As filed pursuant to Rule 424(B)(3) under
the Securities Act of 1933 Registration
No. 333-70252
[POLARISAMERICA LOGO]
PROSPECTUS
MAY 3, 2004
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Please read this prospectus carefully FLEXIBLE PAYMENT DEFERRED ANNUITY CONTRACTS
before investing and keep it for issued by
future reference. It contains AIG SUNAMERICA LIFE ASSURANCE COMPANY
important information about the in connection with
PolarisAmerica Variable Annuity. VARIABLE SEPARATE ACCOUNT
The annuity has several investment choices -- both fixed account options
To learn more about the annuity and Variable Portfolios listed below. The Variable Portfolios are part of
offered by this prospectus, you can the Anchor Series Trust ("AST"), the SunAmerica Series Trust ("SAST") or
obtain a copy of the Statement of the Nations Separate Account Trust ("NSAT").
Additional Information ("SAI") dated STOCKS:
May 3, 2004. The SAI has been filed MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
with the Securities and Exchange - Aggressive Growth Portfolio SAST
Commission ("SEC") and is - Blue Chip Growth Portfolio SAST
incorporated by reference into this MANAGED BY ALLIANCE CAPITAL MANAGEMENT, L.P.
prospectus. The Table of Contents of - Alliance Growth Portfolio SAST
the SAI appears on page 24 of this - Global Equities Portfolio SAST
prospectus. For a free copy of the - Growth-Income Portfolio SAST
SAI, call us at 1-877-932-SUN9 or MANAGED BY BANC OF AMERICA CAPITAL MANAGEMENT, LLC
write to us at our Annuity Service - Nations MidCap Growth Portfolio NSAT
Center, P.O. Box 54299, Los Angeles, - Nations Small Company Portfolio NSAT
California 90054-0299. - Nations Value Portfolio NSAT
MANAGED BY BRANDES INVESTMENT PARTNERS, L.P.
In addition, the SEC maintains a - Nations International Value Portfolio NSAT
website (http://www.sec.gov) that MANAGED BY DAVIS ADVISORS
contains the SAI, materials - Davis Venture Value Portfolio SAST
incorporated by reference and other MANAGED BY MARSICO CAPITAL MANAGEMENT, LLC
information filed electronically with - Nations Marsico 21st Century Portfolio NSAT
the SEC by AIG SunAmerica Life - Nations Marsico Focused Equities Portfolio NSAT
Assurance Company. - Nations Marsico Growth Portfolio NSAT
- Nations Marsico International Opportunities Portfolio NSAT
ANNUITIES INVOLVE RISKS, INCLUDING MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
POSSIBLE LOSS OF PRINCIPAL, AND ARE - MFS Massachusetts Investors Trust Portfolio SAST
NOT A DEPOSIT OR OBLIGATION OF, OR - MFS Mid-Cap Growth Portfolio SAST
GUARANTEED OR ENDORSED BY, ANY BANK. MANAGED BY PUTNAM INVESTMENT MANAGEMENT LLC
THEY ARE NOT FEDERALLY INSURED BY THE - Emerging Markets Portfolio SAST
FEDERAL DEPOSIT INSURANCE - International Growth & Income Portfolio SAST
CORPORATION, THE FEDERAL RESERVE - Putnam Growth: Voyager Portfolio SAST
BOARD OR ANY OTHER AGENCY. MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio AST
BALANCED:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- SunAmerica Balanced Portfolio SAST
MANAGED BY BANC OF AMERICA CAPITAL MANAGEMENT, LLC
- Nations Asset Allocation Portfolio NSAT
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Total Return Portfolio SAST
BONDS:
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
- Global Bond Portfolio SAST
MANAGED BY MACKAY SHIELDS LLC
- Nations High Yield Bond Portfolio NSAT
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Government & Quality Bond Portfolio AST
CASH:
MANAGED BY BANC OF AMERICA CAPITAL MANAGEMENT, LLC
- Cash Management Portfolio SAST
</Table>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
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AIG SunAmerica Life's Annual Report on Form 10-K for the year ended December 31,
2003 is incorporated herein by reference.
All documents or reports filed by AIG SunAmerica Life under Section 13(a),
13(c), 14, or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") after the effective date of this prospectus 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 above
documents incorporated by reference. Requests for these documents should be
directed to AIG SunAmerica Life's Annuity Service Center, as follows:
AIG SunAmerica Life Assurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
Telephone Number: (800) 445-SUN2
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SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION
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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
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TABLE OF CONTENTS
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 2
SECURITIES AND EXCHANGE COMMISSION POSITION ON
INDEMNIFICATION........................................... 2
GLOSSARY.................................................... 3
HIGHLIGHTS.................................................. 4
FEE TABLE................................................... 5
Owner Transaction Expenses............................ 5
Contract Maintenance Fee.............................. 5
Annual Separate Account Expenses...................... 5
Optional EstatePlus Fee...............................
Portfolio Expenses.................................... 5
EXAMPLES.................................................... 6
THE POLARISAMERICA VARIABLE ANNUITY......................... 7
PURCHASING A POLARISAMERICA VARIABLE ANNUITY................ 7
Allocation of Purchase Payments....................... 8
Accumulation Units.................................... 8
Free Look............................................. 8
Exchange Offers....................................... 8
INVESTMENT OPTIONS.......................................... 9
Variable Portfolios................................... 9
Anchor Series Trust............................... 9
SunAmerica Series Trust........................... 9
Nations Separate Account Trust.................... 9
Fixed Account Options................................. 9
Transfers During the Accumulation Phase............... 10
Dollar Cost Averaging Program......................... 11
Asset Allocation Rebalancing Program.................. 12
Return Plus Program................................... 12
Voting Rights......................................... 12
Substitution.......................................... 12
ACCESS TO YOUR MONEY........................................ 13
Systematic Withdrawal Program......................... 14
Nursing Home Waiver................................... 14
Minimum Contract Value................................ 14
DEATH BENEFIT............................................... 14
Purchase Payment Accumulation Option.................. 15
Maximum Anniversary Option............................ 15
EstatePlus............................................ 15
Spousal Continuation.................................. 16
EXPENSES.................................................... 17
Insurance Charges..................................... 17
Withdrawal Charges.................................... 17
Investment Charges.................................... 17
Contract Maintenance Fee.............................. 17
Transfer Fee.......................................... 17
EstatePlus Fee........................................ 17
Premium Tax........................................... 17
Income Taxes.......................................... 18
Reduction or Elimination of Charges and Expenses,
and Additional Amounts Credited..................... 18
INCOME OPTIONS.............................................. 18
Annuity Date.......................................... 18
Income Options........................................ 18
Fixed or Variable Income Payments..................... 19
Income Payments....................................... 19
Transfers During the Income Phase..................... 19
Deferment of Payments................................. 19
The Income Protector Feature.......................... 19
TAXES....................................................... 20
Annuity Contracts in General.......................... 20
Tax Treatment of Distributions - Non-Qualified
Contracts............................................. 21
Tax Treatment of Distributions - Qualified
Contracts............................................. 21
Minimum Distributions................................. 21
Tax Treatment of Death Benefits....................... 22
Contracts Owned by a Trust or Corporation............. 22
Gifts, Pledges and/or Assignments of a Contract....... 22
Diversification and Investor Control.................. 22
PERFORMANCE................................................. 23
OTHER INFORMATION........................................... 23
AIG SunAmerica Life................................... 23
The Separate Account.................................. 23
The General Account................................... 23
Payment in Connection with Distribution of the
Contract.............................................. 23
Administration........................................ 24
Legal Proceedings..................................... 24
Ownership............................................. 24
Independent Accountants............................... 24
Registration Statement................................ 24
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL
INFORMATION............................................... 25
APPENDIX A -- CONDENSED FINANCIAL INFORMATION............... A-1
APPENDIX B -- MARKET VALUE ADJUSTMENT ("MVA")............... B-1
APPENDIX C -- DEATH BENEFITS FOLLOWING SPOUSAL
CONTINUATION.................................. C-1
APPENDIX D -- HYPOTHETICAL EXAMPLE OF THE OPERATION OF THE
INCOME PROTECTOR FEATURE...................... D-1
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GLOSSARY
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We have capitalized some of the technical terms used in this prospectus.
To help you understand these terms, we have defined them in this
glossary.
ACCUMULATION PHASE - The period during which you invest money in your
contract.
ACCUMULATION UNITS - A measurement we use to calculate the value of the
variable portion of your contract during the Accumulation Phase.
ANNUITANT(S) - The person(s) on whose life (lives) we base income
payments.
ANNUITY DATE - The date on which income payments are to begin, as
selected by you.
ANNUITY UNITS - A measurement we use to calculate the amount of income
payments you receive from the variable portion of your contract during
the Income Phase.
BENEFICIARY - The person designated to receive any benefits under the
contract if you or the Annuitant dies.
COMPANY - AIG SunAmerica Life Assurance Company, we, us or our, the
insurer that issues this contract. Only "AIG SunAmerica Life" is the
capitalized term in the prospectus.
INCOME PHASE - The period during which we make income payments to you.
IRS - The Internal Revenue Service.
LATEST ANNUITY DATE - Your 90th birthday 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 IRA.
TRUSTS - Refers to the Anchor Series Trust, the SunAmerica Series Trust
and the Nations Separate Account Trust collectively.
VARIABLE PORTFOLIO(S) - The variable investment options available under
the contract. Each Variable Portfolio has its own investment objective
and is invested in the underlying investments of the Anchor Series
Trust, SunAmerica Series Trust or the Nations Separate Account Trust.
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3
AIG SUNAMERICA LIFE OFFERS SEVERAL DIFFERENT VARIABLE ANNUITY PRODUCTS TO MEET
THE DIVERSE NEEDS OF OUR INVESTORS. EACH PRODUCT PROVIDES DIFFERENT FEATURES AND
BENEFITS OFFERED AT DIFFERENT FEES, CHARGES AND EXPENSES. WHEN WORKING WITH YOUR
FINANCIAL REPRESENTATIVE TO DETERMINE THE BEST PRODUCT TO MEET YOUR NEEDS YOU
SHOULD CONSIDER, AMONG OTHER THINGS, WHETHER THE FEATURES OF THIS CONTRACT AND
THE RELATED FEES PROVIDE THE MOST APPROPRIATE PACKAGE TO HELP YOU MEET YOUR
LONG-TERM RETIREMENT SAVINGS GOALS.
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HIGHLIGHTS
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The PolarisAmerica Variable Annuity is a contract between you and AIG SunAmerica
Life Assurance Company ("AIG SunAmerica Life"). It is designed to help you
invest on a tax-deferred basis and meet long-term financial goals. There are
minimum Purchase Payment amounts required to purchase a contract. Purchase
payments may be invested in a variety of variable and fixed account options.
Like all deferred annuities, the contract has an Accumulation Phase and an
Income Phase. During the Accumulation Phase, you invest money in your contract.
The Income Phase begins when you start receiving income payments from your
annuity to provide for your retirement.
FREE LOOK: If you decide to cancel your contract within 10 days after receiving
it (or whatever period is required in your state), we will cancel the contract
without charging a withdrawal charge. You will receive whatever your contract is
worth on the day that we receive your request. This amount may be more or less
than your original Purchase Payment. We will return your original Purchase
Payment if required by law. Please see PURCHASING A POLARISAMERICA VARIABLE
ANNUITY in the prospectus.
EXPENSES: There are fees and charges associated with the contract. Each year, we
deduct a $35 contract maintenance fee from your contract, which may be waived
for contracts of $50,000 or more. We also deduct insurance charges, which equal
1.52% annually of the average daily value of your contract allocated to the
Variable Portfolios. There are investment charges on amounts invested in the
Variable Portfolios. If you elect optional features available under the contract
we may charge additional fees for these features. A separate withdrawal charge
schedule applies to each Purchase Payment. The amount of the withdrawal charge
declines over time. After a Purchase Payment has been in the contract for seven
complete years, withdrawal charges no longer apply to that portion of the
Purchase Payment. Please see the FEE TABLE, PURCHASING A POLARISAMERICA 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: (877) 932-SUN9.
PLEASE READ THE PROSPECTUS CAREFULLY FOR MORE DETAILED INFORMATION REGARDING
THESE AND OTHER FEATURES
AND BENEFITS OF THE CONTRACT, AS WELL AS THE RISKS OF INVESTING.
4
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FEE TABLE
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THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY AT THE TIME THAT
YOU BUY THE CONTRACT, TRANSFER CASH VALUE BETWEEN INVESTMENT OPTIONS OR
SURRENDER THE CONTRACT, OR TRANSFER CASH VALUE BETWEEN INVESTMENT OPTIONS. IF
APPLICABLE, YOU MAY ALSO BE SUBJECT TO STATE PREMIUM TAXES.
MAXIMUM OWNER TRANSACTION EXPENSES
MAXIMUM WITHDRAWAL CHARGES (AS A PERCENTAGE OF EACH PURCHASE PAYMENT)(1)......7%
<Table>
TRANSFER FEE.......... No charge for the first 15 transfers each
contract year; thereafter, the fee is $25
($10 in Pennsylvania and Texas) per
transfer
</Table>
THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY PERIODICALLY
DURING THE TIME THAT YOU OWN THE CONTRACT, NOT INCLUDING UNDERLYING PORTFOLIO
FEES AND EXPENSES WHICH ARE OUTLINED IN THE NEXT SECTION.
CONTRACT MAINTENANCE FEE
$35 ($30 in North Dakota) waived if contract value $50,000 or more
SEPARATE ACCOUNT ANNUAL EXPENSES
(DEDUCTED DAILY AS A PERCENTAGE OF YOUR AVERAGE DAILY NET ASSET VALUE)
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Mortality and Expense Risk Fees....................... 1.37%
Distribution Expense Fee.............................. 0.15%
Optional EstatePlus Fee(2)............................ 0.25%
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TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES.............. 1.77%
=====
</Table>
THE FOLLOWING SHOWS THE MINIMUM AND MAXIMUM TOTAL OPERATING EXPENSES CHARGED BY
THE UNDERLYING PORTFOLIOS OF THE TRUSTS BEFORE ANY WAIVERS OR REIMBURSEMENTS
THAT YOU MAY PAY PERIODICALLY DURING THE TIME THAT YOU OWN THE CONTRACT. MORE
DETAIL CONCERNING THE TRUSTS' FEES AND EXPENSES IS CONTAINED IN THE PROSPECTUS
FOR EACH OF THE TRUSTS. PLEASE READ THEM CAREFULLY BEFORE INVESTING.
PORTFOLIO EXPENSES
<Table>
<Caption>
TOTAL ANNUAL UNDERLYING PORTFOLIO EXPENSES MINIMUM MAXIMUM
------------------------------------------ ------- -------
(expenses that are deducted from the underlying portfolios
of the Trusts, including management fees and other
expenses).................................................. 0.54% 2.06%
</Table>
FOOTNOTES TO FEE TABLE
(1) Withdrawal Charge Schedule (as a percentage of each Purchase Payment)
Declines over 7 years as follows:
<Table>
YEARS:...................................................... 1 2 3 4 5 6 7 8+
7% 6% 5% 4% 3% 2% 1% 0%
</Table>
(2) EstatePlus, an enhanced death benefit feature is optional. If you do not
elect the EstatePlus feature your total separate account annual expenses
would be 1.52%.
5
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MAXIMUM AND MINIMUM EXPENSE EXAMPLES
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These examples are intended to help you compare the cost of investing in the
contract with the cost of investing in other variable annuity contracts. These
costs include owner transaction expenses, contract maintenance fees, separate
account annual expenses and fees and expenses of the underlying portfolios of
the Trusts.
The Examples assume that you invest $10,000 in the contract for the time periods
indicated; that your investment has a 5% return each year; and that the maximum
and minimum fees and expenses of the Trusts are reflected. Although your actual
costs may be higher or lower, based on these assumptions, your costs at the end
of the stated period would be:
MAXIMUM EXPENSE EXAMPLES
(ASSUMING MAXIMUM SEPARATE ACCOUNT ANNUAL EXPENSES OF 1.77% (INCLUDING
ESTATEPLUS) AND INVESTMENT IN AN UNDERLYING PORTFOLIO WITH TOTAL EXPENSES OF
2.06%)
(1) If you surrender your contract at the end of the applicable time period and
you elect the optional EstatePlus (0.25%) feature:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$1,090 $1,683 $2,294 $4,103
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</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
- -------------------------------------
- -------------------------------------
$360 $1,096 $1,854 $3,843
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</Table>
(3) If you do not surrender your contract and you elect the optional EstatePlus
(0.25%) feature:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$390 $1,183 $1,994 $4,103
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</Table>
MINIMUM EXPENSE EXAMPLES
(ASSUMING MINIMUM SEPARATE ACCOUNT ANNUAL CHARGES OF 1.52% AND INVESTMENT IN AN
UNDERLYING PORTFOLIO WITH TOTAL EXPENSES OF 0.54%)
(1) If you surrender your contract at the end of the applicable time period and
you do not elect any optional features:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$914 $1,161 $1,434 $2,441
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</Table>
(2) If you annuitize your contract at the end of the applicable time period:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$209 $646 $1,108 $2,390
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- -------------------------------------
</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
- -------------------------------------
- -------------------------------------
$214 $661 $1,134 $2,441
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</Table>
EXPLANATION OF FEE TABLE AND EXAMPLES
1. The purpose of the Fee Table is to show you the various expenses you would
incur directly and indirectly by investing in the contract. The table
represents both fees at the separate account (contract) level, as well as
total annual underlying portfolio expenses. We converted the contract
maintenance fee to a percentage (0.05%). Additional information on the
portfolio company fees can be found in the Trust prospectuses located behind
this prospectus.
2. In addition to the stated assumptions, the Examples also assume separate
account expenses as indicated and that no transfer fees were imposed.
Although premium taxes may apply in certain states, they are not reflected
in the Examples.
3. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE HISTORICAL ACCUMULATION UNIT VALUES ARE CONTAINED IN APPENDIX A -- CONDENSED
FINANCIAL INFORMATION.
6
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THE POLARISAMERICA VARIABLE ANNUITY
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An annuity is a contract between you and an insurance company. You are the owner
of the contract. The contract provides three main benefits:
- Tax Deferral: This means that you do not pay taxes on your earnings from
the annuity until you withdraw them.
- Death Benefit: If you die during the Accumulation Phase, the insurance
company pays a death benefit to your Beneficiary.
- Guaranteed Income: If elected, you receive a stream of income for your
lifetime, or another available period you select.
Tax-qualified retirement plans (e.g., IRAs, 401(k) or 403(b) plans) defer
payment of taxes on earnings until withdrawal. If you are considering funding a
tax-qualified retirement plan with an annuity, you should know that an annuity
does not provide any additional tax deferral treatment of earnings beyond the
treatment provided by the tax-qualified retirement plan itself. However,
annuities do provide other features and benefits which may be valuable to you.
You should fully discuss this decision with your financial representative.
This annuity was developed to help you contribute to your retirement savings.
This annuity works in two stages, the Accumulation Phase and the Income Phase.
Your contract is in the Accumulation Phase during the period when you make
payments into the contract. The Income Phase begins when you request us to start
making income payments to you out of the money accumulated in your contract.
The contract is called a "variable" annuity because it allows you to invest in
Variable Portfolios which like mutual funds, have different investment
objectives and performance which varies. You can gain or lose money if you
invest in these Variable Portfolios. The amount of money you accumulate in your
contract depends on the performance of the Variable Portfolios in which you
invest.
Fixed account options earn interest at a rate set and guaranteed by AIG
SunAmerica Life. If you allocate money to the fixed account options, the amount
of money that accumulates in the contract depends on the total interest credited
to the particular fixed account option(s) in which you invest.
For more information on investment options available under this contract SEE
INVESTMENT OPTIONS BELOW.
This annuity is designed to assist in contributing to retirement savings of
investors whose personal circumstances allow for a long-term investment time
horizon. As a function of the Internal Revenue Code ("IRC"), you may be assessed
a 10% federal tax penalty on the taxable portion of any withdrawal made prior to
your reaching age 59 1/2. Additionally, this contract provides that you will be
charged a withdrawal charge on each Purchase Payment withdrawn if that Purchase
Payment has not been invested in this contract for at least 7 years. Because of
these potential penalties, you should fully discuss all of the benefits and
risks of this contract with your financial representative prior to purchase.
AIG SunAmerica Life issues the PolarisAmerica Variable Annuity. When you
purchase a PolarisAmerica Variable Annuity, a contract exists between you and
AIG SunAmerica Life. The Company is a stock life insurance company organized
under the laws of the state of Arizona. Its principal place of business is 1
SunAmerica Center, Los Angeles, California 90067. The Company conducts life
insurance and annuity business in the District of Columbia and all states except
New York. AIG SunAmerica Life is an indirect, wholly owned subsidiary of
American International Group, Inc. ("AIG"), a Delaware corporation.
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PURCHASING A POLARISAMERICA VARIABLE ANNUITY
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An initial Purchase Payment is the money you give us to buy a contract. Any
additional money you give us to invest in the contract after purchase is a
subsequent Purchase Payment.
The following chart shows the minimum initial and subsequent Purchase Payments
permitted under your contract. These amounts depend upon whether a contract is
Qualified or Non-qualified for tax purposes. FOR FURTHER EXPLANATION, SEE TAXES
BELOW.
<Table>
<Caption>
- -----------------------------------------------------------
Minimum
Minimum Initial Subsequent
Purchase Payment Purchase Payment
- -----------------------------------------------------------
Qualified $2,000 $250
- -----------------------------------------------------------
Non-Qualified $5,000 $500
- -----------------------------------------------------------
</Table>
We reserve the right to require Company approval prior to accepting Purchase
Payments greater than $1,000,000. For contracts owned by a non-natural owner, we
reserve the right to require prior Company approval to accept Purchase Payments
greater than $250,000. Subsequent Purchase Payments that would cause total
Purchase Payments in all contracts issued by AIG SunAmerica Life and First
SunAmerica Life Insurance Company, an affiliate of AIG SunAmerica Life, to the
same owner to exceed these limits may also be subject to company pre-approval.
We reserve the right to change the amount at which pre-approval is required, at
any time.
Once you have contributed at least the minimum initial Purchase Payment, you can
establish an automatic payment plan that allows you to make subsequent Purchase
Payments of as little as $20.
In general, we will not issue a Qualified contract to anyone who is age 70 1/2
or older, unless it is shown that the minimum distribution required by the IRS
is being made. In addition, we may not issue a contract to anyone age 91 or
older. You
7
may not elect EstatePlus if you are age 81 or older at the time of contract
issue.
We allow spouses to jointly own this contract. However, the age of the older
spouse is used to determine the availability of any age driven benefits. The
addition of a joint owner after the contract has been issued is contingent upon
prior review and approval by the Company.
If we learn of a misstatement of age, we reserve the right to fully pursue our
remedies including termination of the contract and/or revocation of any
age-driven benefit.
You may assign this contract before beginning the Income Phase by sending us a
written request for an assignment. Your rights and those of any other person
with rights under this contract will be subject to the assignment. WE RESERVE
THE RIGHT TO NOT RECOGNIZE ASSIGNMENTS IF IT CHANGES THE RISK PROFILE OF THE
OWNER OF THE CONTRACT, AS DETERMINED IN OUR SOLE DISCRETION. Please see the
Statement of Additional Information for details on the tax consequences of an
assignment.
ALLOCATION OF PURCHASE PAYMENTS
We invest your Purchase Payments in the fixed and variable investment options
according to your instructions. If we receive a Purchase Payment without
allocation instructions, we will invest the money according to your last
allocation instructions. SEE INVESTMENT OPTIONS BELOW.
In order to issue your contract, we must receive your completed application,
and/or Purchase Payment allocation instructions and any other required paperwork
at our principal place of business. We allocate your initial Purchase Payment
within two days of receiving it. If we do not have complete information
necessary to issue your contract, we will contact you. If we do not have the
information necessary to issue your contract within 5 business days we will send
your money back to you; or ask your permission to keep your money until we get
the information necessary to issue the contract.
ACCUMULATION UNITS
When you allocate a Purchase Payment to the Variable Portfolios, we credit your
contract with Accumulation Units of the separate account. We base the number of
Accumulation Units you receive on the unit value of the Variable Portfolio as of
the day we receive your money if we receive it before 1 p.m. Pacific Standard
Time, or on the next business day's unit value if we receive your money after 1
p.m. Pacific Standard Time. The value of an Accumulation Unit goes up and down
based on the performance of the Variable Portfolios.
We calculate the value of an Accumulation Unit each day that the New York Stock
Exchange ("NYSE") is open as follows:
1. We determine the total value of money invested in a particular Variable
Portfolio;
2. We subtract from that amount all applicable contract charges; and
3. We divide this amount by the number of outstanding Accumulation Units.
We determine the number of Accumulation Units credited to your contract by
dividing the Purchase Payment by the Accumulation Unit value for the specific
Variable Portfolio.
EXAMPLE:
We receive a $25,000 Purchase Payment from you on Wednesday. You allocate
the money to the Global Bond Portfolio. We determine that the value of an
Accumulation Unit for the Global Bond Portfolio is $11.10 when the NYSE
closes on Wednesday. We then divide $25,000 by $11.10 and credit your
contract on Wednesday night with 2252.2523 Accumulation Units for the
Global Bond Portfolio.
Performance of the Variable Portfolios and expenses under your contract affect
Accumulation Unit values. These factors cause the value of your contract to go
up and down.
FREE LOOK
You may cancel your contract within ten days after receiving it (or longer if
required by state law). We call this a "free look." To cancel, you must mail the
contract along with your free look request to our Annuity Service Center at P.O.
Box 54299, Los Angeles, California 90054-0299.
If you decide to cancel your contract during the free look period, generally we
will refund to you the value of your contract on the day we receive your
request.
Certain states require us to return your Purchase Payments upon a free look
request. Additionally, all contracts issued as an IRA require the full return of
Purchase Payments upon a free look. With respect to those contracts, we reserve
the right to put your money in the Cash Management Portfolio during the free
look period and will allocate your money according to your instructions at the
end of the applicable free look period. Currently, we do not put your money in
the Cash Management Portfolio during the free look period unless you allocate
your money to it. If your contract was issued in a state requiring return of
Purchase Payments or as an IRA and you cancel your contract during the free look
period, we return the greater of (1) your Purchase Payments; or (2) the value of
your contract.
EXCHANGE OFFERS
From time to time, we may offer to allow you to exchange an older variable
annuity issued by AIG SunAmerica Life or one of its affiliates, for a newer
product with more current features and benefits, also issued by AIG SunAmerica
Life or one of its affiliates. Such an exchange offer will be made in accordance
with applicable state and federal securities and insurance rules and
regulations. We will explain the specific terms and conditions of any such
exchange offer at the time the offer is made.
8
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INVESTMENT OPTIONS
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VARIABLE PORTFOLIOS
The Variable Portfolios invest in shares of the Anchor Series Trust, the
SunAmerica Series Trust and the Nations Separate Account Trust (the "Trusts").
Additional Variable Portfolios may be available in the future. The Variable
Portfolios are only available through the purchase of certain insurance
contracts.
The Trusts serve as the underlying investment vehicles for other variable
annuity contracts issued by AIG SunAmerica Life, and/or other
affiliated/unaffiliated insurance companies. Neither AIG SunAmerica Life nor the
Trusts believe that offering shares of the Trusts in this manner disadvantages
you. Each Trust's adviser monitors its Trust for potential conflicts.
ANCHOR SERIES TRUST ("AST")
Wellington Management Company, LLP serves as subadviser to the Anchor Series
Trust portfolios. Anchor Series Trust contains investment portfolios in addition
to those listed below, which are not available for investment under this
contract.
SUNAMERICA SERIES TRUST ("SAST")
Various subadvisers provide investment advice for the SunAmerica Series Trust
portfolios. SunAmerica Series Trust contains investment portfolios in addition
to those listed below, which are not available for investment under this
contract.
NATIONS SEPARATE ACCOUNT TRUST ("NSAT")
Various subadvisers provide investment advice for the Nations Separate Account
Trust portfolios. Nations Separate Account Trust contains investment portfolios
in addition to those listed below, which are not available for investment under
this contract.
The Variable Portfolios along with their respective subadvisers are listed
below:
STOCKS:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio SAST
- Blue Chip Growth Portfolio SAST
MANAGED BY ALLIANCE CAPITAL MANAGEMENT, L.P.
- Alliance Growth Portfolio SAST
- Global Equities Portfolio SAST
- Growth-Income Portfolio SAST
MANAGED BY BANC OF AMERICA CAPITAL MANAGEMENT, LLC
- Nations MidCap Growth Portfolio NSAT
- Nations Small Company Portfolio NSAT
- Nations Value Portfolio NSAT
MANAGED BY BRANDES INVESTMENT PARTNERS, L.P.
- Nations International Value Portfolio NSAT
MANAGED BY DAVIS ADVISORS
- Davis Venture Value Portfolio SAST
MANAGED BY MARSICO CAPITAL MANAGEMENT, LLC
- Nations Marsico 21st Century Portfolio NSAT
- Nations Marsico Focused Equities Portfolio NSAT
- Nations Marsico Growth Portfolio NSAT
- Nations Marsico Int'l Opportunities Portfolio NSAT
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Massachusetts Investors Trust Portfolio SAST
- MFS Mid-Cap Growth Portfolio SAST
MANAGED BY PUTNAM INVESTMENT MANAGEMENT LLC
- Emerging Markets Portfolio SAST
- International Growth & Income Portfolio SAST
- Putnam Growth: Voyager Portfolio SAST
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio AST
BALANCED:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- SunAmerica Balanced Portfolio SAST
MANAGED BY BANC OF AMERICA CAPITAL MANAGEMENT, LLC
- Nations Asset Allocation Portfolio NSAT
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Total Return Portfolio SAST
BONDS:
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT
- Global Bond Portfolio SAST
MANAGED BY MACKAY SHIELDS LLC
- Nations High Yield Bond Portfolio NSAT
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Government & Quality Bond Portfolio AST
CASH:
MANAGED BY BANC OF AMERICA CAPITAL MANAGEMENT, LLC
- Cash Management Portfolio SAST
YOU SHOULD READ THE ATTACHED PROSPECTUSES FOR THE TRUSTS CAREFULLY. THESE
PROSPECTUSES CONTAIN DETAILED INFORMATION ABOUT THE VARIABLE PORTFOLIOS,
INCLUDING EACH VARIABLE PORTFOLIO'S INVESTMENT OBJECTIVE AND RISK FACTORS.
FIXED ACCOUNT OPTIONS
Your contract may offer Fixed Account Guarantee Periods ("FAGP") to which you
may allocate certain Purchase Payments or contract value. Available guarantee
periods may 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.
