As filed with the Securities and Exchange Commission on April 22, 2004
File No. 333-103504
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
POST-EFFECTIVE AMENDMENT NO. 4
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. [4] 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. [4] 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.
AIG SUNAMERICA LIFE ASSURANCE COMPANY
- --------------------------------------------------------------------------------
VARIABLE ANNUITY ACCOUNT TWO
SUPPLEMENT TO THE
VISTA CAPITAL ADVANTAGE VARIABLE ANNUITY
(FORM NO. A-3394-PRO)
PROSPECTUS DATED DECEMBER 15, 2003
- --------------------------------------------------------------------------------
The date of the Prospectus has been changed to May 3, 2004.
All references in the Prospectus to the date of the Statement of Additional
Information are hereby changed to May 3, 2004.
Date: May 3, 2004
Please keep this Supplement with your Prospectus.
Page 1 of 1
VISTA CAPITAL ADVANTAGE
PROSPECTUS
DECEMBER 15, 2003
FLEXIBLE PAYMENT GROUP DEFERRED ANNUITY CONTRACTS
ISSUED BY
AIG SUNAMERICA LIFE ASSURANCE COMPANY
IN CONNECTION WITH
VARIABLE ANNUITY ACCOUNT TWO
The annuity has several investment choices - Variable Portfolios listed
below and available fixed account options. The Variable Portfolios are part of
the Anchor Series Trust ("AST") and the SunAmerica Series Trust ("SAST"):
STOCKS:
MANAGED BY DAVIS ADVISORS
- DAVIS VENTURE VALUE PORTFOLIO SAST
MANAGED BY MARSICO CAPITAL MANAGEMENT, LLC
- MARSICO GROWTH PORTFOLIO SAST
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS TOTAL RETURN PORTFOLIO SAST
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, LLC
- INTERNATIONAL GROWTH AND INCOME PORTFOLIO SAST
BONDS:
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLC
- GOVERNMENT AND QUALITY BOND PORTFOLIO AST
CASH:
MANAGED BY BANC OF AMERICA CAPITAL MANAGEMENT, LLC
- CASH MANAGEMENT PORTFOLIO SAST
On December 5, 2003, six portfolios of the Mutual Fund Variable Annuity
Trust (the "old trust") were merged into five portfolios of the SunAmerica
Series Trust (the "new trust"). On the date of the merger, the new trust
acquired all of the assets of the old trust and shareholders of the old trust
were distributed shares of the new trust. The total value of the new trust
shares received by the shareholders was the same as the total value of the old
trust shares. In addition to the mergers, a new portfolio was added, the
Government and Quality Bond portfolio of Anchor Series Trust. The new trust
portfolios and the Government and Quality Bond portfolio are the only variable
investment options available under your contract.
Please read this prospectus carefully before investing and keep it for
future reference. It contains important information about the Vista Capital
Advantage Variable Annuity.
To learn more about the annuity offered by this prospectus, you can
obtain a copy of the Statement of Additional Information ("SAI") dated December
15, 2003. The SAI has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference into this prospectus. The Table of
Contents of the SAI appears in this prospectus. For a free copy of the SAI, call
us at (800) 445-SUN2 or write to us at our Annuity Service Center, P.O. Box
54299, Los Angeles, California 90054-0299.
In addition, the SEC maintains a website (http://www.sec.gov) that
contains the SAI, materials incorporated by reference and other information
filed electronically with the SEC by AIG SunAmerica Life Assurance Company.
ANNUITIES INVOLVE RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AND ARE
NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THEY ARE
NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Anchor National Life Insurance Company changed its name to AIG SunAmerica
Life Assurance Company ("AIG SunAmerica Life") on March 1, 2003. Please keep in
mind this is a name change only and will not affect the substance of your
contract.
- --------------------------------------------------------------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
- --------------------------------------------------------------------------------
AIG SunAmerica Life's Annual Report on Form 10-K for the year ended
December 31, 2002, and its quarterly report on Form 10-Q for the quarters ended
March 31, 2003, June 30, 2003 and September 30, 2003 file no. 033-47472 are
incorporated herein by reference.
All documents or reports filed by AIG SunAmerica Life under Section 13(a),
13(c), 14, or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") after the effective date of this prospectus are also
incorporated by reference. Statements contained in this prospectus and
subsequently filed documents which are incorporated by reference or deemed to be
incorporated by reference are deemed to modify or supersede documents
incorporated herein by reference.
AIG SunAmerica Life files its Exchange Act documents and reports, including
its annual and quarterly reports on Form 10-K and Form 10-Q, electronically
pursuant to EDGAR under CIK No. 0000006342.
AIG SunAmerica Life is subject to the informational requirements of the
Securities and Exchange Act of 1934 (as amended). We file reports and other
information with the SEC to meet those requirements. You can inspect and copy
this information at SEC public facilities at the following locations:
WASHINGTON, DISTRICT OF COLUMBIA
450 Fifth Street, N.W., Room 1024
Washington, D.C. 20549
CHICAGO, ILLINOIS
500 West Madison Street
Chicago, IL 60661
NEW YORK, NEW YORK
233 Broadway
New York, NY 10048
To obtain copies by mail contact the Washington, D.C. location. After you
pay the fees as prescribed by the rules and regulations of the SEC, the required
documents are mailed.
Registration statements under the Securities Act of 1933, as amended,
related to the contracts offered by this prospectus are on file with the SEC.
This prospectus does not contain all of the information contained in the
registration statements and exhibits. For further information regarding the
separate account, AIG SunAmerica Life and its general account, the Variable
Portfolios and the contract, please refer to the registration statements and
exhibits.
The SEC also maintains a website (http://www.sec.gov) that contains the
SAI, materials incorporated by reference and other information filed
electronically with the SEC by AIG SunAmerica Life.
3
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 Anchor National's
counsel, this issue has been determined by controlling precedent, AIG SunAmerica
Life will not submit the issue to a court for determination.
4
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
ITEM ----
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 3
SECURITIES AND EXCHANGE COMMISSION POSITION ON
INDEMNIFICATION........................................... 4
GLOSSARY.................................................... 6
HIGHLIGHTS.................................................. 7
FEE TABLES.................................................. 8
EXPENSE EXAMPLES............................................ 9
PERFORMANCE DATA............................................ 10
DESCRIPTION OF AIG SUNAMERICA LIFE, THE SEPARATE ACCOUNT AND
THE GENERAL ACCOUNT....................................... 10
AIG SunAmerica Life.................................... 10
Separate Account....................................... 10
General Account........................................ 11
VARIABLE PORTFOLIO OPTIONS.................................. 11
Voting Rights.......................................... 12
Substitution........................................... 12
FIXED ACCOUNT OPTIONS....................................... 12
Fixed Accounts......................................... 12
Market Value Adjustment ("MVA")........................ 13
EXPENSES.................................................... 14
Separate Account Charges............................... 14
Withdrawal Charges..................................... 14
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........................... 15
Free Withdrawal Amount................................. 15
Nursing Home Waiver.................................... 16
DESCRIPTION OF THE CONTRACTS................................ 16
Summary................................................ 16
Ownership.............................................. 16
Annuitant.............................................. 16
Modification of the Contract........................... 17
Assignment............................................. 17
Death Benefit.......................................... 17
PURCHASES, WITHDRAWALS AND CONTRACT VALUE................... 18
Purchase Payments...................................... 18
Allocation of Purchase Payments........................ 18
Accumulation Units..................................... 19
Free Look.............................................. 19
Transfers During the Accumulation Phase................ 19
Automatic Dollar Cost Averaging Program................ 20
Automatic Asset Allocation Rebalancing Program......... 21
Return Plus Program.................................... 22
Withdrawals............................................ 22
Systematic Withdrawal Program.......................... 23
Minimum Contract Value................................. 23
INCOME PHASE................................................ 23
Annuity Date........................................... 23
Income Options......................................... 23
Transfers During the Income Phase...................... 25
Deferment of Payments.................................. 25
TAXES....................................................... 25
Annuity Contracts in General........................... 25
Tax Treatment of Distributions -- Non-qualified
Contracts............................................. 26
Tax Treatment of Distributions -- Qualified
Contracts............................................. 26
Minimum Distributions.................................. 26
Tax Treatment of Death Benefits........................ 27
Contracts Owned by a Trust or Corporation.............. 27
Gifts, Pledges and/or Assignments of a Non-qualified
Contract.............................................. 27
</Table>
5
<Table>
<Caption>
PAGE
ITEM ----
Diversification and Investor Control................... 28
ADMINISTRATION.............................................. 28
Distribution of Contracts.............................. 28
CUSTODIAN...................................................
LEGAL PROCEEDINGS........................................... 29
REGISTRATION STATEMENT...................................... 29
INDEPENDENT ACCOUNTANTS..................................... 29
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.... 30
APPENDIX A -- MARKET VALUE ADJUSTMENT ("MVA")............... A-1
APPENDIX B -- WITHDRAWALS AND WITHDRAWAL CHARGES............ B-1
APPENDIX C -- CONDENSED FINANCIAL INFORMATION............... C-1
</Table>
All financial representatives or agents that sell the contracts offered by this
prospectus are required to deliver a prospectus.
- --------------------------------------------------------------------------------
GLOSSARY
- --------------------------------------------------------------------------------
The following terms, as used in this prospectus, have the indicated
meanings:
ACCUMULATION PHASE -- The period during which you invest money in your contract.
ACCUMULATION UNIT -- A unit of measurement which we use to calculate the value
of the variable portion of your contract during the Accumulation Phase.
ANNUITANT(S) -- The person(s) on whose life (lives) we base income payments.
ANNUITY DATE -- The date on which income payments begin, as selected by you.
ANNUITY UNIT(S) -- A measurement we use to calculate the amount of income
payments you receive from the variable portion of your contract during the
Income Phase.
BENEFICIARY -- The person designated to receive any benefits under the contract
if you or the Annuitant dies.
COMPANY -- AIG SunAmerica Life Assurance Company, We, Us, the insurer that
issues this contract.
INCOME PHASE -- The period during which we make income payments to you.
IRS -- The Internal Revenue Service.
LATEST ANNUITY DATE -- Your 90(th) birthday or 10(th) contract anniversary,
whichever is later.
NON-QUALIFIED (CONTRACT) -- A contract purchased with after-tax dollars. In
general, these contracts are not under any pension plan, specially sponsored
program or individual retirement account ("IRA").
PURCHASE PAYMENTS -- The money you give us to buy the contract, as well as any
additional money you give us to invest in the contract after you own it.
QUALIFIED (CONTRACT) -- A contract purchased with pre-tax dollars. These
contracts are generally purchased under a pension plan, specially sponsored
program or IRA.
TRUSTS -- Refers to the Anchor Series Trust and the SunAmerica Series Trust
collectively.
UNDERLYING FUND(S) -- The underlying series of the Trust in which the Variable
Portfolios invest.
VARIABLE PORTFOLIO(S) -- The variable investment options available under the
contract. Each Variable Portfolio has its own investment objective and is
invested in the underlying investments of the Trust.
6
- ------------------------------------------------------
- ------------------------------------------------------
HIGHLIGHTS
- ------------------------------------------------------
- ------------------------------------------------------
The Vista Capital Advantage Variable Annuity is a contract between you and
AIG SunAmerica Life Assurance Company ("AIG SunAmerica Life"). It is designed to
help you invest on a tax-deferred basis and meet long-term financial goals.
There are minimum Purchase Payment amounts required to purchase a contract.
Purchase Payments may be invested in a variety of variable and fixed account
options. Like all deferred annuities, the contract has an Accumulation Phase and
an Income Phase. During the Accumulation Phase, you invest money in your
contract. The Income Phase begins when you start receiving income payments from
your annuity to provide for your retirement.
FREE LOOK: You may cancel your contract within 10 days after receiving it
(or whatever period is required in your state). You will receive whatever your
contract is worth on the day that we receive your request. The amount refunded
may be more or less than your original Purchase Payment. We will return your
original Purchase Payment if required by law. Please see PURCHASING A VISTA
CAPITAL ADVANTAGE VARIABLE ANNUITY in the prospectus.
EXPENSES: There are fees and charges associated with the contract. Each
year, we deduct a $30 contract maintenance fee from your contract. We also
deduct Separate Account charges which equal 1.40% annually of the average daily
value of your contract allocated to the Variable Portfolios. There are
investment charges on amounts invested in the Variable Portfolios. If you elect
optional features available under the contract we may charge additional fees for
those features. A separate withdrawal charge schedule applies to each Purchase
Payment. The amount of the withdrawal charge declines over time. After a
Purchase Payment has been in the contract for seven complete years, withdrawal
charges no longer apply to that portion of the Purchase Payment. Please see the
FEE TABLE, PURCHASING A VISTA CAPITAL ADVANTAGE VARIABLE ANNUITY and EXPENSES IN
THE PROSPECTUS.
ACCESS TO YOUR MONEY: You may withdraw money from your contract during the
Accumulation Phase. If you do so, earnings are deemed to be withdrawn first. You
will pay income taxes on earnings and untaxed contributions when you withdraw
them. Payments received during the Income Phase are considered partly a return
of your original investment. A federal tax penalty may apply if you make
withdrawals before age 59 1/2. As noted above, a withdrawal charge may apply.
Please see ACCESS TO YOUR MONEY and TAXES in the prospectus.
DEATH BENEFIT: A death benefit feature is available under the contract to
protect your Beneficiaries in the event of your death during the Accumulation
Phase. Please see DEATH BENEFITS in the prospectus.
INCOME OPTIONS: When you are ready to begin taking income, you can choose
to receive income payments on a variable basis, fixed basis or a combination of
both. You may also chose from five different income options, including an option
for income that you cannot outlive. Please see INCOME OPTIONS in the prospectus.
INQUIRIES: If you have questions about your contract call your financial
advisor or contact us at AIG SunAmerica Life Assurance Company Annuity Service
Center P.O. Box 54299 Los Angeles, California 90054-0299. Telephone Number:
(800) 445-SUN2.
AIG SUNAMERICA LIFE OFFERS SEVERAL DIFFERENT VARIABLE ANNUITY PRODUCTS TO
MEET THE DIVERSE NEEDS OF OUR INVESTORS. EACH PRODUCT MAY PROVIDE DIFFERENT
FEATURES AND BENEFITS OFFERED AT DIFFERENT FEES, CHARGES AND EXPENSES. WHEN
WORKING WITH YOUR FINANCIAL ADVISOR TO DETERMINE THE BEST PRODUCT TO MEET YOUR
NEEDS YOU SHOULD CONSIDER, AMONG OTHER THINGS, WHETHER THE FEATURES OF THIS
CONTRACT AND THE RELATED FEES PROVIDE THE MOST APPROPRIATE PACKAGE TO HELP YOU
MEET YOUR LONG-TERM RETIREMENT SAVINGS GOALS.
PLEASE READ THE PROSPECTUS CAREFULLY FOR MORE DETAILED INFORMATION REGARDING
THESE AND OTHER FEATURES AND BENEFITS OF THE CONTRACT, AS WELL AS THE RISKS OF
INVESTING.
7
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEE TABLES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY AT THE TIME THAT
YOU TRANSFER CASH VALUE BETWEEN INVESTMENT OPTIONS OR SURRENDER THE CONTRACT. IF
APPLICABLE, YOU MAY ALSO BE SUBJECT TO STATE PREMIUM TAXES.
MAXIMUM OWNER TRANSACTION EXPENSES
MAXIMUM WITHDRAWAL CHARGES (AS A PERCENTAGE OF EACH PURCHASE PAYMENT)(1)......6%
(1) Withdrawal Charge Schedule (as a percentage of each Purchase Payment)
declines over 7 years as follows
<Table>
YEARS:............................ 1 2 3 4 5 6 7 8
6% 6% 5% 5% 4% 3% 2% 0%
</Table>
<Table>
TRANSFER FEE.......... No charge for the first 15 transfers each
contract year; thereafter, the fee is $25
per transfer
</Table>
THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY PERIODICALLY
DURING THE TIME THAT YOU OWN THE CONTRACT, NOT INCLUDING UNDERLYING PORTFOLIO
FEES AND EXPENSES WHICH ARE OUTLINED IN THE NEXT SECTION.
CONTRACT MAINTENANCE FEE
$30
SEPARATE ACCOUNT ANNUAL EXPENSES
(DEDUCTED DAILY AS A PERCENTAGE OF YOUR AVERAGE DAILY NET ASSET VALUE)
<Table>
Mortality and Expense Risk Fees...................... 1.25%
Distribution Expense Fee............................. 0.15%
-----
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES............. 1.40%
=====
</Table>
THE FOLLOWING SHOWS THE MINIMUM AND MAXIMUM TOTAL OPERATING EXPENSES CHARGED
BY THE UNDERLYING PORTFOLIOS OF THE TRUSTS BEFORE ANY WAIVERS OR REIMBURSEMENTS.
MORE DETAIL CONCERNING THE TRUSTS' FEES AND EXPENSES IS CONTAINED IN THE
PROSPECTUS FOR THE TRUSTS. PLEASE READ IT CAREFULLY BEFORE INVESTING.
PORTFOLIO EXPENSES
<Table>
<Caption>
TOTAL ANNUAL UNDERLYING PORTFOLIO EXPENSES MINIMUM MAXIMUM
------------------------------------------ ------- -------
(expenses that are deducted from underlying portfolios of
the Trusts, including management fees, other expenses and
12b-1 fees, if applicable).................................. 0.60% 1.22%
</Table>
8
- --------------------------------------------------------------------------------
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 fee, separate
account annual expenses and fees and expenses of the underlying portfolios of
the Trusts.
The Examples assume that you invest $10,000 in the contract for the time periods
indicated; that your investment has a 5% return each year; and that the maximum
and minimum fees and expenses of the underlying variable portfolios of the
Trusts are reflected. Although your actual costs may be higher or lower, based
on these assumptions, your costs at the end of the stated period would be:
MAXIMUM EXPENSE EXAMPLES
(ASSUMING MAXIMUM SEPARATE ACCOUNT ANNUAL EXPENSES OF 1.40% AND INVESTMENT IN AN
UNDERLYING VARIABLE PORTFOLIO WITH TOTAL EXPENSES OF 1.22%)
(1) If you surrender your contract at the end of the applicable time
period:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$869 $1,327 $1,811 $2,996
</Table>
(2) If you do not surrender your contract:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$269 $ 827 $1,411 $2,996
</Table>
(3) If you annuitize your contract:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$265 $ 814 $1,390 $2,954
</Table>
MINIMUM EXPENSE EXAMPLES
(ASSUMING MINIMUM SEPARATE ACCOUNT ANNUAL CHARGES OF 1.40% AND INVESTMENT IN AN
UNDERLYING VARIABLE PORTFOLIO WITH TOTAL EXPENSES OF 0.60%)
(1) If you surrender your contract at the end of the applicable time
period and you do not elect the optional feature:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$807 $1,140 $1,500 $2,372
</Table>
(2) If you do not surrender your contract:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$207 $ 640 $1,100 $2,372
</Table>
(3) If you annuitize your contract:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$203 $ 627 $1,078 $2,327
</Table>
EXPLANATION OF FEE TABLES AND EXAMPLES
1. The purpose of the Fee Tables is to show you the various expenses you would
incur directly and indirectly by investing in the contract. The tables
represent both fees at the separate account (contract level) as well as total
annual underlying variable account operating expenses. We converted the
contract maintenance fee to a percentage (0.05%). The actual impact of the
contract maintenance fee may differ from this percentage. Additional
information on the portfolio company fees can be found in the accompanying
Trust prospectuses.
2. In addition to the stated assumptions, the Examples also assume Separate
Account charges as indicated and that no transfer fees were imposed. Although
premium taxes may apply in certain states, they are not reflected in the
Examples.
3. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE HISTORICAL ACCUMULATION UNIT VALUES ARE CONTAINED IN
APPENDIX C -- CONDENSED FINANCIAL INFORMATION.
9
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
We advertise the Cash Management Portfolio's yield and effective yield. In
addition, the other Variable Portfolios advertise total return, gross yield and
yield-to-maturity. These figures represent past performance of the Variable
Portfolios. These performance numbers do not indicate future results.
When we advertise performance for periods prior to the date the contracts
were first issued, we derive the figures from the performance of the
corresponding portfolios for the Trusts, if available. We modify these numbers
to reflect charges and expenses as if the Variable Portfolio was in existence
during the period stated in the advertisement. Figures calculated in this manner
do not represent actual historic performance of the particular Variable
Portfolio.
Consult the Statement of Additional Information for more detailed
information regarding the calculation of performance data. The performance of
each Variable Portfolio may also be measured against unmanaged market indices.
The indices we use include but are not limited to the Dow Jones Industrial
Average, the Standard & Poor's 500, the Russell 1000 Growth Index, the Morgan
Stanley Capital International Europe, Australasia and Far East Index ("EAFE")
and the Morgan Stanley Capital International World Index. We may compare the
Variable Portfolios' performance to that of other variable annuities with
similar objectives and policies as reported by independent ranking agencies such
as Morningstar, Inc., Lipper Analytical Services, Inc. or Variable Annuity
Research & Data Service ("VARDS").
AIG SunAmerica Life may also advertise the rating and other information
assigned to it by independent industry ratings organizations. Some of those
organizations are A.M. Best Company ("A.M. Best"), Moody's Investor's Service
("Moody's"), Standard & Poor's Insurance Rating Services ("S&P"), and Fitch
Ratings ("Fitch's"). Best's and Moody's ratings reflect their current opinion of
our financial strength and performance in comparison to others in the life and
health insurance industry. S&P's and Fitch's ratings measure the ability of an
insurance company to meet its obligations under insurance policies it issues.
These two ratings do not measure the insurer's ability to meet non-policy
obligations. Ratings in general do not relate to the performance of the Variable
Portfolios.
- --------------------------------------------------------------------------------
DESCRIPTION OF AIG SUNAMERICA LIFE, THE SEPARATE ACCOUNT AND THE GENERAL ACCOUNT
- --------------------------------------------------------------------------------
AIG SUNAMERICA LIFE
AIG SunAmerica Life is a stock life insurance company organized under the
laws of the state of Arizona. Its principal place of business is 1 SunAmerica
Center, Los Angeles, California 90067-6022. We conduct life insurance and
annuity business in the District of Columbia and all states except New York. We
are an indirect wholly-owned subsidiary of American International Group, Inc.
("AIG"), a Delaware corporation.
AIG SunAmerica Life and its affiliates, SunAmerica Life Insurance Company,
First SunAmerica Life Insurance Company, AIG SunAmerica Asset Management Corp.,
and the AIG Advisors Group, Inc. (comprising six wholly owned broker-dealers and
two investment advisors), specialize in retirement savings and investment
products and services. Business focuses include fixed and variable annuities,
mutual funds and broker-dealer services.
SEPARATE ACCOUNT
AIG SunAmerica Life originally established Variable Annuity Account Two
(the "separate account") on May 24, 1994. The separate account is registered
with the SEC as a unit investment trust under the Investment Company Act of
1940, as amended. AIG SunAmerica Life owns the assets
10
of the separate account. However, the assets in the separate account are not
chargeable with liabilities arising out of any other business conducted by AIG
SunAmerica Life. Income gains and losses (realized and unrealized), resulting
from assets in the separate account are credited to or charged against the
separate account without regard to other income, gains, or losses of AIG
SunAmerica Life. Assets in the separate account are not guaranteed by AIG
SunAmerica Life.
GENERAL ACCOUNT
Money allocated to the fixed account options goes into AIG SunAmerica
Life's general account. The general account consists of all of AIG SunAmerica
Life's assets other than assets attributable to a separate account. All of the
assets in the general account are chargeable with the claims of any AIG
SunAmerica Life contract holders as well as all of its creditors. The general
account funds are invested as permitted under state insurance laws.
- --------------------------------------------------------------------------------
VARIABLE PORTFOLIO OPTIONS
- --------------------------------------------------------------------------------
On December 5, 2003, six portfolios of the Mutual Fund Variable Annuity
Trust (the "old trust") were merged into five portfolios of the SunAmerica
Series Trust (the "new trust"). On the date of the merger, the new trust
acquired all of the assets of the old trust and shareholders of the old trust
were distributed shares of the new trust. The total value of the new trust
shares received by the shareholders was the same as the total value of the old
trust shares. In addition to the mergers, a new portfolio was added, the
Government and Quality Bond portfolio of Anchor Series Trust. The new trust
portfolios and the Government and Quality Bond portfolio are the only variable
investment options available under your contract.
VARIABLE PORTFOLIOS
The Variable Portfolios invest in shares of the Trusts listed below. The
Variable Portfolios are only available through the purchase of certain insurance
contracts.
The Trusts serve as the underlying investment vehicles for other variable
annuity contracts issued by AIG SunAmerica Life, and other
affiliated/unaffiliated insurance companies. Neither AIG SunAmerica Life nor the
Trusts believe that offering shares of the Trusts in this manner disadvantages
you. Each Trust's advisers monitor for potential conflicts.
The Variable Portfolios along with their respective subadvisers are listed
below:
ANCHOR SERIES TRUST
Wellington Management Company, LLP serves as subadviser to the Anchor
Series Trust Portfolios. Anchor Series Trust ("AST") contains investment
portfolios in addition to those listed here which are not available for
investment under this contract.
SUNAMERICA SERIES TRUST
Various subadvisers provide investment advice for the SunAmerica Series
Trust Portfolios. SunAmerica Series Trust ("SAST") contains investment
portfolios in addition to those listed here which are not available for
investment under this contract.
STOCKS:
MANAGED BY DAVIS ADVISORS
- Davis Venture Value Portfolio SAST
11
MANAGED BY MARSICO CAPITAL MANAGEMENT, LLC
- Marsico Growth Portfolio SAST
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Total Return Portfolio SAST
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, LLC
- International Growth and Income Portfolio SAST
BONDS:
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLC
- AST Government & Quality Bond Portfolio AST
CASH:
MANAGED BY BANC OF AMERICA CAPITAL MANAGEMENT, LLC
- Cash Management Portfolio SAST
You should read the accompanying prospectuses for the Trusts carefully.
These prospectuses contains detailed information about the Variable Portfolios,
including each Variable Portfolio's investment objective and risk factors.
VOTING RIGHTS
AIG SunAmerica Life is the legal owner of the Trusts' shares. However, when
a Variable Portfolio solicits proxies in conjunction with a vote of
shareholders, we must obtain your instructions on how to vote those shares. We
vote all of the shares we own in proportion to your instructions. This includes
any shares we own on our own behalf. Should we determine that we are no longer
required to comply with these rules, we will vote the shares in our own right.
SUBSTITUTION
We may amend your contract due to changes to the Variable Portfolios
offered under your contract. For example, we may offer new Variable Portfolios,
delete Variable Portfolios, or stop accepting allocations and/or investments in
a particular Variable Portfolio. We may move assets and re-direct future premium
allocations from one Variable Portfolio to another if we receive investor
approval through a proxy vote or SEC approval for a fund substitution. This
would occur if a Variable Portfolio is no longer an appropriate investment for
the contract, for reasons such as continuing substandard performance, or for
changes to the portfolio manager, investment objectives, risks and strategies,
or federal or state laws. The new Variable Portfolio offered may have different
fees and expenses. You will be notified of any upcoming proxies or substitutions
that affect your Variable Portfolio choices.
- --------------------------------------------------------------------------------
FIXED ACCOUNT OPTIONS
- --------------------------------------------------------------------------------
FIXED ACCOUNTS
Your contract may offer Fixed Account Guarantee Periods ("FAGP") to which
you may allocate certain Purchase Payments or contract value. Available
guarantee periods may be for different lengths of time (such as 1, 3 or 5 years)
and may have different guaranteed interest rates, as noted below. We guarantee
the interest rate credited to amounts allocated to any available FAGP and that
the rate will
12
never be less than the minimum guaranteed interest rate as specified in your
contract. Once established, the rates for specified payments do not change
during the guarantee period. We determine the FAGPs offered at any time in Our
sole discretion and We reserve the right to change the FAGPs that We make
available at any time, unless state law requires Us to do otherwise. Please
check with your financial representative to learn if any FAGPs are currently
offered.
There are three interest rate scenarios for money allocated to the FAGPs.
Each of these rates may differ from one another. Once declared, the applicable
rate is guaranteed until the corresponding guarantee period expires. Under each
scenario your money may be credited a different rate of interest as follows:
- Initial Rate: The rate credited to any portion of the initial Purchase
Payment allocated to a FAGP.
- Current Rate: The rate credited to any portion of the subsequent Purchase
Payments allocated to a FAGP.
- Renewal Rate: The rate credited to money transferred from a FAGP or a
Variable Portfolio into a FAGP and to money remaining in a FAGP after
expiration of a guarantee period.
When a FAGP ends, you may leave your money in the same FAGP or you may
reallocate your money to another FAGP or to the Variable Portfolios. If you want
to reallocate your money, you must contact Us within 30 days after the end of
the current interest guarantee period and instruct Us as to where you would like
the money invested. We do not contact you. If We do not hear from you, your
money will remain in the same FAGP where it will earn interest at the renewal
rate then in effect for that FAGP.
If you take money out of any available multi-year FAGP, before the end of
the guarantee period, We make an adjustment to your contract. We refer to the
adjustment as a market value adjustment ("MVA"). The MVA reflects any difference
in the interest rate environment between the time you place your money in the
FAGP and the time when you withdraw or transfer that money. This adjustment can
increase or decrease your contract value. Generally, if interest rates drop
between the time you put your money into a FAGP and the time you take it out, We
credit a positive adjustment to your contract. Conversely, if interest rates
increase during the same period, We post a negative adjustment to your contract.
You have 30 days after the end of each guarantee period to reallocate your funds
without incurring any MVA. APPENDIX A SHOWS HOW WE CALCULATE AND APPLY THE MVA.
All FAGPs may not be available in all states. We reserve the right to
refuse any Purchase Payment to available FAGPs if we are crediting a rate equal
to the minimum guaranteed interest rate specified in your contract. We may also
offer the specific Dollar Cost Averaging Fixed Accounts ("DCAFA"). The rules,
restrictions and operation of the DCAFAs may differ from the standard FAGPs
described above, please see DOLLAR COST AVERAGING PROGRAM below for more
details.
DOLLAR COST AVERAGING FIXED ACCOUNTS
You may invest initial and/or subsequent Purchase Payments in the DCA fixed
accounts ("DCAFA"), if available. DCAFAs also credit a fixed rate of interest
but are specifically designed to facilitate a dollar cost averaging program.
Interest is credited to amounts allocated to the DCAFAs while your investment is
transferred to the Variable Portfolios over certain specified time frames. The
interest rates applicable to the DCAFA may differ from those applicable to any
available FAGPs but will never be less than the minimum annual guaranteed
interest rate as specified in your contract. However, when using a DCAFA the
annual interest rate is paid on a declining balance as you systematically
transfer your investment to the Variable Portfolios. Therefore, the actual
effective yield will be less than the annual crediting rate. We determine the
DCAFAs offered at any time in Our sole discretion and We reserve the right to
change to DCAFAs that we make available at any time, unless state law requires
us to do otherwise. See DOLLAR COST AVERAGING PROGRAM below for more
information.
13
- --------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------
There are charges and expenses associated with your contract. These charges
and expenses reduce your investment return. We will not increase the contract
maintenance fee or the insurance and withdrawal charges under your contract.
However, the investment charges under your contract may increase or decrease.
Some states may require that we charge less than the amounts described below.
SEPARATE ACCOUNT CHARGES
The Company deducts a mortality and expense risk charge in the amount of
1.40%, annually of the value of your contract invested in the Variable
Portfolios. We deduct the charge daily. This charge compensates the Company for
the mortality and expense risk and the costs of contract distribution assumed by
the Company.
Generally, the mortality risks assumed by the Company arise from its
contractual obligations to make income payments after the Annuity Date and to
provide a death benefit. The expense risk assumed by the Company is that the
costs of administering the contracts and the Separate Account will exceed the
amount received from the administrative fees and charges assessed under the
contract.
If these charges do not cover all of our expenses, we will pay the
difference. Likewise, if these charges exceed our expenses, we will keep the
difference. The insurance charge is expected to result in a profit. Profit may
be used for any legitimate cost/expense including distribution, depending upon
market conditions.
WITHDRAWAL CHARGES
The contract provides a free withdrawal amount every year. (SEE CONTRACT
CHARGES, FREE WITHDRAWAL AMOUNT BELOW.) Additionally, earnings in your contract
may be withdrawn free of withdrawal charges. If you take money out in excess of
the free withdrawal amount, you may incur a withdrawal charge.
We apply a withdrawal charge against each Purchase Payment you put into the
contract. After a Purchase Payment has been in the contract for seven complete
years, no withdrawal charge applies to that Purchase Payment. The withdrawal
charge equals a percentage of the Purchase Payment you take out of the contract.
The withdrawal charge percentage declines each year a Purchase Payment is in the
contract, as follows:
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------------
YEAR 1 2 3 4 5 6 7 8
- ------------------------------------------------------------------------------------------------------
WITHDRAWAL CHARGE 6% 6% 5% 5% 4% 3% 2% 0%
- ------------------------------------------------------------------------------------------------------
</Table>
When calculating the withdrawal charge, we treat withdrawals as coming
first from the Purchase Payments that have been in your contract the longest.
However, for tax purposes, your withdrawals are considered earnings first, then
Purchase Payments.
Whenever possible, we deduct the withdrawal charge from the money remaining
in your contract. If you withdraw all of your contract value, applicable
withdrawal charges are deducted from the amount withdrawn.
We do not assess a withdrawal charge for money withdrawn to pay a death
benefit or to begin the Income Phase of your contract. Withdrawals made prior to
age 59 1/2 may result in a 10% IRS penalty tax. SEE TAXES BELOW.
APPENDIX B provides more information on withdrawals and the withdrawal
charge.
14
INVESTMENT CHARGES
Charges are deducted from your Variable Portfolios for the advisory and
other expenses of the Underlying Funds. THE FEE TABLES ABOVE illustrate these
charges and expenses. For more detailed information on these investment charges,
refer to the attached prospectuses for the Trusts.
CONTRACT MAINTENANCE FEE
During the Accumulation Phase, we subtract a contract maintenance fee from
your account once per contract year. This charge compensates us for the cost of
contract administration. We deduct the $30 contract maintenance fee on a
pro-rata basis from your account value on your contract anniversary. If you
withdraw your entire contract value, the fee is deducted from that withdrawal.
TRANSFER FEE
Generally, We currently permit 15 free transfers between investment options
each contract year. After that, a charge of $25 applies to each additional
transfer in any one contract year ($10 in Pennsylvania and Texas). SEE TRANSFERS
DURING THE ACCUMULATION PHASE BELOW.
PREMIUM TAX
Certain states charge the Company a tax on the premiums you pay into the
contract ranging from 0% to 3.5%. We deduct from your contract these premium tax
charges where applicable. Currently, we deduct the charge for premium taxes when
you take a full withdrawal or begin the Income Phase of the contract. In the
future, we may assess this deduction at the time you put Purchase Payment(s)
into the contract or upon payment of a death benefit.
INCOME TAXES
We do not currently deduct income taxes from your contract. We reserve the
right to do so in the future.
REDUCTION OR ELIMINATION OF CHARGES AND EXPENSES, AND ADDITIONAL AMOUNTS
CREDITED
Sometimes sales of the contracts to groups of similarly situated
individuals may lower our administrative and/or sales expenses. We reserve the
right to reduce or waive certain charges and expenses when this type of sale
occurs. In addition, we may also credit additional interest to policies sold to
such groups. We determine which groups are eligible for such treatment. Some of
the criteria used to make a determination are: size of the group; amount of
expected Purchase Payments; relationship existing between us and prospective
purchaser; nature of the purchase; length of time a group of contracts is
expected to remain active; purpose of the purchase and whether that purpose
increases the likelihood that our expenses will be reduced; and/or any other
factors that we believe indicate that administrative and/or sales expenses may
be reduced.
We may make such a determination regarding sales to our employees, our
affiliates' employees and employees of currently contracted broker-dealers, our
registered representatives and immediate family members of all of those
described.
We reserve the right to change or modify any such determination or the
treatment applied to a particular group, at any time.
FREE WITHDRAWAL AMOUNT
Your contract provides for a free withdrawal amount each year. Purchase
Payments that are no longer subject to a withdrawal charge and not previously
withdrawn, plus earnings, may be withdrawn without penalty.
After the first full contract year, the contract provides for a free
withdrawal amount on your first withdrawal of the contract year. The free
withdrawal amount is the greater (1) 10% of your total
15
Purchase Payments invested for at least one year and not yet withdrawn; only
available for first withdrawal of contract year or (2) earnings in your
contract. Total Purchase Payments are equal to your total Purchase Payments
invested in the contract less any Purchase Payments withdrawn upon which a
surrender charge was paid and the amount of the surrender charge. Additionally,
once a Purchase Payment is no longer subject to withdrawal charges, it is no
longer included when determining total Purchase Payments.
Upon a full surrender of your contract, to the extent you previously
withdraw Purchase Payments free of a withdrawal charge under the free withdrawal
provision, we will recoup the full withdrawal charge on such amounts, as if that
money was still invested in the contract on the date of surrender.
We will waive the withdrawal charge upon payment of a death benefit. Where
legally permitted, the withdrawal charge may be eliminated when a contract is
issued to an officer, director or employee of the Company or its affiliates.
NURSING HOME WAIVER
If your contract was issued with the appropriate rider and you are confined
to a nursing home for 60 days or longer, we may waive the withdrawal charge
and/or the MVA on certain withdrawals prior to the Annuity Date (not available
in Texas). The waiver applies only to withdrawals made while you are in a
nursing home or within 90 days after you leave the nursing home. Your rider
prohibits use of this waiver during the first 90 days after purchase. In
addition, the confinement period for which you seek the waiver must begin after
you purchase your contract.
In order to use this waiver, you must submit with your withdrawal request,
the following documents: (1) a doctor's note recommending admittance to a
nursing home; (2) an admittance form which shows the type of facility you
entered; and (3) a bill from the nursing home which shows that you met the 60
day confinement requirement.
- --------------------------------------------------------------------------------
DESCRIPTION OF THE CONTRACTS
- --------------------------------------------------------------------------------
SUMMARY
This contract works in two stages, the Accumulation Phase and the Income
Phase. Your contract is in the Accumulation Phase while you make payments into
the contract. The Income Phase begins when you request that we begin making
payments to you out of the money accumulated in your contract.
OWNERSHIP
The Vista Capital Advantage Variable Annuity is a Flexible Payment Group
Deferred Annuity Contract. AIG SunAmerica Life issues a group contract to a
contract holder for the benefit of the participants in the group. As a
participant in the group, you will receive a certificate which evidences your
ownership. As used in this prospectus, the term contract refers to your
certificate. In some states, a Flexible Payment Individual Modified Guaranteed
and Variable Deferred Annuity Contract is available instead. Such a contract is
identical to the contract described in this prospectus, with the exception that
we issue it directly to the owner.
ANNUITANT
The annuitant is the person on whose life we base income payments. You may
change the Annuitant at any time before the Annuity Date. You may also designate
a second person on whose life, together with the annuitant, income payments
depend. If the annuitant dies before the Annuity Date, you must notify us and
select a new annuitant.
16
MODIFICATION OF THE CONTRACT
Only the Company's President, a Vice President or Secretary may approve a
change or waive a provision of the contract. Any change or waiver must be in
writing. We reserve the right to modify the terms of the contract as necessary
to comply with changes in applicable law.
ASSIGNMENT
Contracts issued pursuant to Non-qualified plans that are not subject to
Title 1 of the Employee Retirement Income Security Act of 1974 ("ERISA") may be
assigned by the owner at any time during the lifetime of the Annuitant prior to
the Annuity Date. We will not be bound by any assignment until written notice is
received by us at our Annuity Service Center. We are not responsible for the
validity, tax or other legal consequences of any assignment. An assignment will
not affect any payments we may make or actions we may take before we receive
notice of the assignment.
If the contract is issued pursuant to a Qualified plan (or a Non-qualified
plan that is subject to Title 1 of ERISA), it may not be assigned, pledged or
otherwise transferred except under such conditions as may be allowed under
applicable law.
BECAUSE AN ASSIGNMENT MAY BE A TAXABLE EVENT, YOU SHOULD CONSULT A
COMPETENT TAX ADVISER SHOULD YOU WISH TO ASSIGN YOUR CONTRACT.
DEATH BENEFIT
If you die during the Accumulation Phase of your contract, we pay a death
benefit to your Beneficiary.
If you were less than age 70 when your contract was issued, the death
benefit is equal to the greater of:
1. the value of your contract at the time we receive satisfactory proof of
death; or
2. total Purchase Payments less any withdrawals (and any fees or charges
applicable to such withdrawals); or
3. the maximum anniversary value on any contract anniversary preceding your
death. The anniversary value equals the value of your contract on a
contract anniversary plus any Purchase Payments and less any withdrawals
(and any fees or charges applicable to such withdrawals) since that
contract anniversary.
If you were age 70 or older when your contract was issued, the death
benefit will equal the value of your contract at the time we receive
satisfactory proof of death.
We do not pay the death benefit if you die after you switch to the Income
Phase. However, if you die during the Income Phase, your Beneficiary receives
any remaining guaranteed income payments in accordance with the income option
you selected. (SEE INCOME PHASE, INCOME OPTIONS BELOW.)
You name your Beneficiary. You may change the Beneficiary at any time,
unless you previously made an irrevocable Beneficiary designation.
We pay the death benefit when we receive satisfactory proof of death. We
consider the following satisfactory proof of death:
1. a certified copy of the death certificate; or
2. a certified copy of a decree of a court of competent jurisdiction as to
the finding of death; or
3. a written statement by a medical doctor who attended the deceased at the
time of death; or
4. any other proof satisfactory to us.
17
We may require additional proof before we pay the death benefit.
The death benefit must be paid within 5 years of the date of death unless
the Beneficiary elects to have it payable in the form of an income option. If
the Beneficiary elects an income option, it must be paid over the Beneficiary's
lifetime or for a period not extending beyond the Beneficiary's life expectancy.
Payments must begin within one year of the date of your death. If a Beneficiary
does not elect a specific form of pay out within 60 days of our receipt of proof
of death, we pay a lump sum death benefit to the Beneficiary.
If the Beneficiary is the spouse of a deceased owner, he or she can elect
to continue the contract at the then current value. If the spouse continues the
contract, we do not pay a death benefit to him or her.
- --------------------------------------------------------------------------------
PURCHASES, WITHDRAWALS AND CONTRACT VALUE
- --------------------------------------------------------------------------------
PURCHASE PAYMENTS
A Purchase Payment is the money you give us to buy a contract. Any
additional money you give us to invest in the contract after purchase is a
subsequent Purchase Payment.
This chart shows the minimum initial and subsequent Purchase Payments
permitted under your contract. These amounts depend upon whether your contract
is Qualified or Non-qualified for tax purposes. SEE TAXES BELOW.
