As filed pursuant to Rule 424(B)(3)
under the Securities Act of
1933 Registration No.
333-107162
AIG SUNAMERICA LIFE ASSURANCE COMPANY
- --------------------------------------------------------------------------------
VARIABLE ANNUITY ACCOUNT FIVE
SUPPLEMENT TO THE
SEASONS VARIABLE ANNUITY (J-1580-PRO (R-7/03))
PROSPECTUS DATED JULY 29, 2003
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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.
Dated: May 3, 2004
Please Keep this Supplement with your Prospectus
[SEASONS LOGO]
PROSPECTUS
ALLOCATED FIXED AND VARIABLE GROUP ANNUITY
issued by
VARIABLE ANNUITY ACCOUNT FIVE
and
AIG SUNAMERICA LIFE ASSURANCE COMPANY
July 29, 2003
The annuity contract has several investment choices - fixed account options
which offer interest rates guaranteed by AIG SunAmerica Life for different
periods of time and Variable Portfolios:
GROWTH
MODERATE GROWTH
BALANCED GROWTH
CONSERVATIVE GROWTH
which invest in the underlying portfolios of
SEASONS SERIES TRUST
which is managed by:
PUTNAM INVESTMENT MANAGEMENT, INC.
T. ROWE PRICE ASSOCIATES, INC.
JANUS CAPITAL MANAGEMENT LLC.
AIG SUNAMERICA ASSET MANAGEMENT CORP.
WELLINGTON MANAGEMENT COMPANY, LLP
You can put your money into any one or all of the Variable Portfolios and/or
fixed account 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 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 July 29, 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 on March 1, 2003. Please keep in mind, this is a name change
only and will not affect the substance of your contract.
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE
AIG SunAmerica Life's Annual Report on Form 10-K for the year ended December 31,
2002, file no. 033-47472 is incorporated herein by reference.
All documents or reports filed by AIG SunAmerica Life under Section 13(a),
13(c), 14, or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") after the effective date of this prospectus are also
incorporated by reference. Statements contained in this prospectus and
subsequently filed documents which are incorporated by reference or deemed to be
incorporated by reference are deemed to modify or supersede documents
incorporated herein by reference.
AIG SunAmerica Life files its Exchange Act documents and reports, including its
annual and quarterly reports on Form 10-K and Form 10-Q, electronically pursuant
to EDGAR under CIK No. 0000006342.
AIG SunAmerica Life is subject to the informational requirements of the
Securities and Exchange Act of 1934 (as amended). We file reports and other
information with the SEC to meet those requirements. You can inspect and copy
this information at SEC public facilities at the following locations:
WASHINGTON, DISTRICT OF COLUMBIA
450 Fifth Street, N.W., Room 1024
Washington, D.C. 20549
CHICAGO, ILLINOIS
500 West Madison Street
Chicago, IL 60661
NEW YORK, NEW YORK
233 Broadway
New York, NY 10279
To obtain copies by mail contact the Washington, D.C. location. After you pay
the fees as prescribed by the rules and regulations of the SEC, the required
documents are mailed.
Registration statements under the Securities Act of 1933, as amended, related to
the contracts offered by this prospectus are on file with the SEC. This
prospectus does not contain all of the information contained in the registration
statements and exhibits. For further information regarding the Separate Account,
AIG SunAmerica Life and its general account, the 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 Life Assurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
Telephone Number: (800) 445-SUN2
SECURITIES AND EXCHANGE
COMMISSION POSITION ON
INDEMNIFICATION
Indemnification for liabilities arising under the Securities Act of 1933 (the
"Act") is provided to AIG SunAmerica Life's officers, directors and controlling
persons. The SEC has advised that it believes such indemnification is against
public policy under the Act and unenforceable. If a claim for indemnification
against such liabilities (other than for AIG SunAmerica Life's payment of
expenses incurred or paid by its directors, officers or controlling persons in
the successful defense of any legal action) is asserted by a director, officer
or controlling person of AIG SunAmerica Life in connection with the securities
registered under this prospectus, AIG SunAmerica Life will submit to a court
with jurisdiction to determine whether the indemnification is against public
policy under the Act. AIG SunAmerica Life will be governed by final judgment of
the issue. However, if in the opinion of AIG SunAmerica Life's counsel this
issue has been determined by controlling precedent, AIG SunAmerica Life will not
submit the issue to a court for determination.
2
TABLE OF CONTENTS
<Table>
GLOSSARY.................................................... 4
HIGHLIGHTS.................................................. 5
FEE TABLES.................................................. 6
Owner Transaction Expenses.............................. 6
Annual Separate Account Expenses........................ 6
Investment Portfolio Expenses........................... 6
EXAMPLES.................................................... 7
THE SEASONS VARIABLE ANNUITY................................ 8
PURCHASING A SEASONS VARIABLE ANNUITY....................... 9
Allocation of Purchase Payments......................... 9
Accumulation Units...................................... 9
Free Look............................................... 10
Exchange Offers......................................... 10
INVESTMENT OPTIONS.......................................... 10
Variable Investment Options............................. 10
The STRATEGIES........................................ 10
STRATEGY Rebalancing.................................. 13
Fixed Account Options................................... 13
Transfers During the Accumulation Phase................. 14
Dollar Cost Averaging................................... 15
Principal Advantage Program............................. 16
Voting Rights........................................... 16
Substitution............................................ 16
ACCESS TO YOUR MONEY........................................ 17
Systematic Withdrawal Program........................... 18
Minimum Contract Value.................................. 18
Qualified Contract Owners............................... 18
DEATH BENEFIT............................................... 18
Death of the Annuitant.................................. 19
EXPENSES.................................................... 19
Withdrawal Charges...................................... 19
Investment Charges...................................... 20
Contract Maintenance Fee................................ 20
Transfer Fee............................................ 20
Premium Tax............................................. 20
Income Taxes............................................ 20
Reduction or Elimination of Charges and Expenses and
Additional Amounts Credited............................ 20
INCOME OPTIONS.............................................. 21
Annuity Date............................................ 21
Income Options.......................................... 21
Allocation of Income Payments........................... 22
Fixed or Variable Income Payments....................... 22
Income Payments......................................... 22
Transfers During the Income Phase....................... 23
Deferment of Payments................................... 23
TAXES....................................................... 23
Annuity Contracts in General............................ 23
Tax Treatment of Distributions--Non-qualified
Contracts.............................................. 23
Tax Treatment of Distributions--Qualified Contracts..... 24
Minimum Distributions................................... 24
Tax Treatment of Death Benefits......................... 25
Diversification......................................... 25
PERFORMANCE................................................. 26
OTHER INFORMATION........................................... 26
AIG SunAmerica Life..................................... 26
The Separate Account.................................... 26
The General Account..................................... 27
Distribution of the Contract............................ 27
Administration.......................................... 27
Legal Proceedings....................................... 28
INDEPENDENT ACCOUNTANTS..................................... 28
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.... 29
APPENDIX A--CONDENSED FINANCIALS............................ A-1
APPENDIX B--MARKET VALUE ADJUSTMENT......................... B-1
</Table>
3
GLOSSARY
We have capitalized some of the technical terms used in this prospectus. To help
you understand these terms, we define them in this glossary.
ACCUMULATION PHASE--The period during which you invest money in your contract.
ACCUMULATION UNITS--A measurement we use to calculate the value of the variable
portion of your contract during the Accumulation Phase.
ANNUITANT(S)--The person(s) on whose life (lives) we base annuity payments.
ANNUITY DATE--The date on which annuity payments are to begin, as selected by
you.
ANNUITY UNITS--A measurement we use to calculate the amount of annuity payments
you receive from the variable portion of your contract during the Income Phase.
BENEFICIARY (IES)--The person(s) designated to receive any benefits under the
contract if you or the Annuitant dies.
COMPANY--AIG SunAmerica Life Assurance Company, AIG SunAmerica Life, We, Us, the
insurer which issues this policy.
INCOME PHASE--The period during which we make annuity payments to you.
IRS--The Internal Revenue Service.
LATEST ANNUITY DATE--Your 90th birthday or tenth contract anniversary, whichever
is later.
NON-QUALIFIED (CONTRACT)--A contract purchased with after-tax dollars. In
general, these contracts are not under any pension plan, specially sponsored
program or individual retirement account ("IRA").
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").
STRATEGIES--A sub-account of Variable Annuity Account Five which provides for
the variable investment options available under the contract. Each STRATEGY has
its own investment objective and is invested in the underlying investment
portfolios of the Seasons Series Trust.
4
AIG SUNAMERICA LIFE OFFERS SEVERAL DIFFERENT VARIABLE ANNUITY PRODUCTS TO MEET
THE DIVERSE NEEDS OF OUR INVESTORS. EACH PRODUCT MAY PROVIDE DIFFERENT FEATURES
AND BENEFITS AND CORRESPONDINGLY 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.
HIGHLIGHTS
- --------------------------------------------------------------------------------
The Seasons Variable Annuity is a contract between you and AIG SunAmerica Life
Assurance Company ("AIG SunAmerica"). 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 any combination of the four pre-allocated 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: If you cancel your contract within 10 days after receiving it (or
whatever period is required in your state), we will cancel the contract without
charging a withdrawal charge. Your will receive whatever your contract is worth
on the day that we receive your request. This amount may be more or less than
your original Purchase Payment. We will return your original Purchase Payment if
required by law. Please see PURCHASING A SEASONS 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
1.40% 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. 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,
withdrawals charges no longer apply to that portion of the Purchase Payment.
Please see the FEE TABLE, PURCHASING A SEASONS 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.
PLEASE READ THE PROSPECTUS CAREFULLY FOR MORE DETAILED INFORMATION REGARDING
THESE AND OTHER FEATURES AND BENEFITS OF THE CONTRACT, AS WELL AS THE RISKS OF
INVESTING.
5
FEE TABLES
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THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY AT THE TIME THAT
YOU TRANSFER CASH VALUE BETWEEN INVESTMENT OPTIONS OR SURRENDER THE CONTRACT. IF
APPLICABLE, YOU MAY ALSO BE SUBJECT TO STATE PREMIUM TAXES.
MAXIMUM OWNER TRANSACTION EXPENSES
<Table>
WITHDRAWAL CHARGES
(as a percentage of each Purchase Payment)(1)... 7%
</Table>
- ---------------
<Table>
(1) Withdrawal Charge Schedule
(as a percentage of each Purchase Payment)
Years:.............. 1 2 3 4 5 6 7 8+
7% 6% 6% 5% 4% 3% 2% 0%
</Table>
TRANSFER FEE
No charge for the first 4 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.............. 1.25%
Distribution Expense Charge.................. 0.15%
-----
Total Separate Account Annual Expenses....... 1.40%
</Table>
THE NEXT ITEM SHOWS THE MINIMUM AND MAXIMUM TOTAL OPERATING EXPENSES CHARGED BY
THE UNDERLYING PORTFOLIO OF THE TRUST BEFORE ANY WAIVER OR REIMBURSEMENTS. MORE
DETAIL CONCERNING TRUST'S FEES AND EXPENSES IS CONTAINED IN THE ATTACHED TRUST
PROSPECTUS. PLEASE READ IT CAREFULLY BEFORE INVESTING.
PORTFOLIO EXPENSES
<Table>
<Caption>
TOTAL ANNUAL TRUST OPERATING EXPENSES MINIMUM MAXIMUM
- ------------------------------------- ------- -------
(expenses that are deducted from
underlying portfolios of the Trust,
including management fees, other
expenses and 12b-1 fees, if
applicable)....................... 0.96% 1.02%
</Table>
6
MAXIMUM AND MINIMUM EXPENSE EXAMPLES
- --------------------------------------------------------------------------------
These Examples are intended to help you compare the cost of investing in the
contract with the cost of investing in other variable annuity contracts. These
costs include owner transaction expenses, contract maintenance fee, separate
account annual expenses and expenses for the underlying portfolios of the Trust.
The Examples assumes 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 1.40% and investment in an
underlying portfolio with total expenses of 1.02%)
(1) If you surrender your contract at the end of the applicable time period:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$950 $1,370 $1,716 $2,806
</Table>
(2) If you do not surrender your contract:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$250 $770 $1,316 $2,806
</Table>
(3) If you annuitize your contract:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$245 $755 $1,291 $2,756
</Table>
MINIMUM EXPENSE EXAMPLES
(assuming minimum separate account annual expenses of 1.40% and investment in an
underlying portfolio with total expenses of 0.96%)
(1) If you surrender your contract at the end of the applicable time period:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$944 $1,351 $1,685 $2,746
</Table>
(2) If you do not surrender your contract:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$244 $751 $1,285 $2,746
</Table>
(3) If you annuitize your contract:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$239 $736 $1,260 $2,696
</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. We converted the
contract administration fee to a percentage (0.05%). The actual impact of the
administration charge may differ from the percentage and may be waived for
contract values over $50,000. The Examples assume separate account expenses
as indicated and that no transfer fees were imposed. Premium taxes are not
reflected but may be applicable. Additional information on the portfolio
company fees can be found in the Trust prospectus located behind this
prospectus.
2. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Condensed financials appear in Appendix A of this prospectus.
7
THE SEASONS VARIABLE ANNUITY
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An annuity is a contract between you and an insurance company. You are the owner
of the contract. The contract provides three main benefits:
- Tax Deferral: 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 advisor.
This annuity was developed to help you contribute to your retirement savings.
The flexibility and diversification offered by this annuity can help you reach
your retirement savings goals. 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 Portfolios which, like mutual funds, vary with market conditions. You
can gain or lose money if you invest in these Variable Portfolios. If you
allocate money to the 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 are invested.
For more information on Seasons Variable Portfolios and fixed account options
available under this contract, SEE INVESTMENT OPTIONS BELOW.
AIG SunAmerica Life Assurance Company (AIG SunAmerica Life, The Company, Us, We)
issues the Seasons Variable Annuity. When you purchase a Seasons 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.
This annuity is designed for investors whose personal circumstances allow for a
long-term investment time horizon, to assist in contributing to retirement
savings. As a function of the federal tax code you may be assessed a 10% federal
tax penalty on any withdrawal made prior to your reaching age 59 1/2.
Additionally, this contract provides that you will be charged a withdrawal
charge on each Purchase Payment withdrawn if that Purchase Payment has not been
invested in this contract for at least 7 years. Because of these potential
penalties, you should fully discuss all of the benefits and risks of this
contract with your financial adviser prior to purchase. This variable annuity
may not be available for sale in your state. Please check with your financial
advisor regarding availability.
8
PURCHASING A SEASONS VARIABLE ANNUITY
- --------------------------------------------------------------------------------
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 a contract is Qualified
or Non-qualified for tax purposes.
<Table>
<Caption>
MINIMUM
MINIMUM INITIAL SUBSEQUENT
PURCHASE PAYMENT PURCHASE PAYMENT
---------------- ----------------
Qualified $2,000 $500
Non-qualified $5,000 $500
</Table>
We reserve the right to require Company approval prior to accepting Purchase
Payments greater than $1,000,000. For contracts owned by a non-natural owner, we
reserve the right to require prior Company approval to accept Purchase Payments
greater than $250,000. Subsequent Purchase Payments that would cause total
Purchase Payments in all contracts issued by the Company to the same owner to
exceed these limits may also be subject to company pre-approval. We reserve the
right to change the amount at which pre-approval is required, at any time. Also,
once you have contributed at least the minimum initial Purchase Payment, you can
establish an optional automatic payment plan that allows you to make subsequent
Purchase Payments of as little as $50.
We may refuse any Purchase Payment. In general, we will not issue a contract to
anyone who is age 70 1/2 or older, unless they certify to us that the minimum
distribution required by the IRS is being made. In addition, we may not issue a
contract to anyone over age 90.
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.
This contract is no longer available for purchase by new policyowners.
ALLOCATION OF PURCHASE PAYMENTS
We invest your Purchase Payments in the fixed accounts and 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 credited based upon the
Accumulation Unit Value (AUV) next determined after receipt. SEE INVESTMENT
OPTIONS BELOW.
In order to issue your contract, we must receive your completed application,
Purchase Payment allocation instructions and any other required paper work at
our Annuity Service Center. We allocate your initial Purchase Payment within two
days of receiving it. If we do not have complete information necessary to issue
your contract, we will contact you. If we do not have the information necessary
to issue your contract within 5 business days, we will send your money back to
you, or ask your permission to keep your money until we get the information
necessary to issue the contract.
ACCUMULATION UNITS
The value of the variable portion of your contract will go up or down depending
upon the investment performance of the Variable 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. We base the number of Annuity Units you
receive on the unit value of the Variable Portfolios 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.
9
An Accumulation Unit value is determined each day that the New York Stock
Exchange ("NYSE") is open. 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.
The value of an Accumulation Unit may go up or down from day to day. When you
make a Purchase Payment, we credit your contract with Accumulation Units. The
number of Accumulation Units credited is determined by dividing the amount of
the Purchase Payment allocated to a Variable Portfolio by the value of the
Accumulation Unit for that STRATEGY.
EXAMPLE:
We receive a $25,000 Purchase Payment from you on Wednesday. You want your
money to be invested in the Moderate Growth STRATEGY. We determine that the
value of an Accumulation Unit for the Moderate Growth STRATEGY 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 2,252.252 Accumulation Units
for the Moderate Growth STRATEGY.
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. Unless otherwise required by
state law, you will receive back the value of the money allocated to the
Variable Portfolios on the day we receive your request plus any Purchase Payment
in the fixed account options. This value may be more or less than the money you
initially invested. Thus, the investment risk is borne by you during the free
look period.
Certain states (and under all contracts issued as IRAs) require us to return
your Purchase Payments upon a free look request. With respect to those
contracts, we reserve the right to put your money in the 1-year fixed account
option during the free look period. If 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 reallocate 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
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VARIABLE PORTFOLIOS
The contract offers Variable Portfolios which we call Strategies and fixed
account options. We designed the contract to meet your varying investment needs
over time.
STRATEGIES
The contract offers multi-manager variable investment Strategies, each with a
different investment objective. We designed the Strategies to meet your
investment needs over time, considering factors such as your age, goals and risk
tolerance. However, each Strategy is designed to achieve different levels of
growth over time.
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Each Strategy invests in three of the six underlying investment portfolios of
the Seasons Series Trust. The allocation of money among these investment
portfolios varies depending on the objective of the Strategy.
AIG SunAmerica Asset Management Corp. ("AIG SAAMCo"), which is affiliated with
AIG SunAmerica Life manages Seasons Series Trust. AIG SAAMCo engaged
sub-advisers to provide investment advice for certain investment portfolios.
