Filed pursuant to Rule 424(b)(3)
Under the Securities Act of 1933
Registration No. 33-87864
WM DIVERSIFIED STRATEGIES
PROSPECTUS
May 1, 2003
FLEXIBLE PAYMENT DEFERRED ANNUITY CONTRACT
issued by
VARIABLE SEPARATE ACCOUNT
and
AIG SUNAMERICA LIFE ASSURANCE COMPANY
The annuity contract has several investment choices - available fixed investment
options which offer interest rates guaranteed by AIG SunAmerica Life Assurance
Company ("AIG SunAmerica Life") (formerly, Anchor National Life Insurance
Company) for different periods of time and variable investment portfolios. The
variable portfolios are part of Anchor Series Trust ("AST"), the SunAmerica
Series Trust ("SAST") or the WM Variable Trust ("WMVT").
STRATEGIC ASSET MANAGEMENT PORTFOLIOS
<Table>
FLEXIBLE INCOME PORTFOLIO WM ADVISORS, INC. WMVT
CONSERVATIVE BALANCED PORTFOLIO WM ADVISORS, INC. WMVT
BALANCED PORTFOLIO WM ADVISORS, INC. WMVT
CONSERVATIVE GROWTH PORTFOLIO WM ADVISORS, INC. WMVT
STRATEGIC GROWTH PORTFOLIO WM ADVISORS, INC. WMVT
</Table>
EQUITY FUNDS
<Table>
DAVIS VENTURE VALUE PORTFOLIO DAVIS ADVISORS SAST
GLOBAL EQUITIES PORTFOLIO ALLIANCE CAPITAL MANAGEMENT, L.P. SAST
REIT FUND WM ADVISORS, INC. WMVT
EQUITY INCOME FUND WM ADVISORS, INC. WMVT
GROWTH & INCOME FUND WM ADVISORS, INC. WMVT
WEST COAST EQUITY FUND WM ADVISORS, INC. WMVT
MID CAP STOCK FUND WM ADVISORS, INC. WMVT
GROWTH FUND COLUMBIA MANAGEMENT COMPANY, WMVT
JANUS CAPITAL MANAGEMENT LLC, AND
OPPENHEIMERFUNDS, INC.
SMALL CAP STOCK FUND WM ADVISORS, INC. WMVT
INTERNATIONAL GROWTH FUND CAPITAL GUARDIAN TRUST COMPANY WMVT
MFS MID-CAP GROWTH PORTFOLIO MASSACHUSETTS FINANCIAL SERVICES COMPANY SAST
CAPITAL APPRECIATION PORTFOLIO WELLINGTON MANAGEMENT COMPANY, LLP AST
ALLIANCE GROWTH PORTFOLIO ALLIANCE CAPITAL MANAGEMENT, L.P. SAST
TECHNOLOGY PORTFOLIO VAN KAMPEN SAST
</Table>
FIXED-INCOME FUNDS
<Table>
SHORT TERM INCOME FUND WM ADVISORS, INC. WMVT
U.S. GOVERNMENT SECURITIES FUND WM ADVISORS, INC. WMVT
INCOME FUND WM ADVISORS, INC. WMVT
MONEY MARKET FUND WM ADVISORS, INC. WMVT
</Table>
You can put your money into any one or all of the Variable Portfolios and/or
fixed investment options.
Please read this prospectus carefully before investing and keep it for your
future reference. It contains important information you should know about the WM
Diversified Strategies Variable Annuity.
To learn more about the annuity offered by this prospectus, you can obtain a
copy of the Statement of Additional Information ("SAI") dated May 1, 2003. The
SAI has been filed with the Securities and Exchange Commission ("SEC") and can
be considered part of this prospectus.
The table of contents of the SAI appears on page 36 of this prospectus. For a
free copy of the SAI, call Us at 1-877-311-WMVA (9682) or write Our Annuity
Service Center at, P.O. Box 54299, Los Angeles, California 90054-0299.
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.
In addition, the SEC maintains a website (http://www.sec.gov) that contains the
SAI, materials incorporated by reference and other information filed
electronically with the SEC.
ANNUITIES INVOLVE RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL, AND ARE NOT A
DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THEY ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Anchor National Life Insurance Company changed its name to AIG SunAmerica Life
Assurance Company, effective March 1, 2003.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
AIG SunAmerica Life's Annual Report on Form 10-K for the year ended December 31,
2002 is incorporated herein by reference.
All documents or reports filed by AIG SunAmerica Life under Section 13(a),
13(c), 14 or 15(a) 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 are deemed to
modify or supercede documents incorporated herein by reference.
AIG SunAmerica Life files its Exchange Act documents and reports, including its
annual and quarterly reports on Form 10-K and Form 10-Q, electronically pursuant
to EDGAR under CIK No. 0000006342, File No. 033-47472.
AIG SunAmerica Life is subject to the informational requirements of the
Securities and Exchange Act of 1934 (as amended). We file reports and other
information with the SEC to meet those requirements. You can inspect and copy
this information at SEC public facilities at the following locations:
WASHINGTON, DISTRICT OF COLUMBIA
450 Fifth Street, N.W., Room 1024
Washington, D.C. 20549
CHICAGO, ILLINOIS
500 West Madison Street
Chicago, IL 60661
NEW YORK, NEW YORK
233 Broadway
New York, NY 10048
To obtain copies by mail, contact the Washington, D.C. location. After you pay
the fees as prescribed by the rules and regulations of the SEC, the required
documents are mailed.
Registration statements under the Securities Act of 1933, as amended, related to
the contracts offered by this prospectus are on file with the SEC. This
prospectus does not contain all of the information contained in the registration
statements and exhibits. For further information regarding the separate account,
AIG SunAmerica Life and its general account, the Variable Portfolios and the
contract, please refer to the registration statements and exhibits.
The SEC also maintains a website (http:// www.sec.gov) that contains the SAI,
materials incorporated by reference and other information filed electronically
with the SEC by AIG SunAmerica Life.
AIG SunAmerica Life will provide without charge to each person to whom this
prospectus is delivered, upon written or oral request, a copy of the 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 OF CONTENTS
<Table>
GLOSSARY.................................................... 4
HIGHLIGHTS.................................................. 5
FEE TABLES.................................................. 6
Owner Transaction Expenses............................... 6
Annual Separate Account Expenses......................... 6
The Optional Income Protector Fee........................ 6
The Optional Estate Rewards Death Benefit Fee............ 6
The Optional Earnings Advantage Fee...................... 6
The Optional Capital Protector Fee....................... 6
Portfolio Expenses....................................... 6
MAXIMUM AND MINIMUM EXPENSE EXAMPLES........................ 7
THE WM DIVERSIFIED STRATEGIES VARIABLE ANNUITY.............. 8
PURCHASING A WM DIVERSIFIED STRATEGIES VARIABLE ANNUITY..... 9
Allocation of Purchase Payments.......................... 9
Accumulation Units....................................... 9
Capital Protector........................................ 10
Free Look................................................ 12
Exchange Offers.......................................... 12
INVESTMENT OPTIONS.......................................... 12
Variable Portfolios...................................... 13
Fixed Investment Options................................. 14
Transfers During the Accumulation Phase.................. 15
Dollar Cost Averaging.................................... 16
Asset Allocation Rebalancing Program..................... 17
Voting Rights............................................ 17
Substitution............................................. 17
ACCESS TO YOUR MONEY........................................ 18
Free Withdrawal Provision................................ 18
Systematic Withdrawal Program............................ 19
Nursing Home Waiver...................................... 19
Minimum Contract Value................................... 20
Qualified Contract Owners................................ 20
DEATH BENEFIT............................................... 20
Standard Death Benefit................................... 21
Estate Rewards Death Benefit............................. 21
Spousal Continuation..................................... 23
EXPENSES.................................................... 23
Separate Account Charges................................. 23
Withdrawal Charges....................................... 24
Investment Charges....................................... 24
Contract Maintenance Charge.............................. 24
Transfer Fee............................................. 25
Option Death Benefit Fees................................ 25
Optional Income Protector Fee............................ 25
Optional Capital Protector Fee........................... 25
Premium Tax.............................................. 25
Income Taxes............................................. 25
Reduction or Elimination of Charges and Expenses, and
Additional Amounts Credited............................ 25
INCOME OPTIONS.............................................. 26
Annuity Date............................................. 26
Income Options........................................... 26
Allocation of Annuity Payments........................... 27
Transfers During the Income Phase........................ 28
Deferment of Payments.................................... 28
The Income Protector..................................... 28
TAXES....................................................... 31
Annuity Contracts in General............................. 31
Tax Treatment of Distributions--Non-Qualified
Contracts.............................................. 31
Tax Treatment of Distributions--Qualified Contracts
(including governmental 457(b) eligible deferred
compensation plans).................................... 31
Minimum Distributions.................................... 32
Tax Treatment of Death Benefits.......................... 33
Contracts Owned by a Trust or Corporation................ 33
Gifts, Pledges and/or Assignments of a Contract.......... 33
Diversification and Investor Control..................... 33
PERFORMANCE................................................. 34
OTHER INFORMATION........................................... 34
AIG SunAmerica Life...................................... 34
The Separate Account..................................... 34
The General Account...................................... 35
Distribution of the Contract............................. 35
Administration........................................... 35
Legal Proceedings........................................ 36
INDEPENDENT ACCOUNTANTS..................................... 36
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.... 36
APPENDIX A--MARKET VALUE ADJUSTMENT......................... A-1
APPENDIX B--DEATH BENEFITS FOLLOWING SPOUSAL CONTINUATION... B-1
APPENDIX C.................................................. C-1
APPENDIX D--CONDENSED FINANCIAL INFORMATION................. D-1
</Table>
3
GLOSSARY
We have capitalized some of the technical terms used in this prospectus. To help
you understand these terms, We define 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 annuity payments.
ANNUITY DATE--The date on which annuity payments are to begin, as selected by
you.
ANNUITY UNITS--A measurement We use to calculate the amount of annuity payments
you receive from the variable portion of your contract during the Income Phase.
BENEFICIARY(IES)--The person(s) designated to receive any benefits under the
contract if you or the Annuitant dies.
COMPANY--AIG SunAmerica Life Assurance Company ("Anchor National"), We, Us, the
issuer of this annuity contract.
INCOME PHASE--The period during which We make annuity payments to you.
IRS--The Internal Revenue Service.
LATEST ANNUITY DATE--Your 95th birthday or your tenth 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
individual retirement account ("IRA").
VARIABLE PORTFOLIOS--A sub-account of Variable Separate Account which provides
for the variable investment options available under the contract. Each has a
distinct investment objective and is invested in the underlying investment
portfolios of the Anchor Series Trust, SunAmerica Series Trust or the WM
Variable Trust as applicable. The underlying investment portfolios are referred
to as "Underlying Funds."
4
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.