<Table>
<Caption>
- --------------------------------------------------------------------
MINIMUM
MINIMUM INITIAL SUBSEQUENT
PURCHASE PAYMENT PURCHASE PAYMENT
- --------------------------------------------------------------------
Qualified $2,000 $250
- --------------------------------------------------------------------
Non-Qualified $5,000 $250
- --------------------------------------------------------------------
</Table>
Prior Company approval is required to accept Purchase Payments greater than
$1,000,000. The Company reserves the right to refuse any Purchase Payment
including one which would cause Total Purchase Payments to exceed $1,000,000 at
the time of the Purchase Payment. Further, we reserve the right to aggregate all
contracts having the same owners' and/or annuitants' social security or federal
tax identification number for purposes of determining which contracts and/or
purchase payments require Company pre-approval. Also, the optional automatic
payment plan allows you to make subsequent Purchase Payments of as little as
$100.
We may refuse any Purchase Payment. In general, AIG SunAmerica Life will
not issue a Qualified contract to anyone who is age 70 1/2 or older, unless it
is shown that the minimum distribution required by the IRS is being made. In
addition, we may not issue a contract to anyone over age 85.
ALLOCATION OF PURCHASE PAYMENTS
We invest your Purchase Payments in the fixed and variable investment
options according to your instructions. If we receive a Purchase Payment without
allocation instructions, we invest the money according to your last allocation
instructions. SEE VARIABLE PORTFOLIO OPTIONS, AND FIXED ACCOUNT OPTIONS BELOW.
In order to issue your contract, we must receive your completed
application, Purchase Payment allocation instructions and any other required
paperwork at our principal place of business. We allocate your initial purchase
payment within two days of receiving it. If we do not have complete
18
information necessary to issue your contract, we will contact you. If we do not
have the information necessary to issue your contract within 5 business days we
will:
- Send your money back to you, or;
- Ask your permission to keep your money until we get the information
necessary to issue the contract.
ACCUMULATION UNITS
When you allocate a Purchase Payment to the Variable Portfolios, we credit
your contract with Accumulation Units of the separate account. We base the
number of Accumulation Units you receive on the unit value of the Variable
Portfolio as of the day we receive your money if we receive it before 1 p.m.
Pacific Standard Time, or on the next business day's unit value if we receive
your money after 1 p.m. Pacific Standard Time. The value of an Accumulation Unit
will go up and down based on the performance of the Variable Portfolios.
We calculate the value of an Accumulation Unit each day that the New York
Stock Exchange ("NYSE") is open as follows:
1. We determine the total value of money invested in a particular Variable
Portfolio;
2. We subtract from that amount all applicable contract charges; and
3. We divide this amount by the number of outstanding Accumulation Units.
We determine the number of Accumulation Units credited to your contract by
dividing the Purchase Payment by the Accumulation Unit value for the specific
Variable Portfolio.
EXAMPLE:
We receive a $25,000 Purchase Payment from you on Wednesday. You allocate
the money to the MFS Total Return Portfolio. The value of an Accumulation
Unit for the MFS Total Return Portfolio is $11.10 when the NYSE closes on
Wednesday. Your Purchase Payment of $25,000 is then divided by $11.10 and
we credit your contract on Wednesday night with 2252.52 Accumulation Units
of the MFS Total Return Portfolio.
Performance of the Variable Portfolios and the charges and expenses under
your contract affect Accumulation Unit values. These factors cause the value of
your contract to go up and down.
FREE LOOK
You may cancel your contract within ten days after receiving it (or longer
if required by state law). AIG SunAmerica Life calls this a "free look." To
cancel, you must mail the contract along with your free look request to the
Annuity Service Center at P.O. Box 54299, Los Angeles, California 90054-0299. We
will refund the value of your contract on the day we receive your request. The
amount refunded to you may be more or less than the amount you originally
invested.
Certain states require us to return your Purchase Payments upon a free look
request. Additionally, all contracts issued as an IRA require the full return of
Purchase Payments upon a free look.
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase you may transfer funds between the Variable
Portfolios and/or the fixed account options. You must transfer at least $100. If
less than $100 will remain in any Variable Portfolio after a transfer, that
amount must be transferred as well.
Subject to certain rules, you may request transfers of your account value
between the Variable Portfolios and/or the fixed account options in writing or
by telephone. Additionally, you may access your account and request transfers
between Variable Portfolios and/or the fixed account options through AIG
SunAmerica's website (http://www.aigsunamerica.com). We currently allow 15 free
transfers per contract per year. A charge of $25 ($10 in Pennsylvania and Texas)
for each additional
19
transfer in any contract year applies after the first 15 transfers. Transfers
resulting from your participation in the DCA program count against your 15 free
transfers per contract year. However, transfers resulting from your
participation in the automatic asset rebalancing program do not count against
your 15 free transfers.
We may accept transfer requests by telephone or the Internet unless you
specify 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
any procedures, we may be liable for any losses due to unauthorized or
fraudulent instructions.
Any transfer request in excess of 15 transfers per contract year must be
submitted in writing by U.S. Mail. Transfer requests sent by same day mail,
overnight mail or courier service will not be accepted. Transfer requests
required to be submitted by U.S. Mail can only be cancelled in a written request
submitted via U.S. Mail. We will process any transfer request as of the day we
receive it, if received before close of the New York Stock Exchange ("NYSE"),
generally at 1:00 p.m. Pacific Standard Time ("PST"). If received after the
close of the NYSE, the request will be processed on the next business day.
Transfers pursuant to Dollar Cost Averaging or Automatic Asset Rebalancing
programs will not count towards Our calculation of when you have exceeded the 15
transfers for purposes of restricting your transfer rights. However, Dollar Cost
Averaging transfers do count towards the 15 free transfers for purposes of
determining when we will begin charging you for transfers over 15.
This product is not designed for professional "market timing" organizations
or other organizations or individuals engaged in trading strategies that seek to
benefit from short term price fluctuations or price irregularities by making
programming transfers, frequent transfers or transfers that are large in
relation to the total assets of the underlying portfolio in which the Variable
Portfolios invest. These market timing strategies are disruptive to the
underlying portfolios in which the Variable Portfolios invest and thereby
potentially harmful to investors. If we determine, in our sole discretion, that
your transfer patterns among the Variable Portfolios reflect a market timing
strategy, we reserve the right to take action to protect the other investors.
Such action may include but would not be limited to restricting the mechanisms
you can use to request transfers among the Variable Portfolios or imposing
penalty fees on such trading activity and/or otherwise restricting transfer
options in accordance with state and federal rules and regulations.
Regardless of the number of transfers you have made, we will monitor and
upon written notification, may terminate your transfer privileges, if we
determine that you are engaging in a pattern of transfers that reflects a market
timing strategy or is potentially harmful to other policy owners. Some of the
factors we will consider include:
- the dollar amount of the transfer;
- the total assets of the Variable Portfolio involved in the transfer;
- the number of transfers completed in the current calendar quarter; or
- whether the transfer is part of a pattern of transfers to take advantage
of short-term market fluctuations or market inefficiencies.
For information regarding transfers during the Income Phase, SEE INCOME
PHASE, TRANSFERS DURING THE INCOME PHASE 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
20
portfolio value from one Variable Portfolio or DCAFAs (source account) to any
other Variable Portfolio (target account). Transfers may occur on certain
periodic schedules such as monthly or weekly and count against your 15 free
transfers per contract year. You may change the frequency to other available
options at any time by notifying us in writing. The minimum transfer amount
under the DCA program is $100 per transaction, regardless of the source account.
Currently, there is no fee for participating in the DCA program.
We may offer DCAFAs exclusively to facilitate the DCA program for a
specified time period. The DCAFAs only accept new Purchase Payments. You cannot
transfer money already in your contract into the DCAFAs. If you allocate new
Purchase Payments into a DCAFA, we transfer all your money into the Variable
Portfolios over the selected time period. You cannot change the option once
selected.
You may terminate the DCA program at any time. If money remains in the
DCAFAs, we transfer the remaining money according to your instructions or to
your current allocation on file. Upon termination of the DCA program, if money
remains in the DCA fixed accounts, we transfer the remaining money to the same
target account(s) as previously designated, unless we receive different
instructions from you. Transfers resulting from a termination of this program do
not count towards your 15 free transfers.
The DCA program is designed to lessen the impact of market fluctuations on
your investment. However, we cannot ensure that you will make a profit. When you
elect the DCA program, you are continuously investing in securities regardless
of fluctuating price levels. You should consider your tolerance for investing
through periods of fluctuating price levels.
We reserve the right to modify, suspend or terminate this program at any
time.
EXAMPLE:
Assume that you want to gradually move $750 each quarter from the Cash
Management Portfolio to the Marsico Growth Portfolio over six months. You
set up dollar cost averaging and purchase Accumulation Units at the
following values:
<Table>
<Caption>
- -----------------------------------------------------------
ACCUMULATION UNITS
MONTH UNIT PURCHASED
- -----------------------------------------------------------
1 $ 7.50 100
2 $ 5.00 150
3 $10.00 75
4 $ 7.50 100
5 $ 5.00 150
6 $ 7.50 100
- -----------------------------------------------------------
</Table>
You paid an average price of only $6.67 per Accumulation Unit over six
months, while the average market price actually was $7.08. By investing an
equal amount of money each month, you automatically buy more Accumulation
Units when the market price is low and fewer Accumulation Units when the
market price is high. This example is for illustrative purposes only.
AUTOMATIC ASSET ALLOCATION REBALANCING PROGRAM
Earnings in your contract may cause the percentage of your investment in
each investment option to differ from your original allocations. The Automatic
Asset Rebalancing Program addresses this situation. At your election, we
periodically rebalance your investments to return your allocations to their
original percentages.
Asset rebalancing typically involves shifting a portion of your money out
of an investment option with a higher return into an investment option with a
lower return. At your request, rebalancing occurs on a quarterly, semiannual or
annual basis. Transfers made as a result of rebalancing do not count against
your 15 free transfers for the contract year.
We reserve the right to modify, suspend or terminate this program at any
time.
21
EXAMPLE:
Assume that you want your initial Purchase Payment split between two
Variable Portfolios. You want 50% in the Government & Quality Bond
Portfolio and 50% in the Marsico Growth Portfolio. Over the next calendar
quarter, the Government & Quality Bond Portfolio outperforms the Marsico
Growth Portfolio. At the end of the calendar quarter, the Government &
Quality Bond Portfolio now represents 60% of your holdings because it has
increased in value and the Marsico Growth Portfolio represents 40% of your
holdings. If you had chosen quarterly rebalancing, on the last day of that
quarter, we would sell some of your units in the Government & Quality Bond
Portfolio to bring its holdings back to 50% and use the money to buy more
units in the Marsico Growth Portfolio to increase those holdings to 50%.
RETURN PLUS PROGRAM
The Return Plus Program allows you to invest in one or more Variable
Portfolios without putting your principal at direct risk. The program
accomplishes this by allocating your investment strategically between the fixed
investment options and Variable Portfolios. You decide how much you want to
invest and approximately when you want a return of principal. We calculate how
much of your Purchase Payment to allocate to the particular fixed account option
to ensure that it grows to an amount equal to your total principal invested
under this program. The remaining principal is invested in the Variable
Portfolio(s) of your choice.
We reserve the right to modify, suspend or terminate this program at any
time.
EXAMPLE:
Assume that you want to allocate a portion of your initial Purchase Payment
of $100,000 to the fixed investment option. You want the amount allocated
to the fixed investment option to grow to $100,000 in 7 years. If the
7-year fixed investment option is offering a 5% interest rate, we will
allocate $71,069 to the 7-year fixed investment option to ensure that this
amount will grow to $100,000 at the end of the 7-year period. The remaining
$28,931 may be allocated among the Variable Portfolios, as determined by
you, to provide opportunity for greater growth.
WITHDRAWALS
You can access money in your contract in two ways:
- by making a partial or total withdrawal, and/or;
- by receiving income payments during the Income Phase. (SEE INCOME PHASE
BELOW.)
Generally, we deduct a withdrawal charge applicable to any total or partial
withdrawal and a MVA against withdrawals from the 3, 5, 7 or 10 year fixed
account options. If you withdraw your entire contract value, a deduction for
premium taxes and the contract maintenance fee also occurs. (SEE CONTRACT
CHARGES, WITHDRAWAL CHARGE ABOVE.)
Under certain Qualified plans, access to the money in your contract may be
restricted. Additionally, withdrawals made prior to age 59 1/2 may result in a
10% IRS penalty tax. (SEE TAXES BELOW.)
Under most circumstances, the partial withdrawal minimum is $1,000. We
require that the value left in any investment option be at least $100 after the
withdrawal. You must send a written withdrawal request. Unless you provide
different instructions, partial withdrawals will be made pro rata from each
Variable Portfolio and the fixed account option in which your contract is
invested.
We may be required to suspend or postpone the payment of a withdrawal for
any period of time when: (1) the NYSE is closed (other than customary weekend
and holiday closings); (2) trading with the NYSE is restricted; (3) an emergency
exists such that disposal of or determination of the value of shares of the
Variable Portfolios is not reasonably practicable; (4) the SEC, by order, so
permits for the protection of contract owners.
22
Additionally, we reserve the right to defer payments for a withdrawal from
a fixed account option. Such deferrals are limited to no longer than six months.
SYSTEMATIC WITHDRAWAL PROGRAM
During the Accumulation Phase, you may elect to receive periodic income
payments under the systematic withdrawal program. Under the program, you may
choose to take monthly, quarterly, semiannual or annual payments from your
contract. Electronic transfer of these funds to your bank account is available.
The minimum amount of each withdrawal is $250. There must be at least $100
remaining in each Variable Portfolio after a withdrawal from your contract at
all times. Withdrawals may be subject to a withdrawal charge, a MVA and
taxation, and a 10% IRS penalty tax may apply if you are under age 59 1/2. There
is no additional charge for participating in this program.
The program is not available to everyone. Please check with our Annuity
Service Center, which can provide the necessary enrollment forms. AIG SunAmerica
Life reserves the right to modify, suspend or terminate this program at any
time.
MINIMUM CONTRACT VALUE
Where permitted by state law, we may terminate your contract if both of the
following occur: (1) your contract is less than $500 as a result of withdrawals;
and (2) you have not made any Purchase Payments during the past three years. We
will provide you with sixty days written notice. At the end of the notice
period, we will distribute the contract value to you.
- --------------------------------------------------------------------------------
INCOME PHASE
- --------------------------------------------------------------------------------
ANNUITY DATE
During the Income Phase, we use the money accumulated in your contract to
make regular income payments to you. You may switch to the Income Phase any time
after your 2nd contract anniversary. You select the month and year in which you
want income payments to begin. The first day of that month is the Annuity Date.
You may change your Annuity Date, so long as you do so at least seven days
before the income payments are scheduled to begin. Once you begin receiving
income payments, you cannot change your income option. Except as indicated under
Option 5 below, once you begin receiving income payments, you cannot otherwise
access your money through a withdrawal or surrender.
Income payments must begin on or before your 90th birthday or on your tenth
contract anniversary, whichever occurs later. If you do not choose an Annuity
Date, your income payments will automatically begin on this date. Certain states
may require your income payments to start earlier.
If the Annuity Date is past your 85th birthday, your contract could lose
its status as an annuity under Federal tax laws. This may cause you to incur
adverse tax consequences.
In addition, most Qualified contracts require you to take minimum
distributions after you reach age 70 1/2. (SEE TAXES BELOW.)
INCOME OPTIONS
Currently, this contract offers five income options. If you elect to
receive income payments but do not select an option, your income payments will
be made in accordance with option 4 for a period of 10 years. For income
payments based on joint lives, we pay according to option 3.
We base our calculation of income payments on the life of the Annuitant and
the annuity rates set forth in your contract. As the contract owner, you may
change the Annuitant at any time prior to the
23
Annuity Date. You must notify us if the Annuitant dies before the Annuity Date
and designate a new Annuitant.
OPTION 1 -- LIFE INCOME ANNUITY
This option provides income payments for the life of the Annuitant. Income
payments stop when the Annuitant dies.
OPTION 2 -- JOINT AND SURVIVOR LIFE ANNUITY
This option provides income payments for the life of the Annuitant and for
the life of another designated person. Upon the death of either person, we will
continue to make income payments during the lifetime of the survivor. Income
payments stop whenever the survivor dies.
OPTION 3 -- JOINT AND SURVIVOR LIFE ANNUITY WITH 10 YEARS GUARANTEED
This option is similar to option 2 above, with an additional guarantee of
payments for at least 10 years. If the Annuitant and the survivor die before all
of the guaranteed income payments have been made, the remaining payments are
made to the Beneficiary under your contract.
OPTION 4 -- LIFE ANNUITY WITH 10 OR 20 YEARS GUARANTEED
This option is similar to option 1 above. In addition, this option provides
a guarantee that income payments will be made for at least 10 or 20 years. You
select the number of years. If the Annuitant dies before all guaranteed income
payments are made, the remaining income payments go to the Beneficiary under
your contract.
OPTION 5 -- INCOME FOR A SPECIFIED PERIOD
This option provides income payments for a guaranteed period ranging from 3
to 30 years. If the Annuitant dies before all of the guaranteed income payments
are made, the remaining income payments will be made to the Beneficiary under
your contract. Additionally, if variable payments are elected under this option,
you (or the Beneficiary under the contract if the Annuitant dies prior to all
guaranteed payments being made) may redeem the contract value after the Annuity
Date. The amount available upon such redemption would be the discounted present
value of any remaining guaranteed payments.
Please read the SAI for a more detailed discussion of the income options.
You can choose income payments that are fixed, variable or both. If at the
date when income payments begin you are invested in the Variable Portfolios
only, your income payments will be variable. If your money is only in fixed
accounts at that time, your income payments will be fixed in amount. Further, if
you are invested in both the fixed and variable investment options when payments
begin your payments will be fixed and variable. If income payments are fixed,
AIG SunAmerica Life guarantees the amount of each payment. If the income
payments are variable, the amount is not guaranteed.
We make income payments on a monthly, quarterly, semiannual or annual
basis. You instruct us to send you a check or to have the payments directly
deposited into your bank account. If state law allows, we distribute annuities
with a contract value of $5,000 or less in a lump sum. Also, if the selected
income option results in income payments of less than $50 per payment, the
frequency of your payments may be decreased, state law allowing.
If you are invested in the Variable Portfolios after the Annuity Date your
income payments vary depending on four things:
- for life options, your age when payments begin, and;
- the value of your contract in the Variable Portfolios on the Annuity
Date, and;
24
- the 3.5% assumed investment rate used in the annuity table for the
contract, and;
- the performance of the Variable Portfolios in which you are invested
during the time you receive income payments.
If you are invested in both the fixed account options and the Variable
Portfolios after the Annuity Date, the allocation of funds between the fixed and
variable options also impacts the amount of your income payments.
TRANSFERS DURING THE INCOME PHASE
During the Income Phase, one transfer per month is permitted from the
Variable Portfolios to another Variable Portfolio or fixed account option. No
other transfers are allowed during the Income Phase.
DEFERMENT OF PAYMENTS
We may defer making fixed income payments for up to six months, or less if
required by law. Interest is credited to you during the deferral period.
- --------------------------------------------------------------------------------
TAXES
- --------------------------------------------------------------------------------
NOTE: WE PREPARED THE FOLLOWING INFORMATION ON TAXES AS A GENERAL
DISCUSSION OF THE SUBJECT. THIS INFORMATION ADDRESSES GENERAL FEDERAL TAXATION
MATTERS, AND GENERALLY DOES NOT ADDRESS STATE TAXATION ISSUES OR QUESTIONS. IT
IS NOT TAX ADVICE. WE CAUTION YOU TO SEEK COMPETENT TAX ADVICE ABOUT YOUR OWN
CIRCUMSTANCES. WE DO NOT GUARANTEE THE TAX STATUS OF YOUR ANNUITY. TAX LAWS
CONSTANTLY CHANGE, THEREFORE, WE CANNOT GUARANTEE THAT THE INFORMATION CONTAINED
HEREIN IS COMPLETE AND/OR ACCURATE.
ANNUITY CONTRACTS IN GENERAL
The Internal Revenue Code ("IRC") provides for special rules regarding the
tax treatment of annuity contracts. Generally, taxes on the earnings in your
annuity contract are deferred until you take the money out. Qualified retirement
investments that satisfy specific tax and ERISA requirements automatically
provide tax deferral regardless of whether the underlying contract is an
annuity, a trust, or a custodial account. Different rules apply depending on how
you take the money out and whether your contract is Qualified or Non-Qualified.
If you do not purchase your contract under a pension plan, a specially
sponsored employer program or an individual retirement account, your contract is
referred to as a Non-Qualified contract. A Non-Qualified contract receives
different tax treatment than a Qualified contract. In general, your cost basis
in a Non-Qualified contract is equal to the Purchase Payments you put into the
contract. You have already been taxed on the cost basis in your contract.
If you purchase your contract under a pension plan, a specially sponsored
employer program or as an individual retirement account, your contract is
referred to as a Qualified contract. Examples of qualified plans are: Individual
Retirement Accounts ("IRAs"), Roth IRAs, Tax-Sheltered Annuities (referred to as
403(b) contracts), plans of self-employed individuals (often referred to as H.R.
10 Plans or Keogh Plans) and pension and profit sharing plans, including 401(k)
plans. Typically you have not paid any tax on the Purchase Payments used to buy
your contract and therefore, you have no cost basis in your contract. However,
you normally will have cost basis in a Roth IRA, and you may have cost basis in
a traditional IRA or in another Qualified Contract.
25
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
Generally, you have not paid any taxes on the Purchase Payments used to buy
a Qualified contract. As a result, with certain limited exceptions, any amount
of money you take out as a withdrawal or as income payments is taxable income.
The IRC further provides for a 10% penalty tax on any taxable withdrawal or
income payment paid to you other than in conjunction with the following
circumstances: (1) after reaching age 59 1/2; (2) when paid to your Beneficiary
after you die; (3) after you become disabled (as defined in the IRC); (4) in a
series of substantially equal installments, made for your life or for the joint
lives of you and your Beneficiary, that begins after separation from service
with the employer sponsoring the plan; (5) to the extent such withdrawals do not
exceed limitations set by the IRC for deductible amounts paid during the taxable
year for medical care; (6) to fund higher education expenses (as defined in IRC;
only from an IRA); (7) to fund certain first-time home purchase expenses (only
from an IRA); and, except in the case of an IRA; (8) when you separate from
service after attaining age 55; (9) when paid for health insurance if you are
unemployed and meet certain requirements; and (10) when paid to an alternate
payee pursuant to a qualified domestic relations order.
The IRC limits the withdrawal of an employee's voluntary Purchase Payments
to a Tax-Sheltered Annuity (TSA). Withdrawals can only be made when an owner:
(1) reaches age 59 1/2; (2) severs employment with the employer; (3) dies; (4)
becomes disabled (as defined in the IRC); or (5) experiences a hardship (as
defined in the IRC). In the case of hardship, the owner can only withdraw
Purchase Payments. Additional plan limitations may also apply. Amounts held in a
TSA annuity contract as of December 31, 1988 are not subject to these
restrictions. Qualifying transfers of amounts from one TSA contract to another
TSA contract under section 403(b) or to a custodial account under section
403(b)(7), and qualifying transfers to a state defined benefit plan to purchase
service credits, are not considered distributions, and thus are not subject to
these withdrawal limitations. If amounts are transferred from a custodial
account described in Code section 403(b)(7) to this contract the transferred
amount will retain the custodial account withdrawal restrictions.
Withdrawals from other Qualified Contracts are often limited by the IRC and
by the employer's plan.
MINIMUM DISTRIBUTIONS
Generally, the IRS requires that you begin taking annual distributions from
qualified annuity contracts by April 1 of the calendar year following the later
of (1) the calendar year in which you attain age 70 1/2 or (2) the calendar year
in which you retire. If you own an IRA, you must begin taking distributions when
you attain age 70 1/2, regardless of when you retire. If you own more than one
TSA, you may be permitted to take your annual distributions in any combination
from your TSAs. A similar rule applies if you own more than one IRA. However,
you cannot satisfy this distribution requirement
26
for your TSA contract by taking a distribution from an IRA, and you cannot
satisfy the requirement for your IRA by taking a distribution from a TSA.
You may be subject to a surrender charge on withdrawals taken to meet
minimum distribution requirements, if the withdrawals exceed the contract's
maximum penalty free amount.
Failure to satisfy the minimum distribution requirements may result in a
tax penalty. You should consult your tax advisor for more information.
You may elect to have the required minimum distribution amount on your
contract calculated and withdrawn each year under the automatic withdrawal
option. You may select either monthly, quarterly, semiannual or annual
withdrawals for this purpose. This service is provided as a courtesy and we do
not guarantee the accuracy of our calculations. Accordingly, we recommend you
consult your tax advisor concerning your required minimum distribution. You may
terminate your election for automated minimum distribution at any time by
sending a written request to our Annuity Service Center. We reserve the right to
change or discontinue this service at any time.
TAX TREATMENT OF DEATH BENEFITS
Any death benefits paid under the contract are taxable to the Beneficiary.
The rules governing the taxation of payments from an annuity contract, as
discussed above, generally apply whether the death benefits are paid as lump sum
or annuity payments. Estate taxes may also apply.
Certain enhanced death benefits may be purchased under your contract.
Although these types of benefits are used as investment protection and should
not give rise to any adverse tax effects, the IRS could take the position that
some or all of the charges for these death benefits should be treated as a
partial withdrawal from the contract. In such case, the amount of the partial
withdrawal may be includible in taxable income and subject to the 10% penalty if
the owner is under 59 1/2.
If you own a Qualified contract and purchase these enhanced death benefits,
the IRS may consider these benefits "incidental death benefits." The IRC imposes
limits on the amount of the incidental death benefits allowable for Qualified
contracts. If the death benefit(s) selected by you are considered to exceed
these limits, the benefit(s) could result in taxable income to the owner of the
Qualified contract. Furthermore, the IRC provides that the assets of an IRA
(including a Roth IRA) may not be invested in life insurance, but may provide,
in the case of death during the Accumulation Phase, for a death benefit payment
equal to the greater of Purchase Payments or Contract Value. This Contract
offers death benefits, which may exceed the greater of Purchase Payments or
Contract Value. If the IRS determines that these benefits are providing life
insurance, the contract may not qualify as an IRA (including Roth IRAs). You
should consult your tax adviser regarding these features and benefits prior to
purchasing a contract.
CONTRACTS OWNED BY A TRUST OR CORPORATION
A Trust or Corporation ("Non-Natural Owner") that is considering purchasing
this contract should consult a tax advisor. Generally, the IRC does not treat a
Non-Qualified contract owned by a non-natural owner as an annuity contract for
Federal income tax purposes. The non-natural owner pays tax currently on the
contract's value in excess of the owner's cost basis. However, this treatment is
not applied to a Contract held by a trust or other entity as an agent for a
natural person nor to Contracts held by Qualified Plans. See the SAI for a more
detailed discussion of the potential adverse tax consequences associated with
non-natural ownership of a non-qualified annuity contract.
GIFTS, PLEDGES AND/OR ASSIGNMENTS OF A NON-QUALIFIED CONTRACT
If you transfer ownership of your Non-Qualified contract to a person other
than your spouse (or former spouse incident to divorce) as a gift you will pay
federal income tax on the contract's cash value to the extent it exceeds your
cost basis. The recipient's cost basis will be increased by the amount on which
you will pay federal taxes. Also, the IRC treats any assignment or pledge (or
27
agreement to assign or pledge) of any portion of a Non-Qualified contract as a
withdrawal. See the SAI for a more detailed discussion regarding potential tax
consequences of gifting, assigning or pledging a non-qualified contract.
DIVERSIFICATION AND INVESTOR CONTROL
The IRC imposes certain diversification requirements on the underlying
investments for a variable annuity. We believe that the underlying Variable
Portfolios' management monitors the Variable Portfolios so as to comply with
these requirements. To be treated as a variable annuity for tax purposes, the
underlying investments must meet these requirements.
The diversification regulations do not provide guidance as to the
circumstances under which you, and not AIG SunAmerica Life, would be considered
the owner of the shares of the Variable Portfolios under your Nonqualified
Contract, because of the degree of control you exercise over the underlying
investments. This diversification requirement is sometimes referred to as
"investor control." It is unknown to what extent owners are permitted to select
investments, to make transfers among Variable Portfolios or the number and type
of Variable Portfolios owners may select from. If any guidance is provided which
is considered a new position, then the guidance would generally be applied
prospectively. However, if such guidance is considered not to be a new position,
it may be applied retroactively. This would mean you, as the owner of the
Nonqualified Contract, could be treated as the owner of the underlying Variable
Portfolios. Due to the uncertainty in this area, we reserve the right to modify
the contract in an attempt to maintain favorable tax treatment.
These investor control limitations generally do not apply to Qualified
Contracts, which are referred to as "Pension Plan Contracts" for purposes of
this rule, although the limitations could be applied to Qualified Contracts in
the future.
- --------------------------------------------------------------------------------
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 the annual maintenance fee and dollar cost averaging, may be confirmed
quarterly. Purchase payments received through the automatic payment plan or a
salary reduction arrangement, may also be confirmed quarterly. For all other
transactions, we send confirmations immediately.
During the accumulation and income phases, you will receive a statement of
your transactions over the past quarter and a summary of your account values.
It is your responsibility to review these documents carefully and notify us
of any inaccuracies immediately. We investigate all inquiries. To the extent
that we believe we made an error, we retroactively adjust your contract,
provided you notify us within 30 days of receiving the transaction confirmation
or quarterly statement. Any other adjustments we deem warranted are made as of
the time we receive notice of the error.
DISTRIBUTION OF CONTRACTS
Registered representatives of broker-dealers sell the contract. AIG
SunAmerica Life pays commissions to these representatives for the sale of the
contracts. We do not expect the total commissions to exceed 6.5% of your
Purchase Payments. We may also pay a bonus to representatives for contracts
28
which stay active for a particular period of time, in addition to standard
commissions. We do not deduct commissions paid to registered representatives
directly from your Purchase Payments.
From time to time, we may pay or allow additional promotional incentives in
the form of cash or other compensation. We reserve the right to offer these
additional incentives only to certain broker-dealers that sell or are expected
to sell, certain minimum amounts of the contract, or other contracts offered by
us. Promotional incentives may change at any time.
AIG SunAmerica Capital Services, Inc., Harborside Financial Center, 3200
Plaza 5, Jersey City, NJ 07311-4992, distributes the contracts. AIG SunAmerica
Capital Services, an affiliate of AIG SunAmerica Life, is registered as a
broker-dealer under the Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. No underwriting fees are paid in
connection with the distribution of the contracts.
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
There are no pending legal proceedings affecting the Separate Account. AIG
SunAmerica Life engages in various kinds of routine litigation. In management's
opinion these matters are not of material importance to the Company's total
assets nor are they with respect to the assets of the Separate Account.
- --------------------------------------------------------------------------------
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
A registration statement has been filed with the SEC under the Securities
Act of 1933 relating to the contract. This prospectus does not contain all the
information in the registration statement as permitted by SEC regulations. The
omitted information can be obtained from the SEC's principal office in
Washington, D.C., upon payment of a prescribed fee.
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
The consolidated financial statements of AIG SunAmerica Life Assurance
Company (formerly, Anchor National Life Insurance Company) at December 31, 2002
and 2001, and for each of the three years in the period ended December 31, 2002,
and financial statements of Variable Annuity Account Two at August 31, 2003 and
for each of the two years in the period ended August 31, 2003 are incorporated
herein by reference in this prospectus in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
29
- --------------------------------------------------------------------------------
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Additional information concerning the operations of the separate account is
contained in a Statement of Additional Information ("SAI"), which is available
without charge upon written request addressed to us at our Annuity Service
Center, P.O. Box 54299, Los Angeles, California 90054-0299 or by calling (800)
445-SUN2. The contents of the SAI are tabulated below.
<Table>
<Caption>
PAGE
----
Performance Data............................................ 1
Income Payments............................................. 3
Annuity Unit Values......................................... 3
Qualified Plans............................................. 6
Distribution of Contracts................................... 10
Financial Statements........................................ 11
</Table>
30
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX A - MARKET VALUE ADJUSTMENT ("MVA")
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The information in this Appendix applies only if you take money out of a
FAGP (with a duration longer than 1 year) before the end of the guarantee
period.
We calculate the MVA by doing a comparison between current rates and the
rate being credited to you in the FAGP. For the current rate We use a rate being
offered by Us for a guarantee period that is equal to the time remaining in the
FAGP from which you seek withdrawal (rounded up to a full number of years). If
we are not currently offering a guarantee period for that period of time, We
determine an applicable rate by using a formula to arrive at a number based on
the interest rates currently offered for the two closest periods available.
Where the MVA is negative, We first deduct the adjustment from any money
remaining in the FAGP. If there is not enough money in the FAGP to meet the
negative deduction, We deduct the remainder from your withdrawal. Where the MVA
is positive, We add the adjustment to your withdrawal amount. If a withdrawal
charge applies, it is deducted before the MVA calculation. The MVA is assessed
on the amount withdrawn less any withdrawal charges.
The MVA is computed by multiplying the amount withdrawn, transferred or
taken under an income option by the following factor:
[(1+I/(1+J+L)]N/12 - 1
where:
I is the interest rate you are earning on the money invested in the
FAGP;
J is the interest rate then currently available for the period of time
equal to the number of years remaining in the term you initially agreed
to leave your money in the FAGP;
N is the number of full months remaining in the term you initially
agreed to leave your money in the FAGP; and
L is 0.005 (some states require a different value. Please see your
contract.)
We do not assess an MVA against withdrawals from an FAGP under the
following circumstances:
- If a withdrawal is made within 30 days after the end of a guarantee
period;
- If a withdrawal is made to pay contract fees and charges;
- To pay a death benefit; and
- Upon beginning an income option, if occurring on the Latest Annuity Date.
EXAMPLES OF THE MVA
The purpose of the examples below is to show how the MVA adjustments are
calculated and may not reflect the Guarantee periods available or Surrender
Charges applicable under your contract.
The examples below assume the following:
(1) You made an initial Purchase Payment of $10,000 and allocated it to a
FAGP at a rate of 5%;
(2) You make a partial withdrawal of $4,000 when 1 1/2 years (18 months)
remain in the term you initially agreed to leave your money in the FAGP
(N=18);
(3) You have not made any other transfers, additional Purchase Payments, or
withdrawals; and
(4) Your contract was issued in a state where L=0.005.
POSITIVE ADJUSTMENT, NO WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for a
new Purchase Payments in the 1-year FAGP is 3.5% and the 3-year FAGP is 4.5%. By
linear interpolation, the interest rate for
A-1
the remaining 2 years (1 1/2 years rounded up to the next full year) in the
contract is calculated to be 4%. No withdrawal charge is reflected in this
example, assuming that the Purchase Payment withdrawn falls within the free look
amount.
The MVA factor is = [(1+I/(1+J+0.005)]N/12 - 1
= [(1.05)/(1.04+0.005)](18/12) - 1
= (1.004785)1.5 - 1
= 1.007186 - 1
= + 0.007186
The requested withdrawal amount is multiplied by the MVA factor to
determine the MVA:
$4,000 X (+0.007186) = +$28.74
$28.74 represents the positive MVA that would be added to the withdrawal.
NEGATIVE ADJUSTMENT, NO WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 5.5% and the 3-year FAGP is 6.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 6%. No
withdrawal charge is reflected in this example, assuming that the Purchase
Payment withdrawn falls with the free withdrawal amount.
The MVA factor is = [(1+I)/(1+J+0.005)](N/12) - 1
= [(1.05)/(1.06+0.005)](18/12) - 1
= (0.985915)(1.5) - 1
= 0.978948 - 1
= - 0.021052
The requested withdrawal amount is multiplied by the MVA factor to
determine the MVA:
$4,000 X (-0.021052) = -$84.21
$84.21 represents the negative MVA that will be deducted from the money
remaining in the 3-year FAGP.
POSITIVE ADJUSTMENT, WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 3.5% and the 3-year FAGP is 4.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 4%. A
withdrawal charge of 6% is reflected in this example, assuming that the Purchase
Payment withdrawn exceeds the free withdrawal amount.
The MVA factor is = [(1+I)/(I+J+0.005)](N/12) - 1
= [(1.05)/(1.04+0.005)](18/12) - 1
= (1.004785)(1.5) - 1
= 1.007186 - 1
= + 0.007186
The requested withdrawal amount, less the withdrawal charge ($4,000 - 6% =
$3,760) is multiplied by the MVA factor to determine the MVA:
$3,760 X (+0.007186) = +$27.02
$27.02 represents the positive MVA that would be added to the withdrawal.
A-2
NEGATIVE ADJUSTMENT, WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 5.5% and the 3-year FAGP is 6.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 6%. A
withdrawal charge of 6% is reflected in this example, assuming that the Purchase
Payment withdrawn exceeds the free withdrawal amount.
The MVA factor is = [(1+I)/(I+J+0.005)](N/12) - 1
= [(1.05)/(1.06+0.005)](18/12) - 1
= (0.985915)(1.5) - 1
= 0.978948 - 1
= - 0.021052
The requested withdrawal amount, less the withdrawal charge ($4,000 - 6% =
$3,760) is multiplied by the MVA factor to determine the MVA:
$3,760 X (-0.021052) = -$79.16
$79.16 represents the negative MVA that would be deducted from the
withdrawal.
A-3
APPENDIX B
WITHDRAWALS AND WITHDRAWAL CHARGES
PART 1 -- SEPARATE ACCOUNT (THE MVA DOES NOT APPLY TO THE SEPARATE ACCOUNT)
These examples assume the following:
(1) The initial Purchase Payment was $10,000, allocated solely to one
Variable Portfolio;
(2) The date of full surrender or partial withdrawal occurs during the
3rd contribution year;
(3) The contract value at the time of surrender or withdrawal is
$12,000; and
(4) No other Purchase Payments or previous partial withdrawals have
been made.
EXAMPLE A -- FULL SURRENDER:
(1) Earnings in the Variable Portfolio ($12,000 - $10,000 = $2,000)
are not subject to the withdrawal charge.
(2) The balance of the full surrender ($12,000 - $2,000 = $10,000) is
subject to a 5% withdrawal charge applicable during the 3rd contribution
year.
(3) The amount of the withdrawal charge is .05 X $10,000 = $500.
(4) The contract administration charge is deducted from the full
surrender amount. The amount of the full surrender is
$12,000 - $500 - $30 = $11,470.
EXAMPLE B -- PARTIAL WITHDRAWAL (IN THE AMOUNT OF $3,000):
(1) For the same reasons as given in Steps 1 and 2 of Example A,
above, $2,000 can be withdrawn free of the withdrawal charge.
(2) Although 10% of the Purchase Payment is available without
imposition of a withdrawal charge (.10 X $10,000 = $1,000), this free
withdrawal amount is, like the withdrawal charge, applied first to
earnings. Since the earnings exceed the free withdrawal amount, only the
earnings can be withdrawn free of the scheduled withdrawal charge.
(3) The balance of the requested partial withdrawal
($3,000 - $2,000 = $1,000) is subject to the withdrawal charge applicable
during the 3rd contribution year (5%).
(4) The amount of the withdrawal charge is equal to the amount
required to complete the partial withdrawal ($3,000 - $2,000 = $1,000)
divided by (1 - .05) = 0.95, less the amount required to complete the
partial withdrawal.
withdrawal charge = ($1,000/0.95) - $1,000
= $52.63
In this example, in order for the owner to receive the amount requested
($3,000), a gross withdrawal of $3,052.63 must be processed with $52.63
representing the withdrawal charge calculated above.
Examples C and D assume the following:
(1) The initial Purchase Payment was $20,000, allocated solely to one
Variable Portfolio;
(2) The full surrender or partial withdrawal occurs during the 3rd
contribution year;
B-1
(3) The owner's contract value at the time of surrender or withdrawal
is $21,500; and
(4) No other Purchase Payments or partial withdrawals have been made.
EXAMPLE C -- PARTIAL WITHDRAWAL (IN THE MAXIMUM AMOUNT AVAILABLE WITHOUT
WITHDRAWAL CHARGE):
(1) Earnings in the Variable Portfolio ($21,500 - $20,000 = $1,500)
are not subject to the withdrawal charge.
(2) An additional free withdrawal of 10% of the Purchase Payments less
earnings (.10 X $20,000 - $1,500 = $500) is also available free of the
withdrawal charge, so that
(3) The maximum partial withdrawal without withdrawal charge is the
sum of the earnings and the additional free withdrawal
($1,500 + $500 = $2,000).
EXAMPLE D -- FULL SURRENDER IMMEDIATELY FOLLOWING THE PARTIAL WITHDRAWAL IN
EXAMPLE C:
(1) The owner's contract value after the partial withdrawal in Example C
is $21,500 - $2,000 = $19,500.
(2) The Purchase Payment amount for calculating the withdrawal charge
is the original $20,000 (additional free withdrawal amounts do not reduce
the Purchase Payment amount for purposes of calculating the withdrawal
charge).
(3) The amount of the withdrawal charge is .05 X $20,000 = $1,000.
(4) The contract administration charge is deducted from the full
surrender amount. The amount of the full surrender is
$19,500 - $1,000 - $30 = $18,470.
B-2
APPENDIX C
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
- --------------------------------------------------------------------------------
<Table>
<Caption>
FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR
PORTFOLIOS 08/31/98 08/31/99 08/31/00 08/31/01 08/31/02 08/31/03*
---------- ----------- ----------- ----------- ----------- ----------- -----------
International Equity
Beginning AUV............... $ 11.67 $ 11.22 $ 13.83 $ 16.45 $ 12.206 $ 11.140
Ending AUV.................. $ 11.22 $ 13.83 $ 16.45 $ 12.21 $ 11.140 $ 11.784
Ending Number of AUs........ 177,422 138,949 98,829 77,743 60,562 53,988
Capital Growth
Beginning AUV............... $ 17.51 $ 14.43 $ 18.58 $ 23.46 $ 20.651 $ 15.946
Ending AUV.................. $ 14.43 $ 18.58 $ 23.46 $ 20.65 $ 15.946 $ 19.440
Ending Number of AUs........ 346,507 270,686 194,169 172,385 139,248 113,020
Growth and Income
Beginning AUV............... $ 17.47 $ 16.29 $ 19.47 $ 21.19 $ 17.275 $ 14.349
Ending AUV.................. $ 16.29 $ 19.47 $ 21.19 $ 17.27 $ 14.349 $ 15.753
Ending Number of AUs........ 421,494 310,897 224,499 207,061 168,217 137,556
Asset Allocation
Beginning AUV............... $ 14.49 $ 14.30 $ 15.76 $ 16.99 $ 14.199 $ 12.758
Ending AUV.................. $ 14.30 $ 15.76 $ 16.99 $ 14.20 $ 12.758 $ 13.582
Ending Number of AUs........ 94,030 90,646 72,790 67,946 62,006 50,297
U.S. Government Income
Beginning AUV............... $ 11.50 $ 12.61 $ 12.28 $ 13.06 $ 14.245 $ 15.289
Ending AUV.................. $ 12.61 $ 12.28 $ 13.06 $ 14.24 $ 15.289 $ 15.372
Ending Number of AUs........ 75,003 72,653 60,517 56,958 50,317 34,036
Money Market
Beginning AUV............... $ 10.84 $ 11.22 $ 11.58 $ 12.06 $ 12.485 $ 12.511
Ending AUV.................. $ 11.22 $ 11.58 $ 12.06 $ 12.49 $ 12.511 $ 12.419
Ending Number of AUs........ 22,868 31,391 19,313 20,194 15,815 10,229
</Table>
- ---------------
AUV -- Accumulation Unit Value
AU -- Accumulation Units
On December 5, 2003, the six portfolios of the Mutual Fund Variable Annuity
Trust (the "old trust") were merged into five portfolios of the SunAmerica
Series Trust (the "new trusts"). In addition to the mergers, a new portfolio was
added of the Anchor Series Trust. The Condensed Financial Information for the
fiscal year ending August 31, 2003 reflects AUVs of the old trust portfolios
prior to the merger.