The underlying investment portfolios of Seasons Series Trust 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"). Seasons
Series Trust contains other underlying investment portfolios in addition to
those listed here which are not available for investment under this contract.
The Asset Allocation: Diversified Growth Portfolio is managed by Putnam
Investment Management, Inc. The Stock Portfolio is managed by T. Rowe Price
Associates, Inc. All of the Multi-Managed Portfolios include the same three
basic investment components: a growth component managed by Janus Capital
Management LLC., a balanced component managed by AIG SAAMCo and a fixed income
component managed by Wellington Management Company, LLP. The Growth Strategy and
the Moderate Growth Strategy also have an aggressive growth component which AIG
SAAMCo manages. The percentage that any one of these components represents in
the Multi-Managed Portfolio varies in accordance with the investment objective.
YOU SHOULD READ THE PROSPECTUS FOR SEASONS SERIES TRUST CAREFULLY BEFORE
INVESTING. THE TRUST PROSPECTUS CONTAINS DETAILED INFORMATION ABOUT THE
INVESTMENT PORTFOLIOS AND IS ATTACHED TO THIS PROSPECTUS.
Each Strategy uses an investment approach based on asset allocation. This
approach is achieved by each 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 Strategy has a neutral asset
allocation mix of stocks, bonds and cash. At the beginning of each quarter a
rebalancing occurs among the underlying funds to realign each 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 Strategy.
The pie charts on the following pages demonstrate:
- the neutral asset allocation mix for each Strategy; and
- the percentage allocation in which each Strategy invests.
11
<Table>
GROWTH STRATEGY MODERATE GROWTH STRATEGY
GOAL: Long-term growth of capital, allocating its assets GOAL: Growth of capital through investments in equities,
primarily to stocks. This Strategy may be best suited for with a secondary objective of conservation of principal by
those with longer periods to invest. allocating more of its assets to bonds than the Growth
Strategy. This Strategy may be best suited for those nearing
Target Asset Allocation: retirement years but still earning income.
Stocks 80% Bonds 15% Cash 5% Target Asset Allocation:
[GROWTH CHART] Stocks 70% Bonds 25% Cash 5%
[MODERATE GROWTH CHART]
</Table>
<Table>
BALANCED GROWTH STRATEGY CONSERVATIVE GROWTH STRATEGY
GOAL: Focuses on conservation of principal by investing GOAL: Capital preservation while maintaining some
in a more balanced weighting of stocks and bonds, with a potential for growth over the long term. This Strategy may be
secondary objective of seeking a high total return. This best suited for those with lower investment risk tolerance.
Strategy may be best suited for those approaching retirement
and with less tolerance for investment risk. Target Asset Allocation:
Target Asset Allocation: Stocks 42% Bonds 53% Cash 5%
Stocks 55% Bonds 40% Cash 5% [CONSERVATIVE GROWTH CHART]
[BALANCED GROWTH CHART]
</Table>
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STRATEGY REBALANCING
Each Strategy is designed to meet its investment objective by allocating a
portion of your money to three different investment portfolios. In order to
maintain the mix of investment portfolios consistent with each Strategy's
objective, each Strategy within your contract will be rebalanced each quarter.
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
Strategy more frequently if rebalancing is, deemed necessary and not adverse to
the interests of contract owners invested in such Strategy. Rebalancing a
Strategy may involve shifting a portion of assets out of underlying investment
portfolios with higher returns into underlying investment portfolios with
relatively lower returns. Transfers made as a result of rebalancing a Strategy
are not counted against your four free transfers per year.
FIXED ACCOUNT OPTIONS
Your contract may offer Fixed Account Guarantee Periods ("FAGP") to which you
may allocate certain Purchase Payments or contract value. Available guarantee
periods may be for different lengths of time (such as 1, 3 or 5 years) and may
have different guaranteed interest rates, as noted below. We guarantee the
interest rate credited to amounts allocated to any available FAGP and that the
rate will never be less than the minimum guaranteed interest rate as specified
in your contract. Once established, the rates for specified payments do not
change during the guarantee period. We determine the FAGPs offered at any time
in Our sole discretion and We reserve the right to change the FAGPs that We make
available at any time, unless state law requires Us to do otherwise. Please
check with your financial representative to learn if any FAGPs are currently
offered.
There are three interest rate scenarios for money allocated to the FAGPs. Each
of these rates may differ from one another. Once declared, the applicable rate
is guaranteed until the corresponding guarantee period expires. Under each
scenario your money may be credited a different rate of interest as follows:
- INITIAL RATE: The rate credited to any portion of the initial Purchase
Payment allocated to a FAGP.
- CURRENT RATE: The rate credited to any portion of the subsequent Purchase
Payments allocated to a FAGP.
- RENEWAL RATE: The rate credited to money transferred from a FAGP or a
Variable Portfolio into a FAGP and to money remaining in a FAGP after
expiration of a guarantee period.
When a FAGP ends, you may leave your money in the same FAGP or you may
reallocate your money to another FAGP or to the VARIABLE PORTFOLIOS. If you want
to reallocate your money, you must contact Us within 30 days after the end of
the current interest guarantee period and instruct Us as to where you would like
the money invested. We do not contact you. If We do not hear from you, your
money will remain in the same FAGP where it will earn interest at the renewal
rate then in effect for that FAGP.
If you take money out of any available multi-year FAGP before the end of the
guarantee period, We make an adjustment to your contract. We refer to the
adjustment as a market value adjustment ("MVA"). The MVA reflects any difference
in the interest rate environment between the time you place your money in the
FAGP and the time when you withdraw or transfer that money. This adjustment can
increase or decrease your contract value. Generally, if interest rates drop
between the time you put your money into a FAGP and the time you take it out, We
credit a positive adjustment to your contract. Conversely, if interest rates
increase during the same period, We post a negative adjustment to your contract.
You have 30 days after the end of each guarantee period to reallocate your funds
without incurring any MVA. APPENDIX B SHOWS HOW WE CALCULATE AND APPLY THE MVA.
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 4 free transfers per contract year
and are not subject to a market value adjustment. You may change or terminate
these systematic transfers by contacting Our Annuity Service Center.
13
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
Dollar Cost Averaging Fixed Accounts ("DCAFA"). The rules, restrictions and
operation of 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 DCAFAs, 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 the fixed account options. Funds already in your contract
cannot be transferred into the DCAFAs. You must transfer at least $500. If less
than $500 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 4 free
transfers per contract per year. We charge $25 ($10 in Pennsylvania and Texas)
for each additional transfer in any 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 or
fraudulent instructions.
This product is not designed for professional "market timing" organizations or
other organizations or individuals engaged in trading Variable Portfolios 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 Variable Portfolios 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
Variable Portfolio, 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 12 transfers per contract year must be
submitted in writing by U.S. mail. Transfer requests sent by same day mail,
overnight mail or courier services will not be accepted. We will process any
transfer request as of the day we receive it, if received before close of the
New York Stock Exchange ("NYSE"). 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.
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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
Variable Portfolio or is potentially harmful to other policy owners. Some of the
factors we will consider include:
- the dollar amount of the transfer;
- the total assets of the Variable Portfolio involved in the transfer;
- the number of transfers completed in the current calendar quarter; or
- whether the transfer is part of a pattern of transfers to take advantage
of short-term market fluctuations or market inefficiencies.
For information regarding transfers during the Income Phase, SEE INCOME OPTIONS
BELOW.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND, WAIVE OR TERMINATE THESE TRANSFER
PROVISIONS AT ANY TIME.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging ("DCA") Program allows you to systematically transfer
a set percentage or amount from any Variable Portfolio or the one year fixed
account option (we call these source accounts) to another Variable Portfolio.
You can also select to transfer the entire value in a Variable Portfolio or the
one year fixed investment option in a stated number of transfers. Transfers may
occur on such periodic schedules such as monthly or weekly. You can change the
amount or frequency to available options at any time by notifying us in writing.
The minimum transfer amount is $500, unless you use the DCAFAs (see below).
Fixed Account options are not available as target accounts for the DCA program.
We may also offer DCAFAs for a specified time period exclusively to facilitate
this program. If you elect to participate in the Seasons Rewards Program, DCAFAs
are not available under your contract. The DCAFAs only accept new Purchase
Payments. You cannot transfer money already in your contract into these options.
If you allocate a Purchase Payment into DCAFAs, we transfer all your money
allocated to that account into the Variable Portfolios you select over the
selected time period at an offered frequency of your choosing. The minimum
transfer amount if you use DCAFAs is $500.
For example, let's say you allocate $1,000 to a DCAFA and you select monthly
transfers, we completely transfer all of your money to the selected Variable
Portfolios over a period of ten months.
You may terminate your 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. Transfers under this program do not count against
your four free transfers per year.
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.
15
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
Conservative Growth Strategy to the Growth Strategy over six months. You
set up dollar cost averaging and purchase Accumulation Units at the
following values:
<Table>
<Caption>
MONTHS 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.
PRINCIPAL ADVANTAGE PROGRAM
The Principal Advantage Program allows you to invest in one or more Strategy
without putting the amount of your principal at direct risk. The program
accomplishes this by allocating your investment strategically between the fixed
account options and Strategy. You decide how much you want to invest and
approximately when you want a return of principal. We calculate how much of your
Purchase Payment needs to be allocated to the particular fixed 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 Strategy of your
choice. Currently, there is no change to participate in this program.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to allocate a portion of your initial Purchase Payment
of $100,000 to the fixed account option. You want the amount allocated to
the fixed account option to grow to $100,000 in 7 years. If the 7-year
fixed account option is offering a 5% interest rate, we will allocate
$71,069 to the 7-year fixed account option to ensure that this amount will
grow to $100,000 at the end of the 7-year period. The remaining $28,931 may
be allocated among the Strategy, 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 the underlying investment portfolios of the Seasons Series Trust
solicit 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 Portfolios. We may move assets and/or re-direct future
premium allocations from one Variable Portfolios to another if we receive
investor approval through a proxy vote or SEC approval for a fund substitution.
This would occur if a Variable Portfolios is no longer an appropriate investment
for the contract, for
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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 Portfolios offered may have different fees and
expenses. You will be notified of any upcoming proxies or substitutions that
affect your Variable Portfolios choices.
ACCESS TO YOUR MONEY
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You can access money in your contract 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 market value adjustment if a withdrawal comes from the 3, 5, 7
or 10 year fixed account options. If you withdraw your entire contract value, we
also deduct any applicable premium taxes and a contract maintenance fee. SEE
EXPENSES BELOW.
Your contract provides for a free withdrawal amount each year. A free withdrawal
amount is the portion of your account that we allow you to take out each year
without being charged a surrender penalty. However, upon a future full surrender
of your contract we will recoup any surrender charges which would have been due
at the time the free withdrawals were taken if your free withdrawal had not been
free.
Generally, each contract year you may withdraw up to 10% of your Purchase
Payments which are subject to a withdrawal charge free of any withdrawal charge.
This is the free withdrawal amount.
Purchase payments, above and beyond the amount of your free withdrawal amount,
that are invested for less than 7 years and withdrawn 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. You should consider, before purchasing
this contract, the effect this charge will have on your investment if you need
to withdraw more money than the free withdrawal amount. You should fully discuss
this decision with your financial advisor.
The withdrawal charge percentage 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 and year 3, you take out
your maximum free withdrawal of $10,000 for each year. After that free
withdrawal your contract value is $80,000. In contract year 5 you request a full
surrender of your contract. We will apply the following calculation,
A - (B X C) = D, where:
A = Your contract value at the time of your request for surrender ($80,000)
B = The amount of your 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 ($74,000)
We calculate charges due on a total withdrawal on the day after we receive your
request and your contract. We return your contract value less any applicable
fees and charges.
Under most circumstances, the minimum partial withdrawals amount is $1,000. We
require that the value left in any STRATEGY 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 STRATEGY and fixed account option in which your contract
is invested.
Washington residents should consult their financial adviser for additional
information.
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.
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Additionally, we reserve the right to defer payments for a withdrawal from a
fixed account option. Such deferrals are limited to six months.
SYSTEMATIC WITHDRAWAL PROGRAM
If you elect, we use money in your contract to pay you monthly, quarterly,
semi-annual or annual payments during the Accumulation Phase. Electronic
transfer of these funds to your bank account is also available. The minimum
amount of each withdrawal is $250. There must be at least $500 remaining in your
contract at all times. Withdrawals may be taxable and a 10% IRS tax penalty may
apply if you are under age 59 1/2. Any withdrawals you make using this program
count against your free withdrawal amount as described above. Withdrawals in
excess of the free withdrawal amount may incur a withdrawal charge. There is no
additional charge for participating in this program.
The program is not available to everyone. Please check with our Annuity Service
Center, which can provide the necessary enrollment forms. We reserve the right
to modify, suspend or terminate this program at any time.
WITHDRAWAL CHARGES, MARKET VALUE ADJUSTMENTS, INCOME TAXES, TAX PENALTIES AND
CERTAIN RESTRICTIONS MAY APPLY TO ANY WITHDRAWAL YOU MAKE, INCLUDING SYSTEMATIC
WITHDRAWALS.
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. PLEASE SEE TAXES BELOW for a more detailed explanation.
DEATH BENEFIT
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If you should die during the Accumulation Phase of your contract, we will pay a
death benefit to your Beneficiary. If you die during the Income Phase, your
beneficiary will receive any remaining guaranteed income payments in accordance
with the income options you choose. SEE INCOME OPTIONS BELOW.
If you should die prior to reaching age 75 or, in the case of joint owners, if
an owner should die prior to the youngest owner reaching age 75, the death
benefit will be equal to the greater of:
1. Contract Value at the time we receive all required paperwork and
satisfactory proof of death; or
2. Total Purchase Payments less withdrawals, applicable charges, market
value adjustments and taxes, accumulated at 3% from the date your
contract was issued until the date of death, plus any Purchase Payments
received, less any withdrawals, applicable charges, market value
adjustments and taxes made or charged, after the date of death.
If the contract was issued after your 75th birthday or if you should die after
you reach age 75, or, in the case of joint owners, if the contract was issued
after both owners' 75th birthday or if an owner dies after the youngest owner
reaches age 75, the death benefit will be the greater of:
1. Contract value at the time we receive all required paperwork and
satisfactory proof of death; or
2. Total Purchase Payments received by us before age 75 (in the case of
joint owners, before the younger owner reaches age 75) less any
withdrawals, applicable charges, market value adjustments and taxes,
accumulated at 3% from the date your contract was issued until your 75th
birthday (or, if there is a joint owner, the 75th Birthday of the
youngest owner), plus any subsequent Purchase Payments received, less
any withdrawals, applicable charges, market value adjustments and taxes
made or charged, after your 75th birthday.
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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.
The death benefit must be paid within 5 years of the date of death, unless the
Beneficiary elects to have the death benefit 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. Income payments must begin within one year of your death. If
the Beneficiary is the spouse of the owner, he or she can elect to continue the
contract at the then current value.
The death benefit will be calculated and paid out when we receive all required
paperwork and satisfactory proof of death. We consider satisfactory proof of
death one of the following: (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.
DEATH OF THE ANNUITANT
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
corporation), 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.
EXPENSES
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There are charges and expenses associated with your contract. These charges and
expenses reduce your investment return. We will not increase the contract
maintenance fee and withdrawal charges. 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 charges in the amount of 1.40%, annually of
the value of your contract invested in the Variable Portfolios. We deduct the
charge daily. These charges compensate 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 ACCESS TO YOUR
MONEY ABOVE. 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. 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......... 7% 6% 6% 5% 4% 3% 2% 0%
</Table>
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When calculating the withdrawal charge, we treat withdrawals as coming first
from the Purchase Payments that have been in your contract the longest. However,
for tax purposes, your withdrawals are considered earnings first, then Purchase
Payments.
Whenever possible, we deduct the withdrawal charge from the money remaining in
your contract. If you withdraw all of your contract value, we deduct any
applicable withdrawal charges from the amount withdrawn.
We will not assess a withdrawal charge for money withdrawn to pay a death
benefit. We will not 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
Charges are deducted from the assets of the investment portfolios underlying the
STRATEGIES for the advisory and other expenses of the portfolios. SEE FEE TABLES
ABOVE. FOR MORE DETAILED INFORMATION ON THESE INVESTMENT CHARGES, REFER TO THE
ATTACHED TRUST PROSPECTUS.
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 will 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 currently permit four free transfers between investment options, every
contract year. We charge you $25 for each transfer over four in any one year
($10 in Pennsylvania and Texas). We deduct the transfer fee from the STRATEGY
and/or fixed account option from which you request the transfer SEE INVESTMENT
OPTIONS ABOVE.
PREMIUM TAX
Certain states charge the Company a tax on the premiums you pay into the
contract ranging from 0% to 3.5%. We deduct from your contract these premium tax
charges where applicable. Currently we deduct the charge for premium taxes when
you take a full withdrawal 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.
20
AIG SunAmerica Life may make such a determination regarding sales to its
employees, its 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 to the extent discussed
under Option 5, 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. If you do not
choose an Annuity Date, your income payments will automatically begin on the
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 standard Income Options. Other payout
options may be available. Contact the Annuity Service Center for more
information. If you elect to receive income payments but do not select an
option, your income payments will be made in accordance with option 4 for 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 factors 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 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 years. If the Annuitant and the Survivor die before all
of the guaranteed payments have been made, the remaining payments are made to
the Beneficiary under your Contract.
21
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 of the guaranteed income payments are
made, the remaining income payments are made to the Beneficiary under your
contract. Additionally, if variable income payments are elected under this
option, you (or the Beneficiary under the contract if the Annuitant dies prior
to all guaranteed payments being made) may redeem the contract value after the
Annuity Date. The amount available upon such redemption would be the discounted
present value of any remaining guaranteed payments.
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.
ALLOCATION OF INCOME 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 your Variable Portfolios.
FIXED OR VARIABLE INCOME PAYMENTS
You can choose income payments that are fixed, variable or both. If at the date
when income payments begin you are invested in the Variable Portfolios only,
your income payments will be variable. If your money is only in fixed accounts
at that time, your income payments will be fixed in amount.
INCOME PAYMENTS
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 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 the payments, state law allowing.
If you are invested in the Variable Portfolios after the Annuity date, your
income payments will vary depending on four things:
- for life options, your age when payments begin, and;
- the value of your contract in the Variable Portfolios on the Annuity
Date, and;
- the 3.5% assumed investment rate used in the annuity table for the
contract, and;
- the performance of the Variable Portfolios in which you are invested
during the time you receive income payments.