HIGHLIGHTS
The WM Diversified Strategies 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: If you cancel your contract within 10 days after receiving it (or
whatever period is required in your state), We will cancel the contract without
charging a withdrawal charge. You will receive whatever your contract is worth
on the day that We receive your request. This amount 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 WM DIVERSIFIED STRATEGIES VARIABLE
ANNUITY below.
EXPENSES: There are fees and charges associated with the contract. Each year, We
deduct a $35 contract maintenance charge from your contract, which may be waived
for contracts of $50,000 or more. We also deduct insurance charges, which equal
1.40% annually of the average daily value of your contract allocated to the
Variable Portfolios. There are investment charges on amounts invested in the
Variable Portfolios. If you elect optional features available under the contract
We may charge additional fees for these features. A separate withdrawal charge
schedule applies to each Purchase Payment. The amount of the withdrawal charge
declines over time. After a Purchase Payment has been in the contract for seven
complete years, withdrawal charges no longer apply to that portion of the
Purchase Payment. Please see the FEE TABLE, PURCHASING A WM DIVERSIFIED
STRATEGIES VARIABLE ANNUITY and EXPENSES below.
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 below.
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. Optional enhanced death benefits are also available. Please see DEATH
BENEFITS below.
INCOME OPTIONS: When you are ready to begin taking income, you can choose to
receive income payments on a variable basis, fixed basis or a combination of
both. You may also chose from five different income options, including an option
for income that you cannot outlive. Please see INCOME OPTIONS below.
INQUIRIES: If you have questions about your contract call your investment
representative or contact Us at AIG SunAmerica Life, Annuity Service Center P.O.
Box 54299 Los Angeles, California 90054-0299. Telephone Number: 1 (877) 311-WMVA
(9682).
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.
5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 CHARGE (AS A PERCENTAGE OF EACH PURCHASE
PAYMENT)(1)................................................. 7%
</Table>
(1) Withdrawal Charge Schedule (as a percentage of each Purchase Payment)
<Table>
YEARS................ 1 2 3 4 5 6 7 8+
7% 6% 6% 5% 4% 3% 2% 0%
</Table>
<Table>
TRANSFER FEE.......... No charge for first 15 transfers each
contract year; thereafter, 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 THE UNDERLYING FUND
FEES AND EXPENSES WHICH ARE OUTLINED IN THE NEXT SECTION.
CONTRACT MAINTENANCE CHARGE
$35 each year ($30 in North Dakota) (waived for contracts over $50,000)
SEPARATE ACCOUNT ANNUAL EXPENSES
(DEDUCTED DAILY AS A PERCENTAGE OF YOUR AVERAGE DAILY NET ASSET VALUE)
<Table>
Mortality Risk Charge....................................... 0.90%
Expense Risk Charge......................................... 0.35%
Distribution Expense Charge................................. 0.15%
Optional Estate Rewards Fee(2).............................. 0.15%
Optional Earnings Advantage Fee(2).......................... 0.25%
-----
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES................. 1.80%
=====
</Table>
(2) Estate Rewards, an enhanced death benefit feature, is optional. It
offers a choice of one of two optional enhanced death benefits. Earnings
Advantage is also an optional enhanced death benefit feature. If elected,
the fee for each chosen feature is an annualized charge that is deducted
daily from your net asset value. If you do not elect either enhanced death
benefit option, your total separate account annual expenses would be 1.40%.
OPTIONAL FEATURE FEE
You may elect either the Income Protector or Capital Protector feature
described below.
OPTIONAL INCOME PROTECTOR 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, 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.
OPTIONAL CAPITAL PROTECTOR FEE
<Table>
<Caption>
CONTRACT YEAR ANNUALIZED CHARGE
------------- -----------------
0-7............................................ 0.45%
8-10........................................... 0.15%
11+............................................ none
</Table>
The Capital Protector feature is optional and if elected, the fee is
calculated as a percentage of your contract 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.
THE FOLLOWING SHOWS THE TOTAL MINIMUM AND MAXIMUM TOTAL OPERATING EXPENSES
CHARGED BY THE UNDERLYING FUNDS 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 FUND EXPENSES MINIMUM MAXIMUM
------------------------------------- ------- -------
(expenses that are deducted from Underlying Funds of the
Trusts, including management fees, other expenses and
service (12b-1) fees, if applicable)........................ 0.56% 1.66%
</Table>
6
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, contract maintenance fees, separate
account annual expenses, fees for optional features and expenses of the
Underlying Funds of the Trusts.
The Example assumes 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 Funds 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 1.80% AND INVESTMENT IN AN
UNDERLYING FUND WITH TOTAL EXPENSES OF 1.66%)
(1) If you surrender your contract at the end of the applicable time period and
you elect the optional Estate Rewards death benefit (0.15%), the optional
Earnings Advantage benefit (0.25%), and Capital Protector (0.45%) features:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$1,098 $1,807 $2,432 $4,079
- -------------------------------------
- -------------------------------------
</Table>
(2) If you do not surrender your Contract and you elect the optional Estate
Rewards death benefit (0.15%), the optional Earnings Advantage benefit
(0.25%), and Capital Protector (0.45%) features:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$398 $1,207 $2,032 $4,079
- -------------------------------------
- -------------------------------------
</Table>
(3) If you annuitize your Contract:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$309 $945 $1,606 $3,374
- -------------------------------------
- -------------------------------------
</Table>
MINIMUM EXPENSE EXAMPLES
(ASSUMING MINIMUM SEPARATE ACCOUNT ANNUAL EXPENSES OF 1.40% AND INVESTMENT IN AN
UNDERLYING PORTFOLIO WITH TOTAL EXPENSES OF 0.56%)
(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
- -------------------------------------
- -------------------------------------
$904 $1,230 $1,483 $2,338
- -------------------------------------
- -------------------------------------
</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
- -------------------------------------
- -------------------------------------
$204 $630 $1,083 $2,338
- -------------------------------------
- -------------------------------------
</Table>
(3) If you annuitize your Contract:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$199 $615 $1,057 $2,285
- -------------------------------------
- -------------------------------------
</Table>
EXPLANATION OF FEE TABLES AND EXAMPLES
1. The purpose of the Fee Tables is to show you the various expenses you
would incur directly and indirectly by investing in the contract. We
converted the contract maintenance charge to a percentage (0.05%). The
actual impact of the contract maintenance charge may differ from this
percentage and may be waived for contract values over $50,000. Additional
information on the Underlying Fund fees can be found in the accompanying
Trust prospectuses.
2. The Examples assume that no transfer fees were imposed. Premium taxes are
not reflected but may be applicable.
3. Examples reflecting application of optional features and benefits use the
highest fees and charges being offered for those features. 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 fees
for the Capital Protector
7
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.
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 WM DIVERSIFIED STRATEGIES
VARIABLE ANNUITY
- --------------------------------------------------------------------------------
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: 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 withdrawn. 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 advisor.
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 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 investment portfolios which We call Variable Portfolios. The Variable
Portfolios have specific investment objectives and their performance 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
Portfolio(s) 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.
For more information on the Variable Portfolios and fixed account options
available under this contract, SEE INVESTMENT OPTIONS BELOW.
AIG SunAmerica Life issues the WM Diversified Strategies Variable Annuity. When
you purchase a WM Diversified Strategies 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., a Delaware corporation. WM
Diversified Strategies may not currently be available in all states. Please
check with your financial advisor regarding availability in your state.
This annuity is designed for investors whose personal circumstances allow for a
long-term investment time horizon, to assist in contributing to retirement
savings. As a function of the federal tax code 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 7 years. Because of these potential
penalties, you should fully discuss all of the benefits and risks of this
contract with your financial advisor prior to purchase.
8
PURCHASING A WM DIVERSIFIED STRATEGIES
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.
This 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.
<Table>
<Caption>
MINIMUM MINIMUM SUBSEQUENT
MINIMUM INITIAL SUBSEQUENT PURCHASE PAYMENT--
PURCHASE PAYMENT PURCHASE PAYMENT AUTOMATIC PAYMENT PLAN
---------------- ---------------- ----------------------
Qualified $2,000 $100 $50
Non-qualified $5,000 $100 $50
</Table>
WE REQUIRE COMPANY APPROVAL PRIOR TO ACCEPTING PURCHASE PAYMENTS GREATER THAN
$1,000,000. SUBSEQUENT PURCHASE PAYMENTS THAT WOULD CAUSE TOTAL PURCHASE
PAYMENTS IN ALL CONTRACTS ISSUED BY AIG SUNAMERICA LIFE OR ITS AFFILIATES TO THE
SAME OWNER (OR ANNUITANT, IF THE OWNER IS A NON-NATURAL PERSON) TO EXCEED THESE
LIMITS MAY ALSO BE SUBJECT TO COMPANY PREAPPROVAL. WE RESERVE THE RIGHT TO
CHANGE THE AMOUNT AT WHICH PREAPPROVAL IS REQUIRED, AT ANY TIME. Also, the
optional automatic payment plan allows you to make subsequent Purchase Payments
of as little as $50.
In general, We will not issue a Qualified contract to anyone who is age 70 1/2
or older, unless they certify to Us that the minimum distribution required by
the federal tax code is being made. In addition, We may not issue a contract to
anyone age 91 or older (unless state law requires otherwise). Neither Estate
Rewards nor Earnings Advantage is available to you 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 in contingent upon
prior review and approval by the Company.
ALLOCATION OF PURCHASE PAYMENTS
We invest your Purchase Payments in the fixed accounts and/or Variable
Portfolio(s) according to your instructions. If We receive a Purchase Payment
without allocation instructions, We will invest the money according to your last
allocation instructions. Purchase Payments are applied to your contract based
upon the value of the variable investment option next determined after receipt
of your money. SEE INVESTMENT OPTIONS BELOW.
In order to issue your contract, We must receive your completed application,
Purchase Payment allocation instructions and any other required paper work at
Our Annuity Service Center. 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
The value of the variable portion of your contract will go up or down depending
upon the investment performance of the Variable Portfolio(s) you select. In
order to keep track of the value of your contract, We use a unit of measure
called an Accumulation Unit which works like a share of a mutual fund. During
the Income Phase, We call them Annuity Units.
9
An Accumulation Unit value is determined each day that the New York Stock
Exchange ("NYSE") is open. 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 1:00 p.m. Pacific Time ("PT") and on the next day's unit
value if We receive your money after 1:00 p.m. PT. We calculate an Accumulation
Unit for each Variable Portfolio after the NYSE closes each day. We do this by:
1. determining the total value of money invested in a particular Variable
Portfolio;
2. subtracting from that amount any asset-based charges and any other
charges such as taxes We have deducted; and
3. dividing this amount by the number of outstanding Accumulation Units.
EXAMPLE:
We receive a $25,000 Purchase Payment from you on Wednesday. You allocate
the money to the Alliance Growth Portfolio. We determine that the value of
an Accumulation Unit for the Alliance Growth 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
Alliance Growth Portfolio.
