit Base(3).....0.10%
OPTIONAL CAPITAL PROTECTOR FEE(4)
Contract Year(5) Annualized Charge(5)
- ------------- -----------------
0-5 0.55%
6-10 0.35%
11+ none
Footnotes to the Fee Table:
(1) Withdrawal Charge Schedule (as a percentage of each Purchase Payment)
declines over 3 years as follows
YEARS: 1 2 3 4
7% 6% 5% 0%
(2) If you do not elect the optional Enhanced Death Benefit and the EstatePlus
feature, your total separate account annual expenses would be 1.52%.
(3) The Income Protector feature is optional and if elected, the fee is deducted
annually from your contract value. The Income Benefit Base, which is described
more fully in the prospectus is generally calculated by using your contract
value on the date of your effective
Page 1 of 5
enrollment in the program and then each subsequent contract anniversary, adding
Purchase Payments made since the prior contract anniversary, less proportional
withdrawals, and fees and charges applicable to those withdrawals.
(4) The Capital Protector feature is optional and if elected, the fee is
calculated as a percentage of your contract value minus Purchase Payments
received after the 90th day since you purchased your contract. The fee is
deducted from your contract value at the end of the first contract quarter and
quarterly thereafter.
(5) If you are a resident of Washington or Oregon, the following charges apply:
0.55% for Years 0-7, .20% for Years 8-10, no charge for Years 11+.
THE FOLLOWING SHOWS THE MINIMUM AND MAXIMUM TOTAL OPERATING EXPENSES CHARGED BY
THE UNDERLYING PORTFOLIOS OF THE TRUSTS BEFORE ANY WAIVERS OR REIMBURSEMENTS
THAT YOU MAY PAY PERIODICALLY DURING THE TIME YOU OWN THE CONTRACT. MORE DETAIL
CONCERNING THE TRUSTS' FEES AND EXPENSES IS CONTAINED IN THE PROSPECTUS FOR EACH
OF THE TRUSTS. PLEASE READ THEM CAREFULLY BEFORE INVESTING.
PORTFOLIO EXPENSES
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) 0.60% 2.38%
THE FOLLOWING REPLACES THE EXAMPLES LISTED UNDER THE SECTION ENTITLED MAXIMUM
EXPENSE EXAMPLES ON PAGE 6 OF THE PROSPECTUS:
(1) If you surrender your contract at the end of the applicable time period and
you elect the optional Enhanced Death Benefit (0.20%) and EstatePlus (0.25%) and
Capital Protector (0.55% Years 0 - 5, 0.35% Years 6-10) features:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$1,195 $1,986 $2,478 $4,906
====== ====== ====== ======
(2) If you annuitize your contract:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$392 $1,189 $2,004 $4,121
==== ====== ====== ======
(3) If you do not surrender your contract and you elect the optional Enhanced
Death Benefit (0.20%) and EstatePlus (0.25%) and Capital Protector (0.55% Years
0 - 5, 0.35% Years 6-10) features:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$495 $1,486 $2,478 $4,906
==== ====== ====== ======
THE FOLLOWING REPLACES THE EXAMPLES LOCATED UNDER THE SECTION ENTITLED MINIMUM
EXPENSE EXAMPLES ON PAGE 6 OF THE PROSPECTUS:
(1) If you surrender your contract at the end of the applicable time period and
you do not elect any optional features:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$920 $1,179 $1,164 $2,503
==== ====== ====== ======
(2) If you annuitize your contract:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$215 $664 $1,139 $2,452
==== ==== ====== ======
(3) If you do not surrender your contract and do not elect any optional
features:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$220 $679 $1,164 $2,503
==== ==== ====== ======
Page 2 of 5
THE FOLLOWING SENTENCE SHOULD BE ADDED SUBSEQUENT TO THE LAST SENTENCE OF ITEM 3
IN THE SECTION ENTITLED EXPLANATION OF FEE TABLES AND EXAMPLES ON PAGE 7 OF THE
PROSPECTUS:
If you elected the Income Protector program, instead of the Capital Protector
program, your expenses would be lower than those shown in these tables. The fee
for the Capital Protector and Income Protector features are not calculated as a
percentage of your daily net asset value, but on other calculations more fully
described in the prospectus.
THE FOLLOWING SHOULD BE ADDED SUBSEQUENT TO THE SECTION ENTITLED ALLOCATION OF
PURCHASE PAYMENTS ON PAGE 8 OF THE PROSPECTUS:
CAPITAL PROTECTOR
The Capital Protector is an optional feature of your variable annuity. If you
elect this feature, for which you will be charged an annualized fee, at the end
of applicable waiting period your contract will be worth at least the amount of
your initial Purchase Payment (less adjustments for withdrawals). The Capital
Protector may offer protection in the event that your contract value declines
due to unfavorable investment performance in your contract. The Capital
Protector feature has rules and restrictions, which are discussed more fully,
below.
ELECTION OF THE FEATURE
You may only elect this feature at the time your contract is issued, so long as
the applicable waiting period prior to receiving the benefit ends before your
latest Annuity Date. You can elect this feature on your contract application.
The effective date for this feature will be your contract issue date. Capital
Protector is not available if you elect the Income Protector program. SEE INCOME
PROTECTOR in the prospectus.
The Capital Protector feature may not be available in your state or through the
broker-dealer with which your financial advisor is affiliated. Please check with
your financial advisor for availability.
APPLICABLE WAITING PERIOD AND BENEFIT DATE
If you elect the Capital Protector, at the end of the applicable waiting period
we will evaluate your contract to determine if a Capital Protector benefit is
payable to you. The applicable waiting period is ten full contract years from
your contract issue date. The last day in the waiting period is your benefit
date, the date on which we will calculate any Capital Protector benefit payable
to you.
TERMINATION
Generally, this feature and its corresponding charge cannot be terminated prior
to the end of the waiting period. The feature terminates automatically following
the end of the waiting period. In addition, the Capital Protector will no longer
be available and no benefit will be paid if a death benefit is paid or if the
contract is fully surrendered or annuitized before the end of the waiting
period.
CALCULATION OF THE BENEFIT
The Capital Protector is a one-time adjustment to your contract value in the
event that your contract value at the end of the waiting period is less than the
guaranteed amount. The amount of the benefit payable to you, if any, at the end
of the waiting period will be based upon the amount of your initial Purchase
Payment and may also include certain portions of subsequent Purchase Payments
contributed to your contract over specified periods of time, as follows:
Percentage of Purchase Payments
Time Elapsed Since Included in the
Effective Date Capital Protector Benefit Calculation
- -------------- -------------------------------------
0-90 days 100%
91+ days 0%
THE CAPITAL PROTECTOR FEATURE MAY NOT GUARANTEE A RETURN OF ALL OF YOUR PURCHASE
PAYMENTS. IF YOU PLAN TO ADD SUBSEQUENT PURCHASE PAYMENTS OVER THE LIFE OF YOUR
CONTRACT, YOU SHOULD KNOW THAT THE CAPITAL PROTECTOR WOULD NOT PROTECT THE
MAJORITY OF THOSE PAYMENTS.
Page 3 of 5
The Capital Protector benefit calculation is equal to your Capital Protector
Base, as defined below, minus your contract value on the benefit date. If the
resulting amount is positive, you will receive a benefit under the feature. If
the resulting amount is negative, you will not receive a benefit. Your Capital
Protector Base is equal to (a) minus (b) where:
(a) is the Purchase Payments received on or after the effective date
multiplied by the applicable percentages in the table above, and;
(b) is an adjustment for all withdrawals and applicable fees and
charges made subsequent to the effective date, in an amount proportionate to the
amount by which the withdrawal decreased the contract value at the time of the
withdrawal.
We will allocate any benefit amount contributed to the contract value on the
benefit date to the Cash Management portfolio. Any Capital Protector benefit
paid is not considered a Purchase Payment for purposes of calculating other
benefits. Benefits based on earnings, such as EstatePlus, will continue to
define earnings as the difference between contract value and Purchase Payments
adjusted for withdrawals. For information about how the benefit is treated for
income tax purposes, you should consult a qualified tax advisor for information
concerning your particular circumstances.
SINCE THE CAPITAL PROTECTOR FEATURE MAY NOT GUARANTEE A RETURN OF ALL PURCHASE
PAYMENTS AT THE END OF THE WAITING PERIOD, IT IS IMPORTANT TO REALIZE THAT
SUBSEQUENT PURCHASE PAYMENTS MADE INTO THE CONTRACT MAY DECREASE THE VALUE OF
THE CAPITAL PROTECTOR BENEFIT. For example, if near the end of the waiting
period your Capital Protector Base is greater than your contract value, and you
then make a subsequent Purchase Payment that causes your contract value to be
larger than your Capital Protector Base on your benefit date, you will not
receive any benefit even though you have paid for the Capital Protector feature
throughout the waiting period. You should discuss subsequent Purchase Payments
with your financial advisor as such activity may reduce the value of this
Capital Protector benefit. Further, if you are using this contract to fund a
qualified plan via salary reduction payments, you should consult your financial
advisor before electing the Capital Protector feature.
THE CAPITAL PROTECTOR FEE
Capital Protector is an optional feature. If elected, you will incur an
additional charge for this feature. The annualized charge will be deducted from
your contract value on a quarterly basis throughout the waiting period,
beginning at the end of the first contract quarter following the effective date
of the feature and up to and including on the benefit date. Once the feature is
terminated, as discussed above, the charge will no longer be deducted. The
annual fee is:
Contract Year Annualized Charge*
- ------------- ------------------
0-5 0.55%
6-10 0.35%
11+ none
The annual fee for Washington and Oregon Residents is 0.55% for Years 0-7, 0.20%
for Years 8-10 and no charge for Years 11+.
* As a percentage of your contract value minus Purchase Payments received after
the 90th day since the purchase of your contract. The amount of this charge is
subject to change at any time for prospectively issued contracts.
EFFECT OF SPOUSAL CONTINUATION ON THE CAPITAL PROTECTOR FEATURE
If your qualified spouse chooses to continue this contract upon your death, this
benefit cannot be terminated. The effective date, the waiting period and the
corresponding benefit payment date will not change as a result of a spousal
continuation. SEE SPOUSAL CONTINUATION in the prospectus.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE CAPITAL PROTECTOR
FEATURE (IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME FOR PROSPECTIVELY ISSUED
CONTRACTS.
THE FOLLOWING REPLACES THE PARAGRAPH UNDER THE HEADING TITLED ANNUAL
RE-EVALUATION LOCATED IN THE ASSET ALLOCATION PROGRAM SECTION ON PAGE 11 OF THE
PROSPECTUS:
ANNUAL RE-EVALUATION
Each year, on or about March 31, the allocations in every model are re-evaluated
and updated to assure that the investment objectives remain consistent. The
percentage allocations within each model may change and investment options may
be added to or deleted from a model as a result of the annual re-evaluation. We
will automatically rebalance your investment according to the re-evaluated
Page 4 of 5
allocations each year on or about March 31. If you choose not to participate in
the re-evaluation part of this program, you must contact the Annuity Service
Center. Some broker-dealers require that you consent to the re-evaluation each
year and will not allow Us to automatically rebalance your contract in
accordance with the re-evaluated models. Please check with your financial
representative to determine the protocol for his/her firm.
ON PAGE 13, THE TITLE OF THE SECTION PRINCIPAL ADVANTAGE PROGRAM SHOULD BE
CHANGED TO RETURN PLUS. ALL FURTHER REFERENCES TO PRINCIPAL ADVANTAGE SHOULD BE
CHANGED TO RETURN PLUS.
THE FOLLOWING SENTENCE SHOULD BE DELETED IN THE OPTIONAL ENHANCED DEATH BENEFITS
SECTION LOCATED ON PAGE 15 OF THE PROSPECTUS:
The enhanced death benefit options are not available if you are age 91
or older at the time of contract issue.
THE SENTENCE DELETED ABOVE SHOULD BE REPLACED WITH:
The enhanced death benefit options are not available if you are age 86
or older at the time of contract issue.
THE FOLLOWING SHOULD BE ADDED SUBSEQUENT TO THE SECTION ENTITLED TRANSFER FEE
LOCATED IN THE EXPENSES SECTION ON PAGE 18 OF THE PROSPECTUS:
OPTIONAL CAPITAL PROTECTOR FEE
The fee for the Capital Protector feature is as follows:
Contract Year* Annualized Charge
- ------------- -----------------
0-5 0.55%
6-10 0.35%
11+ none
The fee is calculated as a percentage of your contract value minus Purchase
Payments received after the 90th day since you purchased your contract. The fee
is deducted at the end of the first contract quarter and quarterly thereafter
from your contract value.
* The annual fee for Washington and Oregon Residents is 0.55% for Years 0-7,
0.20% for Years 8-10 and no charge for Years 11+.