If you are invested in both the fixed account options and the Variable
Portfolios after the Annuity Date, the allocation of funds between the fixed
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
22
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
You may transfer money among the Variable Portfolios during the Income Phase.
Transfers are subject to the same limitations as transfers during the
Accumulation Phase. However, you may not transfer money from the fixed account
into the Variable Portfolios or from the Variable Portfolios into the fixed
accounts during the Income Phase. SEE EXPENSES ABOVE.
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.
Please read the Statement of Additional Information ("SAI") for a more detailed
discussion of the income payments.
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
23
distributed before the earnings on those contributions. If you annuitize your
contract, a portion of each income payment will be considered, for tax purposes,
to be a return of a portion of your Purchase Payment(s). Any portion of each
income payment that is considered a return of your Purchase Payment will not be
taxed. Withdrawn earnings are treated as income to you and are taxable. The IRC
provides for a 10% penalty tax on any earnings that are withdrawn other than in
conjunction with the following circumstances: (1) after reaching age 59 1/2; (2)
when paid to your Beneficiary after you die; (3) after you become disabled (as
defined in the IRC); (4) when paid in a series of substantially equal
installments made for your life or for the joint lives of you and you
Beneficiary; (5) under an immediate annuity; or (6) which are attributable to
Purchase Payments made prior to August 14, 1982.
TAX TREATMENT OF DISTRIBUTIONS--QUALIFIED CONTRACTS
Generally, you have not paid any taxes on the Purchase Payments used to buy a
Qualified contract. As a result, with certain limited exceptions, any amount of
money you take out as a withdrawal or as income payments is taxable income. The
IRC further provides for a 10% penalty tax on any taxable withdrawal or income
payment paid to you other than in conjunction with the following circumstances:
(1) after reaching age 59 1/2; (2) when paid to your Beneficiary after you die;
(3) after you become disabled (as defined in the IRC); (4) in a series of
substantially equal installments, made for your life or for the joint lives of
you and your Beneficiary, that begins after separation from service with the
employer sponsoring the plan; (5) to the extent such withdrawals do not exceed
limitations set by the IRC for deductible amounts paid during the taxable year
for medical care; (6) to fund higher education expenses (as defined in IRC; only
from an IRA); (7) to fund certain first-time home purchase expenses (only from
an IRA); and, except in the case of an IRA; (8) when you separate from service
after attaining age 55; (9) when paid for health insurance if you are unemployed
and meet certain requirements; and (10) when paid to an alternate payee pursuant
to a qualified domestic relations order.
The IRC limits the withdrawal of an employee's voluntary Purchase Payments to a
Tax-Sheltered Annuity (TSA). Withdrawals can only be made when an owner: (1)
reaches age 59 1/2; (2) severs employment with the employer; (3) dies; (4)
becomes disabled (as defined in the IRC); or (5) experiences a hardship (as
defined in the IRC). In the case of hardship, the owner can only withdraw
Purchase Payments. Additional plan limitations may also apply. Amounts held in a
TSA annuity contract as of December 31, 1988 are not subject to these
restrictions. Qualifying transfers of amounts from one TSA contract to another
TSA contract under section 403(b) or to a custodial account under section
403(b)(7), and qualifying transfers to a state defined benefit plan to purchase
service credits, are not considered distributions, and thus are not subject to
these withdrawal limitations. If amounts are transferred from a custodial
account described in Code section 403(b)(7) to this contract the transferred
amount will retain the custodial account withdrawal restrictions.
Withdrawals from other Qualified Contracts are often limited by the IRC and by
the employer's plan.
MINIMUM DISTRIBUTIONS
Generally, the IRS requires that you begin taking annual distributions from
qualified annuity contracts by April 1 of the calendar year following the later
of (1) the calendar year in which you attain age 70 1/2 or (2) the calendar year
in which you retire. If you own an IRA, you must begin taking distributions when
you attain age 70 1/2, regardless of when you retire. If you own more than one
TSA, you may be permitted to take your annual distributions in any combination
from your TSAs. A similar rule applies if you own more than one IRA. However,
you cannot satisfy this distribution requirement for your TSA contract by taking
a distribution from an IRA, and you cannot satisfy the requirement for your IRA
by taking a distribution from a TSA.
You may be subject to a surrender charge on withdrawals taken to meet minimum
distribution requirements, if the withdrawals exceed the contract's maximum
penalty free amount.
Failure to satisfy the minimum distribution requirements may result in a tax
penalty. You should consult your tax advisor for more information.
You may elect to have the required minimum distribution amount on your contract
calculated and withdrawn each year under the automatic withdrawal option. You
may select either monthly, quarterly, semiannual or annual
24
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
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 portfolios'
management monitors the 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 portfolios under your Nonqualified Contract, because of the
degree of control you exercise over the underlying investments. This
diversification requirement is
25
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 portfolios. Due to the uncertainty in this area, We reserve the right
to modify the contract in an attempt to maintain favorable tax treatment.
These investor control limitations generally do not apply to Qualified
Contracts, which are referred to as "Pension Plan Contracts" for purposes of
this rule, although the limitations could be applied to Qualified Contracts in
the future.
PERFORMANCE
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From time to time we will advertise the performance of the Variable Portfolios.
Any such performance results are based on historical earnings and are not
intended to indicate future performance.
For each Variable Portfolio we will show performance against a comparison index
which is made up of the S&P 500 Index, the Lehman Brothers Corporate/Government
Index and the Lipper Money Market Index. The comparison index will blend the
referenced indices in proportion to the neutral allocation of stocks, bonds and
cash within each Variable Portfolio as indicated on pages 9 and 10 of this
prospectus.
Additionally, we may show performance of each Variable Portfolio 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 for additional 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. 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 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 STRATEGIES.
OTHER INFORMATION
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AIG SUNAMERICA LIFE
AIG SunAmerica Life is a stock life insurance company originally organized under
the laws of the state of California in April 1965. On January 1, 1996, AIG
SunAmerica Life redomesticated under the laws of the state of Arizona.
AIG SunAmerica Life and its affiliates, SunAmerica Life Insurance Company, First
SunAmerica Life Insurance Company, AIG SunAmerica Asset Management Corporation,
and the AIG Advisors Group. (comprising six wholly owned broker-dealers and two
investment advisors), specialize in retirement savings and investment products
and services. Business focuses include, fixed and variable annuities, mutual
funds, broker-dealer services and trust administration services.
THE SEPARATE ACCOUNT
AIG SunAmerica Life originally established 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.
26
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 for AIG SunAmerica Life.
THE GENERAL ACCOUNT
Money allocated to the fixed account options goes into AIG SunAmerica Life's
general account. The general account consists of all of AIG SunAmerica Life's
assets other than assets attributable to a separate account. All of the assets
in the general account are chargeable with the claims of any AIG SunAmerica Life
contract holders as well as all of its creditors. The general account funds are
invested as permitted under state insurance laws.
DISTRIBUTION OF THE CONTRACT
Registered representatives of broker-dealers sell the contract. We pay
commissions to these representatives for the sale of the contracts. We pay an
initial upfront commission of up to 7.0% of your Purchase Payments. We may also
pay trail commissions of up to 100% 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
affiliated broker-dealers and/or certain registered representatives that sell or
are expected to sell, certain minimum amounts of the contract, or other
contracts offered by us. Promotional incentives may change at any time.
AIG SunAmerica Capital Services, Inc., Harborside Financial Center, 3200 Plaza
5, Jersey City, NJ 07311 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 deduction of 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
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.
27
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Separate Account. AIG
SunAmerica Life and its subsidiaries engage in various kinds of routine
litigation. In management's opinion these matters are not of material importance
to the Company's total assets, nor are they material with respect to the
Separate Account.
INDEPENDENT ACCOUNTANTS
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The consolidated financial statements for 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 Five at April 30, 2003, and for
each of the two years in the period ended April 30, 2003, are included in the
Statement of Additional Information and incorporated by reference in this
prospectus and have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
28
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
<Table>
Separate Account............................................ 3
General Account............................................. 4
Performance Data............................................ 4
Income Payments............................................. 4
Annuity Unit Values......................................... 5
Taxes....................................................... 8
Distribution of Contracts................................... 13
Financial Statements........................................ 13
</Table>
29
APPENDIX A - CONDENSED FINANCIALS
- --------------------------------------------------------------------------------
<Table>
<Caption>
INCEPTION FISCAL FISCAL 3/31/00 4/30/00 4/30/01 4/30/02
TO YEAR YEAR TO TO TO TO
STRATEGIES 3/31/98 3/31/99 3/31/00 4/30/00 4/30/01 4/30/02 4/30/03
- --------------------- --------- --------- --------- --------- --------- --------- ---------
- --------------------------------------------------------------------------------------------------------
Growth (Inception Date: 4/15/97)
Beginning AUV...... 10.00 13.09 15.89 21.30 20.24 17.060 14.397
End AUV............ 13.09 15.89 21.30 20.24 17.06 14.397 12.770
Ending Number of
AUs............. 3,950,133 7,643,378 8,130,517 8,249,540 7,812,757 6,819,437 5,299,344
- --------------------------------------------------------------------------------------------------------
Moderate Growth (Inception Date: 4/15/97)
Beginning AUV...... 10.00 12.76 15.09 19.48 18.61 16.298 14.197
End AUV............ 12.76 15.09 19.48 18.61 16.30 14.197 12.885
Ending Number of
AUs............. 3,639,458 7,968,543 8,508,732 8,649,412 8,525,921 7,608,915 6,095,326
- --------------------------------------------------------------------------------------------------------
Balanced Growth (Inception Date: 4/15/97)
Beginning AUV...... 10.00 12.44 14.05 16.68 16.11 14.985 13.731
End AUV............ 12.44 14.05 16.68 16.11 14.99 13.731 12.924
Ending Number of
AUs............. 2,789,702 6,957,319 7,049,356 7,030,568 6,773,402 6,208,464 5,236,458
- --------------------------------------------------------------------------------------------------------
Conservative Growth (Inception Date: 4/15/97)
Beginning AUV...... 10.00 12.06 13.21 14.89 14.50 14.137 13.445
End AUV............ 12.06 13.21 14.89 14.50 14.14 13.445 13.071
Ending Number of
AUs............. 1,536,220 5,313,501 5,332,213 5,350,653 5,064,829 4,841,527 4,251,657
- --------------------------------------------------------------------------------------------------------
</Table>
AUV-Accumulation Unit Value
AU-Accumulation Units
A-1
APPENDIX B - MARKET VALUE ADJUSTMENT
- --------------------------------------------------------------------------------
The information in this Appendix applies only if you take money out of a FAGP
(with a duration longer than 1 year) before the end of the guarantee period.
We calculate the MVA by doing a comparison between current rates and the rate
being credited to you in the FAGP. For the current rate We use a rate being
offered by Us for a guarantee period that is equal to the time remaining in the
FAGP from which you seek withdrawal. 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 between 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 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 Withdrawal
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 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 a new
Purchase Payments in the 1-year FAGP is 3.5% and the 3-year FAGP is 4.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 4%. 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)][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)/(I+J+0.005)][to the power of N/12] - 1
= [(1.05)/(1.06+0.005)][to the power of 18/12] - 1
= (0.985916)[to the power of 1.5] - 1
= 0.978949 - 1
= -0.021051
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
Please forward a copy (without charge) of the Seasons 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 SELECT II VARIABLE ANNUITY (J-3366-PRO (R 4/04))
PROSPECTUS DATED MAY 3, 2004
THE PORTION OF THE PROSPECTUS RELATING TO THE SEASONS REWARDS PROGRAM IS
SUPPLEMENTED WITH THE FOLLOWING:
CURRENT ENHANCEMENT LEVELS
The Enhancement Levels, Upfront Payment Enhancement Rate, Deferred Payment
Enhancement Rate and Deferred Payment Enhancement Date applicable to all
Purchase Payments, are as follows:
UPFRONT PAYMENT DEFERRED PAYMENT
ENHANCEMENT LEVEL ENHANCEMENT RATE ENHANCEMENT RATE
- ----------------- ---------------- ----------------
Under $500,000 4% 0%
$500,000 - more 5% 0%
The applicable Payment Enhancement rate is that which is in effect, when we
receive each purchase payment under your contract. Future Upfront Enhancement
Rates may change at any time, but will never be less than 2%. We are currently
not offering a Deferred Payment Enhancement Rate. Future Deferred Payment
Enhancement Rates may increase or stay the same; there is no minimum Deferred
Payment Enhancement Rate. The number of years before which you may receive any
applicable future Deferred Payment Enhancement may change as well.
Date: May 3, 2004
Please keep this Supplement with your Prospectus.
Page 1 of 1
J-3366-IN2 (05/04)
(Seasons Select II LOGO)
PROSPECTUS
May 3, 2004
ALLOCATED FIXED AND VARIABLE GROUP ANNUITY
issued by
VARIABLE ANNUITY ACCOUNT FIVE
and
AIG SUNAMERICA LIFE ASSURANCE COMPANY
The annuity contract has several investment choices - fixed investment options
which offer interest rates guaranteed by AIG SunAmerica Life for different
periods of time, and Variable Portfolios:
<Table>
<Caption>
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>
<Caption>
SELECT PORTFOLIOS FOCUSED PORTFOLIOS SEASONS STRATEGIES
AIG GLOBAL INVESTMENT CORP. AIG SUNAMERICA ASSET MANAGEMENT CORP. AIG SUNAMERICA ASSET MANAGEMENT CORP.
AIG SUNAMERICA ASSET MANAGEMENT AMERICAN CENTURY INVESTMENT MANAGEMENT, INC. JANUS CAPITAL MANAGEMENT LLC.
CORP. BARON CAPITAL MANAGEMENT, INC. PUTNAM INVESTMENT MANAGEMENT, INC.
GOLDMAN SACHS ASSET MANAGEMENT DRESDNER RCM GLOBAL FUNDS T. ROWE PRICE ASSOCIATES, INC.
GOLDMAN SACHS ASSET MANAGEMENT/ FRED ALGER MANAGEMENT WELLINGTON MANAGEMENT COMPANY, LLP
GOLDMAN SACHS ASSET MANAGEMENT HARRIS ASSOCIATES L.P.
INT'L J.P. MORGAN INVESTMENT INC.
JANUS CAPITAL MANAGEMENT LLC. MARSICO CAPITAL MANAGEMENT LLC
LORD, ABBETT & CO. SALOMON BROTHERS ASSET MANAGEMENT
T. ROWE PRICE ASSOCIATES, INC. THIRD AVENUE FUNDS
WELLINGTON MANAGEMENT COMPANY, THORNBURG INVESTMENT MANAGEMENT, INC.
LLP
</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
Seasons Select(II) Variable Annuity. If elected, this variable annuity provides
a payment enhancement program called "Seasons Rewards." Your withdrawal charge
schedule will be longer and greater than other contracts offered without the
Seasons Rewards program.
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 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.
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 supersede documents
incorporated herein by reference.
AIG SunAmerica Life files its Exchange Act documents and reports, including its
annual and quarterly reports on Form 10-K and Form 10-Q, electronically pursuant
to EDGAR under CIK No. 0000006342.
AIG SunAmerica Life is subject to the informational requirements of the
Securities and Exchange Act of 1934 (as amended). We file reports and other
information with the SEC to meet those requirements. You can inspect and copy
this information at SEC public facilities at the following locations:
WASHINGTON, DISTRICT OF COLUMBIA
450 Fifth Street, N.W., Room 1024
Washington, D.C. 20549
CHICAGO, ILLINOIS
500 West Madison Street
Chicago, IL 60661
NEW YORK, NEW YORK
233 Broadway
New York, NY 10279
To obtain copies by mail, contact the Washington, D.C. location. After you pay
the fees as prescribed by the rules and regulations of the SEC, the required
documents are mailed.
Registration statements under the Securities Act of 1933, as amended, related to
the contracts offered by this prospectus are on file with the SEC. This
prospectus does not contain all of the information contained in the registration
statements and exhibits. For further information regarding the separate account,
AIG SunAmerica Life and its general account, the Variable Portfolios and the
contract, please refer to the registration statements and exhibits.
The SEC also maintains a website (http://www.sec.gov) that contains the SAI,
materials incorporated by reference and other information filed electronically
with the SEC by AIG SunAmerica Life.
AIG SunAmerica Life will provide without charge to each person to whom this
prospectus is delivered, upon written or oral request, a copy of the documents
incorporated by reference. Requests for these documents should be directed to
AIG SunAmerica Life's Annuity Service Center, as follows:
AIG SunAmerica Life Assurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
Telephone Number: (800) 445-SUN2
SECURITIES AND EXCHANGE
COMMISSION POSITION ON
INDEMNIFICATION
Indemnification for liabilities arising under the Securities Act of 1933 (the
"Act") is provided to AIG SunAmerica Life's officers, directors and controlling
persons. The SEC has advised that it believes such indemnification is against
public policy under the Act and unenforceable. If a claim for indemnification
against such liabilities (other than for AIG SunAmerica Life's payment of
expenses incurred or paid by its directors, officers or controlling persons in
the successful defense of any legal action) is asserted by a director, officer
or controlling person of AIG SunAmerica Life in connection with the securities
registered under this prospectus, AIG SunAmerica Life will submit to a court
with jurisdiction to determine whether the indemnification is against public
policy under the Act. AIG SunAmerica Life will be governed by final judgment of
the issue. However, if in the opinion of AIG SunAmerica Life's counsel this
issue has been determined by controlling precedent, AIG SunAmerica Life will not
submit the issue to a court for determination.