CAPITAL PROTECTOR
The Capital Protector is an optional feature of your variable annuity currently
available only on contracts issued on or after October 7, 2002. If you elect
this feature, for which you will be charged an annualized fee, at the end of the
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 BELOW.
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
10
include certain portions of subsequent Purchase Payments contributed to your
contract over specified periods of time, as follows:
<Table>
<Caption>
PERCENTAGE OF PURCHASE PAYMENTS
TIME ELAPSED SINCE INCLUDED IN THE
EFFECTIVE DATE CAPITAL PROTECTOR BENEFIT CALCULATION
- ------------------ -------------------------------------
0-90 days 100%
91+ days 0%
</Table>
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.
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/are 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 Money Market Fund. Any Capital Protector benefit paid is not
considered a Purchase Payment for purposes of calculating other benefits.
Benefits based on earnings, such as Earnings Advantage, 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.
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 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. The full quarterly charge will be deducted at the
time of a full surrender or annuitization prior to the end of the waiting
period, even though no Capital Protector benefit is payable. The fee is
calculated as a percentage of your contract value minus Purchase Payments
received after the 90th day since the purchase of the contract. The amount of
this
11
charge is subject to change at any time for prospectively issued contracts. Once
the feature is terminated, as discussed above, the charge will no longer be
deducted. The annual fee is:
<Table>
<Caption>
CONTRACT YEAR ANNUALIZED CHARGE*
- ------------- ------------------
0-7 0.45%
8-10 0.15%
11+ none
</Table>
* As a percentage of your contract value minus Purchase Payments received after
the 90th day since the purchase of your contract.
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 BELOW.
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.
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. Generally, We will refund to you
the value of your contract on the day We receive your request. The amount
refunded to you may be more or less than your original investment.
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 Money Market investment option 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 Money Market investment option during the free look period unless you
allocate your money to it. If your contract was issued in a state requiring
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.
INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
The contract offers variable investment options which We call Variable
Portfolios, and fixed investment options. We designed the contract to meet your
varying investment needs over time. You can achieve this by using the Variable
Portfolios alone or in concert with the fixed investment options. The Variable
Portfolios are only available through the purchase of certain variable
annuities. A mixture of your investment in the Variable Portfolios and fixed
account options may lower the risk associated with investing only in a variable
investment option.
12
VARIABLE PORTFOLIOS
The Variable Portfolios invest in shares of the Anchor Series Trust, SunAmerica
Series Trust and the WM Variable Trust (the "Trusts"), Additional Variable
Portfolios may be available in the future. The Variable Portfolios are only
available through the purchase of certain insurance contracts. The Trusts serve
as the underlying investment vehicles for other variable annuity contracts
issued by AIG SunAmerica Life, and other affiliated/ unaffiliated insurance
companies. Neither AIG SunAmerica Life nor the Trusts believe that offering
shares of the Trusts in this manner disadvantages you. Each Trust's adviser
monitors the Trust for potential conflicts.
ANCHOR SERIES TRUST
Wellington Management Company, LLP serves as subadviser to the AST Portfolio.
AST contains Variable Portfolios in addition to those listed below which are not
available for investment under this contract.
SUNAMERICA SERIES TRUST
Various subadvisers provide investment advice for the SAST Portfolios. SAST
contains Variable Portfolios in addition to those listed below which are not
available for investment under this contract.
WM VARIABLE TRUST
WM Advisors, Inc. serves as adviser for the WMVT Funds and also hires
subadvisers to manage the day-to-day operations of certain investment options.
The Variable Portfolios along with their respective subadvisers are listed
below:
STRATEGIC ASSET MANAGEMENT PORTFOLIOS
<Table>
Flexible Income Portfolio WM Advisors, Inc. WMVT
Conservative Balanced Portfolio WM Advisors, Inc. WMVT
Balanced Portfolio WM Advisors, Inc. WMVT
Conservative Growth Portfolio WM Advisors, Inc. WMVT
Strategic Growth Portfolio WM Advisors, Inc. WMVT
</Table>
EQUITY FUNDS
<Table>
Davis Venture Value Portfolio Davis Advisors SAST
Global Equities Portfolio Alliance Capital Management, L.P. SAST
REIT Fund WM Advisors, Inc. WMVT
Equity Income Fund WM Advisors, Inc. WMVT
Growth & Income Fund WM Advisors, Inc. WMVT
West Coast Equity Fund WM Advisors, Inc. WMVT
Mid Cap Stock Fund WM Advisors, Inc. WMVT
Growth Fund Columbia Management Company, WMVT
Janus Capital Management LLC, and
OppenheimerFunds, Inc.
Small Cap Stock Fund WM Advisors, Inc. WMVT
International Growth Fund Capital Guardian Trust Company WMVT
MFS Mid-Cap Growth Portfolio Massachusetts Financial Services Company SAST
Capital Appreciation Portfolio Wellington Management Company, LLP AST
Alliance Growth Portfolio Alliance Capital Management, L.P. SAST
Technology Portfolio Van Kampen SAST
</Table>
13
FIXED-INCOME FUNDS
<Table>
Short Term Income Fund WM Advisors, Inc. WMVT
U.S. Government Securities Fund WM Advisors, Inc. WMVT
Income Fund WM Advisors, Inc. WMVT
Money Market Fund WM Advisors, Inc. WMVT
</Table>
YOU SHOULD READ THE PROSPECTUSES FOR THE TRUSTS CAREFULLY. THESE PROSPECTUSES
CONTAIN DETAILED INFORMATION ABOUT THE PORTFOLIOS, INCLUDING EACH UNDERLYING
FUND'S INVESTMENT OBJECTIVE AND RISK FACTORS.
FIXED INVESTMENT 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 advisor 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 A SHOWS HOW WE CALCULATE AND APPLY THE MVA.
You may systematically transfer interest earned in your multi-year fixed
investment option into any of the Variable Portfolios. These systematic
transfers do not count toward the 15 free transfers per contract year and are
not subject to a market value adjustment. You may change or terminate these
systematic transfers by contacting Our Annuity Service Center.
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 below for more details.
14
DOLLAR COST AVERAGING FIXED ACCOUNTS
You may invest initial and/or subsequent Purchase Payments in the DCA fixed
accounts ("DCAFA"), if available. DCAFAs also credit a fixed rate of interest
but are specifically designed to facilitate a dollar cost averaging program.
Interest is credited to amounts allocated to the DCAFAs while your investment is
transferred to the Variable Portfolios over certain specified time frames. The
interest rates applicable to the DCAFA may differ from those applicable to any
available FAGPs but will never be less than the minimum annual guaranteed
interest rate as specified in your contract. However, when using a DCAFA the
annual interest rate is paid on a declining balance as you systematically
transfer your investment to the Variable Portfolios. Therefore, the actual
effective yield will be less than the annual crediting rate. We determine the
DCAFAs offered at any time in Our sole discretion and We reserve the right to
change to DCAFAs that We make available at any time, unless state law requires
Us to do otherwise. See DOLLAR COST AVERAGING below for more information.
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase, you may transfer money among the Variable
Portfolio(s) and the available fixed investment options by written request or by
telephone. Additionally, you may access your account and request transfers
through Our website, www.aigsunamerica.com. Funds already in your contract
cannot be transferred into the DCA fixed accounts. Transfers out of a 3, 5, 7 or
10 year fixed investment option may be subject to a market value adjustment.
The minimum amount you can transfer is $100, or a lesser amount if you transfer
the entire balance from a Variable Portfolio or a fixed investment option. Any
money remaining in a Variable Portfolio or fixed investment option after making
a transfer must equal at least $100. Your request for transfer must clearly
state which investment option(s) are involved and the amount you want to
transfer. Please see DOLLAR COST AVERAGING below for specific rules regarding
the DCA fixed accounts. We currently allow 15 free transfers per contract year.
We charge $25 ($10 in Pennsylvania and Texas) for each additional transfer in a
contract year.
We will accept transfers by telephone and/or the internet unless you instruct Us
otherwise. When receiving telephone and/or the internet account transfers, We
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 or fraudulent transactions.
Any transfer request in excess of 15 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
NYSE, generally at 1:00 p.m. PT. 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 simultaneously with the original transfer request.
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 Funds in which the Variable Portfolios
invest. These market timing strategies are disruptive to the Underlying Funds 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 may
terminate your transfer privileges, after We notify you of the restriction in
writing, if We determine that you are engaging in a pattern of transfers
15
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.
For information regarding transfers during the Income Phase, SEE INCOME OPTIONS
BELOW.
We reserve the right to modify, suspend or terminate the transfer privileges at
any time.
DOLLAR COST AVERAGING
The Dollar Cost Averaging ("DCA") program allows you to invest gradually in the
Variable Portfolios. There is no fee to participate in this program. Under the
program you systematically transfer a set dollar amount or percentage from any
Variable Portfolio or an available fixed account option (source accounts) to any
other Variable Portfolio. Transfers occur on certain periodic schedules, such as
monthly or weekly, and count against your 15 fee transfers per contract year.
The minimum transfer amount under the DCA program is $100 per transfer,
regardless of the source account. Fixed account options are not available as
target account for the DCA program.
We may offer the DCAFAs exclusively to facilitate this program. The DCAFAs only
accept new Purchase Payments. You cannot transfer money already in your contract
into these options. If you allocate a Purchase Payment into a DCAFA, We transfer
all your money allocated to that account into the Variable Portfolio(s) you
select over the selected period. You cannot change the option once selected.
We determine the amount of the transfers from the DCAFAs based on the total
amount of money allocated to the account. For example, if you allocate $1,000 to
the 1-year DCAFA, We completely transfer all of your money to the selected
investment options over a period of ten months, so that each payment complies
with the $100 per transfer minimum.
In Oregon, the withdrawal schedule applicable to funds placed in the DCAFAs is
6% for the period when those funds are in the DCAFAs. Once those funds are moved
into the target accounts they are subject to the standard withdrawal charge
schedule. SEE EXPENSES BELOW.
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.
You may terminate a DCA program at any time. Upon termination of the DCA
program, if money remains in the DCAFAs, We transfer the remaining money
according to your instructions or to your current allocation on file. Transfers
resulting from a termination of this program do not count towards your 15 free
transfers.
We reserve the right to modify, suspend or terminate this program at any time.
16
EXAMPLE:
Assume that you want to gradually move $750 each month from the Money
Market Fund to the Alliance Growth Portfolio over six months. You set up
dollar cost averaging and purchase Accumulation Units at the following
values:
<Table>
<Caption>
MONTH ACCUMULATION UNIT UNITS PURCHASED
----- ----------------- ---------------
1 $ 7.50 100
2 $ 5.00 150
3 $10.00 75
4 $ 7.50 100
5 $ 5.00 150
6 $ 7.50 100
</Table>
You paid an average price of only $6.67 per Accumulation Unit over six
months, while the average market price actually was $7.08. By investing an
equal amount of money each month, you automatically buy more Accumulation
Units when the market price is low and fewer Accumulation Units when the
market price is high. This example is for illustrative purposes only.
