As filed with the Securities and Exchange Commission on April 21, 2004
File No. 033-87864
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 18
TO FORM S-3 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------------
AIG SUNAMERICA LIFE ASSURANCE COMPANY
("AIG SUNAMERICA LIFE")
(Exact name of registrant as specified in its charter)
California 6311 86-0198983
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Number)
organization)
1 SUNAMERICA CENTER
LOS ANGELES, CALIFORNIA 90067-6022
(310) 772-6000
(Address, including zip code, and telephone number,
including area code, or registrant's
principal executive offices)
CHRISTINE A. NIXON, ESQ.
AIG SUNAMERICA LIFE ASSURANCE COMPANY
1 SUNAMERICA CENTER
LOS ANGELES, CALIFORNIA 90067-6022
(310) 772-6000
(Name, address, including zip code, and telephone number, including area code
of agent for service)
----------------------
Approximate date of commencement of proposed dale to the public: As
soon after the effective date of this Registration Statement as is practicable.
If the only securities being registered on this form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ______________
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ______________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
----------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
shall determine.
Registrant is filing this Post-Effective Amendment No. 18 to make
certain changes to the Registration Statement. Pursuant to oral permission to do
so provided by Assistant Director William Kotapish to AIG SunAmerica Life
Assurance Company, this Registration Statement contains multiple prospectuses
with the substantially similar MVA feature. The Registrant does not intend for
this Post-Effective Amendment No. 18 to delete from the Registration Statement,
any document included in the Registration Statement but not filed herein,
including any currently effective Prospectus or supplement thereto.
[POLARIS LOGO]
PROSPECTUS
MAY 3, 2004
<Table>
Please read this prospectus carefully FLEXIBLE PAYMENT DEFERRED ANNUITY CONTRACTS
before investing and keep it for issued by
future reference. It contains AIG SUNAMERICA LIFE ASSURANCE COMPANY
important information about the in connection with
Polaris Variable Annuity. VARIABLE SEPARATE ACCOUNT
The annuity has several investment choices - fixed account
To learn more about the annuity options if available and Variable Portfolios. The fixed
offered by this prospectus, you can account options are funded through the general account of
obtain a copy of the Statement of AIG SunAmerica Life Assurance Company ("AIG SunAmerica
Additional Information ("SAI") dated Life"). The Variable Portfolios are part of the Anchor
May 3, 2004. The SAI has been filed Series Trust ("AST"), American Funds Insurance Series
with the Securities and Exchange ("AFIS"), SunAmerica Series Trust ("SAST"), Lord Abbett
Commission ("SEC") and is Series Fund Inc. ("LASF") and Van Kampen Life Investment
incorporated by reference into this Trust ("VKT").
prospectus. The Table of Contents of
the SAI appears in page 22 of this STOCKS
prospectus. For a free copy of the MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
SAI, call us at (800) 445-SUN2 or - Aggressive Growth Portfolio SAST
write to us at our Annuity Service - Blue Chip Growth Portfolio SAST
Center, P.O. Box 54299, Los Angeles, - "Dogs" of Wall Street Portfolio* SAST
California 90054-0299. - Growth Opportunities Portfolio SAST
MANAGED BY ALLIANCEBERNSTEIN
In addition, the SEC maintains a - Small & Mid Cap Value Portfolio SAST
website (http://www.sec.gov) that MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
contains the SAI, materials - Alliance Growth Portfolio SAST
incorporated by reference and other - Global Equities Portfolio SAST
information filed electronically with - Growth-Income Portfolio SAST
the SEC by AIG SunAmerica Life MANAGED BY CAPITAL RESEARCH AND MANAGEMENT COMPANY
Assurance Company. - American Funds Global Growth Portfolio AFIS
- American Funds Growth Portfolio AFIS
ANNUITIES INVOLVE RISKS, INCLUDING - American Funds Growth-Income Portfolio AFIS
POSSIBLE LOSS OF PRINCIPAL, AND ARE MANAGED BY DAVIS ADVISORS
NOT A DEPOSIT OR OBLIGATION OF, OR - Davis Venture Value Portfolio SAST
GUARANTEED OR ENDORSED BY, ANY BANK. - Real Estate Portfolio SAST
THEY ARE NOT FEDERALLY INSURED BY THE MANAGED BY FEDERATED EQUITY MANAGEMENT COMPANY
FEDERAL DEPOSIT INSURANCE - Federated American Leaders Portfolio* SAST
CORPORATION, THE FEDERAL RESERVE - Telecom Utility Portfolio SAST
BOARD OR ANY OTHER AGENCY. MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT, L.P.
- Goldman Sachs Research Portfolio SAST
MANAGED BY LORD, ABBETT & CO.
- Lord Abbett Growth and Income Portfolio LASF
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Massachusetts Investors Trust Portfolio SAST
- MFS Mid-Cap Growth Portfolio SAST
MANAGED BY PUTNAM INVESTMENT MANAGEMENT LLC.
- Emerging Markets Portfolio SAST
- International Growth and Income Portfolio SAST
- Putnam Growth: Voyager Portfolio SAST
MANAGED BY TEMPLETON INVESTMENT COUNSEL, LLC
- Foreign Value Portfolio SAST
MANAGED BY VAN KAMPEN/VAN KAMPEN ASSET MANAGEMENT
- International Diversified Equities Portfolio SAST
- Technology Portfolio SAST
- Van Kampen LIT Comstock Portfolio* VKT
- Van Kampen LIT Growth and Income Portfolio VKT
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio AST
- Growth Portfolio AST
- Natural Resources Portfolio AST
BALANCED:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- SunAmerica Balanced Portfolio SAST
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Total Return Portfolio SAST
MANAGED BY WM ADVISORS, INC.
- Asset Allocation Portfolio AST
BONDS:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- High Yield Bond Portfolio SAST
MANAGED BY FEDERATED INVESTMENT MANAGEMENT COMPANY
- Corporate Bond Portfolio SAST
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
- Global Bond Portfolio SAST
MANAGED BY VAN KAMPEN
- Worldwide High Income Portfolio SAST
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Government & Quality Bond Portfolio AST
CASH:
MANAGED BY BANC OF AMERICA CAPITAL MANAGEMENT, LLC
- Cash Management Portfolio SAST
* "Dogs" of Wall Street Portfolio is an equity fund seeking
total return; Federated American Leaders Portfolio is an
equity fund seeking growth of capital and income; and Van
Kampen LIT Comstock Portfolio is an equity fund seeking
capital growth and income.
</Table>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
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AIG SunAmerica Life's Annual Report on Form 10-K for the year ended December 31,
2003, is incorporated herein by reference.
All documents or reports filed by AIG SunAmerica Life under Section 13(a),
13(c), 14, or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") after the effective date of this prospectus shall also be
incorporated by reference. Statements contained in this prospectus and
subsequently filed documents which are incorporated by reference or deemed to be
incorporated by reference are deemed to modify or supersede documents
incorporated herein by reference.
AIG SunAmerica Life files its Exchange Act documents and reports, including its
annual and quarterly reports on Form 10-K and Form 10-Q, electronically pursuant
to EDGAR under CIK No. 0000006342.
AIG SunAmerica Life is subject to the informational requirements of the
Securities and Exchange Act of 1934 (as amended). We file reports and other
information with the SEC to meet those requirements. You can inspect and copy
this information at SEC public facilities at the following locations:
WASHINGTON, DISTRICT OF COLUMBIA
450 Fifth Street, N.W., Room 1024
Washington, D.C. 20549
CHICAGO, ILLINOIS
500 West Madison Street
Chicago, IL 60661
NEW YORK, NEW YORK
233 Broadway
New York, NY 10279
To obtain copies by mail contact the Washington, D.C. location. After you pay
the fees as prescribed by the rules and regulations of the SEC, the required
documents are mailed.
Registration statements under the Securities Act of 1933, as amended, related to
the contracts offered by this prospectus are on file with the SEC. This
prospectus does not contain all of the information contained in the registration
statements and its 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 statement and its exhibits.
The SEC also maintains a website (http://www.sec.gov) that contains the SAI,
materials incorporated by reference and other information filed electronically
with the SEC by AIG SunAmerica Life.
AIG SunAmerica Life will provide without charge to each person to whom this
prospectus is delivered, upon written or oral request, a copy of the above
documents incorporated herein 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
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SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION
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If indemnification for liabilities arising under the Securities Act of 1933 (the
"Act") is provided AIG SunAmerica Life's officers, directors and controlling
persons, the SEC has advised AIG SunAmerica Life 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 need not submit the issue to a court for
determination.
2
<Table>
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TABLE OF CONTENTS
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 2
SECURITIES AND EXCHANGE COMMISSION POSITION ON
INDEMNIFICATION........................................... 2
GLOSSARY.................................................... 3
HIGHLIGHTS.................................................. 4
FEE TABLES.................................................. 5
Maximum Owner Transaction Expenses.................... 5
Contract Maintenance Fee.............................. 5
Separate Account Annual Expenses...................... 5
Portfolio Expenses.................................... 5
EXAMPLES.................................................... 6
THE POLARIS VARIABLE ANNUITY................................ 7
PURCHASING A POLARIS VARIABLE ANNUITY....................... 7
Allocation of Purchase Payments....................... 8
Accumulation Units.................................... 8
Free Look............................................. 8
Exchange Offers....................................... 8
INVESTMENT OPTIONS.......................................... 9
Variable Portfolios................................... 9
American Funds Insurance Series................... 9
Anchor Series Trust............................... 9
Lord Abbett Series Fund, Inc. .................... 9
SunAmerica Series Trust........................... 9
Van Kampen Life Investment Trust.................. 9
Fixed Account Options................................. 10
Transfers During the Accumulation Phase............... 11
Dollar Cost Averaging Program......................... 11
Automatic Asset Allocation Rebalancing Program........ 12
Return Plus Program................................... 12
Voting Rights......................................... 12
Substitution.......................................... 12
ACCESS TO YOUR MONEY........................................ 13
Systematic Withdrawal Program......................... 13
Nursing Home Waiver................................... 13
Minimum Contract Value................................ 14
DEATH BENEFIT............................................... 14
EXPENSES.................................................... 14
Separate Account Charges.............................. 14
Withdrawal Charges.................................... 15
Investment Charges.................................... 15
Contract Maintenance Fee.............................. 15
Transfer Fee.......................................... 15
Premium Tax........................................... 15
Income Taxes.......................................... 15
Reduction or Elimination of Charges and Expenses, and
Additional Amounts Credited........................... 16
INCOME OPTIONS.............................................. 16
Annuity Date.......................................... 16
Income Options........................................ 16
Fixed or Variable Income Payments..................... 17
Income Payments....................................... 17
Transfers During the Income Phase..................... 17
Deferment of Payments................................. 17
TAXES....................................................... 17
Annuity Contracts in General.......................... 17
Tax Treatment of Distributions -
Non-Qualified Contracts........................... 18
Tax Treatment of Distributions -
Qualified Contracts............................... 18
Minimum Distributions................................. 18
Tax Treatment of Death Benefits....................... 19
Contracts Owned by a Trust or Corporation............. 19
Gifts, Pledges, and/or Assignments of a Contract...... 19
Diversification and Investor Control.................. 19
PERFORMANCE................................................. 20
OTHER INFORMATION........................................... 20
AIG SunAmerica Life................................... 20
The Separate Account.................................. 20
The General Account................................... 20
Payments in Connection with Distribution of the
Contract.............................................. 20
Administration........................................ 21
Legal Proceedings..................................... 21
Ownership............................................. 21
Independent Accountants............................... 21
Registration Statement................................ 21
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL
INFORMATION............................................... 22
APPENDIX A -- CONDENSED FINANCIAL INFORMATION............... A-1
APPENDIX B -- MARKET VALUE ADJUSTMENT ("MVA")............... B-1
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GLOSSARY
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We have capitalized some of the technical terms used in this
prospectus. To help you understand these terms, we have defined
them in this glossary.
ACCUMULATION PHASE - The period during which you invest money in
your contract.
ACCUMULATION UNITS - A measurement we use to calculate the value
of the variable portion of your contract during the Accumulation
Phase.
ANNUITANT(S) - The person(s) on whose life (lives) we base income
payments.
ANNUITY DATE - The date on which income payments are to begin, as
selected by you.
ANNUITY UNITS - A measurement we use to calculate the amount of
income payments you receive from the variable portion of your
contract during the Income Phase.
BENEFICIARY - The person designated to receive any benefits under
the contract if you or the Annuitant dies.
COMPANY - AIG SunAmerica Life Assurance Company, we, us or our,
the insurer which issues this contract. Only "AIG SunAmerica Life"
is a capitalized term in the prospectus.
INCOME PHASE - The period during which we make income payments to
you.
IRS - The Internal Revenue Service.
LATEST ANNUITY DATE - Your 90th birthday.
NON-QUALIFIED (CONTRACT) - A contract purchased with after-tax
dollars. In general, these contracts are not under any pension
plan, specially sponsored program or individual retirement account
("IRA").
PURCHASE PAYMENTS - The money you give us to buy the contract, as
well as any additional money you give us to invest in the contract
after you own it.
QUALIFIED (CONTRACT) - A contract purchased with pretax dollars.
These contracts are generally purchased under a pension plan,
specially sponsored program or IRA.
TRUSTS - Refers to the American Funds Insurance Series, Anchor
Series Trust, Lord, Abbett Series Fund, Inc., the SunAmerica
Series Trust and the Van Kampen Life Investment Trust
collectively.
VARIABLE PORTFOLIO(S) - The variable investment options available
under the contract. Each Variable Portfolio has its own investment
objective and is invested in the underlying investments of the
American Funds Insurance Series, Anchor Series Trust, Lord, Abbett
Series Fund, Inc., the SunAmerica Series Trust or the Van Kampen
Life Investment Trust.
</Table>
3
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HIGHLIGHTS
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The Polaris Variable Annuity is a contract between you and AIG SunAmerica Life
Assurance Company ("AIG SunAmerica Life"). It is designed to help you invest on
a tax-deferred basis and meet long-term financial goals. There are minimum
Purchase Payment amounts required to purchase a contract. Purchase payments may
be invested in a variety of variable and fixed account options. Like all
deferred annuities, the contract has an Accumulation Phase and an Income Phase.
During the Accumulation Phase, you invest money in your contract. The Income
Phase begins when you start receiving income payments from your annuity to
provide for your retirement.
FREE LOOK: You may cancel your contract within 10 days after receiving it (or
whatever period is required in your state). You will receive whatever your
contract is worth on the day that we receive your request. The amount refunded
may be more or less than your original Purchase Payment. We will return your
original Purchase Payment if required by law. Please see PURCHASING A POLARIS
VARIABLE ANNUITY in the prospectus.
EXPENSES: There are fees and charges associated with the contract. Each year, we
deduct a $35 ($30 in North Dakota and Utah) contract maintenance fee from your
contract, which may be waived for contracts of $50,000 or more. We also deduct
separate account charges, which equal 1.52% annually of the average daily value
of your contract allocated to the Variable Portfolios. There are investment
charges on amounts invested in the Variable Portfolios. If you elect optional
features available under the contract we may charge additional fees for 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 Payments. Please see the
FEE TABLE, PURCHASING A POLARIS VARIABLE ANNUITY and EXPENSES in the prospectus.
ACCESS TO YOUR MONEY: You may withdraw money from your contract during the
Accumulation Phase. If you do so, earnings are deemed to be withdrawn first. You
will pay income taxes on earnings and untaxed contributions when you withdraw
them. Payments received during the Income Phase are considered partly a return
of your original investment. A federal tax penalty may apply if you make
withdrawals before age 59 1/2. As noted above, a withdrawal charge may apply.
Please see ACCESS TO YOUR MONEY and TAXES in the prospectus.
DEATH BENEFIT: A death benefit feature is available under the contract to
protect your Beneficiaries in the event of your death during the Accumulation
Phase. Please see DEATH BENEFITS in the prospectus.
INCOME OPTIONS: When you are ready to begin taking income, you can choose to
receive income payments on a variable basis, fixed basis or a combination of
both. You may also chose from five different income options, including an option
for income that you cannot outlive. Please see INCOME OPTIONS in the prospectus.
INQUIRIES: If you have questions about your contract call your financial advisor
or contact us at AIG SunAmerica Life Assurance Company Annuity Service Center
P.O. Box 54299 Los Angeles, California 90054-0299. Telephone Number: (800)
445-SUN2.
AIG SUNAMERICA LIFE OFFERS SEVERAL VARIABLE ANNUITY PRODUCTS TO MEET THE DIVERSE
NEEDS OF OUR INVESTORS. EACH PRODUCT MAY OFFER DIFFERENT FEATURES AND BENEFITS
AND CORRESPONDINGLY DIFFERENT FEES AND CHARGES. WHEN WORKING WITH YOUR FINANCIAL
REPRESENTATIVE TO DETERMINE THE BEST PRODUCT TO MEET YOUR NEEDS YOU SHOULD
CONSIDER AMONG OTHER THINGS, WHETHER THE FEATURES OF THIS CONTRACT AND THE
RELATED FEES PROVIDE THE MOST APPROPRIATE PACKAGE TO HELP YOU MEET YOUR
LONG-TERM RETIREMENT SAVINGS GOALS.
PLEASE READ THE PROSPECTUS CAREFULLY FOR MORE DETAILED INFORMATION REGARDING
THESE AND OTHER FEATURES AND BENEFITS OF THE CONTRACT, AS WELL AS THE RISKS OF
INVESTING.
4
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FEE TABLES
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THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY AT THE TIME THAT
YOU BUY THE CONTRACT, TRANSFER CASH VALUE BETWEEN INVESTMENT OPTIONS OR
SURRENDER THE CONTRACT. IF APPLICABLE, YOU MAY ALSO BE SUBJECT TO STATE PREMIUM
TAXES.
MAXIMUM OWNER TRANSACTION EXPENSES
MAXIMUM WITHDRAWAL CHARGES (AS A PERCENTAGE OF EACH PURCHASE PAYMENT)(1)......7%
<Table>
TRANSFER FEE.......... No charge for the first 15 transfers each
contract year; thereafter, the fee is $25
($10 in Pennsylvania and Texas) per
transfer
</Table>
THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY PERIODICALLY
DURING THE TIME THAT YOU OWN THE CONTRACT, NOT INCLUDING UNDERLYING PORTFOLIO
FEES AND EXPENSES WHICH ARE OUTLINED IN THE NEXT SECTION.
CONTRACT MAINTENANCE FEE
$35 ($30 in North Dakota and Utah) waived if contract value $50,000 or more
SEPARATE ACCOUNT ANNUAL EXPENSES
(DEDUCTED DAILY AS A PERCENTAGE OF YOUR AVERAGE DAILY NET ASSET VALUE)
<Table>
Mortality and Expense Risk Fees....................... 1.37%
Distribution Expense Fee.............................. 0.15%
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TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES.............. 1.52%
=====
</Table>
THE FOLLOWING SHOWS THE MINIMUM AND MAXIMUM TOTAL OPERATING EXPENSES CHARGED BY
THE UNDERLYING PORTFOLIOS OF THE TRUSTS BEFORE ANY WAIVERS OR REIMBURSEMENTS
THAT YOU MAY PAY PERIODICALLY DURING THE TIME THAT YOU OWN THE CONTRACT. MORE
DETAIL CONCERNING THE TRUSTS' FEES AND EXPENSES IS CONTAINED IN THE PROSPECTUS
FOR EACH OF THE TRUSTS. PLEASE READ THEM CAREFULLY BEFORE INVESTING.
PORTFOLIO EXPENSES
<Table>
<Caption>
TOTAL ANNUAL UNDERLYING PORTFOLIO EXPENSES MINIMUM MAXIMUM
------------------------------------------ ------- -------
(expenses that are deducted from underlying portfolios of
the Trusts, including management fees, other expenses and
12b-1 fees, if applicable).................................. 0.54% 1.86%
</Table>
FOOTNOTE TO FEE TABLES:
(1) Withdrawal Charge Schedule (as a percentage of each Purchase Payment)
declines over 7 years as follows
<Table>
YEARS:...................................................... 1 2 3 4 5 6 7 8
7% 6% 5% 4% 3% 2% 1% 0%
</Table>
5
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MAXIMUM AND MINIMUM EXPENSE EXAMPLES
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These Examples are intended to help you compare the cost of investing in the
contract with the cost of investing in other variable annuity contracts. These
costs include owner transaction expenses, contract maintenance fee, separate
account annual expenses and fees and expenses of the underlying portfolios of
the Trusts.
The Examples assume that you invest $10,000 in the contract for the time periods
indicated; that your investment has a 5% return each year; and that the maximum
and minimum fees and expenses of the underlying portfolios of the Trusts are
reflected. Although your actual costs may be higher or lower, based on these
assumptions, your costs at the end of the stated period would be:
MAXIMUM EXPENSE EXAMPLES
(ASSUMING MAXIMUM SEPARATE ACCOUNT ANNUAL EXPENSES OF 1.52% AND INVESTMENT IN AN
UNDERLYING PORTFOLIO WITH TOTAL EXPENSES OF 1.86%)
(1) If you surrender your contract at the end of the applicable time period:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$1,046 $1,533 $2,084 $3,712
- -------------------------------------
- -------------------------------------
</Table>
(2) If you annuitize your contract at the end of the applicable time period:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$341 $1,039 $1,760 $3,667
- -------------------------------------
- -------------------------------------
</Table>
(3) If you do not surrender your contract:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$346 $1,053 $1,784 $3,712
- -------------------------------------
- -------------------------------------
</Table>
MINIMUM EXPENSE EXAMPLES
(ASSUMING MINIMUM SEPARATE ACCOUNT ANNUAL CHARGES OF 1.52% AND INVESTMENT IN AN
UNDERLYING PORTFOLIO WITH TOTAL EXPENSES OF 0.54%)
(1) If you surrender your contract at the end of the applicable time period:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$914 $1,161 $1,434 $2,441
- -------------------------------------
- -------------------------------------
</Table>
(2) If you annuitize your contract at the end of the applicable time period:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$209 $646 $1,108 $2,390
- -------------------------------------
- -------------------------------------
</Table>
(3) If you do not surrender your contract:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$214 $661 $1,134 $2,441
- -------------------------------------
- -------------------------------------
</Table>
EXPLANATION OF FEE TABLES AND EXAMPLES
1. The purpose of the Fee Tables is to show you the various expenses you would
incur directly and indirectly by investing in the contract. The tables
represent both fees at the separate account (contract level) as well as
total annual underlying portfolio operating expenses. We converted the
contract maintenance charge to a percentage (0.05%). The actual impact of
the administration charge may differ from this percentage and may be waived
for contract values over $50,000. Additional information on the portfolio
company fees can be found in the accompanying Trust prospectuses.
2. In addition to the stated assumptions, the Examples also assume Separate
Account charges as indicated and that no transfer fees were imposed.
Although premium taxes may apply in certain states, they are not reflected
in the Examples.
3. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
CONDENSED FINANCIAL INFORMATION APPEARS IN APPENDIX A OF THIS PROSPECTUS.
6
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THE POLARIS VARIABLE ANNUITY
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An annuity is a contract between you and an insurance company. You are the owner
of the contract. The contract provides three main benefits:
- Tax Deferral: This means that you do not pay taxes on your earnings from
the annuity until you withdraw them.
- Death Benefit: If you die during the Accumulation Phase, the insurance
company pays a death benefit to your Beneficiary.
- Guaranteed Income: If elected, you receive a stream of income for your
lifetime, or another available period you select.
Tax-qualified retirement plans (e.g., IRAs, 401(k) or 403(b) plans) defer
payment of taxes on earnings until withdrawal. If you are considering funding a
tax-qualified retirement plan with an annuity, you should know that an annuity
does not provide any additional tax deferral treatment of earnings beyond the
treatment provided by the tax-qualified retirement plan itself. However,
annuities do provide other features and benefits which may be valuable to you.
You should fully discuss this decision with your financial representative.
This annuity was developed to help you contribute to your retirement savings.
This annuity works in two stages, the Accumulation Phase and the Income Phase.
Your contract is in the Accumulation Phase during the period when you make
payments into the contract. The Income Phase begins when you request us to start
making income payments to you out of the money accumulated in your contract.
The contract is called a "variable" annuity because it allows you to invest in
Variable Portfolios which, like mutual funds, have different investment
objectives and performance which varies. You can gain or lose money if you
invest in these Variable Portfolios. The amount of money you accumulate in your
contract depends on the performance of the Variable Portfolios in which you
invest.
Fixed account options earn interest at a rate set and guaranteed by AIG
SunAmerica Life. If you allocate money to the fixed account options, the amount
of money that accumulates in the contract depends on the total interest credited
to the particular fixed account option(s) in which you invest.
For more information on investment options available under this contract SEE
INVESTMENT OPTIONS BELOW.
This annuity is designed to assist in contributing to retirement savings of
investors whose personal circumstances allow for a long-term investment time
horizon. As a function of the Internal Revenue Code ("IRC"), you may be assessed
a 10% federal tax penalty on any withdrawal made prior to your reaching age
59 1/2. Additionally, this contract provides that you will be charged a
withdrawal charge on each Purchase Payment withdrawn if that Purchase Payment
has not been invested in this contract for at least 7 years. Because of these
potential penalties, you should fully discuss all of the benefits and risks of
this contract with your financial representative prior to purchase.
AIG SunAmerica Life issues the Polaris Variable Annuity. When you purchase a
Polaris Variable Annuity, a contract exists between you and AIG SunAmerica Life.
The Company is a stock life insurance company organized under the laws of the
state of Arizona. Its principal place of business is 1 SunAmerica Center, Los
Angeles, California 90067. The Company conducts life insurance and annuity
business in the District of Columbia and all states except New York. AIG
SunAmerica Life is an indirect, wholly owned subsidiary of American
International Group, Inc. ("AIG"), a Delaware corporation.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
PURCHASING A POLARIS VARIABLE ANNUITY
- ----------------------------------------------------------------
- ----------------------------------------------------------------
The Polaris Variable Annuity contract is no longer available for sale.
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.
The following chart shows the minimum initial and subsequent Purchase Payments
permitted under your contract. These amounts depend upon whether a contract is
Qualified or Non-qualified for tax purposes. FOR FURTHER EXPLANATION, SEE TAXES
BELOW.
<Table>
- -----------------------------------------------------------
Minimum
Minimum Initial Subsequent
Purchase Payment Purchase Payment
- -----------------------------------------------------------
Qualified $2,000 $250
- -----------------------------------------------------------
Non-Qualified $5,000 $500
- -----------------------------------------------------------
</Table>
We reserve the right to require company approval prior to accepting Purchase
Payments greater than $1,000,000. For contracts owned by a non-natural owner, we
reserve the right to require prior Company approval to accept Purchase Payments
greater than $250,000. Subsequent Purchase Payments that would cause total
Purchase Payments in all contracts issued by AIG SunAmerica Life and First
SunAmerica Life Insurance Company, an affiliate of AIG SunAmerica Life, to the
same owner to exceed these limits may also be subject to company pre-approval.
We reserve the right to change the amount at which pre-approval is required, at
any time.
Once you have contributed at least the minimum initial Purchase Payment, you can
establish an automatic payment
7
plan that allows you to make subsequent Purchase Payments of as little as $20.
In general, we will not issue a Qualified contract to anyone who is age 70 1/2
or older, unless it is shown that the minimum distribution required by the IRS
is being made. In addition, we may not issue a contract to anyone age 80 or
older on the contract issue date.
We allow spouses to jointly own the contract. However, the age of the older
spouse is used to determine the availability of any age driven benefits. The
addition of a joint owner after the contract has been issued is contingent upon
prior review and approval by the Company. If we learn of a misstatement of age,
we reserve the right to fully pursue our remedies including termination of the
contract and/or revocation of any age-driven benefit.
You may assign this contract before beginning the Income Phase by sending us a
written request for an assignment. Your rights and those of any other person
with rights under this contract will be subject to the assignment. WE RESERVE
THE RIGHT TO NOT RECOGNIZE ASSIGNMENTS IF IT CHANGES THE RISK PROFILE OF THE
OWNER OF THE CONTRACT, AS DETERMINED IN OUR SOLE DISCRETION. Please see the
Statement of Additional Information for details on the tax consequences of an
assignment.
ALLOCATION OF PURCHASE PAYMENTS
We invest your Purchase Payments in the fixed and variable investment options
according to your instructions. If we receive a Purchase Payment without
allocation instructions, we will invest the money according to your last
allocation instructions. SEE INVESTMENT OPTIONS BELOW.
In order to issue your contract, we must receive your completed application,
and/or Purchase Payment allocation instructions and any other required paperwork
at our principal place of business. We allocate your initial Purchase Payment
within two days of receiving it. If we do not have complete information
necessary to issue your contract, we will contact you. If we do not have the
information necessary to issue your contract within 5 business days we will send
your money back to you; or ask your permission to keep your money until we get
the information necessary to issue the contract.
ACCUMULATION UNITS
When you allocate a Purchase Payment to the Variable Portfolios, we credit your
contract with Accumulation Units of the separate account. We base the number of
Accumulation Units you receive on the unit value of the Variable Portfolio as of
the day we receive your money if we receive it before 1 p.m. Pacific Standard
Time ("PST"), or on the next business day's unit value if we receive your money
after 1 p.m. PST. The value of an Accumulation Unit goes up and down based on
the performance of the Variable Portfolios.
We calculate the value of an Accumulation Unit each day that the New York Stock
Exchange ("NYSE") is open as follows:
1. We determine the total value of money invested in a particular Variable
Portfolio;
2. We subtract from that amount all applicable contract charges; and
3. We divide this amount by the number of outstanding Accumulation Units.
We determine the number of Accumulation Units credited to your contract by
dividing the Purchase Payment by the Accumulation Unit value for the specific
Variable Portfolio.
EXAMPLE:
We receive a $25,000 Purchase Payment from you on Wednesday. You allocate
the money to the Global Bond Portfolio. We determine that the value of an
Accumulation Unit for the Global Bond Portfolio is $11.10 when the NYSE
closes on Wednesday. We then divide $25,000 by $11.10 and credit your
contract on Wednesday night with 2252.52 Accumulation Units for the Global
Bond Portfolio.
Performance of the Variable Portfolios and expenses under your contract affect
Accumulation Unit values. These factors cause the value of your contract to go
up and down.
FREE LOOK
You may cancel your contract within ten days after receiving it (or longer if
required by state law). We call this a "free look." To cancel, you must mail the
contract along with your free look request to our Annuity Service Center at P.O.
Box 54299, Los Angeles, California 90054-0299.
If you decide to cancel your contract during the free look period, generally we
will refund to you the value of your contract on the day we receive your
request.
Certain states require us to return your Purchase Payments upon a free look
request. Additionally, all contracts issued as an IRA require the full return of
Purchase Payments upon a free look.
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.
8
- ----------------------------------------------------------------
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INVESTMENT OPTIONS
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VARIABLE PORTFOLIOS
The Variable Portfolios invest in shares of the following trusts: American Funds
Insurance Series, Anchor Series Trust, Lord Abbett Series Fund, Inc., SunAmerica
Series Trust and Van Kampen Life Investment Trust (the "Trusts"). Additional
Trusts and/or Variable Portfolios may be available in the future. The Variable
Portfolios are only available through the purchase of certain insurance
contracts. Other Variable Portfolios may be available to you. Please refer to
your contract for additional information.
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 its Trust for potential conflicts.
The Variable Portfolios along with their respective subadvisers are listed
below:
AMERICAN FUNDS INSURANCE SERIES - CLASS 2
Capital Research and Management Company provides investment advice for the
American Funds Insurance Series ("AFIS") portfolios. American Funds Insurance
Series contains investment portfolios in addition to those listed here that are
not available for investment under this contract.
ANCHOR SERIES TRUST - CLASS 1
Wellington Management Company, LLP serves as subadviser to the Anchor Series
Trust Portfolios. Anchor Series Trust ("AST") contains investment portfolios in
addition to those listed below which are not available for investment under this
contract.
LORD ABBETT SERIES FUND, INC. - LA CLASS VC
Lord, Abbett & Co. provides investment advice for the Lord Abbett Series Fund,
Inc. portfolios. Lord Abbett Series Fund, Inc. ("LASF") contains investment
portfolios in addition to those listed below that are not available for
investment under this contract.
SUNAMERICA SERIES TRUST - CLASS 1
Various subadvisers provide investment advice for the SunAmerica Series Trust
Portfolios. SunAmerica Series Trust ("SAST") contains investment portfolios in
addition to those listed below which are not available for investment under this
contract.
VAN KAMPEN LIFE INVESTMENT TRUST - CLASS II
Van Kampen Asset Management Inc. provides investment advice for the Van Kampen
Life Investment Trust ("VKT") portfolios. Van Kampen Life Investment Trust has
investment portfolios in addition to those listed here which are not available
for investment under the contract.
STOCKS:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio SAST
- Blue Chip Growth Portfolio SAST
- "Dogs" of Wall Street Portfolio** SAST
- Growth Opportunities Portfolio SAST
MANAGED BY ALLIANCEBERNSTEIN
- Small & Mid Cap Value Portfolio* SAST
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
- Alliance Growth Portfolio SAST
- Global Equities Portfolio SAST
- Growth-Income Portfolio SAST
MANAGED BY CAPITAL RESEARCH AND MANAGEMENT COMPANY
- American Funds Global Growth Portfolio* AFIS
- American Funds Growth Portfolio* AFIS
- American Funds Growth-Income Portfolio* AFIS
MANAGED BY DAVIS ADVISORS
- Davis Venture Value Portfolio SAST
- Real Estate Portfolio SAST
MANAGED BY FEDERATED EQUITY MANAGEMENT COMPANY
- Federated American Leaders Portfolio** SAST
- Telecom Utility Portfolio SAST
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT, L.P.
- Goldman Sachs Research Portfolio SAST
MANAGED BY LORD, ABBETT & CO.
- Lord Abbett Growth and Income Portfolio* LASF
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Massachusetts Investors Trust Portfolio SAST
- MFS Mid-Cap Growth Portfolio SAST
MANAGED BY PUTNAM INVESTMENT MANAGEMENT LLC
- Emerging Markets Portfolio SAST
- International Growth and Income Portfolio SAST
- Putnam Growth: Voyager Portfolio SAST
MANAGED BY TEMPLETON INVESTMENT COUNSEL, LLC
- Foreign Value Portfolio* SAST
MANAGED BY VAN KAMPEN/VAN KAMPEN ASSET MANAGEMENT
- International Diversified Equities Portfolio*** SAST
- Technology Portfolio*** SAST
- Van Kampen LIT Comstock Portfolio*/** VKT
- Van Kampen LIT Growth and Income Portfolio* VKT
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio AST
- Growth Portfolio AST
- Natural Resources Portfolio AST
9
BALANCED:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- SunAmerica Balanced Portfolio SAST
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Total Return Portfolio SAST
MANAGED BY WM ADVISORS, INC.
- Asset Allocation Portfolio AST
BONDS:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- High Yield Bond Portfolio SAST
MANAGED BY FEDERATED INVESTMENT MANAGEMENT COMPANY
- Corporate Bond Portfolio SAST
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
- Global Bond Portfolio SAST
MANAGED BY VAN KAMPEN
- Worldwide High Income Portfolio SAST
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Government & Quality Bond Portfolio AST
CASH:
MANAGED BY BANC OF AMERICA CAPITAL MANAGEMENT, LLC
- Cash Management Portfolio SAST
* This Variable Portfolio is not available as of the date of this prospectus.
Please check with your financial representative regarding the availability.
** "Dogs" of Wall Street Portfolio is an equity fund seeking total return;
Federated American Leaders Portfolio is an equity fund seeking growth of
capital and income; and Van Kampen LIT Comstock Portfolio is an equity fund
seeking capital growth and income.
*** Morgan Stanley Investment Management, Inc., the subadviser for the
International Diversified Equities Portfolio and Technology Portfolio, does
business in certain instances using the name Van Kampen.
YOU SHOULD READ THE ACCOMPANYING PROSPECTUSES FOR THE TRUSTS CAREFULLY. THESE
PROSPECTUSES CONTAIN DETAILED INFORMATION ABOUT THE VARIABLE PORTFOLIOS,
INCLUDING EACH VARIABLE PORTFOLIO'S INVESTMENT OBJECTIVE AND RISK FACTORS.
FIXED ACCOUNT OPTIONS
Your contract may offer Fixed Account Guarantee Periods ("FAGP") to which you
may allocate certain Purchase Payments or contract value. Available guarantee
periods may be for different lengths of time (such as 1, 3 or 5 years) and may
have different guaranteed interest rates, as noted below. We guarantee the
interest rate credited to amounts allocated to any available FAGP and that the
rate will never be less than the minimum guaranteed interest rate as specified
in your contract. Once established, the rates for specified payments do not
change during the guarantee period. We determine the FAGPs offered at any time
in our sole discretion and we reserve the right to change the FAGPs that we make
available at any time, unless state law requires us to do otherwise. Please
check with your financial representative to learn if any FAGPs are currently
offered.
There are three interest rate scenarios for money allocated to the FAGPs. Each
of these rates may differ from one another. Once declared, the applicable rate
is guaranteed until the corresponding guarantee period expires. Under each
scenario your money may be credited a different rate of interest as follows:
Initial Rate: The rate credited to any portion of the initial Purchase
Payment allocated to a FAGP.
Current Rate: The rate credited to any portion of the subsequent Purchase
Payments allocated to a FAGP.
Renewal Rate: The rate credited to money transferred from a FAGP or a
Variable Portfolio into a FAGP and to money remaining in a FAGP after
expiration of a guarantee period.
When a FAGP ends, you may leave your money in the same FAGP or you may
reallocate your money to another FAGP or to the Variable Portfolios. If you want
to reallocate your money, you must contact us within 30 days after the end of
the current interest guarantee period and instruct us as to where you would like
the money invested. We do not contact you. If we do not hear from you, your
money will remain in the same FAGP where it will earn interest at the renewal
rate then in effect for that FAGP.
If available, you may systematically transfer interest in available FAGPs into
any of the Variable Portfolios on certain periodic schedules offered by us.
Systematic transfers may be started, changed or terminated at any time by
contacting our Annuity Service Center. Check with your financial representative
about the current availability of this service.
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 does not apply to any
available one year fixed account. The MVA reflects any difference in the
interest rate environment between the time you place your money in the FAGP and
the time when you withdraw or transfer that money. This adjustment can increase
or decrease your contract value. Generally, if interest rates drop between the
time you put your money into a FAGP and the time you take it out, we credit a
positive adjustment to your contract. Conversely, if interest rates increase
during the same period, we post a negative adjustment to your contract. You have
30 days after the end of each guarantee period to reallocate your funds without
incurring any MVA. APPENDIX B shows how we calculate and apply the MVA.
All FAGPs may not be available in all states. At any time that we are crediting
the guaranteed minimum interest rate specified in your contract to the fixed
accounts, we reserve the right to restrict transfers and Purchase Payments into
the FAGPs. 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
10
FAGPs described above, please see DOLLAR COST AVERAGING below for more details.
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase you may transfer funds between the Variable
Portfolios and/or any available fixed account options. Funds already in your
contract cannot be transferred into the DCA fixed accounts. You must transfer at
least $100 per transfer. If less than $100 remains in any Variable Portfolio
after a transfer, that amount must be transferred as well. We will process any
transfer request as of the day we receive it in good order if the request is
received before the New York Stock Exchange ("NYSE") closes, generally at 1:00
p.m. Pacific Time. If the transfer request is received after the close of the
NYSE, the request will be processed on the next business day.
This product is not designed for professional organizations or individuals
engaged in trading strategies that seek to benefit from short term price
fluctuations or price irregularities by making programmed transfers, frequent
transfers or transfers that are large in relation to the total assets of the
underlying portfolio in which the Variable Portfolios invest. These types of
trading strategies can be disruptive to the underlying portfolios in which the
Variable Portfolios invest and thereby potentially harmful to investors.
In connection with our efforts to control harmful trading, we may monitor your
trading activity. If we determine, in our sole discretion, that your transfer
patterns among the Variable Portfolios and/or available fixed accounts reflect a
potentially harmful trading strategy, we reserve the right to take action to
protect other investors. Such action may include, but may 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 capability in accordance with state and federal rules and regulations.
We will notify you, in writing, if we determine in our sole discretion that we
must terminate your transfer privileges. Some of the factors we may consider
when determining our transfer policies and/or other transfer restrictions may
include, but are not limited to:
- the number of transfers made in a defined period;
- the dollar amount of the transfer;
- the total assets of the Variable Portfolio involved in the transfer;
- the investment objectives of the particular Variable Portfolios involved
in your transfers; and/or
- whether the transfer appears to be part of a pattern of transfers to take
advantage of short-term market fluctuations or market inefficiencies.
Subject to our rules, restrictions and policies, you may request transfers of
your account value between the Variable Portfolios and/or the available fixed
account options by telephone or through AIG SunAmerica's website
(http://www.aigsunamerica.com) or in writing by mail or facsimile. We allow 15
free transfers per contract per year. We charge $25 ($10 in Pennsylvania and
Texas) for each additional transfer in any contract year. Transfers resulting
from your participation in the DCA or Asset Rebalancing programs do not count
against your 15 free transfers per contract year.
All transfer request in excess of 15 transfers per contract year must be
submitted in writing by United States Postal Service first-class mail ("U.S.
Mail") until your next contract anniversary. Transfer requests sent by same day
mail, overnight mail or courier services will not be accepted. Transfer requests
that are required to be submitted by U.S. Mail can only be cancelled by a
written request sent by U.S. Mail. Transfers resulting from your participation
in the DCA or Asset Rebalancing programs are not included for the purposes of
determining the number of transfers for the U.S. Mail requirement.
We may accept transfers by telephone or the Internet unless you tell us not to
on your contract application. When receiving instructions over the telephone or
the Internet, we follow 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 instructions.
For information regarding transfers during the Income Phase, see INCOME OPTIONS
below.
We reserve the right to modify, suspend, waive or terminate this transfer
provision at any time.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging ("DCA") program allows you to invest gradually in the
Variable Portfolios. Under the program you systematically transfer a set dollar
amount or percentage of portfolio value from one Variable Portfolio or the
1-year fixed account option (source account) to any other Variable Portfolio you
select. Fixed Account options are not available as target accounts for Dollar
Cost Averaging. Transfers may occur on certain periodic schedules, such as
monthly or weekly. You may change the frequency to other available options at
any time by notifying us in writing. The minimum transfer amount under the DCA
program is $100 per transfer regardless of the source account. There is no
charge for participating in the DCA program.
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
11
fluctuating price levels. You should consider your tolerance for investing
through periods of fluctuating price levels.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to gradually move $750 each quarter from the Cash
Management Portfolio to the Aggressive Growth Portfolio over six quarters.
You set up dollar cost averaging and purchase Accumulation Units at the
following values:
<Table>
<Caption>
- -------------------------------------------
ACCUMULATION UNITS
QUARTER UNIT PURCHASED
- -------------------------------------------
1 $ 7.50 100
2 $ 5.00 150
3 $10.00 75
4 $ 7.50 100
5 $ 5.00 150
6 $ 7.50 100
- -------------------------------------------
</Table>
You paid an average price of only $6.67 per Accumulation Unit over six
quarters, while the average market price actually was $7.08. By investing
an equal amount of money each month, you automatically buy more
Accumulation Units when the market price is low and fewer Accumulation
Units when the market price is high. This example is for illustrative
purposes only.
AUTOMATIC ASSET ALLOCATION REBALANCING PROGRAM
Earnings in your contract may cause the percentage of your investment in each
investment option to differ from your original allocations. The Automatic Asset
Rebalancing Program addresses this situation. At your election, we periodically
rebalance your investments 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. There is no fee for participating in the
Asset Rebalancing Program.
At your request, rebalancing occurs on a quarterly, semiannual or annual basis.
Transfers made as a result of rebalancing do not count against your 15 free
transfers for the contract year.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want your initial Purchase Payment split between two
Variable Portfolios. You want 50% in the Corporate Bond Portfolio and 50%
in the Growth Portfolio. Over the next calendar quarter, the bond market
does very well while the stock market performs poorly. At the end of the
calendar quarter, the Corporate Bond Portfolio now represents 60% of your
holdings because it has increased in value and the Growth Portfolio
represents 40% of your holdings. If you had chosen quarterly rebalancing,
on the last day of that quarter, we would sell some of your units in the
Corporate Bond Portfolio to bring its holdings back to 50% and use the
money to buy more units in the Growth Portfolio to increase those holdings
to 50%.
RETURN PLUS PROGRAM
The Return Plus Program, available if we are offering FAGPs, allows you to
invest in one or more Variable Portfolios without putting your principal at
direct risk. The program accomplishes this by allocating your investment
strategically between the fixed account options and Variable Portfolios. You
decide how much you want to invest and approximately when you want a return of
principal. We calculate how much of your Purchase Payment to allocate to the
particular fixed account option to ensure that it grows to an amount equal to
your total principal invested under this program. We invest the rest of your
principal in the Variable Portfolio(s) of your choice. There is no fee for
participating in the Return Plus Program.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to allocate a portion of your initial Purchase Payment
of $100,000 to the fixed account option. You want the amount allocated to
the fixed account option to grow to $100,000 in 7 years. If the 7-year
fixed account option is offering a 5% interest rate, we will allocate
$71,069 to the 7-year fixed account option to ensure that this amount will
grow to $100,000 at the end of the 7-year period. The remaining $28,931 may
be allocated among the Variable Portfolios, as determined by you, to
provide opportunity for greater growth.
VOTING RIGHTS
AIG SunAmerica Life is the legal owner of the Trusts' shares. However, when a
Variable Portfolio solicits proxies in conjunction with a vote of shareholders,
we must obtain your instructions on how to vote those shares. We vote all of the
shares we own in proportion to your instructions. This includes any shares we
own on our own behalf. Should we determine that we are no longer required to
comply with these rules, we will vote the shares in our own right.
SUBSTITUTION
We may amend your contract due to changes to the Variable Portfolios offered
under your contract. For example, we may offer new Variable Portfolios, delete
Variable Portfolios, or stop accepting allocations and/or investments in a
particular Variable Portfolio. We may move assets and re-direct future
12
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.
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ACCESS TO YOUR MONEY
- ----------------------------------------------------------------
- ----------------------------------------------------------------
You can access money in your contract in two ways:
- by making a partial or total withdrawal; and/or
- by receiving income payments during the Income Phase. SEE INCOME OPTIONS
BELOW.
Generally, we deduct a withdrawal charge applicable to any total or partial
withdrawal. If you withdraw your entire contract value, we also deduct
applicable premium taxes and a contract maintenance fee. SEE EXPENSES BELOW.
Your contract provides for a free withdrawal amount. A free withdrawal amount is
the portion of your account that we allow you to take out each year without
being charged a withdrawal charge. 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.
Purchase Payments that are no longer subject to a withdrawal charge and not
previously withdrawn, plus earnings, may be withdrawn free of a withdrawal
charge at any time.
After the first year, you may withdraw the greater of the following amounts free
of a withdrawal charge (1) earnings in your contract as of the date you make the
withdrawal; or (2) 10% of the Purchase Payments you invested for at least one
year and not yet withdrawn, less any previous earnings withdrawals or Systematic
Withdrawals that year.
Only your first withdrawal of the year is free. If you do not take the entire
free amount available to you at that first withdrawal, you will forfeit the
opportunity to withdraw that money free of the withdrawal charge for that year.
The portion of a free withdrawal which exceeds the sum of: (1) earnings in the
contract and (2) Purchase Payments which are both no longer subject to the
withdrawal charge schedule and not yet withdrawn is assumed to be a withdrawal
against future earnings. Although amounts withdrawn free of a withdrawal charge
under the 10% provision may reduce principal for purposes of calculating amounts
available for future withdrawals of earnings, they do not reduce the amount you
invested for purposes of calculating the withdrawal charge if you withdraw your
entire contract value.
We calculate charges due on a total withdrawal on the day after we receive your
request and your contract. We return to you your contract value less any
applicable fees and charges.
Under most circumstances, the partial withdrawal minimum is $1,000. We require
that the value left in any investment option be at least $100, after the
withdrawal. You must send a written withdrawal request. Unless you provide us
with different instructions, partial withdrawals will be made pro rata from each
Variable Portfolio and the fixed in account options in which your contract is
invested. In the event that a pro rata partial withdrawal would cause the value
of any Variable Portfolio or fixed account investment to be less than $100, we
will contact you to obtain alternate instructions on how to structure the
withdrawal.
Under certain Qualified plans, access to the money in your contract may be
restricted. Additionally, withdrawals made prior to age 59 1/2 may result in a
10% IRS penalty tax. SEE TAXES BELOW.
We may be required to suspend or postpone the payment of a withdrawal for any
period of time when: (1) the NYSE is closed (other than a customary weekend and
holiday closings); (2) trading with the NYSE is restricted; (3) an emergency
exists such that disposal of or determination of the value of shares of the
Variable Portfolios is not reasonably practicable; (4) the SEC, by order, so
permits for the protection of contract owners.
Additionally, we reserve the right to defer payments for a withdrawal from a
fixed account option. Such deferrals are limited to no longer than six months.
SYSTEMATIC WITHDRAWAL PROGRAM
During the Accumulation Phase, you may elect to receive periodic income payments
under the systematic withdrawal program. Under the program, you may choose to
take monthly, quarterly, semi-annual or annual payments from your contract.
Electronic transfer of these funds to your bank account is also available. The
minimum amount of each withdrawal is $250. There must be at least $500 remaining
in your contract at all times. Withdrawals may be taxable and a 10% IRS penalty
tax may apply if you are under age 59 1/2. There is no additional charge for
participating in this program, although a withdrawal charge and/or MVA may
apply.
The program is not available to everyone. Please check with our Annuity Service
Center, which can provide the necessary enrollment forms. We reserve the right
to modify, suspend or terminate this program at any time.
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
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(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.
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.
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DEATH BENEFIT
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If you die during the Accumulation Phase of your contract, we pay a death
benefit to your Beneficiary.
The death benefit is the greater of:
1. the value of your contract at the time we receive satisfactory proof of
death; or
2. total Purchase Payments less withdrawals (and any fees or charges
applicable to such withdrawals), compounded at a 4% annual growth rate
until the date of death (3% growth rate if 70 or older at the time of
contract issue) plus any Purchase Payments less withdrawals recorded
after the date of death (and any fees or charges applicable to such
withdrawals); or
3. the value of your contract on the seventh contract anniversary, plus any
Purchase Payments and less any withdrawals (and any fees or charges
applicable to such withdrawals), since the seventh contract anniversary,
all compounded at a 4% annual growth rate until the date of death (3%
growth rate if age 70 or older at the time of contract issue) plus any
Purchase Payments less withdrawals recorded after the date of death (and
any fees or charges applicable to such withdrawals).
We do not pay the death benefit if you die after you switch to the Income Phase.
However, if you die during the Income Phase, your Beneficiary receives any
remaining guaranteed income payments in accordance with the income option you
selected. SEE INCOME OPTIONS BELOW.
You name your Beneficiary. You may change the Beneficiary at any time, unless
you previously made an irrevocable Beneficiary designation.
We calculate and pay the death benefit when we receive all required paperwork
and satisfactory proof of death. We consider the following satisfactory proof of
death:
1. a certified copy of the death certificate; or
2. a certified copy of a decree of a court of competent jurisdiction as to
the finding of death; or
3. a written statement by a medical doctor who attended the deceased at the
time of death; or
4. any other proof satisfactory to us.
The death benefit must be paid within 5 years of the date of death unless the
Beneficiary elects to have it payable in the form of an income option. If the
Beneficiary elects an income option, it must be paid over the Beneficiary's
lifetime or for a period not extending beyond the Beneficiary's life expectancy.
Payments must begin within one year of your death.
If the Beneficiary is the spouse of a deceased owner, he or she can elect to
continue the Contract at the then current value. If the Spousal Beneficiary
continues the contract, we do not pay a death benefit to him or her.
If a Beneficiary does not elect a specific form of pay out within 60 days of our
receipt of all required paperwork and satisfactory proof of death, we pay a lump
sum death benefit to the Beneficiary.
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EXPENSES
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There are charges and expenses associated with your contract. These charges and
expenses reduce your investment return. We will not increase the contract
maintenance fee or the insurance and withdrawal charges under your contract.
However, the investment charges under your contract may increase or decrease.
Some states may require that we charge less than the amounts described below.
SEPARATE ACCOUNT CHARGES
The Company deducts a mortality and expense risk charge in the amount of 1.52%
annually of the value of your contract invested in the Variable Portfolios. We
deduct the charge daily. This charge compensates the Company for the mortality
and expense risk and the costs of contract distribution assumed by the Company.
Generally, the mortality risks assumed by the Company arise from its contractual
obligations to make income payments after the Annuity Date and to provide a
death benefit. The expense risk assumed by the Company is that the costs of
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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.
WITHDRAWAL CHARGES
The contract provides a free withdrawal amount every year. SEE ACCESS TO YOUR
MONEY ABOVE. If you take money out in excess of the free withdrawal amount, or
upon a full surrender, you may incur a withdrawal charge.
We apply a withdrawal charge against each Purchase Payment you put into the
contract. After a Purchase Payment has been in the contract for 7 complete
years, no withdrawal charge applies. The withdrawal charge equals a percentage
of the Purchase Payment you take out of the contract. The withdrawal charge
percentage declines each year a Purchase Payment is in the contract, as follows:
<Table>
<Caption>
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YEAR 1 2 3 4 5 6 7 8+
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WITHDRAWAL CHARGE 7% 6% 5% 4% 3% 2% 1% 0%
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</Table>
When calculating the withdrawal charge, we treat withdrawals as coming first
from the Purchase Payments that have been in your contract the longest. However,
for tax purposes, your withdrawals are considered earnings first, then Purchase
Payments.
Whenever possible, we deduct the withdrawal charge from the money remaining in
your contract. If you withdraw all of your contract value, we deduct any
applicable withdrawal charges from the amount withdrawn.
We will not assess a withdrawal charge for money withdrawn to pay a death
benefit or to pay contract fees or charges. Additionally, we will not assess a
withdrawal charge when you switch to the Income Phase.
Withdrawals made prior to age 59 1/2 may result in tax penalties. SEE TAXES
BELOW.
INVESTMENT CHARGES
INVESTMENT MANAGEMENT FEES
Charges are deducted from your Variable Portfolios for the advisory and other
expenses of the Variable Portfolios. THE FEE TABLES ABOVE illustrate these
charges and expenses. For more detailed information on these investment charges,
refer to the accompanying prospectuses for the Trusts.
12B-1 FEES
Shares of certain trusts may be subject to fees imposed under a distribution
and/or servicing plan adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940. For SunAmerica Series Trust ("SAST"), under the
distribution plan which is applicable to Class 1 and 2 shares, recaptured
brokerage commissions will be used to make payments to AIG SunAmerica Capital
Services, Inc., the SAST's 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 0.25% fee applicable to Class II shares of the Van Kampen Life
Investment Trust, Class 2 shares of the American Funds Insurance Series 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 American Funds Insurance Series, Anchor Series Trust, Lord
Abbett Series Fund, Inc., SunAmerica Series Trust, and Van Kampen Life
Investment Trust.
CONTRACT MAINTENANCE FEE
During the Accumulation Phase, we subtract a contract maintenance fee from your
account once per year. This charge compensates us for the cost of contract
administration. We deduct the $35 contract maintenance fee ($30 in North Dakota
and Utah) from your account value on your contract anniversary. If you withdraw
your entire contract value, we deduct the fee from that withdrawal.
If your contract value is $50,000 or more on your contract anniversary date, we
will waive the charge. This waiver is subject to change without notice.
TRANSFER FEE
We generally permit 15 free transfers between investment options each contract
year. We charge you $25 for each additional transfer that contract year ($10 in
Pennsylvania and Texas). SEE INVESTMENT OPTIONS ABOVE.
PREMIUM TAX
Certain states charge the Company a tax on the premiums you pay into the
contract ranging from 0% to 3.5%. We deduct from your contract these premium tax
charges from your contract where applicable. Currently we deduct the charge for
premium taxes when you take a full withdrawal or when you begin the Income Phase
of the contract. In the future, we may assess this deduction at the time you put
Purchase Payment(s) into the contract or upon payment of a death benefit.
INCOME TAXES
We do not currently deduct income taxes from your contract. We reserve the right
to do so in the future.
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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.
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INCOME OPTIONS
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ANNUITY DATE
During the Income Phase, we use the money accumulated in your contract to make
regular income payments to you. You may switch to the Income Phase any time
after your second contract anniversary. You select the month and year you want
income payments to begin. The first day of that month is the Annuity Date. You
may change your Annuity Date, so long as you do so at least seven days before
the income payments are scheduled to begin. Once you begin receiving income
payments, you cannot change your income option. Except as indicated under Option
5 below, once you begin receiving income payments, you cannot otherwise access
your money through a withdrawal or surrender.
Income payments must begin on or before the Latest Annuity Date, which is your
90th birthday. If you do not choose an Annuity Date, your income payments will
automatically begin on this date. Certain states may require your income
payments to start earlier.
If the Annuity Date is past your 85th birthday, your contract could lose its
status as an annuity under Federal tax laws. This may cause you to incur adverse
tax consequences.
In addition, most Qualified contracts require you to take minimum distributions
after you reach age 70 1/2. SEE TAXES BELOW.
INCOME OPTIONS
Currently, this Contract offers five standard income options. Other payout
options may be available. Contact the Annuity Service Center for more
information. If you elect to receive income payments but do not select an
option, your income payments will be made in accordance with Option 4. For
income payments based on joint lives, we pay according to Option 3.
We base our calculation of income payments on the life of the Annuitant and the
annuity rates set forth in your contract. As the contract owner, you may change
the Annuitant at any time prior to the Annuity Date. You must notify us if the
Annuitant dies before the Annuity Date and designate a new Annuitant.
OPTION 1 - LIFE INCOME ANNUITY
This option provides income payments for the life of the Annuitant. Income
payments stop when the Annuitant dies.
OPTION 2 - JOINT AND SURVIVOR LIFE ANNUITY
This option provides income payments for the life of the Annuitant and for the
life of another designated person. Upon the death of either person, we will
continue to make income payments during the lifetime of the survivor. Income
payments stop when the survivor dies.
OPTION 3 - JOINT AND SURVIVOR LIFE ANNUITY WITH 10 OR 20 YEARS GUARANTEED
This option is similar to Option 2 above, with an additional guarantee of
payments for at least 10 years. If the Annuitant and the survivor die before all
of the guaranteed income payments have been made, the remaining payments are
made to the Beneficiary under your contract.
OPTION 4 - LIFE ANNUITY WITH 10 YEARS GUARANTEED
This option is similar to Option 1 above. In addition, this option provides a
guarantee that income payments will be made for at least 10 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 after the
Annuity Date. The amount available upon such redemption would be the discounted
present value of any remaining guaranteed payments.
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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.
Please read the Statement of Additional Information ("SAI") for a more detailed
discussion of the income options.
FIXED OR VARIABLE INCOME PAYMENTS
You can choose income payments that are fixed, variable or both. If at the date
when income payments begin you are invested in the Variable Portfolios only,
your income payments will be variable. If your money is only in fixed accounts
at that time, your income payments will be fixed in amount. Further, if you are
invested in both fixed and variable investment options when income payments
begin, your payments will be fixed and variable. If income payments are fixed,
AIG SunAmerica Life guarantees the amount of each payment. If the income
payments are variable, the amount is not guaranteed.
INCOME PAYMENTS
We make income payments on a monthly, quarterly, semiannual or annual basis. You
instruct us to send you a check or to have the payments directly deposited into
your bank account. If state law allows, we distribute annuities with a contract
value of $5,000 or less in a lump sum. Also, if the selected income option
results in income payments of less than $50 per payment, we may decrease the
frequency of payments, state law allowing.
If you are invested in the Variable Portfolios after the Annuity date, your
income payments vary depending on four things:
- for life options, your age when payments begin, and in most states, if a
Non-Qualified contract, your gender; and
- the value of your contract in the Variable Portfolios on the Annuity
Date; and
- the 3.5% assumed investment rate used in the annuity table for the
contract; and
- the performance of the Variable Portfolios in which you are invested
during the time you receive income payments.
If you are invested in both the fixed account options and the Variable
Portfolios after the Annuity Date, the allocation of funds between the fixed and
variable options also impacts the amount of your annuity payments.
The value of variable income payments, if elected, is based on an assumed
interest rate ("AIR") of 3.5% compounded annually. Variable income payments
generally increase or decrease from one income payment date to the next based
upon the performance of the applicable Variable Portfolios. If the performance
of the Variable Portfolios selected is equal to the AIR, the income payments
will remain constant. If performance of Variable Portfolios is greater than the
AIR, the income payments will increase and if it is less than the AIR, the
income payments will decline.
TRANSFERS DURING THE INCOME PHASE
During the Income Phase, one transfer per month is permitted between the
Variable Portfolios. No other transfers are allowed during the Income Phase.
DEFERMENT OF PAYMENTS
We may defer making fixed payments for up to six months, or less if required by
law. Interest is credited to you during the deferral period. See also ACCESS TO
YOUR MONEY for a discussion of when payments from a Variable Portfolio may be
suspended or postponed.
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TAXES
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NOTE: THE BASIC SUMMARY BELOW ADDRESSES BROAD FEDERAL TAXATION MATTERS, AND
GENERALLY DOES NOT ADDRESS STATE TAXATION ISSUES OR QUESTIONS. IT IS NOT TAX
ADVICE. WE CAUTION YOU TO SEEK COMPETENT TAX ADVICE ABOUT YOUR OWN
CIRCUMSTANCES. WE DO NOT GUARANTEE THE TAX STATUS OF YOUR ANNUITY. TAX LAWS
CONSTANTLY CHANGE; THEREFORE, WE CANNOT GUARANTEE THAT THE INFORMATION CONTAINED
HEREIN IS COMPLETE AND/OR ACCURATE. WE HAVE INCLUDED AN ADDITIONAL DISCUSSION
REGARDING TAXES IN THE SAI.
ANNUITY CONTRACTS IN GENERAL
The Internal Revenue Code ("IRC") provides for special rules regarding the tax
treatment of annuity contracts. Generally, taxes on the earnings in your annuity
contract are deferred until you take the money out. Qualified retirement
investments that satisfy specific tax and ERISA requirements automatically
provide tax deferral regardless of whether the underlying contract is an
annuity, a trust, or a custodial account. Different rules apply depending on how
you take the money out and whether your contract is Qualified or Non-Qualified.
If you do not purchase your contract under a pension plan, a specially sponsored
employer program or an individual retirement account, your contract is referred
to as a Non-Qualified contract. A Non-Qualified contract receives different tax
treatment than a Qualified contract. In general, your cost 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 or arrangements
are: Individual Retirement Accounts ("IRAs"), Roth IRAs, Tax-
17
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, for employer plans and
tax-deductible IRA contributions, 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 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 financial
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 separate from service from the employer sponsoring the plan. If you
own an IRA, you must begin taking distributions when you attain age 70 1/2
regardless of when you separate from service from the employer sponsoring the
plan. 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.
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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 issued new regulations, effective January 1, 2003, regarding required
minimum distributions from qualified annuity contracts. One of the regulations
requires that the annuity contract value used to determine required minimum
distributions include the actuarial value of other benefits under the contract,
such as optional death benefits. This regulation does not apply to required
minimum distributions made under an irrevocable annuity income option. We are
currently awaiting further clarification from the IRS on this regulation,
including how the value of such benefits is determined. You should discuss the
effect of these new regulations with your tax advisor.
TAX TREATMENT OF DEATH BENEFITS
Any death benefits paid under the contract are taxable to the Beneficiary. The
rules governing the taxation of payments from an annuity contract, as discussed
above, generally apply whether the death benefits are paid as lump sum or
annuity payments. Estate taxes may also apply.
Certain enhanced death benefits may be purchased under your contract. Although
these types of benefits are used as investment protection and should not give
rise to any adverse tax effects, the IRS could take the position that some or
all of the charges for these death benefits should be treated as a partial
withdrawal from the contract. In that 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 the 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. This
diversification requirement is sometimes referred to as "investor control." It
is unknown to what
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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.
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PERFORMANCE
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We advertise the Cash Management Portfolio's yield and effective yield. In
addition, the other Variable Portfolios advertise total return, gross yield and
yield-to-maturity. These figures represent past performance of the Variable
Portfolios. These performance numbers do not indicate future results.
When we advertise performance for periods prior to the date the contracts were
first issued, we derive the figures from the performance of the corresponding
portfolios for the Trusts, if available. We modify these numbers to reflect
charges and expenses as if the Variable Portfolio was in existence during the
period stated in the advertisement. Figures calculated in this manner do not
represent actual historic performance of the particular Variable Portfolio.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
OTHER INFORMATION
- ----------------------------------------------------------------
- ----------------------------------------------------------------
AIG SUNAMERICA LIFE
AIG SunAmerica Life is a stock life insurance company originally organized under
the laws of the state of California in April 1965. On January 1, 1996, AIG
SunAmerica Life redomesticated under the laws of the state of Arizona.