2
TABLE OF CONTENTS
<Table>
GLOSSARY.................................................... 4
HIGHLIGHTS.................................................. 5
FEE TABLES.................................................. 6
Owner Transaction Expenses............................... 6
Annual Separate Account Expenses......................... 6
Optional Seasons Income Rewards Fee...................... 6
Optional Seasons Promise Fee............................. 6
Optional Income Protector Fee............................ 6
Portfolio Expenses....................................... 6
EXAMPLES.................................................... 7
THE SEASONS SELECT(II) VARIABLE ANNUITY..................... 9
PURCHASING A SEASONS SELECT(II) VARIABLE ANNUITY............ 10
Allocation of Purchase Payments.......................... 10
Seasons Rewards Program.................................. 10
Accumulation Units....................................... 12
Free Look................................................ 13
Exchange Offers.......................................... 13
INVESTMENT OPTIONS.......................................... 13
Variable Portfolios...................................... 13
The Portfolios......................................... 14
The Seasons Strategies................................. 15
Transfers During the Accumulation Phase.................. 18
Dollar Cost Averaging.................................... 19
Asset Allocation Rebalancing Program..................... 19
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................................... 22
Qualified Contract Owners................................ 23
OPTIONAL LIVING BENEFITS.................................... 23
Seasons Income Rewards................................... 23
Seasons Promise.......................................... 27
Income Protector......................................... 29
DEATH BENEFIT............................................... 31
Standard Death Benefit................................... 33
Seasons Estate Advantage................................. 33
Spousal Continuation..................................... 34
EXPENSES.................................................... 35
Withdrawal Charges....................................... 35
Investment Charges....................................... 36
Contract Maintenance Fee................................. 36
Transfer Fee............................................. 36
Optional Seasons Income Rewards Fee...................... 37
Optional Seasons Promise Fee............................. 37
Seasons Estate Advantage Fee............................. 37
Optional Income Protector Fee............................ 37
Premium Tax.............................................. 37
Income Taxes............................................. 37
Reduction or Elimination of Charges and Expenses, and
Additional Amounts Credited............................ 37
INCOME OPTIONS.............................................. 38
Annuity Date............................................. 38
Income Options........................................... 38
Allocation of Annuity Payments........................... 39
Transfers During the Income Phase........................ 40
Deferment of Payments.................................... 40
TAXES....................................................... 40
Annuity Contracts in General............................. 40
Tax Treatment of Distributions--Non-qualified
Contracts.............................................. 41
Tax Treatment of Distributions--Qualified Contracts...... 41
Minimum Distributions.................................... 41
Tax Treatment of Death Benefits.......................... 42
Contracts Owned by a Trust or Corporation................ 42
Gifts, Pledges and/or Assignments of a Non-Qualified
Annuity Contract....................................... 43
Diversification and Investor Control..................... 43
PERFORMANCE................................................. 43
OTHER INFORMATION........................................... 43
AIG SunAmerica Life...................................... 43
The Separate Account..................................... 44
The General Account...................................... 44
Payments in Connection with Distribution of the
Contract............................................... 44
Administration........................................... 45
Legal Proceedings........................................ 45
INDEPENDENT ACCOUNTANTS..................................... 45
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.... 46
APPENDIX A--CONDENSED FINANCIALS............................ A-1
APPENDIX B--SEASONS REWARDS PROGRAM EXAMPLES................ B-1
APPENDIX C--MARKET VALUE ADJUSTMENT......................... C-1
APPENDIX D--DEATH BENEFITS FOLLOWING SPOUSAL CONTINUATION... D-1
APPENDIX E--HYPOTHETICAL EXAMPLE OF THE OPERATION OF THE
INCOME PROTECTOR PROGRAM................................... E-1
</Table>
3
GLOSSARY
We have capitalized some of the technical terms used in this prospectus. To help
you understand these terms, we define them in this glossary.
ACCUMULATION PHASE--The period during which you invest money in your contract.
ACCUMULATION UNITS--A measurement we use to calculate the value of the variable
portion of your contract during the Accumulation Phase.
ANNUITANT(S)--The person(s) on whose life (lives) we base annuity payments.
ANNUITY DATE--The date on which annuity payments are to begin, as selected by
you.
ANNUITY UNITS--A measurement we use to calculate the amount of annuity payments
you receive from the variable portion of your contract during the Income Phase.
BENEFICIARY(IES)--The person(s) designated to receive any benefits under the
contract if you or the Annuitant dies.
COMPANY--AIG SunAmerica Life Assurance Company ("AIG SunAmerica Life"), we, us,
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 tenth anniversary, whichever is
later.
NON-QUALIFIED (CONTRACT)--A contract purchased with after-tax dollars. In
general, these contracts are not under any pension plan, specially sponsored
program or individual retirement account ("IRA").
PAYMENT ENHANCEMENT(S)--The amount(s) allocated to your contract by us under the
Seasons Rewards Program. Payment enhancements are calculated as a percentage of
your Purchase Payments and are considered earnings.
PORTFOLIOS--A sub-account of Variable Annuity Account Five which provides for
the variable investment options available under the contract. Each Seasons
Strategy, 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.
SEASONS REWARDS PROGRAM--A program that provides a payment enhancement in
exchange for a surrender charge schedule that declines over 9 years.
PURCHASE PAYMENTS--The money you give us to buy the contract, as well as any
additional money you give us to invest in the contract after you own it.
QUALIFIED (CONTRACT)--A contract purchased with pretax dollars. These contracts
are generally purchased under a pension plan, specially sponsored program or
individual retirement account ("IRA").
STRATEGIES--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.
4
HIGHLIGHTS
- --------------------------------------------------------------------------------
The Seasons Select(II) Variable Annuity is a contract between you and AIG
SunAmerica Life Assurance Company ("AIG SunAmerica Life"). It is designed to
help you invest on a tax-deferred basis and meet long-term financial goals.
There are minimum Purchase Payment amounts required to purchase a contract.
Purchase payments may be invested in the Select Portfolios, Focused Portfolios
and/or pre-allocated Strategies ("Variable Portfolios") and fixed account
options. You may also elect to participate in the Seasons Rewards program of the
contract that can provide you with Payment Enhancements to invest in your
contract in exchange for a longer withdrawal charge schedule. Like all deferred
annuities, the contract has an Accumulation Phase and an Income Phase. During
the Accumulation Phase, you invest money in your contract. The Income Phase
begins when you start receiving income payments from your annuity to provide for
your retirement.
FREE LOOK: If you cancel your contract within 10 days after receiving it (or
whatever period is required in your state), we will cancel the contract without
charging a withdrawal charge. You will receive whatever your contract is worth
on the day that we receive your request. This amount may be more or less than
your original Purchase Payment. We will return your original Purchase Payment if
required by law. If you elected to participate in Seasons Rewards, you receive
any again and we bear any loss on any Payment Enhancement(s) if you decide to
cancel your contract during the free look period. Please see PURCHASING A
SEASONS SELECT(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 1.40% annually of the average daily value of your contract allocated to
the Variable Portfolios. There are investment charges on amounts invested in the
Variable Portfolios. If you elect optional features available under the contract
we may charge additional fees for these features. A separate withdrawal charge
schedule applies to each Purchase Payment. The percentage of the withdrawal
charge declines over time. After a Purchase Payment has been in the contract for
seven complete years, or nine complete years if you participate in the Seasons
Rewards Program, withdrawal charges no longer apply to that portion of the
Purchase Payment. Please see the FEE TABLE, PURCHASING A SEASONS SELECT(II)
VARIABLE ANNUITY and EXPENSES in the prospectus.
ACCESS TO YOUR MONEY: You may withdraw money from your contract during the
Accumulation Phase. If you do so, earnings are deemed to be withdrawn first. You
will pay income taxes on earnings and untaxed contributions when you withdraw
them. Payments received during the Income Phase are considered partly a return
of your original investment. A federal tax penalty may apply if you make
withdrawals before age 59 1/2. As noted above, a withdrawal charge may apply.
Please see ACCESS TO YOUR MONEY and TAXES in the prospectus.
DEATH BENEFIT: A death benefit feature is available under the contract to
protect your Beneficiaries in the event of your death during the Accumulation
Phase. Please see DEATH BENEFITS in the prospectus.
INCOME OPTIONS: When you are ready to begin taking income, you can choose to
receive income payments on a variable basis, fixed basis or a combination of
both. You may also chose from five different income options, including an option
for income that you cannot outlive. Please see INCOME OPTIONS in the prospectus.
INQUIRIES: If you have questions about your contract call your financial
representative or contact us at AIG SunAmerica Life Assurance Company Annuity
Service Center P.O. Box 54299 Los Angeles, California 90054-0299. Telephone
Number: (800) 445-SUN2.
AIG SUNAMERICA LIFE OFFERS SEVERAL DIFFERENT VARIABLE ANNUITY PRODUCTS TO MEET
THE DIVERSE NEEDS OF OUR INVESTORS. EACH PRODUCT MAY PROVIDE DIFFERENT FEATURES
AND BENEFITS OFFERED AT DIFFERENT FEES, CHARGES AND EXPENSES. WE ALSO OFFER
PRODUCTS THAT DO NOT OFFER THE SEASONS REWARDS PROGRAM. CONTRACTS WITHOUT
SEASONS REWARDS PROGRAM HAVE THE SAME MORTALITY AND EXPENSE RISK CHARGES AS THE
SAME CONTRACT WITH THE PROGRAM. HOWEVER, CONTRACTS WITHOUT THE SEASONS REWARDS
PROGRAM GENERALLY HAVE A SHORTER SURRENDER CHARGE SCHEDULE WHICH MAY HAVE LOWER
PERCENTAGES IN CERTAIN YEARS. WHEN WORKING WITH YOUR FINANCIAL REPRESENTATIVE TO
DETERMINE THE BEST PRODUCT TO MEET YOUR NEEDS YOU SHOULD CONSIDER, AMONG OTHER
THINGS WHETHER THE FEATURES OF THIS CONTRACT AND THE RELATED FEES PROVIDE THE
MOST APPROPRIATE PACKAGE TO HELP YOU MEET YOUR LONG-TERM RETIREMENT SAVINGS
GOALS.
PLEASE READ THE PROSPECTUS CAREFULLY FOR MORE DETAILED INFORMATION REGARDING
THESE AND OTHER FEATURES AND BENEFITS OF THE CONTRACT, AS WELL AS THE RISKS OF
INVESTING.
5
FEE TABLES
- --------------------------------------------------------------------------------
THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY AT THE TIME THAT
YOU BUY THE CONTRACT, TRANSFER CASH VALUE BETWEEN INVESTMENT OPTIONS OR
SURRENDER THE CONTRACT. IF APPLICABLE, YOU MAY ALSO BE SUBJECT TO STATE PREMIUM
TAXES.
MAXIMUM OWNER TRANSACTION EXPENSES
<Table>
WITHDRAWAL CHARGES
(as a percentage of each Purchase Payment)(1)
If Seasons Rewards is elected................... 9%
If Seasons Rewards is not elected............... 7%
</Table>
TRANSFER FEE
No charge for the first 15 transfers each contract year; thereafter, the fee is
$25 ($10 in Pennsylvania and Texas) per transfer
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.............. 1.25%
Distribution Expense Charge.................. 0.15%
Optional Seasons Estate Advantage Fee(2)..... 0.25%
-----
Total Separate Account Annual Expenses....... 1.65%
</Table>
OPTIONAL FEATURE FEES
You may elect only one of the following optional features: Income Protector,
Seasons Promise or Seasons Income Rewards described below.
OPTIONAL SEASONS INCOME REWARDS FEE
<Table>
<Caption>
TIME ELAPSED SINCE BENEFIT EFFECTIVE DATE ANNUALIZED FEE(3)
- ----------------------------------------- -----------------
0-7.................................. 0.65%
8+................................... 0.45%
</Table>
OPTIONAL SEASONS PROMISE FEE
<Table>
<Caption>
CONTRACT YEAR ANNUALIZED FEE(4)
- ------------- -----------------
0-7.................................. 0.50%
8-10................................. 0.25%
11+.................................. none
</Table>
OPTIONAL INCOME PROTECTOR FEE(5)
<Table>
Annual Fee as a % of your Income Benefit
Base......................................... 0.10%
</Table>
THE FOLLOWING SHOWS THE MINIMUM AND MAXIMUM TOTAL OPERATING EXPENSES CHARGED BY
THE UNDERLYING PORTFOLIO OF THE TRUST BEFORE ANY WAIVER OR REIMBURSEMENTS THAT
YOU MAY PAY PERIODICALLY DURING THE TIME YOU OWN THE CONTRACT. MORE DETAIL
CONCERNING TRUST'S FEES AND EXPENSES IS CONTAINED IN THE ATTACHED TRUST
PROSPECTUS. PLEASE READ IT CAREFULLY BEFORE INVESTING.
PORTFOLIO EXPENSES
<Table>
<Caption>
TOTAL ANNUAL TRUST OPERATING EXPENSES MINIMUM MAXIMUM
- ------------------------------------- ------- -------
(expenses that are deducted from
underlying portfolios of the Trust,
including management fees, other
expenses and 12b-1 fees, if
applicable)....................... 1.11% 3.46%
</Table>
FOOTNOTES TO THE FEE TABLE:
(1) Withdrawal Charge Schedule (as a percentage of each Purchase Payment)
<Table>
YEARS:...................................................... 1 2 3 4 5 6 7 8 9 10+
Non-Seasons Rewards......................................... 7% 6% 6% 5% 4% 3% 2% 0% 0% 0%
Seasons Rewards............................................. 9% 8% 7% 6% 6% 5% 4% 3% 2% 0%
</Table>
(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) The Seasons Income Rewards feature is optional and if elected, the fee is
generally calculated as a percentage of your Purchase Payments received in
the first 90 days less proportionate withdrawals. The fee is deducted from
your contract at the end of the first quarter following election and
quarterly thereafter.
(4) The 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.
(5) 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.
6
MAXIMUM AND MINIMUM EXPENSE EXAMPLES
- --------------------------------------------------------------------------------
IF YOU ELECT SEASONS REWARDS
These Examples are intended to help you compare the cost of investing in the
contract with the cost of investing in other variable annuity contracts. These
costs include owner transaction expenses, contract maintenance fees, separate
account annual expense, fees for optional features and expenses for the
underlying portfolios of the Trusts.
The Examples assumes 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 fees and expenses of the underlying portfolios
of the Trusts are reflected. Although your actual costs may be higher or lower,
based on these assumptions your costs at the end of the stated period would be:
MAXIMUM EXPENSE EXAMPLES
(assuming maximum separate account annual expenses of 1.65% (including the
Seasons Estate Advantage) and investment in an underlying portfolio with total
expenses of 3.46%.)
(1) If you surrender your contract at the end of the applicable time period and
you elect the optional Seasons Estate Advantage (0.25%) and Seasons 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
- ------ ------- ------- --------
$1,490 $2,456 $3,504 $5,639
</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
- ------ ------- ------- --------
$486 $1,461 $2,439 $4,894
</Table>
(3) If you do not surrender your contract and you elect the optional Seasons
Estate Advantage (0.25%) and Seasons 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
- ------ ------- ------- --------
$590 $1,756 $2,904 $5,639
</Table>
MINIMUM EXPENSE EXAMPLES
(assuming minimum separate account annual expenses of 1.40% and investment in an
underlying portfolio with total expenses of 1.11%.
(1) If you surrender your contract at the end of the applicable time period and
you do not elect any optional features:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$1,164 $1,512 $1,988 $2,953
</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
- ------ ------- ------- --------
$254 $782 $1,335 $2,846
</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
- ------ ------- ------- --------
$264 $812 $1,388 $2,953
</Table>
7
MAXIMUM AND MINIMUM EXPENSE EXAMPLES
- --------------------------------------------------------------------------------
IF YOU DO NOT ELECT SEASONS REWARDS
These Examples are intended to help you compare the cost of investing in the
contract with the cost of investing in other variable annuity contracts. These
costs include owner transaction expenses, contract maintenance fees, separate
account annual expense, fees for optional features and expenses for the
underlying portfolios of the Trusts.
The Examples assumes 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 fees and expenses of the underlying portfolios
of the Trusts are reflected. Although your actual costs may be higher or lower,
based on these assumptions your costs at the end of the stated period would be:
MAXIMUM EXPENSE EXAMPLES
(assuming maximum separate account annual expenses of 1.65% (including the
Seasons Estate Advantage) and investment in an underlying portfolio with total
expenses of 3.46%.)
(1) If you surrender your contract at the end of the applicable time period and
you elect the optional Seasons Estate Advantage (0.25%) and Seasons 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
- ------ ------- ------- --------
$1,279 $2,322 $3,247 $5,529
</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
$486 $1,461 $2,439 $4,894
</Table>
(3) If you do not surrender your contract and you elect the optional Seasons
Estate Advantage (0.25%) and Seasons 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
- ------ ------- ------- --------
$579 $1,722 $2,847 $5,529
</Table>
MINIMUM EXPENSE EXAMPLES
(assuming minimum separate account annual expenses of 1.40% and investment in an
underlying portfolio with total expenses of 1.11%.)
(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
- ------ ------- ------- --------
$ 959 $1,396 $1,760 $2,895
</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
$254 $782 $1,335 $2,846
</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
- ------ ------- ------- --------
$259 $796 $1,360 $2,895
</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. We converted the
contract administration fee to a percentage (0.05%). The actual impact of the
administration charge may differ from this percentage and may be waived for
contract values over $50,000. Additional information on the portfolio company
fees can be found in the Trust prospectus located behind this prospectus.
2. In addition to the stated assumptions, the Examples assume separate account
expenses as indicated and that no transfer fees were imposed. Although
premium taxes may apply in certain states, they are not reflected in the
Examples.
3. Examples reflecting participation in the Seasons Rewards program reflect the
Seasons Rewards withdrawal charge schedule and a 2% upfront payment
enhancement.
4. Examples reflecting application of optional features and benefits use the
highest fees and charges being offered for these features. If you elected the
Seasons Promise program instead of the Seasons Income Rewards program, 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
calculation more fully described in the prospectus.
5. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Condensed financials appear in Appendix A of this prospectus.
8
THE SEASONS SELECT(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: You do not pay taxes on your earnings from the annuity
until you withdraw them.
- Death Benefit: If you die during the Accumulation Phase, the insurance
company pays a death benefit to your Beneficiary.
- Guaranteed Income: If elected, you receive a stream of income for your
lifetime, or another available period you select.
Tax-qualified retirement plans (e.g., IRAs, 401(k) or 403(b) plans) defer
payment of taxes on earnings until withdrawn. If you are considering funding a
tax-qualified retirement plan with an annuity, you should know that an annuity
does not provide any additional tax deferral treatment of earnings beyond the
treatment provided by the tax-qualified retirement plan itself. However,
annuities do provide other features and benefits which may be valuable to you.
You should fully discuss this decision with your financial representative.
This annuity was developed to help you contribute to your retirement savings.
This annuity works in two stages, the Accumulation Phase and the Income Phase.
Your contract is in the Accumulation Phase during the period when you make
payments into the contract. The Income Phase begins when you request us to start
making payments to you out of the money accumulated in your contract.
The Contract is called a "variable" annuity because it allows you to invest in
variable investment portfolios. 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 the 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 your Contract depends on the total interest
credited to the particular fixed account option(s) in which you are invested.
For more information on the Variable Portfolios and fixed account options
available under this contract, SEE INVESTMENT OPTIONS BELOW.
AIG SunAmerica Life issues the Seasons Select(II) Variable Annuity. When you
purchase a Seasons Select(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., a Delaware corporation. Seasons Select(II)
may not currently be available in all states. Please check with your financial
representative regarding availability in your state.