C-1
- --------------------------------------------------------------------------------
Please forward a copy (without charge) of the Statement of Additional
Information concerning Vista Capital Advantage issued by AIG SunAmerica
Life Assurance Company to:
(Please print or type and fill in all information.)
---------------------------------------------------------------------
Name
---------------------------------------------------------------------
Address
---------------------------------------------------------------------
City/State/Zip
<Table>
Date: ------------------------------------ Signed: ---------------------------------------
</Table>
Return to: AIG SunAmerica Life Assurance Company, Annuity Service Center,
P.O. Box 52499, Los Angeles, California 90054-0299
- --------------------------------------------------------------------------------
(POLARIS CHOICE II LOGO)
PROSPECTUS
MAY 3, 2004
<Table>
Please read this prospectus FLEXIBLE PAYMENT DEFERRED ANNUITY CONTRACTS
carefully before investing and issued by
keep it for future reference. AIG SUNAMERICA LIFE ASSURANCE COMPANY
It contains important in connection with
information about the Polaris VARIABLE SEPARATE ACCOUNT
Choice(II) Variable Annuity. The annuity has several investment choices - Variable Portfolios listed below
and available fixed account options. The Variable Portfolios are part of the
To learn more about the Anchor Series Trust ("AST"), SunAmerica Series Trust ("SAST"), American Funds
annuity offered by this Insurance Series ("AFIS"), Lord Abbett Series Fund, Inc. ("LASF"), Nations
prospectus, you can obtain a Separate Account Trust ("NSAT") and Van Kampen Life Investment Trust ("VKT").
copy of the Statement of
Additional Information ("SAI") STOCKS:
dated May 3, 2004. The SAI has MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
been filed with the Securities - Aggressive Growth Portfolio SAST
and Exchange Commission - Blue Chip Growth Portfolio SAST
("SEC") and is incorporated by - "Dogs" of Wall Street Portfolio* SAST
reference into this - Growth Opportunities Portfolio SAST
prospectus. The Table of MANAGED BY ALLIANCEBERNSTEIN
Contents of the SAI appears in - Small & Mid Cap Value Portfolio SAST
this prospectus. For a free MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
copy of the SAI, call us at - Alliance Growth Portfolio SAST
(800) 445-SUN2 or write to us - Global Equities Portfolio SAST
at our Annuity Service Center, - Growth & Income Portfolio SAST
P.O. Box 54299, Los Angeles, MANAGED BY CAPITAL RESEARCH AND MANAGEMENT COMPANY
California 90054-0299. - American Funds Global Growth Portfolio AFIS
- American Funds Growth Portfolio AFIS
In addition, the SEC maintains - American Funds Growth-Income Portfolio AFIS
a website (http://www.sec.gov) MANAGED BY DAVIS ADVISORS
that contains the SAI, - Davis Venture Value Portfolio SAST
materials incorporated by - Real Estate Portfolio SAST
reference and other MANAGED BY FEDERATED EQUITY MANAGEMENT COMPANY
information filed - Federated American Leaders Portfolio* SAST
electronically with the SEC by MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT, L.P.
AIG SunAmerica Life Assurance - Goldman Sachs Research Portfolio SAST
Company. MANAGED BY LORD, ABBETT & CO.
- Lord Abbett Series Fund Growth and Income Portfolio LASF
ANNUITIES INVOLVE RISKS, MANAGED BY MARSICO CAPITAL MANAGEMENT, LLC
INCLUDING POSSIBLE LOSS OF - Nations Marsico Focused Equities Portfolio NSAT
PRINCIPAL, AND ARE NOT A MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
DEPOSIT OR OBLIGATION OF, OR - MFS Massachusetts Investors Trust Portfolio SAST
GUARANTEED OR ENDORSED BY, ANY - MFS Mid-Cap Growth Portfolio SAST
BANK. THEY ARE NOT FEDERALLY MANAGED BY PUTNAM INVESTMENT MANAGEMENT, LLC
INSURED BY THE FEDERAL DEPOSIT - Emerging Markets Portfolio SAST
INSURANCE CORPORATION, THE - International Growth & Income Portfolio SAST
FEDERAL RESERVE BOARD OR ANY - Putnam Growth: Voyager Portfolio SAST
OTHER AGENCY. MANAGED BY TEMPLETON INVESTMENT COUNSEL, LLC
- Foreign Value Portfolio SAST
MANAGED BY VAN KAMPEN/VAN KAMPEN ASSET MANAGEMENT
- International Diversified Equities Portfolio SAST
- Technology Portfolio SAST
- Van Kampen LIT Comstock Portfolio, Class II Shares* VKT
- Van Kampen LIT Emerging Growth Portfolio, Class II Shares VKT
- Van Kampen LIT Growth and Income Portfolio, Class II Shares VKT
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio AST
- Growth Portfolio AST
- Natural Resources Portfolio AST
BALANCED:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- SunAmerica Balanced Portfolio SAST
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Total Return Portfolio SAST
MANAGED BY WM ADVISORS, INC.
- Asset Allocation Portfolio 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 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" 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.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
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.
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 Capital Protector Fee.............................. 5
Optional Polaris Income Rewards Fee......................... 5
Contract Maintenance Fee.................................... 5
Annual Separate Account Expenses............................ 5
Optional Enhanced Death Benefit Fee......................... 5
Optional EstatePlus Fee..................................... 5
Portfolio Expenses.......................................... 5
EXAMPLES.......................................................... 6
THE POLARIS CHOICE(II) VARIABLE ANNUITY........................... 7
PURCHASING A POLARIS CHOICE(II) VARIABLE ANNUITY.................. 7
Allocation of Purchase Payments............................. 8
Accumulation Units.......................................... 8
Free Look................................................... 8
INVESTMENT OPTIONS................................................ 9
Variable Portfolios......................................... 9
Anchor Series Trust..................................... 9
SunAmerica Series Trust................................. 9
American Funds Insurance Series......................... 9
Lord Abbett Series Fund, Inc. .......................... 9
Nations Separate Account Trust.......................... 9
Van Kampen Life Investment Trust........................ 9
Fixed Account Options....................................... 10
Asset Allocation Program.................................... 11
Transfers During the Accumulation Phase..................... 11
Dollar Cost Averaging....................................... 12
Asset Allocation Rebalancing Program........................ 13
Return Plus Program......................................... 13
Voting Rights............................................... 13
Substitution................................................ 13
ACCESS TO YOUR MONEY.............................................. 13
Systematic Withdrawal Program............................... 15
Minimum Contract Value...................................... 15
OPTIONAL LIVING BENEFITS.......................................... 15
Polaris Income Rewards...................................... 15
Capital Protector........................................... 18
DEATH BENEFIT..................................................... 20
Standard Death Benefit...................................... 21
Optional Enhanced Death Benefit............................. 21
Purchase Payment Accumulation Option........................ 21
Maximum Anniversary Option.................................. 21
EstatePlus.................................................. 22
Spousal Continuation........................................ 23
EXPENSES.......................................................... 24
Separate Account Charges.................................... 24
Withdrawal Charges.......................................... 24
Investment Charges.......................................... 24
Contract Maintenance Fee.................................... 25
Transfer Fee................................................ 25
Optional Capital Protector Fee.............................. 25
Optional Polaris Income Rewards Fee......................... 25
Optional Enhanced Death Benefit Fee......................... 25
Optional Estate Plus Fee.................................... 25
Premium Tax................................................. 25
Income Taxes................................................ 25
Reduction or Elimination of Charges and Expenses,
and Additional Amounts Credited........................... 25
INCOME OPTIONS.................................................... 25
Annuity Date................................................ 25
Income Options.............................................. 26
Fixed or Variable Income Payments........................... 26
Income Payments............................................. 26
Transfers During the Income Phase........................... 27
Deferment of Payments....................................... 27
TAXES............................................................. 27
Annuity Contracts in General................................ 27
Tax Treatment of Distributions - Non-Qualified Contracts.... 27
Tax Treatment of Distributions - Qualified Contracts........ 28
Minimum Distributions....................................... 28
Tax Treatment of Death Benefits............................. 28
Contracts Owned by a Trust or Corporation................... 29
Gifts, Pledges and/or Assignments of a Contract............. 29
Diversification and Investor Control........................ 29
PERFORMANCE....................................................... 29
OTHER INFORMATION................................................. 30
AIG SunAmerica Life......................................... 30
The Separate Account........................................ 30
The General Account......................................... 30
Payments in Connection with Distribution of the Contract.... 30
Administration.............................................. 31
Legal Proceedings........................................... 31
Ownership................................................... 31
Independent Accountants..................................... 31
Registration Statement...................................... 31
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL
INFORMATION.................................................... 31
APPENDIX A - CONDENSED FINANCIALS................................. A-1
APPENDIX B - MARKET VALUE ADJUSTMENT ("MVA")...................... B-1
APPENDIX C - DEATH BENEFITS FOLLOWING SPOUSAL
CONTINUATION................................................... C-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 10th contract anniversary,
whichever is later.
NON-QUALIFIED (CONTRACT) - A contract purchased with after-tax dollars.
In general, these contracts are not under any pension plan, specially
sponsored program or individual retirement account ("IRA").
PURCHASE PAYMENTS - The money you give us to buy the contract, as well
as any additional money you give us to invest in the contract after you
own it.
QUALIFIED (CONTRACT) - A contract purchased with pretax dollars. These
contracts are generally purchased under a pension plan, specially
sponsored program or IRA.
TRUSTS - Refers to the American Funds Insurance Series, Anchor Series
Trust, the SunAmerica Series Trust, Lord Abbett Series Fund, Inc.,
Nations Separate Account Trust and Van Kampen Life Investment Trust
collectively.
</Table>
3
<Table>
VARIABLE PORTFOLIO(S) - A sub-account of Variable Separate Account which
provides for the variable investment options available under the
contract. Each Variable Portfolio has its own investment objective and
is invested in the underlying investments of the American Funds
Insurance Series, the Anchor Series Trust, the SunAmerica Series Trust,
Lord Abbett Series Fund, Inc., the Nations Separate Account Trust or the
Van Kampen Life Investment Trust as applicable. The underlying
investment portfolios may be referred to as "Underlying Funds."
</Table>
- ----------------------------------------------------------------
- ----------------------------------------------------------------
HIGHLIGHTS
- ----------------------------------------------------------------
- ----------------------------------------------------------------
The Polaris Choice(II) Variable Annuity is a contract between you and AIG
SunAmerica Life. It is designed to help you invest on a tax-deferred basis and
meet long-term financial goals. There are minimum Purchase Payment amounts
required to purchase a contract. Purchase Payments may be invested in a variety
of variable and fixed account options. Like all deferred annuities, the contract
has an Accumulation Phase and an Income Phase. During the Accumulation Phase,
you invest money in your contract. The Income Phase begins when you start
receiving income payments from your annuity to provide for your retirement.
FREE LOOK: You may cancel your contract within 10 days after receiving it (or
whatever period is required in your state). You will receive whatever your
contract is worth on the day that we receive your request. The amount refunded
may be more or less than your original Purchase Payment. We will return your
original Purchase Payment if required by law. Please see PURCHASING A POLARIS
CHOICE(II) VARIABLE ANNUITY in the prospectus.
EXPENSES: There are fees and charges associated with the contract. Each year, we
deduct a $35 contract maintenance fee from your contract, which may be waived
for contracts of $50,000 or more. We also deduct separate account charges which
equal 1.52% annually of the average daily value of your contract allocated to
the Variable Portfolios. There are investment charges on amounts invested in the
Variable Portfolios. If you elect optional features available under the contract
we may charge additional fees for those features. A separate withdrawal charge
schedule applies to each Purchase Payment. The amount of the withdrawal charge
declines over time. After a Purchase Payment has been in the contract for three
complete years, withdrawal charges no longer apply to that portion of the
Purchase Payment. Please see the FEE TABLE, PURCHASING A POLARIS CHOICE(II)
VARIABLE ANNUITY and EXPENSES in the prospectus.
ACCESS TO YOUR MONEY: You may withdraw money from your contract during the
Accumulation Phase. If you do so, earnings are deemed to be withdrawn first. You
will pay income taxes on earnings and untaxed contributions when you withdraw
them. Payments received during the Income Phase are considered partly a return
of your original investment. A federal tax penalty may apply if you make
withdrawals before age 59 1/2. As noted above, a withdrawal charge may apply.
Please see ACCESS TO YOUR MONEY and TAXES in the prospectus.
DEATH BENEFIT: A death benefit feature is available under the contract to
protect your Beneficiaries in the event of your death during the Accumulation
Phase. Please see DEATH BENEFITS in the prospectus.
INCOME OPTIONS: When you are ready to begin taking income, you can choose to
receive income payments on a variable basis, fixed basis or a combination of
both. You may also choose from five different income options, including an
option for income that you cannot outlive. Please see INCOME OPTIONS in the
prospectus.
INQUIRIES: If you have questions about your contract call your financial
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. 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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEE TABLES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY AT THE TIME THAT
YOU BUY THE CONTRACT, SURRENDER THE CONTRACT, OR TRANSFER CASH VALUE BETWEEN
INVESTMENT OPTIONS.
MAXIMUM OWNER TRANSACTION EXPENSES
<Table>
MAXIMUM WITHDRAWAL CHARGES (AS A PERCENTAGE OF EACH PURCHASE
PAYMENT)(1)............................................... 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 Enhanced Death Benefit Fee(2)................ 0.20%
Optional EstatePlus Fee(2)............................ 0.25%
-----
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES.............. 1.97%
=====
</Table>
ADDITIONAL OPTIONAL FEATURE FEE
You may elect only one of the following optional features: Capital Protector
or Polaris Income Rewards described below.
OPTIONAL CAPITAL PROTECTOR FEE(3)
<Table>
<Caption>
CONTRACT YEAR ANNUALIZED FEE(4)
------------- -----------------
0-5...................................... 0.65%
6-10..................................... 0.45%
11+...................................... none
</Table>
OPTIONAL POLARIS INCOME REWARDS FEE(5)
<Table>
<Caption>
TIME PERIOD ANNUALIZED FEE
----------- --------------
0-7...................................... 0.65%
8+....................................... 0.45%
</Table>
FOOTNOTES TO THE FEE TABLES:
(1) Withdrawal Charge Schedule as a percentage of each Purchase Payment)
declines over 3 years as follows
<Table>
YEARS:...................................................... 1 2 3 4
7% 6% 5% 0%
</Table>
(2) If you do not elect the optional Enhanced Death Benefit and the EstatePlus
feature, your total separate account annual expenses would be 1.52%.
(3) The 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.
(4) If you are a resident of Washington or Oregon, the following charges apply:
0.65% for years 0-7, 0.30% for years 8-10, no charge for years 11+.
(5) 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.
THE FOLLOWING SHOWS THE MINIMUM AND MAXIMUM TOTAL OPERATING EXPENSES CHARGED BY
THE UNDERLYING PORTFOLIOS OF THE TRUSTS BEFORE ANY WAIVERS OR REIMBURSEMENTS
THAT YOU MAY PAY PERIODICALLY DURING THE TIME YOU OWN THE CONTRACT. MORE DETAIL
CONCERNING THE TRUSTS' FEES AND EXPENSES IS CONTAINED IN THE PROSPECTUS FOR EACH
OF THE TRUSTS. PLEASE READ THEM CAREFULLY BEFORE INVESTING.
PORTFOLIO EXPENSES
<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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 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 Trusts are reflected. Although your actual
costs may be higher or lower, based on these assumptions, your costs at the end
of the stated period would be:
MAXIMUM EXPENSE EXAMPLES
(ASSUMING MAXIMUM SEPARATE ACCOUNT ANNUAL EXPENSES OF 1.97% 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 Estate Plus (0.45%) and the optional Polaris Income
Rewards 0.65% for years 0-7 and 0.45% for years 8-10.
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$1,158 $1,880 $2,310 $4,611
- -------------------------------------
- -------------------------------------
</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 Estate Plus
(0.45%) and the optional Polaris Income Rewards 0.65% for years 0-7 and
0.45% for years 8-10.
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$458 $1,380 $2,310 $4,611
- -------------------------------------
- -------------------------------------
</Table>
MINIMUM EXPENSE EXAMPLES
(ASSUMING MINIMUM SEPARATE ACCOUNT ANNUAL EXPENSES 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 $1,159 $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. 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 charges as indicated and that no transfer fees were imposed.
Although premium taxes may apply in certain states, they are not reflected
in the Examples.
3. Examples reflecting application of optional features and benefits use the
highest fees and charges at which those features are being offered. 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.
4. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE HISTORICAL ACCUMULATION UNIT VALUES ARE CONTAINED IN
APPENDIX A -- CONDENSED FINANCIAL INFORMATION.
6
- ----------------------------------------------------------------
- ----------------------------------------------------------------
THE POLARIS CHOICE(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.
The contract also offers several fixed account options for varying time periods.
Fixed account options earn interest at a rate set and guaranteed by AIG
SunAmerica Life. If you allocate money to the fixed account options, the amount
of money that accumulates in the contract depends on the total interest credited
to the particular fixed account option(s) in which you invest.
For more information on investment options available under this contract SEE
INVESTMENT OPTIONS BELOW.
This annuity is designed to assist in contributing to retirement savings of
investors whose personal circumstances allow for a long-term investment time
horizon. As a function of the Internal Revenue Code ("IRC"), you may be assessed
a 10% federal tax penalty on any withdrawal made prior to your reaching age
59 1/2. Additionally, this contract provides that you will be charged a
withdrawal charge on each Purchase Payment withdrawn if that Purchase Payment
has not been invested in this contract for at least 3 years. Because of these
potential penalties, you should fully discuss all of the benefits and risks of
this contract with your financial representative prior to purchase.
AIG SunAmerica Life issues the Polaris Choice(II) Variable Annuity. When you
purchase a Polaris Choice(II) Variable Annuity, a contract exists between you
and AIG SunAmerica Life. The Company is a stock life insurance company organized
under the laws of the state of Arizona. Its principal place of business is 1
SunAmerica Center, Los Angeles, California 90067. The Company conducts life
insurance and annuity business in the District of Columbia and all states except
New York. AIG SunAmerica Life is an indirect, wholly owned subsidiary of
American International Group, Inc. ("AIG"), a Delaware corporation.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
PURCHASING A POLARIS CHOICE(II)
VARIABLE ANNUITY
- ----------------------------------------------------------------
- ----------------------------------------------------------------
An initial Purchase Payment is the money you give us to buy a contract. Any
additional money you give us to invest in the contract after purchase is a
subsequent Purchase Payment.
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. We will not accept any Purchase
Payments after your 86th birthday. FOR FURTHER EXPLANATION, SEE TAXES BELOW.
<Table>
<Caption>
- -----------------------------------------------------------
Minimum
Minimum Initial Subsequent
Purchase Payment Purchase Payment
- -----------------------------------------------------------
Qualified $ 2,000 $250
- -----------------------------------------------------------
Non-Qualified $10,000 $500
- -----------------------------------------------------------
</Table>
We reserve the right to require company approval prior to accepting Purchase
Payments greater than $1,000,000. For contracts owned by a non-natural owner, we
reserve the right to require prior Company approval to accept Purchase Payments
greater than $250,000. Subsequent Purchase Payments that would cause total
Purchase Payments in all contracts issued by AIG SunAmerica Life 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
7
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. 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.
ACCUMULATION UNITS
When you allocate a Purchase Payment to the Variable Portfolios, we credit your
contract with Accumulation Units of the separate account. We base the number of
Accumulation Units you receive on the unit value of the Variable Portfolio as of
the day we receive your money if we receive it before 1 p.m. Pacific Standard
Time ("PST"), or on the next business day's unit value if we receive your money
after 1 p.m. PST. The value of an Accumulation Unit goes up and down based on
the performance of the Variable Portfolios.
We calculate the value of an Accumulation Unit each day that the New York Stock
Exchange ("NYSE") is open as follows:
1. We determine the total value of money invested in a particular Variable
Portfolio;
2. We subtract from that amount all applicable contract charges; and
3. We divide this amount by the number of outstanding Accumulation Units.
We determine the number of Accumulation Units credited to your contract by
dividing the Purchase Payment by the Accumulation Unit value for the specific
Variable Portfolio.
EXAMPLE:
We receive a $25,000 Purchase Payment from you on Wednesday. You allocate
the money to the Global Bond Portfolio. We determine that the value of an
Accumulation Unit for the Global Bond Portfolio is $11.10 when the NYSE
closes on Wednesday. We then divide $25,000 by $11.10 and credit your
contract on Wednesday night with 2,252.2523 Accumulation Units for the
Global Bond Portfolio.
Performance of the Variable Portfolios and expenses under your contract affect
Accumulation Unit values. These factors cause the value of your contract to go
up and down.
FREE LOOK
You may cancel your contract within ten days after receiving it (or longer if
required by state law). We call this a "free look." To cancel, you must mail the
contract along with your free look request to our Annuity Service Center at P.O.
Box 54299, Los Angeles, California 90054-0299.
If you decide to cancel your contract during the free look period, generally we
will refund to you the value of your contract on the day we receive your
request.
Certain states require us to return your Purchase Payments upon a free look
request. Additionally, all contracts issued as an IRA require the full return of
Purchase Payments upon a free look. With respect to those contracts, we reserve
the right to put your money in the Cash Management Portfolio during the free
look period and will allocate your money according to your instructions at the
end of the applicable free look period. Currently, we do not put your money in
the Cash Management Portfolio during the free look period unless you allocate
your money to it. If your contract was issued in a state requiring 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
8
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 Trusts listed below. Additional
Trusts and/or Variable Portfolios may be available in the future. The Variable
Portfolios are only available through the purchase of certain insurance
contracts. All Variable Portfolios may not be available to you. Please check
with your financial representative.
The Trusts serve as the underlying investment vehicles for other variable
annuity contracts issued by AIG SunAmerica Life, and other
affiliated/unaffiliated insurance companies. Neither AIG SunAmerica Life nor the
Trusts believe that offering shares of the Trusts in this manner disadvantages
you. Each Trust's advisers monitor for potential conflicts.
The Variable Portfolios along with their respective subadvisers are listed
below:
ANCHOR SERIES TRUST - 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 here which are not available for investment under this
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 here which are not available for investment under this
contract.
AMERICAN FUNDS INSURANCE SERIES - CLASS 2
Capital Research and Management Company is the investment adviser for the
American Funds Insurance Series Class 2 shares ("AFIS"). AFIS contains
investment portfolios in addition to those listed here which are not available
for investment under this contract.
LORD ABBETT SERIES FUND, INC. - CLASS VC
Lord, Abbett & Co. manages over 40 mutual fund portfolios and other advisory
accounts. Lord Abbett Series Fund, Inc. ("LASF") contains investment portfolios
in addition to those listed here which are not available for investment under
this contract.
NATIONS SEPARATE ACCOUNT TRUST
Various subadvisers provide investment advice for the Nations Separate Account
Trust Portfolios. Nations Separate Account Trust ("NSAT") contains investment
portfolios in addition to those listed here which are not available for
investment under this contract.
VAN KAMPEN LIFE INVESTMENT TRUST - CLASS II
Van Kampen Asset Management provides investment advice for the Van Kampen Life
Investment Trust ("VKT") Portfolios. Van Kampen Life Investment Trust contains
investment portfolios in addition to those listed here which are not available
for investment under this contract.
STOCKS:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio SAST
- Blue Chip Growth Portfolio SAST
- "Dogs" of Wall Street Portfolio* SAST
- Growth Opportunities Portfolio SAST
MANAGED BY ALLIANCEBERNSTEIN
- Small & Mid Cap Value Portfolio SAST
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
- Alliance Growth Portfolio SAST
- Global Equities Portfolio SAST
- Growth & Income Portfolio SAST
MANAGED BY CAPITAL RESEARCH AND MANAGEMENT COMPANY
- American Funds Global Growth Portfolio AFIS
- American Funds Growth Portfolio AFIS
- American Funds Growth-Income Portfolio AFIS
MANAGED BY DAVIS ADVISORS
- Davis Venture Value Portfolio SAST
- Real Estate Portfolio SAST
MANAGED BY FEDERATED 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
- Nations Marsico Focused Equities Portfolio NSAT
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Massachusetts Investors Trust Portfolio SAST
- MFS Mid-Cap Growth Portfolio SAST
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, LLC
- Emerging Markets Portfolio SAST
- International Growth & Income Portfolio SAST
- Putnam Growth Portfolio SAST
MANAGED BY TEMPLETON INVESTMENT COUNSEL, LLC
- Foreign Value Portfolio SAST
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
9
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 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" 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 sub-adviser for the
International Diversified Equities and Technology SAST 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.
- 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 B SHOWS HOW WE CALCULATE AND APPLY THE MVA.
If available, you may systematically transfer interest earned 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"). The rules, restrictions and operation of the DCAFAs may differ from
the standard FAGPs described above, please see DOLLAR COST AVERAGING PROGRAM
below for more details.
DOLLAR COST AVERAGING FIXED ACCOUNTS
You may invest initial and/or subsequent Purchase Payments in the DCA fixed
accounts ("DCAFA"), if available. DCAFAs also credit a fixed rate of interest
but are specifically designed to facilitate a dollar cost averaging program.
Interest is credited to amounts allocated to the DCAFAs while your investment is
transferred to the Variable Portfolios over certain specified time frames. The
interest rates applicable to the DCAFA may differ from those applicable to any
available FAGPs but will never be less than the minimum annual guaranteed
interest rate as specified in your contract. However, when using a DCAFA the
annual interest rate is paid on a declining balance as you systematically
transfer your investment to the Variable Portfolios. Therefore, the actual
effective yield will be less than the annual crediting rate. We determine the
DCAFAs offered at any time in our
10
sole discretion and we reserve the right to change to DCAFAs that we make
available at any time, unless state law requires us to do otherwise. See DOLLAR
COST AVERAGING PROGRAM below for more information.
ASSET ALLOCATION PROGRAM
PROGRAM DESCRIPTION
The program, is offered to help you diversify your investment across various
asset classes. Each model is comprised of a carefully selected combination of
investment options using the various asset classes based on historical asset
class performance to meet specific investment time horizons and risk tolerances.
If you purchased your contract prior to approximately September 30, 2002, you
may not enroll in this program. Please contact your financial representative if
you are uncertain about the availability of this feature.
ENROLLING IN THE PROGRAM
You may enroll in the program by selecting the model as well as any program
options on the product application form. If you already own a policy, you must
complete and submit a program election form. You and your financial
representative may determine the model most appropriate for you. You may
discontinue investment in the program at any time with a written request,
telephone or internet instructions, subject to our rules.
You may also choose to invest gradually into a model through the dollar cost
averaging program. You may only invest in one model at a time. You may invest
outside your selected model but only in those Variable Portfolios that are not
utilized in the model you selected. A transfer into or out of one of the
Variable Portfolios in your model, outside of the specifications in the model
will effectively terminate your participation in the program.
WITHDRAWALS
You may request withdrawals, as permitted by your contract, which will be taken
proportionately from each of the allocations in the selected model unless
otherwise instructed by you. If you choose to make a non-proportional withdrawal
from the Variable Portfolios in the model, your investment may no longer be
consistent with the model's intended objectives.
Withdrawals may be subject to a withdrawal charge. Withdrawals may be taxable
and a 10% IRS penalty may apply if you are under age 59 1/2.
KEEPING YOUR PROGRAM ON TARGET
REBALANCING
You can elect to have your contract rebalanced quarterly, semi-annually, or
annually to maintain the asset allocation for the model you selected. Only those
investment options within each model will be rebalanced. An investment outside
the Portfolio Allocator model can not be rebalanced.
ANNUAL RE-EVALUATION
Each year, on or about March 31, the allocations in every model are re-evaluated
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 representative.
We have the right to modify, suspend or terminate the Asset Allocation Program
at any time.
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase you may transfer funds between the Variable
Portfolios and/or 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.
11
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 requests in excess of 5 transfers within a rolling six-month
look-back period must be submitted by United States Postal Service first-class
mail ("U.S. Mail") for twelve months from the date of your 5th transfer request.
For example, if you made a transfer on February 15, 2004 and within the previous
six months (from August 15, 2003 forward) you made 5 transfers including the
February 15th transfer, then all transfers made for twelve months after February
15, 2004 must be submitted by U.S. Mail (from February 16, 2004 through February
15, 2005). 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 PROGRAM
The Dollar Cost Averaging ("DCA") program allows you to invest gradually in the
Variable Portfolios. Under the program you systematically transfer a set dollar
amount or percentage of portfolio value from one Variable Portfolio or DCAFAs
(source account) to any other Variable Portfolio (target account). Transfers may
occur on certain periodic schedules such as monthly or weekly. You may change
the frequency to other available options at any time by notifying us in writing.
The minimum transfer amount under the DCA program is $100 per transaction,
regardless of the source account. There is no fee for participating in the DCA
program.
We may offer DCAFAs exclusively to facilitate the DCA program for a specified
time period. The DCAFAs only accept new Purchase Payments. You cannot transfer
money already in your contract into the DCAFAs. If you allocate new Purchase
Payments into a DCAFA, we transfer all your money into the Variable Portfolios
over the selected time period. You cannot change the option once selected.
You may terminate the DCA program at any time. If money remains in the DCAFAs,
we transfer the remaining money according to your instructions or to your
current allocation on file. Upon termination of the DCA program, if money
remains in the DCA fixed accounts, we transfer the remaining money to the same
target account(s) as previously designated, unless we receive different
instructions from you. Transfers resulting from a termination of this program do
not count towards your 15 free transfers.
The DCA program is designed to lessen the impact of market fluctuations on your
investment. However, we cannot ensure that you will make a profit. When you
elect the DCA program, you are continuously investing in securities regardless
of fluctuating price levels. You should consider your tolerance for investing
through periods of fluctuating price levels.
We reserve the right to modify, suspend or terminate this program at any time.
12
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.
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 Allocation Rebalancing Program.
At your request, rebalancing occurs on a quarterly, semiannual or annual basis.
Transfers made as a result of rebalancing do not count against your 15 free
transfers for the contract year.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want your initial Purchase Payment split between two
Variable Portfolios. You want 50% in the Corporate Bond Portfolio and 50%
in the Growth Portfolio. Over the next calendar quarter, the bond market
does very well while the stock market performs poorly. At the end of the
calendar quarter, the Corporate Bond Portfolio now represents 60% of your
holdings because it has increased in value and the Growth Portfolio
represents 40% of your holdings. If you had chosen quarterly rebalancing,
on the last day of that quarter, we would sell some of your units in the
Corporate Bond Portfolio to bring its holdings back to 50% and use the
money to buy more units in the Growth Portfolio to increase those holdings
to 50%.
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.
This program is only available if we are offering multi-year fixed account
options. We reserve the right to modify, suspend or terminate this program at
any time.
VOTING RIGHTS
AIG SunAmerica Life is the legal owner of the Trusts' shares. However, when a
Variable Portfolio solicits proxies in conjunction with a vote of shareholders,
we must obtain your instructions on how to vote those shares. We vote all of the
shares we own in proportion to your instructions. This includes any shares we
own on our own behalf. Should we determine that we are no longer required to
comply with these rules, we will vote the shares in our own right.
SUBSTITUTION
We may amend your contract due to changes to the Variable Portfolios offered
under your contract. For example, we may offer new Variable Portfolios, delete
Variable Portfolios, or stop accepting allocations and/or investments in a
particular Variable Portfolio. We may move assets and re-direct future premium
allocations from one Variable Portfolio to another if we receive investor
approval through a proxy vote or SEC approval for a fund substitution. This
would occur if a Variable Portfolio is no longer an appropriate investment for
the contract, for reasons such as continuing substandard performance, or for
changes to the portfolio manager, investment objectives, risks and strategies,
or federal or state laws. The new Variable Portfolio offered may have different
fees and expenses. You will be notified of any upcoming proxies or substitutions
that affect your Variable Portfolio choices.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
ACCESS TO YOUR MONEY
- ----------------------------------------------------------------
- ----------------------------------------------------------------
You can access money in your contract in two ways:
- by making a partial or total withdrawal, and/or;
- by receiving income payments during the Income Phase. SEE INCOME OPTIONS
BELOW.
Generally, we deduct a withdrawal charge applicable to any total or partial
withdrawal. If you withdraw your entire contract value, we also deduct
applicable premium
13
taxes and a contract maintenance fee. SEE EXPENSES BELOW.
Your contract provides for a free withdrawal amount each year. A free withdrawal
amount is the portion of your account that we allow you to take out each year
without being charged a surrender penalty. HOWEVER, UPON A FUTURE FULL SURRENDER
OF YOUR CONTRACT ANY PREVIOUS FREE WITHDRAWALS WOULD BE SUBJECT TO A SURRENDER
CHARGE, IF ANY IS APPLICABLE AT THE TIME OF THE FULL SURRENDER (EXCEPT IN THE
STATE OF WASHINGTON).
Purchase Payments, above and beyond the amount of your free withdrawal amount,
that are withdrawn prior to the end of the third year will result in your paying
a penalty in the form of a surrender charge. The amount of the charge and how it
applies are discussed more fully below. SEE EXPENSES BELOW. You should consider,
before purchasing this contract, the effect this charge will have on your
investment if you need to withdraw more money than the free withdrawal amount.
You should fully discuss this decision with your financial representative.
To determine your free withdrawal amount and your withdrawal charge, we refer to
two special terms. These are penalty free earnings and the total invested
amount.
The penalty-free earnings portion of your contract is simply your account value
less your total invested amount. The total invested amount is the total of all
Purchase Payments you have made into the contract less portions of some prior
withdrawals you made. The portions of prior withdrawals that reduce your total
invested amount are as follows:
- Free withdrawals in any year that were in excess of your penalty-free
earnings and were based on the part of the total invested amount that was
no longer subject to withdrawal charges at the time of the withdrawal,
and
- Any prior withdrawals (including withdrawal charges on those withdrawals)
of the total invested amount on which you already paid a surrender
penalty.
When you make a withdrawal, we assume that it is taken from penalty-free
earnings first, then from the total invested amount on a first-in, first-out
basis. This means that you can access your Purchase Payments which are no longer
subject to a withdrawal charge before those Purchase Payments which are still
subject to the withdrawal charge.
During the first year after we issue your contract your free withdrawal amount
is the greater of (1) your penalty-free earnings; and (2) if you are
participating in the Systematic Withdrawal program, a total of 10% of your total
invested amount. If you are a Washington resident, you may withdraw during the
first contract year, the greater of (1); (2); or (3) interest earnings from the
amounts allocated to the fixed account options, not previously withdrawn.
After the first contract year, you can take out the greater of the following
amounts each year (1) your penalty-free earnings and any portion of your total
invested amount no longer subject to withdrawal charge or (2) 10% of the portion
of your total invested amount that has been in your contract for at least one
year. If you are a Washington resident, your maximum free withdrawal amount,
after the first contract year, is the greater of (1); (2); or (3) interest
earnings from amounts allocated to the fixed account options, not previously
withdrawn.
We calculate charges due on a total withdrawal on the day after we receive your
request and your contract. We return to you your contract value less any
applicable fees and charges.
The withdrawal charge percentage is determined by the age of the Purchase
Payment remaining in the contract at the time of the withdrawal. For the purpose
of calculating the withdrawal charge, any prior Free Withdrawal is not
subtracted from the total Purchase Payments still subject to withdrawal charges.
For example, you make an initial Purchase Payment of $100,000. For purposes of
this example we will assume a 0% growth rate over the life of the contract and
no subsequent Purchase Payments. In contract year 2, you take out your maximum
free withdrawal of $10,000. After that free withdrawal your contract value is
$90,000. In contract year 3 you request a full surrender of your contract. We
will apply the following calculation,
A-(B x C)=D, where:
A=Your contract value at the time of your request for surrender ($90,000)
B=The amount of your Purchase Payments still subject to withdrawal charge
($100,000)
C=The withdrawal charge percentage applicable to the age of each Purchase
Payment (5%)[B x C=$5,000]
D=Your full surrender value ($85,000)
Under most circumstances, the partial withdrawal minimum is $1,000. We require
that the value left in any investment option be at least $100, after the
withdrawal. You must send a written withdrawal request. Unless you provide us
with different instructions, partial withdrawals will be made pro rata from each
Variable Portfolio and/or 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% federal penalty tax. SEE TAXES BELOW.
We may be required to suspend or postpone the payment of a withdrawal for any
period of time when: (1) the NYSE is closed (other than a customary weekend and
holiday closings); (2) trading with the NYSE is restricted; (3) an emergency
exists such that disposal of or determination of the value of shares of the
Variable Portfolios is not reasonably practicable; (4) the SEC, by order, so
permits for the protection of contract owners.
Additionally, we reserve the right to defer payments for a withdrawal from a
fixed account option. Such deferrals are limited to no longer than six months.
14
SYSTEMATIC WITHDRAWAL PROGRAM
During the Accumulation Phase, you may elect to receive periodic income payments
under the systematic withdrawal program. Under the program, you may choose to
take monthly, quarterly, semi-annual or annual payments from your contract.
Electronic transfer of these funds to your bank account is also available. The
minimum amount of each withdrawal is $100. If you purchase your contract in
Oregon, the minimum withdrawal amount is $250 per withdrawal or an amount equal
to your free withdrawal amount, as described on above. There must be at least
$500 remaining in your contract at all times. Withdrawals may be taxable and a
10% federal penalty tax may apply if you are under age 59 1/2. There is no
additional charge for participating in this program, although a withdrawal
charge and/or MVA may apply.
The program is not available to everyone. Please check with our Annuity Service
Center, which can provide the necessary enrollment forms. We reserve the right
to modify, suspend or terminate this program at any time.
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 ("BENEFIT EFFECTIVE DATE").
The earliest you may begin taking withdrawals under the benefit after a
specified waiting period is the BENEFIT AVAILABILITY DATE ("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
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
15
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 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 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
16
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.
17
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
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
18
Income Reward feature. 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. 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>
OPTION 1
CONTRACT YEAR ANNUALIZED FEE *
- ------------- ----------------
0-5 0.65%
6-10 0.45%
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.
19
- ----------------------------------------------------------------
- ----------------------------------------------------------------
DEATH BENEFIT
- ----------------------------------------------------------------
- ----------------------------------------------------------------
If you die during the Accumulation Phase of your contract, we pay a death
benefit to your Beneficiary. At the time you purchase your contract, you must
select a death benefit option. This contract provides three death benefit
options. The first is the Standard Death Benefit which is automatically included
in your contract for no additional fee. We also offer, for an additional fee,
the selection of one of two enhanced death benefit options. If you choose one of
the enhanced death benefit options, you may also elect, for an additional fee,
the EstatePlus feature. Your death benefit elections must be made at the time of
contract application and the election cannot be terminated. You should discuss
the available options with your financial representative to determine which
option is best for you.
We do not pay the death benefit if you die after you switch to the Income Phase.
However, if you die during the Income Phase, your Beneficiary receives any
remaining guaranteed income payments in accordance with the income option you
selected. SEE INCOME OPTIONS BELOW.
You name your Beneficiary. You may change the Beneficiary at any time, unless
you previously made an irrevocable Beneficiary designation.
We calculate and pay the death benefit when we receive all required paperwork
and satisfactory proof of death. We consider the following satisfactory proof of
death:
1. a certified copy of the death certificate; or
2. a certified copy of a decree of a court of competent jurisdiction as to
the finding of death; or
3. a written statement by a medical doctor who attended the deceased at the
time of death; or
4. any other proof satisfactory to us.
We may require additional proof before we pay the death benefit.
If the Beneficiary is the spouse of a deceased owner, he or she can elect to
continue the Contract. SEE SPOUSAL CONTINUATION BELOW.
If a Beneficiary does not elect a specific form of pay out within 60 days of our
receipt of all required paperwork and satisfactory proof of death, we pay a lump
sum death benefit to the Beneficiary.
The 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. The Extended Legacy program allows the Beneficiary to take
distributions in the form of a series of payments similar to the required
minimum distributions under an IRA. 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. 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 that are 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).
Please consult your tax advisor regarding tax implications and your particular
circumstances.
20
DEFINED TERMS
The term "Net Purchase Payment" is used frequently in explaining the death
benefit options. Net Purchase Payment is an on-going calculation. It does not
represent a contract value.
We define Net Purchase Payments as Purchase Payments less an Adjustment for each
withdrawal. If you have not taken any withdrawals from your contract, Net
Purchase Payments equals total Purchase Payments into your contract. To
calculate the Adjustment amount for the first withdrawal made under the
contract, we determine the percentage by which the withdrawal reduced contract
value. For example, a $10,000 withdrawal from a $100,000 contract is a 10%
reduction in value. This percentage is calculated by dividing the amount of each
withdrawal (including fees and charges applicable to the withdrawal) by the
contract value immediately before taking that withdrawal. The resulting
percentage is then multiplied by the amount of total Purchase Payments and
subtracted from the amount of total Purchase Payments on deposit at the time of
the withdrawal. The resulting amount is the initial Net Purchase Payment
calculation.
To arrive at the Net Purchase Payment calculation for subsequent withdrawals, we
determine the percentage by which the contract value is reduced by taking the
amount of the withdrawal in relation to the contract value immediately before
taking the withdrawal. We then multiply the Net Purchase Payment calculation as
determined prior to the withdrawal by this percentage. We subtract that result
from the Net Purchase Payment calculation as determined prior to the withdrawal
to arrive at all subsequent Net Purchase Payment calculations.
The term "withdrawals" as used in describing the death benefit options below is
defined as withdrawals and the fees and charges applicable to those withdrawals.
IF YOU PURCHASED YOUR CONTRACT AFTER, ON OR ABOUT JUNE 1, 2004, SUBJECT TO STATE
AVAILABILITY, THE FOLLOWING STANDARD AND OPTIONAL ENHANCED DEATH BENEFITS APPLY:
STANDARD DEATH BENEFIT
If the contract is issued prior to your 83rd birthday, the standard death
benefit on your contract is the greater of:
1. Contract value; or
2. Net Purchase Payments received prior to your 86th birthday.
If the contract is issued on or after the 83rd birthday but prior to your 86th
birthday, the standard death benefit on your contract is the 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.