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
Allocation Rebalancing Program addresses this situation. There is no fee to
participate in this program. 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. At your request, rebalancing occurs on a quarterly,
semi-annual or annual basis. We reserve the right to modify, suspend or
terminate this program at any time.
VOTING RIGHTS
AIG SunAmerica Life is the legal owner of shares of the Trusts. However, when an
Underlying Fund 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.
17
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 partial or total
withdrawal and a market value adjustment if a withdrawal comes from the 3, 5, 7
or 10 year fixed investment options prior to the end of a guarantee period. If
you withdraw your entire contract value, We also deduct any applicable premium
taxes and a contract maintenance fee. SEE EXPENSES BELOW. We calculate charges
due on a total withdrawal on the day after We receive your request and other
required paper work. We return your contract value less any applicable fees and
charges.
The minimum partial withdrawal amount is $1,000. We require that the value left
in any Variable Portfolio or fixed account be at least $500 after the
withdrawal. You must send a written withdrawal request. Unless you provide Us
with different instructions, partial withdrawals will be made in equal amounts
from each Variable Portfolio and the fixed investment option in which your
contract is invested. Withdrawals from fixed investment options prior to the end
of the guarantee period may result in a market value adjustment.
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
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 investment option. Such deferrals are limited to no longer than six
months.
FREE WITHDRAWAL PROVISION
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).
To determine your free withdrawal amount and the amount, if any, on which We
assess a 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 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:
1. Any prior withdrawals on which you previously paid a withdrawal charge,
plus the amount of the withdrawal charge.
2. Any prior free withdrawals in any year that were in excess of your
penalty-free earnings and were free because the Purchase Payment
withdrawn is no longer subject to surrender charges at the time of the
withdrawal.
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 surrender charge before those Purchase Payments which are still
subject to the surrender charge.
During your first contract year your free withdrawal amount is the greater of:
1. Your penalty-free earnings, or;
2. If you are participating in the Systematic Withdrawal program, a total
of 10% of your Total Invested Amount less any prior withdrawals taken
during the contract year.
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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 surrender charges, or;
2. 10% of the portion of your Total Invested Amount that has been in your
contract for at least one year less any withdrawals taken during the
contract year.
Purchase Payments withdrawn, above and beyond the amount of your free withdrawal
amount, which have been invested for less than 7 years will result in your
paying a withdrawal charge. The amount of the charge and how it applies are
discussed more fully 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 withdrawal amount. You should fully discuss
this decision with your financial advisor.
The withdrawal charge percentage applicable is determined by the age of the
Purchase Payment being withdrawn. For purposes of calculating the surrender
charge in the event of a full surrender, the charge is calculated based on the
remaining Total Invested Amount still subject to surrender charge.
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, no
Capital Protector Program, Income Protector Program, Estate Rewards or Earnings
Advantage and no subsequent Purchase Payments. In contract year 2 and year 3,
you take out your maximum free withdrawal of $10,000 for each year. After those
free withdrawals your contract value is $80,000. In contract year 5 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 ($80,000)
B = The amount of your Total Invested Amount still subject to surrender charge
($100,000)
C = The withdrawal charge percentage applicable to the age of each Purchase
Payment at the time of full surrender (4%) [B X C = $4,000]
D = Your full surrender value ($76,000)
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 $250. There must be at least $500 remaining
in your contract at all times. Withdrawals may be taxable and a 10% IRS tax
penalty may apply if you are under age 59 1/2. Any withdrawals you make using
this program count against your free withdrawal amount as described above.
Withdrawals in excess of that amount may incur a withdrawal charge. There is no
additional charge for participating in this program.
The program is not available to everyone. Please check with Our Annuity Service
Center, which can provide the necessary enrollment forms. We reserve the right
to modify, suspend or terminate this program at any time.
NURSING HOME WAIVER
If you are confined to a nursing home for 60 days or longer, We may waive the
withdrawal charge and/or market value adjustment on certain withdrawals prior to
the Annuity Date (not available in Texas). The waiver applies only to
withdrawals made while you are in a nursing home or within 90 days after you
leave the nursing home. Your contract prohibits use of this waiver during the
first 90 days after you purchase your contract. In addition, the confinement
period for which you seek the waiver must begin after you purchase your
contract.
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In order to use this waiver, you must submit with your withdrawal request, the
following documents: (1) a doctor's note recommending admittance to a nursing
home; (2) an admittance form which shows the type of facility you entered; and
(3) a bill from the nursing home which shows that you met the 60 day confinement
requirement.
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.
QUALIFIED CONTRACT OWNERS
Certain Qualified plans restrict and/or prohibit your ability to withdraw money
from your contract. SEE TAXES BELOW for a more detailed explanation.
DEATH BENEFIT
- --------------------------------------------------------------------------------
If you should die during the Accumulation Phase, your Beneficiary will receive a
death benefit. The death benefit options are discussed in detail below.
The death benefit is not paid after you are in the Income Phase. If you die
during the Income Phase, your Beneficiary will receive any remaining guaranteed
income payments in accordance with the income option you choose. SEE INCOME
OPTIONS BELOW.
You select the Beneficiary to receive any amounts payable on death. You may
change the Beneficiary at any time, unless you previously made an irrevocable
Beneficiary designation. A new Beneficiary designation is not effective until We
record the change.
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.
The death benefit must be paid within 5 years of the date of death. The
Beneficiary may, in the alternative, elect to have the death benefit payable in
the form of an annuity. 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. Income payments must begin within one year of the
owner's death. If the Beneficiary is the spouse of the owner, he or she can
elect to continue the contract, rather than receive a death benefit. SEE SPOUSAL
CONTINUATION BELOW. If the Beneficiary does not make a specific election as to
how they want the death benefit distributed within sixty days of Our receipt of
adequate proof of death, it will be paid in a lump sum.
If the Annuitant dies before annuity payments begin, you can name a new
Annuitant. If no Annuitant is named within 30 days, you will become the
Annuitant. However, if the owner is a non-natural person (for example, a trust),
then the death of the Annuitant will be treated as the death of the owner, no
new Annuitant may be named and the death benefit will be paid.
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, an optional
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enhanced death benefit called "Estate Rewards" which offers you the selection of
one of two options. If you choose the Estate Rewards death benefit you may also
elect, for an additional fee, the Earnings Advantage feature. Your death benefit
elections must be made at the time of contract application and the election
cannot be terminated.
The term "Net Purchase Payment" is used frequently in explaining the death
benefit options and Estate Rewards benefit below. 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 the
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 (and any applicable fees and charges) by the contract value
immediately before taking the withdrawal. The resulting percentage is then
multiplied by the amount of the total Purchase Payments and subtracted from the
amount of the total Purchase Payments on deposit at the time of the withdrawal.
The resulting amount is the initial Net Purchase Payment.
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 compounded at a 3% annual growth rate from the
date of issue until the earlier of age 75 or the date of death, plus
any Purchase Payments recorded after the earlier of age 75 or the date
of death; and reduced for any withdrawals (and fees and charges
applicable to those withdrawals) recorded after the earlier of age 75
or date of death, in the same proportion that the withdrawal reduced
the contract value on the date of the withdrawal.
2. the contract value at the time We receive satisfactory proof of death.
ESTATE REWARDS DEATH BENEFIT(S)
For an additional fee, you may elect one of the Estate Rewards Death Benefits
which can provide greater protection for your beneficiaries. You must choose
between Option 1 and Option 2 at the time you purchase your contract and you can
not change your election at any time. The Estate Rewards Death Benefit is not
available if you are age 81 or older at the time of contract issue. The fee for
Estate Rewards death benefit is 0.15% of the average daily ending value of the
assets you have allocated to the Variable Portfolios.
OPTION 1 - 5% ACCUMULATION OPTION
THE DEATH BENEFIT IS THE GREATER OF:
a. the contract value at the time We receive satisfactory proof of death;
or
b. Net Purchase Payments compounded to the earlier of your 80th birthday
or the date of death, at a 5% annual growth rate, plus any Purchase
Payments recorded after the 80th birthday or the date of death; and
reduced for any withdrawals (and fees and charges applicable to those
withdrawals) recorded after the 80th birthday or the date of death, in
the same proportion that the withdrawal reduced the contract value on
the date of the withdrawal, up to a maximum benefit of two times the
Net Purchase Payments made over the life of your contract.
If you die after your latest Annuity Date, the 5% Accumulation Option death
benefit reverts to the Standard Death Benefit. Thus, your beneficiaries may
receive no benefit from Estate Rewards Death Benefit. This option may not be
available in all states. Check with your financial advisor regarding
availability.
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OPTION 2 - MAXIMUM ANNIVERSARY VALUE OPTION
THE DEATH BENEFIT IS THE GREATEST OF:
a. Net Purchase Payments; or
b. the contract value at the time We receive satisfactory proof of death;
or
c. the maximum anniversary value on any contract anniversary prior to your
81st birthday. The anniversary value equals the contract value on a
contract anniversary increased by any Purchase Payments recorded after
that anniversary; and reduced for any withdrawals (and fees and charges
applicable to those withdrawals) recorded after the anniversary, in the
same proportion that the withdrawal reduced the contract value on the
date of the withdrawal.
If the Maximum Anniversary Value option was elected and you or the
Continuing Spouse live to be age 90 or older, the death benefit will be
the contract value because the Maximum Anniversary Value option ends at
age 90. However, if you selected the Earnings Advantage benefit and
death occurs after age 90 but before the latest annuity date at age 95,
your beneficiary or Continuing Spouse will benefit from the Earnings
Advantage.
EARNINGS ADVANTAGE
The Earnings Advantage benefit may increase the Estate Rewards death benefit
amount. In order to make an Earnings Advantage election you must have already
elected one of the Estate Rewards Death Benefits described above. The Earnings
Advantage is available for an additional charge of 0.25% of the average daily
ending value of the assets you have allocated to the Variable Portfolios. You
are not required to elect the Earnings Advantage feature if you select the
Estate Rewards Death Benefit, but once elected, generally, it cannot be
terminated. Further, if you elect both the Estate Rewards and Earnings Advantage
the combined charge will be 0.40% of the average daily ending value of the
assets you have allocated to the Variable Portfolios.
If you have earnings in your contract at the time of death, We will add a
percentage of those earnings (the "Earnings Advantage Percentage"), subject to a
maximum dollar amount (the "Maximum Earnings Advantage Percentage"), to the
death benefit payable.
The Contract Year of Death will determine the Earnings Advantage Percentage and
the Maximum Earnings Advantage amount, as set forth below:
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------------------------
CONTACT YEAR OF DEATH EARNINGS ADVANTAGE MAXIMUM
PERCENTAGE EARNINGS ADVANTAGE AMOUNT
- ------------------------------------------------------------------------------------------------------------------
Years 0 - 4 25% of Earnings 25% of Net Purchase Payments
- ------------------------------------------------------------------------------------------------------------------
Years 5 - 9 40% of Earnings 40% of Net Purchase Payments*
- ------------------------------------------------------------------------------------------------------------------
Years 10+ 50% of Earnings 50% of Net Purchase 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 the Net
Purchase Payments for the purpose of the Maximum Earnings Advantage Amount
calculation.