9
There are three interest rate scenarios for money allocated to the FAGPs. Each
of these rates may differ from one another. Once declared, the applicable rate
is guaranteed until the corresponding guarantee period expires. Under each
scenario your money may be credited a different rate of interest as follows:
- Initial Rate: The rate credited to any portion of the initial Purchase
Payment allocated to a FAGP.
- Current Rate: The rate credited to any portion of the subsequent Purchase
Payments allocated to a FAGP.
- Renewal Rate: The rate credited to money transferred from a FAGP or a
Variable Portfolio into a FAGP and to money remaining in a FAGP after
expiration of a guarantee period.
When a FAGP ends, you may leave your money in the same FAGP or you may
reallocate your money to another FAGP or to the Variable Portfolios. If you want
to reallocate your money, you must contact us within 30 days after the end of
the current interest guarantee period and instruct us as to where you would like
the money invested. We do not contact you. If we do not hear from you, your
money will remain in the same FAGP where it will earn interest at the renewal
rate then in effect for that FAGP.
If you take money out of any available multi-year FAGP, before the end of the
guarantee period, we make an adjustment to your contract. We refer to the
adjustment as a market value adjustment ("MVA"). The MVA does not apply to any
available one year fixed account. The MVA reflects any difference in the
interest rate environment between the time you place your money in the FAGP and
the time when you withdraw or transfer that money. This adjustment can increase
or decrease your contract value. Generally, if interest rates drop between the
time you put your money into a FAGP and the time you take it out, we credit a
positive adjustment to your contract. Conversely, if interest rates increase
during the same period, we post a negative adjustment to your contract. You have
30 days after the end of each guarantee period to reallocate your funds without
incurring any MVA. APPENDIX B SHOWS HOW WE CALCULATE AND APPLY THE MVA.
If available, you may systematically transfer interest in available FAGPs into
any of the Variable Portfolios on certain periodic schedules offered by us.
Systematic transfers may be started, changed or terminated at any time by
contacting our Annuity Service Center. Check with you financial representative
about the current availability of this service.
All FAGPs may not be available in all states. At any time that we are crediting
the guaranteed minimum interest rate specified in your contract to the fixed
accounts, we reserve the right to restrict transfers and Purchase Payments into
the FAGPs. We may also offer the specific Dollar Cost Averaging Fixed Accounts
("DCAFA"). The rules, restrictions and operation of the DCAFAs may differ from
the standard FAGPs described above, please SEE DOLLAR COST AVERAGING BELOW FOR
MORE DETAILS.
DOLLAR COST AVERAGING FIXED ACCOUNTS
You may invest initial and/or subsequent Purchase Payments in the DCA fixed
accounts ("DCAFA"), if available. DCAFAs also credit a fixed rate of interest
but are specifically designed to facilitate a dollar cost averaging program.
Interest is credited to amounts allocated to the DCAFAs while your investment is
transferred to the Variable Portfolios over certain specified time frames. The
interest rates applicable to the DCAFA may differ from those applicable to any
available FAGPs but will never be less than the minimum annual guaranteed
interest rate as specified in your contract. However, when using a DCAFA the
annual interest rate is paid on a declining balance as you systematically
transfer your investment to the Variable Portfolios. Therefore, the actual
effective yield will be less than the annual crediting rate. We determine the
DCAFAs offered at any time in Our sole discretion and we reserve the right to
change to DCAFAs that we make available at any time, unless state law requires
us to do otherwise. SEE DOLLAR COST AVERAGING BELOW FOR MORE INFORMATION.
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase you may transfer funds between the Variable
Portfolios and/or any available fixed account options. Funds already in your
contract cannot be transferred into the DCA fixed accounts. You must transfer at
least $100 per transfer. If less than $100 remains in any Variable Portfolio
after a transfer, that amount must be transferred as well. We will process any
transfer request as of the day we receive it in good order if the request is
received before the New York Stock Exchange ("NYSE") closes, generally at 1:00
p.m. Pacific Time. If the transfer request is received after the close of the
NYSE, the request will be processed on the next business day.
This product is not designed for professional organizations or individuals
engaged in trading strategies that seek to benefit from short term price
fluctuations or price irregularities by making programmed transfers, frequent
transfers or transfers that are large in relation to the total assets of the
underlying portfolio in which the Variable Portfolios invest. These types of
trading strategies can be disruptive to the underlying portfolios in which the
Variable Portfolios invest and thereby potentially harmful to investors.
In connection with our efforts to control harmful trading, we may monitor your
trading activity. If we determine, in our sole discretion, that your transfer
patterns among the Variable Portfolios and/or available fixed accounts reflect a
potentially harmful trading strategy, we reserve the right to take action to
protect other investors. Such action may include, but may not be limited to,
restricting the way you can request transfers among the Variable Portfolios,
imposing penalty fees on such trading activity, and/or otherwise
10
restricting transfer capability in accordance with state and federal rules and
regulations. We will notify you, in writing, if we determine in our sole
discretion that we must terminate your transfer privileges. Some of the factors
we may consider when determining our transfer policies and/or other transfer
restrictions may include, but are not limited to:
- the number of transfers made in a defined period;
- the dollar amount of the transfer;
- the total assets of the Variable Portfolio involved in the transfer;
- the investment objectives of the particular Variable Portfolios involved
in your transfers; and/or
- whether the transfer appears to be part of a pattern of transfers to take
advantage of short-term market fluctuations or market inefficiencies.
Subject to our rules, restrictions and policies, you may request transfers of
your account value between the Variable Portfolios and/or the available fixed
account options by telephone or through AIG SunAmerica's website
(http://www.aigsunamerica.com) or in writing by mail or facsimile. We allow 15
free transfers per contract per year. We charge $25 ($10 in Pennsylvania and
Texas) for each additional transfer in any contract year. Transfers resulting
from your participation in the DCA or Asset Rebalancing programs do not count
against your 15 free transfers per contract year.
All transfer request in excess of 15 transfers per contract year must be
submitted in writing by United States Postal Service first-class mail ("U.S.
Mail") until your next contract anniversary. Transfer requests sent by same day
mail, overnight mail or courier services will not be accepted. Transfer requests
that are required to be submitted by U.S. Mail can only be cancelled by a
written request sent by U.S. Mail. Transfers resulting from your participation
in the DCA or Asset Rebalancing programs are not included for the purposes of
determining the number of transfers for the U.S. Mail requirement.
We may accept transfers by telephone or the Internet unless you tell us not to
on your contract application. When receiving instructions over the telephone or
the Internet, we follow appropriate procedures to provide reasonable assurance
that the transactions executed are genuine. Thus, we are not responsible for any
claim, loss or expense from any error resulting from instructions received over
the telephone or the Internet. If we fail to follow our procedures, we may be
liable for any losses due to unauthorized or fraudulent instructions.
For information regarding transfers during the Income Phase, see INCOME OPTIONS
below.
We reserve the right to modify, suspend, waive or terminate this transfer
provision at any time.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging ("DCA") program allows you to invest gradually in the
Variable Portfolios. Under the program you systematically transfer a set dollar
amount or percentage of portfolio value from one Variable Portfolio or the
1-year fixed account option (source account) to any other Variable Portfolio
(target accounts). Transfers may occur on certain periodic schedules, such as
monthly or weekly. You may change the frequency to other available options at
any time by notifying us in writing. The minimum transfer amount under the DCA
program is $100, per transfer, regardless of the source account. Fixed account
options are not available as target accounts for Dollar Cost Averaging. There is
no charge for participating in the DCA program.
We may also offer for specified time periods DCA fixed accounts exclusively to
facilitate this program. The DCA fixed accounts only accept new Purchase
Payments. You cannot transfer money already in your contract into these options.
If you allocate new Purchase Payments into a DCA fixed account, we transfer all
your money allocated to that account into the Variable Portfolios over the
selected time period at an offered frequency of your choosing. You cannot change
the frequency once selected.
We determine the amount of the transfers from the 1-year DCA fixed account based
on
- the total amount of money allocated to the account; and
- the frequency of transfers selected.
For example, let's say you allocate $1,000 to the 1-year DCA fixed account. 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 a DCA program at any time. If money remains in the DCA fixed
accounts, 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.
11
EXAMPLE:
Assume that you want to gradually move $750 each quarter from the Cash
Management Portfolio to the Aggressive Growth Portfolio over six quarters.
You set up dollar cost averaging and purchase Accumulation Units at the
following values:
<Table>
<Caption>
- ---------------------------------------------
ACCUMULATION UNITS
QUARTER UNIT PURCHASED
- ---------------------------------------------
1 $ 7.50 100
2 $ 5.00 150
3 $10.00 75
4 $ 7.50 100
5 $ 5.00 150
6 $ 7.50 100
- ---------------------------------------------
</Table>
You paid an average price of only $6.67 per Accumulation Unit over six
quarters, while the average market price actually was $7.08. By investing
an equal amount of money each month, you automatically buy more
Accumulation Units when the market price is low and fewer Accumulation
Units when the market price is high. This example is for illustrative
purposes only.
ASSET ALLOCATION REBALANCING PROGRAM
Earnings in your contract may cause the percentage of your investment in each
investment option to differ from your original allocations. The Automatic Asset
Rebalancing Program addresses this situation. At your election, we periodically
rebalance your investments in the Variable Portfolios to return your allocations
to their original percentages. Asset rebalancing typically involves shifting a
portion of your money out of an investment option with a higher return into an
investment option with a lower return. There is no charge for participating in
the Asset Rebalancing Program.
At your request, rebalancing occurs on a quarterly, semiannual or annual basis.
Transfers made as a result of rebalancing do not count against your 15 free
transfers for the contract year.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want your initial Purchase Payment split between two
Variable Portfolios. You want 50% in the Government and Quality Bond
Portfolio and 50% in the Putnam Growth: Voyager Portfolio. Over the next
calendar quarter, the bond market does very well while the stock market
performs poorly. At the end of the calendar quarter, the Government and
Quality Bond Portfolio now represents 60% of your holdings because it has
increased in value and the Putnam Growth: Voyager Portfolio represents 40%
of your holdings. If you had chosen quarterly rebalancing, on the last day
of that quarter, we would sell some of your units in the Government and
Quality Bond Portfolio to bring its holdings back to 50% and use the money
to buy more units in the Putnam Growth: Voyager Portfolio to increase those
holdings to 50%.
RETURN PLUS PROGRAM
The Return Plus Program, available if we are offering FAGPs, allows you to
invest in one or more Variable Portfolios without putting your principal at
direct risk. The program accomplishes this by allocating your investment
strategically between the fixed account options and Variable Portfolios. You
decide how much you want to invest and approximately when you want a return of
principal. We calculate how much of your Purchase Payment to allocate to the
particular fixed account option to ensure that it grows to an amount equal to
your total principal invested under this program. We invest the rest of your
principal in the Variable Portfolio(s) of your choice.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to allocate a portion of your initial Purchase Payment
of $100,000 to the fixed account option. You want the amount allocated to
the fixed account option to grow to $100,000 in 7 years. If the 7-year
fixed account option is offering a 5% interest rate, we will allocate
$71,069 to the 7-year fixed account option to ensure that this amount will
grow to $100,000 at the end of the 7-year period. The remaining $28,931 may
be allocated among the Variable Portfolios, as determined by you, to
provide opportunity for greater growth.
VOTING RIGHTS
AIG SunAmerica Life is the legal owner of the Trusts' shares. However, when a
Variable Portfolio solicits proxies in conjunction with a vote of shareholders,
we must obtain your instructions on how to vote those shares. We vote all of the
shares we own in proportion to your instructions. This includes any shares we
own on our own behalf. Should we determine that we are no longer required to
comply with these rules, we will vote the shares in our own right.
SUBSTITUTION
We may amend your contract due to changes to the Variable Portfolios offered
under your contract. For example, we may offer new Variable Portfolios, delete
Variable Portfolios, or stop accepting allocations and/or investments in a
particular Variable Portfolio. We may move assets and re-direct future premium
allocations from one Variable Portfolio to another if we receive investor
approval through a proxy vote or SEC approval for a fund substitution. This
would occur if a Variable Portfolio is no longer an appropriate investment for
the contract, for reasons such as continuing substandard performance, or for
changes to the portfolio manager, investment objectives, risks and strategies,
or federal or state
12
laws. The new Variable Portfolio offered may have different fees and expenses.
You will be notified of any upcoming proxies or substitutions that affect your
Variable Portfolio choices.
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ACCESS TO YOUR MONEY
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You can access money in your contract in two ways:
- by making a partial or total withdrawal, and/or;
- by receiving income payments during the Income Phase. SEE INCOME OPTIONS
BELOW.
Generally, we deduct a withdrawal charge applicable to any total or partial
withdrawal. If you withdraw your entire contract value, we also deduct
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
AT WHICH TIME THERE ARE PURCHASE PAYMENTS STILL SUBJECT TO SURRENDER CHARGES, WE
WILL CALCULATE THE WITHDRAWAL CHARGES AS IF YOUR PRIOR FREE WITHDRAWALS HAD NOT
BEEN TAKEN. WE WILL USE THE WITHDRAWAL CHARGE PERCENTAGE APPLICABLE AT THE TIME
OF THE FULL SURRENDER.
Purchase Payments withdrawn, above and beyond the amount of your free withdrawal
amount, which have been invested for less than 7 years will result in your
paying a penalty in the form of a withdrawal charge. The amount of the charge
and how it applies are discussed more fully below. SEE EXPENSES BELOW. You
should consider, before purchasing this contract, the effect this charge will
have on your investment if you need to withdraw more money than the free
withdrawal amount. You should fully discuss this decision with your financial
representative.
To determine your free withdrawal amount and 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 simply your account value
less your Total Invested Amount. The Total Invested Amount is the total of all
Purchase Payments you have made into the contract less portions of some prior
withdrawals you made. The portions of prior withdrawals that reduce your Total
Invested Amount are as follows:
- Withdrawals in excess of Penalty Free Earnings, that are free because the
Purchase Payment withdrawn has been invested for seven years or longer;
and
- Withdrawals on which you have previously paid a withdrawal charge, plus
the amount of the withdrawal charge.
When you make a withdrawal, we assume that it is taken from Penalty-Free
Earnings first, then from the Total Invested Amount on a first-in, first-out
basis. This means that you can also access your Purchase Payments which are no
longer subject to a withdrawal charge before those Purchase Payments which are
still subject to the withdrawal charge.
During your first contract year your free withdrawal amount is the greater of
(1) your penalty-free earnings; and (2) if you are participating in the
Systematic Withdrawal program, a total of 10% of your Total Invested Amount. If
you are a Washington resident, you may withdraw during the first contract year,
the greater of (1); (2); or (3) interest earnings from the amounts allocated to
the fixed account options, not previously withdrawn.
After the first contract year, you can take out the greater of the following
amounts each year (1) your penalty-free earnings and any portion of your Total
Invested Amount no longer subject to withdrawal charges; or (2) 10% of the
portion of your Total Invested Amount that has been in your contract for at
least one year. If you are a Washington resident, your maximum free withdrawal
amount, after the first contract year, is the greater of (1); (2); or (3)
interest earnings from amounts allocated to the fixed account options, not
previously withdrawn.
We calculate charges due on a total withdrawal on the day after we receive your
request and your contract. We return to you your contract value less any
applicable fees and charges.
The withdrawal charge percentage applicable is determined by the age of the
Purchase Payment being withdrawn. For purposes of calculating the withdrawal
charge in the event of a full surrender, the charge is calculated based on the
remaining Total Invested Amount still subject to a withdrawal charge. However,
any prior Free Withdrawal is not subtracted from the Total Invested Amount
remaining and is still subject to withdrawal charges.
For example, you make an initial Purchase Payment of $100,000. For purposes of
this example we will assume a 0% growth rate over the life of the contract, and
no subsequent Purchase Payments. In contract year 2, you take out your maximum
free withdrawal of $10,000. After that free withdrawal your contract value is
$90,000. In contract year 5 you request a full surrender of your contract. We
will apply the following calculation,
A-(B x C)=D, where:
A=Your contract value at the time of your request for surrender ($90,000)
B=The amount of your Total Invested Amount ($100,000)
C=The withdrawal charge percentage applicable to the age of each Purchase
Payment at the time of the full surrender (3%)[B x C=$3,000]
D=Your full surrender value ($87,000)
Under most circumstances, the partial withdrawal minimum is $1,000. We require
that the value left in any investment option be at least $100, after the
withdrawal. You must send a written withdrawal request. Unless you provide us
with different instructions, partial withdrawals will be made pro rata from each
Variable Portfolio and the fixed account option
13
in which your contract is invested. In the event that a pro rata partial
withdrawal would cause the value of any Variable Portfolio or fixed account
investment to be less than $100, we will contact you to obtain alternate
instructions on how to structure the withdrawal.
Under certain Qualified plans, access to the money in your contract may be
restricted. Additionally, withdrawals made prior to age 59 1/2 may result in a
10% IRS penalty tax. SEE TAXES BELOW.
We may be required to suspend or postpone the payment of a withdrawal for any
period of time when: (1) the NYSE is closed (other than a customary weekend and
holiday closings); (2) trading with the NYSE is restricted; (3) an emergency
exists such that disposal of or determination of the value of shares of the
Variable Portfolios is not reasonably practicable; (4) the SEC, by order, so
permits for the protection of contract owners.
Additionally, we reserve the right to defer payments for a withdrawal from a
fixed account option. Such deferrals are limited to no longer than six months.
SYSTEMATIC WITHDRAWAL PROGRAM
During the Accumulation Phase, you may elect to receive periodic income payments
under the systematic withdrawal program. Under the program, you may choose to
take monthly, quarterly, semi-annual or annual payments from your contract.
Electronic transfer of these funds to your bank account is also available. The
minimum amount of each withdrawal is $100. If you are an Oregon resident, the
minimum withdrawal amount is $250 per withdrawal or an amount equal to your free
withdrawal amount, as described on page 10. There must be at least $500
remaining in your contract at all times. Withdrawals may be taxable and a 10%
IRS penalty tax may apply if you are under age 59 1/2. There is no additional
charge for participating in this program, although a withdrawal charge and/or
MVA may apply.
The program is not available to everyone. Please check with our Annuity Service
Center, which can provide the necessary enrollment forms. We reserve the right
to modify, suspend or terminate this program at any time.
A 10% federal tax penalty may apply if your make withdrawals before age 59 1/2.
NURSING HOME WAIVER
If you are confined to a nursing home for 60 days or longer, we may waive the
withdrawal charge and/or market value adjustment on certain withdrawals prior to
the Annuity Date (not available in Texas). The waiver applies only to
withdrawals made while you are in a nursing home or within 90 days after you
leave the nursing home. Your contract prohibits use of this waiver during the
first 90 days after you purchase your contract. In addition, the confinement
period for which you seek the waiver must begin after you purchase your
contract.
In order to use this waiver, you must submit with your withdrawal request the
following documents: (1) a doctor's note recommending admittance to a nursing
home; (2) an admittance form which shows the type of facility you entered; and
(3) a bill from the nursing home which shows that you met the 60 day confinement
requirement.
MINIMUM CONTRACT VALUE
Where permitted by state law, we may terminate your contract if both of the
following occur: (1) your contract is less than $500 as a result of withdrawals;
and (2) you have not made any Purchase Payments during the past three years. We
will provide you with sixty days written notice. At the end of the notice
period, we will distribute the contract's remaining value to you.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
DEATH BENEFIT
- ----------------------------------------------------------------
- ----------------------------------------------------------------
If you die during the Accumulation Phase of your contract, we pay a death
benefit to your Beneficiary. At the time you purchase your contract, you must
select one of the two death benefits described below. Once selected, you cannot
change your death benefit option. You should discuss the available options with
your financial representative to determine which option is best for you.
We do not pay the death benefit if you die after you switch to the Income Phase.
However, if you die during the Income Phase, your Beneficiary receives any
remaining guaranteed income payments in accordance with the income option you
selected. SEE INCOME OPTIONS BELOW.
You name your Beneficiary. You may change the Beneficiary at any time, unless
you previously made an irrevocable Beneficiary designation.
We pay the death benefit when we receive satisfactory proof of death. We
consider the following satisfactory proof of death:
1. a certified copy of the death certificate; or
2. a certified copy of a decree of a court of competent jurisdiction as to
the finding of death; or
3. a written statement by a medical doctor who attended the deceased at the
time of death; or
4. any other proof satisfactory to us.
The death benefit must be paid within 5 years of the date of death unless the
Beneficiary elects to have it payable in the form of an income option. If the
Beneficiary elects an income option, it must be paid over the Beneficiary's
lifetime or for a period not extending beyond the Beneficiary's life expectancy.
Payments must begin within one year of your death.
If the Beneficiary is the spouse of a deceased owner, he or she can elect to
continue the Contract at the then current value. If the Beneficiary/spouse
continues the contract, we do not pay a death benefit to him or her. SEE SPOUSAL
CONTINUATION BELOW.
14
The term Net Purchase Payment is used frequently in explaining these death
benefit options. Net Purchase Payments is an on-going calculation. It does not
represent a contract value.
We define Net Purchase Payments as Purchase Payments less an Adjustment for each
withdrawal. If you have not taken any withdrawals from your contract, Net
Purchase Payments equals total purchase payments into your contract. To
calculate the Adjustment amount for the first withdrawal made under the
contract, we determine the percentage by which the withdrawal reduced the
contract value. For example, a $10,000 withdrawal from a $100,000 contract is a
10% reduction in value. This percentage is calculated by dividing the amount of
each withdrawal (and any applicable fees and charges) by the contract value
immediately before taking the withdrawal. The resulting percentage is then
multiplied by the amount of the total Purchase Payments and subtracted from the
amount of the total Purchase Payments on deposit at the time of the withdrawal.
The resulting amount is the initial Net Purchase Payment.
To arrive at the Net Purchase Payment calculation for subsequent withdrawals, we
determine the percentage by which the contract value is reduced by taking the
amount of the withdrawal in relation to the contract value immediately before
taking the withdrawal. We then multiply the Net Purchase Payment calculation as
determined prior to the withdrawal, by this percentage. We subtract that result
from the Net Purchase Payment calculation as determined prior to the withdrawal
to arrive at all subsequent Net Purchase Payment calculations.
The term "Gross Withdrawals" as used in describing the death benefit option
below is defined as withdrawals and the fees and charges applicable to those
withdrawals.
The information below describes the death benefits on contracts issued on or
after October 24, 2001:
OPTION 1 -- PURCHASE PAYMENT ACCUMULATION OPTION
The death benefit is the greatest of:
1. the contract value at the time we receive all required paperwork and
satisfactory proof of death; or
2. Net Purchase Payments compounded at a 4% annual growth rate until the
date of death (3% growth rate if age 70 or older at the time of contract
issue) plus any Purchase Payments recorded after the date of death; and
reduced for any Gross Withdrawals in the same proportion that the Gross
Withdrawal reduced contract value on the date of the Gross Withdrawal;
or
3. the contract value on the seventh contract anniversary, plus any
Purchase Payments since the seventh contract anniversary; and reduced
for any Gross Withdrawals since the seventh contract anniversary in the
same proportion that each Gross Withdrawal reduced the contract value on
the date of the Gross Withdrawal, all compounded at a 4% annual growth
rate until the date of death (3% growth rate if age 70 or older at the
time of contract issue) plus any purchase payments recorded after the
date of death; and reduced for each Gross Withdrawal recorded after the
date of death in the same proportion that each Gross Withdrawal reduced
the contract value on the date of the Gross Withdrawal.
The Purchase Payment Accumulation option may not be available to Washington
state policyowners. Please check with your financial representative regarding
availability.
OPTION 2 -- MAXIMUM ANNIVERSARY OPTION
The death benefit is the greatest of:
1. the contract value at the time we receive all required paperwork and
satisfactory proof of death; or
2. Net Purchase Payments; or
3. the maximum anniversary value on any contract anniversary prior to your
81st birthday. The anniversary value equals the contract value on a
contract anniversary plus any Purchase Payments since that contract
anniversary; and reduced for any Gross Withdrawals since the contract
anniversary in the same proportion that each Gross Withdrawal reduced
the contract value on the date of the Gross Withdrawal.
If you are age 90 or older at the time of death and selected the Option 2
death benefit, the death benefit will be equal to contract value at the time we
receive all required paperwork and satisfactory proof of death. Accordingly, you
do not get the advantage of Option 2 if:
- you are age 81 or older at the time of contract issue; or
- you are age 90 or older at the time of your death.
The death benefit options on contracts issued before October 24, 2001 would
be subject to a different calculation. Please see the Statement of Additional
Information for details.
ESTATEPLUS
EstatePlus is an optional benefit that, if selected, may increase your death
benefit amount.
The EstatePlus 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 "EstatePlus Percentage"), subject to a maximum dollar amount
(the "Maximum EstatePlus Percentage"), to the death benefit payable. The
contract year of your death will determine the EstatePlus Percentage and the
Maximum EstatePlus Percentage.
15
The table below provides the details, if you are age 69 or younger at the time
we issue your contract:
<Table>
<Caption>
- -------------------------------------------------------------
CONTRACT YEAR ESTATEPLUS MAXIMUM
OF DEATH PERCENTAGE ESTATEPLUS PERCENTAGE
- -------------------------------------------------------------
Years 0-4 25% of earnings 40% of Net Purchase
Payments
- -------------------------------------------------------------
Years 5-9 40% of earnings 65% of Net Purchase
Payments*
- -------------------------------------------------------------
Years 10+ 50% of earnings 75% of Net Purchase
Payments*
- -------------------------------------------------------------
</Table>
If you are between your 70th and 81st birthdays at the time we issue your
contract, the table below shows the available EstatePlus benefit:
<Table>
- ---------------------------------------------------------------
CONTRACT YEAR ESTATEPLUS MAXIMUM
OF DEATH PERCENTAGE ESTATEPLUS
PERCENTAGE
- ---------------------------------------------------------------
Years 0-10+ 25% of earnings 40% of Net
Purchase Payments*
- ---------------------------------------------------------------
</Table>
* Purchase Payments received after the 5th contract anniversary must remain in
the contract for at least 6 full months to be included as part of Net Purchase
Payments for the purpose of the Maximum EstatePlus 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 EstatePlus Percentage Amount?
We determine the amount of the EstatePlus benefit, based on a percentage of the
earnings in your contract at the time of your death. For the purpose of this
calculation, earnings equals contract value minus Net Purchase Payments as of
the date of death. If the earnings amount is negative, no EstatePlus amount will
be added.
What is the Maximum EstatePlus Amount?
The EstatePlus benefit is subject to a maximum dollar amount. The maximum
EstatePlus amount is equal to a percentage of your Net Purchase Payments.
You must elect EstatePlus at the time of contract application. Once elected, you
may not terminate or change this election.
We assess a 0.25% fee for EstatePlus. On a daily basis we deduct this annual
charge from the average daily ending value of the assets you have allocated to
the Variable Portfolios.
EstatePlus is not available if you are age 81 or older at the time we issue your
contract. Furthermore, a Continuing Spouse cannot benefit from EstatePlus if
he/she is age 81 or older on the Continuation Date. SEE SPOUSAL CONTINUATION
BELOW. The EstatePlus benefit is not available after the latest Annuity Date.
You may pay for the EstatePlus benefit and your beneficiary may never receive
the benefit if you live past the latest Annuity Date. SEE INCOME OPTIONS BELOW.
EstatePlus may not be available in your state or through the broker-dealer with
which your financial representative is affiliated. See your financial
representative for information regarding availability.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE ESTATEPLUS BENEFIT (IN
ITS ENTIRETY OR ANY COMPONENT AT ANY TIME) AT ANY TIME 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"). Generally, the contract and
its elected features, if any, remain the same. The Continuing Spouse is subject
to the same fees, charges and expenses applicable to the original owner of the
contract. A spousal continuation can only take place upon the death of the
original owner of the contract.
Upon a spouse's continuation of the contract, we will contribute to the contract
value an amount by which the death benefit that would have been paid to the
beneficiary upon the death of the original owner exceeds the contract value
("Continuation Contribution"), if any. We calculate the Continuation
Contribution as of the date of the original owner's death. We will add the
Continuation Contribution as of the date we receive both the Continuing Spouse's
written request to continue the contract and proof of death of the original
owner in a form satisfactory to us ("Continuation Date"). The Continuation
Contribution is not considered a Purchase Payment for the purposes of any other
calculations, except as explained in Appendix C. SEE APPENDIX C FOR FURTHER
EXPLANATION OF THE DEATH BENEFIT CALCULATIONS FOLLOWING A SPOUSAL CONTINUATION.
To the extent that the Continuing Spouse invests in the Variable Portfolios or
MVA fixed accounts they will be subject to investment risk as was the original
owner.
Generally, the Continuing Spouse cannot change any contract provisions as the
new owner. However, on the Continuation Date, the Continuing Spouse may
terminate the original owner's election of EstatePlus. We will terminate
EstatePlus if the Continuing Spouse is age 81 or older on the Continuation Date.
If EstatePlus is discontinued or if the Continuing Spouse dies after the latest
Annuity Date, no EstatePlus benefit will be payable. The age of the Continuing
Spouse on the Continuation Date and on the date of the Continuing Spouse's death
will be used in determining any future death benefits under the Contract. SEE
APPENDIX C FOR A DISCUSSION OF THE DEATH BENEFIT CALCULATIONS AFTER A SPOUSAL
CONTINUATION.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE SPOUSAL CONTINUATION
PROVISION (IN ITS ENTIRETY OR ANY
16
COMPONENT) AT ANY TIME ON PROSPECTIVELY ISSUED CONTRACTS.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
EXPENSES
- ----------------------------------------------------------------
- ----------------------------------------------------------------
There are charges and expenses associated with your contract. These charges and
expenses reduce your investment return. We will not increase the contract
maintenance fee or the insurance and withdrawal charges under your contract.
However, the investment charges under your contract may increase or decrease.
Some states may require that we charge less than the amounts described below.
INSURANCE CHARGES
The Company deducts a Separate Account charge in the amount of 1.52% annually of
the value of your contract invested in the Variable Portfolios. We deduct the
charge daily. This charge compensates the Company for the mortality and expense
risk and the costs of contract administration and distribution assumed by the
Company.
Generally, the mortality risks assumed by the Company arise from its contractual
obligations to make income payments after the Annuity Date and to provide a
death benefit. The expense risk assumed by the Company is that the costs of
administering the contracts and the Separate Account will exceed the amount
received from the administrative fees and charges assessed under the contract.
If these charges do not cover all of our expenses, we will pay the difference.