OPTIONAL ENHANCED DEATH BENEFITS
For an additional fee, you may elect one of the enhanced death benefits below
which can provide greater protection for your beneficiaries. If you elect one of
the enhanced death benefits, you must choose either Option 1 or Option 2 at the
time you purchase your contract and you cannot change your election thereafter
at any time. The fee for the enhanced death benefit is 0.20% of the average
daily ending value of the assets you have allocated to the Variable Portfolios.
OPTION 1 - PURCHASE PAYMENT ACCUMULATION OPTION
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 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 prior to 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.
21
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 ON OR ABOUT MAY 31,
2004, THE FOLLOWING STANDARD AND OPTIONAL ENHANCED DEATH BENEFIT PROVISIONS
APPLY.
STANDARD DEATH BENEFIT
The standard death benefit on your contract is the greater of:
1. Net Purchase Payments; or
2. the contract value on the date we receive all required paperwork and
satisfactory proof of death.
OPTIONAL ENHANCED DEATH BENEFITS
For an additional fee, you may elect one of the enhanced death benefits below
which can provide greater protection for your beneficiaries. You must choose
either Option 1 or Option 2 at the time you purchase your contract and you
cannot change your election at any time. The enhanced death benefit options are
not available if you are age 86 or older at the time of contract issue. The fee
for the enhanced death benefit is 0.20% of the average daily ending value of the
assets you have allocated to the Variable Portfolios.
OPTION 1 - PURCHASE PAYMENT ACCUMULATION OPTION
The death benefit is the greatest of:
1. the contract value on the date we receive all required paperwork and
satisfactory proof of death; or
2. Net Purchase Payments, compounded at a 4% annual growth rate until the
date of death (3% growth rate if age 70 or older at the time of contract
issue) plus any Purchase Payments recorded after the date of death; and
reduced for any withdrawals recorded after the date of death in the same
proportion that the withdrawal reduced the contract value on the date of
the withdrawal; or
3. the contract value on the seventh contract anniversary, plus Purchase
Payments, since the seventh contract anniversary; and reduced for
withdrawals since the seventh contract anniversary in the same
proportion that the contract value was reduced on the date of such
withdrawal, all compounded at a 4% annual growth rate until the date of
death (3% growth rate if age 70 or older at the time of contract issue)
plus any Purchase Payments recorded after the date of death; and reduced
for any withdrawals recorded after the date of death in the same
proportion that the withdrawal reduced the contract value on the date of
the withdrawal.
OPTION 2 - MAXIMUM ANNIVERSARY OPTION
The death benefit is the greatest of:
1. the contract value on the date we receive all required paperwork and
satisfactory proof of death; or
2. Net Purchase Payments; or
3. the maximum anniversary value on any contract anniversary prior to your
81st birthday. The anniversary value equals the contract value on a
contract anniversary plus any Purchase Payments since that anniversary;
and reduced for any withdrawals since that contract anniversary in the
same proportion that the withdrawal reduced the contract value on the
date of the withdrawal.
If you are age 90 or older at the time of death and selected the Maximum
Anniversary death benefit, the death benefit will be equal to the contract value
at the time we receive all required paperwork and satisfactory proof of death.
Accordingly, you do not get the advantage of this option if:
- you are age 81 or older at the time of contract issue; or
- you are age 90 or older at the time of your death.
The Death Benefit on contracts issued before October 24, 2001 would be subject
to a different calculation. Please see the Statement of Additional Information
for details.
OPTIONAL ESTATEPLUS FEATURE
The EstatePlus benefit, if elected, may increase the death benefit amount. In
order to elect EstatePlus, you must have also elected one of the optional
enhanced death benefits described above. If you have earnings in your contract
at the time of death, we will add a percentage of those earnings (the
"EstatePlus Percentage"), subject to a maximum dollar amount (the "Maximum
EstatePlus Amount"), to the death benefit payable. The contract year of your
death will determine the EstatePlus percentage and the Maximum EstatePlus
percentage.
22
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.
You must elect EstatePlus at the time of contract application. Once elected, you
may not terminate or change this election.
We assess a 0.25% fee for EstatePlus. Therefore, electing both the enhanced
death benefit and EstatePlus result in a combined fee of 0.45%. On a daily basis
we deduct this annualized charge from the average daily ending value of the
assets you have allocated to the Variable Portfolios.
EstatePlus is not available if you are age 81 or older at the time we issue your
contract. Furthermore, a Continuing Spouse cannot benefit from EstatePlus if
he/she is age 81 or older on the Continuation Date. SEE SPOUSAL CONTINUATION
BELOW. The EstatePlus benefit is not payable after the Latest Annuity Date. You
may pay for the EstatePlus benefit and your beneficiary may never receive the
benefit if you live past the Latest Annuity Date. SEE INCOME OPTIONS BELOW.
EstatePlus may not be available in your state or through the broker-dealer with
which your financial 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.
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.
The Continuing Spouse, generally, cannot change any contract provisions as the
new owner. However, on the Continuation Date, the Continuing Spouse may
terminate the original owner's election of the optional enhanced death benefit
and, if elected, EstatePlus. The Continuing Spouse
23
cannot elect to continue EstatePlus without also continuing the enhanced death
benefit. We will terminate EstatePlus if the Continuing Spouse is age 81 or
older on the Continuation Date. If the enhanced death benefit and/or EstatePlus
is terminated or if the Continuing Spouse dies after the latest Annuity Date, no
benefit will be payable under the Estate Plus feature.
SEE APPENDIX C FOR A DISCUSSION OF THE DEATH BENEFIT CALCULATIONS AFTER A
SPOUSAL CONTINUATION.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE SPOUSAL CONTINUATION
PROVISION (IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME FOR PROSPECTIVELY
ISSUED CONTRACTS.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
EXPENSES
- ----------------------------------------------------------------
- ----------------------------------------------------------------
There are charges and expenses associated with your contract. These charges and
expenses reduce your investment return. We will not increase the contract
maintenance fee or the insurance and withdrawal charges under your contract.
However, the investment charges under your contract may increase or decrease.
Some states may require that we charge less than the amounts described below.
SEPARATE ACCOUNT CHARGES
The Company deducts a mortality and expense risk charge in the amount of 1.52%,
annually of the value of your contract invested in the Variable Portfolios. We
deduct the charge daily. This charge compensates the Company for the mortality
and expense risk and the costs of contract distribution assumed by the Company.
Generally, the mortality risks assumed by the Company arise from its contractual
obligations to make income payments after the Annuity Date and to provide a
death benefit. The 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
The contract provides a free withdrawal amount every year. SEE ACCESS TO YOUR
MONEY ABOVE. If you take money out in excess of the free withdrawal amount, you
may incur a withdrawal charge. You may also incur a withdrawal charge upon a
full surrender.
We apply a withdrawal charge against each Purchase Payment you put into the
contract. After a Purchase Payment has been in the contract for 3 complete
years, no withdrawal charge applies. The withdrawal charge equals a percentage
of the Purchase Payment you take out of the contract. The withdrawal charge
percentage declines each year a Purchase Payment is in the contract, as follows:
<Table>
<Caption>
- ----------------------------------------------------------------
YEAR 1 2 3 4+
- ----------------------------------------------------------------
WITHDRAWAL
CHARGE 7% 6% 5% 0%
- ----------------------------------------------------------------
</Table>
When calculating the withdrawal charge, we treat withdrawals as coming first
from the Purchase Payments that have been in your contract the longest. However,
for tax purposes, your withdrawals are considered earnings first, then Purchase
Payments. SEE ACCESS TO YOUR MONEY ABOVE.
Whenever possible, we deduct the withdrawal charge from the money remaining in
your contract. If you withdraw all of your contract value, we deduct any
applicable withdrawal charges from the amount withdrawn.
We will not assess a withdrawal charge for money withdrawn to pay a death
benefit or to pay contract fees or charges. We will not assess a withdrawal
charge when you switch to the Income Phase.
Withdrawals made prior to age 59 1/2 may result in tax penalties. SEE TAXES
BELOW.
INVESTMENT CHARGES
INVESTMENT MANAGEMENT FEES
Charges are deducted from your Variable Portfolios for the advisory and other
expenses of the Variable Portfolios. The FEE TABLES above illustrate these
charges and expenses. For more detailed information on these investment charges,
refer to the accompanying prospectuses for the Trusts.
12b-1 FEES
Shares of certain trusts may be subject to fees imposed under a distribution
and/or servicing plan adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940. For SunAmerica Series Trust ("SAST"), under the
distribution plan which is applicable to Class 2 and 3 shares, recaptured
brokerage commissions will be used to make payments to 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% to 0.25% fees applicable to Anchor Series Trust,
SunAmerica Series Trust, the Class II shares of the Van Kampen Life Investment
Trust, Class 2 shares of American Funds Insurance Series, and Nations Separate
Account Trust, as shown in the Fee Table, are generally used
24
to pay financial intermediaries for services provided over the life of your
contract.
For more detailed information on these Investment Charges, refer to the
prospectuses for the underlying portfolios.
CONTRACT MAINTENANCE FEE
During the Accumulation Phase, we subtract a contract maintenance fee from your
account once per year. This charge compensates us for the cost of contract
administration. We deduct the $35 contract maintenance fee ($30 in North Dakota)
from your account value on your contract anniversary. If you withdraw your
entire contract value, we deduct the fee from that withdrawal.
If your contract value is $50,000 or more on your contract anniversary date, we
will waive the charge. This waiver is subject to change without notice.
TRANSFER FEE
We generally permit 15 free transfers between investment options each contract
year. We charge you $25 for each additional transfer that contract year ($10 in
Pennsylvania and Texas). SEE INVESTMENT OPTIONS ABOVE.
OPTIONAL CAPITAL PROTECTOR FEE
The fee for the Capital Protector feature is as follows:
<Table>
<Caption>
CONTRACT YEAR ANNUALIZED CHARGE
- ------------- -----------------
0-5 0.65%
6-10 0.45%
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 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 ENHANCED DEATH BENEFIT FEE
The fee for the optional enhanced death benefit is 0.20% of the average daily
ending value of the assets you have allocated to the Variable Portfolios.
OPTIONAL ESTATEPLUS FEE
We charge 0.25% for the EstatePlus feature. On a daily basis we deduct this
charge from the average daily ending value of the assets you have allocated to
the Variable Portfolios.
PREMIUM TAX
Certain states charge the Company a tax on the premiums you pay into the
contract, ranging from 0% to 3.5%. We deduct these premium tax charges from your
contract when applicable. Currently we deduct the charge for premium taxes when
you take a full withdrawal or begin the Income Phase of the contract. In the
future, we may assess this deduction at the time you put Purchase Payment(s)
into the contract or upon payment of a death benefit.
INCOME TAXES
We do not currently deduct income taxes from your contract. We reserve the right
to do so in the future.
REDUCTION OR ELIMINATION OF CHARGES AND EXPENSES, AND ADDITIONAL AMOUNTS
CREDITED
Sometimes sales of the contracts to groups of similarly situated individuals may
lower our administrative and/or sales expenses. We reserve the right to reduce
or waive certain charges and expenses when this type of sale occurs. In
addition, we may also credit additional interest to policies sold to such
groups. We determine which groups are eligible for such treatment. Some of the
criteria we evaluate to make a determination are: size of the group; amount of
expected Purchase Payments; relationship existing between us and prospective
purchaser; nature of the purchase; length of time a group of contracts is
expected to remain active; purpose of the purchase and whether that purpose
increases the likelihood that our expenses will be reduced; and/or any other
factors that we believe indicate that administrative and/or sales expenses may
be reduced.
AIG SunAmerica Life may make such a determination regarding sales to its
employees, it affiliates' employees and employees of currently contracted
broker-dealers; its registered representatives and immediate family members of
all of those described.
We reserve the right to change or modify any such determination or the treatment
applied to a particular group, at any time.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
INCOME OPTIONS
- ----------------------------------------------------------------
- ----------------------------------------------------------------
ANNUITY DATE
During the Income Phase, we use the money accumulated in your contract to make
regular income payments to you. You may switch to the Income Phase any time
after your second contract anniversary. You select the month and year you want
income payments to begin. The first day of that month is the Annuity Date. You
may change your Annuity Date, so long as
25
you do so at least seven days before the income payments are scheduled to begin.
Once you begin receiving income payments, you cannot change your income option.
Except as indicated under Option 5 below, once you begin receiving income
payments, you cannot otherwise access your money through a withdrawal or
surrender.
Income payments must begin on or before the Latest Annuity Date, which is your
95th birthday or on your tenth contract anniversary, whichever occurs later. If
you do not choose an Annuity Date, your income payments will automatically begin
on this date. Certain states may require your income payments to start earlier.
If the Annuity Date is past your 85th birthday, your contract could lose its
status as an annuity under Federal tax laws. This may cause you to incur adverse
tax consequences.
In addition, most Qualified contracts require you to take minimum distributions
after you reach age 70 1/2. SEE TAXES BELOW.
INCOME OPTIONS
Currently, this Contract offers five income options (see below). Other income
options may be available. Contact the Annuity Service Center for more
information. If you elect to receive income payments but do not select an
option, your income payments will be made in accordance with option 4 for a
period of 10 years. For income payments based on joint lives, we pay according
to Option 3 for a period of 10 years.
We base our calculation of income payments on the life of the Annuitant and the
annuity rates set forth in your contract. As the contract owner, you may change
the Annuitant at any time prior to the Annuity Date. You must notify us if the
Annuitant dies before the Annuity Date and designate a new Annuitant.
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.
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:
26
- 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.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
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 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.
27
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
28
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.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
PERFORMANCE
- ----------------------------------------------------------------
- ----------------------------------------------------------------
We advertise the Cash Management Portfolio's yield and effective yield. In
addition, the other Variable Portfolios advertise total return, gross yield and
yield-to-maturity. 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
29
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 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.
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 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
30
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 with respect to the assets of the Separate Account.
OWNERSHIP
The Polaris Choice(II) Variable Annuity is a Flexible Payment Group Deferred
Annuity contract. We issue a group contract to a contract holder for the benefit
of the participants in the group. As a participant in the group, you will
receive a certificate which evidences your ownership. As used in this
prospectus, the term contract refers to your certificate. In some states, a
Flexible Payment Individual Modified Guaranteed and Variable Deferred Annuity
contract is available instead. Such a contract is identical to the contract
described in this prospectus, with the exception that we issue it directly to
the owner.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of AIG SunAmerica Life Assurance Company
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 LP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
A registration statement has been filed with the SEC under the Securities Act of
1933 relating to the contract. This prospectus does not contain all the
information in the registration statement as permitted by SEC regulations. The
omitted information can be obtained from the SEC's principal office in
Washington, D.C., upon payment of a prescribed fee.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Additional information concerning the operations of the separate account is
contained in a Statement of Additional Information ("SAI"), which is available
without charge upon written request addressed to us at our Annuity Service
Center, P.O. Box 54299, Los Angeles, California 90054-0299 or by calling (800)
445-SUN2. The contents of the SAI are tabulated below.
<Table>
Separate Account.............................. 3
General Account............................... 3
Performance Data.............................. 4
Income Payments............................... 11
Income Protector.............................. 11
Annuity Unit Values........................... 11
Death Benefit Options for Contracts Issued
Before October 24, 2001..................... 16
Death Benefits following Spousal Continuation
for Contracts Issued between October 24,
2001 and May 31, 2004....................... 16
Taxes......................................... 17
Distribution of Contracts..................... 21
Financial Statements.......................... 21
</Table>
31
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX A - CONDENSED FINANCIALS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Table>
<Caption>
INCEPTION TO FISCAL YEAR ENDED
12/31/02 12/31/03
------------ -----------------
Capital Appreciation (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $24.182 $25.794
(b) $24.182 $25.757
Ending AUV.......................................... (a) $25.794 $33.529
(b) $25.757 $33.333
Ending Number of AUs................................ (a) 5,223 112,395
(b) 6,392 33,168
- -----------------------------------------------------------------------------------------------------
Government and Quality Bond (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $16.370 $16.472
(b) $16.370 $16.437
Ending AUV.......................................... (a) $16.472 $16.588
(b) $16.437 $16.480
Ending Number of AUs................................ (a) 25,155 508,662
(b) 11,301 111,382
- -----------------------------------------------------------------------------------------------------
Growth (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $19.417 $20.848
(b) $19.417 $20.812
Ending AUV.......................................... (a) $20.848 $26.615
(b) $20.812 $26.450
Ending Number of AUs................................ (a) 5,529 78.215
(b) 4,179 27,219
- -----------------------------------------------------------------------------------------------------
Natural Resources (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $13.753 $15.272
(b) $13.753 $15.232
Ending AUV.......................................... (a) $15.272 $22.162
(b) $15.232 $22.010
Ending Number of AUs................................ (a) 11 4,303
(b) 206 468
- -----------------------------------------------------------------------------------------------------
Aggressive Growth (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $10.011 $10.077
(b) $10.011 $10.044
Ending AUV.......................................... (a) $10.077 $12.720
(b) $10.044 $12.618
Ending Number of AUs................................ (a) 15 9,125
(b) 2,951 3,476
- -----------------------------------------------------------------------------------------------------
Alliance Growth (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $21.881 $21.940
(b) $21.881 $21.898
Ending AUV.......................................... (a) $21.940 $27.122
(b) $21.898 $26.950
Ending Number of AUs................................ (a) 2,961 42,581
(b) 1,192 23,501
- -----------------------------------------------------------------------------------------------------
Asset Allocation (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $16.137 $16.887
(b) $16.137 $16.891
Ending AUV.......................................... (a) $16.887 $20.421
(b) $16.891 $20.329
Ending Number of AUs................................ (a) 1,003 23,493
(b) 3,344 5,847
- -----------------------------------------------------------------------------------------------------
Blue Chip Growth (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $4.530 $4.659
(b) $4.530 $4.648
Ending AUV.......................................... (a) $4.659 $5.769
(b) $4.648 $5.732
Ending Number of AUs................................ (a) 2,553 28,163
(b) 840 2,662
- -----------------------------------------------------------------------------------------------------
Cash Management (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $13.025 $13.018
(b) $13.025 $12.993
Ending AUV.......................................... (a) $13.018 $12.878
(b) $12.993 $12.795
Ending Number of AUs................................ (a) 10,725 199,592
(b) 14,522 178,114
- -----------------------------------------------------------------------------------------------------
Corporate Bond (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $14.394 $14.704
(b) $14.394 $14.725
Ending AUV.......................................... (a) $14.704 $16.174
(b) $14.725 $16.124
Ending Number of AUs................................ (a) 3,690 169,147
(b) 1,695 29,139
- -----------------------------------------------------------------------------------------------------
AUV -- Accumulation Unit Value
AU -- Accumulation Units
(a) Without election of the enhanced death benefit
and EstatePlus.
(b) With election of the enhanced death benefit and
EstatePlus.
</Table>
A-1
<Table>
<Caption>
INCEPTION TO FISCAL YEAR ENDED
12/31/02 12/31/03
------------ -----------------
Davis Venture Value (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $20.108 $21.460
(b) $20.108 $21.425
Ending AUV.......................................... (a) $21.460 $28.069
(b) $21.425 $27.899
Ending Number of AUs................................ (a) 16,558 148,924
(b) 5,061 48,397
- -----------------------------------------------------------------------------------------------------
"Dogs" of Wall Street (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $8.149 $8.902
(b) $8.149 $8.887
Ending AUV.......................................... (a) $8.902 $10.500
(b) $8.887 $10.431
Ending Number of AUs................................ (a) 2,695 104,430
(b) 1,182 3,152
- -----------------------------------------------------------------------------------------------------
Emerging Markets (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $5.486 $5.958
(b) $5.486 $5.951
Ending AUV.......................................... (a) $5.958 $8.933
(b) $5.951 $8.879
Ending Number of AUs................................ (a) 27 11,853
(b) 676 1,324
- -----------------------------------------------------------------------------------------------------
Federated American Leaders (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $11.895 $12.912
(b) $11.895 $12.849
Ending AUV.......................................... (a) $12.912 $16.184
(b) $12.849 $15.979
Ending Number of AUs................................ (a) 80 69,514
(b) 13 7,288
- -----------------------------------------------------------------------------------------------------
Foreign Value (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $8.970 $9.407
(b) $8.970 $9.387
Ending AUV.......................................... (a) $9.407 $12.463
(b) $9.387 $12.382
Ending Number of AUVs............................... (a) 22,862 220,157
(b) 6,640 87,063
- -----------------------------------------------------------------------------------------------------
Global Bond (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $16.095 $16.324
(b) $16.095 $16.270
Ending AUV.......................................... (a) $16.324 $16.611
(b) $16.270 $16.482
Ending Number of AUs................................ (a) 400 55,290
(b) 254 5,351
- -----------------------------------------------------------------------------------------------------
Global Equities (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $11.708 $12.546
(b) $11.708 $12.523
Ending AUV.......................................... (a) $12.546 $15.584
(b) $12.523 $15.488
Ending Number of AUs................................ (a) 221 22,810
(b) 127 1,950
- -----------------------------------------------------------------------------------------------------
Goldman Sachs Research (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $4.675 $5.058
(b) $4.675 $5.054
Ending AUV.......................................... (a) $5.058 $6.224
(b) $5.054 $6.192
Ending Number of AUs................................ (a) 2,153 8,495
(b) 319 460
- -----------------------------------------------------------------------------------------------------
Growth-Income (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $20.102 $20.787
(b) $20.102 $20.751
Ending AUV.......................................... (a) $20.787 $25.658
(b) $20.751 $25.497
Ending Number of AUs................................ (a) 3,510 15,886
(b) 3,892 5,990
- -----------------------------------------------------------------------------------------------------
Growth Opportunities (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $3.230 $3.435
(b) $3.230 $3.426
Ending AUV.......................................... (a) $3.435 $4.557
(b) $3.426 $4.492
Ending Number of AUs................................ (a) 3,018 15,716
(b) 46 1,328
- -----------------------------------------------------------------------------------------------------
AUV -- Accumulation Unit Value
AU -- Accumulation Units
(a) Without election of the enhanced death benefit
and EstatePlus.
(b) With election of the enhanced death benefit and
EstatePlus.
</Table>
A-2
<Table>
<Caption>
INCEPTION TO FISCAL YEAR ENDED
12/31/02 12/31/03
------------ -----------------
High-Yield Bond (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $10.951 $11.586
(b) $10.951 $11.556
Ending AUV.......................................... (a) $11.586 $14.978
(b) $11.556 $14.862
Ending Number of AUs................................ (a) 714 108,391
(b) 1,431 43,508
- -----------------------------------------------------------------------------------------------------
International Diversified Equities (Inception
Date -- 9/30/02)
Beginning AUV....................................... (a) $6.995 $7.170
(b) $6.995 $7.158
Ending AUV.......................................... (a) $7.170 $9.286
(b) $7.158 $9.229
Ending Number of AUs................................ (a) 6,735 148,898
(b) 6,666 85,430
- -----------------------------------------------------------------------------------------------------
International Growth and Income (Inception
Date -- 9/30/02)
Beginning AUV....................................... (a) $8.000 $8.330
(b) $8.000 $8.329
Ending AUV.......................................... (a) $8.330 $11.204
(b) $8.329 $11.155
Ending Number of AUs................................ (a) 3,894 81,478
(b) 3,716 24,616
- -----------------------------------------------------------------------------------------------------
MFS Massachusetts Investors Trust (Inception
Date -- 9/30/02)
Beginning AUV....................................... (a) $14.084 $14.930
(b) $14.084 $14.903
Ending AUV.......................................... (a) $14.930 $17.969
(b) $14.903 $17.857
Ending Number of AUs................................ (a) 4,255 35,251
(b) 1,058 11,673
- -----------------------------------------------------------------------------------------------------
MFS Mid-Cap Growth (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $6.525 $6.965
(b) $6.525 $6.952
Ending AUV.......................................... (a) $6.965 $9.392
(b) $6.952 $9.333
Ending Number of AUs................................ (a) 11,688 150,416
(b) 3,867 45,327
- -----------------------------------------------------------------------------------------------------
MFS Total Return (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $18.961 $19.853
(b) $18.961 $19.789
Ending AUV.......................................... (a) $19.853 $22.797
(b) $19.789 $22.623
Ending Number of AUs................................ (a) 9,719 98,897
(b) 3,411 43,520
- -----------------------------------------------------------------------------------------------------
Putnam Growth: Voyager (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $13.178 $13.785
(b) $13.178 $13.709
Ending AUV.......................................... (a) $13.785 $16.795
(b) $13.709 $16.458
Ending Number of AUs................................ (a) 930 12,618
(b) 11 2,309
- -----------------------------------------------------------------------------------------------------
Real Estate (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $11.543 $11.836
(b) $11.543 $11.827
Ending AUV.......................................... (a) $11.836 $16.050
(b) $11.827 $15.963
Ending Number of AUs................................ (a) 1,002 37,684
(b) 2,360 7,286
- -----------------------------------------------------------------------------------------------------
Small & Mid Cap Value (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $9.180 $10.122
(b) $9.180 $10.100
Ending AUV.......................................... (a) $10.122 $13.588
(b) $10.100 $13.498
Ending Number of AUVs............................... (a) 10,970 170,268
(b) 11,296 56,714
- -----------------------------------------------------------------------------------------------------
SunAmerica Balanced (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $12.518 $12.509
(b) $12.518 $12.488
Ending AUV.......................................... (a) $12.509 $14.149
(b) $12.488 $14.060
Ending Number of AUs................................ (a) 1,187 22,990
(b) 904 1,156
- -----------------------------------------------------------------------------------------------------
AUV -- Accumulation Unit Value
AU -- Accumulation Units
(a) Without election of the enhanced death benefit
and EstatePlus.
(b) With election of the enhanced death benefit and
EstatePlus.
</Table>
A-3
<Table>
<Caption>
INCEPTION TO FISCAL YEAR ENDED
12/31/02 12/31/03
------------ -----------------
Technology (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $1.432 $1.716
(b) $1.432 $1.714
Ending AUV.......................................... (a) $1.716 $2.544
(b) $1.714 $2.529
Ending Number of AUs................................ (a) 41,215 89,460
(b) 4,246 21,043
- -----------------------------------------------------------------------------------------------------
American Funds Global Growth (Inception Date - 9/30/02)
Beginning AUV....................................... (a) $10.000 $10.949
(b) $10.000 $10.933
Ending AUV.......................................... (a) $10.949 $14.590
(b) $10.933 $14.503
Ending Number of AUs................................ (a) 1,759 110,089
(b) 5,946 39,615
- -----------------------------------------------------------------------------------------------------
American Funds Growth (Inception Date - 9/30/02)
Beginning AUV....................................... (a) $10.000 $10.884
(b) $10.000 $10.872
Ending AUV.......................................... (a) $10.884 $14.667
(b) $10.872 $14.585
Ending Number of AUs................................ (a) 18,592 257,126
(b) 15,567 86,419
- -----------------------------------------------------------------------------------------------------
American Funds Growth-Income (Inception Date - 9/30/02)
Beginning AUV....................................... (a) $10.000 $10.884
(b) $10.000 $10.865
Ending AUV.......................................... (a) $10.884 $14.197
(b) $10.865 $14.110
Ending Number of AUs................................ (a) 17,313 354,757
(b) 19,216 122,079
- -----------------------------------------------------------------------------------------------------
Lord Abbett Growth and Income (Inception Date - 9/30/02)
Beginning AUV....................................... (a) $7.486 $8.180
(b) $7.447 $8.101
Ending AUV.......................................... (a) $8.180 $10.556
(b) $8.101 $10.408
Ending Number of AUVs............................... (a) 660 84,269
(b) 1,227 22,532
- -----------------------------------------------------------------------------------------------------
Nations High Yield Bond (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $9.364 $10.162
(b) $9.348 $10.134
Ending AUV.......................................... (a) $10.162 $13.134
(b) $10.134 $13.038
Ending Number of AUs................................ (a) 4,034 202,591
(b) 5,945 16,459
- -----------------------------------------------------------------------------------------------------
Nations Marsico Focused Equities (Inception
Date -- 9/30/02)
Beginning AUV....................................... (a) $7.389 $7.184
(b) $7.383 $7.171
Ending AUV.......................................... (a) $7.184 $9.418
(b) $7.171 $9.358
Ending Number of AUs................................ (a) 11,344 259,474
(b) 16,480 53,353
- -----------------------------------------------------------------------------------------------------
Van Kampen LIT Comstock (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $7.347 $8.155
(b) $7.283 $8.075
Ending AUV.......................................... (a) $8.155 $10.504
(b) $8.075 $10.354
Ending Number of AUs................................ (a) 15,234 195,289
(b) 6,342 42,490
- -----------------------------------------------------------------------------------------------------
Van Kampen LIT Emerging Growth (Inception Date -- 9/30/02)
Beginning AUV....................................... (a) $7.223 $6.997
(b) $7.215 $6.982
Ending AUV.......................................... (a) $6.997 $8.755
(b) $6.982 $8.697
Ending Number of AUs................................ (a) 367 26,989
(b) 376 3,276
- -----------------------------------------------------------------------------------------------------
Van Kampen LIT Growth and Income (Inception
Date -- 9/30/02)
Beginning AUV....................................... (a) $8.149 $8.791
(b) $8.204 $8.840
Ending AUV.......................................... (a) $8.791 $11.056
(b) $8.840 $11.068
Ending Number of AUs................................ (a) 15,096 205,358
(b) 11,770 86,024
- -----------------------------------------------------------------------------------------------------
AUV -- Accumulation Unit Value
AU -- Accumulation Units
(a) Without election of the enhanced death benefit
and EstatePlus.
(b) With election of the enhanced death benefit and
EstatePlus.
</Table>
A-4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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)](TO THE POWER OF N/12) - 1
where:
I is the interest rate you are earning on the money invested in the
FAGP;
J is the interest rate then currently available for the period of time
equal to the number of years remaining in the term you initially agreed
to leave your money in the FAGP;
N is the number of full months remaining in the term you initially
agreed to leave your money in the FAGP; and
L is 0.005 (Some states require a different value. Please see your
contract.)
We do not assess an MVA against withdrawals from an FAGP under the following
circumstances:
- If a withdrawal is made within 30 days after the end of a guarantee
period;
- If a withdrawal is made to pay contract fees and charges;
- To pay a death benefit; and
- Upon beginning an income option, if occurring on the Latest Annuity Date.
EXAMPLES OF THE MVA
The purpose of the examples below is to show how the MVA adjustments are
calculated and may not reflect the Guarantee periods available or Surrender
Charges applicable under your contract.
The examples below assume the following:
(1) You made an initial Purchase Payment of $10,000 and allocated it to a
FAGP at a rate of 5%;
(2) You make a partial withdrawal of $4,000 when 1 1/2 years (18 months)
remain in the term you initially agreed to leave your money in the FAGP
(N=18);
(3) You have not made any other transfers, additional Purchase Payments, or
withdrawals; and
(4) Your contract was issued in a state where L = 0.005.
POSITIVE ADJUSTMENT, NO WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 3.5% and the 3-year FAGP is 4.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 4%. No
withdrawal charge is reflected in this example, assuming that the Purchase
Payment withdrawn falls within the free look amount.
The MVA factor is = [(1+I/(1+J+0.005)](to the power of N/12) - 1
= [(1.05)/(1.04+0.005)](to the power of 18/12) - 1
= (1.004785)(to the power of 1.5) - 1
= 1.007186 - 1
= + 0.007186
B-1
The requested withdrawal amount is multiplied by the MVA factor to determine the
MVA:
$4,000 X (+0.007186) = +$28.74
$28.74 represents the positive MVA that would be added to the withdrawal.
NEGATIVE ADJUSTMENT, NO WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 5.5% and the 3-year FAGP is 6.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 6%. No
withdrawal charge is reflected in this example, assuming that the Purchase
Payment withdrawn falls with the free withdrawal amount.
The MVA factor is = [(1+I/(1+J+0.005)](to the power of N/12) - 1
= [(1.05)/(1.06+0.005)](to the power of 18/12) - 1
= (0.985915)(to the power of 1.5) - 1
= 0.978948 - 1
= - 0.021052
The requested withdrawal amount is multiplied by the MVA factor to determine the
MVA:
$4,000 X (-0.021052) = -$84.21
$84.21 represents the negative MVA that will be deducted from the money
remaining in the 3-year FAGP.
POSITIVE ADJUSTMENT, WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 3.5% and the 3-year FAGP is 4.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 4%. A
withdrawal charge of 6% is reflected in this example, assuming that the Purchase
Payment withdrawn exceeds the free withdrawal amount.
The MVA factor is = [(1+I)/(1+J+0.005)](to the power of N/12) - 1
= [(1.05)/(1.04+0.005)](to the power of 18/12) - 1
= (1.004785)(to the power of 1.5) - 1
= 1.007186 - 1
= + 0.007186
The requested withdrawal amount, less the withdrawal charge ($4,000 -- 6% =
$3,760) is multiplied by the MVA factor to determine the MVA:
$3,760 X (+0.007186) = +$27.02
$27.02 represents the positive MVA that would be added to the withdrawal.
NEGATIVE ADJUSTMENT, WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 5.5% and the 3-year FAGP is 6.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 6%. A
withdrawal charge of 6% is reflected in this example, assuming that the Purchase
Payment withdrawn exceeds the free withdrawal amount.
The MVA factor is = [(1+I/(1+J+0.005)](to the power of N/12) - 1
= [(1.05)/(1.06+0.005)](to the power of 18/12) - 1
= (0.985915)(to the power of 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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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. Standard Death Benefit
If the original owner of the contract elected the standard death
benefit (and did not elect an optional death benefit), 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 greater 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.
If the Continuing Spouse is age 83-85, the death benefit will be the
greater 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.
2. 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.
C-1
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.
3. 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
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
- --------------------------------------------------------------------------------
Please forward a copy (without charge) of the Polaris Choice(II) Variable
Annuity Statement of Additional Information to:
(Please print or type and fill in all information.)
------------------------------------------------------------------------
Name
------------------------------------------------------------------------
Address
------------------------------------------------------------------------
City/State/Zip
Date: ------------------------- Signed: -------------------------
Return to: AIG SunAmerica Life Assurance Company, Annuity Service Center,
P.O. Box 52499, Los Angeles, California 90054-0299
- --------------------------------------------------------------------------------
[WM DIVERSIFIED III LOGO]
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-interest
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"), Van Kampen Life
Investment Trust ("VKT") 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>
TECHNOLOGY PORTFOLIO VAN KAMPEN 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
VAN KAMPEN LIT COMSTOCK PORTFOLIO VAN KAMPEN/VAN KAMPEN ASSET MANAGEMENT VKT
</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(III) 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 on page 36 of this prospectus. For a
free copy of the SAI, call us at 1-877-311-WMVA (9682) or write our Annuity
Service Center at, P.O. Box 54299, Los Angeles, California 90054-0299.
A registration statement has been filed with the SEC under the Securities Act of
1933 relating to the contract. This prospectus does not contain all the
information in the registration statement as permitted by SEC regulations. The
omitted information can be obtained from the SEC's principal office in
Washington, D.C., upon payment of a prescribed fee.
In addition, the SEC maintains a website (http://www.sec.gov) that contains the
SAI, materials incorporated by reference and other information filed
electronically with the SEC.
ANNUITIES INVOLVE RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL, AND ARE NOT A
DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THEY ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") after the effective date of this prospectus are also
incorporated by reference. Statements contained in this prospectus and
subsequently filed documents which are incorporated by reference or deemed to be
incorporated by reference are deemed to modify or supersede documents
incorporated herein by reference.
AIG SunAmerica Life files its Exchange Act documents and reports, including its
annual and quarterly reports on Form 10-K and Form 10-Q, electronically pursuant
to EDGAR under CIK No. 0000006342, 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.................................................... 5
HIGHLIGHTS.................................................. 6
FEE TABLES.................................................. 7
Owner Transaction Expenses............................... 7
Annual Separate Account Expenses......................... 7
The Optional Estate Rewards Death Benefit Fee............ 7
The Optional Earnings Advantage Fee...................... 7
The Optional Income Protector Fee........................ 7
Portfolio Expenses....................................... 7
MAXIMUM AND MINIMUM EXPENSE EXAMPLES........................ 8
THE WM DIVERSIFIED STRATEGIES(III) VARIABLE ANNUITY......... 9
PURCHASING A WM DIVERSIFIED STRATEGIES(III) VARIABLE
ANNUITY.................................................... 10
Allocation of Purchase Payments.......................... 10
Accumulation Units....................................... 11
Free Look................................................ 11
Exchange Offers.......................................... 11
INVESTMENT OPTIONS.......................................... 12
Variable Portfolios...................................... 12
Anchor Series Trust...................................... 12
SunAmerica Series Trust.................................. 12
Van Kampen Life Investment Trust......................... 12
WM Variable Trust........................................ 13
Fixed Investment Options................................. 13
Transfers During the Accumulation Phase.................. 14
Dollar Cost Averaging.................................... 15
Asset Allocation Rebalancing Program..................... 16
Voting Rights............................................ 16
Substitution............................................. 16
ACCESS TO YOUR MONEY........................................ 17
Free Withdrawal Provision................................ 17
Systematic Withdrawal Program............................ 18
Minimum Contract Value................................... 19
Qualified Contract Owners................................ 19
OPTIONAL LIVING BENEFITS.................................... 19
Diversified Strategies Income Rewards Feature............ 19
Capital Protector Feature................................ 23
Income Protector Feature................................. 25
DEATH BENEFIT............................................... 28
Standard Death Benefit................................... 29
Estate Rewards Death Benefit(s).......................... 29
Earnings Advantage....................................... 30
Spousal Continuation..................................... 31
EXPENSES.................................................... 32
Separate Account Charges................................. 32
Withdrawal Charges....................................... 33
Investment Charges....................................... 33
Contract Maintenance Fee................................. 33
Transfer Fee............................................. 33
Optional Death Benefit Fees.............................. 34
Optional Income Protector Fee............................ 34
Premium Tax.............................................. 34
Income Taxes............................................. 34
Reduction or Elimination of Charges and Expenses, and
Additional Amounts Credited............................ 34
INCOME OPTIONS.............................................. 35
Annuity Date............................................. 35
Income Options........................................... 35
Allocation of Annuity Payments........................... 36
Transfers During the Income Phase........................ 37
Deferment of Payments.................................... 37
TAXES....................................................... 37
Annuity Contracts in General............................. 37
Tax Treatment of Distributions--Non-Qualified
Contracts.............................................. 37
Tax Treatment of Distributions--Qualified Contracts...... 38
Minimum Distributions.................................... 38
Tax Treatment of Death Benefits.......................... 39
Contracts Owned by a Trust or Corporation................ 39
Gifts, Pledges and/or Assignments of a Contract.......... 40
Diversification and Investor Control..................... 40
PERFORMANCE................................................. 40
OTHER INFORMATION........................................... 40
AIG SunAmerica Life...................................... 40
The Separate Account..................................... 41
The General Account...................................... 41
Payment in Connection with Distribution of the
Contract............................................... 41
Administration........................................... 42
Legal Proceedings........................................ 42
Ownership................................................ 42
Independent Accountants.................................. 42
Registration Statement................................... 43
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.... 43
</Table>
3
<Table>
APPENDIX A--MARKET VALUE ADJUSTMENT......................... A-1
APPENDIX B--DEATH BENEFITS FOLLOWING SPOUSAL CONTINUATION... B-1
APPENDIX C--HYPOTHETICAL EXAMPLE OF THE OPERATION OF THE
INCOME PROTECTOR PROGRAM................................... C-1
APPENDIX D--EXCHANGE OFFER.................................. D-1
APPENDIX E--CONDENSED FINANCIAL INFORMATION................. E-1
</Table>
4
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"), AIG
SunAmerica Life, we, us, or our, the insurer that issues this contract. Only
"AIG SunAmerica Life" is a capitalized term in this 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, Van Kampen Life
Investment Trust or the WM Variable Trust as applicable. The underlying
investment portfolios may be referred to as "Underlying Funds."
5
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.
HIGHLIGHTS
The WM Diversified Strategies(III) 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 WM
DIVERSIFIED STRATEGIES(III) VARIABLE ANNUITY below.
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
1.55% 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 three
complete years, withdrawal charges no longer apply to that portion of the
Purchase Payment. Please see the FEE TABLE, PURCHASING A WM DIVERSIFIED
STRATEGIES(III) 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.
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.
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).
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.
6
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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>
Transfer Fee......................
No charge for first 15 transfers each contract year;
thereafter, fee is $25 ($10 in Pennsylvania and Texas) per
transfer.
THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY PERIODICALLY
DURING THE TIME THAT YOU OWN THE CONTRACT, NOT INCLUDING 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.............................. 1.05%
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................................ 1.95%
====
</Table>
ADDITIONAL OPTIONAL FEATURE FEE
You may elect only one of the following optional features: Diversified
Strategies Income Rewards, Income Protector, or Capital Protector, described
below.
OPTIONAL DIVERSIFIED STRATEGIES INCOME REWARDS FEE
<Table>
<Caption>
ANNUALIZED
CONTRACT YEAR FEE(3)
- ------------- --------------
0-7............................................... 0.65%
8+................................................ 0.45%
</Table>
OPTIONAL CAPITAL PROTECTOR FEE
<Table>
<Caption>
ANNUALIZED
CONTRACT YEAR FEE(4)
- ------------- --------------
0-7............................................... 0.50%
8-10.............................................. 0.25%
11+............................................... none
</Table>
OPTIONAL INCOME PROTECTOR FEE
<Table>
Annual Fee(5)..................................... 0.10%
</Table>
FOOTNOTES TO FEE TABLE:
(1) Withdrawal Charge Schedule (as a percentage of each Purchase Payment)
<Table>
YEARS:...................................................... 1 2 3 4+
7% 6% 6% 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 1.55%.
(3) The Diversified Strategies Income Rewards feature is optional and if
elected, the fee is 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. If you purchase your contract in the State of
Oregon or Washington, the fee is 0.65% in years 0-7 and 0.30% in years 8-10.
(5) The Income Protector feature is optional and if elected, the fee is a
percentage of your Income Benefit Base. 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 proportionate 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 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 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)...................... 0.81% 1.64%
</Table>
7
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 EXPENSES OF 1.95% 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 Plus (0.40%) and the optional Diversified
Strategies Income Rewards, 0.65% for years 0-7, 0.45% for years 8-10:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$1,131 $1,901 $2,183 $4,386
- -------------------------------------
- -------------------------------------
</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
- -------------------------------------
- -------------------------------------
$322 $983 $1,669 $3,494
- -------------------------------------
- -------------------------------------
</Table>
(3) If you do not surrender your contract and you elect the optional Estate Plus
(0.40%) and the optional Diversified Strategies Income Rewards, 0.65% for
years 0-7, 0.45% for years 8-10:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$431 $1,301 $2,183 $4,386
- -------------------------------------
- -------------------------------------
</Table>
MINIMUM EXPENSE EXAMPLES
(ASSUMING MINIMUM SEPARATE ACCOUNT EXPENSES OF 1.55% AND INVESTMENT IN AN
UNDERLYING FUND WITH TOTAL EXPENSES OF 0.81%)
(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
- -------------------------------------
- -------------------------------------
$944 $1,351 $1,285 $2,746
- -------------------------------------
- -------------------------------------
</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
- -------------------------------------
- -------------------------------------
$239 $736 $1,260 $2,696
- -------------------------------------
- -------------------------------------
</Table>
(3) If you do not surrender your contract and do not elect any optional benefits
or features:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$244 $751 $1,285 $2,746
- -------------------------------------
- -------------------------------------
</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 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 Trust prospectuses.