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 Earnings Advantage Percentage Amount?
We determine the amount of the Earnings Advantage based upon a percentage of
earnings in your contract at the time of your death. For the purpose of this
calculation, earnings are defined as (1) minus (2) where
(1) equals the contract value on the date of death; and
(2) equals Net Purchase Payments.
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What is the Maximum Earnings Advantage?
The Earnings Advantage amount is subject to a maximum. The maximum Earnings
Advantage amount is equal to a percentage of your Net Purchase Payments.
The Earnings Advantage benefit will only be paid if your date of death is prior
to the latest Annuity Date. Thus, your beneficiaries may receive no benefit from
your election of the Earnings Advantage Benefit if you live past your latest
Annuity Date. This option may not be available in all states. Check with your
Investment Representative regarding availability.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THESE DEATH BENEFIT
FEATURES (IN THEIR ENTIRETY OR ANY COMPONENT) 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"). 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. The
Continuing Spouse can only elect to continue the contract upon the death of the
original owner of the contract.
Upon 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 age of the Continuing Spouse on the Continuation
Date and on the date of the Continuing Spouse's death will be used in
determining any future death benefits under the Contract. The Continuation
Contribution is not considered a Purchase Payment for any other calculation
except as noted in Appendix B. To the extent the Continuing Spouse invests in
the Variable Portfolios or MVA fixed accounts, they will be subject to
investment risk as was the original owner.
Generally, the Continuing Spouse 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 Earnings Advantage. We will terminate
Earnings Advantage if the Continuing Spouse is age 81 or older on the
Continuation Date. If Earnings Advantage is not terminated or discontinued and
the Continuing Spouse dies after the latest Annuity Date no Earnings Advantage
benefit will be payable. SEE APPENDIX B FOR FURTHER EXPLANATION OF THE DEATH
BENEFIT CALCULATION FOLLOWING 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 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 Separate Account charge in the amount of 1.40% annually of
the value of your contract invested in the Variable Portfolios. We deduct the
charge daily. This charge compensates the Company for the mortality and expense
risk and the costs of contract distribution assumed by the Company.
Generally, the mortality risks assumed by the Company arise from its contractual
obligations to make income payments after the Annuity Date and to provide a
death benefit. The expense risk assumed by the Company is that
23
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 0.25% from the investment advisers or their
affiliates of certain of the Underlying Funds for services related to the
availability of those Underlying Funds in the Contract.
WITHDRAWAL CHARGES
During the Accumulation Phase you may make withdrawals from your contract.
However, a withdrawal charge may apply. We apply a withdrawal charge upon an
early withdrawal against each Purchase Payment you put into the contract. The
withdrawal charge equals a percentage of the Purchase Payment you take out of
the contract. The contract does provide a free withdrawal amount every year. SEE
ACCESS TO YOUR MONEY ABOVE. The withdrawal charge percentage declines each year
a Purchase Payment is in the contract, as follows:
<Table>
<Caption>
YEAR 1 2 3 4 5 6 7 8
- ----------------- --- --- --- --- --- --- --- ---
Withdrawal Charge 7% 6% 6% 5% 4% 3% 2% 0%
</Table>
After a Purchase Payment has been in the contract for seven complete years the
withdrawal charge no longer applies to that Purchase Payment. When calculating
the withdrawal charge, We treat withdrawals as coming first from the Purchase
Payments that have been in your contract the longest. However, for tax purposes,
your withdrawals are considered earnings first, then Purchase Payments.
Whenever possible, We deduct the withdrawal charge from the money remaining in
your contract from each of your investment options on a pro-rata basis. 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. We do not currently assess a withdrawal charge
upon election to receive income payments from your contract. 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 the assets of the Underlying Funds for each Trust for
the advisory and other expenses of the Funds.
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 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% fee applicable to Class 2 shares of AST and the SAST
Portfolios is 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 FUNDS.
CONTRACT MAINTENANCE CHARGE
During the Accumulation Phase, We subtract a contract maintenance charge from
your account once per year. This charge compensates Us for the cost of contract
administration. If your contract value is $50,000 or more on
24
your contract anniversary date, We will waive the charge. This waiver is subject
to change without notice. We will deduct the $35 ($30 in North Dakota) contract
maintenance charge on a pro-rata basis from your account value on your contract
anniversary. In the states of Pennsylvania, Texas and Washington a contract
maintenance charge will be deducted pro-rata from the Variable Portfolio(s) in
which you are invested, only. If you withdraw your entire contract value, We
deduct the charge from that withdrawal.
TRANSFER FEE
We currently allow 15 free transfers per contract year. We charge $25 ($10 in
Pennsylvania and Texas) for each additional transfer in a contract year.
OPTIONAL DEATH BENEFIT FEES
Please see DEATH BENEFITS above for additional information regarding the Estate
Rewards death benefit and Earnings Advantage fee.
OPTIONAL INCOME PROTECTOR FEE
Please see INCOME OPTIONS below for additional information regarding the Income
Protector fee.
OPTIONAL CAPITAL PROTECTOR FEE
Please see PURCHASING A WM DIVERSIFIED STRATEGIES VARIABLE ANNUITY above for
more information on the Capital Protector fee.
PREMIUM TAX
Certain states charge the Company a tax on the premiums you pay into the
contract, ranging from 0% to 3.5%. Currently We deduct the charge for premium
taxes from your contract when applicable, such as when you fully surrender or
annuitize 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.
25
INCOME OPTIONS
- --------------------------------------------------------------------------------
ANNUITY DATE
During the Income Phase, the money in your Contract is used 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 in which you want
income payments to begin. The first day of that month is the Annuity Date. You
may change your Annuity Date, so long as you do so at least seven days before
the income payments are scheduled to begin. Once you begin receiving income
payments, you cannot change your Income Option. Except as discussed under Option
5, once you begin receiving income payments, you cannot otherwise access your
money through a withdrawal or surrender. Other pay out options may be available.
Contact Our Annuity Service Center for more information.
Income payments must begin on or before 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 (latest Annuity
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, certain Qualified contracts require you to take
minimum distributions after you reach age 70 1/2. SEE TAXES BELOW.
INCOME OPTIONS
Currently, this Contract offers five Income Options. If you elect to receive
income payments but do not select an option, your income payments will be made
in accordance with Option 4 for a period of 10 years. For income payments
selected for joint lives, We pay according to Option 3.
We base Our calculation of income payments on the life of the Annuitant and the
annuity rates set forth in your contract. As the contract owner, you may change
the Annuitant at any time prior to the Annuity Date. You must notify Us if the
Annuitant dies before the Annuity Date and then designate a new Annuitant.
OPTION 1 - LIFE INCOME ANNUITY
This option provides income payments for the life of the Annuitant. Income
payments stop when the Annuitant dies.
OPTION 2 - JOINT AND SURVIVOR LIFE ANNUITY
This option provides income payments for the life of the Annuitant and for the
life of another designated person. Upon the death of either person, We will
continue to make income payments during the lifetime of the survivor. Income
payments stop whenever the survivor dies.
OPTION 3 - JOINT AND 100% SURVIVOR LIFE ANNUITY WITH 10 YEAR PERIOD CERTAIN
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 payments have been made, the remaining payments are made to the
Beneficiary under your Contract.
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OPTION 4 - LIFE ANNUITY WITH 10 OR 20 YEAR PERIOD CERTAIN
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 payments being made) may redeem the contract value (in full or
in part) after the Annuity Date. The amount available upon such redemption would
be the discounted present value of any remaining guaranteed payments. 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.
We make income payments on a monthly, quarterly, semi-annual or annual basis.
You instruct Us to send you a check or to have the payments direct 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 annuity payments of less than $50 per payment, We may decrease
the frequency of the payments, state law allowing. See the INCOME PROTECTOR
section below for specifics relative to taking income under that feature.
ALLOCATION OF ANNUITY PAYMENTS
You can choose income payments that are fixed, variable or both. If payments are
fixed, AIG SunAmerica Life guarantees the amounts of each payment. If the
payments are variable, the amounts are not guaranteed. They will go up and/or
down based upon the performance of the Variable Portfolio(s) in which you
invest.
FIXED OR VARIABLE INCOME PAYMENTS
Unless otherwise elected, if at the date when income payments begin you are
invested in the Variable Portfolio(s) only, your income payments will be
variable and your money is only in fixed accounts at that time, your income
payments will be fixed in amount. If you are invested in both fixed and variable
options at the time you begin the Income Phase, a portion of your income
payments will be fixed and a portion will be variable, unless otherwise elected.
INCOME PAYMENTS
Your income payments will vary if you are invested in the Variable Portfolio(s)
after the Annuity date depending on four factors:
- for life options, your age when payments begin, and in most states, if a
Non-Qualified Contract, your gender;
- the value of your contract in the Variable Portfolio(s) on the Annuity
Date;
- the 3.5% assumed investment rate ("AIR") for variable income payments
used in the annuity table for the contract; and;
- the performance of the Variable Portfolio(s) in which you are invested
during the time you receive income payments.
27
If you are invested in both the fixed account options and the Variable
Portfolio(s) after the Annuity Date, the allocation of funds between the fixed
accounts and Variable Portfolio(s) also impacts the amount of your annuity
payments.
The value of variable income payments, if elected, is based on the assumed 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 (1) 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.
Please read the Statement of Additional Information, available upon request, for
a more detailed discussion of the income options. See also ACCESS TO YOUR MONEY
above for a discussion of when payments from a Variable Portfolio may be
suspended or postponed.
INCOME PROTECTOR
You may elect to enroll in the Income Protector Program. The Income Protector
Program can provide a future "safety net" which can offer you the ability to
receive a guaranteed fixed minimum retirement income when you choose to switch
to the Income Phase. If you elect the Income Protector you can know the level of
minimum income that will be available to you upon annuitization, regardless of
fluctuating market conditions. In order to utilize the program, you must follow
the provisions discussed below.
The minimum level of Income Protector benefit available is generally based upon
your Purchase Payments remaining in your contract at the time you decide to
begin taking income. If available and elected, a growth rate can provide
increased levels of minimum guaranteed income. We charge a fee for the Income
Protector benefit. The amount of the fee and levels of income protection
available to you are described below. This feature may not be available in your
state. Once you have made an Income Protector election it cannot be changed or
terminated. Check with your financial advisor regarding availability.