Likewise, if these charges exceed our expenses, we will keep the difference. The
Separate Account charge is expected to result in a profit. Profit may be used
for any legitimate cost or expense including distribution, depending upon market
conditions.
WITHDRAWAL CHARGES
The contract provides a free withdrawal amount every year. SEE ACCESS TO YOUR
MONEY ABOVE. If you take money out in excess of the free withdrawal amount, you
may incur a withdrawal charge. You may also, incur a withdrawal charge upon a
full surrender.
We apply a withdrawal charge against each Purchase Payment you put into the
contract. After a Purchase Payment has been in the contract for 7 complete years
no withdrawal charge applies. The withdrawal charge equals a percentage of the
Purchase Payment you take out of the contract. The withdrawal charge percentage
declines each year a Purchase Payment is in the contract.
<Table>
<Caption>
- -----------------------------------------------------------------------------------------
YEAR 1 2 3 4 5 6 7 8+
- -----------------------------------------------------------------------------------------
WITHDRAWAL
CHARGE 7% 6% 5% 4% 3% 2% 1% 0%
- -----------------------------------------------------------------------------------------
</Table>
When calculating the withdrawal charge, we treat withdrawals as coming first
from the Purchase Payments that have been in your contract the longest. However,
for tax purposes, your withdrawals are considered earnings first, then Purchase
Payments.
Whenever possible, we deduct the withdrawal charge from the money remaining in
your contract. If you withdraw all of your contract value, we deduct any
applicable withdrawal charges from the amount withdrawn.
We will not assess a withdrawal charge for money withdrawn to pay a death
benefit or to pay contract fees or charges. We will not assess a withdrawal
charge when you switch to the Income Phase, except when you elect to receive
income payments using the Income Protector feature. If you elect to receive
income payments using the Income Protector feature, we assess the entire
withdrawal charge applicable to Purchase Payments remaining in your contract
when calculating your income benefit base. SEE INCOME OPTIONS BELOW.
Withdrawals made prior to age 59 1/2 may result in tax penalties. SEE TAXES
BELOW.
INVESTMENT CHARGES
INVESTMENT MANAGEMENT FEES
Charges are deducted from your Variable Portfolios for the advisory and other
expenses of the Variable Portfolios. THE FEE TABLE LOCATED ABOVE illustrates
these charges and expenses.
For more detailed information on these Investment Charges, refer to the
prospectuses for the Anchor Series Trust, SunAmerica Series Trust and/or Nations
Separate Account Trust.
CONTRACT MAINTENANCE FEE
During the Accumulation Phase, we subtract a contract maintenance fee from your
contract once per year. This charge compensates us for the cost of contract
administration. We deduct the $35 contract maintenance fee ($30 in North Dakota)
from your contract value on your contract anniversary. If you withdraw your
entire contract value, we deduct the fee from that withdrawal.
If your contract value is $50,000 or more on your contract anniversary date, we
will waive the charge. This waiver is subject to change without notice.
TRANSFER FEE
Generally, we currently permit 15 free transfers between investment options each
contract year. We charge you $25 for each additional transfer that contract year
($10 in Pennsylvania and Texas). SEE INVESTMENT OPTIONS BELOW.
ESTATEPLUS FEE
Please see below for more information on the EstatePlus fee.
PREMIUM TAX
Certain states charge the Company a tax on the premiums you pay into the
contract, ranging from zero to 3.50%. We
17
deduct from your contract these premium tax charges. Currently we deduct the
charge for premium taxes when you take a full withdrawal or begin the Income
Phase of the contract. In the future, we may assess this deduction at the time
you put Purchase Payment(s) into the contract or upon payment of a death
benefit.
INCOME TAXES
We do not currently deduct income taxes from your contract. We reserve the right
to do so in the future.
REDUCTION OR ELIMINATION OF CHARGES AND EXPENSES, AND ADDITIONAL AMOUNTS
CREDITED
Sometimes sales of the contracts to groups of similarly situated individuals may
lower our administrative and/or sales expenses. We reserve the right to reduce
or waive certain charges and expenses when this type of sale occurs. In
addition, we may also credit additional interest to policies sold to such
groups. We determine which groups are eligible for such treatment. Some of the
criteria we evaluate to make a determination are: size of the group; amount of
expected Purchase Payments; relationship existing between us and prospective
purchaser; nature of the purchase; length of time a group of contracts is
expected to remain active; purpose of the purchase and whether that purpose
increases the likelihood that our expenses will be reduced; and/or any other
factors that we believe indicate that administrative and/or sales expenses may
be reduced.
AIG SunAmerica 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, we use the money accumulated in your contract to make
regular income payments to you. You may switch to the Income Phase any time
after your second contract anniversary. You select the month and year you want
income payments to begin. The first day of that month is the Annuity Date. You
may change your Annuity Date, so long as you do so at least seven days before
the income payments are scheduled to begin. Once you begin receiving income
payments, you cannot change your income option. Except as indicated under Option
5 below, once you begin receiving income payments, you cannot otherwise access
your money through a withdrawal or surrender.
Income payments must begin on or before your 95th birthday or on your tenth
contract anniversary, whichever occurs later (latest Annuity Date). If you do
not choose an Annuity Date, your income payments will automatically begin on
this date. Certain states may require your income payments to start earlier.
If the Annuity Date is past your 85th birthday, your contract could lose its
status as an annuity under Federal tax laws. This may cause you to incur adverse
tax consequences.
In addition, most Qualified contracts require you to take minimum distributions
after you reach age 70 1/2. SEE TAXES BELOW.
INCOME OPTIONS
Currently, this Contract offers five standard income options. Other payout
options may be available. Contact the Annuity Service Center for more
information. If you elect to receive income payments but do not select an
option, your income payments will be made in accordance with Option 4 for a
period of 10 years. For income payments based on joint lives, we pay according
to Option 3 for a period of 10 years.
We base our calculation of income payments on the life of the Annuitant and the
annuity rates set forth in your contract. As the contract owner, you may change
the Annuitant at any time prior to the Annuity Date. You must notify us if the
Annuitant dies before the Annuity Date and designate a new Annuitant.
OPTION 1 - LIFE INCOME ANNUITY
This option provides income payments for the life of the Annuitant. Income
payments stop when the Annuitant dies.
OPTION 2 - JOINT AND SURVIVOR LIFE ANNUITY
This option provides income payments for the life of the Annuitant and for the
life of another designated person. Upon the death of either person, we will
continue to make income payments during the lifetime of the survivor. Income
payments stop when the survivor dies.
OPTION 3 - JOINT AND SURVIVOR LIFE ANNUITY WITH 10 OR 20 YEARS GUARANTEED
This option is similar to Option 2 above, with an additional guarantee of
payments for at least 10 years. If the Annuitant and the survivor die before all
of the guaranteed income payments have been made, the remaining payments are
made to the Beneficiary under your contract.
OPTION 4 - LIFE ANNUITY WITH 10 OR 20 YEARS GUARANTEED
This option is similar to Option 1 above. In addition, this option provides a
guarantee that income payments will be made for at least 10 or 20 years. You
select the number of years. If the Annuitant dies before all guaranteed income
payments are made, the remaining income payments go to the Beneficiary under
your contract.
OPTION 5 - INCOME FOR A SPECIFIED PERIOD
This option provides income payments for a guaranteed period ranging from 5 to
30 years. If the Annuitant dies before all the guaranteed income payments are
made, the remaining income
18
payments are made to the Beneficiary under your contract. Additionally, if
variable income payments are elected under this option, you (or the Beneficiary
under the contract if the Annuitant dies prior to all guaranteed income payments
being made) may redeem any remaining guaranteed variable income payments after
the Annuity Date. The amount available upon such redemption would be the
discounted present value of any remaining guaranteed variable income payments.
If provided for in your contract, any applicable withdrawal charge will be
deducted from the discounted value as if you fully surrendered your contract.
The value of an Annuity Unit, regardless of the option chosen, takes into
account the Mortality and Expense Risk Charge. Since Option 5 does not contain
an element of mortality risk, no benefit is derived from this charge.
Please read the Statement of Additional Information ("SAI") for a more detailed
discussion of the income options. For more information regarding income options
using the Income Protector feature, please see below.
FIXED OR VARIABLE INCOME PAYMENTS
You can choose income payments that are fixed, variable or both. Unless
otherwise elected, if at the date when income payments begin you are invested in
the Variable Portfolios only, your income payments will be variable and if your
money is only in fixed accounts at that time, your income payments will be fixed
in amount. Further, if you are invested in both fixed and variable investment
options when income payments begin, your payments will be fixed and variable,
unless otherwise elected. If income payments are fixed, AIG SunAmerica Life
guarantees the amount of each payment. If the income payments are variable the
amount is not guaranteed.
INCOME PAYMENTS
We make income payments on a monthly, quarterly, semiannual or annual basis. You
instruct us to send you a check or to have the payments directly deposited into
your bank account. If state law allows, we distribute annuities with a contract
value of $5,000 or less in a lump sum. Also, if the selected income option
results in income payments of less than $50 per payment, we may decrease the
frequency of payments, state law allowing.
If you are invested in the Variable Portfolios after the Annuity Date, your
income payments vary depending on four things:
- for life options, your age when payments begin, and in most states, if a
non-qualified contract, your gender, and;
- the value of your contract in the Variable Portfolios on the Annuity
Date, and;
- the 3.5% assumed investment rate used in the annuity table for the
contract, and;
- the performance of the Variable Portfolios in which you are invested
during the time you receive income payments.
If you are invested in both the fixed account options and the Variable
Portfolios after the Annuity Date, the allocation of funds between the fixed and
variable options also impacts the amount of your annuity payments.
The value of variable income payments, if elected, is based on an assumed
interest rate ("AIR") of 3.5% compounded annually. Variable income payments
generally increase or decrease from one income payment date to the next based
upon the performance of the applicable Variable Portfolios. If the performance
of the Variable Portfolios selected is equal to the AIR, the income payments
will remain constant. If performance of Variable Portfolios is greater than the
AIR, the income payments will increase and if it is less than the AIR, the
income payments will decline.
TRANSFERS DURING THE INCOME PHASE
During the Income Phase, one transfer per month is permitted between the
Variable Portfolios. No other transfers are allowed during the Income Phase.
After the Annuity Date, transfers may not take place between a fixed annuity
option and a variable annuity option.
DEFERMENT OF PAYMENTS
We may defer making fixed payments for up to six months, or less if required by
law. Interest is credited to you during the deferral period. See also "Access to
Your Money" for a discussion of when payments from a Variable Portfolio may be
suspended or postponed.
THE INCOME PROTECTOR FEATURE
The Income Protector feature is a future "safety net" which offers you the
ability to receive a guaranteed fixed minimum retirement income when you switch
to the Income Phase. With the Income Protector feature you know the level of
minimum income that will be available to you upon annuitization, regardless of
fluctuating market conditions.
The Income Protector is a standard feature of your contract. There is no
additional charge associated with this feature. This feature may not be
available in your state. Check with your financial representative regarding
availability.
We reserve the right to modify, suspend or terminate the Income Protector
feature at any time.
HOW WE DETERMINE THE AMOUNT OF YOUR MINIMUM GUARANTEED INCOME
We base the amount of minimum income available to you if you elect to receive
income payments using the Income Protector feature upon a calculation we call
the income benefit base.
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.
19
Your income benefit base increases if you make subsequent Purchase Payments and
decreases if you withdraw money from your contract. The exact income benefit
base calculation is equal to (a) plus (b) minus (c) where:
(a) is equal to, for the first year of calculation, your initial Purchase
Payment, or for each subsequent year of calculation, the income benefit
base on the prior contract anniversary, and;
(b) is equal to the sum of all subsequent Purchase Payments made into the
contract since the last contract anniversary, and;
(c) is equal to all withdrawals and applicable fees and charges since the
last contract anniversary, in an amount proportionate to the amount by
which such withdrawals decreased your contract value.
ELECTING TO RECEIVE INCOME PAYMENTS
You may elect to begin the Income Phase of your contract using the Income
Protector feature ONLY within the 30 days after the seventh or later contract
anniversary.
The contract anniversary prior to your election to begin receiving income
payments is your income benefit date. This is the date as of which we calculate
your income benefit base to use in determining your guaranteed minimum fixed
retirement income. Your final income benefit base is equal to (a) minus (b)
where:
(a) is equal to your income benefit base as of your income benefit date,
and;
(b) is equal to any partial withdrawals of contract value and any charges
applicable to those withdrawals and any withdrawal charges otherwise
applicable, calculated as if you fully surrender your contract as the
income benefit date, and any applicable premium taxes.
To arrive at 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 that income annually, semi-annually, quarterly or monthly
for the time guaranteed under your selected income option. 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 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. You are not required to use the Income
Protector feature to receive income payments.
If a Spousal Beneficiary elects to continue the contract upon the death of the
original owner, the Income Protector feature will continue. The Continuation
Contribution is not a purchase payment and therefore will not impact the income
benefit base calculation. The waiting period before electing to use the Income
Protector feature will be counted from the original issue date of the contract.
NOTE TO QUALIFIED CONTRACT HOLDERS
Qualified contracts generally require that you select an income option which
does not exceed your life expectancy. That restriction, if it applies to you,
may limit your ability to use the Income Protector feature.
You may wish to consult your tax advisor for information concerning your
particular circumstances. SEE APPENDIX D FOR AN EXAMPLE OF THE OPERATION OF THE
INCOME PROTECTOR FEATURE.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
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
20
retirement account, your contract is referred to as a Qualified contract.
Examples of qualified plans or arrangements are: Individual Retirement Accounts
("IRAs"), Roth IRAs, Tax-Sheltered Annuities (referred to as 403(b) contracts),
plans of self-employed individuals (often referred to as H.R. 10 Plans or Keogh
Plans) and pension and profit sharing plans, including 401(k) plans. Typically,
for employer plans and tax-deductible IRA contributions, you have not paid any
tax on the Purchase Payments used to buy your contract and therefore, you have
no cost basis in your contract. However, you normally will have cost basis in a
Roth IRA, and you may have cost basis in a traditional IRA or in another
Qualified Contract.
TAX TREATMENT OF DISTRIBUTIONS -- NON-QUALIFIED CONTRACTS
If you make a partial or total withdrawal from a Non-Qualified contract, the IRC
treats such a withdrawal as first coming from the earnings and then as coming
from your Purchase Payments. Purchase payments made prior to August 14, 1982,
however, are an important exception to this general rule, and for tax purposes
are treated as being distributed before the earnings on those contributions. If
you annuitize your contract, a portion of each income payment will be
considered, for tax purposes, to be a return of a portion of your Purchase
Payment(s). Any portion of each income payment that is considered a return of
your Purchase Payment will not be taxed. Withdrawn earnings are treated as
income to you and are taxable. The IRC provides for a 10% penalty tax on any
earnings that are withdrawn other than in conjunction with the following
circumstances: (1) after reaching age 59 1/2; (2) when paid to your Beneficiary
after you die; (3) after you become disabled (as defined in the IRC); (4) when
paid in a series of substantially equal installments made for your life or for
the joint lives of you and your Beneficiary; (5) under an immediate annuity; or
(6) which are attributable to Purchase Payments made prior to August 14, 1982.
TAX TREATMENT OF DISTRIBUTIONS -- QUALIFIED CONTRACTS (INCLUDING GOVERNMENTAL
457(b) ELIGIBLE DEFERRED COMPENSATION PLANS)
Generally, you have not paid any taxes on the Purchase Payments used to buy a
Qualified contract. As a result, with certain limited exceptions, any amount of
money you take out as a withdrawal or as income payments is taxable income. In
the case of certain Qualified contracts, the IRC further provides for a 10%
penalty tax on any taxable withdrawal or income payment paid to you other than
in conjunction with the following circumstances: (1) after reaching age 59 1/2;
(2) when paid to your Beneficiary after you die; (3) after you become disabled
(as defined in the IRC); (4) in a series of substantially equal installments,
made for your life or for the joint lives of you and your Beneficiary, that
begins after separation from service with the employer sponsoring the plan; (5)
to the extent such withdrawals do not exceed limitations set by the IRC for
deductible amounts paid during the taxable year for medical care; (6) to fund
higher education expenses (as defined in the IRC; only from an IRA); (7) to fund
certain first-time home purchase expenses (only from an IRA); (8) when you
separate from service after attaining age 55 (does not apply to an IRA); (9)
when paid for health insurance, if you are unemployed and meet certain
requirements; and (10) when paid to an alternate payee pursuant to a qualified
domestic relations order. This 10% penalty tax does not apply to withdrawals or
income payments from governmental 457(b) eligible deferred compensation plans,
except to the extent that such withdrawals or income payments are attributable
to a prior rollover to the plan (or earnings thereon) from another plan or
arrangement that was subject to the 10% penalty tax.
The IRC limits the withdrawal of an employee's voluntary Purchase Payments from
a Tax-Sheltered Annuity (TSA). Withdrawals can only be made when an owner: (1)
reaches age 59 1/2; (2) severs employment with the employer; (3) dies; (4)
becomes disabled (as defined in the IRC); or (5) experiences a financial
hardship (as defined in the IRC). In the case of hardship, the owner can only
withdraw Purchase Payments. Additional plan limitations may also apply. Amounts
held in a TSA annuity contract as of December 31, 1988 are not subject to these
restrictions. Qualifying transfers of amounts from one TSA contract to another
TSA contract under section 403(b) or to a custodial account under section
403(b)(7), and qualifying transfers to a state defined benefit plan to purchase
service credits, are not considered distributions, and thus are not subject to
these withdrawal limitations. If amounts are transferred from a custodial
account described in Code section 403(b)(7) to this contract the transferred
amount will retain the custodial account withdrawal restrictions.
Withdrawals from other Qualified Contracts are often limited by the IRC and by
the employer's plan.
MINIMUM DISTRIBUTIONS
Generally, the IRC requires that you begin taking annual distributions from
qualified annuity contracts by April 1 of the calendar year following the later
of (1) the calendar year in which you attain age 70 1/2 or (2) the calendar year
in which you separate from service from the employer sponsoring the plan. If you
own an IRA, you must begin taking distributions when you attain age 70 1/2
regardless of when you separate from service from the employer sponsoring the
plan. If you own more than one TSA, you may be permitted to take your annual
distributions in any combination from your TSAs. A similar rule applies if you
own more than one IRA. However, you cannot satisfy this distribution requirement
for your TSA contract by taking a distribution from an IRA, and you cannot
satisfy the requirement for your IRA by taking a distribution from a TSA.
You may be subject to a surrender charge on withdrawals taken to meet minimum
distribution requirements, if the
21
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.
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
22
Portfolios under your Non-Qualified Contract, because of the degree of control
you exercise over the underlying investments. This diversification requirement
is sometimes referred to as "investor control." It is unknown to what extent
owners are permitted to select investments, to make transfers among Variable
Portfolios or the number and type of Variable Portfolios owners may select from.
If any guidance is provided which is considered a new position, then the
guidance should generally be applied prospectively. However, if such guidance is
considered not to be a new position, it may be applied retroactively. This would
mean that you, as the owner of the Non-qualified Contract, could be treated as
the owner of the underlying Variable Portfolios. Due to the uncertainty in this
area, we reserve the right to modify the contract in an attempt to maintain
favorable tax treatment.
These investor control limitations generally do not apply to Qualified
Contracts, which are referred to as "Pension Plan Contracts" for purposes of
this rule, although the limitations could be applied to Qualified Contracts in
the future.
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PERFORMANCE
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We advertise the Cash Management Portfolio's yield and effective yield. In
addition, the other Variable Portfolios advertise total return, gross yield and
yield-to-maturity. These figures represent past performance of the Variable
Portfolios. These performance numbers do not indicate future results.
When we advertise performance for periods prior to the Separate Account
inception date, we derive the figures from the performance of the corresponding
portfolios for the Trusts, if available. We modify these numbers to reflect
charges and expenses as if the subaccount was in existence during the period
stated in the advertisement. Figures calculated in this manner do not represent
actual historic performance of the particular Variable Portfolio.
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OTHER INFORMATION
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AIG SUNAMERICA LIFE
AIG SunAmerica Life is a stock life insurance company originally organized under
the laws of the state of California in April 1965. On January 1, 1996, AIG
SunAmerica Life redomesticated under the laws of the state of Arizona.
AIG SunAmerica Life and its affiliates, SunAmerica Life Insurance Company, First
SunAmerica Life Insurance Company, AIG SunAmerica Asset Management Corp., and
AIG Advisors Group (comprising six wholly-owned broker-dealers), specialize in
retirement savings and investment products and services. Business focuses
include fixed and variable annuities, mutual funds, broker-dealer services and
trust administration services.
THE SEPARATE ACCOUNT
AIG SunAmerica Life established Variable Separate Account ("separate account"),
under Arizona law on January 1, 1996 when it assumed the separate account,
originally established under California law on June 25, 1981. The separate
account is registered with the SEC as a unit investment trust under the
Investment Company Act of 1940, as amended. Assets in the separate account are
not guaranteed by AIG SunAmerica Life.
AIG SunAmerica Life owns the assets in the separate account. However, the assets
in the separate account are not chargeable with liabilities arising out of any
other business conducted by AIG SunAmerica Life. Income gains and losses
(realized and unrealized) resulting from assets in the separate account are
credited to or charged against the separate account without regard to other
income gains or losses of AIG SunAmerica Life.
THE GENERAL ACCOUNT
Money allocated to the fixed account options goes into AIG SunAmerica Life's
general account. The general account consists of all of AIG SunAmerica Life's
assets other than assets attributable to a separate account. All of the assets
in the general account are chargeable with the claims of any AIG SunAmerica Life
contract holders as well as all of its creditors. The general account funds are
invested as permitted under state insurance laws.
PAYMENTS IN CONNECTION WITH DISTRIBUTION OF THE CONTRACT
PAYMENTS TO BROKER-DEALERS
Registered representatives of broker-dealers sell the contract. We pay
commissions to the broker-dealers for the sale of your contract ("Contract
Commissions"). There are different structures by which a broker-dealer can
choose to have their Contract Commissions paid. For example, as one option, we
may pay upfront Contract Commission, only, that may be up to a maximum 7% of
each Purchase Payment you invest (which may include promotional amounts).
Another option may be a lower upfront Contract Commission on each Purchase
Payment, with a trail commission of up to a maximum 1.50% of contract value
annually. We pay Contract Commissions directly to the broker-dealer with whom
your registered representative is affiliated. Registered representatives may
receive a portion of these amounts we pay in accordance with any agreement in
place between the registered representative and his/her broker-dealer firm.
We (or our affiliates) may pay broker-dealers or permitted third parties cash or
non-cash compensation, including reimbursement of expenses incurred in
connection with the sale of these contracts. These payments may be intended to
reimburse for specific expenses incurred or may be based on sales, certain
assets under management or longevity of assets invested with us. For example, we
may pay additional
23
amounts in connection with contracts that remain invested with us for a
particular period of time. We enter into such arrangements in our discretion and
we may negotiate customized arrangements with firms, including affiliated and
non-affiliated broker-dealers based on various factors. Promotional incentives
may change at any time.
We do not deduct these amounts directly from your Purchase Payments. We
anticipate recovering these amounts from the fees and charges collected under
the contract. Certain compensation payments may increase our cost of doing
business in a particular firm and may result in higher contractual fees and
charges if you purchase your contract through such a firm. See EXPENSES above.
AIG SunAmerica Capital Services, Inc., Harborside Financial Center, 3200 Plaza
5, Jersey City, NJ 07311-4992, distributes the contracts. AIG SunAmerica Capital
Services, an affiliate of AIG SunAmerica Life, is a registered broker-dealer
under the Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. No underwriting fees are paid in connection with the
distribution of the contracts.
PAYMENTS WE RECEIVE
In addition to amounts received pursuant to established 12b-1 Plans, we may
receive compensation of up to 0.50% from the investment advisers, subadvisers or
their affiliates of certain of the underlying Trusts and/or portfolios for
services related to the availability of the underlying portfolios in the
contract. Furthermore, certain advisers and/or subadvisers may offset the costs
we incur for training to support sales of the underlying funds in the contract.
ADMINISTRATION
We are responsible for the administrative servicing of your contract. Please
contact our Annuity Service Center at 1-877-932-SUN9, if you have any comment,
question or service request.
We send out transaction confirmations and quarterly statements. During the
Accumulation Phase, you will receive confirmation of transactions within your
contract. Transactions made pursuant to contractual or systematic agreements,
such as dollar cost averaging, may be confirmed quarterly. Purchase Payments
received through the automatic payment plan or a salary reduction arrangement,
may also be confirmed quarterly. For other transactions, we send confirmations
immediately. It is your responsibility to review these documents carefully and
notify us of any inaccuracies immediately. We investigate all inquiries. To the
extent that we believe we made an error, we retroactively adjust your contract,
provided you notify us within 30 days of receiving the transaction confirmation
or quarterly statement. Any other adjustments we deem warranted are made as of
the time we receive notice of the error.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Separate Account. AIG
SunAmerica Life engages in various kinds of routine litigation. In management's
opinion these matters are not of material importance to their respective total
assets nor are they material with respect to the Separate Account.
OWNERSHIP
The PolarisAmerica Variable Annuity is a Flexible Payment Group Deferred Annuity
contract. We issue a group contract to a contract holder for the benefit of the
participants in the group. As a participant in the group, you will receive a
certificate which evidences your ownership. As used in this prospectus, the term
contract refers to your certificate. In some states, a Flexible Payment
Individual Modified Guaranteed and Variable Deferred Annuity contract is
available instead. Such a contract is identical to the contract described in
this prospectus, with the exception that we issue it directly to the owner.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of AIG SunAmerica Life Assurance Company
at December 31, 2003 and 2002, and for each of the three years in the period
ended December 31, 2003 and the financial statements of Variable Separate
Account at December 31, 2003, and for each of the two years in the period ended
December 31, 2003 are incorporated by reference in this prospectus in reliance
on the reports of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
A registration statement has been filed with the SEC under the Securities Act of
1933 relating to the contract. This prospectus does not contain all the
information in the registration statement as permitted by SEC regulations. The
omitted information can be obtained from the SEC's principal office in
Washington, D.C., upon payment of a prescribed fee.
24
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TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
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Additional information concerning the operations of the separate account is
contained in a Statement of Additional Information ("SAI"), which is available
without charge upon written request addressed to us at our Annuity Service
Center, P.O. Box 54299, Los Angeles, California 90054-0299 or by calling (877)
932-SUN9. The contents of the SAI are tabulated below.
<Table>
Separate Account.............................. 3
General Account............................... 3
Performance Data.............................. 4
Income Payments............................... 8
Annuity Unit Values........................... 9
Death Benefit Options for Contracts Issued
Before October 24, 2001..................... 12
Taxes......................................... 13
Distribution of Contracts..................... 16
Financial Statements.......................... 16
</Table>
25
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APPENDIX A - CONDENSED FINANCIAL INFORMATION
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<Table>
<Caption>
FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR
PORTFOLIOS 12/31/00 12/31/01 12/31/02 12/31/03
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Capital Appreciation (Inception Date - 5/30/01)
Beginning AUV........................................ (a) -- (a) $10.000 (a) $8.751 (a) $6.666
(b) -- (b) $10.000 (b) $9.139 (b) $6.944
Ending AUV........................................... (a) -- (a) $8.751 (a) $6.666 (a) $8.683
(b) -- (b) $9.139 (b) $6.944 (b) $9.022
Ending Number of AUs................................. (a) -- (a) 108,666 (a) 392,060 (a) 470,167
(b) -- (b) 41,462 (b) 184,973 (b) 181,227
- ----------------------------------------------------------------------------------------------------------------------------
Government and Quality Bond (Inception Date - 1/22/01)
Beginning AUV........................................ (a) -- (a) $10.000 (a) $10.468 (a) $11.269
(b) -- (b) $10.000 (b) $10.444 (b) $11.216
Ending AUV........................................... (a) -- (a) $10.468 (a) $11.269 (a) $11.379
(b) -- (b) $10.444 (b) $11.216 (b) $11.297
Ending Number of AUs................................. (a) -- (a) 223,639 (a) 455,474 (a) 534,921
(b) -- (b) 99,048 (b) 298,234 (b) 244,751
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Aggressive Growth (Inception Date - 12/20/00)
Beginning AUV........................................ (a) $10.000 (a) $10.728 (a) $7.219 (a) $5.354
(b) -- (b) $10.728 (b) $7.206 (b) $5.331
Ending AUV........................................... (a) $10.728 (a) $7.219 (a) $5.354 (a) $6.774
(b) -- (b) $7.206 (b) $5.331 (b) $6.728
Ending Number of AUs................................. (a) 750 (a) 43,834 (a) 60,777 (a) 43,121
(b) -- (b) 17,803 (b) 19,713 (b) 19,472
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Alliance Growth (Inception Date - 5/16/01)
Beginning AUV........................................ (a) -- (a) $10.000 (a) $9.142 (a) $6.187
(b) -- (b) $10.000 (b) $8.911 (b) $6.015
Ending AUV........................................... (a) -- (a) $9.142 (a) $6.187 (a) $7.667
(b) -- (b) $8.911 (b) $6.015 (b) $7.435
Ending Number of AUs................................. (a) -- (a) 64,696 (a) 165,463 (a) 182,614
(b) -- (b) 36,365 (b) 113,020 (b) 104,650
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Blue Chip Growth (Inception Date - 12/20/00)
Beginning AUV........................................ (a) $10.000 (a) $10.438 (a) $8.140 (a) $5.669
(b) -- (b) $10.438 (b) $8.122 (b) $5.643
Ending AUV........................................... (a) $10.438 (a) $8.140 (a) $5.669 (a) $7.037
(b) -- (b) $8.122 (b) $5.643 (b) $6.986
Ending Number of AUs................................. (a) 1,439 (a) 64,974 (a) 112,592 (a) 119,325
(b) -- (b) 10,929 (b) 26,066 (b) 25,262
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Cash Management (Inception Date - 2/14/01)
Beginning AUV........................................ (a) -- (a) $10.000 (a) $10.093 (a) $10.076
(b) -- (b) $10.000 (b) $10.153 (b) $10.108
Ending AUV........................................... (a) -- (a) $10.093 (a) $10.076 (a) $9.991
(b) -- (b) $10.153 (b) $10.108 (b) $9.996
Ending Number of AUs................................. (a) -- (a) 30,829 (a) 99,745 (a) 68,361
(b) -- (b) 16,442 (b) 76,576 (b) 41,168
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Davis Venture Value (Inception Date - 5/16/01)
Beginning AUV........................................ (a) -- (a) $10.000 (a) $9.128 (a) $7.486
(b) -- (b) $10.000 (b) $9.030 (b) $7.387
Ending AUV........................................... (a) -- (a) $9.128 (a) $7.486 (a) $9.815
(b) -- (b) $9.030 (b) $7.387 (b) $9.661
Ending Number of AUs................................. (a) -- (a) 107,453 (a) 397,407 (a) 465,627
(b) -- (b) 73,935 (b) 201,916 (b) 201,599
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Emerging Markets (Inception Date - 12/20/00)
Beginning AUV........................................ (a) $10.000 (a) $10.121 (a) $9.794 (a) $8.955
(b) -- (b) $10.121 (b) $9.775 (b) $8.918
Ending AUV........................................... (a) $10.121 (a) $9.794 (a) $8.955 (a) $13.460
(b) -- (b) $9.775 (b) $8.918 (b) $13.369
Ending Number of AUs................................. (a) 750 (a) 6,339 (a) 15,251 (a) 24,154
(b) -- (b) 2,406 (b) 4,587 (b) 7,765
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Global Bond (Inception Date - 1/22/01)
Beginning AUV........................................ (a) -- (a) $10.000 (a) $10.291 (a) $10.739
(b) -- (b) $10.000 (b) $10.271 (b) $10.691
Ending AUV........................................... (a) -- (a) $10.291 (a) $10.739 (a) $10.954
(b) -- (b) $10.271 (b) $10.691 (b) $10.877
Ending Number of AUs................................. (a) -- (a) 19,180 (a) 30,886 (a) 39,511
(b) -- (b) 8,183 (b) 38,656 (b) 41,126
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Global Equities (Inception Date - 1/8/01)
Beginning AUV........................................ (a) -- (a) $10.000 (a) $8.029 (a) $5.785
(b) -- (b) $10.000 (b) $8.009 (b) $5.756
Ending AUV........................................... (a) -- (a) $8.029 (a) $5.785 (a) $7.209
(b) -- (b) $8.009 (b) $5.756 (b) $7.155
Ending Number of AUs................................. (a) -- (a) 9,881 (a) 13,352 (a) 15,877
(b) -- (b) 1,381 (b) 57,980 (b) 58,706
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(a) Without election of Enhanced Death Benefit.