2. The Examples assume that no transfer fees were imposed. 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 or the Capital Protector program, your expenses would
be lower than those shown in these tables. The fee for the Diversified
Strategies Income Rewards, Capital Protector or Income Protector feature
is not calculated as a percentage of your daily net asset value, but on
other calculations more fully described in the prospectus.
3. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
8
THE WM DIVERSIFIED STRATEGIES(III) VARIABLE ANNUITY
- --------------------------------------------------------------------------------
An annuity is a contract between you and an insurance company. You are the owner
of the contract. The contract provides three main benefits:
- Tax Deferral: You do not pay taxes on your earnings from the annuity
until you withdraw them.
- Death Benefit: If you die during the Accumulation Phase, the insurance
company pays a death benefit to your Beneficiary.
- Guaranteed Income: If elected, you receive a stream of income for your
lifetime, or another available period you select.
Tax-qualified retirement plans (e.g., IRAs, 401(k) or 403(b) plans) defer
payment of taxes on earnings until withdrawn. If you are considering funding a
tax-qualified retirement plan with an annuity, you should know that an annuity
does not provide any additional tax deferral treatment of earnings beyond the
treatment provided by the tax-qualified retirement plan itself. However,
annuities do provide other features and benefits which may be valuable to you.
You should fully discuss this decision with your financial advisor.
This annuity was developed to help you contribute to your retirement savings.
This annuity works in two stages, the Accumulation Phase and the Income Phase.
Your contract is in the Accumulation Phase during the period when you make
payments into the contract. The Income Phase begins when you request us to start
making payments to you out of the money accumulated in your contract.
The Contract is called a "variable" annuity because it allows you to invest in
variable investment portfolios which we call Variable Portfolios. The Variable
Portfolios have specific investment objectives and their performance varies. You
can gain or lose money if you invest in these Variable Portfolios. The amount of
money you accumulate in your contract depends on the performance of the Variable
Portfolio(s) in which you invest.
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(III) Variable Annuity.
When you purchase a WM Diversified Strategies(III) 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(III) Variable Annuity may not currently
be available in all states. Please check with your financial advisor regarding
availability in your state.
This annuity is designed for investors whose personal circumstances allow for a
long-term investment time horizon, to assist in contributing to retirement
savings. As a function of the Internal Revenue Code ("IRC"), you may be assessed
a 10% federal tax penalty on any withdrawal made prior to your reaching age
59 1/2. Additionally, this contract provides that you will be charged a
withdrawal charge on each Purchase Payment withdrawn if that Purchase Payment
has not been invested in this contract for at least 3 years. Because of the
potential penalty, you should fully discuss all of the benefits and risks of
this contract with your financial advisor prior to purchase.
9
PURCHASING A WM DIVERSIFIED STRATEGIES(III)
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 $250 $100
Non-Qualified $10,000 $500 $100
</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 (unless state
law requires otherwise). 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 discover a misstatement of age
with respect to the contract issue age and any age-driven features in the
contract, 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 SAI
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 the last
future payment allocation instructions provided by you. 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
and/or 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,
10
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.
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. 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
11
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.
EXCHANGE OFFER FROM WM ADVANTAGE VARIABLE ANNUITY ISSUED BY AMERICAN GENERAL
LIFE INSURANCE COMPANY TO WM DIVERSIFIED STRATEGIES(III) VARIABLE ANNUITY
Certain owners of the WM Advantage variable annuity issued by AIG SunAmerica
Life's affiliate American General Life Insurance Company ("Advantage Contract")
may have the opportunity to exchange the Advantage Contract for a newer variable
annuity issued by AIG SunAmerica Life Assurance Company. The newer annuity being
offered in this Exchange Offer is the WM Diversified Strategies(III) variable
annuity, described in this prospectus; however, all Variable Portfolios may not
be available for exchanged assets.
This Exchange Offer is only made to Advantage Contract owners whose Advantage
Contracts are completely out of the surrender charge period at the time of the
exchange. Upon purchasing the WM Diversified Strategies(III) contract in
exchange for the Advantage Contract, surrender charges will not apply to the
exchanged values in the new contract and will be waived on new Purchase Payments
made into the WM Diversified Strategies(III) variable annuity. We will pay lower
compensation to financial representatives on sales of WM Diversified
Strategies(III) that are part of this Exchange Offer. For a comparison of the
features and benefits of the Advantage Contract to the WM Diversified
Strategies(III) contract, please see Appendix D.
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, Van Kampen Life Investment Trust and the WM Variable Trust (the
"Trusts"). Additional Variable Portfolios may be available in the future. The
Variable Portfolios operate similar to a mutual fund but 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 Trusts' adviser monitors the Trust
for potential conflicts.
ANCHOR SERIES TRUST (CLASS 2)
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)
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.
VAN KAMPEN LIFE INVESTMENT TRUST (CLASS II)
Van Kampen Asset Management Inc. provides investment advice for the VKT
portfolios. VKT contains investments portfolios in addition to the one listed
here which are not available for investment under this contract.
12
WM VARIABLE TRUST (CLASS 2)
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:
<Table>
STRATEGIC ASSET MANAGEMENT PORTFOLIOS
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
EQUITY FUNDS
Technology Portfolio Van Kampen 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
Van Kampen LIT Comstock Portfolio* Van Kampen/Van Kampen Asset Management VKT
FIXED-INCOME FUNDS
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>
- ---------------
* An equity fund seeking capital growth and income.
YOU SHOULD READ THE PROSPECTUSES FOR THE TRUSTS CAREFULLY. THESE PROSPECTUSES
CONTAIN DETAILED INFORMATION ABOUT THE PORTFOLIOS, INCLUDING EACH UNDERLYING
FUND'S INVESTMENT OBJECTIVE AND RISK FACTORS.
FIXED INVESTMENT OPTIONS
Your contract may offer Fixed Account Guarantee Periods ("FAGP") to which you
may allocate certain Purchase Payments or contract value. Available guarantee
periods may be for different lengths of time (such as 1, 3 or 5 years) and may
have different guaranteed interest rates, as noted below. We guarantee the
interest rate credited to amounts allocated to any available FAGP and that the
rate will never be less than the minimum guaranteed interest rate as specified
in your contract. Once established, the rates for specified payments do not
change during the guarantee period. We determine the FAGPs offered at any time
in our sole discretion and we reserve the right to change the FAGPs that we make
available at any time, unless state law requires us to do otherwise. Please
check with your financial advisor to learn if any FAGPs are currently offered.
There are three interest rate scenarios for money allocated to the FAGPs. Each
of these rates may differ from one another. Once declared, the applicable rate
is guaranteed until the corresponding guarantee period expires. Under each
scenario your money may be credited a different rate of interest as follows:
- INITIAL RATE: The rate credited to any portion of the initial Purchase
Payment allocated to a FAGP.
- CURRENT RATE: The rate credited to any portion of the subsequent Purchase
Payments allocated to a FAGP.
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. We reserve the right to refuse any
Purchase Payment to available FAGPs if we are crediting a rate equal to the
minimum guaranteed interest rate specified in your contract. We may also offer
the specific Dollar Cost Averaging Fixed Accounts ("DCAFA"). The rules,
restrictions and operation of the DCAFAs may differ from the standard FAGPs
described above, please see DOLLAR COST AVERAGING below for more details.
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 close of the NYSE, generally at 4:00 p.m. Eastern 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;
14
- - 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 year.
All transfer requests in excess of 5 transfers within a rolling six-month
look-back period must be submitted by United States Postal Service first-class
mail ("U.S. Mail") for twelve months from the date of your 5th transfer request.
For example, if you made a transfer on February 15, 2004 and within the previous
six months (from August 15, 2003 forward) you made 5 transfers including the
February 15th transfer, then all transfers made for twelve months after February
15, 2004 must be submitted by U.S. Mail (from February 16, 2004 through February
15, 2005). 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 PROGRAM
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 one
Variable Portfolio or the 1-year fixed account option (source accounts) to any
other Variable Portfolio. You may also systematically transfer the interest
earned in the 1-year fixed account to any of the Variable Portfolios. Transfers
occur on certain periodic schedules, such as monthly or weekly, and do not count
against your 15 free transfers per contract year. The minimum transfer amount
under the DCA program is $100 per transfer, regardless of the source account.
Fixed account options are not available as target accounts for the DCA program.
We may also offer 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 new Purchase Payment into a DCAFA, we
transfer all your money allocated to that account into the Variable Portfolio(s)
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.
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.
15
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 month from the Money
Market Fund to the Alliance Growth Portfolio over six quarters. 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. 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.
VOTING RIGHTS
AIG SunAmerica Life is the legal owner of shares of the Trusts. However, when an
Underlying Fund solicits proxies in conjunction with a vote of shareholders, we
must obtain your instructions on how to vote those shares. We vote all of the
shares we own in proportion to your instructions. This includes any shares we
own on our own behalf. Should we determine that we are no longer required to
comply with these rules, we will vote the shares in our own right.
SUBSTITUTION
We may amend your contract due to changes to the Variable Portfolios offered
under your contract. For example, we may offer new Variable Portfolios, delete
Variable Portfolios, or stop accepting allocations and/or investments in a
particular Variable Portfolio. We may move assets and re-direct future premium
allocations from one Variable Portfolio to another if we receive investor
approval through a proxy vote or SEC approval for a fund substitution. This
would occur if a Variable Portfolio is no longer an appropriate investment for
the contract, for reasons such as continuing substandard performance, or for
changes to the portfolio manager, investment objectives, risks and strategies,
or federal or state laws. The new Variable Portfolio offered may have different
fees and expenses. You will be notified of any upcoming proxies or substitutions
that affect your Variable Portfolio choices.
16
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. If you withdraw your entire contract value, we also deduct any
applicable premium taxes and a contract maintenance fee. SEE EXPENSES BELOW. We
calculate charges due on a total withdrawal on the day after we receive your
request and other required paper work. We return your contract value less any
applicable fees and charges.
The minimum partial withdrawal amount is $1,000 ($950 in Oregon). 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(s) in
which your contract is invested.
We may be required to suspend or postpone the payment of a withdrawal for any
period of time when: (1) the NYSE is closed (other than 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).
Purchase Payments, above and beyond the amount of your free withdrawal amount,
that are withdrawn prior to the end of the third year will result in your paying
a penalty in the form of a surrender charge. The amount of the charge and how it
applies are discussed more fully below. SEE EXPENSES BELOW. You should consider,
before purchasing this contract, the effect this charge will have on your
investment if you need to withdraw more money than the free withdrawal amount.
You should fully discuss this decision with your financial representative.
To determine your free withdrawal amount and your withdrawal charge, we refer to
two special terms. These are penalty free earnings and the total invested
amount.
The penalty-free earnings portion of your contract is simply your account value
less your total invested amount. The total invested amount is the total of all
Purchase Payments you have made into the contract less portions of some prior
withdrawals you made. The portions of prior withdrawals that reduce your total
invested amount are as follows:
- - Free withdrawals in any year that were in excess of your penalty-free earnings
and were based on the part of the total invested amount that was no longer
subject to withdrawal charges at the time of the withdrawal, and
- - Any prior withdrawals (including withdrawal charges on those withdrawals) of
the total invested amount on which you already paid a surrender penalty.
When you make a withdrawal, we assume that it is taken from penalty-free
earnings first, then from the total invested amount on a first-in, first-out
basis. This means that you can access your Purchase Payments which are no longer
subject to a withdrawal charge before those Purchase Payments which are still
subject to the withdrawal charge.
17
During the first year after we issue your contract your free withdrawal amount
is the greater of (1) your penalty-free earnings; and (2) if you are
participating in the Systematic Withdrawal program, a total of 10% of your total
invested amount. If you are a Washington resident, you may withdraw during the
first contract year, the greater of (1); (2); or (3) interest earnings from the
amounts allocated to the fixed account options, not previously withdrawn.
After the first contract year, you can take out the greater of the following
amounts each year (1) your penalty-free earnings and any portion of your total
invested amount no longer subject to withdrawal charge or (2) 10% of the portion
of your total invested amount that has been in your contract for at least one
year. If you are a Washington resident, your maximum free withdrawal amount,
after the first contract year, is the greater of (1); (2); or (3) interest
earnings from amounts allocated to the fixed account options, not previously
withdrawn.
We calculate charges due on a total withdrawal on the day after we receive your
request and your contract. We return to you your contract value less any
applicable fees and charges.
The withdrawal charge percentage is determined by the age of the Purchase
Payment remaining in the contract at the time of the withdrawal. For the purpose
of calculating the withdrawal charge, any prior Free Withdrawal is not
subtracted from the total Purchase Payments still subject to withdrawal charges.
For example, you make an initial Purchase Payment of $100,000. For purposes of
this example we will assume a 0% growth rate over the life of the contract, no
election of Estate Rewards, Earnings Advantage or Income Protection options
selected and no subsequent Purchase Payments. In contract year 2, you take out
your maximum free withdrawal of $10,000. After that free withdrawal your
contract value is $90,000. In contract year 3 you request a full surrender of
your contract. We will apply the following calculation,
A-(B x C)=D, where:
A=Your contract value at the time of your request for surrender ($90,000)
B=The amount of your Purchase Payments still subject to withdrawal charge
($100,000)
C=The withdrawal charge percentage applicable to the age of each Purchase
Payment (6%)[B x C=$6,000]
D=Your full surrender value ($84,000)
Under most circumstances, the partial withdrawal minimum is $1,000. We require
that the value left in any investment option be at least $100, after the
withdrawal. You must send a written withdrawal request. Unless you provide us
with different instructions, partial withdrawals will be made pro rata from each
Variable Portfolio and the fixed account option(s) in which your contract is
invested.
Under certain Qualified plans, access to the money in your contract may be
restricted. Additionally, withdrawals made prior to age 59 1/2 may result in a
10% federal penalty tax. SEE TAXES BELOW.
We may be required to suspend or postpone the payment of a withdrawal for any
period of time when: (1) the NYSE is closed (other than a customary weekend and
holiday closings); (2) trading with the NYSE is restricted; (3) an emergency
exists such that disposal of or determination of the value of shares of the
Variable Portfolios is not reasonably practicable; (4) the SEC, by order, so
permits for the protection of contract owners.
Additionally, we reserve the right to defer payments for a withdrawal from a
fixed account option. Such deferrals are limited to no longer than six months.
SYSTEMATIC WITHDRAWAL PROGRAM
During the Accumulation Phase, you may elect to receive periodic income payments
under the systematic withdrawal program. Under the program, you may choose to
take monthly, quarterly, semi-annual or annual payments from your contract.
Electronic transfer of these funds to your bank account is also available. The
minimum amount of each withdrawal is $100. In the State of Oregon, the minimum
withdrawal amount is $250 per withdrawal or the penalty free withdrawal amount.
Withdrawals may be taxable and a 10% federal penalty tax may apply if you are
under age 59 1/2. There is no additional charge for participating in this
program, although a withdrawal charge and/or MVA may apply.
18
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.
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.
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
19
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 Diversified Strategies Income Rewards
options we are offering as applicable on the Benefit Availability Date:
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------
MWP (IF MAWA
STEP-UP MAWA TAKEN EACH
BENEFIT AVAILABILITY DATE AMOUNT PERCENTAGE YEAR)
- --------------------------------------------------------------------------------------------------
Option 1 3 years following Benefit Effective Date 10% of WBB 10% of WBB 11 years
- --------------------------------------------------------------------------------------------------
Option 2 5 Years following Benefit Effective Date 20% of WBB 10% of WBB 12 years
- --------------------------------------------------------------------------------------------------
</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.
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.
<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
20
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 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).
21
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 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.
22
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.
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 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
23
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 Polaris Income Reward. See Diversified
Strategies 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
24
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 0.60%
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.
INCOME PROTECTOR FEATURE
You may elect to enroll in the Income Protector Program. The Income Protector
Program offers you the ability to receive a guaranteed fixed minimum retirement
income when you choose to switch to the Income Phase. Income Protector should be
regarded only as a "safety net." 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
25
be available in your state. Once you have made an Income Protector election it
cannot be changed or terminated. Check with your financial advisor regarding
availability.
You are not required to use the Income Protector to receive income payments. The
general provisions of your contract provide other income options. However, we
will not refund fees paid for the Income Protector if you begin taking income
payments under the general provisions of your contract. In addition, if
applicable, surrender charges will be assessed upon your beginning the Income
Phase, if you annuitize under the Income Protector Program. YOU MAY NEVER NEED
TO RELY UPON INCOME PROTECTOR IF YOUR CONTRACT PERFORMS WITHIN A HISTORICALLY
ANTICIPATED RANGE. HOWEVER, PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
Certain federal tax code restrictions on the income options available to
qualified retirement investors may have an impact on your ability to benefit
from this feature. Qualified investors should read NOTE TO QUALIFIED CONTRACT
HOLDERS, below.
HOW DO WE DETERMINE THE AMOUNT OF YOUR MINIMUM GUARANTEED INCOME?
If you elect the Income Protector Program, we base the amount of minimum
retirement income available to you upon a calculation we call the Income Benefit
Base. At the time your enrollment in the Income Protector program becomes
effective, your Initial Income Benefit Base is equal to your contract value. If
elected, your participation becomes effective on the date of issue of the
contract.
The Income Benefit Base is only a calculation. It does not represent a contract
value, nor does it guarantee performance of the Variable Portfolios in which you
invest.
Your Income Benefit Base increases if you make subsequent Purchase Payments and
decreases if you withdraw money from your contract. The exact Income Benefit
Base calculation is equal to (a) plus (b) minus (c) where:
(a) is equal to, for the first year of calculation, your contract value on
the date your participation became effective, and for each subsequent
year of calculation, the Income Benefit Base of your prior contract
anniversary, and;
(b) is equal to the sum of all subsequent Purchase Payments made into the
contract since the prior contract anniversary, and;
(c) is equal to all withdrawals and applicable fees and charges since the
last contract anniversary, in an amount proportionate to the amount by
which such withdrawals decreased your contract value. Your Income
Benefit Base may accumulate at the elected growth rate, if available,
from the date your election becomes effective through your Income
Benefit Date.
Any applicable growth rate will reduce to 0% on the anniversary immediately
after the annuitant's 90th birthday.
LEVEL OF PROTECTION
If you decide that you want the protection offered by the Income Protector
Program, you must elect the Income Protector by completing the Income Protector
Election form available through our Annuity Service Center. You must elect the
Income Protector feature at the time your contract is issued. You may only elect
one of the offered alternatives, if more than one is available, and you can
never change your election once made.
Your Income Benefit Base will begin accumulating at the applicable growth rate
on the contract anniversary following our receipt of your completed election
form. In order to obtain the benefit of the Income Protector you may not begin
the income Phase for at least ten 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% 10 years
</Table>
26
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 10th or later contract
anniversary following the effective date of your Income Protector participation.
The contract anniversary 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.
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>
We deduct the annual fee from your actual Contract Value. We begin deducting the
annual fee on your first 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. We
will not assess the annual fee if you surrender or annuitize before the next
contract anniversary.
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.
The Income Protector program may not be available in all states. Check with your
financial advisor for availability in your state.
27
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 a death certificate; (2) a certified copy of a
decree of court of competent jurisdiction as to the finding of death; (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 deceased 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 elect a specific form of pay out
within 60 days of our receipt of all required paperwork and satisfactory proof
of death, we pay a lump sum death benefit to the Beneficiary.
The 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 by 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
28
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 your particular circumstances.
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 Standard Death Benefit
which is automatically included in your contract for no 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.
The term "Net Purchase Payment" is used frequently in explaining the death
benefit options. Net Purchase Payment is an on-going calculation. It does not
represent a contract value.
We define Net Purchase Payments as Purchase Payments less an Adjustment for each
withdrawal. If you have not taken any withdrawals from your contract, Net
Purchase Payments equals total Purchase Payments into your contract. To
calculate the Adjustment amount for the first withdrawal made under the
contract, we determine the percentage by which the withdrawal reduced contract
value. For example, a $10,000 withdrawal from a $100,000 contract is a 10%
reduction in value. This percentage is calculated by dividing the amount of each
withdrawal (including fees and charges applicable to the withdrawal) by the
contract value immediately before taking that withdrawal. The resulting
percentage is then multiplied by the amount of total Purchase Payments and
subtracted from the amount of total Purchase Payments on deposit at the time of
the withdrawal. The resulting amount is the initial Net Purchase Payment
calculation.
To arrive at the Net Purchase Payment calculation for subsequent withdrawals, we
determine the percentage by which the contract value is reduced by taking the
amount of the withdrawal in relation to the contract value immediately before
taking the withdrawal. We then multiply the Net Purchase Payment calculation as
determined prior to the withdrawal by this percentage. We subtract that result
from the Net Purchase Payment calculation as determined prior to the withdrawal
to arrive at all subsequent Net Purchase Payment calculations.
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.
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 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 on the date we receive all required paperwork and
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
cannot 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.
29
OPTION 1 - 5% ACCUMULATION OPTION --
THE DEATH BENEFIT IS THE GREATER OF:
a. the contract value on the date we receive all required paperwork and
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 and you selected the 5%
Accumulation Option, any death benefit payable under the contract will
be the Standard Death Benefit as described above. Therefore, your
beneficiary will not receive any benefit from Estate Rewards. This
option may not be available in your state. 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 on the date we receive all required paperwork and
satisfactory proof of death; or
c. the maximum anniversary value on any contract anniversary prior to your
81st birthday. The anniversary value equals the contract value on a
contract anniversary increased by any Purchase Payments recorded after
that anniversary; and reduced for any withdrawals (and fees and charges
applicable to those withdrawals) recorded after the anniversary, in the
same proportion that the withdrawal reduced the contract value on the
date of the withdrawal.
If the Maximum Anniversary Value option was elected and you or the
Continuing Spouse live to be age 90 or older, the death benefit will be
the contract value because the Maximum Anniversary Value option ends at
age 90. However, if you selected the Earnings Advantage benefit and
death occurs after age 90 but before the latest annuity date at age 95,
your beneficiary or Continuing Spouse will benefit from the Earnings
Advantage.
EARNINGS ADVANTAGE
The Earnings Advantage benefit may increase the Estate Rewards death benefit
amount. In order to elect Earnings Advantage, you must also elect Estate Rewards
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 Estate Rewards, but once elected, generally, it cannot be
terminated. Further, if you elect both 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.
With the Earnings Advantage benefit, 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 Amount), to the death benefit payable.
30
The Contract Year of Death will determine the Earnings Advantage Percentage and
the Maximum Earnings Advantage Amount, as set forth below:
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------------------------
EARNINGS ADVANTAGE MAXIMUM
CONTACT YEAR OF DEATH 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 benefit is subject to a maximum dollar amount. The
Maximum Earnings Advantage Amount is equal to a percentage of your Net Purchase
Payments.
Earning Advantage is not available if you are age 81 or older at the time we
issue your contract. Furthermore, a Continuing Spouse cannot benefit from
Earnings Advantage if he/she is age 81 or older on the Continuation Date. SEE
SPOUSAL CONTINUATION BELOW. The Earnings Advantage benefit is not payable after
the latest Annuity Date. SEE INCOME OPTIONS BELOW.
Earnings Advantage may not be available in your state or through the
broker-dealer with which your financial advisor is affiliated. See your
financial advisor for information regarding availability.
In the state of Washington only the Maximum Anniversary Value component of the
Estate Rewards death benefit is available. Neither the Purchase Payment
Accumulation nor the Earnings Advantage is available in Washington. The fee
charged for the Maximum Anniversary Value option in Washington is 0.15% of the
average daily ending value of the assets allocated to the Variable Portfolios.
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"). 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.
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
31
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"). If a Continuation Contribution is added to the contract
value, 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 the purposes of any other calculations except as explained
in Appendix B. To the extent that the Continuing Spouse invests in the Variable
Portfolios or MVA fixed account 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 the Estate Rewards and the available
death benefit will be the Standard Death Benefit. The Continuing Spouse cannot
elect to continue Earnings Advantage without also continuing the Estate Rewards.
If a Continuing Spouse is age 81 or older on the Continuation Date, then the
death benefit will be the contract value. We will terminate Estate Rewards if
the Continuing Spouse is 81 or older on the Continuation Date. If Estate Rewards
is continued and the Continuing Spouse dies after the latest Annuity Date, and
the 5% Accumulation option was selected, the death benefit will be the Standard
Death Benefit. If the Maximum Anniversary value option was selected and the
Continuing Spouse lives to age 90 or older, the death benefit will be the
contract value. However, if death occurs before the latest annuity date, the
Continuing Spouse will still benefit from the Earnings Advantage.
Generally, the age of the Continuing Spouse on the Continuation Date (if any
Continuation Contribution has been made) and on the date of the Continuing
Spouse's death will be used in determining any future death benefits under the
Contract. If no Continuation Contribution has been made to the contract on the
Continuation Date, the age of the spouse on the date of the original contract
issue will be used to determine any age-driven benefits. SEE APPENDIX B 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 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 separate account expenses in the amount of 1.55%, 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
Insurance Charge is expected to result in a profit. Profit may be used for any
legitimate cost or expense including distribution, depending upon market
conditions.
32
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 (may be lower in some states):
<Table>
<Caption>
YEAR 1 2 3 4
- ----------------- ---- ---- ---- ----
Withdrawal Charge 7% 6% 6% 0%
</Table>
After a Purchase Payment has been in the contract for three 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 or to pay contract fees or charges. 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 servicing plan
adopted by that Trust pursuant to Rule 12b-1 of the Investment Company Act of
1940. The 0.15% service fee for the Anchor and SunAmerica Series Trust
portfolios and 0.25% for the Van Kampen Life Investment Trust and WM Variable
Trust portfolios is also known as a 12b-1 fee. Generally, this fee may be paid
to financial intermediaries for services provided over the life of the contract.
SEE FEE TABLE ABOVE.
FOR MORE DETAILED INFORMATION ON THESE INVESTMENT CHARGES, REFER TO THE
PROSPECTUSES FOR THE UNDERLYING FUNDS.
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. 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 deduct the $35 ($30 in North Dakota) contract maintenance fee
on a pro-rata basis from your account value on your contract anniversary. In the
states of Texas and Washington a contract maintenance fee 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 fee from that withdrawal.
TRANSFER FEE
Generally, we currently allow 15 free transfers per contract year. We charge $25
($10 in Pennsylvania and Texas) for each additional transfer in any contract
year.
33
OPTIONAL DEATH BENEFIT FEES
Please see Optional Death Benefits above for additional information regarding
the Estate Rewards and Earnings Advantage fee.
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 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>
CONTRACT YEAR ANNUALIZED FEE
- ------------- --------------
0-7 0.65%
8+ 0.45%
</Table>
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 INCOME PROTECTOR FEE
The annual fee for the Income Protector feature is 0.10% of your Income Benefit
Base.
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.
34
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. Other annuity options may
be available. Please check with the Annuity Service Center for details. 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 OR 20 YEAR PERIOD
CERTAIN
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 payments have been made, the remaining payments are made to
the Beneficiary under your Contract.
35
OPTION 4 - LIFE ANNUITY WITH 10 OR 20 YEAR PERIOD CERTAIN
This option is similar to Option 1 above. In addition, this option provides a
guarantee that income payments will be made for at least 10 or 20 years. You
select the number of years. If the Annuitant dies before all guaranteed income
payments are made, the remaining income payments go to the Beneficiary under
your Contract.
OPTION 5 - INCOME FOR A SPECIFIED PERIOD
This option provides income payments for a guaranteed period ranging from 5 to
30 years. If the Annuitant dies before all the guaranteed income payments are
made, the remaining income payments are made to the Beneficiary under your
contract. Additionally, if variable income payments are elected under this
option, you (or the Beneficiary under the contract if the Annuitant dies prior
to all guaranteed payments being made) may redeem the contract value (in full or
in part) after the Annuity Date. The amount available upon such redemption would
be the discounted present value of any remaining guaranteed payments. The value
of an Annuity Unit, regardless of the option chosen, takes into account the
mortality and expense risk charge. Since Option 5 does not contain an element of
mortality risk, no benefit is derived from this charge.
We make income payments on a monthly, quarterly, semi-annual or annual basis.
You instruct us to send you a check or to have the payments direct deposited
into your bank account. If state law allows, we distribute annuities with a
contract value of $5,000 or less in a lump sum. Also, if the selected income
option results in annuity payments of less than $50 per payment, we may decrease
the frequency of the payments, state law allowing. See the INCOME PROTECTOR
section below for specifics relative to taking income under that feature.
ALLOCATION OF ANNUITY PAYMENTS
You can choose income payments that are fixed, variable or both. If payments are
fixed, AIG SunAmerica Life guarantees the amounts of each payment. If the
payments are variable, the amounts are not guaranteed. They will go up and/or
down based upon the performance of the Variable Portfolio(s) in which you
invest.
FIXED OR VARIABLE INCOME PAYMENTS
Unless otherwise elected, if at the date when income payments begin you are
invested in the Variable Portfolio(s) only, your income payments will be
variable and your money is only in fixed accounts at that time, your income
payments will be fixed in amount. If you are invested in both fixed and variable
options at the time you begin the Income Phase, a portion of your income
payments will be fixed and a portion will be variable, unless otherwise elected.
INCOME PAYMENTS
Your income payments will vary if you are invested in the Variable Portfolio(s)
after the Annuity date depending on four factors:
- for life options, your age when payments begin, and in most states, if a
Non-Qualified Contract, your gender;
- the value of your contract in the Variable Portfolio(s) on the Annuity
Date;
- the 3.5% assumed investment rate ("AIR") for variable income payments
used in the annuity table for the contract; and;
- the performance of the Variable Portfolio(s) in which you are invested
during the time you receive income payments.
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.
36
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 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
37
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.
38
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.
39
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
- --------------------------------------------------------------------------------
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. 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 Variable
Portfolios were first added to the Separate Account, we derive the figures from
the performance of the corresponding Underlying Funds for the Trusts, if
available. We modify these numbers to reflect charges and expenses as if the
Variable Portfolios were 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 ASSURANCE COMPANY ("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.
40
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 broker-dealers and two investment
advisers), 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 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 6% 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.
41
WM Funds Distributor, 1201 Third Avenue, 22nd Floor, Seattle, Washington 98101,
distributes the contracts. WM Funds Distributor is a registered as a
broker-dealer under the Exchange Act of 1934 and a member of the National
Association of Securities Dealers, Inc.
No underwriting fees are paid in connection with the distribution of the
contracts.
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.
OWNERSHIP
The WM Diversified Strategies(III) 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 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 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.
42
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............................................ 2
General Account............................................. 2
Performance Data............................................ 3
Income Payments............................................. 9
Annuity Unit Values......................................... 9
Variable Annuity Payments................................... 11
Taxes....................................................... 11
Distribution of Contracts................................... 17
Financial Statements........................................ 17
</Table>
43
APPENDIX A -- MARKET VALUE ADJUSTMENT ("MVA")
- --------------------------------------------------------------------------------
The information in this Appendix applies only if you take money out of a FAGP
with a duration longer than 1 year before the end of the guarantee period. If
you take money out of any available multi-year FAGP, before the end of the
guarantee period, we make an adjustment to your contract. We refer to the
adjustment as a market value adjustment ("MVA"). The MVA reflects any difference
in the interest rate environment between the time you place your money in the
FAGP and the time when you withdraw or transfer that money. This adjustment can
increase or decrease your contract value. Generally, if interest rates drop
between the time you put your money into a FAGP and the time you take it out, we
credit a positive adjustment to your contract. Conversely, if interest rates
increase during the same period, we post a negative adjustment to your contract.
You have 30 days after the end of each guarantee period to reallocate your funds
without incurring any MVA.
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);
A-1
(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.
POSITIVE ADJUSTMENT, NO WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 3.5% and the 3-year FAGP is 4.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 4%. No
withdrawal charge is reflected in this example, assuming that the Purchase
Payment withdrawn falls within the free look amount.
The MVA factor is
= [(1+I/(1+J+0.005)](N/12) -- 1
= [(1.05)/(1.04+0.005)](18/12) -- 1
= (1.004785)(1.5) -- 1
= 1.007186 -- 1
= +0.007186
The requested withdrawal amount is multiplied by the MVA factor to determine the
MVA:
$4,000 X (+0.007186) = +$28.74
$28.74 represents the positive MVA that would be added to the withdrawal.
NEGATIVE ADJUSTMENT, NO WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 5.5% and the 3-year FAGP is 6.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 6%. No
withdrawal charge is reflected in this example, assuming that the Purchase
Payment withdrawn falls with the free withdrawal amount.
The MVA factor is
= [(1+I)/(1+J+0.005)](N/12) -- 1
= [(1.05)/(1.06+0.005)](18/12) -- 1
= (0.985915)(1.5) -- 1
= 0.978948 -- 1
= -0.021052
The requested withdrawal amount is multiplied by the MVA factor to determine the
MVA:
$4,000 X (-0.021052) = -$84.21
$84.21 represents the negative MVA that will be deducted from the money
remaining in the 3-year FAGP.
POSITIVE ADJUSTMENT, WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 3.5% and the 3-year FAGP is 4.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 4%. A
withdrawal charge of 6% is reflected in this example, assuming that the Purchase
Payment withdrawn exceeds the free withdrawal amount.
The MVA factor is
= [(1+I)/(I+J+0.005)](N/12) -- 1
= [(1.05)/(1.04+0.005)](18/12) -- 1
= (1.004785)(1.5) -- 1
= 1.007186 -- 1
= +0.007186
A-2
The requested withdrawal amount, less the withdrawal charge ($4,000 -6% =
$3,760) is multiplied by the MVA factor to determine the MVA:
$3,760 X (+0.007186) = +$27.02
$27.02 represents the positive MVA that would be added to the withdrawal.
NEGATIVE ADJUSTMENT, WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 5.5% and the 3-year FAGP is 6.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 6%. A
withdrawal charge of 6% is reflected in this example, assuming that the Purchase
Payment withdrawn exceeds the free withdrawal amount.
The MVA factor is
= [(1+I)/(I+J+0.005)](N/12) -- 1
= [(1.05)/(1.06+0.005)](18/12) -- 1
= (0.985915)(1.5) -- 1
= 0.978948 -- 1
= -0.021052
The requested withdrawal amount, less the withdrawal charge ($4,000 -6% =
$3,760) is multiplied by the MVA factor to determine the MVA:
$3,760 X (-0.021052) = -$79.16
$79.16 represents the negative MVA that would be deducted from the withdrawal.
A-3
APPENDIX B - DEATH BENEFITS FOLLOWING SPOUSAL CONTINUATION
- --------------------------------------------------------------------------------
The term "Continuation Net Purchase Payment" is used frequently to describe the
death benefit options payable to the beneficiary of a Continuing Spouse. We
define Continuation Net Purchase Payment as Net Purchase Payments made as of the
Continuation Date plus any Purchase Payments recorded after the Continuation
Date; and reduced for any withdrawals recorded after the Continuation Date, in
the same proportion that the withdrawal reduced the contract value on the date
of the withdrawal. 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. All other capitalized terms have
the meanings defined in the glossary and/or prospectus.
STANDARD DEATH BENEFIT PAYABLE UPON CONTINUING SPOUSE'S DEATH
I. If the Standard Death Benefit is applicable upon the Continuing Spouse's
death and a Continuation Contribution was made we will pay the beneficiary
the greater of:
1. Continuation Net Purchase Payments compounded at a 3% annual growth
rate from the Continuation Date until the earlier of age 75 or the
date of death of the Continuing Spouse, plus any Purchase Payments
recorded after the earlier of age 75 or the date of death of the
Continuing Spouse; and reduced for any 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 on the date we receive all required paperwork and
satisfactory proof of death.
II. If the Standard Death Benefit is applicable upon the Continuing Spouse's
death and no Continuation Contributions was made we will pay the beneficiary
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 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 withdrawal.
2. The contract value on the date we receive all required paperwork and
satisfactory proof of death.
ESTATE REWARDS DEATH BENEFIT PAYABLE UPON CONTINUING SPOUSE'S DEATH
If Estate Rewards is applicable upon the Continuing Spouse's death, we will pay
the Beneficiary the applicable death benefit under Option 1 or 2.
OPTION 1 - 5% ACCUMULATION:
I. If the 5% Accumulation Option is selected and a Continuation Contribution
was made the death benefit is the greater of:
a. The contract value on the date we receive all required paperwork and
satisfactory proof of the Continuing Spouse's death; or
b. Continuation Net Purchase Payments made from the Continuation 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
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
Continuation Net Purchase Payments.
B-1
II. If 5% Accumulation Option is selected and no Continuation Contribution was
made:
a. The contract value on the date we receive all required paperwork and
satisfactory proof of Continuing Spouse's death; or
b. Net Purchase Payments made from the date of issue 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 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 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 Seasons Estate Advantage.
OPTION 2 - MAXIMUM ANNIVERSARY VALUE:
III. If the Maximum Anniversary Value option is selected and if the Continuing
Spouse is younger than age 90 at the time of death and a Continuation
Contribution was made, the death benefit is the greatest of:
a. Continuation Net Purchase Payments; or
b. The contract value on the date we receive all required paperwork and
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 but 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 anniversary; and reduced for any
withdrawals recorded after that anniversary, in the same proportion
that the withdrawal reduced the contract value on the date of the
withdrawal.
IV. If the Maximum Anniversary Value option is selected and no Continuation
Contribution was made the death benefit is the greatest of:
a. Net Purchase Payments; or
b. The contract value on the date we receive all required paperwork and
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 issue date but before the
Continuing Spouse's 81st birthday. The anniversary value equals the
value on the contract anniversary plus any Purchase Payments recorded
after that anniversary; and reduced for any 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 all required paperwork and satisfactory
proof of death. The Continuing Spouse's beneficiary will not receive any benefit
from Estate Rewards. However, the Continuing Spouse's beneficiary may still
receive a benefit from Earnings Advantage if the date of death is prior to the
latest annuity date.
EARNINGS ADVANTAGE BENEFIT FOR SPOUSAL CONTINUATION:
The Earnings Advantage benefit may increase the death benefit amount. The
Earnings Advantage benefit is only available if the original owner elected
Earnings Advantage 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.
B-2
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
CONTRACT 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 CONTRACT ANNIVERSARY MUST REMAIN IN
THE CONTRACT FOR AT LEAST SIX FULL MONTHS AT THE TIME OF YOUR DEATH TO BE
INCLUDED AS PART OF CONTINUATION NET PURCHASE PAYMENTS FOR PURPOSES OF THE
MAXIMUM EARNINGS ADVANTAGE 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-3
APPENDIX C
- --------------------------------------------------------------------------------
HYPOTHETICAL EXAMPLE OF THE OPERATION OF THE INCOME PROTECTOR PROGRAM:
This table assumes a $100,000 initial investment in a Non-Qualified contract,
the election of the optional Income Protector Program at contract issue, with no
withdrawals, additional payments or premium taxes, no election of Estate Rewards
or Earnings Advantage.
<Table>
- -----------------------------------------------------------------------------------------------------------------------------
ANNUAL INCOME IF YOU ANNUITIZE ON THE FOLLOWING CONTRACT ANNIVERSARY
IF AT ISSUE YOU 10 11 12 15 19 20
ARE... 1-9 (AGE 70) (AGE 71) (AGE 72) (AGE 75) (AGE 79) (AGE 80)
- -----------------------------------------------------------------------------------------------------------------------------
MALE N/A 6,672 6,864 7,080 7,716 8,616 8,832
AGE 60*
- -----------------------------------------------------------------------------------------------------------------------------
FEMALE N/A 5,880 6,060 6,252 6,900 7,860 8,112
AGE 60*
- -----------------------------------------------------------------------------------------------------------------------------
MALE, AGE 60 N/A 5,028 5,136 5,244 5,544 5,868 5,928
FEMALE, AGE 60**
- -----------------------------------------------------------------------------------------------------------------------------
</Table>
* Life Annuity with 10 Year Period Certain
** Joint and 100% Survivor Annuity with 20 Year Period Certain
The Income Protector may not be available in your state. Please consult your
financial advisor for information regarding availability of this program in your
state.
C-1
APPENDIX D
- --------------------------------------------------------------------------------
As explained in the prospectus, an Exchange Offer is available to certain
contract owners currently invested in the WM Advantage Variable Annuity to move
to the WM Diversified Strategies(III) Variable Annuity, subject to our rules.
The chart below highlights the material differences between the WM Advantage and
WM Diversified Strategies(III) variable annuities. This material is intended as
a summary to help you compare the two products. Full details about each of these
features and benefits as well as other components of these products can be found
in the WM Diversified Strategies(III) or WM Advantage Prospectus.
You and your financial representative should review this chart and the relevant
prospectuses when deciding whether this Exchange Offer would be beneficial to
you.
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------------------
FEATURE WM ADVANTAGE WM DIVERSIFIED STRATEGIES(III)
- -------------------------------------------------------------------------------------------------------------------
SEPARATE ACCOUNT INSURANCE 1.40% annually of the value in the 1.55% annually of the value in the
CHARGES variable investment options, subtracted variable investment options, subtracted
daily. daily.
- -------------------------------------------------------------------------------------------------------------------
SURRENDER CHARGES 6 years per purchase payment, declines: 3 years per purchase payment, declines:
7%, 6%, 6%, 5%, 4%, 2%, 0%. 7%, 6%, 6%, 0%.*
- -------------------------------------------------------------------------------------------------------------------
ANNUAL CONTRACT FEE None $35 ($30 in North Dakota) Waived for
policies with account value greater than
$50,000 on the contract anniversary.
- -------------------------------------------------------------------------------------------------------------------
VARIABLE INVESTMENT OPTIONS 5 Strategic Asset Management 5 Strategic Asset Management (SAM)
(SAM) Portfolios portfolios
7 Equity Funds 13 Equity Portfolios
4 Fixed-Income Funds (REIT Fund not available)
4 Fixed-Income Portfolios
- -------------------------------------------------------------------------------------------------------------------
FIXED ACCOUNT OPTIONS 1-, 3-, 5-year guarantee periods Available DCAFAs
(If available) (See Fixed Investment Options)
- -------------------------------------------------------------------------------------------------------------------
LONG TERM CARE/TERMINAL Yes None
ILLNESS WAIVER
- -------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT Greatest of: Greater of:
- Contract Value - Net Purchase Payments compounded at 3%
- Purchase Payments minus withdrawals until the earlier of death or age 75
- Maximum Anniversary Value - Contract Value
- -------------------------------------------------------------------------------------------------------------------
ENHANCED DEATH BENEFIT None For a fee (.15%), a choice between two
options:
1. Purchase Payment Accumulation which
pays the greater of:
- Net Purchase Payments compounded at
5% until the earlier of death or age
80
- Contract Value
2. Maximum Anniversary which pays the
greatest of:
- Net Purchase Payments
- Contract Value
- Maximum Anniversary Value up to age
81
Choice between these two offerings must
be made at the time of purchase.