THE FOLLOWING SENTENCE SHOULD BE ADDED AS A NEW PARAGRAPH AT THE END OF THE
SECTION ENTITLED THE INCOME PROTECTOR FEATURE AND PRIOR TO THE SECTION ENTITLED
HOW WE DETERMINE THE AMOUNT OF YOUR MINIMUM GUARANTEED INCOME ON PAGE 21 OF THE
PROSPECTUS:
If you elect Capital Protector, you may not elect to participate in the Income
Protector program.
THE FOLLOWING SENTENCE SHOULD BE DELETED FROM THE SECTION ENTITLED FEES
ASSOCIATED WITH THE INCOME PROTECTOR ON PAGE 22 OF THE PROSPECTUS:
Additionally, we deduct the full annual fee from any full surrender of your
contract requested prior to your contract anniversary based on the Income
Benefit Base at the time of surrender.
Date: October 6, 2003
Please keep this Supplement with your Prospectus.
Page 5 of 5
(POLARIS CHOICE II LOGO)
PROSPECTUS
MAY 1, 2003
<Table>
Please read this prospectus FLEXIBLE PAYMENT DEFERRED ANNUITY CONTRACTS
carefully before investing and issued by
keep it for future reference. AIG SUNAMERICA LIFE ASSURANCE COMPANY
It contains important in connection with
information about the Polaris VARIABLE SEPARATE ACCOUNT
Choice(II) Variable Annuity. The annuity has several investment choices - Variable Portfolios listed below
and available fixed account options. The Variable Portfolios are part of the
To learn more about the Anchor Series Trust ("AST"), SunAmerica Series Trust ("SAST"), American Funds
annuity offered by this Insurance Series ("AFIS"), Lord Abbett Series Fund, Inc. ("LASF"), Nations
prospectus, you can obtain a Separate Account Trust ("NSAT") and Van Kampen Life Investment Trust ("VKT").
copy of the Statement of
Additional Information ("SAI") STOCKS:
dated May 1, 2003. The SAI has MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
been filed with the Securities - Aggressive Growth Portfolio SAST
and Exchange Commission - Blue Chip Growth Portfolio SAST
("SEC") and is incorporated by - "Dogs" of Wall Street Portfolio SAST
reference into this - Growth Opportunities Portfolio SAST
prospectus. The Table of MANAGED BY ALLIANCEBERNSTEIN
Contents of the SAI appears in - Small & Mid Cap Value Portfolio SAST
this prospectus. For a free MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
copy of the SAI, call us at - Alliance Growth Portfolio SAST
(800) 445-SUN2 or write to us - Global Equities Portfolio SAST
at our Annuity Service Center, - Growth & Income Portfolio SAST
P.O. Box 54299, Los Angeles, MANAGED BY CAPITAL RESEARCH AND MANAGEMENT COMPANY
California 90054-0299. - American Funds Global Growth Portfolio AFIS
- American Funds Growth Portfolio AFIS
In addition, the SEC maintains - American Funds Growth-Income Portfolio AFIS
a website (http://www.sec.gov) MANAGED BY DAVIS ADVISORS
that contains the SAI, - Davis Venture Value Portfolio SAST
materials incorporated by - Real Estate Portfolio SAST
reference and other MANAGED BY FEDERATED INVESTMENT COUNSELING
information filed - Federated American Leaders Portfolio SAST
electronically with the SEC by MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT, L.P.
AIG SunAmerica Life Assurance - Goldman Sachs Research Portfolio SAST
Company. MANAGED BY LORD, ABBETT & CO.
- Lord Abbett Series Fund Growth and Income Portfolio LASF
ANNUITIES INVOLVE RISKS, MANAGED BY MARSICO CAPITAL MANAGEMENT, LLC
INCLUDING POSSIBLE LOSS OF - Nations Marsico Focused Equities Portfolio NSAT
PRINCIPAL, AND ARE NOT A MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
DEPOSIT OR OBLIGATION OF, OR - MFS Massachusetts Investors Trust Portfolio SAST
GUARANTEED OR ENDORSED BY, ANY - MFS Mid-Cap Growth Portfolio SAST
BANK. THEY ARE NOT FEDERALLY MANAGED BY PUTNAM INVESTMENT MANAGEMENT, LLC
INSURED BY THE FEDERAL DEPOSIT - Emerging Markets Portfolio SAST
INSURANCE CORPORATION, THE - International Growth & Income Portfolio SAST
FEDERAL RESERVE BOARD OR ANY - Putnam Growth: Voyager Portfolio SAST
OTHER AGENCY. MANAGED BY TEMPLETON INVESTMENT COUNSEL, LLC
- Foreign Value Portfolio SAST
MANAGED BY VAN KAMPEN/VAN KAMPEN ASSET MANAGEMENT
- International Diversified Equities Portfolio SAST
- Technology Portfolio SAST
- Van Kampen LIT Comstock Portfolio, Class II Shares VKT
- Van Kampen LIT Emerging Growth Portfolio, Class II Shares VKT
- Van Kampen LIT Growth and Income Portfolio, Class II Shares VKT
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio AST
- Growth Portfolio AST
- Natural Resources Portfolio AST
BALANCED:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- SunAmerica Balanced Portfolio SAST
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Total Return Portfolio SAST
MANAGED BY WM ADVISORS, INC.
- Asset Allocation Portfolio SAST
BONDS:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- High-Yield Bond Portfolio SAST
MANAGED BY FEDERATED INVESTMENT COUNSELING
- Corporate Bond Portfolio SAST
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
- Global Bond Portfolio SAST
MANAGED BY MACKAY SHIELDS LLC
- Nations High Yield Bond Portfolio NSAT
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Government & Quality Bond Portfolio AST
CASH:
MANAGED BY BANC OF AMERICA CAPITAL MANAGEMENT, LLC
- Cash Management Portfolio SAST
</Table>
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.
Anchor National Life Insurance Company changed its name to AIG SunAmerica Life
Assurance Company ("AIG SunAmerica Life") on March 1, 2003. Please keep in mind,
this is a name change only and will not affect the substance of your contract.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
- ----------------------------------------------------------------
- ----------------------------------------------------------------
AIG SunAmerica Life's Annual Report on Form 10-K for the year ended December 31,
2002, file no. 033-47472, is 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 supercede documents
incorporated 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 10279
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
- ----------------------------------------------------------------
- ----------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION
- ----------------------------------------------------------------
- ----------------------------------------------------------------
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 AIG SunAmerica Life's counsel, this
issue has been determined by controlling precedent, AIG SunAmerica Life will not
submit the issue to a court for determination.
2
<Table>
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TABLE OF CONTENTS
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................... 2
SECURITIES AND EXCHANGE COMMISSION POSITION ON
INDEMNIFICATION................................................ 2
GLOSSARY.......................................................... 3
HIGHLIGHTS........................................................ 4
FEE TABLES........................................................ 5
Owner Transaction Expenses.................................. 5
Optional Income Protector Fee............................... 5
Contract Maintenance Fee.................................... 5
Annual Separate Account Expenses............................ 5
Optional Enhanced Death Benefit Fee......................... 5
Optional EstatePlus Fee..................................... 5
Portfolio Expenses.......................................... 5
EXAMPLES.......................................................... 6
THE POLARIS CHOICE(II) VARIABLE ANNUITY........................... 7
PURCHASING A POLARIS CHOICE(II) VARIABLE ANNUITY.................. 7
Allocation of Purchase Payments............................. 8
Accumulation Units.......................................... 8
Free Look................................................... 8
INVESTMENT OPTIONS................................................ 9
Variable Portfolios......................................... 9
Anchor Series Trust..................................... 9
SunAmerica Series Trust................................. 9
American Funds Insurance Series......................... 9
Lord Abbett Series Fund, Inc. .......................... 9
Nations Separate Account Trust.......................... 9
Van Kampen Life Investment Trust........................ 9
Fixed Account Options....................................... 10
Polaris Portfolio Allocator Program.........................
Market Value Adjustment ("MVA").............................
Transfers During the Accumulation Phase..................... 11
Dollar Cost Averaging....................................... 10
Asset Allocation Rebalancing Program........................ 13
Voting Rights............................................... 13
Substitution................................................ 13
ACCESS TO YOUR MONEY.............................................. 13
Systematic Withdrawal Program............................... 14
Minimum Contract Value...................................... 15
DEATH BENEFIT..................................................... 15
Standard Death Benefit...................................... 15
Optional Enhanced Death Benefit............................. 15
Purchase Payment Accumulation Option........................ 16
Maximum Anniversary Option.................................. 16
EstatePlus.................................................. 16
Spousal Continuation........................................ 17
EXPENSES.......................................................... 17
Insurance Charges...........................................
Withdrawal Charges.......................................... 18
Investment Charges.......................................... 18
Contract Maintenance Fee.................................... 18
Transfer Fee................................................ 18
Optional Enhanced Death Benefit and EstatePlus Fee.......... 19
Optional Income Protector Fee............................... 19
Premium Tax................................................. 19
Income Taxes................................................ 19
Reduction or Elimination of Charges and Expenses,
and Additional Amounts Credited........................... 19
INCOME OPTIONS.................................................... 19
Annuity Date................................................ 19
Income Options.............................................. 19
Fixed or Variable Income Payments........................... 20
Income Payments............................................. 20
Transfers During the Income Phase........................... 20
Deferment of Payments....................................... 20
The Income Protector Feature................................ 21
Note to Qualified Contract Holders.......................... 22
TAXES............................................................. 22
Annuity Contracts in General................................ 22
Tax Treatment of Distributions - Non-Qualified Contracts.... 23
Tax Treatment of Distributions - Qualified Contracts........ 23
Minimum Distributions....................................... 23
Tax Treatment of Death Benefits............................. 24
Contracts Owned by a Trust or Corporation................... 24
Gifts, Pledges and/or Assignments of a Non-Qualified
Contract.................................................... 24
Diversification............................................. 24
PERFORMANCE....................................................... 24
OTHER INFORMATION................................................. 25
AIG SunAmerica Life......................................... 25
The Separate Account........................................ 25
The General Account......................................... 25
Distribution of the Contract................................ 25
Administration.............................................. 26
Legal Proceedings........................................... 26
Ownership................................................... 26
Custodian...................................................
Independent Accountants..................................... 26
Registration Statement...................................... 26
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL
INFORMATION.................................................... 26
APPENDIX A - CONDENSED FINANCIALS................................. A-1
APPENDIX B - MARKET VALUE ADJUSTMENT ("MVA")...................... B-1
APPENDIX C - DEATH BENEFITS FOLLOWING SPOUSAL
CONTINUATION................................................... C-1
APPENDIX D - HYPOTHETICAL EXAMPLE OF THE OPERATION OF
THE INCOME PROTECTOR FEATURE................................... D-1
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GLOSSARY
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We have capitalized some of the technical terms used in this prospectus.
To help you understand these terms, we have defined them in this
glossary.
ACCUMULATION PHASE - The period during which you invest money in your
contract.
ACCUMULATION UNITS - A measurement 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 are to begin, as
selected by you.
ANNUITY UNITS - 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
which issues this contract.
INCOME PHASE - The period during which we make income payments to you.
IRS - The Internal Revenue Service.
LATEST ANNUITY DATE - Your 95th birthday or 10th 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 pretax dollars. These
contracts are generally purchased under a pension plan, specially
sponsored program or IRA.
TRUSTS - Refers to the American Funds Insurance Series, Anchor Series
Trust, the SunAmerica Series Trust, Lord Abbett Series Fund, Inc.,
Nations Separate Account Trust and Van Kampen Life Investment Trust
collectively.
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 American Funds
Insurance Series, the Anchor Series Trust, the SunAmerica Series Trust,
Lord Abbett Series Fund, Inc., the Nations Separate Account Trust or the
Van Kampen Life Investment Trust.
</Table>
3
- ----------------------------------------------------------------
- ----------------------------------------------------------------
HIGHLIGHTS
- ----------------------------------------------------------------
- ----------------------------------------------------------------
The Polaris Choice(II) Variable Annuity is a contract between you and 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 POLARIS
CHOICE(II) VARIABLE ANNUITY in the prospectus.
EXPENSES: There are fees and charges associated with the contract. Each year, we
deduct a $35 contract maintenance fee from your contract, which may be waived
for contracts of $50,000 or more. We also deduct separate account charges which
equal 1.52% 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 three
complete years, withdrawal charges no longer apply to that portion of the
Purchase Payment. Please see the FEE TABLE, PURCHASING A POLARIS CHOICE(II)
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 choose 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.