(b) With election of Enhanced Death Benefit.
(c) Not available for investment after September 30, 2002.
AUV - Accumulation Unit Value
AU - Accumulation Units
</Table>
A-1
<Table>
<Caption>
FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR
PORTFOLIOS 12/31/00 12/31/01 12/31/02 12/31/03
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Growth-Income (Inception Date - 1/8/01)
Beginning AUV........................................ (a) -- (a) $10.000 (a) $8.515 (a) $6.613
(b) -- (b) $10.000 (b) $8.496 (a) $6.582
Ending AUV........................................... (a) -- (a) $8.515 (a) $6.613 (a) $8.184
(b) -- (b) $8.496 (b) $6.582 (b) $8.124
Ending Number of AUs................................. (a) -- (a) 153,305 (a) 330,121 (a) 324,974
(b) -- (b) 41,569 (b) 81,510 (b) 79,823
- ----------------------------------------------------------------------------------------------------------------------------
International Growth & Income (Inception Date - 1/8/01)
Beginning AUV........................................ (a) -- (a) $10.000 (a) $7.702 (a) $5.998
(b) -- (b) $10.000 (b) $7.689 (b) $5.973
Ending AUV........................................... (a) -- (a) $7.702 (a) $5.998 (a) $8.089
(b) -- (b) $7.689 (b) $5.973 (b) $8.036
Ending Number of AUs................................. (a) -- (a) 10,359 (a) 29,726 (a) 61,376
(b) -- (b) 5,285 (b) 7,425 (b) 17,094
- ----------------------------------------------------------------------------------------------------------------------------
MFS Massachusetts Investors Trust (Inception
Date - 5/16/01)
Beginning AUV........................................ (a) -- (a) $10.000 (a) $9.282 (a) $7.225
(b) -- (b) $10.000 (b) $8.790 (b) $6.822
Ending AUV........................................... (a) -- (a) $9.282 (a) $7.225 (a) $8.716
(b) -- (b) $8.790 (b) $6.822 (b) $8.209
Ending Number of AUs................................. (a) -- (a) 5,717 (a) 34,973 (a) 50,868
(b) -- (b) 14,555 (b) 22,096 (b) 14,253
- ----------------------------------------------------------------------------------------------------------------------------
MFS Mid Cap Growth (Inception Date - 5/31/01)
Beginning AUV........................................ (a) -- (a) $10.000 (a) $7.988 (a) $4.156
(b) -- (b) $10.000 (b) $7.979 (b) $4.141
Ending AUV........................................... (a) -- (a) $7.988 (a) $4.156 (a) $5.618
(b) -- (b) $7.979 (b) $4.141 (b) $5.584
Ending Number of AUs................................. (a) -- (a) 28,358 (a) 166,247 (a) 211,866
(b) -- (b) 41,456 (b) 72,492 (b) 72,232
- ----------------------------------------------------------------------------------------------------------------------------
MFS Total Return (Inception Date - 5/14/01)
Beginning AUV........................................ (a) -- (a) $10.000 (a) $9.889 (a) $9.268
(b) -- (b) $10.000 (b) $9.877 (b) $9.232
Ending AUV........................................... (a) -- (a) $9.889 (a) $9.268 (a) $10.667
(b) -- (b) $9.877 (b) $9.232 (b) $10.600
Ending Number of AUs................................. (a) -- (a) 83,240 (a) 266,905 (a) 332,151
(b) -- (b) 42,186 (b) 84,612 (b) 78,829
- ----------------------------------------------------------------------------------------------------------------------------
Putnam Growth: Voyager (Inception Date - 12/20/00)
Beginning AUV........................................ (a) $10.000 (a) $10.539 (a) $7.875 (a) $5.704
(b) -- (b) $10.539 (b) $7.859 (b) $5.678
Ending AUV........................................... (a) $10.539 (a) $7.875 (a) $5.704 (a) $6.968
(b) -- (b) $7.859 (b) $5.678 (b) $6.918
Ending Number of AUs................................. (a) 360 (a) 52,550 (a) 65,949 (a) 55,017
(b) -- (b) 12,456 (b) 46,494 (b) 48,551
- ----------------------------------------------------------------------------------------------------------------------------
SunAmerica Balanced (Inception Date - 12/28/00)
Beginning AUV........................................ (a) $10.000 (a) $9.907 (a) $8.475 (a) $7.080
(b) -- (b) $9.907 (b) $8.452 (b) $7.043
Ending AUV........................................... (a) $9.907 (a) $8.475 (a) $7.080 (a) $8.028
(b) -- (b) $8.452 (b) $7.043 (b) $7.966
Ending Number of AUs................................. (a) 1,157 (a) 93,358 (a) 81,350 (a) 83,916
(b) -- (b) 16,380 (b) 39,237 (b) 33,477
- ----------------------------------------------------------------------------------------------------------------------------
Nations Asset Allocation (Inception Date - 6/15/01)
Beginning AUV........................................ (a) -- (a) $10.000 (a) $9.618 (a) $8.191
(b) -- (b) $10.000 (b) $9.615 (b) $8.168
Ending AUV........................................... (a) -- (a) $9.618 (a) $8.191 (a) $9.608
(b) -- (b) $9.615 (b) $8.168 (b) $9.557
Ending Number of AUs................................. (a) -- (a) 4,265 (a) 25,576 (a) 69,329
(b) -- (b) 2,470 (b) 13,565 (b) 14,204
- ----------------------------------------------------------------------------------------------------------------------------
Nations High Yield Bond (Inception Date - 1/22/01)
Beginning AUV........................................ (a) -- (a) $10.000 (a) $10.135 (a) $10.200
(b) -- (b) $10.000 (b) $10.122 (b) $10.162
Ending AUV........................................... (a) -- (a) $10.135 (a) $10.200 (a) $13.182
(b) -- (b) $10.122 (b) $10.162 (b) $13.100
Ending Number of AUs................................. (a) -- (a) 79,077 (a) 175,151 (a) 257,932
(b) -- (b) 31,370 (b) 91,139 (b) 122,074
- ----------------------------------------------------------------------------------------------------------------------------
Nations International Value (Inception Date - 1/22/01)(c)
Beginning AUV........................................ (a) -- (a) $10.000 (a) $8.856 (a) $7.324
(b) -- (b) $10.000 (b) $8.840 (b) $7.292
Ending AUV........................................... (a) -- (a) $8.856 (a) $7.324 (a) $10.912
(b) -- (b) $8.840 (b) $7.292 (b) $10.838
Ending Number of AUs................................. (a) -- (a) 108,216 (a) 223,364 (a) 203,775
(b) -- (b) 42,351 (b) 88,168 (b) 75,852
- ----------------------------------------------------------------------------------------------------------------------------
(a) Without election of Enhanced Death Benefit.
(b) With election of Enhanced Death Benefit.
(c) Not available for investment after September 30, 2002.
AUV - Accumulation Unit Value
AU - Accumulation Units
</Table>
A-2
<Table>
<Caption>
FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR
PORTFOLIOS 12/31/00 12/31/01 12/31/02 12/31/03
- ----------------------------------------------------------------------------------------------------------------------------
Nations Marsico Focused Equities (Inception
Date - 12/20/00)
Beginning AUV........................................ (a) $10.000 (a) $10.564 (a) $8.554 (a) $7.156
(b) -- (b) $10.564 (b) $8.536 (b) $7.123
Ending AUV........................................... (a) $10.564 (a) $8.554 (a) $7.156 (a) $9.382
(b) -- (b) $8.536 (b) $7.123 (b) $9.315
Ending Number of AUs................................. (a) 390 (a) 110,281 (a) 315,502 (a) 434,732
(b) -- (b) 42,331 (b) 108,714 (b) 120,682
- ----------------------------------------------------------------------------------------------------------------------------
Nations Marsico Growth (Inception Date - 12/28/00)
Beginning AUV........................................ (a) $10.000 (a) $9.980 (a) $8.096 (a) $6.688
(b) -- (b) $9.980 (b) $8.085 (b) $6.662
Ending AUV........................................... (a) $9.980 (a) $8.096 (a) $6.688 (a) $8.602
(b) -- (b) $8.085 (b) $6.662 (b) $8.547
Ending Number of AUs................................. (a) 463 (a) 80,197 (a) 162,808 (a) 207,726
(b) -- (b) 39,132 (b) 69,742 (b) 65,292
- ----------------------------------------------------------------------------------------------------------------------------
Nations Marsico 21st Century (Inception Date - 2/20/01)
Beginning AUV........................................ (a) -- (a) $10.000 (a) $8.075 (a) $7.301
(b) -- (b) $10.000 (b) $8.063 (b) $7.272
Ending AUV........................................... (a) -- (a) $8.075 (a) $7.301 (a) $10.705
(b) -- (b) $8.063 (b) $7.272 (b) $10.636
Ending Number of AUs................................. (a) -- (a) 18,229 (a) 27,450 (a) 52,461
(b) -- (b) 18,933 (b) 21,557 (b) 19,194
- ----------------------------------------------------------------------------------------------------------------------------
Nations Marsico Int'l Opportunities (Inception
Date - 6/15/01)
Beginning AUV........................................ (a) -- (a) $10.000 (a) $9.427 (a) $8.604
(b) -- (b) $10.000 (b) $9.432 (b) $8.586
Ending AUV........................................... (a) -- (a) $9.427 (a) $8.604 (a) $11.885
(b) -- (b) $9.432 (b) $8.586 (b) $11.832
Ending Number of AUs................................. (a) -- (a) 700 (a) 14,943 (a) 52,559
(b) -- (b) 428 (b) 3,984 (b) 13,417
- ----------------------------------------------------------------------------------------------------------------------------
Nations Mid-Cap Growth (Inception Date - 6/7/01)
Beginning AUV........................................ (a) -- (a) $10.000 (a) $8.939 (a) $5.810
(b) -- (b) $10.000 (b) $8.322 (b) $5.396
Ending AUV........................................... (a) -- (a) $8.939 (a) $5.810 (a) $7.295
(b) -- (b) $8.322 (b) $5.396 (b) $6.758
Ending Number of AUs................................. (a) -- (a) 22,262 (a) 108,625 (a) 149,788
(b) -- (b) 12,888 (b) 35,962 (b) 69,537
- ----------------------------------------------------------------------------------------------------------------------------
Nations Small Company (Inception Date - 6/1/01)
Beginning AUV........................................ (a) -- (a) $10.000 (a) $9.964 (a) $7.226
(b) -- (b) $10.000 (b) $9.943 (b) $7.189
Ending AUV........................................... (a) -- (a) $9.964 (a) $7.226 (a) $9.606
(b) -- (b) $9.943 (b) $7.189 (b) $9.532
Ending Number of AUs................................. (a) -- (a) 33,719 (a) 173,985 (a) 218,509
(b) -- (b) 15,917 (b) 55,064 (b) 67,555
- ----------------------------------------------------------------------------------------------------------------------------
Nations Value Fund (Inception Date - 1/8/01)
Beginning AUV........................................ (a) -- (a) $10.000 (a) $9.421 (a) $7.355
(b) -- (b) $10.000 (b) $9.397 (b) $7.318
Ending AUV........................................... (a) -- (a) $9.421 (a) $7.355 (a) $9.430
(b) -- (b) $9.397 (b) $7.318 (b) $9.359
Ending Number of AUs................................. (a) -- (a) 79,418 (a) 124,698 (a) 155,985
(b) -- (b) 50,914 (b) 81,674 (b) 55,482
- ----------------------------------------------------------------------------------------------------------------------------
(a) Without election of Enhanced Death Benefit.
(b) With election of Enhanced Death Benefit.
(c) Not available for investment after September 30, 2002.
AUV - Accumulation Unit Value
AU - Accumulation Units
</Table>
A-3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX B - MARKET VALUE ADJUSTMENT ("MVA")
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The information in this Appendix applies only if you take money out of a FAGP
with duration longer than 1-year before the end of the guarantee period.
We calculate the MVA by doing a comparison between current rates and the rate
being credited to you in the FAGP. For the current rate we use a rate being
offered by us for a guarantee period that is equal to the time remaining in the
FAGP from which you seek withdrawal (rounded up to a full number of years). If
we are not currently offering a guarantee period for that period of time, we
determine an applicable rate by using a formula to arrive at a number based on
the interest rates currently offered for the two closest periods available.
Where the MVA is negative, we first deduct the adjustment from any money
remaining in the FAGP. If there is not enough money in the FAGP to meet the
negative deduction, we deduct the remainder from your withdrawal. Where the MVA
is positive, we add the adjustment to your withdrawal amount. If a withdrawal
charge applies, it is deducted before the MVA calculation. The MVA is assessed
on the amount withdrawn less any withdrawal charges.
The MVA is computed by multiplying the amount withdrawn, transferred or taken
under an income option by the following factor:
[(1+I/(1+J+L)](N/12) - 1
where:
I is the interest rate you are earning on the money invested in the FAGP;
J is the interest rate then currently available for the period of time
equal to the number of years remaining in the term you initially agreed to
leave your money in the FAGP; and
N is the number of full months remaining in the term you initially agreed
to leave your money in the FAGP.
L is 0.005 (some states require a different value, see your Contract.)
We do not assess a MVA against withdrawals from a FAGP under the following
circumstances:
- If a withdrawal is made within 30 days after the end of a guarantee
period;
- If a withdrawal is made to pay contract fees and charges;
- To pay a death benefit; and
- Upon beginning an income option, if occurring on the Latest Annuity Date.
EXAMPLES OF THE MVA
The purpose of the examples below is to show how the MVA adjustments are
calculated and may not reflect the Guarantee periods available or Surrender
Charges applicable under your contract.
The examples below assume the following:
(1) You made an initial Purchase Payment of $10,000 and allocated it to a
FAGP at a rate of 5%;
(2) You make a partial withdrawal of $4,000 when 1 1/2 years (18 months)
remain in the term you initially agreed to leave your money in the FAGP
(N = 18); and
(3) You have not made any other transfers, additional Purchase Payments, or
withdrawals.
(4) You contract was issued in a state where L = 0.005.
POSITIVE ADJUSTMENT, NO WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 3.5% and the 3-year FAGP is 4.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 4%. No
withdrawal charge is reflected in this example, assuming that the Purchase
Payment withdrawn falls within the free look amount.
<Table>
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
</Table>
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
B-1
year) in the contract is calculated to be 6%. No withdrawal charge is reflected
in this example, assuming that the Purchase Payment withdrawn falls within the
free withdrawal amount.
<Table>
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
</Table>
The requested withdrawal amount is multiplied by the MVA factor to determine the
MVA:
$4,000 X (- 0.021052) = - $84.21
$84.21 represents the negative MVA that will be deducted from the money
remaining in the 3-year FAGP.
POSITIVE ADJUSTMENT, WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 3.5% and the 3-year FAGP is 4.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 4%. A
withdrawal charge of 6% is reflected in this example, assuming that the Purchase
Payment withdrawn exceeds the free withdrawal amount.
<Table>
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
</Table>
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.
<Table>
The MVA factor is = [(1+I)/(I+J+0.005)](N/12) - 1
= [(1.05)/(1.06+0.005)](18/12) - 1
= (0.985915)(1.5) - 1
= 0.978948 - 1
= -0.021052
</Table>
The requested withdrawal amount, less the withdrawal charge ($4,000 - 6% =
$3,760) is multiplied by the MVA factor to determine the MVA:
$3,760 X (- 0.021052) = - $79.16
$79.16 represents the negative MVA that would be deducted from the withdrawal.
B-2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX C - DEATH BENEFITS FOLLOWING SPOUSAL CONTINUATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Capitalized terms used in this Appendix have the same meaning as they have in
the prospectus.
The term Continuation Net Purchase Payments is used frequently to describe the
death benefits payable to the beneficiary of the Continuing Spouse for contracts
issued on or after October 24, 2001. We define Continuation Net Purchase
Payments as Net Purchase Payments made on and/or after the Continuation Date.
For the purpose of calculating Continuation Net Purchase Payments, the amount
that equals the contract value on the Continuation Date, including the
Continuation Contribution is considered a Purchase Payment. If the Continuing
Spouse makes no additional Purchase Payments or withdrawals, Continuation Net
Purchase Payments equals the contract value on the Continuation Date, including
the Continuation Contribution.
The term "Gross Withdrawals" as used in describing the death benefit option
below is defined as withdrawals and the fees and charges applicable to those
withdrawals.
The following describes the death benefit options following spousal continuation
for contracts issued on or after October 24, 2001:
1. Purchase Payment Accumulation Option
If a Continuation Contribution is added on the Continuation Date, the death
benefit is the greatest 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 compounded to the date of death
at a 4% annual growth rate, (3% growth rate if the Continuing
Spouse was age 70 or older on the Continuation Date) plus any
Purchase Payments recorded after the date of death; and reduced by
any Gross Withdrawals recorded after the date of death in the same
proportion that the Gross Withdrawal reduced the contract value on
the date of each withdrawal; or
c. The contract value on the seventh contract anniversary following
the original issue date of the contract, plus any Purchase Payments
since the seventh contract anniversary and reduced for any Gross
Withdrawals recorded after the seventh contract anniversary in the
same proportion that the Gross Withdrawal reduced the contract
value on the date of the Gross Withdrawal, all compounded at a 4%
annual growth rate until the date of death (3% annual growth rate
if the Continuing Spouse is age 70 or older on the Continuation
Date) plus any Purchase Payments; and reduced for any withdrawals
recorded after the date of death in the same proportion that each
withdrawal reduced the contract value on the date of the withdrawal
If a Continuation Contribution is not added on the Continuation Date, the death
benefit is the greater of:
a. The contract value on the date we receive all required paperwork
and satisfactory proof of the Continuing Spouse's death; or
b. Net Purchase Payments made from the original contract issue date
compounded to the date of death at a 4% annual growth rate, (3%
growth rate if the Continuing Spouse was age 70 or older on the
original contract issue date) plus any Purchase Payments recorded
after the date of death; and reduced for any Gross Withdrawals
recorded after the date of death in the same proportion that each
Gross Withdrawal reduced the contract value on the date of the
withdrawal; or
c. The contract value on the seventh contract anniversary following
the original issue date of the contract, plus any Purchase Payments
since the seventh contract anniversary; and reduced for any Gross
Withdrawals since the seventh contract anniversary in the same
proportion that each Gross Withdrawal reduced the contract value on
the date of the Gross Withdrawal, all compounded at a 4% annual
growth rate until the date of death (3% annual growth rate if the
Continuing Spouse is age 70 or older on the contract issue date)
plus any Purchase Payments; and reduced for any Gross Withdrawals
recorded after the date of death in the same proportion that each
Gross Withdrawal reduced the contract value on the date of the
Gross Withdrawal.
2. Maximum Anniversary Value Option -- if the continuing spouse is below
age 90 at the time of death, and:
If a Continuation Contribution is added on the Continuation Date, the death
benefit is the greatest 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; or
c. The maximum anniversary value on any contract anniversary occurring
after the Continuation Date and prior to the Continuing Spouse's
81st birthday. The anniversary value equals the contract value on a
contract anniversary plus any Purchase Payments made since that
contract anniversary; and reduced for any Gross Withdrawals
recorded since the contract anniversary in the same proportion that
each Gross Withdrawal reduced the contract value on the date of the
Gross Withdrawal. Contract anniversary is defined as any
anniversary following the full 12 month period after the original
contract issue date.
C-1
If a Continuation Contribution is not added on the Continuation Date, the death
benefit is the greatest of:
a. The contract value on the date we receive all required paperwork
and satisfactory proof of the Continuing Spouse's death; or
b. Net Purchase Payments received since the original issue date; or
c. The maximum anniversary value on any contract anniversary from the
original contract issue date prior to the Continuing Spouse's 81st
birthday. The anniversary value equals the contract value on a
contract anniversary plus any Purchase Payments since that contract
anniversary; and reduced for any Gross Withdrawals since the
contract anniversary in the same proportion that the Gross
Withdrawal reduced each contract value on the date of the Gross
Withdrawal. Contract anniversary is defined as the full 12 month
period after the original contract issue date.
If the Continuing Spouse is age 90 or older at the time of death, under the
Maximum Anniversary death benefit, their beneficiary will receive only the
contract value at the time we receive all required paperwork and satisfactory
proof of death.
Please see the Statement of Additional Information for a description of the
death benefit calculations following a Spousal Continuation for contracts issued
before October 24, 2001.
B. ESTATEPLUS BENEFIT PAYABLE UPON CONTINUING SPOUSE'S DEATH:
The EstatePlus benefit may increase the death benefit amount. The EstatePlus
benefit is only available if the original owner elected EstatePlus and it has
not been 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 "EstatePlus Percentage"), subject to a maximum dollar amount (the
"Maximum EstatePlus Percentage"), to the death benefit payable, based on the
number of years the Continuing Spouse has held the contract since the
Continuation Date. The EstatePlus benefit, if any, is added to the death benefit
payable under the Purchase Payment Accumulation or the Maximum Anniversary
option.
The term "Continuation Net Purchase Payment" is used frequently to describe the
EstatePlus benefit payable to the beneficiary of the Continuing Spouse.
We define Continuation Net Purchase Payment as Net Purchase Payments made as of
the Continuation Date. For the purpose of calculating Continuation Net Purchase
Payments, the amount that equals the contract value on the Continuation Date,
including the Continuation Contribution is considered a Purchase Payment. If the
Continuing Spouse makes no additional Purchase Payments or withdrawal,
Continuation Net Purchase Payments equals the contract value on the Continuation
Date, including the Continuation Contribution.
The following table provides the details if the Continuing Spouse is age 69 or
younger on the Continuation Date:
<Table>
<Caption>
- -------------------------------------------------------------
CONTRACT YEAR ESTATEPLUS MAXIMUM
OF DEATH PERCENTAGE ESTATEPLUS PERCENTAGE
- -------------------------------------------------------------
Years 0-4 25% of earnings 40% of Continuation
Net Purchase Payments
- -------------------------------------------------------------
Years 5-9 40% of earnings 65% of Continuation
Net Purchase
Payments*
- -------------------------------------------------------------
Years 10+ 50% of earnings 75% of Continuation
Net Purchase
Payments*
- -------------------------------------------------------------
</Table>
If the Continuing Spouse is between their 70th and 81st birthdays on the
Continuation Date, the table below shows the available EstatePlus benefit:
<Table>
<Caption>
- -------------------------------------------------------------
CONTRACT YEAR ESTATEPLUS MAXIMUM
OF DEATH PERCENTAGE ESTATEPLUS PERCENTAGE
- -------------------------------------------------------------
All Contract 25% of earnings 40% of Continuation
Years Net Purchase
Payments*
- -------------------------------------------------------------
</Table>
* Purchase Payments received after the 5th year following the Continuation Date
must remain in the contract for at least six months to be included as part of
Continuation Net Purchase Payments for purpose of the Maximum EstatePlus
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 EstatePlus amount?
We determine the EstatePlus amount based upon a percentage of earnings in the
contract at the time of the Continuing Spouse's death. For the purpose of this
calculation, earnings are defined as (1) minus (2) where
(1) equals the contract value on the Continuing Spouse's date of
death;
(2) equals the Continuation Net Purchase Payment(s).
What is the Maximum EstatePlus amount?
The EstatePlus benefit is subject to a maximum dollar amount. The Maximum
EstatePlus amount is a percentage of the Continuation Net Purchase Payments.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE SPOUSAL CONTINUATION
PROVISION (IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME ON PROSPECTIVELY ISSUED
CONTRACTS.
C-2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX D - HYPOTHETICAL EXAMPLE OF THE OPERATION OF THE INCOME PROTECTOR
FEATURE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This table assumes a $100,000 initial investment in a non-qualified contract
with no further premiums, no withdrawals, and no premium taxes.
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------------------------
Annual income if you annuitize on contract anniversary
If at issue 7 10 15 20
you are 1-6 (Age 67) (Age 70) (Age 75) (Age 80)
- --------------------------------------------------------------------------------------------------------------------
Male N/A 6,108 6,672 7,716 8,832
age 60*
- --------------------------------------------------------------------------------------------------------------------
Female N/A 5,388 5,880 6,900 8,112
age 60*
- --------------------------------------------------------------------------------------------------------------------
Joint** N/A 4,716 5,028 5,544 5,928
Male-60
Female-60
- --------------------------------------------------------------------------------------------------------------------
</Table>
* Life Annuity with 10 Year Period Certain
** Joint and 100% Survivor Annuity with 20 Year Period Certain
The Income Protector may not be available in your state. Please consult your
financial representative for information regarding availability of this program
in your state.
D-1
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Please forward a copy (without charge) of the PolarisAmerica Variable Annuity
Statement of Additional Information to:
(Please print or type and fill in all information.)
------------------------------------------------------------------------
Name
------------------------------------------------------------------------
Address
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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 SEPARATE ACCOUNT
----------------------------------------------------------------------------
SUPPLEMENT TO THE POLARIS II PROSPECTUS DATED MAY 3, 2004
("SUPPLEMENT")
The following information is provided to offer the optional Polaris Rewards
Program. The sections shown here supplement those in the Prospectus, if the
Polaris Rewards Program is elected.
If you elect to participate in the Polaris Rewards Program at contract issue, we
contribute an Upfront Payment Enhancement and, if applicable, a Deferred Payment
Enhancement to your contract in conjunction with each Purchase Payment you
invest during the life of your contract. If you elect to participate in this
Program, all Purchase Payments are subject to a nine year withdrawal charge
schedule. These withdrawal charges may offset the value of any bonus, if you
make an early withdrawal. You may not elect to participate in this Program if
you are age 81 or older at the time of contract issue. Amounts we contribute to
your contract under this Program are considered earnings and are allocated to
your contract as described below.
HIGHLIGHTS
- -------------------
WE ALSO OFFER PRODUCTS THAT DO NOT OFFER THE POLARIS REWARDS PROGRAM. GENERALLY,
PRODUCTS WITHOUT THE POLARIS REWARDS PROGRAM HAVE THE SAME MORTALITY AND EXPENSE
RISK CHARGES AS PRODUCTS WITH THE POLARIS REWARDS PROGRAM. HOWEVER, CONTRACTS
WITHOUT THE POLARIS REWARDS PROGRAM HAVE A SHORTER AND LOWER SURRENDER CHARGE
SCHEDULE.
WITHDRAWAL CHARGES
- ------------------------
This variable annuity provides an optional bonus feature called "Polaris
Rewards." If you elect this feature, in exchange for bonuses credited to your
contract, your surrender charge schedule will be longer and greater than if you
chose not to elect this feature. These withdrawal charges may offset the value
of any bonus if you make an early withdrawal.
After a Purchase Payment has been in the contract for nine complete years,
withdrawal charges no longer apply to that portion of the Purchase Payment.
Please keep this Supplement with your Prospectus
GLOSSARY
- ----------------
To describe the Polaris Rewards Program, we use the following defined terms:
PAYMENT ENHANCEMENT(S) - The amounts allocated to your contract by us under the
Polaris Rewards Program. Payment Enhancements are calculated as a percentage of
your Purchase Payments and are considered earnings.
POLARIS REWARDS PROGRAM - A program that provides a payment enhancement in
exchange for a surrender charge that declines over 9 years.
Any other capitalized terms used in this Supplement have the same meaning as the
term defined in the Prospectus.
FEE TABLE
- -----------------
EXPENSES FOR CONTRACTS WITH POLARIS REWARDS
MAXIMUM OWNER TRANSACTION EXPENSES
Maximum Withdrawal Charges (as a percentage of each Purchase Payment)(1) 9%
(1)WITHDRAWAL CHARGE (AS A PERCENTAGE OF EACH PURCHASE PAYMENT)
<Table>
<Caption>
YEARS 1 2 3 4 5 6 7 8 9 10
- ----- --- --- --- --- --- --- --- --- --- ---
With Polaris Rewards 9% 9% 8% 7% 6% 5% 4% 3% 2% 0%
</Table>
The other expenses in the contract remain the same.
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MAXIMUM AND MINIMUM EXPENSE EXAMPLES WITH THE POLARIS REWARDS PROGRAM
- --------------------------------------------------------------------------------
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These Examples are intended to help you compare the cost of investing in the
contract, with the cost of investing in other variable annuity contracts. These
costs include owner transaction expenses, contract maintenance fee, separate
account annual expenses, fees for optional features and expenses of the
underlying portfolios of the Trusts.