- -------------------------------------------------------------------------------------------------------------------
ENHANCED BENEFICIARY None Yes (for an additional fee of .25%) Can
PROTECTION only be elected if one of the Enhanced
Death Benefits is elected.
- -------------------------------------------------------------------------------------------------------------------
LIVING BENEFIT None For a fee (.10%) guarantees a minimum
retirement income upon annuitization
after at least 10 years.
- -------------------------------------------------------------------------------------------------------------------
</Table>
* Not applicable to contracts issued as a result of an exchange from WM
Advantage to WM Diversified Strategies(III).
D-1
APPENDIX E
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
<Table>
<Caption>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDING ENDING ENDING
ANCHOR SERIES TRUST 12/31/01 12/31/02 12/31/03
- -----------------------------------------------------------------------------------------------------------------
Capital Appreciation (Inception Date -- 11/05/01)
Beginning AUV....................................... (a) $32.095 (a) $34.794 (a) $26.448
(b) $32.095 (b) $34.852 (b) $26.392
Ending AUV.......................................... (a) $34.794 (a) $26.448 (a) $34.395
(b) $34.852 (b) $26.392 (b) $34.180
Ending Number of AUs................................ (a) 386 (a) 15,211 (a) 34,580
(b) 1,795 (b) 9,564 (b) 9,532
- -----------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDING ENDING ENDING
SUNAMERICA SERIES TRUST 12/31/01 12/31/02 12/31/03
- -----------------------------------------------------------------------------------------------------------------
Alliance Growth (Inception Date -- 11/05/01)
Beginning AUV....................................... (a) $30.768 (a) $32.723 (a) $22.108
(b) $30.768 (b) $32.744 (b) $22.030
Ending AUV.......................................... (a) $32.723 (a) $22.108 (a) $27.347
(b) $32.744 (b) $22.030 (b) $27.141
Ending Number of AUs................................ (a) 29 (a) 7,424 (a) 12,084
(b) 21 (b) 2,753 (b) 3,284
- -----------------------------------------------------------------------------------------------------------------
Global Equities (Inception Date -- 11/05/01)
Beginning AUV....................................... (a) $16.645 (a) $17.562 (a) $12.632
(b) $16.645 (b) $17.577 (b) $12.590
Ending AUV.......................................... (a) $17.562 (a) $12.632 (a) $15.711
(b) $17.577 (b) $12.590 (b) $15.599
Ending Number of AUs................................ (a) 15 (a) 2,002 (a) 4,811
(b) 1 (b) 730 (b) 764
- -----------------------------------------------------------------------------------------------------------------
MFS Mid Cap Growth (Inception Date -- 11/05/01)
Beginning AUV....................................... (a) $12.022 (a) $13.453 (a) $6.990
(b) $12.022 (b) $13.445 (b) $6.956
Ending AUV.......................................... (a) $13.453 (a) $6.990 (a) $9.431
(b) $13.445 (b) $6.956 (b) $9.347
Ending Number of AUs................................ (a) 68 (a) 7,702 (a) 32,405
(b) 52 (b) 8,548 (b) 9,886
- -----------------------------------------------------------------------------------------------------------------
Technology (Inception Date -- 11/05/01)
Beginning AUV....................................... (a) $3.222 (a) $3.457 (a) $1.720
(b) $3.222 (b) $3.457 (b) $1.719
Ending AUV.......................................... (a) $3.457 (a) $1.720 (a) $2.550
(b) $3.457 (b) $1.719 (b) $2.538
Ending Number of AUs................................ (a) 217 (a) 30,946 (a) 108,814
(b) 3 (b) 4,971 (b) 4,969
- -----------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDING ENDING ENDING
WM VARIABLE TRUST 12/31/01 12/31/02 12/31/03
- -----------------------------------------------------------------------------------------------------------------
Balanced Portfolio (Inception Date -- 11/05/01)
Beginning AUV....................................... (a) $7.347 (a) $7.547 (a) $6.764
(b) $7.347 (b) $7.543 (b) $6.733
Ending AUV.......................................... (a) $7.547 (a) $6.764 (a) $8.156
(b) $7.543 (b) $6.733 (b) $8.086
Ending Number of AUs................................ (a) 93,859 (a) 2,232,623 (a) 5,308,097
(b) 16,660 (b) 531,637 (b) 791,271
- -----------------------------------------------------------------------------------------------------------------
</Table>
AU - Accumulation Unit
AUV - Accumulation Unit Value
(a) Without election of the optional EstatePlus feature
(b) With election of the optional EstatePlus feature
E-1
<Table>
<Caption>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDING ENDING ENDING
WM VARIABLE TRUST 12/31/01 12/31/02 12/31/03
- -----------------------------------------------------------------------------------------------------------------
Conservative Balanced Portfolio (Inception
Date -- 11/05/01)
Beginning AUV....................................... (a) $5.489 (a) $5.558 (a) $5.338
(b) $5.489 (b) $5.554 (b) $5.313
Ending AUV.......................................... (a) $5.558 (a) $5.338 (a) $6.140
(b) $5.554 (b) $5.313 (b) $6.088
Ending Number of AUs................................ (a) 36,105 (a) 219,214 (a) 728,848
(b) 818 (b) 50,067 (b) 78,689
- -----------------------------------------------------------------------------------------------------------------
Conservative Growth Portfolio (Inception Date -- 11/05/01)
Beginning AUV....................................... (a) $7.645 (a) $7.945 (a) $6.594
(b) $7.645 (b) $7.946 (b) $6.571
Ending AUV.......................................... (a) $7.945 (a) $6.594 (a) $8.334
(b) $7.946 (b) $6.571 (b) $8.272
Ending Number of AUs................................ (a) 57,379 (a) 958,772 (a) 1,639,836
(b) 18,040 (b) 510,781 (b) 529,868
- -----------------------------------------------------------------------------------------------------------------
Equity Income Fund (Inception Date -- 11/05/01)
Beginning AUV....................................... (a) $6.197 (a) $6.369 (a) $5.477
(b) $6.197 (b) $6.365 (b) $5.453
Ending AUV.......................................... (a) $6.369 (a) $5.477 (a) $6.997
(b) $6.365 (b) $5.453 (b) $6.938
Ending Number of AUs................................ (a) 40,294 (a) 652,304 (a) 1,058,224
(b) 13,192 (b) 264,269 (b) 282,614
- -----------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio (Inception Date -- 11/05/01)
Beginning AUV....................................... (a) $6.517 (a) $6.524 (a) $6.547
(b) $6.517 (b) $6.538 (b) $6.536
Ending AUV.......................................... (a) $6.524 (a) $6.547 (a) $7.286
(b) $6.538 (b) $6.536 (b) $7.245
Ending Number of AUs................................ (a) 23,092 (a) 1,115,544 (a) 3,743,642
(b) 536 (b) 168,170 (b) 273,450
- -----------------------------------------------------------------------------------------------------------------
Growth & Income Fund (Inception Date -- 11/05/01)
Beginning AUV....................................... (a) $5.849 (a) $6.016 (a) $4.661
(b) $5.849 (b) $6.013 (b) $4.637
Ending AUV.......................................... (a) $6.016 (a) $4.661 (a) $5.806
(b) $6.013 (b) $4,637 (b) $5.752
Ending Number of AUs................................ (a) 4,551 (a) 150,973 (a) 285,233
(b) 13,991 (b) 87,324 (b) 93,495
- -----------------------------------------------------------------------------------------------------------------
Growth Fund (Inception Date -- 11/05/01)
Beginning AUV....................................... (a) $6.791 (a) $7.150 (a) $4.847
(b) $6.791 (b) $7.137 (b) $4.823
Ending AUV.......................................... (a) $7.150 (a) $4.847 (a) $6.148
(b) $7.137 (b) $4.823 (b) $6.092
Ending Number of AUs................................ (a) 3,394 (a) 64,109 (a) 103,137
(b) 41 (b) 20,860 (b) 22,069
- -----------------------------------------------------------------------------------------------------------------
Income Fund (Inception Date -- 11/05/01)
Beginning AUV....................................... (a) $5.816 (a) $5.746 (a) $6.191
(b) $5.816 (b) $5.744 (b) $6.164
Ending AUV.......................................... (a) $5.746 (a) $6.191 (a) $6.673
(b) $5.744 (b) $6.164 (b) $6.617
Ending Number of AUs................................ (a) 16,374 (a) 877,757 (a) 2,589,597
(b) 28,322 (b) 274,470 (b) 259,664
- -----------------------------------------------------------------------------------------------------------------
International Growth Fund (Inception Date -- 11/05/01)
Beginning AUV....................................... (a) $4.367 (a) $4.546 (a) $3.776
(b) $4.367 (b) $4.546 (b) $3.789
Ending AUV.......................................... (a) $4.546 (a) $3.776 (a) $5.023
(b) $4.546 (b) $3.789 (b) $5.020
Ending Number of AUs................................ (a) 2 (a) 15,526 (a) 21,413
(b) 2 (b) 8,188 (b) 5,405
- -----------------------------------------------------------------------------------------------------------------
Mid Cap Stock Fund (Inception Date -- 11/05/01)
Beginning AUV....................................... (a) $6.186 (a) $6.645 (a) $5.855
(b) $6.186 (b) $6.642 (b) $5.829
Ending AUV.......................................... (a) $6.645 (a) $5.855 (a) $7.347
(b) $6.642 (b) $5.829 (b) $7.285
Ending Number of AUs................................ (a) 4,582 (a) 64,864 (a) 130,356
(b) 940 (b) 42,438 (b) 43,115
- -----------------------------------------------------------------------------------------------------------------
</Table>
AU - Accumulation Unit
AUV - Accumulation Unit Value
(a) Without election of the optional EstatePlus feature
(b) With election of the optional EstatePlus feature
E-2
<Table>
<Caption>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDING ENDING ENDING
WM VARIABLE TRUST 12/31/01 12/31/02 12/31/03
- -----------------------------------------------------------------------------------------------------------------
Money Market Fund (Inception Date -- 11/05/01)
Beginning AUV....................................... (a) $5.792 (a) $5.793 (a) $5.769
(b) $5.792 (b) $5.795 (b) $5.746
Ending AUV.......................................... (a) $5.793 (a) $5.769 (a) $5.703
(b) $5.795 (b) $5.746 (b) $5.658
Ending Number of AUs................................ (a) 21,359 (a) 611,656 (a) 346,649
(b) 5,174 (b) 26,588 (b) 32,680
- -----------------------------------------------------------------------------------------------------------------
Short Term Income Fund (Inception Date -- 11/05/01)
Beginning AUV....................................... (a) $5.922 (a) $5.916 (a) $6.168
(b) $5.922 (b) $5.923 (b) $6.150
Ending AUV.......................................... (a) $5.916 (a) $6.168 (a) $6.406
(b) $5.923 (b) $6.150 (b) $6.361
Ending Number of AUs................................ (a) 2,421 (a) 163,898 (a) 813,368
(b) 114 (b) 24,307 (b) 57,771
- -----------------------------------------------------------------------------------------------------------------
Small Cap Growth Fund (Inception Date -- 11/05/01)*
Beginning AUV....................................... (a) $6.106 (a) $7.409 (a) $3.847
(b) $6.106 (b) $7.424 (b) $3.842
Ending AUV.......................................... (a) $7.409 (a) $3.847 (a) $6.474
(b) $7.424 (b) $3.842 (b) $6.441
Ending Number of AUs................................ (a) 3,287 (a) 31,973 (a) 104,235
(b) 2 (b) 7,619 (b) 19,306
- -----------------------------------------------------------------------------------------------------------------
Strategic Growth Portfolio (Inception Date -- 11/05/01)
Beginning AUV....................................... (a) $8.331 (a) $8.763 (a) $6.853
(b) $8.331 (b) $8.774 (b) $6.834
Ending AUV.......................................... (a) $8.763 (a) $6.853 (a) $8.959
(b) $8.774 (b) $6.834 (b) $8.898
Ending Number of AUs................................ (a) 9,248 (a) 197,031 (a) 477,462
(b) 1,123 (b) 28,279 (b) 38,111
- -----------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund (Inception
Date -- 11/05/01)
Beginning AUV....................................... (a) $5.943 (a) $5.817 (a) $6.219
(b) $5.943 (b) $5.825 (b) $6.204
Ending AUV.......................................... (a) $5.817 (a) $6.219 (a) $6.238
(b) $5.825 (b) $6.204 (b) $6.197
Ending Number of AUs................................ (a) 90,321 (a) 1,433,815 (a) 1,996,843
(b) 3,371 (b) 100,117 (b) 144,873
- -----------------------------------------------------------------------------------------------------------------
West Coast Equity Fund (Inception Date -- 11/05/01)
Beginning AUV....................................... (a) $8.249 (a) $8.805 (a) $6.706
(b) $8.249 (b) $8.795 (b) $6.676
Ending AUV.......................................... (a) $8.805 (a) $6.706 (a) $9.438
(b) $8.795 (b) $6.676 (b) $9.358
Ending Number of AUs................................ (a) 4,021 (a) 217,183 (a) 384,631
(b) 890 (b) 81,228 (b) 93,442
- -----------------------------------------------------------------------------------------------------------------
WM REIT Fund (Inception Date -- 10/01/03)
Beginning AUV....................................... (a) $N/A (a) $N/A (a) $10.600
(b) $N/A (b) $N/A (b) $10.605
Ending AUV.......................................... (a) $N/A (a) $N/A (a) $11.535
(b) $N/A (b) $N/A (b) $11.393
Ending Number of AUs................................ (a) N/A (a) N/A (a) 8
(b) N/A (b) N/A (b) 9
- -----------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDING ENDING ENDING
VAN KAMPEN LIFE INVESTMENT TRUST 12/31/01 12/31/02 12/31/03
- -----------------------------------------------------------------------------------------------------------------
Van Kampen LIT Comstock, Class II Shares (Inception
Date -- 11/05/01)
Beginning AUV....................................... (a) $9.992 (a) $10.263 (a) $8.135
(b) $9.992 (b) $10.213 (b) $8.067
Ending AUV.......................................... (a) $10.263 (a) $8.135 (a) $10.475
(b) $10.213 (b) $8.067 (b) $10.345
Ending Number of AUs................................ (a) 917 (a) 46,801 (a) 89,132
(b) 6,737 (b) 88,739 (b) 101,065
- -----------------------------------------------------------------------------------------------------------------
</Table>
AU - Accumulation Unit
AUV - Accumulation Unit Value
(a) Without election of the optional EstatePlus feature
(b) With election of the optional EstatePlus feature
* The Small Cap Stock Fund was renamed the Small Cap Growth Fund
effective 5/3/2004.
E-3
Please forward a copy (without charge) of the WM Diversified Strategies(III)
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
AIG SUNAMERICA LIFE ASSURANCE COMPANY
- ------------------------------------------------------------------------------
VARIABLE ANNUITY ACCOUNT FIVE
SUPPLEMENT TO THE:
SEASONS TRIPLE ELITE VARIABLE ANNUITY PROSPECTUS
((J-2731-PRO (R 4/04))
DATED OCTOBER 6, 2003
- ------------------------------------------------------------------------------
THIS SUPPLEMENT REPLACES ALL PREVIOUS SUPPLEMENTS.
THE DATE OF THE PROSPECTUS HAS BEEN CHANGED TO MAY 3, 2004.
ALL REFERENCES IN THE PROSPECTUS TO THE DATE OF THE STATEMENT OF ADDITIONAL
INFORMATION ARE HEREBY CHANGED TO MAY 3, 2004.
THE FOLLOWING REPLACES THE FEE TABLES ON PAGE 7 OF THE PROSPECTUS:
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.
MAXIMUM OWNER TRANSACTION EXPENSES
Maximum Withdrawal Charges (as a percentage of each Purchase Payment)(1) ....7%
TRANSFER FEE
No charge for the first 15 transfers each contract year; thereafter, the fee
is $25 ($10 in Pennsylvania and Texas) per transfer.
THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY PERIODICALLY
DURING THE TIME THAT YOU OWN THE CONTRACT, NOT INCLUDING UNDERLYING PORTFOLIO
FEES AND EXPENSES WHICH ARE OUTLINED IN THE NEXT SECTION.
CONTRACT MAINTENANCE FEE
$35 ($30 in North Dakota) waived if contract value $50,000 or more.
SEPARATE ACCOUNT ANNUAL EXPENSES
(DEDUCTED DAILY AS A PERCENTAGE OF YOUR AVERAGE DAILY NET ASSET VALUE)
Mortality and Expense Risk Fees ................................. 1.40%
Distribution Expense Fee ........................................ 0.15%
Optional Seasons Estate Advantage Fee(2) ........................ 0.15%
Optional Earnings Advantage Fee(3) .............................. 0.25%
----
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES ........................... 1.95%
====
ADDITIONAL OPTIONAL FEATURE FEE
You may elect one of the following optional features: Seasons Income
Rewards, Seasons Promise or Income Protector.
OPTIONAL SEASONS INCOME REWARDS FEE
Contract Year Annualized Fee(5)
- ------------- --------------
0-7 .............................................. 0.65%
8+ ............................................... 0.45%
OPTIONAL SEASONS PROMISE FEE
Contract Year Annualized Fee(6),(7)
- ---------------- ---------------------
0-5 .............................................. 0.65%
6-10 ............................................. 0.45%
11+ .............................................. none
OPTIONAL INCOME PROTECTOR FEE
Annual Fee as a % of your
Income Benefit Base(4) ........................................... 0.10%
Footnotes to the Fee Table:
(1) Withdrawal Charge Schedule as a percentage of each Purchase Payment)
declines over 3 years as follows
YEARS: ............................................................ 1 2 3 4+
7% 6% 6% 0%
(2) Seasons Estate Advantage, which offers a choice of two enhanced death
benefits and an Earnings Advantage benefit is optional and if elected, the fee
is an annualized charge that is deducted daily from your contract value.
(3) Earnings Advantage, an enhanced death benefit feature, which is described
more fully in the prospectus is optional and if elected, the fee is an
annualized charge that is deducted daily from daily net asset value. The
Earnings Advantage can only be elected if the Seasons Estate Advantage is also
elected.
(4) The Income Protector is optional and if elected, the fee is deducted
annually from your contract value. The Income Benefit Base, which is described
more fully in the prospectus is generally calculated by using your contract
value on the date of your effective enrollment in the program and then each
subsequent contract anniversary, adding Purchase Payments made since the prior
contract anniversary, less proportional withdrawals, and fees and charges
applicable to those withdrawals.
(5) The Seasons Income Rewards feature is generally optional and if elected, the
fee is calculated as a percentage of your Purchase Payment 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.
(6) The Seasons Promise 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.
(7) If you are a resident of Washington or Oregon, the following charges apply:
0.65% for Years 0-7, 0.30% for Years 8-10, and no charge for Years 11+.
THE NEXT ITEM SHOWS THE MINIMUM AND MAXIMUM TOTAL OPERATING EXPENSES CHARGED BY
THE UNDERLYING PORTFOLIOS OF THE TRUSTS BEFORE ANY WAIVERS OR REIMBURSEMENTS
THAT YOU MAY PAY PERIODICALLY DURING THE TIME YOU OWN THE CONTRACT. MORE DETAIL
CONCERNING THE TRUSTS' FEES AND EXPENSES IS CONTAINED IN THE PROSPECTUS FOR EACH
OF THE TRUSTS. PLEASE READ THEM CAREFULLY BEFORE INVESTING.
PORTFOLIO EXPENSES
TOTAL ANNUAL TRUST OPERATING EXPENSES MINIMUM MAXIMUM
- ------------------------------------- ------- -------
(expenses that are deducted from underlying portfolios of the Trusts,
including management fees, other expenses and 12b-1 fees if
applicable) .......................................................... 1.01% 3.36%
THE FOLLOWING REPLACES THE EXAMPLES LISTED UNDER THE SECTION ENTITLED MAXIMUM
EXPENSE EXAMPLES ON PAGE 8 OF THE PROSPECTUS:
MAXIMUM EXPENSE EXAMPLES
(assuming maximum separate account annual expenses of 1.95%, including Seasons
Estate Advantage (with Earnings Advantage) and investment in an underlying
portfolio with total expenses of 3.36%).
(1) If you surrender your contract at the end of the applicable time period and
you elect the optional Seasons Estate Advantage (and Earnings Advantage)
and Seasons Income Rewards (0.65% for years 0-7, and 0.45% for years 8+)
features:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
=======================================================================================
$1,298 $2,376 $2,930 $5,665
=======================================================================================
(2) If you annuitize your contract, at the end of the applicable time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
=======================================================================================
$491 $1,475 $2,461 $4,932
=======================================================================================
(3) If you do not surrender your contract and you elect the optional Seasons
Estate Advantage (and Earnings Advantage) and Seasons Income Rewards (0.65%
for years 0-7, and 0.45% for years 8+) features:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
======================================================================================
$598 $1,776 $2,930 $5,665
======================================================================================
THE FOLLOWING SENTENCE SHOULD REPLACE ITEM 3 IN THE SECTION ENTITLED EXPLANATION
OF FEE TABLES AND EXAMPLES ON PAGE 8 OF THE PROSPECTUS:
3. Examples reflecting application of optional features and benefits use the
highest fees and charges at which those features a being offered. If you elected
the Income Protector or Seasons Promise features, instead of the Seasons Income
Rewards feature, your expenses would be lower than those shown in these tables.
The fee for the Seasons Income Rewards, Seasons Promise and Income Protector
features are not calculated as a percentage of your daily net asset value, but
on other calculations more fully described in the prospectus.
THE FOLLOWING REPLACES THE SECTION ENTITLED SEASONS PROMISE FEE IN THE SEASONS
PROMISE SECTION ON PAGE 12 OF THE PROSPECTUS:
THE SEASONS PROMISE FEE
Seasons Promise 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.
Contract Year Annualized Fee*
- ------------- ---------------
0-5 ................................................................ 0.65%
6-10 ............................................................... 0.45%
11+ ................................................................ none
* 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.
THE FOLLOWING REPLACES THE OPTIONAL SEASONS PROMISE FEE SECTION IN THE EXPENSE
SECTION ON PAGE 28 OF THE PROSPECTUS:
OPTIONAL SEASONS PROMISE FEE
The fee for the Seasons Promise feature is as follows:
Contract Year Annualized Fee*
- ------------- ---------------
0-5 ............................................................... 0.65%
6-10 .............................................................. 0.45%
11+ ............................................................... none
The fee is calculated as a percentage of your contract value minus Purchase
Payments received after the 90th day since you purchased your contract. The fee
is deducted at the end of the first contract quarter and quarterly thereafter
from your contract value.
*The annual fee for Washington or Oregon Residents is 0.65% for Years 0-7, 0.30%
for Years 8-10, and no charge for Years 11+.
THE FOLLOWING SECTION IS ADDED ABOVE THE SEASONS PROMISE SECTION ON PAGE 10 OF
THE PROSPECTUS.
SEASONS INCOME REWARDS FEATURE
What is Seasons Income Rewards?
Seasons 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. Seasons 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 Seasons 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.
TIME ELAPSED SINCE
BENEFIT EFFECTIVE DATE PERCENTAGE OF ELIGIBLE PURCHASE PAYMENTS
- -----------------------------------------------------------------
0-90 Days 100%
- -----------------------------------------------------------------
91 Days + 0%
- -----------------------------------------------------------------
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.
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 Seasons Income Rewards options we are
offering as applicable on the Benefit Availability Date:
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
- --------------------------------------------------------------------------------
Example 1:
Assume you elect Seasons 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 Seasons Income Rewards?
The annualized Seasons 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 also not assess the quarterly fee if you
surrender or annuitize before the end of the quarter.
TIME ELAPSED SINCE THE
BENEFIT EFFECTIVE DATE ANNUALIZED FEE
---------------------------------------------
0-7 years 0.65% of WBB
---------------------------------------------
8+ years 0.45% of WBB
---------------------------------------------
What is the effect of withdrawals on Seasons 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 Seasons 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 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 Seasons 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 Seasons 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 Seasons 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 Seasons Income Rewards feature. While a benefit is payable
under Seasons Income Rewards until the SBB is reduced to zero, the contract is
terminated when the contract value equals zero. At such time, except for Seasons
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 Seasons 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 Seasons Income Rewards upon a spousal continuation?
A spousal beneficiary of the original owner may elect to continue or cancel
Seasons 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
Seasons 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 Seasons 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 Seasons 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, Seasons Income
Rewards does not guarantee a withdrawal of a majority of those payments. You may
never need to rely on Seasons 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 Seasons 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 Seasons Income Rewards cannot be elected if you elect the Seasons Promise or
Income Protector features. We reserve the right to limit the maximum WBB to $1
million. Seasons 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 availability.
Seasons 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 Seasons Income Rewards. We
reserve the right to modify, suspend or terminate Seasons Income Rewards (in its
entirety or any component) at any time for prospectively issued contracts.
THE FOLLOWING REPLACES THE TRANSFERS DURING THE ACCUMULATION PHASE SECTION ON
PAGE 18 OF THE PROSPECTUS:
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:
o the number of transfers made in a defined period;
o the dollar amount of the transfer;
o the total assets of the Variable Portfolio involved in the transfer;
o the investment objectives of the particular Variable Portfolios
involved in your transfers; and/or
o 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. For most
products use the following sentences: 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 requests in excess of 5 transfers within a rolling six-month
look-back period must be submitted by United States Postal Service first-class
mail ("U.S. Mail") for twelve months from the date of your 5th transfer request.
For example, if you made a transfer on February 15, 2004 and within the previous
six months (from August 15, 2003 forward) you made 5 transfers including the
February 15th transfer, then all transfers made for twelve months after February
15, 2004 must be submitted by U.S. Mail (from February 16, 2004 through February
15, 2005). 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.
Date: May 3, 2004
Please keep this Supplement with your Prospectus.
[Seasons Triple Elite Logo]
PROSPECTUS
October 6, 2003
ALLOCATED FIXED AND VARIABLE GROUP ANNUITY
issued by
VARIABLE ANNUITY ACCOUNT FIVE
and
AIG SUNAMERICA LIFE ASSURANCE COMPANY
The annuity contract has a variety of investment choices - available fixed
investment options which offer interest rates guaranteed by AIG SunAmerica Life
Assurance Company for different periods of time, SELECT PORTFOLIOS, FOCUSED
PORTFOLIOS and SEASONS STRATEGIES:
<Table>
SELECT PORTFOLIOS FOCUSED PORTFOLIOS SEASONS STRATEGIES
LARGE CAP GROWTH FOCUS GROWTH GROWTH
LARGE CAP COMPOSITE FOCUS GROWTH AND INCOME MODERATE GROWTH
LARGE CAP VALUE FOCUS VALUE BALANCED GROWTH
MID CAP GROWTH FOCUS TECHNET CONSERVATIVE GROWTH
MID CAP VALUE
SMALL CAP
INTERNATIONAL EQUITY
DIVERSIFIED FIXED INCOME
CASH MANAGEMENT
</Table>
all of which invest in the underlying portfolios of
SEASONS SERIES TRUST
which is managed by:
<Table>
SELECT PORTFOLIOS FOCUSED PORTFOLIOS SEASONS STRATEGIES
AIG GLOBAL INVESTMENT CORP. AIG SUNAMERICA ASSET MANAGEMENT CORP. AIG SUNAMERICA ASSET MANAGEMENT CORP.
AIG SUNAMERICA ASSET MANAGEMENT CORP. AMERICAN CENTURY INVESTMENT JANUS CAPITAL MANAGEMENT LLC.
GOLDMAN SACHS ASSET MANAGEMENT, L.P. MANAGEMENT, INC. PUTNAM INVESTMENT MANAGEMENT, L.L.C.
GOLDMAN SACHS ASSET MANAGEMENT INT'L BARON CAPITAL MANAGEMENT, INC. T. ROWE PRICE ASSOCIATES, INC.
JANUS CAPITAL MANAGEMENT LLC. DRESDNER RCM GLOBAL WELLINGTON MANAGEMENT COMPANY, LLP.
LORD ABBETT & CO. LLC. INVESTORS LLC.
T. ROWE PRICE ASSOCIATES, INC. FRED ALGER MANAGEMENT, INC.
WELLINGTON MANAGEMENT COMPANY, LLP. HARRIS ASSOCIATES L.P.
J.P. MORGAN INVESTMENT
MANAGEMENT INC.
MARSICO CAPITAL
MANAGEMENT, LLC.
SALOMON BROTHERS ASSET
MANAGEMENT INC.
THIRD AVENUE MANAGEMENT LLC.
THORNBURG INVESTMENT MANAGEMENT, INC.
</Table>
You can put your money into any one or all of the SELECT PORTFOLIOS, FOCUSED
PORTFOLIOS, and SEASONS STRATEGIES 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
Seasons Triple Elite 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 October 6, 2003.
The SAI has been filed with the Securities and Exchange Commission ("SEC") and
can be considered part of this prospectus.
The table of contents of the SAI appears below in this prospectus. For a free
copy of the SAI, call Us at 800/445-SUN2 or write Our Annuity Service Center at,
P.O. Box 54299, Los Angeles, California 90054-0299.
A registration statement has been filed with the SEC under the Securities Act of
1933 relating to the contract. This prospectus does not contain all the
information in the registration statement as permitted by SEC regulations. The
omitted information can be obtained from the SEC's principal office in
Washington, D.C., upon payment of a prescribed fee.
In addition, the SEC maintains a website (http://www.sec.gov) that contains the
SAI, materials incorporated by reference and other information filed
electronically with the SEC.
ANNUITIES INVOLVE RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL, AND ARE NOT A
DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THEY ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Anchor National Life Insurance Company changed its name to AIG SunAmerica Life
Assurance Company ("AIG SunAmerica Life" also referred to herein as "We", "Us"
or "Ours") on March 1, 2003. Please keep in mind, this is a name change only and
will not affect the substance of your contract.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
AIG SunAmerica Life's Annual Report on Form 10-K for the year ended December 31,
2002, and its quarterly report on Form 10-Q for the quarter ended March 31, 2003
are incorporated herein by reference.
All documents or reports filed by AIG SunAmerica Life under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") after the effective date of this prospectus are also
incorporated by reference. Statements contained in this prospectus and
subsequently filed documents which are incorporated by reference or deemed to be
incorporated by reference are deemed to modify or supersede documents
incorporated herein by reference.
AIG SunAmerica Life files its Exchange Act documents and reports, including its
annual and quarterly reports on Form 10-K and Form 10-Q, electronically pursuant
to EDGAR under CIK No. 0000006342.
AIG SunAmerica Life is subject to the informational requirements of the
Securities and Exchange Act of 1934 (as amended). We file reports and other
information with the SEC to meet those requirements. You can inspect and copy
this information at SEC public facilities at the following locations:
WASHINGTON, DISTRICT OF COLUMBIA
450 Fifth Street, N.W., Room 1024
Washington, D.C. 20549
CHICAGO, ILLINOIS
500 West Madison Street
Chicago, IL 60661
NEW YORK, NEW YORK
233 Broadway
New York, NY 10048
To obtain copies by mail, contact the Washington, D.C. location. After you pay
the fees as prescribed by the rules and regulations of the SEC, the required
documents are mailed.
Registration statements under the Securities Act of 1933, as amended, related to
the contracts offered by this prospectus are on file with the SEC. This
prospectus does not contain all of the information contained in the registration
statements and exhibits. For further information regarding the separate account,
AIG SunAmerica Life and its general account, the VARIABLE PORTFOLIOS and the
contract, please refer to the registration statements and exhibits.
The SEC also maintains a website (http:// www.sec.gov) that contains the SAI,
materials incorporated by reference and other information filed electronically
with the SEC by AIG SunAmerica Life.
AIG SunAmerica Life will provide without charge to each person to whom this
prospectus is delivered, upon written or oral request, a copy of the documents
incorporated by reference. Requests for these documents should be directed to
AIG SunAmerica Life's Annuity Service Center, as follows:
AIG SunAmerica Life
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.................................................... 5
HIGHLIGHTS.................................................. 6
FEE TABLES.................................................. 7
Maximum Owner Transaction Expenses....................... 7
Transfer Fee............................................. 7
Contract Maintenance Fee................................. 7
Separate Account Annual Expenses......................... 7
Mortality and Expense Risk Fees...................... 7
Distribution Expense Charge.......................... 7
Optional Seasons Estate Advantage Fee................ 7
Optional Earnings Advantage Fee...................... 7
Additional Optional Feature Fees......................... 7
Optional Income Protector Fee........................ 7
Optional Seasons Promise Fee......................... 7
Portfolio Expenses of VARIABLE PORTFOLIOS................ 7
MAXIMUM AND MINIMUM EXPENSE EXAMPLES........................ 8
THE SEASONS TRIPLE ELITE VARIABLE ANNUITY................... 9
PURCHASING A SEASONS TRIPLE ELITE VARIABLE ANNUITY.......... 10
Allocation of Purchase Payments.......................... 10
Seasons Promise.......................................... 10
Election of the Feature.............................. 11
Applicable Waiting Period and Benefit Date........... 11
Termination.......................................... 11
Calculation of the Benefit........................... 11
The Seasons Promise Fee.............................. 12
Effect of Spousal Continuation on the Seasons Promise
Feature.............................................. 12
Accumulation Units....................................... 12
Free Look................................................ 13
Exchange Offers.......................................... 13
INVESTMENT OPTIONS.......................................... 13
Variable Investment Options.............................. 13
The SELECT AND FOCUSED PORTFOLIOS...................... 13
SELECT AND FOCUSED PORTFOLIO Operation................. 14
The SEASONS STRATEGIES................................. 14
SEASONS STRATEGY Rebalancing........................... 14
Fixed Investment Options................................. 17
Dollar Cost Averaging Fixed Accounts..................... 17
Transfers During the Accumulation Phase.................. 18
Dollar Cost Averaging Program............................ 19
Asset Allocation Rebalancing Program..................... 20
Return Plus Program...................................... 20
Voting Rights............................................ 20
Substitution............................................. 20
ACCESS TO YOUR MONEY........................................ 21
Free Withdrawal Provision................................ 21
Systematic Withdrawal Program............................ 22
Minimum Contract Value................................... 23
Qualified Contract Owners................................ 23
DEATH BENEFIT............................................... 23
Standard Death Benefit................................... 24
Seasons Estate Advantage Death Benefit(s)................ 24
Earnings Advantage....................................... 25
Spousal Continuation..................................... 26
EXPENSES.................................................... 27
Separate Account Charges................................. 27
Withdrawal Charges....................................... 27
Investment Charges....................................... 27
Contract Maintenance Fee................................. 28
Transfer Fee............................................. 28
Optional Seasons Promise Fee............................. 28
Optional Seasons Estate Advantage Fee.................... 28
Optional Earnings Advantage Fee.......................... 28
Optional Income Protector Fee............................ 28
Premium Tax.............................................. 29
Income Taxes............................................. 29
Reduction or Elimination of Charges and Expenses, and
Additional Amounts Credited............................ 29
INCOME OPTIONS.............................................. 29
Annuity Date............................................. 29
Income Options........................................... 29
Allocation of Annuity Payments........................... 30
Transfers During the Income Phase........................ 31
Deferment of Payments.................................... 31
Income Protector......................................... 31
TAXES....................................................... 34
Annuity Contracts in General............................. 34
Tax Treatment of Distributions--Non-qualified
Contracts.............................................. 34
Tax Treatment of Distributions--Qualified Contracts...... 35
Minimum Distributions.................................... 35
Tax Treatment of Death Benefits.......................... 36
Contracts Owned by a Trust or Corporation................ 36
Gifts, Pledges and/or Assignments of a Non-qualified
Contract............................................... 36
Diversification and Investor Control..................... 36
PERFORMANCE................................................. 37
OTHER INFORMATION........................................... 37
AIG SunAmerica Life...................................... 37
The Separate Account..................................... 38
</Table>
3
<Table>
The General Account...................................... 38
Distribution of the Contract............................. 38
Administration........................................... 38
Legal Proceedings........................................ 39
Ownership................................................ 39
Independent Accountants.................................. 39
Registration Statement................................... 39
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.... 40
APPENDIX A--MARKET VALUE ADJUSTMENT ("MVA")................. A-1
APPENDIX B--DEATH BENEFITS FOLLOWING SPOUSAL CONTINUATION... B-1
APPENDIX C--HYPOTHETICAL EXAMPLE OF THE OPERATION OF THE
INCOME PROTECTOR........................................... C-1
APPENDIX D--CONDENSED FINANCIAL INFORMATION................. D-1
</Table>
4
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, We, Us, the issuer of this
annuity contract.
INCOME PHASE--The period during which We make annuity payments to you.
IRS--The Internal Revenue Service.
LATEST ANNUITY DATE--Your 95th birthday or 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").
SELECT OR FOCUSED PORTFOLIO(S)--A sub-account of Variable Annuity Account Five
which provides for the variable investment options available under the contract.
Each SELECT and FOCUSED PORTFOLIO has a distinct investment objective and is
invested in the underlying investment portfolios of the Seasons Series Trust.
This investment option allocates assets to an underlying fund in which a portion
of the assets is managed by three different advisors.
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").
SEASONS STRATEGY(IES)--A sub-account of Variable Annuity Account Five which
provides for the variable investment options available under the contract. Each
SEASONS STRATEGY has its own investment objective and is invested in the
underlying investment portfolios of the Seasons Series Trust. This investment
option allocates assets to three out of six available portfolios, each of which
is managed by a different investment advisor.
VARIABLE PORTFOLIO(S)--Refers collectively to the SELECT PORTFOLIOS, FOCUSED
PORTFOLIOS and/or SEASONS STRATEGIES.
5
HIGHLIGHTS
- --------------------------------------------------------------------------------
The Seasons Triple Elite 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 the SELECT
PORTFOLIOS, FOCUSED PORTFOLIOS and/or pre-allocated SEASONS STRATEGIES
("VARIABLE PORTFOLIOS") 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), 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. The amount refunded may be more or less
than your original Purchase Payment. We will return your original Purchase
Payment if required by law. See PURCHASING A SEASONS TRIPLE ELITE 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
1.55% annually of the average daily value of your contract allocated to the
VARIABLE PORTFOLIOS. These 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 made in the contract for
three complete years, withdrawal charges no longer apply to that portion of the
Purchase Payment. See the FEE TABLE, PURCHASING A SEASONS TRIPLE ELITE 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 tax on earnings and untaxed contributions when you withdraw
them. Payment 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.
See ACCESS TO YOUR MONEY and TAXES in the prospectus.
DEATH BENEFITS: 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. See DEATH BENEFITS
in the prospectus.
INCOME OPTIONS: When you are ready to begin taking income, you can choose to
receive income payments on a variable basis, fixed basis or a combination of
both. You may also choose from five different options, including an option for
income that you cannot outlive. See INCOME OPTIONS in the prospectus.
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.
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: (800) 445-SUN2.
AIG SUNAMERICA LIFE OFFERS SEVERAL DIFFERENT VARIABLE ANNUITY PRODUCTS TO MEET
THE DIVERSE NEEDS OF OUR INVESTORS. EACH PRODUCT MAY PROVIDE DIFFERENT FEATURES
AND BENEFITS OFFERED AT DIFFERENT FEES, CHARGES AND EXPENSES. WHEN WORKING WITH
YOUR FINANCIAL ADVISOR TO DETERMINE THE BEST PRODUCT TO MEET YOUR NEEDS YOU
SHOULD CONSIDER, AMONG OTHER THINGS, WHETHER THE FEATURES OF THIS CONTRACT AND
THE RELATED FEES PROVIDE THE MOST APPROPRIATE PACKAGE TO HELP 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.
6
FEE TABLES
- --------------------------------------------------------------------------------
THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY AT THE TIME THAT
YOU BUY THE CONTRACT, SURRENDER THE CONTRACT, OR TRANSFER CASH VALUE BETWEEN
INVESTMENT OPTIONS.
MAXIMUM OWNER TRANSACTION EXPENSES
<Table>
MAXIMUM WITHDRAWAL CHARGES
(as a percentage of each Purchase Payment)(1)... 7%
</Table>
- ---------------
<Table>
(1) Withdrawal Charge Schedule
as a percentage of each Purchase
Payment) declines over 3 years as
follows
Years:............................... 1 2 3 4+
7% 6% 6% 0%
</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
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.............. 1.40%
Distribution Expense Fee..................... 0.15%
Optional Seasons Estate Advantage Fee(2)..... 0.15%
Optional Earnings Advantage Fee(3)........... 0.25%
-----
Total Separate Account Annual Expenses....... 1.95%
</Table>
- ---------------
(2) Seasons Estate Advantage, which offers a choice of two enhanced death
benefits, is optional and if elected, the fee is an annualized charge that
is deducted daily from your contract value.
(3) Earnings Advantage, an enhanced death benefit feature, which is described
more fully in the prospectus is optional and if elected, the fee is an
annualized charge that is deducted daily from daily net asset value. The
Earnings Advantage can only be elected if the Seasons Estate Advantage is
also elected.
ADDITIONAL OPTIONAL FEATURE FEES
You may elect either the Income Protector or Capital Protector feature described
below.
OPTIONAL INCOME PROTECTOR FEE
<Table>
Annual Fee as a % of your Income Benefit
Base(4)...................................... 0.10%
</Table>
- ---------------
(4) The Income Protector is optional and if elected, the fee is deducted
annually from your contract value. The Income Benefit Base, which is
described more fully in the prospectus is generally calculated by using your
contract value on the date of your effective enrollment in the program and
then each subsequent contract anniversary, adding Purchase Payments made
since the prior contract anniversary, less proportional withdrawals, and
fees and charges applicable to those withdrawals.
OPTIONAL SEASONS PROMISE FEE(5)
<Table>
<Caption>
ANNUALIZED
CONTRACT YEAR(6) CHARGE(6)
- ---------------- ----------
0-5....................................... 0.55%
6-10...................................... 0.35%
11+....................................... none
</Table>
- ---------------
(5) The Seasons Promise 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.
(6) If you are a resident of Washington or Oregon, the following charges apply:
0.55% for Years 0-7, .20% for Years 8-10, no charge for Years 11+.
THE NEXT ITEM SHOWS THE MINIMUM AND MAXIMUM TOTAL OPERATING EXPENSES CHARGED BY
THE UNDERLYING PORTFOLIOS OF THE TRUSTS BEFORE ANY WAIVERS OR REIMBURSEMENTS
THAT YOU MAY PAY PERIODICALLY DURING THE TIME YOU OWN THE CONTRACT. MORE DETAIL
CONCERNING THE TRUSTS' FEES AND EXPENSES IS CONTAINED IN THE PROSPECTUS FOR EACH
OF THE TRUSTS. PLEASE READ THEM CAREFULLY BEFORE INVESTING.