4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEE TABLES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
<Table>
MAXIMUM WITHDRAWAL CHARGES (AS A PERCENTAGE OF EACH PURCHASE
PAYMENT)(1)............................................... 7%
</Table>
(1) Withdrawal Charge Schedule (as a percentage of each Purchase Payment)
declines over 3 years as follows
<Table>
YEARS:........................................... 1 2 3 4
7% 6% 5% 0%
</Table>
<Table>
TRANSFER FEE.......... No charge for the first 15 transfers each
contract year; thereafter, the fee is $25
($10 in Pennsylvania and Texas) 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
$35 ($30 in North Dakota) waived if contract value $50,000 or more
SEPARATE ACCOUNT ANNUAL EXPENSES
(DEDUCTED DAILY AS A PERCENTAGE OF YOUR AVERAGE DAILY NET ASSET VALUE)
<Table>
Mortality and Expense Risk Fees....................... 1.37%
Distribution Expense Fee.............................. 0.15%
Optional Enhanced Death Benefit Fee(2)................ 0.20%
Optional EstatePlus Fee(2)............................ 0.25%
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES.............. 1.97%
=====
</Table>
(2) If you do not elect the optional Enhanced Death Benefit and the
EstatePlus feature, your total separate account annual expenses would be
1.52%.
OPTIONAL FEATURE FEE
<Table>
Annual Fee as a % of your Income Benefit Base............... 0.10%
</Table>
The Income Protector is optional and if elected, the fee is deducted
annually from your contract value. The Income Benefit Base which is
described more fully in the prospectus is generally calculated by using your
contract value on the date of your effective enrollment in the program and
then each subsequent contract anniversary, adding Purchase Payments made
since the prior contract anniversary, less proportional withdrawals, and
fees and charges applicable to those withdrawals.
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 EACH OF THE TRUSTS. PLEASE READ THEM 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).................................. 0.60% 2.38%
</Table>
5
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MAXIMUM AND MINIMUM EXPENSE EXAMPLES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, the contract maintenance fee, separate
account annual expenses, fees for optional features 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 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 1.97% (INCLUDING THE
ENHANCED DEATH BENEFIT AND ESTATEPLUS) AND INVESTMENT IN AN UNDERLYING PORTFOLIO
WITH TOTAL EXPENSES OF 2.38%)
(1) If you surrender your contract at the end of the applicable time period and
you elect the optional Enhanced Death Benefit (0.20%) and EstatePlus (0.25%)
and Income Protector (0.10%) features:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$1,151 $1,860 $2,278 $4,614
- -------------------------------------
- -------------------------------------
</Table>
(2) If you do not surrender your contract and you elect the optional Enhanced
Death Benefit (0.20%) and EstatePlus (0.25%) and Income Protector (0.10%)
features:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$451 $1,360 $2,278 $4,614
- -------------------------------------
- -------------------------------------
</Table>
(3) If you annuitize your contract:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$392 $1,189 $2,004 $4,121
- -------------------------------------
- -------------------------------------
</Table>
MINIMUM EXPENSE EXAMPLES
(ASSUMING MINIMUM SEPARATE ACCOUNT ANNUAL CHARGES OF 1.52% AND INVESTMENT IN AN
UNDERLYING PORTFOLIO WITH TOTAL EXPENSES OF 0.60%)
(1) If you surrender your contract at the end of the applicable time period and
you do not elect any optional features:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$ 920 $1,179 $1,164 $2,503
- -------------------------------------
- -------------------------------------
</Table>
(2) If you do not surrender your contract and you do not elect any optional
features:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$220 $679 $1,164 $2,503
- -------------------------------------
- -------------------------------------
</Table>
(3) If you annuitize your contract:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$215 $664 $1,139 $2,452
- -------------------------------------
- -------------------------------------
</Table>
6
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. We converted the
contract maintenance fee to a percentage (0.05%). The actual impact of the
contract maintenance fee may differ from this percentage and may be waived
for contract values over $50,000. The underlying portfolio expenses used to
calculate the maximum expense examples are estimated because the underlying
portfolio was not available for the entire fiscal year. 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. Examples reflecting application of optional features and benefits use the
highest fees and charges at which those features are being offered.
4. 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 A -- CONDENSED FINANCIAL INFORMATION.
- ----------------------------------------------------------------
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THE POLARIS CHOICE(II) VARIABLE ANNUITY
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An annuity is a contract between you and an insurance company. You are the owner
of the contract. The contract provides three main benefits:
- Tax Deferral: This means that you do not pay taxes on your earnings from
the annuity until you withdraw them.
- Death Benefit: If you die during the Accumulation Phase, the insurance
company pays a death benefit to your Beneficiary.
- Guaranteed Income: If elected, you receive a stream of income for your
lifetime, or another available period you select.
Tax-qualified retirement plans (e.g., IRAs, 401(k) or 403(b) plans) defer
payment of taxes on earnings until withdrawal. If you are considering funding a
tax-qualified retirement plan with an annuity, you should know that an annuity
does not provide any additional tax deferral treatment of earnings beyond the
treatment provided by the tax-qualified retirement plan itself. However,
annuities do provide other features and benefits which may be valuable to you.
You should fully discuss this decision with your financial representative.
This annuity was developed to help you contribute to your retirement savings.
This annuity works in two stages, the Accumulation Phase and the Income Phase.
Your contract is in the Accumulation Phase during the period when you make
payments into the contract. The Income Phase begins when you request us to start
making income payments to you out of the money accumulated in your contract.
The contract is called a "variable" annuity because it allows you to invest in
Variable Portfolios which, like mutual funds, have different investment
objectives and performance which varies. You can gain or lose money if you
invest in these Variable Portfolios. The amount of money you accumulate in your
contract depends on the performance of the Variable Portfolios in which you
invest.
The contract also offers several fixed account options for varying time periods.
Fixed account options earn interest at a rate set and guaranteed by AIG
SunAmerica Life. If you allocate money to the fixed account options, the amount
of money that accumulates in the contract depends on the total interest credited
to the particular fixed account option(s) in which you invest.
For more information on investment options available under this contract SEE
INVESTMENT OPTIONS BELOW.
This annuity is designed to assist in contributing to retirement savings of
investors whose personal circumstances allow for a long-term investment time
horizon. As a function of the Internal Revenue Code ("IRC"), you may be assessed
a 10% federal tax penalty on any withdrawal made prior to your reaching age
59 1/2. Additionally, this contract provides that you will be charged a
withdrawal charge on each Purchase Payment withdrawn if that Purchase Payment
has not been invested in this contract for at least 3 years. Because of these
potential penalties, you should fully discuss all of the benefits and risks of
this contract with your financial representative prior to purchase.
AIG SunAmerica Life issues the Polaris Choice(II) Variable Annuity. When you
purchase a Polaris Choice(II) Variable Annuity, a contract exists between you
and AIG SunAmerica Life. The Company 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. The Company conducts life
insurance and annuity business in the District of Columbia and all states except
New York. AIG SunAmerica Life is an indirect, wholly owned subsidiary of
American International Group, Inc. ("AIG"), a Delaware corporation.
- ----------------------------------------------------------------
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PURCHASING A POLARIS CHOICE(II)
VARIABLE ANNUITY
- ----------------------------------------------------------------
- ----------------------------------------------------------------
An initial 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.
7
The following chart shows the minimum initial and subsequent Purchase Payments
permitted under your contract. These amounts depend upon whether a contract is
Qualified or Non-qualified for tax purposes. FOR FURTHER EXPLANATION, SEE TAXES
BELOW.
<Table>
<Caption>
- -----------------------------------------------------------
Minimum
Minimum Initial Subsequent
Purchase Payment Purchase Payment
- -----------------------------------------------------------
Qualified $ 2,000 $250
- -----------------------------------------------------------
Non-Qualified $10,000 $500
- -----------------------------------------------------------
</Table>
We reserve the right to require company approval prior to accepting Purchase
Payments greater than $1,000,000. For contracts owned by a non-natural owner, we
reserve the right to require prior Company approval to accept Purchase Payments
greater than $250,000. Subsequent Purchase Payments that would cause total
Purchase Payments in all contracts issued by AIG SunAmerica Life to the same
owner to exceed these limits may also be subject to company pre-approval. We
reserve the right to change the amount at which pre-approval is required, at any
time. Also, the optional automatic payment plan allows you to make subsequent
Purchase Payments of as little as $100 after the initial Purchase Payment amount
is met.
In general, we 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 age 86 or
older on the contract issue date. You may not elect to participate in the
EstatePlus benefit if you are age 81 or older at the time of contract issue.
We allow spouses to jointly own this contract. However, the age of the older
spouse is used to determine the availability of any age driven benefits. The
addition of a joint owner after the contract has been issued is contingent upon
prior review and approval by the Company.
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 will invest the money according to your last
allocation instructions. SEE INVESTMENT OPTIONS BELOW.
In order to issue your contract, we must receive your completed application,
and/or 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 ("PST"), or on the next business day's unit value if we receive your money
after 1 p.m. PST. The value of an Accumulation Unit goes up and down based on
the performance of the Variable Portfolios.
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 Global Bond Portfolio. We determine that the value of an
Accumulation Unit for the Global Bond Portfolio is $11.10 when the NYSE
closes on Wednesday. We then divide $25,000 by $11.10 and credit your
contract on Wednesday night with 2,252.2523 Accumulation Units for the
Global Bond Portfolio.
Performance of the Variable Portfolios 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). We call this a "free look." To cancel, you must mail the
contract along with your free look request to our Annuity Service Center at P.O.
Box 54299, Los Angeles, California 90054-0299.
If you decide to cancel your contract during the free look period, generally we
will refund to you the value of your contract on the day we receive your
request.
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. With respect to those contracts, we reserve
the right to put your money in the Cash Management Portfolio during the free
look period and will allocate your money according to your instructions at the
end of the applicable free look period. Currently, we do not put your money in
the Cash Management Portfolio during the free look period unless you allocate
your money to it. If your contract was issued in a state requiring
8
return of Purchase Payments or as an IRA and you cancel your contract during the
free look period, we return the greater of (1) your Purchase Payments; or (2)
the value of your contract. At the end of the free look period, we allocate your
money according to your instructions.
EXCHANGE OFFERS
From time to time, we may offer to allow you to exchange an older variable
annuity issued by AIG SunAmerica Life or one of its affiliates, for a newer
product with more current features and benefits, also issued by AIG SunAmerica
Life or one of its affiliates. Such an exchange offer will be made in accordance
with applicable state and federal securities and insurance rules and
regulations. We will explain the specific terms and conditions of any such
exchange offer at the time the offer is made.
- ----------------------------------------------------------------
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INVESTMENT OPTIONS
- ----------------------------------------------------------------
- ----------------------------------------------------------------
VARIABLE PORTFOLIOS
The Variable Portfolios invest in shares of the Trusts listed below. Additional
Trusts and/or Variable Portfolios may be available in the future. The Variable
Portfolios are only available through the purchase of certain insurance
contracts. All Variable Portfolios may not be available to you. Please check
with your financial representative.
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
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
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.
AMERICAN FUNDS INSURANCE SERIES
Capital Research and Management Company is the investment adviser for the
American Funds Insurance Series Class 2 shares ("AFIS"). AFIS contains
investment portfolios in addition to those listed here which are not available
for investment under this contract.
LORD ABBETT SERIES FUND, INC.
Lord, Abbett & Co. manages over 40 mutual fund portfolios and other advisory
accounts. Lord Abbett Series Fund, Inc. ("LASF") contains investment portfolios
in addition to those listed here which are not available for investment under
this contract.
NATIONS SEPARATE ACCOUNT TRUST
Various subadvisers provide investment advice for the Nations Separate Account
Trust Portfolios. Nations Separate Account Trust ("NSAT") contains investment
portfolios in addition to those listed here which are not available for
investment under this contract.
VAN KAMPEN LIFE INVESTMENT TRUST
Van Kampen Asset Management Inc. provides investment advice for the Van Kampen
Life Investment Trust Class II Shares ("VKT") Portfolios. Van Kampen Life
Investment Trust contains investment portfolios in addition to those listed here
which are not available for investment under this contract.
STOCKS:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio SAST
- Blue Chip Growth Portfolio SAST
- "Dogs" of Wall Street Portfolio SAST
- Growth Opportunities Portfolio SAST
MANAGED BY ALLIANCEBERNSTEIN
- Small & Mid Cap Value Portfolio SAST
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
- Alliance Growth Portfolio SAST
- Global Equities Portfolio SAST
- Growth & Income Portfolio SAST
MANAGED BY CAPITAL RESEARCH AND MANAGEMENT COMPANY
- American Funds Global Growth Portfolio AFIS
- American Funds Growth Portfolio AFIS
- American Funds Growth-Income Portfolio AFIS
MANAGED BY DAVIS ADVISORS
- Davis Venture Value Portfolio SAST
- Real Estate Portfolio SAST
MANAGED BY FEDERATED INVESTMENT COUNSELING
- Federated American Leaders Portfolio SAST
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
- Goldman Sachs Research Portfolio SAST
MANAGED BY LORD, ABBETT & CO.