The Examples assume that you invest $10,000 in the contract for the time periods
indicated; that your investment has a 5% return each year; and that the maximum
and minimum fees and expenses of the underlying portfolios 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 EXPENSE OF 1.77% AND INVESTMENT IN THE
UNDERLYING PORTFOLIO WITH TOTAL EXPENSES OF 1.86%)
(1) If you surrender your contract at the end of the applicable time
period and you elect the optional Estate Plus (0.25%) feature:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
=====================================================================================================
$1,278 $1,949 $2,540 $4,011
=====================================================================================================
</Table>
(2) If you annuitize your contract at the end of the applicable time
period:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
=====================================================================================================
$ 341 $1,039 $1,760 $3,667
=====================================================================================================
</Table>
(3) If you do not surrender your contract and you elect the optional
Estate Plus (0.25%) feature:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
=====================================================================================================
$ 378 $1,149 $1,940 $4,011
=====================================================================================================
</Table>
MINIMUM EXPENSE EXAMPLES
- ---------------------------------------------
(ASSUMING MINIMUM SEPARATE ACCOUNT ANNUAL EXPENSE OF 1.52% AND INVESTMENT IN THE
UNDERLYING PORTFOLIO WITH TOTAL EXPENSES OF 0.54%)
(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
=====================================================================================================
$1,118 $1,474 $1,757 $2,490
=====================================================================================================
</Table>
(2) If you annuitize your contract:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
=====================================================================================================
$ 209 $ 646 $1,108 $2,390
=====================================================================================================
</Table>
(3) If you do not surrender your contract and you do not elect any
optional features:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
=====================================================================================================
$ 218 $ 674 $1,157 $2,490
=====================================================================================================
</Table>
NOTE: Examples reflect participation in the Polaris Rewards Program and
therefore use the Polaris Rewards surrender charge schedule and a 2% upfront
Payment Enhancement.
THE PROGRAM
- -----------------------
If you elect to participate in the Polaris Rewards Program, we will contribute
certain amounts to your contract as further described below. There may be
scenarios in which due to negative market conditions and your inability to
remain invested over the long-term, a contract with the Polaris Rewards Program
may not perform as well as the contract without the feature.
Enhancement Levels
The Upfront Payment Enhancement Rates, 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 invested in the
contract. Enhancement Levels may change from time to time, at our sole
discretion. The Enhancement Level applicable to your initial Purchase Payment is
determined by the amount of that initial Purchase Payment. With respect to any
subsequent Purchase Payments, we determine your Enhancement Level by adding your
contract value on the date we receive each subsequent Purchase Payment to the
amount of the subsequent Purchase Payment.
Upfront Payment Enhancement
An Upfront Payment Enhancement is an amount we add to your contract on the day
we apply 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 apply 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 for your Purchase Payments.
Deferred Payment Enhancement
A Deferred Payment Enhancement is an amount we may add to your contract on a
stated future date (the "Deferred Payment Enhancement Date") as a percentage of
Purchase Payments received. We refer to this percentage amount as the Deferred
Payment Enhancement Rate. We periodically review and establish the Deferred
Payment Enhancement Rates and Deferred Payment Enhancement Dates. The Deferred
Payment Enhancement Rate being offered may increase, decrease or be eliminated
by us, at any time. The Deferred Payment Enhancement Date, if applicable, may
change at any time. The applicable Deferred Payment Enhancement Date and
Deferred Payment Enhancement Rate are those which may be in effect for any
applicable Enhancement Level, when we apply each Purchase Payment under your
contract. Any applicable Deferred Payment Enhancement, when credited, is
allocated to the Cash Management Variable Portfolio.
If you withdraw any portion of a Purchase Payment to which Deferred Payment
Enhancement applies prior to the Deferred Payment Enhancement Date, we reduce
the amount of 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.
An illustration of how we calculate any applicable Deferred Payment Enhancement
amount can be found at the end of this supplement in the APPENDIX E -- POLARIS
REWARDS EXAMPLES.
We will not allocate any applicable Deferred Payment Enhancement to your
contract if any of the following circumstances occurs prior to the Deferred
Payment Enhancement Date:
-- You surrender your contract;
-- A death benefit is paid on your contract;
-- You switch to the Income Phase of your contract; or
-- You fully withdraw the corresponding Purchase Payment.
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:
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------------
ENHANCEMENT UPFRONT PAYMENT DEFERRED PAYMENT DEFERRED PAYMENT
LEVEL ENHANCEMENT RATE ENHANCEMENT RATE ENHANCEMENT DATE
- --------------------------------------------------------------------------------------------------------
Under $40,000 2% 0% N/A
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$40,000-$99,999 4% 0% N/A
- --------------------------------------------------------------------------------------------------------
$100,000-$499,999 4% 1% Nine years from the
date we receive each
Purchase Payment.
- --------------------------------------------------------------------------------------------------------
$500,000-more 5% 1% Nine years from the
date we receive each
Purchase Payment.
- --------------------------------------------------------------------------------------------------------
</Table>
Enhancement Levels and Payment Enhancement Rates may change at any time for
future payments.
90 Day Window
Contracts issued with the Polaris Rewards feature may be eligible for a
"Look-Back Adjustment." As of the 90(th) day after your contract was issued, we
will total your Purchase Payments made over those 90 days, without considering
any investment gain or loss in contract value on those Purchase Payments. If
your total Purchase Payments bring you to an Enhancement Level which, as of the
date we issued your contract, would have provided for a higher Upfront and/or
Deferred Payment Enhancement Rate on each Purchase Payment, you will get the
benefit of the Enhancement Rate(s) that were applicable to that higher
Enhancement Level at the time your contract was issued. We will add any
applicable Upfront Look-Back Adjustment to your contract on or around the 90(th)
day following the date of contact issuance. We will send you a confirmation
indicating any applicable Upfront and/or Deferred Look-Back Adjustment amount.
We will allocate any applicable Upfront Look-Back Adjustment according to your
then-current allocation instructions on file for subsequent Purchase Payments at
the time we make the contribution and, if applicable, to the Cash Management
Portfolio, for a Deferred Look-Back Adjustment.
An example of a Look-Back Adjustment can be found at the end of this supplement
in the APPENDIX E -- POLARIS REWARDS EXAMPLES.
Purchase Payments may not be invested in the Dollar Cost Averaging fixed
accounts ((DCAFAs) if you participate in the Polaris Rewards Program. However,
you may be able to use any available fixed account options and/or the Variable
Portfolios as a DCA source account.
If you elect Polaris Rewards and decide to cancel your contract during the Right
to Examine period, we will refund to you the value of your contract on the day
we receive your request minus the Right to Examine Payment Adjustment. The Right
to Examine Payment Adjustment is equal to the lesser of (1) the value of any
Payment Enhancement(s) on the day we receive your Right to Examine request; or
(2) the Payment Enhancement amount(s), if any, which we allocate 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 Right to Examine
period.
If you contract was issued as an IRA and you cancel your contract during the
Right to Examine period, we return the greater of (1) your Purchase Payments; or
(2) the value of your contract minus the Right to Examine Payment Enhancement
Deduction.
The Polaris Rewards Program may not be available through the broker-dealer with
which your financial advisor is affiliated. Please check with your financial
representative regarding the availability of this program.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE POLARIS REWARDS PROGRAM
(IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME.
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APPENDIX E
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POLARIS REWARDS PROGRAM EXAMPLES
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- --------------------------------------------------------------------------------
I. Deferred Payment Enhancement
If you elect to participate in the Polaris Rewards Program at contract issue, we
contribute at least 2% of each Purchase Payment to your contract for each
Purchase Payment we receive as an Upfront Payment Enhancement. Any applicable
Deferred Payment Enhancement is allocated to your contract on the corresponding
Deferred Payment Enhancement Date and if declared by the Company, is a
percentage of your remaining Purchase Payment on the Deferred Payment
Enhancement Date. Deferred Payment Enhancements are reduced proportionately by
partial withdrawals of that Purchase Payment prior to the Deferred Payment
Enhancement Date.
The examples that follow assume an initial Purchase Payment of $125,000 and that
the Deferred Payment Enhancement is 1%.
For purposes of the example, the Deferred Payment Enhancement Date is the 9th
anniversary of the Purchase Payment.
EXAMPLE 1 - NO WITHDRAWALS ARE MADE
The Upfront Payment Enhancement allocated to your contract is $2,500 (2% of
$125,000).
On your 9(th) 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 5(th) contract anniversary is $190,000.
2. You request a withdrawal of $75,000 on your 5(th) contract
anniversary.
3. No subsequent Purchase Payments have been made.
4. No prior withdrawals have been taken.
5. Funds are not allocated to a MVA Fixed Accounts.
On your 5(th) 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 of $75,500
of which $10,5000 constitutes part of your Purchase Payment.
The withdrawal of $10,500 of you $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 9(th) contract anniversary, the Deferred Payment Enhancement Date,
assuming no other transaction occur affecting the Purchase Payment, we allocate
your Deferred Payment Enhancement of $1,145 (1% of your remaining Purchase
Payment, $114,500) to your contract.
II. 90 DAY WINDOW
The following hypothetical examples assume that the Company is offering Upfront
and Deferred Payment Enhancements in accordance with this chart at the time each
Purchase Payment is received:
<Table>
<Caption>
------------------------------------------------------------------------------------------------
ENHANCEMENT UPFRONT PAYMENT DEFERRED PAYMENT DEFERRED PAYMENT
LEVEL ENHANCEMENT RATE ENHANCEMENT RATE ENHANCEMENT DATE
------------------------------------------------------------------------------------------------
Under $40,000 2% 0% N/A
------------------------------------------------------------------------------------------------
$40,000-$99,999 4% 0% N/A
------------------------------------------------------------------------------------------------
$100,000-$499,999 4% 1% Nine years from the
date we receive each
Purchase Payment.
------------------------------------------------------------------------------------------------
$500,000-more 5% 1% Nine years from the
date we receive each
Purchase Payment.
------------------------------------------------------------------------------------------------
</Table>
Contracts issued with the Polaris Rewards feature may be eligible for a
"Look-Back Adjustment." As of the 90(th) 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 you 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 Payment Enhancement Rate(s) that were
applicable to that higher Enhancement Level at the time your contract was
issued.
This example assumes the following:
1. Current Enhancement Levels, Rates and Dates (beginning May 1, 2002)
throughout the first 90 days.
2. No withdrawals in the first 90 days.
3. Initial Purchase Payment of $35,000 on May 1, 2002.
4. Subsequent Purchase Payment of $40,000 on June 15, 2002.
5. Subsequent Purchase Payment of $25,000 on June 30, 2002.
6. Subsequent Purchase Payment of $7,500 on July 12, 2002.
ENHANCEMENT AT THE TIME PAYMENTS ARE RECEIVED
<Table>
<Caption>
---------------------------------------------------------------------------------------------------------
DEFERRED
DATE OF PURCHASE UPFRONT DEFERRED PAYMENT
PURCHASE PAYMENT PAYMENT PAYMENT ENHANCEMENT
PAYMENT AMOUNT ENHANCEMENT ENHANCEMENT DATE
---------------------------------------------------------------------------------------------------------
May 1, 2002 $35,000 2% 0% N/A
---------------------------------------------------------------------------------------------------------
June 15, 2002 $40,000 4% 0% N/A
---------------------------------------------------------------------------------------------------------
June 30, 2002 $25,000 4% 1% June 30, 2011
---------------------------------------------------------------------------------------------------------
July 12, 2002 $7,500 4% 1% July 12, 2011
---------------------------------------------------------------------------------------------------------
</Table>
ENHANCEMENT ADJUSTMENT ON THE 90(TH) DAY FOLLOWING CONTRACT ISSUE
The sum of all Purchase Payments made in the first 90 days of the contract
equals $107,500. According to the Enhancement Levels in effect at the time this
contract was issued, a $107,500 Purchase Payment would have received a 4%
Upfront Payment Enhancement and a 1% Deferred Payment Enhancement. Under the 90
Day Window provision all Purchase Payments made within those first 90 days would
receive the benefit of the parameters in place at the time the contract was
issued, as if all Purchase Payments were received on the date of issue. Thus,
the first two Purchase Payments would be adjusted on the 90(th) day following
contract issue, as follows:
<Table>
<Caption>
---------------------------------------------------------------------------------------------------------
DEFERRED
DATE OF PURCHASE UPFRONT DEFERRED PAYMENT
PURCHASE PAYMENT PAYMENT PAYMENT ENHANCEMENT
PAYMENT AMOUNT ENHANCEMENT ENHANCEMENT DATE
---------------------------------------------------------------------------------------------------------
May 1, 2002 $35,000 4% 1% May 1, 2011
---------------------------------------------------------------------------------------------------------
June 15, 2002 $40,000 4% 1% June 15, 2011
---------------------------------------------------------------------------------------------------------
June 30, 2002 $25,000 4% 1% June 30, 2011
---------------------------------------------------------------------------------------------------------
July 12, 2002 $7,500 4% 1% July 12, 2011
---------------------------------------------------------------------------------------------------------
</Table>
Date: May 3, 2004
Please keep this Supplement with your Prospectus
[POLARIS II LOGO]
PROSPECTUS
MAY 3, 2004
<Table>
Please read this prospectus carefully FLEXIBLE PAYMENT DEFERRED ANNUITY CONTRACTS
before investing and keep it for issued by
future reference. It contains AIG SUNAMERICA LIFE ASSURANCE COMPANY
important information about the in connection with
Polaris(II) Variable Annuity. VARIABLE SEPARATE ACCOUNT
The annuity has several investment choices - both fixed account options and the
To learn more about the annuity Variable Portfolios listed below. The Variable Portfolios are part of the Anchor
offered by this prospectus, you can Series Trust ("AST"), American Funds Insurance Series ("AFIS"), the Lord Abbett
obtain a copy of the Statement of Series Fund, Inc. ("LASF"), the SunAmerica Series Trust ("SAST") or the Van
Additional Information ("SAI") dated Kampen Life Investment Trust ("VKT").
May 3, 2004. The SAI has been filed
with the Securities and Exchange STOCKS:
Commission ("SEC") and is MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
incorporated by reference into this - Aggressive Growth Portfolio SAST
prospectus. The Table of Contents of - Blue Chip Growth Portfolio SAST
the SAI appears in this prospectus. - "Dogs" of Wall Street Portfolio* SAST
For a free copy of the SAI, call us - Growth Opportunities Portfolio SAST
at (800) 445-SUN2 or write to us at MANAGED BY ALLIANCE BERNSTEIN
our Annuity Service Center, P.O. Box - Small & Mid Cap Value Portfolio SAST
54299, Los Angeles, California MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
90054-0299. - Alliance Growth Portfolio SAST
- Global Equities Portfolio SAST
In addition, the SEC maintains a - Growth-Income Portfolio SAST
website (http://www.sec.gov) that MANAGED BY CAPITAL RESEARCH AND MANAGEMENT COMPANY
contains the SAI, materials - American Funds Global Growth Portfolio AFIS
incorporated by reference and other - American Funds Growth Portfolio AFIS
information filed electronically with - American Funds Growth-Income Portfolio AFIS
the SEC by AIG SunAmerica Life MANAGED BY DAVIS ADVISORS
Assurance Company. - Davis Venture Value Portfolio SAST
- Real Estate Portfolio SAST
ANNUITIES INVOLVE RISKS, INCLUDING MANAGED BY FEDERATED EQUITY MANAGEMENT COMPANY
POSSIBLE LOSS OF PRINCIPAL, AND ARE - Federated American Leaders Portfolio SAST
NOT A DEPOSIT OR OBLIGATION OF, OR - Telecom Utility Portfolio SAST
GUARANTEED OR ENDORSED BY, ANY BANK. MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT, L.P.
THEY ARE NOT FEDERALLY INSURED BY THE - Goldman Sachs Research Portfolio SAST
FEDERAL DEPOSIT INSURANCE MANAGED BY LORD ABBETT & CO.
CORPORATION, THE FEDERAL RESERVE - Lord Abbett Series Fund, Inc. -- Growth and Income Portfolio LASF
BOARD OR ANY OTHER AGENCY. - Lord Abbett Series Fund, Inc. -- Mid-Cap Value Portfolio LASF
MANAGED BY MARSICO CAPITAL MANAGEMENT, LLC
- Marsico Growth Portfolio SAST
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Massachusetts Investors Trust Portfolio SAST
- MFS Mid-Cap Growth Portfolio SAST
MANAGED BY PUTNAM INVESTMENT MANAGEMENT LLC
- Emerging Markets Portfolio SAST
- International Growth & Income Portfolio SAST
- Putnam Growth: Voyager Portfolio SAST
MANAGED BY TEMPLETON INVESTMENT COUNSEL, LLC
- Foreign Value Portfolio SAST
MANAGED BY VAN KAMPEN/VAN KAMPEN ASSET MANAGEMENT
- International Diversified Equities Portfolio SAST
- Technology Portfolio SAST
- Van Kampen LIT Comstock Portfolio, Class II Shares* VKT
- Van Kampen LIT Emerging Growth Portfolio, Class II Shares VKT
- Van Kampen LIT Growth and Income Portfolio, Class II Shares VKT
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio AST
- Growth Portfolio AST
- Natural Resources Portfolio AST
BALANCED:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- AIG SunAmerica Balanced Portfolio SAST
MANAGED BY CAPITAL RESEARCH AND MANAGEMENT COMPANY
- American Funds Asset Allocation Portfolio AFIS
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Total Return Portfolio SAST
MANAGED BY WM ADVISORS, INC.
- Asset Allocation Portfolio AST
BONDS:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- High-Yield Bond Portfolio SAST
MANAGED BY FEDERATED INVESTMENT MANAGEMENT COMPANY
- Corporate Bond Portfolio SAST
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
- Global Bond Portfolio SAST
MANAGED BY VAN KAMPEN
- Worldwide High Income Portfolio SAST
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Government & Quality Bond Portfolio AST
CASH:
MANAGED BY BANC OF AMERICA CAPITAL MANAGEMENT, LLC
- Cash Management Portfolio SAST
* "Dogs of Wall Street" Portfolio is an equity fund seeking total return and Van
Kampen LIT Comstock Portfolio is an equity fund, seeking capital growth and
income.
</Table>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
- ----------------------------------------------------------------
- ----------------------------------------------------------------
AIG SunAmerica Life's Annual Report on Form 10-K for the year ended December 31,
2003 (file number 811-21039) 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 above
documents incorporated by reference. Requests for these documents should be
directed to AIG SunAmerica Life's Annuity Service Center, as follows:
AIG SunAmerica Life Assurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
Telephone Number: (800) 445-SUN2
- ----------------------------------------------------------------
- ----------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Indemnification for liabilities arising under the Securities Act of 1933 (the
"Act") is provided to AIG SunAmerica Life's officers, directors and controlling
persons. The SEC has advised that it believes such indemnification is against
public policy under the Act and unenforceable. If a claim for indemnification
against such liabilities (other than for AIG SunAmerica Life's payment of
expenses incurred or paid by its directors, officers or controlling persons in
the successful defense of any legal action) is asserted by a director, officer
or controlling person of AIG SunAmerica Life in connection with the securities
registered under this prospectus, AIG SunAmerica Life will submit to a court
with jurisdiction to determine whether the indemnification is against public
policy under the Act. AIG SunAmerica Life will be governed by final judgment of
the issue. However, if in the opinion of AIG SunAmerica Life's counsel, this
issue has been determined by controlling precedent, AIG SunAmerica Life will not
submit the issue to a court for determination.
2
<Table>
------------------------------------------------------------------
------------------------------------------------------------------
TABLE OF CONTENTS
------------------------------------------------------------------
------------------------------------------------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 2
SECURITIES AND EXCHANGE COMMISSION POSITION ON
INDEMNIFICATION........................................... 2
GLOSSARY.................................................... 3
HIGHLIGHTS.................................................. 4
FEE TABLES.................................................. 5
Maximum Owner Transaction Expenses.................... 5
Contract Maintenance Fee.............................. 5
Separate Account Expenses............................. 5
Portfolio Expenses.................................... 5
EXAMPLES.................................................... 6
THE POLARIS(II) VARIABLE ANNUITY............................ 7
PURCHASING A POLARIS(II) VARIABLE ANNUITY................... 7
Allocation of Purchase Payments....................... 8
Accumulation Units.................................... 8
Right to Examine...................................... 8
INVESTMENT OPTIONS.......................................... 9
Variable Portfolios................................... 9
Anchor Series Trust............................... 9
America Funds Insurance Series.................... 9
SunAmerica Series Trust........................... 9
Lord Abbett Series Fund, Inc...................... 9
Van Kampen Life Investment Trust.................. 9
Fixed Account Options................................. 10
Asset Allocation Program.............................. 11
Transfers During the Accumulation Phase............... 11
Dollar Cost Averaging................................. 12
Asset Allocation Rebalancing Program.................. 13
Return Plus Program................................... 13
Voting Rights......................................... 13
Substitution.......................................... 13
ACCESS TO YOUR MONEY........................................ 14
Systematic Withdrawal Program......................... 15
Nursing Home Waiver................................... 15
Minimum Contract Value................................ 15
LIVING BENEFITS............................................. 15
The Income Protector Feature.......................... 15
DEATH BENEFIT............................................... 16
Option 1 - Purchase Payment Accumulation Option....... 17
Option 2 - Maximum Anniversary Option................. 18
Optional EstatePlus Feature........................... 18
Spousal Continuation.................................. 19
EXPENSES.................................................... 20
Withdrawal Charges.................................... 20
Investment Charges.................................... 20
Contract Maintenance Fee.............................. 21
Transfer Fee.......................................... 21
Optional EstatePlus Fee............................... 21
Premium Tax........................................... 21
Income Taxes.......................................... 21
Reduction or Elimination of Charges and Expenses,
and Additional Amounts Credited..................... 21
INCOME OPTIONS.............................................. 21
Annuity Date.......................................... 21
Income Options........................................ 21
Fixed or Variable Income Payments..................... 22
Income Payments....................................... 22
Transfers During the Income Phase..................... 22
Deferment of Payments................................. 22
TAXES....................................................... 23
Annuity Contracts in General.......................... 23
Tax Treatment of Distributions - Non-Qualified
Contracts............................................. 23
Tax Treatment of Distributions - Qualified
Contracts............................................. 23
Minimum Distributions................................. 24
Tax Treatment of Death Benefits....................... 24
Contracts Owned by a Trust or Corporation............. 24
Gifts, Pledges and/or Assignments of a Non-qualified
Contract.............................................. 25
Diversification and Investor Control.................. 25
PERFORMANCE................................................. 25
OTHER INFORMATION........................................... 25
AIG SunAmerica Life................................... 25
The Separate Account.................................. 25
The General Account................................... 26
Distribution of the Contract.......................... 26
Administration........................................ 26
Legal Proceedings..................................... 26
Ownership............................................. 26
Independent Accountants............................... 27
Registration Statement................................ 27
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION....
27
APPENDIX A - CONDENSED FINANCIAL INFORMATION................ A-1
APPENDIX B - MARKET VALUE ADJUSTMENT ("MVA")................ B-1
APPENDIX C - DEATH BENEFITS FOLLOWING SPOUSAL
CONTINUATION.............................................. C-1
APPENDIX D - HYPOTHETICAL EXAMPLE OF THE OPERATION OF THE
INCOME PROTECTOR.......................................... D-1
------------------------------------------------------------------
------------------------------------------------------------------
GLOSSARY
------------------------------------------------------------------
------------------------------------------------------------------
We have capitalized some of the technical terms used in this
prospectus. To help you understand these terms, we have defined
them in this glossary.
ACCUMULATION PHASE - The period during which you invest money in
your contract.
ACCUMULATION UNITS - A measurement we use to calculate the value
of the variable portion of your contract during the Accumulation
Phase.
ANNUITANT(S) - The person(s) on whose life (lives) we base income
payments.
ANNUITY DATE - The date on which income payments are to begin, as
selected by you.
ANNUITY UNITS - A measurement we use to calculate the amount of
income payments you receive from the variable portion of your
contract during the Income Phase.
BENEFICIARY - The person designated to receive any benefits under
the contract if you or the Annuitant dies.
COMPANY - AIG SunAmerica Life Assurance Company, AIG SunAmerica
Life, we, us, the insurer which issues this contract. Only "AIG
SunAmerica Life" is a capitalized term of the prospectus.
INCOME PHASE - The period during which we make income payments to
you.
IRS - The Internal Revenue Service.
LATEST ANNUITY DATE - Your 95th birthday or tenth contract
anniversary, whichever is later.
NON-QUALIFIED (CONTRACT) - A contract purchased with after-tax
dollars. In general, these contracts are not under any pension
plan, specially sponsored program or individual retirement account
("IRA").
PURCHASE PAYMENTS - The money you give us to buy the contract, as
well as any additional money you give us to invest in the contract
after you own it.
QUALIFIED (CONTRACT) - A contract purchased with pretax dollars.
These contracts are generally purchased under a pension plan,
specially sponsored program or IRA.
TRUSTS - Refers to the Anchor Series Trust, the Lord Abbett Series
Fund, Inc., the SunAmerica Series Trust and the Van Kampen Life
Investment Trust collectively.
VARIABLE PORTFOLIO(S) - A sub-account of Variable Separate Account
which provides for the variable investment options available under
the contract. Each Variable Portfolio has its own investment
objective and is invested in the underlying investments of the
Anchor Series Trust, the Lord Abbett Series Fund, Inc., the
SunAmerica Series Trust or the Van Kampen Life Investment Trust,
as applicable. The underlying investment portfolios may be
referred to as "Underlying Funds."
</Table>
3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Polaris(II) Variable Annuity is a contract between you and AIG SunAmerica
Life Assurance Company ("AIG SunAmerica Life"). It is designed to help you
invest on a tax-deferred basis and meet long-term financial goals. There are
minimum Purchase Payment amounts required to purchase a contract. Purchase
payments may be invested in a variety of variable and fixed account options.
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.
RIGHT TO EXAMINE: If you cancel your contract within 10 days after receiving it
(or whatever period is required in your state), we will cancel the contract
without charging a withdrawal charge. You will receive whatever your contract is
worth on the day that we receive your request. This amount may be more or less
than your original Purchase Payment. We will return your original Purchase
Payment if required by law. Please see PURCHASING A POLARIS(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 insurance charges, which equal
1.52% annually of the average daily value of your contract allocated to the
Variable Portfolios. There are investment charges on amounts invested in the
Variable Portfolios. If you elect optional features available under the contract
we may charge additional fees for these features. A separate withdrawal charge
schedule applies to each Purchase Payment. The amount of the withdrawal charge
declines over time. After a Purchase Payment has been in the contract for seven
complete years, withdrawal charges no longer apply to that portion of the
Purchase Payment. Please see the FEE TABLE, PURCHASING A POLARIS(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. WHEN WORKING WITH
YOUR FINANCIAL REPRESENTATIVE TO DETERMINE THE BEST PRODUCT TO MEET YOUR NEEDS
YOU SHOULD CONSIDER, AMONG OTHER THINGS WHETHER THE FEATURES OF THIS CONTRACT
AND THE RELATED FEES PROVIDE THE MOST APPROPRIATE PACKAGE TO HELP YOU MEET YOUR
LONG-TERM RETIREMENT SAVINGS GOALS.
PLEASE READ THE PROSPECTUS CAREFULLY FOR MORE DETAILED INFORMATION REGARDING
THESE AND OTHER FEATURES AND BENEFITS OF THE CONTRACT, AS WELL AS THE RISKS OF
INVESTING.
4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEE TABLES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY AT THE TIME THAT
YOU BUY THE CONTRACT, SURRENDER THE CONTRACT, OR TRANSFER CASH VALUE BETWEEN
INVESTMENT OPTIONS. IF APPLICABLE, YOU ALSO MAY BE SUBJECT TO STATE PREMIUM
TAXES.
MAXIMUM OWNER TRANSACTION EXPENSES
MAXIMUM WITHDRAWAL CHARGES (AS A PERCENTAGE OF EACH PURCHASE PAYMENT)(1)......7%
<Table>
TRANSFER FEE.......... No charge for the first 15 transfers each
contract year; thereafter, the fee is $25
($10 in Pennsylvania and Texas) per
transfer
</Table>
THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY PERIODICALLY
DURING THE TIME THAT YOU OWN THE CONTRACT, NOT INCLUDING UNDERLYING PORTFOLIO
FEES AND EXPENSES.
CONTRACT MAINTENANCE FEE
$35 ($30 in North Dakota) waived if contract value $50,000 or more
SEPARATE ACCOUNT ANNUAL EXPENSES
(DEDUCTED DAILY AS A PERCENTAGE OF YOUR AVERAGE DAILY NET ASSET VALUE)
<Table>
Mortality and Expense Risk Fees....................... 1.37%
Distribution Expense Fee.............................. 0.15%
Optional EstatePlus Fee(2)............................ 0.25%
-----
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES.............. 1.77%
=====
</Table>
FOOTNOTES TO THE FEE TABLES:
(1) Withdrawal Charge Schedule (as a percentage of each Purchase Payment)
<Table>
YEARS:...................................................... 1 2 3 4 5 6 7 8+
7% 6% 5% 4% 3% 2% 1% 0%
</Table>
(2) EstatePlus, an enhanced death benefit feature is optional. If you do not
elect the EstatePlus feature, your total separate account annual expenses
would be 1.52%.
THE FOLLOWING SHOWS THE MINIMUM AND MAXIMUM TOTAL OPERATING EXPENSES CHARGED BY
THE UNDERLYING PORTFOLIOS OF THE TRUSTS BEFORE ANY WAIVERS OR REIMBURSEMENTS
THAT YOU MAY PAY PERIODICALLY DURING THE TIME YOU OWN THE CONTRACT. MORE DETAIL
CONCERNING THE TRUSTS' FEES AND EXPENSES IS CONTAINED IN THE PROSPECTUS FOR EACH
THE TRUSTS. PLEASE READ THEM CAREFULLY BEFORE INVESTING.
PORTFOLIO EXPENSES
<Table>
<Caption>
TOTAL ANNUAL TRUST OPERATING EXPENSES MINIMUM MAXIMUM
------------------------------------- ------- -------
(expenses that are deducted from underlying portfolios of
the Trusts, including management fees, other expenses and
service (12b-1) fees, if applicable)........................ 0.54% 1.86%
</Table>
5
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MAXIMUM AND MINIMUM EXPENSE EXAMPLES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
These Examples are intended to help you compare the cost of investing in the
contract with the cost of investing in other variable annuity contracts. These
costs include owner transaction expenses, contract maintenance fees, separate
account annual expenses, fees for optional features and expenses of the
underlying portfolios of the Trusts.