AIG SunAmerica Life and its affiliates, SunAmerica Life Insurance Company, First
SunAmerica Life Insurance Company, AIG SunAmerica Asset Management Corp., and
the AIG Advisors Group, Inc. (comprising six wholly-owned broker-dealers and two
investment advisors), specialize in retirement savings and investment products
and services. Business focuses include fixed and variable annuities, mutual
funds, broker-dealer services and trust administration services.
THE SEPARATE ACCOUNT
AIG SunAmerica Life established Variable Separate Account ("separate account"),
under Arizona law on January 1, 1996 when it assumed the separate account,
originally established under California law on June 25, 1981. The separate
account is registered with the SEC as a unit investment trust under the
Investment Company Act of 1940, as amended.
AIG SunAmerica Life owns the assets in the separate account. However, the assets
in the separate account are not chargeable with liabilities arising out of any
other business conducted by AIG SunAmerica Life. Income gains and losses
(realized and unrealized) resulting from assets in the separate account are
credited to or charged against the separate account without regard to other
income gains or losses of AIG SunAmerica Life. Assets in the separate account
are not guaranteed by AIG SunAmerica Life.
THE GENERAL ACCOUNT
Money allocated to the fixed account options goes into AIG SunAmerica Life's
general account. The general account consists of all of AIG SunAmerica Life's
assets other than assets attributable to a separate account. All of the assets
in the general account are chargeable with the claims of any AIG SunAmerica Life
contract holders as well as all of its creditors. The general account funds are
invested as permitted under state insurance laws.
PAYMENTS IN CONNECTION WITH DISTRIBUTION OF THE CONTRACT
PAYMENTS TO BROKER-DEALERS
Registered representatives of broker-dealers sell the contract. We pay
commissions to the broker-dealers for the sale of your contract ("Contract
Commissions"). There are different structures by which a broker-dealer can
choose to have their Contract Commissions paid. For example, as one option, we
may pay upfront Contract Commission, only, that may be up to a maximum 7% of
each Purchase Payment you invest (which may include promotional amounts).
Another option may be a lower upfront Contract Commission on each Purchase
Payment, with a trail commission of up to a maximum 1.50% of contract value
annually. We pay Contract Commissions directly to the broker-dealer with whom
your registered representative is affiliated. Registered representatives may
receive a portion of these amounts we pay in accordance with any agreement in
place between the registered representative and his/her broker-dealer firm.
We (or our affiliates) may pay broker-dealers or permitted third parties cash or
non-cash compensation, including reimbursement of expenses incurred in
connection with the sale of these contracts. These payments may be intended to
reimburse for specific expenses incurred or may be based on sales, certain
assets under management or longevity of assets invested with us. For example, we
may pay additional amounts in connection with contracts that remain invested
with us for a particular period of time. We enter into such arrangements in our
discretion and we may negotiate customized arrangements with firms, including
affiliated and
20
non-affiliated broker-dealers based on various factors. Promotional incentives
may change at any time.
We do not deduct these amounts directly from your Purchase Payments. We
anticipate recovering these amounts from the fees and charges collected under
the contract. Certain compensation payments may increase our cost of doing
business in a particular firm and may result in higher contractual fees and
charges if you purchase your contract through such a firm. See EXPENSES above.
AIG SunAmerica Capital Services, Inc., Harborside Financial Center, 3200 Plaza
5, Jersey City, NJ 07311-4992, distributes the contracts. AIG SunAmerica Capital
Services, an affiliate of AIG SunAmerica Life, is a registered broker-dealer
under the Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. No underwriting fees are paid in connection with the
distribution of the contracts.
PAYMENTS WE RECEIVE
In addition to amounts received pursuant to established 12b-1 Plans, we may
receive compensation of up to 0.50% from the investment advisers, subadvisers or
their affiliates of certain of the underlying Trusts and/or portfolios for
services related to the availability of the underlying portfolios in the
contract. Furthermore, certain advisers and/or subadvisers may offset the costs
we incur for training to support sales of the underlying funds in the contract.
ADMINISTRATION
We are responsible for the administrative servicing of your contract. Please
contact our Annuity Service Center at 1-800-445-SUN2, if you have any comment,
question or service request.
We send out transaction confirmations and quarterly statements. During the
Accumulation Phase, you will receive confirmation of transactions within your
contract. Transactions made pursuant to contractual or systematic agreements,
such as dollar cost averaging, may be confirmed quarterly. Purchase Payments
received through the automatic payment plan or a salary reduction arrangement,
may also be confirmed quarterly. For other transactions, we send confirmations
immediately.
It is your responsibility to review these documents carefully and notify us of
any inaccuracies immediately. We investigate all inquiries. To the extent that
we believe we made an error, we retroactively adjust your contract, provided you
notify us within 30 days of receiving the transaction confirmation or quarterly
statement. Any other adjustments we deem warranted are made as of the time we
receive notice of the error.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Separate Account. AIG
SunAmerica Life engages in various kinds of routine litigation. In management's
opinion these matters are not of material importance to the Company's total
assets, nor are they material with respect to the Separate Account.
OWNERSHIP
The Polaris Variable Annuity is a Flexible Payment Group Deferred Annuity
contract. We issue a group contract to a contract holder for the benefit of the
participants in the group. As a participant in the group, you will receive a
certificate which evidences your ownership. As used in this prospectus, the term
contract refers to your certificate. In some states, a Flexible Payment
Individual Modified Guaranteed and Variable Deferred Annuity contract is
available instead. Such a contract is identical to the contract described in
this prospectus, with the exception that we issue it directly to the owner.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of AIG SunAmerica Life Assurance Company
at December 31, 2003 and 2002, and for each of the three years in the period
ended December 31, 2003, and the financial statements of Variable Separate
Account at December 31, 2003, and for each of the two years in the period ended
December 31, 2003, 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 accounting and auditing.
REGISTRATION STATEMENT
A registration statement has been filed with the SEC under the Securities Act of
1933 relating to the contract. This prospectus does not contain all the
information in the registration statement as permitted by SEC regulations. The
omitted information can be obtained from the SEC's principal office in
Washington, D.C., upon payment of a prescribed fee.
21
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- ----------------------------------------------------------------
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Additional information concerning the operations of the separate account is
contained in a Statement of Additional Information ("SAI"), which is available
without charge upon written request addressed to us at our Annuity Service
Center, P.O. Box 54299, Los Angeles, California 90054-0299 or by calling
(800)445-SUN2. The contents of the SAI are tabulated below.
<Table>
Separate Account.............................. 3
General Account............................... 3
Performance Data.............................. 4
Income Payments............................... 8
Annuity Unit Values........................... 9
Taxes......................................... 11
Distribution of Contracts..................... 15
Financial Statements.......................... 16
</Table>
22
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX A -- CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Table>
<Caption>
FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL
YEAR YEAR YEAR YEAR YEAR YEAR 11/30/99-
PORTFOLIOS 11/30/94 11/30/95 11/30/96 11/30/97 11/30/98 11/30/99 12/31/99
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation
(Inception Date -- 2/12/93)
Beginning AUV............... $ 11.14 $ 10.64 $ 14.19 $ 17.63 $ 21.26 $ 23.72 $ 36.39
Ending AUV.................. $ 10.64 $ 14.19 $ 17.63 $ 21.26 $ 23.72 $ 36.39 $ 43.17
Ending Number of AUs........ 8,462,152 13,247,155 20,470,395 24,889,133 24,068,557 21,898,142 21,764,629
- --------------------------------------------------------------------------------------------------------------------------------
Government and Quality Bond
(Inception Date -- 2/22/93)
Beginning AUV............... $ 10.32 $ 9.81 $ 11.51 $ 11.94 $ 12.65 $ 13.66 $ 13.37
Ending AUV.................. $ 9.81 $ 11.51 $ 11.94 $ 12.65 $ 13.66 $ 13.37 $ 13.28
Ending Number of AUs........ 7,008,717 8,504,677 9,176,239 10,047,042 14,076,819 12,612,572 12,309,470
- --------------------------------------------------------------------------------------------------------------------------------
Growth (Inception Date
-- 2/19/93)
Beginning AUV............... $ 10.78 $ 10.41 $ 12.95 $ 16.32 $ 20.31 $ 24.41 $ 29.74
Ending AUV.................. $ 10.41 $ 12.95 $ 16.32 $ 20.31 $ 24.41 $ 29.74 $ 32.61
Ending Number of AUs........ 3,950,678 5,968,263 7,557,844 9,747,428 9,838,138 8,941,621 8,878,474
- --------------------------------------------------------------------------------------------------------------------------------
Natural Resources (Inception
Date -- 10/31/94)
Beginning AUV............... $ 10.00 $ 9.27 $ 10.78 $ 12.13 $ 11.14 $ 9.30 $ 11.40
Ending AUV.................. $ 9.27 $ 10.78 $ 12.13 $ 11.14 $ 9.30 $ 11.40 $ 12.50
Ending Number of AUs........ 51,412 848,159 2,171,050 2,937,198 2,605,274 2,283,074 2,218,703
- --------------------------------------------------------------------------------------------------------------------------------
Aggressive Growth (Inception
Date -- 6/3/96)
Beginning AUV............... -- -- $ 10.00 $ 10.29 $ 11.51 $ 11.86 $ 19.02
Ending AUV.................. -- -- $ 10.29 $ 11.51 $ 11.86 $ 19.02 $ 24.30
Ending Number of AUs........ -- -- 3,165,900 7,215,024 7,059,502 7,354,489 7,476,506
- --------------------------------------------------------------------------------------------------------------------------------
Alliance Growth (Inception
Date -- 2/9/93)
Beginning AUV............... $ 10.78 $ 10.53 $ 15.44 $ 19.46 $ 24.51 $ 32.81 $ 44.31
Ending AUV.................. $ 10.53 $ 15.44 $ 19.46 $ 24.51 $ 32.81 $ 44.31 $ 48.56
Ending Number of AUs........ 4,997,778 10,560,070 18,333,555 24,050,697 24,146,276 26,154,552 25,819,661
- --------------------------------------------------------------------------------------------------------------------------------
Asset Allocation (Inception
Date -- 7/1/93)
Beginning AUV............... $ 10.30 $ 10.17 $ 12.64 $ 14.97 $ 17.98 $ 18.22 $ 19.10
Ending AUV.................. $ 10.17 $ 12.64 $ 14.97 $ 17.98 $ 18.22 $ 19.10 $ 19.81
Ending Number of AUs........ 10,372,954 15,418,350 19,940,733 25,272,776 26,043,996 21,080,060 20,767,631
- --------------------------------------------------------------------------------------------------------------------------------
Blue Chip Growth (Inception
Date -- 7/6/00)
Beginning AUV............... -- -- -- -- -- -- --
Ending AUV.................. -- -- -- -- -- -- --
Ending Number of AUs........ -- -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Cash Management (Inception
Date -- 4/1/99)
Beginning AUV............... $ 10.07 $ 10.27 $ 10.67 $ 11.04 $ 11.43 $ 11.83 $ 12.20
Ending AUV.................. $ 10.27 $ 10.67 $ 11.04 $ 11.43 $ 11.83 $ 12.20 $ 12.25
Ending Number of AUs........ 8,623,034 8,372,979 8,005,908 11,224,451 11,160,200 15,616,078 16,598,506
- --------------------------------------------------------------------------------------------------------------------------------
Corporate Bond (Inception
Date -- 7/1/93)
Beginning AUV............... $ 10.12 $ 9.63 $ 11.10 $ 11.65 $ 12.54 $ 13.15 $ 12.78
Ending AUV.................. $ 9.63 $ 11.10 $ 11.65 $ 12.54 $ 13.15 $ 12.78 $ 12.76
Ending Number of AUs........ 1,643,694 2,623,065 3,059,808 4,235,990 5,896,471 5,339,302 5,225,508
- --------------------------------------------------------------------------------------------------------------------------------
Davis Venture Value (Inception
Date -- 10/31/94)
Beginning AUV............... $ 10.00 $ 9.77 $ 13.29 $ 16.68 $ 21.30 $ 23.36 $ 26.57
Ending AUV.................. $ 9.77 $ 13.29 $ 16.68 $ 21.30 $ 23.36 $ 26.57 $ 27.88
Ending Number of AUs........ 355,083 11,270,792 29,247,554 44,892,446 46,069,429 42,175,145 41,825,421
- --------------------------------------------------------------------------------------------------------------------------------
"Dogs" of Wall Street
(Inception Date -- 4/1/98)
Beginning AUV............... -- -- -- -- $ 10.00 $ 9.71 $ 9.12
Ending AUV.................. -- -- -- -- $ 9.71 $ 9.12 $ 8.99
Ending Number of AUs........ -- -- -- -- 1,450,214 1,509,434 1,368,990
- --------------------------------------------------------------------------------------------------------------------------------
Emerging Markets (Inception
Date -- 6/2/97)
Beginning AUV............... -- -- -- $ 10.00 $ 7.97 $ 6.14 $ 8.99
Ending AUV.................. -- -- -- $ 7.97 $ 6.14 $ 8.99 $ 10.77
Ending Number of AUs........ -- -- -- 1,751,922 1,352,484 1,956,342 2,341,461
- --------------------------------------------------------------------------------------------------------------------------------
Federated American Leaders
(Inception Date -- 6/3/96)
Beginning AUV............... -- -- $ 10.00 $ 11.00 $ 13.62 $ 15.86 $ 16.43
Ending AUV.................. -- -- $ 11.00 $ 13.62 $ 15.86 $ 16.43 $ 16.89
Ending Number of AUs........ -- -- 1,021,137 3,095,513 4,255,000 4,164,599 4,001,010
- --------------------------------------------------------------------------------------------------------------------------------
<Caption>
FISCAL FISCAL FISCAL FISCAL
YEAR YEAR YEAR YEAR
PORTFOLIOS 12/31/00 12/31/01 12/31/02 12/31/03
- --------------------------------------------------------------------------------------
Capital Appreciation
(Inception Date -- 2/12/93)
Beginning AUV............... $ 43.17 $ 39.336 $ 33.864 $ 25.794
Ending AUV.................. $ 39.34 $ 33.864 $ 25.794 $ 33.598
Ending Number of AUs........ 19,417,165 16,861,232 12,967,020 11,109,195
- ---------------------------------------------------------------------------------------------------
Government and Quality Bond
(Inception Date -- 2/22/93)
Beginning AUV............... $ 13.28 $ 14.557 $ 15.330 $ 16.504
Ending AUV.................. $ 14.56 $ 15.330 $ 16.504 $ 16.664
Ending Number of AUs........ 11,021,940 11,075,554 12,506,349 8,517,535
- ----------------------------------------------------------------------------------------------------------------
Growth (Inception Date
-- 2/19/93)
Beginning AUV............... $ 32.61 $ 31.785 $ 27.208 $ 20.859
Ending AUV.................. $ 31.78 $ 27.208 20.859 $ 26.692
Ending Number of AUs........ 8,227,437 7,201,303 5,930,401 5,354,634
- -----------------------------------------------------------------------------------------------------------------------------
Natural Resources (Inception
Date -- 10/31/94)
Beginning AUV............... $ 12.50 $ 14.706 $ 14.327 $ 15.293
Ending AUV.................. $ 14.71 $ 14.327 $ 15.293 $ 22.251
Ending Number of AUs........ 1,957,242 1,779,774 1,786,931 1,512,462
- --------------------------------------------------------------------------------------------------------------------------------
Aggressive Growth (Inception
Date -- 6/3/96)
Beginning AUV............... $ 24.30 $ 20.283 $ 13.648 $ 10.123
Ending AUV.................. $ 20.28 $ 13.648 $ 10.123 $ 12.807
Ending Number of AUs........ 7,669,322 5,764,274 3,859,066 3,365,257
- --------------------------------------------------------------------------------------------------------------------------------
Alliance Growth (Inception
Date -- 2/9/93)
Beginning AUV............... $ 48.56 $ 38.509 $ 32.621 $ 22.076
Ending AUV.................. $ 38.51 $ 32.621 $ 22.076 $ 27.355
Ending Number of AUs........ 23,095,125 19,224,052 13,964,463 11,235,813
- --------------------------------------------------------------------------------------------------------------------------------
Asset Allocation (Inception
Date -- 7/1/93)
Beginning AUV............... $ 19.81 $ 19.448 $ 18.614 $ 16.951
Ending AUV.................. $ 19.45 $ 18.614 $ 16.951 $ 20.546
Ending Number of AUs........ 17,268,857 14,847,409 12,367,191 10,712,980
- --------------------------------------------------------------------------------------------------------------------------------
Blue Chip Growth (Inception
Date -- 7/6/00)
Beginning AUV............... $ 10.00 $ 8.569 $ 6.692 $ 4.661
Ending AUV.................. $ 8.57 $ 6.692 $ 4.661 $ 5.785
Ending Number of AUs........ 330,806 718,225 623,099 1,284,704
- --------------------------------------------------------------------------------------------------------------------------------
Cash Management (Inception
Date -- 4/1/99)
Beginning AUV............... $ 12.25 $ 12.793 $ 13.062 $ 13.040
Ending AUV.................. $ 12.79 $ 13.062 $ 13.040 $ 12.929
Ending Number of AUs........ 12,837,919 10,749,535 8,636,103 4,532,301
- --------------------------------------------------------------------------------------------------------------------------------
Corporate Bond (Inception
Date -- 7/1/93)
Beginning AUV............... $ 12.76 $ 13.190 $ 13.972 $ 14.788
Ending AUV.................. $ 13.19 $ 13.972 $ 14.788 $ 16.304
Ending Number of AUs........ 4,344,051 5,023,156 4,120,549 3,584,544
- --------------------------------------------------------------------------------------------------------------------------------
Davis Venture Value (Inception
Date -- 10/31/94)
Beginning AUV............... $ 27.88 30.052 $ 26.245 $ 21.522
Ending AUV.................. $ 30.05 26.245 $ 21.522 $ 28.218
Ending Number of AUs........ 38,384,619 34,548,238 27,710,437 23,778,082
- --------------------------------------------------------------------------------------------------------------------------------
"Dogs" of Wall Street
(Inception Date -- 4/1/98)
Beginning AUV............... $ 8.99 $ 9.122 $ 9.692 $ 8.919
Ending AUV.................. $ 9.12 $ 9.692 $ 8.919 $ 10.544
Ending Number of AUs........ 968,656 1,372,946 1,725,057 1,186,271
- --------------------------------------------------------------------------------------------------------------------------------
Emerging Markets (Inception
Date -- 6/2/97)
Beginning AUV............... $ 10.77 $ 6.755 $ 6.539 $ 5.980
Ending AUV.................. $ 6.75 $ 6.539 $ 5.980 $ 8.988
Ending Number of AUs........ 2,086,312 1,798,703 1,842,788 1,938,475
- --------------------------------------------------------------------------------------------------------------------------------
Federated American Leaders
(Inception Date -- 6/3/96)
Beginning AUV............... $ 16.89 $ 17.029 $ 16.381 $ 12.944
Ending AUV.................. $ 17.03 $ 16.381 $ 12.944 $ 16.264
Ending Number of AUs........ 3,255,076 4,065,034 4,111,291 3,571,023
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
A-1
<Table>
<Caption>
FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL
YEAR YEAR YEAR YEAR YEAR YEAR 11/30/99-
PORTFOLIOS 11/30/94 11/30/95 11/30/96 11/30/97 11/30/98 11/30/99 12/31/99
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Foreign Value* (Inception
Date -- N/A)
Beginning AUV............... -- -- -- -- -- -- --
Ending AUV.................. -- -- -- -- -- -- --
Ending Number of AUs........ -- -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond (Inception
Date -- 7/1/93)
Beginning AUV............... $ 10.25 $ 9.78 $ 11.20 $ 12.25 $ 13.08 $ 14.40 $ 14.11
Ending AUV.................. $ 9.78 $ 11.20 $ 12.25 $ 13.08 $ 14.40 $ 14.11 $ 14.09
Ending Number of AUs........ 4,532,386 5,288,158 5,413,149 6,164,455 5,906,756 5,199,731 4,972,504
- --------------------------------------------------------------------------------------------------------------------------------
Global Equities (Inception
Date -- 2/9/93)
Beginning AUV............... $ 10.86 $ 11.43 $ 13.01 $ 15.15 $ 16.90 $ 19.21 $ 24.20
Ending AUV.................. $ 11.43 $ 13.01 $ 15.15 $ 16.90 $ 19.21 $ 24.20 $ 26.57
Ending Number of AUs........ 11,705,418 12,350,883 15,583,207 18,376,185 17,594,064 15,218,999 15,364,906
- --------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Research
(Inception Date -- 7/5/00)
Beginning AUV............... -- -- -- -- -- -- --
Ending AUV.................. -- -- -- -- -- -- --
Ending Number of AUs........ -- -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Growth-Income (Inception
Date -- 2/9/93)
Beginning AUV............... $ 10.47 $ 10.09 $ 13.32 $ 16.70 $ 21.41 $ 25.71 $ 33.11
Ending AUV.................. $ 10.09 $ 13.32 $ 16.70 $ 21.41 $ 25.71 $ 33.11 $ 35.91
Ending Number of AUs........ 8,329,322 12,560,865 18,546,142 24,795,824 25,801,808 24,491,425 24,109,131
- --------------------------------------------------------------------------------------------------------------------------------
Growth Opportunities
(Inception Date -- 7/6/00)
Beginning AUV............... -- -- -- -- -- -- --
Ending AUV.................. -- -- -- -- -- -- --
Ending Number of AUs........ -- -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
High-Yield Bond (Inception
Date -- 2/9/93)
Beginning AUV............... $ 10.98 $ 10.35 $ 11.48 $ 12.99 $ 14.66 $ 14.25 $ 14.71
Ending AUV.................. $ 10.35 $ 11.48 $ 12.99 $ 14.66 $ 14.25 $ 14.71 $ 14.87
Ending Number of AUs........ 5,370,944 7,075,451 8,358,195 11,443,250 12,597,083 10,532,444 10,247,398
- --------------------------------------------------------------------------------------------------------------------------------
International Diversified
Equities (Inception
Date -- 10/31/94)
Beginning AUV............... $ 10.00 $ 9.77 $ 10.07 $ 11.39 $ 11.62 $ 13.53 $ 15.49
Ending AUV.................. $ 9.77 $ 10.07 $ 11.39 $ 11.62 $ 13.53 $ 15.49 $ 16.92
Ending Number of AUs........ 271,316 4,659,066 12,762,343 18,010,557 17,917,499 16,071,377 15,905,912
- --------------------------------------------------------------------------------------------------------------------------------
International Growth and
Income (Inception
Date -- 6/2/97)
Beginning AUV............... -- -- -- $ 10.00 $ 10.33 $ 11.16 $ 13.40
Ending AUV.................. -- -- -- $ 10.33 $ 11.16 $ 13.40 $ 14.07
Ending Number of AUs........ -- -- -- 2,721,228 3,306,665 4,307,535 4,319,856
- --------------------------------------------------------------------------------------------------------------------------------
MFS Massachusetts Investors
Trust (Inception Date
-- 2/9/93)
Beginning AUV............... $ 10.65 $ 9.79 $ 12.81 $ 14.94 $ 17.63 $ 20.46 $ 22.55
Ending AUV.................. $ 9.79 $ 12.81 $ 14.94 $ 17.63 $ 20.46 $ 22.55 $ 23.67
Ending Number of AUs........ 10,477,818 11,457,899 12,077,737 11,714,450 10,439,634 9,723,097 9,598,954
- --------------------------------------------------------------------------------------------------------------------------------
MFS Mid-Cap Growth (Inception
Date -- 4/1/99)
Beginning AUV............... -- -- -- -- -- $ 10.00 $ 14.23
Ending AUV.................. -- -- -- -- -- $ 14.23 $ 16.31
Ending Number of AUs........ -- -- -- -- -- 869,761 1,068,886
- --------------------------------------------------------------------------------------------------------------------------------
MFS Total Return (Inception
Date -- 10/31/94)
Beginning AUV............... $ 10.00 $ 9.95 $ 12.33 $ 13.82 $ 15.45 $ 17.28 $ 18.50
Ending AUV.................. $ 9.95 $ 12.33 $ 13.82 $ 15.45 $ 17.28 $ 18.50 $ 18.60
Ending Number of AUs........ 51,759 2,441,901 4,583,234 5,415,312 5,465,650 5,719,070 5,709,183
- --------------------------------------------------------------------------------------------------------------------------------
Putnam Growth: Voyager
(Inception Date -- 2/9/93)
Beginning AUV............... $ 9.92 $ 9.79 $ 12.60 $ 14.88 $ 18.47 $ 22.29 $ 28.36
Ending AUV.................. $ 9.79 $ 12.60 $ 14.88 $ 18.47 $ 22.29 $ 28.36 $ 31.67
Ending Number of AUs........ 7,610,104 8,932,998 10,354,025 11,336,732 12,052,558 11,402,199 11,286,031
- --------------------------------------------------------------------------------------------------------------------------------
Real Estate (Inception
Date -- 6/2/97)
Beginning AUV............... -- -- -- $ 10.00 $ 11.44 $ 9.80 $ 8.50
Ending AUV.................. -- -- -- $ 11.44 $ 9.80 $ 8.50 $ 8.91
Ending Number of AUs........ -- -- -- 1,632,804 2,521,169 2,159,442 1,934,426
- --------------------------------------------------------------------------------------------------------------------------------
<Caption>
FISCAL FISCAL FISCAL FISCAL
YEAR YEAR YEAR YEAR
PORTFOLIOS 12/31/00 12/31/01 12/31/02 12/31/03
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Foreign Value* (Inception
Date -- N/A)
Beginning AUV............... -- -- -- --
Ending AUV.................. -- -- -- --
Ending Number of AUs........ -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond (Inception
Date -- 7/1/93)
Beginning AUV............... $ 14.09 $ 15.158 $ 15.678 $ 16.361
Ending AUV.................. $ 15.16 $ 15.678 $ 16.361 $ 16.687
Ending Number of AUs........ 4,219,650 3,668,692 3,050,578 2,526,214
- --------------------------------------------------------------------------------------------------------------------------------
Global Equities (Inception
Date -- 2/9/93)
Beginning AUV............... $ 26.57 $ 21.653 $ 17.472 $ 12.588
Ending AUV.................. $ 21.65 $ 17.472 $ 12.588 $ 15.688
Ending Number of AUs........ 13,718,168 11,040,552 8,408,886 6,864,728
- --------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Research
(Inception Date -- 7/5/00)
Beginning AUV............... $ 10.00 $ 9.735 $ 7.173 $ 5.080
Ending AUV.................. $ 9.74 $ 7.173 $ 5.080 $ 6.266
Ending Number of AUs........ 887,882 462,829 766,129 532,596
- --------------------------------------------------------------------------------------------------------------------------------
Growth-Income (Inception
Date -- 2/9/93)
Beginning AUV............... $ 35.91 $ 32.417 $ 26.847 $ 20.850
Ending AUV.................. $ 32.42 $ 26.847 $ 20.850 $ 25.801
Ending Number of AUs........ 22,388,200 19,215,798 15,286,743 12,832,440
- --------------------------------------------------------------------------------------------------------------------------------
Growth Opportunities
(Inception Date -- 7/6/00)
Beginning AUV............... $ 10.00 $ 8.829 $ 5.807 $ 3.443
Ending AUV.................. $ 8.83 $ 5.807 $ 3.443 $ 4.577
Ending Number of AUs........ 828,752 970,417 688,859 1,694,398
- --------------------------------------------------------------------------------------------------------------------------------
High-Yield Bond (Inception
Date -- 2/9/93)
Beginning AUV............... $ 14.87 $ 13.278 $ 12.511 $ 11.607
Ending AUV.................. $ 13.28 $ 12.511 $ 11.607 $ 15.041
Ending Number of AUs........ 8,339,613 7,529,500 6,642,631 6,473,266
- --------------------------------------------------------------------------------------------------------------------------------
International Diversified
Equities (Inception
Date -- 10/31/94)
Beginning AUV............... $ 16.92 $ 13.614 $ 10.196 $ 7.175
Ending AUV.................. $ 13.61 $ 10.196 $ 7.175 $ 9.314
Ending Number of AUs........ 14,143,933 11,775,969 9,350,017 8,305,186
- --------------------------------------------------------------------------------------------------------------------------------
International Growth and
Income (Inception
Date -- 6/2/97)
Beginning AUV............... $ 14.07 $ 14.023 $ 10.743 $ 8.367
Ending AUV.................. $ 14.02 $ 10.743 $ 8.367 $ 11.283
Ending Number of AUs........ 4,771,471 4,012,997 3,572,948 3,402,233
- --------------------------------------------------------------------------------------------------------------------------------
MFS Massachusetts Investors
Trust (Inception Date
-- 2/9/93)
Beginning AUV............... $ 23.67 $ 23.224 $ 19.203 $ 14.944
Ending AUV.................. $ 23.22 $ 19.203 $ 14.944 $ 18.028
Ending Number of AUs........ 8,247,309 7,261,760 6,211,054 5,394,233
- --------------------------------------------------------------------------------------------------------------------------------
MFS Mid-Cap Growth (Inception
Date -- 4/1/99)
Beginning AUV............... $ 16.31 $ 17.607 $ 13.420 $ 6.982
Ending AUV.................. $ 17.61 $ 13.420 $ 6.982 $ 9.438
Ending Number of AUs........ 4,096,885 3,490,131 2,450,117 3,084,734
- --------------------------------------------------------------------------------------------------------------------------------
MFS Total Return (Inception
Date -- 10/31/94)
Beginning AUV............... $ 18.60 $ 21.433 $ 21.225 $ 19.891
Ending AUV.................. $ 21.43 $ 21.220 $ 19.891 $ 22.894
Ending Number of AUs........ 5,030,406 6,081,406 7,303,764 7,039,810
- --------------------------------------------------------------------------------------------------------------------------------
Putnam Growth: Voyager
(Inception Date -- 2/9/93)
Beginning AUV............... $ 31.67 $ 25.556 $ 19.097 $ 13.832
Ending AUV.................. $ 25.56 $ 19.097 $ 13.832 $ 16.896
Ending Number of AUs........ 10,145,801 8,052,999 6,135,245 4,973,092
- --------------------------------------------------------------------------------------------------------------------------------
Real Estate (Inception
Date -- 6/2/97)
Beginning AUV............... $ 8.91 $ 10.856 $ 11.339 $ 11.860
Ending AUV.................. $ 10.86 $ 11.339 $ 11.860 $ 16.120
Ending Number of AUs........ 2,146,190 2,089,006 2,120,452 2,102,028
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
A-2
<Table>
<Caption>
FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL
YEAR YEAR YEAR YEAR YEAR YEAR 11/30/99-
PORTFOLIOS 11/30/94 11/30/95 11/30/96 11/30/97 11/30/98 11/30/99 12/31/99
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Small & Mid Cap Value*
(Inception Date -- N/A)
Beginning AUV................ -- -- -- -- -- -- --
Ending AUV................... -- -- -- -- -- -- --
Ending Number of AUs......... -- -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
SunAmerica Balanced (Inception
Date -- 6/3/96)
Beginning AUV................ -- -- $ 10.00 $ 11.04 $ 13.22 $ 15.60 $ 18.23
Ending AUV................... -- -- $ 11.04 $ 13.22 $ 15.60 $ 18.23 $ 19.69
Ending Number of AUs......... -- -- 817,039 2,447,948 4,179,545 5,352,344 5,364,585
- --------------------------------------------------------------------------------------------------------------------------------
Technology (Inception Date --
7/5/00)
Beginning AUV................ -- -- -- -- -- -- --
Ending AUV................... -- -- -- -- -- -- --
Ending Number of AUs......... -- -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Telecom Utility (Inception
Date -- 6/3/96)
Beginning AUV................ -- -- $ 10.00 $ 10.67 $ 12.74 $ 14.56 $ 15.16
Ending AUV................... -- -- $ 10.67 $ 12.74 $ 14.56 $ 15.16 $ 15.11
Ending Number of AUs......... -- -- 543,461 1,541,346 2,120,487 2,046,427 2,024,299
- --------------------------------------------------------------------------------------------------------------------------------
Worldwide High Income
(Inception Date -- 10/31/94)
Beginning AUV................ $ 10.00 $ 9.95 $ 11.36 $ 14.20 $ 15.98 $ 13.57 $ 15.23
Ending AUV................... $ 9.95 $ 11.36 $ 14.20 $ 15.98 $ 13.57 $ 15.23 $ 15.70
Ending Number of AUs......... 53,315 1,040,828 3,196,739 6,368,247 5,463,589 4,234,687 4,110,589
- --------------------------------------------------------------------------------------------------------------------------------
Lord Abbett Growth and Income*
(Inception Date -- N/A)
Beginning AUV................ -- -- -- -- -- -- --
Ending AUV................... -- -- -- -- -- -- --
Ending Number of AUs......... -- -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Van Kampen LIT Comstock*
(Inception Date -- N/A)
Beginning AUV................ -- -- -- -- -- -- --
Ending AUV................... -- -- -- -- -- -- --
Ending Number of AUs......... -- -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Van Kampen LIT Growth and
Income* (Inception Date --
N/A)
Beginning AUV................ -- -- -- -- -- -- --
Ending AUV................... -- -- -- -- -- -- --
Ending Number of AUs......... -- -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
American Funds Global Growth*
(Inception Date -- N/A)
Beginning AUV................ -- -- -- -- -- -- --
Ending AUV................... -- -- -- -- -- -- --
Ending Number of AUs......... -- -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
American Funds Growth*
(Inception Date -- N/A)
Beginning AUV................ -- -- -- -- -- -- --
Ending AUV................... -- -- -- -- -- -- --
Ending Number of AUs......... -- -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
American Funds Growth --
Income* (Inception Date --
N/A)
Beginning AUV................ -- -- -- -- -- -- --
Ending AUV................... -- -- -- -- -- -- --
Ending Number of AUs......... -- -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
<Caption>
FISCAL FISCAL FISCAL FISCAL
YEAR YEAR YEAR YEAR
PORTFOLIOS 12/31/00 12/31/01 12/31/02 12/31/03
- --------------------------------------------------------------------------------------
Small & Mid Cap Value*
(Inception Date -- N/A)
Beginning AUV................ -- -- -- --
Ending AUV................... -- -- -- --
Ending Number of AUs......... -- -- -- --
- ---------------------------------------------------------------------------------------------------
SunAmerica Balanced (Inception
Date -- 6/3/96)
Beginning AUV................ $ 19.69 $ 17.560 $ 15.021 $ 12.550
Ending AUV................... $ 17.56 $ 15.021 $ 12.550 $ 14.229
Ending Number of AUs......... 5,126,272 4,210,209 3,097,121 2,587,745
- ----------------------------------------------------------------------------------------------------------------
Technology (Inception Date --
7/5/00)
Beginning AUV................ $ 10.00 $ 6.692 $ 3.452 $ 1.722
Ending AUV................... $ 6.69 $ 3.452 $ 1.722 $ 2.557
Ending Number of AUs......... 1,818,833 1,792,428 1,580,445 3,536,147
- -----------------------------------------------------------------------------------------------------------------------------
Telecom Utility (Inception
Date -- 6/3/96)
Beginning AUV................ $ 15.11 13.538 $ 11.504 $ 8.638
Ending AUV................... $ 13.54 11.504 $ 8.638 $ 10.104
Ending Number of AUs......... 1,711,385 1,356,237 1,188,432 806,542
- --------------------------------------------------------------------------------------------------------------------------------
Worldwide High Income
(Inception Date -- 10/31/94)
Beginning AUV................ $ 15.70 15.005 $ 14.299 $ 14.029
Ending AUV................... $ 15.00 14.299 $ 14.029 $ 17.402
Ending Number of AUs......... 3,413,896 2,780,936 2,261,171 1,970,016
- --------------------------------------------------------------------------------------------------------------------------------
Lord Abbett Growth and Income*
(Inception Date -- N/A)
Beginning AUV................ -- -- -- --
Ending AUV................... -- -- -- --
Ending Number of AUs......... -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Van Kampen LIT Comstock*
(Inception Date -- N/A)
Beginning AUV................ -- -- -- --
Ending AUV................... -- -- -- --
Ending Number of AUs......... -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Van Kampen LIT Growth and
Income* (Inception Date --
N/A)
Beginning AUV................ -- -- -- --
Ending AUV................... -- -- -- --
Ending Number of AUs......... -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
American Funds Global Growth*
(Inception Date -- N/A)
Beginning AUV................ -- -- -- --
Ending AUV................... -- -- -- --
Ending Number of AUs......... -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
American Funds Growth*
(Inception Date -- N/A)
Beginning AUV................ -- -- -- --
Ending AUV................... -- -- -- --
Ending Number of AUs......... -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
American Funds Growth --
Income* (Inception Date --
N/A)
Beginning AUV................ -- -- -- --
Ending AUV................... -- -- -- --
Ending Number of AUs......... -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
AUV -- Accumulation Unit Value
AU -- Accumulation Units
* Not available as of the date of this prospectus.
A-3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX B -- MARKET VALUE ADJUSTMENT ("MVA")
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The information in this Appendix applies only if you take money out of a FAGP
(with a duration longer than 1 year) before the end of the guarantee period.
We calculate the MVA by doing a comparison between current rates and the rate
being credited to you in the FAGP. For the current rate we use a rate being
offered by us for a guarantee period that is equal to the time remaining in the
FAGP from which you seek withdrawal (rounded up to a full number of years). If
we are not currently offering a guarantee period for that period of time, we
determine an applicable rate by using a formula to arrive at a number based on
the interest rates currently offered for the two closest periods available.
Where the MVA is negative, we first deduct the adjustment from any money
remaining in the FAGP. If there is not enough money in the FAGP to meet the
negative deduction, we deduct the remainder from your withdrawal. Where the MVA
is positive, we add the adjustment to your withdrawal amount. If a withdrawal
charge applies, it is deducted before the MVA calculation. The MVA is assessed
on the amount withdrawn less any withdrawal charges.
The MVA is computed by multiplying the amount withdrawn, transferred or taken
under an income option by the following factor:
[(1+I/(1+J+L)](N/12) - 1
where:
I is the interest rate you are earning on the money invested in the
FAGP;
J is the interest rate then currently available for the period of time
equal to the number of years remaining in the term you initially agreed
to leave your money in the FAGP;
N is the number of full months remaining in the term you initially
agreed to leave your money in the FAGP; and
L is 0.005 (some states require a different value, 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) Your contract was issued in a state where L = 0.005.
POSITIVE ADJUSTMENT, NO WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 3.5% and the 3-year FAGP is 4.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 4%. No
withdrawal charge is reflected in this example, assuming that the Purchase
Payment withdrawn falls within the free look amount.
The MVA factor is = [(1+I/(1+J+0.005)](N/12) - 1
= [(1.05)/(1.04+0.005)](18/12) - 1
= (1.004785)(1.5) - 1
= 1.007186 - 1
= + 0.007186
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.
B-1
NEGATIVE ADJUSTMENT, NO WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 5.5% and the 3-year FAGP is 6.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 6%. No
withdrawal charge is reflected in this example, assuming that the Purchase
Payment withdrawn falls with the free withdrawal amount.
The MVA factor is = [(1+I)/(1+J+0.005)](N/12) - 1
= [(1.05)/(1.06+0.005)](18/12) - 1
= (0.985915)(1.5) - 1
= 0.978948 - 1
= - 0.021052
The requested withdrawal amount is multiplied by the MVA factor to determine the
MVA:
$4,000 X (- 0.021052) = -$84.21
$84.21 represents the negative MVA that will be deducted from the money
remaining in the 3-year FAGP.
POSITIVE ADJUSTMENT, WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 3.5% and the 3-year FAGP is 4.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 4%. A
withdrawal charge of 6% is reflected in this example, assuming that the Purchase
Payment withdrawn exceeds the free withdrawal amount.
The MVA factor is = [(1+I)/(I+J+0.005)](N/12) - 1
= [(1.05)/(1.04+0.005)](18/12) - 1
= (1.004785)(1.5) - 1
= 1.007186 - 1
= + 0.007186
The requested withdrawal amount, less the withdrawal charge ($4,000 -6% =
$3,760) is multiplied by the MVA factor to determine the MVA:
$3,760 X (+0.007186) = +$27.02
$27.02 represents the positive MVA that would be added to the withdrawal.
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.
B-2
(THIS PAGE INTENTIONALLY LEFT BLANK)
- --------------------------------------------------------------------------------
Please forward a copy (without charge) of the Polaris Variable Annuity
Statement of Additional Information to:
(Please print or type and fill in all information.)
------------------------------------------------------------------------
Name
------------------------------------------------------------------------
Address
------------------------------------------------------------------------
City/State/Zip
<Table>
Date: ------------------------------------ Signed: ---------------------------------------
</Table>
Return to: AIG SunAmerica Life Assurance Company, Annuity Service Center,
P.O. Box 52499, Los Angeles, California 90054-0299
- --------------------------------------------------------------------------------
[POLARIS PLATINUM LOGO]
PROSPECTUS
MAY 3, 2004
<Table>
Please read this prospectus carefully FLEXIBLE PAYMENT DEFERRED ANNUITY CONTRACTS
before investing and keep it for issued by
future reference. It contains AIG SUNAMERICA LIFE ASSURANCE COMPANY
important information about the in connection with
Variable Annuity. VARIABLE SEPARATE ACCOUNT
The annuity has several investment choices -Variable Portfolios listed
To learn more about the annuity below and available fixed account options. The Variable Portfolios are part
offered by this prospectus, you can of the Anchor Series Trust ("AST"), American Funds Insurance Series
obtain a copy of the Statement of ("AFIS"), SunAmerica Series Trust ("SAST"), Lord Abbett Series Fund, Inc.
Additional Information ("SAI") dated ("LASF"), Nations Separate Account Trust ("NSAT"), Van Kampen Life
May 3, 2004. The SAI has been filed Investment Trust ("VKT") and the WM Variable Trust ("WMT").
with the Securities and Exchange
Commission ("SEC") and is STOCKS:
incorporated by reference into this MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
prospectus. The Table of Contents of - Aggressive Growth Portfolio SAST
the SAI appears in this prospectus. - Blue Chip Growth Portfolio SAST
For a free copy of the SAI, call us - "Dogs" of Wall Street Portfolio* SAST
at (800) 445-SUN2 or write to us at - Growth Opportunities Portfolio SAST
our Annuity Service Center, P.O. Box MANAGED BY ALLIANCEBERNSTEIN
54299, Los Angeles, California - Small & Mid Cap Value Portfolio SAST
90054-0299. MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
- Alliance Growth Portfolio SAST
In addition, the SEC maintains a - Global Equities Portfolio SAST
website (http://www.sec.gov) that - Growth-Income Portfolio SAST
contains the SAI, materials MANAGED BY BANC OF AMERICA CAPITAL MANAGEMENT, LLC
incorporated by reference and other - Nations MidCap Growth Portfolio NSAT
information filed electronically with - Nations Small Company Portfolio NSAT
the SEC by AIG SunAmerica Life - Nations Value Portfolio NSAT
Assurance Company. MANAGED BY CAPITAL RESEARCH AND MANAGEMENT COMPANY
- American Funds Global Growth Portfolio AFIS
ANNUITIES INVOLVE RISKS, INCLUDING - American Funds Growth Portfolio AFIS
POSSIBLE LOSS OF PRINCIPAL, AND ARE - American Funds Growth-Income Portfolio AFIS
NOT A DEPOSIT OR OBLIGATION OF, OR MANAGED BY DAVIS ADVISORS
GUARANTEED OR ENDORSED BY, ANY BANK. - Davis Venture Value Portfolio SAST
THEY ARE NOT FEDERALLY INSURED BY THE - Real Estate Portfolio SAST
FEDERAL DEPOSIT INSURANCE MANAGED BY FEDERATED EQUITY MANAGEMENT COMPANY
CORPORATION, THE FEDERAL RESERVE - Federated American Leaders Portfolio* SAST
BOARD OR ANY OTHER AGENCY. MANAGED BY LORD, ABBETT & CO.
- Lord Abbett Series Fund Growth and Income Portfolio LASF
This variable annuity provides an MANAGED BY MARSICO CAPITAL MANAGEMENT, LLC
optional bonus feature called - Marsico Growth Portfolio SAST
"Polaris Rewards". If you elect this - Nations Marsico 21st Century Portfolio NSAT
feature, in exchange for bonuses - Nations Marsico Focused Equities Portfolio NSAT
credited to your contract, your - Nations Marsico Growth Portfolio NSAT
surrender charge schedule will be - Nations Marsico International Opportunities Portfolio NSAT
longer and greater than if you chose MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
not to elect this feature. These - MFS Massachusetts Investors Trust Portfolio SAST
withdrawal charges may offset the - MFS Mid-Cap Growth Portfolio SAST
value of any bonus, if you make an MANAGED BY PUTNAM INVESTMENT MANAGEMENT, LLC
early withdrawal. - Emerging Markets Portfolio SAST
- International Growth and Income Portfolio SAST
- Putnam Growth: Voyager SAST
MANAGED BY TEMPLETON INVESTMENT COUNSEL, LLC
- Foreign Value Portfolio SAST
MANAGED BY VAN KAMPEN/VAN KAMPEN ASSET MANAGEMENT
- International Diversified Equities Portfolio SAST
- Technology Portfolio SAST
- Van Kampen LIT Comstock Portfolio, Class II Shares* VKT
- Van Kampen LIT Emerging Growth Portfolio, Class II Shares VKT
- Van Kampen LIT Growth and Income Portfolio, Class II Shares VKT
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio AST
- Growth Portfolio AST
- Natural Resources Portfolio AST
BALANCED:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- SunAmerica Balanced Portfolio SAST
MANAGED BY BANC OF AMERICA CAPITAL MANAGEMENT, LLC
- Nations Asset Allocation Portfolio NSAT
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Total Return Portfolio SAST
MANAGED BY WM ADVISORS, INC.
- Balanced Portfolio WMT
- Conservative Growth WMT
- Strategic Growth WMT
BONDS:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- High-Yield Bond Portfolio SAST
MANAGED BY FEDERATED INVESTMENT MANAGEMENT COMPANY
- Corporate Bond Portfolio SAST
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
- Global Bond Portfolio SAST
MANAGED BY MANAGED BY MACKAY SHIELDS LLC
- Nations High Yield Bond Portfolio NSAT
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Government & Quality Bond Portfolio AST
CASH:
MANAGED BY BANC OF AMERICA CAPITAL MANAGEMENT, LLC
- Cash Management Portfolio SAST
* "Dogs" of Wall Street is an equity fund seeking total return. Federated
American Leaders is an equity fund seeking growth of capital and income.
Van Kampen LIT Comstock is an equity fund seeking capital growth and
income.
</Table>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
- ----------------------------------------------------------------
- ----------------------------------------------------------------
AIG SunAmerica Life's Report on Form 10-K for the year ended December 31, 2003,
file no. 033-47472 is incorporated herein by reference.
All documents or reports filed by AIG SunAmerica Life under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") after the effective date of this prospectus are also
incorporated by reference. Statements contained in this prospectus and
subsequently filed documents which are incorporated by reference or deemed to be
incorporated by reference are deemed to modify or supercede documents
incorporated by reference.
AIG SunAmerica Life files its Exchange Act documents and reports, including its
annual and quarterly reports on Form 10-K and Form 10-Q, electronically pursuant
to EDGAR under CIK No. 0000006342.
AIG SunAmerica Life is subject to the informational requirements of the
Securities and Exchange Act of 1934 (as amended). We file reports and other
information with the SEC to meet those requirements. You can inspect and copy
this information at SEC public facilities at the following locations:
WASHINGTON, DISTRICT OF COLUMBIA
450 Fifth Street, N.W., Room 1024
Washington, D.C. 20549
CHICAGO, ILLINOIS
500 West Madison Street
Chicago, IL 60661
NEW YORK, NEW YORK
233 Broadway
New York, NY 10279
To obtain copies by mail contact the Washington, D.C. location. After you pay
the fees as prescribed by the rules and regulations of the SEC, the required
documents are mailed.
Registration statements under the Securities Act of 1933, as amended, related to
the contracts offered by this prospectus are on file with the SEC. This
prospectus does not contain all of the information contained in the registration
statements and exhibits. For further information regarding the separate account,
AIG SunAmerica Life and its general account, the Variable Portfolios and the
contract, please refer to the registration statements and exhibits.
The SEC also maintains a website (http://www.sec.gov) that contains the SAI,
materials incorporated by reference and other information filed electronically
with the SEC by AIG SunAmerica Life.
AIG SunAmerica Life will provide without charge to each person to whom this
prospectus is delivered, upon written or oral request, a copy of the above
documents incorporated by reference. Requests for these documents should be
directed to AIG SunAmerica Life's Annuity Service Center, as follows:
AIG SunAmerica Life Assurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
Telephone Number: (800) 445-SUN2
- ----------------------------------------------------------------
- ----------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Indemnification for liabilities arising under the Securities Act of 1933 (the
"Act") is provided to AIG SunAmerica Life's officers, directors and controlling
persons. The SEC has advised that it believes such indemnification is against
public policy under the Act and unenforceable. If a claim for indemnification
against such liabilities (other than for AIG SunAmerica Life's payment of
expenses incurred or paid by its directors, officers or controlling persons in
the successful defense of any legal action) is asserted by a director, officer
or controlling person of AIG SunAmerica Life in connection with the securities
registered under this prospectus, AIG SunAmerica Life will submit to a court
with jurisdiction to determine whether the indemnification is against public
policy under the Act. AIG SunAmerica Life will be governed by final judgment of
the issue. However, if in the opinion of AIG SunAmerica Life's counsel, this
issue has been determined by controlling precedent, AIG SunAmerica Life will not
submit the issue to a court for determination.
2
<Table>
-------------------------------------------------------------------------
-------------------------------------------------------------------------
TABLE OF CONTENTS
-------------------------------------------------------------------------
-------------------------------------------------------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................... 2
SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION....
2
GLOSSARY.......................................................... 3
HIGHLIGHTS........................................................ 4
FEE TABLES........................................................ 5
Maximum Owner Transaction Expenses.......................... 5
Contract Maintenance Fee.................................... 5
Separate Account Expenses................................... 5
Optional Feature Fee........................................ 5
Optional Polaris Income Reward Fee.......................... 5
Optional Capital Protector Fee.............................. 5
Portfolio Expenses.......................................... 5
EXAMPLES.......................................................... 6
THE POLARIS PLATINUM II VARIABLE ANNUITY.......................... 8
PURCHASING A POLARIS PLATINUM II VARIABLE ANNUITY................. 9
Allocation of Purchase Payments............................. 9
Polaris Rewards Program..................................... 9
Current Enhancement Levels.................................. 10
Accumulation Units.......................................... 11
Free Look................................................... 11
INVESTMENT OPTIONS................................................ 12
Variable Portfolios......................................... 12
Anchor Series Trust..................................... 12
SunAmerica Series Trust................................. 12
American Funds Insurance Series......................... 12
Lord Abbett Series Fund, Inc. .......................... 12
Nations Separate Account Trust.......................... 12
Van Kampen Life Investment Trust........................ 12
WM Variable Trust....................................... 12
Fixed Account Options....................................... 13
Asset Allocation Program.................................... 14
Transfers During the Accumulation Phase..................... 15
Dollar Cost Averaging....................................... 16
Asset Allocation Rebalancing Program........................ 16
Return Plus Program......................................... 17
Voting Rights............................................... 17
Substitution................................................ 17
ACCESS TO YOUR MONEY.............................................. 17
Systematic Withdrawal Program............................... 18
Nursing Home Waiver......................................... 19
Minimum Contract Value...................................... 19
LIVING BENEFIT.................................................... 19
Polaris Income Rewards...................................... 19
Capital Protection.......................................... 22
DEATH BENEFIT..................................................... 24
Purchase Payment Accumulation Option........................ 24
Maximum Anniversary Option.................................. 24
EstatePlus.................................................. 25
Spousal Continuation........................................ 26
EXPENSES.......................................................... 27
Separate Account Charges.................................... 27
Withdrawal Charges.......................................... 27
Investment Charges.......................................... 28
Contract Maintenance Fee.................................... 28
Transfer Fee................................................ 28
Optional Polaris Income Reward Fee.......................... 28
Optional Capital Protector Fee.............................. 28
Optional EstatePlus Fee..................................... 28
Premium Tax................................................. 28
Income Taxes................................................ 28
Reduction or Elimination of Charges and Expenses, and
Additional Amounts Credited................................ 28
INCOME OPTIONS.................................................... 29
Annuity Date................................................ 29
Income Options.............................................. 29
Fixed or Variable Income Payments........................... 29
Income Payments............................................. 30
Transfers During the Income Phase........................... 30
Deferment of Payments....................................... 30
TAXES............................................................. 30
Annuity Contracts in General................................ 30
Tax Treatment of Distributions - Non-qualified Contracts.... 31
Tax Treatment of Distributions - Qualified Contracts........ 31
Minimum Distributions....................................... 31
Tax Treatment of Death Benefits............................. 32
Contracts Owned by a Trust or Corporation................... 32
Gifts, Pledges and/or Assignments of a Non-Qualified
Contract................................................... 32
Diversification and Investor Control........................ 32
PERFORMANCE....................................................... 33
OTHER INFORMATION................................................. 33
AIG SunAmerica Life......................................... 33
The Separate Account........................................ 33
The General Account......................................... 33
Distribution of the Contract................................ 33
Administration.............................................. 34
Legal Proceedings........................................... 34
Ownership................................................... 34
Independent Accountants..................................... 34
Registration Statement...................................... 34
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION..........
35
APPENDIX A - CONDENSED FINANCIALS................................. A-1
APPENDIX B - MARKET VALUE ADJUSTMENTS ("MVA") AND FIXED ADVANTAGE
7 ACCOUNT OPTION................................................. B-1
APPENDIX C - DEATH BENEFITS FOLLOWING SPOUSAL CONTINUATION........
C-1
APPENDIX D - POLARIS REWARDS PROGRAM EXAMPLES..................... D-1
-------------------------------------------------------------------------
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GLOSSARY
-------------------------------------------------------------------------
-------------------------------------------------------------------------
We have capitalized some of the technical terms used in this prospectus.
To help you understand these terms, we have defined them in this
glossary.
ACCUMULATION PHASE - The period during which you invest money in your
contract.
ACCUMULATION UNITS - A measurement we use to calculate the value of the
variable portion of your contract during the Accumulation Phase.
ANNUITANT(S) - The person(s) on whose life (lives) we base income
payments.
ANNUITY DATE - The date on which income payments are to begin, as
selected by you.
ANNUITY UNITS - A measurement we use to calculate the amount of income
payments you receive from the variable portion of your contract during
the Income Phase.
BENEFICIARY - The person designated to receive any benefits under the
contract if you or the Annuitant dies.
COMPANY - AIG SunAmerica Life Assurance Company AIG SunAmerica Life, we,
us or our, the insurer which issues this contract. Only AIG SunAmerica
Life is a capitalized term in the prospectus.
INCOME PHASE - The period during which we make income payments to you.
IRS - The Internal Revenue Service.
LATEST ANNUITY DATE - Your 95th birthday or 10th contract anniversary,
whichever is later.
NON-QUALIFIED (CONTRACT) - A contract purchased with after-tax dollars.
In general, these contracts are not under any pension plan, specially
sponsored program or individual retirement account ("IRA").
PAYMENT ENHANCEMENT(S) - The amount(s) allocated to your contract by us
under the Polaris Rewards Program. Payment Enhancements are calculated as
a percentage of your Purchase Payments and are considered earnings.
POLARIS REWARDS PROGRAM - A program that provides a payment enhancement
in exchange for a surrender charge schedule that declines over 9 years.
PURCHASE PAYMENTS - The money you give us to buy the contract, as well as
any additional money you give us to invest in the contract after you own
it.
QUALIFIED (CONTRACT) - A contract purchased with pretax dollars. These
contracts are generally purchased under a pension plan, specially
sponsored program or IRA.
TRUSTS - Refers to the Anchor Series Trust, the American Funds Insurance
Series, the SunAmerica Series Trust, Lord Abbett Series Fund, Inc.,
Nations Separate Account Trust, Van Kampen Life Investment Trust and WM
Variable Trust collectively.
VARIABLE PORTFOLIO(S) - The variable investment options available under
the contract. Each Variable Portfolio has its own investment objective
and is invested in the underlying investments of the Anchor Series Trust,
the American Funds Insurance Series, the SunAmerica Series Trust, Lord
Abbett Series Fund, Inc., Nations Separate Account Trust, Van Kampen Life
Investment Trust or the WM Variable Trust. The underlying investment
portfolio may be referred to as Underlying Funds.
</Table>
3
- ----------------------------------------------------------------
- ----------------------------------------------------------------
HIGHLIGHTS
- ----------------------------------------------------------------
- ----------------------------------------------------------------
The Polaris Platinum(II) Variable Annuity is a contract between you and AIG
SunAmerica Life Assurance Company ("AIG SunAmerica Life"). It is designed to
help you invest on a tax-deferred basis and meet long-term financial goals.
There are minimum Purchase Payment amounts required to purchase a contract.
Purchase Payments may be invested in a variety of variable and fixed account
options. You may also elect to participate in the Polaris Rewards Program of the
contract that can provide you with Payment Enhancements to invest in your
contract. If you elect participation in this feature, your contract will be
subject to a longer surrender charge schedule. 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. If you elected to participate in the Polaris Rewards Program,
you receive any gain and we bear any loss on any Payment Enhancement(s) if you
decide to cancel your contract during the free look period. Please see
PURCHASING A POLARIS PLATINUM(II) Variable Annuity in the prospectus.
EXPENSES: There are fees and charges associated with the contract. Each year, we
deduct a $35 contract maintenance fee from your contract, which may be waived
for contracts of $50,000 or more. We also deduct separate account charges, which
equal 1.52% annually of the average daily value of your contract allocated to
the Variable Portfolios. There are investment charges on amounts invested in the
Variable Portfolios. If you elect optional features available under the contract
we may charge additional fees for 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, or nine complete years if you participate in the Polaris Rewards
Program, withdrawal charges no longer apply to that portion of the Purchase
Payment. Please see the FEE TABLE, PURCHASING A POLARIS PLATINUM(II) Variable
Annuity and EXPENSES in the prospectus.
ACCESS TO YOUR MONEY: You may withdraw money from your contract during the
Accumulation Phase. If you do so, earnings are deemed to be withdrawn first. You
will pay income taxes on earnings and untaxed contributions when you withdraw
them. Payments received during the Income Phase are considered partly a return
of your original investment. A federal tax penalty may apply if you make
withdrawals before age 59 1/2. As noted above, a withdrawal charge may apply.
Please see ACCESS TO YOUR MONEY and TAXES in the prospectus.
DEATH BENEFIT: A death benefit feature is available under the contract to
protect your Beneficiaries in the event of your death during the Accumulation
Phase. Please see DEATH BENEFITS in the prospectus.
INCOME OPTIONS: When you are ready to begin taking income, you can choose to
receive income payments on a variable basis, fixed basis or a combination of
both. You may also chose from five different income options, including an option
for income that you cannot outlive. Please see INCOME OPTIONS in the prospectus.
INQUIRIES: If you have questions about your contract call your financial
representative or contact us at AIG SunAmerica Life Assurance Company Annuity
Service Center P.O. Box 54299 Los Angeles, California 90054-0299. Telephone
Number: (800) 445-SUN2.
AIG SUNAMERICA LIFE OFFERS SEVERAL DIFFERENT VARIABLE ANNUITY PRODUCTS TO MEET
THE DIVERSE NEEDS OF OUR INVESTORS. EACH PRODUCT MAY PROVIDE DIFFERENT FEATURES
AND BENEFITS OFFERED AT DIFFERENT FEES, CHARGES AND EXPENSES. WE ALSO OFFER
PRODUCTS THAT DO NOT OFFER THE POLARIS REWARDS FEATURE. PRODUCTS WITHOUT THE
POLARIS REWARDS PROGRAM HAVE THE SAME MORTALITY AND EXPENSE RISK CHARGES AS THE
SAME CONTRACT WITH THE POLARIS REWARDS PROGRAM. HOWEVER, CONTRACTS WITHOUT THE
POLARIS REWARDS PROGRAM HAVE A SHORTER AND LOWER SURRENDER CHARGE SCHEDULE. WHEN
WORKING WITH YOUR FINANCIAL REPRESENTATIVE TO DETERMINE THE BEST PRODUCT TO MEET
YOUR NEEDS YOU SHOULD CONSIDER, AMONG OTHER THINGS, WHETHER THE FEATURES OF THIS
CONTRACT AND THE RELATED FEES PROVIDE THE MOST APPROPRIATE PACKAGE TO HELP YOU
MEET YOUR LONG-TERM RETIREMENT SAVINGS GOALS.
PLEASE READ THE PROSPECTUS CAREFULLY FOR MORE DETAILED INFORMATION REGARDING
THESEAND OTHER FEATURES AND BENEFITS OF THE CONTRACT, AS WELL AS THE RISKS OF
INVESTING.
4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEE TABLES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY AT THE TIME THAT
YOU BUY THE CONTRACT, TRANSFER CASH VALUE BETWEEN INVESTMENT OPTIONS OR
SURRENDER THE CONTRACT. IF APPLICABLE, YOU MAY ALSO BE SUBJECT TO STATE PREMIUM
TAXES.
MAXIMUM OWNER TRANSACTION EXPENSES
MAXIMUM WITHDRAWAL CHARGES (AS A PERCENTAGE OF EACH PURCHASE PAYMENT)(1)
<Table>
If Polaris Rewards is elected............................... 9%
If Polaris Rewards is not elected........................... 7%
</Table>
<Table>
TRANSFER FEE.......... No charge for the first 15 transfers each
contract year; thereafter, the fee is $25
($10 in Pennsylvania and Texas) per
transfer
</Table>
THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY PERIODICALLY
DURING THE TIME THAT YOU OWN THE CONTRACT, NOT INCLUDING UNDERLYING PORTFOLIO
FEES AND EXPENSES WHICH ARE OUTLINED IN THE NEXT SECTION.
CONTRACT MAINTENANCE FEE
$35 ($30 in North Dakota) waived if contract value $50,000 or more
SEPARATE ACCOUNT ANNUAL EXPENSES
(DEDUCTED DAILY AS A PERCENTAGE OF YOUR AVERAGE DAILY NET ASSET VALUE)
<Table>
Mortality and Expense Risk Fees....................... 1.37%
Distribution Expense Fee.............................. 0.15%
Optional EstatePlus Fee(2)............................ 0.25%
=====
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES.............. 1.77%
</Table>
ADDITIONAL OPTIONAL FEATURE FEE
You may elect one of the following optional features: Polaris Income Reward
or Capital Protector described below.
OPTIONAL POLARIS INCOME REWARDS FEE
<Table>
<Caption>
TIME ELAPSED SINCE BENEFIT EFFECTIVE DATE ANNUALIZED FEE(3)
----------------------------------------- -----------------
Years 0-7.......................................... 0.65%
Years 8+........................................... 0.45%
</Table>
OPTIONAL CAPITAL PROTECTOR FEE
<Table>
<Caption>
CONTRACT YEAR ANNUALIZED FEE(4)
------------- -----------------
0-7................................................ 0.60%
8-10............................................... 0.20%
11+................................................ none
</Table>
FOOTNOTES TO THE FEE TABLES:
(1) Withdrawal Charge Schedule (as a percentage of each Purchase Payment)
declines over 7 or 9 years as follows
<Table>
YEARS:...................................................... 1 2 3 4 5 6 7 8 9 10+
Non-Polaris Rewards......................................... 7% 6% 5% 4% 3% 2% 1% 0% 0% 0%
Polaris Rewards............................................. 9% 9% 8% 7% 6% 5% 4% 3% 2% 0%
</Table>
(2) EstatePlus, an enhanced death benefit feature is optional. If you do not
elect the EstatePlus feature, your total separate account annual expenses
would be 1.52%.
(3) The Polaris Income Rewards feature is optional and if elected, the fee is
generally calculated as a percentage of your Purchase Payments received in
the first 90 days less proportionate withdrawals. The fee is deducted from
your contract at the end of the first quarter following election and
quarterly thereafter.
(4) The Capital Protector feature is optional and if elected, the fee is
calculated as a percentage of your contract value minus Purchase Payments
received after the 90th day since you purchased your contract. The fee is
deducted from your contract value at the end of the first contract quarter
and quarterly thereafter.
THE FOLLOWING SHOWS THE MINIMUM AND MAXIMUM TOTAL OPERATING EXPENSES CHARGED BY
THE UNDERLYING PORTFOLIOS OF THE TRUSTS BEFORE ANY WAIVERS OR REIMBURSEMENTS
THAT YOU PAY PERIODICALLY DURING THE TIME YOU OWN THE CONTRACT. MORE DETAIL
CONCERNING THE TRUSTS' FEES AND EXPENSES IS CONTAINED IN THE PROSPECTUS FOR EACH
OF THE TRUSTS. PLEASE READ THEM CAREFULLY BEFORE INVESTING.