This annuity is designed for investors whose personal circumstances allow for a
long-term investment time horizon, to assist in contributing to retirement
savings. As a function of the federal tax code you may be assessed a 10% federal
tax penalty on any withdrawal made prior to your reaching age 59 1/2.
Additionally, this contract provides that you will be charged a withdrawal
charge on each Purchase Payment withdrawn if that Purchase Payment has not been
invested in this contract for at least 7 years, or 9 years if you elect to
participate in the Seasons Rewards Program. Because of these potential
penalties, you should fully discuss all of the benefits and risks of this
contract with your financial representative prior to purchase.
9
PURCHASING A SEASONS SELECT(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.
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 $500 $50
Non-qualified $5,000 $500 $50
</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 the Company and First SunAmerica
Life Insurance Company, an affiliate of the Company, 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 optional automatic payment plan that allows you to make subsequent
Purchase Payments of as little as $50.
In addition, we may not issue a contract to anyone age 81 or older. Seasons
Estate Advantage is not available to you if you are age 81 or older at the time
of contract issue. In general, we will not issue a Qualified contract to anyone
who is age 70 1/2 or older, unless they certify to us that the minimum
distribution required by the federal tax code is being made.
We allow spouses to jointly own this contract. However the age of the older
spouse is used to determine the availability of any age driven benefits. The
addition of a joint owner after the contract has been issued 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 accounts and 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,
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 REWARDS PROGRAM
If you elect to participate in the Seasons Rewards Program at contract issue, we
contribute an Upfront Payment Enhancement and, if applicable, a Deferred Payment
Enhancement to your contract in conjunction with each
10
Purchase Payment you invest during the life of your contract. If you elect to
participate in this program, all Purchase Payments are subject to a nine year
withdrawal charge schedule. SEE WITHDRAWAL CHARGES BELOW. If you make an early
withdrawal of Purchase Payments, we may effectively recoup a portion of any
bonuses applicable to any payment withdrawn. SEE EXPENSES BELOW. The Seasons
Rewards Program may not be approved for sale in your state or through the
broker-dealer with which your financial representative is affiliated. Amounts we
contribute to your contract under this program are considered earnings and are
allocated to your contract as described below.
Purchase Payments may not be invested in the Dollar Cost Averaging fixed
accounts if you participate in the Seasons Rewards Program.
There may be scenarios in which due to negative market conditions and your
inability to remain invested over the long-term, a contract with the Seasons
Rewards Program may not perform as well as the contract without the feature.
ENHANCEMENT LEVELS
The Upfront Payment Enhancement Rate, Deferred Payment Enhancement Rate and
Deferred Payment Enhancement Date may be determined based on stated Enhancement
Levels. Each Enhancement Level is a range of dollar amounts which may correspond
to different enhancement rates and dates. Enhancement Levels may change from
time to time, at our sole discretion. The Enhancement Level applicable to your
initial Purchase Payment is determined by the amount of that initial Purchase
Payment. With respect to any subsequent Purchase Payments we determine your
Enhancement Level by adding to your contract value on the date we receive each
subsequent Purchase Payment the amount of that subsequent Purchase Payment.
UPFRONT PAYMENT ENHANCEMENT
An Upfront Payment Enhancement is an amount we add to your contract on the day
we receive a Purchase Payment. We calculate an Upfront Payment Enhancement
amount as a percentage (the "Upfront Payment Enhancement Rate") of each Purchase
Payment. We periodically review and establish the Upfront Payment Enhancement
Rate, which may increase or decrease at any time, but will never be less than
2%. The applicable Upfront Payment Enhancement Rate is that which is in effect
for any applicable Enhancement Level, when we receive each Purchase Payment
under your contract. The Upfront Payment Enhancement amounts are allocated among
the fixed and variable investment options according to the current allocation
instructions in effect when we receive each Purchase Payment.
DEFERRED PAYMENT ENHANCEMENT
A Deferred Payment Enhancement is an amount we may add to your contract on a
future date (the "Deferred Payment Enhancement Date"). We calculate the Deferred
Payment Enhancement amount, if any, as a percentage of each Purchase Payment
(the "Deferred Payment Enhancement Rate"). We periodically review and establish
the Deferred Payment Enhancement Rates and Deferred Payment Enhancement Dates.
The Deferred Payment Enhancement Rate being offered may increase, decrease or be
eliminated by us, at any time. The Deferred Payment Enhancement Date, if
applicable, may change at any time. The applicable Deferred Payment Enhancement
Date and Deferred Payment Enhancement Rate are those which may be in effect for
any applicable Enhancement Level, when we receive each Purchase Payment under
your contract. Any applicable Deferred Payment Enhancement, when credited, is
allocated to the Cash Management portfolio.
If you withdraw any portion of a Purchase Payment, to which a Deferred Payment
Enhancement applies, prior to the Deferred Payment Enhancement Date, we reduce
the amount of the corresponding Deferred Payment Enhancement in the same
proportion that your withdrawal (and any fees and charges associated with such
withdrawals) reduces that Purchase Payment. For purposes of the Deferred Payment
Enhancement, withdrawals are assumed to be taken from earnings first, then from
Purchase Payments, on a first-in-first-out basis.
See your financial representative regarding the Current Enhancement Levels and
Payment Enhancement Rates.
11
90 DAY WINDOW
Contracts issued with the Seasons Rewards feature may be eligible for a
"Look-Back Adjustment." As of the 90th day after your contract was issued, we
will total your Purchase Payments made over those 90 days, without considering
any investment gain or loss in contract value on those Purchase Payments. If
your total Purchase Payments bring you to an Enhancement Level which, as of the
date we issued your contract, would have provided for a higher Upfront and/or
any applicable Deferred Payment Enhancement Rate on each Purchase Payment, you
will get the benefit of the Enhancement Rate(s) that were applicable to that
higher Enhancement Level at the time your contract was issued. We will add any
applicable Upfront Look Back Adjustment to your contract on the 90th day
following the date of contract issue. We will send you a confirmation indicating
any applicable Upfront and/or Deferred Look Back Adjustment, on or about the
90th day following the date of contract issuance. We will allocate any
applicable Upfront Look Back Adjustment according to your then-current
allocation instructions on file for subsequent Purchase Payments at the time we
make the contribution. If applicable, any Deferred Look Back Adjustment will be
allocated to the Cash Management portfolio.
We will not allocate any applicable Deferred Payment Enhancement to your
contract if any of the following circumstances occurs prior to the Deferred
Payment Enhancement Date:
- You surrender your contract;
- A death benefit it paid on your contract;
- You switch to the Income Phase of your contract; or
- You fully withdraw the corresponding Purchase Payment.
APPENDIX B provides an example of the 90 Day Window Provision.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE SEASONS REWARDS PROGRAM
(IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME.
Check with your representative for information on the Upfront Payment
Enhancement Rate, Deferred Payment Enhancement Rate and Deferred Payment
Enhancement Date.
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 Standard Time (PST) and on the next day's
unit value if we receive your money after 1:00 p.m. PST. 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 (CONTRACTS WITHOUT SEASONS REWARDS):
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.
12
EXAMPLE (CONTRACTS WITH SEASONS REWARDS):
We receive a $25,000 Purchase Payment from you on Wednesday. You allocate
the money to the Focus Growth Portfolio. If the Upfront Payment Enhancement
is 2.00% of your Purchase Payment, we would add an Upfront Payment
Enhancement of $500 to your contract. We determine that the value of an
Accumulation Unit for the Focus Growth Portfolio is $11.10 when the NYSE
closes on Wednesday. We then divide $25,500 by $11.10 and credit your
contract on Wednesday with 2,297.2973 Accumulation Units for the 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.
Generally we will refund to you the value of your contract on the day we receive
your request MINUS any applicable Free Look Payment Enhancement Deduction, if
you had elected the Seasons Rewards program. The Free Look Payment Enhancement
Deduction is equal of the lesser of (1) the value of any Payment Enhancement(s)
on the day we receive your free look request; or (2) the Payment Enhancement
amount(s), if any, which we allocated to your contract. Thus, you receive any
gain and we bear any loss on any Payment Enhancement(s) if you decide to cancel
your contract during the free look period.
Certain states require us to return your Purchase Payments upon a free look
request. Additionally, all contracts issued as an IRA require the full return of
Purchase Payments upon a free look. With respect to those contracts, we reserve
the right to put your money in the Cash Management 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 MINUS the Free Look Payment Enhancement Deduction, if
applicable.
EXCHANGE OFFERS
From time to time, we may offer to allow you to exchange an older variable
annuity issued by AIG SunAmerica Life or one of its affiliates, for a newer
product with more current features and benefits, also issued by AIG SunAmerica
Life or one of its affiliates. Such an exchange offer will be made in accordance
with applicable state and federal securities and insurance rules and
regulations. We will explain the specific terms and conditions of any such
exchange offer at the time the offer is made.
INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
VARIABLE PORTFOLIOS
The contract offers 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.
Each of the variable investment options of the contract invests in underlying
portfolios of Seasons Series Trust. AIG SunAmerica Asset Management, Corp. ("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.
13
PORTFOLIOS
The contract offers 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 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 Focused Portfolios. Each multi-managed
Focused Portfolio offers you at least three different professional managers, 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 underlying PORTFOLIO and the respective managers are:
<Table>
<Caption>
SELECT PORTFOLIOS
LARGE CAP GROWTH MID CAP GROWTH INTERNATIONAL EQUITY
AIG Global Investment Corp. AIG Global Investment Corp. AIG Global Investment Corp.
Goldman Sachs Asset Management T. Rowe Price Associates, Inc. Goldman Sachs Asset Management
Janus Capital Management LLC Wellington Management Company, International
LLP Lord, Abbett & Co.
LARGE CAP COMPOSITE
AIG Global Investment Corp. MID CAP VALUE DIVERSIFIED FIXED INCOME
AIG SAAMCo AIG Global Investment Corp. AIG Global Investment Corp.
T. Rowe Price Associates, Inc. Goldman Sachs Asset Management AIG SAAMCo
Lord, Abbett & Co. Wellington Management Company,
LARGE CAP VALUE LLP
AIG Global Investment Corp. SMALL CAP
T. Rowe Price Associates, Inc. AIG Global Investment Corp. CASH MANAGEMENT
Wellington Management Company, Lord Abbett AIG SAAMCo
LLP AIG SAAMCo
</Table>
<Table>
<Caption>
FOCUSED PORTFOLIOS
FOCUS GROWTH FOCUS GROWTH & INCOME FOCUS VALUE FOCUS TECHNET
Fred Alger Management Harris Associates American Century Dresdner RCM Global
Marsico Capital L.P. Investment Management Funds
Management LLC Marsico Capital Inc. AIG SAAMCo
Solomon Brothers Management LLC Third Avenue Funds Baron Capital
Asset Management Thornburg Investment J.P. Morgan Management, Inc.
Management, Inc. Investment Management
Inc.
</Table>
PORTFOLIO OPERATION
Each 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 PORTFOLIO will be allocated equally among the three managers
for that PORTFOLIO. Each quarter AIG SAAMCo will evaluate the asset allocation
between the three managers of each 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 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 PORTFOLIO.
14
SEASONS STRATEGIES
The contract offers 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
Investment Management, Inc. The Stock Portfolio is managed by T. Rowe Price
Associates, Inc. All of the Multi-Managed Portfolios include the same three
basic investment components: a growth component managed by Janus Capital
Management LLC., a balanced component managed by AIG SunAmerica Asset Management
Corp. and a fixed income component managed by Wellington Management Company,
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 Strategy may be best with a secondary objective of conservation of principal by
suited for those with longer periods to invest. allocating more of its assets to bonds than the Growth
Strategy. This Strategy may be best suited for those nearing
Target Asset Allocation: retirement years but still earning income.
Stocks 80% Bonds 15% Cash Target Asset Allocation:
5%
Stocks 70% Bonds 25% Cash
[GROWTH CHART] 5%
[MODERATE GROWTH CHART]
</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 Strategy may
bonds, with a secondary objective of seeking a high total be best suited for those with lower investment risk
return. This Strategy may be best suited for those tolerance.
approaching retirement and with less tolerance for
investment risk. Target Asset Allocation:
Target Asset Allocation: Stocks 42% Bonds 53% Cash
5%
Stocks 55% Bonds 40% Cash
5% [CONSERVATIVE GROWTH CHART]
[BALANCED GROWTH CHART]
</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 C 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.
If available, these systematic transfers will not count toward the 15 free
transfers per contract year and are not subject to a market value adjustment.
You may change or terminate these systematic transfers by contacting our Annuity
Service Center. Check with your financial representative regarding the current
availability of this service.
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. If you do not elect
to participate in the Seasons Rewards program, we may also offer Dollar Cost
Averaging Fixed Accounts ("DCAFA"). The rules, restrictions and operation of
DCAFAs may differ from the standard FAGPs described above, please see DOLLAR
COST AVERAGING below for more details.
DOLLAR COST AVERAGING FIXED ACCOUNTS
If you do not elect the Seasons Rewards program, you may invest initial and/or
subsequent Purchase Payments in DCAFAs, 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
17
paid on a declining balance as you systematically transfer your investment to
the Variable Portfolios. Therefore, the actual effective yield will be less than
the annual crediting rate. We determine the DCAFAs offered at any time in our
sole discretion and we reserve the right to change to DCAFAs that we make
available at any time, unless state law requires us to do otherwise. See DOLLAR
COST AVERAGING below for more information.
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase you may transfer funds between the Variable
Portfolios and/or any available fixed account options. Funds already in your
contract cannot be transferred into the DCA fixed accounts. You must transfer at
least $100 per transfer. If less than $100 remains in any Variable Portfolio
after a transfer, that amount must be transferred as well. We will process any
transfer request as of the day we receive it in good order if the request is
received before the New York Stock Exchange ("NYSE") closes, generally at 1:00
p.m. Pacific Time. If the transfer request is received after the NYSE closes,
the request will be processed on the next business day.
This product is not designed for professional organizations or individuals
engaged in trading strategies that seek to benefit from short term price
fluctuations or price irregularities by making programmed transfers, frequent
transfers or transfers that are large in relation to the total assets of the
underlying portfolio in which the Variable Portfolios invest. These types of
trading strategies can be disruptive to the underlying portfolios in which the
Variable Portfolios invest and thereby potentially harmful to investors.
In connection with our efforts to control harmful trading, we may monitor your
trading activity. If we determine, in our sole discretion, that your transfer
patterns among the Variable Portfolios and/or available fixed accounts reflect a
potentially harmful trading strategy, we reserve the right to take action to
protect other investors. Such action may include, but may not be limited to,
restricting the way you can request transfers among the Variable Portfolios,
imposing penalty fees on such trading activity, and/or otherwise restricting
transfer capability in accordance with state and federal rules and regulations.
We will notify you, in writing, if we determine in our sole discretion that we
must terminate your transfer privileges. Some of the factors we may consider
when determining our transfer policies and/or other transfer restrictions may
include, but are not limited to:
- the number of transfers made in a defined period;
- the dollar amount of the transfer;
- the total assets of the Variable Portfolio involved in the transfer;
- the investment objectives of the particular Variable Portfolios involved
in your transfers; and/or
- whether the transfer appears to be part of a pattern of transfers to take
advantage of short-term market fluctuations or market inefficiencies.
Subject to our rules, restrictions and policies, you may request transfers of
your account value between the Variable Portfolios and/or the available fixed
account options by telephone or through AIG SunAmerica's website
(http://www.aigsunamerica.com) or in writing by mail or facsimile.
We allow 15 free transfers per contract per year. We charge $25 ($10 IN
PENNSYLVANIA AND TEXAS) for each additional transfer in any contract year.
Transfers resulting from your participation in the DCA or Asset Rebalancing
programs do not count against your 15 free transfers per contract year.
All transfer request in excess of 15 transfers per contract year must be
submitted in writing by United States Postal Service first-class mail ("U.S.
Mail") until your next contract anniversary. Transfer requests sent by same day
mail, overnight mail or courier services will not be accepted. Transfer requests
required to be submitted by U.S. Mail can only be cancelled by a written request
sent by U.S. Mail. Transfers resulting from your participation in the DCA or
Asset Rebalancing programs are not included for the purposes of determining the
number of transfers for the U.S. Mail requirement.
We may accept transfers by telephone or the Internet unless you tell us not to
on your contract application. When receiving instructions over the telephone or
the Internet, we follow appropriate procedures to provide reasonable assurance
that the transactions executed are genuine. Thus, we are not responsible for any
claim, loss or expense
18
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 investment options. Under the program you systematically transfer a set
dollar amount or percentage from any Variable Portfolio (source accounts) to any
other Variable Portfolio. Transfers may occur on such periodic schedules such as
monthly or weekly. You may change the frequency to other available options at
any time by notifying us in writing. Fixed account options are not available as
target accounts for the DCA program.
We may also offer DCAFAs for a specified time period exclusively to facilitate
this program. If you elect to participate in the Seasons Rewards Program, the
DCAFAs are not available under your contract. The DCAFAs only accept new
Purchase Payments. You cannot transfer money already in your contract into these
options. If you allocate a Purchase Payment into DCAFAs, we transfer all your
money allocated to that account into the Variable Portfolios you select over the
selected time period at an offered frequency of your choosing. The minimum
transfer amount if you use the DCAFAs is $100.
For example, let's say you allocate $1,000 to a DCAFA and you select monthly
transfers, we completely transfer all of your money to the selected investment
options over a period of ten months.
You may terminate your DCA program at any time. If money remains in the DCAFA,
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.
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 Cash
Management Portfolio to the Mid-Cap Value SELECT PORTFOLIO over six months.
You set up dollar cost averaging and purchase Accumulation Units at the
following values:
<Table>
<Caption>
MONTH ACCUMULATION UNIT UNITS PURCHASED
- ----- ----------------- ---------------
1 $ 7.50 100
2 $ 5.00 150
3 $10.00 75
4 $ 7.50 100
5 $ 5.00 150
6 $ 7.50 100
</Table>
You paid an average price of only $6.67 per Accumulation Unit over six
months, while the average market price actually was $7.08. By investing an
equal amount of money each month, you automatically buy more Accumulation
Units when the market price is low and fewer Accumulation Units when the
market price is high. This example is for illustrative purposes only.
ASSET ALLOCATION REBALANCING PROGRAM
Earnings in your contract may cause the percentage of your investment in each
investment option to differ from your original allocations. The Automatic Asset
Rebalancing Program addresses this situation. At your election, we
19
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.