The Examples assume that you invest $10,000 in the contract for the time periods
indicated; that your investment has a 5% return each year; and that the maximum
and minimum fees and expenses of the underlying portfolios of the Trusts are
reflected. Although your actual costs may be higher or lower, based on these
assumptions, your costs at the end of the stated period would be:
MAXIMUM EXPENSE EXAMPLES
(ASSUMING MAXIMUM SEPARATE ACCOUNT ANNUAL EXPENSE OF 1.77% AND INVESTMENT OF
UNDERLYING PORTFOLIO WITH TOTAL EXPENSES OF 1.86%)
(1) If you surrender your contract at the end of the applicable time period and
you elect the optional EstatePlus (0.25%) feature:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$1,070 $1,626 $2,202 $3,932
- -------------------------------------
- -------------------------------------
</Table>
(2) If you annuitize your contract at the end of the applicable time period:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$341 $1,039 $1,760 $3,667
- -------------------------------------
- -------------------------------------
</Table>
(3) If you do not surrender your contract and you elect the optional EstatePlus
(0.25%) feature:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$370 $1,126 $1,902 $3,932
- -------------------------------------
- -------------------------------------
</Table>
MINIMUM EXPENSE EXAMPLES
(ASSUMING MINIMUM SEPARATE ACCOUNT ANNUAL CHARGES OF 1.52% AND INVESTMENT OF
UNDERLYING PORTFOLIO WITH TOTAL EXPENSES OF 0.54%)
(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
- -------------------------------------
- -------------------------------------
$914 $1,161 $1,434 $2,441
- -------------------------------------
- -------------------------------------
</Table>
(2) If you annuitize your contract at the end of the applicable time period:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$209 $646 $1,108 $2,390
- -------------------------------------
- -------------------------------------
</Table>
(3) If you do not surrender your contract and you do not elect any optional
features:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------
- -------------------------------------
$214 $661 $1,134 $2,441
- -------------------------------------
- -------------------------------------
</Table>
EXPLANATION OF FEE TABLES AND EXAMPLES
1. The purpose of the Fee Tables is to show you the various expenses you would
incur directly and indirectly by investing in the contract. The tables
represent both fees at the separate account (contract level) as well as
total annual trust operating and other expenses. We converted the contract
maintenance charge to a percentage (0.05%). The actual impact of the
administration charge may differ from this percentage and may be waived for
contract values over $50,000. Additional information on the portfolio
company fees can be found in the Trust prospectuses.
2. In addition to the stated assumptions, the Examples also assume separate
account expenses as indicated and that no transfer fees were imposed.
Although premium taxes may apply in certain states, they are not reflected
in the Examples.
3. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
CONDENSED FINANCIAL INFORMATION APPEARS IN APPENDIX A OF THIS PROSPECTUS.
6
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THE POLARIS(II) VARIABLE ANNUITY
- ----------------------------------------------------------------
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An annuity is a contract between you and an insurance company. You are the owner
of the contract. The contract provides three main benefits:
- Tax Deferral: This means that you do not pay taxes on your earnings from
the annuity until you withdraw them.
- Death Benefit: If you die during the Accumulation Phase, the insurance
company pays a death benefit to your Beneficiary.
- Guaranteed Income: If elected, you receive a stream of income for your
lifetime, or another available period you select.
Tax-qualified retirement plans (e.g., IRAs, 401(k) or 403(b) plans) defer
payment of taxes on earnings until withdrawal. If you are considering funding a
tax-qualified retirement plan with an annuity, you should know that an annuity
does not provide any additional tax deferral treatment of earnings beyond the
treatment provided by the tax-qualified retirement plan itself. However,
annuities do provide other features and benefits which may be valuable to you.
You should fully discuss this decision with your financial representative.
This annuity was developed to help you contribute to your retirement savings.
This annuity works in two stages, the Accumulation Phase and the Income Phase.
Your contract is in the Accumulation Phase during the period when you make
payments into the contract. The Income Phase begins when you request Us to start
making income payments to you out of the money accumulated in your contract.
The contract is called a "variable" annuity because it allows you to invest in
variable portfolios which, like mutual funds, have different investment
objectives and performance which varies. You can gain or lose money if you
invest in these Variable Portfolios. The amount of money you accumulate in your
contract depends on the performance of the Variable Portfolios in which you
invest.
Fixed account options earn interest at a rate set and guaranteed by AIG
SunAmerica Life. If you allocate money to the fixed account options, the amount
of money that accumulates in the contract depends on the total interest credited
to the particular fixed account option(s) in which you invest.
For more information on investment options available under this contract SEE
INVESTMENT OPTIONS BELOW.
This annuity is designed to assist in contributing to retirement savings of
investors whose personal circumstances allow for a long-term investment time
horizon. As a function of the Internal Revenue Code ("IRC"), you may be assessed
a 10% federal tax penalty on the taxable portion of any withdrawal made prior to
your reaching age 59 1/2. Additionally, this contract provides that you will be
charged a withdrawal charge on each Purchase Payment withdrawn if that Purchase
Payment has not been invested in this contract for at least 7 years. Because of
these potential penalties, you should fully discuss all of the benefits and
risks of this contract with your financial representative prior to purchase.
AIG SunAmerica Life Assurance Company (AIG SunAmerica Life, The Company, us, we)
issues the PolarisII Variable Annuity. When you purchase a PolarisII Variable
Annuity, a contract exists between you and AIG SunAmerica Life. The Company is a
stock life insurance company organized under the laws of the state of Arizona.
Its principal place of business is 1 SunAmerica Center, Los Angeles, California
90067. The Company conducts life insurance and annuity business in the District
of Columbia and all states except New York. AIG SunAmerica Life is an indirect,
wholly owned subsidiary of American International Group, Inc. ("AIG"), a
Delaware corporation.
- ----------------------------------------------------------------
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PURCHASING A POLARIS(II) VARIABLE ANNUITY
- ----------------------------------------------------------------
- ----------------------------------------------------------------
An initial Purchase Payment is the money you give us to buy a contract. Any
additional money you give us to invest in the contract after purchase is a
subsequent Purchase Payment.
The following chart shows the minimum initial and subsequent Purchase Payments
permitted under your contract. These amounts depend upon whether a contract is
Qualified or Non-qualified for tax purposes. FOR FURTHER EXPLANATION, SEE TAXES
BELOW.
<Table>
<Caption>
- -----------------------------------------------------------
Minimum
Minimum Initial Subsequent
Purchase Payment Purchase Payment
- -----------------------------------------------------------
Qualified $2,000 $250
- -----------------------------------------------------------
Non-Qualified $5,000 $500
- -----------------------------------------------------------
</Table>
We reserve the right to require Company approval prior to accepting Purchase
Payments greater than $1,000,000. For contracts owned by a non-natural owner, we
reserve the right to require prior Company approval to accept Purchase Payments
greater than $250,000. Subsequent Purchase Payments that would cause total
Purchase Payments in all contracts issued by AIG SunAmerica Life and First
SunAmerica Life Insurance Company, an affiliate of AIG SunAmerica Life to the
same owner to exceed these limits may also be subject to Company pre-approval.
For any contracts subject to these dollar amount reservations, we further
reserve the right to limit the death benefit amount payable in excess of
contract value at the time we receive all required paperwork and satisfactory
proof of death. Any limit on the maximum death benefit payable would be mutually
agreed upon by you and the Company prior to purchasing the contract. We reserve
the right to change the amount at which pre-approval is required, at any time.
Once you have contributed at least the minimum initial Purchase Payment, you can
establish an automatic payment plan that allows you to make subsequent Purchase
Payments of as little as $20.
7
In addition, we may not issue a contract to anyone age 86 or older. In general,
we will not issue a Qualified contract to anyone who is age 70 1/2 or older,
unless it is shown that the minimum distribution required by the IRS is being
made.
We allow spouses to jointly own this contract. However, the age of the older
spouse is used to determine the availability of any age driven benefits. The
addition of a joint owner after the contract has been issued is contingent upon
prior review and approval by the Company.
If we learn of a misstatement of age, we reserve the right to fully pursue our
remedies including termination of the contract and/or revocation of any
age-driven benefit.
You may assign this contract before beginning the Income Phase by sending us a
written request for an assignment. Your rights and those of any other person
with rights under this contract will be subject to the assignment. WE RESERVE
THE RIGHT TO NOT RECOGNIZE ASSIGNMENTS IF IT CHANGES THE RISK PROFILE OF THE
OWNER OF THE CONTRACT, AS DETERMINED IN OUR SOLE DISCRETION. Please see the
Statement of Additional Information for details on the tax consequences of an
assignment.
ALLOCATION OF PURCHASE PAYMENTS
We invest your Purchase Payments in the fixed and variable investment options
according to your instructions. If we receive a Purchase Payment without
allocation instructions, we will invest the money according to your last
allocation instructions. SEE INVESTMENT OPTIONS BELOW.
In order to issue your contract, we must receive your completed application,
and/or Purchase Payment allocation instructions and any other required paperwork
at our Annuity Service Center. We allocate your initial Purchase Payment within
two days of receiving it. If we do not have complete information necessary to
issue your contract, we will contact you. If we do not have the information
necessary to issue your contract within 5 business days we will send your money
back to you, or ask your permission to keep your money until we get the
information necessary to issue the contract.
ACCUMULATION UNITS
When you allocate a Purchase Payment to the Variable Portfolios, we credit your
contract with Accumulation Units of the Separate Account. We base the number of
Accumulation Units you receive on the unit value of the Variable Portfolio as of
the day we receive your money if we receive it before 1 p.m. Pacific Standard
Time, or on the next business day's unit value if we receive your money after 1
p.m. Pacific Standard Time. The value of an Accumulation Unit goes up and down
based on the performance of the Variable Portfolios.
We calculate the value of an Accumulation Unit each day that the New York Stock
Exchange ("NYSE") is open as follows:
1. We determine the total value of money invested in a particular Variable
Portfolio;
2. We subtract from that amount all applicable contract charges; and
3. We divide this amount by the number of outstanding Accumulation Units.
We determine the number of Accumulation Units credited to your contract by
dividing the Purchase Payment and Payment Enhancement, if applicable, by the
Accumulation Unit value for the specific Variable Portfolio.
EXAMPLE:
We receive a $25,000 Purchase Payment from you on Wednesday. You allocate
the money to the Global Bond Portfolio. We determine that the value of an
Accumulation Unit for the Global Bond Portfolio is $11.10 when the NYSE
closes on Wednesday. We then divide $25,000 by $11.10 and credit your
contract on Wednesday night with 2252.2523 Accumulation Units for the
Global Bond Portfolio.
Performance of the Variable Portfolios and expenses under your contract affect
Accumulation Unit values. These factors cause the value of your contract to go
up and down.
RIGHT TO EXAMINE
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, if you decide to cancel your contract during the free look period, we
will refund to you the value of your contract on the day we receive your
request.
Certain states require us to return your Purchase Payments upon a free look
request. Additionally, all contracts issued as an IRA require the full return of
Purchase Payments upon a free look. With respect to those contracts, we reserve
the right to put your money in the Cash Management Portfolio during the free
look period and will allocate your money according to your instructions at the
end of the applicable free look period. Currently, we do not put your money in
the Cash Management Portfolio during the free look period unless you allocate
your money to it. If your contract was issued in a state requiring return of
Purchase Payments or as an IRA and you cancel your contract during the free look
period, we return the greater of (1) your Purchase Payments; or (2) the value of
your contract.
EXCHANGE OFFERS
From time to time, we may offer to allow you to exchange an older variable
annuity issued by AIG SunAmerica Life or one of its affiliates, for a newer
product with more current features and benefits, also issued by AIG SunAmerica
Life or one of its affiliates. Such an exchange offer will be made in accordance
with applicable state and federal securities and insurance rules and
regulations. We will explain the specific terms and conditions of any such
exchange offer at the time the offer is made.
8
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INVESTMENT OPTIONS
- ----------------------------------------------------------------
- ----------------------------------------------------------------
VARIABLE PORTFOLIOS
The Variable Portfolios invest in shares of the Anchor Series Trust, the
American Funds Insurance Series, the SunAmerica Series Trust, Lord Abbett Series
Fund, Inc. and the Van Kampen Life Investment Trust, (the "Trusts"). Additional
Variable Portfolios may be available in the future. The Variable Portfolios are
only available through the purchase of certain insurance contracts. The Trusts
may serve as the underlying investment vehicles for other variable annuity
contracts issued by AIG SunAmerica Life, and other affiliated/unaffiliated
insurance companies. Neither AIG SunAmerica Life nor the Trusts believe that
offering shares of the Trusts in this manner disadvantages you. The adviser
monitors the Trusts for potential conflicts.
The Variable Portfolios along with their respective subadvisers are listed
below:
ANCHOR SERIES TRUST -- CLASS 1
Wellington Management Company, LLP serves as subadviser to the Anchor Series
Trust portfolios. Anchor Series Trust ("AST") has investment portfolios in
addition to those listed below that are not available for investment under the
contract.
AMERICAN FUNDS INSURANCE SERIES -- CLASS 2
Capital Research and Management Company provides investment advice for the
American Funds Insurance Series ("AFIS") portfolios. American Funds Insurance
Series has investment portfolios in addition to those listed here that are not
available for investment under the contract.
SUNAMERICA SERIES TRUST -- CLASS 1
Various subadvisers provide investment advice for the SunAmerica Series Trust
portfolios. SunAmerica Series Trust ("SAST") has investment portfolios in
addition to those listed below that are not available for investment under the
contract.
LORD ABBETT SERIES FUND, INC. -- CLASS VC
Lord, Abbett & Co. provides investment advice for the Lord Abbett Series Fund,
Inc. portfolios. Lord Abbett Series Fund, Inc. ("LASF") has investment
portfolios in addition to those listed below that are not available for
investment under the contract.
VAN KAMPEN LIFE INVESTMENT TRUST -- CLASS II
Van Kampen Asset Management provides investment advice for the Van Kampen Life
Investment Trust ("VKT") portfolios. Van Kampen Life Investment Trust has
investment portfolios in addition to those listed here that are not available
for investment under the contract.
STOCKS:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio SAST
- Blue Chip Growth Portfolio SAST
- "Dogs" of Wall Street Portfolio* SAST
- Growth Opportunities Portfolio SAST
MANAGED BY ALLIANCE BERNSTEIN
- Small & Mid Cap Value Portfolio** SAST
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
- Alliance Growth Portfolio SAST
- Global Equities Portfolio SAST
- Growth-Income Portfolio SAST
MANAGED BY CAPITAL RESEARCH AND MANAGEMENT COMPANY
- American Funds Global Growth Portfolio AFIS
- American Funds Growth Portfolio AFIS
- American Funds Growth-Income Portfolio AFIS
MANAGED BY DAVIS ADVISORS
- Davis Venture Value Portfolio SAST
- Real Estate Portfolio SAST
MANAGED BY FEDERATED EQUITY MANAGEMENT COMPANY
- Federated Value Portfolio SAST
- Telecom Utility Portfolio SAST
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT, L.P.
- Goldman Sachs Research Portfolio SAST
MANAGED BY LORD, ABBETT & CO.
- Lord Abbett Series Fund, Inc. --
Growth and Income Portfolio LASF
- Lord Abbett Series Fund, Inc. --
Mid-Cap Value Portfolio LASF
MANAGED BY MARSICO CAPITAL MANAGEMENT, LLC
- Marsico Growth Portfolio SAST
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Growth and Income Portfolio SAST
- MFS Mid-Cap Growth Portfolio SAST
MANAGED BY PUTNAM INVESTMENT MANAGEMENT LLC
- Emerging Markets Portfolio SAST
- International Growth and Income Portfolio SAST
- Putnam Growth Portfolio SAST
MANAGED BY TEMPLETON INVESTMENT COUNSEL LLC
- Foreign Value Portfolio** SAST
MANAGED BY VAN KAMPEN/VAN KAMPEN ASSET MANAGEMENT
- International Diversified Equities Portfolio*** SAST
- Technology Portfolio SAST
- Van Kampen LIT Comstock Portfolio, Class II Shares* VKT
- Van Kampen LIT Emerging Growth Portfolio, Class II Shares VKT
- Van Kampen LIT Growth and Income Portfolio, Class II Shares VKT
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio AST
- Growth Portfolio AST
- Natural Resources Portfolio AST
BALANCED:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- SunAmerica Balanced Portfolio SAST
MANAGED BY CAPITAL RESEARCH AND MANAGEMENT
- American Funds Asset Allocation Portfolio AFIS
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Total Return Portfolio SAST
MANAGED BY WM ADVISORS, INC.
- Asset Allocation Portfolio AST
BONDS:
MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP.
- High-Yield Bond Portfolio SAST
MANAGED BY FEDERATED INVESTMENT MANAGEMENT COMPANY
- Corporate Bond Portfolio SAST
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MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT INT'L.
- Global Bond Portfolio SAST
MANAGED BY VAN KAMPEN
- Worldwide High Income Portfolio SAST
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Government & Quality Bond Portfolio AST
CASH:
MANAGED BY BANC OF AMERICA CAPITAL MANAGEMENT, LLC
- Cash Management Portfolio SAST
* "Dogs of Wall Street" Portfolio is an equity fund seeking total return and
Van Kampen LIT Comstock Portfolio is an equity fund, seeking capital growth
and income.
** Class 3 shares of SAST.
*** Morgan Stanley Investment Management, Inc., the subadviser for the
International Diversified Equities and Technology SAST Portfolios, does
business in certain instances using the name Van Kampen.
YOU SHOULD READ THE ATTACHED PROSPECTUSES FOR THE TRUSTS CAREFULLY. THESE
PROSPECTUSES CONTAIN DETAILED INFORMATION ABOUT THE VARIABLE PORTFOLIOS,
INCLUDING EACH VARIABLE PORTFOLIO'S INVESTMENT OBJECTIVE AND RISK FACTORS.
FIXED ACCOUNT OPTIONS
Your contract may offer Fixed Account Guarantee Periods ("FAGP") to which you
may allocate certain Purchase Payments or contract value. Available guarantee
periods may be for different lengths of time (such as 1, 3 or 5 years) and may
have different guaranteed interest rates, as noted below. We guarantee the
interest rate credited to amounts allocated to any available FAGP and that the
rate will never be less than the minimum guaranteed interest rate as specified
in your contract. Once established, the rates for specified payments do not
change during the guarantee period. We determine the FAGPs offered at any time
in our sole discretion and we reserve the right to change the FAGPs that we make
available at any time, unless state law requires us to do otherwise. Please
check with your financial representative to learn if any FAGPs are currently
offered.
There are three interest rate scenarios for money allocated to the FAGPs. Each
of these rates may differ from one another. Once declared, the applicable rate
is guaranteed until the corresponding guarantee period expires. Under each
scenario your money may be credited a different rate of interest as follows:
- Initial Rate: The rate credited to any portion of the initial Purchase
Payment allocated to a FAGP.
- Current Rate: The rate credited to any portion of the subsequent Purchase
Payments allocated to a FAGP.
- Renewal Rate: The rate credited to money transferred from a FAGP or a
Variable Portfolio into a FAGP and to money remaining in a FAGP after
expiration of a guarantee period.
When a FAGP ends, you may leave your money in the same FAGP or you may
reallocate your money to another FAGP or to the Variable Portfolios. If you want
to reallocate your money, you must contact us within 30 days after the end of
the current interest guarantee period and instruct us as to where you would like
the money invested. We do not contact you. If we do not hear from you, your
money will remain in the same FAGP where it will earn interest at the renewal
rate then in effect for that FAGP.
If you take money out of any available multi-year FAGP, before the end of the
guarantee period, we make an adjustment to your contract. We refer to the
adjustment as a market value adjustment ("MVA"). The MVA does not apply to any
available one-year fixed account. The MVA reflects any difference in the
interest rate environment between the time you place your money in the FAGP and
the time when you withdraw or transfer that money. This adjustment can increase
or decrease your contract value. Generally, if interest rates drop between the
time you put your money into a FAGP and the time you take it out, we credit a
positive adjustment to your contract. Conversely, if interest rates increase
during the same period, we post a negative adjustment to your contract. You have
30 days after the end of each guarantee period to reallocate your funds without
incurring any MVA. APPENDIX B SHOWS HOW WE CALCULATE AND APPLY THE MVA.
If available, you may systematically transfer interest earned in available FAGPs
into any of the Variable Portfolios on certain periodic schedules offered by us.
Systematic transfers may be started, changed or terminated at any time by
contracting our Annuity Service Center. Check with your financial representative
about the current availability of this service.
All FAGPs may not be available in all states. At any time that we are crediting
the guaranteed minimum interest rate specified in your contract to the fixed
accounts, we reserve the right to restrict transfers and Purchase Payments into
the FAGPs. If you do not elect to participate in the Polaris Rewards program, we
may also offer the specific Dollar Cost Averaging Fixed Accounts ("DCAFA"). The
rules, restrictions and operation of the DCAFAs may differ from the standard
FAGPs described above, please SEE DOLLAR COST AVERAGING BELOW for more details.
DOLLAR COST AVERAGING FIXED ACCOUNTS
You may invest initial and/or subsequent Purchase Payments in the DCA fixed
accounts ("DCAFA"), if available. DCAFAs also credit a fixed rate of interest
but are specifically designed to facilitate a dollar cost averaging program.
Interest is credited to amounts allocated to the DCAFAs while your investment is
transferred to the Variable Portfolios over certain specified time frames. The
interest rates applicable to the DCAFA may differ from those applicable to any
available FAGPs but will never be less than the minimum annual guaranteed
interest rate as specified in your contract. However, when using a DCAFA the
annual interest rate is paid on a declining balance as you systematically
transfer your investment to the Variable Portfolios. Therefore, the
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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 the DCAFAs that we make available at any time, unless state law
requires us to do otherwise. SEE DOLLAR COST AVERAGING BELOW for more
information.
ASSET ALLOCATION PROGRAM
PROGRAM DESCRIPTION
The asset allocation program is offered to help you diversify your investment
across various asset classes.
Each of the models is comprised of a carefully selected combination of
investment options using a carefully selected combination of Variable Portfolios
with allocation amongst the various asset classes based on historical asset
class performance to meet specific investment time horizons and risk tolerances.
ENROLLING IN THE PROGRAM
You may enroll in the program by selecting the model as well as any program
options on the product application form. If you already own a policy, you must
complete and submit a program election form. You and your financial
representative determine the model most appropriate for you. You may discontinue
investment in the program at any time with a written request, telephone or
internet instructions subject to Our rules.
You may also choose to invest gradually into a model through the dollar cost
averaging program. You may only invest in one model at a time. You may invest in
investment options outside your selected model but only in those Variable
Portfolios that are not utilized in the model you selected. If you transfer into
or out of one or more Variable Portfolio in the models, we will terminate your
participation in the program.
Currently, there is no fee for participating in this program.
WITHDRAWALS
You may request withdrawals, as permitted by your contract, which will be taken
proportionately from each of the allocations in the selected model unless
otherwise instructed by you. If you choose to make a non-proportional withdrawal
from the Variable Portfolio in the model, your investment may no longer be
consistent with the model's intended objectives.
Withdrawals may be subject to a withdrawal charge. Withdrawals may be taxable
and a 10% IRS penalty may apply if you are under age 59 1/2.
KEEPING YOUR PROGRAM ON TARGET
REBALANCING
You can elect to have your contract rebalanced quarterly, semi-annually, or
annually to maintain the target asset allocation among the Variable Portfolios
of the model you selected. Only those investment options within each model will
be rebalanced. An investment not included in the model can not be rebalanced.
ANNUAL RE-EVALUATION
Each year, on or about March 31, the allocations in every model are re-evaluated
and updated to assure that the investment objectives remain consistent. The
percentage allocations within each model may change and investment options may
be added to or deleted from a model as a result of the annual re-evaluation. We
will automatically rebalance your investment according to the re-evaluated
allocations each year on or about March 31. If you choose not to participate in
the re-evaluation part of this program, you must contact the Annuity Service
Center. Some broker-dealers require that you consent to the re-evaluation each
year and will not allow us to automatically rebalance your contract in
accordance with the re-evaluated models. Please check with your financial
representative to determine the protocol for his/her firm.
IMPORTANT INFORMATION
Using an asset allocation methodology does not guarantee greater or more
consistent returns. Historical market and asset class performance may differ in
the future from the historical performance upon which the models are built.
Also, allocation to a single asset class may outperform a model, so that you
could have been better off in an investment option or options representing a
single asset class than in a model. However, such a strategy involves a greater
degree of risk because of the concentration of like securities in a single asset
class.
The models represent suggested allocations which are provided as general
guidance. You should work with your financial adviser to assist you in
determining if one of the models meets your financial needs, investment time
horizon, and is consistent with your risk comfort level. Information concerning
the specific models can be obtained from your financial representative.
WE HAVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE ASSET ALLOCATION PROGRAM
AT ANY TIME.
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase you may transfer funds between the Variable
Portfolios and/or any available fixed account options. Funds already in your
contract cannot be transferred into the DCA fixed accounts. You must transfer at
least $100 per transfer. If less than $100 remains in any
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Variable Portfolio after a transfer, that amount must be transferred as well. We
will process any transfer request as of the day we receive it in good order if
the request is received before the New York Stock Exchange ("NYSE") closes,
generally at 1:00 p.m. Pacific Time. If the transfer request is received after
the NYSE closes, the request will be processed on the next business day.
This product is not designed for professional organizations or individuals
engaged in trading strategies that seek to benefit from short term price
fluctuations or price irregularities by making programmed transfers, frequent
transfers or transfers that are large in relation to the total assets of the
underlying portfolio in which the Variable Portfolios invest. These types of
trading strategies can be disruptive to the underlying portfolios in which the
Variable Portfolios invest and thereby potentially harmful to investors.
In connection with our efforts to control harmful trading, we may monitor your
trading activity. If we determine, in our sole discretion, that your transfer
patterns among the Variable Portfolios and/or available fixed accounts reflect a
potentially harmful trading strategy, we reserve the right to take action to
protect other investors. Such action may include, but may not be limited to,
restricting the way you can request transfers among the Variable Portfolios,
imposing penalty fees on such trading activity, and/or otherwise restricting
transfer capability in accordance with state and federal rules and regulations.
We will notify you, in writing, if we determine in our sole discretion that we
must terminate your transfer privileges. Some of the factors we may consider
when determining our transfer policies and/or other transfer restrictions may
include, but are not limited to:
- the number of transfers made in a defined period;
- the dollar amount of the transfer;
- the total assets of the Variable Portfolio involved in the transfer;
- the investment objectives of the particular Variable Portfolios involved
in your transfers; and/or
- whether the transfer appears to be part of a pattern of transfers to take
advantage of short-term market fluctuations or market inefficiencies.
Subject to our rules, restrictions and policies, you may request transfers of
your account value between the Variable Portfolios and/or the available fixed
account options by telephone or through AIG SunAmerica's website
(http://www.aigsunamerica.com) or in writing by mail or facsimile.
We allow 15 free transfers per contract per year. We charge $25 ($10 IN
PENNSYLVANIA AND TEXAS) for each additional transfer in any contract year.
Transfers resulting from your participation in the DCA or Asset Rebalancing
programs do not count against your 15 free transfers per contract year.
All transfer request in excess of 15 transfers per contract year must be
submitted in writing by United States Postal Service first-class mail ("U.S.
Mail") until your next contract anniversary. Transfer requests sent by same day
mail, overnight mail or courier services will not be accepted. Transfer requests
required to be submitted by U.S. Mail can only be cancelled by a written request
sent by U.S. Mail. Transfers resulting from your participation in the DCA or
Asset Rebalancing programs are not included for the purposes of determining the
number of transfers for the U.S. Mail requirement.
We may accept transfers by telephone or the Internet unless you tell us not to
on your contract application. When receiving instructions over the telephone or
the Internet, we follow appropriate procedures to provide reasonable assurance
that the transactions executed are genuine. Thus, we are not responsible for any
claim, loss or expense from any error resulting from instructions received over
the telephone or the Internet. If we fail to follow our procedures, we may be
liable for any losses due to unauthorized or fraudulent instructions.
For information regarding transfers during the Income Phase, SEE INCOME OPTIONS
BELOW.
We reserve the right to modify, suspend, waive or terminate these transfer
provisions at any time.
DOLLAR COST AVERAGING
The Dollar Cost Averaging ("DCA") program allows you to invest gradually in the
Variable Portfolios. Under the program you systematically transfer a set dollar
amount or percentage of portfolio value from one Variable Portfolio or (source
accounts) to any other Variable Portfolio. Transfers may occur on certain
periodic schedules such as monthly or weekly. You may change the frequency to
other available options at any time by notifying us in writing. The minimum
transfer amount under the DCA program is $100 per transfer, regardless of the
source account. Fixed account options are not available as target accounts for
the DCA program. There is no fee to participate in this program.
We also offer DCAFAs exclusively to facilitate this program. The DCAFAs only
accept new Purchase Payments. You cannot transfer money already in your contract
into these options. If you allocate new Purchase Payments into a DCAFA, we
transfer in your elected installment frequency all your money allocated to that
account into the Variable Portfolios over the selected time period at an offered
period of your choosing.
We determine the amount of the transfers from the 1-year DCA fixed account based
on the total amount of money allocated to the account.
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.
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.
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We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to gradually move $750 each quarter from the Cash
Management Portfolio to the Aggressive Growth Portfolio over six quarters.
You set up dollar cost averaging and purchase Accumulation Units at the
following values:
<Table>
<Caption>
- ---------------------------------------------
ACCUMULATION UNITS
QUARTER UNIT PURCHASED
- ---------------------------------------------
1 $ 7.50 100
2 $ 5.00 150
3 $10.00 75
4 $ 7.50 100
5 $ 5.00 150
6 $ 7.50 100
- ---------------------------------------------
</Table>
You paid an average price of only $6.67 per Accumulation Unit over six
quarters, while the average market price actually was $7.08. By investing
an equal amount of money each month, you automatically buy more
Accumulation Units when the market price is low and fewer Accumulation
Units when the market price is high. This example is for illustrative
purposes only.
ASSET ALLOCATION REBALANCING PROGRAM
Earnings in your contract may cause the percentage of your investment in each
investment option to differ from your original allocations. The Automatic Asset
Rebalancing Program addresses this situation. At your election, we periodically
rebalance your investments in the Variable Portfolios to return your allocations
to their original percentages. Asset rebalancing typically involves shifting a
portion of your money out of an investment option with a higher return into an
investment option with a lower return. There is no fee to participate in this
program.
At your request, rebalancing occurs on a quarterly, semiannual or annual basis.