PORTFOLIO EXPENSES
<Table>
<Caption>
TOTAL ANNUAL UNDERLYING PORTFOLIO EXPENSES MINIMUM MAXIMUM
------------------------------------------ ------- -------
(expenses that are deducted from underlying portfolios of
the Trusts, including management fees, other expenses and
12b-1 fees, if applicable).................................. 0.59% 1.90%
</Table>
5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MAXIMUM AND MINIMUM EXPENSE EXAMPLES
IF YOU ELECT POLARIS REWARDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
These Examples are intended to help you compare the cost of investing in the
contract with the cost of investing in other variable annuity contracts. These
costs include owner transaction expenses, the contract maintenance fee, separate
account annual expenses, fees for optional features and expenses of the
underlying portfolios of the Trusts.
The Examples assume that you invest $10,000 in the contract for the time periods
indicated; that your investment has a 5% return each year; and that the maximum
and minimum fees and expenses of the underlying portfolios of the Trusts are
reflected. Although your actual costs may be higher or lower, based on these
assumptions, your costs at the end of the stated period would be:
MAXIMUM EXPENSE EXAMPLES
(ASSUMING MAXIMUM SEPARATE ACCOUNT ANNUAL EXPENSES OF 1.77% AND INVESTMENT IN AN
UNDERLYING PORTFOLIO WITH TOTAL EXPENSES OF 1.90%)
(1) If you surrender your contract at the end of the applicable time period and
you elect the optional EstatePlus (0.25%) and Polaris Income Rewards (0.65%
for years 0-7 and 0.45% for years 8+) features:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$1,347 $2,150 $2,864 $4,540
- -------------------------------------
- -------------------------------------
</Table>
(2) If you annuitize your contract at the end of the applicable time period:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$345 $1,051 $1,779 $3,703
- -------------------------------------
- -------------------------------------
</Table>
(3) If you do not surrender your contract and you elect the optional EstatePlus
(0.25%) and Polaris Income Rewards (0.65% for years 0-7 and 0.45% for years
8+) features:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$447 $1,350 $2,264 $4,540
- -------------------------------------
- -------------------------------------
</Table>
MINIMUM EXPENSE EXAMPLES
(ASSUMING MINIMUM SEPARATE ACCOUNT ANNUAL CHARGES OF 1.52% AND INVESTMENT IN AN
UNDERLYING PORTFOLIO WITH TOTAL EXPENSES OF 0.59%)
(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
- -------------------------------------
- -------------------------------------
$1,123 $1,490 $1,783 $2,543
- -------------------------------------
- -------------------------------------
</Table>
(2) If you annuitize your contract at the end of the applicable time period:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$214 $661 $1,134 $2,441
- -------------------------------------
- -------------------------------------
</Table>
(3) 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
- -------------------------------------
- -------------------------------------
$223 $690 $1,183 $2,543
- -------------------------------------
- -------------------------------------
</Table>
6
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MAXIMUM AND MINIMUM EXPENSE EXAMPLES
IF YOU DO NOT ELECT POLARIS REWARDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
These Examples are intended to help you compare the cost of investing in the
contract with the cost of investing in other variable annuity contracts. These
costs include owner transaction expenses, the contract maintenance fee, separate
account annual expenses, fees for optional features and expenses of the
underlying portfolios of the Trusts.
The Examples assume that you invest $10,000 in the contract for the time periods
indicated; that your investment has a 5% return each year; and that the maximum
and minimum fees and expenses of the underlying portfolios of the Trusts are
reflected. Although your actual costs may be higher or lower, based on these
assumptions, your costs at the end of the stated period would be:
MAXIMUM EXPENSE EXAMPLES
(ASSUMING MAXIMUM SEPARATE ACCOUNT ANNUAL EXPENSES OF 1.77% AND INVESTMENT IN AN
UNDERLYING PORTFOLIO WITH TOTAL EXPENSES OF 1.90%)
(1) If you surrender your contract at the end of the applicable time period and
you elect the optional EstatePlus (0.25%) and Polaris Income Rewards (0.65%
for years 0-7 and 0.45% for years 8+) features:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$1,138 $1,823 $2,520 $4,451
- -------------------------------------
- -------------------------------------
</Table>
(2) If you annuitize your contract at the end of the applicable time period:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$345 $1,051 $1,779 $3,703
- -------------------------------------
- -------------------------------------
</Table>
(3) If you do not surrender your contract and you elect the optional EstatePlus
(0.25%) and Polaris Income Rewards (0.65% for years 0-7 and 0.45% for years
8+) features:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$438 $1,323 $2,220 $4,451
- -------------------------------------
- -------------------------------------
</Table>
MINIMUM EXPENSE EXAMPLES
(ASSUMING MINIMUM SEPARATE ACCOUNT ANNUAL CHARGES OF 1.52% AND INVESTMENT IN AN
UNDERLYING PORTFOLIO WITH TOTAL EXPENSES OF 0.59%)
(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
- -------------------------------------
- -------------------------------------
$919 $1,176 $1,459 $2,493
- -------------------------------------
- -------------------------------------
</Table>
(2) If you annuitize your contract at the end of the applicable time period:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$214 $661 $1,134 $2,441
- -------------------------------------
- -------------------------------------
</Table>
(3) 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
- -------------------------------------
- -------------------------------------
$219 $676 $1,159 $2,493
- -------------------------------------
- -------------------------------------
</Table>
7
EXPLANATION OF FEE TABLES AND EXAMPLES
1. The purpose of the Fee Tables is to show you the various expenses you would
incur directly and indirectly by investing in the contract. We converted the
contract maintenance fee to a percentage (0.05%). The actual impact of the
contract maintenance fee may differ from this percentage and may be waived
for contract values over $50,000. Additional information on the portfolio
company fees can be found in the accompanying Trust prospectuses.
2. In addition to the stated assumptions, the Examples also assume separate
account expenses as indicated and that no transfer fees were imposed.
Although premium taxes may apply in certain states, they are not reflected
in the Examples.
3. Examples reflecting participation in the Polaris Rewards program reflect the
Polaris Rewards surrender charge schedule, and a 2% upfront payment
enhancement.
4. Examples reflecting application of optional features and benefits use the
highest fees and charges at which those features are being offered. If you
elected the Capital Protector program, your expenses would be lower than
those shown in these tables. The fee for the Polaris Income Rewards, and
Capital Protector features are not calculated as a percentage of your daily
net asset value but on other calculations more fully described in the
prospectus.
5. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
CONDENSED FINANCIAL INFORMATION APPEARS IN APPENDIX A OF THIS PROSPECTUS.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
THE POLARIS PLATINUM II
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: This means that you do not pay taxes on your earnings from
the annuity until you withdraw them.
- Death Benefit: If you die during the Accumulation Phase, the insurance
company pays a death benefit to your Beneficiary.
- Guaranteed Income: If elected, you receive a stream of income for your
lifetime, or another available period you select.
Tax-qualified retirement plans (e.g., IRAs, 401(k) or 403(b) plans) defer
payment of taxes on earnings until withdrawal. If you are considering funding a
tax-qualified retirement plan with an annuity, you should know that an annuity
does not provide any additional tax deferral treatment of earnings beyond the
treatment provided by the tax-qualified retirement plan itself. However,
annuities do provide other features and benefits which may be valuable to you.
You should fully discuss this decision with your financial representative.
This annuity was developed to help you contribute to your retirement savings.
This annuity works in two stages, the Accumulation Phase and the Income Phase.
Your contract is in the Accumulation Phase during the period when you make
payments into the contract. The Income Phase begins when you request us to start
making income payments to you out of the money accumulated in your contract.
The contract is called a "variable" annuity because it allows you to invest in
Variable Portfolios which, like mutual funds, have different investment
objectives and performance which varies. You can gain or lose money if you
invest in these Variable Portfolios. The amount of money you accumulate in your
contract depends on the performance of the Variable Portfolios in which you
invest.
Fixed account options earn interest at a rate set and guaranteed by AIG
SunAmerica Life. If you allocate money to the fixed account options, the amount
of money that accumulates in the contract depends on the total interest credited
to the particular fixed account option(s) in which you invest.
For more information on investment options available under this contract SEE
INVESTMENT OPTIONS BELOW.
This annuity is designed to assist in contributing to retirement savings of
investors whose personal circumstances allow for a long-term investment time
horizon. As a function of the Internal Revenue Code ("IRC"), you may be assessed
a 10% federal tax penalty on any withdrawal made prior to your reaching age
59 1/2. Additionally, this contract provides that you will be charged a
withdrawal charge on each Purchase Payment withdrawn if that Purchase Payment
has not been invested in this contract for at least 7 years, or 9 years if you
elect to participate in the Polaris Rewards Program. Because of these potential
penalties, you should fully discuss all of the benefits and risks of this
contract with your financial representative prior to purchase.
AIG SunAmerica Life issues the Polaris Platinum(II) Variable Annuity. When you
purchase a Polaris Platinum(II) Variable Annuity, a contract exists between you
and AIG SunAmerica Life. The Company is a stock life insurance company organized
under the laws of the state of Arizona. Its principal place of business is 1
SunAmerica Center, Los Angeles, California 90067. The Company conducts life
insurance and annuity business in the District of Columbia and all states except
New York. AIG SunAmerica Life is an indirect, wholly owned subsidiary of
American International Group, Inc. ("AIG"), a Delaware corporation.
8
- ----------------------------------------------------------------
- ----------------------------------------------------------------
PURCHASING A POLARIS PLATINUM II
VARIABLE ANNUITY
- ----------------------------------------------------------------
- ----------------------------------------------------------------
An initial Purchase Payment is the money you give us to buy a contract. Any
additional money you give us to invest in the contract after purchase is a
subsequent Purchase Payment.
The following chart shows the minimum initial and subsequent Purchase Payments
permitted under your contract. These amounts depend upon whether a contract is
Qualified or Non-qualified for tax purposes. FOR FURTHER EXPLANATION, SEE TAXES
BELOW.
<Table>
<Caption>
- -----------------------------------------------------------
Minimum
Minimum Initial Subsequent
Purchase Payment Purchase Payment
- -----------------------------------------------------------
Qualified $2,000 $250
- -----------------------------------------------------------
Non-Qualified $5,000 $500
- -----------------------------------------------------------
</Table>
We reserve the right to require company approval prior to accepting Purchase
Payments greater than $1,000,000. For contracts owned by a non-natural owner, we
reserve the right to require prior Company approval to accept Purchase Payments
greater than $250,000. Subsequent Purchase Payments that would cause total
Purchase Payments in all contracts issued by AIG SunAmerica Life and First
SunAmerica Life Insurance Company an affiliate of AIG SunAmerica Life, to the
same owner to exceed these limits may also be subject to company pre-approval.
For any contracts subject to these dollar amount reservations, we further
reserve the right to limit the death benefit amount payable in excess of
contract value at the time we receive all required paperwork and satisfactory
proof of death. Any limit on the maximum death benefit payable would be mutually
agreed upon by you and the Company prior to purchasing the contract. We reserve
the right to change the amount at which pre-approval is required at any time.
Once you have contributed at least the minimum initial Purchase Payment, you can
establish an automatic payment plan that allows you to make subsequent Purchase
Payments of as little as $100.
In addition, we may not issue a contract to anyone age 86 or older on the
contract issue date. You may not elect to participate in the Polaris Rewards
Program or elect the EstatePlus benefit if you are age 81 or older at the time
of contract issue. In general, we will not issue a Qualified contract to anyone
who is age 70 1/2 or older, unless it is shown that the minimum distribution
required by the IRS is being made.
We allow spouses to jointly own this contract. However, the age of the older
spouse is used to determine the availability of any age driven benefits. The
addition of a joint owner after the contract has been issued is contingent upon
prior review and approval by the Company. If we learn of a misstatement of age,
we reserve the right to fully pursue our remedies including termination of the
contract and/or revocation of any age-driven benefit.
You may assign this contract before beginning the Income Phase by sending us a
written request for an assignment. Your rights and those of any other person
with rights under this contract will be subject to the assignment. WE RESERVE
THE RIGHT TO NOT RECOGNIZE ASSIGNMENTS IF IT CHANGES THE RISK PROFILE OF THE
OWNER OF THE CONTRACT, AS DETERMINED IN OUR SOLE DISCRETION. Please see the
Statement of Additional Information for details on the tax consequences of an
assignment.
ALLOCATION OF PURCHASE PAYMENTS
We invest your Purchase Payments in the fixed and variable investment options
according to your instructions. If we receive a Purchase Payment without
allocation instructions, we will invest the money according to your last
allocation instructions. SEE INVESTMENT OPTIONS BELOW.
In order to issue your contract, we must receive your completed application
and/or Purchase Payment allocation instructions and any other required paperwork
at our 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.
POLARIS REWARDS PROGRAM
If you elect to participate in the Polaris Rewards program at contract issue, we
contribute an Upfront Payment Enhancement and, if applicable, a Deferred Payment
Enhancement to your contract in conjunction with each Purchase Payment you
invest during the life of your contract. If you elect to participate in this
program, all Purchase Payments are subject to a nine year withdrawal charge
schedule. SEE WITHDRAWAL CHARGES BELOW. These withdrawal charges may offset the
value of any bonus, if you make an early withdrawal. SEE EXPENSES BELOW. You may
not elect to participate in this program if you are age 81 or older at the time
of contract issue. Amounts we contribute to your contract under this program are
considered earnings and are allocated to your contract as described below.
Purchase Payments may not be invested in the available Dollar Cost Averaging
fixed accounts if you participate in the Polaris Rewards Program. However, you
may use other available fixed account options as a Dollar Cost Averaging source
account.
There may be scenarios in which due to negative market conditions and your
inability to remain invested over the long-
9
term, a contract with the Polaris Rewards program may not perform as well as the
contract without the feature.
ENHANCEMENT LEVELS
The Upfront Payment Enhancement Rate, Deferred Payment Enhancement Rate and
Deferred Payment Enhancement Date may be determined based on stated
Enhancement Levels. Each Enhancement Level is a range of dollar amounts
which may correspond to different enhancement rates and dates. Enhancement
Levels may change from time to time, at our sole discretion. The
Enhancement Level applicable to your initial Purchase Payment is determined
by the amount of that initial Purchase Payment. With respect to any
subsequent Purchase Payments we determine your Enhancement Level by adding
your contract value on the date we receive each subsequent Purchase Payment
plus the amount of the subsequent Purchase Payment.
UPFRONT PAYMENT ENHANCEMENT
An Upfront Payment Enhancement is an amount we add to your contract on the
day we receive a Purchase Payment. We calculate an Upfront Payment
Enhancement amount as a percentage (the "Upfront Payment Enhancement Rate")
of each Purchase Payment. The Upfront Payment Enhancement Rate will always
be at least 2%. We periodically review and establish the Upfront Payment
Enhancement Rate, which may increase or decrease at any time, but will
never be less than 2%. The applicable Upfront Payment Enhancement Rate is
that which is in effect for any applicable Enhancement Level, when we
receive each Purchase Payment under your contract. The Upfront Payment
Enhancement amounts are allocated among the fixed and variable investment
options according to the current allocation instructions in effect when we
receive each Purchase Payment.
DEFERRED PAYMENT ENHANCEMENT
A Deferred Payment Enhancement is an amount we may add to your contract on
a stated future date (the "Deferred Payment Enhancement Date") as a
percentage of Purchase Payments received. We refer to this percentage
amount as the Deferred Payment Enhancement Rate. We periodically review and
establish the Deferred Payment Enhancement Rates and Deferred Payment
Enhancement Dates. The Deferred Payment Enhancement Rate being offered may
increase, decrease or be eliminated by us, at any time. The Deferred
Payment Enhancement Date, if applicable, may change at any time. The
applicable Deferred Payment Enhancement Date and Deferred Payment
Enhancement Rate are those which may be in effect for any applicable
Enhancement Level, when we receive each Purchase Payment under your
contract. Any applicable Deferred Payment Enhancement, when credited, is
allocated to the Cash Management Variable Portfolio.
If you withdraw any portion of a Purchase Payment, to which a Deferred
Payment Enhancement applies, prior to the Deferred Payment Enhancement
Date, we reduce the amount of the corresponding Deferred Payment
Enhancement in the same proportion that your withdrawal (and any fees and
charges associated with such withdrawals) reduces that Purchase Payment.
For purposes of the Deferred Payment Enhancement, withdrawals are assumed
to be taken from earnings first, then from Purchase Payments, on a
first-in-first-out basis.
CURRENT ENHANCEMENT LEVELS
The Enhancement Levels, Upfront Payment Enhancement Rate, Deferred Payment
Enhancement Rate and Deferred Payment Enhancement Date applicable to all
Purchase Payments currently are as follows:
<Table>
<Caption>
- ----------------------------------------------------------------------
UPFRONT DEFERRED DEFERRED
PAYMENT PAYMENT PAYMENT
ENHANCEMENT ENHANCEMENT ENHANCEMENT ENHANCEMENT
LEVEL RATE RATE DATE
- ----------------------------------------------------------------------
Under $40,000 2% 0% N/A
- ----------------------------------------------------------------------
$40,000 - $99,999 4% 0% N/A
- ----------------------------------------------------------------------
$100,000 - $499,999 4% 1% Nine years from the
date we receive each
Purchase Payment.
- ----------------------------------------------------------------------
$500,000 - more 5% 1% Nine years from the
date we receive each
Purchase Payment.
- ----------------------------------------------------------------------
</Table>
APPENDIX E shows how we calculate any applicable Deferred Payment Enhancement
amount.
We will not allocate any applicable Deferred Payment Enhancement to your
contract if any of the following circumstances occurs prior to the Deferred
Payment Enhancement Date:
- You surrender your contract;
- A death benefit is paid on your contract;
- You switch to the Income Phase of your contract; or
- You fully withdraw the corresponding Purchase Payment.
See your financial representative for information on the current Enhancement
Levels and Payment Enhancements rates.
90 DAY WINDOW
As of the 90th day after your contract was issued, we will total your
Purchase Payments made over those 90 days, without considering any
investment gain or loss in contract value on those Purchase Payments. If
your
10
total Purchase Payments bring you to an Enhancement Level which, as of the
date we issued your contract, would have provided for a higher Upfront
and/or Deferred Payment Enhancement Rate on each Purchase Payment, you will
get the benefit of the Enhancement Rate(s) that were applicable to that
higher Enhancement Level at the time your contract was issued ("Look Back
Adjustment"). We will add any applicable Upfront Look Back Adjustment to
your contract on the 90th day following the date of contract issue. We will
send you a confirmation indicating any applicable Upfront and/or Deferred
Look Back Adjustment, on or about the 90th day following the date of
contract issuance. We will allocate any applicable Upfront Look Back
Adjustment according to your then-current allocation instructions on file
for subsequent Purchase Payments at the time we make the contribution and
if applicable, to the Cash Management Portfolio, for a Deferred Look Back
Adjustment.
APPENDIX E BELOW PROVIDES AN EXAMPLE OF THE 90 DAY WINDOW PROVISION.
The Polaris Rewards Program may not be available in your state or through the
broker-dealer with which your financial representative is affiliated. Please
check with your financial representative regarding the availability of this
program.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE POLARIS REWARDS PROGRAM
(IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME.
ACCUMULATION UNITS
When you allocate a Purchase Payment to the Variable Portfolios, we credit your
contract with Accumulation Units of the separate account. We base the number of
Accumulation Units you receive on the unit value of the Variable Portfolio as of
the day we receive your money if we receive it before 1 p.m. Pacific Standard
Time, or on the next business day's unit value if we receive your money after 1
p.m. Pacific Standard Time. The value of an Accumulation Unit goes up and down
based on the performance of the Variable Portfolios.
We calculate the value of an Accumulation Unit each day that the New York Stock
Exchange ("NYSE") is open as follows:
1. We determine the total value of money invested in a particular Variable
Portfolio;
2. We subtract from that amount all applicable contract charges; and
3. We divide this amount by the number of outstanding Accumulation Units.
We determine the number of Accumulation Units credited to your contract by
dividing the Purchase Payment and Payment Enhancement, if applicable, by the
Accumulation Unit value for the specific Variable Portfolio.
EXAMPLE (CONTRACTS WITHOUT POLARIS REWARDS):
We receive a $25,000 Purchase Payment from you on Wednesday. You allocate
the money to the Global Bond Portfolio. We determine that the value of an
Accumulation Unit for the Global Bond Portfolio is $11.10 when the NYSE
closes on Wednesday. We then divide $25,000 by $11.10 and credit your
contract on Wednesday night with 2252.2523 Accumulation Units for the
Global Bond Portfolio.
EXAMPLE (CONTRACTS WITH POLARIS REWARDS):
We receive a $25,000 Purchase Payment from you on Wednesday. You allocate
the money to the Global Bond Portfolio. If the Upfront Payment Enhancement
is 2.00% of your Purchase Payment, we would add an Upfront Payment
Enhancement of $500 to your contract. We determine that the value of an
Accumulation Unit for the Global Bond Portfolio is $11.10 when the NYSE
closes on Wednesday. We then divide $25,500 by $11.10 and credit your
contract on Wednesday with 2,297.2973 Accumulation Units for the Global
Bond Portfolio.
Performance of the Variable Portfolios and expenses under your contract affect
Accumulation Unit values. These factors cause the value of your contract to go
up and down.
FREE LOOK
You may cancel your contract within ten days after receiving it (or longer if
required by state law). We call this a "free look." To cancel, you must mail the
contract along with your free look request to our Annuity Service Center at P.O.
Box 54299, Los Angeles, California 90054-0299.
If you decide to cancel your contract during the free look period, generally we
will refund to you the value of your contract on the day we receive your request
minus the Free Look Payment Enhancement Deduction, if applicable. The Free Look
Payment Enhancement Deduction is equal to the lesser of (1) the value of any
Payment Enhancement(s) on the day we receive your free look request; or (2) the
Payment Enhancement amount(s), if any, which we allocated to your contract.
Thus, you receive any gain and we bear any loss on any Payment Enhancement(s) if
you decide to cancel your contract during the free look period.
Certain states require us to return your Purchase Payments upon a free look
request. Additionally, all contracts issued as an IRA require the full return of
Purchase Payments upon a free look. With respect to those contracts, we reserve
the right to put your money in the Cash Management Portfolio during the free
look period and will allocate your money according to your instructions at the
end of the applicable free look period. Currently, we do not put your money in
the Cash Management Portfolio during the free look period unless you allocate
your
11
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 minus the Free Look Payment Enhancement Deduction, if applicable.
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
- ----------------------------------------------------------------
- ----------------------------------------------------------------
VARIABLE PORTFOLIOS
The Variable Portfolios invest in shares of the following trusts: Anchor Series
Trust, American Funds Insurance Series, Lord Abbett Series Fund, Inc., Nations
Separate Account Trust, SunAmerica Series Trust, Van Kampen Life Investment
Trust and the WM Variable Trust (the "Trusts"). Additional Trusts and/or
Variable Portfolios may be available in the future. The Variable Portfolios are
only available through the purchase of certain insurance contracts. Other
Variable Portfolios may be available to you. Please refer to your contract for
additional information.
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 its Trust for potential conflicts.
The Variable Portfolios along with their respective subadvisers are listed
below:
AMERICAN FUNDS INSURANCE SERIES -- CLASS 2
Capital Research and Management Company provides investment advice for the
American Funds Insurance Series -- Class 2 shares ("AFIS") portfolios. American
Funds Insurance Series contains investment portfolios in addition to those
listed here that are not available for investment under this contract.
ANCHOR SERIES TRUST -- CLASS 3
Wellington Management Company, LLP serves as subadviser to the Anchor Series
Trust portfolios. Anchor Series Trust ("AST") contains investment portfolios in
addition to those listed below which are not available for investment under this
contract.
LORD ABBETT SERIES FUND, INC. -- CLASS VC
Lord Abbett & Co. provides investment advice for the Lord Abbett Series Fund,
Inc. portfolios. Lord Abbett Series Fund, Inc. ("LASF") contains investment
portfolios in addition to those listed below that are not available for
investment under this contract.
NATIONS SEPARATE ACCOUNT TRUST
Various subadvisers provide investment advice for the Nations Separate Account
Trust ("NSAT") portfolios. Nations Separate Account Trust has investment
portfolios in addition to those listed below, which are not available for
investment under the contract.
SUNAMERICA SERIES TRUST -- CLASS 3
Various subadvisers provide investment advice for the SunAmerica Series Trust
portfolios. SunAmerica Series Trust ("SAST") contains investment portfolios in
addition to those listed below which are not available for investment under this
contract.
VAN KAMPEN LIFE INVESTMENT TRUST -- CLASS II
Van Kampen Asset Management Inc. provides investment advice for the Van Kampen
Life Investment Trust ("VKT"). Van Kampen Life Investment Trust has investment
portfolios in addition to those listed here which are not available for
investment under the contract.
WM VARIABLE TRUST -- CLASS 2
WM Advisors, Inc. is the investment advisor to the WM Variable Trust ("WMT")
portfolios. WMT has other investment portfolios in addition to those listed
below which are not available for investment under the contract.
STOCKS:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio SAST
- Blue Chip Growth Portfolio SAST
- "Dogs" of Wall Street Portfolio* SAST
- Growth Opportunities Portfolio SAST
MANAGED BY ALLIANCEBERNSTEIN
- Small & Mid Cap Value Portfolio SAST
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
- Alliance Growth Portfolio SAST
- Global Equities Portfolio SAST
- Growth-Income Portfolio SAST
MANAGED BY BANC OF AMERICA CAPITAL MANAGEMENT, LLC
- Nations MidCap Growth Portfolio NSAT
- Nations Small Company Portfolio NSAT
- Nations Value Portfolio NSAT
12
MANAGED BY CAPITAL RESEARCH AND MANAGEMENT COMPANY
- American Funds Global Growth Portfolio AFIS
- American Funds Growth Portfolio AFIS
- American Funds Growth-Income Portfolio AFIS
MANAGED BY DAVIS ADVISORS
- Davis Venture Value Portfolio SAST
- Real Estate Portfolio SAST
MANAGED BY FEDERATED EQUITY MANAGEMENT COMPANY
- Federated American Leaders Portfolio* SAST
MANAGED BY LORD, ABBETT & CO.
- Lord Abbett Series Fund Growth and Income Portfolio LASF
MANAGED BY MARSICO CAPITAL MANAGEMENT, LLC
- Marsico Growth Portfolio SAST
- Nations Marsico 21st Century Portfolio NSAT
- Nations Marsico Focused Equities Portfolio NSAT
- Nations Marsico Growth Portfolio NSAT
- Nations Marsico International Opportunities Portfolio NSAT
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Massachusetts Investors Trust Portfolio SAST
- MFS Mid Cap Growth Portfolio SAST
MANAGED BY PUTNAM INVESTMENT MANAGEMENT INC
- Emerging Markets Portfolio SAST
- International Growth and Income Portfolio SAST
- Putnam Growth: Voyager Portfolio SAST
MANAGED BY TEMPLETON INVESTMENT COUNSEL, LLC
- Foreign Value Portfolio SAST
MANAGED BY VAN KAMPEN/VAN KAMPEN ASSET MANAGEMENT
- International Diversified Equities Portfolio+ SAST
- Technology Portfolio+ SAST
- Van Kampen LIT Comstock Portfolio, Class II Shares* VKT
- Van Kampen LIT Emerging Growth Portfolio, Class II Shares VKT
- Van Kampen LIT Growth and Income Portfolio, Class II Shares VKT
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio AST
- Growth Portfolio AST
- Natural Resources Portfolio AST
BALANCED:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- SunAmerica Balanced Portfolio SAST
MANAGED BY BANC OF AMERICA CAPITAL MANAGEMENT, LLC
- Nations Asset Allocation Portfolio NSAT
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Total Return Portfolio SAST
MANAGED BY WM ADVISORS, INC
- Balanced Portfolio WMT
- Conservative Growth Portfolio WMT
- Strategic Growth Portfolio WMT
BONDS:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- High-Yield Bond Portfolio SAST
MANAGED BY FEDERATED INVESTMENT MANAGEMENT
- Corporate Bond Portfolio SAST
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT INT'L
- Global Bond Portfolio SAST
MANAGED BY MACKAY SHIELDS LLC
- Nations High Yield Bond Portfolio NSAT
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Government & Quality Bond Portfolio AST
CASH:
MANAGED BY BANC OF AMERICA CAPITAL MANAGEMENT, LLC
- Cash Management Portfolio SAST
*"Dogs" of Wall Street is an equity fund seeking total return. Federated
American Leaders is an equity fund seeking growth of capital and income. Van
Kampen LIT Comstock is an equity fund seeking capital growth and income.
+ Morgan Stanley Investment Management, Inc., the subadviser for these
portfolios, does business in certain instances using the name Van Kampen.
YOU SHOULD READ THE ACCOMPANYING PROSPECTUSES FOR THE TRUSTS CAREFULLY. THESE
PROSPECTUSES CONTAIN DETAILED INFORMATION ABOUT THE VARIABLE PORTFOLIOS,
INCLUDING EACH VARIABLE PORTFOLIO'S INVESTMENT OBJECTIVE AND RISK FACTORS.
FIXED ACCOUNT OPTIONS
Your contract may offer Fixed Account Guarantee Periods ("FAGP") to which you
may allocate certain Purchase Payments or contract value. Available guarantee
periods may be for different lengths of time (such as 1, 3 or 5 years) and may
have different guaranteed interest rates, as noted below. We guarantee the
interest rate credited to amounts allocated to any available FAGP and that the
rate will never be less than the minimum guaranteed interest rate as specified
in your contract. Once established, the rates for specified payments do not
change during the guarantee period. We determine the FAGPs offered at any time
in our sole discretion and we reserve the right to change the FAGPs that we make
available at any time, unless state law requires us to do otherwise. Please
check with your financial representative to learn if any FAGPs are currently
offered.
There are three interest rate scenarios for money allocated to the FAGPs. Each
of these rates may differ from one another. Once declared, the applicable rate
is guaranteed until the corresponding guarantee period expires. Under each
scenario your money may be credited a different rate of interest as follows:
- - Initial Rate: The rate credited to any portion of the initial Purchase Payment
allocated to a FAGP.
- - Current Rate: The rate credited to any portion of the subsequent Purchase
Payments allocated to a FAGP.
13
- - 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.
All FAGPs may not be available in all states. At anytime that we are crediting
the guaranteed minimum interest rate specified in your contract to the fixed
accounts, we reserve the right to restrict transfers and Purchase Payments into
the FAGPs. If you do not elect to participate in the Polaris Rewards program, we
may also offer the specific Dollar Cost Averaging Fixed Accounts ("DCAFA"). The
rules, restrictions and operation of the DCAFAs may differ from the standard
FAGPs described above, please see DOLLAR COST AVERAGING PROGRAM below for more
details.
DOLLAR COST AVERAGING FIXED ACCOUNTS
If you do not elect the Polaris Rewards program, you may invest initial and/or
subsequent Purchase Payments in the DCA fixed accounts ("DCAFA"), if available.
DCAFAs also credit a fixed rate of interest but are specifically designed to
facilitate a dollar cost averaging program. Interest is credited to amounts
allocated to the DCAFAs while your investment is transferred to the Variable
Portfolios over certain specified time frames. The interest rates applicable to
the DCAFA may differ from those applicable to any available FAGPs but will never
be less than the minimum annual guaranteed interest rate as specified in your
contract. However, when using a DCAFA the annual interest rate is paid on a
declining balance as you systematically transfer your investment to the Variable
Portfolios. Therefore, the actual effective yield will be less than the annual
crediting rate. We determine the DCAFAs offered at any time in our sole
discretion and we reserve the right to change to DCAFAs that we make available
at any time, unless state law requires us to do otherwise. See DOLLAR COST
AVERAGING PROGRAM below for more information.
ASSET ALLOCATION PROGRAM
PROGRAM DESCRIPTION
The asset allocation program is offered to help you diversify your investment
across various asset classes.
Each of the models is comprised of a carefully selected combination of Variable
Portfolios with allocation amongst the various asset classes based on historical
asset class performance to meet stated investment time horizons and risk
tolerances.
ENROLLING IN THE PROGRAM
You may enroll in the program by selecting the model as well as any program
options on the product application form. If you already own a policy, you must
complete and submit a program election form. You and your financial
representative determine the model most appropriate for you. You may discontinue
investment in the program at any time with a written request, telephone or
internet instructions, subject to our rules.
You may also choose to invest gradually into a model through the dollar cost
averaging program. You may only invest in one model at a time. You may invest in
investment options outside your selected model but only in those Variable
Portfolios that are not utilized in the model you selected. A transfer into or
out of one of the Variable Portfolios in your model, outside of the
specifications in the model will effectively terminate your participation in the
program.
There is no fee for participating in this program.
WITHDRAWALS
You may request withdrawals, as permitted by your contract, which will be taken
proportionately from each of the allocations in the selected model unless
otherwise instructed by you. If you choose to make a non-proportional withdrawal
from the Variable Portfolios in the model, your investment may no longer be
consistent with the model's intended objectives.
Withdrawals may be subject to a withdrawal charge. Withdrawals may be taxable
and a 10% IRS penalty may apply if you are under age 59 1/2.
KEEPING YOUR PROGRAM ON TARGET
REBALANCING
You can elect to have your contract rebalanced quarterly, semi-annually, or
annually to maintain the target asset allocation among the Variable Portfolios
of the model you selected. Only those Variable Portfolios within each model will
be rebalanced. An investment not included in the model can not be rebalanced.
ANNUAL RE-EVALUATION
Each year, on or about March 31, the allocations in every model are re-evaluated
and updated to assure that the investment objectives remain consistent. The
percentage allocations within each model may change and investment options may
be added to or deleted from a model as a result of the annual re-evaluation. We
will automatically rebalance your investment according to the re-evaluated
allocations each year on or about March 31. If you choose not to
14
participate in the re-evaluation part of this program, you must contact the
Annuity Service Center. Some broker-dealers require that you consent to the
re-evaluation each year and will not allow us to automatically rebalance your
contract in accordance with the re-evaluated models. Please check wit your
financial representative to determine the protocol for his/her firm.
IMPORTANT INFORMATION
Using an asset allocation methodology does not guarantee greater or more
consistent returns. Historical market and asset class performance may differ in
the future from the historical performance upon which the models are built.
Also, allocation to a single asset class may outperform a model, so that you
could have been better off in an investment option or options representing a
single asset class than in a model. However, such a strategy involves a greater
degree of risk because of the concentration of like securities in a single asset
class.
The models represent suggested allocations which are provided as general
guidance. You should work with your financial representative to assist you in
determining if one of the models meets your financial needs, investment time
horizon, and is consistent with your risk comfort level. Information concerning
the specific models can be obtained from your financial representative. There is
no fee to participate in the Asset Allocation program.
WE HAVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE ASSET ALLOCATION PROGRAM
AT ANY TIME.
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase you may transfer funds between the Variable
Portfolios and/or any available fixed account options. Funds already in your
contract cannot be transferred into the DCA fixed accounts. You must transfer at
least $100 per transfer. If less than $100 remains in any Variable Portfolio
after a transfer, that amount must be transferred as well. We will process any
transfer request as of the day we receive it in good order if the request is
received before the New York Stock Exchange ("NYSE") closes, generally at 1:00
p.m. Pacific Time. If the transfer request is received after the NYSE closes,
the request will be processed on the next business day.
This product is not designed for professional organizations or individuals
engaged in trading strategies that seek to benefit from short term price
fluctuations or price irregularities by making programmed transfers, frequent
transfers or transfers that are large in relation to the total assets of the
underlying portfolio in which the Variable Portfolios invest. These types of
trading strategies can be disruptive to the underlying portfolios in which the
Variable Portfolios invest and thereby potentially harmful to investors.
In connection with our efforts to control harmful trading, we may monitor your
trading activity. If we determine, in our sole discretion, that your transfer
patterns among the Variable Portfolios and/or available fixed accounts reflect a
potentially harmful trading strategy, we reserve the right to take action to
protect other investors. Such action may include, but may 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 capability in accordance with state and federal rules and regulations.
We will notify you, in writing, if we determine in our sole discretion that we
must terminate your transfer privileges. Some of the factors we may consider
when determining our transfer policies and/or other transfer restrictions may
include, but are not limited to:
- - the number of transfers made in a defined period;
- - the dollar amount of the transfer;
- - the total assets of the Variable Portfolio involved in the transfer;
- - the investment objectives of the particular Variable Portfolios involved in
your transfers; and/or
- - whether the transfer appears to be part of a pattern of transfers to take
advantage of short-term market fluctuations or market inefficiencies.
Subject to our rules, restrictions and policies, you may request transfers of
your account value between the Variable Portfolios and/or the available fixed
account options by telephone or through AIG SunAmerica's website
(http://www.aigsunamerica.com) or in writing by mail or facsimile. We allow 15
free transfers per contract per year. We charge $25 ($10 in Pennsylvania and
Texas) for each additional transfer in any contract year. Transfers resulting
from your participation in the DCA or Asset Rebalancing programs do not count
against your 15 free transfers per contract year.
All transfer request in excess of 15 transfers per contract year must be
submitted in writing by United States Postal Service first-class mail ("U.S.
Mail") until your next contract anniversary. Transfer requests sent by same day
mail, overnight mail or courier services will not be accepted. Transfer requests
required to be submitted by U.S. Mail can only be cancelled by a written request
sent by U.S. Mail. Transfers resulting from your participation in the DCA or
Asset Rebalancing programs are not included for the purposes of determining the
number of transfers for the U.S. Mail requirement.
We may accept transfers by telephone or the Internet unless you tell us not to
on your contract application. When receiving instructions over the telephone or
the Internet, we follow 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
15
resulting from instructions received over the telephone or the Internet. If we
fail to follow our procedures, we may be liable for any losses due to
unauthorized or fraudulent instructions.
For information regarding transfers during the Income Phase, see INCOME OPTIONS
below.
We reserve the right to modify, suspend, waive or terminate these transfer
provisions at any time.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging ("DCA") program allows you to invest gradually in the
Variable Portfolios. Under the program you systematically transfer a set dollar
amount or percentage of portfolio value from one Variable Portfolio (source
account) to any other Variable Portfolio (target account). If available, you may
systematically transfer interest earned on available FAGPs into any of the
Variable Portfolios on certain periodic schedules opened by us. Systematic
transfers maybe started, changed or terminated at any time by calling our
Annuity Service Center.
The minimum transfer amount under the DCA program is $100 per transaction,
regardless of the source account. Fixed account options are not available as
target account for the DCA program. There is no fee for participating in the DCA
program.
We may also offer DCAFAs exclusively to facilitate this program for a specified
period. If you elected to participate in the Polaris Rewards Program, DCAFAs are
not available under your contract. The DCAFAs only accept new Purchase Payments.
You cannot transfer money already in your contract into these options. If you
allocate new Purchase Payments into a DCAFA, we transfer all your money
allocated to that account into the Variable Portfolios over the selected time
period at an offered frequency of your choosing. You cannot change the frequency
once selected.
You may terminate the DCA program at any time. If you terminate your DCA program
with money remaining in the DCAFAs, we will 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.
The DCA program is designed to lessen the impact of market fluctuations on your
investment. However, we cannot ensure that you will make a profit. When you
elect the DCA program, you are continuously investing in securities regardless
of fluctuating price levels. You should consider your tolerance for investing
through periods of fluctuating price levels.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to gradually move $750 each quarter from the Cash
Management Portfolio to the Aggressive Growth Portfolio over six months.
You set up dollar cost averaging and purchase Accumulation Units at the
following values:
<Table>
<Caption>
---------------------------------------------
ACCUMULATION UNITS
MONTH UNIT PURCHASED
---------------------------------------------
1 $ 7.50 100
2 $ 5.00 150
3 $10.00 75
4 $ 7.50 100
5 $ 5.00 150
6 $ 7.50 100
---------------------------------------------
</Table>
You paid an average price of only $6.67 per Accumulation Unit over six
months, while the average market price actually was $7.08. By investing an
equal amount of money each month, you automatically buy more Accumulation
Units when the market price is low and fewer Accumulation Units when the
market price is high. This example is for illustrative purposes only.
AUTOMATIC ASSET REBALANCING PROGRAM
Earnings in your contract may cause the percentage of your investment in each
investment option to differ from your original allocations. The Automatic Asset
Rebalancing Program addresses this situation. At your election, we periodically
rebalance your investments in the Variable Portfolios to return your allocations
to their original percentages. Asset rebalancing typically involves shifting a
portion of your money out of an investment option with a higher return into an
investment option with a lower return. There is no fee for participating in the
Asset Rebalancing program.
At your request, rebalancing occurs on a quarterly, semiannual or annual basis.
Transfers made as a result of rebalancing do not count against your 15 free
transfers for the contract year.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want your initial Purchase Payment split between two
Variable Portfolios. You want 50% in the Corporate Bond Portfolio and 50%
in the Growth Portfolio. Over the next calendar quarter, the bond market
does very well while the stock market performs poorly. At the end of the
calendar quarter, the Corporate Bond Portfolio now represents 60% of your
holdings because it has increased in value and the Growth Portfolio
represents 40% of your holdings. If you had chosen quarterly rebalancing,
on the last day of that quarter, we would sell some of your units in the
16
Corporate Bond Portfolio to bring its holdings back to 50% and use the
money to buy more units in the Growth Portfolio to increase those holdings
to 50%.
RETURN PLUS PROGRAM
The Return Plus Program, available if we are offering FAGPs, allows you to
invest in one or more Variable Portfolios without putting your principal at
direct risk. The program accomplishes this by allocating your investment
strategically between the fixed account options and Variable Portfolios. You
decide how much you want to invest and approximately when you want a return of
principal. We calculate how much of your Purchase Payment to allocate to the
particular fixed account option to ensure that it grows to an amount equal to
your total principal invested under this program. We invest the rest of your
principal in the Variable Portfolio(s) of your choice. There is no fee for
participating in the Return Plus Program.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to allocate a portion of your initial Purchase Payment
of $100,000 to the fixed account option. You want the amount allocated to
the fixed account option to grow to $100,000 in 7 years. If the 7-year
fixed account option is offering a 5% interest rate, we will allocate
$71,069 to the 7-year fixed account option to ensure that this amount will
grow to $100,000 at the end of the 7-year period. The remaining $28,931 may
be allocated among the Variable Portfolios, as determined by you, to
provide opportunity for greater growth.
VOTING RIGHTS
AIG SunAmerica Life is the legal owner of the Trusts' shares. However, when a
Variable Portfolio solicits proxies in conjunction with a vote of shareholders,
we must obtain your instructions on how to vote those shares. We vote all of the
shares we own in proportion to your instructions. This includes any shares we
own on our own behalf. Should we determine that we are no longer required to
comply with these rules, we will vote the shares in our own right.
SUBSTITUTION
We may amend your contract due to changes to the Variable Portfolios offered
under your contract. For example, we may offer new Variable Portfolios, delete
Variable Portfolios, or stop accepting allocations and/or investments in a
particular Variable Portfolio. We may move assets and re-direct future premium
allocations from one Variable Portfolio to another if we receive investor
approval through a proxy vote or SEC approval for a fund substitution. This
would occur if a Variable Portfolio is no longer an appropriate investment for
the contract, for reasons such as continuing substandard performance, or for
changes to the portfolio manager, investment objectives, risks and strategies,
or federal or state laws. The new Variable Portfolio offered may have different
fees and expenses. You will be notified of any upcoming proxies or substitutions
that affect your Variable Portfolio choices.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
ACCESS TO YOUR MONEY
- ----------------------------------------------------------------
- ----------------------------------------------------------------
You can access money in your contract in two ways:
- by making a partial or total withdrawal, and/or;
- by receiving income payments during the Income Phase. SEE INCOME OPTIONS
BELOW.
Generally, we deduct a withdrawal charge applicable to any total or partial
withdrawal. If you withdraw your entire contract value, we also deduct
applicable premium taxes and a contract maintenance fee. SEE EXPENSES BELOW.
Your contract provides for a free withdrawal amount each year. A free withdrawal
amount is the portion of your account that we allow you to take out each year
without being charged a surrender penalty. HOWEVER, UPON A FUTURE FULL SURRENDER
OF YOUR CONTRACT ANY PREVIOUS FREE WITHDRAWALS WOULD BE SUBJECT TO A SURRENDER
CHARGE, IF ANY IS APPLICABLE AT THE TIME OF THE FULL SURRENDER (EXCEPT IN THE
STATE OF WASHINGTON). Additionally, if you participate in the Polaris Rewards
Program you will not receive your Deferred Payment Enhancement if you fully
withdraw a Purchase Payment or your contract value prior to the corresponding
Deferred Payment Enhancement Date. SEE POLARIS REWARDS PROGRAM ABOVE.
Purchase Payments, above and beyond the amount of your free withdrawal amount,
that are withdrawn prior to the end of the seventh or ninth year if you elect to
participate in the Polaris Rewards Program will result in your paying a penalty
in the form of a surrender charge. The amount of the charge and how it applies
are discussed more fully below. SEE EXPENSES BELOW. You should consider, before
purchasing this contract, the effect this charge will have on your investment if
you need to withdraw more money than the free withdrawal amount. You should
fully discuss this decision with your financial representative.
To determine your free withdrawal amount and your withdrawal charge, we refer to
two special terms. These are penalty free earnings and the total invested
amount.
The penalty-free earnings portion of your contract is simply your account value
less your total invested amount. The total invested amount is the total of all
Purchase Payments you have made into the contract less portions of some prior
17
withdrawals you made. The portions of prior withdrawals that reduce your total
invested amount are as follows:
- Free withdrawals in any year that were in excess of your penalty-free
earnings and were based on the part of the total invested amount that was
no longer subject to withdrawal charges at the time of the withdrawal,
and
- Any prior withdrawals (including withdrawal charges on those withdrawals)
of the total invested amount on which you already paid a surrender
penalty.
When you make a withdrawal, we assume that it is taken from penalty-free
earnings first, then from the total invested amount on a first-in, first-out
basis. This means that you can access your Purchase Payments which are no longer
subject to a withdrawal charge before those Purchase Payments which are still
subject to the withdrawal charge.
During the first year after we issue your contract your free withdrawal amount
is the greater of (1) your penalty-free earnings; and (2) if you are
participating in the Systematic Withdrawal program, a total of 10% of your total
invested amount. If you are a Washington resident, you may withdraw during the
first contract year, the greater of (1); (2); or (3) interest earnings from the
amounts allocated to the fixed account options, not previously withdrawn.
After the first contract year, you can take out the greater of the following
amounts each year (1) your penalty-free earnings and any portion of your total
invested amount no longer subject to withdrawal charge or (2) 10% of the portion
of your total invested amount that has been in your contract for at least one
year. If you are a Washington resident, your maximum free withdrawal amount,
after the first contract year, is the greater of (1); (2); or (3) interest
earnings from amounts allocated to the fixed account options, not previously
withdrawn.
Although we do not assess a withdrawal charge when you take a 10% penalty-free
withdrawal, we will proportionally reduce the amount of any corresponding
Deferred Payment Enhancement.
We calculate charges due on a total withdrawal on the day after we receive your
request and your contract. We return to you your contract value less any
applicable fees and charges.
The withdrawal charge percentage is determined by the age of the Purchase
Payment remaining in the contract at the time of the withdrawal. For the purpose
of calculating the withdrawal charge, any prior Free Withdrawal is not
subtracted from the total Purchase Payments still subject to withdrawal charges.
For example, you make an initial Purchase Payment of $100,000. For purposes of
this example we will assume a 0% growth rate over the life of the contract, no
subsequent Purchase Payments, and no Polaris Rewards election. In contract year
2, you take out your maximum free withdrawal of $10,000. After that free
withdrawal your contract value is $90,000. In contract year 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 ($90,000)
B=The amount of your Purchase Payments still subject to withdrawal charge
($100,000)
C=The withdrawal charge percentage applicable to the age of each Purchase
Payment (3%)[B x C=$3,000]
D=Your full surrender value ($87,000)
Under most circumstances, the partial withdrawal minimum is $1,000. We require
that the value left in any investment option be at least $100, after the
withdrawal. You must send a written withdrawal request. Unless you provide us
with different instructions, partial withdrawals will be made pro rata from each
Variable Portfolio and the fixed account option(s) in which your contract is
invested. IN THE EVENT THAT A PRO RATA PARTIAL WITHDRAWAL WOULD CAUSE THE VALUE
OF ANY VARIABLE PORTFOLIO OR FIXED ACCOUNT INVESTMENT TO BE LESS THAN $100, WE
WILL CONTACT YOU TO OBTAIN ALTERNATE INSTRUCTIONS ON HOW TO STRUCTURE THE
WITHDRAWAL.
Under certain Qualified plans, access to the money in your contract may be
restricted. Additionally, withdrawals made prior to age 59 1/2 may result in a
10% IRS penalty tax. SEE TAXES BELOW.
We may be required to suspend or postpone the payment of a withdrawal for any
period of time when: (1) the NYSE is closed (other than a customary weekend and
holiday closings); (2) trading with the NYSE is restricted; (3) an emergency
exists such that disposal of or determination of the value of shares of the
Variable Portfolios is not reasonably practicable; (4) the SEC, by order, so
permits for the protection of contract owners.
Additionally, we reserve the right to defer payments for a withdrawal from a
fixed account option. Such deferrals are limited to no longer than six months.
SYSTEMATIC WITHDRAWAL PROGRAM
During the Accumulation Phase, you may elect to receive periodic income payments
under the systematic withdrawal program. Under the program, you may choose to
take monthly, quarterly, semi-annual or annual payments from your contract.
Electronic transfer of these funds to your bank account is also available. The
minimum amount of each withdrawal is $100. If you are an Oregon resident, the
minimum withdrawal amount is $250 per withdrawal or an amount equal to your free
withdrawal amount, as described above. There must be at least $500 remaining in
your contract at all times. Withdrawals may be taxable and a 10% IRS penalty tax
may apply if you are under age 59 1/2. There is
18
no additional charge for participating in this program, although a withdrawal
charge and/or MVA may apply.
The program is not available to everyone. Please check with our Annuity Service
Center, which can provide the necessary enrollment forms. We reserve the right
to modify, suspend or terminate this program at any time.
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.
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.
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- ----------------------------------------------------------------
OPTIONAL LIVING BENEFITS
- ----------------------------------------------------------------
- ----------------------------------------------------------------
YOU MAY ELECT ONE OF THE OPTIONAL LIVING BENEFITS DESCRIBED BELOW. THESE
FEATURES ARE DESIGNED TO PROTECT A PORTION OF YOUR INVESTMENT IN THE EVENT YOUR
CONTRACT VALUE DECLINES DUE TO UNFAVORABLE INVESTMENT PERFORMANCE DURING THE
ACCUMULATION PHASE AND BEFORE A DEATH BENEFIT IS PAYABLE. A FEE WILL NOT BE
ASSESSED FOR THE FEATURE DESCRIBED BELOW UPON SURRENDER. PLEASE SEE THE
DESCRIPTIONS BELOW FOR DETAILED INFORMATION.
POLARIS INCOME REWARDS FEATURE
What is Polaris Income Rewards?
Polaris Income Rewards is an optional feature available only on contracts issued
on or after May 3, 2004 and subject to state availability. If you elect this
feature, for which you will be charged an annualized fee, you are guaranteed to
receive withdrawals over a minimum number of years that in total equals at least
the initial Purchase Payment adjusted for withdrawals, even if the contract
value falls to zero. Polaris Income Rewards may offer protection in the event
your contract value declines due to unfavorable investment performance.
How can I elect the feature?
You may elect the feature only at the time of contract issue and must choose
either Option 1 or Option 2. The date you elect the feature (which is also the
contract issue date) is your BENEFIT EFFECTIVE DATE. The earliest you may begin
taking withdrawals under the benefit after a specified waiting period is the
BENEFIT AVAILABILITY DATE. You cannot elect the feature if you are age 81 or
older on the Benefit Effective Date. Generally, once you elect the feature, it
cannot be canceled. The Polaris Income Rewards has rules and restrictions that
are discussed more fully below.
How is the benefit calculated?
There are several components that comprise the integral aspects of this benefit.
In order to determine the benefit's value at any point in time, we calculate
each of the components as described below. We calculate Eligible Purchase
Payments, Withdrawal Benefit Base, Step-Up Amount and Stepped-Up Benefit Base.
First, we determine the ELIGIBLE PURCHASE PAYMENTS according to the table below.
<Table>
<Caption>
- -----------------------------------------------------------------
TIME ELAPSED SINCE
BENEFIT EFFECTIVE DATE PERCENTAGE OF ELIGIBLE PURCHASE PAYMENTS
- -----------------------------------------------------------------
0-90 Days 100%
- -----------------------------------------------------------------
91 Days + 0%
- -----------------------------------------------------------------
</Table>
Second, we determine the WITHDRAWAL BENEFIT BASE ("WBB"). The WBB is used to
calculate the amount of total guaranteed withdrawals and the annual maximum
withdrawal amount available under the benefit. On the Benefit Availability Date,
the WBB equals the sum of all Eligible Purchase Payments, reduced for any
withdrawals in the same proportion that the withdrawal reduced the contract
value on the date of the withdrawal.
Third, we determine a STEP UP AMOUNT which is calculated as a specified
percentage of the WBB on the Benefit Availability Date. The Step-Up Amount is
not a considered a Purchase Payment and cannot be used in calculating any other
benefits, such as the death benefit, contract values or annuitization value.
Fourth, we determine the STEPPED-UP BENEFIT BASE ("SBB") which is the total
amount available for withdrawal under the benefit and is used to calculate the
minimum time period over which you may take withdrawals under the benefit. The
SBB equals the WBB plus the Step-Up Amount.
Fifth, we determine the MAXIMUM ANNUAL WITHDRAWAL AMOUNT ("MAWA") which is a
stated percentage of the WBB.
19
Finally, we determine the MINIMUM WITHDRAWAL PERIOD ("MWP") which is the minimum
period at any point in time over which you may take withdrawals under the
benefit. The MWP is calculated by dividing the SBB by the MAWA.
The table below is a summary of the two Polaris Income Rewards options we are
offering as applicable on the Benefit Availability Date:
<Table>
<Caption>
- -------------------------------------------------------------------
MWP (IF
MAWA
BENEFIT TAKEN
AVAILABILITY STEP-UP MAWA EACH
DATE AMOUNT PERCENTAGE YEAR)
- -------------------------------------------------------------------
Option 1 3 years following 10% of WBB 10% of WBB 11 years
Benefit Effective
Date
- -------------------------------------------------------------------
Option 2 5 Years following 20% of WBB 10% of WBB 12 years
Benefit Effective
Date
- -------------------------------------------------------------------
</Table>
Example 1:
Assume you elect Polaris Income Rewards option 2 and you invest a single
Purchase Payment of $100,000. If you make no additional Purchase Payments
and no withdrawals, your WBB is $100,000 on the Benefit Availability Date.
Your SBB equals WBB plus the Step-Up Amount ($100,000 + (20% X $100,000) =
$120,000). Your MAWA as of the Benefit Availability Date is 10% of your WBB
($100,000 X 10% = $10,000). The MWP is equal to the SBB divided by the MAWA
which is 12 years ($120,000/$10,000). Therefore, you may take $120,000 in
withdrawals of up to $10,000 annually over a minimum of 12 years on or
after the Benefit Availability Date.
What is the fee for Polaris Income Rewards?
The annualized Polaris Income Rewards fee will be assessed and deducted
quarterly from your contract value, starting on the first quarter following the
Benefit Effective Date and ending upon the termination of the benefit. If your
contract value falls to zero before the benefit has been terminated, the fee
will no longer be assessed.
<Table>
<Caption>
- ------------------------------------------------------------
TIME ELAPSED SINCE THE
BENEFIT EFFECTIVE DATE ANNUALIZED FEE
- ------------------------------------------------------------
0-7 years 0.65% of WBB
- ------------------------------------------------------------
8+ years 0.45% of WBB
- ------------------------------------------------------------
</Table>
What is the effect of withdrawals on Polaris Income Rewards?
The benefit amount, MAWA and MWP may change over time as a result of withdrawal
activity. Withdrawals equal to or less than the MAWA generally reduce the
benefit by the amount of the withdrawal. Withdrawals in excess of the MAWA may
reduce the benefit based on the relative size of the withdrawal in relation to
the contract value at the time of the withdrawal. This means if investment
performance is down and contract value is depleted, withdrawals greater than the
MAWA will result in a greater reduction of the benefit. We further explain the
impact of withdrawals and the effect on each component of Polaris Income Rewards
through the calculations below:
CONTRACT VALUE: Any withdrawal reduces the contract value by the amount of
the withdrawal.
WBB: Withdrawals prior to the Benefit Availability Date reduce the WBB in
the same proportion that the contract value was reduced at the time of the
withdrawal.
Withdrawals after the Benefit Availability Date will not reduce the WBB
until the sum of withdrawals exceeds the Step-Up amount. Thereafter, any
withdrawal or portion thereof that exceeds the Step-Up Amount will reduce
the WBB as follows: If the withdrawal does not cause total withdrawals in
the Benefit Year to exceed the MAWA, the WBB will be reduced by the amount
of the withdrawal. If the withdrawal causes total withdrawals in the
Benefit Year to exceed the MAWA, the WBB is reduced to the lesser of (a) or
(b), where:
a. is the WBB immediately prior to the withdrawal minus the amount of
the withdrawal, or;
b. is the WBB immediately prior to the withdrawal minus the portion of
the withdrawal that makes total withdrawals in that Benefit Year
equal to the current MAWA, and further reduced proportionately by
the same amount by which the contract value is reduced by the
remaining portion of the withdrawal.
SBB: Since withdrawals prior to the Benefit Availability Date reduce the
WBB proportionately, the SBB will likewise be reduced proportionately
during that period of time.
After the Benefit Availability Date, any withdrawal that does not cause
total withdrawals in a Benefit Year to exceed the MAWA will reduce the SBB
by the amount of the withdrawal. After the Benefit Availability Date, any
withdrawal that causes total withdrawals in a Benefit Year to exceed the
MAWA (in that Benefit Year) reduces the SBB to the lesser of (a) or (b),
where:
a. is the SBB immediately prior to the withdrawal minus the amount of
the withdrawal, or;
b. is the SBB immediately prior to the withdrawal minus the amount of
the withdrawal that makes total withdrawals in that Benefit Year
equal to the current MAWA, and further reduced proportionately by
the same amount by which the contract value is reduced by the
remaining portion of the withdrawal.
MAWA: If the sum of withdrawals in a Benefit Year does not exceed the MAWA
for that Benefit Year, the MAWA does not change for the next Benefit Year.
If
20
total withdrawals in a Benefit Year exceed the MAWA, the MAWA will be
recalculated at the start of the next Benefit Year. The new MAWA will equal
the SBB on that Benefit Year anniversary divided by the MWP on that Benefit
Year Anniversary. The new MAWA may be lower than your previous MAWAs.
MWP: After each withdrawal a new MWP is calculated. If total withdrawals in
a Benefit Year are less than or equal to MAWA the new MWP equals the SBB
after the withdrawal divided by the current MAWA.
During any Benefit Year in which the sum of withdrawals exceeds the MAWA,
the new MWP equals the MWP calculated at the end of the prior Benefit Year
reduced by one year.
Example 2 - Impact of Withdrawals prior to the Benefit Availability Date:
Assume you elect Polaris Income Rewards option 2 and you invest a single
Purchase Payment of $100,000. You make a withdrawal of $11,000 prior to the
Benefit Availability Date. Prior to the withdrawal, your contract value is
$110,000. You make no other withdrawals before the Benefit Availability
Date. Immediately following the withdrawal, your WBB is recalculated by
first determining the proportion by which your contract value was reduced
by the withdrawal ($11,000/$110,000 = 10%). Next, we reduce your WBB by the
percentage by which the contract value was reduced by the withdrawal
($100,000 -- (10% X 100,000) = $90,000). Your SBB on the Benefit
Availability Date is your WBB plus a Step-Up Amount calculated as 20% of
your WBB (20% X $90,000 = $18,000). The SBB equals $108,000. Your MAWA is
10% of the WBB on the Benefit Availability Date ($90,000). This equals
$9,000. Therefore, you may take withdrawals of up to $9,000 annually over a
minimum of 12 years ($108,000/$9,000 = 12).
Example 3 - Impact of Withdrawals less than or equal to MAWA after the
Benefit Availability Date:
Assume you elect Polaris Income Rewards option 2 and you invest a single
Purchase Payment of $100,000. You make a withdrawal of $7,500 during the
first year after the Benefit Availability Date. Because the withdrawal is
less than or equal to your MAWA ($10,000), your SBB ($120,000) is reduced
by the total dollar amount of the withdrawal ($7,500). Your new SBB equals
$112,500. Your MAWA remains $10,000. Your new MWP following the withdrawal
is equal to the new SBB divided by your current MAWA, ($112,500/$10,000).
Therefore, you may take withdrawals of up to $10,000 over a minimum of 11
years and 3 months.
Example 4 - Impact of Withdrawals in excess of MAWA after the Benefit
Availability Date:
Assume you elect Polaris Income Rewards option 2 and you invest a single
Purchase Payment of $100,000. Your WBB is $100,000 and your SBB is
$120,000. You make a withdrawal of $15,000 during the first year after the
Benefit Availability Date. Your contract value is $125,000 at the time of
the withdrawal. Because the withdrawal is greater than your MAWA ($10,000),
we recalculate your SBB ($120,000) by taking the lesser of two
calculations. For the first calculation, we deduct the amount of the
withdrawal from the SBB ($120,000 -- $15,000 = $105,000). For the second
calculation, we deduct the amount of the MAWA from the SBB
($120,000 -- $10,000 = $110,000). Next, we calculate the excess portion of
the withdrawal ($5,000) and determine the proportion by which the contract
value was reduced by the excess portion of the withdrawal. ($125,000/$5,000
= 4%). Finally we reduce $110,000 by that proportion (4%) which equals
$105,600. Your SBB is the lesser of these two calculations or $105,000. The
MWP following the withdrawal is equal to the MWP at the end of the prior
year (12 years) reduced by one year (11 years). Your MAWA is your SBB
divided by your MWP ($105,000/11) which equals $9,545.45.
What happens if my contract value is reduced to zero?
If the contract value is zero but the SBB is greater than zero, a benefit
remains payable under Polaris Income Rewards feature. While a benefit is
payable under Polaris Income Rewards until the SBB is reduced to zero, the
contract is terminated when the contract value equals zero. At such time,
except for Polaris Income Rewards, all benefits of the contract are
terminated. In that event, you may not make subsequent Purchase Payments.
Therefore, under adverse market conditions, withdrawals under the benefit
may reduce the contract value to zero, thereby eliminating any death
benefit or future income payments.
To receive your remaining Polaris Income Rewards benefit, you may select one of
the following options:
a. lump sum distribution of the present value of the total remaining
guaranteed withdrawals; or
b. the current MAWA, paid equally on a quarterly, semi-annual or annual
frequency as selected by you until the SBB equals zero; or
c. any payment option mutually agreeable between you and us.
If you do not select a payment option, the remaining benefit will be paid as the
current MAWA on a quarterly basis.
21
What happens to Polaris Income Rewards upon a spousal continuation?
A spousal beneficiary of the original owner may elect to continue or cancel
Polaris Income Rewards and its accompanying fee. The Benefit Effective Date,
Benefit Availability Date, WBB, SBB and any other corresponding component of the
feature will not change as a result of a spousal continuation. A Continuation
Contribution is not considered an Eligible Purchase Payment for purposes of
determining the benefit. See SPOUSAL CONTINUATION below.
Can my non-spousal beneficiary elect to receive any remaining withdrawals under
Polaris Income Rewards upon my death?
If the SBB is greater than zero when the original owner dies, a non-spousal
beneficiary may elect to continue receiving any remaining withdrawals under the
benefit. The Benefit Effective Date, Benefit Availability Date, WBB, SBB and any
other corresponding component of the feature will not change. If a contract
value remains, the fee for the benefit will continue to be assessed. Electing to
receive the remaining withdrawals will terminate any death benefit payable to
the non-spousal beneficiary.
Can Polaris Income Rewards be canceled?
Once you elect the feature, you may not cancel it. The feature automatically
terminates upon the occurrence of one of the following:
1. Withdrawals in excess of MAWA in any Benefit Year reduce the SBB by 50%
or more; or
2. SBB is equal to zero; or
3. Annuitization of the contract; or
4. Full Surrender of the contract; or
5. Death benefit is paid; or
6. Upon a spousal continuation, the Continuing Spouse elects not to
continue the contract with the feature.
Important Information
The Polaris Income Rewards may not guarantee an income stream based on all
Purchase Payments made into your contract nor does it guarantee any investment
gains. This feature also does not guarantee lifetime income payments. If you
plan to make subsequent Purchase Payments over the life of your contract, which
are not considered Eligible Purchase Payments under the feature, Polaris Income
Rewards does not guarantee a withdrawal of a majority of those payments. You may
never need to rely on Polaris Income Rewards if your contract performs within a
historically anticipated range. However, past performance is no guarantee of
future results.
Withdrawals under the benefit are treated like any other withdrawal for the
purpose of reducing the contract value, free withdrawal amounts and any other
benefits under the contract.