- Lord Abbett Series Fund Growth and Income Portfolio LASF
MANAGED BY MARSICO CAPITAL MANAGEMENT, LLC
- Nations Marsico Focused Equities Portfolio NSAT
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Massachusetts Investors Trust Portfolio SAST
- MFS Mid-Cap Growth Portfolio SAST
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, LLC
- Emerging Markets Portfolio SAST
- International Growth & Income Portfolio SAST
- Putnam Growth Portfolio SAST
MANAGED BY TEMPLETON INVESTMENT COUNSEL, LLC
- Foreign Value Portfolio SAST
9
MANAGED BY VAN KAMPEN/VAN KAMPEN ASSET MANAGEMENT
- International Diversified Equities Portfolio SAST
- Technology Portfolio SAST
- Van Kampen LIT Comstock Portfolio, Class II Shares VKT
- Van Kampen LIT Emerging Growth Portfolio, Class II Shares VKT
- Van Kampen LIT Growth and Income Portfolio, Class II Shares VKT
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio AST
- Growth Portfolio AST
- Natural Resources Portfolio AST
BALANCED:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- SunAmerica Balanced Portfolio SAST
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Total Return Portfolio SAST
MANAGED BY WM ADVISORS, INC.
- Asset Allocation Portfolio SAST
BONDS:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- High-Yield Bond Portfolio SAST
MANAGED BY FEDERATED INVESTMENT COUNSELING
- Corporate Bond Portfolio SAST
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT INT'L.
- Global Bond Portfolio SAST
MANAGED BY MACKAY SHIELDS LLC
- Nations High Yield Bond Portfolio NSAT
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- 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 CONTAIN DETAILED INFORMATION ABOUT THE VARIABLE PORTFOLIOS,
INCLUDING EACH VARIABLE PORTFOLIO'S INVESTMENT OBJECTIVE AND RISK FACTORS.
FIXED ACCOUNT OPTIONS
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.
- 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 B 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
10
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.
ASSET ALLOCATION PROGRAM
PROGRAM DESCRIPTION
The program, is offered to help you diversify your investment across various
asset classes. Each model is comprised of a carefully selected combination of
investment options using the various asset classes based on historical asset
class performance to meet specific investment time horizons and risk tolerances.
ENROLLING IN THE PROGRAM
You may enroll in the program by selecting the model as well as any program
options on the product application form. If you already own a policy, you must
complete and submit a program election form. You and your financial
representative may determine the model most appropriate for you. You may
discontinue investment in the program at any time with a written request,
telephone or internet instructions, subject to our rules.
You may also choose to invest gradually into a model through the dollar cost
averaging program. You may only invest in one model at a time. You may invest
outside your selected model but only in those Variable Portfolios that are not
utilized in the model you selected. A transfer into or out of one of the
Variable Portfolios in your model, outside of the specifications in the model
will effectively terminate your participation in the program.
WITHDRAWALS
You may request withdrawals, as permitted by your contract, which will be taken
proportionately from each of the allocations in the selected model unless
otherwise instructed by you. If you choose to make a non-proportional withdrawal
from the Variable Portfolios in the model, your investment may no longer be
consistent with the model's intended objectives.
Withdrawals may be subject to a withdrawal charge. Withdrawals may be taxable
and a 10% IRS penalty may apply if you are under age 59 1/2.
KEEPING YOUR PROGRAM ON TARGET
REBALANCING
You can elect to have your contract rebalanced quarterly, semi-annually, or
annually to maintain the asset allocation for the model you selected. Only those
investment options within each model will be rebalanced. An investment outside
the Portfolio Allocator model can not be rebalanced.
ANNUAL RE-EVALUATION
Each year, on or about March 31, the allocations in every model are re-evaluated
to assure that the investment objectives remain consistent. The percentage
allocations within each model may change and investment options may be added to
or deleted from a model as a result of the annual re-evaluation. You must
re-enroll in the program each year to benefit from the re-evaluation. You may
choose to be automatically re-enrolled annually by re-selecting that option on
the contract application form or program election form.
IMPORTANT INFORMATION
Using an asset allocation methodology does not guarantee greater or more
consistent returns. Historical market and asset class performance may differ in
the future from the historical performance upon which the models are built.
Also, allocation to a single asset class may outperform a model, so that you
could have been better off in an investment option or options representing a
single asset class than in a model. However, such a strategy involves a greater
degree of risk because of the concentration of like securities in a single asset
class.
The models represent suggested allocations which are provided as general
guidance. You should work with your financial representative to assist you in
determining if one of the models meets your financial needs, investment time
horizon, and is consistent with your risk comfort level. Information concerning
the specific models can be obtained from your financial representative.
We have the right to modify, suspend or terminate the Asset Allocation Program
at any time.
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase you may transfer funds between the Variable
Portfolios and/or the fixed account option. Funds already in your contract
cannot be transferred into the DCA fixed accounts. You must transfer at least
$100. If less than $100 will remain in any Variable Portfolio after a transfer,
that amount must be transferred as well.
Subject to certain rules, you may request transfers of your account value
between the Variable Portfolios and/or the fixed account options in writing or
by telephone. Additionally, you may access your account and request transfers
between Variable Portfolios and/or the fixed account options through AIG
SunAmerica's website (http://www.aigsunamerica.com). We currently allow 15 free
transfers per contract per year. We charge $25 ($10 in Pennsylvania and Texas)
for each additional transfer in any contract year. Transfers resulting from your
participation in the DCA program count against your 15 free transfers per
contract year. However, transfers resulting from your participation in the asset
rebalancing program do not count against your 15 free transfers.
We may accept transfer requests 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
11
follow appropriate procedures 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 fraudulent instructions.
This product is not designed for professional "market timing" organizations or
other organizations or individuals engaged in trading strategies that seek to
benefit from short term price fluctuations or price irregularities by making
programmed transfers, frequent transfers or transfers that are large in relation
to the total assets of the underlying portfolio in which the Variable Portfolios
invest. These market timing strategies are disruptive to the underlying
portfolios in which the Variable Portfolios invest and thereby potentially
harmful to investors. If we determine, in our sole discretion, that your
transfer patterns among the Variable Portfolios reflect a market timing
strategy, we reserve the right to take action to protect the other investors.
Such action may include but would not be limited to restricting the way you can
request transfers among the Variable Portfolios, imposing penalty fees on such
trading activity, and/or otherwise restricting transfer options in accordance
with state and federal rules and regulations.
Regardless of the number of transfers you have made, we will monitor and, upon
written notification, may terminate your transfer privileges if we determine
that you are engaging in a pattern of transfers that reflects a market timing
strategy or is potentially harmful to other policy owners. Some of the factors
we will consider include:
- the dollar amount of the transfer;
- the total assets of the Variable Portfolio involved in the transfer;
- the number of transfers completed in the current calendar quarter; or
- whether the transfer is part of a pattern of transfers to take advantage
of short-term market fluctuations or market inefficiencies.
Any transfer request in excess of 12 transfers per contract year must be
submitted in writing by U.S. mail. Transfer requests sent by same day mail,
overnight mail or courier services will not be accepted. We will process any
transfer request as of the day we receive it, if received before close of the
New York Stock Exchange ("NYSE"), generally at 1:00 p.m. PST. If the transfer
request is received after the close of the NYSE, the request will be processed
on the next business day.
Transfer requests required to be submitted by U.S. mail can only be cancelled in
writing by U.S. mail. We will process a cancellation request only if it is
received prior to or simultaneous with the original transfer request.
For information regarding transfers during the Income Phase, SEE INCOME OPTIONS
BELOW.
We reserve the right to modify, suspend, waive or terminate these transfer
provisions at any time.
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 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.
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 Aggressive 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
12
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.
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 in the Variable Portfolios 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. Currently, there is no fee for
participating in the Asset Allocation Rebalancing Program.
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 Corporate Bond Portfolio and 50%
in the Growth Portfolio. Over the next calendar quarter, the bond market
does very well while the stock market performs poorly. At the end of the
calendar quarter, the Corporate Bond Portfolio now represents 60% of your
holdings because it has increased in value and the 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
Corporate Bond Portfolio to bring its holdings back to 50% and use the
money to buy more units in the Growth Portfolio to increase those holdings
to 50%.
PRINCIPAL ADVANTAGE PROGRAM
The Principal Advantage 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
account options and Variable Portfolios. You decide how much you want to 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. We invest the rest of your principal in the Variable Portfolio(s)
of your choice. Currently, there is no fee for participating in the Principal
Advantage Program.
This program is only available if we are offering multi-year fixed account
options. We reserve the right to modify, suspend or terminate this program at
any time.
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.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
ACCESS TO YOUR MONEY
- ----------------------------------------------------------------
- ----------------------------------------------------------------
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 OPTIONS
BELOW.
Generally, we deduct a withdrawal charge applicable to any total or partial
withdrawal and a MVA if a partial withdrawal comes from the 3 year fixed account
option. If you withdraw your entire contract value, we also deduct applicable
premium taxes and a contract maintenance fee. SEE EXPENSES BELOW.
Your contract provides for a free withdrawal amount each year. A free withdrawal
amount is the portion of your account that we allow you to take out each year
without being charged a surrender penalty. However, upon a future full surrender
of your contract any previous free withdrawals would be subject to a surrender
charge, if any is applicable at the time of the full surrender (except in the
state of Washington).
Purchase payments, above and beyond the amount of your free withdrawal amount,
that are withdrawn prior to the end of the third year will result in your paying
a penalty in the form of a surrender charge. The amount of the charge and how it
applies are discussed more fully below. SEE EXPENSES BELOW. You should consider,
before purchasing this contract, the effect this charge will have on your
investment if you need to withdraw more money than the free
13
withdrawal amount. You should fully discuss this decision with your financial
representative.
To determine your free withdrawal amount and your withdrawal charge, we refer to
two special terms. These are penalty free earnings and the total invested
amount.
The penalty-free earnings portion of your contract is simply your account value
less your total invested amount. The total invested amount is the total of all
Purchase Payments you have made into the contract less portions of some prior
withdrawals you made. The portions of prior withdrawals that reduce your total
invested amount are as follows:
- Free withdrawals in any year that were in excess of your penalty-free
earnings and were based on the part of the total invested amount that was
no longer subject to withdrawal charges at the time of the withdrawal,
and
- Any prior withdrawals (including withdrawal charges on those withdrawals)
of the total invested amount on which you already paid a surrender
penalty.
When you make a withdrawal, we assume that it is taken from penalty-free
earnings first, then from the total invested amount on a first-in, first-out
basis. This means that you can access your Purchase Payments which are no longer
subject to a withdrawal charge before those Purchase Payments which are still
subject to the withdrawal charge.
During the first year after we issue your contract your free withdrawal amount
is the greater of (1) your penalty-free earnings; and (2) if you are
participating in the Systematic Withdrawal program, a total of 10% of your total
invested amount. If you are a Washington resident, you may withdraw during the
first contract year, the greater of (1); (2); or (3) interest earnings from the
amounts allocated to the fixed account options, not previously withdrawn.
After the first contract year, you can take out the greater of the following
amounts each year (1) your penalty-free earnings and any portion of your total
invested amount no longer subject to withdrawal charge or (2) 10% of the portion
of your total invested amount that has been in your contract for at least one
year. If you are a Washington resident, your maximum free withdrawal amount,
after the first contract year, is the greater of (1); (2); or (3) interest
earnings from amounts allocated to the fixed account options, not previously
withdrawn.
We calculate charges due on a total withdrawal on the day after we receive your
request and your contract. We return to you your contract value less any
applicable fees and charges.
The withdrawal charge percentage is determined by the age of the Purchase
Payment remaining in the contract at the time of the withdrawal. For the purpose
of calculating the withdrawal charge, any prior Free Withdrawal is not
subtracted from the total Purchase Payments still subject to withdrawal charges.
For example, you make an initial Purchase Payment of $100,000. For purposes of
this example we will assume a 0% growth rate over the life of the contract and
no subsequent Purchase Payments. In contract year 2, you take out your maximum
free withdrawal of $10,000. After that free withdrawal your contract value is
$90,000. In contract year 3 you request a full surrender of your contract. We
will apply the following calculation,
A-(B x C)=D, where:
A=Your contract value at the time of your request for surrender ($90,000)
B=The amount of your Purchase Payments still subject to withdrawal charge
($100,000)
C=The withdrawal charge percentage applicable to the age of each Purchase
Payment (5%)[B x C=$5,000]
D=Your full surrender value ($85,000)
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 us
with different instructions, partial withdrawals will be made pro rata from each
Variable Portfolio and the fixed account option(s) in which your contract is
invested.
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% federal penalty tax. SEE TAXES BELOW.
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 a 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, semi-annual or annual payments from your contract.