Transfers made as a result of rebalancing do not count against your 15 free
transfers for the contract year.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want your initial Purchase Payment split between two
Variable Portfolios. You want 50% in the Corporate Bond Portfolio and 50%
in the Growth Portfolio. Over the next calendar quarter, the bond market
does very well while the stock market performs poorly. At the end of the
calendar quarter, the Corporate Bond Portfolio now represents 60% of your
holdings because it has increased in value and the Growth Portfolio
represents 40% of your holdings. If you had chosen quarterly rebalancing,
on the last day of that quarter, we would sell some of your units in the
Corporate Bond Portfolio to bring its holdings back to 50% and use the
money to buy more units in the Growth Portfolio to increase those holdings
to 50%.
RETURN PLUS PROGRAM
The Return Plus Program, available if we are offering FAGPs, allows you to
invest in one or more Variable Portfolios without putting your principal at
direct risk. The program accomplishes this by allocating your investment
strategically between the fixed account options and Variable Portfolios. You
decide how much you want to invest and approximately when you want a return of
principal. We calculate how much of your Purchase Payment to allocate to the
particular fixed account option to ensure that it grows to an amount equal to
your total principal invested under this program. We invest the rest of your
principal in the Variable Portfolio(s) of your choice.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to allocate a portion of your initial Purchase Payment
of $100,000 to the fixed account option. You want the amount allocated to
the fixed account option to grow to $100,000 in 7 years. If the 7-year
fixed account option is offering a 5% interest rate, we will allocate
$71,069 to the 7-year fixed account option to ensure that this amount will
grow to $100,000 at the end of the 7-year period. The remaining $28,931 may
be allocated among the Variable Portfolios, as determined by you, to
provide opportunity for greater growth.
VOTING RIGHTS
AIG SunAmerica Life is the legal owner of the Trusts' shares. However, when a
Variable Portfolio solicits proxies in conjunction with a vote of shareholders,
we must obtain your instructions on how to vote those shares. We vote all of the
shares we own in proportion to your instructions. This includes any shares we
own on our own behalf. Should we determine that we are no longer required to
comply with these rules, we will vote the shares in our own right.
SUBSTITUTION
We may amend your contract due to changes to the Variable Portfolios offered
under your contract. For example, we may offer new Variable Portfolios, delete
Variable Portfolios, or stop accepting allocations and/or investments in a
particular Variable Portfolio. We may move assets and re-direct future premium
allocations from one Variable Portfolio to another if we receive investor
approval through a proxy vote or SEC approval for a fund substitution. This
would occur if a Variable Portfolio is no longer an appropriate investment for
the contract, for reasons such as continuing substandard performance, or for
changes to the portfolio manager, investment objectives, risks and strategies,
or federal or state laws. The new Variable Portfolio offered may have different
fees and expenses. You will be notified of any upcoming proxies or substitutions
that affect your Variable Portfolio choices.
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ACCESS TO YOUR MONEY
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You can access money in your contract in two ways:
- by making a partial or total withdrawal; and/or
- by receiving income payments during the Income Phase. SEE INCOME OPTIONS
BELOW.
Generally, we deduct a withdrawal charge applicable to any total or partial
withdrawal and a MVA if a partial withdrawal comes from the fixed account
options. If you withdraw your entire contract value, we also deduct premium
taxes and a contract maintenance fee. SEE EXPENSES BELOW.
Your contract provides for a free withdrawal amount each year. A free withdrawal
amount is the portion of your account that we allow you to take out each year
without being charged a surrender penalty. However, upon a future full surrender
of your contract in which there are Purchase Payments still subject to a
withdrawal charge we will recoup any withdrawal charges which would have been
due if your prior free withdrawal had not been free.
Purchase Payments, above and beyond the amount of your free withdrawal amount,
that are withdrawn prior to the end of the seventh year will result in your
paying a penalty in the form of a surrender charge. The amount of the charge and
how it applies are discussed more fully below. SEE EXPENSES BELOW. You should
consider, before purchasing this contract, the effect this charge will have on
your investment if you need to withdraw more money than the free withdrawal
amount. You should fully discuss this decision with your financial
representative.
To determine your free withdrawal amount and your withdrawal charge, we refer to
two special terms. These are penalty free earnings and the total invested
amount.
The penalty-free earnings portion of your contract is simply your account value
less your total invested amount. The total invested amount is the total of all
Purchase Payments you have made into the contract less portions of some prior
withdrawals you made. The portions of prior withdrawals that reduce your total
invested amount are as follows:
- Free withdrawals in any year that were in excess of your penalty-free
earnings and were based on the part of the total invested amount that was
no longer subject to withdrawal charges at the time of the withdrawal,
and
- Any prior withdrawals (including withdrawal charges on those withdrawals)
of the total invested amount on which you already paid a surrender
penalty.
When you make a withdrawal, we assume that it is taken from penalty-free
earnings first, then from the total invested amount on a first-in, first-out
basis. This means that you can also access your Purchase Payments which are no
longer subject to a withdrawal charge before those Purchase Payments which are
still subject to the withdrawal charge.
During the first year after we issue your contract your free withdrawal amount
is the greater of (1) your penalty-free earnings; and (2) if you are
participating in the Systematic Withdrawal program, a total of 10% of your total
invested amount. If you are a Washington resident, you may withdraw during the
first contract year, the greater of (1); (2); or (3) interest earnings from the
amounts allocated to the fixed account options, not previously withdrawn.
After the first contract year, you can take out the greater of the following
amounts each year (1) your penalty-free earnings and any portion of your total
invested amount no longer subject to withdrawal charges; and (2) 10% of the
portion of your total invested amount that has been in your contract for at
least one year. If you are a Washington resident, your maximum free withdrawal
amount, after the first contract year, is the greater of (1); (2); or (3)
interest earnings from amounts allocated to the fixed account options, not
previously withdrawn.
Although we do not assess a withdrawal charge when you take a 10% penalty-free
withdrawal, we will proportionally reduce the amount of any corresponding
Deferred Payment Enhancement.
We calculate charges due on a total withdrawal on the day after we receive your
request and your contract. We return to you your contract value less any
applicable fees and charges.
The withdrawal charge percentage is determined by the age of the Purchase
Payment remaining in the contract at the time of the withdrawal. For the purpose
of calculating the withdrawal charge, any prior Free Withdrawal is not
subtracted from the total Purchase Payments still subject to withdrawal charges.
For example, you make an initial Purchase Payment of $100,000. For purposes of
this example we will assume a 0% growth rate over the life of the contract and
no subsequent Purchase Payments. In contract year 2, you take out your maximum
free withdrawal of $10,000. After that free withdrawal your contract value is
$90,000. In contract year 5 you request a full surrender of your contract. We
will apply the following calculation,
A-(B x C)=D, where:
A=Your contract value at the time of your request for surrender ($90,000)
B=The amount of your Purchase Payments still subject to withdrawal charge
($100,000)
C=The withdrawal charge percentage applicable to the age of each Purchase
Payment (3%)[B x C=$3,000]
D=Your full surrender value ($87,000)
Under most circumstances, the partial withdrawal minimum is $1,000. We require
that the value left in any investment option be at least $100, after the
withdrawal. You must send a written withdrawal request. Unless you provide us
with different instructions, partial withdrawals will be made pro rata from each
Variable Portfolio and the fixed account option in which your contract is
invested. In the event that a pro rata partial withdrawal would cause the value
of any Variable Portfolio or fixed account investment to be less than $100, we
will contact you to obtain alternate instructions on how to structure the
withdrawal.
Under certain Qualified plans, access to the money in your contract may be
restricted. Additionally, withdrawals made
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prior to age 59 1/2 may result in a 10% IRS penalty tax. SEE TAXES BELOW.
We may be required to suspend or postpone the payment of a withdrawal for any
period of time when: (1) the NYSE is closed (other than a customary weekend and
holiday closings); (2) trading with the NYSE is restricted; (3) an emergency
exists such that disposal of or determination of the value of shares of the
Variable Portfolios is not reasonably practicable; (4) the SEC, by order, so
permits for the protection of contract owners.
Additionally, we reserve the right to defer payments for a withdrawal from a
fixed account option. Such deferrals are limited to no longer than six months.
SYSTEMATIC WITHDRAWAL PROGRAM
During the Accumulation Phase, you may elect to receive periodic income payments
under the systematic withdrawal program. Under the program, you may choose to
take monthly, quarterly, semi-annual or annual payments from your contract.
Electronic transfer of these funds to your bank account is also available. The
minimum amount of each withdrawal is $100. If you are an Oregon resident, the
minimum withdrawal amount is $250 per withdrawal or an amount equal to your free
withdrawal amount, as described above. There must be at least $500 remaining in
your contract at all times. Withdrawals may be taxable and a 10% IRS penalty tax
may apply if you are under age 59 1/2. There is no additional charge for
participating in this program, although a withdrawal charge and/or MVA may
apply.
The program is not available to everyone. Please check with our Annuity Service
Center, which can provide the necessary enrollment forms. We reserve the right
to modify, suspend or terminate this program at any time.
NURSING HOME WAIVER
If you are confined to a nursing home for 60 days or longer, we may waive the
withdrawal charge and/or market value adjustment on certain withdrawals prior to
the Annuity Date (not available in Texas). The waiver applies only to
withdrawals made while you are in a nursing home or within 90 days after you
leave the nursing home. Your contract prohibits use of this waiver during the
first 90 days after you purchase your contract. In addition, the confinement
period for which you seek the waiver must begin after you purchase your
contract.
In order to use this waiver, you must submit with your withdrawal request, the
following documents: (1) a doctor's note recommending admittance to a nursing
home; (2) an admittance form which shows the type of facility you entered; and
(3) a bill from the nursing home which shows that you met the 60 day confinement
requirement.
MINIMUM CONTRACT VALUE
Where permitted by state law, we may terminate your contract if both of the
following occur: (1) your contract is less than $500 as a result of withdrawals;
and (2) you have not made any Purchase Payments during the past three years. We
will provide you with sixty days written notice. At the end of the notice
period, we will distribute the contract's remaining value to you.
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LIVING BENEFITS
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THE INCOME PROTECTOR FEATURE
The Income Protector feature is a future "safety net" which offers you the
ability to receive a guaranteed fixed minimum retirement income when you switch
to the Income Phase. With the Income Protector feature you know the level of
minimum income that will be available to you upon annuitization, regardless of
fluctuating market conditions.
The Income Protector is a standard feature of your contract. There is no
additional charge associated with this feature. This feature may not be
available in your state. Check with your financial representative regarding
availability.
Other options were previously available under the Income Protector feature.
Generally, if you purchased your contract between November 2, 1998 and March 31,
1999 and the Income Protector feature was available in your state at that time,
the other provisions continue to apply to your contract. Please contact our
Annuity Service Center for more information.
We reserve the right to modify, suspend or terminate the Income Protector
feature at any time.
HOW WE DETERMINE THE AMOUNT OF YOUR MINIMUM GUARANTEED INCOME
We base the amount of minimum income available to you, if you elect to receive
income payments using the Income Protector feature, upon a calculation we call
the income benefit base.
The income benefit base is only a calculation. It does not represent a contract
value, nor does it guarantee performance of the Variable Portfolios in which you
invest.
Your income benefit base increases if you make subsequent Purchase Payments and
decreases if you withdraw money from your contract. The exact income benefit
base calculation is equal to (a) plus (b) minus (c) where:
(a) is equal to, for the first year of calculation, your initial Purchase
Payment, or for each subsequent year of calculation, the income benefit
base on the prior contract anniversary, and;
(b) is equal to the sum of all subsequent Purchase Payments made into the
contract since the last contract anniversary, and;
(c) is equal to all withdrawals and applicable fees and charges since the
last contract anniversary, in an amount proportionate to the amount by
which such withdrawals decreased your contract value.
15
ELECTING TO RECEIVE INCOME PAYMENTS
You may elect to begin the Income Phase of your contract using the Income
Protector feature ONLY within the 30 days after the seventh or later contract
anniversary.
The contract anniversary prior to your election to begin receiving income
payments is your income benefit date. This is the date as of which we calculate
your income benefit base to use in determining your guaranteed minimum fixed
retirement income. Your final income benefit base is equal to (a) minus (b)
where:
(a) is equal to your income benefit base as of your income benefit date,
and;
(b) is equal to any partial withdrawals of contract value and any charges
applicable to those withdrawals and any withdrawal charges otherwise
applicable, calculated as if you fully surrender your contract as the
income benefit date, and any applicable premium taxes.
To arrive at the minimum guaranteed retirement income available to you we apply
to 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 that income annually, semi-annually quarterly or monthly
for the time guaranteed under your selected income option. 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 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. You are not required to use the Income
Protector feature to receive income payments.
If a Spousal Beneficiary elects to continue the contract on the death of the
original owner, the Income Protector feature will continue. The Continuation
Contribution is not a purchase payment and therefore will not impact the income
benefit base calculation. The waiting period before electing to use the Income
Protector feature will be counted from the original issue date of the contract.
NOTE TO QUALIFIED CONTRACT HOLDERS
Qualified contracts generally require that you select an income option which
does not exceed your life expectancy. That restriction, if it applies to you,
may limit your ability to use the Income Protector feature.
You may wish to consult your tax advisor for information concerning your
particular circumstances. SEE APPENDIX D FOR AN EXAMPLE OF THE OPERATION OF THE
INCOME PROTECTOR FEATURE.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
DEATH BENEFIT
- ----------------------------------------------------------------
- ----------------------------------------------------------------
If you die during the Accumulation Phase of your contract, we pay a death
benefit to your Beneficiary. At the time you purchase your contract, you must
select one of the two death benefits options described below. Once selected, you
cannot change your death benefit option. You should discuss the available
options with your financial representative to determine which option is best for
you.
We do not pay the death benefit if you die after you switch to the Income Phase.
However, if you die during the Income Phase, your Beneficiary receives any
remaining guaranteed income payments in accordance with the income option you
selected. SEE INCOME OPTIONS BELOW.
You name your Beneficiary. You may change the Beneficiary at any time, unless
you previously made an irrevocable Beneficiary designation.
We calculate and pay the death benefit when we receive all required paperwork
and satisfactory proof of death. We consider the following satisfactory proof of
death:
1. a certified copy of the death certificate; or
2. a certified copy of a decree of a court of competent jurisdiction as to
the finding of death; or
3. a written statement by a medical doctor who attended the deceased at the
time of death; or
4. any other proof satisfactory to us.
If the Beneficiary is the spouse of a deceased owner, he or she can elect to
continue the Contract. SEE SPOUSAL CONTINUATION BELOW.
If a Beneficiary does not elect a specific form of pay out within 60 days of our
receipt of all required paperwork and satisfactory proof of death, we pay a lump
sum death benefit to the Beneficiary.
The death benefit may be paid immediately in the form of a lump sum payment or
paid under one of the available Income Options. PLEASE SEE INCOME OPTIONS BELOW.
A Beneficiary may also elect to continue the contract and take the death benefit
amount in a series of payments based upon the Beneficiary's life expectancy
under the Extended Legacy program described below, subject to the applicable
Internal Revenue Code distribution requirements. Payments must begin under the
selected Income Option or the Extended
16
Legacy program no later than the first anniversary of your death for
non-qualified contracts or December 31st of the year following the year of your
death for IRAs. Your Beneficiary cannot participate in the Extended Legacy
program if your Beneficiary has already elected another settlement option.
Beneficiaries who do not begin taking payments within these specified time
periods will not be eligible to elect an Income Option or participate in the
Extended Legacy program.
Extended Legacy Program and Beneficiary Continuation Options
The Extended Legacy program can allow a Beneficiary to take the death benefit
amount in the form of income payments over a longer period of time with the
flexibility to withdraw more than the IRS required minimum distribution if they
wish. The contract continues in the original owner's name for the benefit of the
Beneficiary. The Extended Legacy program allows the Beneficiary to take
distributions in the form of a series of payments similar to the required
minimum distributions under an IRA. Generally, IRS required minimum
distributions must be made at least annually over a period not to exceed the
Beneficiary's life expectancy as determined in the calendar year after your
death. A Beneficiary may withdraw all or a portion of the contract value at any
time, name their own beneficiary to receive any remaining unpaid interest in the
contract in the event of their death and make transfers among investment
options. If the contract value is less than the death benefit amount as of the
date we receive satisfactory proof of death and all required paperwork, we will
increase the contract value by the amount which the death benefit exceeds
contract value. Participation in the program may impact certain features of the
contract that are detailed in the Death Claim Form. Please see your financial
representative for additional information.
Alternatively to the Extended Legacy program, the Beneficiary may also elect to
receive the death benefit under a 5-year option. The Beneficiary may take
withdrawals as desired, but the entire contract value must be distributed by the
fifth anniversary of your death for Non-qualified contracts or by December 31st
of the year containing the fifth anniversary of your death for IRAs. For IRAs,
the five-year option is not available if the date of death is after the required
beginning date for distributions (April 1 of the year following the year the
owner reaches the age of 70 1/2).
Please consult your tax advisor regarding tax implications and your particular
circumstances.
DEFINED TERMS
The term Net Purchase Payment is used frequently in explaining these death
benefit options. Net Purchase Payments is an on-going calculation. It does not
represent a contract value.
We define Net Purchase Payments as Purchase Payments less an Adjustment for each
withdrawal. If you have not taken any withdrawals from your contract, Net
Purchase Payments equals total purchase payments into your contract. To
calculate the Adjustment amount for the first withdrawal made under the
contract, we determine the percentage by which the withdrawal reduced the
contract value. For example, a $10,000 withdrawal from a $100,000 contract is a
10% reduction in value. This percentage is calculated by dividing the amount of
each withdrawal (and any applicable fees and charges) by the contract value
immediately before taking the withdrawal. The resulting percentage is then
multiplied by the amount of the total Purchase Payments and subtracted from the
amount of the total Purchase Payments on deposit at the time of the withdrawal.
The resulting amount is the initial Net Purchase Payment.
To arrive at the Net Purchase Payment calculation for subsequent withdrawals, we
determine the percentage by which the contract value is reduced by taking the
amount of the withdrawal in relation to the contract value immediately before
taking the withdrawal. We then multiply the Net Purchase Payment calculation as
determined prior to the withdrawal, by this percentage. We subtract that result
from the Net Purchase Payment calculation as determined prior to the withdrawal
to arrive at all subsequent Net Purchase Payment calculations.
The term "withdrawals" as used in describing the death benefit option below is
defined as withdrawals and the fees and charges applicable to those withdrawals.
IF YOU PURCHASED YOUR CONTRACT ON OR ABOUT JUNE 1, 2004, SUBJECT TO STATE
AVAILABILITY, THE FOLLOWING DEATH BENEFIT PROVISIONS APPLY:
OPTION 1 - PURCHASE PAYMENT ACCUMULATION OPTION
If the contract is issued prior to your 75th birthday, the death benefit is the
greatest of:
1. Contract value; or
2. Net Purchase Payments, compounded at 3% annual growth rate to the
earlier of the 75th birthday or the date of death plus Net Purchase
Payments received after the 75th birthday but prior to the 86th
birthday; or
3. Contract value on the seventh contract anniversary, reduced for
withdrawals since the seventh contract anniversary in the same
proportion that the contract value was reduced on the date of such
withdrawal, plus Net Purchase Payments received between the seventh
contract anniversary but prior to the 86th birthday.
The Purchase Payment Accumulation Option can only be elected prior to your 75th
birthday.
17
OPTION 2 - MAXIMUM ANNIVERSARY OPTION
If the contract is issued prior to your 83rd birthday, the death benefit is the
greatest of:
1. Contract value; or
2. Net Purchase Payments received prior to your 86th birthday; or
3. Maximum anniversary value on any contract anniversary prior to your
83rd birthday. The anniversary values equal the contract value on a
contract anniversary plus any Purchase Payments since that anniversary
but prior to your 86th birthday; and reduced for any withdrawals since
that contract anniversary in the same proportion that the withdrawal
reduced the contract value on the date of the withdrawal.
If the contract is issued on or after your 83rd birthday but before your 86th
birthday, the death benefit is greater of:
1. Contract value; or
2. The lesser of:
a. Net Purchase Payments received prior to your 86th birthday; or
b. 125% of Contract Value.
If you are age 90 or older at the time of death and selected the Maximum
Anniversary death benefit, the death benefit will be equal to the contract
value. Accordingly, you will not get any benefit from this option if you are age
90 or older at the time of your death.
For contracts in which the aggregate of all Purchase Payments in contracts
issued by AIG SunAmerica Life and/or First SunAmerica Life Insurance Company to
the same owner are in excess of $1,000,000, we reserve the right to limit the
death benefit amount that is in excess of contract value at the time we receive
all paperwork and satisfactory proof of death. Any limit on the maximum death
benefit payable would be mutually agreed upon by you and the Company prior to
purchasing the contract.
The information below describes the death benefits on contracts issued on or
after October 24, 2001 but before June 1, 2004:
OPTION 1 - PURCHASE PAYMENT ACCUMULATION OPTION
The death benefit is the greatest of:
1. the contract value at the time we receive all required paperwork and
satisfactory proof of death; or
2. Net Purchase Payments compounded at a 4% annual growth rate until the
date of death (3% growth rate if age 70 or older at the time of contract
issue) plus any Purchase Payments recorded after the date of death; and
reduced for any withdrawals in the same proportion that the withdrawal
reduced contract value on the date of the withdrawal; or
3. the contract value on the seventh contract anniversary, plus any
Purchase Payments since the seventh contract anniversary; and reduced
for any withdrawals since the seventh contract anniversary in the same
proportion that each withdrawal reduced the contract value on the date
of the withdrawal, all compounded at a 4% annual growth rate until the
date of death (3% growth rate if age 70 or older at the time of contract
issue) plus any purchase payments recorded after the date of death; and
reduced for each withdrawal recorded after the date of death in the same
proportion that each withdrawal reduced the contract value on the date
of the withdrawal.
The Purchase Payment Accumulation option may not be available to Washington
state policyowners. Please check with your financial representative regarding
availability.
OPTION 2 - MAXIMUM ANNIVERSARY OPTION
The death benefit is the greatest of:
1. the contract value at the time we receive all required paperwork and
satisfactory proof of death; or
2. Net Purchase Payments; or
3. the maximum anniversary value on any contract anniversary prior to your
81st birthday. The anniversary value equals the contract value on a
contract anniversary plus any Purchase Payments since that contract
anniversary; and reduced for any withdrawals since the contract
anniversary in the same proportion that each withdrawal reduced the
contract value on the date of the withdrawal.
If you are age 90 or older at the time of death and selected the Option 2 death
benefit, the death benefit will be equal to contract value at the time we
receive all required paperwork and satisfactory proof of death. Accordingly, you
do not get the advantage of Option 2 if:
- you are age 81 or older at the time of contract issue; or
- you are age 90 or older at the time of your death.
The death benefit options on contracts issued before October 24, 2001 would be
subject to a different calculation. Please see the Statement of Additional
Information for details.
OPTIONAL ESTATEPLUS FEATURE
EstatePlus is an optional benefit that, if selected, may increase your death
benefit amount.
The EstatePlus 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 "EstatePlus Percentage"), subject to a maximum dollar amount
(the "Maximum EstatePlus Percentage"), to the death benefit payable. The
contract year of your death will determine the EstatePlus Percentage and the
Maximum EstatePlus Percentage.
18
The table below provides the details if you are age 69 or younger at the time we
issue your contract:
<Table>
<Caption>
- -------------------------------------------------------------
CONTRACT YEAR ESTATEPLUS MAXIMUM
OF DEATH PERCENTAGE ESTATEPLUS PERCENTAGE
- -------------------------------------------------------------
Years 0-4 25% of earnings 40% of Net Purchase
Payments
- -------------------------------------------------------------
Years 5-9 40% of earnings 65% of Net Purchase
Payments*
- -------------------------------------------------------------
Years 10+ 50% of earnings 75% of Net Purchase
Payments*
- -------------------------------------------------------------
</Table>
If you are between your 70th and 81st birthdays at the time we issue your
contract the table below shows the available EstatePlus benefit:
<Table>
<Caption>
- ---------------------------------------------------------------
MAXIMUM
CONTRACT YEAR ESTATEPLUS ESTATEPLUS
OF DEATH PERCENTAGE PERCENTAGE
- ---------------------------------------------------------------
All Contract Years 25% of earnings 40% of Net
Purchase Payments*
- ---------------------------------------------------------------
</Table>
* Purchase Payments received after the 5(th) contract anniversary must remain in
the contract for at least 6 full months to be included as part of Net Purchase
Payments for the purpose of the Maximum EstatePlus 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 EstatePlus Percentage Amount?
We determine the amount of the EstatePlus benefit, based on a percentage of the
earnings in your contract at the time of your death. For the purpose of this
calculation, earnings equals contract value minus Net Purchase Payments as of
the date of death. If the earnings amount is negative, no EstatePlus amount will
be added.
What is the Maximum EstatePlus Amount?
The EstatePlus benefit is subject to a maximum dollar amount. The maximum
EstatePlus amount is equal to a percentage of your Net Purchase Payments.
You must elect EstatePlus at the time of contract application. Once elected, you
may not terminate or change this election.
We assess a 0.25% fee for EstatePlus. On a daily basis we deduct this annual
charge from the average daily ending value of the assets you have allocated to
the Variable Portfolios.
EstatePlus is not available if you are age 81 or older at the time we issue your
contract. Furthermore, a Continuing Spouse cannot benefit from EstatePlus if
he/she is age 81 or older on the Continuation Date. SEE SPOUSAL CONTINUATION
BELOW. The EstatePlus benefit is not payable after the latest Annuity Date. You
may pay for the EstatePlus benefit and your beneficiary may never receive the
benefit if you live past the latest Annuity Date. SEE INCOME OPTIONS BELOW.
EstatePlus may not be available in your state or through the broker-dealer with
which your financial representative is affiliated. See your financial
representative for information regarding availability.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE ESTATEPLUS BENEFIT (IN
ITS ENTIRETY OR ANY COMPONENT AT ANY TIME) AT ANY TIME FOR PROSPECTIVELY ISSUED
CONTRACTS.
SPOUSAL CONTINUATION
If you are the original owner of the contract and the Beneficiary is your
spouse, your spouse may elect to continue the contract after your death. The
spouse becomes the new owner ("Continuing Spouse"). Generally, the contract and
its elected features, if any, remain the same. The Continuing Spouse is subject
to the same fees, charges and expenses applicable to the original owner of the
contract. A spousal continuation can only take place upon the death of the
original owner of the contract.
To the extent that the Continuing Spouse invests in the Variable Portfolios or
MVA fixed accounts, they will be subject to investment risk as was the original
owner.
Upon a spouse's continuation of the contract, we will contribute to the contract
value an amount by which the death benefit that would have been paid to the
beneficiary upon the death of the original owner exceeds the contract value
("Continuation Contribution"), if any. We calculate the Continuation
Contribution as of the date of the original owner's death. We will add the
Continuation Contribution as of the date we receive both the Continuing Spouse's
written request to continue the contract and proof of death of the original
owner in a form satisfactory to us ("Continuation Date"). The Continuation
Contribution is not considered a Purchase Payment for the purposes of any other
calculations except as explained in Appendix C.
Generally, the Continuing Spouse cannot change any contract provisions as the
new owner. However, on the Continuation Date, the Continuing Spouse may
terminate the original owner's election of EstatePlus. We will terminate
EstatePlus if the Continuing Spouse is age 81 or older on the Continuation Date.
If EstatePlus is terminated or if the Continuing Spouse dies after the latest
Annuity Date, no EstatePlus benefit will be payable. The age of the Continuing
Spouse on the Continuation Date and on the date of the Continuing Spouse's death
will be used in determining any future death benefits under the Contract. SEE
APPENDIX C
19
FOR A DISCUSSION OF THE DEATH BENEFIT CALCULATIONS AFTER A SPOUSAL CONTINUATION.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE SPOUSAL CONTINUATION
PROVISION (IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME FOR PROSPECTIVELY
ISSUED CONTRACTS.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
EXPENSES
- ----------------------------------------------------------------
- ----------------------------------------------------------------
There are charges and expenses associated with your contract. These charges and
expenses reduce your investment return. We will not increase the contract
maintenance fee or the insurance and withdrawal charges under your contract.
However, the investment charges under your contract may increase or decrease.
Some states may require that we charge less than the amounts described below.
ANNUAL SEPARATE ACCOUNT EXPENSES
The Company deducts a mortality and expense risk charge in the amount of 1.52%
annually of the value of your contract invested in the Variable Portfolios. We
deduct the charge daily. This charge compensates the Company for the mortality
and expense risk and the costs of contract distribution assumed by the Company.
Generally, the mortality risks assumed by the Company arise from its contractual
obligations to make income payments after the Annuity Date and to provide a
death benefit. The expense risk assumed by the Company is that the costs of
administering the contracts and the Separate Account will exceed the amount
received from the administrative fees and charges assessed under the contract.
If these charges do not cover all of our expenses, we will pay the difference.
Likewise, if these charges exceed our expenses, we will keep the difference. The
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. You may also incur a withdrawal charge upon a
full surrender.
We apply a withdrawal charge against each Purchase Payment you put into the
contract. After a Purchase Payment has been in the contract for 7 complete
years, no withdrawal charge applies. The withdrawal charge equals a percentage
of the Purchase Payment you take out of the contract. The withdrawal charge
percentage declines each year a Purchase Payment is in the contract. The two
withdrawal charge schedules are as follows:
WITHDRAWAL CHARGE
<Table>
<Caption>
- -----------------------------------------------------------------------------------------
YEAR 1 2 3 4 5 6 7 8
- -----------------------------------------------------------------------------------------
WITHDRAWAL
CHARGE 7% 6% 5% 4% 3% 2% 1% 0%
- -----------------------------------------------------------------------------------------
</Table>
When calculating the withdrawal charge, we treat withdrawals as coming first
from the Purchase Payments that have been in your contract the longest. However,
for tax purposes, your withdrawals are considered earnings first, then Purchase
Payments.
Whenever possible, we deduct the withdrawal charge from the money remaining in
your contract. If you withdraw all of your contract value, we deduct any
applicable withdrawal charges from the amount withdrawn.
We will not assess a withdrawal charge for money withdrawn to pay a death
benefit or to pay contract fees or charges. We will not assess a withdrawal
charge when you switch to the Income Phase, except when you elect to receive
income payments using the Income Protector feature. If you elect to receive
income payments using the Income Protector feature, we assess the entire
withdrawal charge applicable to Purchase Payments remaining in your contract
when calculating your income benefit base. SEE INCOME OPTIONS BELOW.
Withdrawals made prior to age 59 1/2 may result in tax penalties. SEE TAXES
BELOW.
INVESTMENT CHARGES
INVESTMENT MANAGEMENT FEES
Charges are deducted from your Variable Portfolios for the advisory and other
expenses of the Variable Portfolios. THE FEE TABLES LOCATED ABOVE illustrate
these charges and expenses. For more detailed information on these investment
charges, refer to the prospectuses for the Trusts which are attached.