If you need to or are required to take minimum required distributions ("MRD")
under the Internal Revenue Code ("IRC") from this contract prior to the Benefit
Availability Date, you should know that withdrawals may negatively impact the
value of Polaris Income Rewards. Any withdrawals taken under this benefit or
under the contract, may be subject to a 10% IRS tax penalty if you are under age
59 1/2 at the time of the withdrawal. For information about how the benefit is
treated for income tax purposes, you should consult a qualified tax advisor
concerning your particular circumstances.
The Polaris Income Rewards cannot be elected if you elect the Capital Protector
feature. We reserve the right to limit the maximum WBB to $1 million.
Polaris Income Rewards may not be available in your state or through the
broker-dealer with which your financial representative is affiliated. Please
check with your financial representative.
For prospectively issued contracts, we reserve the right to limit the investment
options available under the contract if you elect Polaris Income Rewards. We
reserve the right to modify, suspend or terminate Polaris Income Rewards (in its
entirety or any component) at any time for prospectively issued contracts.
CAPITAL PROTECTOR FEATURE
What is Capital Protector?
The Capital Protector is an optional feature of your variable annuity. If you
elect this feature, for which you will be charged an annualized fee, at the end
of applicable waiting period your contract will be worth at least the amount of
your initial Purchase Payment (less adjustments for withdrawals). The Capital
Protector may offer protection in the event that your contract value declines
due to unfavorable investment performance in your contract.
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.
How can I elect 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.
22
Capital Protector is not available if you elect Polaris Income Reward. SEE
POLARIS INCOME REWARDS ABOVE.
The Capital Protector feature may not be available in your state or through the
broker-dealer with which your financial representative is affiliated. Please
check with your financial representative for availability.
Can Capital Protector be Cancelled?
Generally, this feature and its corresponding charge cannot be cancelled or
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.
How is the benefit calculated?
The Capital Protector is a one-time adjustment to your contract value in the
event that your contract value at the end of the waiting period is less than the
guaranteed amount. The amount of the benefit payable to you, if any, at the end
of the waiting period will be based upon the amount of your initial Purchase
Payment and may also include certain portions of subsequent Purchase Payments
contributed to your contract over specified periods of time, as follows:
<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 benefit calculation is equal to your Capital Protector
Base, as defined below, minus your Contract Value on the benefit date. If the
resulting amount is positive, you will receive a benefit under the feature. If
the resulting amount is negative, you will not receive a benefit. Your Capital
Protector Base is equal to (a) minus (b) where:
(a) is the Purchase Payments received on or after the effective date
multiplied by the applicable percentages in the table above, and;
(b) is an adjustment for all withdrawals and applicable fees and charges
made subsequent to the effective date, in an amount proportionate to
the amount by which the withdrawal decreased the contract value at the
time of the withdrawal.
Payment Enhancements under the Polaris Rewards feature are not considered
Purchase Payments and are not used in the calculation of the Capital Protector
Base.
We will allocate any benefit amount contributed to the contract value on the
benefit date to the Cash Management portfolio. Any Capital Protector benefit
paid is not considered a Purchase Payment for purposes of calculating other
benefits. Benefits based on earnings, such as EstatePlus, will continue to
define earnings as the difference between contract value and Purchase Payments
adjusted for withdrawals. For information about how the benefit is treated for
income tax purposes, you should consult a qualified tax advisor for information
concerning your particular circumstances.
What is the Fee for Capital Protector?
Capital Protector is an optional feature. If elected, you will incur an
additional charge for this feature. The annualized charge will be deducted from
your contract value on a quarterly basis throughout the waiting period,
beginning at the end of the first contract quarter following the effective date
of the feature and up to and including on the benefit date. The full quarterly
charge will be deducted at the time of annuitization prior to the end of the
waiting period, even though no Capital Protector benefit is payable. Once the
feature is terminated, as discussed above, the charge will no longer be
deducted.
<Table>
<Caption>
CONTRACT YEAR ANNUALIZED FEE *
- ------------- ----------------
0-7 0.60%
8-10 0.20%
11+ none
</Table>
* As a percentage of your contract value minus Purchase Payments received after
the 90th day since the purchase of your contract. The amount of this charge is
subject to change at any time for prospectively issued contracts.
What Happens to Capital Protector upon a Spousal Continuation?
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.
Important Information
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.
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 representative as such activity may reduce the value of this
Capital Protector benefit.
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.
23
- ----------------------------------------------------------------
- ----------------------------------------------------------------
DEATH BENEFIT
- ----------------------------------------------------------------
- ----------------------------------------------------------------
If you die during the Accumulation Phase of your contract, we pay a death
benefit to your Beneficiary. At the time you purchase your contract, you must
select one of the two death benefit options described below. Once selected, you
cannot change your death benefit option. You should discuss the available
options with your financial representative to determine which option is best for
you.
We will not pay a Deferred Payment Enhancement on a Purchase Payment if you die
before the corresponding Deferred Payment Enhancement Date. SEE POLARIS REWARDS
PROGRAM ABOVE.
We do not pay the death benefit if you die after you switch to the Income Phase.
However, if you die during the Income Phase, your Beneficiary receives any
remaining guaranteed income payments in accordance with the income option you
selected. SEE INCOME OPTIONS BELOW.
You name your Beneficiary. You may change the Beneficiary at any time, unless
you previously made an irrevocable Beneficiary designation.
We calculate and pay the death benefit when we receive all required paperwork
and satisfactory proof of death. We consider the following satisfactory proof of
death:
1. a certified copy of the death certificate; or
2. a certified copy of a decree of a court of competent jurisdiction as to
the finding of death; or
3. a written statement by a medical doctor who attended the deceased at
the time of death; or
4. any other proof satisfactory to us.
If the Beneficiary is the spouse of a deceased owner, he or she can elect to
continue the Contract. SEE SPOUSAL CONTINUATION BELOW.
If a Beneficiary does not elect a specific form of pay out within 60 days of our
receipt of all required paperwork and satisfactory proof of death, we pay a lump
sum death benefit to the Beneficiary.
DEFINED TERMS
The term Net Purchase Payment is used frequently in explaining these death
benefit options. Net Purchase Payments 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.
The term "Gross Withdrawals" as used in describing the death benefit option
below is defined as withdrawals and the fees and charges applicable to those
withdrawals.
IF YOU PURCHASED YOUR CONTRACT ON OR ABOUT JUNE 1, 2004, SUBJECT TO STATE
AVAILABILITY, THE FOLLOWING DEATH BENEFIT PROVISIONS APPLY:
OPTION 1 - PURCHASE PAYMENT ACCUMULATION OPTION
If the contract is issued prior to your 75th birthday, the death benefit is the
greatest of:
1. Contract value; or
2. Net Purchase Payments, compounded at 3% annual growth rate to the
earlier of the 75th birthday or the date of death plus Net Purchase
Payments received after the 75th birthday but prior to the 86th
birthday; or
3. Contract value on the seventh contract anniversary, reduced for
withdrawals since the seventh contract anniversary in the same
proportion that the contract value was reduced on the date of such
withdrawal, plus Net Purchase Payments received between the seventh
contract anniversary but prior to the 86th birthday.
The Purchase Payment accumulation option can only be elected prior to your 75th
birthday.
OPTION 2 - MAXIMUM ANNIVERSARY OPTION
If the contract is issued prior to your 83rd birthday, the death benefit is the
greatest of:
1. Contract value; or
2. Net Purchase Payments received prior to your 86th birthday; or
3. Maximum anniversary value on any contract anniversary prior to your
83rd birthday. The
24
anniversary values equal the contract value on a contract anniversary
plus any Net Purchase Payments since that anniversary but prior to your
86th birthday; and reduced for any withdrawals since that contract
anniversary in the same proportion that the withdrawal reduced the
contract value on the date of the withdrawal.
If the contract is issued on or after your 83rd birthday but before your 86th
birthday, the death benefit is greater of:
1. Contract value; or
2. The lesser of:
a. Net Purchase Payments received prior to your 86th birthday; or
b. 125% of Contract Value.
If you are age 90 or older at the time of death and selected the Maximum
Anniversary death benefit, the death benefit will be equal to the contract
value. Accordingly, you will not get any benefit from this option if you are age
90 or older at the time of your death.
For contracts in which the aggregate of all Purchase Payments in contracts
issued by AIG SunAmerica Life and/or First SunAmerica Life Insurance Company to
the same owner are in excess of $1,000,000, we reserve the right to limit the
death benefit amount that is in excess of contract value at the time we receive
all paperwork and satisfactory proof of death. Any limit on the maximum death
benefit payable would be mutually agreed upon by you and the Company prior to
purchasing the contract.
IF YOU PURCHASED YOUR CONTRACT BETWEEN OCTOBER 24, 2001 AND MAY 31, 2004, THE
FOLLOWING DEATH BENEFIT PROVISIONS APPLY:
OPTION 1 -- PURCHASE PAYMENT ACCUMULATION OPTION
The death benefit is the greatest of:
1. the contract value at the time we receive all required paperwork and
satisfactory proof of death; or
2. Net Purchase Payments compounded at a 4% annual growth rate until the
date of death (3% growth rate if age 70 or older at the time of contract
issue) plus any Purchase Payments recorded after the date of death; and
reduced for any Gross Withdrawals in the same proportion that the Gross
Withdrawal reduced contract value on the date of the Gross Withdrawal;
or
3. the contract value on the seventh contract anniversary, plus any
Purchase Payments since the seventh contract anniversary; and reduced
for any Gross Withdrawals since the seventh contract anniversary in the
same proportion that each Gross Withdrawal reduced the contract value on
the date of the Gross Withdrawal, all compounded at a 4% annual growth
rate until the date of death (3% growth rate if age 70 or older at the
time of contract issue) plus any purchase payments recorded after the
date of death; and reduced for each Gross Withdrawal recorded after the
date of death in the same proportion that each Gross Withdrawal reduced
the contract value on the date of the Gross Withdrawal.
OPTION 2 -- MAXIMUM ANNIVERSARY OPTION
The death benefit is the greatest of:
1. the contract value at the time we receive all required paperwork and
satisfactory proof of death; or
2. Net Purchase Payments; or
3. the maximum anniversary value on any contract anniversary prior to your
81st birthday. The anniversary value equals the contract value on a
contract anniversary plus any Purchase Payments since that contract
anniversary; and reduced for any Gross Withdrawals since the contract
anniversary in the same proportion that each Gross Withdrawal reduced
the contract value on the date of the Gross Withdrawal.
If you are age 90 or older at the time of death and selected the Option 2 death
benefit, the death benefit will be equal to contract value at the time we
receive all required paperwork and satisfactory proof of death. Accordingly, you
do not get the advantage of Option 2 if:
- you are age 81 or older at the time of contract issue; or
- you are age 90 or older at the time of your death.
The death benefit options on contracts issued before October 24, 2001 would be
subject to a different calculation. Please see the Statement of Additional
Information for details.
ESTATEPLUS
The EstatePlus benefit if elected may increase the death benefit amount. If you
have earnings in your contract at the time of death, we will add a percentage of
those earnings (the "EstatePlus Percentage"), subject to a maximum dollar amount
(the "Maximum EstatePlus Amount"), to the death benefit payable. The contract
year of your death will determine the EstatePlus percentage and the Maximum
EstatePlus percentage.
The table below provides the details if you are age 69 or younger at the time we
issue your contract:
<Table>
<Caption>
- -------------------------------------------------------------
CONTRACT YEAR ESTATEPLUS MAXIMUM
OF DEATH PERCENTAGE ESTATEPLUS AMOUNT
- -------------------------------------------------------------
Years 0 - 4 25% of Earnings 40% of Net Purchase
Payments
- -------------------------------------------------------------
Years 5 - 9 40% of Earnings 65% of Net Purchase
Payments*
- -------------------------------------------------------------
Years 10+ 50% of Earnings 75% of Net Purchase
Payments*
- -------------------------------------------------------------
</Table>
25
If you are between your 70th and 81st birthdays at the time we issue your
contract the table below shows the available EstatePlus benefit:
<Table>
<Caption>
- -------------------------------------------------------------
CONTRACT YEAR ESTATEPLUS MAXIMUM
OF DEATH PERCENTAGE ESTATEPLUS AMOUNT
- -------------------------------------------------------------
All Contract 25% of Earnings 40% of Net Purchase
Years Payments*
- -------------------------------------------------------------
</Table>
* Purchase Payments received after the 5th contract anniversary must remain in
the contract for at least 6 full months to be included as part of Net Purchase
Payments for the purpose of the Maximum EstatePlus Amount calculations.
We may offer different levels of this benefit based on the number of years you
hold your contract and/or your age at the time of issue.
What is the Contract Year of Death?
Contract Year of Death is the number of full 12 month periods beginning with the
date your contract is issued and ending on the date of death.
What is the EstatePlus Percentage Amount?
We determine the amount of the EstatePlus benefit, based on a percentage of the
earnings in your contract at the time of your death. For the purpose of this
calculation, earnings equals contract value minus Net Purchase Payments as of
the date of death. If the earnings amount is negative, no EstatePlus amount will
be added.
What is the Maximum EstatePlus Amount?
The EstatePlus benefit is subject to a maximum dollar amount. The maximum
EstatePlus amount is equal to a percentage of your Net Purchase Payments.
You must elect EstatePlus at the time of contract application. Once elected, you
may not terminate or change this election.
We assess a 0.25% fee for EstatePlus. On a daily basis we deduct this annual
charge from the average daily ending value of the assets you have allocated to
the Variable Portfolios.
EstatePlus is not available if you are age 81 or older at the time we issue your
contract. Furthermore, a Continuing Spouse cannot benefit from EstatePlus if
he/she is age 81 or older on the Continuation Date. SEE SPOUSAL CONTINUATION
BELOW. The EstatePlus benefit is not payable after the Latest Annuity Date. You
may pay for the EstatePlus benefit and your beneficiary may never receive the
benefit if you live past the Latest Annuity Date. SEE INCOME OPTIONS BELOW.
EstatePlus may not be available in your state or through the broker-dealer with
which your financial representative is affiliated. See your financial
representative for information regarding availability.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE ESTATEPLUS BENEFIT (IN
ITS ENTIRETY OR ANY COMPONENT AT ANY TIME) AT ANY TIME FOR PROSPECTIVELY ISSUED
CONTRACTS.
SPOUSAL CONTINUATION
If you are the original owner of the contract and the Beneficiary is your
spouse, your spouse may elect to continue the contract after your death. The
spouse becomes the new owner ("Continuing Spouse"). Generally, the contract and
its elected features, if any, remain the same. The Continuing Spouse is subject
to the same fees, charges and expenses applicable to the original owner of the
contract. A spousal continuation can only take place upon the death of the
original owner of the contract.
To the extent that the Continuing Spouse invests in the Variable Portfolios or
MVA fixed accounts, they will be subject to investment risk as was the original
owner.
Upon a spouse's continuation of the contract, we will contribute to the contract
value an amount by which the death benefit that would have been paid to the
beneficiary upon the death of the original owner exceeds the contract value
("Continuation Contribution"), if any. We calculate the Continuation
Contribution as of the date of the original owner's death. We will add the
Continuation Contribution as of the date we receive both the Continuing Spouse's
written request to continue the contract and proof of death of the original
owner in a form satisfactory to us ("Continuation Date"). The Continuation
Contribution is not considered a Purchase Payment for the purposes of any other
calculations except as explained in Appendix C. SEE APPENDIX C BELOW FOR FURTHER
EXPLANATION OF THE DEATH BENEFIT CALCULATIONS FOLLOWING A SPOUSAL CONTINUATION.
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 EstatePlus. We will terminate
EstatePlus if the Continuing Spouse is age 81 or older on the Continuation Date.
If EstatePlus is terminated or if the Continuing Spouse dies after the latest
Annuity Date, no EstatePlus benefit will be payable. Generally, 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. SEE APPENDIX C BELOW FOR A DISCUSSION OF THE DEATH BENEFIT
CALCULATIONS AFTER A SPOUSAL CONTINUATION.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE SPOUSAL CONTINUATION
PROVISION (IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME FOR PROSPECTIVELY
ISSUED CONTRACTS.
26
- ----------------------------------------------------------------
- ----------------------------------------------------------------
EXPENSES
- ----------------------------------------------------------------
- ----------------------------------------------------------------
There are charges and expenses associated with your contract. These charges and
expenses reduce your investment return. We will not increase the contract
maintenance fee or the insurance and withdrawal charges under your contract.
However, the investment charges under your contract may increase or decrease.
Some states may require that we charge less than the amounts described below.
SEPARATE ACCOUNT CHARGES
The Company deducts a mortality and expense risk charge in the amount of 1.52%,
annually of the value of your contract invested in the Variable Portfolios. We
deduct the charge daily. This charge compensates the Company for the mortality
and expense risk and the costs of contract distribution assumed by the Company.
Generally, the mortality risks assumed by the Company arise from its contractual
obligations to make income payments after the Annuity Date and to provide a
death benefit. The expense risk assumed by the Company is that the costs of
administering the contracts and the Separate Account will exceed the amount
received from the administrative fees and charges assessed under the contract.
If these charges do not cover all of our expenses, we will pay the difference.
Likewise, if these charges exceed our expenses, we will keep the difference. The
separate account charges are expected to result in a profit. Profit may be used
for any legitimate cost or expense including distribution, depending upon market
conditions.
OTHER REVENUE
We may receive compensation of up to 0.40% from the investment advisers of
certain of the underlying investments of the Trust for services related to the
availability of those underlying investments in the Contract.
WITHDRAWAL CHARGES
The contract provides a free withdrawal amount every year. SEE ACCESS TO YOUR
MONEY ABOVE. If you take money out in excess of the free withdrawal amount, you
may incur a withdrawal charge. You may also incur a withdrawal charge upon a
full surrender.
We apply a withdrawal charge against each Purchase Payment you put into the
contract. After a Purchase Payment has been in the contract for 7 complete
years, or 9 years if you elected to participate in the Polaris Rewards Program,
no withdrawal charge applies. The withdrawal charge equals a percentage of the
Purchase Payment you take out of the contract. The withdrawal charge percentage
declines each year a Purchase Payment is in the contract. The two withdrawal
charge schedules are as follows:
WITHDRAWAL CHARGE WITHOUT THE POLARIS REWARDS PROGRAM (SCHEDULE A)
<Table>
<Caption>
- -----------------------------------------------------------------------------------------
YEAR 1 2 3 4 5 6 7 8+
- -----------------------------------------------------------------------------------------
WITHDRAWAL
CHARGE 7% 6% 5% 4% 3% 2% 1% 0%
- -----------------------------------------------------------------------------------------
</Table>
WITHDRAWAL CHARGE WITH THE POLARIS REWARDS PROGRAM (SCHEDULE B)
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------------
YEAR 1 2 3 4 5 6 7 8 9 10+
- -----------------------------------------------------------------------------------------------------------
WITHDRAWAL
CHARGE 9% 9% 8% 7% 6% 5% 4% 3% 2% 0%
- -----------------------------------------------------------------------------------------------------------
</Table>
When calculating the withdrawal charge, we treat withdrawals as coming first
from the Purchase Payments that have been in your contract the longest. However,
for tax purposes, your withdrawals are considered earnings first, then Purchase
Payments. SEE ACCESS TO YOUR MONEY ABOVE.
These higher potential withdrawal charges may compensate us for the expenses
associated with the Polaris Rewards Program.
The Polaris Rewards feature of this contract is designed to reward long term
investing. We expect that if you remain committed to this investment over the
long term, we will profit as a result of fees charged over the life of your
contract. However, neither the mortality and expense fees, distribution
expenses, contract maintenance fee nor the investment management fees are higher
on the Polaris Rewards version, than the contract without an election of the
bonus feature.
Whenever possible, we deduct the withdrawal charge from the money remaining in
your contract. If you withdraw all of your contract value, we deduct any
applicable withdrawal charges from the amount withdrawn.
We will not assess a withdrawal charge for money withdrawn to pay a death
benefit or to pay contract fees or charges. We will not assess a withdrawal
charge when you switch to the Income Phase, except when you elect to receive
income payments using the Income Protector feature. If you elect to receive
income payments using the Income Protector feature, we assess the entire
withdrawal charge applicable to Purchase Payments remaining in your contract
when calculating your income benefit base. SEE INCOME OPTIONS BELOW.
Withdrawals made prior to age 59 1/2 may result in tax penalties. SEE TAXES
BELOW.
27
INVESTMENT CHARGES
INVESTMENT MANAGEMENT FEES
Charges are deducted from your Variable Portfolios for the advisory and other
expenses of the Variable Portfolios. The Fee Tables illustrate these charges and
expenses. For more detailed information on these investment charges, refer to
the accompanying prospectuses for the Trusts.
12B-1 FEES
Shares of certain trusts may be subject to fees imposed under a distribution
and/or servicing plan adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940. For AIG SunAmerica Series Trust ("SAST"), under the
distribution plan which is applicable to all classes of shares, recaptured
brokerage commissions will be used to make payments to SunAmerica Capital
Services, Inc., the SAST's 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 0.25% fee applicable to Class II shares of the Van Kampen Life
Investment Trust, Class 2 shares of the American Funds Insurance Series and
Class 3 of the Anchor Series Trust and SunAmerica Series Trust 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 portfolios.
CONTRACT MAINTENANCE FEE
During the Accumulation Phase, we subtract a contract maintenance fee from your
account once per year. This charge compensates us for the cost of contract
administration. We deduct the $35 contract maintenance fee ($30 in North Dakota)
from your account value on your contract anniversary. If you withdraw your
entire contract value, we deduct the fee from that withdrawal.
If your contract value is $50,000 or more on your contract anniversary date, we
will waive the charge. This waiver is subject to change without notice.
TRANSFER FEE
Generally, we currently permit 15 free transfers between investment options each
contract year. We charge you $25 for each additional transfer that contract year
($10 in Pennsylvania and Texas). SEE INVESTMENT OPTIONS ABOVE.
OPTIONAL POLARIS INCOME REWARDS FEE
The annualized Polaris Income Rewards fee is calculated as a percentage of your
Withdrawal Benefits Base. The fee will be assessed and deducted periodically
from your contract value, starting on the first quarter following the Benefit
Effective Date and ending upon the termination of the benefit. If your contract
falls to zero before the benefit has been terminated, the fee will no longer be
assessed.
<Table>
<Caption>
TIME ELAPSED SINCE BENEFIT EFFECTIVE DATE ANNUALIZED FEE
- ----------------------------------------- --------------
0-7 0.65%
8+ 0.55%
</Table>
OPTIONAL CAPITAL PROTECTOR FEE
<Table>
<Caption>
CONTRACT YEAR ANNUALIZED CHARGE *
- ------------- -------------------
0-7 0.60%
8-10 0.20%
11+ none
</Table>
* As a percentage of your contract value minus Purchase Payments received after
the 90th day since the purchase of your contract. The amount of this charge is
subject to change at any time for prospectively issued contracts.
OPTIONAL ESTATEPLUS FEE
We charge 0.25% for the EstatePlus feature. On a daily basis we deduct this
charge from the average daily ending value of the assets you have allocated to
the Variable Portfolios.
PREMIUM TAX
Certain states charge the Company a tax on the premiums you pay into the
contract ranging from 0% to 3.5%. We deduct from your contract these premium tax
charges from your contract where applicable. Currently we deduct the charge for
premium taxes when you take a full withdrawal or begin the Income Phase of the
contract. In the future, we may assess this deduction at the time you put
Purchase Payment(s) into the contract or upon payment of a death benefit.
INCOME TAXES
We do not currently deduct income taxes from your contract. We reserve the right
to do so in the future.
REDUCTION OR ELIMINATION OF CHARGES AND EXPENSES, AND ADDITIONAL AMOUNTS
CREDITED
Sometimes sales of the contracts to groups of similarly situated individuals may
lower our administrative and/or sales expenses. We reserve the right to reduce
or waive certain charges and expenses when this type of sale occurs. In
addition, we may also credit additional interest to policies sold to such
groups. We determine which groups are eligible for such treatment. Some of the
criteria 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
28
registered representatives and immediate family members of all of those
described.
We reserve the right to change or modify any such determination or the treatment
applied to a particular group, at any time.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
INCOME OPTIONS
- ----------------------------------------------------------------
- ----------------------------------------------------------------
ANNUITY DATE
During the Income Phase, we use the money accumulated in your contract to make
regular income payments to you. You may switch to the Income Phase any time
after your second contract anniversary. You select the month and year you want
income payments to begin. The first day of that month is the Annuity Date. You
may change your Annuity Date, so long as you do so at least seven days before
the income payments are scheduled to begin. Once you begin receiving income
payments, you cannot change your income option. Except as indicated under Option
5 below, once you begin receiving income payments, you cannot otherwise access
your money through a withdrawal or surrender.
If you switch to the Income Phase prior to a Deferred Payment Enhancement Date,
we will not allocate the corresponding Deferred Payment Enhancement to your
contract. SEE POLARIS REWARDS PROGRAM ABOVE.
Income payments must begin on or before the Latest Annuity Date, which is your
95th birthday or on your tenth contract anniversary, whichever occurs later. If
you do not choose an Annuity Date, your income payments will automatically begin
on this date. Certain states may require your income payments to start earlier.
If the Annuity Date is past your 85th birthday, your contract could lose its
status as an annuity under Federal tax laws. This may cause you to incur adverse
tax consequences.
In addition, most Qualified contracts require you to take minimum distributions
after you reach age 70 1/2. SEE TAXES BELOW.
INCOME OPTIONS
Currently, this Contract offers five income options. Other payout options may be
available. Contact the Annuity Service Center for more information. If you elect
to receive income payments but do not select an option, your income payments
will be made in accordance with Option 4 for a period of 10 years. For income
payments based on joint lives, we pay according to Option 3 for a period of 10
years.
We base our calculation of income payments on the life of the Annuitant and the
annuity rates set forth in your contract. As the contract owner, you may change
the Annuitant at any time prior to the Annuity Date. You must notify us if the
Annuitant dies before the Annuity Date and designate a new Annuitant.
OPTION 1 - LIFE INCOME ANNUITY
This option provides income payments for the life of the Annuitant. Income
payments stop when the Annuitant dies.
OPTION 2 - JOINT AND SURVIVOR LIFE ANNUITY
This option provides income payments for the life of the Annuitant and for the
life of another designated person. Upon the death of either person, we will
continue to make income payments during the lifetime of the survivor. Income
payments stop when the survivor dies.
OPTION 3 - JOINT AND SURVIVOR LIFE ANNUITY WITH 10 OR 20 YEARS GUARANTEED
This option is similar to Option 2 above, with an additional guarantee of
payments for at least 10 or 20 years. If the Annuitant and the survivor die
before all of the guaranteed income payments have been made, the remaining
payments are made to the Beneficiary under your contract.
OPTION 4 - LIFE ANNUITY WITH 10 OR 20 YEARS GUARANTEED
This option is similar to Option 1 above. In addition, this option provides a
guarantee that income payments will be made for at least 10 or 20 years. You
select the number of years. If the Annuitant dies before all guaranteed income
payments are made, the remaining income payments go to the Beneficiary under
your contract.
OPTION 5 - INCOME FOR A SPECIFIED PERIOD
This option provides income payments for a guaranteed period ranging from 5 to
30 years. If the Annuitant dies before all the guaranteed income payments are
made, the remaining income payments are made to the Beneficiary under your
contract. Additionally, if variable income payments are elected under this
option, you (or the Beneficiary under the contract if the Annuitant dies prior
to all guaranteed income payments being made) may redeem any remaining
guaranteed variable income payments after the Annuity Date. The amount available
upon such redemption would be the discounted present value of any remaining
guaranteed variable income payments. If provided for in your contract, any
applicable withdrawal charge will be deducted from the discounted value as if
you fully surrendered your contract.
The value of an Annuity Unit, regardless of the option chosen, takes into
account the mortality and expense risk charge. Since Option 5 does not contain
an element of mortality risk, no benefit is derived from this charge.
For information regarding Income Options using the Income Protector feature,
please see below. Please read the Statement of Additional Information ("SAI")
for a more detailed discussion of the income options.
FIXED OR VARIABLE INCOME PAYMENTS
You can choose income payments that are fixed, variable or both. Unless
otherwise elected, if at the date when income
29
payments begin you are invested in the Variable Portfolios only, your income
payments will be variable and if your money is only in fixed accounts at that
time, your income payments will be fixed in amount. Further, if you are invested
in both fixed and variable investment options when income payments begin, your
payments will be fixed and variable, unless otherwise elected. If income
payments are fixed, AIG SunAmerica Life guarantees the amount of each payment.
If the income payments are variable the amount is not guaranteed.
INCOME PAYMENTS
We make income payments on a monthly, quarterly, semiannual or annual basis. You
instruct us to send you a check or to have the payments directly deposited into
your bank account. If state law allows, we distribute annuities with a contract
value of $5,000 or less in a lump sum. Also, if the selected income option
results in income payments of less than $50 per payment, we may decrease the
frequency of payments, state law allowing.
If you are invested in the Variable Portfolios after the Annuity date, your
income payments vary depending on four things:
- for life options, your age when payments begin, and in most states if a
Non-qualified contract, your gender; and
- the value of your contract in the Variable Portfolios on the Annuity
Date; and
- the 3.5% assumed investment rate used in the annuity table for the
contract; and
- the performance of the Variable Portfolios in which you are invested
during the time you receive income payments.
If you are invested in both the fixed account options and the Variable
Portfolios after the Annuity Date, the allocation of funds between the fixed and
variable options also impacts the amount of your annuity payments.
The value of variable income payments, if elected, is based on an assumed
interest rate ("AIR") of 3.5% compounded annually. Variable income payments
generally increase or decrease from one income payment date to the next based
upon the performance of the applicable Variable Portfolios. If the performance
of the Variable Portfolios selected is equal to the AIR, the income payments
will remain constant. If performance of Variable Portfolios is greater than the
AIR, the income payments will increase and if it is less than the AIR, the
income payments will decline.
TRANSFERS DURING THE INCOME PHASE
During the Income Phase, one transfer per month is permitted between the
Variable Portfolios. No other transfers are allowed during the Income Phase.
DEFERMENT OF PAYMENTS
We may defer making fixed payments for up to six months, or less if required by
law. Interest is credited to you during the deferral period. See also ACCESS TO
YOUR MONEY above for a discussion of when payments from a Variable Portfolio may
be suspended or postponed.
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TAXES
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NOTE: THE BASIC SUMMARY BELOW ADDRESSES BROAD FEDERAL TAXATION MATTERS, AND
GENERALLY DOES NOT ADDRESS STATE TAXATION ISSUES OR QUESTIONS. IT IS NOT TAX
ADVICE. WE CAUTION YOU TO SEEK COMPETENT TAX ADVICE ABOUT YOUR OWN
CIRCUMSTANCES. WE DO NOT GUARANTEE THE TAX STATUS OF YOUR ANNUITY. TAX LAWS
CONSTANTLY CHANGE; THEREFORE, WE CANNOT GUARANTEE THAT THE INFORMATION CONTAINED
HEREIN IS COMPLETE AND/OR ACCURATE. WE HAVE INCLUDED AN ADDITIONAL DISCUSSION
REGARDING TAXES IN THE SAI.
ANNUITY CONTRACTS IN GENERAL
The Internal Revenue Code ("IRC") provides for special rules regarding the tax
treatment of annuity contracts. Generally, taxes on the earnings in your annuity
contract are deferred until you take the money out. Qualified retirement
investments that satisfy specific tax and ERISA requirements automatically
provide tax deferral regardless of whether the underlying contract is an
annuity, a trust, or a custodial account. Different rules apply depending on how
you take the money out and whether your contract is Qualified or Non-Qualified.
If you do not purchase your contract under a pension plan, a specially sponsored
employer program or an individual retirement account, your contract is referred
to as a Non-Qualified contract. A Non-Qualified contract receives different tax
treatment than a Qualified contract. In general, your cost 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 or arrangements
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, for employer plans and tax-deductible
IRA contributions, you have not paid any tax
30
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 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 financial
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 separate from service from the employer sponsoring the plan. If you
own an IRA, you must begin taking distributions when you attain age 70 1/2
regardless of when you separate from service from the employer sponsoring the
plan. 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.
31
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 issued new regulations, effective January 1, 2003, regarding required
minimum distributions from qualified annuity contracts. One of the regulations
requires that the annuity contract value used to determine required minimum
distributions include the actuarial value of other benefits under the contract,
such as optional death benefits. This regulation does not apply to required
minimum distributions made under an irrevocable annuity income option. We are
currently awaiting further clarification from the IRS on this regulation,
including how the value of such benefits is determined. You should discuss the
effect of these new regulations with your tax advisor.
TAX TREATMENT OF DEATH BENEFITS
Any death benefits paid under the contract are taxable to the Beneficiary. The
rules governing the taxation of payments from an annuity contract, as discussed
above, generally apply whether the death benefits are paid as lump sum or
annuity payments. Estate taxes may also apply.
Certain enhanced death benefits may be purchased under your contract. Although
these types of benefits are used as investment protection and should not give
rise to any adverse tax effects, the IRS could take the position that some or
all of the charges for these death benefits should be treated as a partial
withdrawal from the contract. In that 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 the Company,
32
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. 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.
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PERFORMANCE
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We advertise the Cash Management Portfolio's yield and effective yield. In
addition, the other Variable Portfolios advertise total return, gross yield and
yield-to-maturity. These figures represent past performance of the Variable
Portfolios. These performance numbers do not indicate future results.
When we advertise performance for periods prior to the date the contracts were
first issued, we derive the figures from the performance of the corresponding
portfolios for the Trusts, if available. We modify these numbers to reflect
charges and expenses as if the subaccount was in existence during the period
stated in the advertisement. Figures calculated in this manner do not represent
actual historic performance of the particular Variable Portfolio.
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OTHER INFORMATION
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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 seven-wholly owned broker-dealers and
two investment advisors), specialize in retirement savings and investment
products and services. Business focuses include fixed and variable annuities,
mutual funds and broker-dealer services.
THE SEPARATE ACCOUNT
AIG SunAmerica Life established Variable Separate Account ("separate account"),
under Arizona law on January 1, 1996 when it assumed the separate account,
originally established under California law on June 25, 1981. The separate
account is registered with the SEC as a unit investment trust under the
Investment Company Act of 1940, as amended.
AIG SunAmerica Life owns the assets in the separate account. However, the assets
in the separate account are not chargeable with liabilities arising out of any
other business conducted by AIG SunAmerica Life. Income gains and losses
(realized and unrealized) resulting from assets in the separate account are
credited to or charged against the separate account without regard to other
income gains or losses of AIG SunAmerica Life. Assets in the separate account
are not guaranteed by AIG SunAmerica Life.
THE GENERAL ACCOUNT
Money allocated to the fixed account options goes into AIG SunAmerica Life's
general account. The general account consists of all of AIG SunAmerica Life's
assets other than assets attributable to a separate account. All of the assets
in the general account are chargeable with the claims of any AIG SunAmerica Life
contract holders as well as all of its creditors. The general account funds are
invested as permitted under state insurance laws.
DISTRIBUTION OF THE CONTRACT
Registered representatives of broker-dealers sell the contract. We pay
commissions to these representatives for the sale of the contracts. We pay an
initial commission of up to 8.00% of your Purchase Payment. We may also pay an
annual trail commission of up to 1.50% payable quarterly as early as the second
contract year. We may also pay a bonus to representatives for contracts which
stay active for a particular period of time, in addition to standard
commissions. We do not deduct commissions paid to registered representatives
directly from your Purchase Payments.
From time to time, we may pay or allow additional promotional incentives in the
form of cash or other compensation. We reserve the right to offer these
additional incentives only to certain broker-dealers which may or may not be
affiliated and/or certain registered representatives that sell or are expected
to sell, certain minimum amounts of the contract, or other contracts offered by
us. Promotional incentives may change at any time.
AIG SunAmerica Capital Services, Inc., Harborside Financial Center, 3200 Plaza
5, Jersey City, NJ 07311-4992 distributes the contracts. SunAmerica Capital
Services, an affiliate of
33
AIG SunAmerica Life, is registered as a broker-dealer under the Exchange Act of
1934 and is a member of the National Association of Securities Dealers, Inc. No
underwriting fees are paid in connection with the distribution of the contracts.
ADMINISTRATION
We are responsible for the administrative servicing of your contract. Please
contact our Annuity Service Center at 1-800-445-SUN2, if you have any comment,
question or service request.
We send out transaction confirmations and quarterly statements. During the
accumulation phase, you will receive confirmation of transactions within your
contract. Transactions made pursuant to contractual or systematic agreements,
such as dollar cost averaging, may be confirmed quarterly. Purchase payments
received through the automatic payment plan or a salary reduction arrangement,
may also be confirmed quarterly. For other transactions, we send confirmations
immediately. It is your responsibility to review these documents carefully and
notify us of any inaccuracies immediately. We investigate all inquiries. To the
extent that we believe we made an error, we retroactively adjust your contract,
provided you notify us within 30 days of receiving the transaction confirmation
or quarterly statement. Any other adjustments we deem warranted are made as of
the time we receive notice of the error.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Separate Account. AIG
SunAmerica Life engages in various kinds of routine litigation. In management's
opinion these matters are not of material importance to the Company's total
assets, nor are they material with respect to the Separate Account.
OWNERSHIP
The Polaris Platinum(II) Variable Annuity is a Flexible Payment Group Deferred
Annuity contract. We issue a group contract to a contract holder for the benefit
of the participants in the group. As a participant in the group, you will
receive a certificate which evidences your ownership. As used in this
prospectus, the term contract refers to your certificate. In some states, a
Flexible Payment Individual Modified Guaranteed and Variable Deferred Annuity
contract is available instead. Such a contract is identical to the contract
described in this prospectus, with the exception that we issue it directly to
the owner.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of AIG SunAmerica Life Assurance Company
at December 31, 2003 and 2002, and for each of the three years in the period
ended December 31, 2003 and financial statements of Variable Separate Account at
December 31, 2003 and for each of the two years in the period ended December 31,
2003, 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.
REGISTRATION STATEMENT
A registration statement has been filed with the SEC under the Securities Act of
1933 relating to the contract. This prospectus does not contain all the
information in the registration statement as permitted by SEC regulations. The
omitted information can be obtained from the SEC's principal office in
Washington, D.C., upon payment of a prescribed fee.
34
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TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
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Additional information concerning the operations of the separate account is
contained in a Statement of Additional Information ("SAI"), which is available
without charge upon written request addressed to us at our Annuity Service
Center, P.O. Box 54299, Los Angeles, California 90054-0299 or by calling (800)
445-SUN2. The contents of the SAI are tabulated below.
<Table>
Separate Account.............................. 3
General Account............................... 3
Performance Data.............................. 4
Income Payments............................... 12
Income Protector.............................. 13
Annuity Unit Values........................... 13
Death Benefit Options for Contracts Issued
Before October 24, 2001..................... 16
Taxes......................................... 17
Distribution of Contracts..................... 23
Financial Statements.......................... 23
</Table>
35
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APPENDIX A - CONDENSED FINANCIALS
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<Table>
<Caption>
INCEPTION TO FISCAL YEAR
PORTFOLIOS 12/31/02 12/31/03
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Capital Appreciation (Inception Date - 09/30/02)
Beginning AUV....................................... (a) $24.182 $25.794
(b) $24.182 $25.769
Ending AUV.......................................... (a) $25.794 $33.529
(b) $25.769 $33.414
Ending Number of AUs................................ (a) 137,717 1,159,548
(b) 7,742 137,361
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Government and Quality Bond (Inception Date - 09/30/02)
Beginning AUV....................................... (a) $16.370 $16.472
(b) $16.370 $16.443
Ending AUV.......................................... (a) $16.472 $16.588
(b) $16.443 $16.522
Ending Number of AUs................................ (a) 290,385 3,984,131
(b) 50,620 497,760
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Growth (Inception Date - 09/30/02)
Beginning AUV....................................... (a) $19.417 $20.848
(b) $19.417 $20.811
Ending AUV.......................................... (a) $20.848 $26.615
(b) $20.811 $26.501
Ending Number of AUs................................ (a) 65,224 890,267
(b) 7,793 104,691
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Natural Resources (Inception Date - 09/30/02)
Beginning AUV....................................... (a) $13.753 $15.272
(b) $13.753 $15.260
Ending AUV.......................................... (a) $15.272 $22.162
(b) $15.260 $22.091
Ending Number of AUs................................ (a) 3,369 166,767
(b) 3,108 33,063
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Aggressive Growth (Inception Date - 09/30/02)
Beginning AUV....................................... (a) $10.011 $10.077
(b) $10.011 $10.067
Ending AUV.......................................... (a) $10.077 $12.720
(b) $10.067 $12.678
Ending Number of AUs................................ (a) 9,218 142,870
(b) 527 28,027
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Alliance Growth (Inception Date - 09/30/02)
Beginning AUV....................................... (a) $21.881 $21.940
(b) $21.881 $21.905
Ending AUV.......................................... (a) $21.940 $27.122
(b) $21.905 $27.011
Ending Number of AUs................................ (a) 45,029 594,386
(b) 5,469 69,502
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Blue Chip Growth (Inception Date - 09/30/02)
Beginning AUV....................................... (a) $4.530 $4.659
(b) $4.530 $4.646
Ending AUV.......................................... (a) $4.659 $5.769
(b) $4.646 $5.739
Ending Number of AUs................................ (a) 25,770 414,391
(b) 369 40,274
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Cash Management (Inception Date - 09/30/02)
Beginning AUV....................................... (a) $13.025 $13.018
(b) $13.025 $12.985
Ending AUV.......................................... (a) $13.018 $12.878
(b) $12.985 $12.811
Ending Number of AUs................................ (a) 281,453 2,514,514
(b) 94,850 261,745
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Corporate Bond (Inception Date - 09/30/02)
Beginning AUV....................................... (a) $14.394 $14.704
(b) $14.394 $14.702
Ending AUV.......................................... (a) $14.704 $16.174
(b) $14.702 $16.133
Ending Number of AUs................................ (a) 115,713 946,263
(b) 2,563 149,828
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AU - Accumulation Unit
AUV - Accumulation Unit Value
(a) Without election of the optional EstatePlus feature
(b) With election of the optional EstatePlus feature
</Table>
A-1
<Table>
<Caption>
INCEPTION TO FISCAL YEAR
PORTFOLIOS 12/31/02 12/31/03
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Davis Venture Value (Inception Date - 09/30/02)
Beginning AUV........................................ (a) $20.108 $21.460
(b) $20.108 $21.427
Ending AUV........................................... (a) $21.460 $28.069
(b) $21.427 $27.956
Ending Number of AUs................................. (a) 115,086 1,725,140
(b) 25,333 262,216
- --------------------------------------------------------------------------------------------------
"Dogs" of Wall Street (Inception Date - 09/30/02)
Beginning AUV........................................ (a) $8.149 $8.902
(b) $8.149 $8.901
Ending AUV........................................... (a) $8.902 $10.500
(b) $8.901 $10.471
Ending Number of AUs................................. (a) 15,055 263,040
(b) 7,757 66,688
- --------------------------------------------------------------------------------------------------
Emerging Market (Inception Date - 09/30/02)
Beginning AUV........................................ (a) $5.486 $5.958
(b) $5.486 $5.952
Ending AUV........................................... (a) $5.958 $8.933
(b) $5.952 $8.902
Ending Number of AUs................................. (a) 11,000 186,478
(b) 1,832 42,556
- --------------------------------------------------------------------------------------------------
Federated American Leaders (Inception Date - 09/30/02)
Beginning AUV........................................ (a) $11.895 $12.912
(b) $11.895 $12.895
Ending AUV........................................... (a) $12.912 $16.184
(b) $12.895 $16.122
Ending Number of AUs................................. (a) 60,297 226,851
(b) 7,324 27,080
- --------------------------------------------------------------------------------------------------
Foreign Value (Inception Date - 09/30/02)
Beginning AUV........................................ (a) $8.970 $9.407
(b) $8.970 $9.390
Ending AUV........................................... (a) $9.407 $12.463
(b) $9.390 $12.410
Ending Number of AUs................................. (a) 163,234 2,457,488
(b) 12,214 361,907
- --------------------------------------------------------------------------------------------------
Global Bond (Inception Date - 09/30/02)
Beginning AUV........................................ (a) $16.095 $16.324
(b) $16.095 $16.246
Ending AUV........................................... (a) $16.324 $16.611
(b) $16.246 $16.490
Ending Number of AUs................................. (a) 14,628 255,534
(b) 90 37,002
- --------------------------------------------------------------------------------------------------
Global Equities (Inception Date - 09/30/02)
Beginning AUV........................................ (a) $11.708 $12.546
(b) $11.708 $12.519
Ending AUV........................................... (a) $12.546 $15.584
(b) $12.519 $15.468
Ending Number of AUs................................. (a) 7,750 73,506
(b) 13 10,826
- --------------------------------------------------------------------------------------------------
Growth-Income (Inception Date - 09/30/02)
Beginning AUV........................................ (a) $20.102 $20.787
(b) $20.102 $20.749
Ending AUV........................................... (a) $20.787 $25.658
(b) $20.749 $25.549
Ending Number of AUs................................. (a) 52,756 231,147
(b) 877 40,091
- --------------------------------------------------------------------------------------------------
Growth Opportunities (Inception Date - 09/30/02)
Beginning AUV........................................ (a) $3.230 $3.435
(b) $3.230 $3.434
Ending AUV........................................... (a) $3.435 $4.557
(b) $3.434 $4.544
Ending Number of AUs................................. (a) 35,308 269,627
(b) 16,803 71,725
- --------------------------------------------------------------------------------------------------
High-Yield Bond (Inception Date - 09/30/02)
Beginning AUV........................................ (a) $10.951 $11.586
(b) $10.951 $11.563
Ending AUV........................................... (a) $11.586 $14.978
(b) $11.563 $14.910
Ending Number of AUs................................. (a) 23,586 711,066
(b) 5,755 148,009
- --------------------------------------------------------------------------------------------------
AU - Accumulation Unit
AUV - Accumulation Unit Value
(a) Without election of the optional EstatePlus feature
(b) With election of the optional EstatePlus feature
</Table>
A-2
<Table>
<Caption>
INCEPTION TO FISCAL YEAR
PORTFOLIOS 12/31/02 12/31/03
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
International Diversified Equities (Inception Date - 09/30/02)
Beginning AUV........................................ (a) $6.995 $7.170
(b) $6.995 $7.157
Ending AUV........................................... (a) $7.170 $9.286
(b) $7.157 $9.246
Ending Number of AUs................................. (a) 111,291 2,207,499
(b) 13,612 271,169
- --------------------------------------------------------------------------------------------------
International Growth and Income (Inception Date - 09/30/02)
Beginning AUV........................................ (a) $8.000 $8.330
(b) $8.000 $8.343
Ending AUV........................................... (a) $8.330 $11.204
(b) $8.343 $11.198
Ending Number of AUs................................. (a) 103,102 650,379
(b) 1,722 112,450
- --------------------------------------------------------------------------------------------------
Marsico Growth (Inception Date - 09/30/02)
Beginning AUV........................................ (a) $7.628 $7.429
(b) $7.628 $7.419
Ending AUV........................................... (a) $7.429 $9.507
(b) $7.419 $9.470
Ending Number of AUs................................. (a) 75,347 918,445
(b) 22,137 290,269
- --------------------------------------------------------------------------------------------------
MFS Massachusetts Investors Trust (Inception Date - 09/30/02)
Beginning AUV........................................ (a) $14.084 $14.930
(b) $14.084 $14.910
Ending AUV........................................... (a) $14.930 $17.969
(b) $14.910 $17.902
Ending Number of AUs................................. (a) 30,003 545,587
(b) 2,373 81,535
- --------------------------------------------------------------------------------------------------
MFS Mid-Cap Growth (Inception Date - 09/30/02)
Beginning AUV........................................ (a) $6.525 $6.965
(b) $6.525 $6.950
Ending AUV........................................... (a) $6.965 $9.392
(b) $6.950 $9.349
Ending Number of AUs................................. (a) 127,090 1,733,813
(b) 14,748 329,389
- --------------------------------------------------------------------------------------------------
MFS Total Return (Inception Date - 09/30/02)
Beginning AUV........................................ (a) $18.961 $19.853
(b) $18.961 $19.815
Ending AUV........................................... (a) $19.853 $22.797
(b) $19.815 $22.697
Ending Number of AUs................................. (a) 114,386 1,504,372
(b) 17,494 198,694
- --------------------------------------------------------------------------------------------------
Putnam Growth: Voyager (Inception Date - 09/30/02)
Beginning AUV........................................ (a) $13.178 $13.785
(b) $13.178 $13.756
Ending AUV........................................... (a) $13.785 $16.795
(b) $13.756 $16.718
Ending Number of AUs................................. (a) 26,714 91,097
(b) 3,638 14,803
- --------------------------------------------------------------------------------------------------
Real Estate (Inception Date - 09/30/02)
Beginning AUV........................................ (a) $11.543 $11.836
(b) $11.543 $11.824
Ending AUV........................................... (a) $11.836 $16.050
(b) $11.824 $15.993
Ending Number of AUs................................. (a) 21,457 337,695
(b) 5,369 86,289
- --------------------------------------------------------------------------------------------------
Small & Mid Cap Value (Inception Date - 09/30/02)
Beginning AUV........................................ (a) $9.180 $10.122
(b) $9.180 $10.100
Ending AUV........................................... (a) $10.122 $13.588
(b) $10.100 $13.525
Ending Number of AUs................................. (a) 107,425 1,434,738
(b) 10,354 282,420
- --------------------------------------------------------------------------------------------------
SunAmerica Balanced (Inception Date - 09/30/02)
Beginning AUV........................................ (a) $12.518 $12.509
(b) $12.518 $12.492
Ending AUV........................................... (a) $12.509 $14.149
(b) $12.492 $14.093
Ending Number of AUs................................. (a) 8,446 233,499
(b) 12,402 46,635
- --------------------------------------------------------------------------------------------------
</Table>
<Table>
AU - Accumulation Unit
AUV - Accumulation Unit Value
(a) Without election of the optional EstatePlus feature
(b) With election of the optional EstatePlus feature
</Table>
A-3
<Table>
<Caption>
INCEPTION TO FISCAL YEAR
PORTFOLIOS 12/31/02 12/31/03
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Technology (Inception Date - 09/30/02)
Beginning AUV........................................ (a) $1.432 $1.716
(b) $1.432 $1.715
Ending AUV........................................... (a) $1.716 $2.544
(b) $1.715 $2.536
Ending Number of AUs................................. (a) 79,837 1,468,721
(b) 20,700 223,801
- --------------------------------------------------------------------------------------------------
Lord Abbett Series Fund Growth and Income (Inception
Date - 09/30/02)
Beginning AUV........................................ (a) $7.486 $8.180
(b) $7.471 $8.159
Ending AUV........................................... (a) $8.180 $10.556
(b) $8.159 $10.503
Ending Number of AUs................................. (a) 62,903 820,512
(b) 39,318 139,335
- --------------------------------------------------------------------------------------------------
Van Kampen LIT Comstock, Class II Shares (Inception
Date - 09/30/02)
Beginning AUV........................................ (a) $7.298 $8.101
(b) $7.296 $8.094
Ending AUV........................................... (a) $8.101 $10.434
(b) $8.094 $10.399
Ending Number of AUs................................. (a) 73,831 1,500,438
(b) 11,726 247,660
- --------------------------------------------------------------------------------------------------
Van Kampen LIT Emerging Growth, Class II Shares (Inception
Date - 09/30/02)
Beginning AUV........................................ (a) $7.139 $6.916
(b) $7.133 $6.906
Ending AUV........................................... (a) $6.916 $8.654
(b) $6.906 $8.619
Ending Number of AUs................................. (a) 33,388 396,216
(b) 1,754 93,581
- --------------------------------------------------------------------------------------------------
Van Kampen LIT Growth and Income, Class II Shares (Inception
Date - 09/30/02)
Beginning AUV........................................ (a) $8.181 $8.826
(b) $8.180 $8.197
Ending AUV........................................... (a) $8.826 $11.100
(b) $8.197 $11.064
Ending Number of AUs................................. (a) 189,460 2,716,948
(b) 16,825 341,615
- --------------------------------------------------------------------------------------------------
Balanced (Inception Date - 09/30/02)
Beginning AUV........................................ (a) $6.410 $6.765
(b) $6.394 $6.737
Ending AUV........................................... (a) $6.765 $8.160
(b) $6.737 $8.106
Ending Number of AUs................................. (a) 96,311 881,607
(b) 13,638 99,844
- --------------------------------------------------------------------------------------------------
Conservative Growth (Inception Date - 09/30/02)
Beginning AUV........................................ (a) $6.183 $6.589
(b) $6.188 $6.572
Ending AUV........................................... (a) $6.589 $8.331
(b) $6.572 $8.290
Ending Number of AUs................................. (a) 26,095 465,978
(b) 4,569 61,397
- --------------------------------------------------------------------------------------------------
Strategic Growth (Inception Date - 09/30/02)
Beginning AUV........................................ (a) $6.386 $6.874
(b) $6.373 $6.842
Ending AUV........................................... (a) $6.874 $8.989
(b) $6.842 $8.924
Ending Number of AUs................................. (a) 34,328 196,663
(b) 24 26,179
- --------------------------------------------------------------------------------------------------
American Funds Global Growth (Inception Date - 09/30/02)
Beginning AUV........................................ (a) $10.000 $10.949
(b) $10.000 $10.936
Ending AUV........................................... (a) $10.949 $14.590
(b) $10.936 $14.537
Ending Number of AUs................................. (a) 92,435 987,076
(b) 12,106 150,027
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
AU - Accumulation Unit
AUV - Accumulation Unit Value
(a) Without election of the optional EstatePlus feature
(b) With election of the optional EstatePlus feature
</Table>
A-4
<Table>
<Caption>
INCEPTION TO FISCAL YEAR
PORTFOLIOS 12/31/02 12/31/03
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
American Funds Growth (Inception Date - 09/30/02)
Beginning AUV........................................ (a) $10.000 $10.884
(b) $10.000 $10.876
Ending AUV........................................... (a) $10.884 $14.667
(b) $10.876 $14.621
Ending Number of AUs................................. (a) 179,113 2,448,300
(b) 40,944 389,740
- --------------------------------------------------------------------------------------------------
American Funds Growth-Income (Inception Date - 09/30/02)
Beginning AUV........................................ (a) $10.000 $10.884
(b) $10.000 $10.872
Ending AUV........................................... (a) $10.884 $14.197
(b) $10.872 $14.148
Ending Number of AUs................................. (a) 264,424 3,073,765
(b) 30,474 484,620
- --------------------------------------------------------------------------------------------------
Nations Asset Allocation (Inception Date - 04/07/03)
Beginning AUV........................................ (a) N/A $8.229
(b) N/A $8.200
Ending AUV........................................... (a) N/A $9.608
(b) N/A $9.557
Ending Number of AUs................................. (a) N/A 50,082
(b) N/A 51
- --------------------------------------------------------------------------------------------------
Nations High Yield Bond (Inception Date - 04/07/03)
Beginning AUV....................................... (a) N/A $11.013
(b) N/A $10.964
Ending AUV.......................................... (a) N/A $13.182
(b) N/A $13.100
Ending Number of AUs................................ (a) N/A 154,070
(b) N/A 11,170
- --------------------------------------------------------------------------------------------------
Nations Marsico Focused Equities (Inception
Date - 04/07/03)
Beginning AUV........................................ (a) N/A $7.372
(b) N/A $7.333
Ending AUV........................................... (a) N/A $9.382
(b) N/A $9.315
Ending Number of AUs................................. (a) N/A 371,681
(b) N/A 11,251
- --------------------------------------------------------------------------------------------------
Nations Marsico Growth (Inception Date - 04/07/03)
Beginning AUV........................................ (a) N/A $6.791
(b) N/A $6.760
Ending AUV........................................... (a) N/A $8.602
(b) N/A $8.547
Ending Number of AUs................................. (a) N/A 89,757
(b) N/A 6,744
- --------------------------------------------------------------------------------------------------
Nations Marsico 21st Century (Inception Date - 04/07/03)
Beginning AUV........................................ (a) N/A $7.488
(b) N/A $7.454
Ending AUV........................................... (a) N/A $10.705
(b) N/A $10.636
Ending Number of AUs................................. (a) N/A 13,567
(b) N/A 916
- --------------------------------------------------------------------------------------------------
Nations Marsico International Opportunities (Inception
Date - 04/07/03)
Beginning AUV........................................ (a) N/A $8.569
(b) N/A $8.546
Ending AUV........................................... (a) N/A $11.886
(b) N/A $11.833
Ending Number of AUs................................. (a) N/A 119,127
(b) N/A 7,071
- --------------------------------------------------------------------------------------------------
Nations Mid Cap Growth (Inception Date - 04/07/03)
Beginning AUV........................................ (a) N/A $5.745
(b) N/A $5.332
Ending AUV........................................... (a) N/A $7.295
(b) N/A $6.757
Ending Number of AUs................................. (a) N/A 59.774
(b) N/A 4,127
- --------------------------------------------------------------------------------------------------
AU - Accumulation Unit
AUV - Accumulation Unit Value
(a) Without election of the optional EstatePlus feature
(b) With election of the optional EstatePlus feature
</Table>
A-5
<Table>
<Caption>
INCEPTION TO FISCAL YEAR
PORTFOLIOS 12/31/02 12/31/03
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Nations Small Company (Inception Date - 04/07/03)
Beginning AUV........................................ (a) N/A $6.885
(b) N/A $6.845
Ending AUV........................................... (a) N/A $9.606
(b) N/A $9.532
Ending Number of AUs................................. (a) N/A 66,928
(b) N/A 4,725
- --------------------------------------------------------------------------------------------------
Nations Value (Inception Date - 04/07/03)
Beginning AUV........................................ (a) N/A $7.226
(b) N/A $7.186
Ending AUV........................................... (a) N/A $9.431
(b) N/A $9.360
Ending Number of AUs................................. (a) N/A 171,341
(b) N/A 9,090
- --------------------------------------------------------------------------------------------------
AU - Accumulation Unit
AUV - Accumulation Unit Value
(a) Without election of the optional EstatePlus feature
(b) With election of the optional EstatePlus feature
</Table>
A-6
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX B - MARKET VALUE ADJUSTMENT ("MVA") AND FIXED ADVANTAGE 7 ACCOUNT
OPTION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Multi-year FAGPs may not be available if you purchase your contract on or after
June 1, 2004. 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 does not apply to
any available one-year fixed account. 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.
The information in this Appendix applies only if you take money out of a FAGP
(with a duration longer than 1 year) before the end of the guarantee period.
We calculate the MVA by doing a comparison between current rates and the rate
being credited to you in the FAGP. For the current rate we use a rate being
offered by us for a guarantee period that is equal to the time remaining in the
FAGP from which you seek withdrawal (rounded up to a full number of years). If
we are not currently offering a guarantee period for that period of time, we
determine an applicable rate by using a formula to arrive at a number based on
the interest rates currently offered for the two closest periods available.
Where the MVA is negative, we first deduct the adjustment from any money
remaining in the FAGP. If there is not enough money in the FAGP to meet the
negative deduction, we deduct the remainder from your withdrawal. Where the MVA
is positive, we add the adjustment to your withdrawal amount. If a withdrawal
charge applies, it is deducted before the MVA calculation. The MVA is assessed
on the amount withdrawn less any withdrawal charges.
The MVA is computed by multiplying the amount withdrawn, transferred or taken
under an income option by the following factor:
[(1+I/(1+J+L)](N/12) - 1
where:
I is the interest rate you are earning on the money invested in the FAGP;
J is the interest rate then currently available for the period of time
equal to the number of years remaining in the term you initially agreed to
leave your money in the FAGP;
N is the number of full months remaining in the term you initially agreed
to leave your money in the FAGP; and
L is 0.005 (some states require a different value. Please see your
contract.)
We do not assess an MVA against withdrawals from an FAGP under the following
circumstances:
- If a withdrawal is made within 30 days after the end of a guarantee
period;
- If a withdrawal is made to pay contract fees and charges;
- To pay a death benefit; and
- Upon beginning an income option, if occurring on the Latest Annuity Date.
EXAMPLES OF THE MVA
The purpose of the examples below is to show how the MVA adjustments are
calculated and may not reflect the Guarantee periods available or Surrender
Charges applicable under your contract.
The examples below assume the following:
(1) You made an initial Purchase Payment of $10,000 and allocated it to a
FAGP at a rate of 5%;
(2) You make a partial withdrawal of $4,000 when 1 1/2 years (18 months)
remain in the term you initially agreed to leave your money in the FAGP
(N=18);
(3) You have not made any other transfers, additional Purchase Payments, or
withdrawals; and
(4) Your contract was issued in a state where L=0.005.
B-1
POSITIVE ADJUSTMENT, NO WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for a new
Purchase Payments in the 1-year FAGP is 3.5% and the 3-year FAGP is 4.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 4%. No
withdrawal charge is reflected in this example, assuming that the Purchase
Payment withdrawn falls within the free look amount.
The MVA factor is= [(1+I/(1+J+0.005)](N/12) - 1
= [(1.05)/(1.04+0.005)](18/12) - 1
= (1.004785)(1.5) - 1
= 1.007186 - 1
= +0.007186
The requested withdrawal amount is multiplied by the MVA factor to determine the
MVA:
$4,000 X (+0.007186) = +$28.74
$28.74 represents the positive MVA that would be added to the withdrawal.
NEGATIVE ADJUSTMENT, NO WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 5.5% and the 3-year FAGP is 6.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 6%. No
withdrawal charge is reflected in this example, assuming that the Purchase
Payment withdrawn falls with the free withdrawal amount.
The MVA factor is= [(1+I)/(1+J+0.005)](N/12) - 1
= [(1.05)/(1.06+0.005)](18/12) - 1
= (0.985915)(1.5) - 1
= 0.978948 - 1
= -0.021052
The requested withdrawal amount is multiplied by the MVA factor to determine the
MVA:
$4,000 X (-0.021052) = -$84.21
$84.21 represents the negative MVA that will be deducted from the money
remaining in the 3-year FAGP.
POSITIVE ADJUSTMENT, WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 3.5% and the 3-year FAGP is 4.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 4%. A
withdrawal charge of 6% is reflected in this example, assuming that the Purchase
Payment withdrawn exceeds the free withdrawal amount.
The MVA factor is= [(1+I)/(I+J+0.005)](N/12) - 1
= [(1.05)/(1.04+0.005)](18/12) - 1
= (1.004785)(1.5) - 1
= 1.007186 - 1
= +0.007186
The requested withdrawal amount, less the withdrawal charge ($4,000 - 6% =
$3,760) is multiplied by the MVA factor to determine the MVA:
$3,760 X (+0.007186) = +$27.02
$27.02 represents the positive MVA that would be added to the withdrawal.
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.
B-2
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.
FIXED ADVANTAGE 7 ACCOUNT OPTION
Fixed Advantage 7 is an additional seven-year fixed account option available in
your contract (if you have not elected to participate in the Principal Rewards
program) and will generally offer a different interest rate than the other fixed
account options in your contract. Only Purchase Payments made during the first
90 days following issuance of your contract can be invested in Fixed Advantage
7. If you inadvertently allocate any Purchase Payments to Fixed Advantage 7
after the first 90 days of your contract, we will allocate those funds according
to your last Variable Portfolio allocation instructions, unless we receive
different instructions from you. At the end of the 7-year guarantee period, the
entire balance in Fixed Advantage 7 will be automatically transferred into those
funds according to your last Variable Portfolio allocation instructions, unless
we receive different instructions from you. If your previous instructions did
not include allocation to Variable Portfolios, we will transfer any funds into
the Cash Management Variable Portfolio. These automatic transfers do not count
against the number of free annual transfers.
You cannot transfer money out of Fixed Advantage 7 prior to the end of the
7-year guarantee period; however, you may elect to systematically transfer the
interest earned in this account to other Variable Portfolios at any time either
monthly, quarterly, semi-annually or annually. If you make a full or partial
withdrawal from your contract, you will be subject to a market value adjustment
on all funds invested in the multi-year fixed accounts including Fixed Advantage
7 and any applicable surrender charges. See APPENDIX B below.
You will not be subject to a market value adjustment if:
(1) you systematically transfer interest earned to other Variable
Portfolios as part of the DCA program;
(2) a death benefit is paid;
(3) any withdrawal is made to pay fees or charges; or
(4) any amount automatically transferred at the end of the guarantee
period.
FIXED ADVANTAGE 7 IS ONLY AVAILABLE IF YOU DO NOT ELECT TO PARTICIPATE IN THE
PRINCIPAL REWARDS PROGRAM. IT MAY NOT BE AVAILABLE IN ALL STATES.
B-3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX C - DEATH BENEFITS FOLLOWING SPOUSAL CONTINUATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Capitalized terms used in this Appendix have the same meaning as they have in
prospectus.
The term "Continuation Net Purchase Payment" is used frequently to describe the
death benefit options payable to the beneficiary of the Continuing Spouse. We
define Continuation Net Purchase Payment as Net Purchase Payments made as of the
Continuation Date. For the purpose of calculating Continuation Net Purchase
Payments, the amount that equals the contract value on the Continuation Date,
including the Continuation Contribution is considered a Purchase Payment. If the
Continuing Spouse makes no additional Purchase Payments or withdrawal,
Continuation Net Purchase Payments equals the contract value on the Continuation
Date, including the Continuation Contribution.