Electronic transfer of these funds to your bank account is also available. The
minimum amount of each withdrawal is $100. If you purchase your contract in
Oregon, the minimum withdrawal amount is $250 per withdrawal or an amount equal
to your free withdrawal amount, as described on above. There must be at least
$500 remaining in your contract at all times. Withdrawals may be taxable and a
10% federal penalty tax may apply if you are under age 59 1/2. There is no
additional charge for participating in this program, although a withdrawal
charge and/or MVA may apply.
The program is not available to everyone. Please check with our Annuity Service
Center, which can provide the necessary enrollment forms. We reserve the right
to modify, suspend or terminate this program at any time.
14
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's remaining value to you.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
DEATH BENEFIT
- ----------------------------------------------------------------
- ----------------------------------------------------------------
If you die during the Accumulation Phase of your contract, we pay a death
benefit to your Beneficiary. At the time you purchase your contract, you must
select a death benefit option. This contract provides three death benefit
options. The first is the Standard Death Benefit which is automatically included
in your contract for no additional fee. We also offer, for an additional fee,
the selection of one of two enhanced death benefit options. If you choose one of
the enhanced death benefit options, you may also elect, for an additional fee,
the EstatePlus feature. Your death benefit elections must be made at the time of
contract application and the election cannot be terminated. You should discuss
the available options with your financial representative to determine which
option is best for you.
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 OPTIONS BELOW.
You name your Beneficiary. You may change the Beneficiary at any time, unless
you previously made an irrevocable Beneficiary designation.
We calculate and pay the death benefit when we receive all required paperwork
and 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 your death.
If the Beneficiary is the spouse of a deceased owner, he or she can elect to
continue the Contract. SEE SPOUSAL CONTINUATION BELOW.
If a Beneficiary does not elect a specific form of pay out within 60 days of our
receipt of all required paperwork and satisfactory proof of death, we pay a lump
sum death benefit to the Beneficiary.
The term "Net Purchase Payment" is used frequently in explaining the death
benefit options. Net Purchase Payment is an on-going calculation. It does not
represent a contract value.
We define Net Purchase Payments as Purchase Payments less an Adjustment for each
withdrawal. If you have not taken any withdrawals from your contract, Net
Purchase Payments equals total Purchase Payments into your contract. To
calculate the Adjustment amount for the first withdrawal made under the
contract, we determine the percentage by which the withdrawal reduced contract
value. For example, a $10,000 withdrawal from a $100,000 contract is a 10%
reduction in value. This percentage is calculated by dividing the amount of each
withdrawal (including fees and charges applicable to the withdrawal) by the
contract value immediately before taking that withdrawal. The resulting
percentage is then multiplied by the amount of total Purchase Payments and
subtracted from the amount of total Purchase Payments on deposit at the time of
the withdrawal. The resulting amount is the initial Net Purchase Payment
calculation.
To arrive at the Net Purchase Payment calculation for subsequent withdrawals, we
determine the percentage by which the contract value is reduced by taking the
amount of the withdrawal in relation to the contract value immediately before
taking the withdrawal. We then multiply the Net Purchase Payment calculation as
determined prior to the withdrawal by this percentage. We subtract that result
from the Net Purchase Payment calculation as determined prior to the withdrawal
to arrive at all subsequent Net Purchase Payment calculations.
STANDARD DEATH BENEFIT
The standard death benefit on your contract is the greater of:
1. Net Purchase Payments; or
2. the contract value on the date we receive all required paperwork and
satisfactory proof of death.
OPTIONAL ENHANCED DEATH BENEFITS
For an additional fee, you may elect one of the enhanced death benefits below
which can provide greater protection for your beneficiaries. You must choose
either Option 1 or Option 2 at the time you purchase your contract and you
cannot change your election at any time. The enhanced death benefit options are
not available if you are age 91 or older at the time of contract issue. The fee
for the enhanced death
15
benefit is 0.20% of the average daily ending value of the assets you have
allocated to the Variable Portfolios.
OPTION 1 - PURCHASE PAYMENT ACCUMULATION OPTION
The death benefit is the greatest of:
1. the contract value on the date we receive all required paperwork and
satisfactory proof of death; or
2. Net Purchase Payments, compounded at a 4% annual growth rate until the
date of death (3% growth rate if age 70 or older at the time of contract
issue) plus any Purchase Payments recorded after the date of death; and
reduced for any withdrawals recorded after the date of death in the same
proportion that the withdrawal reduced the contract value on the date of
the withdrawal; or
3. the contract value on the seventh contract anniversary, plus Purchase
Payments, since the seventh contract anniversary; and reduced for
withdrawals since the seventh contract anniversary in the same
proportion that the contract value was reduced on the date of such
withdrawal, all compounded at a 4% annual growth rate until the date of
death (3% growth rate if age 70 or older at the time of contract issue)
plus any Purchase Payments recorded after the date of death; and reduced
for any withdrawals recorded after the date of death in the same
proportion that the withdrawal reduced the contract value on the date of
the withdrawal.
OPTION 2 - MAXIMUM ANNIVERSARY OPTION
The death benefit is the greatest of:
1. the contract value on the date we receive all required paperwork and
satisfactory proof of death; or
2. Net Purchase Payments; or
3. the maximum anniversary value on any contract anniversary prior to your
81st birthday. The anniversary value equals the contract value on a
contract anniversary plus any Purchase Payments since that anniversary;
and reduced for any withdrawals since that contract anniversary in the
same proportion that the withdrawal reduced the contract value on the
date of the withdrawal.
If you are age 90 or older at the time of death and selected the Maximum
Anniversary death benefit, the death benefit will be equal to the contract value
at the time we receive all required paperwork and satisfactory proof of death.
Accordingly, you do not get the advantage of this option if:
- you are age 81 or older at the time of contract issue; or
- you are age 90 or older at the time of your death.
The Death Benefit on contracts issued before October 24, 2001 would be subject
to a different calculation. Please see the Statement of Additional Information
for details.
OPTIONAL ESTATEPLUS FEATURE
The EstatePlus benefit, if elected, may increase the death benefit amount. In
order to elect EstatePlus, you must have also elected one of the optional
enhanced death benefits described above. If you have earnings in your contract
at the time of death, we will add a percentage of those earnings (the
"EstatePlus Percentage"), subject to a maximum dollar amount (the "Maximum
EstatePlus Amount"), to the death benefit payable. The contract year of your
death will determine the EstatePlus percentage and the Maximum EstatePlus
percentage.
The table below provides the details if you are age 69 or younger at the time we
issue your contract:
<Table>
<Caption>
- -------------------------------------------------------------
CONTRACT YEAR ESTATEPLUS MAXIMUM
OF DEATH PERCENTAGE ESTATEPLUS AMOUNT
- -------------------------------------------------------------
Years 0 - 4 25% of Earnings 40% of Net Purchase
Payments
- -------------------------------------------------------------
Years 5 - 9 40% of Earnings 65% of Net Purchase
Payments*
- -------------------------------------------------------------
Years 10+ 50% of Earnings 75% of Net Purchase
Payments*
- -------------------------------------------------------------
</Table>
If you are between your 70th and 81st birthdays at the time we issue your
contract the table below shows the available EstatePlus benefit:
<Table>
<Caption>
- -------------------------------------------------------------
CONTRACT YEAR ESTATEPLUS MAXIMUM
OF DEATH PERCENTAGE ESTATEPLUS AMOUNT
- -------------------------------------------------------------
All Contract 25% of Earnings 40% of Net Purchase
Years Payments*
- -------------------------------------------------------------
</Table>
* Purchase Payments received after the 5th contract anniversary must remain in
the contract for at least 6 full months to be included as part of Net Purchase
Payments for the purpose of the Maximum EstatePlus Amount calculations.
We may offer different levels of this benefit based on the number of years you
hold your contract and/or your age at the time of issue.
What is the Contract Year of Death?
Contract Year of Death is the number of full 12 month periods beginning with the
date your contract is issued and ending on the date of death.
What is the EstatePlus Percentage Amount?
We determine the amount of the EstatePlus benefit, based on a percentage of the
earnings in your contract at the time of your death. For the purpose of this
calculation, earnings equals contract value minus Net Purchase Payments as of
the date of death. If the earnings amount is negative, no EstatePlus amount will
be added.
16
What is the Maximum EstatePlus Amount?
The EstatePlus benefit is subject to a maximum dollar amount. The maximum
EstatePlus amount is equal to a percentage of your Net Purchase Payments.
You must elect EstatePlus at the time of contract application. Once elected, you
may not terminate or change this election.
We assess a 0.25% fee for EstatePlus. Therefore, electing both the enhanced
death benefit and EstatePlus result in a combined fee of 0.45%. On a daily basis
we deduct this annualized charge from the average daily ending value of the
assets you have allocated to the Variable Portfolios.
EstatePlus is not available if you are age 81 or older at the time we issue your
contract. Furthermore, a Continuing Spouse cannot benefit from EstatePlus if
he/she is age 81 or older on the Continuation Date. SEE SPOUSAL CONTINUATION
BELOW. The EstatePlus benefit is not payable after the Latest Annuity Date. You
may pay for the EstatePlus benefit and your beneficiary may never receive the
benefit if you live past the Latest Annuity Date. SEE INCOME OPTIONS BELOW.
EstatePlus may not be available in your state or through the broker-dealer with
which your financial advisor is affiliated. See your financial advisor for
information regarding availability.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE ESTATEPLUS BENEFIT (IN
ITS ENTIRETY OR ANY COMPONENT AT ANY TIME) AT ANY TIME FOR PROSPECTIVELY ISSUED
CONTRACTS.
SPOUSAL CONTINUATION
If you are the original owner of the contract and the Beneficiary is your
spouse, your spouse may elect to continue the contract after your death. The
spouse becomes the new owner ("Continuing Spouse"). Generally, the contract and
its elected features, if any, remain the same. The Continuing Spouse is subject
to the same fees, charges and expenses applicable to the original owner of the
contract. A spousal continuation can only take place upon the death of the
original owner of the contract.
To the extent that the Continuing Spouse invests in the Variable Portfolios or
MVA fixed accounts, they will be subject to investment risk as was the original
owner.
Upon a spouse's continuation of the contract, we will contribute to the contract
value an amount by which the death benefit that would have been paid to the
beneficiary upon the death of the original owner exceeds the contract value
("Continuation Contribution"), if any. We calculate the Continuation
Contribution as of the date of the original owner's death. We will add the
Continuation Contribution as of the date we receive both the Continuing Spouse's
written request to continue the contract and proof of death of the original
owner in a form satisfactory to us ("Continuation Date"). The Continuation
Contribution is not considered a Purchase Payment for the purposes of any other
calculations except as explained in Appendix C.
Generally, the age of the Continuing Spouse on the Continuation Date (if any
Continuation Contribution has been made) and on the date of the Continuing
Spouse's death will be used in determining any future death benefits under the
Contract. If no Continuation Contribution has been made to the contract on the
Continuation Date, the age of the spouse on the date of the original contract
issue will be used to determine any age-driven benefits.
The Continuing Spouse, generally, cannot change any contract provisions as the
new owner. However, on the Continuation Date, the Continuing Spouse may
terminate the original owner's election of the optional enhanced death benefit
and, if elected, EstatePlus. The Continuing Spouse cannot elect to continue
EstatePlus without also continuing the enhanced death benefit. If a Continuation
Contribution is made, we will terminate the enhanced death benefit if the
Continuing Spouse is age 86 or older on the Continuation Date. We will terminate
EstatePlus if the Continuing Spouse is age 81 or older on the Continuation Date.
If the enhanced death benefit and/or EstatePlus is terminated or if the
Continuing Spouse dies after the latest Annuity Date, no benefit will be payable
under the Estate Plus feature.
SEE APPENDIX C FOR A DISCUSSION OF THE DEATH BENEFIT CALCULATIONS AFTER A
SPOUSAL CONTINUATION.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE SPOUSAL CONTINUATION
PROVISION (IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME FOR PROSPECTIVELY
ISSUED CONTRACTS.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
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 1.52%,
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.
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
17
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
separate account charge is expected to result in a profit. Profit may be used
for any legitimate cost or expense including distribution, depending upon market
conditions.
OTHER REVENUE
We may receive compensation of up to 0.40% from the investment advisers of
certain of the underlying portfolios for services related to the availability of
those underlying portfolios in the Contract.
WITHDRAWAL CHARGES
The contract provides a free withdrawal amount every year. SEE ACCESS TO YOUR
MONEY ABOVE. If you take money out in excess of the free withdrawal amount, you
may incur a withdrawal charge. You may also incur a withdrawal charge upon a
full surrender.
We apply a withdrawal charge against each Purchase Payment you put into the
contract. After a Purchase Payment has been in the contract for 3 complete
years, no withdrawal charge applies. 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
- ----------------------------------------------------------------
WITHDRAWAL
CHARGE 7% 6% 5% 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. SEE ACCESS TO YOUR MONEY ABOVE.