PORTFOLIO EXPENSES
<Table>
<Caption>
TOTAL ANNUAL TRUST OPERATING EXPENSES MINIMUM MAXIMUM
- ------------------------------------- ------- -------
(expenses that are deducted from
underlying portfolios of the Trusts,
including management fees, other
expenses and 12b-1 fees if
applicable)....................... 1.01% 3.36%
</Table>
7
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 expense, fees for optional features and expenses for 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; no withdrawals and
that the maximum and minimum fees and expenses of the underlying portfolios of
the Trust 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 1.95%, including Seasons
Estate Advantage (with Earnings Advantage) and investment in an underlying
portfolio with total expenses of 3.36%)
(1) If you surrender your contract at the end of the applicable time period and
you elect the optional Seasons Estate Advantage (and Earnings Advantage) and
Seasons Promise (0.55% Years 0-5, 0.35% Years 6-10) features:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$1,288 $2,349 $2,889 $5,597
</Table>
(2) If you annuitize your contract:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$491 $1,475 $2,461 $4,932
</Table>
(3) If you do not surrender your contract and you elect the optional Seasons
Estate Advantage (with Earnings Advantage) and Seasons Promise (0.55% Years
0-5, 0.35% Years 6-10) features:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$588 $1,749 $2,889 $5,597
</Table>
MINIMUM EXPENSE EXAMPLES
(assuming minimum separate account annual expenses of 1.55% and investment in an
underlying portfolio with total expenses of 1.01%)
(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
- ------ ------- ------- --------
$964 $1,411 $1,385 $2,944
</Table>
(2) If you annuitize your contract:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$259 $796 $1,360 $2,895
</Table>
(3) If you do not surrender your contract and do not elect any optional
features:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$264 $811 $1,385 $2,944
</Table>
EXPLANATION OF FEE TABLES AND EXAMPLES
1. The purpose of the Fee Tables is to show you the various expenses you will
incur directly and indirectly by investing in the contract. The Example
reflects owner transaction expenses, separate account expenses including
optional benefit fees in some examples and investment portfolio expenses by
VARIABLE PORTFOLIOS. We converted the contract administration 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
Trust prospectus located behind this prospectus.
2. In addition to the stated assumptions, the Examples also assume separate
account charges as indicated and that no transfer fees were imposed. Although
premium taxes may apply in certain states, they are not reflected in the
Examples.
3. Examples reflecting application of optional features and benefits use the
highest fees and charges at which those features are being offered. If you
elected the Income Protector program, instead of the Seasons Promise program,
your expenses would be lower than those shown in these tables. The fee for
the Seasons Promise 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.
8
THE SEASONS TRIPLE ELITE VARIABLE ANNUITY
- --------------------------------------------------------------------------------
An annuity is a contract between you and an insurance company. You are the owner
of the contract. The contract provides three main benefits:
- Tax Deferral: You do not pay taxes on your earnings from the annuity
until you withdraw them.
- Death Benefit: If you die during the Accumulation Phase, the insurance
company pays a death benefit to your Beneficiary.
- Guaranteed Income: If elected, you receive a stream of income for your
lifetime, or another available period you select.
Tax-qualified retirement plans (e.g., IRAs, 401(k) or 403(b) plans) defer
payment of taxes on earnings until withdrawn. If you are considering funding a
tax-qualified retirement plan with an annuity, you should know that an annuity
does not provide any additional tax deferral treatment of earnings beyond the
treatment provided by the tax-qualified retirement plan itself. However,
annuities do provide other features and benefits which may be valuable to you.
You should fully discuss this decision with your financial advisor.
This annuity was developed to help you contribute to your retirement savings.
This annuity works in two stages, the Accumulation Phase and the Income Phase.
Your contract is in the Accumulation Phase during the period when you make
payments into the contract. The Income Phase begins when you request Us to start
making payments to you out of the money accumulated in your contract.
The contract is called a "variable" annuity because it allows you to invest in
variable investment portfolios which We call VARIABLE PORTFOLIOS. The VARIABLE
PORTFOLIOS are similar to mutual funds, in that they 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 PORTFOLIOS in which you
invest.
The contract also may offer fixed account options for varying time periods.
Fixed account options earn interest at a rate set and guaranteed by AIG
SunAmerica Life. If available and you allocate money to the fixed account
options, the amount of money that accumulates in your contract depends on the
total interest credited to the particular fixed account option(s) in which you
are invested.
For more information on VARIABLE PORTFOLIOS and fixed account options available
under this contract, SEE INVESTMENT OPTIONS BELOW.
AIG SunAmerica Life issues the Seasons Triple Elite Variable Annuity. When you
purchase a Seasons Triple Elite 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. Seasons Triple Elite
Variable Annuity may not currently be available in all states. Please check with
your financial advisor regarding availability in your state.
This annuity is designed for investors whose personal circumstances allow for a
long-term investment time horizon, to assist in contributing to retirement
savings. As a function of the Internal Revenue Code ("IRC"), you may be assessed
a 10% federal tax penalty on any withdrawal made prior to your reaching age
59 1/2. Additionally, this contract provides that you will be charged a
withdrawal charge on each Purchase Payment withdrawn if that Purchase Payment
has not been invested in this contract for at least 3 years. Because of the
potential penalty, you should fully discuss all of the benefits and risks of
this contract with your financial adviser prior to purchase.
9
PURCHASING A SEASONS TRIPLE ELITE
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
SUBSEQUENT MINIMUM SUBSEQUENT
MINIMUM INITIAL PURCHASE PURCHASE PAYMENT--
PURCHASE PAYMENT PAYMENT-- AUTOMATIC PAYMENT PLAN
---------------- ---------------- ----------------------
Qualified $ 2,000 $250 $100
Non-qualified $10,000 $500 $100
</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 plan that allows you to make
subsequent Purchase Payments of as little as $100.
In general, We will not issue a Qualified contract to anyone who is age 70 1/2
or older, unless they certify to Us that the minimum distribution required by
the federal tax code is being made. In addition, We may not issue a contract to
anyone age 86 or older. Neither Seasons Estate Advantage nor Earnings Advantage
is available to you if you are age 81 or older at the time of contract issue.
We allow spouses to jointly own this contract. However, the age of the older
spouse is used to determine the availability of any age driven benefits. The
addition of a joint owner after the contract has been issued in contingent upon
prior review and approval by the Company.
ALLOCATION OF PURCHASE PAYMENTS
We invest your Purchase Payments in the fixed accounts, VARIABLE PORTFOLIOS
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
and/or Purchase Payment allocation instructions and any other required paper
work at Our Annuity Service Center. We allocate your initial Purchase Payment
within two days of receiving it. If We do not have complete information
necessary to issue your contract, We will contact you. If We do not have the
information necessary to issue your contract within 5 business days We will:
- Send your money back to you; or
- Ask your permission to keep your money until We get the information
necessary to issue the contract.
SEASONS PROMISE
The Seasons Promise 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 Seasons
Promise may offer protection in the event that your contract value declines due
to unfavorable investment performance in your contract. The Seasons Promise
feature has rules and restrictions, which are discussed more fully, below.
10
ELECTION OF THE FEATURE
You may only elect this feature at the time your contract is issued, so long as
the applicable waiting period prior to receiving the benefit ends before your
latest Annuity Date. You can elect this feature on your contract application.
The effective date for this feature will be your contract issue date. Seasons
Promise is not available if you elect the Income Protector program. SEE INCOME
PROTECTOR BELOW.
The Seasons Promise feature may not be available in your state or through the
broker-dealer with which your financial advisor is affiliated. Please check with
your financial advisor for availability.
APPLICABLE WAITING PERIOD AND BENEFIT DATE
If you elect the Seasons Promise, at the end of the applicable waiting period we
will evaluate your contract to determine if a Seasons Promise 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 Seasons Promise benefit payable to you.
TERMINATION
Generally, this feature and its corresponding charge cannot be terminated prior
to the end of the waiting period. The feature terminates automatically following
the end of the waiting period. In addition, the Seasons Promise will no longer
be available and no benefit will be paid if a death benefit is paid or if the
contract is fully surrendered or annuitized before the end of the waiting
period.
CALCULATION OF THE BENEFIT
The Seasons Promise 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 SEASONS PROMISE
EFFECTIVE DATE BENEFIT CALCULATION
- ------------------ -------------------------------
0-90 days 100%
91+ days 0%
</Table>
THE SEASONS PROMISE 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 SEASONS PROMISE WOULD NOT PROTECT THE
MAJORITY OF THOSE PAYMENTS.
The Seasons Promise benefit calculation is equal to your Seasons Promise 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 Seasons
Promise 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 Seasons Promise 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
11
treated for income tax purposes, you should consult a qualified tax advisor for
information concerning your particular circumstances.
SINCE THE SEASONS PROMISE 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 SEASONS PROMISE BENEFIT. For example, if near the end of the waiting period
your Seasons Promise 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 Seasons Promise Base on your benefit date, you will not receive any benefit
even though you have paid for the Seasons Promise feature throughout the waiting
period. You should discuss subsequent Purchase Payments with your financial
advisor as such activity may reduce the value of this Seasons Promise benefit.
Further, if you are using this contract to fund a qualified plan via salary
reduction payments, you should consult your financial advisor before electing
the Seasons Promise feature.
THE SEASONS PROMISE FEE
Seasons Promise is an optional feature. If elected, you will incur an additional
charge for this feature. The annualized charge will be deducted from your
contract value on a quarterly basis throughout the waiting period, beginning at
the end of the first contract quarter following the effective date of the
feature and up to and including on the benefit date. Once the feature is
terminated, as discussed above, the charge will no longer be deducted. The
annual fee is:
<Table>
<Caption>
CONTRACT YEAR ANNUALIZED CHARGE*
- ------------- ------------------
0-5 0.55%
6-10 0.35%
11+ none
</Table>
The annual fee for Washington and Oregon Residents is 0.55% for Years 0-7, 0.20%
for Years 8-10 and no charge for Years 11+.
* As a percentage of your contract value minus Purchase Payments received after
the 90th day since the purchase of your contract. The amount of this charge is
subject to change at any time for prospectively issued contracts.
EFFECT OF SPOUSAL CONTINUATION ON THE SEASONS PROMISE FEATURE
If your qualified spouse chooses to continue this contract upon your death, this
benefit cannot be terminated. The effective date, the waiting period and the
corresponding benefit payment date will not change as a result of a spousal
continuation. SEE SPOUSAL CONTINUATION BELOW.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE SEASONS PROMISE FEATURE
(IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME FOR PROSPECTIVELY ISSUED
CONTRACTS.
ACCUMULATION UNITS
The value of the variable portion of your contract will go up or down depending
upon the investment performance of the VARIABLE PORTFOLIOS 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 units you receive on the unit
value of the variable investment option as of the date 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 PORTFOLIOS 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
12
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 Focus Growth Portfolio. We determine that the value of an
Accumulation Unit for the Focus 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
Focus 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.
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. 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 Cash Management 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 Cash Management investment option during the free look period unless you
allocate your money to it. If your contract was issued in a state requiring
return of Purchase Payments or as an IRA and you cancel your contract during the
free look period, We return the greater of (1) your Purchase Payments; or (2)
the value of your contract. At the end of the free look period, We allocate your
money according to your instructions.
EXCHANGE OFFERS
From time to time, We may offer to allow you to exchange an older variable
annuity issued by AIG SunAmerica Life or one of its affiliates, for a newer
product with more current features and benefits, also issued by AIG SunAmerica
Life or one of its affiliates. Such an Exchange Offer will be made in accordance
with the applicable state and federal securities and insurance rules and
regulations. We will explain the specific terms and conditions of any such
Exchange Offer at the time the offer is made.
INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
The contract offers variable investment options which We call VARIABLE
PORTFOLIOS, and fixed investment options. We designed the contract to meet your
varying investment needs over time. You can achieve this by using the VARIABLE
PORTFOLIOS alone or in concert with the fixed investment options. The VARIABLE
PORTFOLIOS are only available through the purchase of certain insurance
contracts. 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 INVESTMENT OPTIONS
Each of the variable investment options of the contract invests in underlying
portfolios of Seasons Series Trust. AIG SAAMCo, an affiliate of AIG SunAmerica
Life, manages Seasons Series Trust. AIG SAAMCo has engaged sub-advisers to
provide investment advice for certain of the underlying investment portfolios.
YOU SHOULD READ THE PROSPECTUS FOR THE SEASONS SERIES TRUST CAREFULLY BEFORE
INVESTING. THE TRUST PROSPECTUS WHICH IS ATTACHED HERETO CONTAINS DETAILED
INFORMATION ABOUT THE UNDERLYING INVESTMENT PORTFOLIOS INCLUDING INVESTMENT
OBJECTIVE AND RISK FACTORS.
THE SELECT AND FOCUSED PORTFOLIOS
The contract offers nine SELECT PORTFOLIOS, each with a distinct investment
objective, utilizing a disciplined investing style to achieve its objective.
Each SELECT PORTFOLIO invests in an underlying investment portfolio
13
of the Seasons Series Trust. Except for the Cash Management portfolio, each
underlying portfolio is multi-managed by a team of three money managers. One
component of the underlying portfolios is an unmanaged component that tracks a
particular target index or subset of an index. The other two components are
actively managed. The unmanaged component of each underlying portfolio is
intended to balance some of the risks associated with an actively traded
portfolio.
The contract also currently offers four FOCUSED PORTFOLIOS. Each multi-managed
FOCUSED PORTFOLIO offers you at least three different professional managers, one
of which may be AIG SAAMCo, and each of which advises a separate portion of the
FOCUSED PORTFOLIO. Each manager actively selects a limited number of stocks that
represent their best stock selections. This approach to investing results in a
more concentrated portfolio, which will be less diversified than the SELECT
PORTFOLIOS, and may be subject to greater market risks.
Each SELECT AND FOCUSED PORTFOLIO and the respective managers are:
<Table>
SELECT PORTFOLIOS FOCUSED PORTFOLIOS
LARGE CAP GROWTH MID CAP GROWTH INTERNATIONAL EQUITY FOCUS GROWTH
AIG Global AIGGIC AIGGIC Fred Alger Management,
Investment Corp. T. Rowe Price Goldman Sachs Asset Inc. ("Alger")
("AIGGIC") Wellington Management Int'l Marsico Capital
Goldman Sachs Asset Management Lord Abbett Management, LLC.
Management, L.P. ("Marsico")
("GSAM") MID CAP VALUE DIVERSIFIED FIXED INCOME Salomon Brothers Asset
Janus Capital AIGGIC AIGGIC Management ("Salomon")
Management LLC. GSAM AIG SAAMCo
("Janus") Lord Abbett & Wellington Management FOCUS GROWTH & INCOME
Co. LLC.("Lord Harris Associates L.P.
LARGE CAP COMPOSITE Abbett") CASH MANAGEMENT ("Harris")
AIGGIC AIG SAAMCo Thornburg Investment
AIG SunAmerica Asset SMALL CAP Management, Inc.
Management Corp. AIGGIC Marsico
Corporation ("AIG AIG SAAMCo
SAAMCo") Lord Abbett FOCUS VALUE
T. Rowe Price Third Avenue Management
Associates, Inc. LLC.
("T. Rowe Price") J.P. Morgan Investment
Management, Inc. ("J.P.
LARGE CAP VALUE Morgan")
AIGGIC American Century
T. Rowe Price Investment Management,
Wellington Inc. ("American Century")
Management Company,
LLP. ("Wellington FOCUS TECHNET
Management") AIG SAAMCo
Baron Capital Management,
Inc.
Dresdner RCM Global
Investors LLC.
("Dresdner")
</Table>
SELECT AND FOCUSED PORTFOLIO OPERATION
Each SELECT AND FOCUSED PORTFOLIO is designed to meet a distinct investment
objective facilitated by the management philosophy of three different money
managers (except for the Cash Management portfolio). Generally, the Purchase
Payments received for allocation to each SELECT OR FOCUSED PORTFOLIO will be
allocated equally among the three managers for that SELECT AND FOCUSED
PORTFOLIO. Each quarter AIG SAAMCo will evaluate the asset allocation between
the three managers of each SELECT OR FOCUSED PORTFOLIO. If AIG SAAMCo determines
that the assets have become significantly unequal in allocation among the
managers, then the incoming cash flows may be redirected in an attempt to
stabilize the allocations. Generally, existing SELECT AND FOCUSED PORTFOLIO
assets will not be rebalanced. However, We reserve the right to do so in the
event that it is deemed necessary and not adverse to the interests of contract
owners invested in the SELECT AND FOCUSED PORTFOLIOS.
14
THE SEASONS STRATEGIES
The contract offers four multi-manager variable investment SEASONS STRATEGIES,
each with a different investment objective. We designed the SEASONS STRATEGIES
utilizing an asset allocation approach to meet your investment needs over time,
considering factors such as your age, goals and risk tolerance. However, each
SEASONS STRATEGY is designed to achieve different levels of growth over time.
Each SEASONS STRATEGY invests in three underlying investment portfolios of the
Seasons Series Trust. The allocation of money among these investment portfolios
varies depending on the objective of the SEASONS STRATEGY.
The underlying investment portfolios of Seasons Series Trust in which the
SEASONS STRATEGIES invest include the Asset Allocation: Diversified Growth
Portfolio, the Stock Portfolio and the Multi-Managed Growth, Multi-Managed
Moderate Growth, Multi-Managed Income/Equity and Multi-Managed Income Portfolios
(the "Multi-Managed Portfolios").
The Asset Allocation: Diversified Growth Portfolio is managed by Putnam. The
Stock Portfolio is managed by T. Rowe Price. All of the Multi-Managed Portfolios
include the same three basic investment components: a growth component managed
by Janus, a balanced component managed by AIG SAAMCo and a fixed income
component managed by Wellington, LLP. The Growth SEASONS STRATEGY and the
Moderate Growth SEASONS STRATEGY also have an aggressive growth component which
AIG SAAMCo manages. The percentage that any one of these components represents
in each Multi-Managed Portfolio varies in accordance with the investment
objective.
Each SEASONS STRATEGY uses an investment approach based on asset allocation.
This approach is achieved by each SEASONS STRATEGY investing in distinct
percentages in three specific underlying funds of the Seasons Series Trust. In
turn, the underlying funds invest in a combination of domestic and international
stocks, bonds and cash. Based on the percentage allocation to each specific
underlying fund and each underlying fund's investment approach, each SEASONS
STRATEGY initially has a neutral asset allocation mix of stocks, bonds and cash.
SEASONS STRATEGY REBALANCING
Each SEASONS STRATEGY is designed to meet its investment objective by allocating
a portion of your money to three different investment portfolios. At the
beginning of each quarter a rebalancing occurs among the underlying funds to
realign each SEASONS STRATEGY with its distinct percentage investment in the
three underlying funds. This rebalancing is designed to help maintain the
neutral asset allocation mix for each SEASONS STRATEGY. The pie charts on the
following pages demonstrate:
- the neutral asset allocation mix for each SEASONS STRATEGY; and
- the percentage allocation in which each SEASONS STRATEGY invests.
On the first business day of each quarter (or as close to such date as is
administratively practicable) your money will be allocated among the various
investment portfolios according to the percentages set forth on the prior pages.
Additionally, within each Multi-Managed Portfolio, your money will be rebalanced
among the various components. We also reserve the right to rebalance any SEASONS
STRATEGY more frequently if rebalancing is deemed necessary and not adverse to
the interests of contract owners invested in such SEASONS STRATEGY. Rebalancing
a SEASONS STRATEGY may involve shifting a portion of assets out of underlying
investment portfolios with higher returns into underlying investment portfolios
with relatively lower returns.
15
<Table>
GROWTH STRATEGY MODERATE GROWTH STRATEGY
GOAL: Long-term growth of capital, allocating its GOAL: Growth of capital through investments in equities,
assets primarily to stocks. This SEASONS STRATEGY may be with a secondary objective of conservation of principal by
best suited for those with longer periods to invest. allocating more of its assets to bonds than the Growth
Strategy. This SEASONS STRATEGY may be best suited for those
nearing retirement years but still earning income.
Target Asset Allocation: Target Asset Allocation:
Stocks 80% Bonds 15% Cash 5% Stocks 70% Bonds 25% Cash 5%
[GROWTH STRATEGY PIE CHART] [MODERATE GROWTH PIE CHART]
STOCK PORTFOLIO ASSET ALLOCATION: STOCK PORTFOLIO ASSET ALLOCATION:
(T ROWE PRICE) DIVERSIFIED GROWTH (T ROWE PRICE) DIVERSIFIED GROWTH
25% PORTFOLIO (PUTNAM) 20% PORTFOLIO (PUTNAM)
25% 25%
MULTI-MANAGED
MULTI-MANAGED MODERATE GROWTH
GROWTH PORTFOLIO PORTFOLIO
50% 55%
Fixed Income Growth Fixed Income Growth
component component component component
(Wellington) (Janus) (Wellington) (Janus)
10% 20% 19.8% 15.4%
Balance Balance
component component
(AIG SAAMCo) Aggressive Growth (AIG SAAMCo) Aggressive Growth
10% component (AIG SAAMCo) 9.9% component (AIG SAAMCo)
10% 9.9%
</Table>
<Table>
BALANCED GROWTH STRATEGY CONSERVATIVE GROWTH STRATEGY
GOAL: Focuses on conservation of principal by GOAL: Capital preservation while maintaining some
investing in a more balanced weighting of stocks and potential for growth over the long term. This SEASONS
bonds, with a secondary objective of seeking a high total STRATEGY may be best suited for those with lower investment
return. This SEASONS STRATEGY may be best suited for those risk tolerance.
approaching retirement and with less tolerance for
investment risk.
Target Asset Allocation: Target Asset Allocation:
Stocks 55% Bonds 40% Cash 5% Stocks 42% Bonds 53% Cash 5%
[BALANCE GROWTH STRATEGY PIE CHART] [CONSERVATIVE GROWTH PIE CHART]
STOCK PORTFOLIO ASSET ALLOCATION: STOCK PORTFOLIO ASSET ALLOCATION:
(T ROWE PRICE) DIVERSIFIED GROWTH (T ROWE PRICE) DIVERSIFIED GROWTH
20% PORTFOLIO (PUTNAM) 15% PORTFOLIO (PUTNAM)
25% 25%
MULTI-MANAGED MULTI-MANAGED
INCOME/EQUITY PORTFOLIO INCOME PORTFOLIO
55% 60%
Fixed Income Growth Fixed Income Growth
component component component component
(Wellington) (Janus) (Wellington) (Janus)
29.7% 9.9% 45% 4.8%
Balance Balance
component component
(AIG SAAMCo) (AIG SAAMCo)
15.4% 10.2%
</Table>
16
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 reflects any difference
in the interest rate environment between the time you place your money in the
FAGP and the time when you withdraw or transfer that money. This adjustment can
increase or decrease your contract value. Generally, if interest rates drop
between the time you put your money into a FAGP and the time you take it out, We
credit a positive adjustment to your contract. Conversely, if interest rates
increase during the same period, We post a negative adjustment to your contract.
You have 30 days after the end of each guarantee period to reallocate your funds
without incurring any MVA. APPENDIX A SHOWS HOW WE CALCULATE AND APPLY THE MVA.
You may systematically transfer interest earned in available FAGPs into any of
the VARIABLE PORTFOLIOS on certain periodic schedules offered by Us. These
systematic transfers do not count toward the 15 free transfers per contract year
and are not subject to a MVA. You may change or terminate these systematic
transfers by contacting Our Annuity Service Center.
All FAGPs may not be available in all states. We reserve the right to refuse any
Purchase Payment to available FAGPs if We are crediting a rate equal to the
minimum guaranteed interest rate specified in your contract. We may also offer
the specific Dollar Cost Averaging Fixed Accounts ("DCAFA"). The rules,
restrictions and operation of the DCAFAs may differ from the standard FAGPs
described above, see DOLLAR COST AVERAGING PROGRAM BELOW for more details.
DOLLAR COST AVERAGING FIXED ACCOUNTS
You may invest initial and/or subsequent Purchase Payments in the DCA fixed
accounts ("DCAFA"), if available. DCAFAs also credit a fixed rate of interest
but are specifically designed to facilitate a dollar cost averaging program.
Interest is credited to amounts allocated to the DCAFAs while your investment is
transferred to the VARIABLE PORTFOLIOS over certain specified time frames. The
interest rates applicable to the DCAFA may differ from those applicable to any
available FAGPs but will never be less than the minimum annual guaranteed
interest rate as specified in your contract. However, when using a DCAFA the
annual interest rate is paid on a declining balance as you systematically
transfer your investment to the VARIABLE PORTFOLIOS.
17
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.
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase you may transfer funds between the VARIABLE
PORTFOLIOS and/or the fixed account option. Funds already in your contract
cannot be transferred into the DCA fixed accounts. You must transfer at least
$100. If less than $100 will remain in any VARIABLE PORTFOLIO after a transfer,
that amount must be transferred as well.
Subject to certain rules, you may request transfers of your account value
between the VARIABLE PORTFOLIOS and/or the fixed account options in writing or
by telephone. Additionally, you may access your account and request transfers
between VARIABLE PORTFOLIOS and/or the fixed account options through AIG
SunAmerica's website (http://www.aigsunamerica.com). We currently allow 15 free
transfers per contract per year. We charge $25 ($10 in Pennsylvania and Texas)
for each additional transfer in any contract year. Transfers resulting from your
participation in the DCA program count against your 15 free transfers per
contract year.
We may accept transfer requests by telephone or the Internet unless you tell Us
not to on your contract application. When receiving instructions over the
telephone or the Internet, We follow appropriate procedures to provide
reasonable assurance that the transactions executed are genuine. Thus, We are
not responsible for any claim, loss or expense from any error resulting from
instructions received over the telephone or the Internet. If We fail to follow
Our procedures, We may be liable for any losses due to unauthorized fraudulent
instructions.
This product is not designed for professional "market timing" organizations or
other organizations or individuals engaged in trading strategies that seek to
benefit from short term price fluctuations or price irregularities by making
programmed transfers, frequent transfers or transfers that are large in relation
to the total assets of the underlying portfolio in which the VARIABLE PORTFOLIOS
invest. These market timing strategies are disruptive to the underlying
portfolios in which the VARIABLE PORTFOLIOS invest and thereby potentially
harmful to investors. If We determine, in Our sole discretion, that your
transfer patterns among the VARIABLE PORTFOLIOS reflect a market timing
strategy, We reserve the right to take action to protect the other investors.
Such action may include but would not be limited to restricting the way you can
request transfers among the VARIABLE PORTFOLIOS, imposing penalty fees on such
trading activity, and/or otherwise restricting transfer options in accordance
with state and federal rules and regulations.
Any transfer request in excess of 15 transfers per contract year must be
submitted in writing by U.S. mail. Transfer requests sent by same day mail,
overnight mail or courier services will not be accepted. We will process any
transfer request as of the day We receive it, if received before close of the
New York Stock Exchange ("NYSE"), generally at 1:00 p.m. P.T. If the transfer
request is received after the close of the NYSE, the request will be processed
on the next business day.
Transfer requests required to be submitted by U.S. mail can only be cancelled in
writing by U.S. mail. We will process a cancellation request only if it is
received prior to or simultaneous with the original transfer request.
Regardless of the number of transfers you have made, We will monitor and, upon
written notification, may terminate your transfer privileges if We determine
that you are engaging in a pattern of transfers that reflects a market timing
strategy or is potentially harmful to other policy owners. Some of the factors
We will consider include:
- the dollar amount of the transfer;
- the total assets of the VARIABLE PORTFOLIO involved in the transfer;
- the number of transfers completed in the current calendar quarter; or
- whether the transfer is part of a pattern of transfers to take advantage
of short-term market fluctuations or market inefficiencies.
18
For information regarding transfers during the Income Phase, SEE INCOME OPTIONS
BELOW.
We reserve the right to modify, suspend, waive or terminate these transfer
provisions at any time.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging ("DCA") program allows you to invest gradually in the
VARIABLE PORTFOLIOS. Under the program you systematically transfer a set dollar
amount or percentage of portfolio value from one VARIABLE PORTFOLIO or DCAFAs
(source account) to any other VARIABLE PORTFOLIO (target account). Transfers may
occur on certain periodic schedules such as monthly or weekly and count against
your 15 free transfers per contract year. You may change the frequency to other
available options at any time by notifying Us in writing. The minimum transfer
amount under the DCA program is $100 per transaction, regardless of the source
account. Currently, there is no fee for participating in the DCA program.
We may offer DCAFAs exclusively to facilitate the DCA program for a specified
time period. The DCAFAs only accept new Purchase Payments. You cannot transfer
money already in your contract into the DCAFAs. If you allocate new Purchase
Payments into a DCAFA, We transfer all your money into the VARIABLE PORTFOLIOS
over the selected time period. You cannot change the option once selected.
You may terminate the DCA program at any time. If money remains in the DCAFAs,
We transfer the remaining money according to your instructions or to your
current allocation on file. Upon termination of the DCA program, if money
remains in the DCA fixed accounts, We transfer the remaining money to the same
target account(s) as previously designated, unless We receive different
instructions from you. Transfers resulting from a termination of this program do
not count towards your 15 free transfers.
The DCA program is designed to lessen the impact of market fluctuations on your
investment. However, We cannot ensure that you will make a profit. When you
elect the DCA program, you are continuously investing in securities regardless
of fluctuating price levels. You should consider your tolerance for investing
through periods of fluctuating price levels.
Currently, We do not charge a fee for participation in the DCA program.
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 Mid-Cap Value Portfolio over six quarters. You
set up Dollar Cost Averaging and purchase Accumulation Units at the
following values:
<Table>
<Caption>
QUARTER 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
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.
19
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. At your request, rebalancing occurs on a
quarterly, semi-annual 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.
Currently, there is no charge for participating in this program.
RETURN PLUS PROGRAM
The Return Plus Program 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
PORTFOLIOS 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 to allocate to the particular fixed investment 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 PORTFOLIOS of your choice.
This program is only available when We are offering multi-year fixed account
options. 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 3 years. If the
3-year fixed investment option is offering a 3% interest rate, We will
allocate $91,514 to the 3-year fixed investment option to ensure that this
amount will grow to $100,000 at the end of the 3-year period. The remaining
$8,486 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 Seasons Series Trust shares.
However, when an underlying 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 or 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 reason 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.
20
ACCESS TO YOUR MONEY
- --------------------------------------------------------------------------------
You can access money in your contract in two ways:
- by making a partial or total withdrawal, and/or;
- by receiving income payments during the Income Phase. SEE INCOME OPTIONS
BELOW.
Generally, We deduct a withdrawal charge applicable to any total or partial
withdrawal and a MVA if a partial withdrawal comes from the 3-year fixed
investment option prior to the end of a guarantee period. If you withdraw your
entire contract value, We also deduct any applicable premium taxes and a
contract maintenance fee. SEE EXPENSES BELOW. We calculate charges due on a
total withdrawal on the day after We receive your request and other required
paper work. We return your contract value less any applicable fees and charges.
The minimum partial withdrawal amount is $1,000. We require that the total
account balance left in any VARIABLE PORTFOLIOS 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 PORTFOLIOS 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 MVA.
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).
Purchase payments, above and beyond the amount of your free withdrawal amount,
that are withdrawn prior to the end of the third year will result in your paying
a penalty in the form of a surrender charge. The amount of the charge and how it
applies are discussed more fully below. SEE EXPENSES BELOW. You should consider,
before purchasing this contract, the effect this charge will have on your
investment if you need to withdraw more money than the free 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
21
(1); (2); or (3) interest earnings from the amounts allocated to the fixed
account options, not previously withdrawn.
After the first contract year, you can take out the greater of the following
amounts each year (1) your penalty-free earnings and any portion of your total
invested amount no longer subject to withdrawal charge or (2) 10% of the portion
of your total invested amount that has been in your contract for at least one
year. If you are a Washington resident, your maximum free withdrawal amount,
after the first contract year, is the greater of (1); (2); or (3) interest
earnings from amounts allocated to the fixed account options, not previously
withdrawn.
We calculate charges due on a total withdrawal on the day after We receive your
request and your contract. We return to you your contract value less any
applicable fees and charges.
The withdrawal charge percentage is determined by the age of the Purchase
Payment remaining in the contract at the time of the withdrawal. For the purpose
of calculating the withdrawal charge, any prior Free Withdrawal is not
subtracted from the total Purchase Payments still subject to withdrawal charges.
For example, you make an initial Purchase Payment of $100,000. For purposes of
this example We will assume a 0% growth rate over the life of the contract, no
election of Seasons Estate Advantage, Earnings Advantage or Income Protector
options and no subsequent Purchase Payments. In contract year 2, you take out
your maximum free withdrawal of $10,000. After that free withdrawal your
contract value is $90,000. In contract year 3 you request a full surrender of
your contract. We will apply the following calculation,
A-(B x C)=D, where:
A=Your contract value at the time of your request for surrender ($90,000)
B=The amount of your Purchase Payments still subject to withdrawal charge
($100,000)
C=The withdrawal charge percentage applicable to the age of each Purchase
Payment (6%)[B x C=$6,000]
D=Your full surrender value ($84,000)
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.
Under certain Qualified plans, access to the money in your contract may be
restricted. Additionally, withdrawals made prior to age 59 1/2 may result in a
10% federal penalty tax. SEE TAXES BELOW.
We may be required to suspend or postpone the payment of a withdrawal for any
period of time when: (1) the NYSE is closed (other than a customary weekend and
holiday closings); (2) trading with the NYSE is restricted; (3) an emergency
exists such that disposal of or determination of the value of shares of the
VARIABLE PORTFOLIOS is not reasonably practicable; (4) the SEC, by order, so
permits for the protection of contract owners.
Additionally, We reserve the right to defer payments for a withdrawal from a
fixed account option. Such deferrals are limited to no longer than six months.
SYSTEMATIC WITHDRAWAL PROGRAM
During the Accumulation Phase, you may elect to receive periodic income payments
under the systematic withdrawal program. Under the program, you may choose to
take monthly, quarterly, semi-annual or annual payments from your contract.
Electronic transfer of these funds to your bank account is also available. The
minimum amount of each withdrawal is $100. Withdrawals may be taxable and a 10%
federal penalty tax may apply if you are under age 59 1/2. There is no
additional charge for participating in this program, although a withdrawal
charge and/or MVA may apply.
The program is not available to everyone. Please check with Our Annuity Service
Center, which can provide the necessary enrollment forms. We reserve the right
to modify, suspend or terminate this program at any time.
22
MINIMUM CONTRACT VALUE
Where permitted by state law, We may terminate your contract if both of the
following occur: (1) your contract is less than $500 as a result of withdrawals;
and (2) you have not made any Purchase Payments during the past three years. We
will provide you with sixty days written notice. At the end of the notice
period, We will distribute the contract's remaining value to you.
QUALIFIED CONTRACT OWNERS
Certain Qualified plans restrict and/or prohibit your ability to withdraw money
from your contract. SEE TAXES BELOW for a more detailed explanation.
DEATH BENEFIT
- --------------------------------------------------------------------------------
If you should die during the Accumulation Phase, your Beneficiary will receive a
death benefit. The death benefit options are discussed in detail below.
The death benefit is not paid after you are in the Income Phase. If you die
during the Income Phase, your Beneficiary will receive any remaining guaranteed
income payments in accordance with the income option you choose. SEE INCOME
OPTIONS BELOW.
You select the Beneficiary to receive any amounts payable on death. You may
change the Beneficiary at any time, unless you previously made an irrevocable
Beneficiary designation. A new Beneficiary designation is not effective until We
record the change.
We calculate and pay the death benefit when We receive all required paperwork
and satisfactory proof of death. We consider the following satisfactory proof of
death: (1) a certified copy of a death certificate; (2) a certified copy of a
decree of court of competent jurisdiction as to the finding of death; (3) a
written statement by a medical doctor who attended the deceased at the time of
death; or (4) any other proof satisfactory to Us.
The death benefit must be paid within 5 years of the date of death. The
Beneficiary may, in the alternative, elect to have the death benefit payable in
the form of an income payment. If the Beneficiary elects an income option, it
must be paid over the Beneficiary's lifetime or for a period not extending
beyond the Beneficiary's life expectancy. Income payments must begin within one
year of the owner's death. If the Beneficiary is the spouse of the deceased
owner, he or she can elect to continue the contract, rather than receive a death
benefit. SEE SPOUSAL CONTINUATION BELOW.
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 Standard Death Benefit
which is automatically included in your contract for no additional fee, an
optional enhanced death benefit called "Seasons Estate Advantage" which offers
you the selection of one of two options. If you choose the Seasons Estate
Advantage death benefit, you may also elect, for an additional fee, the Earnings
Advantage feature. Your death benefit elections must be made at the time of
contract application and the election cannot be terminated.
The term "Net Purchase Payment" is used frequently in explaining the death
benefit options. Net Purchase Payment is an on-going calculation. It does not
represent a contract value.
We define Net Purchase Payments as Purchase Payments less an adjustment for each
withdrawal. If you have not taken any withdrawals from your contract, Net
Purchase Payments equals total Purchase Payments into your contract. To
calculate the Adjustment amount for the first withdrawal made under the
contract, We determine the percentage by which the withdrawal reduced contract
value. For example, a $10,000 withdrawal from a $100,000 contract is a 10%
reduction in value. This percentage is calculated by dividing the amount of each
withdrawal (including fees and charges applicable to the withdrawal) by the
contract value immediately before taking that withdrawal. The resulting
percentage is then multiplied by the amount of total Purchase Payments and
subtracted
23
from the amount of total Purchase Payments on deposit at the time of the
withdrawal. The resulting amount is the initial Net Purchase Payment
calculation.
To arrive at the Net Purchase Payment calculation for subsequent withdrawals, We
determine the percentage by which the contract value is reduced by taking the
amount of the withdrawal in relation to the contract value immediately before
taking the withdrawal. We then multiply the Net Purchase Payment calculation as
determined prior to the withdrawal by this percentage. We subtract that result
from the Net Purchase Payment calculation as determined prior to the withdrawal
to arrive at all subsequent Net Purchase Payment calculations.
STANDARD DEATH BENEFIT
The Standard Death Benefit on your contract, is the greater of:
1. Net Purchase Payments 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 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 on the date We receive all required paperwork and
satisfactory proof of death.
SEASONS ESTATE ADVANTAGE DEATH BENEFIT(S)
For an additional fee, you may elect one of the Seasons Estate Advantage death
benefits which can provide greater protection for your beneficiaries. You must
chose between Option 1 and Option 2 at the time you purchase your contract and
you cannot change your election at any time. The Seasons Estate Advantage death
benefit is not available if you are age 81 or older at the time of contract
issue. The fee for Seasons Estate Advantage 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 on the date We receive all required paperwork and
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 and you selected the 5%
Accumulation Option, any death benefit payable under the contract will
be the Standard Death Benefit as described above. Therefore, your
beneficiary will not receive any benefit from Seasons Estate Advantage.
This option may not be available in your state. Check with your
investment 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 on the date We receive all required paperwork and
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
24
withdrawals) recorded after the anniversary, in the same proportion
that the withdrawal reduced the contract value on the date of the
withdrawal.
If you are age 90 or older at the time of death and you had selected
the Maximum Anniversary Value Option, the death benefit will be equal
to the contract value on the date We receive all required paperwork and
satisfactory proof of death. Thus, you will not receive the advantage
of the Maximum Anniversary Value Option if you are over age 80 at the
time of contract issue or if you are 90 or older at the time of your
death. This option may not be available in your state. Check with your
investment representative regarding availability.
EARNINGS ADVANTAGE
The Earnings Advantage benefit may increase the Seasons Estate Advantage death
benefit amount. In order to elect Earnings Advantage, you must also elect
Seasons Estate Advantage 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 Seasons Estate Advantage but,
once elected, generally it cannot be terminated. Further, if you elect both
Seasons Estate Advantage 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.
With the Earnings Advantage benefit, 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 Amount"), 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>
- ------------------------------------------------------------------------------------------------------------------
EARNINGS ADVANTAGE MAXIMUM
CONTRACT YEAR OF DEATH 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 benefit is subject to a maximum dollar amount. The
Maximum Earnings Advantage Amount is equal to a percentage of your Net Purchase
Payments.
Earning Advantage is not available if you are age 81 or older at the time We
issue your contract. Furthermore, a Continuing Spouse may not benefit from
Earnings Advantage if he/she is age 81 or older on the Continuation
25
Date. SEE SPOUSAL CONTINUATION BELOW. The Earnings Advantage benefit is not
payable after the latest Annuity Date. SEE INCOME OPTIONS BELOW.
Earnings Advantage may not be available in your state or through the
broker-dealer with which your financial advisor is affiliated. See your
financial advisor for information regarding availability.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE 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"). 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.
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"). If a Continuation
Contribution is added to the contract value, 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 the purposes
of any other calculations except as explained in Appendix B. SEE APPENDIX B
BELOW FOR FURTHER EXPLANATION OF THE DEATH BENEFIT CALCULATIONS FOLLOWING A
SPOUSAL CONTINUATION. To the extent that the Continuing Spouse invests in the
VARIABLE PORTFOLIOS or MVA fixed account 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 the Seasons Estate Advantage and the
available death benefit will be the Standard Death Benefit. The Continuing
Spouse cannot elect to continue Earnings Advantage without also continuing the
Seasons Estate Advantage. We will terminate the Seasons Estate Advantage if the
Continuing Spouse is age 81 or older on the Continuation Date and a Continuation
Contribution has been added to the contract value. The available death benefit
will then be the Standard Death Benefit. If Seasons Estate Advantage is
continued and the Continuing Spouse dies after the latest Annuity Date, and the
5% Accumulation option was selected, the death benefit will be the Standard
Death Benefit. If the Maximum Anniversary value option was selected and the
Continuing Spouse lives to age 90 or older, the death benefit will be the
contract value. However, if death occurs before the latest annuity date, the
Continuing Spouse will still benefit from the Earnings Advantage.
Generally, the age of the Continuing Spouse on the Continuation Date (if any
Continuation Contribution has been made) and on the date of the Continuing
Spouse's death will be used in determining any future death benefits under the
Contract. If no Continuation Contribution has been made to the contract on the
Continuation Date, the age of the spouse on the date of the original contract
issue will be used to determine any age-driven benefits. SEE APPENDIX B 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 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 1.55%,
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.
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:
WITHDRAWAL CHARGE
<Table>
<Caption>
YEAR 1 2 3 4+
- ----------------- --- --- --- ---
Withdrawal Charge 7% 6% 6% 0%
</Table>
After a Purchase Payment has been in the contract for three 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 or to pay contract fees or charges. 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 investment portfolios underlying the
VARIABLE PORTFOLIOS for the advisory and other expenses of the portfolios. SEE
FEE TABLES ABOVE.
27
Service Fees
Portfolio shares are all subject to fees imposed under a servicing plan adopted
by the Seasons Series Trust pursuant to Rule 12b-1 under the Investment Company
Act of 1940. This service fee of 0.15%, which is also known as a 12b-1 fee is
used generally to pay financial intermediaries for services provided over the
life of the contract. SEE FEE TABLES ABOVE.
FOR MORE DETAILED INFORMATION ON THESE INVESTMENT CHARGES, REFER TO THE
PROSPECTUS FOR THE SEASONS SERIES TRUST, ATTACHED.