You are not required to use the Income Protector to receive income payments. The
general provisions of your contract provide other income options. However, We
will not refund fees paid for the Income Protector if you begin taking income
payments under the general provisions of your contract. In addition, if
applicable, surrender charges will be assessed upon your beginning the Income
Phase, if you annuitize under the Income Protector Program. YOU MAY NEVER NEED
TO RELY UPON INCOME PROTECTOR IF YOUR CONTRACT PERFORMS WITHIN A HISTORICALLY
ANTICIPATED RANGE. HOWEVER, PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
Certain federal tax code restrictions on the income options available to
qualified retirement investors may have an impact on your ability to benefit
from this feature. Qualified investors should read NOTE TO QUALIFIED CONTRACT
HOLDERS, below.
HOW DO WE DETERMINE THE AMOUNT OF YOUR MINIMUM GUARANTEED INCOME?
If you elect the Income Protector Program, We base the amount of minimum
retirement income available to you upon a calculation We call the Income Benefit
Base. At the time your enrollment in the Income Protector program becomes
effective, your Initial Income Benefit Base is equal to your contract value. If
elected, your participation becomes effective on the date of issue of the
contract.
28
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 contract value on
the date your participation became effective, and for each subsequent
year of calculation, the Income Benefit Base of your prior contract
anniversary, and;
(b) is equal to the sum of all subsequent Purchase Payments made into the
contract since the prior 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. Your Income
Benefit Base may accumulate at the elected growth rate, if available,
from the date your election becomes effective through your Income
Benefit Date.
Any applicable growth rate will reduce to 0% on the anniversary immediately
after the annuitant's 90th birthday.
LEVEL OF PROTECTION
If you decide that you want the protection offered by the Income Protector
Program, you must elect the Income Protector by completing the Income Protector
Election Form available through Our Annuity Service Center. You must elect the
Income Protector feature at the time your contract is issued. You may only elect
one of the offered alternatives, if more than one is available, and you can
never change your election once made.
Your Income Benefit Base will begin accumulating at the applicable growth rate
on the contract anniversary following Our receipt of your completed election
form. In order to obtain the benefit of the Income Protector you may not begin
the income Phase for at least nine years following your election. You may not
elect the Income Protector Program if the required waiting period before
beginning the income phase would occur later than your latest Annuity Date.
The Income Protector option(s) currently available under this contract are:
<Table>
<Caption>
FEE* AS A % OF YOUR INCOME WAITING PERIOD BEFORE THE
OPTION GROWTH RATE BENEFIT BASE INCOME PHASE
- ---------------------------- ---------------------------- ---------------------------- ----------------------------
Income Protector Base 0% 0.10% 9 years
</Table>
* See Fee Tables above.
ELECTING TO RECEIVE INCOME
You may elect to begin the Income Phase of your contract using the Income
Protector Program ONLY within the 30 days after the 9th or later contract
anniversary following the effective date of your Income Protector participation.
The contract anniversary of or prior to your election to begin receiving income
payments is your Income Benefit Date. We calculate your Income Benefit Base as
of that date to use in determining your guaranteed minimum fixed retirement
income. To determine the minimum guaranteed retirement income available to you,
We apply your final Income Benefit Base to the annuity rates stated in your
Income Protector endorsement for the income option you select. You then choose
if you would like to receive the income annually, semi-annually, quarterly or
monthly for the time guaranteed under your selected income 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 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.
29
The income options available when using the Income Protector feature to receive
your retirement income are:
- Life Annuity with 10 years guaranteed, or
- Joint and 100% Survivor Life Annuity with 20 years guaranteed
At the time you elect to begin receiving income payments, We will calculate your
income payments using both your 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 feature will be
different. You will receive whichever provides a greater stream of income. If
you elect to receive income payments using the Income Protector feature your
income payments will be fixed in amount.
FEES ASSOCIATED WITH THE INCOME PROTECTOR PROGRAM
If you elect to participate in the Income Protector program We charge an annual
fee, as follows:
<Table>
<Caption>
OPTION FEE* AS A % OF YOUR INCOME BENEFIT BASE
- ---------------------------- ---------------------------------------
Income Protector Base 0.10%
</Table>
* See Fee Tables above.
We deduct the annual fee from your actual Contract Value. We begin deducting the
annual fee on your first contract anniversary.
Additionally, if you fully surrender your contract prior to your contract
anniversary, We will deduct the fee at the time of surrender based on your
Income Benefit Base as of the surrender date. Once elected, the Income Protector
Program and its corresponding charges may not be terminated until full surrender
or annuitization of the contract occurs.
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. If you elect Capital Protector, you may not elect to
participate in the Income Protector program.
The Income Protector program may not be available in all states. Check with your
financial advisor for availability in your state.
We reserve the right to modify, suspend or terminate the Income Protector
Program at any time.
30
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 in a Non-Qualified
contract is equal to the Purchase Payments you put into the contract. You have
already been taxed on the cost basis in your contract.
If you purchase your contract under a pension plan, a specially sponsored
employer program or as an individual retirement account, your contract is
referred to as a Qualified contract. Examples of qualified plans are: Individual
Retirement Accounts ("IRAs"), Roth IRAs, Tax-Sheltered Annuities (referred to as
403(b) contracts), plans of self-employed individuals (often referred to as
H.R.10 Plans or Keogh Plans) and pension and profit sharing plans, including
401(k) plans. Typically, you have not paid any tax on the Purchase Payments used
to buy your contract and therefore, you have no cost basis in your contract.
However, you normally will have cost basis in a Roth IRA, and you may have cost
basis in a traditional IRA or in another Qualified Contract.
TAX TREATMENT OF DISTRIBUTIONS -- NON-QUALIFIED CONTRACTS
If you make a partial or total withdrawal from a Non-Qualified contract, the IRC
treats such a withdrawal as first coming from the earnings and then as coming
from your Purchase Payments. Purchase payments made prior to August 14, 1982,
however, are an important exception to this general rule, and for tax purposes
are treated as being distributed before the earnings on those contributions. If
you annuitize your contract, a portion of each income payment will be
considered, for tax purposes, to be a return of a portion of your Purchase
Payment(s). Any portion of each income payment that is considered a return of
your Purchase Payment will not be taxed. Withdrawn earnings are treated as
income to you and are taxable. The IRC provides for a 10% penalty tax on any
earnings that are withdrawn other than in conjunction with the following
circumstances: (1) after reaching age 59 1/2; (2) when paid to your Beneficiary
after you die; (3) after you become disabled (as defined in the IRC); (4) when
paid in a series of substantially equal installments made for your life or for
the joint lives of you and your Beneficiary; (5) under an immediate annuity; or
(6) which are attributable to Purchase Payments made prior to August 14, 1982.
TAX TREATMENT OF DISTRIBUTIONS -- QUALIFIED CONTRACTS (INCLUDING GOVERNMENTAL
457(B) ELIGIBLE DEFERRED COMPENSATION PLANS)
Generally, you have not paid any taxes on the Purchase Payments used to buy a
Qualified contract. As a result, with certain limited exceptions, any amount of
money you take out as a withdrawal or as income payments is taxable income. In
the case of certain Qualified contracts, the IRC further provides for a 10%
penalty tax on any taxable withdrawal or income payment paid to you other than
in conjunction with the following circumstances: (1) after reaching age 59 1/2;
(2) when paid to your Beneficiary after you die; (3) after you become disabled
(as defined in the IRC); (4) in a series of substantially equal installments,
made for your life or for the joint lives of you and your Beneficiary, that
begins after separation from service with the employer sponsoring the plan; (5)
to
31
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 the IRC; only from an IRA); (7) to fund
certain first-time home purchase expenses (only from an IRA); (8) when you
separate from service after attaining age 55 (does not apply to an IRA); (9)
when paid for health insurance, if you are unemployed and meet certain
requirements; and (10) when paid to an alternate payee pursuant to a qualified
domestic relations order. This 10% penalty tax does not apply to withdrawals or
income payments from governmental 457(b) eligible deferred compensation plans,
except to the extent that such withdrawals or income payments are attributable
to a prior rollover to the plan (or earnings thereon) from another plan or
arrangement that was subject to the 10% penalty tax.
The IRC limits the withdrawal of an employee's voluntary Purchase Payments from
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 IRC 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 monthly, quarterly, semiannual, or annual withdrawals for this
purpose. This service is provided as a courtesy and We do not guarantee the
accuracy of Our calculations. Accordingly, We recommend you consult your tax
advisor concerning your required minimum distribution. You may terminate your
election for automated minimum distribution at any time by sending a written
request to Our Annuity Service Center. We reserve the right to change or
discontinue this service at any time.
The IRS has issued new regulations, effective January 1, 2003, regarding
required minimum distributions from qualified annuity contracts. One of the new
regulations requires that the annuity contract value used to determine required
minimum distributions include the actuarial value of other benefits under the
contract, such as optional death benefits. This regulation does not apply to
required minimum distributions made under an irrevocable annuity income option.
We are currently awaiting further clarification from the IRS on this regulation,
including how the value of such benefits is determined. You should discuss the
effect of these new regulations with your tax advisor.
32
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 advisor 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 CONTRACT
If you transfer ownership of your Non-Qualified contract to a person other than
your spouse (or former spouse incident to divorce) as a gift you will pay
federal income tax on the contract's cash value to the extent it exceeds your
cost basis. The recipient's cost basis will be increased by the amount on which
you will pay federal taxes. In addition, the IRC treats any assignment or pledge
(or agreement to assign or pledge) of any portion of a Non-Qualified contract as
a withdrawal. See the SAI for a more detailed discussion regarding potential tax
consequences of gifting, assigning, or pledging a Non-Qualified contract.
The IRC prohibits Qualified annuity contracts including IRAs from being
transferred, assigned or pledged as security for a loan. This prohibition,
however, generally does not apply to loans under an employer-sponsored plan
(including loans from the annuity contract) that satisfy certain requirements,
provided that: (a) the plan is not an unfunded deferred compensation plan; and
(b) the plan funding vehicle is not an IRA.
DIVERSIFICATION AND INVESTOR CONTROL
The IRC imposes certain diversification requirements on the underlying
investments for a variable annuity. We believe that the management of the
Underlying Funds monitors the Funds so as to comply with these requirements. To
be treated as a variable annuity for tax purposes, the underlying investments
must meet these requirements.
The diversification regulations do not provide guidance as to the circumstances
under which you, and not AIG SunAmerica Life Assurance Company, would be
considered the owner of the shares of the Variable Portfolios under your
Non-Qualified Contract, because of the degree of control you exercise over the
underlying investments.
33
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 should generally be applied
prospectively. However, if such guidance is considered not to be a new position,
it may be applied retroactively. This would mean that you, as the owner of the
Non-qualified 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
- --------------------------------------------------------------------------------
From time to time, We will advertise the performance of the Variable Portfolios.
We advertise the Money Market Fund's yield and effective yield. In addition, the
other Variable Portfolios advertise total return, gross yield and
yield-to-maturity. Any such performance results are based on historical earnings
and are not intended to indicate future performance.