Whenever possible, we deduct the withdrawal charge from the money remaining in
your contract. If you withdraw all of your contract value, we deduct any
applicable withdrawal charges from the amount withdrawn.
We will not assess a withdrawal charge for money withdrawn to pay a death
benefit or to pay contract fees or charges. We will not assess a withdrawal
charge when you switch to the Income Phase, except when you elect to receive
income payments using the Income Protector feature. If you elect to receive
income payments using the Income Protector feature, we assess the entire
withdrawal charge applicable to Purchase Payments remaining in your contract
when calculating your income benefit base. SEE INCOME OPTIONS BELOW.
Withdrawals made prior to age 59 1/2 may result in tax penalties. SEE TAXES
BELOW.
INVESTMENT CHARGES
INVESTMENT MANAGEMENT FEES
Charges are deducted from your Variable Portfolios for the advisory and other
expenses of the Variable Portfolios. The FEE TABLES above illustrate these
charges and expenses. For more detailed information on these investment charges,
refer to the accompanying prospectuses for the Trusts.
12b-1 FEES
Shares of certain trusts may be subject to fees imposed under a distribution
and/or servicing plan adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940. For SunAmerica Series Trust ("SAST"), under the
distribution plan which is applicable to Class 2 and 3 shares, recaptured
brokerage commissions will be used to make payments to SunAmerica Capital
Services, Inc., the SAST Distributor, to pay for various distribution activities
on behalf of the SAST Portfolios. These distribution fees will not increase the
cost of your investment or affect your return.
In addition, the 0.15% to 0.25% fees applicable to Anchor Series Trust
SunAmerica Series Trust, the Class II shares of the Van Kampen Life Investment
Trust, Class 2 shares of American Funds Insurance Series, and Nations Separate
Account Trust, as shown in the Fee Table, are generally used to pay financial
intermediaries for services provided over the life of your contract.
For more detailed information on these Investment Charges, refer to the
prospectuses for the underlying portfolios.
CONTRACT MAINTENANCE FEE
During the Accumulation Phase, we subtract a contract maintenance fee from your
account once per year. This charge compensates us for the cost of contract
administration. We deduct the $35 contract maintenance fee ($30 in North Dakota)
from your account value on your contract anniversary. If you withdraw your
entire contract value, we deduct the fee from that withdrawal.
If your contract value is $50,000 or more on your contract anniversary date, we
will waive the charge. This waiver is subject to change without notice.
TRANSFER FEE
We generally permit 15 free transfers between investment options each contract
year. We charge you $25 for each additional transfer that contract year ($10 in
Pennsylvania and Texas). SEE INVESTMENT OPTIONS ABOVE.
18
OPTIONAL ENHANCED DEATH BENEFIT FEE
The fee for the optional enhanced death benefit is 0.20% of the average daily
ending value of the assets you have allocated to the Variable Portfolios.
OPTIONAL ESTATEPLUS FEE
We charge 0.25% for the EstatePlus feature. On a daily basis we deduct this
charge from the average daily ending value of the assets you have allocated to
the Variable Portfolios.
OPTIONAL INCOME PROTECTOR FEE
The Income Protector feature fee is as follows:
<Table>
Annual Fee as a % of Your Income Benefit Base............... 0.10%
</Table>
The fee is deducted annually from your contract value. The Income Benefit Base
is generally calculated by using your contract value on the date of your
effective enrollment in the program and then each subsequent contract
anniversary, adding Purchase Payments made since the prior contract anniversary,
less proportional withdrawals, and fees and charges applicable to those
withdrawals.
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 these premium tax charges from your
contract when 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 we evaluate 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.
AIG SunAmerica Life may make such a determination regarding sales to its
employees, it affiliates' employees and employees of currently contracted
broker-dealers; its 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.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
INCOME OPTIONS
- ----------------------------------------------------------------
- ----------------------------------------------------------------
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 second contract anniversary. You select the month and year 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 the Latest Annuity Date, which is your
95th 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 unless you chose to take
income under the Income Protector feature (see below). Other income options may
be available. Contact the Annuity Service Center for more information. 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 for a period
of 10 years.
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.
19
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 when the survivor dies.
OPTION 3 - JOINT AND SURVIVOR LIFE ANNUITY WITH 10 OR 20 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 5 to
30 years. If the Annuitant dies before all the guaranteed income payments are
made, the remaining income payments are made to the Beneficiary under your
contract. Additionally, if variable income payments are elected under this
option, you (or the Beneficiary under the contract if the Annuitant dies prior
to all guaranteed income payments being made) may redeem any remaining
guaranteed variable income payments after the Annuity Date. The amount available
upon such redemption would be the discounted present value of any remaining
guaranteed variable income payments. If provided for in your contract, any
applicable withdrawal charge will be deducted from the discounted value as if
you fully surrendered your contract.
The value of an Annuity Unit, regardless of the option chosen, takes into
account the mortality and expense risk charge. Since Option 5 does not contain
an element of mortality risk, no benefit is derived from this charge.
For information regarding Income Options using the Income Protector feature,
please see below. Please read the Statement of Additional Information ("SAI")
for a more detailed discussion of the income options.
FIXED OR VARIABLE INCOME PAYMENTS
You can choose income payments that are fixed, variable or both. Unless
otherwise elected, if at the date when income payments begin you are invested in
the Variable Portfolios only, your income payments will be variable, and 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 fixed and variable investment
options when income payments begin, your payments will be fixed and variable,
unless otherwise elected. 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.
INCOME PAYMENTS
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, we may decrease the
frequency of payments, 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 in most states, if a
Non-qualified contract, your gender; 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 annuity payments.
The value of variable income payments, if elected, is based on an assumed
interest rate ("AIR") of 3.5% compounded annually. Variable income payments
generally increase or decrease from one income payment date to the next based
upon the performance of the applicable Variable Portfolios. If the performance
of the Variable Portfolios selected is equal to the AIR, the income payments
will remain constant. If performance of Variable Portfolios is greater than the
AIR, the income payments will increase and if it is less than the AIR, the
income payments will decline.
TRANSFERS DURING THE INCOME PHASE
During the Income Phase, one transfer per month is permitted between the
Variable Portfolios. No other transfers are allowed during the Income Phase.
DEFERMENT OF PAYMENTS
We may defer making fixed payments for up to six months, or less if required by
law. Interest is credited to you during the deferral period. See also ACCESS TO
YOUR MONEY above
20
for a discussion of when payments from a Variable Portfolio may be suspended or
postponed.
THE INCOME PROTECTOR FEATURE
The Income Protector feature is a future "safety net" which can offer you the
ability to receive a guaranteed fixed minimum retirement income when you switch
to the Income Phase. If you elect the Income Protector feature you can know the
level of minimum income that will be available to you upon annuitization,
regardless of fluctuating market conditions.
The minimum level of Income Protector benefit available is generally based upon
the Purchase Payments remaining in your contract at the time you decide to begin
taking income. We charge a fee for the Income Protector benefit. This feature
may not be available in your state. Check with your financial representative
regarding availability.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE INCOME PROTECTOR
FEATURE AT ANY TIME.
HOW WE DETERMINE THE AMOUNT OF YOUR MINIMUM GUARANTEED INCOME
If you elect the Income Protector feature, we base the amount of minimum income
available to you upon a calculation we call the Income Benefit Base. At the time
your participation in the Income Protector program becomes effective, your
Income Benefit Base is equal to your contract value. Participation in the Income
Protector program is effective on either the date of issue of the contract (if
elected) or at the contract anniversary following your election of the Income
Protector.
The income benefit base is only a calculation. It does not represent a contract
value, nor does it guarantee performance of the Variable Portfolios in which you
invest.
Your income benefit base increases if you make subsequent Purchase Payments and
decreases if you withdraw money from your contract. The exact income benefit
base calculation is equal to (a) plus (b) minus (c) where:
(a) is equal to, for the first year of calculation, your initial Purchase
Payment, or for each subsequent year of calculation, the income benefit
base on the prior contract anniversary, and;
(b) is equal to the sum of all subsequent Purchase Payments made into the
contract since the last contract anniversary, and;
(c) is equal to all withdrawals and applicable fees and charges since the
last contract anniversary, in an amount proportionate to the amount by
which such withdrawals decreased your contract value.
If you decide that you want the protection offered by the Income Protector
feature, you must elect the feature by completing the Income Protector Election
Form available through our Annuity Service Center.
In order to obtain the benefit of the Income Protector you may not begin the
Income Phase for at least ten years following your election. You may not elect
this Program if the required waiting period before beginning the Income Phase
would occur later than your Latest Annuity Date.
The current option offered is:
<Table>
<Caption>
FEE AS A % OF YOUR INCOME BENEFIT BASE WAITING PERIOD
- ------------------------------------------------------
0.10% 10 years
- ------------------------------------------------------
</Table>
If you elect the feature on a subsequent anniversary, the fee and/or waiting
period may be different.
RE-SET OF YOUR INCOME PROTECTOR BENEFIT
If available, you may also have the opportunity to "re-set" your Income Benefit
Base. The Re-Set feature allows you to increase your Income Benefit Base to the
amount of your contract value on your next contract anniversary. You can only
Re-Set within the 30 days before your next contract anniversary. The waiting
period before you can begin the Income Phase will be determined based on the
offerings available at the time your make an election to Re-Set. In addition,
the Income Protector fee will be charged as a percentage of your re-set Income
Benefit Base. You may not elect to Re-Set if the required waiting period before
beginning the Income Phase would occur later than your Latest Annuity Date.
ELECTING TO RECEIVE INCOME PAYMENTS
You may elect to begin the Income Phase of your contract using the Income
Protector Program ONLY within the 30 days after the 10th or later contract
anniversary following the effective date of your Income Protector participation
or Re-Set.
The contract anniversary of, or prior to, your election to begin receiving
annuity payments is your Income Benefit Date. This is the date as of which we
calculate your Income Benefit Base to use in determining your guaranteed minimum
fixed retirement income. To arrive at the minimum guaranteed retirement income
available to you we apply the annuity rates stated in your Income Protector
Endorsement for the income option you select to your final Income Benefit Base.
You then choose if you would like to receive that income annually, quarterly or
monthly for the time guaranteed under your selected annuity option. Your final
Income Benefit Base is equal to (a) minus (b) where:
(a) is your Income Benefit Base as of your Income Benefit Date, and;
(b) is any partial withdrawals of contract value taken after the income
benefit date and any charges applicable to those withdrawals and any
withdrawal charges otherwise applicable, calculated as if you fully
surrender your contract as of the Income Benefit Date, and any
applicable premium taxes.
21
The income options available when using the Income Protector Program to receive
your fixed retirement income are:
- Life Annuity with 10 Year Period Certain, or
- Joint and 100% Survivor Annuity with 20 Year Period Certain
At the time you elect to begin receiving annuity payments, we will calculate
your annual income using both your final Income Benefit Base and your contract
value. We will use the same income option for each calculation; however, the
annuity factors used to calculate your income under the Income Protector will be
different. You will receive whichever provides a greater stream of income. If
you annuitize using the Income Protector your income payments will be fixed in
amount. You are not required to use the Income Protector to receive income
payments. However, we will not refund fees paid for the Income Protector if you
annuitize under the general provisions of your contract. In addition, if
applicable, a surrender charge will apply if you take income under the Income
Protector feature. YOU MAY NEVER NEED TO RELY UPON THE INCOME PROTECTOR, IF YOUR
CONTRACT PERFORMS WITHIN A HISTORICALLY ANTICIPATED RANGE. HOWEVER, PAST
PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
FEES ASSOCIATED WITH THE INCOME PROTECTOR
If you elect the Income Protector, we charge an annual fee, as follows:
<Table>
<Caption>
Fee as a % of Your Income Benefit Base* 0.10%
</Table>
* If you elect the feature on a subsequent anniversary, the fee may be
different.
We deduct the annual fee from your actual contract value. If your contract is
issued with the Income Protector program we begin deducting the annual fee on
your first contract anniversary. If you elect the feature at some later date, we
begin deducting the annual fee on the contract anniversary following the date on
which your participation in the program becomes effective. Upon a Re-Set of your
Income Protector feature, the fee will be charged based on your Re-Set Income
Benefit Base.
It is important to note that once you elect the Income Protector feature you may
not cancel your election. We will deduct the charge from your contract value on
every contract anniversary up to and including your Income Benefit Date.
Additionally, we deduct the full annual fee from any full surrender of your
contract requested prior to your contract anniversary based on the Income
Benefit Base at time of surrender.