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. 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 fee on a pro-rata basis from your account value on your contract
anniversary. In the states of Pennsylvania, Texas and Washington a contract
maintenance fee will be deducted pro-rata from the VARIABLE PORTFOLIOS in which
you are invested, only. If you withdraw your entire contract value, We deduct
the fee from that withdrawal.
TRANSFER FEE
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 SEASONS PROMISE FEE
The fee for the Seasons Promise feature is as follows:
<Table>
<Caption>
CONTRACT YEAR* ANNUALIZED CHARGE
- -------------- -----------------
0-5 0.55%
6-10 0.35%
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.
* The annual fee for Washington and Oregon Residents is 0.55% for Years 0-7,
0.20% for Years 8-10 and no charge for Years 11+.
OPTIONAL SEASONS ESTATE ADVANTAGE FEE
We charge 0.15% for the Seasons Estate 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.
OPTIONAL EARNINGS ADVANTAGE FEE
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. Further, if you elect both Seasons Estate Advantage
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.
OPTIONAL INCOME PROTECTOR FEE
We deduct a fee equal to 0.10% of your Income Benefit Base from you 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
28
each subsequent contract anniversary, adding Purchase Payments made since the
prior contract anniversary, less proportional withdrawals, and fees and charges
applicable to those withdrawals.
PREMIUM TAX
Certain states charge the Company a tax on the premiums you pay into the
contract ranging from 0.0% to 3.5%. We deduct these premium tax charges from
your contract when applicable. Currently, We deduct the charge for premium taxes
when you fully surrender or annuitize the contract. In the future, We may assess
this deduction at the time you put Purchase Payment(s) into the contract or upon
payment of a death benefit.
INCOME TAXES
We do not currently deduct income taxes from your contract. We reserve the right
to do so in the future.
REDUCTION OR ELIMINATION OF CHARGES AND EXPENSES, AND ADDITIONAL AMOUNTS
CREDITED
Sometimes sales of the contracts to groups of similarly situated individuals may
lower Our administrative and/or sales expenses. We reserve the right to reduce
or waive certain charges and expenses when this type of sale occurs. In
addition, We may also credit additional interest to policies sold to such
groups. We determine which groups are eligible for such treatment. Some of the
criteria We evaluate to make a determination are: size of the group; amount of
expected Purchase Payments; relationship existing between Us and prospective
purchaser; nature of the purchase; length of time a group of contracts is
expected to remain active; purpose of the purchase and whether that purpose
increases the likelihood that Our expenses will be reduced; and/or any other
factors that We believe indicate that administrative and/or sales expenses may
be reduced.
AIG SunAmerica Life may make such a determination regarding sales to its
employees, it affiliates' employees and employees of currently contracted
broker-dealers; its registered representatives and immediate family members of
all of those described.
We reserve the right to change or modify any such determination or the treatment
applied to a particular group, at any time.
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. Other income options may be
available. Please check with the Annuity Service Center for details. If you
elect to receive income payments but do not select an option, your
29
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 OR 20 YEAR PERIOD
CERTAIN
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 payments have been made, the remaining payments are made to
the Beneficiary under your contract.
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.
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 PORTFOLIOS in which you invest.
FIXED OR VARIABLE INCOME PAYMENTS
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
30
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.
INCOME PAYMENTS
Your income payments will vary if you are invested in the VARIABLE PORTFOLIOS
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; and
- the value of your contract in the VARIABLE PORTFOLIOS on the Annuity
Date,
- the 3.5% assumed investment rate for variable income payments 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
accounts and VARIABLE PORTFOLIOS 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.
Please read the Statement of Additional Information, available upon request, for
a more detailed discussion of the income options.
INCOME PROTECTOR
You may elect to enroll in the Income Protector Program. The Income Protector
Program offers you the ability to receive a guaranteed fixed minimum retirement
income when you choose to switch to the Income Phase. Income Protector should be
regarded only as a "safety net". 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 can not be changed or
terminated. Check with your financial advisor regarding availability.
31
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.
If you elect Seasons Promise, you may not elect to participate in the Income
Protector program.
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 either the date of issue of the
contract (if the feature is elected at the time of application) or on the
contract anniversary following your enrollment in the program.
The Income Benefit Base is only a calculation. It does not represent a contract
value, nor does it guarantee performance of the VARIABLE PORTFOLIOS in which you
invest.
Your Income Benefit Base increases if you make subsequent Purchase Payments and
decreases if you withdraw money from your contract. The exact Income Benefit
Base calculation is equal to (a) plus (b) minus (c) where:
(a) is equal to, for the first year of calculation, your contract value on
the date your participation became effective, and for each subsequent
year of calculation, the Income Benefit Base of your prior contract
anniversary, and;
(b) is equal to the sum of all subsequent Purchase Payments made into the
contract since the prior contract anniversary, and;
(c) is equal to all withdrawals and applicable fees, charges and any
negative MVA (but excluding administration fees, mortality and expense
charges and the fee for enrollment into the program) since the prior
contract anniversary, including premium taxes, 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 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 ten 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.
32
The Income Protector option(s) currently available under this contract are:
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------------------------------
FEE AS OF % OF YOUR INCOME WAITING PERIOD BEFORE THE
OPTION GROWTH RATE BENEFIT BASE INCOME PHASE
- ----------------------------------------------------------------------------------------------------------------------------------
Income Protector Base 0% 0.10% 10 years
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
ENROLLING IN THE PROGRAM
If you decide that you want the protection offered by the Income Protector
program, you must elect the Program by completing the Income Protector Election
Form. You can not terminate your enrollment once elected.
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 10th or later contract
anniversary following the effective date of your Income Protector participation.
The contract anniversary 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 (including any negative MVA) 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.
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. SEE APPENDIX C FOR AN EXAMPLE OF THE OPERATION OF THE
INCOME PROTECTOR FEATURE.
33
FEES ASSOCIATED WITH THE INCOME PROTECTOR PROGRAM
If you elect to participate in the Income Protector program We deduct an annual
fee equal to 0.10% of your Income Benefit Base from your contract value on each
contract anniversary beginning with the contract anniversary following the
anniversary on which your enrollment in the program becomes effective. We deduct
this charge from your contract value on every contract anniversary up to and
including your Income Benefit Date. Once elected, the Income Protector Program
and its corresponding charges may not be terminated until full surrender or
annuitization of the contract occurs.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE INCOME PROTECTOR
PROGRAM (IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME FOR PROSPECTIVELY ISSUED
CONTRACTS.
TAXES
- --------------------------------------------------------------------------------
NOTE: WE PREPARED THE FOLLOWING INFORMATION ON TAXES AS A GENERAL DISCUSSION OF
THE SUBJECT. THIS INFORMATION ADDRESSES GENERAL FEDERAL TAXATION MATTERS, AND
GENERALLY DOES NOT ADDRESS STATE TAXATION ISSUES OR QUESTIONS. IT IS NOT TAX
ADVICE. RECENT TAX LEGISLATION INCLUDED MANY CHANGES THAT COULD AFFECT THE
TAXATION OF INVESTMENT INCOME. YOU MAY WISH TO SEEK COMPETENT TAX ADVICE ABOUT
YOUR OWN CIRCUMSTANCES. WE DO NOT GUARANTEE THE TAX STATUS OF YOUR ANNUITY. TAX
LAWS CONSTANTLY CHANGE, THEREFORE, WE CANNOT GUARANTEE THAT THE INFORMATION
CONTAINED HEREIN IS COMPLETE AND/OR ACCURATE. WE HAVE INCLUDED AN ADDITIONAL
DISCUSSION REGARDING TAXES IN THE SAI.
ANNUITY CONTRACTS IN GENERAL
The Internal Revenue Code ("IRC") provides for special rules regarding the tax
treatment of annuity contracts. Generally, taxes on the earnings in your annuity
contract are deferred until you take the money out. Qualified retirement
investments that satisfy specific tax and ERISA requirements automatically
provide tax deferral regardless of whether the underlying contract is an
annuity, a trust, or a custodial account. Different rules apply depending on how
you take the money out and whether your contract is Qualified or Non-Qualified.
If you do not purchase your contract under a pension plan, a specially sponsored
employer program or an individual retirement account, your contract is referred
to as a Non-Qualified contract. A Non-Qualified contract receives different tax
treatment than a Qualified contract. In general, your cost basis in a
Non-Qualified contract is equal to the Purchase Payments you put into the
contract. You have already been taxed on the cost basis in your contract.
If you purchase your contract under a pension plan, a specially sponsored
employer program or as an individual retirement account, your contract is
referred to as a Qualified contract. Examples of qualified plans are: Individual
Retirement Accounts ("IRAs"), Roth IRAs, Tax-Sheltered Annuities (referred to as
403(b) contracts), plans of self-employed individuals (often referred to as H.R.
10 Plans or Keogh Plans) and pension and profit sharing plans, including 401(k)
plans. Typically you have not paid any tax on the Purchase Payments used to buy
your contract and therefore, you have no cost basis in your contract. However,
you normally will have cost basis in a Roth IRA, and you may have cost basis in
a traditional IRA or in another Qualified Contract.
TAX TREATMENT OF DISTRIBUTIONS--NON-QUALIFIED CONTRACTS
If you make a partial or total withdrawal from a Non-Qualified contract, the IRC
treats such a withdrawal as first coming from the earnings and then as coming
from your Purchase Payments. Purchase Payments made prior to August 14, 1982,
however, are an important exception to this general rule, and for tax purposes
are treated as being distributed before the earnings on those contributions. If
you annuitize your contract, a portion of each income payment will be
considered, for tax purposes, to be a return of a portion of your Purchase
Payment(s). Any portion of each income payment that is considered a return of
your Purchase Payment will not be taxed. Withdrawn earnings are treated as
income to you and are taxable. The IRC provides for a 10% penalty tax on any
earnings that are withdrawn other than in conjunction with the following
circumstances: (1) after reaching age 59 1/2; (2) when paid to your Beneficiary
after you die; (3) after you become disabled (as defined in the IRC); (4) when
paid in a series of substantially equal installments made for your life or for
the joint lives of you and you
34
Beneficiary; (5) under an immediate annuity; or (6) which are attributable to
Purchase Payments made prior to August 14, 1982.
TAX TREATMENT OF DISTRIBUTIONS--QUALIFIED CONTRACTS
Generally, you have not paid any taxes on the Purchase Payments used to buy a
Qualified contract. As a result, with certain limited exceptions, any amount of
money you take out as a withdrawal or as income payments is taxable income. The
IRC further provides for a 10% penalty tax on any taxable withdrawal or income
payment paid to you other than in conjunction with the following circumstances:
(1) after reaching age 59 1/2; (2) when paid to your Beneficiary after you die;
(3) after you become disabled (as defined in the IRC); (4) in a series of
substantially equal installments, made for your life or for the joint lives of
you and your Beneficiary, that begins after separation from service with the
employer sponsoring the plan; (5) to the extent such withdrawals do not exceed
limitations set by the IRC for deductible amounts paid during the taxable year
for medical care; (6) to fund higher education expenses (as defined in IRC; only
from an IRA); (7) to fund certain first-time home purchase expenses (only from
an IRA); and, except in the case of an IRA; (8) when you separate from service
after attaining age 55; (9) when paid for health insurance if you are unemployed
and meet certain requirements; and (10) when paid to an alternate payee pursuant
to a qualified domestic relations order.
The IRC limits the withdrawal of an employee's voluntary Purchase Payments to a
Tax-Sheltered Annuity (TSA). Withdrawals can only be made when an owner: (1)
reaches age 59 1/2; (2) severs employment with the employer; (3) dies; (4)
becomes disabled (as defined in the IRC); or (5) experiences a hardship (as
defined in the IRC). In the case of hardship, the owner can only withdraw
Purchase Payments. Additional plan limitations may also apply. Amounts held in a
TSA annuity contract as of December 31, 1988 are not subject to these
restrictions. Qualifying transfers of amounts from one TSA contract to another
TSA contract under section 403(b) or to a custodial account under section
403(b)(7), and qualifying transfers to a state defined benefit plan to purchase
service credits, are not considered distributions, and thus are not subject to
these withdrawal limitations. If amounts are transferred from a custodial
account described in Code section 403(b)(7) to this contract the transferred
amount will retain the custodial account withdrawal restrictions.
Withdrawals from other Qualified Contracts are often limited by the IRC and by
the employer's plan.
MINIMUM DISTRIBUTIONS
Generally, the IRS requires that you begin taking annual distributions from
qualified annuity contracts by April 1 of the calendar year following the later
of (1) the calendar year in which you attain age 70 1/2 or (2) the calendar year
in which you retire. If you own an IRA, you must begin taking distributions when
you attain age 70 1/2, regardless of when you retire. If you own more than one
TSA, you may be permitted to take your annual distributions in any combination
from your TSAs. A similar rule applies if you own more than one IRA. However,
you cannot satisfy this distribution requirement for your TSA contract by taking
a distribution from an IRA, and you cannot satisfy the requirement for your IRA
by taking a distribution from a TSA.
You may be subject to a surrender charge on withdrawals taken to meet minimum
distribution requirements, if the withdrawals exceed the contract's maximum
penalty free amount.
Failure to satisfy the minimum distribution requirements may result in a tax
penalty. You should consult your tax advisor for more information.
You may elect to have the required minimum distribution amount on your contract
calculated and withdrawn each year under the automatic withdrawal option. You
may select either monthly, quarterly, semiannual or annual withdrawals for this
purpose. This service is provided as a courtesy and We do not 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.
35
TAX TREATMENT OF DEATH BENEFITS
Any death benefits paid under the contract are taxable to the Beneficiary. The
rules governing the taxation of payments from an annuity contract, as discussed
above, generally apply whether the death benefits are paid as lump sum or
annuity payments. Estate taxes may also apply.
Certain enhanced death benefits may be purchased under your contract. Although
these types of benefits are used as investment protection and should not give
rise to any adverse tax effects, the IRS could take the position that some or
all of the charges for these death benefits should be treated as a partial
withdrawal from the contract. In such case, the amount of the partial withdrawal
may be includible in taxable income and subject to the 10% penalty if the owner
is under 59 1/2.
If you own a Qualified contract and purchase these enhanced death benefits, the
IRS may consider these benefits "incidental death benefits." The IRC imposes
limits on the amount of the incidental death benefits allowable for Qualified
contracts. If the death benefit(s) selected by you are considered to exceed
these limits, the benefit(s) could result in taxable income to the owner of the
Qualified contract. Furthermore, the IRC provides that the assets of an IRA
(including a Roth IRA) may not be invested in life insurance, but may provide,
in the case of death during the Accumulation Phase, for a death benefit payment
equal to the greater of Purchase Payments or contract value. This contract
offers death benefits, which may exceed the greater of Purchase Payments or
contract value. If the IRS determines that these benefits are providing life
insurance, the contract may not qualify as an IRA (including Roth IRAs). You
should consult your tax adviser regarding these features and benefits prior to
purchasing a contract.
CONTRACTS OWNED BY A TRUST OR CORPORATION
A trust or corporation ("Non-Natural Owner") that is considering purchasing this
contract should consult a tax advisor. Generally, the IRC does not treat a
Non-Qualified contract owned by a non-natural owner as an annuity contract for
Federal income tax purposes. The non-natural owner pays tax currently on the
contract's value in excess of the owner's cost basis. However, this treatment is
not applied to a contract held by a trust or other entity as an agent for a
natural person nor to contracts held by Qualified Plans. See the SAI for a more
detailed discussion of the potential adverse tax consequences associated with
non-natural ownership of a non-qualified annuity contract.
GIFTS, PLEDGES AND/OR ASSIGNMENTS OF A NON-QUALIFIED CONTRACT
If you transfer ownership of your Non-Qualified contract to a person other than
your spouse (or former spouse incident to divorce) as a gift you will pay
federal income tax on the contract's cash value to the extent it exceeds your
cost basis. The recipient's cost basis will be increased by the amount on which
you will pay federal taxes. Also, the IRC treats any assignment or pledge (or
agreement to assign or pledge) of any portion of a Non-Qualified contract as a
withdrawal. See the SAI for a more detailed discussion regarding potential tax
consequences of gifting, assigning or pledging a non-qualified contract.
DIVERSIFICATION AND INVESTOR CONTROL
The IRC imposes certain diversification requirements on the underlying
investments for a variable annuity. We believe that the underlying VARIABLE
PORTFOLIOS' management monitors the VARIABLE PORTFOLIOS so as to comply with
these requirements. To be treated as a variable annuity for tax purposes, the
underlying investments must meet these requirements.
The diversification regulations do not provide guidance as to the circumstances
under which you, and not AIG SunAmerica Life, would be considered the owner of
the shares of the VARIABLE PORTFOLIOS under your Nonqualified Contract, because
of the degree of control you exercise over the underlying investments. This
diversification requirement is sometimes referred to as "investor control." It
is unknown to what extent owners are permitted to select investments, to make
transfers among VARIABLE PORTFOLIOS or the number and type of VARIABLE
PORTFOLIOS owners may select from. If any guidance is provided which is
considered a new
36
position, then the guidance would generally be applied prospectively. However,
if such guidance is considered not to be a new position, it may be applied
retroactively. This would mean you, as the owner of the Nonqualified Contract ,
could be treated as the owner of the underlying VARIABLE PORTFOLIOS. Due to the
uncertainty in this area, We reserve the right to modify the contract in an
attempt to maintain favorable tax treatment.
These investor control limitations generally do not apply to Qualified
Contracts, which are referred to as "Pension Plan Contracts" for purposes of
this rule, although the limitations could be applied to Qualified Contracts in
the future.
PERFORMANCE
- --------------------------------------------------------------------------------
From time to time We will advertise the performance of the VARIABLE PORTFOLIOS.
Any such performance results are based on historical earnings and are not
intended to indicate future performance.
We advertise the Cash Management Portfolio's yield and effective yield. In
addition, the other VARIABLE PORTFOLIOS advertise total return, gross yield and
yield-to-maturity. 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 PORTFOLIOS.
We may show performance of each VARIABLE PORTFOLIOS in comparison to various
appropriate indices and the performance of other similar variable annuity
products with similar objectives as reported by such independent reporting
services as Morningstar, Inc., Lipper Analytical Services, Inc. and the Variable
Annuity Research Data Service ("VARDS").
Please see the Statement of Additional Information, available upon request, for
more information regarding the methods used to calculate performance data.
AIG SunAmerica Life may also advertise the rating and other information assigned
to it by independent industry ratings organizations. Some of those organizations
are A.M. Best Company ("A.M. Best"), Moody's Investor's Service ("Moody's"),
Standard & Poor's Insurance Rating Services ("S&P"), and Fitch Ratings
("Fitch"). A.M. Best's and Moody's ratings reflect their current opinion of Our
financial strength and performance in comparison to others in the life and
health insurance industry. S&P's and Fitch's ratings measure the ability of an
insurance company to meet its obligations under insurance policies it issues.
These two ratings do not measure the insurer's ability to meet non-policy
obligations. Ratings in general do not relate to the performance of the VARIABLE
PORTFOLIOS.
OTHER INFORMATION
- --------------------------------------------------------------------------------
AIG SUNAMERICA LIFE
AIG SunAmerica Life is a stock life insurance company originally organized under
the laws of the state of California in April, 1965. On January 1, 1996, AIG
SunAmerica Life redomesticated under the laws of the state of Arizona.
AIG SunAmerica Life and its affiliates, SunAmerica Life Insurance Company, First
SunAmerica Life Insurance Company, AIG SAAMCo 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.
37
THE SEPARATE ACCOUNT
AIG SunAmerica Life originally established a separate account, Variable Annuity
Account Five (the "Separate Account"), under Arizona law on July 8, 1996. 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 do not
expect the total commissions to exceed 4.5% of your Purchase Payments. We may
also pay an annual trail commission of 1.00%, payable quarterly starting 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
Our affiliates 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., 733 Third Avenue, 4th Floor, New York,
New York 10017 distributes the contracts. AIG SunAmerica Capital Services is an
affiliate of AIG SunAmerica Life, and is a registered as a broker-dealer under
the Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc.
No underwriting fees are paid in connection with the distribution of the
contracts.
ADMINISTRATION
We are responsible for the administrative servicing of your contract. 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.
38
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.
OWNERSHIP
The Seasons Triple Elite Variable Annuity is a Flexible Payment Group Deferred
Annuity contract. We issue a group contract to a contract holder for the benefit
of the participants in the group. As a participant in the group, you will
receive a certificate which evidences your ownership. As used in this
prospectus, the term contract refers to your certificate. In some states, a
Flexible Payment Individual Modified Guaranteed and Variable Deferred Annuity
contract is available instead. Such a contract is identical to the contract
described in this prospectus, with the exception that We issue it directly to
the owner.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of AIG SunAmerica Life Assurance Company
(formerly, Anchor National Life Insurance Company) at December 31, 2002 and 2001
and for each of the three years in the period ended December 31, 2002, and the
financial statements of Variable Annuity Account Five at April 30, 2003, and for
each of the two years in the period ended April 30, 2003, are incorporated
herein by reference in this prospectus in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
A registration statement has been filed with the SEC under the Securities Act of
1933 relating to the contract. This prospectus does not contain all the
information in the registration statement as permitted by SEC regulations. The
omitted information can be obtained from the SEC's principal office in
Washington, D.C., upon payment of a prescribed fee.
39
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............................................ 2
General Account............................................. 2
Performance Data............................................ 3
Annuity Payments............................................ 7
Annuity Unit Values......................................... 7
Taxes....................................................... 10
Distribution of Contracts................................... 14
Financial Statements........................................ 14
</Table>
40
APPENDIX A - MARKET VALUE ADJUSTMENT ("MVA")
- --------------------------------------------------------------------------------
The information in this Appendix applies only if you take money out of a FAGP
(with a duration longer than 1 year) before the end of the guarantee period.
We calculate the MVA by doing a comparison between current rates and the rate
being credited to you in the FAGP. For the current rate We use a rate being
offered by Us for a guarantee period that is equal to the time remaining in the
FAGP from which you seek withdrawal (rounded up to a full number of years). If
We are not currently offering a guarantee period for that period of time, We
determine an applicable rate by using a formula to arrive at a number based on
the interest rates currently offered for the two closest periods available.
Where the MVA is negative, We first deduct the adjustment from any money
remaining in the FAGP. If there is not enough money in the FAGP to meet the
negative deduction, We deduct the remainder from your withdrawal. Where the MVA
is positive, We add the adjustment to your withdrawal amount. If a withdrawal
charge applies, it is deducted before the MVA calculation. The MVA is assessed
on the amount withdrawn less any withdrawal charges.
The MVA is computed by multiplying the amount withdrawn, transferred or taken
under an income option by the following factor:
[[(1+I/(1+J+L)] to the power of 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.
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)] to the power of N/12] - 1
= [[(1.05)/(1.04+0.005)] to the power of 18/12] - 1
= [(1.004785) to the power of 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)] to the power of N/12] - 1
= [[(1.05)/(1.06+0.005)] to the power of 18/12] - 1
= [(0.985915) to the power of 1.5] - 1
= 0.978948 - 1
= - 0.021052
The requested withdrawal amount is multiplied by the MVA factor to determine the
MVA:
$4,000 X (-0.021052) = -$84.21
$84.21 represents the negative MVA that will be deducted from the money
remaining in the 3-year FAGP.
POSITIVE ADJUSTMENT, WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 3.5% and the 3-year FAGP is 4.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 4%. A
withdrawal charge of 6% is reflected in this example, assuming that the Purchase
Payment withdrawn exceeds the free withdrawal amount.
The MVA factor is
= [[(1+I)/(1+J+0.005)] to the power of N/12] - 1
= [[(1.05)/(1.04+0.005)] to the power of 18/12] - 1
= [(1.004785) to the power of 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/(1+J+0.005)] to the power of N/12 ] - 1
= [[(1.05)/(1.06+0.005)] to the power of 18/12 ] - 1
= [(0.985915) to the power of 1.5 ] - 1
= 0.978948 - 1
= - 0.021052
The requested withdrawal amount, less the withdrawal charge ($4,000 -- 6% =
$3,760) is multiplied by the MVA factor to determine the MVA:
$3,760 X (-0.021052) = -$79.16
$79.16 represents the negative MVA that would be deducted from the withdrawal.
A-3
APPENDIX B - DEATH BENEFITS FOLLOWING SPOUSAL CONTINUATION
- --------------------------------------------------------------------------------
The term "Continuation Net Purchase Payment" is used frequently to describe the
death benefit options payable to the beneficiary of a Continuing Spouse. We
define Continuation Net Purchase Payment as Net Purchase Payments made as of the
Continuation Date plus any Purchase Payments recorded after the Continuation
Date; and reduced for any withdrawals recorded after the Continuation Date, in
the same proportion that the withdrawal reduced the contract value on the date
of the withdrawal. 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. All other capitalized terms have
the meanings defined in the glossary and/or prospectus.
STANDARD DEATH BENEFIT PAYABLE UPON CONTINUING SPOUSE'S DEATH
I. If the Standard Death Benefit is applicable upon the Continuing Spouse's
death and a Continuation Contribution was made We will pay the beneficiary
the greater of:
1. Continuation Net Purchase Payments compounded at a 3% annual growth
rate from the Continuation Date until the earlier of age 75 or the
date of death of the Continuing Spouse, plus any Purchase Payments
recorded after the earlier of age 75 or the date of death of the
Continuing Spouse; and reduced for any 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 on the date We receive all required paperwork
and satisfactory proof of death.
II. If the Standard Death Benefit is applicable upon the Continuing Spouse's
death and no Continuation Contributions was made, We will pay the
beneficiary 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 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
withdrawal.
2. The contract value on the date We receive all required paperwork
and satisfactory proof of death.
SEASONS ESTATE ADVANTAGE DEATH BENEFIT PAYABLE UPON CONTINUING SPOUSE'S DEATH
If Seasons Estate Advantage is applicable upon the Continuing Spouse's death, We
will pay the Beneficiary the applicable death benefit under Option 1 or 2.
OPTION 1 - 5% ACCUMULATION:
I. If the 5% Accumulation Option is selected and a Continuation Contribution
was made the death benefit is the greater of:
a. The contract value on the date We receive all required paperwork
and satisfactory proof of the Continuing Spouse's death; or
b. Continuation Net Purchase Payments made from the Continuation 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 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 Continuation Net Purchase Payments.
B-1
II. If 5% Accumulation Option is selected and no Continuation Contribution was
made:
a. The contract value on the date We receive all required paperwork
and satisfactory proof of Continuing Spouse's death; or
b. Net Purchase Payments made from the date of issue 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 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 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 Seasons Estate Advantage.
OPTION 2 - MAXIMUM ANNIVERSARY VALUE:
III. If the Maximum Anniversary Value option is selected and if the Continuing
Spouse is younger than age 90 at the time of death and a Continuation
Contribution was made, the death benefit is the greatest of:
a. Continuation Net Purchase Payments; or
b. The contract value on the date We receive all required paperwork
and 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 but
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 anniversary; and reduced for
any withdrawals recorded after that anniversary, in the same
proportion that the withdrawal reduced the contract value on the
date of the withdrawal.
IV. If the Maximum Anniversary Value option is selected and no Continuation
Contribution was made the death benefit is the greatest of:
a. Net Purchase Payments; or
b. The contract value on the date We receive all required paperwork
and 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 issue date but before the
Continuing Spouse's 81st birthday. The anniversary value equals the
value on the contract anniversary plus any Purchase Payments
recorded after that anniversary; and reduced for any 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 all required paperwork and satisfactory
proof of death. The Continuing Spouse's beneficiary will not receive any benefit
from Seasons Estate Advantage. However, the Continuing Spouse's beneficiary may
still receive a benefit from Earnings Advantage if the date of death is prior to
the latest annuity date.
EARNINGS ADVANTAGE BENEFIT FOR SPOUSAL CONTINUATION:
The Earnings Advantage benefit may increase the death benefit amount. The
Earnings Advantage benefit is only available if the original owner elected
Earnings Advantage 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.
B-2
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
CONTRACT 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 CONTRACT ANNIVERSARY MUST REMAIN IN
THE CONTRACT FOR AT LEAST SIX FULL MONTHS AT THE TIME OF YOUR DEATH TO BE
INCLUDED AS PART OF CONTINUATION NET PURCHASE PAYMENTS FOR PURPOSES OF THE
MAXIMUM EARNINGS ADVANTAGE 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-3
APPENDIX C - HYPOTHETICAL EXAMPLE OF THE OPERATION OF THE INCOME PROTECTOR
- --------------------------------------------------------------------------------
This table assumes a $100,000 initial investment in a Non-qualified contract the
election of the optional Income Protector program at contract issue, with no
withdrawals, additional payments or premium taxes, no election of Seasons Estate
Advantage or Earnings Advantage.
<Table>
- ------------------------------------------------------------------------------------------------
ANNUAL INCOME IF YOU ANNUITIZE ON THE FOLLOWING CONTRACT ANNIVERSARIES:
IF AT ISSUE YOU 10 11 12 15 19 20
ARE . . . 1-9 (AGE 70) (AGE 71) (AGE 72) (AGE 75) (AGE 79) (AGE 80)
- ------------------------------------------------------------------------------------------------
Male (M), Age 60* N/A 6,672 6,864 7,080 7,716 8,616 8,832
- ------------------------------------------------------------------------------------------------
Female (F), Age 60* N/A 5,880 6,060 6,252 6,900 7,860 8,112
- ------------------------------------------------------------------------------------------------
M and F, Age 60** N/A 5,028 5,136 5,244 5,544 5,868 5,928
- ------------------------------------------------------------------------------------------------
</Table>
* Life Annuity with 10 Year Period Certain
** Joint and 100% Survivor Annuity with 20 Year Period Certain
The Income Protector program may not be available in all states. Check with your
financial advisor for availability in your state.
We reserve the right to modify, suspend or terminate the program at any time for
prospectively issued contracts.
C-1
APPENDIX D - CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
<Table>
<Caption>
FISCAL YEAR
STRATEGIES INCEPTION TO 4/30/02 ENDING 4/30/03
- -------------------------------------------------------- -------------------- --------------
- -----------------------------------------------------------------------------------------------------
Growth (Inception Date: 12/10/01)
Beginning AUV......................................... (a) 15.202 14.480
(b) 15.202 14.469
Ending AUV............................................ (a) 14.480 12.807
(b) 14.469 12.731
Ending Number of AUs.................................. (a) 34,143 204,828
(b) 19,273 112,268
- -----------------------------------------------------------------------------------------------------
Moderate Growth (Inception Date: 12/10/01)
Beginning AUV......................................... (a) 14.827 14.158
(b) 14.827 14.125
Ending AUV............................................ (a) 14.158 12.808
(b) 14.125 12.728
Ending Number of AUs.................................. (a) 83,099 378,604
(b) 68,214 371,335
- -----------------------------------------------------------------------------------------------------
Balanced Growth (Inception Date: 12/10/01)
Beginning AUV......................................... (a) 14.159 13.679
(b) 14.159 13.699
Ending AUV............................................ (a) 13.679 12.837
(b) 13.699 12.801
Ending Number of AUs.................................. (a) 91,728 477,296
(b) 64,966 173,393
- -----------------------------------------------------------------------------------------------------
Conservative Growth (Inception Date: 12/10/01)
Beginning AUV......................................... (a) 13.662 13.528
(b) 13.662 13.515
Ending AUV............................................ (a) 13.528 13.111
(b) 13.515 13.046
Ending Number of AUs.................................. (a) 22,358 383,364
(b) 25,766 223,464
- -----------------------------------------------------------------------------------------------------
</Table>
AUV-Accumulation Unit Value
AU-Accumulation Units
(a) Without election of Estate Advantage
(b) With election of Estate Advantage
D-1
<Table>
<Caption>
FISCAL YEAR
FOCUSED PORTFOLIOS INCEPTION TO 4/30/02 ENDING 4/30/03
- -------------------------------------------------------- -------------------- --------------
- -----------------------------------------------------------------------------------------------------
Focus Growth (Inception Date: 12/10/01)
Beginning AUV......................................... (a) 6.898 6.590
(b) 6.898 6.571
Ending AUV............................................ (a) 6.590 5.585
(b) 6.571 5.547
Ending Number of AUs.................................. (a) 12,042 220,869
(b) 16,100 41,931
- -----------------------------------------------------------------------------------------------------
Focus Growth & Income (Inception Date: 12/10/01)
Beginning AUV......................................... (a) 8.377 8.546
(b) 8.377 8.515
Ending AUV............................................ (a) 8.546 7.465
(b) 8.515 7.408
Ending Number of AUs.................................. (a) 3,960 113,993
(b) 10,118 27,407
- -----------------------------------------------------------------------------------------------------
Focus Value (Inception Date: 12/10/01)
Beginning AUV......................................... (a) 11.042 10.687
(b) 11.042 10.654
Ending AUV............................................ (a) 10.687 9.366
(b) 10.654 9.298
Ending Number of AUs.................................. (a) 1,916 103,476
(b) 15,685 50,214
- -----------------------------------------------------------------------------------------------------
Focus TechNet (Inception Date: 12/10/01)
Beginning AUV......................................... (a) 4.447 3.305
(b) 4.447 3.295
Ending AUV............................................ (a) 3.305 2.802
(b) 3.295 2.782
Ending Number of AUs.................................. (a) 18,283 133,469
(b) 13,502 61,135
- -----------------------------------------------------------------------------------------------------
</Table>
AUV-Accumulation Unit Value
AU-Accumulation Units
(a) Without election of Estate Advantage
(b) With election of Estate Advantage
D-2
<Table>
<Caption>
FISCAL YEAR
SELECT PORTFOLIOS INCEPTION TO 4/30/02 ENDING 4/30/03
- -------------------------------------------------------- -------------------- --------------
- -----------------------------------------------------------------------------------------------------
Large-Cap Growth (Inception Date: 12/10/01)
Beginning AUV......................................... (a) 8.809 7.945
(b) 8.809 7.928
Ending AUV............................................ (a) 7.945 6.809
(b) 7.928 6.767
Ending Number of AUs.................................. (a) 13,659 226,901
(b) 9,172 57,652
- -----------------------------------------------------------------------------------------------------
Large-Cap Composite (Inception Date: 12/10/01)
Beginning AUV......................................... (a) 9.427 8.878
(b) 9.427 8.881
Ending AUV............................................ (a) 8.878 7.448
(b) 8.881 7.419
Ending Number of AUs.................................. (a) 1,625 73,580
(b) 4,540 18,823
- -----------------------------------------------------------------------------------------------------
Large-Cap Value (Inception Date: 12/10/01)
Beginning AUV......................................... (a) 11.667 11.035
(b) 11.667 10.998
Ending AUV............................................ (a) 11.035 9.202
(b) 10.998 9.134
Ending Number of AUs.................................. (a) 11,012 234,656
(b) 7,302 56,584
- -----------------------------------------------------------------------------------------------------
Mid-Cap Growth (Inception Date: 12/10/01)
Beginning AUV......................................... (a) 12.464 12.246
(b) 12.464 12.243
Ending AUV............................................ (a) 12.246 10.279
(b) 12.243 10.235
Ending Number of AUs.................................. (a) 6,322 144,167
(b) 5,370 35,880
- -----------------------------------------------------------------------------------------------------
Mid-Cap Value (Inception Date: 12/10/01)
Beginning AUV......................................... (a) 14.322 14.768
(b) 14.322 14.735
Ending AUV............................................ (a) 14.768 12.416
(b) 14.735 12.337
Ending Number of AUs.................................. (a) 3,389 102,439
(b) 5,208 46,297
- -----------------------------------------------------------------------------------------------------
Small-Cap (Inception Date: 12/10/01)
Beginning AUV......................................... (a) 10.301 10.507
(b) 10.301 10.477
Ending AUV............................................ (a) 10.507 8.121
(b) 10.477 8.065
Ending Number of AUs.................................. (a) 5,767 150,877
(b) 5,097 43,578
- -----------------------------------------------------------------------------------------------------
</Table>
AUV-Accumulation Unit Value
AU-Accumulation Units
(a) Without election of Estate Advantage
(b) With election of Estate Advantage
D-3
<Table>
<Caption>
FISCAL YEAR
SELECT PORTFOLIOS INCEPTION TO 4/30/02 ENDING 4/30/03
- -------------------------------------------------------- -------------------- --------------
- -----------------------------------------------------------------------------------------------------
International Equity (Inception Date: 12/10/01)
Beginning AUV......................................... (a) 7.896 7.764
(b) 7.896 7.786
Ending AUV............................................ (a) 7.764 5.826
(b) 7.786 5.820
Ending Number of AUs.................................. (a) 3,862 271,634
(b) 261 22,345
- -----------------------------------------------------------------------------------------------------
Diversified Fixed Income (Inception Date: 12/10/01)
Beginning AUV......................................... (a) 10.767 10.648
(b) 10.767 10.621
Ending AUV............................................ (a) 10.648 11.434
(b) 10.621 11.361
Ending Number of AUs.................................. (a) 6,446 380,308
(b) 1,259 174,520
- -----------------------------------------------------------------------------------------------------
Cash Management (Inception Date: 12/10/01)
Beginning AUV......................................... (a) 10.855 10.856
(b) 10.855 10.829
Ending AUV............................................ (a) 10.856 10.758
(b) 10.829 10.690
Ending Number of AUs.................................. (a) 1,727 285,550
(b) 456 55,443
- -----------------------------------------------------------------------------------------------------
</Table>
AUV-Accumulation Unit Value
AU-Accumulation Units
(a) Without election of Estate Advantage
(b) With election of Estate Advantage
D-4
- --------------------------------------------------------------------------------
Please forward a copy (without charge) to the Seasons Triple Elite 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 Insurance Company, Annuity Service Center, P.O.
Box 52499, Los Angeles, California 90054-0299
- --------------------------------------------------------------------------------
PART II
-------
Information Not Required in Prospectus
Item 14. Other Expenses of Issuance and Distribution.
-------------------------------------------
The following table sets forth the expenses in connection with the issuance
and distribution of the securities being registered, other than underwriting
discounts and commissions. All of the amounts shown are estimates, except the
SEC registration fee.
<Table>
SEC registration fee ................................. $12,135
Printing and engraving ............................... $50,000
Legal fees and expenses .............................. $10,000
Rating agency fees ................................... $ 7,500
Miscellaneous ........................................ $10,000
-------
Total ............................................ $89,635
</Table>
Item 15. Indemnification of Directors and Officers.
------------------------------------------
Section 10-851 of the Arizona Corporations and Associations law permits the
indemnification of directors, officers, employees and agents of Arizona
corporations. Article Eight of the Company's Restated Articles of Incorporation,
as amended and restated (the "Articles") and Article Five of the Company's
By-Laws ("By-Laws") authorize the indemnification of directors and officers to
the full extent required or permitted by the Laws of the State of Arizona, now
or hereafter in force, whether such persons are serving the Company, or, at its
request, any other entity, which indemnification shall include the advance of
expenses under the procedures and to the full extent permitted by law. In
addition, the Company's officers and directors are covered by certain directors'
and officers' liability insurance policies maintained by the Company's parent.
Reference is made to section 10-851 of the Arizona Corporations and Associations
Law, Article Eight of the Articles, and Article Five of the By-Laws, which are
incorporated herein by reference.
Item 16. Exhibits and Financial Statement Schedules.
-------------------------------------------
<Table>
<Caption>
Exhibit
No. Description
(1) Underwriting Agreement V
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession **
(3) (a) Amended Articles of Incorporation Dated
September 30, 2002 ++++
(b) Articles of Incorporation +
(c) By-Laws +
(4) (a) Vista Capital Advantage Fixed and Variable Contract ***
(b) Application for Contract ***
(5) Opinion of Counsel re: Legality +++
(6) Opinion re Discount on Capital Shares **
(7) Opinion re Liquidation Preference **
(8) Opinion re Tax Matters **
(9) Voting Trust Agreement **
(10) Material Contracts **
(11) Statement re Computation of Per Share Earnings **
(12) Statement re Computation of Ratios **
(14) Material Foreign Patents **
(15) Letter re Unaudited Financial Information **
(16) Letter re Change in Certifying Accountant **
(21) Subsidiaries of Registrant ***
(23) (a) Consent of Independent Accountants *
(b) Consent of Attorney ***
(24) Powers of Attorney
(a) February 2003 +++
(b) December, 2003 VI
(25) Statement of Eligibility of Trustee **
(26) Invitation for Competitive Bids **
(27) Financial Data Schedule ****
(28) Information Reports Furnished to State Insurance
Regulatory Authority **
(29) Other Exhibits **
</Table>
* Filed Herewith
** Not Applicable
*** Incorporated by Reference to Post-Effective Amendment No. 3 to
Registration Statement No. 33-81476 on Form S-1 filed on 12-24-97.
**** Incorporated by Reference to Post-Effective Amendment No. 5 to
Registration Statement No. 33-81476 on Form S-1 filed on 12-24-98.
+ Incorporated by Reference to Post-Effective Amendment 17 to Registration
Statement No. 33-81476 on Form S-3 filed on September 20, 2002,
accession number 0000950148-02-002275.
++ Incorporated by Reference to Initial Registration Statement No.
333-102092 on Form S-3 filed on December 20, 2002, Accession Number
000095014-03-000424.
+++ Incorporated by Reference to Initial Registration Statement No.
333-103504 on Form S-3 filed on February 28, 2003, Accession No.
0000950148-03-000424.
++++ Incorporated by Reference to Post-Effective Amendment No. 1 to
Registration Statement No. 333-103504 on Form S-3 filed May 1, 2003,
Accession No. 0000950148-03-001099.
V Incorporated by Reference to Form N-14AE Registration Statement No.
333-108115 filed on August 21, 2003, Accession No. 0000
1206774-03-000644.
VI Incorporated by Reference to Post-Effective Amendment No. 3 to
Registration Statement No. 333-103504 on Form S-3 filed December 8,
2003, Accession No. 0000950148-03-002850.
Item 17. Undertakings.
------------
The undersigned registrant, AIG SunAmerica Life, hereby
undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement
to include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 and, where applicable, each
filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide
offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this
Post-Effective Amendment 4 to the Registration Statement File No. 333-103504 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Los Angeles, State of California on this 22nd 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 22, 2004
- ----------------------- and Director
Jay S. Wintrob (Principal Executive Officer)
JAMES R. BELARDI* Director April 22, 2004
- -----------------------
James R. Belardi
MARC H. GAMSIN* Director April 22, 2004
- -----------------------
Marc H. Gamsin
N. SCOTT GILLIS* Senior Vice President, Chief April 22, 2004
- ----------------------- Financial Officer and Director
N. Scott Gillis (Principal Financial Officer)
JANA W. GREER* Director April 22, 2004
- -----------------------
Jana W. Greer
STEWART R. POLAKOV* Senior Vice President and April 22, 2004
- ----------------------- Controller
Stewart R. Polakov (Principal Accounting Officer)
*/s/ MALLARY L. REZNIK Attorney-in-Fact April 22, 2004
- -----------------------
Mallary L. Reznik
EXHIBIT INDEX
Number Description
- ------ -----------
23(a) Consent of Independent Accountants