The term "withdrawals" as used in describing the death benefit options below is
defined as withdrawals and any fees and charges applicable to those withdrawals.
The following details the death benefit options and EstatePlus benefit upon the
Continuing Spouse's death:
The death benefit we will pay to the new Beneficiary chosen by the Continuing
Spouse varies depending on the death benefit option elected by the original
owner of the contract and the age of the Continuing Spouse as of the
Continuation Date.
A. DEATH BENEFIT PAYABLE UPON CONTINUING SPOUSE'S DEATH:
1. Purchase Payment Accumulation Option
If the original owner of the contract elected OPTION 1, PURCHASE
PAYMENT ACCUMULATION OPTION, and the Continuing Spouse is age 74 or younger
on the Continuation Date, then upon the death of the Continuing Spouse, the
death benefit will be the greatest of:
a. Contract value; or
b. Contract value on the Continuation Date plus Continuation Net
Purchase Payments, compounded at 3% annual growth rate, to the
earlier of the Continuing Spouse's 75th birthday or date of death;
plus Continuation Net Purchase Payments received after the
Continuing Spouse's 75th birthday to the earlier of the Continuing
Spouse's 86th birthday or date of death; or
c. Contract value on the seventh contract anniversary (from the issue
date of the original owner), reduced for Gross Withdrawals since
the seventh contract anniversary in the same proportion that the
contract value was reduced on the date of such withdrawal, plus Net
Purchase Payments received between the seventh contract anniversary
date but prior to the Continuing Spouse's 86th birthday.
If the Continuing Spouse is age 75-82 on the Continuation Date, then
the death benefit will be the greatest of:
a. Contract value; or
b. Contract value on the Continuation Date plus any Continuation Net
Purchase Payments received prior to the Continuing Spouse's 86th
birthday; or
c. Maximum anniversary value on any contract anniversary that occurred
after the Continuation Date, but prior to the Continuing Spouse's
83rd birthday. The anniversary value for any year is equal to the
contract value on the applicable contract anniversary date, plus
any Net Purchase Payments received since that anniversary date
prior to the Continuing Spouse's 86th birthday, and reduced for any
Gross Withdrawals since that contract anniversary in the same
proportion that the withdrawal reduced the contract value on the
date of withdrawal.
If the Continuing Spouse is age 83-85 on the Continuation Date, then
the death benefit will be the greatest of:
a. Contract value; or
b. the lesser of:
(1) Contract value on the Continuation Date plus Continuation Net
Purchase Payments received prior to the Continuing Spouse's
86th birthday; or
(2) 125% of the contract value.
If the Continuing Spouse is age 86 or older as of the Continuation
Date and the original owner of the contract elected the Purchase Payment
Accumulation death benefit, the death benefit will be equal to the contract
value.
2. Maximum Anniversary Value Option
If the original owner of the contract elected Option 2, Maximum
Anniversary Option, and the Continuing Spouse is age 82 or younger on the
Continuation Date, then upon the death of the Continuing Spouse, the death
benefit will be the greatest of:
a. Contract value; or
b. Contract value on the Continuation Date plus Continuation Net
Purchase Payments received prior to the Continuing Spouse's 86th
birthday; or
c. Maximum anniversary value on any contract anniversary that occurred
after the Continuation
C-1
Date, but prior to the Continuing Spouse's 83rd birthday. The
anniversary value for any year is equal to the contract value on
the applicable contract anniversary date after the Continuation
Date, plus any Continuation Net Purchase Payments received since
that anniversary date prior to the Continuing Spouse's 86th
birthday, and reduced for any Gross Withdrawals since that contract
anniversary in the same proportion that the withdrawal reduced the
contract value on the date of withdrawal.
If the Continuing Spouse is age 83-85 on the Continuation Date, then
the death benefit will be the greater of:
a. Contract value; or
b. the lesser of:
(3) Contract value on the Continuation Date plus any Continuation
Net Purchase Payments received prior to the Continuing Spouse's
86th birthday; or
(4) 125% of the contract value.
If the Continuing Spouse is age 86 or older at the time of death,
under the Maximum Anniversary death benefit, their Beneficiary will receive
only the contract value.
Please see the Statement of Additional Information for a description of the
death benefit calculations following a Spousal Continuation for contracts issued
on or before May 31, 2004.
B. THE ESTATEPLUS BENEFIT PAYABLE UPON CONTINUING SPOUSE'S DEATH:
The EstatePlus benefit may increase the death benefit amount. The EstatePlus
benefit is only available if the original owner elected EstatePlus and it has
not been terminated. If the Continuing Spouse had earnings in the contract at
the time of his/her death, we will add a percentage of those earnings (the
"EstatePlus Percentage"), subject to a maximum dollar amount (the "Maximum
EstatePlus Percentage"), to the death benefit payable, based on the number of
years the Continuing Spouse has held the contract since the Continuation Date.
The EstatePlus benefit, if any, is added to the death benefit payable under the
Purchase Payment Accumulation or the Maximum Anniversary option.
On the Continuation Date, if the Continuing Spouse is 69 or younger and a
Continuation Contribution is added, the table below shows the available
EstatePlus benefit:
<Table>
<Caption>
- -------------------------------------------------------------------
CONTRACT YEAR ESTATEPLUS MAXIMUM
OF DEATH PERCENTAGE ESTATEPLUS AMOUNT
- -------------------------------------------------------------------
Years (0-4) 25% of Earnings 40% of Continuation Net
Purchase Payments
- -------------------------------------------------------------------
Years (5-9) 40% of Earnings 65% of Continuation Net
Purchase Payments*
- -------------------------------------------------------------------
Years (10+) 50% of Earnings 75% of Continuation Net
Purchase Payments*
- -------------------------------------------------------------------
</Table>
On the Continuation Date, if the Continuing Spouse is between your 70th and 81st
birthdays and a Continuation Contribution is added, table below shows the
available EstatePlus benefit:
<Table>
<Caption>
- -------------------------------------------------------------------
CONTRACT YEAR ESTATEPLUS MAXIMUM
OF DEATH PERCENTAGE ESTATEPLUS AMOUNT
- -------------------------------------------------------------------
All Contract 25% of Earnings 40% of Continuation Net
Years Purchase Payments*
- -------------------------------------------------------------------
</Table>
* Purchase Payments received after the 5th anniversary of the Continuation Date
must remain in the contract for at least 6 full months to be included as part
of the Continuation Net Purchase Payments for the purpose of the Maximum
Estate Plus Percentage calculation.
If a Continuation Contribution is not added on the Continuation Date, the
Continuing Spouse's age as of the original contract issue date is used to
calculate the EstatePlus benefit, if any.
What is the Contract Year of Death?
Contract Year of Death is the number of full 12 month periods starting on the
Continuation Date and ending on the Continuing Spouse's date of death.
What is the EstatePlus amount?
We determine the EstatePlus amount based upon a percentage of earnings in the
contract at the time of the Continuing Spouse's death. For the purpose of this
calculation, earnings are defined as (1) minus (2) where
(1) equals the contract value on the Continuing Spouse's date of death;
(2) equals the Continuation Net Purchase Payment(s).
What is the Maximum EstatePlus amount?
The EstatePlus benefit is subject to a maximum dollar amount. The Maximum
EstatePlus amount is a percentage of the Continuation Net Purchase Payments.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE SPOUSAL CONTINUATION
PROVISION (IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME WITH RESPECT TO
PROSPECTIVELY ISSUED CONTRACTS.
C-2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX D - POLARIS REWARDS PROGRAM EXAMPLES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
I. DEFERRED PAYMENT ENHANCEMENT
If you elect to participate in the Polaris Rewards Program at contract issue, we
contribute at least 2% of each Purchase Payment to your contract for each
Purchase Payment we receive as an Upfront Payment Enhancement. Any applicable
Deferred Payment Enhancement is allocated to your contract on the corresponding
Deferred Payment Enhancement Date and, if declared by the Company, is a
percentage of your remaining Purchase Payment on the Deferred Payment
Enhancement Date. Deferred Purchase Payment Enhancements are reduced
proportionately by partial withdrawals of that Purchase Payment prior to the
Deferred Payment Enhancement Date.
The examples that follow assume an initial Purchase Payment of $125,000 and that
the Deferred Payment Enhancement is 1%.
For purposes of the example, the Deferred Payment Enhancement Date is the 9th
anniversary of the Purchase Payment.
EXAMPLE 1 -- NO WITHDRAWALS ARE MADE
The Upfront Payment Enhancement allocated to your contract is $2,500 (2% of
$125,000).
On your 9th contract anniversary, the Deferred Payment Enhancement Date, your
Deferred Payment Enhancement of $1,250 (1% of your remaining Purchase Payment or
$125,000) will be allocated to your contract.
EXAMPLE 2 -- WITHDRAWAL MADE PRIOR TO DEFERRED PAYMENT ENHANCEMENT DATE
As in Example 1, your Upfront Payment Enhancement is $2,500.
This example also assumes the following:
1. Your contract value on your 5th contract anniversary is $190,000.
2. You request a withdrawal of $75,000 on your 5th contract anniversary.
3. No subsequent Purchase Payments have been made.
4. No prior withdrawals have been taken.
5. Funds are not allocated to any of the MVA Fixed Accounts.
On your 5th contract anniversary, your penalty-free earnings in the contract are
$65,000 ($190,000 contract value less your $125,000 investment in the contract).
Therefore, you are withdrawing $10,000 of your initial Purchase Payment. Your
contract value will also be reduced by a $500 withdrawal charge on the $10,000
Purchase Payment (5% of $10,000). Your gross withdrawal is $75,500 of which
$10,500 constitutes part of your Purchase Payment.
The withdrawal of $10,500 of your $125,000 Purchase Payment is a withdrawal of
8.4% of your Purchase Payment. Therefore, only 91.6%, or $114,500, of your
initial Purchase Payment remains in your contract.
On your 9th contract anniversary, the Deferred Payment Enhancement Date,
assuming no other transactions occur affecting the Purchase Payment, we allocate
your Deferred Payment Enhancement of $1,145 (1% of your remaining Purchase
Payment, $114,500) to your contract.
II. 90 DAY WINDOW
The following hypothetical examples assume that the Company is offering Upfront
and Deferred Payment Enhancements in accordance with this chart at the time each
Purchase Payment is received:
<Table>
<Caption>
- ----------------------------------------------------------------------
UPFRONT DEFERRED DEFERRED
PAYMENT PAYMENT PAYMENT
ENHANCEMENT ENHANCEMENT ENHANCEMENT
ENHANCEMENT LEVEL RATE RATE DATE
- ----------------------------------------------------------------------
Under $40,000 2% 0% N/A
- ----------------------------------------------------------------------
$40,000 - $99,999 4% 0% N/A
- ----------------------------------------------------------------------
$100,000 - $499,999 4% 1% Nine years from the
date we receive each
Purchase Payment.
- ----------------------------------------------------------------------
$500,000 - more 4% 2% Nine years from the
date we receive each
Purchase Payment.
- ----------------------------------------------------------------------
</Table>
Contracts issued with the Polaris Rewards feature after April 3, 2000, may be
eligible for a "Look-Back Adjustment." As of the 90th day after your contract
was issued, we will total your Purchase Payments remaining in your contract at
that time, without considering any investment gain or loss in contract value on
those Purchase Payments. If your total Purchase Payments bring you to an
Enhancement Level which, as of the date we issued your contract, would have
provided for a higher Upfront and/or Deferred Payment Enhancement Rate on each
Purchase Payment, you will get the benefit of the Enhancement Rate(s) that were
applicable to that higher Enhancement Level at the time your contract was
issued.
This example assumes the following:
1. Above Enhancement Levels, Rates and Dates throughout the first 90 days.
2. No withdrawal in the first 90 days.
3. Initial Purchase Payment of $35,000 on December 1, 2000.
D-1
4. Subsequent Purchase Payment of $40,000 on January 15, 2001.
5. Subsequent Purchase Payment of $25,000 on January 30, 2001.
6. Subsequent Purchase Payment of $7,500 on February 12, 2001.
ENHANCEMENT AT THE TIME PURCHASE PAYMENTS ARE RECEIVED
<Table>
<Caption>
- ----------------------------------------------------------------------------------
DEFERRED
PURCHASE UPFRONT DEFERRED PAYMENT
DATE OF PAYMENT PAYMENT PAYMENT ENHANCEMENT
PURCHASE PAYMENT AMOUNT ENHANCEMENT ENHANCEMENT DATE
- ----------------------------------------------------------------------------------
December 1, 2000 $35,000 2% 0% N/A
- ----------------------------------------------------------------------------------
January 15, 2001 $40,000 4% 0% N/A
- ----------------------------------------------------------------------------------
January 30, 2001 $25,000 4% 1% January 30, 2010
- ----------------------------------------------------------------------------------
February 12, 2001 $ 7,500 4% 1% February 12, 2010
- ----------------------------------------------------------------------------------
</Table>
ENHANCEMENT ADJUSTMENTS ON THE 90TH DAY FOLLOWING CONTRACT ISSUE
The sum of all Purchase Payments made in the first 90 days of the contract
equals $107,500. According to the Enhancement Levels in effect at the time this
contract was issued, a $107,500 Purchase Payment would have received a 4%
Upfront Payment Enhancement and a 1% Deferred Payment Enhancement. Under the 90
Day Window provision all Purchase Payments made within those first 90 days would
receive the benefit of the parameters in place at the time the contract was
issued, as if all of the Purchase Payments were received on the date of issue.
Thus, the first two Purchase Payments would be adjusted on the 90th day
following contract issue, as follows:
<Table>
<Caption>
- ----------------------------------------------------------------------------------
DEFERRED
PURCHASE UPFRONT DEFERRED PAYMENT
DATE OF PAYMENT PAYMENT PAYMENT ENHANCEMENT
PURCHASE PAYMENT AMOUNT ENHANCEMENT ENHANCEMENT DATE
- ----------------------------------------------------------------------------------
December 1, 2000 $35,000 4% 1% December 1, 2009
- ----------------------------------------------------------------------------------
January 15, 2001 $40,000 4% 1% January 15, 2010
- ----------------------------------------------------------------------------------
January 30, 2001 $25,000 4% 1% January 30, 2010
- ----------------------------------------------------------------------------------
February 12, 2001 $ 7,500 4% 1% February 12, 2010
- ----------------------------------------------------------------------------------
</Table>
D-2
- --------------------------------------------------------------------------------
Please forward a copy (without charge) of the Polaris Platinum(II) Variable
Annuity Statement of Additional Information to:
(Please print or type and fill in all information.)
------------------------------------------------------------------------
Name
------------------------------------------------------------------------
Address
------------------------------------------------------------------------
City/State/Zip
Date: ------------------------------ Signed: ---------------------------
Return to: AIG SunAmerica Life Assurance Company, Annuity Service Center,
P.O. Box 52499, Los Angeles, California 90054-0299
- --------------------------------------------------------------------------------
[POLARIS PROTECTOR LOGO]
PROSPECTUS
MAY 3, 2004
<Table>
Please read this prospectus carefully FLEXIBLE PAYMENT DEFERRED ANNUITY CONTRACTS
before investing and keep it for issued by
future reference. It contains AIG SUNAMERICA LIFE ASSURANCE COMPANY
important information about the in connection with
Variable Annuity. VARIABLE SEPARATE ACCOUNT
The annuity has several investment choices - both fixed account options and
To learn more about the annuity Variable Portfolios listed below. The fixed account options may include
offered by this prospectus, you can specified periods and DCA accounts. The Variable Portfolios are part of the
obtain a copy of the Statement of American Funds Insurance Series ("AFIS"), Anchor Series Trust ("AST"),
Additional Information ("SAI") dated SunAmerica Series Trust ("SAST"), Lord Abbett Series Fund, Inc. ("LASF")
May 3, 2004. The SAI has been filed and the Van Kampen Life Investment Trust ("VKT") (collectively, the
with the Securities and Exchange "Trusts").
Commission ("SEC") and is
incorporated by reference into this STOCKS:
prospectus. The Table of Contents of MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
the SAI appears at the end of this - Aggressive Growth Portfolio SAST
prospectus. For a free copy of the - Blue Chip Growth Portfolio SAST
SAI, call Us at (800) 445-SUN2 or - "Dogs" of Wall Street Portfolio* SAST
write to Us at Our Annuity Service - Growth Opportunities Portfolio SAST
Center, P.O. Box 54299, Los Angeles, MANAGED BY ALLIANCEBERNSTEIN
California 90054-0299. - Small & Mid Cap Value Portfolio SAST
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
In addition, the SEC maintains a - Alliance Growth Portfolio SAST
website (http://www.sec.gov) that - Global Equities Portfolio SAST
contains the SAI, materials - Growth-Income Portfolio SAST
incorporated by reference and other MANAGED BY CAPITAL RESEARCH AND MANAGEMENT COMPANY
information filed electronically with - American Funds Global Growth Portfolio AFIS
the SEC by AIG SunAmerica Life - American Funds Growth Portfolio AFIS
Assurance Company. - American Funds Growth-Income Portfolio AFIS
MANAGED BY DAVIS ADVISORS
ANNUITIES INVOLVE RISKS, INCLUDING - Davis Venture Value Portfolio SAST
POSSIBLE LOSS OF PRINCIPAL, AND ARE - Real Estate Portfolio SAST
NOT A DEPOSIT OR OBLIGATION OF, OR MANAGED BY FEDERATED EQUITY MANAGEMENT
GUARANTEED OR ENDORSED BY, ANY BANK. - Federated American Leaders Portfolio* SAST
THEY ARE NOT FEDERALLY INSURED BY THE - Telecom Utility Portfolio SAST
FEDERAL DEPOSIT INSURANCE MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT, L.P.
CORPORATION, THE FEDERAL RESERVE - Goldman Sachs Research Portfolio SAST
BOARD OR ANY OTHER AGENCY. MANAGED BY LORD, ABBETT & CO.
- Lord Abbett Series Fund Growth and Income Portfolio LASF
This variable annuity provides an MANAGED BY MARSICO CAPITAL MANAGEMENT, LLC
optional bonus feature called - Marsico Growth Portfolio SAST
"Polaris Rewards". If you elect this MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
feature, in exchange for bonuses - MFS Massachusetts Investors Trust Portfolio SAST
credited to your contract, your - MFS Mid-Cap Growth Portfolio SAST
surrender charge schedule will be MANAGED BY PUTNAM INVESTMENT MANAGEMENT, LLC
longer and greater than if you chose - Emerging Markets Portfolio SAST
not to elect this feature. These - International Growth and Income Portfolio SAST
withdrawal charges may offset the - Putnam Growth: Voyager Portfolio SAST
value of any bonus, if you make an MANAGED BY TEMPLETON INVESTMENT COUNSEL, LLC
early withdrawal. - Foreign Value Portfolio SAST
MANAGED BY VAN KAMPEN/VAN KAMPEN ASSET MANAGEMENT
- International Diversified Equities Portfolio SAST
- Technology Portfolio SAST
- Van Kampen LIT Comstock Portfolio, Class II Shares* VKT
- Van Kampen LIT Emerging Growth Portfolio, Class II Shares VKT
- Van Kampen LIT Growth and Income Portfolio, Class II Shares VKT
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio AST
- Growth Portfolio AST
- Natural Resources Portfolio AST
BALANCED:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORPORATION
- SunAmerica Balanced Portfolio SAST
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Total Return Portfolio SAST
MANAGED BY WM ADVISORS, INC
- Asset Allocation Portfolio AST
BONDS:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- High-Yield Bond Portfolio SAST
MANAGED BY FEDERATED INVESTMENT MANAGEMENT
- Corporate Bond Portfolio SAST
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
- Global Bond Portfolio SAST
MANAGED BY VAN KAMPEN
- Worldwide High Income Portfolio SAST
MANAGED BY WELLINGTON MANAGEMENT COMPANY LLP
- Government & Quality Bond Portfolio AST
CASH:
MANAGED BY BANC OF AMERICA CAPITAL MANAGEMENT, LLC
- Cash Management Portfolio SAST
* "Dogs" of Wall Street is an equity fund seeking total return. Federated
American Leaders is an equity fund seeking growth of capital and income.
Van Kampen LIT Comstock is an equity fund seeking capital growth and
income.
</Table>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
- ----------------------------------------------------------------
- ----------------------------------------------------------------
AIG SunAmerica Life's Annual Report on Form 10-K for the year ended December 31,
2003, File No. 033-47472, is incorporated herein by reference.
All documents or reports filed by AIG SunAmerica Life under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") after the effective date of this prospectus are also
incorporated by reference. Statements contained in this prospectus and
subsequently filed documents which are incorporated by reference or deemed to be
incorporated by reference are deemed to modify or supercede documents
incorporated by reference.
AIG SunAmerica Life files its Exchange Act documents and reports, including its
annual and quarterly reports on Form 10-K and Form 10-Q, electronically pursuant
to EDGAR under CIK No. 0000006342 (File No. 811-21039).
AIG SunAmerica Life is subject to the informational requirements of the
Securities and Exchange Act of 1934 (as amended). We file reports and other
information with the SEC to meet those requirements. You can inspect and copy
this information at SEC public facilities at the following locations:
WASHINGTON, DISTRICT OF COLUMBIA
450 Fifth Street, N.W., Room 1024
Washington, D.C. 20549
CHICAGO, ILLINOIS
500 West Madison Street
Chicago, IL 60661
NEW YORK, NEW YORK
233 Broadway
New York, NY 10279
To obtain copies by mail contact the Washington, D.C. location. After you pay
the fees as prescribed by the rules and regulations of the SEC, the required
documents are mailed.
Registration statements under the Securities Act of 1933, as amended, related to
the contracts offered by this prospectus are on file with the SEC. This
prospectus does not contain all of the information contained in the registration
statements and exhibits. For further information regarding the Separate Account,
AIG SunAmerica Life and its general account, the Variable Portfolios and the
contract, please refer to the registration statements and exhibits.
The SEC also maintains a website (http://www.sec.gov) that contains the SAI,
materials incorporated by reference and other information filed electronically
with the SEC by AIG SunAmerica Life.
AIG SunAmerica Life will provide without charge to each person to whom this
prospectus is delivered, upon written or oral request, a copy of the above
documents incorporated by reference. Requests for these documents should be
directed to AIG SunAmerica Life's Annuity Service Center, as follows:
AIG SunAmerica Life Assurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
Telephone Number: (800) 445-SUN2
- ----------------------------------------------------------------
- ----------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Indemnification for liabilities arising under the Securities Act of 1933 (the
"Act") is provided to AIG SunAmerica Life's officers, directors and controlling
persons. The SEC has advised that it believes such indemnification is against
public policy under the Act and unenforceable. If a claim for indemnification
against such liabilities (other than for AIG SunAmerica Life's payment of
expenses incurred or paid by its directors, officers or controlling persons in
the successful defense of any legal action) is asserted by a director, officer
or controlling person of AIG SunAmerica Life in connection with the securities
registered under this prospectus, AIG SunAmerica Life will submit to a court
with jurisdiction to determine whether the indemnification is against public
policy under the Act. AIG SunAmerica Life will be governed by final judgment of
the issue. However, if in the opinion of AIG SunAmerica Life's counsel, this
issue has been determined by controlling precedent, AIG SunAmerica Life will not
submit the issue to a court for determination.
2
<Table>
-------------------------------------------------------------------------
-------------------------------------------------------------------------
TABLE OF CONTENTS
-------------------------------------------------------------------------
-------------------------------------------------------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................... 2
SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION.... 2
GLOSSARY.......................................................... 3
HIGHLIGHTS........................................................ 4
FEE TABLES........................................................ 5
Owner Transaction Expenses.................................. 5
Optional Income Protector Fee............................... 5
Contract Maintenance Fee.................................... 5
Annual Separate Account Expenses............................ 5
Optional EstatePlus Fee..................................... 5
Optional Polaris Income Rewards Fee......................... 5
Optional Capital Protector Fee.............................. 5
Portfolio Expenses.......................................... 5
EXAMPLES.......................................................... 6
THE POLARIS PROTECTOR VARIABLE ANNUITY............................ 8
PURCHASING A POLARIS PROTECTOR VARIABLE ANNUITY................... 8
Allocation of Purchase Payments............................. 9
Polaris Rewards Program..................................... 9
Accumulation Units.......................................... 10
Free Look................................................... 11
INVESTMENT OPTIONS................................................ 11
Variable Portfolios......................................... 11
American Funds Insurance Series......................... 11
Anchor Series Trust..................................... 11
Lord Abbett Series Fund, Inc............................ 12
SunAmerica Series Trust................................. 12
Van Kampen Life Investment Trust........................ 12
Fixed Account Options....................................... 12
Asset Allocation Program.................................... 13
Transfers During the Accumulation Phase..................... 14
Dollar Cost Averaging....................................... 15
Asset Allocation Rebalancing Program........................ 15
Return Plus Program......................................... 16
Voting Rights............................................... 16
Substitution................................................ 16
ACCESS TO YOUR MONEY.............................................. 16
Systematic Withdrawal Program............................... 18
Nursing Home Waiver......................................... 18
Minimum Contract Value...................................... 18
LIVING BENEFITS................................................... 18
Polaris Income Rewards...................................... 18
Capital Protector........................................... 22
Income Protector............................................ 23
DEATH BENEFIT..................................................... 25
Purchase Payment Accumulation Option........................ 26
Maximum Anniversary Option.................................. 26
EstatePlus.................................................. 27
Spousal Continuation........................................ 28
EXPENSES.......................................................... 28
Annual Separate Account Expenses............................ 28
Withdrawal Charges.......................................... 28
Investment Charges.......................................... 29
Contract Maintenance Fee.................................... 29
Transfer Fee................................................ 29
Optional Polaris Income Rewards Fee......................... 30
Optional Capital Protector Fee.............................. 30
Optional EstatePlus Fee..................................... 30
Optional Income Protector Fee............................... 30
Premium Tax................................................. 30
Income Taxes................................................ 30
Reduction or Elimination of Charges and Expenses, and 30
Additional Amounts Credited................................
INCOME OPTIONS.................................................... 30
Annuity Date................................................ 30
Income Options.............................................. 31
Fixed or Variable Income Payments........................... 31
Income Payments............................................. 31
Transfers During the Income Phase........................... 32
Deferment of Payments....................................... 32
Note to Qualified Contract Holders..........................
TAXES............................................................. 32
Annuity Contracts in General................................ 32
Tax Treatment of Distributions - Non-qualified Contracts.... 32
Tax Treatment of Distributions - Qualified Contracts........ 33
Minimum Distributions....................................... 33
Tax Treatment of Death Benefits............................. 33
Contracts Owned by a Trust or Corporation................... 34
Gifts, Pledges and/or Assignments of a Non-Qualified 34
Contract...................................................
Diversification and Investor Control........................ 34
PERFORMANCE....................................................... 34
OTHER INFORMATION................................................. 35
AIG SunAmerica Life......................................... 35
The Separate Account........................................ 35
The General Account......................................... 35
Distribution of the Contract................................ 35
Administration.............................................. 36
Legal Proceedings........................................... 36
Ownership................................................... 36
Independent Accountants..................................... 36
Registration Statement...................................... 36
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.......... 36
APPENDIX A - CONDENSED FINANCIALS................................. A-1
APPENDIX B - MARKET VALUE ADJUSTMENT ("MVA") AND FIXED ADVANTAGE 7 B-1
ACCOUNT OPTION...................................................
APPENDIX C - DEATH BENEFITS FOLLOWING SPOUSAL CONTINUATION........ C-1
APPENDIX D - HYPOTHETICAL EXAMPLE OF THE OPERATION OF THE INCOME D-1
PROTECTOR FEATURE................................................
APPENDIX E - POLARIS REWARDS PROGRAM EXAMPLES..................... E-1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
GLOSSARY
-------------------------------------------------------------------------
-------------------------------------------------------------------------
We have capitalized some of the technical terms used in this prospectus.
To help you understand these terms, We have defined them in this
glossary.
ACCUMULATION PHASE - The period during which you invest money in your
contract.
ACCUMULATION UNITS - A measurement We use to calculate the value of the
variable portion of your contract during the Accumulation Phase.
ANNUITANT(S) - The person(s) on whose life (lives) We base income
payments.
ANNUITY DATE - The date on which income payments are to begin, as
selected by you.
ANNUITY UNITS - A measurement We use to calculate the amount of income
payments you receive from the variable portion of your contract during
the Income Phase.
BENEFICIARY - The person designated to receive any benefits under the
contract if you or the Annuitant dies.
COMPANY - AIG SunAmerica Life Assurance Company, AIG SunAmerica Life, we,
us, the insurer which issues this contract. Only "AIG SunAmerica Life" is
a capitalized term in the prospectus.
INCOME PHASE - The period during which We make income payments to you.
IRS - The Internal Revenue Service.
LATEST ANNUITY DATE - Your 95th birthday or 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").
PAYMENT ENHANCEMENT(S) - The amount(s) allocated to your contract by Us
under the Polaris Rewards Program. Payment Enhancements are calculated as
a percentage of your Purchase Payments and are considered earnings.
POLARIS REWARDS PROGRAM - A program that provides a payment enhancement
in exchange for a surrender charge that declines over 9 years.
PURCHASE PAYMENTS - The money you give Us to buy the contract, as well as
any additional money you give Us to invest in the contract after you own
it.
QUALIFIED (CONTRACT) - A contract purchased with pretax dollars. These
contracts are generally purchased under a pension plan, specially
sponsored program or IRA.
TRUSTS - Refers to the American Funds Insurance Series, Anchor Series
Trust, the SunAmerica Series Trust, and Lord Abbett Series Fund, Inc.,
Van Kampen Life Investment Trust collectively.
VARIABLE PORTFOLIO(S) - The variable investment options available under
the contract. Each Variable Portfolio has its own investment objective
and is invested in the underlying investments of the American Funds
Insurance Series, Anchor Series Trust, the SunAmerica Series Trust, and
Lord Abbett Series Fund, Inc., Van Kampen Life Investment Trust. The
underlying investment portfolios may be referred to as Underlying Funds.
</Table>
3
- ----------------------------------------------------------------
- ----------------------------------------------------------------
HIGHLIGHTS
- ----------------------------------------------------------------
- ----------------------------------------------------------------
The Polaris Protector Variable Annuity is a contract between you and AIG
SunAmerica Life Assurance Company ("AIG SunAmerica Life"). It is designed to
help you invest on a tax-deferred basis and meet long-term financial goals.
There are minimum Purchase Payment amounts required to purchase a contract.
Purchase Payments may be invested in a variety of variable and fixed account
options. You may also elect to participate in the Polaris Rewards Program of the
contract that can provide you with Payment Enhancements to invest in your
contract. If you elect participation in this feature, your contract will be
subject to a longer surrender charge schedule. 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. If you elected to participate in the Rewards Program, you
receive any gain and We bear any loss on any Payment Enhancement(s) if you
decide to cancel your contract during the free look period. Please see
PURCHASING A POLARIS PROTECTOR VARIABLE ANNUITY in the prospectus.
EXPENSES: There are fees and charges associated with the contract. Each year, We
deduct a $35 contract maintenance fee from your contract, which may be waived
for contracts of $50,000 or more. We also deduct insurance charges, which equal
1.52% annually of the average daily value of your contract allocated to the
Variable Portfolios. There are investment charges on amounts invested in the
Variable Portfolios. If you elect optional features available under the contract
We may charge additional fees for 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, or nine complete years if you participate in the Rewards
Program, withdrawal charges no longer apply to that portion of the Purchase
Payment. Please see the FEE TABLE, PURCHASING A POLARIS PROTECTOR VARIABLE
ANNUITY and EXPENSES IN THE PROSPECTUS.
ACCESS TO YOUR MONEY: You may withdraw money from your contract during the
Accumulation Phase. If you do so, earnings are deemed to be withdrawn first. You
will pay income taxes on earnings and untaxed contributions when you withdraw
them. Payments received during the Income Phase are considered partly a return
of your original investment. A federal tax penalty may apply if you make
withdrawals before age 59 1/2. As noted above, a withdrawal charge may apply.
Please see ACCESS TO YOUR MONEY and TAXES in the prospectus.
DEATH BENEFIT: A death benefit feature is available under the contract to
protect your Beneficiaries in the event of your death during the Accumulation
Phase. Please see DEATH BENEFITS in the prospectus.
INCOME OPTIONS: When you are ready to begin taking income, you can choose to
receive income payments on a variable basis, fixed basis or a combination of
both. You may also chose from five different income options, including an option
for income that you cannot outlive. Please see INCOME OPTIONS in the prospectus.
INQUIRIES: If you have questions about your contract call your financial
representative or contact Us at AIG SunAmerica Life Assurance Company Annuity
Service Center P.O. Box 54299 Los Angeles, California 90054-0299. Telephone
Number: (800) 445-SUN2.
AIG SUNAMERICA LIFE OFFERS SEVERAL DIFFERENT VARIABLE ANNUITY PRODUCTS TO MEET
THE DIVERSE NEEDS OF OUR INVESTORS. EACH PRODUCT MAY PROVIDE DIFFERENT FEATURES
AND BENEFITS OFFERED AT DIFFERENT FEES, CHARGES AND EXPENSES. WE ALSO OFFER
PRODUCTS THAT DO NOT OFFER THE POLARIS REWARDS FEATURE. PRODUCTS WITHOUT THE
POLARIS REWARDS PROGRAM HAVE THE SAME MORTALITY AND EXPENSE RISK CHARGES AS THE
SAME CONTRACT WITH THE POLARIS REWARDS PROGRAM. HOWEVER, CONTRACTS WITHOUT THE
POLARIS REWARDS PROGRAM HAVE A SHORTER AND LOWER SURRENDER CHARGE SCHEDULE. WHEN
WORKING WITH YOUR FINANCIAL REPRESENTATIVE TO DETERMINE THE BEST PRODUCT TO MEET
YOUR NEEDS YOU SHOULD CONSIDER, AMONG OTHER THINGS, WHETHER THE FEATURES OF THIS
CONTRACT AND THE RELATED FEES PROVIDE THE MOST APPROPRIATE PACKAGE TO HELP YOU
MEET YOUR LONG-TERM RETIREMENT SAVINGS GOALS.
PLEASE READ THE PROSPECTUS CAREFULLY FOR MORE DETAILED INFORMATION REGARDING
THESEAND OTHER FEATURES AND BENEFITS OF THE CONTRACT, AS WELL AS THE RISKS OF
INVESTING.
4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEE TABLES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY AT THE TIME THAT
YOU BUY THE CONTRACT, TRANSFER CASH VALUE BETWEEN INVESTMENT OPTIONS OR
SURRENDER THE CONTRACT. IF APPLICABLE, YOU MAY ALSO BE SUBJECT TO STATE PREMIUM
TAXES.
MAXIMUM OWNER TRANSACTION EXPENSES
MAXIMUM WITHDRAWAL CHARGES (AS A PERCENTAGE OF EACH PURCHASE PAYMENT)(1)
<Table>
If Polaris Rewards is elected............................... 9%
If Polaris Rewards is not elected........................... 7%
</Table>
<Table>
TRANSFER FEE.......... No charge for the first 15 transfers each
contract year; thereafter, the fee is $25
($10 in Pennsylvania and Texas) per
transfer
</Table>
THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY PERIODICALLY
DURING THE TIME THAT YOU OWN THE CONTRACT, NOT INCLUDING UNDERLYING PORTFOLIO
FEES AND EXPENSES WHICH ARE OUTLINED IN THE NEXT SECTION.
CONTRACT MAINTENANCE FEE
$35 ($30 in North Dakota) waived if contract value $50,000 or more
SEPARATE ACCOUNT ANNUAL EXPENSES
(DEDUCTED DAILY AS A PERCENTAGE OF YOUR AVERAGE DAILY NET ASSET VALUE)
<Table>
Mortality and Expense Risk Fees....................... 1.37%
Distribution Expense Fee.............................. 0.15%
Optional EstatePlus Fee(2)............................ 0.25%
=====
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES.............. 1.77%
</Table>
ADDITIONAL OPTIONAL FEATURE FEE
You may elect one of the following optional features: Polaris Income
Rewards, Capital Protector or Income Protector described below.
OPTIONAL POLARIS INCOME REWARDS FEE
<Table>
<Caption>
TIME ELAPSED SINCE BENEFIT EFFECTIVE DATE ANNUALIZED FEE(3)
----------------------------------------- -----------------
Years 0-7................................ 0.65%
Years 8+................................. 0.45%
</Table>
OPTIONAL CAPITAL PROTECTOR FEE
<Table>
<Caption>
CONTRACT YEAR ANNUALIZED FEE(4)
------------- -----------------
0-7...................................... 0.50%
8-10..................................... 0.25%
11+...................................... none
</Table>
OPTIONAL INCOME PROTECTOR PLUS FEE
<Table>
Annual Fee(5)............................................... 0.45%
</Table>
FOOTNOTES TO THE FEE TABLES:
(1) Withdrawal Charge Schedule (as a percentage of each Purchase Payment)
declines over 7 or 9 years as follows
<Table>
YEARS:...................................................... 1 2 3 4 5 6 7 8 9 10+
Non-Polaris Rewards......................................... 7% 6% 5% 4% 3% 2% 1% 0% 0% 0%
Polaris Rewards............................................. 9% 9% 8% 7% 6% 5% 4% 3% 2% 0%
</Table>
(2) EstatePlus, an enhanced death benefit feature is optional. If you do not
elect the EstatePlus feature, your total separate account annual expenses
would be 1.52%.
(3) The Polaris Income Rewards feature is optional and if elected, the fee is
generally calculated as a percentage of your Purchase Payments received in
the first 90 days less proportionate withdrawals. The fee is deducted from
your contract at the end of the first quarter following election and
quarterly thereafter.
(4) The Capital Protector feature is optional and if elected, the fee is
calculated as a percentage of your contract value minus Purchase Payments
received after the 90th day since you purchased your contract. The fee is
deducted from your contract value at the end of the first contract quarter
and quarterly thereafter.
(5) The Income Protector is optional and if elected, the fee is deducted
annually from your contract value as a percentage of your Income Benefit
Base. The Income Benefit Base which is described more fully in the
prospectus is generally calculated by using your contract value on the date
of your effective enrollment in the program and then each subsequent
contract anniversary, adding Purchase Payments made since the prior contract
anniversary, less proportional withdrawals, and fees and charges applicable
to those withdrawals.
THE FOLLOWING SHOWS THE MINIMUM AND MAXIMUM TOTAL OPERATING EXPENSES CHARGED BY
THE UNDERLYING PORTFOLIOS OF THE TRUSTS BEFORE ANY WAIVERS OR REIMBURSEMENTS
THAT YOU PAY PERIODICALLY DURING THE TIME YOU OWN THE CONTRACT. MORE DETAIL
CONCERNING THE TRUSTS' FEES AND EXPENSES IS CONTAINED IN THE PROSPECTUS FOR EACH
OF THE TRUSTS. PLEASE READ THEM CAREFULLY BEFORE INVESTING.
PORTFOLIO EXPENSES
<Table>
<Caption>
TOTAL ANNUAL UNDERLYING PORTFOLIO EXPENSES MINIMUM MAXIMUM
------------------------------------------ ------- -------
(expenses that are deducted from underlying portfolios of
the Trusts, including management fees, other expenses and
12b-1 fees, if applicable).................................. 0.59% 1.80%
</Table>
5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MAXIMUM AND MINIMUM EXPENSE EXAMPLES
IF YOU ELECT POLARIS REWARDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
These Examples are intended to help you compare the cost of investing in the
contract with the cost of investing in other variable annuity contracts. These
costs include owner transaction expenses, the contract maintenance fee, separate
account annual expenses, fees for optional features and expenses of the
underlying portfolios of the Trusts.
The Examples assume that you invest $10,000 in the contract for the time periods
indicated; that your investment has a 5% return each year; and that the maximum
and minimum fees and expenses of the underlying portfolios of the Trusts are
reflected. Although your actual costs may be higher or lower, based on these
assumptions, your costs at the end of the stated period would be:
MAXIMUM EXPENSE EXAMPLES
(ASSUMING MAXIMUM SEPARATE ACCOUNT ANNUAL EXPENSES OF 1.77% AND INVESTMENT IN AN
UNDERLYING PORTFOLIO WITH TOTAL EXPENSES OF 1.80%)
(1) If you surrender your contract at the end of the applicable time period and
you elect the optional EstatePlus (0.25%) and Polaris Income Rewards (0.65%
for years 0-7 and 0.45% for years 8+) features:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$1,337 $2,121 $2,818 $4,457
- -------------------------------------
- -------------------------------------
</Table>
(2) If you annuitize your contract at the end of the applicable time period:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$335 $1,021 $1,731 $3,613
- -------------------------------------
- -------------------------------------
</Table>
(3) If you do not surrender your contract and you elect the optional EstatePlus
(0.25%) and Polaris Income Rewards (0.65% for years 0-7 and 0.45% for years
8+) features:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$437 $1,321 $2,218 $4,457
- -------------------------------------
- -------------------------------------
</Table>
MINIMUM EXPENSE EXAMPLES
(ASSUMING MINIMUM SEPARATE ACCOUNT ANNUAL CHARGES OF 1.52% AND INVESTMENT IN AN
UNDERLYING PORTFOLIO WITH TOTAL EXPENSES OF 0.59%)
(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
- -------------------------------------
- -------------------------------------
$1,123 $1,490 $1,783 $2,543
- -------------------------------------
- -------------------------------------
</Table>
(2) If you annuitize your contract at the end of the applicable time period:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$214 $661 $1,134 $2,441
- -------------------------------------
- -------------------------------------
</Table>
(3) 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
- -------------------------------------
- -------------------------------------
$223 $690 $1,183 $2,543
- -------------------------------------
- -------------------------------------
</Table>
6
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MAXIMUM AND MINIMUM EXPENSE EXAMPLES
IF YOU DO NOT ELECT POLARIS REWARDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
These Examples are intended to help you compare the cost of investing in the
contract with the cost of investing in other variable annuity contracts. These
costs include owner transaction expenses, the contract maintenance fee, separate
account annual expenses, fees for optional features and expenses of the
underlying portfolios of the Trusts.
The Examples assume that you invest $10,000 in the contract for the time periods
indicated; that your investment has a 5% return each year; and that the maximum
and minimum fees and expenses of the underlying portfolios of the Trusts are
reflected. Although your actual costs may be higher or lower, based on these
assumptions, your costs at the end of the stated period would be:
MAXIMUM EXPENSE EXAMPLES
(ASSUMING MAXIMUM SEPARATE ACCOUNT ANNUAL EXPENSES OF 1.77% AND INVESTMENT IN AN
UNDERLYING PORTFOLIO WITH TOTAL EXPENSES OF 1.80%)
(1) If you surrender your contract at the end of the applicable time period and
you elect the optional EstatePlus (0.25%) and Polaris Income Rewards (0.65%
for years 0-7 and 0.45% for years 8+) features:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$1,129 $1,795 $2,474 $4,369
- -------------------------------------
- -------------------------------------
</Table>
(2) If you annuitize your contract at the end of the applicable time period:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$335 $1,021 $1,731 $3,613
- -------------------------------------
- -------------------------------------
</Table>
(3) If you do not surrender your contract and you elect the optional EstatePlus
(0.25%) and Polaris Income Rewards (0.65% for years 0-7 and 0.45% for years
8+) features:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$429 $1,295 $2,174 $4,369
- -------------------------------------
- -------------------------------------
</Table>
MINIMUM EXPENSE EXAMPLES
(ASSUMING MINIMUM SEPARATE ACCOUNT ANNUAL CHARGES OF 1.52% AND INVESTMENT IN AN
UNDERLYING PORTFOLIO WITH TOTAL EXPENSES OF 0.59%)
(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
- -------------------------------------
- -------------------------------------
$919 $1,176 $1,459 $2,493
- -------------------------------------
- -------------------------------------
</Table>
(2) If you annuitize your contract at the end of the applicable time period:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$214 $661 $1,134 $2,441
- -------------------------------------
- -------------------------------------
</Table>
(3) 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
- -------------------------------------
- -------------------------------------
$219 $676 $1,159 $2,493
- -------------------------------------
- -------------------------------------
</Table>
EXPLANATION OF FEE TABLES AND EXAMPLES
1. The purpose of the Fee Tables is to show you the various expenses you would
incur directly and indirectly by investing in the contract. The tables
represent both fees at the Separate Account (contract level) as well as
total annual underlying portfolio operating expenses. We converted the
contract maintenance fee to a percentage (0.05%). The actual impact of the
administration charge may differ from this percentage and may be waived for
contract values over $50,000. Additional information on the portfolio
company fees can be found in the Trust prospectuses.
2. In addition to the stated assumptions, the Examples also assume Separate
Account expenses as indicated and that no transfer fees were imposed.
Although premium taxes may apply in certain states, they are not reflected
in the Examples.
3. Examples reflecting participation in the Polaris Rewards program reflect the
Polaris Rewards surrender charge schedule, and a 2% upfront payment
enhancement.
4. Examples reflecting application of optional features and benefits use the
highest fees and charges at which those features are being offered. If you
elected the Income Protector program or the Capital Protector program, your
expenses would be lower than those shown in these tables. The fee for the
Polaris Income Rewards, Capital Protector and Income Protector features are
not calculated as a percentage of your daily net asset value but on other
calculations more fully described in the prospectus.
5. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
CONDENSED FINANCIAL INFORMATION APPEARS IN APPENDIX A OF THIS PROSPECTUS.
7
- ----------------------------------------------------------------
- ----------------------------------------------------------------
THE POLARIS PROTECTOR
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: This means that you do not pay taxes on your earnings from
the annuity until you withdraw them.
- Death Benefit: If you die during the Accumulation Phase, the insurance
company pays a death benefit to your Beneficiary.
- Guaranteed Income: If elected, you receive a stream of income for your
lifetime, or another available period you select.
Tax-qualified retirement plans (e.g., IRAs, 401(k) or 403(b) plans) defer
payment of taxes on earnings until withdrawal. If you are considering funding a
tax-qualified retirement plan with an annuity, you should know that an annuity
does not provide any additional tax deferral treatment of earnings beyond the
treatment provided by the tax-qualified retirement plan itself. However,
annuities do provide other features and benefits which may be valuable to you.
You should fully discuss this decision with your financial representative.
This annuity was developed to help you contribute to your retirement savings.
This annuity works in two stages, the Accumulation Phase and the Income Phase.
Your contract is in the Accumulation Phase during the period when you make
payments into the contract. The Income Phase begins when you request Us to start
making income payments to you out of the money accumulated in your contract.
The contract is called a "variable" annuity because it allows you to invest in
variable portfolios which, like mutual funds, have different investment
objectives and performance which varies. You can gain or lose money if you
invest in these Variable Portfolios. The amount of money you accumulate in your
contract depends on the performance of the Variable Portfolios in which you
invest.
The fixed account options earn interest at a rate set and guaranteed by AIG
SunAmerica Life. If you allocate money to the fixed account options, the amount
of money that accumulates in the contract depends on the total interest credited
to the particular fixed account option(s) in which you invest.
For more information on investment options available under this contract SEE
INVESTMENT OPTIONS BELOW.
This annuity is designed to assist in contributing to retirement savings of
investors whose personal circumstances allow for a long-term investment time
horizon. As a function of the Internal Revenue Code ("IRC"), you may be assessed
a 10% federal tax penalty on any withdrawal made prior to your reaching age
59 1/2. Additionally, this contract provides that you will be charged a
withdrawal charge on each purchase payment withdrawn if that purchase payment
has not been invested in this contract for at least 7 years, or 9 years if you
elect to participate in the Polaris Rewards Program. Because of these potential
penalties, you should fully discuss all of the benefits and risks of this
contract with your financial representative prior to purchase.
AIG SunAmerica Life issues the Polaris Protector Variable Annuity. When you
purchase a Polaris Protector Variable Annuity, a contract exists between you and
AIG SunAmerica Life. The Company is a stock life insurance company organized
under the laws of the state of Arizona. Its principal place of business is 1
SunAmerica Center, Los Angeles, California 90067. The Company conducts life
insurance and annuity business in the District of Columbia and all states except
New York. AIG SunAmerica Life is an indirect, wholly owned subsidiary of
American International Group, Inc. ("AIG"), a Delaware corporation.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
PURCHASING A POLARIS PROTECTOR
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.
The following chart shows the minimum initial and subsequent Purchase Payments
permitted under your contract. These amounts depend upon whether a contract is
Qualified or Non-qualified for tax purposes. FOR FURTHER EXPLANATION, SEE TAXES
BELOW.
<Table>
<Caption>
- -----------------------------------------------------------
Minimum
Minimum Initial Subsequent
Purchase Payment Purchase Payment
- -----------------------------------------------------------
Qualified $2,000 $250
- -----------------------------------------------------------
Non-Qualified $5,000 $500
- -----------------------------------------------------------
</Table>
We reserve the right to require company approval prior to accepting Purchase
Payments greater than $1,000,000. For contracts owned by a non-natural owner, We
reserve the right to require prior Company approval to accept Purchase Payments
greater than $250,000. Subsequent Purchase Payments that would cause total
Purchase Payments in all contracts issued by AIG SunAmerica Life and First
SunAmerica Life Insurance Company, an affiliate of AIG SunAmerica Life, to the
same owner to exceed these limits may also be subject to company pre-approval.
For any contracts subject to these dollar amount reservations, we further
reserve the right to limit the death benefit amount payable in excess of
contract value at the time we receive all required paperwork and satisfactory
proof of death. Any limit on the maximum death benefit payable would be mutually
agreed upon by you and the Company prior to purchasing the contract. We reserve
the right to change the amount at which pre-approval is required at any time.
8
Once you have contributed at least the minimum initial Purchase Payment, you can
establish an automatic payment plan allows you to make subsequent Purchase
Payments of as little as $20.00.
We may not issue a contract to anyone age 86 or older on the contract issue
date. In general, We will not issue a Qualified contract to anyone who is age
70 1/2 or older, unless it is shown that the minimum distribution required by
the IRS is being made.
We allow spouses to jointly own this contract. However, the age of the older
spouse is used to determine the availability of any age driven benefits. The
addition of a joint owner after the contract has been issued is contingent upon
prior review and approval by the Company. If we learn of a misstatement of age,
we reserve the right to fully pursue our remedies including termination of the
contract and/or revocation of any age-driven benefits.
You may assign this contract before beginning the Income Phase by sending us a
written request for an assignment. Your rights and those of any other person
with rights under this contract will be subject to the assignment. WE RESERVE
THE RIGHT TO NOT RECOGNIZE ASSIGNMENTS IF IT CHANGES THE RISK PROFILE OF THE
OWNER OF THE CONTRACT, AS DETERMINED IN OUR SOLE DISCRETION. Please see the
Statement of Additional Information for details on the tax consequences of an
assignment.
ALLOCATION OF PURCHASE PAYMENTS
We invest your Purchase Payments in the fixed and variable investment options
according to your instructions. If We receive a Purchase Payment without
allocation instructions, We will invest the money according to your last
allocation instructions. SEE INVESTMENT OPTIONS BELOW.
In order to issue your contract, We must receive your completed application
and/or Purchase Payment allocation instructions and any other required paperwork
at Our 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.
POLARIS REWARDS PROGRAM
If you elect to participate in the Polaris Rewards program at contract issue, We
contribute an Upfront Payment Enhancement and, if applicable, a Deferred Payment
Enhancement to your contract in conjunction with each Purchase Payment you
invest during the life of your contract. If you elect to participate in this
program, all Purchase Payments are subject to a nine year withdrawal charge
schedule. SEE WITHDRAWAL CHARGES BELOW. These withdrawal charges may offset the
value of any bonus, if you make an early withdrawal. SEE EXPENSES BELOW. You may
not elect to participate in this program if you are age 81 or older at the time
of contract issue. Amounts We contribute to your contract under this program are
considered earnings and are allocated to your contract as described below.
Purchase Payments may not be invested in the Dollar Cost Averaging fixed
accounts if you participate in the Polaris Rewards Program. However, you may use
other available fixed account options as a Dollar Cost Averaging source account.
There may be scenarios in which due to negative market conditions and your
inability to remain invested over the long-term, a contract with the Polaris
Rewards program may not perform as well as the contract without the feature.
ENHANCEMENT LEVELS
The Upfront Payment Enhancement Rate, Deferred Payment Enhancement Rate and
Deferred Payment Enhancement Date may be determined based on stated
Enhancement Levels. Each Enhancement Level is a range of dollar amounts
which may correspond to different enhancement rates and dates. Enhancement
Levels may change from time to time, at Our sole discretion. The
Enhancement Level applicable to your initial Purchase Payment is determined
by the amount of that initial Purchase Payment. With respect to any
subsequent Purchase Payments We determine your Enhancement Level by adding
your contract value on the date We receive each subsequent Purchase Payment
plus the amount of the subsequent Purchase Payment.
UPFRONT PAYMENT ENHANCEMENT
An Upfront Payment Enhancement is an amount We add to your contract on the
day We receive a Purchase Payment. We calculate an Upfront Payment
Enhancement amount as a percentage (the "Upfront Payment Enhancement Rate")
of each Purchase Payment. The Upfront Payment Enhancement Rate will always
be at least 2%. We periodically review and establish the Upfront Payment
Enhancement Rate, which may increase or decrease at any time, but will
never be less than 2%. The applicable Upfront Payment Enhancement Rate is
that which is in effect for any applicable Enhancement Level, when We
receive each Purchase Payment under your contract. The Upfront Payment
Enhancement amounts are allocated among the fixed and variable investment
options according to the current allocation instructions in effect when We
receive each Purchase Payment.
9
DEFERRED PAYMENT ENHANCEMENT
A Deferred Payment Enhancement is an amount We may add to your contract on
a stated future date (the "Deferred Payment Enhancement Date") as a
percentage of Purchase Payments received. We refer to this percentage
amount as the Deferred Payment Enhancement Rate. We periodically review and
establish the Deferred Payment Enhancement Rates and Deferred Payment
Enhancement Dates. The Deferred Payment Enhancement Rate being offered may
increase, decrease or be eliminated by Us, at any time. The Deferred
Payment Enhancement Date, if applicable, may change at any time. The
applicable Deferred Payment Enhancement Date and Deferred Payment
Enhancement Rate are those which may be in effect for any applicable
Enhancement Level, when We receive each Purchase Payment under your
contract. Any applicable Deferred Payment Enhancement, when credited, is
allocated to the Cash Management Variable Portfolio.
If you withdraw any portion of a Purchase Payment, to which a Deferred
Payment Enhancement applies, prior to the Deferred Payment Enhancement
Date, We reduce the amount of the corresponding Deferred Payment
Enhancement in the same proportion that your withdrawal (and any fees and
charges associated with such withdrawals) reduces that Purchase Payment.
For purposes of the Deferred Payment Enhancement, withdrawals are assumed
to be taken from earnings first, then from Purchase Payments, on a
first-in-first-out basis.
APPENDIX E shows how We calculate any applicable Deferred Payment Enhancement
amount.
We will not allocate any applicable Deferred Payment Enhancement to your
contract if any of the following circumstances occurs prior to the Deferred
Payment Enhancement Date:
- You surrender your contract;
- A death benefit is paid on your contract;
- You switch to the Income Phase of your contract; or
- You fully withdraw the corresponding Purchase Payment.
See your financial representative for information on the current Enhancement
Levels and Payment Enhancements rates.
90 DAY WINDOW
As of the 90th day after your contract was issued, We will total your
Purchase Payments made over those 90 days, without considering any
investment gain or loss in contract value on those Purchase Payments. If
your total Purchase Payments bring you to an Enhancement Level which, as of
the date We issued your contract, would have provided for a higher Upfront
and/or Deferred Payment Enhancement Rate on each Purchase Payment, you will
get the benefit of the Enhancement Rate(s) that were applicable to that
higher Enhancement Level at the time your contract was issued ("Look Back
Adjustment"). We will add any applicable Upfront Look Back Adjustment to
your contract on the 90th day following the date of contract issue. We will
send you a confirmation indicating any applicable Upfront and/or Deferred
Look Back Adjustment, on or about the 90th day following the date of
contract issuance. We will allocate any applicable Upfront Look Back
Adjustment according to your then-current allocation instructions on file
for subsequent Purchase Payments at the time We make the contribution and
if applicable, to the Cash Management Portfolio, for a Deferred Look Back
Adjustment.
APPENDIX E PROVIDES AN EXAMPLE OF THE 90 DAY WINDOW PROVISION.
The Polaris Rewards Program may not be available in your state or through the
broker-dealer with which your financial representative is affiliated. Please
check with your financial representative regarding the availability of this
program.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE POLARIS REWARDS PROGRAM
(IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME.
ACCUMULATION UNITS
When you allocate a Purchase Payment to the Variable Portfolios, We credit your
contract with Accumulation Units of the Separate Account. We base the number of
Accumulation Units you receive on the unit value of the Variable Portfolio as of
the day We receive your money if We receive it before 1 p.m. Pacific Time, or on
the next business day's unit value if We receive your money after 1 p.m. Pacific
Time. The value of an Accumulation Unit goes up and down based on the
performance of the Variable Portfolios.
We calculate the value of an Accumulation Unit each day that the New York Stock
Exchange ("NYSE") is open as follows:
1. We determine the total value of money invested in a particular Variable
Portfolio;
2. We subtract from that amount all applicable contract charges; and
3. We divide this amount by the number of outstanding Accumulation Units.
We determine the number of Accumulation Units credited to your contract by
dividing the Purchase Payment and Payment Enhancement, if applicable, by the
Accumulation Unit value for the specific Variable Portfolio.
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EXAMPLE (CONTRACTS WITHOUT POLARIS REWARDS):
We receive a $25,000 Purchase Payment from you on Wednesday. You allocate
the money to the Global Bond Portfolio. We determine that the value of an
Accumulation Unit for the Global Bond Portfolio is $11.10 when the NYSE
closes on Wednesday. We then divide $25,000 by $11.10 and credit your
contract on Wednesday night with 2252.2523 Accumulation Units for the
Global Bond Portfolio.
EXAMPLE (CONTRACTS WITH POLARIS REWARDS):
We receive a $25,000 Purchase Payment from you on Wednesday. You allocate
the money to the Global Bond Portfolio. If the Upfront Payment Enhancement
is 2.00% of your Purchase Payment, We would add an Upfront Payment
Enhancement of $500 to your contract. We determine that the value of an
Accumulation Unit for the Global Bond Portfolio is $11.10 when the NYSE
closes on Wednesday. We then divide $25,500 by $11.10 and credit your
contract on Wednesday with 2,297.2973 Accumulation Units for the Global
Bond Portfolio.
Performance of the Variable Portfolios and expenses under your contract affect
Accumulation Unit values. These factors cause the value of your contract to go
up and down.
FREE LOOK
You may cancel your contract within ten days after receiving it (or longer if
required by state law). We call this a "free look." To cancel, you must mail the
contract along with your free look request to Our Annuity Service Center at P.O.
Box 54299, Los Angeles, California 90054-0299.
If you decide to cancel your contract during the free look period, generally, We
will refund to you the value of your contract on the day We receive your request
minus the Free Look Payment Enhancement Deduction, if applicable. The Free Look
Payment Enhancement Deduction is equal to the lesser of (1) the value of any
Payment Enhancement(s) on the day We receive your free look request; or (2) the
Payment Enhancement amount(s), if any, which We allocated to your contract.
Thus, you receive any gain and We bear any loss on any Payment Enhancement(s) if
you decide to cancel your contract during the free look period.
Certain states require Us to return your Purchase Payments upon a free look
request. Additionally, all contracts issued as an IRA require the full return of
Purchase Payments upon a free look. With respect to those contracts, We reserve
the right to put your money in the Cash Management Portfolio during the free
look period and will allocate your money according to your instructions at the
end of the applicable free look period. Currently, We do not put your money in
the Cash Management Portfolio during the free look period unless you allocate
your money to it. If your contract was issued in a state requiring 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 minus the Free Look Payment Enhancement Deduction, if applicable.
EXCHANGE OFFERS
From time to time, We may offer to allow you to exchange an older variable
annuity issued by AIG SunAmerica Life or one of its affiliates, for a newer
product with more current features and benefits, also issued by AIG SunAmerica
Life or one of its affiliates. Such an exchange offer will be made in accordance
with applicable state and federal securities and insurance rules and
regulations. We will explain the specific terms and conditions of any such
exchange offer at the time the offer is made.
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INVESTMENT OPTIONS
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VARIABLE PORTFOLIOS
The Variable Portfolios invest in shares of the trusts below. Additional Trusts
and/or Variable Portfolios may be available in the future. The Variable
Portfolios are only available through the purchase of certain insurance
contracts. 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. The adviser monitors the Trusts for potential conflicts.
The Variable Portfolios along with their respective subadvisers are listed
below:
AMERICA FUNDS INSURANCE SERIES -- CLASS 2
Capital Research and Management Company provides investment advice for the
American Funds Insurance Series ("AFIS") portfolios. American Funds Insurance
Series has investment portfolios in addition to those listed here that are not
available for investment under the contract.
ANCHOR SERIES TRUST -- CLASS 2
Wellington Management Company, LLP serves as subadviser to the Anchor Series
Trust portfolios. Anchor Series Trust ("AST") has investment portfolios in
addition to those listed below which are not available for investment under the
contract.
LORD ABBETT SERIES FUND, INC. -- CLASS VC
Lord Abbett & Co. provides investment advice for the Lord Abbett Series Fund,
Inc. portfolios. Lord Abbett Series Fund, Inc. ("LASF") has investment
portfolios in addition to those listed below that are not available for
investment under the contract.
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SUNAMERICA SERIES TRUST -- CLASS 2
Various subadvisers provide investment advice for the SunAmerica Series Trust
portfolios. SunAmerica Series Trust ("SAST") has investment portfolios in
addition to those listed below which are not available for investment under the
contract.
VAN KAMPEN LIFE INVESTMENT TRUST -- CLASS II
Van Kampen Asset Management Inc. provides investment advice for the Van Kampen
Life Investment Trust ("VKT") portfolios. Van Kampen Life Investment Trust has
investment portfolios in addition to those listed here which are not available
for investment under the contract.
STOCKS:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORPORATION
- Aggressive Growth Portfolio SAST
- Blue Chip Growth Portfolio SAST
- "Dogs" of Wall Street Portfolio* SAST
- Growth Opportunities Portfolio SAST
MANAGED BY ALLIANCEBERNSTEIN
- Small & Mid Cap Value Portfolio SAST
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
- Alliance Growth Portfolio SAST
- Global Equities Portfolio SAST
- Growth-Income Portfolio SAST
MANAGED BY CAPITAL RESEARCH AND MANAGEMENT COMPANY
- American Funds Global Growth Portfolio AFIS
- American Funds Growth Portfolio AFIS
- American Funds Growth-Income Portfolio AFIS
MANAGED BY DAVIS ADVISORS
- Davis Venture Value Portfolio SAST
- Real Estate Portfolio SAST
MANAGED BY FEDERATED EQUITY MANAGEMENT COMPANY
- Federated American Leaders Portfolio* SAST
- Telecom Utility Portfolio SAST
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT, L.P.
- Goldman Sachs Research Portfolio SAST
MANAGED BY LORD, ABBETT & CO.
- Lord Abbett Series Fund Growth and Income Portfolio LASF
MANAGED BY MARSICO CAPITAL MANAGEMENT, LLC
- Marsico Growth Portfolio SAST
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Massachusetts Investors Trust Portfolio SAST
- MFS Mid-Cap Growth Portfolio SAST
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, LLC
- Emerging Markets Portfolio SAST
- International Growth and Income Portfolio SAST
- Putnam Growth: Voyager Portfolio SAST
MANAGED BY TEMPLETON INVESTMENT COUNSEL, LLC
- Foreign Value Portfolio SAST
MANAGED BY VAN KAMPEN/VAN KAMPEN ASSET MANAGEMENT
- International Diversified Equities Portfolio+ SAST
- Technology Portfolio+ SAST
- Van Kampen LIT Comstock Portfolio, Class II Shares* VKT
- Van Kampen LIT Emerging Growth Portfolio, Class II Shares VKT
- Van Kampen LIT Growth and Income Portfolio, Class II Shares VKT
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio AST
- Growth Portfolio AST
- Natural Resources Portfolio AST
BALANCED:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- SunAmerica Balanced Portfolio SAST
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Total Return Portfolio SAST
MANAGED BY WM ADVISORS, INC
- Asset Allocation Portfolio AST
BONDS:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- High-Yield Bond Portfolio SAST
MANAGED BY FEDERATED INVESTMENT MANAGEMENT
- Corporate Bond Portfolio SAST
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT INT'L
- Global Bond Portfolio SAST
MANAGED BY VAN KAMPEN
- Worldwide High Income Portfolio SAST
MANAGED BY WELLINGTON MANAGEMENT COMPANY LLP
- Government & Quality Bond Portfolio AST
CASH:
MANAGED BY BANC OF AMERICA CAPITAL MANAGEMENT, LLC
- Cash Management Portfolio SAST
* "Dogs" of Wall Street is an equity fund seeking total return. Federated
American Leaders is an equity fund seeking growth of capital and income. Van
Kampen LIT Comstock is an equity fund seeking capital growth and income.