NOTE TO QUALIFIED CONTRACT HOLDERS
Qualified contracts generally require that you select an income option that does
not exceed your life expectancy. That restriction, if it applies to you, may
limit the benefit of the Income Protector program. To utilize the Income
Protector feature, you must take income payments under one of the two income
options described above. If those income options exceed your life expectancy,
you may be prohibited from receiving your guaranteed fixed income under the
program. If you own a qualified contract to which this restriction applies and
you elect the Income Protector program, you may pay for this minimum guarantee
and not be able to realize the benefit.
You may wish to consult your tax advisor for information concerning your
particular circumstances. Appendix D provides examples of the operation of the
Income Protector feature.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
TAXES
- ----------------------------------------------------------------
- ----------------------------------------------------------------
NOTE: WE PREPARED THE FOLLOWING INFORMATION ON TAXES AS A GENERAL DISCUSSION OF
THE SUBJECT. THIS INFORMATION ADDRESSES GENERAL 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
22
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 you Beneficiary; (5) under an immediate annuity; or
(6) which are attributable to Purchase Payments made prior to August 14, 1982.
TAX TREATMENT OF DISTRIBUTIONS - QUALIFIED CONTRACTS
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. 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.
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 and we do not
23
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.
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. Also, 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.
DIVERSIFICATION AND INVESTOR CONTROL
The IRC imposes certain diversification requirements on the underlying
investments for a variable annuity. We believe that the underlying Variable
Portfolios' management monitors the Variable Portfolios 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 AIG SunAmerica Life, 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.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
PERFORMANCE
- ----------------------------------------------------------------
- ----------------------------------------------------------------
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.
24
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.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
OTHER INFORMATION
- ----------------------------------------------------------------
- ----------------------------------------------------------------
AIG SUNAMERICA LIFE
AIG SunAmerica Life is a stock life insurance company originally organized under
the laws of the state of California in April 1965. On January 1, 1996, AIG
SunAmerica Life redomesticated under the laws of the state of Arizona.
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.
THE SEPARATE ACCOUNT
AIG SunAmerica Life established Variable Separate Account ("separate account"),
under Arizona law on January 1, 1996 when it assumed the separate account,
originally established under California law on June 25, 1981. 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 in 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.
THE 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.
DISTRIBUTION OF THE CONTRACT
Registered representatives of broker-dealers sell the contract. We pay
commissions to these representatives for the sale of the contracts. We pay an
initial commission of up to 7.00% of your Purchase Payments. We may also pay an
annual trail commission of up to 1.50%, payable quarterly starting as early as
the second contract year. 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 which may or may not be
affiliated and/or certain registered representatives 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.
25
ADMINISTRATION
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 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 other transactions, we send confirmations
immediately. 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.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Separate Account. AIG
SunAmerica Life engages in various kinds of routine litigation. In management's
opinion these matters are not of material importance to the Company's total
assets nor are they with respect to the assets of the Separate Account.
OWNERSHIP
The Polaris Choice(II) Variable Annuity is a Flexible Payment Group Deferred
Annuity contract. We issue 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.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of AIG SunAmerica Life Assurance Company
(formerly, Anchor National Life Insurance Company) at December 31, 2002 and
2001, and for each of the three years in the period ended December 31, 2002, and
financial statements of Variable Separate Account at December 31, 2002 and for
each of the two years in the period ended December 31, 2002 are incorporated
herein by reference in this prospectus in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
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.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
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>
Separate Account.............................. 3
General Account............................... 3
Performance Data.............................. 4
Income Payments............................... 11
Annuity Unit Values........................... 11
Death Benefit Options for Contracts Issued
Before October 24, 2001..................... 14
Taxes......................................... 17
Distribution of Contracts..................... 21
Financial Statements.......................... 21
</Table>
26
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX A - CONDENSED FINANCIALS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Table>
<Caption>
INCEPTION TO
12/31/02
------------
Capital Appreciation (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $24.182
(b) $24.182
Ending AUV.......................................... (a) $25.794
(b) $25.757
Ending Number of AUs................................ (a) 5,223
(b) 6,392
- ------------------------------------------------------------------------------
Government and Quality Bond (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $16.370
(b) $16.370
Ending AUV.......................................... (a) $16.472
(b) $16.437
Ending Number of AUs................................ (a) 25,155
(b) 11,301
- ------------------------------------------------------------------------------
Growth (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $19.417
(b) $19.417
Ending AUV.......................................... (a) $20.848
(b) $20.812
Ending Number of AUs................................ (a) 5,529
(b) 4,179
- ------------------------------------------------------------------------------
Natural Resources (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $13.753
(b) $13.753
Ending AUV.......................................... (a) $15.272
(b) $15.232
Ending Number of AUs................................ (a) 11
(b) 206
- ------------------------------------------------------------------------------
Aggressive Growth (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $10.011
(b) $10.011
Ending AUV.......................................... (a) $10.077
(b) $10.044
Ending Number of AUs................................ (a) 15
(b) 2,951
- ------------------------------------------------------------------------------
Alliance Growth (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $21.881
(b) $21.881
Ending AUV.......................................... (a) $21.940
(b) $21.898
Ending Number of AUs................................ (a) 2,961
(b) 1,192
- ------------------------------------------------------------------------------
Asset Allocation (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $16.137
(b) $16.137
Ending AUV.......................................... (a) $16.887
(b) $16.891
Ending Number of AUs................................ (a) 1,003
(b) 3,344
- ------------------------------------------------------------------------------
Blue Chip Growth (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $4.530
(b) $4.530
Ending AUV.......................................... (a) $4.659
(b) $4.648
Ending Number of AUs................................ (a) 2,553
(b) 840
- ------------------------------------------------------------------------------
Cash Management (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $13.025
(b) $13.025
Ending AUV.......................................... (a) $13.018
(b) $12.993
Ending Number of AUs................................ (a) 10,725
(b) 14,522
- ------------------------------------------------------------------------------
Corporate Bond (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $14.394
(b) $14.394
Ending AUV.......................................... (a) $14.704
(b) $14.725
Ending Number of AUs................................ (a) 3,690
(b) 1,695
- ------------------------------------------------------------------------------
AUV -- Accumulation Unit Value
AU -- Accumulation Units
(a) Without election of the enhanced death benefit
and EstatePlus.
(b) With election of the enhanced death benefit and
EstatePlus.
</Table>
A-1
<Table>
<Caption>
INCEPTION TO
12/31/02
------------
Davis Venture Value (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $20.108
(b) $20.108
Ending AUV.......................................... (a) $21.460
(b) $21.425
Ending Number of AUs................................ (a) 16,558
(b) 5,061
- ------------------------------------------------------------------------------
"Dogs" of Wall Street (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $8.149
(b) $8.149
Ending AUV.......................................... (a) $8.902
(b) $8.887
Ending Number of AUs................................ (a) 2,695
(b) 1,182
- ------------------------------------------------------------------------------
Emerging Markets (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $5.486
(b) $5.486
Ending AUV.......................................... (a) $5.958
(b) $5.951
Ending Number of AUs................................ (a) 27
(b) 676
- ------------------------------------------------------------------------------
Federated American Leaders (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $11.895
(b) $11.895
Ending AUV.......................................... (a) $12.912
(b) $12.849
Ending Number of AUs................................ (a) 80
(b) 13
- ------------------------------------------------------------------------------
Foreign Value (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $8.970
(b) $8.970
Ending AUV.......................................... (a) $9.407
(b) $9.387
Ending Number of AUVs............................... (a) 22,862
(b) 6,640
- ------------------------------------------------------------------------------
Global Bond (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $16.095
(b) $16.095
Ending AUV.......................................... (a) $16.324
(b) $16.270
Ending Number of AUs................................ (a) 400
(b) 254
- ------------------------------------------------------------------------------
Global Equities (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $11.708
(b) $11.708
Ending AUV.......................................... (a) $12.546
(b) $12.523
Ending Number of AUs................................ (a) 221
(b) 127
- ------------------------------------------------------------------------------
Goldman Sachs Research (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $4.675
(b) $4.675
Ending AUV.......................................... (a) $5.058
(b) $5.054
Ending Number of AUs................................ (a) 2,153
(b) 319
- ------------------------------------------------------------------------------
Growth-Income (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $20.102
(b) $20.102
Ending AUV.......................................... (a) $20.787
(b) $20.751
Ending Number of AUs................................ (a) 3,510
(b) 3,892
- ------------------------------------------------------------------------------
Growth Opportunities (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $3.230
(b) $3.230
Ending AUV.......................................... (a) $3.435
(b) $3.426
Ending Number of AUs................................ (a) 3,018
(b) 46
- ------------------------------------------------------------------------------
AUV -- Accumulation Unit Value
AU -- Accumulation Units
(a) Without election of the enhanced death benefit
and EstatePlus.
(b) With election of the enhanced death benefit and
EstatePlus.
</Table>
A-2
<Table>
<Caption>
INCEPTION TO
12/31/02
------------
High-Yield Bond (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $10.951
(b) $10.951
Ending AUV.......................................... (a) $11.586
(b) $11.556
Ending Number of AUs................................ (a) 714
(b) 1,431
- ------------------------------------------------------------------------------
International Diversified Equities (Inception
Date -- 9/30/02)
Beginning AUV....................................... (a) $6.995
(b) $6.995
Ending AUV.......................................... (a) $7.170
(b) $7.158
Ending Number of AUs................................ (a) 6,735
(b) 6,666
- ------------------------------------------------------------------------------
International Growth and Income (Inception
Date -- 9/30/02)
Beginning AUV....................................... (a) $8.000
(b) $8.000
Ending AUV.......................................... (a) $8.330
(b) $8.329
Ending Number of AUs................................ (a) 3,894
(b) 3,716
- ------------------------------------------------------------------------------
MFS Massachusetts Investors Trust (Inception
Date -- 9/30/02)
Beginning AUV....................................... (a) $14.084
(b) $14.084
Ending AUV.......................................... (a) $14.930
(b) $14.903
Ending Number of AUs................................ (a) 4,255
(b) 1,058
- ------------------------------------------------------------------------------
MFS Mid-Cap Growth (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $6.525
(b) $6.525
Ending AUV.......................................... (a) $6.965
(b) $6.952
Ending Number of AUs................................ (a) 11,688
(b) 3,867
- ------------------------------------------------------------------------------
MFS Total Return (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $18.961
(b) $18.961
Ending AUV.......................................... (a) $19.853
(b) $19.789
Ending Number of AUs................................ (a) 9,719
(b) 3,411
- ------------------------------------------------------------------------------
Putnam Growth: Voyager (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $13.178
(b) $13.178
Ending AUV.......................................... (a) $13.785
(b) $13.709
Ending Number of AUs................................ (a) 930
(b) 11
- ------------------------------------------------------------------------------
Real Estate (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $11.543
(b) $11.543
Ending AUV.......................................... (a) $11.836
(b) $11.827
Ending Number of AUs................................ (a) 1,002
(b) 2,360
- ------------------------------------------------------------------------------
Small & Mid Cap Value (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $9.180
(b) $9.180
Ending AUV.......................................... (a) $10.122
(b) $10.100
Ending Number of AUVs............................... (a) 10,970
(b) 11,296
- ------------------------------------------------------------------------------
SunAmerica Balanced (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $12.518
(b) $12.518
Ending AUV.......................................... (a) $12.509
(b) $12.488
Ending Number of AUs................................ (a) 1,187
(b) 904
- ------------------------------------------------------------------------------
AUV -- Accumulation Unit Value
AU -- Accumulation Units
(a) Without election of the enhanced death benefit
and EstatePlus.
(b) With election of the enhanced death benefit and
EstatePlus.