RETURN PLUS PROGRAM
The Return Plus Program, available if offering FAGPs, allows you to invest in
one or more of the Variable Portfolios without putting your principal at direct
risk. The program accomplishes this by allocating your investment strategically
between the fixed investment options (other than the DCA fixed accounts) and the
Variable 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.
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.
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 Trust's 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 investment variable portfolios
offered under your contract. For example, we may offer new portfolios, delete
portfolios, or stop accepting allocations and/or investments in a particular
portfolio. We may move assets and re-direct future premium allocations from one
portfolio to another if we receive investor approval through a proxy vote or SEC
approval for a fund substitution. This would occur if a 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 investment
variable Portfolio offered may have different fees and expenses. You will be
notified of any upcoming proxies or substitutions that affect your portfolio
choices.
20
ACCESS TO YOUR MONEY
- --------------------------------------------------------------------------------
You can access money in your contract by making a partial or total withdrawal,
and/or by receiving income payments during the Income Phase. SEE INCOME OPTIONS
BELOW.
Generally, we deduct a withdrawal charge applicable to any partial or total
withdrawal and a market value adjustment if a withdrawal comes from the multi
year fixed investment options prior to the end of a guarantee period. If you
withdraw your entire contract value, we also deduct any applicable premium taxes
and a contract maintenance fee. SEE EXPENSES BELOW. We calculate charges due on
a total withdrawal on the day after we receive your request and other required
paper work. We return your contract value less any applicable fees and charges.
The minimum partial withdrawal amount is $1,000. We require that the value left
in any Variable Portfolio or fixed account be at least $500 after the
withdrawal. You must send a written withdrawal request. Unless you provide us
with different instructions, partial withdrawals will be made in equal amounts
from each Variable Portfolio and the fixed investment option in which your
contract is invested. Withdrawals from fixed investment options prior to the end
of the guarantee period may result in a market value adjustment.
We may be required to suspend or postpone the payment of a withdrawal for any
period of time when: (1) the NYSE is closed (other than a customary weekend and
holiday closings); (2) trading with the NYSE is restricted; (3) an emergency
exists such that disposal of or determination of the value of shares of the
Portfolios is not reasonably practicable; (4) the SEC, by order, so permits for
the protection of contract owners.
Additionally, we reserve the right to defer payments for a withdrawal from a
fixed investment option. Such deferrals are limited to no longer than six
months.
FREE WITHDRAWAL PROVISION
Your contract provides for a free withdrawal amount each year. A free withdrawal
amount is the portion of your account that we allow you to take out each year
without being charged a surrender penalty. However, upon a future full surrender
of your contract, any previous free withdrawals would be subject to a surrender
charge, if any is applicable at the time of the full surrender (except in the
state of Washington).
If you participate in the Seasons Rewards Program, you will not receive any
applicable Deferred Payment Enhancement if you fully withdraw a Purchase Payment
or your contract value prior to the corresponding Deferred Payment Enhancement
Date. SEE SEASONS REWARDS PROGRAM ABOVE.
To determine your free withdrawal amount and the amount, if any, on which we
assess a withdrawal charge, we refer to two special terms. These are
penalty-free earnings and the Total Invested Amount.
The penalty-free earnings portion of your contract is your account value less
your Total Invested Amount. The Total Invested Amount is the total of all
Purchase Payments you have made into the contract less portions of some prior
withdrawals you made. The portions of prior withdrawals that reduce your Total
Invested Amount are as follows:
1. Any prior withdrawals on which you previously paid a withdrawal charge,
plus the amount of the withdrawal charge.
2. Any prior free withdrawals in any year that were in excess of your
penalty-free earnings and were free because the Purchase Payment
withdrawn is no longer subject to surrender charges at the time of the
withdrawal.
When you make a withdrawal, we assume that it is taken from penalty-free
earnings first, then from the Total Invested Amount on a first-in, first-out
basis. This means that you can also access your Purchase Payments which are no
longer subject to a surrender charge before those Purchase Payments which are
still subject to the surrender charge.
21
During your first contract year your free withdrawal amount is the greater of:
1. Your penalty-free earnings, or;
2. If you are participating in the Systematic Withdrawal program, a total
of 10% of your Total Invested Amount less any prior withdrawals taken
during the contract year.
After the first contract year, you can take out the greater of the following
amounts each year:
1. Your penalty free earnings and any portion of your Total Invested Amount
no longer subject to surrender charges, or;
2. 10% of the portion of your Total Invested Amount that has been in your
contract for at least one year less any withdrawals taken during the
contract year.
Purchase Payments withdrawn, above and beyond the amount of your free withdrawal
amount, which have been invested for less than 7 years, or 9 years if you elect
to participate in the Seasons Rewards Program, will result in your paying a
withdrawal charge. The amount of the charge and how it applies are discussed
more fully below. You should consider, before purchasing this contract, the
effect this charge will have on your investment if you need to withdraw more
money than the free withdrawal amount. You should fully discuss this decision
with your financial representative.
The withdrawal charge percentage applicable is determined by the age of the
Purchase Payment being withdrawn. For purposes of calculating the surrender
charge in the event of a full surrender, the charge is calculated based on the
remaining Total Invested Amount still subject to surrender charge.
For example, you make an initial Purchase Payment of $100,000. For purposes of
this example, we will assume a 0% growth rate over the life of the contract, no
election of the Seasons Rewards Program, Income Protector Program or Seasons
Estate Advantage and no subsequent Purchase Payments. In contract year 2 and
year 3, you take out your maximum free withdrawal of $10,000 for each year.
After those free withdrawals your contract value is $80,000. In contract year 5
you request a full surrender of your contract. We will apply the following
calculation, A - (B X C) = D, where:
A = Your contract value at the time of your request for surrender ($80,000)
B = The amount of your Total Invested Amount still subject to surrender charge
($100,000)
C = The withdrawal charge percentage applicable to the age of each Purchase
Payment at the time of full surrender (4%) [B X C = $4,000]
D = Your full surrender value ($76,000)
SYSTEMATIC WITHDRAWAL PROGRAM
If you elect, we use money in your contract to pay you monthly, quarterly,
semi-annual or annual payments during the Accumulation Phase. Electronic
transfer of these funds to your bank account is also available. The minimum
amount of each withdrawal is $250. There must be at least $500 remaining in your
contract at all times. Withdrawals may be taxable and a 10% IRS tax penalty may
apply if you are under age 59 1/2. Any withdrawals you make using this program
count against your free withdrawal amount as described above. Withdrawals in
excess of that amount may incur a withdrawal charge. There is no additional
charge for participating in this program.
The program is not available to everyone. Please check with our Annuity Service
Center, which can provide the necessary enrollment forms. We reserve the right
to modify, suspend or terminate this program at any time.
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.
22
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.
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 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 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.
<Table>
<Caption>
- -------------------------------------------------------------------------------------------
TIME ELAPSED SINCE PERCENTAGE OF ELIGIBLE
BENEFIT EFFECTIVE DATE 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.
23
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:
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------
MWP (IF
MAWA
TAKEN
STEP-UP MAWA EACH
BENEFIT AVAILABILITY DATE AMOUNT PERCENTAGE YEAR)
- -------------------------------------------------------------------------------------------------------
Option 1 3 years following Benefit Effective Date 10% of 10% of WBB 11 years
WBB
- -------------------------------------------------------------------------------------------------------
Option 2 5 Years following Benefit Effective Date 20% of 10% of WBB 12 years
WBB
- -------------------------------------------------------------------------------------------------------
</Table>
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 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 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.
24
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
25
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.
26
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.
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.
SEASONS PROMISE FEATURE
What is 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.
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.
27
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. Seasons
Promise is not available if you elect the Seasons Income Rewards or Income
Protector features. SEE SEASONS INCOME REWARDS ABOVE AND INCOME PROTECTOR BELOW.
The Seasons Promise 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 Seasons Promise 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 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.
How is the benefit calculated?
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 INCLUDED IN THE
TIME ELAPSED SINCE EFFECTIVE DATE SEASONS PROMISE BENEFIT CALCULATION
- --------------------------------- -----------------------------------------------
0-90 days 100%
91+ days 0%
</Table>
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.
Payment Enhancements under the Seasons Rewards feature are not considered
Purchase Payments and are not used in the calculation of the Seasons Promise
Base.
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 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 Seasons Promise?
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
28
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*
- ------------- ---------------
0-7 0.50%
8-10 0.25%
11+ None
</Table>
- ---------------
* As a percentage of your contract value minus Purchase Payments received after
the 90th day since the purchase of your contract. The amount of this charge is
subject to change at any time for prospectively issued contracts.
What Happens to Seasons Promise 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 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.
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
representative as such activity may reduce the value of this Seasons Promise
benefit.
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.
INCOME PROTECTOR
You may elect to enroll in the Income Protector Program. The Income Protector
Program can provide a future "safety net" which offers you the ability to
receive a guaranteed fixed minimum retirement income when you choose to begin
receiving income payments. With 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.
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.
29
HOW DO WE DETERMINE THE AMOUNT OF YOUR MINIMUM GUARANTEED INCOME?
We base the amount of minimum retirement income available to you if you take
income payments using the Income Protector 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. 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 since the last
contract anniversary in an amount proportionate to the amount by which
such withdrawals decreased your contract value.
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
In order to exercise your rights under the Income Protector feature, you may not
begin the Income Phase for at least nine years following the date your
enrollment in the program became effective. Further, you may begin taking income
payments using the Income Protector feature only within 30 days after the ninth
or later contract anniversary following the effective date of your enrollment in
the Income Protector program.
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.
30
FEES ASSOCIATED WITH THE INCOME PROTECTOR PROGRAM
If you elect to participate in the Income Protector program we deduct a 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 will
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 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.
For an example of the operation of the Income Protector feature, please SEE
APPENDIX E.
The Income Protector program may not be available in all states. Check with your
financial representative for availability in your state.
If you elect the Seasons Promise or Seasons Income Rewards feature, you may not
elect to participate in the Income Protector Program.
We reserve the right to modify, suspend or terminate the program (in its
entirety or any component) at any time on prospectively issued contracts.
DEATH BENEFIT
- --------------------------------------------------------------------------------
If you die during the Accumulation Phase of your contract, we pay a death
benefit to your beneficiary. The death benefit options are discussed in detail
below. 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.
The death benefit will be calculated and paid out when we receive all required
paperwork and satisfactory proof of death. We consider satisfactory proof of
death one of the following: (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 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 two death benefit options: the Standard Death Benefit
which is automatically included in your contract for no additional fee, and
Seasons Estate Advantage which offers a choice between two optional
31
enhanced death benefits, along with an Earnings Advantage feature, for an
additional fee. If you choose Seasons Estate Advantage, you must do so at the
time of contract application and the election cannot be terminated.
EXTENDED LEGACY PROGRAM AND BENEFICIARY CONTINUATION OPTIONS
The Extended Legacy program can allow a Beneficiary to take the death benefit
amount in the form of income payments over a longer period of time with the
flexibility to withdraw more than the IRS required minimum distribution if they
wish. The contract continues in the original owner's name for the benefit of the
Beneficiary. Generally, IRS required minimum distributions must be made at least
annually over a period not to exceed the Beneficiary's life expectancy as
determined in the calendar year after your death. Under the Extended Legacy
program, a Beneficiary may withdraw all or a portion of the contract value at
any time, name their own beneficiary to receive any remaining unpaid interest in
the contract in the event of their death and make transfers among investment
options. If the contract value is less than the death benefit amount as of the
date we receive satisfactory proof of death and all required paperwork, we will
increase the contract value by the amount which the death benefit exceeds
contract value. Participation in the program may impact certain features of the
contract as detailed in the Death Claim Form. Please see your financial
representative for additional information.
Alternatively to the Extended Legacy program, the Beneficiary may also elect to
receive the death benefit under a 5-year option. The Beneficiary may take
withdrawals as desired, but the entire contract value must be distributed by the
fifth anniversary of your death for Non-qualified contracts or by December 31st
of the year containing the fifth anniversary of your death for IRAs. For IRAs,
the five-year option is not available if the date of death is after the required
beginning date for distributions (April 1 of the year following the year the
owner reaches the age of 70 1/2).
For information regarding how these payments are treated for tax purposes,
consult your tax advisor regarding tax implications and your particular
circumstances.
DEFINED TERMS
The term "Net Purchase Payment" is used frequently in explaining the death
benefit options. 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 calculation.
If you have not taken any withdrawals from your contract, Net Purchase Payments
equals total Purchase Payments into your contract.
If Seasons Rewards is elected, any payment enhancements are not considered
Purchase Payments.
32
STANDARD DEATH BENEFIT
The standard death benefit on your contract, if you are age 74 or younger at the
time of death, is the greater of:
1. Net Purchase Payments compounded at a 3% annual growth rate from the date
of issue until the date of death, plus any Purchase Payments recorded
after the date of death; and reduced for any withdrawals (and fees and
charges applicable to those withdrawals) recorded after 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.
If you are age 75 or older at the time of death, the death benefit is the
greater of:
1. Net Purchase Payments compounded at a 3% annual growth rate from date of
issue until the your 75th birthday, plus any Purchase Payments recorded
after the 75th birthday; and reduced for any withdrawals (and fees and
charges applicable to those withdrawals) recorded after the 75th birthday,
in the same proportion that the withdrawal reduced the contract value on
the date of the withdrawal.
2. the contract value at the time we receive all required paperwork and
satisfactory proof of death.
SEASONS ESTATE ADVANTAGE
The Seasons Estate Advantage is an optional feature that offers a choice between
two enhanced death benefits, each of which includes an Earnings Advantage
component. You must elect Seasons Estate Advantage at the time we issue your
contract and once elected it cannot be terminated by you. Seasons Estate
Advantage is not available if you are age 81 or older at the time of contract
issue.
If you elect Seasons Estate Advantage, we will pay your Beneficiary the sum of A
plus B, where:
A. is the amount payable under the selected enhanced death benefit (see
option 1 or 2 below); and
B. is the amount payable, if any, under the Earnings Advantage benefit.
A. Enhanced Death Benefit Options:
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 the 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 the 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. The 5%
Accumulation option may not be available in all states.
2. Maximum Anniversary Value Option--the death benefit is the greater 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 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. Therefore, your beneficiary will not receive
any benefit from Season's Estate Advantage. The Maximum Anniversary Value
option may not be available in all states.
33
B. Earnings Advantage Benefit:
The Earnings Advantage benefit may increase the death benefit amount. If you
have earnings in your contract at the time of death, we will add a percentage of
those earnings (the "Earnings Advantage Percentage"), subject to a maximum
dollar amount (the "Maximum Earnings Advantage Percentage"), to the death
benefit payable.
The Contract Year of Death will determine the Earnings Advantage Percentage and
the Maximum Earnings Advantage Percentage, as set forth below:
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------------------------
EARNINGS ADVANTAGE MAXIMUM
CONTRACT YEAR OF DEATH PERCENTAGE EARNINGS ADVANTAGE PERCENTAGE
- --------------------------------------------------------------------------------------------------------------------
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 must be invested for at least six months at the time of your
death to be included as part of Net Purchase Payments for the 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 beginning with the
date your contract is issued and ending on the date of death.
What is the Earnings Advantage Percentage Amount?
We determine the amount of the Earnings Advantage based upon a percentage of
earnings in your contract at the time of your death. For the purpose of this
calculation, earnings are defined as (1) minus (2) where
(1) equals the contract value on the date of death; and
(2) equals Net Purchase Payments.
What is the Maximum Earnings Advantage?
The Earnings Advantage amount is subject to a maximum. The maximum Earnings
Advantage amount is equal to a percentage of your Net Purchase Payments.
The Earnings Advantage feature may not be available in all states.
If you elect the 5% Accumulation enhanced death benefit option or the Maximum
Anniversary enhanced death benefit, the Earnings Advantage benefit will only be
paid if your date of death is prior to your Latest Annuity Date.
We assess a fee for Seasons Estate Advantage. We deduct daily the annual charge
of 0.25% of the average daily ending value of the assets you have allocated to
the Variable Portfolios. This fee will terminate, if the benefit is no longer
available to you based on your age, as discussed above. In the state of
Washington only the Maximum Anniversary Value component of the Seasons Estate
Advantage death benefit is available. Neither the 5% Accumulation nor the
Earnings Advantage is available in Washington. The fee charged for the Maximum
Anniversary Value option in Washington is .25% of the average daily ending value
of the assets allocated to the Variable Portfolios.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE SEASONS ESTATE
ADVANTAGE FEATURE (IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME ON
PROSPECTIVELY ISSUED CONTRACTS.
SPOUSAL CONTINUATION
If you are the original owner of the contract and the Beneficiary is your
spouse, your Spouse may elect to continue the contract after your death. The
spouse becomes the new owner ("Continuing Spouse"). The contract and its elected
features, if any, remain the same. The Continuing Spouse is subject to the same
fees, charges and expenses applicable to the original owner of the contract. The
Continuing Spouse can only elect to continue the contract
34
upon the death of the original owner of the contract. To the extent the
Continuing Spouse invests in the Variable Portfolios or MVA fixed accounts, they
will be subject to investment risk as was the original owner.
Upon continuation of the contract, we will contribute to the contract value an
amount by which the death benefit that would have been paid to the beneficiary
upon the death of the original owner exceeds the contract value ("Continuation
Contribution"), if any. We calculate the Continuation Contribution as of the
date of the original owner's death. We will add the Continuation Contribution as
of the date we receive both the Continuing Spouse's written request to continue
the contract and proof of death of the original owner in a form satisfactory to
us ("Continuation Date"). The Continuation Contribution is not considered a
Purchase Payment for any other calculation except as noted in Appendix D.
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 Seasons Estate Advantage and the
available death benefit will be the Standard Death Benefit. We will terminate
Seasons Estate Advantage if the Continuing Spouse is age 81 or older on the
Continuation Date if a Continuation Contribution is added to the contract value;
and the available death benefit will 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 in effect, the death benefit
will be the Standard Death Benefit. If Maximum Anniversary value was elected and
the Continuing Spouse lives to age 90 or older, the death benefit will be
contract value. However if death occurs after age 90 but before Latest Annuity
Date the Continuing Spouse will benefit from the Earnings Advantage. SEE
APPENDIX D FOR FURTHER EXPLANATION OF THE DEATH BENEFIT CALCULATIONS FOLLOWING A
SPOUSAL CONTINUATION.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE SPOUSAL CONTINUATION
PROVISION (IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME FOR PROSPECTIVELY
ISSUED CONTRACTS.