+ Morgan Stanley Investment Management, Inc., the subadviser for these
portfolios, does business in certain instances using the name Van Kampen.
YOU SHOULD READ THE ATTACHED PROSPECTUSES FOR THE TRUSTS CAREFULLY. THESE
PROSPECTUSES CONTAIN DETAILED INFORMATION ABOUT THE VARIABLE PORTFOLIOS,
INCLUDING EACH VARIABLE PORTFOLIO'S INVESTMENT OBJECTIVE AND RISK FACTORS.
FIXED ACCOUNT OPTIONS
Your contract may offer Fixed Account Guarantee Periods ("FAGP") to which you
may allocate certain Purchase Payments or contract value. Available guarantee
periods may
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be for different lengths of time (such as 1, 3 or 5 years) and may have
different guaranteed interest rates, as noted below. We guarantee the interest
rate credited to amounts allocated to any available FAGP and that the rate will
never be less than the minimum guaranteed interest rate as specified in your
contract. Once established, the rates for specified payments do not change
during the guarantee period. We determine the FAGPs offered at any time in Our
sole discretion and We reserve the right to change the FAGPs that We make
available at any time, unless state law requires Us to do otherwise. Please
check with your financial representative to learn if any FAGPs are currently
offered.
There are three interest rate scenarios for money allocated to the FAGPs. Each
of these rates may differ from one another. Once declared, the applicable rate
is guaranteed until the corresponding guarantee period expires. Under each
scenario your money may be credited a different rate of interest as follows:
Initial Rate: The rate credited to any portion of the initial Purchase
Payment allocated to a FAGP.
Current Rate: The rate credited to any portion of the subsequent Purchase
Payments allocated to a FAGP.
Renewal Rate: The rate credited to money transferred from a FAGP or a
Variable Portfolio into a FAGP and to money remaining in a FAGP after
expiration of a guarantee period.
When a FAGP ends, you may leave your money in the same FAGP or you may
reallocate your money to another FAGP or to the Variable Portfolios. If you want
to reallocate your money, you must contact Us within 30 days after the end of
the current interest guarantee period and instruct Us as to where you would like
the money invested. We do not contact you. If We do not hear from you, your
money will remain in the same FAGP where it will earn interest at the renewal
rate then in effect for that FAGP.
All FAGPs may not be available in all states. At any time we are crediting the
guaranteed minimum interest rate specified in your contract to the fixed
accounts, we reserve the right to restrict transfers and Purchase Payments into
the FAGPs. If you do not elect to participate in the Polaris Rewards program, We
may also offer 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.
DOLLAR COST AVERAGING FIXED ACCOUNTS
If you do not elect the Polaris Rewards program, 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.
ASSET ALLOCATION PROGRAM
PROGRAM DESCRIPTION
The asset allocation program is offered to help you diversify your investment
across various asset classes.
Each of the models is comprised of a carefully selected combination of Variable
Portfolios with allocation amongst the various asset classes based on historical
asset class performance to meet stated investment time horizons and risk
tolerances.
ENROLLING IN THE PROGRAM
You may enroll in the program by selecting the model as well as any program
options on the product application form. If you already own a policy, you must
complete and submit a program election form. You and your financial
representative determine the model most appropriate for you. You may discontinue
investment in the program at any time with a written request, telephone or
internet instructions, subject to Our rules.
You may also choose to invest gradually into a model through the dollar cost
averaging program. You may only invest in one model at a time. You may invest in
investment options outside your selected model but only in those Variable
Portfolios that are not utilized in the model you selected. A transfer into or
out of one of the Variable Portfolios in your model, outside the specifications
in the model will effectively terminate your participation in the program.
There is no fee for participating in this program.
WITHDRAWALS
You may request withdrawals, as permitted by your contract, which will be taken
proportionately from each of the allocations in the selected model unless
otherwise instructed by you. If you choose to make a non-proportional withdrawal
from the Variable Portfolios in the model, your investment may no longer be
consistent with the model's intended objectives.
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Withdrawals may be subject to a withdrawal charge. Withdrawals may be taxable
and a 10% IRS penalty may apply if you are under age 59 1/2.
KEEPING YOUR PROGRAM ON TARGET
REBALANCING
You can elect to have your contract rebalanced quarterly, semi-annually, or
annually to maintain the target asset allocation among the Variable Portfolios
of the model you selected. Only those Variable Portfolios within each model will
be rebalanced. An investment not included in the model can not be rebalanced.
ANNUAL RE-EVALUATION
Each year, on or about March 31, the allocations in every model are re-evaluated
and updated to assure that the investment objectives remain consistent. The
percentage allocations within each model may change and investment options may
be added to or deleted from a model as a result of the annual re-evaluation. We
will automatically rebalance your investment according to the re-evaluated
allocations each year on or about March 31. If you choose not to participate in
the re-evaluation part of this program, you must contact the Annuity Service
Center. Some broker-dealers require that you consent to the re-evaluation each
year and will not allow Us to automatically rebalance your contract in
accordance with the re-evaluated models. Please check with your financial
representative to determine the protocol for his/her firm.
IMPORTANT INFORMATION
Using an asset allocation methodology does not guarantee greater or more
consistent returns. Historical market and asset class performance may differ in
the future from the historical performance upon which the models are built.
Also, allocation to a single asset class may outperform a model, so that you
could have been better off in an investment option or options representing a
single asset class than in a model. However, such a strategy involves a greater
degree of risk because of the concentration of like securities in a single asset
class.
The models represent suggested allocations which are provided as general
guidance. You should work with your financial representative to assist you in
determining if one of the models meets your financial needs, investment time
horizon, and is consistent with your risk comfort level. Information concerning
the specific models can be obtained from your financial adviser.
WE HAVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE ASSET ALLOCATION PROGRAM
AT ANY TIME.
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase you may transfer funds between the Variable
Portfolios and/or any available fixed account options. Funds already in your
contract cannot be transferred into the DCA fixed accounts. You must transfer at
least $100 per transfer. If less than $100 remains in any Variable Portfolio
after a transfer, that amount must be transferred as well. We will process any
transfer request as of the day we receive it in good order if the request is
received before the New York Stock Exchange ("NYSE") closes, generally at 1:00
p.m. Pacific Time. If the transfer request is received after the NYSE closes,
the request will be processed on the next business day.
This product is not designed for professional organizations or individuals
engaged in trading strategies that seek to benefit from short term price
fluctuations or price irregularities by making programmed transfers, frequent
transfers or transfers that are large in relation to the total assets of the
underlying portfolio in which the Variable Portfolios invest. These types of
trading strategies can be disruptive to the underlying portfolios in which the
Variable Portfolios invest and thereby potentially harmful to investors.
In connection with our efforts to control harmful trading, we may monitor your
trading activity. If we determine, in our sole discretion, that your transfer
patterns among the Variable Portfolios and/or available fixed accounts reflect a
potentially harmful trading strategy, we reserve the right to take action to
protect other investors. Such action may include, but may 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 capability in accordance with state and federal rules and regulations.
We will notify you, in writing, if we determine in our sole discretion that we
must terminate your transfer privileges. Some of the factors we may consider
when determining our transfer policies and/or other transfer restrictions may
include, but are not limited to:
- - the number of transfers made in a defined period;
- - the dollar amount of the transfer;
- - the total assets of the Variable Portfolio involved in the transfer;
- - the investment objectives of the particular Variable Portfolios involved in
your transfers; and/or
- - whether the transfer appears to be part of a pattern of transfers to take
advantage of short-term market fluctuations or market inefficiencies.
Subject to our rules, restrictions and policies, you may request transfers of
your account value between the Variable Portfolios and/or the available fixed
account options by telephone or through AIG SunAmerica's website
(http://www.aigsunamerica.com) or in writing by mail or
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facsimile. We allow 15 free transfers per contract per year. We charge $25 ($10
in Pennsylvania and Texas) for each additional transfer in any contract year.
Transfers resulting from your participation in the DCA or Asset Rebalancing
programs do not count against your 15 free transfers per contract year.
All transfer request in excess of 15 transfers per contract year must be
submitted in writing by United States Postal Service first-class mail ("U.S.
Mail") until your next contract anniversary. Transfer requests sent by same day
mail, overnight mail or courier services will not be accepted. Transfer requests
required to be submitted by U.S. Mail can only be cancelled by a written request
sent by U.S. Mail. Transfers resulting from your participation in the DCA or
Asset Rebalancing programs are not included for the purposes of determining the
number of transfers for the U.S. Mail requirement.
We may accept transfers by telephone or the Internet unless you tell us not to
on your contract application. When receiving instructions over the telephone or
the Internet, we follow 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 instructions.
For information regarding transfers during the Income Phase, see INCOME OPTIONS
below.
We reserve the right to modify, suspend, waive or terminate these transfer
provisions at any time.
DOLLAR COST AVERAGING
The Dollar Cost Averaging ("DCA") program allows you to invest gradually in the
Variable Portfolios. Under the program you systematically transfer a set dollar
amount or percentage of portfolio value from one Variable Portfolio or an
available fixed account option (source accounts) to any other Variable Portfolio
(target account). If available, you may systematically transfer interest earned
in available fixed account guarantee periods ("FAGPs") into any of the Variable
Portfolios on certain periodic schedules offered by Us. You may change or
terminate these systematic transfers by contacting Our Annuity Service Center.
Check with your financial representative about the current availability of this
service.
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. There is no charge for participating in the
DCA program.
We may also offer DCAFAs for specified periods fixed accounts exclusively to
facilitate this program. If you elected to participate in the Polaris Rewards
Program, DCAFAs are not available under your contract. The DCAFAs only accept
new Purchase Payments. You cannot transfer money already in your contract into
these options. If you allocate new Purchase Payments into a DCAFA, We transfer
all your money allocated to that account into the Variable Portfolios over the
selected time period at an offered frequency of your choosing. You cannot change
the frequency of transfers once selected.
You may terminate a DCA program at any time. If money remains in the DCAFAs
fixed accounts, We transfer the remaining money according to your instructions
or to your current allocations on file. Transfers resulting from a termination
of this program do not count towards your 15 free transfers.
The DCA program is designed to lessen the impact of market fluctuations on your
investment. However, We cannot ensure that you will make a profit. When you
elect the DCA program, you are continuously investing in securities regardless
of fluctuating price levels. You should consider your tolerance for investing
through periods of fluctuating price levels.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to gradually move $750 each quarter from the Cash
Management Portfolio to the Aggressive Growth Portfolio over six quarters.
You set up dollar cost averaging and purchase Accumulation Units at the
following values:
<Table>
<Caption>
---------------------------------------------
ACCUMULATION UNITS
QUARTER UNIT PURCHASED
---------------------------------------------
1 $ 7.50 100
2 $ 5.00 150
3 $10.00 75
4 $ 7.50 100
5 $ 5.00 150
6 $ 7.50 100
---------------------------------------------
</Table>
You paid an average price of only $6.67 per Accumulation Unit over six
quarters, 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 Asset Allocation
Rebalancing Program addresses this situation. At your election, We periodically
rebalance your investments in the Variable
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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. There is no charge for participating in the Asset Rebalancing program.
At your request, rebalancing occurs on a quarterly, semiannual or annual basis.
Transfers made as a result of rebalancing do not count against your 15 free
transfers for the contract year.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want your initial Purchase Payment split between two
Variable Portfolios. You want 50% in the Corporate Bond Portfolio and 50%
in the Growth Portfolio. Over the next calendar quarter, the bond market
does very well while the stock market performs poorly. At the end of the
calendar quarter, the Corporate Bond Portfolio now represents 60% of your
holdings because it has increased in value and the Growth Portfolio
represents 40% of your holdings. If you had chosen quarterly rebalancing,
on the last day of that quarter, We would sell some of your units in the
Corporate Bond Portfolio to bring its holdings back to 50% and use the
money to buy more units in the Growth Portfolio to increase those holdings
to 50%.
RETURN PLUS PROGRAM
The Return Plus Program, available if we are offering FAGPs, allows you to
invest in one or more Variable Portfolios without putting your principal at
direct risk. The program accomplishes this by allocating your investment
strategically between the fixed account options and Variable Portfolios. You
decide how much you want to invest and approximately when you want a return of
principal. We calculate how much of your Purchase Payment to allocate to the
particular fixed account option to ensure that it grows to an amount equal to
your total principal invested under this program. We invest the rest of your
principal in the Variable Portfolio(s) of your choice. There is no fee for
participating in the Return Plus Program.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to allocate a portion of your initial Purchase Payment
of $100,000 to the fixed account option. You want the amount allocated to
the fixed account option to grow to $100,000 in 7 years. If the 7-year
fixed account option is offering a 5% interest rate, We will allocate
$71,069 to the 7-year fixed account option to ensure that this amount will
grow to $100,000 at the end of the 7-year period. The remaining $28,931 may
be allocated among the Variable Portfolios, as determined by you, to
provide opportunity for greater growth.
VOTING RIGHTS
AIG SunAmerica Life is the legal owner of the Trusts' shares. However, when a
Variable Portfolio solicits proxies in conjunction with a vote of shareholders,
We must obtain your instructions on how to vote those shares. We vote all of the
shares We own in proportion to your instructions. This includes any shares We
own on Our own behalf. Should We determine that We are no longer required to
comply with these rules, We will vote the shares in Our own right.
SUBSTITUTION
We may amend your contract due to changes to the Variable Portfolios offered
under your contract. For example, We may offer new Variable Portfolios, delete
Variable Portfolios, or stop accepting allocations and/or investments in a
particular Variable Portfolio. We may move assets and re-direct future premium
allocations from one Variable Portfolio to another if We receive investor
approval through a proxy vote or SEC approval for a fund substitution. This
would occur if a Variable Portfolio is no longer an appropriate investment for
the contract, for reasons such as continuing substandard performance, or for
changes to the portfolio manager, investment objectives, risks and strategies,
or federal or state laws. The new Variable Portfolio offered may have different
fees and expenses. You will be notified of any upcoming proxies or substitutions
that affect your Variable Portfolio choices.
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ACCESS TO YOUR MONEY
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You can access money in your contract in two ways:
- by making a partial or total withdrawal, and/or;
- by receiving income payments during the Income Phase. SEE INCOME OPTIONS
BELOW.
Generally, We deduct a withdrawal charge applicable to any total or partial
withdrawal. If you withdraw your entire contract value, We also deduct premium
taxes and a contract maintenance fee. SEE EXPENSES BELOW.
Your contract provides for a free withdrawal amount each year. A free withdrawal
amount is the portion of your account that We allow you to take out each year
without being charged a surrender penalty. HOWEVER, UPON A FUTURE FULL SURRENDER
OF YOUR CONTRACT ANY PREVIOUS FREE WITHDRAWALS WOULD BE SUBJECT TO A SURRENDER
CHARGE, IF ANY IS APPLICABLE AT THE TIME OF THE FULL SURRENDER (EXCEPT IN THE
STATE OF WASHINGTON). Additionally, if you participate in the Polaris Rewards
Program you will not receive your Deferred Payment Enhancement if you fully
withdraw a Purchase Payment or your contract value prior to the
16
corresponding Deferred Payment Enhancement Date. SEE POLARIS REWARDS PROGRAM
ABOVE.
Purchase Payments, above and beyond the amount of your free withdrawal amount,
that are withdrawn prior to the end of the seventh or ninth year if you elect to
participate in the Polaris Rewards Program will result in your paying a penalty
in the form of a surrender charge. The amount of the charge and how it applies
are discussed more fully below. SEE EXPENSES BELOW. You should consider, before
purchasing this contract, the effect this charge will have on your investment if
you need to withdraw more money than the free withdrawal amount. You should
fully discuss this decision with your financial representative.
To determine your free withdrawal amount and your withdrawal charge, We refer to
two special terms. These are penalty free earnings and the total invested
amount.
The penalty-free earnings portion of your contract is simply your account value
less your total invested amount. The total invested amount is the total of all
Purchase Payments you have made into the contract less portions of some prior
withdrawals you made. The portions of prior withdrawals that reduce your total
invested amount are as follows:
- Free withdrawals in any year that were in excess of your penalty-free
earnings and were based on the part of the total invested amount that was
no longer subject to withdrawal charges at the time of the withdrawal,
and
- Any prior withdrawals (including withdrawal charges on those withdrawals)
of the total invested amount on which you already paid a surrender
penalty.
When you make a withdrawal, We assume that it is taken from penalty-free
earnings first, then from the total invested amount on a first-in, first-out
basis. This means that you can also access your Purchase Payments which are no
longer subject to a withdrawal charge before those Purchase Payments which are
still subject to the withdrawal charge.
During the first year after We issue your contract your free withdrawal amount
is the greater of (1) your penalty-free earnings; and (2) if you are
participating in the Systematic Withdrawal program, a total of 10% of your total
invested amount. If you are a Washington resident, you may withdraw during the
first contract year, the greater of (1); (2); or (3) interest earnings from the
amounts allocated to the fixed account options, not previously withdrawn.
After the first contract year, you can take out the greater of the following
amounts each year (1) your penalty-free earnings and any portion of your total
invested amount no longer subject to withdrawal charge or (2) 10% of the portion
of your total invested amount that has been in your contract for at least one
year. If you are a Washington resident, your maximum free withdrawal amount,
after the first contract year, is the greater of (1); (2); or (3) interest
earnings from amounts allocated to the fixed account options, not previously
withdrawn.
Although We do not assess a withdrawal charge when you take a 10% penalty-free
withdrawal, We will proportionally reduce the amount of any corresponding
Deferred Payment Enhancement.
We calculate charges due on a total withdrawal on the day after We receive your
request and your contract. We return to your contract value less any applicable
fees and charges.
The withdrawal charge percentage is determined by the age of the Purchase
Payment remaining in the contract at the time of the withdrawal. For the purpose
of calculating the withdrawal charge, any prior Free Withdrawal is not
subtracted from the total Purchase Payments still subject to withdrawal charges.
For example, you make an initial Purchase Payment of $100,000. For purposes of
this example We will assume a 0% growth rate over the life of the contract, no
subsequent Purchase Payments, and no Polaris Rewards election. In contract year
2, you take out your maximum free withdrawal of $10,000. After that free
withdrawal your contract value is $90,000. In contract year 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 ($90,000)
B=The amount of your Purchase Payments still subject to withdrawal charge
($100,000)
C=The withdrawal charge percentage applicable to the age of each Purchase
Payment (3%)[B x C=$3,000]
D=Your full surrender value ($87,000)
Under most circumstances, the partial withdrawal minimum is $1,000. We require
that the value left in any investment option be at least $100, after the
withdrawal. You must send a written withdrawal request. Unless you provide Us
with different instructions, partial withdrawals will be made pro rata from each
Variable Portfolio and the fixed account option in which your contract is
invested. IN THE EVENT THAT A PRO RATA PARTIAL WITHDRAWAL WOULD CAUSE THE VALUE
OF ANY VARIABLE PORTFOLIO OR FIXED ACCOUNT INVESTMENT TO BE LESS THAN $100, WE
WILL CONTACT YOU TO OBTAIN ALTERNATE INSTRUCTIONS ON HOW TO STRUCTURE THE
WITHDRAWAL.
Under certain Qualified plans, access to the money in your contract may be
restricted. Additionally, withdrawals made prior to age 59 1/2 may result in a
10% IRS penalty tax. SEE TAXES BELOW.
We may be required to suspend or postpone the payment of a withdrawal for any
period of time when: (1) the NYSE is closed (other than a customary weekend and
holiday closings); (2) trading with the NYSE is restricted; (3) an emergency
exists such that disposal of or determination of the value of shares of the
Variable Portfolios is not reasonably
17
practicable; (4) the SEC, by order, so permits for the protection of contract
owners.
Additionally, We reserve the right to defer payments for a withdrawal from a
fixed account option. Such deferrals are limited to no longer than six months.
SYSTEMATIC WITHDRAWAL PROGRAM
During the Accumulation Phase, you may elect to receive periodic income payments
under the systematic withdrawal program. Under the program, you may choose to
take monthly, quarterly, semi-annual or annual payments from your contract.
Electronic transfer of these funds to your bank account is also available. The
minimum amount of each withdrawal is $100. If you are an Oregon resident, the
minimum withdrawal amount is $250 per withdrawal or an amount equal to your free
withdrawal amount. There must be at least $500 remaining in your contract at all
times. Withdrawals may be taxable and a 10% IRS penalty tax may apply if you are
under age 59 1/2. There is no additional charge for participating in this
program, although a withdrawal charge and/or MVA may apply.
The program is not available to everyone. Please check with Our Annuity Service
Center, which can provide the necessary enrollment forms. We reserve the right
to modify, suspend or terminate this program at any time.
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.
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.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
OPTIONAL LIVING BENEFITS
- ----------------------------------------------------------------
- ----------------------------------------------------------------
YOU MAY ELECT ONE OF THE OPTIONAL LIVING BENEFITS DESCRIBED BELOW. THESE
FEATURES ARE DESIGNED TO PROTECT A PORTION OF YOUR INVESTMENT IN THE EVENT YOUR
CONTRACT VALUE DECLINES DUE TO UNFAVORABLE INVESTMENT PERFORMANCE DURING THE
ACCUMULATION PHASE AND BEFORE A DEATH BENEFIT IS PAYABLE. PLEASE SEE THE
DESCRIPTIONS BELOW FOR DETAILED INFORMATION.
POLARIS INCOME REWARDS FEATURE
What is Polaris Income Rewards?
Polaris Income Rewards is an optional feature available only on contracts issued
on or after May 3, 2004 and subject to state availability. If you elect this
feature, for which you will be charged an annualized fee, you are guaranteed to
receive withdrawals over a minimum number of years that in total equals at least
the initial Purchase Payment adjusted for withdrawals, even if the contract
value falls to zero. Polaris Income Rewards may offer protection in the event
your contract value declines due to unfavorable investment performance.
How can I elect the feature?
You may elect the feature only at the time of contract issue and must choose
either Option 1 or Option 2. The date you elect the feature (which is also the
contract issue date) is your BENEFIT EFFECTIVE DATE. The earliest you may begin
taking withdrawals under the benefit after a specified waiting period is the
BENEFIT AVAILABILITY DATE. You cannot elect the feature if you are age 81 or
older on the Benefit Effective Date or if the Benefit Availability Date is on or
after the Latest Annuity Date. Generally, once you elect the feature, it cannot
be canceled. The Polaris Income Rewards has rules and restrictions that are
discussed more fully below.
How is the benefit calculated?
There are several components that comprise the integral aspects of this benefit.
In order to determine the benefit's value at any point in time, we calculate
each of the components as described below. We calculate Eligible Purchase
Payments, Withdrawal Benefit Base, Step-Up Amount and Stepped-Up Benefit Base.
First, we determine the ELIGIBLE PURCHASE PAYMENTS according to the table below.
<Table>
<Caption>
- -----------------------------------------------------------------
TIME ELAPSED SINCE
BENEFIT EFFECTIVE DATE PERCENTAGE OF ELIGIBLE PURCHASE PAYMENTS
- -----------------------------------------------------------------
0-90 Days 100%
- -----------------------------------------------------------------
91 Days + 0%
- -----------------------------------------------------------------
</Table>
Second, we determine the WITHDRAWAL BENEFIT BASE ("WBB"). The WBB is used to
calculate the amount of total guaranteed withdrawals and the annual maximum
18
withdrawal amount available under the benefit. On the Benefit Availability Date,
the WBB equals the sum of all Eligible Purchase Payments, reduced for any
withdrawals in the same proportion that the withdrawal reduced the contract
value on the date of the withdrawal.
Third, we determine a STEP UP AMOUNT which is calculated as a specified
percentage of the WBB on the Benefit Availability Date. The Step-Up Amount is
not a considered a Purchase Payment and cannot be used in calculating any other
benefits, such as the death benefit, contract values or annuitization value.
Fourth, we determine the STEPPED-UP BENEFIT BASE ("SBB") which is the total
amount available for withdrawal under the benefit and is used to calculate the
minimum time period over which you may take withdrawals under the benefit. The
SBB equals the WBB plus the Step-Up Amount.
Fifth, we determine the MAXIMUM ANNUAL WITHDRAWAL AMOUNT ("MAWA") which is a
stated percentage of the WBB.
Finally, we determine the MINIMUM WITHDRAWAL PERIOD ("MWP") which is the minimum
period at any point in time over which you may take withdrawals under the
benefit. The MWP is calculated by dividing the SBB by the MAWA.
The table below is a summary of the two Polaris Income Rewards options we are
offering as applicable on the Benefit Availability Date:
<Table>
<Caption>
- -------------------------------------------------------------------
MWP (IF
MAWA
BENEFIT TAKEN
AVAILABILITY STEP-UP MAWA EACH
DATE AMOUNT PERCENTAGE YEAR)
- -------------------------------------------------------------------
Option 1 3 years following 10% of WBB 10% of WBB 11 years
Benefit Effective
Date
- -------------------------------------------------------------------
Option 2 5 Years following 20% of WBB 10% of WBB 12 years
Benefit Effective
Date
- -------------------------------------------------------------------
</Table>
Example 1:
Assume you elect Polaris Income Rewards option 2 and you invest a single
Purchase Payment of $100,000. If you make no additional Purchase Payments
and no withdrawals, your WBB is $100,000 on the Benefit Availability Date.
Your SBB equals WBB plus the Step-Up Amount ($100,000 + (20% X $100,000) =
$120,000). Your MAWA as of the Benefit Availability Date is 10% of your WBB
($100,000 X 10% = $10,000). The MWP is equal to the SBB divided by the MAWA
which is 12 years ($120,000/$10,000). Therefore, you may take $120,000 in
withdrawals of up to $10,000 annually over a minimum of 12 years on or
after the Benefit Availability Date.
What is the fee for Polaris Income Rewards?
The annualized Polaris Income Rewards fee will be assessed and deducted
quarterly from your contract value, starting on the first quarter following the
Benefit Effective Date and ending upon the termination of the benefit. If your
contract value falls to zero before the benefit has been terminated, the fee
will no longer be assessed. We will not assess the quarterly fee if you
surrender or annuitized before the end of the quarter.
<Table>
<Caption>
- ------------------------------------------------------------
TIME ELAPSED SINCE THE
BENEFIT EFFECTIVE DATE ANNUALIZED FEE
- ------------------------------------------------------------
0-7 years 0.65% of WBB
- ------------------------------------------------------------
8+ years 0.45% of WBB
- ------------------------------------------------------------
</Table>
What is the effect of withdrawals on Polaris Income Rewards?
The benefit amount, MAWA and MWP may change over time as a result of withdrawal
activity. Withdrawals equal to or less than the MAWA generally reduce the
benefit by the amount of the withdrawal. Withdrawals in excess of the MAWA may
reduce the benefit based on the relative size of the withdrawal in relation to
the contract value at the time of the withdrawal. This means if investment
performance is down and contract value is depleted, withdrawals greater than the
MAWA will result in a greater reduction of the benefit. We further explain the
impact of withdrawals and the effect on each component of Polaris Income Rewards
through the calculations below:
CONTRACT VALUE: Any withdrawal reduces the contract value by the amount of
the withdrawal.
WBB: Withdrawals prior to the Benefit Availability Date reduce the WBB in
the same proportion that the contract value was reduced at the time of the
withdrawal.
Withdrawals after the Benefit Availability Date will not reduce the WBB
until the sum of withdrawals exceeds the Step-Up amount. Thereafter, any
withdrawal or portion thereof that exceeds the Step-Up Amount will reduce
the WBB as follows: If the withdrawal does not cause total withdrawals in
the Benefit Year to exceed the MAWA, the WBB will be reduced by the amount
of the withdrawal. If the withdrawal causes total withdrawals in the
Benefit Year to exceed the MAWA, the WBB is reduced to the lesser of (a) or
(b), where:
a. is the WBB immediately prior to the withdrawal minus the amount of
the withdrawal, or;
b. is the WBB immediately prior to the withdrawal minus the portion of
the withdrawal that makes total withdrawals in that Benefit Year
equal to the current MAWA, and further reduced proportionately by
the same amount by which the contract value is reduced by the
remaining portion of the withdrawal.
SBB: Since withdrawals prior to the Benefit Availability Date reduce the
WBB proportionately, the SBB will
19
likewise be reduced proportionately during that period of time.
After the Benefit Availability Date, any withdrawal that does not cause
total withdrawals in a Benefit Year to exceed the MAWA will reduce the SBB
by the amount of the withdrawal. After the Benefit Availability Date, any
withdrawal that causes total withdrawals in a Benefit Year to exceed the
MAWA (in that Benefit Year) reduces the SBB to the lesser of (a) or (b),
where:
a. is the SBB immediately prior to the withdrawal minus the amount of
the withdrawal, or;
b. is the SBB immediately prior to the withdrawal minus the amount of
the withdrawal that makes total withdrawals in that Benefit Year
equal to the current MAWA, and further reduced proportionately by
the same amount by which the contract value is reduced by the
remaining portion of the withdrawal.
MAWA: If the sum of withdrawals in a Benefit Year does not exceed the MAWA
for that Benefit Year, the MAWA does not change for the next Benefit Year.
If total withdrawals in a Benefit Year exceed the MAWA, the MAWA will be
recalculated at the start of the next Benefit Year. The new MAWA will equal
the SBB on that Benefit Year anniversary divided by the MWP on that Benefit
Year Anniversary. The new MAWA may be lower than your previous MAWAs.
MWP: After each withdrawal a new MWP is calculated. If total withdrawals in
a Benefit Year are less than or equal to MAWA the new MWP equals the SBB
after the withdrawal divided by the current MAWA.
During any Benefit Year in which the sum of withdrawals exceeds the MAWA,
the new MWP equals the MWP calculated at the end of the prior Benefit Year
reduced by one year.
Example 2 - Impact of Withdrawals prior to the Benefit Availability Date:
Assume you elect Polaris Income Rewards option 2 and you invest a single
Purchase Payment of $100,000. You make a withdrawal of $11,000 prior to the
Benefit Availability Date. Prior to the withdrawal, your contract value is
$110,000. You make no other withdrawals before the Benefit Availability
Date. Immediately following the withdrawal, your WBB is recalculated by
first determining the proportion by which your contract value was reduced
by the withdrawal ($11,000/$110,000 = 10%). Next, we reduce your WBB by the
percentage by which the contract value was reduced by the withdrawal
($100,000 -- (10% X 100,000) = $90,000). Your SBB on the Benefit
Availability Date is your WBB plus a Step-Up Amount calculated as 20% of
your WBB (20% X $90,000 = $18,000). The SBB equals $108,000. Your MAWA is
10% of the WBB on the Benefit Availability Date ($90,000). This equals
$9,000. Therefore, you may take withdrawals of up to $9,000 annually over a
minimum of 12 years ($108,000/$9,000 = 12).
Example 3 - Impact of Withdrawals less than or equal to MAWA after the
Benefit Availability Date:
Assume you elect Polaris Income Rewards option 2 and you invest a single
Purchase Payment of $100,000. You make a withdrawal of $7,500 during the
first year after the Benefit Availability Date. Because the withdrawal is
less than or equal to your MAWA ($10,000), your SBB ($120,000) is reduced
by the total dollar amount of the withdrawal ($7,500). Your new SBB equals
$112,500. Your MAWA remains $10,000. Your new MWP following the withdrawal
is equal to the new SBB divided by your current MAWA, ($112,500/$10,000).
Therefore, you may take withdrawals of up to $10,000 over a minimum of 11
years and 3 months.
Example 4 - Impact of Withdrawals in excess of MAWA after the Benefit
Availability Date:
Assume you elect Polaris Income Rewards option 2 and you invest a single
Purchase Payment of $100,000. Your WBB is $100,000 and your SBB is
$120,000. You make a withdrawal of $15,000 during the first year after the
Benefit Availability Date. Your contract value is $125,000 at the time of
the withdrawal. Because the withdrawal is greater than your MAWA ($10,000),
we recalculate your SBB ($120,000) by taking the lesser of two
calculations. For the first calculation, we deduct the amount of the
withdrawal from the SBB ($120,000 -- $15,000 = $105,000). For the second
calculation, we deduct the amount of the MAWA from the SBB
($120,000 -- $10,000 = $110,000). Next, we calculate the excess portion of
the withdrawal ($5,000) and determine the proportion by which the contract
value was reduced by the excess portion of the withdrawal. ($125,000/$5,000
= 4%). Finally we reduce $110,000 by that proportion (4%) which equals
$105,600. Your SBB is the lesser of these two calculations or $105,000. The
MWP following the withdrawal is equal to the MWP at the end of the prior
year (12 years) reduced by one year (11 years). Your MAWA is your SBB
divided by your MWP ($105,000/11) which equals $9,545.45.
What happens if my contract value is reduced to zero?
If the contract value is zero but the SBB is greater than zero, a benefit
remains payable under Polaris Income
20
Rewards feature. While a benefit is payable under Polaris Income Rewards
until the SBB is reduced to zero, the contract is terminated when the
contract value equals zero. At such time, except for Polaris Income
Rewards, all benefits of the contract are terminated. In that event, you
may not make subsequent Purchase Payments. Therefore, under adverse market
conditions, withdrawals under the benefit may reduce the contract value to
zero, thereby eliminating any death benefit or future income payments.
To receive your remaining Polaris Income Rewards benefit, you may select one of
the following options:
a. lump sum distribution of the present value of the total remaining
guaranteed withdrawals; or
b. the current MAWA, paid equally on a quarterly, semi-annual or annual
frequency as selected by you until the SBB equals zero; or
c. any payment option mutually agreeable between you and us.
If you do not select a payment option, the remaining benefit will be paid as the
current MAWA on a quarterly basis.
What happens to Polaris Income Rewards upon a spousal continuation?
A spousal beneficiary of the original owner may elect to continue or cancel
Polaris Income Rewards and its accompanying fee. The Benefit Effective Date,
Benefit Availability Date, WBB, SBB and any other corresponding component of the
feature will not change as a result of a spousal continuation. A Continuation
Contribution is not considered an Eligible Purchase Payment for purposes of
determining the benefit. See SPOUSAL CONTINUATION below.
Can my non-spousal beneficiary elect to receive any remaining withdrawals under
Polaris Income Rewards upon my death?
If the SBB is greater than zero when the original owner dies, a non-spousal
beneficiary may elect to continue receiving any remaining withdrawals under the
benefit. The Benefit Effective Date, Benefit Availability Date, WBB, SBB and any
other corresponding component of the feature will not change. If a contract
value remains, the fee for the benefit will continue to be assessed. Electing to
receive the remaining withdrawals will terminate any death benefit payable to
the non-spousal beneficiary.
Can Polaris Income Rewards be canceled?
Once you elect the feature, you may not cancel it. The feature automatically
terminates upon the occurrence of one of the following:
1. Withdrawals in excess of MAWA in any Benefit Year reduce the SBB by 50%
or more; or
2. SBB is equal to zero; or
3. Annuitization of the contract; or
4. Full Surrender of the contract; or
5. Death benefit is paid; or
6. Upon a spousal continuation, the Continuing Spouse elects not to
continue the contract with the feature.
Important Information
The Polaris Income Rewards may not guarantee an income stream based on all
Purchase Payments made into your contract nor does it guarantee any investment
gains. This feature also does not guarantee lifetime income payments. If you
plan to make subsequent Purchase Payments over the life of your contract, which
are not considered Eligible Purchase Payments under the feature, Polaris Income
Rewards does not guarantee a withdrawal of a majority of those payments. You may
never need to rely on Polaris Income Rewards if your contract performs within a
historically anticipated range. However, past performance is no guarantee of
future results.
Withdrawals under the benefit are treated like any other withdrawal for the
purpose of reducing the contract value, free withdrawal amounts and any other
benefits under the contract.
If you need to or are required to take minimum required distributions ("MRD")
under the Internal Revenue Code ("IRC") from this contract prior to the Benefit
Availability Date, you should know that withdrawals may negatively impact the
value of Polaris Income Rewards. Any withdrawals taken under this benefit or
under the contract, may be subject to a 10% IRS tax penalty if you are under age
59 1/2 at the time of the withdrawal. For information about how the benefit is
treated for income tax purposes, you should consult a qualified tax advisor
concerning your particular circumstances.
The Polaris Income Rewards cannot be elected if you elect the Capital Protector
or Income Protector features. We reserve the right to limit the maximum WBB to
$1 million.
Polaris Income Rewards may not be available in your state or through the
broker-dealer with which your financial representative is affiliated. Please
check with your financial representative.
For prospectively issued contracts, we reserve the right to limit the investment
options available under the contract if you elect Polaris Income Rewards. We
reserve the right to modify, suspend or terminate Polaris Income Rewards (in its
21
entirety or any component) at any time for prospectively issued contracts.
CAPITAL PROTECTOR FEATURE
What is Capital Protector?
The Capital Protector is an optional feature of your variable annuity. If you
elect this feature, for which you will be charged an annualized fee, at the end
of applicable waiting period your contract will be worth at least the amount of
your initial Purchase Payment (less adjustments for withdrawals). The Capital
Protector may offer protection in the event that your contract value declines
due to unfavorable investment performance in your contract.
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.
How can I elect 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 Polaris Income Reward or Income
Protector features. SEE POLARIS INCOME REWARDS ABOVE AND INCOME PROTECTOR BELOW.
The Capital Protector feature may not be available in your state or through the
broker-dealer with which your financial representative is affiliated. Please
check with your financial representative for availability.
Can Capital Protector be Cancelled?
Generally, this feature and its corresponding charge cannot be cancelled or
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.
How is the benefit calculated?
The Capital Protector is a one-time adjustment to your contract value in the
event that your contract value at the end of the waiting period is less than the
guaranteed amount. The amount of the benefit payable to you, if any, at the end
of the waiting period will be based upon the amount of your initial Purchase
Payment and may also include certain portions of subsequent Purchase Payments
contributed to your contract over specified periods of time, as follows:
<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 benefit calculation is equal to your Capital Protector
Base, as defined below, minus your Contract Value on the benefit date. If the
resulting amount is positive, you will receive a benefit under the feature. If
the resulting amount is negative, you will not receive a benefit. Your Capital
Protector Base is equal to (a) minus (b) where:
(a) is the Purchase Payments received on or after the effective date
multiplied by the applicable percentages in the table above, and;
(b) is an adjustment for all withdrawals and applicable fees and charges
made subsequent to the effective date, in an amount proportionate to
the amount by which the withdrawal decreased the contract value at the
time of the withdrawal.
Payment Enhancements under the Polaris Rewards feature are not considered
Purchase Payments and are not used in the calculation of the Capital Protector
Base.
We will allocate any benefit amount contributed to the contract value on the
benefit date to the Cash Management portfolio. Any Capital Protector benefit
paid is not considered a Purchase Payment for purposes of calculating other
benefits. Benefits based on earnings, such as EstatePlus, will continue to
define earnings as the difference between contract value and Purchase Payments
adjusted for withdrawals. For information about how the benefit is treated for
income tax purposes, you should consult a qualified tax advisor for information
concerning your particular circumstances.
What is the Fee for Capital Protector?
Capital Protector is an optional feature. If elected, you will incur an
additional charge for this feature. The annualized charge will be deducted from
your contract value on a quarterly basis throughout the waiting period,
beginning at the end of the first contract quarter following the effective date
of the feature and up to and including on the benefit date. Once the feature is
terminated, as discussed above, the charge will no longer be deducted. We also
will not assess the quarterly fee if you surrender or annuitize before the end
of the quarter.
<Table>
<Caption>
CONTRACT YEAR ANNUALIZED FEE *
- ------------- ----------------
0-7 0.50%
8-10 0.25%
11+ none
</Table>
* As a percentage of your contract value minus Purchase Payments received after
the 90th day since the purchase of your contract. The amount of this charge is
subject to change at any time for prospectively issued contracts.
22
What Happens to Capital Protector upon a Spousal Continuation?
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.
Important Information
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.
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 representative as such activity may reduce the value of this
Capital Protector benefit.
We reserve the right to modify, suspend or terminate the capital protector
feature (in its entirety or any component) at any time for prospectively issued
contracts.
THE INCOME PROTECTOR FEATURE
The Income Protector feature is a future "safety net" which can offer you the
ability to receive a guaranteed fixed minimum retirement income when you switch
to the Income Phase. If you elect the Income Protector feature you can know the
level of minimum income that will be available to you upon annuitization,
regardless of fluctuating market conditions.
The Income Protector benefit available is generally based upon the Purchase
Payments remaining in your contract at the time you decide to begin taking
income. If elected, a growth rate can provide increased minimum guaranteed
income. We charge a fee for the Income Protector benefit. The amount of the fee
and income protection available to you are described below. This feature may not
be available in your state. Check with your financial advisor regarding
availability.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE INCOME PROTECTOR
FEATURE AT ANY TIME FOR PROSPECTIVELY ISSUED CONTRACTS.
HOW WE DETERMINE THE AMOUNT OF YOUR MINIMUM GUARANTEED INCOME
If you elect the Income Protector feature, we base the amount of minimum income
available to you upon a calculation we call the Income Benefit Base. At the time
your participation in the Income Protector program becomes effective, your
Income Benefit Base is equal to your contract value. Participation in the Income
Protector program is effective on either the date of issue of the contract (if
elected) or at the contract anniversary following your election of the Income
Protector.
The income benefit base is only a calculation. It does not represent a contract
value, nor does it guarantee performance of the Variable Portfolios in which you
invest.
Your income benefit base increases if you make subsequent Purchase Payments and
decreases if you withdraw money from your contract. The exact income benefit
base calculation is equal to (a) plus (b) minus (c) where:
(a) is equal to, for the first year of calculation, your initial Purchase
Payment, or for each subsequent year of calculation, the income benefit
base on the prior contract anniversary, and;
(b) is equal to the sum of all subsequent Purchase Payments made into the
contract since the last contract anniversary, and;
(c) is equal to all withdrawals and applicable fees and charges since the
last contract anniversary, in an amount proportionate to the amount by
which such withdrawals decreased your contract value.
Your Income Benefit Base may accumulate at the elected growth rate from the date
your election becomes effective through your Income Benefit Date. However, any
applicable Growth Rate will reduce to 0% on the Anniversary immediately after
the annuitant's 90th birthday.
If you decide that you want the protection offered by the Income Protector
feature, you must elect the feature by completing the Income Protector Election
Form available through Our Annuity Service Center.
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 ten years following your election. You may not
elect this Program if the required waiting period before beginning the Income
Phase would occur later than your latest annuity date.
23
The current options offered are:
<Table>
<Caption>
FEE AS A % OF
YOUR INCOME WAITING
GROWTH RATE* BENEFIT BASE PERIOD*
- ---------------------------------------------------------------
Income Protector Plus 6% 0.45% 10 years
- ---------------------------------------------------------------
</Table>
* If you elect the feature on a subsequent anniversary, the Growth Rates, Fees,
and/or Waiting Period may be different.
RE-SET OF YOUR INCOME PROTECTOR BENEFIT
RE-SET
You may also have the opportunity to "Re-Set" your Income Benefit Base. The
Re-Set feature allows you to increase your Income Benefit Base to the amount of
your contract value on your next contract anniversary. You can only Re-Set
within the 30 days before your next contract anniversary. The waiting period
before you can begin the Income Phase will be determined based on the offerings
available for your elected level of protection at the time your make an election
to Re-Set. In addition, the Income Protector fee will be charged as a percentage
of your re-set Income Benefit Base. You may not elect to Re-Set if the required
waiting period before beginning the Income Phase would occur later than your
latest annuity date.
For more information on how to Re-Set your Income Protector benefit, please
contact your financial representative or Our Annuity Service Center.
ELECTING TO RECEIVE INCOME PAYMENTS
You may elect to begin the Income Phase of your contract using the Income
Protector Program ONLY within the 30 days after the 10th or later contract
anniversary following the effective date of your Income Protector participation,
Re-Set or Step-Up.
The contract anniversary of, or prior to, your election to begin receiving
annuity payments is your Income Benefit Date. This is the date as of which We
calculate your Income Benefit Base to use in determining your guaranteed minimum
fixed retirement income. To arrive at the minimum guaranteed retirement income
available to you We apply the annuity rates stated in your Income Protector
Endorsement for the annuity option you select to your final Income Benefit Base.
You then choose if you would like to receive that income annually, quarterly or
monthly for the time guaranteed under your selected annuity option. Your final
Income Benefit Base is equal to (a) minus (b) where:
(a) is your Income Benefit Base as of your Income Benefit Date, and;
(b) is any partial withdrawals of contract value 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.
The annuity options available when using the Income Protector Program to receive
your fixed retirement income are:
- Life Annuity with 10 Year Period Certain, or
- Joint and 100% Survivor Annuity with 20 Year Period Certain
At the time you elect to begin receiving annuity payments, We will calculate
your annual income using both your final Income Benefit Base and your contract
value. We will use the same income option for each calculation, however, the
annuity factors used to calculate your income under the Income Protector will be
different. You will receive whichever provides a greater stream of income. If
you annuitize using the Income Protector your income payments will be fixed in
amount. You are not required to use the Income Protector to receive income
payments. However, we will not refund fees paid for the Income Protector if you
annuitize under the general provisions of your contract. In addition, if
applicable, a surrender charge will apply if you take income under the Income
Protector feature. YOU MAY NEVER NEED TO RELY UPON THE INCOME PROTECTOR, IF YOUR
CONTRACT PERFORMS WITHIN A HISTORICALLY ANTICIPATED RANGE. HOWEVER, PAST
PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
FEES ASSOCIATED WITH THE INCOME PROTECTOR PROGRAM
If you elect the Income Protector, We charge an annual fee, as follows:
<Table>
<Caption>
FEE AS A % OF YOUR
INCOME BENEFIT BASE
- -------------------------------------------------------------
Income Protector Plus 0.45%
- -------------------------------------------------------------
</Table>
If you elect the feature on a subsequent anniversary, the Fees may be different.
We deduct the annual fee from your actual contract value. If your contract is
issued with the Income Protector program we begin deducting the annual fee on
your first contract anniversary. If you elect the feature it at some later date,
we begin deducting the annual fee on the contract anniversary following the date
on which your participation in the program becomes effective. Upon a Re-Set of
your Income Protector feature, the fee will be charged upon your Re-Set Income
Benefit Base and may be a higher fee depending upon the then-current offerings.
It is important to note that once you elect the Income Protector feature you may
not cancel your election. We will deduct the charge from your contract value on
every contract anniversary up to and including your Income Benefit Date. We will
not assess the annual fee if you surrender or annuitize before the next contract
anniversary.
24
NOTE TO QUALIFIED CONTRACT HOLDERS
Qualified contracts generally require that you select an income option that does
not exceed your life expectancy. That restriction, if it applies to you, may
limit the benefit of the Income Protector program. To utilize the Income
Protector feature, you must take income payments under one of the two income
options described above. If those income options exceed your life expectancy,
you may be prohibited from receiving your guaranteed fixed income under the
program. If you own a qualified contract to which this restriction applies and
you elect the Income Protector program, you may pay for this minimum guarantee
and not be able to realize the benefit.
You may wish to consult your tax advisor for information concerning your
particular circumstances. APPENDIX D PROVIDES EXAMPLES OF THE OPERATION OF THE
INCOME PROTECTOR FEATURE.
If you elect Capital Protector or Polaris Income Rewards, you may not elect to
participate in the Income Protector program.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
DEATH BENEFIT
- ----------------------------------------------------------------
- ----------------------------------------------------------------
If you die during the Accumulation Phase of your contract, We pay a death
benefit to your Beneficiary. At the time you purchase your contract, you must
select one of the two death benefit options described below. Once selected, you
can not change your death benefit option. You should discuss the available
options with your financial advisor to determine which option is best for you.
We will not pay a Deferred Payment Enhancement on a Purchase Payment if you die
before the corresponding Deferred Payment Enhancement Date. SEE POLARIS REWARDS
PROGRAM ABOVE.
We do not pay the death benefit if you die after you switch to the Income Phase.
However, if you die during the Income Phase, your Beneficiary receives any
remaining guaranteed income payments in accordance with the income option you
selected. SEE INCOME OPTIONS BELOW.
You name your Beneficiary. You may change the Beneficiary at any time, unless
you previously made an irrevocable Beneficiary designation.
We calculate and pay the death benefit when We receive all required paperwork
and satisfactory proof of death. We consider the following satisfactory proof of
death:
1. a certified copy of the death certificate; or
2. a certified copy of a decree of a court of competent jurisdiction as to
the finding of death; or
3. a written statement by a medical doctor who attended the deceased at
the time of death; or
4. any other proof satisfactory to Us.
If a Beneficiary does not elect a specific form of payout within 60 days of our
receipt of all required paperwork and satisfactory proof of death, we pay a lump
sum death benefit to the Beneficiary.
If the Beneficiary is the spouse of a deceased owner, he or she can elect to
continue the Contract. SEE SPOUSAL CONTINUATION BELOW.
The death benefit may be paid immediately in the form of a lump sum payment or
paid under one of the available Income Options. PLEASE SEE INCOME OPTIONS BELOW.
A Beneficiary may also elect to continue the contract and take the death benefit
amount in a series of payments based upon the Beneficiary's life expectancy
under the Extended Legacy program described below, subject to the applicable
Internal Revenue Code distribution requirements. Payments must begin under the
selected Income Option or the Extended Legacy program no later than the first
anniversary of your death for non-qualified contracts or December 31st of the
year following the year of your death for IRAs. Your Beneficiary cannot
participate in the Extended Legacy program if your Beneficiary has already
elected another settlement option. Beneficiaries who do not begin taking
payments within these specified time periods will not be eligible to elect an
Income Option or participate in the Extended Legacy program.
EXTENDED LEGACY PROGRAM AND BENEFICIARY CONTINUATION OPTIONS
The Extended Legacy program can allow a Beneficiary to take the death benefit
amount in the form of income payments over a longer period of time with the
flexibility to withdraw more than the IRS required minimum distribution if they
wish. The contract continues in the original owner's name for the benefit of the
Beneficiary. Generally, IRS required minimum distributions must be made at least
annually over a period not to exceed the Beneficiary's life expectancy as
determined in the calendar year after your death. Under the Extended Legacy
program, a Beneficiary may withdraw all or a portion of the contract value at
any time, name their own beneficiary to receive any remaining unpaid interest in
the contract in the event of their death and make transfers among investment
options. If the contract value is less than the death benefit amount as of the
date we receive satisfactory proof of death and all required paperwork, we will
increase the contract value by the amount which the death benefit exceeds
contract value. Participation in the program may impact certain features of the
contract as detailed in the Death Claim Form. Please see your financial
representative for additional information.
Alternatively to the Extended Legacy program, the Beneficiary may also elect to
receive the death benefit under a 5-year option. The Beneficiary may take
withdrawals as desired, but the entire contract value must be distributed by the
fifth anniversary of your death for Non-qualified contracts or by December 31st
of the year containing the fifth anniversary of your death for IRAs. For IRAs,
the five-year
25
option is not available if the date of death is after the required beginning
date for distributions (April 1 of the year following the year the owner reaches
the age of 70 1/2).
For information regarding how these payments are treated for tax purposes,
consult your tax advisor regarding tax implications and your particular
circumstances.
DEFINED TERMS
The term Net Purchase Payment is used frequently in explaining these death
benefit options. Net Purchase Payments 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. If you elect to
participate in the Polaris Rewards program, any Payment Enhancement(s) are not
considered Purchase Payments.
The term "withdrawals" as used in describing the death benefit option below is
defined as withdrawals and the fees and charges applicable to those withdrawals.
IF YOU PURCHASED YOUR CONTRACT ON OR ABOUT JUNE 1, 2004, SUBJECT TO STATE
AVAILABILITY, THE FOLLOWING DEATH BENEFIT PROVISIONS APPLY:
OPTION 1 - PURCHASE PAYMENT ACCUMULATION OPTION
If the contract is issued prior to your 75th birthday, the death benefit is the
greatest of:
1. Contract value; or
2. Net Purchase Payments, compounded at up to 3% annual growth rate to the
earlier of the 75th birthday or the date of death plus Net Purchase
Payments received after the 75th birthday but prior to the 86th
birthday; or
3. Contract value on the seventh contract anniversary, reduced for
withdrawals since the seventh contract anniversary in the same
proportion that the contract value was reduced on the date of such
withdrawal, plus Net Purchase Payments received between the seventh
contract anniversary but prior to the 86th birthday.
The Purchase Payment Accumulation Option can only be elected prior to your 75th
birthday.
OPTION 2 - MAXIMUM ANNIVERSARY OPTION
If the contract is issued prior to your 83rd birthday, the death benefit is the
greatest of:
1. Contract value; or
2. Net Purchase Payments received prior to your 86th birthday; or
3. Maximum anniversary value on any contract anniversary prior to your
83rd birthday. The anniversary values equal the contract value on a
contract anniversary plus any Purchase Payments since that anniversary
but prior to your 86th birthday; and reduced for any withdrawals since
that contract anniversary in the same proportion that the withdrawal
reduced the contract value on the date of the withdrawal.
If the contract is issued on or after your 83rd birthday but before your 86th
birthday, the death benefit is greater of:
1. Contract value; or
2. The lesser of:
a. Net Purchase Payments received prior to your 86th birthday; or
b. 125% of Contract Value.
If you are age 90 or older at the time of death and selected the Maximum
Anniversary death benefit, the death benefit will be equal to the contract
value. Accordingly, you will not get any benefit from this option if you are age
90 or older at the time of your death.
For contracts in which the aggregate of all Purchase Payments in contracts
issued by AIG SunAmerica Life and/or First SunAmerica Life Insurance Company to
the same owner are in excess of $1,000,000, we reserve the right to limit the
death benefit amount that is in excess of contract value at the time we receive
all paperwork and satisfactory proof of death. Any limit on the maximum death
benefit payable would be mutually agreed upon by you and the Company prior to
purchasing the contract.
26
IF YOU PURCHASED YOUR CONTRACT BETWEEN OCTOBER 24, 2001 AND ON OR ABOUT MAY 31,
2004, THE FOLLOWING DEATH BENEFIT PROVISIONS APPLY:
OPTION 1 -- PURCHASE PAYMENT ACCUMULATION OPTION
The death benefit is the greatest of:
1. the contract value at the time we receive all required paperwork and
satisfactory proof of death; or
2. Net Purchase Payments compounded at a 4% annual growth rate until the
date of death (3% growth rate if age 70 or older at the time of contract
issue) plus any Purchase Payments recorded after the date of death; and
reduced for any withdrawals in the same proportion that the withdrawal
reduced contract value on the date of the withdrawal; or
3. the contract value on the seventh contract anniversary, plus any
Purchase Payments since the seventh contract anniversary; and reduced
for any withdrawals since the seventh contract anniversary in the same
proportion that each withdrawal reduced the contract value on the date
of the withdrawal, all compounded at a 4% annual growth rate until the
date of death (3% growth rate if age 70 or older at the time of contract
issue) plus any purchase payments recorded after the date of death; and
reduced for each withdrawal recorded after the date of death in the same
proportion that each withdrawal reduced the contract value on the date
of the withdrawal.
OPTION 2 -- MAXIMUM ANNIVERSARY OPTION
The death benefit is the greatest of:
1. the contract value at the time We receive all required paperwork and
satisfactory proof of death; or
2. Net Purchase Payments; or
3. the maximum anniversary value on any contract anniversary prior to your
81st birthday. The anniversary value equals the contract value on a
contract anniversary plus any Purchase Payments since that contract
anniversary; and reduced for any withdrawals since the contract
anniversary in the same proportion that each withdrawal reduced the
contract value on the date of the withdrawal.
If you are age 90 or older at the time of death and selected the Option 2 death
benefit, the death benefit will be equal to contract value at the time We
receive all required paperwork and satisfactory proof of death. Accordingly, you
do not get the advantage of Option 2 if:
- you are age 81 or older at the time of contract issue; or
- you are age 90 or older at the time of your death.
The death benefit options on contracts issued before October 24, 2001 would be
subject to a different calculation. Please see the Statement of Additional
Information for details.
ESTATEPLUS
The EstatePlus benefit if elected may increase the death benefit amount. If you
have earnings in your contract at the time of death, We will add a percentage of
those earnings (the "EstatePlus Percentage"), subject to a maximum dollar amount
(the "Maximum EstatePlus Amount"), to the death benefit payable. The contract
year of your death will determine the EstatePlus percentage and the Maximum
EstatePlus percentage.
The table below provides the details if you are age 69 or younger at the time We
issue your contract:
<Table>
<Caption>
- -------------------------------------------------------------
CONTRACT YEAR ESTATEPLUS MAXIMUM
OF DEATH PERCENTAGE ESTATEPLUS AMOUNT
- -------------------------------------------------------------
Years 0 - 4 25% of Earnings 40% of Net Purchase
Payments
- -------------------------------------------------------------
Years 5 - 9 40% of Earnings 65% of Net Purchase
Payments*
- -------------------------------------------------------------
Years 10+ 50% of Earnings 75% of Net Purchase
Payments*
- -------------------------------------------------------------
</Table>
If you are between your 70th and 81st birthdays at the time We issue your
contract the table below shows the available EstatePlus benefit:
<Table>
<Caption>
- -------------------------------------------------------------
CONTRACT YEAR ESTATEPLUS MAXIMUM
OF DEATH PERCENTAGE ESTATEPLUS AMOUNT
- -------------------------------------------------------------
All Contract 25% of Earnings 40% of Net Purchase
Years Payments*
- -------------------------------------------------------------
</Table>
* Purchase Payments received after the 5th contract anniversary must remain in
the contract for at least 6 full months to be included as part of Net Purchase
Payments for the purpose of the Maximum EstatePlus Amount calculations.
We may offer different levels of this benefit based on the number of years you
hold your contract and/or your age at the time of issue.
What is the Contract Year of Death?
Contract Year of Death is the number of full 12 month periods beginning with the
date your contract is issued and ending on the date of death.
What is the EstatePlus Percentage Amount?
We determine the amount of the EstatePlus benefit, based on a percentage of the
earnings in your contract at the time of your death. For the purpose of this
calculation, earnings equals contract value minus Net Purchase Payments as of
the date of death. If the earnings amount is negative, no EstatePlus amount will
be added.
What is the Maximum EstatePlus Amount?
The EstatePlus benefit is subject to a maximum dollar amount. The maximum
EstatePlus amount is equal to a percentage of your Net Purchase Payments.
27
You must elect EstatePlus at the time of contract application. Once elected, you
may not terminate or change this election.
We assess a 0.25% fee for EstatePlus. On a daily basis We deduct this annual
charge from the average daily ending value of the assets you have allocated to
the Variable Portfolios.
EstatePlus is not available if you are age 81 or older at the time We issue your
contract. Furthermore, a Continuing Spouse cannot benefit from EstatePlus if
he/she is age 81 or older on the Continuation Date. SEE SPOUSAL CONTINUATION
BELOW. The EstatePlus benefit is not payable after the latest Annuity Date. You
may pay for the EstatePlus benefit and your beneficiary may never receive the
benefit if you live past the latest Annuity Date. SEE INCOME OPTIONS ON BELOW.
EstatePlus may not be available in your state or through the broker-dealer with
which your financial representative is affiliated. See your financial
representative for information regarding availability.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE ESTATEPLUS BENEFIT (IN
ITS ENTIRETY OR ANY COMPONENT AT ANY TIME) AT ANY TIME FOR PROSPECTIVELY ISSUED
CONTRACTS.
SPOUSAL CONTINUATION
If you are the original owner of the contract and the Beneficiary is your
spouse, your spouse may elect to continue the contract after your death. The
spouse becomes the new owner ("Continuing Spouse"). Generally, the contract and
its elected features, if any, remain the same. The Continuing Spouse is subject
to the same fees, charges and expenses applicable to the original owner of the
contract. A spousal continuation can only take place upon the death of the
original owner of the contract.
To the extent that the Continuing Spouse invests in the Variable Portfolios or
MVA fixed accounts, they will be subject to investment risk as was the original
owner.
Upon a spouse's continuation of the contract, We will contribute to the contract
value an amount by which the death benefit that would have been paid to the
beneficiary upon the death of the original owner exceeds the contract value
("Continuation Contribution"), if any. We calculate the Continuation
Contribution as of the date of the original owner's death. We will add the
Continuation Contribution as of the date We receive both the Continuing Spouse's
written request to continue the contract and proof of death of the original
owner in a form satisfactory to Us ("Continuation Date"). The Continuation
Contribution is not considered a Purchase Payment for the purposes of any other
calculations except as explained in Appendix C. SEE APPENDIX C FOR FURTHER
EXPLANATION OF THE DEATH BENEFIT CALCULATIONS FOLLOWING A SPOUSAL CONTINUATION.
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 EstatePlus. We will terminate
EstatePlus if the Continuing Spouse is age 81 or older on the Continuation Date.
If EstatePlus is terminated or if the Continuing Spouse dies after the latest
Annuity Date, no EstatePlus benefit will be payable. Generally, 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. SEE APPENDIX C FOR A DISCUSSION OF THE DEATH BENEFIT CALCULATIONS
AFTER A SPOUSAL CONTINUATION.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE SPOUSAL CONTINUATION
PROVISION (IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME FOR PROSPECTIVELY
ISSUED CONTRACTS.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
EXPENSES
- ----------------------------------------------------------------
- ----------------------------------------------------------------
There are charges and expenses associated with your contract. These charges and
expenses reduce your investment return. We will not increase the contract
maintenance fee or the insurance and withdrawal charges under your contract.
However, the investment charges under your contract may increase or decrease.
Some states may require that We charge less than the amounts described below.
ANNUAL SEPARATE ACCOUNT EXPENSES
The Company deducts Annual Separate Account Expenses in the amount of 1.52%,
annually of the value of your contract invested in the Variable Portfolios. We
deduct the charge daily. This charge compensates the Company for the mortality
and expense risk and the costs of contract distribution assumed by the Company.
Generally, the mortality risks assumed by the Company arise from its contractual
obligations to make income payments after the Annuity Date and to provide a
death benefit. The expense risk assumed by the Company is that the costs of
administering the contracts and the Separate Account will exceed the amount
received from the administrative fees and charges assessed under the contract.
If these charges do not cover all of Our expenses, We will pay the difference.
Likewise, if these charges exceed Our expenses, We will keep the difference. The
Annual Separate Account Expenses are expected to result in a profit. Profit may
be used for any legitimate cost or expense including distribution, depending
upon market conditions.
WITHDRAWAL CHARGES
The contract provides a free withdrawal amount every year. SEE ACCESS TO YOUR
MONEY ABOVE. If you take money out in excess of the free withdrawal amount, you
may incur a
28
withdrawal charge. You may also incur a withdrawal charge upon a full surrender.
We apply a withdrawal charge against each Purchase Payment you put into the
contract. After a Purchase Payment has been in the contract for 7 complete
years, or 9 years if you elected to participate in the Polaris Rewards Program,
no withdrawal charge applies. The withdrawal charge equals a percentage of the
Purchase Payment you take out of the contract. The withdrawal charge percentage
declines each year a Purchase Payment is in the contract. The two withdrawal
charge schedules are as follows:
WITHDRAWAL CHARGE WITHOUT THE POLARIS REWARDS PROGRAM (SCHEDULE A)
<Table>
<Caption>
- -----------------------------------------------------------------------------------------
YEAR 1 2 3 4 5 6 7 8+
- -----------------------------------------------------------------------------------------
WITHDRAWAL
CHARGE 7% 6% 5% 4% 3% 2% 1% 0%
- -----------------------------------------------------------------------------------------
</Table>
WITHDRAWAL CHARGE WITH THE POLARIS REWARDS PROGRAM (SCHEDULE B)
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------------
YEAR 1 2 3 4 5 6 7 8 9 10+
- -----------------------------------------------------------------------------------------------------------
WITHDRAWAL
CHARGE 9% 9% 8% 7% 6% 5% 4% 3% 2% 0%
- -----------------------------------------------------------------------------------------------------------
</Table>
When calculating the withdrawal charge, We treat withdrawals as coming first
from the Purchase Payments that have been in your contract the longest. However,
for tax purposes, your withdrawals are considered earnings first, then Purchase
Payments. SEE ACCESS TO YOUR MONEY ABOVE.
These higher potential withdrawal charges may compensate Us for the expenses
associated with the Polaris Rewards Program.
The Polaris Rewards feature of this contract is designed to reward long term
investing. We expect that if you remain committed to this investment over the
long term, We will profit as a result of fees charged over the life of your
contract. However, neither the mortality and expense fees, distribution
expenses, contract administration fee nor the investment management fees are
higher on the Polaris Rewards version, than the contract without an election of
the bonus feature.
Whenever possible, We deduct the withdrawal charge from the money remaining in
your contract. If you withdraw all of your contract value, We deduct any
applicable withdrawal charges from the amount withdrawn.
We will not assess a withdrawal charge for money withdrawn to pay a death
benefit or to pay contract fees or charges. We will not assess a withdrawal
charge when you switch to the Income Phase, except when you elect to receive
income payments using the Income Protector feature. If you elect to receive
income payments using the Income Protector feature, We assess the entire
withdrawal charge applicable to Purchase Payments remaining in your contract
when calculating your income benefit base. SEE INCOME OPTIONS BELOW.