We may show performance of each Variable Portfolios in comparison to various
appropriate indices and the performance of other similar variable annuity
products with similar objectives as reported by such independent reporting
services as Morningstar, Inc., Lipper Analytical Services, Inc. and the Variable
Annuity Research Data Service ("VARDS").
Please see the Statement of Additional Information, available upon request, for
more information regarding the methods used to calculate performance data.
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"), Fitch Ratings ("Fitch's")
and A.M. 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 advisers), specialize in retirement savings and investment products
and services. Business focuses include fixed and variable annuities, mutual
funds, broker-dealer services and trust administration services.
THE SEPARATE ACCOUNT
AIG SunAmerica Life originally established a separate account, Variable Separate
Account (the "Separate Account"), under Arizona law on January 1, 1996 when it
assumed the separate account, originally established
34
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 6.00% of your Purchase Payments. We may also pay an
annual trail commission of up to 0.25%, 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 broker-dealers, 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.
WM Funds Distributor, 1201 Third Avenue, 22nd Floor, Seattle, Washington 98101,
distributes the contracts. WM Funds Distributor is a registered as a
broker-dealer under the Exchange Act of 1934 and a member of the National
Association of Securities Dealers, Inc.
No underwriting fees are paid in connection with the distribution of the
contracts.
ADMINISTRATION
We are responsible for the administrative servicing of your contract. 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.
During the Accumulation and Income Phases, you will receive a statement of your
transactions over the past quarter and a summary of your account values. Please
contact Our Annuity Service Center at 1-877-311-WMVA (9682), if you have any
comment, question or service request.
We send out transaction confirmations and quarterly statements. 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.
35
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 material with respect to the Separate Account.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
The audited 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 the audited 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 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.
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
<Table>
Separate Account............................................ 2
General Account............................................. 2
Performance Data............................................ 3
Income Payments............................................. 9
Annuity Unit Values......................................... 9
Variable Annuity Payments................................... 11
Taxes....................................................... 11
Distribution of Contracts................................... 16
Financial Statements........................................ 16
</Table>
36
APPENDIX A - MARKET VALUE ADJUSTMENT
- --------------------------------------------------------------------------------
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; see your
Contract).
We do not assess a MVA against withdrawals from a 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) You contract was issued in a state where L = 0.005.
A-1
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
The requested withdrawal amount is multiplied by the MVA factor to determine the
MVA:
$4,000 X (+0.007186) = +$28.74
$28.74 represents the positive MVA that would be added to the withdrawal.
NEGATIVE ADJUSTMENT, NO WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 5.5% and the 3-year FAGP is 6.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 6%. No
withdrawal charge is reflected in this example, assuming that the Purchase
Payment withdrawn falls with the free withdrawal amount.
The MVA factor is
= [(1+I)/(1+J+0.005)](N/12) - 1
= [(1.05)/(1.06+0.005)](18/12) - 1
= (0.985915)(1.5) - 1
= 0.978948 - 1
= -0.021052
The requested withdrawal amount is multiplied by the MVA factor to determine the
MVA:
$4,000 X (-0.021052) = - $84.21
$84.21 represents the negative MVA that will be deducted from the money
remaining in the 3-year FAGP.
POSITIVE ADJUSTMENT, WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 3.5% and the 3-year FAGP is 4.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 4%. A
withdrawal charge of 6% is reflected in this example, assuming that the Purchase
Payment withdrawn exceeds the free withdrawal amount.
The MVA factor is
= [(1+I)/(I+J+0.005)](N/12) - 1
= [(1.05)/(1.04+0.005)](18/12) - 1
= (1.004785)(1.5) - 1
= 1.007186 - 1
= +0.007186
A-2
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)/(I+J+0.005)](N/12) - 1
= [(1.05)/(1.06+0.005)](18/12) - 1
= (0.985915)(1.5) - 1
= 0.978948 - 1
= -0.021052
The requested withdrawal amount, less the withdrawal charge ($4,000 - 6% =
$3,760) is multiplied by the MVA factor to determine the MVA:
$3,760 X (- 0.021052) = -$79.16
$79.16 represents the negative MVA that would be deducted from the withdrawal.
A-3
APPENDIX B - DEATH BENEFITS FOLLOWING SPOUSAL CONTINUATION
- --------------------------------------------------------------------------------
The term "Continuation Net Purchase Payment" is used frequently to describe the
death benefit options payable to the beneficiary of a Continuing Spouse. We
define Continuation Net Purchase Payment as Net Purchase Payments made as of the
Continuation Date. For the purposes 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 withdrawals,
Continuation Net Purchase Payments equal the contract value on the Continuation
Date, including the Continuation Contribution.
STANDARD DEATH BENEFIT PAYABLE UPON CONTINUING SPOUSE'S DEATH
If the Standard Death Benefit is applicable upon the Continuing Spouse's death
We will pay the beneficiary the greater of:
1. Continuation Net Purchase Payments compounded at a 3% annual growth
rate until the earlier of Continuing Spouses age 75 or the date of
death of the Continuing Spouse, plus any Purchase Payments recorded
after the date of death of the Continuing Spouse; and reduced for any
withdrawals (and fees and charges applicable to those withdrawals)
recorded after the earlier of age 75 or the date of death, in the same
proportion that the withdrawal reduced the contract value on the date
of the withdrawal.
2. The contract value at the time We receive satisfactory proof of death.
ENHANCED DEATH BENEFIT PAYABLE UPON CONTINUING SPOUSE'S DEATH
If the Enhanced Death Benefit is applicable upon the Continuing Spouse's death,
We will pay the Beneficiary the applicable death benefit under Option 1 or
Option 2.
OPTION 1 - 5% ACCUMULATION:
The death benefit is the greater of:
a. The contract value on the date We receive satisfactory proof of the
Continuing Spouse's death; or
b. Net Purchase Payments made from the original contract issue date
including the Continuation Contribution, compounded to the earlier of
the Continuing Spouse's 80th birthday or the date of death at a 5%
annual growth rate, plus any Purchase Payments recorded after the 80th
birthday or the date of death; and reduced for any withdrawals (and
fees and charges applicable to those withdrawals) recorded after the
80th birthday or the date of death, in the same proportion that the
withdrawal reduced the contract value on the date of the withdrawal, up
to a maximum benefit of two times the Net Purchase Payments.
If the Continuing Spouse dies after the latest Annuity Date and the [5%]
Accumulation option applied, any death benefit payable under the contract will
be the Standard Death Benefit as described above. The Continuing Spouse's
beneficiary will not receive any benefit from the Enhanced Death Benefit.
OPTION 2 - MAXIMUM ANNIVERSARY VALUE:
If the continuing Spouse is younger than age 90 at the time of death, the death
benefit is the greatest of:
a. Continuation Net Purchase Payments; or
b. The contract value at the time We receive satisfactory proof of the
Continuing Spouse's death; or
c. The maximum anniversary value on any contract anniversary (of the
original issue date) occurring after the Continuation Date prior to
the Continuing Spouse's 81st birthday. The anniversary value equals
the value on the contract anniversary plus any Purchase Payments
recorded after that
B-1
anniversary; and reduced for any withdrawals (and fees and charges
applicable to those withdrawals) recorded after that anniversary, in the
same proportion that the withdrawal reduced the contract value on the
date of the withdrawal.
If the Continuing Spouse is age 90 or older at the time of death and the Maximum
Anniversary Value option applied, the death benefit will be equal to the
contract value at the time We receive satisfactory proof of death.
EARNINGS ADVANTAGE BENEFIT FOR SPOUSAL CONTINUATION:
If the original owner's Earnings Advantage remained in effect upon continuation,
the Earnings Advantage benefit may increase the death benefit amount. The
Earnings Advantage benefit is only available if the original owner elected the
feature and it has not been discontinued or 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 "Earnings Advantage Percentage"), subject to a
maximum dollar amount (the "Maximum Earnings Advantage Percentage"), to the
death benefit payable.
The Contract Year of Death (from Continuation Date forward) will determine the
Earnings Advantage Percentage and the Maximum Earnings Advantage amount, as set
forth below:
<Table>
<Caption>
- --------------------------------------------------------------------------------------------
EARNINGS ADVANTAGE
CONTACT YEAR OF DEATH PERCENTAGE MAXIMUM EARNINGS ADVANTAGE PERCENTAGE
- --------------------------------------------------------------------------------------------
Years 0 - 4 25% of Earnings 25% of Continuation Net Purchase Payments
- --------------------------------------------------------------------------------------------
Years 5 - 9 40% of Earnings 40% of Continuation Net Purchase Payments*
- --------------------------------------------------------------------------------------------
Years 10+ 50% of Earnings 50% of Continuation Net Purchase Payments*
- --------------------------------------------------------------------------------------------
</Table>
* PURCHASE PAYMENTS RECEIVED AFTER THE 5TH ANNIVERSARY FOLLOWING THE
CONTINUATION DATE MUST REMAIN IN THE CONTRACT FOR AT LAST 6 FULL MONTHS TO BE
INCLUDED AS PART OF THE NET PURCHASE PAYMENTS FOR THE PURPOSE OF THE MAXIMUM
EARNINGS ADVANTAGE PERCENTAGE CALCULATION.
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 Earnings Advantage Amount?
We determine the Earnings Advantage 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 Earnings Advantage amount?
The Earnings Advantage amount is subject to a maximum. The Maximum Earnings
Advantage amount is a percentage of the Continuation Net Purchase Payments.
The Earnings Advantage benefit will only be paid if the Continuing Spouse's date
of death is prior to the latest Annuity Date.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE SPOUSAL CONTINUATION
PROVISION (IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME.
B-2
APPENDIX C
- --------------------------------------------------------------------------------
HYPOTHETICAL EXAMPLE OF THE OPERATION OF THE INCOME PROTECTOR PROGRAM:
This table assumes a $100,000 initial investment in a Non-Qualified contract
with no further premiums, no withdrawals and no premium taxes; and the election
of the optional Base Income Protector at contract issue.
<Table>
- -----------------------------------------------------------------------------------------------------------------------------
ANNUAL INCOME IF YOU ANNUITIZE ON THE FOLLOWING CONTRACT ANNIVERSARY
IF AT ISSUE YOU 9 10 11 15 19 20
ARE... 1-8 (AGE 69) (AGE 70) (AGE 71) (AGE 75) (AGE 79) (AGE 80)
- -----------------------------------------------------------------------------------------------------------------------------
MALE N/A 6,480 6,672 6,864 7,716 8,616 8,832
AGE 60*
- -----------------------------------------------------------------------------------------------------------------------------
FEMALE N/A 5,700 5,880 6,060 6,900 7,860 8,112
AGE 60*
- -----------------------------------------------------------------------------------------------------------------------------
MALE, AGE 60 N/A 4,920 5,028 5,136 5,544 5,868 5,928
FEMALE, AGE 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 advisor for information regarding availability of this program in your
state.