EXPENSES
- --------------------------------------------------------------------------------
There are charges and expenses associated with your contract. These charges and
expenses reduce your investment return. We will not increase the contract
maintenance fee or withdrawal charges under your contract. However the
investment charges under your contract may increase or decrease. Some states may
require that we charge less than the amounts described below.
SEPARATE ACCOUNT CHARGES
The Company deducts separate account charges in the amount of 1.40% annually of
the value of your contract invested in the Variable Portfolios. We deduct the
charge daily. These charges compensate 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
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:
35
WITHDRAWAL CHARGE WITHOUT THE SEASONS REWARDS PROGRAM (SCHEDULE A)
<Table>
<Caption>
YEAR 1 2 3 4 5 6 7 8
- ----------------- --- --- --- --- --- --- --- ---
Withdrawal
Charge......... 7% 6% 6% 5% 4% 3% 2% 0%
</Table>
WITHDRAWAL CHARGE WITH THE SEASONS REWARDS PROGRAM (SCHEDULE B)
<Table>
<Caption>
YEAR 1 2 3 4 5 6 7 8 9 10
- ----------------- --- --- --- --- --- --- --- --- --- ---
Withdrawal
Charge......... 9% 8% 7% 6% 6% 5% 4% 3% 2% 0%
</Table>
After a Purchase Payment has been in the contract for seven complete years, or
nine complete years if you elect to participate in the Seasons Rewards Program,
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.
The Seasons Rewards Program is designed to reward long term investing. We expect
that if you remain committed to this investment over the long term, we will
profit as a result of fees charged over the life of your contract. However,
neither the mortality and expense fees, distribution expenses, contract
administration fee nor investment management fees are higher on the Seasons
Rewards Program than contracts that do not feature the Program.
Whenever possible, we deduct the withdrawal charge from the money remaining in
your contract from each of your investment options on a pro-rata basis. If you
withdraw all of your contract value, we deduct any applicable withdrawal charges
from the amount withdrawn. We will not assess a withdrawal charge for money
withdrawn to pay a death benefit. We do not currently assess a withdrawal charge
upon election to receive income payments from your contract. Withdrawals made
prior to age 59 1/2 may result in tax penalties. SEE TAXES BELOW.
INVESTMENT CHARGES
Investment Management Fees
Charges are deducted from the assets of the investment portfolios underlying the
Variable Portfolios for the advisory and other expenses of the portfolios. SEE
FEE TABLES ABOVE.
12b-1 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. The service fee of 0.25% (also known as a 12b-1 fee) is used
generally to pay financial intermediaries for services provided over the life of
the contract. If your contract was issued prior to November 17, 2003, the
service fee is 0.15%.
FOR MORE DETAILED INFORMATION ON THESE INVESTMENT CHARGES, REFER TO THE ATTACHED
PROSPECTUS FOR THE SEASONS SERIES TRUST.
CONTRACT MAINTENANCE FEE
During the Accumulation Phase, we subtract a contract maintenance fee from your
account once per year. This charge compensates us for the cost of contract
administration. 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.
36
OPTIONAL SEASONS INCOME REWARDS FEE
The annualized Seasons 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 SEASONS PROMISE FEE
The fee for the option Seasons Promise feature is as follows:
<Table>
<Caption>
CONTRACT YEAR ANNUALIZED FEE*
------------- ---------------
0-7 0.50%
8-10 0.25%
11+ None
</Table>
- ---------------
* As a percentage of your contract value minus purchase payments received after
the 90th day since the purchase of your contract. The amount of this charge is
subject to change at any time for prospectively issued contracts.
OPTIONAL SEASONS ESTATE ADVANTAGE FEE
We charge 0.25% 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 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 each
subsequent contract anniversary, adding Purchase Payments made since the prior
contract anniversary, less proportional withdrawals, and fees and charges
applicable to those withdrawals.
PREMIUM TAX
Certain states charge the Company a tax on the premiums you pay into the
contract ranging from 0% to 3.5%. We deduct from your contract these premium tax
charges where 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
37
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.
If you participate in the Seasons Rewards Program and switch to the Income Phase
prior to a Deferred Payment Enhancement Date, if applicable, we will not
allocate any corresponding Deferred Payment Enhancement to your contract. SEE
SEASONS REWARDS PROGRAM ABOVE.
Income payments must begin on or before the Latest Annuity Date. If you do not
choose an Annuity Date, your income payments will automatically begin on the
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 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 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.
38
OPTION 3 - JOINT AND 100% SURVIVOR LIFE ANNUITY WITH 10 YEAR PERIOD CERTAIN
This option is similar to Option 2 above, with an additional guarantee of
payments for at least 10 years. If the Annuitant and the Survivor die before all
of the payments have been made, the remaining payments are made to the
Beneficiary under your Contract.
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.
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 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
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.
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; and
- 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.
39
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 impact 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.
Please read the Statement of Additional Information, available upon request, for
a more detailed discussion of the income options.
You may wish to consult your tax advisor for information concerning your
particular circumstances.
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.
40
TAX TREATMENT OF DISTRIBUTIONS--NON-QUALIFIED CONTRACTS
If you make a partial or total withdrawal from a Non-Qualified contract, the IRC
treats such a withdrawal as first coming from the earnings and then as coming
from your Purchase Payments. Purchase payments made prior to August 14, 1982,
however, are an important exception to this general rule, and for tax purposes
are treated as being distributed before the earnings on those contributions. If
you annuitize your contract, a portion of each income payment will be
considered, for tax purposes, to be a return of a portion of your Purchase
Payment(s). Any portion of each income payment that is considered a return of
your Purchase Payment will not be taxed. Withdrawn earnings are treated as
income to you and are taxable. The IRC provides for a 10% penalty tax on any
earnings that are withdrawn other than in conjunction with the following
circumstances: (1) after reaching age 59 1/2; (2) when paid to your Beneficiary
after you die; (3) after you become disabled (as defined in the IRC); (4) when
paid in a series of substantially equal installments made for your life or for
the joint lives of you and your Beneficiary; (5) under an immediate annuity; or
(6) which are attributable to Purchase Payments made prior to August 14, 1982.
TAX TREATMENT OF DISTRIBUTIONS--QUALIFIED CONTRACTS (INCLUDING GOVERNMENTAL
457(B) ELIGIBLE DEFERRED COMPENSATION PLANS)
Generally, you have not paid any taxes on the Purchase Payments used to buy a
Qualified contract. As a result, with certain limited exceptions, any amount of
money you take out as a withdrawal or as income payments is taxable income. In
the case of certain Qualified contracts, the IRC further provides for a 10%
penalty tax on any taxable withdrawal or income payment paid to you other than
in conjunction with the following circumstances: (1) after reaching age 59 1/2;
(2) when paid to your Beneficiary after you die; (3) after you become disabled
(as defined in the IRC); (4) in a series of substantially equal installments,
made for your life or for the joint lives of you and your Beneficiary, that
begins after separation from service with the employer sponsoring the plan; (5)
to the extent such withdrawals do not exceed limitations set by the IRC for
deductible amounts paid during the taxable year for medical care; (6) to fund
higher education expenses (as defined in the IRC; only from an IRA); (7) to fund
certain first-time home purchase expenses (only from an IRA); (8) when you
separate from service after attaining age 55 (does not apply to an IRA); (9)
when paid for health insurance, if you are unemployed and meet certain
requirements; and (10) when paid to an alternate payee pursuant to a qualified
domestic relations order. This 10% penalty tax does not apply to withdrawals or
income payments from governmental 457(b) eligible deferred compensation plans,
except to the extent that such withdrawals or income payments are attributable
to a prior rollover to the plan (or earnings thereon) from another plan or
arrangement that was subject to the 10% penalty tax.
The IRC limits the withdrawal of an employee's voluntary Purchase Payments from
a Tax-Sheltered Annuity (TSA). Withdrawals can only be made when an owner: (1)
reaches age 59 1/2; (2) severs employment with the employer; (3) dies; (4)
becomes disabled (as defined in the IRC); or (5) experiences a financial
hardship (as defined in the IRC). In the case of hardship, the owner can only
withdraw Purchase Payments. Additional plan limitations may also apply. Amounts
held in a TSA annuity contract as of December 31, 1988 are not subject to these
restrictions. Qualifying transfers of amounts from one TSA contract to another
TSA contract under section 403(b) or to a custodial account under section
403(b)(7), and qualifying transfers to a state defined benefit plan to purchase
service credits, are not considered distributions, and thus are not subject to
these withdrawal limitations. If amounts are transferred from a custodial
account described in Code section 403(b)(7) to this contract the transferred
amount will retain the custodial account withdrawal restrictions.
Withdrawals from other Qualified Contracts are often limited by the IRC and by
the employer's plan.
MINIMUM DISTRIBUTIONS
Generally, the IRC requires that you begin taking annual distributions from
qualified annuity contracts by April 1 of the calendar year following the later
of (1) the calendar year in which you attain age 70 1/2 or (2) the calendar year
in which you separate from service from the employer sponsoring the plan. If you
own an IRA, you must begin taking distributions when you attain age 70 1/2
regardless of when you separate from service from the employer sponsoring the
plan. If you own more than one TSA, you may be permitted to take your annual
distributions in
41
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 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.
42
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
- --------------------------------------------------------------------------------
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.
We may show performance of each Variable Portfolios in comparison to various
appropriate indices and the performance of other similar variable annuity
products with similar objectives as reported by such independent reporting
services as Morningstar, Inc., Lipper Analytical Services, Inc. and the Variable
Annuity Research Data Service ("VARDS").
OTHER INFORMATION
- --------------------------------------------------------------------------------
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.
43
AIG SunAmerica Life and its affiliates, SunAmerica Life Insurance Company, First
SunAmerica Life Insurance Company, AIG SunAmerica Asset Management Corporation
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 originally established, 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.
PAYMENTS IN CONNECTION WITH DISTRIBUTION OF THE CONTRACT
PAYMENTS TO BROKER-DEALERS
Registered representatives of broker-dealers sell the contract. We pay
commissions to the broker-dealers for the sale of your contract ("Contract
Commissions"). There are different structures by which a broker-dealer can
choose to have their Contract Commissions paid. For example, as one option, we
may pay upfront Contract Commission, only, that may be up to a maximum 8% of
each Purchase Payment you invest (which may include promotional amounts).
Another option may be a lower upfront Contract Commission on each Purchase
Payment, with a trail commission of up to a maximum 1.50% of contract value,
annually. We pay Contract Commissions directly to the broker-dealer with whom
your registered representative is affiliated. Registered representatives may
receive a portion of these amounts we pay in accordance with any agreement in
place between the registered representative and his/her broker-dealer firm.
We (or our affiliates) may pay broker-dealers or permitted third parties cash or
non-cash compensation, including reimbursement of expenses incurred in
connection with the sale of these contracts. These payments may be intended to
reimburse for specific expenses incurred or may be based on sales, certain
assets under management or longevity of assets invested with us. For example, we
may pay additional amounts in connection with contracts that remain invested
with us for a particular period of time. We enter into such arrangements in our
discretion and we may negotiate customized arrangements with firms, including
affiliated and non-affiliated broker-dealers based on various factors.
Promotional incentives may change at any time.
We do not deduct these amounts directly from your Purchase Payments. We
anticipate recovering these amounts from the fees and charges collected under
the contract. Certain compensation payments may increase our cost of doing
business in a particular firm and may result in higher contractual fees and
charges if you purchase your contract through such a firm. SEE EXPENSES ABOVE.
AIG SunAmerica Capital Services, Inc., Harborside Financial Center, 3200 Plaza
5, Jersey City, NJ 07311-4992, distributes the contracts. AIG SunAmerica Capital
Services, an affiliate of AIG SunAmerica Life, is a registered broker-dealer
under the Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. No underwriting fees are paid in connection with the
distribution of the contracts.
PAYMENTS WE RECEIVE
In addition to amounts received pursuant to established 12b-1 Plans, we may
receive compensation of up to 0.60% from the investment advisers, subadvisers or
their affiliates of certain of the underlying Trusts and/or portfolios for
44
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 deduction of 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
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 1-800-445-SUN2, 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 and its subsidiaries engage in various kinds of routine
litigation. In management's opinion these matters are not of material importance
to the Company's total assets, nor are they material with respect to the
Separate Account.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
The consolidated financial statements for AIG SunAmerica Life Assurance Company
at December 31, 2003 and 2002, and for each of the three years in the period
ended December 31, 2003, and financial statements of Variable Annuity Account
Five at April 30, 2003, and for each of the two years in the period ended April
30, 2003, are included in the Statement of Additional Information and
incorporated by reference in this prospectus and have been so included in
reliance on the reports of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
45
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
<Table>
Separate Account............................................ 3
General Account............................................. 3
Performance Data............................................ 4
Income Payments............................................. 7
Annuity Unit Values......................................... 10
Taxes....................................................... 11
Distribution of Contracts................................... 16
Financial Statements........................................ 16
</Table>
46
APPENDIX A - CONDENSED FINANCIALS
- --------------------------------------------------------------------------------
<Table>
<Caption>
FISCAL FISCAL FISCAL FISCAL FISCAL
YEAR YEAR YEAR YEAR YEAR
INCEPTION TO ENDED ENDED ENDED ENDED ENDED
SEASONS STRATEGIES 3/31/99 3/31/00 4/30/00 4/30/01 4/30/02 4/30/03
- -------------------------- ------------ --------- --------- --------------- --------- ---------
- ----------------------------------------------------------------------------------------------------------
Growth (Inception Date: 4/15/97)
Beginning AUV........... 15.05 15.89 21.30 (a) 20.24 17.039 14.356
(b) 20.24 17.018 14.302
Ending AUV.............. 15.89 21.30 20.24 (a) 17.04 14.356 12.715
(b) 17.02 14.302 12.635
Ending Number of AUs.... 31,169 1,653,495 1,871,300 (a) 398,040 1,596,999 2,178,753
(b) 1,431,268 5,159,748 5,698,422
- ----------------------------------------------------------------------------------------------------------
Moderate Growth (Inception Date: 4/15/97)
Beginning AUV........... 14.25 15.09 19.48 (a) 18.62 16.288 14.164
(b) 18.62 16.267 14.111
Ending AUV.............. 15.09 19.48 18.62 (a) 16.29 14.164 12.833
(b) 16.27 14.111 12.753
Ending Number of AUs.... 93,136 1,559,019 1,760,865 (a) 483,256 2,793,004 4,278,227
(b) 1,692,012 7,849,672 9,973,728
- ----------------------------------------------------------------------------------------------------------
Balanced Growth (Inception Date: 4/15/97)
Beginning AUV........... 13.80 14.05 16.68 (a) 16.11 14.973 13.695
(b) 16.11 14.956 13.645
Ending AUV.............. 14.05 16.68 16.11 (a) 14.97 13.695 12.870
(b) 14.96 13.645 12.791
Ending Number of AUs.... 85,553 991,695 1,061,795 (a) 375,068 2,883,697 4,762,059
(b) 1,049,088 5,761,721 7,977,286
- ----------------------------------------------------------------------------------------------------------
Conservative Growth (Inception Date: 4/15/97)
Beginning AUV........... 13.03 13.21 14.89 (a) 14.50 14.127 13.410
(b) 14.50 14.101 13.353
Ending AUV.............. 13.21 14.89 14.50 (a) 14.13 13.410 13.016
(b) 14.10 13.353 12.928
Ending Number of AUs.... 33,892 623,175 629,067 (a) 181,135 2,004,171 3,771,996
(b) 795,377 3,915,976 6,606,977
- ----------------------------------------------------------------------------------------------------------
</Table>
(a) Without election of optional Estate Advantage feature.
(b) With election of optional Estate Advantage feature, which became
available for sale on October 16, 2000.
AUV-Accumulation Unit Value
AU-Accumulation Units
A-1
<Table>
<Caption>
FISCAL FISCAL FISCAL FISCAL FISCAL
YEAR YEAR YEAR YEAR YEAR
INCEPTION TO ENDED ENDED ENDED ENDED ENDED
SELECT PORTFOLIOS 3/31/99 3/31/00 4/30/00 4/30/01 4/30/02 4/30/03
- -------------------------- ------------ --------- --------- --------------- --------- ---------
- ----------------------------------------------------------------------------------------------------------
Large Cap Growth (Inception Date: 3/1/99)
Beginning AUV........... 10.00 10.68 14.94 (a) 13.99 10.121 7.931
(b) 13.99 10.107 7.900
Ending AUV.............. 10.68 14.94 13.99 (a) 10.12 7.931 6.806
(b) 10.11 7.900 6.763
Ending Number of AUs.... 85,647 1,058,317 1,158,071 (a) 138,746 858,299 1,469,235
(b) 1,108,465 3,700,885 4,665,791
- ----------------------------------------------------------------------------------------------------------
Large Cap Composite (Inception Date: 3/1/99)
Beginning AUV........... 10.00 10.41 12.88 (a) 12.30 10.419 8.858
(b) 12.30 10.405 8.825
Ending AUV.............. 10.41 12.88 12.30 (a) 10.42 8.858 7.441
(b) 10.40 8.825 7.394
Ending Number of AUs.... 33,347 316,855 361,941 (a) 30,196 358,258 763,947
(b) 397,804 1,315,528 1,546,325
- ----------------------------------------------------------------------------------------------------------
Large Cap Value (Inception Date: 3/1/99)
Beginning AUV........... 10.00 10.32 10.75 (a) 10.79 12.354 11.297
(b) 10.79 12.338 11.254
Ending AUV.............. 10.32 10.75 10.79 (a) 12.35 11.297 9.433
(b) 12.34 11.254 9.374
Ending Number of AUs.... 34,004 531,732 571,490 (a) 110,091 957,260 1,479,497
(b) 899,551 3,590,415 4,109,010
- ----------------------------------------------------------------------------------------------------------
Mid Cap Growth (Inception Date: 3/1/99)
Beginning AUV........... 10.00 10.62 18.41 (a) 16.85 13.691 12.185
(b) 16.85 13.674 12.140
Ending AUV.............. 10.62 18.41 16.85 (a) 13.69 12.185 10.242
(b) 13.67 12.140 10.178
Ending Number of AUs.... 27,096 529,844 612,249 (a) 80,629 523,422 776,963
(b) 678,174 2,223,309 2,421,115
- ----------------------------------------------------------------------------------------------------------
</Table>
(a) Without election of optional Estate Advantage feature.
(b) With election of optional Estate Advantage feature, which became
available for sale on October 16, 2000.