Withdrawals made prior to age 59 1/2 may result in tax penalties. SEE TAXES
BELOW.
INVESTMENT CHARGES
INVESTMENT MANAGEMENT FEES
Charges are deducted from your Variable Portfolios for the advisory and other
expenses of the Variable Portfolios. THE FEE TABLES ABOVE illustrate these
charges and expenses. For more detailed information on these investment charges,
refer to the prospectuses for the Trusts.
SERVICE 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 all class of shares, recaptured
brokerage commissions will be used to make payments to AIG 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% and 0.25% fee applicable to Class B of the Anchor Series
Trust and the Class II shares of the Van Kampen Life Investment Trust,
respectively, 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 American Funds Insurance Series, Anchor Series Trust,
SunAmerica Series Trust and/or the Van Kampen Life Investment Trust.
CONTRACT MAINTENANCE FEE
During the Accumulation Phase, We subtract a contract maintenance fee from your
account once per year. This charge compensates Us for the cost of contract
administration. We deduct the $35 contract maintenance fee ($30 in North Dakota)
from your account value on your contract anniversary. If you withdraw your
entire contract value, We deduct the fee from that withdrawal.
If your contract value is $50,000 or more on your contract anniversary date, We
will waive the charge. This waiver is subject to change without notice.
TRANSFER FEE
Generally, We currently permit 15 free transfers between investment options each
contract year. We charge you $25 for
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each additional transfer that contract year ($10 in Pennsylvania and Texas). SEE
INVESTMENT OPTIONS ABOVE.
OPTIONAL POLARIS INCOME REWARDS FEE
The annualized Polaris Income Rewards fee is calculated as a percentage of your
Withdrawal Benefit Base. The fee will be assessed and deducted periodically from
your contract value, starting on the first quarter following the Benefit
Effective Date and ending upon the termination of the benefit. If your contract
falls to zero before the benefit has been terminated, the fee will no longer be
assessed.
<Table>
<Caption>
TIME ELAPSED SINCE
BENEFIT EFFECTIVE DATE ANNUALIZED FEE
- ---------------------- --------------
0-7 years 0.65%
8+ years 0.45%
</Table>
OPTIONAL CAPITAL PROTECTOR FEE
The fee for the Capital Protector feature is as follows:
<Table>
<Caption>
CONTRACT YEAR ANNUALIZED CHARGE *
- ------------- -------------------
0-7 0.50%
8-10 0.25%
11+ none
</Table>
* As a percentage of your contract value minus Purchase Payments received after
the 90th day since the purchase of your contract. The amount of this charge is
subject to change at any time for prospectively issued contracts.
OPTIONAL ESTATEPLUS FEE
We charge 0.25% for the EstatePlus feature. On a daily basis we deduct this
charge from the average daily ending value of the assets you have allocated to
the Variable Portfolios.
OPTIONAL INCOME PROTECTOR FEE
The Income Protector fee is as follows:
<Table>
<Caption>
GROWTH RATE ANNUALIZE CHARGE
- ----------- ----------------
Plus 6%............................. 0.45%
</Table>
The fee is deducted annually from your contract value. The Income Base Benefit
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 applied to the withdrawals.
PREMIUM TAX
Certain states charge the Company a tax on the premiums you pay into the
contract ranging from 0% to 3.5%. We deduct from your contract these premium tax
charges. Currently, We deduct the charge for premium taxes when you take a full
withdrawal or begin the Income Phase of the contract. In the future, We may
assess this deduction at the time you put Purchase Payment(s) into the contract
or upon payment of a death benefit.
INCOME TAXES
We do not currently deduct income taxes from your contract. We reserve the right
to do so in the future.
REDUCTION OR ELIMINATION OF CHARGES AND EXPENSES, AND ADDITIONAL AMOUNTS
CREDITED
Sometimes sales of the contracts to groups of similarly situated individuals may
lower Our administrative and/or sales expenses. We reserve the right to reduce
or waive certain charges and expenses when this type of sale occurs. In
addition, We may also credit additional interest to policies sold to such
groups. We determine which groups are eligible for such treatment. Some of the
criteria We evaluate to make a determination are: size of the group; amount of
expected Purchase Payments; relationship existing between Us and prospective
purchaser; nature of the purchase; length of time a group of contracts is
expected to remain active; purpose of the purchase and whether that purpose
increases the likelihood that Our expenses will be reduced; and/or any other
factors that We believe indicate that administrative and/or sales expenses may
be reduced.
AIG SunAmerica 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.
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INCOME OPTIONS
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ANNUITY DATE
During the Income Phase, We use the money accumulated in your contract to make
regular income payments to you. You may switch to the Income Phase any time
after your second contract anniversary. You select the month and year you want
income payments to begin. The first day of that month is the Annuity Date. You
may change your Annuity Date, so long as you do so at least seven days before
the income payments are scheduled to begin. Once you begin receiving income
payments, you cannot change your income option. Except as indicated under Option
5 below, once you begin receiving income payments, you cannot otherwise access
your money through a withdrawal or surrender.
If you switch to the Income Phase prior to a Deferred Payment Enhancement Date,
We will not allocate the corresponding Deferred Payment Enhancement to your
contract. SEE POLARIS REWARDS PROGRAM ABOVE.
Income payments must begin on or before your 95th birthday or on your tenth
contract anniversary, whichever occurs later (latest Annuity Date). If you do
not choose an Annuity Date, your income payments will automatically begin on
this date.
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Certain states may require your income payments to start earlier.
If the Annuity Date is past your 85th birthday, your contract could lose its
status as an annuity under Federal tax laws. This may cause you to incur adverse
tax consequences.
In addition, most Qualified contracts require you to take minimum distributions
after you reach age 70 1/2. SEE TAXES BELOW.
INCOME OPTIONS
Currently, this Contract offers five income options unless you chose to take
income under the Income Protector feature (see below). Other payout options may
be available. Contact the Annuity Service Center for more information. If you
elect to receive income payments but do not select an option, your income
payments will be made in accordance with Option 4 for a period of 10 years. For
income payments based on joint lives, We pay according to Option 3 for a period
of 10 years.
We base Our calculation of income payments on the life of the Annuitant and the
annuity rates set forth in your contract. As the contract owner, you may change
the Annuitant at any time prior to the Annuity Date. You must notify Us if the
Annuitant dies before the Annuity Date and designate a new Annuitant.
OPTION 1 - LIFE INCOME ANNUITY
This option provides income payments for the life of the Annuitant. Income
payments stop when the Annuitant dies.
OPTION 2 - JOINT AND SURVIVOR LIFE ANNUITY
This option provides income payments for the life of the Annuitant and for the
life of another designated person. Upon the death of either person, We will
continue to make income payments during the lifetime of the survivor. Income
payments stop when the survivor dies.
OPTION 3 - JOINT AND SURVIVOR LIFE ANNUITY WITH 10 OR 20 YEARS GUARANTEED
This option is similar to Option 2 above, with an additional guarantee of
payments for at least 10 years. If the Annuitant and the survivor die before all
of the guaranteed income payments have been made, the remaining payments are
made to the Beneficiary under your contract.
OPTION 4 - LIFE ANNUITY WITH 10 OR 20 YEARS GUARANTEED
This option is similar to Option 1 above. In addition, this option provides a
guarantee that income payments will be made for at least 10 or 20 years. You
select the number of years. If the Annuitant dies before all guaranteed income
payments are made, the remaining income payments go to the Beneficiary under
your contract.
OPTION 5 - INCOME FOR A SPECIFIED PERIOD
This option provides income payments for a guaranteed period ranging from 5 to
30 years. If the Annuitant dies before all the guaranteed income payments are
made, the remaining income payments are made to the Beneficiary under your
contract. Additionally, if variable income payments are elected under this
option, you (or the Beneficiary under the contract if the Annuitant dies prior
to all guaranteed income payments being made) may redeem any remaining
guaranteed variable income payments after the Annuity Date. The amount available
upon such redemption would be the discounted present value of any remaining
guaranteed variable income payments. If provided for in your contract, any
applicable withdrawal charge will be deducted from the discounted value as if
you fully surrendered your contract.
The value of an Annuity Unit, regardless of the option chosen, takes into
account the mortality and expense risk charge. Since Option 5 does not contain
an element of mortality risk, no benefit is derived from this charge.
For information regarding Income Option's using the Income Protector feature,
please see below. Please read the Statement of Additional Information ("SAI")
for a more detailed discussion of the income options.
FIXED OR VARIABLE INCOME PAYMENTS
You can choose income payments that are fixed, variable or both. Unless
otherwise elected, if at the date when income payments begin you are invested in
the Variable Portfolios only, your income payments will be variable and if your
money is only in fixed accounts at that time, your income payments will be fixed
in amount. Further, if you are invested in both fixed and variable investment
options when income payments begin, your payments will be fixed and variable,
unless otherwise elected. If income payments are fixed, AIG SunAmerica Life
guarantees the amount of each payment. If the income payments are variable the
amount is not guaranteed.
INCOME PAYMENTS
We make income payments on a monthly, quarterly, semiannual or annual basis. You
instruct Us to send you a check or to have the payments directly deposited into
your bank account. If state law allows, We distribute annuities with a contract
value of $5,000 or less in a lump sum. Also, if the selected income option
results in income payments of less than $50 per payment, We may decrease the
frequency of payments, state law allowing.
If you are invested in the Variable Portfolios after the Annuity date, your
income payments vary depending on four things:
- for life options, your age when payments begin; and
- the value of your contract in the Variable Portfolios on the Annuity
Date; and
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- the 3.5% assumed investment rate used in the annuity table for the
contract; and
- the performance of the Variable Portfolios in which you are invested
during the time you receive income payments.
If you are invested in both the fixed account options and the Variable
Portfolios after the Annuity Date, the allocation of funds between the fixed and
variable options also impacts the amount of your annuity payments.
The value of variable income payments, if elected, is based on an assumed
interest rate ("AIR") of 3.5% compounded annually. Variable income payments
generally increase or decrease from one income payment date to the next based
upon the performance of the applicable Variable Portfolios. If the performance
of the Variable Portfolios selected is equal to the AIR, the income payments
will remain constant. If performance of Variable Portfolios is greater than the
AIR, the income payments will increase and if it is less than the AIR, the
income payments will decline.
TRANSFERS DURING THE INCOME PHASE
During the Income Phase, one transfer per month is permitted between the
Variable Portfolios. No other transfers are allowed during the Income Phase.
DEFERMENT OF PAYMENTS
We may defer making fixed payments for up to six months, or less if required by
law. Interest is credited to you during the deferral period. SEE ALSO ACCESS TO
YOUR MONEY ABOVE FOR A DISCUSSION OF WHEN PAYMENTS FROM A VARIABLE PORTFOLIO MAY
BE SUSPENDED OR POSTPONED.
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TAXES
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NOTE: THE BASIC SUMMARY BELOW ADDRESSES BROAD FEDERAL TAXATION MATTERS, AND
GENERALLY DOES NOT ADDRESS STATE TAXATION ISSUES OR QUESTIONS. IT IS NOT TAX
ADVICE. WE CAUTION YOU TO SEEK COMPETENT TAX ADVICE ABOUT YOUR OWN
CIRCUMSTANCES. WE DO NOT GUARANTEE THE TAX STATUS OF YOUR ANNUITY. TAX LAWS
CONSTANTLY CHANGE; THEREFORE, WE CANNOT GUARANTEE THAT THE INFORMATION CONTAINED
HEREIN IS COMPLETE AND/OR ACCURATE. WE HAVE INCLUDED AN ADDITIONAL DISCUSSION
REGARDING TAXES IN THE SAI.
ANNUITY CONTRACTS IN GENERAL
The Internal Revenue Code ("IRC") provides for special rules regarding the tax
treatment of annuity contracts. Generally, taxes on the earnings in your annuity
contract are deferred until you take the money out. Qualified retirement
investments that satisfy specific tax and ERISA requirements automatically
provide tax deferral regardless of whether the underlying contract is an
annuity, a trust, or a custodial account. Different rules apply depending on how
you take the money out and whether your contract is Qualified or Non-Qualified.
If you do not purchase your contract under a pension plan, a specially sponsored
employer program or an individual retirement account, your contract is referred
to as a Non-Qualified contract. A Non-Qualified contract receives different tax
treatment than a Qualified contract. In general, your cost 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 or arrangements
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, for employer plans and tax-deductible
IRA contributions, 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.
32
TAX TREATMENT OF DISTRIBUTIONS -- QUALIFIED CONTRACTS (INCLUDING GOVERNMENTAL
457(B) ELIGIBLE DEFERRED COMPENSATION PLANS)
Generally, you have not paid any taxes on the Purchase Payments used to buy a
Qualified contract. As a result, with certain limited exceptions, any amount of
money you take out as a withdrawal or as income payments is taxable income. In
the case of certain Qualified contracts, the IRC further provides for a 10%
penalty tax on any taxable withdrawal or income payment paid to you other than
in conjunction with the following circumstances: (1) after reaching age 59 1/2;
(2) when paid to your Beneficiary after you die; (3) after you become disabled
(as defined in the IRC); (4) in a series of substantially equal installments,
made for your life or for the joint lives of you and your Beneficiary, that
begins after separation from service with the employer sponsoring the plan; (5)
to the extent such withdrawals do not exceed limitations set by the IRC for
deductible amounts paid during the taxable year for medical care; (6) to fund
higher education expenses (as defined in 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 financial
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 separate from service from the employer sponsoring the plan. If you
own an IRA, you must begin taking distributions when you attain age 70 1/2
regardless of when you separate from service from the employer sponsoring the
plan. 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 issued new regulations, effective January 1, 2003, regarding required
minimum distributions from qualified annuity contracts. One of the regulations
requires that the annuity contract value used to determine required minimum
distributions include the actuarial value of other benefits under the contract,
such as optional death benefits. This regulation does not apply to required
minimum distributions made under an irrevocable annuity income option. We are
currently awaiting further clarification from the IRS on this regulation,
including how the value of such benefits is determined. You should discuss the
effect of these new regulations with your tax advisor.
TAX TREATMENT OF DEATH BENEFITS
Any death benefits paid under the contract are taxable to the Beneficiary. The
rules governing the taxation of payments from an annuity contract, as discussed
above, generally apply
33
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 that 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 the 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. 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.
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PERFORMANCE
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We advertise the Cash Management Portfolio's yield and effective yield. In
addition, the other Variable Portfolios advertise total return, gross yield and
yield-to-maturity. These figures represent past performance of the Variable
Portfolios. These performance numbers do not indicate future results.
When We advertise performance for periods prior to the date the contracts were
first issued, We derive the figures from the
34
performance of the corresponding portfolios for the Trusts, if available. We
modify these numbers to reflect charges and expenses as if the subaccount was in
existence during the period stated in the advertisement. Figures calculated in
this manner do not represent actual historic performance of the particular
Variable Portfolio.
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OTHER INFORMATION
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AIG SUNAMERICA LIFE
AIG SunAmerica Life is a stock life insurance company originally organized under
the laws of the state of California in April 1965. On January 1, 1996, AIG
SunAmerica Life redomesticated under the laws of the state of Arizona.
AIG SunAmerica Life and its affiliates, SunAmerica Life Insurance Company, First
SunAmerica Life Insurance Company, AIG SunAmerica Asset Management Corp., and
the AIG Advisors Group, Inc. (comprising six wholly owned broker-dealers and two
investment advisors), specialize in retirement savings and investment products
and services. Business focuses include fixed and variable annuities, mutual
funds and broker-dealer services.
THE SEPARATE ACCOUNT
AIG SunAmerica Life established Variable Separate Account ("Separate Account"),
under Arizona law on January 1, 1996 when it assumed the Separate Account,
originally established under California law on June 25, 1981. The Separate
Account is registered with the SEC as a unit investment trust under the
Investment Company Act of 1940, as amended.
AIG SunAmerica Life owns the assets in the Separate Account. However, the assets
in the Separate Account are not chargeable with liabilities arising out of any
other business conducted by AIG SunAmerica Life. Income gains and losses
(realized and unrealized) resulting from assets in the Separate Account are
credited to or charged against the Separate Account without regard to other
income gains or losses of AIG SunAmerica Life.
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
contract holders as well as all of its creditors. The general account funds are
invested as permitted under state insurance laws.
PAYMENTS IN CONNECTION WITH DISTRIBUTION OF THE CONTRACT
PAYMENTS TO BROKER-DEALERS
Registered representatives of broker-dealers sell the contract. We pay
commissions to the broker-dealers for the sale of your contract ("Contract
Commissions"). There are different structures by which a broker-dealer can
choose to have their Contract Commissions paid. For example, as one option, we
may pay upfront Contract Commission, only, that may be up to a maximum 8% of
each Purchase Payment you invest (which may include promotional amounts).
Another option may be a lower upfront Contract Commission on each Purchase
Payment, with a trail commission of up to a maximum 1.50% of contract value
annually. We pay Contract Commissions directly to the broker-dealer with whom
your registered representative is affiliated. Registered representatives may
receive a portion of these amounts we pay in accordance with any agreement in
place between the registered representative and his/her broker-dealer firm.
We (or our affiliates) may pay broker-dealers or permitted third parties cash or
non-cash compensation, including reimbursement of expenses incurred in
connection with the sale of these contracts. These payments may be intended to
reimburse for specific expenses incurred or may be based on sales, certain
assets under management or longevity of assets invested with us. For example, we
may pay additional amounts in connection with contracts that remain invested
with us for a particular period of time. We enter into such arrangements in our
discretion and we may negotiate customized arrangements with firms, including
affiliated and non-affiliated broker-dealers based on various factors.
Promotional incentives may change at any time.
We do not deduct these amounts directly from your Purchase Payments. We
anticipate recovering these amounts from the fees and charges collected under
the contract. Certain compensation payments may increase our cost of doing
business in a particular firm and may result in higher contractual fees and
charges if you purchase your contract through such a firm. See EXPENSES above.
AIG SunAmerica Capital Services, Inc., Harborside Financial Center, 3200 Plaza
5, Jersey City, NJ 07311-4992, distributes the contracts. AIG SunAmerica Capital
Services, an affiliate of AIG SunAmerica Life, is a registered broker-dealer
under the Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. No underwriting fees are paid in connection with the
distribution of the contracts.
PAYMENTS WE RECEIVE
In addition to amounts received pursuant to established 12b-1 Plans, we may
receive compensation of up to 0.50% from the investment advisers, subadvisers or
their affiliates of certain of the underlying Trusts and/or portfolios for
services related to the availability of the underlying portfolios in the
contract.
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Furthermore, certain advisers and/or subadvisers may offset the costs we incur
for training to support sales of the underlying funds in the contract.
ADMINISTRATION
We are responsible for the administrative servicing of your contract. Please
contact Our Annuity Service Center at 1-800-445-SUN2, if you have any comment,
question or service request.
We send out transaction confirmations and quarterly statements. During the
accumulation phase, you will receive confirmation of transactions within your
contract. Transactions made pursuant to contractual or systematic agreements,
such as dollar cost averaging, may be confirmed quarterly. Purchase payments
received through the automatic payment plan or a salary reduction arrangement,
may also be confirmed quarterly. For all other transactions, We send
confirmations immediately. It is your responsibility to review these documents
carefully and notify Us of any inaccuracies immediately. We investigate all
inquiries. To the extent that We believe We made an error, We retroactively
adjust your contract, provided you notify Us within 30 days of receiving the
transaction confirmation or quarterly statement. Any other adjustments We deem
warranted are made as of the time We receive notice of the error.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Separate Account. AIG
SunAmerica Life engages in various kinds of routine litigation. In management's
opinion these matters are not of material importance to the Company's total
assets nor are they material with respect to the Separate Account.
OWNERSHIP
The Polaris Protector Variable Annuity is a Flexible Payment Group Deferred
Annuity contract. We issue a group contract to a contract holder for the benefit
of the participants in the group. As a participant in the group, you will
receive a certificate which evidences your ownership. As used in this
prospectus, the term contract refers to your certificate. In some states, a
Flexible Payment Individual Modified Guaranteed and Variable Deferred Annuity
contract is available instead. Such a contract is identical to the contract
described in this prospectus, with the exception that We issue it directly to
the owner.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of AIG SunAmerica Life Assurance Company
at December 31, 2003 and 2002, and for each of the three years in the period
ended December 31, 2003 and financial statements of Variable Separate Account at
December 31, 2003 and for each of the two years in the period ended December 31,
2003, 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.
REGISTRATION STATEMENT
A registration statement has been filed with the SEC under the Securities Act of
1933 relating to the contract. This prospectus does not contain all the
information in the registration statement as permitted by SEC regulations. The
omitted information can be obtained from the SEC's principal office in
Washington, D.C., upon payment of a prescribed fee.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Additional information concerning the operations of the Separate Account is
contained in a Statement of Additional Information ("SAI"), which is available
without charge upon written request addressed to Us at Our Annuity Service
Center, P.O. Box 54299, Los Angeles, California 90054-0299 or by calling (800)
445-SUN2. The contents of the SAI are tabulated below.
<Table>
Separate Account.............................. 3
General Account............................... 3
Performance Data.............................. 4
Income Payments............................... 8
Income Protector.............................. 8
Annuity Unit Values........................... 8
Death Benefit Options for Contracts Issued
Before October 24, 2001..................... 11
Taxes......................................... 12
Distribution of Contracts..................... 17
Financial Statements.......................... 17
</Table>
36
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
POLARIS PROTECTOR - APPENDIX A - CONDENSED FINANCIALS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Table>
<Caption>
FISCAL YEAR FISCAL YEAR
INCEPTION TO ENDING ENDING
PORTFOLIOS 12/31/01 12/31/02 12/31/03
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Capital Appreciation (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $35.378 (a) $33.909 (a) $25.789
(b) $35.378 (b) $33.891 (b) $25.714
Ending AUV.......................................... (a) $33.909 (a) $25.789 (a) $33.545
(b) $33.891 (b) $25.714 (b) $33.362
Ending Number of AUs................................ (a) 57,357 (a) 411,825 (a) 1,002,274
(b) 40,519 (b) 126,035 (b) 182,069
- -------------------------------------------------------------------------------------------------------------------
Government and Quality Bond (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $14.915 (a) $15.323 (a) $16.470
(b) $14.915 (b) $15.319 (b) $16.426
Ending AUV.......................................... (a) $15.323 (a) $16.470 (a) $16.606
(b) $15.319 (b) $16.426 (b) $16.519
Ending Number of AUs................................ (a) 182,387 (a) 1,104,013 (a) 3,006,271
(b) 55,393 (b) 293,673 (b) 422,912
- -------------------------------------------------------------------------------------------------------------------
Growth (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $27.961 (a) $27.233 (a) $20.847
(b) $27.961 (b) $27.215 (b) $20.781
Ending AUV.......................................... (a) $27.233 (a) $20.847 (a) $26.637
(b) $27.215 (b) $20.781 (b) $26.486
Ending Number of AUs................................ (a) 95,475 (a) 407,920 (a) 1,049,425
(b) 33,517 (b) 135,685 (b) 207,688
- -------------------------------------------------------------------------------------------------------------------
Natural Resources (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $14.651 (a) $14.352 (a) $15.297
(b) $14.651 (b) $14.309 (b) $15.213
Ending AUV.......................................... (a) $14.352 (a) $15.297 (a) $22.221
(b) $14.309 (b) $15.213 (b) $22.044
Ending Number of AUs................................ (a) 6,723 (a) 76,250 (a) 174,706
(b) 7,978 (b) 27,269 (b) 35,442
- -------------------------------------------------------------------------------------------------------------------
Aggressive Growth (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $15.970 (a) $13.627 (a) $10.091
(b) $15.970 (b) $13.621 (b) $10.062
Ending AUV.......................................... (a) $13.627 (a) $10.091 (a) $12.750
(b) $13.621 (b) $10.062 (b) $12.680
Ending Number of AUs................................ (a) 24,470 (a) 108,313 (a) 281,937
(b) 8,317 (b) 28,071 (b) 36,212
- -------------------------------------------------------------------------------------------------------------------
Alliance Growth (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $32.786 (a) $32.462 (a) $21.935
(b) $32.786 (b) $32.395 (b) $21.836
Ending AUV.......................................... (a) $32.462 (a) $21.935 (a) $27.140
(b) $32.395 (b) $21.836 (b) $26.949
Ending Number of AUs................................ (a) 69,203 (a) 356,812 (a) 800,815
(b) 41,761 (b) 114,562 (b) 156,024
- -------------------------------------------------------------------------------------------------------------------
Asset Allocation (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $18.647 (a) $18.608 (a) $16.920
(b) $18.647 (b) $18.608 (b) $16.878
Ending AUV.......................................... (a) $18.608 (a) $16.920 (a) $20.478
(b) $18.608 (b) $16.878 (b) $20.377
Ending Number of AUs................................ (a) 12,080 (a) 139,639 (a) 329,270
(b) 17,628 (b) 93,143 (b) 114,393
- -------------------------------------------------------------------------------------------------------------------
Blue Chip Growth (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $7.199 (a) $6.701 (a) $4.662
(b) $7.199 (b) $6.695 (b) $4.647
Ending AUV.......................................... (a) $6.701 (a) $4.662 (a) $5.778
(b) $6.695 (b) $4.647 (b) $5.744
Ending Number of AUs................................ (a) 45,266 (a) 444,444 (a) 957,272
(b) 10,628 (b) 88,552 (b) 177,855
- -------------------------------------------------------------------------------------------------------------------
Cash Management (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $12.987 (a) $13.058 (a) $13.015
(b) $12.987 (b) $13.065 (b) $12.989
Ending AUV.......................................... (a) $13.058 (a) $13.015 (a) $12.886
(b) $13.065 (b) $12.989 (b) $12.828
Ending Number of AUs................................ (a) 87,024 (a) 759,591 (a) 1,669,439
(b) 27,659 (b) 119,357 (b) 267,647
- -------------------------------------------------------------------------------------------------------------------
Corporate Bond (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $13.663 (a) $13.972 (a) $14.765
(b) $13.663 (b) $13.952 (b) $14.707
Ending AUV.......................................... (a) $13.972 (a) $14.765 (a) $16.255
(b) $13.952 (b) $14.707 (b) $16.151
Ending Number of AUs................................ (a) 84,809 (a) 495,428 (a) 1,006,283
(b) 30,474 (b) 105,488 (b) 166,674
- -------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
AU - Accumulation Unit
AUV - Accumulation Unit Value
(a) Without election of the optional EstatePlus feature
(b) With election of the optional EstatePlus feature
</Table>
A-1
<Table>
<Caption>
FISCAL YEAR FISCAL YEAR
INCEPTION TO ENDING ENDING
PORTFOLIOS 12/31/01 12/31/02 12/31/03
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Davis Venture Value (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $27.129 (a) $26.207 (a) $21.459
(b) $27.129 (b) $26.174 (b) $21.378
Ending AUV.......................................... (a) $26.207 (a) $21.459 (a) $28.093
(b) $26.174 (b) $21.378 (b) $27.918
Ending Number of AUs................................ (a) 140,690 (a) 916,367 (a) 2,021,684
(b) 88,681 (b) 280,682 (b) 376,849
- -------------------------------------------------------------------------------------------------------------------
"Dogs" of Wall Street (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $9.376 (a) $9.703 (a) $8.916
(b) $9.376 (b) $9.680 (b) $8.875
Ending AUV.......................................... (a) $9.703 (a) $8.916 (a) $10.525
(b) $9.680 (b) $8.875 (b) $10.450
Ending Number of AUs................................ (a) 34,535 (a) 303,241 (a) 912,254
(b) 43,315 (b) 191,173 (b) 197,356
- -------------------------------------------------------------------------------------------------------------------
Emerging Market (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $6.428 (a) $6.535 (a) $5.967
(b) $6.428 (b) $6.530 (b) $5.949
Ending AUV.......................................... (a) $6.535 (a) $5.967 (a) $8.956
(b) $6.530 (b) $5.949 (b) $8.907
Ending Number of AUs................................ (a) 16,167 (a) 118,745 (a) 272,246
(b) 4,402 (b) 36,235 (b) 73,058
- -------------------------------------------------------------------------------------------------------------------
Federated American Leaders (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $16.876 (a) $16.380 (a) $12.924
(b) $16.876 (b) $16.377 (b) $12.889
Ending AUV.......................................... (a) $16.380 (a) $12.924 (a) $16.215
(b) $16.377 (b) $12.889 (b) $16.131
Ending Number of AUs................................ (a) 42,438 (a) 248,336 (a) 359,761
(b) 27,106 (b) 98,980 (b) 104,359
- -------------------------------------------------------------------------------------------------------------------
Foreign Value (Inception Date - 08/01/02)
Beginning AUV....................................... -- (a) $10.000 (a) $9.405
-- (b) $10.000 (b) $9.392
Ending AUV.......................................... -- (a) $9.405 (a) $12.469
-- (b) $9.392 (b) $12.420
Ending Number of AUs................................ -- (a) 128,664 (a) 1,726,235
-- (b) 20,374 (b) 162,932
- -------------------------------------------------------------------------------------------------------------------
Global Bond (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $15.461 (a) $15.662 (a) $16.321
(b) $15.461 (b) $15.648 (b) $16.264
Ending AUV.......................................... (a) $15.662 (a) $16.321 (a) $16.621
(b) $15.648 (b) $16.264 (b) $16.523
Ending Number of AUs................................ (a) 18,266 (a) 82,945 (a) 253,367
(b) 6,241 (b) 20,260 (b) 35,142
- -------------------------------------------------------------------------------------------------------------------
Global Equities (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $17.986 (a) $17.477 (a) $12.570
(b) $17.986 (b) $17.447 (b) $12.518
Ending AUV.......................................... (a) $17.477 (a) $12.570 (a) $15.638
(b) $17.447 (b) $12.518 (b) $15.535
Ending Number of AUs................................ (a) 17,274 (a) 115,049 (a) 190,930
(b) 17,126 (b) 44,507 (b) 48,308
- -------------------------------------------------------------------------------------------------------------------
Goldman Sachs Research (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $8.100 (a) $7.171 (a) $5.072
(b) $8.100 (b) $7.168 (b) $5.057
Ending AUV.......................................... (a) $7.171 (a) $5.072 (a) $6.247
(b) $7.168 (b) $5.057 (b) $6.212
Ending Number of AUs................................ (a) 56,741 (a) 227,765 (a) 422,614
(b) 18,651 (b) 65,369 (b) 76,646
- -------------------------------------------------------------------------------------------------------------------
Growth-Income (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $28.878 (a) $26.800 (a) $20.783
(b) $28.878 (b) $26.794 (b) $20.726
Ending AUV.......................................... (a) $26.800 (a) $20.783 (a) $25.679
(b) $26.794 (b) $20.726 (b) $25.545
Ending Number of AUs................................ (a) 58,446 (a) 232,737 (a) 370,888
(b) 22,034 (b) 83,192 (b) 100,799
- -------------------------------------------------------------------------------------------------------------------
Growth Opportunities (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $6.256 (a) $5.813 (a) $3.443
(b) $6.256 (b) $5.804 (b) $3.426
Ending AUV.......................................... (a) $5.813 (a) $3.443 (a) $4.570
(b) $5.804 (b) $3.426 (b) $4.537
Ending Number of AUs................................ (a) 11,133 (a) 139,519 (a) 444,429
(b) 2,227 (b) 58,604 (b) 86,201
- -------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
AU - Accumulation Unit
AUV - Accumulation Unit Value
(a) Without election of the optional EstatePlus feature
(b) With election of the optional EstatePlus feature
</Table>
A-2
<Table>
<Caption>
FISCAL YEAR FISCAL YEAR
INCEPTION TO ENDING ENDING
PORTFOLIOS 12/31/01 12/31/02 12/31/03
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
High-Yield Bond (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $13.172 (a) $12.506 (a) $11.584
(b) $13.172 (b) $12.495 (b) $11.546
Ending AUV.......................................... (a) $12.506 (a) $11.584 (a) $14.990
(b) $12.495 (b) $11.546 (b) $14.901
Ending Number of AUs................................ (a) 28,392 (a) 276,498 (a) 1,024,507
(b) 24,531 (b) 88,751 (b) 149,914
- -------------------------------------------------------------------------------------------------------------------
International Diversified Equities (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $11.125 (a) $10.216 (a) $7.171
(b) $11.125 (b) $10.168 (b) $7.139
Ending AUV.......................................... (a) $10.216 (a) $7.171 (a) $9.290
(b) $10.168 (b) $7.139 (b) $9.228
Ending Number of AUs................................ (a) 31,777 (a) 255,409 (a) 1,604,946
(b) 9,019 (b) 63,592 (b) 176,119
- -------------------------------------------------------------------------------------------------------------------
International Growth & Income (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $11.372 (a) $10.751 (a) $8.363
(b) $11.372 (b) $10.746 (b) $8.342
Ending AUV.......................................... (a) $10.751 (a) $8.363 (a) $11.262
(b) $10.746 (b) $8.342 (b) $11.205
Ending Number of AUs................................ (a) 55,380 (a) 412,663 (a) 810,321
(b) 13,292 (b) 69,373 (b) 103,557
- -------------------------------------------------------------------------------------------------------------------
Marsico Growth (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $8.889 (a) $8.515 (a) $7.430
(b) $8.889 (b) $8.519 (b) $7.416
Ending AUV.......................................... (a) $8.515 (a) $7.430 (a) $9.516
(b) $8.519 (b) $7.416 (b) $9.474
Ending Number of AUs................................ (a) 32,122 (a) 546,873 (a) 1,857,877
(b) 29,102 (b) 109,334 (b) 313,015
- -------------------------------------------------------------------------------------------------------------------
MFS Massachusetts Investors Trust (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $20.217 (a) $19.217 (a) $14.933
(b) $20.217 (b) $19.204 (b) $14.886
Ending AUV.......................................... (a) $19.217 (a) $14.933 (a) $17.988
(b) $19.204 (b) $14.886 (b) $17.887
Ending Number of AUs................................ (a) 44,800 (a) 232,656 (a) 533,410
(b) 18,861 (b) 61,081 (b) 90,081
- -------------------------------------------------------------------------------------------------------------------
MFS Mid-Cap Growth (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $15.227 (a) $13.408 (a) $6.966
(b) $15.227 (b) $13.395 (b) $6.942
Ending AUV.......................................... (a) $13.408 (a) $6.966 (a) $9.402
(b) $13.395 (b) $6.942 (b) $9.346
Ending Number of AUs................................ (a) 124,477 (a) 749,300 (a) 1,850,689
(b) 59,733 (b) 240,427 (b) 360,746
- -------------------------------------------------------------------------------------------------------------------
MFS Total Return (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $21.154 (a) $21.220 (a) $19.857
(b) $21.154 (b) $21.203 (b) $19.791
Ending AUV.......................................... (a) $21.220 (a) $19.857 (a) $22.822
(b) $21.203 (b) $19.791 (b) $22.689
Ending Number of AUs................................ (a) 176,345 (a) 1,128,163 (a) 2,122,567
(b) 60,404 (b) 255,045 (b) 305,095
- -------------------------------------------------------------------------------------------------------------------
Putnam Growth: Voyager (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $21.065 (a) $19.070 (a) $13.792
(b) $21.065 (b) $19.066 (b) $13.755
Ending AUV.......................................... (a) $19.070 (a) $13.792 (a) $16.822
(b) $19.066 (b) $13.755 (b) $16.735
Ending Number of AUs................................ (a) 29,656 (a) 141,320 (a) 217,609
(b) 13,984 (b) 33,957 (b) 32,284
- -------------------------------------------------------------------------------------------------------------------
Real Estate (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $11.241 (a) $11.340 (a) $11.843
(b) $11.241 (b) $11.318 (b) $11.792
Ending AUV.......................................... (a) $11.340 (a) $11.843 (a) $16.072
(b) $11.318 (b) $11.792 (b) $15.964
Ending Number of AUs................................ (a) 8,714 (a) 141,718 (a) 397,561
(b) 5,515 (b) 43,008 (b) 73,741
- -------------------------------------------------------------------------------------------------------------------
Small and Mid Cap Value (Inception Date - 8/1/02)
Beginning AUV....................................... -- (a) $10.000 (a) $10.120
-- (b) $10.000 (b) $10.107
Ending AUV.......................................... -- (a) $10.120 (a) $13.599
-- (b) $10.107 (b) $13.549
Ending Number of AUs................................ -- (a) 130,241 (a) 1,108,911
-- (b) 34,296 (b) 129,075
- -------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
AU - Accumulation Unit
AUV - Accumulation Unit Value
(a) Without election of the optional EstatePlus feature
(b) With election of the optional EstatePlus feature
</Table>
A-3
<Table>
<Caption>
FISCAL YEAR FISCAL YEAR
INCEPTION TO ENDING ENDING
PORTFOLIOS 12/31/01 12/31/02 12/31/03
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
SunAmerica Balanced (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $15.626 (a) $15.005 (a) $12.518
(b) $15.626 (b) $15.005 (b) $12.486
Ending AUV.......................................... (a) $15.005 (a) $12.518 (a) $14.172
(b) $15.005 (b) $12.486 (b) $14.100
Ending Number of AUs................................ (a) 21,847 (a) 213,983 (a) 409,060
(b) 8,873 (b) 70,328 (b) 87,959
- -------------------------------------------------------------------------------------------------------------------
Technology (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $4.018 (a) $3.450 (a) $1.718
(b) $4.018 (b) $3.451 (b) $1.715
Ending AUV.......................................... (a) $3.450 (a) $1.718 (a) $2.548
(b) $3.451 (b) $1.715 (b) $2.536
Ending Number of AUs................................ (a) 96,029 (a) 492,985 (a) 1,412,247
(b) 26,355 (b) 123,296 (b) 364,829
- -------------------------------------------------------------------------------------------------------------------
Telecom Utility (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $12.848 (a) $11.507 (a) $8.627
(b) $12.848 (b) $11.516 (b) $8.613
Ending AUV.......................................... (a) $11.507 (a) $8.627 (a) $10.077
(b) $11.516 (b) $8.613 (b) $10.035
Ending Number of AUs................................ (a) 22,050 (a) 56,939 (a) 95,511
(b) 12,265 (b) 26,641 (b) 36,357
- -------------------------------------------------------------------------------------------------------------------
Worldwide High Income (Inception Date - 07/09/01)
Beginning AUV....................................... (a) $14.490 (a) $14.301 (a) $13.999
(b) $14.490 (b) $14.287 (b) $13.949
Ending AUV.......................................... (a) $14.301 (a) $13.999 (a) $17.339
(b) $14.287 (b) $13.949 (b) $17.234
Ending Number of AUs................................ (a) 6,503 (a) 35,156 (a) 168,672
(b) 1,845 (b) 6,592 (b) 12,122
- -------------------------------------------------------------------------------------------------------------------
American Funds Insurance Series - Global Growth (Inception
Date - 07/28/03)
Beginning AUV....................................... -- -- (a) $12.479
-- -- (b) $12.447
Ending AUV.......................................... -- -- (a) $14.590
-- -- (b) $14.537
Ending Number of AUs................................ -- -- (a) 226,548
-- -- (b) 23,594
- -------------------------------------------------------------------------------------------------------------------
American Funds Insurance Series - Growth (Inception
Date - 07/28/03)
Beginning AUV....................................... -- -- (a) $13.167
-- -- (b) $13.139
Ending AUV.......................................... -- -- (a) $14.667
-- -- (b) $14.621
Ending Number of AUs................................ -- -- (a) 490,066
-- -- (b) 34,304
- -------------------------------------------------------------------------------------------------------------------
American Funds Insurance Series - Growth - Income (Inception
Date - 07/28/03)
Beginning AUV....................................... -- -- (a) $12.590
-- -- (b) $12.560
Ending AUV.......................................... -- -- (a) $14.197
-- -- (b) $14.148
Ending Number of AUs................................ -- -- (a) 578,250
-- -- (b) 45,865
- -------------------------------------------------------------------------------------------------------------------
Lord Abbett Series Fund Growth and Income (Inception
Date - 08/01/02)
Beginning AUV....................................... -- (a) $10.000 (a) $8.180
-- (b) $10.000 (b) $8.159
Ending AUV.......................................... -- (a) $8.180 (a) $10.556
-- (b) $8.159 (b) $10.503
Ending Number of AUs................................ -- (a) 114,464 (a) 961,782
-- (b) 17,790 (b) 84,978
- -------------------------------------------------------------------------------------------------------------------
Van Kampen LIT Comstock, Class II Shares (Inception
Date - 11/05/01)
Beginning AUV....................................... (a) -- (a) $10.231 (a) $8.101
(b) $10.00 (b) $10.234 (b) $8.094
Ending AUV.......................................... (a) -- (a) $8.101 (a) $10.434
(b) $10.234 (b) $8.094 (b) $10.399
Ending Number of AUs................................ (a) -- (a) 351,589 (a) 1,211,030
(b) 6,865 (b) 101,386 (b) 137,517
- -------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
AU - Accumulation Unit
AUV - Accumulation Unit Value
(a) Without election of the optional EstatePlus feature
(b) With election of the optional EstatePlus feature
</Table>
A-4
<Table>
<Caption>
FISCAL YEAR FISCAL YEAR
INCEPTION TO ENDING ENDING
PORTFOLIOS 12/31/01 12/31/02 12/31/03
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Van Kampen LIT Emerging Growth, Class II Shares (Inception
Date - 01/10/02)
Beginning AUV....................................... (a) -- (a) $10.426 (a) $6.916
(b) -- (b) $10.437 (b) $6.906
Ending AUV.......................................... (a) -- (a) $6.916 (a) $8.654
(b) -- (b) $6.906 (b) $8.619
Ending Number of AUs................................ (a) -- (a) 158,923 (a) 474,097
(b) -- (b) 52,408 (b) 58,443
- -------------------------------------------------------------------------------------------------------------------
Van Kampen LIT Growth and Income, Class II Shares (Inception
Date - 11/05/01)
Beginning AUV....................................... (a) -- (a) $10.533 (a) $8.826
(b) $10.00 (b) $10.537 (b) $8.820
Ending AUV.......................................... (a) -- (a) $8.826 (a) $11.100
(b) $10.537 (b) $8.820 (b) $11.064
Ending Number of AUs................................ (a) -- (a) 256,369 (a) 1,677,825
(b) 6,616 (b) 80,239 (b) 253,274
- -------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
AU - Accumulation Unit
AUV - Accumulation Unit Value
(a) Without election of the optional EstatePlus feature
(b) With election of the optional EstatePlus feature
</Table>
A-5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX B - MARKET VALUE ADJUSTMENT ("MVA") AND FIXED ADVANTAGE 7 OPTION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Multi-year FAGPs may not be available if you purchased your contract on or after
June 1, 2004. 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 does not apply to
any available one-year fixed account option. 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.
The information in this Appendix applies only if you take money out of a FAGP
with 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; and
N is the number of full months remaining in the term you initially
agreed to leave your money in the FAGP.
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); and
(3) You have not made any other transfers, additional Purchase Payments, or
withdrawals.
(4) You contract was issued in a state where L = 0.005.
POSITIVE ADJUSTMENT, NO WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 3.5% and the 3-year FAGP is 4.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 4%. No
withdrawal charge is reflected in this example, assuming that the Purchase
Payment withdrawn falls within the free look amount.
B-1
The MVA factor is = [(1+I/(1+J+0.005)]N/12 - 1
= [(1.05)/(1.04+0.005)]18/12 - 1
= (1.004785)(1.5) - 1
= 1.007186 - 1
= + 0.007186
The requested withdrawal amount is multiplied by the MVA factor to determine the
MVA:
$4,000 X (+0.007186) = +$28.74
$28.74 represents the positive MVA that would be added to the withdrawal.
NEGATIVE ADJUSTMENT, NO WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 5.5% and the 3-year FAGP is 6.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 6%. No
withdrawal charge is reflected in this example, assuming that the Purchase
Payment withdrawn falls with the free withdrawal amount.
The MVA factor is = [(1+I)/(1+J+0.005)](N/12) - 1
= [(1.05)/(1.06+0.005)](18/12) - 1
= (0.985915)(1.5) - 1
= 0.978948 - 1
= -0.021052
The requested withdrawal amount is multiplied by the MVA factor to determine the
MVA:
$4,000 X (-0.021052) = -$84.21
$84.21 represents the negative MVA that will be deducted from the money
remaining in the 3-year FAGP.
POSITIVE ADJUSTMENT, WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 3.5% and the 3-year FAGP is 4.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 4%. A
withdrawal charge of 6% is reflected in this example, assuming that the Purchase
Payment withdrawn exceeds the free withdrawal amount.
The MVA factor is = [(1+I)/(I+J+0.005)](N/12) - 1
= [(1.05)/(1.04+0.005)](18/12) - 1
= (1.004785)(1.5) - 1
= 1.007186 - 1
= +0.007186
The requested withdrawal amount, less the withdrawal charge ($4,000 - 6% =
$3,760) is multiplied by the MVA factor to determine the MVA:
$3,760 X (+0.007186) = +$27.02
$27.02 represents the positive MVA that would be added to the withdrawal.
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.
B-2
FIXED ADVANTAGE 7 ACCOUNT OPTION
If you purchased your contract before May 3, 2004, Fixed Advantage 7 is an
additional seven-year fixed account option available in your contract (if you
have not elected to participate in the Principal Rewards program) and will
generally offer a different interest rate than the other fixed account options
in your contract. Only Purchase Payments made during the first 90 days following
issuance of your contract can be invested in Fixed Advantage 7. If you
inadvertently allocate any Purchase Payments to Fixed Advantage 7 after the
first 90 days of your contract, We will automatically allocate those funds into
the 1-year fixed account option until We receive further instruction from you.
At the end of the 7-year guarantee period, the entire balance in Fixed Advantage
7 will be automatically transferred into the 1-year fixed account option unless
We receive allocation instructions from you. These automatic transfers do not
count against the number of free annual transfers.
You cannot transfer money out of Fixed Advantage 7 prior to the end of the
7-year guarantee period; however, you may elect to systematically transfer the
interest earned in this account to other Variable Portfolios at any time either
monthly, quarterly, semi-annually or annually. If you make a full or partial
withdrawal from your contract, you will be subject to a market value adjustment
on all funds invested in the multi-year fixed accounts including Fixed Advantage
7 and any applicable surrender charges. SEE MARKET VALUE ADJUSTMENT IN APPENDIX
B.
You will not be subject to a market value adjustment if:
(1) you systematically transfer interest earned to other Variable
Portfolios as part of the DCA program;
(2) a death benefit is paid;
(3) any withdrawal is made to pay fees or charges; or
(4) any amount automatically transferred at the end of the guarantee
period.
FIXED ADVANTAGE 7 IS ONLY AVAILABLE IF YOU DO NOT ELECT TO PARTICIPATE IN THE
PRINCIPAL REWARDS PROGRAM. IT MAY NOT BE AVAILABLE IN ALL STATES.
B-3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX C - DEATH BENEFITS FOLLOWING SPOUSAL CONTINUATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Capitalized terms used in this Appendix have the same meaning as they have in
prospectus.
The term "Continuation Net Purchase Payment" is used frequently to describe the
death benefit options payable to the beneficiary of the Continuing Spouse. We
define Continuation Net Purchase Payment as Net Purchase Payments made as of the
Continuation Date. For the purpose of calculating Continuation Net Purchase
Payments, the amount that equals the contract value on the Continuation Date,
including the Continuation Contribution is considered a Purchase Payment. If the
Continuing Spouse makes no additional Purchase Payments or withdrawal,
Continuation Net Purchase Payments equals the contract value on the Continuation
Date, including the Continuation Contribution.
The term "withdrawals" as used in describing the death benefit options below is
defined as withdrawals and any fees and charges applicable to those withdrawals.
The following details the death benefit options and EstatePlus benefit upon the
Continuing Spouse's death:
The death benefit we will pay to the new Beneficiary chosen by the Continuing
Spouse varies depending on the death benefit option elected by the original
owner of the contract and the age of the Continuing Spouse as of the
Continuation Date.
A. DEATH BENEFIT PAYABLE UPON CONTINUING SPOUSE'S DEATH:
1. Purchase Payment Accumulation Option
If the original owner of the contract elected Option 1, Purchase
Payment Accumulation Option, and the Continuing Spouse is age 74 or younger
on the Continuation Date, then upon the death of the Continuing Spouse, the
death benefit will be the greatest of:
a. Contract value; or
b. Contract value on the Continuation Date plus Continuation Net
Purchase Payments, compounded at 3% annual growth rate, to the
earlier of the Continuing Spouse's 75th birthday or date of death;
reduced for any withdrawals and increased by any Continuation Net
Purchase Payments received after the Continuing Spouse's 75th
birthday to the earlier of the Continuing Spouse's 86th birthday or
date of death; or
c. Contract value on the seventh contract anniversary (from the issue
date of the original owner), reduced for withdrawals since the
seventh contract anniversary in the same proportion that the
contract value was reduced on the date of such withdrawal, plus any
Net Purchase Payments received between the seventh contract
anniversary date but prior to the Continuing Spouse's 86th
birthday.
If the Continuing Spouse is age 75-82 on the Continuation Date, then
the death benefit will be the greatest of:
a. Contract value; or
b. Contract value on the Continuation Date plus any Continuation Net
Purchase Payments received prior to the Continuing Spouse's 86th
birthday; or
c. Maximum anniversary value on any contract anniversary that occurred
after the Continuation Date, but prior to the Continuing Spouse's
83rd birthday. The anniversary value for any year is equal to the
contract value on the applicable contract anniversary date, plus
any Purchase Payments received since that anniversary date but
prior to the Continuing Spouse's 86th birthday, and reduced for any
withdrawals since that contract anniversary in the same proportion
that the withdrawal reduced the contract value on the date of
withdrawal.
If the Continuing Spouse is age 83-85 on the Continuation Date, then
the death benefit will be the greatest of:
a. Contract value; or
b. the lesser of:
(1) Contract value on the Continuation Date plus Continuation Net
Purchase Payments received prior to the Continuing Spouse's
86th birthday; or
(2) 125% of the contract value.
If the Continuing Spouse is age 86 or older as of the Continuation
Date and the original owner of the contract elected the Purchase Payment
Accumulation death benefit, the death benefit will be equal to the contract
value.
2. Maximum Anniversary Value Option
If the original owner of the contract elected Option 2, Maximum
Anniversary Option, and the Continuing Spouse is age 82 or younger on the
Continuation Date, then upon the death of the Continuing Spouse, the death
benefit will be the greatest of:
a. Contract value; or
b. Contract value on the Continuation Date plus Continuation Net
Purchase Payments received prior to the Continuing Spouse's 86th
birthday; or
c. Maximum anniversary value on any contract anniversary that occurred
after the Continuation Date, but prior to the Continuing Spouse's
C-1
83rd birthday. The anniversary value for any year is equal to the
contract value on the applicable contract anniversary date after
the Continuation Date, plus any Purchase Payments received since
that anniversary date but prior to the Continuing Spouse's 86th
birthday, and reduced for any withdrawals since that contract
anniversary in the same proportion that the withdrawal reduced the
contract value on the date of withdrawal.
If the Continuing Spouse is age 83-85 on the Continuation Date, then
the death benefit will be the greater of:
a. Contract value; or
b. the lesser of:
(3) Contract value on the Continuation Date plus any Continuation
Net Purchase Payments received prior to the Continuing Spouse's
86th birthday; or
(4) 125% of the contract value.
If the Continuing Spouse is age 86 or older at the time of death,
under the Maximum Anniversary death benefit, their Beneficiary will receive
only the contract value.
Please see the Statement of Additional Information for a description of the
death benefit calculations following a Spousal Continuation for contracts issued
on or before May 31, 2004.
B. THE ESTATEPLUS BENEFIT PAYABLE UPON CONTINUING SPOUSE'S DEATH:
The EstatePlus benefit may increase the death benefit amount. The EstatePlus
benefit is only available if the original owner elected EstatePlus and it has
not been terminated. If the Continuing Spouse had earnings in the contract at
the time of his/her death, we will add a percentage of those earnings (the
"EstatePlus Percentage"), subject to a maximum dollar amount (the "Maximum
EstatePlus Percentage"), to the death benefit payable, based on the number of
years the Continuing Spouse has held the contract since the Continuation Date.
The EstatePlus benefit, if any, is added to the death benefit payable under the
Purchase Payment Accumulation or the Maximum Anniversary option.
On the Continuation Date, if the Continuing Spouse is 69 or younger and a
Continuation Contribution is added, the table below shows the available
EstatePlus benefit:
<Table>
<Caption>
- -------------------------------------------------------------------
CONTRACT YEAR ESTATEPLUS MAXIMUM
OF DEATH PERCENTAGE ESTATEPLUS AMOUNT
- -------------------------------------------------------------------
Years (0-4) 25% of Earnings 40% of Continuation Net
Purchase Payments
- -------------------------------------------------------------------
Years (5-9) 40% of Earnings 65% of Continuation Net
Purchase Payments*
- -------------------------------------------------------------------
Years (10+) 50% of Earnings 75% of Continuation Net
Purchase Payments*
- -------------------------------------------------------------------
</Table>
On the Continuation Date, if the Continuing Spouse is between your 70th and 81st
birthdays and a Continuation Contribution is added, table below shows the
available EstatePlus benefit:
<Table>
<Caption>
- -------------------------------------------------------------------
CONTRACT YEAR ESTATEPLUS MAXIMUM
OF DEATH PERCENTAGE ESTATEPLUS AMOUNT
- -------------------------------------------------------------------
All Contract 25% of Earnings 40% of Continuation Net
Years Purchase Payments*
- -------------------------------------------------------------------
</Table>
* Purchase Payments received after the 5th anniversary of the Continuation Date
must remain in the contract for at least 6 full months to be included as part
of the Continuation Net Purchase Payments for the purpose of the Maximum
Estate Plus Percentage calculation.
If a Continuation Contribution is not added on the Continuation Date, the
Continuing Spouse's age as of the original contract issue date is used to
calculate the EstatePlus benefit, if any.
What is the Contract Year of Death?
Contract Year of Death is the number of full 12 month periods starting on the
Continuation Date and ending on the Continuing Spouse's date of death.
What is the EstatePlus amount?
We determine the EstatePlus amount based upon a percentage of earnings in the
contract at the time of the Continuing Spouse's death. For the purpose of this
calculation, earnings are defined as (1) minus (2) where
(1) equals the contract value on the Continuing Spouse's date of death;
(2) equals the Continuation Net Purchase Payment(s).
What is the Maximum EstatePlus amount?
The EstatePlus benefit is subject to a maximum dollar amount. The Maximum
EstatePlus amount is a percentage of the Continuation Net Purchase Payments.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE SPOUSAL CONTINUATION
PROVISION (IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME WITH RESPECT TO
PROSPECTIVELY ISSUED CONTRACTS.
C-2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX D - HYPOTHETICAL EXAMPLE OF THE OPERATION OF THE INCOME PROTECTOR
FEATURE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
POLARIS PROTECTOR INCOME PROTECTOR PLUS
This table assumes a $100,000 initial investment in a non-qualified contract
with no further premiums, no withdrawals, no step-ups and no premium taxes; and
the election of the optional 6% Income Protector Plus at contract issue.
<Table>
<Caption>
- --------------------------------------------------------------------------------------------
ANNUAL INCOME IF YOU ANNUITIZE ON THE FOLLOWING CONTRACT ANNIVERSARY
IF AT ISSUE 10 11 12 15 19 20
YOU ARE 1 - 9 (AGE 70) (AGE 71) (AGE 72) (AGE 75) (AGE 79) (AGE 80)
- --------------------------------------------------------------------------------------------
Male N/A 12,529 13,645 14,874 19,240 26,976 29,288
age 60*
- --------------------------------------------------------------------------------------------
Female N/A 11,110 12,119 13,232 17,284 24,725 26,978
age 60*
- --------------------------------------------------------------------------------------------
Male, Age 60 N/A 9,563 10,342 11,156 14,005 18,626 19,936
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 adviser for information regarding availability of this program in your
state.
D-1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX E - POLARIS REWARDS PROGRAM EXAMPLES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
I. DEFERRED PAYMENT ENHANCEMENT
If you elect to participate in the Polaris Rewards Program at contract issue, We
contribute at least 2% of each Purchase Payment to your contract for each
Purchase Payment We receive as an Upfront Payment Enhancement. Any applicable
Deferred Payment Enhancement is allocated to your contract on the corresponding
Deferred Payment Enhancement Date and, if declared by the Company, is a
percentage of your remaining Purchase Payment on the Deferred Payment
Enhancement Date. Deferred Purchase Payment Enhancements are reduced
proportionately by partial withdrawals of that Purchase Payment prior to the
Deferred Payment Enhancement Date.
The examples that follow assume an initial Purchase Payment of $125,000 and that
the Deferred Payment Enhancement is 1%.
For purposes of the example, the Deferred Payment Enhancement Date is the 9th
anniversary of the Purchase Payment.
EXAMPLE 1 -- NO WITHDRAWALS ARE MADE
The Upfront Payment Enhancement allocated to your contract is $2,500 (2% of
$125,000).
On your 9th contract anniversary, the Deferred Payment Enhancement Date, your
Deferred Payment Enhancement of $1,250 (1% of your remaining Purchase Payment or
$125,000) will be allocated to your contract.
EXAMPLE 2 -- WITHDRAWAL MADE PRIOR TO DEFERRED PAYMENT ENHANCEMENT DATE
As in Example 1, your Upfront Payment Enhancement is $2,500.
This example also assumes the following:
1. Your contract value on your 5th contract anniversary is $190,000.
2. You request a withdrawal of $75,000 on your 5th contract anniversary.
3. No subsequent Purchase Payments have been made.
4. No prior withdrawals have been taken.
5. Funds are not allocated to any of the MVA Fixed Accounts.
On your 5th contract anniversary, your penalty-free earnings in the contract are
$65,000 ($190,000 contract value less your $125,000 investment in the contract).
Therefore, you are withdrawing $10,000 of your initial Purchase Payment. Your
contract value will also be reduced by a $500 withdrawal charge on the $10,000
Purchase Payment (5% of $10,000). Your gross withdrawal is $75,500 of which
$10,500 constitutes part of your Purchase Payment.
The withdrawal of $10,500 of your $125,000 Purchase Payment is a withdrawal of
8.4% of your Purchase Payment. Therefore, only 91.6%, or $114,500, of your
initial Purchase Payment remains in your contract.
On your 9th contract anniversary, the Deferred Payment Enhancement Date,
assuming no other transactions occur affecting the Purchase Payment, We allocate
your Deferred Payment Enhancement of $1,145 (1% of your remaining Purchase
Payment, $114,500) to your contract.
II. 90 DAY WINDOW
The following hypothetical examples assume that the Company is offering Upfront
and Deferred Payment Enhancements in accordance with this chart at the time each
Purchase Payment is received:
<Table>
<Caption>
- ----------------------------------------------------------------------
UPFRONT DEFERRED DEFERRED
PAYMENT PAYMENT PAYMENT
ENHANCEMENT ENHANCEMENT ENHANCEMENT
ENHANCEMENT LEVEL RATE RATE DATE
- ----------------------------------------------------------------------
Under $40,000 2% 0% N/A
- ----------------------------------------------------------------------
$40,000 - $99,999 4% 0% N/A
- ----------------------------------------------------------------------
$100,000 - $499,999 4% 1% Nine years from the
date We receive each
Purchase Payment.
- ----------------------------------------------------------------------
$500,000 - more 4% 2% Nine years from the
date We receive each
Purchase Payment.
- ----------------------------------------------------------------------
</Table>
Contracts issued with the Polaris Rewards feature after April 3, 2000, may be
eligible for a "Look-Back Adjustment." As of the 90th day after your contract
was issued, We will total your Purchase Payments remaining in your contract at
that time, without considering any investment gain or loss in contract value on
those Purchase Payments. If your total Purchase Payments bring you to an
Enhancement Level which, as of the date We issued your contract, would have
provided for a higher Upfront and/or Deferred Payment Enhancement Rate on each
Purchase Payment, you will get the benefit of the Enhancement Rate(s) that were
applicable to that higher Enhancement Level at the time your contract was
issued.
This example assumes the following:
1. Above Enhancement Levels, Rates and Dates throughout the first 90 days.
2. No withdrawal in the first 90 days.
3. Initial Purchase Payment of $35,000 on December 1, 2000.
E-1
4. Subsequent Purchase Payment of $40,000 on January 15, 2001.
5. Subsequent Purchase Payment of $25,000 on January 30, 2001.
6. Subsequent Purchase Payment of $7,500 on February 12, 2001.
ENHANCEMENT AT THE TIME PURCHASE PAYMENTS ARE RECEIVED
<Table>
<Caption>
- ----------------------------------------------------------------------------------
DEFERRED
PURCHASE UPFRONT DEFERRED PAYMENT
DATE OF PAYMENT PAYMENT PAYMENT ENHANCEMENT
PURCHASE PAYMENT AMOUNT ENHANCEMENT ENHANCEMENT DATE
- ----------------------------------------------------------------------------------
December 1, 2000 $35,000 2% 0% N/A
- ----------------------------------------------------------------------------------
January 15, 2001 $40,000 4% 0% N/A
- ----------------------------------------------------------------------------------
January 30, 2001 $25,000 4% 1% January 30, 2010
- ----------------------------------------------------------------------------------
February 12, 2001 $ 7,500 4% 1% February 12, 2010
- ----------------------------------------------------------------------------------
</Table>
ENHANCEMENT ADJUSTMENTS ON THE 90TH DAY FOLLOWING CONTRACT ISSUE
The sum of all Purchase Payments made in the first 90 days of the contract
equals $107,500. According to the Enhancement Levels in effect at the time this
contract was issued, a $107,500 Purchase Payment would have received a 4%
Upfront Payment Enhancement and a 1% Deferred Payment Enhancement. Under the 90
Day Window provision all Purchase Payments made within those first 90 days would
receive the benefit of the parameters in place at the time the contract was
issued, as if all of the Purchase Payments were received on the date of issue.
Thus, the first two Purchase Payments would be adjusted on the 90th day
following contract issue, as follows:
<Table>
<Caption>
- ----------------------------------------------------------------------------------
DEFERRED
PURCHASE UPFRONT DEFERRED PAYMENT
DATE OF PAYMENT PAYMENT PAYMENT ENHANCEMENT
PURCHASE PAYMENT AMOUNT ENHANCEMENT ENHANCEMENT DATE
- ----------------------------------------------------------------------------------
December 1, 2000 $35,000 4% 1% December 1, 2009
- ----------------------------------------------------------------------------------
January 15, 2001 $40,000 4% 1% January 15, 2010
- ----------------------------------------------------------------------------------
January 30, 2001 $25,000 4% 1% January 30, 2010
- ----------------------------------------------------------------------------------
February 12, 2001 $ 7,500 4% 1% February 12, 2010
- ----------------------------------------------------------------------------------
</Table>
E-2
- --------------------------------------------------------------------------------
Please forward a copy (without charge) of the Polaris Protector 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
- --------------------------------------------------------------------------------
WM DIVERSIFIED STRATEGIES
PROSPECTUS
May 3, 2004
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") 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 ADVISORS, INC., WMVT
JANUS CAPITAL MANAGEMENT LLC, AND
OPPENHEIMERFUNDS, INC.
SMALL CAP GROWTH 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 3, 2004. 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 in 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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
AIG SunAmerica Life's Annual Report on Form 10-K for the year ended December 31,
2003 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
Maximum Owner Transaction Expenses........... 6
Contract Maintenance Charge.................. 6
Separate Account Annual Expenses............. 6
Additional Optional Feature Fee.............. 6
Optional Diversified Strategies Income
Rewards Fee........................... 6
Optional Capital Protector Fee.......... 6
Optional Income 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........................... 10
Free Look.................................... 10
Exchange Offers.............................. 10
INVESTMENT OPTIONS............................... 11
Variable Portfolios.......................... 11
Fixed Investment Options..................... 12
Transfers During the Accumulation Phase...... 13
Dollar Cost Averaging........................ 14
Asset Allocation Rebalancing Program......... 15
Return Plus.................................. 15
Voting Rights................................ 15
Substitution................................. 16
ACCESS TO YOUR MONEY............................. 16
Free Withdrawal Provision.................... 16
Systematic Withdrawal Program................ 17
Nursing Home Waiver.......................... 18
Minimum Contract Value....................... 18
Qualified Contract Owners.................... 18
OPTIONAL LIVING BENEFITS......................... 18
Diversified Strategies Income Rewards........ 18
Capital Protector............................ 23
Income Protector............................. 25
DEATH BENEFIT.................................... 27
Standard Death Benefit....................... 29
Estate Rewards Death Benefit................. 29
Spousal Continuation......................... 30
EXPENSES......................................... 31
Separate Account Charges..................... 31
Withdrawal Charges........................... 31
Investment Charges........................... 32
Contract Maintenance Charge.................. 32
Transfer Fee................................. 32
Optional Death Benefit Fees.................. 32
Optional Income Protector Fee................ 33
Optional Capital Protector Fee............... 33
Optional Diversified Strategies Income
Rewards Fee................................ 33
Premium Tax.................................. 33
Income Taxes................................. 33
Reduction or Elimination of Charges and
Expenses, and Additional Amounts
Credited................................... 33
INCOME OPTIONS................................... 34
Annuity Date................................. 34
Income Options............................... 34
Allocation of Annuity Payments............... 35
Transfers During the Income Phase............ 36
Deferment of Payments........................ 36
TAXES............................................ 36
Annuity Contracts in General................. 36
Tax Treatment of Distributions--Non-Qualified
Contracts.................................. 36
Tax Treatment of Distributions--Qualified
Contracts (including governmental 457(b)
eligible deferred compensation plans)...... 37
Minimum Distributions........................ 37
Tax Treatment of Death Benefits.............. 38
Contracts Owned by a Trust or Corporation.... 38
Gifts, Pledges and/or Assignments of a
Contract................................... 39
Diversification and Investor Control......... 39
PERFORMANCE...................................... 39
OTHER INFORMATION................................ 39
AIG SunAmerica Life.......................... 39
The Separate Account......................... 40
The General Account.......................... 40
Payments in Connection with Distribution of
the Contract............................... 40
Administration............................... 41
Legal Proceedings............................ 41
INDEPENDENT ACCOUNTANTS.......................... 41
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL
INFORMATION.................................... 42
APPENDIX A--MARKET VALUE ADJUSTMENT.............. A-1
APPENDIX B--DEATH BENEFITS FOLLOWING SPOUSAL
CONTINUATION................................... B-1
APPENDIX C--CONDENSED FINANCIAL INFORMATION...... C-1
APPENDIX D--HYPOTHETICAL EXAMPLE OF THE OPERATION
OF THE INCOME PROTECTOR........................ 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 ("AIG SunAmerica Life"), we, us,
our, the issuer of this annuity contract. Only "AIG SunAmerica Life" is a
capitalized term of the prospectus.