</Table>
A-3
<Table>
<Caption>
INCEPTION TO
12/31/02
------------
Technology (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $1.432
(b) $1.432
Ending AUV.......................................... (a) $1.716
(b) $1.714
Ending Number of AUs................................ (a) 41,215
(b) 4,246
- ------------------------------------------------------------------------------
American Funds Global Growth (Inception Date - 9/30/02)
Beginning AUV....................................... (a) $10.000
(b) $10.000
Ending AUV.......................................... (a) $10.949
(b) $10.933
Ending Number of AUs................................ (a) 1,759
(b) 5,946
- ------------------------------------------------------------------------------
American Funds Growth (Inception Date - 9/30/02)
Beginning AUV....................................... (a) $10.000
(b) $10.000
Ending AUV.......................................... (a) $10.884
(b) $10.872
Ending Number of AUs................................ (a) 18,592
(b) 15,567
- ------------------------------------------------------------------------------
American Funds Growth-Income (Inception Date - 9/30/02)
Beginning AUV....................................... (a) $10.000
(b) $10.000
Ending AUV.......................................... (a) $10.884
(b) $10.865
Ending Number of AUs................................ (a) 17,313
(b) 19,216
- ------------------------------------------------------------------------------
Lord Abbett Growth and Income (Inception Date - 9/30/02)
Beginning AUV....................................... (a) $7.486
(b) $7.447
Ending AUV.......................................... (a) $8.180
(b) $8.101
Ending Number of AUVs............................... (a) 660
(b) 1,227
- ------------------------------------------------------------------------------
Nations High Yield Bond (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $9.364
(b) $9.348
Ending AUV.......................................... (a) $10.162
(b) $10.134
Ending Number of AUs................................ (a) 4,034
(b) 5,945
- ------------------------------------------------------------------------------
Nations Marsico Focused Equities (Inception
Date -- 9/30/02)
Beginning AUV....................................... (a) $7.389
(b) $7.383
Ending AUV.......................................... (a) $7.184
(b) $7.171
Ending Number of AUs................................ (a) 11,344
(b) 16,480
- ------------------------------------------------------------------------------
Van Kampen LIT Comstock (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $7.347
(b) $7.283
Ending AUV.......................................... (a) $8.155
(b) $8.075
Ending Number of AUs................................ (a) 15,234
(b) 6,342
- ------------------------------------------------------------------------------
Van Kampen LIT Emerging Growth (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $7.223
(b) $7.215
Ending AUV.......................................... (a) $6.997
(b) $6.982
Ending Number of AUs................................ (a) 367
(b) 376
- ------------------------------------------------------------------------------
Van Kampen LIT Growth and Income (Inception
Date -- 9/30/02)
Beginning AUV....................................... (a) $8.149
(b) $8.204
Ending AUV.......................................... (a) $8.791
(b) $8.840
Ending Number of AUs................................ (a) 15,096
(b) 11,770
- ------------------------------------------------------------------------------
AUV -- Accumulation Unit Value
AU -- Accumulation Units
(a) Without election of the enhanced death benefit
and EstatePlus.
(b) With election of the enhanced death benefit and
EstatePlus.
</Table>
A-4
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APPENDIX B - MARKET VALUE ADJUSTMENT ("MVA")
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- --------------------------------------------------------------------------------
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 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%. 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
B-1
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)/(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, 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.
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/(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, 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.
B-2
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- --------------------------------------------------------------------------------
APPENDIX C - DEATH BENEFITS FOLLOWING SPOUSAL CONTINUATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Capitalized terms used in this Appendix have the same meaning as they have in
prospectus.
The term "Continuation Net Purchase Payment" is used frequently to describe the
death benefit options payable to the beneficiary of the Continuing Spouse. We
define Continuation Net Purchase Payment as Net Purchase Payments made as of the
Continuation Date. For the purpose of calculating Continuation Net Purchase
Payments, the amount that equals the contract value on the Continuation Date,
including the Continuation Contribution is considered a Purchase Payment. If the
Continuing Spouse makes no additional Purchase Payments or withdrawal,
Continuation Net Purchase Payments equals the contract value on the Continuation
Date, including the Continuation Contribution.
The term "withdrawals" as used in describing the death benefit options below is
defined as withdrawals and any fees and charges applicable to those withdrawals.
The following details the death benefit options and EstatePlus benefit upon the
Continuing Spouse's death:
A. DEATH BENEFIT PAYABLE UPON CONTINUING SPOUSE'S DEATH:
1. Standard Death Benefit:
If a Continuation Contribution is added on the Continuation Date, the
death benefit is the greater of:
a. Continuation Net Purchase Payments; or
b. contract value on the date we receive all required paperwork and
satisfactory proof of death.
If a Continuation Contribution is not added on the Continuation Date,
the death benefit is the greater of:
a. Net Purchase Payments; or
b. contract value on the date we receive all required paperwork and
satisfactory proof of death.
2. Purchase Payment Accumulation Option
If a Continuation Contribution is added on the Continuation Date, the
death benefit is the greater of:
a. The contract value on the date we receive all required paperwork
and satisfactory proof of the Continuing Spouse's death; or
b. The contract value on the Continuation Date (including the
Continuation Contribution) plus any Purchase Payments; and reduced
for any withdrawals made since the Continuation Date all compounded
to the date of death at a 4% annual growth rate, (3% growth rate if
the Continuing Spouse was age 70 or older on the Continuation Date)
plus any Purchase Payments recorded after the date of death; and
reduced for withdrawals recorded after the date of death in the
same proportion that the withdrawal reduced the contract value on
the date of the withdrawal; or
c. The contract value on the seventh contract anniversary following
the original issue date of the contract, plus any Purchase Payments
since the seventh contract anniversary; and reduced for withdrawals
since the seventh contract anniversary in the same proportion that
the contract value was reduced on the date of such withdrawal, all
compounded at a 4% annual growth rate until the date of death (3%
growth rate if the Continuing Spouse is age 70 or older on the
Continuation Date) plus any Purchase Payments recorded after the
date of death; and reduced for any withdrawals recorded after the
date of death in the same proportion that the withdrawal reduced
the contract value on the date of the withdrawal. The Continuation
Contribution is considered a Purchase Payment received on the
Continuation Date.
If a Continuation Contribution is not added on the Continuation Date,
the death benefit is the greater of:
a. The contract value on the date we receive all required paperwork
and satisfactory proof of the Continuing Spouse's death; or
b. Net Purchase Payments compounded to the date of death at a 4%
annual growth rate, (3% growth rate if the Continuing Spouse was
age 70 or older on the Contract Issue Date) plus any Purchase
Payments recorded after the date of death; and reduced for any
withdrawals recorded after the date of death in the same proportion
that the withdrawal reduced the contract value on the date of such
withdrawal; or
c. The contract value on the seventh contract anniversary following
the original issue date of the contract, plus any Purchase Payments
since the seventh contract anniversary; and reduced for withdrawals
since the seventh contract anniversary in the same proportion that
the contract value was reduced on the date of such withdrawal, all
compounded at a 4% annual growth rate until the date of death (3%
growth rate if the Continuing Spouse was age 70 or older on the
Contract Issue Date) plus any Purchase Payments since the date of
death; and reduced for any withdrawals recorded after the date of
death in the same proportion that the contract value was reduced on
the date of such withdrawal.
3. Maximum Anniversary Option - if the Continuing Spouse is below age 90 at
the time of death, and:
If a Continuation Contribution is added on the Continuation Date, the
death benefit is the greater of:
a. The contract value on the date we receive all required paperwork
and satisfactory proof of the Continuing Spouse's death; or
C-1
b. Continuation Net Purchase Payments plus Purchase Payments made
since the Continuation Date; and reduced for withdrawals in the
same proportion that the contract value was reduced on the date of
such withdrawal; or
c. The maximum anniversary value on any contract anniversary occurring
after the Continuation Date but prior to the Continuing Spouse's
81st birthday. The anniversary value equals the contract value on a
contract anniversary plus any Purchase Payments since that contract
anniversary; and reduced for any withdrawals recorded since that
contract anniversary in the same proportion that the withdrawal
reduced the contract value on the date of the withdrawal. Contract
anniversary is defined as any anniversary following the full 12
month period after the original contract issue date.
If a Continuation Contribution is not added on the Continuation Date,
the death benefit is the greater of:
a. The contract value on the date we receive all required paperwork
and satisfactory proof of the Continuing Spouse's death; or
b. Net Purchase Payments received since the original issue date; or
c. The maximum anniversary value on any contract anniversary from the
original contract issue date prior to the Continuing Spouse's 81st
birthday. The anniversary value equals the contract value on a
contract anniversary plus any Purchase Payments since that contract
anniversary; and reduced for any withdrawals recorded since that
contract anniversary in the same proportion that the withdrawal
reduced the contract value on the date of the withdrawal. Contract
anniversary is defined as any anniversary following the full 12
month period after the original contract issue date.
If the Continuing Spouse is age 90 or older at the time of death, under the
Maximum Anniversary death benefit, their beneficiary will receive only the
contract value at the time we receive all required paperwork and satisfactory
proof of death.
B. THE ESTATEPLUS BENEFIT PAYABLE UPON CONTINUING SPOUSE'S DEATH:
The EstatePlus benefit may increase the death benefit amount. The EstatePlus
benefit is only available if the original owner elected EstatePlus and it has
not been terminated. If the Continuing Spouse had earnings in the contract at
the time of his/her death, we will add a percentage of those earnings (the
"EstatePlus Percentage"), subject to a maximum dollar amount (the "Maximum
EstatePlus Percentage"), to the death benefit payable, based on the number of
years the Continuing Spouse has held the contract since the Continuation Date.
The EstatePlus benefit, if any, is added to the death benefit payable under the
Purchase Payment Accumulation or the Maximum Anniversary option.
On the Continuation Date, if the Continuing Spouse is 69 or younger and a
Continuation Contribution is added, the table below shows the available
EstatePlus benefit:
<Table>
<Caption>
- -------------------------------------------------------------------
CONTRACT YEAR ESTATEPLUS MAXIMUM
OF DEATH PERCENTAGE ESTATEPLUS AMOUNT
- -------------------------------------------------------------------
Years (0-4) 25% of Earnings 40% of Continuation Net
Purchase Payments
- -------------------------------------------------------------------
Years (5-9) 40% of Earnings 65% of Continuation Net
Purchase Payments*
- -------------------------------------------------------------------
Years (10+) 50% of Earnings 75% of Continuation Net
Purchase Payments*
- -------------------------------------------------------------------
</Table>
On the Continuation Date, if the Continuing Spouse is between your 70th and 81st
birthdays and a Continuation Contribution is added, table below shows the
available EstatePlus benefit:
<Table>
<Caption>
- -------------------------------------------------------------------
CONTRACT YEAR ESTATEPLUS MAXIMUM
OF DEATH PERCENTAGE ESTATEPLUS AMOUNT
- -------------------------------------------------------------------
All Contract 25% of Earnings 40% of Continuation Net
Years Purchase Payments*
- -------------------------------------------------------------------
</Table>
* Purchase Payments received after the 5th anniversary of the Continuation Date
must remain in the contract for at least 6 full months to be included as part
of the Continuation Net Purchase Payments for the purpose of the Maximum
Estate Plus Percentage calculation.
If a Continuation Contribution is not added on the Continuation Date, the
Continuing Spouse's age as of the original contract issue date is used to
calculate the EstatePlus benefit, if any.
What is the Contract Year of Death?
Contract Year of Death is the number of full 12 month periods starting on the
Continuation Date and ending on the Continuing Spouse's date of death.
What is the EstatePlus amount?
We determine the EstatePlus amount based upon a percentage of earnings in the
contract at the time of the Continuing Spouse's death. For the purpose of this
calculation, earnings are defined as (1) minus (2) where
(1) equals the contract value on the Continuing Spouse's date of death;
(2) equals the Continuation Net Purchase Payment(s).
What is the Maximum EstatePlus amount?
The EstatePlus benefit is subject to a maximum dollar amount. The Maximum
EstatePlus amount is a percentage of the Continuation Net Purchase Payments.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE SPOUSAL CONTINUATION
PROVISION (IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME WITH RESPECT TO
PROSPECTIVELY ISSUED CONTRACTS.
C-2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX D - HYPOTHETICAL EXAMPLE OF THE OPERATION OF THE INCOME PROTECTOR
FEATURE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
POLARIS CHOICE(II) INCOME PROTECTOR
This table assumes a $100,000 initial investment in a non qualified contract
with no further premiums, no withdrawals, no Re-sets, no Step-ups and no premium
taxes; and the election of optional Income Protector at contract issue.
<Table>
<Caption>
- -------------------------------------------------------------------
ANNUAL INCOME IF YOU ANNUITIZE ON CONTRACT ANNIVERSARY
IF AT ISSUE 7 10 15 20
YOU ARE 1-6 (AGE 67) (AGE 70) (AGE 75) (AGE 80)
- -------------------------------------------------------------------
Male N/A 6,108 6,672 7,716 8,832
age 60*
- -------------------------------------------------------------------
Female N/A 5,388 5,880 6,900 8,112
age 60*
- -------------------------------------------------------------------
Joint**
Male -- 60 N/A 4,716 5,028 5,544 5,928
Female -- 60
- -------------------------------------------------------------------
</Table>
* Life Annuity with 10 Year Period Certain
** Joint and 100% Survivor Annuity with 20 Year Period Certain
The Income Protector may not be available in your state. Please consult your
financial adviser for information regarding availability of this program in your
state.
D-1
- --------------------------------------------------------------------------------
Please forward a copy (without charge) of the Polaris Choice(II) Variable
Annuity Statement of Additional Information to:
(Please print or type and fill in all information.)
------------------------------------------------------------------------
Name
------------------------------------------------------------------------
Address
------------------------------------------------------------------------
City/State/Zip
Date: ------------------------------ Signed: ------------------------------
Return to: AIG SunAmerica Life Assurance Company, Annuity Service Center,
P.O. Box 52499, Los Angeles, California 90054-0299
- --------------------------------------------------------------------------------