AUV-Accumulation Unit Value
AU-Accumulation Units
A-2
<Table>
<Caption>
FISCAL FISCAL FISCAL FISCAL FISCAL
YEAR YEAR YEAR YEAR YEAR
INCEPTION TO ENDED ENDED ENDED ENDED ENDED
SELECT PORTFOLIOS 3/31/99 3/31/00 4/30/00 4/30/01 4/30/02 4/30/03
- -------------------------- ------------ --------- --------- --------------- --------- ---------
- ----------------------------------------------------------------------------------------------------------
Mid Cap Value (Inception Date: 3/1/99)
Beginning AUV........... 10.00 10.10 10.93 (a) 11.14 14.202 15.629
(b) 11.14 14.184 15.569
Ending AUV.............. 10.10 10.93 11.14 (a) 14.20 15.629 13.157
(b) 14.18 15.569 13.073
Ending Number of AUs.... 11,278 297,306 318,151 (a) 98,363 661,329 1,014,719
(b) 598,874 2,517,897 2,482,363
- ----------------------------------------------------------------------------------------------------------
Small Cap (Inception Date: 3/1/99)
Beginning AUV........... 10.00 10.35 15.00 (a) 13.56 11.201 10.455
(b) 13.56 11.186 10.415
Ending AUV.............. 10.35 15.00 13.56 (a) 11.20 10.455 8.091
(b) 11.19 10.415 8.040
Ending Number of AUs.... 22,807 432,850 481,239 (a) 61,891 553,867 893,438
(b) 499,597 2,317,632 2,518,712
- ----------------------------------------------------------------------------------------------------------
International Equity (Inception Date: 3/1/99)
Beginning AUV........... 10.00 10.51 13.61 (a) 12.46 9.608 7.768
(b) 12.46 9.595 7.742
Ending AUV.............. 10.51 13.61 12.46 (a) 9.61 7.768 5.829
(b) 9.60 7.742 5.802
Ending Number of AUs.... 23,961 314,634 384,946 (a) 87,318 833,895 1,625,696
(b) 532,261 1,773,503 2,547,690
- ----------------------------------------------------------------------------------------------------------
Diversified Fixed Income (Inception Date: 3/10/99)
Beginning AUV........... 10.00 10.02 10.00 (a) 9.96 10.570 10.912
(b) 9.96 10.555 10.870
Ending AUV.............. 10.02 10.00 9.96 (a) 10.57 10.912 11.733
(b) 10.56 10.870 11.658
Ending Number of AUs.... 31,762 474,014 513,721 (a) 217,162 1,388,027 3,232,484
(b) 732,849 3,049,466 8,024,390
- ----------------------------------------------------------------------------------------------------------
Cash Management (Inception Date: 3/26/99)
Beginning AUV........... 10.00 10.00 10.32 (a) 10.35 10.774 10.836
(b) 10.35 10.759 10.794
Ending AUV.............. 10.00 10.32 10.35 (a) 10.77 10.836 10.753
(b) 10.76 10.794 10.685
Ending Number of AUs.... 970 380,169 235,608 (a) 713,829 1,156,309 1,444,740
(b) 1,188,716 1,692,359 2,232,294
- ----------------------------------------------------------------------------------------------------------
</Table>
(a) Without election of optional Estate Advantage feature.
(b) With election of optional Estate Advantage feature, which became
available for sale on October 16, 2000.
AUV-Accumulation Unit Value
AU-Accumulation Units
A-3
<Table>
<Caption>
FISCAL FISCAL FISCAL FISCAL FISCAL
YEAR YEAR YEAR YEAR YEAR
INCEPTION TO ENDED ENDED ENDED ENDED ENDED
FOCUSED PORTFOLIOS 3/31/99 3/31/00 4/30/00 4/30/01 4/30/02 4/30/03
- ----------------------------- ------------ ------- ------- --------------- --------- ---------
- ---------------------------------------------------------------------------------------------------------
Focus Growth (Inception Date: 7/7/00)
Beginning AUV.............. -- -- -- (a) 10.00 7.642 6.570
(b) 10.00 7.633 6.545
Ending AUV................. -- -- -- (a) 7.64 6.570 5.576
(b) 7.63 6.545 5.541
Ending Number of AUs....... -- -- -- (a) 336,517 977,193 2,176,848
(b) 1,598,717 4,088,242 3,979,461
- ---------------------------------------------------------------------------------------------------------
Focus Growth and Income (Inception Date: 12/29/00)
Beginning AUV.............. -- -- -- (a) 10.00 9.354 8.537
(b) 10.00 8.942 8.140
Ending AUV................. -- -- -- (a) 9.35 8.537 7.467
(b) 8.94 8.140 7.102
Ending Number of AUs....... -- -- -- (a) 22,928 343,267 902,816
(b) 197,045 1,284,539 1,860,715
- ---------------------------------------------------------------------------------------------------------
Focus Value (Inception Date: 10/04/01)
Beginning AUV.............. -- -- -- (a) 0 10.000 10.740
(b) 0 10.000 10.727
Ending AUV................. -- -- -- (a) 0 10.740 9.425
(b) 0 10.727 9.390
Ending Number of AUs....... -- -- -- (a) 0 216,178 848,182
(b) 0 990,167 1,081,447
- ---------------------------------------------------------------------------------------------------------
Focus TechNet (Inception Date: 12/29/00)
Beginning AUV.............. -- -- -- (a) 10.00 6.327 3.299
(b) 10.00 7.009 3.646
Ending AUV................. -- -- -- (a) 6.33 3.299 2.800
(b) 7.01 3.646 3.087
Ending Number of AUs....... -- -- -- (a) 55,512 295,604 1,567,573
(b) 233,849 1,089,889 1,582,813
- ---------------------------------------------------------------------------------------------------------
</Table>
(a) Without election of optional Estate Advantage feature.
(b) With election of optional Estate Advantage feature, which became
available for sale on October 16, 2000.
AUV-Accumulation Unit Value
AU-Accumulation Units
A-4
APPENDIX B - SEASONS REWARDS PROGRAM EXAMPLES
- --------------------------------------------------------------------------------
The following examples assume an initial $125,000 Purchase Payment is made and
that the Company is offering Upfront and Deferred Payment Enhancements in
accordance with this chart:
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------------
UPFRONT PAYMENT DEFERRED PAYMENT DEFERRED PAYMENT
ENHANCEMENT LEVEL ENHANCEMENT RATE ENHANCEMENT RATE ENHANCEMENT DATE
- --------------------------------------------------------------------------------------------------------
Under $100,000 2% 0% N/A
- --------------------------------------------------------------------------------------------------------
$100,000 - $499,999 2% 1% Nine years from the date we
receive each Purchase Payment.
- --------------------------------------------------------------------------------------------------------
$500,000 - more 2% 2% Nine years from the date we
receive each Purchase Payment.
- --------------------------------------------------------------------------------------------------------
</Table>
I. DEFERRED PAYMENT ENHANCEMENT
If you elect to participate in the Seasons Rewards Program at contract issue, we
contribute at least 2% of each Purchase Payment to your contract for each
Purchase Payment we receive, as an Upfront Payment Enhancement. Any applicable
Deferred Payment Enhancement is allocated to your contract on the corresponding
Deferred Payment Enhancement Date and, if declared by the Company, is a
percentage of your remaining Purchase Payment on the Deferred Payment
Enhancement Date. Deferred Purchase Payment Enhancements are reduced
proportionately by partial withdrawals of that Purchase Payment prior to the
Deferred Payment Enhancement Date. The Deferred Payment Enhancement Rate may
increase, decrease or be eliminated at any time.
EXAMPLE 1 - NO WITHDRAWALS ARE MADE
The Upfront Payment Enhancement allocated to your contract is $2,500 (2% of
$125,000).
On your 9th contract anniversary, the Deferred Payment Enhancement Date, your
Deferred Payment Enhancement of $1,250 (1% of your remaining Purchase Payment or
$125,000) will be allocated to your contract.
EXAMPLE 2 - WITHDRAWAL MADE PRIOR TO DEFERRED PAYMENT ENHANCEMENT DATE
As in Example 1, your Upfront Payment Enhancement is $2,500.
This example also assumes the following:
(1) Your contract value on your 5th contract anniversary is $190,000.
(2) You request a withdrawal of $75,000 on your 5th contract anniversary.
(3) No subsequent Purchase Payments have been made.
(4) No prior withdrawals have been taken.
(5) Funds are not allocated to any of the MVA Fixed Accounts.
On your 5th contract anniversary, your penalty-free earnings in the contract are
$65,000 ($190,000 contract value less your $125,000 investment in the contract).
Therefore, you are withdrawing $10,000 of your initial Purchase Payment. Your
contract value will also be reduced by a $500 withdrawal charge on the $10,000
Purchase Payment (5% of $10,000). Your gross withdrawal is $75,500 of which
$10,500 constitutes part of your Purchase Payment.
The withdrawal of $10,500 of your $125,000 Purchase Payment is a withdrawal of
8.4% of your Purchase Payment. Therefore, only 91.6% or $114,500 of your initial
Purchase Payment remains in your contract.
On your 9th contract anniversary, the Deferred Payment Enhancement Date,
assuming no other transactions occur affecting the Purchase Payment, we allocate
your Deferred Payment Enhancement of $1,145 (1% of your remaining Purchase
Payment, $114,500) to your contract.
B-1
II. 90 DAY WINDOW
Contracts issued with the Seasons Rewards feature may be eligible for a
"Look-Back Adjustment." As of the 90th day after your contract was issued, we
will total your Purchase Payments remaining in your contract at that time,
without considering any investment gain or loss in contract value on those
Purchase Payments. If your total Purchase Payments bring you to an Enhancement
Level which, as of the date we issued your contract, would have provided for a
higher Upfront and/or Deferred Payment Enhancement Rate on each Purchase
Payment, you will get the benefit of the Enhancement Rate(s) that were
applicable to that higher Enhancement Level at the time your contract was
issued.
This example assumes the following:
(1) No withdrawal in the first 90 days.
(2) Initial Purchase Payment of $50,000 on November 1, 2000.
(3) Subsequent Purchase Payment of $50,000 on January 15, 2001.
(4) Subsequent Purchase Payment of $25,000 on January 28, 2001.
ENHANCEMENT AT THE TIME PURCHASE PAYMENT RECEIVED
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
DEFERRED
PURCHASE UPFRONT DEFERRED PAYMENT
PAYMENT PAYMENT PAYMENT ENHANCEMENT
DATE OF PURCHASE PAYMENT AMOUNT ENHANCEMENT ENHANCEMENT DATE
- ---------------------------------------------------------------------------------------------------
November 1, 2000 $50,000 2% 0% N/A
- ---------------------------------------------------------------------------------------------------
January 15, 2001 $50,000 2% 1% January 15, 2010
- ---------------------------------------------------------------------------------------------------
January 28, 2001 $25,000 2% 1% January 28, 2010
- ---------------------------------------------------------------------------------------------------
</Table>
ENHANCEMENT ADJUSTMENTS ON THE 90TH DAY FOLLOWING CONTRACT ISSUE
The sum of all Purchase Payments made in the first 90 days of the contract
equals $125,000. According to the Enhancement Levels in effect at the time this
contract was issued, a $125,000 Purchase Payment would have received a 2%
Upfront Payment Enhancement and a 1% Deferred Payment Enhancement. Under the 90
Day Window provision all Purchase Payments made within those first 90 days would
receive the benefit of the parameters in place at the time the contract was
issued, as if all of the Purchase Payments were received on the date of issue.
Thus, the first two payment enhancements would be adjusted at the end of the 90
days as follows:
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
DEFERRED
PURCHASE UPFRONT DEFERRED PAYMENT
PAYMENT PAYMENT PAYMENT ENHANCEMENT
DATE OF PURCHASE PAYMENT AMOUNT ENHANCEMENT ENHANCEMENT DATE
- ---------------------------------------------------------------------------------------------------
November 1, 2000 $50,000 2% 1% November 1, 2009
- ---------------------------------------------------------------------------------------------------
January 15, 2001 $50,000 2% 1% January 15, 2010
- ---------------------------------------------------------------------------------------------------
January 28, 2001 $25,000 2% 1% January 28, 2010
- ---------------------------------------------------------------------------------------------------
</Table>
B-2
APPENDIX C - MARKET VALUE ADJUSTMENT
- --------------------------------------------------------------------------------
The information in this Appendix applies only if you take money out of a FAGP
(with a duration longer than 1 year) before the end of the guarantee period.
We calculate the MVA by doing a comparison between current rates and the rate
being credited to you in the FAGP. For the current rate we use a rate being
offered by us for a guarantee period that is equal to the time remaining in the
FAGP from which you seek withdrawal. 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 between 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 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 Withdrawal
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 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.
C-1
NEGATIVE ADJUSTMENT, NO WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 5.5% and the 3-year FAGP is 6.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 6%. No
withdrawal charge is reflected in this example, assuming that the Purchase
Payment withdrawn falls with the free withdrawal amount.
The MVA factor is
= [(1+I)/(1+J+0.005)] (N/12) - 1
= [(1.05)/(1.06+0.005)] (18/12) - 1
= (0.985915) (1.5) - 1
= 0.978948 - 1
= - 0.021052
The requested withdrawal amount is multiplied by the MVA factor to determine the
MVA:
$4,000 X (-0.021052) = -$84.21
$84.21 represents the negative MVA that will be deducted from the money
remaining in the 3-year FAGP.
POSITIVE ADJUSTMENT, WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for a new
Purchase Payments in the 1-year FAGP is 3.5% and the 3-year FAGP is 4.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 4%. A
withdrawal charge of 6% is reflected in this example, assuming that the Purchase
Payment withdrawn exceeds the free withdrawal amount.
The MVA factor is
= [(1+I)/(I+J+0.005)] (N/12) - 1
= [(1.05)/(1.04+0.005)] (18/12) - 1
= (1.004785) (1.5) - 1
= 1.007186 - 1
= +0.007186
The requested withdrawal amount, less the withdrawal charge ($4,000 - 6% =
$3,760) is multiplied by the MVA factor to determine the MVA:
$3,760 X (+0.007186) = +$27.02
$27.02 represents the positive MVA that would be added to the withdrawal.
NEGATIVE ADJUSTMENT, WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 5.5% and the 3-year FAGP is 6.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 6%. A
withdrawal charge of 6% is reflected in this example, assuming that the Purchase
Payment withdrawn exceeds the free withdrawal amount.
The MVA factor is
= [(1+I)/(I+J+0.005)] (N/12) - 1
= [(1.05)/(1.06+0.005)] (18/12) - 1
= (0.985916) (1.5) - 1
= 0.978949 - 1
= -0.021051
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.
C-2
APPENDIX D - 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 (and fees and charges applicable to those
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:
A. If the Continuing Spouse is age 74 or younger at the time of death, 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 date of death of the
Continuing Spouse, plus any Purchase Payments recorded after the date
of death of the Continuing Spouse; and reduced for any withdrawals
(and fees and charges applicable to those withdrawals) recorded after
the 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.
B. If the Continuing Spouse is age 75 or older at the time of death the
Standard Death Benefit is the greater of:
1. Continuation Net Purchase Payments compounded at a 3% annual growth
rate from the Continuation Date until the Continuing Spouse's 75th
birthday, plus any Purchase Payments recorded after the Continuing
Spouse's 75th birthday; and reduced for any withdrawal (and fees and
charges applicable to those withdrawals) recorded after the 75th
birthday, 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:
A. If the Continuing Spouse is age 74 or younger at the time of death, the
death benefit is the greater of:
1. Net Purchase Payments compounded at a 3% annual growth rate from the
date of issue until the date of death, plus any Purchase Payments
recorded after the date of death; and reduced for any withdrawals
(and fees and charges applicable to those withdrawals) recorded after
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.
B. If the Continuing Spouse is age 75 or older at the time of death, the
death benefit is the greater of:
1. Net Purchase Payments compounded at a 3% annual growth rate from the
date of issue until your Continuing Spouse's 75(th) birthday, plus
any Purchase Payments recorded after the 75(th) birthday, and reduced
for any withdrawals (and fees and charges applicable to those
withdrawals) recorded after the
D-1
75(th) birthday, in the same proportion that the withdrawal reduced
the contract value on the date of the withdrawal.
2. the contract value at the time we receive 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 sum of A plus B, where:
A. equals the amount payable under the selected enhanced death benefit
(option 1 or 2 below, as selected by the original owner); and
B. equals the amount payable, if any, under the Earnings Advantage benefit.
A. Enhanced Death Benefit Options for Spousal Continuation:
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
(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 Continuation Net
Purchase Payments.
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 the Continuing Spouse's death; or
b. Net Purchase Payments made from the date of issue compounded to the
earlier of the Continuing Spouse's 80(th) birthday or the date of
death at a 5% annual growth rate, plus any Purchase Payments recorded
after the 80(th) birthday or the date of death; and reduced for any
withdrawals (and fees and charges applicable to those withdrawals)
recorded after the 80(th) 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.
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 greater
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 (and fees and charges applicable to those withdrawals)
recorded after that
D-2
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 greater 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 (and fees and
charges applicable to those withdrawals) recorded after that
anniversary, in the same proportion that the withdrawal reduced the
contract value on the date of the withdrawal.
If the Continuing Spouse is age 90 or older at the time of death and the Maximum
Anniversary Value option applied, the death benefit will be equal to the
contract value at the time we receive 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.
B. 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
Seasons Estate 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.
If a Continuation Contribution has been made, 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
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 MUST BE INVESTED FOR AT LEAST SIX 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).
D-3
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 reaching age 95.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE SPOUSAL CONTINUATION
PROVISION (IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME ON PROSPECTIVELY ISSUED
CONTRACTS.
D-4
APPENDIX E - 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 Seasons
Rewards, Seasons Estate Advantage, Earnings Advantage or Seasons Promise.
<Table>
- -----------------------------------------------------------------------------------------------------------------------------
ANNUAL INCOME IF YOU ANNUITIZE ON THE FOLLOWING CONTRACT ANNIVERSARIES:
9 10 15 20
IF AT ISSUE YOU ARE... 1-8 (AGE 69) (AGE 70) (AGE 75) (AGE 80)
- -----------------------------------------------------------------------------------------------------------------------------
Male (M), Age 60* N/A 6,480 6,672 7,716 8,832
- -----------------------------------------------------------------------------------------------------------------------------
Female (F), Age 60* N/A 5,700 5,880 6,900 8,112
- -----------------------------------------------------------------------------------------------------------------------------
M and F, Age 60** N/A 4,920 5,028 5,544 5,928
- -----------------------------------------------------------------------------------------------------------------------------
</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.
Election of the Income Protector Program is not permitted if the Seasons Promise
or Seasons Income Rewards benefit is elected.
E-1
Please forward a copy (without charge) of the Seasons Select(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