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 may be
referred to as "Underlying Funds."
4
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 financial
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).
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 REPRESENTATIVE TO DETERMINE THE BEST PRODUCT TO MEET YOUR NEEDS
YOU SHOULD CONSIDER, AMONG OTHER THINGS, WHETHER THE FEATURES OF THIS CONTRACT
AND THE RELATED FEES PROVIDE THE MOST APPROPRIATE PACKAGE TO HELP YOU MEET YOUR
LONG-TERM RETIREMENT SAVINGS GOALS.
PLEASE READ THE PROSPECTUS CAREFULLY FOR MORE DETAILED INFORMATION REGARDING
THESE AND OTHER FEATURES AND BENEFITS OF THE CONTRACT, AS WELL AS THE RISKS OF
INVESTING.
5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEE TABLES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY AT THE TIME THAT
YOU BUY THE CONTRACT, 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>
<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>
ADDITIONAL OPTIONAL FEATURE FEE
You may elect only one of the following optional features: Income Protector,
Capital Protector or Diversified Strategies Income Rewards described below.
OPTIONAL DIVERSIFIED STRATEGIES INCOME REWARDS FEE
<Table>
<Caption>
TIME PERIOD ANNUALIZED FEE(3)
----------- -----------------
0-7........................................ 0.65%
8+......................................... 0.45%
</Table>
OPTIONAL CAPITAL PROTECTOR FEE(4)
<Table>
<Caption>
CONTRACT YEAR ANNUALIZED FEE
------------- --------------
0-7........................................ 0.50%
8-10....................................... 0.25%
11+........................................ none
</Table>
OPTIONAL INCOME PROTECTOR FEE
<Table>
Annual Fee as a % of your Income Benefit Base(5)..... 0.10%
</Table>
FOOTNOTES TO THE FEE TABLES:
(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>
(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%.
(3) The Diversified Strategies Income Rewards feature is optional and if
elected, the fee is generally calculated as a percentage of your Purchase
Payments received in the first 90 days less proportionate withdrawals. The
fee is deducted from your contract at the end of the first quarter following
election and quarterly thereafter.
(4) 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.
(5) 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.
THE FOLLOWING SHOWS THE TOTAL MINIMUM AND MAXIMUM TOTAL OPERATING EXPENSES
CHARGED BY THE UNDERLYING FUNDS OF THE TRUSTS BEFORE ANY WAIVERS OR
REIMBURSEMENTS THAT YOU MAY PERIODICALLY DURING THE TIME YOU OWN THE CONTRACT.
MORE DETAIL CONCERNING THE TRUSTS' FEES AND EXPENSES IS CONTAINED IN THE
PROSPECTUS FOR EACH OF THE TRUSTS. PLEASE READ THEM CAREFULLY BEFORE INVESTING.
PORTFOLIO EXPENSES
<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% 1.64%
</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 1.64%)
(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 Diversified Strategies Income
Rewards (0.65% for years 0-7, and 0.45% for years 8-10) features:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$1,116 $1,858 $2,515 $4,262
- -------------------------------------
- -------------------------------------
</Table>
(2) If you annuitize your Contract at the end of the applicable time period:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$307 $939 $1,596 $3,355
- -------------------------------------
- -------------------------------------
</Table>
(3) 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 Diversified Strategies Income Rewards (0.65% for years 0-7, and
0.45% for years 8-10) features:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$416 $1,258 $2,115 $4,262
- -------------------------------------
- -------------------------------------
</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 annuitize your Contract at the end of the applicable time period:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$199 $615 $1,057 $2,285
- -------------------------------------
- -------------------------------------
</Table>
(3) 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>
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. In addition to the stated assumptions, 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 or the Capital Protector program,
7
your expenses would be lower than those shown in these tables. The fees
for the Diversified Strategies Income Rewards, Capital Protector and
Income Protector features are not calculated as a percentage of your
daily net asset value but on other calculations more fully described in
the prospectus.
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 representative.
This annuity was developed to help you contribute to your retirement savings.
This annuity works in two stages, the Accumulation Phase and the Income Phase.
Your contract is in the Accumulation Phase during the period when you make
payments into the contract. The Income Phase begins when you request us to start
making 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.
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 representative 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 representative 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 AND FIRST SUNAMERICA
LIFE INSURANCE COMPANY, AN AFFILIATE OF AIG SUNAMERICA LIFE, 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. For any contracts subject to these
dollar amount reservations, we further reserve the right to limit the death
benefit amount payable in excess of contract value at the time we receive all
required paperwork and satisfactory proof of death. Any limit on the maximum
death benefit payable would be mutually agreed upon by you and the Company prior
to purchasing the contract. WE RESERVE THE RIGHT TO CHANGE THE AMOUNT AT WHICH
PREAPPROVAL IS REQUIRED, AT ANY TIME.
Once you have contributed at least the minimum initial Purchase Payment, you can
establish an automatic payment plan that allows you to make subsequent Purchase
Payments of as little as $50.
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. 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.
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. If we learn of a misstatement of age,
we reserve the right to fully pursue our remedies including termination of the
contract and/or revocation of any age-driven benefit.
You may assign this contract before beginning the Income Phase by sending us a
written request for an assignment. Your rights and those of any other person
with rights under this contract will be subject to the assignment. WE RESERVE
THE RIGHT TO NOT RECOGNIZE ASSIGNMENTS IF IT CHANGES THE RISK PROFILE OF THE
OWNER OF THE CONTRACT, AS DETERMINED IN OUR SOLE DISCRETION. Please see the
Statement of Additional Information for details on the tax consequences of an
assignment.
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,
9
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.
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.
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.
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.
10
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.
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--CLASS 2 SHARES
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--CLASS 2 SHARES
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--CLASS 1 SHARES
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 Advisors, Inc., WMVT
Janus Capital Management LLC, and
OppenheimerFunds, Inc.
Small Cap Growth 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>
11
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>
* Morgan Stanley Investment Management, Inc., the sub-adviser for the Technology
SAST Portfolio, does business in certain instances using the name Van Kampen.
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 representative to learn if any FAGPs are currently
offered.
There are three interest rate scenarios for money allocated to the FAGPs. Each
of these rates may differ from one another. Once declared, the applicable rate
is guaranteed until the corresponding guarantee period expires. Under each
scenario your money may be credited a different rate of interest as follows:
- INITIAL RATE: The rate credited to any portion of the initial Purchase
Payment allocated to a FAGP.
- CURRENT RATE: The rate credited to any portion of the subsequent
Purchase Payments allocated to a FAGP.
- RENEWAL RATE: The rate credited to money transferred from a FAGP or a
Variable Portfolio into a FAGP and to money remaining in a FAGP after
expiration of a guarantee period.
When a FAGP ends, you may leave your money in the same FAGP or you may
reallocate your money to another FAGP or to the Variable Portfolios. If you want
to reallocate your money, you must contact us within 30 days after the end of
the current interest guarantee period and instruct us as to where you would like
the money invested. We do not contact you. If we do not hear from you, your
money will remain in the same FAGP where it will earn interest at the renewal
rate then in effect for that FAGP.
If you take money out of any available multi-year FAGP, before the end of the
guarantee period, we make an adjustment to your contract. We refer to the
adjustment as a market value adjustment ("MVA"). The MVA does not apply to any
available one-year fixed account. 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.
If available, you may systematically transfer interest in available FAGPs into
any of the Variable Portfolios on certain periodic schedules offered by us.
Systematic transfers may be started, changed or terminated at any time by
contacting our Annuity Service Center. Check with your financial representative
about the current availability of this service.
All FAGPs may not be available in all states. At any time that we are crediting
the guaranteed minimum interest rate specified in your contract to the fixed
accounts, we reserve the right to restrict transfers and Purchase Payments into
the FAGPs. We may also offer the specific Dollar Cost Averaging Fixed Accounts
("DCAFA").
12
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.
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 funds between the Variable
Portfolios and/or any available fixed account options. Funds already in your
contract cannot be transferred into the DCA fixed accounts. You must transfer at
least $100 per transfer. If less than $100 remains in any Variable Portfolio
after a transfer, that amount must be transferred as well. We will process any
transfer request as of the day we receive it in good order if the request is
received before the New York Stock Exchange ("NYSE") closes, generally at 1:00
p.m. Pacific Time. If the transfer request is received after the NYSE closes,
the request will be processed on the next business day.
This product is not designed for professional organizations or individuals
engaged in trading strategies that seek to benefit from short term price
fluctuations or price irregularities by making programmed transfers, frequent
transfers or transfers that are large in relation to the total assets of the
underlying portfolio in which the Variable Portfolios invest. These types of
trading strategies can be disruptive to the underlying portfolios in which the
Variable Portfolios invest and thereby potentially harmful to investors.
In connection with our efforts to control harmful trading, we may monitor your
trading activity. If we determine, in our sole discretion, that your transfer
patterns among the Variable Portfolios and/or available fixed accounts reflect a
potentially harmful trading strategy, we reserve the right to take action to
protect other investors. Such action may include, but may 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 capability in accordance with state and federal rules and regulations.
We will notify you, in writing, if we determine in our sole discretion that we
must terminate your transfer privileges. Some of the factors we may consider
when determining our transfer policies and/or other transfer restrictions may
include, but are not limited to:
- - the number of transfers made in a defined period;
- - the dollar amount of the transfer;
- - the total assets of the Variable Portfolio involved in the transfer;
- - the investment objectives of the particular Variable Portfolios involved in
your transfers; and/or
- - whether the transfer appears to be part of a pattern of transfers to take
advantage of short-term market fluctuations or market inefficiencies.
Subject to our rules, restrictions and policies, you may request transfers of
your account value between the Variable Portfolios and/or the available fixed
account options by telephone or through AIG SunAmerica's website
(http://www.aigsunamerica.com) or in writing by mail or facsimile.
We allow 15 free transfers per contract per year. We charge $25 ($10 IN
PENNSYLVANIA AND TEXAS) for each additional transfer in any contract year.
Transfers resulting from your participation in the DCA or Asset Rebalancing
programs do not count against your 15 free transfers per contract year.
13
All transfer request in excess of 15 transfers per contract year must be
submitted in writing by United States Postal Service first-class mail ("U.S.
Mail") until your next contract anniversary. Transfer requests sent by same day
mail, overnight mail or courier services will not be accepted. Transfer requests
required to be submitted by U.S. Mail can only be cancelled by a written request
sent by U.S. Mail. Transfers resulting from your participation in the DCA or
Asset Rebalancing programs are not included for the purposes of determining the
number of transfers for the U.S. Mail requirement.
We may accept transfers by telephone or the Internet unless you tell us not to
on your contract application. When receiving instructions over the telephone or
the Internet, we follow 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 instructions.
For information regarding transfers during the Income Phase, see INCOME OPTIONS
below.
We reserve the right to modify, suspend, waive or terminate these transfer
provisions at any time.
DOLLAR COST AVERAGING
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. 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.
14
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.
RETURN PLUS PROGRAM
The Return Plus Program, available if we are offering FAGPs, allows you to
invest in one or more of the Variable Portfolios without putting your principal
at direct risk. The program accomplishes this by allocating your investment
strategically between the fixed investment options (other than the DCA fixed
accounts) and the Variable Portfolio(s) you select. You decide how much you want
to invest and approximately when you want a return of principal. We calculate
how much of your Purchase Payment needs to be allocated to the particular fixed
investment option to ensure that it grows to an amount equal to your total
principal invested under this program.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to allocate a portion of your initial Purchase Payment
of $100,000 to the fixed investment option. You want the amount allocated
to the fixed investment option to grow to $100,000 in 7 years. If the
7-year fixed investment option is offering a 5% interest rate, we will
allocate $71,069 to the 7-year fixed investment option to ensure that this
amount will grow to $100,000 at the end of the 7-year period. The remaining
$28,931 may be allocated among the Variable Portfolios, as determined by
you, to provide opportunity for greater growth.
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.
15
SUBSTITUTION
We may amend your contract due to changes to the Variable Portfolios offered
under your contract. For example, we may offer new Variable Portfolios, delete
Variable Portfolios, or stop accepting allocations and/or investments in a
particular Variable Portfolio. We may move assets and re-direct future premium
allocations from one Variable Portfolio to another if we receive investor
approval through a proxy vote or SEC approval for a fund substitution. This
would occur if a Variable Portfolio is no longer an appropriate investment for
the contract, for reasons such as continuing substandard performance, or for
changes to the portfolio manager, investment objectives, risks and strategies,
or federal or state laws. The new Variable Portfolio offered may have different
fees and expenses. You will be notified of any upcoming proxies or substitutions
that affect your Variable Portfolio choices.
ACCESS TO YOUR MONEY
- --------------------------------------------------------------------------------
You can access money in your contract in two ways:
- by making a partial or total withdrawal, and/or;
- by receiving income payments during the Income Phase. SEE INCOME OPTIONS
BELOW.
Generally, we deduct a withdrawal charge applicable to any partial or total
withdrawal and a market value adjustment if a withdrawal comes from the 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.
Under most circumstances, 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. In the event that a pro rata partial withdrawal would cause the
value of any Variable Portfolio or fixed amount investment to be less than $500,
we will contact you to obtain alternate instructions on how to structure the
withdrawal.
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.
16
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.
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 representative.
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 $100. 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.
17
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.
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.
OPTIONAL LIVING BENEFITS
- --------------------------------------------------------------------------------
YOU MAY ELECT ONE OF THE OPTIONAL LIVING BENEFITS DESCRIBED BELOW. THESE
FEATURES ARE DESIGNED TO PROTECT A PORTION OF YOUR INVESTMENT IN THE EVENT YOUR
CONTRACT VALUE DECLINES DUE TO UNFAVORABLE INVESTMENT PERFORMANCE DURING THE
ACCUMULATION PHASE AND BEFORE A DEATH BENEFIT IS PAYABLE. PLEASE SEE THE
DESCRIPTIONS BELOW FOR DETAILED INFORMATION.
DIVERSIFIED STRATEGIES INCOME REWARDS FEATURE
What is Diversified Strategies Income Rewards?
Diversified Strategies Income Rewards is an optional feature available only on
contracts issued on or after May 3, 2004 and subject to state availability. If
you elect this feature, for which you will be charged an annualized fee, you are
guaranteed to receive withdrawals over a minimum number of years that in total
equals at least the initial Purchase Payment adjusted for withdrawals, even if
the contract value falls to zero. Diversified Strategies Income Rewards may
offer protection in the event your contract value declines due to unfavorable
investment performance.
How can I elect the feature?
You may elect the feature only at the time of contract issue and must choose
either Option 1 or Option 2. The date you elect the feature (which is also the
contract issue date) is your BENEFIT EFFECTIVE DATE. The earliest you may begin
taking withdrawals under the benefit after a specified waiting period is the
BENEFIT AVAILABILITY DATE. You cannot elect the feature if you are age 81 or
older on the Benefit Effective Date. Generally, once you elect the feature, it
cannot be canceled. The Diversified Strategies Income Rewards has rules and
restrictions that are discussed more fully below.
18
How is the benefit calculated?
There are several components that comprise the integral aspects of this benefit.
In order to determine the benefit's value at any point in time, we calculate
each of the components as described below. We calculate Eligible Purchase
Payments, Withdrawal Benefit Base, Step-Up Amount and Stepped-Up Benefit Base.
First, we determine the ELIGIBLE PURCHASE PAYMENTS according to the table below.
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------
TIME ELAPSED SINCE
BENEFIT EFFECTIVE DATE PERCENTAGE OF ELIGIBLE PURCHASE PAYMENTS
- -----------------------------------------------------------------------------------------------
0-90 Days 100%
- -----------------------------------------------------------------------------------------------
91 Days + 0%
- -----------------------------------------------------------------------------------------------
</Table>
Second, we determine the WITHDRAWAL BENEFIT BASE ("WBB"). The WBB is used to
calculate the amount of total guaranteed withdrawals and the annual maximum
withdrawal amount available under the benefit. On the Benefit Availability Date,
the WBB equals the sum of all Eligible Purchase Payments, reduced for any
withdrawals in the same proportion that the withdrawal reduced the contract
value on the date of the withdrawal.
Third, we determine a STEP UP AMOUNT which is calculated as a specified
percentage of the WBB on the Benefit Availability Date. The Step-Up Amount is
not considered a Purchase Payment and cannot be used in calculating any other
benefits, such as the death benefit, contract values or annuitization value.
Fourth, we determine the STEPPED-UP BENEFIT BASE ("SBB") which is the total
amount available for withdrawal under the benefit and is used to calculate the
minimum time period over which you may take withdrawals under the benefit. The
SBB equals the WBB plus the Step-Up Amount.
Fifth, we determine the MAXIMUM ANNUAL WITHDRAWAL AMOUNT ("MAWA") which is a
stated percentage of the WBB.
Finally, we determine the MINIMUM WITHDRAWAL PERIOD ("MWP") which is the minimum
period at any point in time over which you may take withdrawals under the
benefit. The MWP is calculated by dividing the SBB by the MAWA.
The table below is a summary of the two Diversified Strategies Income Rewards
options we are offering as applicable on the Benefit Availability Date:
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------
MWP
BENEFIT STEP-UP (IF MAWA TAKEN
AVAILABILITY DATE AMOUNT MAWA PERCENTAGE EACH YEAR)
- ---------------------------------------------------------------------------------------------------------
Option 1 3 years following 10% of WBB 10% of WBB 11 years
Benefit Effective
Date
- ---------------------------------------------------------------------------------------------------------
Option 2 5 Years following 20% of WBB 10% of WBB 12 years
Benefit Effective
Date
- ---------------------------------------------------------------------------------------------------------
</Table>
EXAMPLE 1:
Assume you elect Diversified Strategies Income Rewards option 2 and you
invest a single Purchase Payment of $100,000. If you make no additional
Purchase Payments and no withdrawals, your WBB is $100,000 on the Benefit
Availability Date. Your SBB equals WBB plus the Step-Up Amount ($100,000 +
(20% X $100,000) = $120,000). Your MAWA as of the Benefit Availability Date
is 10% of your WBB ($100,000 X 10% = $10,000). The MWP is equal to the SBB
divided by the MAWA which is 12 years ($120,000/$10,000). Therefore, you
may take $120,000 in withdrawals of up to $10,000 annually over a minimum
of 12 years on or after the Benefit Availability Date.
19
What is the fee for Diversified Strategies Income Rewards?
The annualized Diversified Strategies Income Rewards fee will be assessed and
deducted quarterly from your contract value, starting on the first quarter
following the Benefit Effective Date and ending upon the termination of the
benefit. If your contract value falls to zero before the benefit has been
terminated, the fee will no longer be assessed. We will not assess the quarterly
fee if you surrender or annuitize before the end of the quarter.
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------
TIME ELAPSED SINCE THE
BENEFIT EFFECTIVE DATE ANNUALIZED FEE
- -----------------------------------------------------------------------------------------------------
0-7 years 0.65% of WBB
- -----------------------------------------------------------------------------------------------------
8+ years 0.45% of WBB
- -----------------------------------------------------------------------------------------------------
</Table>
What is the effect of withdrawals on Diversified Strategies Income Rewards?
The benefit amount, MAWA and MWP may change over time as a result of withdrawal
activity. Withdrawals equal to or less than the MAWA generally reduce the
benefit by the amount of the withdrawal. Withdrawals in excess of the MAWA may
reduce the benefit based on the relative size of the withdrawal in relation to
the contract value at the time of the withdrawal. This means if investment
performance is down and contract value is depleted, withdrawals greater than the
MAWA will result in a greater reduction of the benefit. We further explain the
impact of withdrawals and the effect on each component of Diversified Strategies
Income Rewards through the calculations below:
CONTRACT VALUE: Any withdrawal reduces the contract value by the amount of
the withdrawal.
WBB: Withdrawals prior to the Benefit Availability Date reduce the WBB in
the same proportion that the contract value was reduced at the time of the
withdrawal.
Withdrawals after the Benefit Availability Date will not reduce the WBB
until the sum of withdrawals exceeds the Step-Up amount. Thereafter, any
withdrawal or portion thereof that exceeds the Step-Up Amount will reduce
the WBB as follows: If the withdrawal does not cause total withdrawals in
the Benefit Year to exceed the MAWA, the WBB will be reduced by the amount
of the withdrawal. If the withdrawal causes total withdrawals in the
Benefit Year to exceed the MAWA, the WBB is reduced to the lesser of (a) or
(b), where:
a. is the WBB immediately prior to the withdrawal minus the amount of
the withdrawal, or;
b. is the WBB immediately prior to the withdrawal minus the portion of
the withdrawal that makes total withdrawals in that Benefit Year
equal to the current MAWA, and further reduced proportionately by the
same amount by which the contract value is reduced by the remaining
portion of the withdrawal.
SBB: Since withdrawals prior to the Benefit Availability Date reduce the
WBB proportionately, the SBB will likewise be reduced proportionately
during that period of time.
After the Benefit Availability Date, any withdrawal that does not cause
total withdrawals in a Benefit Year to exceed the MAWA will reduce the SBB
by the amount of the withdrawal. After the Benefit Availability Date, any
withdrawal that causes total withdrawals in a Benefit Year to exceed the
MAWA (in that Benefit Year) reduces the SBB to the lesser of (a) or (b),
where:
a. is the SBB immediately prior to the withdrawal minus the amount of
the withdrawal, or;
b. is the SBB immediately prior to the withdrawal minus the amount of
the withdrawal that makes total withdrawals in that Benefit Year
equal to the current MAWA, and further reduced proportionately by the
same amount by which the contract value is reduced by the remaining
portion of the withdrawal.
MAWA: If the sum of withdrawals in a Benefit Year does not exceed the MAWA
for that Benefit Year, the MAWA does not change for the next Benefit Year.
If total withdrawals in a Benefit Year exceed the MAWA, the MAWA will be
recalculated at the start of the next Benefit Year. The new MAWA will equal
the SBB
20
on that Benefit Year anniversary divided by the MWP on that Benefit Year
Anniversary. The new MAWA may be lower than your previous MAWAs.
MWP: After each withdrawal a new MWP is calculated. If total withdrawals in
a Benefit Year are less than or equal to MAWA the new MWP equals the SBB
after the withdrawal divided by the current MAWA.
During any Benefit Year in which the sum of withdrawals exceeds the MAWA,
the new MWP equals the MWP calculated at the end of the prior Benefit Year
reduced by one year.
EXAMPLE 2 - IMPACT OF WITHDRAWALS PRIOR TO THE BENEFIT AVAILABILITY DATE:
Assume you elect Diversified Strategies Income Rewards option 2 and you
invest a single Purchase Payment of $100,000. You make a withdrawal of
$11,000 prior to the Benefit Availability Date. Prior to the withdrawal,
your contract value is $110,000. You make no other withdrawals before the
Benefit Availability Date. Immediately following the withdrawal, your WBB
is recalculated by first determining the proportion by which your contract
value was reduced by the withdrawal ($11,000/$110,000 = 10%). Next, we
reduce your WBB by the percentage by which the contract value was reduced
by the withdrawal ($100,000 -- (10% X 100,000) = $90,000). Your SBB on the
Benefit Availability Date is your WBB plus a Step-Up Amount calculated as
20% of your WBB (20% X $90,000 = $18,000). The SBB equals $108,000. Your
MAWA is 10% of the WBB on the Benefit Availability Date ($90,000). This
equals $9,000. Therefore, you may take withdrawals of up to $9,000 annually
over a minimum of 12 years ($108,000/$9,000 = 12).
EXAMPLE 3 - IMPACT OF WITHDRAWALS LESS THAN OR EQUAL TO MAWA AFTER THE
BENEFIT AVAILABILITY DATE:
Assume you elect Diversified Strategies Income Rewards option 2 and you
invest a single Purchase Payment of $100,000. You make a withdrawal of
$7,500 during the first year after the Benefit Availability Date. Because
the withdrawal is less than or equal to your MAWA ($10,000), your SBB
($120,000) is reduced by the total dollar amount of the withdrawal
($7,500). Your new SBB equals $112,500. Your MAWA remains $10,000. Your new
MWP following the withdrawal is equal to the new SBB divided by your
current MAWA, ($112,500/$10,000). Therefore, you may take withdrawals of up
to $10,000 over a minimum of 11 years and 3 months.
EXAMPLE 4 - IMPACT OF WITHDRAWALS IN EXCESS OF MAWA AFTER THE BENEFIT
AVAILABILITY DATE:
Assume you elect Diversified Strategies Income Rewards option 2 and you
invest a single Purchase Payment of $100,000. Your WBB is $100,000 and your
SBB is $120,000. You make a withdrawal of $15,000 during the first year
after the Benefit Availability Date. Your contract value is $125,000 at the
time of the withdrawal. Because the withdrawal is greater than your MAWA
($10,000), we recalculate your SBB ($120,000) by taking the lesser of two
calculations. For the first calculation, we deduct the amount of the
withdrawal from the SBB ($120,000 -- $15,000 = $105,000). For the second
calculation, we deduct the amount of the MAWA from the SBB
($120,000 -- $10,000 = $110,000). Next, we calculate the excess portion of
the withdrawal ($5,000) and determine the proportion by which the contract
value was reduced by the excess portion of the withdrawal. ($125,000/$5,000
= 4%). Finally we reduce $110,000 by that proportion (4%) which equals
$105,600. Your SBB is the lesser of these two calculations or $105,000. The
MWP following the withdrawal is equal to the MWP at the end of the prior
year (12 years) reduced by one year (11 years). Your MAWA is your SBB
divided by your MWP ($105,000/11) which equals $9,545.45.
What happens if my contract value is reduced to zero?
If the contract value is zero but the SBB is greater than zero, a benefit
remains payable under Diversified Strategies Income Rewards feature. While a
benefit is payable under Diversified Strategies Income Rewards until the SBB is
reduced to zero, the contract is terminated when the contract value equals zero.
At such time, except for Diversified Strategies Income Rewards, all benefits of
the contract are terminated. In that event, you may not
21
make subsequent Purchase Payments. Therefore, under adverse market conditions,
withdrawals under the benefit may reduce the contract value to zero, thereby
eliminating any death benefit or future income payments.
To receive your remaining Diversified Strategies Income Rewards benefit, you may
select one of the following options:
a. lump sum distribution of the present value of the total remaining
guaranteed withdrawals; or
b. the current MAWA, paid equally on a quarterly, semi-annual or annual
frequency as selected by you until the SBB equals zero; or
c. any payment option mutually agreeable between you and us.
If you do not select a payment option, the remaining benefit will be paid as the
current MAWA on a quarterly basis.
What happens to Diversified Strategies Income Rewards upon a spousal
continuation?
A spousal beneficiary of the original owner may elect to continue or cancel
Diversified Strategies Income Rewards and its accompanying fee. The Benefit
Effective Date, Benefit Availability Date, WBB, SBB and any other corresponding
component of the feature will not change as a result of a spousal continuation.
A Continuation Contribution is not considered an Eligible Purchase Payment for
purposes of determining the benefit. See SPOUSAL CONTINUATION below.
Can my non-spousal beneficiary elect to receive any remaining withdrawals under
Diversified Strategies Income Rewards upon my death?
If the SBB is greater than zero when the original owner dies, a non-spousal
beneficiary may elect to continue receiving any remaining withdrawals under the
benefit. The Benefit Effective Date, Benefit Availability Date, WBB, SBB and any
other corresponding component of the feature will not change. If a contract
value remains, the fee for the benefit will continue to be assessed. Electing to
receive the remaining withdrawals will terminate any death benefit payable to
the non-spousal beneficiary.
Can Diversified Strategies Income Rewards be canceled?
Once you elect the feature, you may not cancel it. The feature automatically
terminates upon the occurrence of one of the following:
1. Withdrawals in excess of MAWA in any Benefit Year reduce the SBB by 50%
or more; or
2. SBB is equal to zero; or
3. Annuitization of the contract; or
4. Full Surrender of the contract; or
5. Death benefit is paid; or
6. Upon a spousal continuation, the Continuing Spouse elects not to
continue the contract with the feature.
Important Information
The Diversified Strategies Income Rewards may not guarantee an income stream
based on all Purchase Payments made into your contract nor does it guarantee any
investment gains. This feature also does not guarantee lifetime income payments.
If you plan to make subsequent Purchase Payments over the life of your contract,
which are not considered Eligible Purchase Payments under the feature,
Diversified Strategies Income Rewards does not guarantee a withdrawal of a
majority of those payments. You may never need to rely on Diversified Strategies
Income Rewards if your contract performs within a historically anticipated
range. However, past performance is no guarantee of future results.
22
Withdrawals under the benefit are treated like any other withdrawal for the
purpose of reducing the contract value, free withdrawal amounts and any other
benefits under the contract.
If you need to or are required to take minimum required distributions ("MRD")
under the Internal Revenue Code ("IRC") from this contract prior to the Benefit
Availability Date, you should know that withdrawals may negatively impact the
value of Diversified Strategies Income Rewards. Any withdrawals taken under this
benefit or under the contract, may be subject to a 10% IRS tax penalty if you
are under age 59 1/2 at the time of the withdrawal. For information about how
the benefit is treated for income tax purposes, you should consult a qualified
tax advisor concerning your particular circumstances.
The Diversified Strategies Income Rewards cannot be elected if you elect the
Capital Protector or Income Protector feature. We reserve the right to limit the
maximum WBB to $1 million.
Diversified Strategies Income Rewards may not be available in your state or
through the broker-dealer with which your financial representative is
affiliated. Please check with your financial representative.
For prospectively issued contracts, we reserve the right to limit the investment
options available under the contract if you elect Diversified Strategies Income
Rewards. We reserve the right to modify, suspend or terminate Diversified
Strategies Income Rewards (in its entirety or any component) at any time for
prospectively issued contracts.
CAPITAL PROTECTOR FEATURE
What is Capital Protector?
The Capital Protector is an optional feature of your variable annuity. If you
elect this feature, for which you will be charged an annualized fee, at the end
of applicable waiting period your contract will be worth at least the amount of
your initial Purchase Payment (less adjustments for withdrawals). The Capital
Protector may offer protection in the event that your contract value declines
due to unfavorable investment performance in your contract.
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.
How can I elect 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 Diversified Strategies Income Rewards or
Income Protector. SEE DIVERSIFIED STRATEGIES INCOME REWARDS ABOVE AND INCOME
PROTECTOR BELOW.
The Capital Protector feature may not be available in your state or through the
broker-dealer with which your financial representative is affiliated. Please
check with your financial representative for availability.
Can Capital Protector be cancelled?
Generally, this feature and its corresponding charge cannot be cancelled or
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.
How is the benefit calculated?
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
23
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 benefit calculation is equal to your Capital Protector
Base, as defined below, minus your Contract Value on the benefit date. If the
resulting amount is positive, you will receive a benefit under the feature. If
the resulting amount is negative, you will not receive a benefit. Your Capital
Protector Base is equal to (a) minus (b) where:
(a) is the Purchase Payments received on or after the effective date
multiplied by the applicable percentages in the table above, and;
(b) is an adjustment for all withdrawals and applicable fees and charges
made subsequent to the effective date, in an amount proportionate to
the amount by which the withdrawal decreased the contract value at the
time of the withdrawal.
We will allocate any benefit amount contributed to the contract value on the
benefit date to the Cash Management portfolio. Any Capital Protector benefit
paid is not considered a Purchase Payment for purposes of calculating other
benefits. Benefits based on earnings, such as 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.
What is the fee for Capital Protector?
Capital Protector is an optional feature. If elected, you will incur an
additional charge for this feature. The annualized charge will be deducted from
your contract value on a quarterly basis throughout the waiting period,
beginning at the end of the first contract quarter following the effective date
of the feature and up to and including on the benefit date. Once the feature is
terminated, as discussed above, the charge will no longer be deducted. We will
also not assess the quarterly fee if you surrender or annuitize before the end
of the quarter.
<Table>
<Caption>
CONTRACT YEAR ANNUALIZED FEE*
- ------------- ---------------
0-7 0.50%
8-10 0.25%
11+ none
</Table>
* As a percentage of your contract value minus Purchase Payments received after
the 90th day since the purchase of your contract. The amount of this charge is
subject to change at any time for prospectively issued contracts.
What Happens to Capital Protector upon a Spousal Continuation?
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.
Important Information
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.
24
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 representative as such activity may reduce the value of this
Capital Protector benefit.
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.
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 representative 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.
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;
25
(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.
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.
26
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>
* If you elect the feature on a subsequent anniversary the fee may be different.
We deduct the annual fee from your actual Contract Value. We begin deducting the
annual fee on your first contract anniversary. We will not assess the annual fee
if you surrender or annuitize before the next contract anniversary.
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 Diversified Strategies Income Rewards or
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 representative for availability in your state.
We reserve the right to modify, suspend or terminate the Income Protector
Program at any time.
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.
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.
27
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 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.
EXTENDED LEGACY PROGRAM AND BENEFICIARY CONTINUATION OPTIONS
The Extended Legacy program can allow a Beneficiary to take the death benefit
amount in the form of income payments over a longer period of time with the
flexibility to withdraw more than the IRS required minimum distribution if they
wish. The contract continues in the original owner's name for the benefit of the
Beneficiary. Generally, IRS required minimum distributions must be made at least
annually over a period not to exceed the Beneficiary's life expectancy as
determined in the calendar year after your death. Under the Extended Legacy
program, a Beneficiary may withdraw all or a portion of the contract value at
any time, name their own beneficiary to receive any remaining unpaid interest in
the contract in the event of their death and make transfers among investment
options. If the contract value is less than the death benefit amount as of the
date we receive satisfactory proof of death and all required paperwork, we will
increase the contract value by the amount which the death benefit exceeds
contract value. Participation in the program may impact certain features of the
contract as detailed in the Death Claim Form. Please see your financial
representative for additional information.
Alternatively to the Extended Legacy program, the Beneficiary may also elect to
receive the death benefit under a 5-year option. The Beneficiary may take
withdrawals as desired, but the entire contract value must be distributed by the
fifth anniversary of your death for Non-qualified contracts or by December 31st
of the year containing the fifth anniversary of your death for IRAs. For IRAs,
the five-year option is not available if the date of death is after the required
beginning date for distributions (April 1 of the year following the year the
owner reaches the age of 70 1/2).
For information regarding how these payments are treated for tax purposes,
consult your tax advisor regarding tax implications and your particular
circumstances.
DEFINED TERMS
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.
28
The term "withdrawals" as used in describing the death benefit option below is
defined as withdrawals and the fees and charges applicable to those withdrawals.
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 representative regarding
availability.
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.
29
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.
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
30
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 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.
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>
31
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 AIG 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 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
The annualized fee for the optional Estate Rewards feature, an enhanced death
benefit, is 0.15%. On a daily basis we deduct this charge from the average daily
ending value of the assets you have allocated to the Variable Portfolios.
We charge 0.25% for the Earnings Advantage feature. On a daily basis we deduct
this charge from the average daily ending value of the assets you have allocated
to the Variable Portfolios.
32
OPTIONAL INCOME PROTECTOR FEE
The Income Protector feature fee is as follows:
<Table>
Annual Fee as a % of Your Income Benefit Base............... 0.10%
</Table>
The fee is deducted annually from your contract value. The Income Benefit Base
is generally calculated by using your contract value on the date of your
effective enrollment in the program and then each subsequent contract
anniversary, adding Purchase Payments made since the prior contract anniversary,
less proportional withdrawals, and fees and charges applicable to those
withdrawals.
OPTIONAL CAPITAL PROTECTOR FEE
The fee for the Capital Protector feature is as follows:
<Table>
<Caption>
CONTRACT YEAR ANNUALIZED FEE
- ------------- --------------
0-7......................................................... 0.50%
8-10........................................................ 0.25%
11+......................................................... none
</Table>
The fee is calculated as a percentage of your contract value minus Purchase
Payments received after the 90th day since you purchased your contract. The fee
is deducted at the end of the first contract quarter and quarterly thereafter
from your contract value.
OPTIONAL DIVERSIFIED STRATEGIES INCOME REWARDS FEE
The annualized Diversified Strategies Income Rewards fee is calculated as a
percentage of your Withdrawal Benefit Base. The fee will be assessed and
deducted quarterly from your contract value, starting on the first quarter
following the Benefit Effective Date and ending upon the termination of the
benefit. If your contract falls to zero before the benefit has been terminated,
the fee will no longer be assessed.
<Table>
<Caption>
TIME ELAPSED SINCE BENEFIT EFFECTIVE DATE ANNUALIZED FEE
- ----------------------------------------- --------------
0-7 years................................................... 0.65%
8+ years.................................................... 0.45%
</Table>
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.
33
AIG SunAmerica Life may make such a determination regarding sales to its
employees, it affiliates' employees and employees of currently contracted
broker-dealers; its registered representatives and immediate family members of
all of those described.
We reserve the right to change or modify any such determination or the treatment
applied to a particular group, at any time.
INCOME OPTIONS
- --------------------------------------------------------------------------------
ANNUITY DATE
During the Income Phase, 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.
34
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 above 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.
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.
35
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.
TAXES
- --------------------------------------------------------------------------------
NOTE: THE BASIC SUMMARY BELOW ADDRESSES BROAD FEDERAL TAXATION MATTERS, AND
GENERALLY DOES NOT ADDRESS STATE TAXATION ISSUES OR QUESTIONS. IT IS NOT TAX
ADVICE. WE CAUTION YOU TO SEEK COMPETENT TAX ADVICE ABOUT YOUR OWN
CIRCUMSTANCES. WE DO NOT GUARANTEE THE TAX STATUS OF YOUR ANNUITY. TAX LAWS
CONSTANTLY CHANGE; THEREFORE, WE CANNOT GUARANTEE THAT THE INFORMATION CONTAINED
HEREIN IS COMPLETE AND/OR ACCURATE. WE HAVE INCLUDED AN ADDITIONAL DISCUSSION
REGARDING TAXES IN THE SAI.
ANNUITY CONTRACTS IN GENERAL
The Internal Revenue Code ("IRC") provides for special rules regarding the tax
treatment of annuity contracts. Generally, taxes on the earnings in your annuity
contract are deferred until you take the money out. Qualified retirement
investments that satisfy specific tax and ERISA requirements automatically
provide tax deferral regardless of whether the underlying contract is an
annuity, a trust, or a custodial account. Different rules apply depending on how
you take the money out and whether your contract is Qualified or Non-Qualified.
If you do not purchase your contract under a pension plan, a specially sponsored
employer program or an individual retirement account, your contract is referred
to as a Non-Qualified contract. A Non-Qualified contract receives different tax
treatment than a Qualified contract. In general, your cost 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 or arrangements
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, for employer plans and tax-deductible
IRA contributions, 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
36
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 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 financial
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 separate from service from the employer sponsoring the plan. If you
own an IRA, you must begin taking distributions when you attain age 70 1/2
regardless of when you separate from service from the employer sponsoring the
plan. 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.
37
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 issued new regulations, effective January 1, 2003, regarding required
minimum distributions from qualified annuity contracts. One of the regulations
requires that the annuity contract value used to determine required minimum
distributions include the actuarial value of other benefits under the contract,
such as optional death benefits. This regulation does not apply to required
minimum distributions made under an irrevocable annuity income option. We are
currently awaiting further clarification from the IRS on this regulation,
including how the value of such benefits is determined. You should discuss the
effect of these new regulations with your tax advisor.
TAX TREATMENT OF DEATH BENEFITS
Any death benefits paid under the contract are taxable to the Beneficiary. The
rules governing the taxation of payments from an annuity contract, as discussed
above, generally apply whether the death benefits are paid as lump sum or
annuity payments. Estate taxes may also apply.
Certain enhanced death benefits may be purchased under your contract. Although
these types of benefits are used as investment protection and should not give
rise to any adverse tax effects, the IRS could take the position that some or
all of the charges for these death benefits should be treated as a partial
withdrawal from the contract. In that 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.
38
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 the 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. 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
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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").
OTHER INFORMATION
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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.
39
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 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.
PAYMENTS IN CONNECTION WITH DISTRIBUTION OF THE CONTRACT
PAYMENTS TO BROKER-DEALERS
Registered representatives of broker-dealers sell the contract. We pay
commissions to the broker-dealers for the sale of your contract ("Contract
Commissions"). There are different structures by which a broker-dealer can
choose to have their Contract Commissions paid. For example, as one option, we
may pay upfront Contract Commission, only, that may be up to a maximum 8% of
each Purchase Payment you invest (which may include promotional amounts).
Another option may be a lower upfront Contract Commission on each Purchase
Payment, with a trail commission of up to a maximum 0.25% of contract value,
annually. We pay Contract Commissions directly to the broker-dealer with whom
your registered representative is affiliated. Registered representatives may
receive a portion of these amounts we pay in accordance with any agreement in
place between the registered representative and his/her broker-dealer firm.
We (or our affiliates) may pay broker-dealers or permitted third parties cash or
non-cash compensation, including reimbursement of expenses incurred in
connection with the sale of these contracts. These payments may be intended to
reimburse for specific expenses incurred or may be based on sales, certain
assets under management or longevity of assets invested with us. For example, we
may pay additional amounts in connection with contracts that remain invested
with us for a particular period of time. We enter into such arrangements in our
discretion and we may negotiate customized arrangements with firms, including
affiliated and non-affiliated broker-dealers based on various factors.
Promotional incentives may change at any time.
We do not deduct these amounts directly from your Purchase Payments. We
anticipate recovering these amounts from the fees and charges collected under
the contract. Certain compensation payments may increase our cost of doing
business in a particular firm and may result in higher contractual fees and
charges if you purchase your contract through such a firm. See EXPENSES, above.
WM Funds Distributor, 1201 Third Avenue, 22nd Floor, Seattle, Washington 98101,
distributes the contracts, WM Funds Distributor is registered as a broker-dealer
under the Exchange Act of 1934 and a member of the
40
National Association of Securities Dealers., Inc. No underwriting fees are paid
in connection with the distribution of the contracts.
PAYMENTS WE RECEIVE
In addition to amounts received pursuant to established 12b-1 Plans, we may
receive compensation of up to 0.45% from the investment advisers, subadvisers or
their affiliates of certain of the underlying Trusts and/or portfolios for
services related to the availability of the underlying portfolios in the
contract. Furthermore, certain advisers and/or subadvisers may offset the costs
we incur for training to support sales of the underlying funds in the contract.
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.
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
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The audited consolidated financial statements of AIG SunAmerica Life Assurance
Company (formerly, Anchor National Life Insurance Company) at December 31, 2003
and 2002, and for each of the three years in the period ended December 31, 2003,
and the audited financial statements of Variable Separate Account at December
31, 2003, and for each of the two years in the period ended December 31, 2003
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.
41
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
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<Table>
Separate Account............................................ 2
General Account............................................. 2
Performance Data............................................ 3
Income Payments............................................. 6
Annuity Unit Values......................................... 6
Variable Annuity Payments................................... 8
Taxes....................................................... 19
Distribution of Contracts................................... 14
Financial Statements........................................ 14
</Table>
42
APPENDIX A - MARKET VALUE ADJUSTMENT
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The information in this Appendix applies only if you take money out of a FAGP
with a duration longer than 1 year before the end of the guarantee period.
We calculate the MVA by doing a comparison between current rates and the rate
being credited to you in the FAGP. For the current rate we use a rate being
offered by us for a guarantee period that is equal to the time remaining in the
FAGP from which you seek withdrawal (rounded up to a full number of years). If
we are not currently offering a guarantee period for that period of time, we
determine an applicable rate by using a formula to arrive at a number based on
the interest rates currently offered for the two closest periods available.
Where the MVA is negative, we first deduct the adjustment from any money
remaining in the FAGP. If there is not enough money in the FAGP to meet the
negative deduction, we deduct the remainder from your withdrawal. Where the MVA
is positive, we add the adjustment to your withdrawal amount. If a withdrawal
charge applies, it is deducted before the MVA calculation. The MVA is assessed
on the amount withdrawn less any withdrawal charges.
The MVA is computed by multiplying the amount withdrawn, transferred or taken
under an income option by the following factor:
[(1+I/(1+J+L)](N/12) - 1
where:
I is the interest rate you are earning on the money invested in
the FAGP;
J is the interest rate then currently available for the period of
time equal to the number of years remaining in the term you initially agreed to
leave your money in the FAGP;
N is the number of full months remaining in the term you initially
agreed to leave your money in the FAGP; and
L is 0.005 (some states require a different value; 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
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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
- --------------------------------------------------------------------------------
WM DIVERSIFIED STRATEGIES -- CONDENSED FINANCIAL INFORMATION
<Table>
<Caption>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
ANCHOR SERIES TRUST: 12/31/01 12/31/02 12/31/03
- ------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Portfolio (Inception
Date -- 07/09/01)
Beginning AUV.................................... (a) $35.378 (a) $33.835 (a) $25.756
(b) $35.378 (b) $33.791 (b) $25.621
Ending AUV....................................... (a) $33.835 (a) $25.756 (a) $33.541
(b) $33.791 (b) $25.621 (b) $33.232
Ending Number of AUs............................. (a) 4,781 (a) 22,572 (a) 40,276
(b) 3,896 (b) 15,556 (b) 19,710
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
SUNAMERICA SERIES TRUST: 12/31/01 12/31/02 12/31/03
- ------------------------------------------------------------------------------------------------------------------------------
Alliance Growth Portfolio (Inception Date -- 07/09/01)
Beginning AUV.................................... (a) $32.786 (a) $32.676 (a) $22.108
(b) $32.786 (b) $32.649 (b) $22.000
Ending AUV....................................... (a) $32.676 (a) $22.108 (a) $27.387
(b) $32.649 (b) $22.000 (b) $27.144
Ending Number of AUs............................. (a) 735 (a) 7,147 (a) 12,587
(b) 1,409 (b) 8,861 (b) 11,951
- ------------------------------------------------------------------------------------------------------------------------------
Davis Venture Value Portfolio (Inception
Date -- 07/09/01)
Beginning AUV.................................... (a) $27.129 (a) $26.286 (a) $21.550
(b) $27.129 (b) $26.197 (b) $21.391
Ending AUV....................................... (a) $26.286 (a) $21.550 (a) $28.246
(b) $26.197 (b) $21.391 (b) $27.926
Ending Number of AUs............................. (a) 2,529 (a) 28,675 (a) 35,223
(b) 2,600 (b) 10,380 (b) 10,169
- ------------------------------------------------------------------------------------------------------------------------------
Global Equities Portfolio (Inception Date -- 07/09/01)
Beginning AUV.................................... (a) $17.986 (a) $17.516 (a) $12.616
(b) $17.986 (b) $17.542 (b) $12.577
Ending AUV....................................... (a) $17.516 (a) $12.616 (a) $15.714
(b) $17.542 (b) $12.577 (b) $15.604
Ending Number of AUs............................. (a) 1,341 (a) 9,707 (a) 12,854
(b) 19 (b) 3,172 (b) 5,787
- ------------------------------------------------------------------------------------------------------------------------------
MFS Mid Cap Growth Portfolio (Inception
Date -- 07/09/01)
Beginning AUV.................................... (a) $15.227 (a) $13.438 (a) $6.992
(b) $15.227 (b) $13.422 (b) $6.953
Ending AUV....................................... (a) $13.438 (a) $6.992 (a) $9.449
(b) $13.422 (b) $6.953 (b) $9.358
Ending Number of AUs............................. (a) 7,564 (a) 38,564 (a) 57,960
(b) 4,846 (b) 48,552 (b) 60,126
- ------------------------------------------------------------------------------------------------------------------------------
Technology Portfolio (Inception Date -- 07/09/01)
Beginning AUV.................................... (a) $4.018 (a) $3.453 (a) $1.720
(b) $4.018 (b) $3.459 (b) $1.718
Ending AUV....................................... (a) $3.453 (a) $1.720 (a) $2.554
(b) $3.459 (b) $1.718 (b) $2.541
Ending Number of AUs............................. (a) 19,075 (a) 72,091 (a) 72,512
(b) 1,501 (b) 20,382 (b) 62,519
- ------------------------------------------------------------------------------------------------------------------------------
AUV -- Accumulation Unit Value
AU -- Accumulation Units
(a) Reflects AUV/AU without election of Earnings Advantage
(b) Reflects AUV/AU with election of Earnings Advantage
</Table>
<Table>
AUV -- Accumulation Unit Value
AU -- Accumulation Units
(a) Reflects AUV/AU without election of Earnings Advantage
(b) Reflects AUV/AU with election of Earnings Advantage
</Table>
C-1
<Table>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
WM VARIABLE TRUST: 12/31/01 12/31/02 12/31/03
- ------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio (Inception Date -- 07/09/01)
Beginning AUV.................................... (a) $7.576 (a) $7.544 (a) $6.786
(b) $7.576 (b) $7.531 (b) $6.748
Ending AUV....................................... (a) $7.544 (a) $6.786 (a) $8.214
(b) $7.531 (b) $6.748 (b) $8.135
Ending Number of AUs............................. (a) 393,878 (a) 3,452,275 (a) 6,791,743
(b) 425,063 (b) 1,966,925 (b) 2,836,346
- ------------------------------------------------------------------------------------------------------------------------------
Conservative Balanced Portfolio (Inception
Date -- 07/09/01)
Beginning AUV.................................... (a) $5.514 (a) $5.543 (a) $5.343
(b) $5.514 (b) $5.539 (b) $5.318
Ending AUV....................................... (a) $5.543 (a) $5.343 (a) $6.169
(b) $5.539 (b) $5.318 (b) $6.116
Ending Number of AUs............................. (a) 99,398 (a) 578,767 (a) 1,109,847
(b) 23,679 (b) 212,458 (b) 329,852
- ------------------------------------------------------------------------------------------------------------------------------
Conservative Growth Portfolio (Inception
Date -- 07/09/01)
Beginning AUV.................................... (a) $8.163 (a) $7.966 (a) $6.637
(b) $8.163 (b) $7.957 (b) $6.604
Ending AUV....................................... (a) $7.966 (a) $6.637 (a) $8.426
(b) $7.957 (b) $6.604 (b) $8.350
Ending Number of AUs............................. (a) 217,903 (a) 1,574,812 (a) 3,102,160
(b) 180,433 (b) 1,071,253 (b) 1,210,955
- ------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund (Inception Date -- 07/09/01)
Beginning AUV.................................... (a) $6.289 (a) $6.393 (a) $5.516
(b) $6.289 (b) $6.381 (b) $5.484
Ending AUV....................................... (a) $6.393 (a) $5.516 (a) $7.077
(b) $6.381 (b) $5.484 (b) $7.008
Ending Number of AUs............................. (a) 109,250 (a) 1,067,980 (a) 1,611,820
(b) 58,313 (b) 380,505 (b) 434,430
- ------------------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio (Inception Date -- 07/09/01)
Beginning AUV.................................... (a) $6.404 (a) $6.530 (a) $6.578
(b) $6.404 (b) $6.513 (b) $6.534
Ending AUV....................................... (a) $6.530 (a) $6.578 (a) $7.349
(b) $6.513 (b) $6.534 (b) $7.271
Ending Number of AUs............................. (a) 186,817 (a) 1,143,068 (a) 2,262,614
(b) 121,877 (b) 494,722 (b) 808,158
- ------------------------------------------------------------------------------------------------------------------------------
Growth & Income Fund (Inception Date -- 07/09/01)
Beginning AUV.................................... (a) $6.374 (a) $6.044 (a) $4.699
(b) $6.374 (b) $6.035 (b) $4.674
Ending AUV....................................... (a) $6.044 (a) $4.699 (a) $5.876
(b) $6.035 (b) $4.674 (b) $5.821
Ending Number of AUs............................. (a) 83,275 (a) 357,413 (a) 574,264
(b) 57,082 (b) 188,611 (b) 222,245
- ------------------------------------------------------------------------------------------------------------------------------
Growth Fund (Inception Date -- 07/09/01)
Beginning AUV.................................... (a) $8.096 (a) $7.147 (a) $4.862
(b) $8.096 (b) $7.131 (b) $4.832
Ending AUV....................................... (a) $7.147 (a) $4.862 (a) $6.194
(b) $7.131 (b) $4.832 (b) $6.131
Ending Number of AUs............................. (a) 27,301 (a) 119,082 (a) 150,222
(b) 5,665 (b) 38,297 (b) 39,588
- ------------------------------------------------------------------------------------------------------------------------------
Income Fund (Inception Date -- 07/09/01)
Beginning AUV.................................... (a) $5.506 (a) $5.725 (a) $6.189
(b) $5.506 (b) $5.714 (b) $6.152
Ending AUV....................................... (a) $5.725 (a) $6.189 (a) $6.700
(b) $5.714 (b) $6.152 (b) $6.634
Ending Number of AUs............................. (a) 72,090 (a) 508,450 (a) 1,063,870
(b) 46,356 (b) 224,362 (b) 219,572
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
AUV -- Accumulation Unit Value
AU -- Accumulation Units
(a) Reflects AUV/AU without election of Earnings Advantage
(b) Reflects AUV/AU with election of Earnings Advantage
</Table>
C-2
<Table>
<Caption>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
WM VARIABLE TRUST: 12/31/01 12/31/02 12/31/03
- ------------------------------------------------------------------------------------------------------------------------------
International Growth Fund (Inception Date -- 07/09/01)
Beginning AUV.................................... (a) $4.693 (a) $4.550 (a) $3.782
(b) $4.693 (b) $4.569 (b) $3.784
Ending AUV....................................... (a) $4.550 (a) $3.782 (a) $5.053
(b) $4.569 (b) $3.784 (b) $5.036
Ending Number of AUs............................. (a) 909 (a) 10,524 (a) 19,405
(b) 175 (b) 9,073 (b) 9,051
- ------------------------------------------------------------------------------------------------------------------------------
Mid Cap Stock Fund (Inception Date -- 07/09/01)
Beginning AUV.................................... (a) $6.488 (a) $6.675 (a) $5.901
(b) $6.488 (b) $6.668 (b) $5.872
Ending AUV....................................... (a) $6.675 (a) $5.901 (a) $7.433
(b) $6.668 (b) $5.872 (b) $7.366
Ending Number of AUs............................. (a) 27,209 (a) 142,437 (a) 283,314
(b) 22,411 (b) 79,108 (b) 86,000
- ------------------------------------------------------------------------------------------------------------------------------
Money Market Fund (Inception Date -- 07/09/01)
Beginning AUV.................................... (a) $5.756 (a) $5.795 (a) $5.794
(b) $5.756 (b) $5.764 (b) $5.739
Ending AUV....................................... (a) $5.795 (a) $5.794 (a) $5.751
(b) $5.764 (b) $5.739 (b) $5.673
Ending Number of AUs............................. (a) 46,507 (a) 569,371 (a) 559,449
(b) 10,619 (b) 49,257 (b) 101,736
- ------------------------------------------------------------------------------------------------------------------------------
Short Term Income Fund (Inception Date -- 07/09/01)
Beginning AUV.................................... (a) $5.728 (a) $5.909 (a) $6.192
(b) $5.728 (b) $5.895 (b) $6.153
Ending AUV....................................... (a) $5.909 (a) $6.192 (a) $6.444
(b) $5.895 (b) $6.153 (b) $6.377
Ending Number of AUs............................. (a) 4,605 (a) 170,505 (a) 490,699
(b) 11,940 (b) 125,668 (b) 122,207
- ------------------------------------------------------------------------------------------------------------------------------
Small Cap Growth Fund (Inception Date -- 07/09/01)
Beginning AUV.................................... (a) $8.272 (a) $7.425 (a) $3.870
(b) $8.272 (b) $7.422 (b) $3.853
Ending AUV....................................... (a) $7.425 (a) $3.870 (a) $6.542
(b) $7.422 (b) $3.853 (b) $6.487
Ending Number of AUs............................. (a) 14,716 (a) 85,682 (a) 155,493
(b) 3,471 (b) 32,891 (b) 69,505
- ------------------------------------------------------------------------------------------------------------------------------
Strategic Growth Portfolio (Inception Date -- 07/09/01)
Beginning AUV.................................... (a) $9.190 (a) $8.800 (a) $6.898
(b) $9.190 (b) $8.800 (b) $6.870
Ending AUV....................................... (a) $8.800 (a) $6.898 (a) $9.052
(b) $8.800 (b) $6.870 (b) $8.979
Ending Number of AUs............................. (a) 43,009 (a) 294,264 (a) 650,628
(b) 27,642 (b) 129,261 (b) 181,458
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund (Inception
Date -- 07/09/01)
Beginning AUV.................................... (a) $5.671 (a) $5.847 (a) $6.278
(b) $5.671 (b) $5.843 (b) $6.248
Ending AUV....................................... (a) $5.847 (a) $6.278 (a) $6.323
(b) $5.843 (b) $6.248 (b) $6.268
Ending Number of AUs............................. (a) 123,734 (a) 1,428,375 (a) 2,361,580
(b) 74,564 (b) 446,911 (b) 415,138
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
AUV -- Accumulation Unit Value
AU -- Accumulation Units
(a) Reflects AUV/AU without election of Earnings Advantage
(b) Reflects AUV/AU with election of Earnings Advantage
</Table>
C-3
<Table>
<Caption>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
WM VARIABLE TRUST: 12/31/01 12/31/02 12/31/03
- ------------------------------------------------------------------------------------------------------------------------------
West Coast Equity Fund (Inception Date -- 07/09/01)
Beginning AUV.................................... (a) $9.446 (a) $8.858 (a) $6.766
(b) $9.446 (b) $8.844 (b) $6.728
Ending AUV....................................... (a) $8.858 (a) $6.766 (a) $9.564
(b) $8.844 (b) $6.728 (b) $9.472
Ending Number of AUs............................. (a) 29,204 (a) 465,406 (a) 749,108
(b) 36,362 (b) 177,710 (b) 199,919
- ------------------------------------------------------------------------------------------------------------------------------
WM REIT Portfolio Inception Date -- 10/01/03
Beginning AUV.................................... (a) $10.590
(b) $10.540
Ending AUV....................................... (a) $11.434
(b) $11.462
Ending Number of AUs............................. (a) 13
(b) 13
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
AUV -- Accumulation Unit Value
AU -- Accumulation Units
(a) Reflects AUV/AU without election of Earnings Advantage
(b) Reflects AUV/AU with election of Earnings Advantage
</Table>
C-4
APPENDIX D
- --------------------------------------------------------------------------------
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.
D-1
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
PART II
-------
Information Not Required in Prospectus
Item 14. Other Expenses of Issuance and Distribution.
-------------------------------------------
The following table sets forth the expenses in connection with the issuance
and distribution of the securities being registered, other than underwriting
discounts and commissions. All of the amounts shown are estimates, except the
SEC registration fee.
<Table>
SEC registration fee ................................. $ 24,338.10
Printing and engraving ............................... $ 50,000
Legal fees and expenses .............................. $ 10,000
Rating agency fees ................................... $ 7,500
Miscellaneous ........................................ $ 10,000
-------
Total ............................................ $101,838.10
</Table>
Item 15. Indemnification of Directors and Officers.
------------------------------------------
Section 10-851 of the Arizona Corporations and Associations law permits the
indemnification of directors, officers, employees and agents of Arizona
corporations. Article Eight of the Company's Restated Articles of Incorporation,
as amended and restated (the "Articles") and Article Five of the Company's
By-Laws ("By-Laws") authorize the indemnification of directors and officers to
the full extent required or permitted by the Laws of the State of Arizona, now
or hereafter in force, whether such persons are serving the Company, or, at its
request, any other entity, which indemnification shall include the advance of
expenses under the procedures and to the full extent permitted by law. In
addition, the Company's officers and directors are covered by certain directors'
and officers' liability insurance policies maintained by the Company's parent.
Reference is made to section 10-851 of the Arizona Corporations and Associations
Law, Article Eight of the Articles, and Article Five of the By-Laws, which are
incorporated herein by reference.
Item 16. Exhibits and Financial Statement Schedules.
-------------------------------------------
Exhibit No. Description
(1) Form of Underwriting Agreement***
(2) Plan of Acquisition, Reorganization,
Arrangement, Liquidation or Succession**
(3) (a) Amendment to Articles of Incorporation Dated
September 30, 2002+++
(b) Amended and Restated Articles of
Incorporation Dated December 19, 2001++
(c) Amended and Restated By-Laws+
(4) (a) Fixed and Variable Contract***
(d) Deferred Annuity Application***
(5) Opinion of Counsel re: Legality***
(6) Opinion re Discount on Capital Shares**
(7) Opinion re Liquidation Preference**
(8) Opinion re Tax Matters**
(9) Voting Trust Agreement**
(10) Material Contracts**
(11) Statement re Computation of Per Share
Earnings**
(12) Statement re Computation of Ratios**
(14) Material Foreign Patents**
(15) Letter re Unaudited Financial Information**
(16) Letter re Change in Certifying Accountant**
(23) (a) Consent of Independent Accountants*
(b) Consent of Attorney***
(24) (a) Power of Attorney*****
(b) Power of Attorney October 2003*
(25) Statement of Eligibility of Trustee**
(26) Invitation of Competitive Bids**
(27) Financial Data Schedule****
(28) Information Reports Furnished to State
Insurance Regulatory Authority**
(29) Other Exhibits**
------------------------------
* Filed Herewith
** Not Applicable
*** Incorporated by reference to
Post-Effective Amendment No. 3
to File No. 033-81476, filed
December 24, 1997, Accession
No. 0000950148-97-003107.
**** Incorporated by reference to
Post-Effective Amendment No. 5
to File No. 033-81476, filed
December 24, 1998, Accession
No. 0000950148-98-002782.
***** Incorporated by reference to Post-
Effective Amendment No. 9 to File
No. 033-81476, filed
December 19, 2000, Accession
No. 0000950148-00-002508.
+ Incorporated by reference to Post-
Effective Amendment No. 9 to File
No. 033-87864, filed April 10, 2001,
Accession No. 0000950148-01-500320.
++ Incorporated by reference to Post-
Effective Amendment No. 15 to File
No. 033-81476, filed April 15, 2002,
Accession No. 0000950148-02-001014.
+++ Incorporated by reference to
Post-Effective Amendment No. 17 to
File No. 033-87864, filed April 17,
2003, Accession No. 0000950148-03-000924.
Item 17. Undertakings.
------------
The undersigned registrant, AIG SunAmerica Life, hereby
undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement
to include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 and, where applicable, each
filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide
offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this
Post-Effective Amendment 18 to the Registration Statement File No. 033-87864
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Los Angeles, State of California on this 21st day of April, 2004.
By: AIG SUNAMERICA LIFE ASSURANCE COMPANY
By: /s/ JAY S. WINTROB
---------------------------------------
Jay S. Wintrob
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
JAY S. WINTROB* Chief Executive Officer April 21, 2004
- ----------------------- and Director
Jay S. Wintrob (Principal Executive Officer)
JAMES R. BELARDI* Director April 21, 2004
- -----------------------
James R. Belardi
MARC H. GAMSIN* Director April 21, 2004
- -----------------------
Marc H. Gamsin
N. SCOTT GILLIS* Senior Vice President, Chief April 21, 2004
- ----------------------- Financial Officer and Director
N. Scott Gillis (Principal Financial Officer)
JANA W. GREER* Director April 21, 2004
- -----------------------
Jana W. Greer
STEWART R. POLAKOV* Senior Vice President and April 21, 2004
- ----------------------- Controller
Stewart R. Polakov (Principal Accounting Officer)
*/s/ MALLARY L. REZNIK Attorney-in-Fact April 21, 2004
- -----------------------
Mallary L. Reznik
EXHIBIT INDEX
Number Description
- ------ -----------
23(a) Consent of Independent Accountants
(24)(b) Power of Attorney - October 2003