C-1
APPENDIX D
- --------------------------------------------------------------------------------
WM DIVERSIFIED STRATEGIES -- CONDENSED FINANCIAL INFORMATION
<Table>
<Caption>
Fiscal Year Fiscal Year
ANCHOR SERIES TRUST: 12/31/01 12/31/02
- ----------------------------------------------------------------------------------------------------------------
Capital Appreciation Portfolio (Inception
Date -- 07/09/01)
Beginning AUV....................................... (a) $35.378 (a) $33.835
(b) $35.378 (b) $33.791
Ending AUV.......................................... (a) $33.835 (a) $25.756
(b) $33.791 (b) $25.621
Ending Number of AUs................................ (a) 4,781 (a) 22,572
(b) 3,896 (b) 15,556
- ----------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
SUNAMERICA SERIES TRUST: 12/31/01 12/31/02
- ------------------------------------------------------------------------------------------------
Alliance Growth Portfolio (Inception Date -- 07/09/01)
Beginning AUV....................................... (a) $32.786 (a) $32.676
(b) $32.786 (b) $32.649
Ending AUV.......................................... (a) $32.676 (a) $22.108
(b) $32.649 (b) $22.000
Ending Number of AUs................................ (a) 735 (a) 7,147
(b) 1,409 (b) 8,861
- ------------------------------------------------------------------------------------------------
Davis Venture Value Portfolio (Inception Date -- 07/09/01)
Beginning AUV....................................... (a) $27.129 (a) $26.286
(b) $27.129 (b) $26.197
Ending AUV.......................................... (a) $26.286 (a) $21.550
(b) $26.197 (b) $21.391
Ending Number of AUs................................ (a) 2,529 (a) 28,675
(b) 2,600 (b) 10,380
- ------------------------------------------------------------------------------------------------
Global Equities Portfolio (Inception Date -- 07/09/01)
Beginning AUV....................................... (a) $17.986 (a) $17.516
(b) $17.986 (b) $17.542
Ending AUV.......................................... (a) $17.516 (a) $12.616
(b) $17.542 (b) $12.577
Ending Number of AUs................................ (a) 1,341 (a) 9,707
(b) 19 (b) 3,172
- ------------------------------------------------------------------------------------------------
MFS Mid Cap Growth Portfolio (Inception Date -- 07/09/01)
Beginning AUV....................................... (a) $15.227 (a) $13.438
(b) $15.227 (b) $13.422
Ending AUV.......................................... (a) $13.438 (a) $6.992
(b) $13.422 (b) $6.953
Ending Number of AUs................................ (a) 7,564 (a) 38,564
(b) 4,846 (b) 48,552
- ------------------------------------------------------------------------------------------------
Technology Portfolio (Inception Date -- 07/09/01)
Beginning AUV....................................... (a) $4.018 (a) $3.453
(b) $4.018 (b) $3.459
Ending AUV.......................................... (a) $3.453 (a) $1.720
(b) $3.459 (b) $1.718
Ending Number of AUs................................ (a) 19,075 (a) 72,091
(b) 1,501 (b) 20,382
- ------------------------------------------------------------------------------------------------
</Table>
AUV -- Accumulation Unit Value
AU -- Accumulation Units
(a) Reflects AUV/AU without election of EstatePlus
(b) Reflects AUV/AU with election of EstatePlus
D-1
<Table>
<Caption>
Fiscal Year Fiscal Year
WM VARIABLE TRUST: 12/31/01 12/31/02
- ----------------------------------------------------------------------------------------------------------------
Balanced Portfolio (Inception Date -- 07/09/01)
Beginning AUV....................................... (a) $7.576 (a) $7.544
(b) $7.576 (b) $7.531
Ending AUV.......................................... (a) $7.544 (a) $6.786
(b) $7.531 (b) $6.748
Ending Number of AUs................................ (a) 393,878 (a) 3,452,275
(b) 425,063 (b) 1,966,925
- ----------------------------------------------------------------------------------------------------------------
Conservative Balanced Portfolio (Inception
Date -- 07/09/01)
Beginning AUV....................................... (a) $5.514 (a) $5.543
(b) $5.514 (b) $5.539
Ending AUV.......................................... (a) $5.543 (a) $5.343
(b) $5.539 (b) $5.318
Ending Number of AUs................................ (a) 99,398 (a) 578,767
(b) 23,679 (b) 212,458
- ----------------------------------------------------------------------------------------------------------------
Conservative Growth Portfolio (Inception Date -- 07/09/01)
Beginning AUV....................................... (a) $8.163 (a) $7.966
(b) $8.163 (b) $7.957
Ending AUV.......................................... (a) $7.966 (a) $6.637
(b) $7.957 (b) $6.604
Ending Number of AUs................................ (a) 217,903 (a) 1,574,812
(b) 180,433 (b) 1,071,253
- ----------------------------------------------------------------------------------------------------------------
Equity Income Fund (Inception Date -- 07/09/01)
Beginning AUV....................................... (a) $6.289 (a) $6.393
(b) $6.289 (b) $6.381
Ending AUV.......................................... (a) $6.393 (a) $5.516
(b) $6.381 (b) $5.484
Ending Number of AUs................................ (a) 109,250 (a) 1,067,980
(b) 58,313 (b) 380,505
- ----------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio (Inception Date -- 07/09/01)
Beginning AUV....................................... (a) $6.404 (a) $6.530
(b) $6.404 (b) $6.513
Ending AUV.......................................... (a) $6.530 (a) $6.578
(b) $6.513 (b) $6.534
Ending Number of AUs................................ (a) 186,817 (a) 1,143,068
(b) 121,877 (b) 494,722
- ----------------------------------------------------------------------------------------------------------------
Growth & Income Fund (Inception Date -- 07/09/01)
Beginning AUV....................................... (a) $6.374 (a) $6.044
(b) $6.374 (b) $6.035
Ending AUV.......................................... (a) $6.044 (a) $4.699
(b) $6.035 (b) $4.674
Ending Number of AUs................................ (a) 83,275 (a) 357,413
(b) 57,082 (b) 188,611
- ----------------------------------------------------------------------------------------------------------------
Growth Fund (Inception Date -- 07/09/01)
Beginning AUV....................................... (a) $8.096 (a) $7.147
(b) $8.096 (b) $7.131
Ending AUV.......................................... (a) $7.147 (a) $4.862
(b) $7.131 (b) $4.832
Ending Number of AUs................................ (a) 27,301 (a) 119,082
(b) 5,665 (b) 38,297
- ----------------------------------------------------------------------------------------------------------------
Income Fund (Inception Date -- 07/09/01)
Beginning AUV....................................... (a) $5.506 (a) $5.725
(b) $5.506 (b) $5.714
Ending AUV.......................................... (a) $5.725 (a) $6.189
(b) $5.714 (b) $6.152
Ending Number of AUs................................ (a) 72,090 (a) 508,450
(b) 46,356 (b) 224,362
- ----------------------------------------------------------------------------------------------------------------
International Growth Fund (Inception Date -- 07/09/01)
Beginning AUV....................................... (a) $4.693 (a) $4.550
(b) $4.693 (b) $4.569
Ending AUV.......................................... (a) $4.550 (a) $3.782
(b) $4.569 (b) $3.784
Ending Number of AUs................................ (a) 909 (a) 10,524
(b) 175 (b) 9,073
- ----------------------------------------------------------------------------------------------------------------
</Table>
AUV -- Accumulation Unit Value
AU -- Accumulation Units
(a) Reflects AUV/AU without election of EstatePlus
(b) Reflects AUV/AU with election of EstatePlus
D-2
<Table>
<Caption>
Fiscal Year Fiscal Year
WM VARIABLE TRUST: 12/31/01 12/31/02
- ----------------------------------------------------------------------------------------------------------------
Mid Cap Stock Fund (Inception Date -- 07/09/01)
Beginning AUV....................................... (a) $6.488 (a) $6.675
(b) $6.488 (b) $6.668
Ending AUV.......................................... (a) $6.675 (a) $5.901
(b) $6.668 (b) $5.872
Ending Number of AUs................................ (a) 27,209 (a) 142,437
(b) 22,411 (b) 79,108
- ----------------------------------------------------------------------------------------------------------------
Money Market Fund (Inception Date -- 07/09/01)
Beginning AUV....................................... (a) $5.756 (a) $5.795
(b) $5.756 (b) $5.764
Ending AUV.......................................... (a) $5.795 (a) $5.794
(b) $5.764 (b) $5.739
Ending Number of AUs................................ (a) 46,507 (a) 569,371
(b) 10,619 (b) 49,257
- ----------------------------------------------------------------------------------------------------------------
Short Term Income Fund (Inception Date -- 07/09/01)
Beginning AUV....................................... (a) $5.728 (a) $5.909
(b) $5.728 (b) $5.895
Ending AUV.......................................... (a) $5.909 (a) $6.192
(b) $5.895 (b) $6.153
Ending Number of AUs................................ (a) 4,605 (a) 170,505
(b) 11,940 (b) 125,668
- ----------------------------------------------------------------------------------------------------------------
Small Cap Stock Fund (Inception Date -- 07/09/01)
Beginning AUV....................................... (a) $8.272 (a) $7.425
(b) $8.272 (b) $7.422
Ending AUV.......................................... (a) $7.425 (a) $3.870
(b) $7.422 (b) $3.853
Ending Number of AUs................................ (a) 14,716 (a) 85,682
(b) 3,471 (b) 32,891
- ----------------------------------------------------------------------------------------------------------------
Strategic Growth Portfolio (Inception Date -- 07/09/01)
Beginning AUV....................................... (a) $9.190 (a) $8.800
(b) $9.190 (b) $8.800
Ending AUV.......................................... (a) $8.800 (a) $6.898
(b) $8.800 (b) $6.870
Ending Number of AUs................................ (a) 43,009 (a) 294,264
(b) 27,642 (b) 129,261
- ----------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund (Inception
Date -- 07/09/01)
Beginning AUV....................................... (a) $5.671 (a) $5.847
(b) $5.671 (b) $5.843
Ending AUV.......................................... (a) $5.847 (a) $6.278
(b) $5.843 (b) $6.248
Ending Number of AUs................................ (a) 123,734 (a) 1,428,375
(b) 74,564 (b) 446,911
- ----------------------------------------------------------------------------------------------------------------
West Coast Equity Fund (Inception Date -- 07/09/01)
Beginning AUV....................................... (a) $9.446 (a) $8.858
(b) $9.446 (b) $8.844
Ending AUV.......................................... (a) $8.858 (a) $6.766
(b) $8.844 (b) $6.728
Ending Number of AUs................................ (a) 29,204 (a) 465,406
(b) 36,362 (b) 177,710
- ----------------------------------------------------------------------------------------------------------------
</Table>
AUV -- Accumulation Unit Value
AU -- Accumulation Units
(a) Reflects AUV/AU without election of EstatePlus
(b) Reflects AUV/AU with election of EstatePlus
D-3
Please forward a copy (without charge) of the WM Diversified Strategies 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