12B-1 FEES
Shares of certain trusts may be subject to fees imposed under a distribution
and/or servicing plan adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940. For SunAmerica Series Trust (SAST), under the distribution
plan which is applicable to Class 1 and 3 shares, recaptured brokerage
commissions will be used to make payments to AIG SunAmerica Capital Services,
Inc., the SAST's Distributor, to pay for various distribution activities on
behalf of the SAST's Portfolios. These distribution fees will not increase the
cost of your investment or affect your return.
In addition, the 0.25% fee applicable to Class 3 shares of AST, Class 1 and 3
shares of SAST, Class II shares of the Van Kampen Life Investment Trust and
Class II shares of
20
American Funds Insurance Series is generally used to pay financial intermediates
for services provided over the life of your contract.
For more detailed information on these Investment Charges, refer to the
prospectus for the Anchor Series Trust, SunAmerica Series Trust, Lord Abbett
Series Fund, Inc. and/or Van Kampen Life Investment Trust.
CONTRACT MAINTENANCE FEE
During the Accumulation Phase, we subtract a contract maintenance fee from your
account once per year. This charge compensates us for the cost of contract
administration. We deduct the $35 contract maintenance fee ($30 in North Dakota)
from your account value on your contract anniversary. If you withdraw your
entire contract value, we deduct the fee from that withdrawal.
If your contract value is $50,000 or more on your contract anniversary date, we
will waive the charge. This waiver is subject to change without notice.
TRANSFER FEE
Generally, we currently permit 15 free transfers between investment options each
contract year. We charge you $25 for each additional transfer that contract year
($10 in Pennsylvania and Texas). SEE TRANSFERS DURING THE ACCUMULATION PHASE
ABOVE.
OPTIONAL ESTATEPLUS FEE
There is a 0.25% charge deducted from your Variable Portfolio if the optional
EstatePlus is elected.
SEE ESTATEPLUS 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. Currently, we deduct the charge for premium taxes when you take a full
withdrawal or begin the Income Phase of the contract. In the future, we may
assess this deduction at the time you put Purchase Payment(s) into the contract
or upon payment of a death benefit.
INCOME TAXES
We do not currently deduct income taxes from your contract. We reserve the right
to do so in the future.
REDUCTION OR ELIMINATION OF CHARGES AND EXPENSES, AND ADDITIONAL AMOUNTS
CREDITED
Sometimes sales of the contracts to groups of similarly situated individuals may
lower our administrative and/or sales expenses. We reserve the right to reduce
or waive certain charges and expenses when this type of sale occurs. In
addition, we may also credit additional interest to policies sold to such
groups. We determine which groups are eligible for such treatment. Some of the
criteria we evaluate to make a determination are: size of the group; amount of
expected Purchase Payments; relationship existing between us and prospective
purchaser; nature of the purchase; length of time a group of contracts is
expected to remain active; purpose of the purchase and whether that purpose
increases the likelihood that our expenses will be reduced; and/or any other
factors that we believe indicate that administrative and/or sales expenses may
be reduced.
AIG SunAmerica Life may make such a determination regarding sales to its
employees, it affiliates' employees and employees of currently contracted
broker-dealers; its registered representatives and immediate family members of
all of those described.
We reserve the right to change or modify any such determination or the treatment
applied to a particular group, at any time.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
INCOME OPTIONS
- ----------------------------------------------------------------
- ----------------------------------------------------------------
ANNUITY DATE
During the Income Phase, we use the money accumulated in your contract to make
regular income payments to you. You may switch to the Income Phase any time
after your second contract anniversary. You select the month and year you want
income payments to begin. The first day of that month is the Annuity Date. You
may change your Annuity Date, so long as you do so at least seven days before
the income payments are scheduled to begin. Once you begin receiving income
payments, you cannot change your income option. Except as indicated under Option
5 below, once you begin receiving income payments, you cannot otherwise access
your money through a withdrawal or surrender.
Income payments must begin on or before your 95th birthday or on your tenth
contract anniversary, whichever occurs later (latest Annuity Date). If you do
not choose an Annuity Date, your income payments will automatically begin on
this date. Certain states may require your income payments to start earlier.
If the Annuity Date is past your 85th birthday, your contract could lose its
status as an annuity under Federal tax laws. This may cause you to incur adverse
tax consequences.
In addition, most Qualified contracts require you to take minimum distributions
after you reach age 70 1/2. SEE TAXES BELOW.
INCOME OPTIONS
Currently, this Contract offers five standard income options. Other payout
options may be available. Contact the Annuity Service Center for more
information. If you elect to receive income payments but do not select an
option, your income payments will be made in accordance with Option 4 for a
period of 10 years. For income payments based on joint lives, we pay according
to Option 3 for a period of 10 years.
21
We base our calculation of income payments on the life of the Annuitant and the
annuity rates set forth in your contract. As the contract owner, you may change
the Annuitant at any time prior to the Annuity Date. You must notify us if the
Annuitant dies before the Annuity Date and designate a new Annuitant.
OPTION 1 - LIFE INCOME ANNUITY
This option provides income payments for the life of the Annuitant. Income
payments stop when the Annuitant dies.
OPTION 2 - JOINT AND SURVIVOR LIFE ANNUITY
This option provides income payments for the life of the Annuitant and for the
life of another designated person. Upon the death of either person, we will
continue to make income payments during the lifetime of the survivor. Income
payments stop when the survivor dies.
OPTION 3 - JOINT AND SURVIVOR LIFE ANNUITY WITH 10 OR 20 YEARS GUARANTEED
This option is similar to Option 2 above, with an additional guarantee of
payments for at least 10 years. If the Annuitant and the survivor die before all
of the guaranteed income payments have been made, the remaining payments are
made to the Beneficiary under your contract.
OPTION 4 - LIFE ANNUITY WITH 10 OR 20 YEARS GUARANTEED
This option is similar to Option 1 above. In addition, this option provides a
guarantee that income payments will be made for at least 10 or 20 years. You
select the number of years. If the Annuitant dies before all guaranteed income
payments are made, the remaining income payments go to the Beneficiary under
your contract.
OPTION 5 - INCOME FOR A SPECIFIED PERIOD
This option provides income payments for a guaranteed period ranging from 5 to
30 years. If the Annuitant dies before all the guaranteed income payments are
made, the remaining income payments are made to the Beneficiary under your
contract. Additionally, if variable income payments are elected under this
option, you (or the Beneficiary under the contract if the Annuitant dies prior
to all guaranteed income payments being made) may redeem any remaining
guaranteed variable income payments after the Annuity Date. The amount available
upon such redemption would be the discounted present value of any remaining
guaranteed variable income payments. If provided for in your contract, any
applicable withdrawal charge will be deducted from the discounted value as if
you fully surrendered your contract.
The value of an Annuity Unit, regardless of the option chosen, takes into
account the mortality and expense risk charge. Since Option 5 does not contain
an element of mortality risk, no benefit is derived from this charge.
For more information regarding income options using the Income Protection
feature, please see below.
Please read the Statement of Additional Information ("SAI") for a more detailed
discussion of the income options.
FIXED OR VARIABLE INCOME PAYMENTS
You can choose income payments that are fixed, variable or both. Unless
otherwise elected, if at the date when income payments begin you are invested in
the Variable Portfolios only, your income payments will be variable and if your
money is only in fixed accounts at that time, your income payments will be fixed
in amount. Further, if you are invested in both fixed and variable investment
options when income payments begin, your payments will be fixed and variable
unless otherwise elected. If income payments are fixed, AIG SunAmerica Life
guarantees the amount of each payment. If the income payments are variable the
amount is not guaranteed.
INCOME PAYMENTS
We make income payments on a monthly, quarterly, semiannual or annual basis. You
instruct us to send you a check or to have the payments directly deposited into
your bank account. If state law allows, we distribute annuities with a contract
value of $5,000 or less in a lump sum. Also, if the selected income option
results in income payments of less than $50 per payment, we may decrease the
frequency of payments, state law allowing.
If you are invested in the Variable Portfolios after the Annuity date, your
income payments vary depending on four things:
- for life options, your age when payments begin, and in most states if a
non-qualified contract, your gender; and
- the value of your contract in the Variable Portfolios on the Annuity
Date; and
- the 3.5% assumed investment rate used in the annuity table for the
contract; and
- the performance of the Variable Portfolios in which you are invested
during the time you receive income payments.
If you are invested in both the fixed account options and the Variable
Portfolios after the Annuity Date, the allocation of funds between the fixed and
variable options also impacts the amount of your annuity payments.
TRANSFERS DURING THE INCOME PHASE
During the Income Phase, one transfer per month is permitted between the
Variable Portfolios. No other transfers are allowed during the Income Phase.
DEFERMENT OF PAYMENTS
We may defer making fixed payments for up to six months, or less if required by
law. Interest is credited to you during the deferral period. See also "Access to
Your Money" for a discussion of when payments from a Variable Portfolio may be
suspended or postponed.
22
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TAXES
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NOTE: THE BASIC SUMMARY BELOW ADDRESSES BROAD FEDERAL TAXATION MATTERS, AND
GENERALLY DOES NOT ADDRESS STATE TAXATION ISSUES OR QUESTIONS. IT IS NOT TAX
ADVICE. WE CAUTION YOU TO SEEK COMPETENT TAX ADVICE ABOUT YOUR OWN
CIRCUMSTANCES. WE DO NOT GUARANTEE THE TAX STATUS OF YOUR ANNUITY. TAX LAWS
CONSTANTLY CHANGE; THEREFORE, WE CANNOT GUARANTEE THAT THE INFORMATION CONTAINED
HEREIN IS COMPLETE AND/OR ACCURATE. WE HAVE INCLUDED AN ADDITIONAL DISCUSSION
REGARDING TAXES IN THE SAI.
ANNUITY CONTRACTS IN GENERAL
The Internal Revenue Code ("IRC") provides for special rules regarding the tax
treatment of annuity contracts. Generally, taxes on the earnings in your annuity
contract are deferred until you take the money out. Qualified retirement
investments that satisfy specific tax and ERISA requirements automatically
provide tax deferral regardless of whether the underlying contract is an
annuity, a trust, or a custodial account. Different rules apply depending on how
you take the money out and whether your contract is Qualified or Non-Qualified.
If you do not purchase your contract under a pension plan, a specially sponsored
employer program or an individual retirement account, your contract is referred
to as a Non-Qualified contract. A Non-Qualified contract receives different tax
treatment than a Qualified contract. In general, your cost in a Non-Qualified
contract is equal to the Purchase Payments you put into the contract. You have
already been taxed on the cost basis in your contract.
If you purchase your contract under a pension plan, a specially sponsored
employer program or as an individual retirement account, your contract is
referred to as a Qualified contract. Examples of qualified plans or arrangements
are: Individual Retirement Accounts ("IRAs"), Roth IRAs, Tax-Sheltered Annuities
(referred to as 403(b) contracts), plans of self-employed individuals (often
referred to as H.R.10 Plans or Keogh Plans) and pension and profit sharing
plans, including 401(k) plans. Typically, for employer plans and tax-deductible
IRA contributions, you have not paid any tax on the Purchase Payments used to
buy your contract and therefore, you have no cost basis in your contract.
However, you normally will have cost basis in a Roth IRA, and you may have cost
basis in a traditional IRA or in another Qualified Contract.
TAX TREATMENT OF DISTRIBUTIONS -- NON-QUALIFIED CONTRACTS
If you make a partial or total withdrawal from a Non-Qualified contract, the IRC
treats such a withdrawal as first coming from the earnings and then as coming
from your Purchase Payments. Purchase payments made prior to August 14, 1982,
however, are an important exception to this general rule, and for tax purposes
are treated as being distributed before the earnings on those contributions. If
you annuitize your contract, a portion of each income payment will be
considered, for tax purposes, to be a return of a portion of your Purchase
Payment(s). Any portion of each income payment that is considered a return of
your Purchase Payment will not be taxed. Withdrawn earnings are treated as
income to you and are taxable. The IRC provides for a 10% penalty tax on any
earnings that are withdrawn other than in conjunction with the following
circumstances: (1) after reaching age 59 1/2; (2) when paid to your Beneficiary
after you die; (3) after you become disabled (as defined in the IRC); (4) when
paid in a series of substantially equal installments made for your life or for
the joint lives of you and your Beneficiary; (5) under an immediate annuity; or
(6) which are attributable to Purchase Payments made prior to August 14, 1982.
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).
23
In the case of hardship, the owner can only withdraw Purchase Payments.
Additional plan limitations may also apply. Amounts held in a TSA annuity
contract as of December 31, 1988 are not subject to these restrictions.
Qualifying transfers of amounts from one TSA contract to another TSA contract
under section 403(b) or to a custodial account under section 403(b)(7), and
qualifying transfers to a state defined benefit plan to purchase service
credits, are not considered distributions, and thus are not subject to these
withdrawal limitations. If amounts are transferred from a custodial account
described in Code section 403(b)(7) to this contract the transferred amount will
retain the custodial account withdrawal restrictions.
Withdrawals from other Qualified Contracts are often limited by the IRC and by
the employer's plan.
MINIMUM DISTRIBUTIONS
Generally, the IRC requires that you begin taking annual distributions from
qualified annuity contracts by April 1 of the calendar year following the later
of (1) the calendar year in which you attain age 70 1/2 or (2) the calendar year
in which you separate from service from the employer sponsoring the plan. If you
own an IRA, you must begin taking distributions when you attain age 70 1/2
regardless of when you separate from service from the employer sponsoring the
plan. If you own more than one TSA, you may be permitted to take your annual
distributions in any combination from your TSAs. A similar rule applies if you
own more than one IRA. However, you cannot satisfy this distribution requirement
for your TSA contract by taking a distribution from an IRA, and you cannot
satisfy the requirement for your IRA by taking a distribution from a TSA.
You may be subject to a surrender charge on withdrawals taken to meet minimum
distribution requirements, if the withdrawals exceed the contract's maximum
penalty free amount.
Failure to satisfy the minimum distribution requirements may result in a tax
penalty. You should consult your tax advisor for more information.
You may elect to have the required minimum distribution amount on your contract
calculated and withdrawn each year under the automatic withdrawal option. You
may select monthly, quarterly, semiannual, or annual withdrawals for this
purpose. This service is provided as a courtesy and we do not guarantee the
accuracy of our calculations. Accordingly, we recommend you consult your tax
advisor concerning your required minimum distribution. You may terminate your
election for automated minimum distribution at any time by sending a written
request to our Annuity Service Center. We reserve the right to change or
discontinue this service at any time.
The IRS issued new regulations, effective January 1, 2003, regarding required
minimum distributions from qualified annuity contracts. One of the regulations
requires that the annuity contract value used to determine required minimum
distributions include the actuarial value of other benefits under the contract,
such as optional death benefits. This regulation does not apply to required
minimum distributions made under an irrevocable annuity income option. We are
currently awaiting further clarification from the IRS on this regulation,
including how the value of such benefits is determined. You should discuss the
effect of these new regulations with your tax advisor.
TAX TREATMENT OF DEATH BENEFITS
Any death benefits paid under the contract are taxable to the Beneficiary. The
rules governing the taxation of payments from an annuity contract, as discussed
above, generally apply 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
24
adverse tax consequences associated with non-natural ownership of a
non-qualified annuity contract.
GIFTS, PLEDGES AND/OR ASSIGNMENTS OF A CONTRACT
If you transfer ownership of your Non-Qualified contract to a person other than
your spouse (or former spouse incident to divorce) as a gift you will pay
federal income tax on the contract's cash value to the extent it exceeds your
cost basis. The recipient's cost basis will be increased by the amount on which
you will pay federal taxes. In addition, the IRC treats any assignment or pledge
(or agreement to assign or pledge) of any portion of a Non- Qualified contract
as a withdrawal. See the SAI for a more detailed discussion regarding potential
tax consequences of gifting, assigning, or pledging a Non-Qualified contract.
The IRC prohibits Qualified annuity contracts including IRAs from being
transferred, assigned or pledged as security for a loan. This prohibition,
however, generally does not apply to loans under an employer-sponsored plan
(including loans from the annuity contract) that satisfy certain requirements,
provided that: (a) the plan is not an unfunded deferred compensation plan; and
(b) the plan funding vehicle is not an IRA.
DIVERSIFICATION AND INVESTOR CONTROL
The IRC imposes certain diversification requirements on the underlying
investments for a variable annuity. We believe that the management of the
Underlying Funds monitors the Funds so as to comply with these requirements. To
be treated as a variable annuity for tax purposes, the underlying investments
must meet these requirements.
The diversification regulations do not provide guidance as to the circumstances
under which you, and not the Company, would be considered the owner of the
shares of the Variable Portfolios under your Non-Qualified Contract, because of
the degree of control you exercise over the underlying investments. This
diversification requirement is sometimes referred to as "investor control." It
is unknown to what extent owners are permitted to select investments, to make
transfers among Variable Portfolios or the number and type of Variable
Portfolios owners may select from. If any guidance is provided which is
considered a new position, then the guidance should generally be applied
prospectively. However, if such guidance is considered not to be a new position,
it may be applied retroactively. This would mean that you, as the owner of the
Non-qualified Contract, could be treated as the owner of the underlying Variable
Portfolios. Due to the uncertainty in this area, we reserve the right to modify
the contract in an attempt to maintain favorable tax treatment.
These investor control limitations generally do not apply to Qualified
Contracts, which are referred to as "Pension Plan Contracts" for purposes of
this rule, although the limitations could be applied to Qualified Contracts in
the future.
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PERFORMANCE
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We advertise the Cash Management Portfolio's yield and effective yield. In
addition, the other Variable Portfolios advertise total return, gross yield and
yield-to-maturity. These figures represent past performance of the Variable
Portfolios. These performance numbers do not indicate future results.
When we advertise performance for periods prior to the date the contracts were
first issued, we derive the figures from the performance of the corresponding
portfolios for the Trusts, if available. We modify these numbers to reflect
charges and expenses as if the contract was in existence during the period
stated in the advertisement. Figures calculated in this manner do not represent
actual historic performance of the particular Variable Portfolio.
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OTHER INFORMATION
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AIG SUNAMERICA LIFE
AIG SunAmerica Life is a stock life insurance company originally organized under
the laws of the state of California in April 1965. On January 1, 1996, AIG
SunAmerica Life redomesticated under the laws of the state of Arizona.
AIG SunAmerica Life and its affiliates, SunAmerica Life Insurance Company, First
SunAmerica Life Insurance Company, AIG SunAmerica Asset Management Corp., and
the AIG Advisors Group, Inc. (comprising six-wholly owned broker-dealers and two
investment advisors), specialize in retirement savings and investment products
and services. Business focuses include fixed and variable annuities, mutual
funds and broker-dealer services.
THE SEPARATE ACCOUNT
AIG SunAmerica Life established Variable Separate Account ("Separate Account"),
under Arizona law on January 1, 1996 when it assumed the Separate Account,
originally established under California law on June 25, 1981. The Separate
Account is registered with the SEC as a unit investment trust under the
Investment Company Act of 1940, as amended.
AIG SunAmerica Life owns the assets in the Separate Account. However, the assets
in the Separate Account are not chargeable with liabilities arising out of any
other business conducted by AIG SunAmerica Life. Income gains and losses
(realized and unrealized) resulting from assets in the Separate Account are
credited to or charged against the Separate Account without regard to other
income gains or losses of AIG SunAmerica Life.
25
THE GENERAL ACCOUNT
Money allocated to the fixed account options goes into AIG SunAmerica Life's
general account. The general account consists of all of AIG SunAmerica Life's
assets other than assets attributable to a Separate Account. All of the assets
in the general account are chargeable with the claims of any AIG SunAmerica Life
contract holders as well as all of its creditors. The general account funds are
invested as permitted under state insurance laws.
PAYMENTS IN CONNECTION WITH DISTRIBUTION OF THE CONTRACT
PAYMENTS TO BROKER-DEALERS
Registered representatives of broker-dealers sell the contract. We pay
commissions to the broker-dealers for the sale of your contract ("Contract
Commissions"). There are different structures by which a broker-dealer can
choose to have their Contract Commissions paid. For example, as one option, we
may pay upfront Contract Commission, only, that may be up to a maximum 7% of
each Purchase Payment you invest (which may include promotional amounts).
Another option may be a lower upfront Contract Commission on each Purchase
Payment, with a trail commission of up to a maximum 1.50% of contract value
annually. We pay Contract Commissions directly to the broker-dealer with whom
your registered representative is affiliated. Registered representatives may
receive a portion of these amounts we pay in accordance with any agreement in
place between the registered representative and his/her broker-dealer firm.
We (or our affiliates) may pay broker-dealers or permitted third parties cash or
non-cash compensation, including reimbursement of expenses incurred in
connection with the sale of these contracts. These payments may be intended to
reimburse for specific expenses incurred or may be based on sales, certain
assets under management or longevity of assets invested with us. For example, we
may pay additional amounts in connection with contracts that remain invested
with us for a particular period of time. We enter into such arrangements in our
discretion and we may negotiate customized arrangements with firms, including
affiliated and non-affiliated broker-dealers based on various factors.
Promotional incentives may change at any time.
We do not deduct these amounts directly from your Purchase Payments. We
anticipate recovering these amounts from the fees and charges collected under
the contract. Certain compensation payments may increase our cost of doing
business in a particular firm and may result in higher contractual fees and
charges if you purchase your contract through such a firm. See EXPENSES above.
AIG SunAmerica Capital Services, Inc., Harborside Financial Center, 3200 Plaza
5, Jersey City, NJ 07311-4992, distributes the contracts. AIG SunAmerica Capital
Services, an affiliate of AIG SunAmerica Life, is a registered broker-dealer
under the Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. No underwriting fees are paid in connection with the
distribution of the contracts.
PAYMENTS WE RECEIVE
In addition to amounts received pursuant to established 12b-1 Plans, we may
receive compensation of up to 0.50% from the investment advisers, subadvisers or
their affiliates of certain of the underlying Trusts and/or portfolios for
services related to the availability of the underlying portfolios in the
contract. Furthermore, certain advisers and/or subadvisers may offset the costs
we incur for training to support sales of the underlying funds in the contract.
ADMINISTRATION
We are responsible for the administrative servicing of your contract. Please
contact our Annuity Service Center
at 1-800-445-SUN2, if you have any comment, question or service request.
We send out transaction confirmations and quarterly statements. During the
Accumulation Phase, you will receive confirmation of transactions within your
contract. Transactions made pursuant to contractual or systematic agreements,
such as 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 all
other transactions, we send confirmations immediately. It is your responsibility
to review these documents carefully and notify us of any inaccuracies
immediately. We investigate all inquiries. To the extent that we believe we made
an error, we retroactively adjust your contract, provided you notify us within
30 days of receiving the transaction confirmation or quarterly statement. Any
other adjustments we deem warranted are made as of the time we receive notice of
the error.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Separate Account. AIG
SunAmerica Life and its subsidiaries engage in various kinds of routine
litigation. In management's opinion, these matters are not of material
importance to their respective total assets nor are they material with respect
to the Separate Account.
OWNERSHIP
The PolarisII Variable Annuity is a Flexible Payment Group Deferred Annuity
contract. We issue a group contract to a contract holder for the benefit of the
participants in the group. As a participant in the group, you will receive a
certificate which evidences your ownership. As used in this prospectus, the term
contract refers to your certificate. In
26
some states, a Flexible Payment Individual Modified Guaranteed and Variable
Deferred Annuity contract is available instead. Such a contract is identical to
the contract described in this prospectus, with the exception that we issue it
directly to the owner.
INDEPENDENT ACCOUNTANTS
The financial statements of AIG SunAmerica Life Assurance Company at December
31, 2003 and 2002, and for each of the three years in the period ended December
31, 2002, and the financial statements of Variable Separate Account at December
31, 2003, and for each of the two years in the period ended December 31, 2003,
are incorporated by reference in this prospectus in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
A registration statement has been filed with the SEC under the Securities Act of
1933 relating to the contract. This prospectus does not contain all the
information in the registration statement as permitted by SEC regulations. The
omitted information can be obtained from the SEC's principal office in
Washington, D.C., upon payment of a prescribed fee.
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TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
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Additional information concerning the operations of the Separate Account is
contained in a Statement of Additional Information ("SAI"), which is available
without charge upon written request addressed to us at our Annuity Service
Center, P.O. Box 54299, Los Angeles, California 90054-0299 or by calling (800)
445-SUN2. The contents of the SAI are tabulated below.
<Table>
Separate Account.............................. 3
General Account............................... 3
Performance Data.............................. 4
Income Payments............................... 7
Income Protector.............................. 7
Death Benefit Options for Contracts Issued
Before October 24, 2001..................... 7
Death Benefits following spousal continuation
for contracts issued between October 24,
2001 and May 31, 2004....................... 10
Annuity Unit Values........................... 12
Taxes......................................... 13
Distribution of Contracts..................... 18
Financial Statements.......................... 18
</Table>
27
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APPENDIX A - CONDENSED FINANCIAL INFORMATION
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<Table>
<Caption>
FISCAL YEAR FISCAL YEAR
INCEPTION TO ENDED ENDED 11/30/99-
PORTFOLIOS 11/30/97 11/30/98 11/30/99 12/31/99
- -------------------------------------------------------------------------------------
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Capital Appreciation
(Inception Date - 6/3/97)
Beginning AUV......... $ 18.52 $ 21.26 $ 23.72 $ 36.39
Ending AUV............ $ 21.26 $ 23.72 $ 36.39 $ 43.17
Ending Number of AUs.. 1,392,262 7,356,862 13,201,318 13,721,175
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Government and Quality Bond
(Inception Date - 6/11/97)
Beginning AUV......... $ 11.99 $ 12.65 $ 13.66 $ 13.37
Ending AUV............ $ 12.65 $ 13.66 $ 13.37 $ 13.28
Ending Number of AUs.. 395,258 5,697,571 11,644,751 11,975,781
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Growth (Inception Date -
6/3/97)
Beginning AUV......... $ 17.93 $ 20.31 $ 24.41 $ 29.74
Ending AUV............ $ 20.31 $ 24.41 $ 29.74 $ 32.61
Ending Number of AUs.. 789,274 3,678,108 6,788,755 7,022,979
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Natural Resources (Inception
Date - 6/4/97)
Beginning AUV......... $ 12.39 $ 11.14 $ 9.30 $ 11.40
Ending AUV............ $ 11.14 $ 9.30 $ 11.40 $ 12.50
Ending Number of AUs.. 195,946 641,479 1,180,750 1,166,052
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Aggressive Growth (Inception
Date - 6/9/97)
Beginning AUV......... $ 10.03 $ 11.51 $ 11.86 $ 19.02
Ending AUV............ $ 11.51 $ 11.86 $ 19.02 $ 24.30
Ending Number of AUs.. 821,105 2,794,187 6,626,618 7,344,520
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Alliance Growth (Inception
Date - 6/2/97)
Beginning AUV......... $ 21.81 $ 24.51 $ 32.81 $ 44.31
Ending AUV............ $ 24.51 $ 32.81 $ 44.31 $ 48.56
Ending Number of AUs.. 2,092,044 12,001,651 24,844,446 25,720,432
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Asset Allocation (Inception
Date - 6/3/97)
Beginning AUV......... $ 16.59 $ 17.98 $ 18.22 $ 19.10
Ending AUV............ $ 17.98 $ 18.22 $ 19.10 $ 19.81
Ending Number of AUs.. 1,498,681 8,996,522 11,800,263 11,832,744
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Blue Chip Growth (Inception
Date - 7/10/00)
Beginning AUV......... -- -- -- --
Ending AUV............ -- -- -- --
Ending Number of AUs.. -- -- -- --
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Cash Management (Inception
Date - 6/5/97)
Beginning AUV......... $ 11.24 $ 11.43 $ 11.83 $ 12.20
Ending AUV............ $ 11.43 $ 11.83 $ 12.20 $ 12.25
Ending Number of AUs.. 1,514,290 5,488,046 13,454,926 14,181,154
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AUV - Accumulation Unit Value
AU - Accumulation Units
(a) Without election of the optional
EstatePlus feature.
(b) With election of the optional
EstatePlus feature.
<Caption>
FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED ENDED
PORTFOLIOS 12/31/00 12/31/01 12/31/02 12/31/03
- ------------------------------ ---------------------------------------------------------------------
- ------------------------------ ---------------------------------------------------------------------
Capital Appreciation
(Inception Date - 6/3/97)
Beginning AUV......... (a) $43.17 (a) $39.336 (a) $33.864 (a) $25.794
(b) $43.17 (b) $39.336 (b) $33.775 (b) $25.662
Ending AUV............ (a) $39.34 (a) $33.864 (a) $25.794 (a) $33.598
(b) $39.34 (b) $33.775 (b) $25.662 (b) $33.343
Ending Number of AUs.. (a) 19,549,855 (a) 20,540,882 (a) 17,045,204 (a) 15,471,842
(b) -- (b) 419,516 (b) 407,431 (b) 393,375
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Government and Quality Bond
(Inception Date - 6/11/97)
Beginning AUV......... (a) $13.28 (a) $14.557 (a) $15.330 (a) $16.504
(b) $13.28 (b) $14.557 (b) $15.292 (b) $16.423
Ending AUV............ (a) $14.56 (a) $15.330 (a) $16.504 (a) $16.664
(b) $14.56 (b) $15.292 (b) $16.423 (b) $16.541
Ending Number of AUs.. (a) 14,182,463 (a) 20,198,773 (a) 24,546,091 (a) 18,572,325
(b) -- (b) 479,420 (b) 646,465 (b) 528,784
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Growth (Inception Date -
6/3/97)
Beginning AUV......... (a) $32.61 (a) $31.785 (a) $27.208 (a) $20.859
(b) $32.61 (b) $31.785 (b) $27.144 (b) $20.757
Ending AUV............ (a) $31.78 (a) $27.208 (a) $20.859 (a) $26.692
(b) $31.78 (b) $27.144 (b) $20.757 (b) $26.495
Ending Number of AUs.. (a) 10,117,970 (a) 11,155,857 (a) 9,536,437 (a) 8,633,774
(b) -- (b) 249,712 (b) 212,667 (b) 204,580
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Natural Resources (Inception
Date - 6/4/97)
Beginning AUV......... (a) $12.50 (a) $14.706 (a) $14.327 (a) $15.293
(b) $12.50 (b) $14.706 (b) $14.289 (b) $15.218
Ending AUV............ (a) $14.71 (a) $14.327 (a) $15.293 (a) $22.251
(b) $14.71 (b) $14.289 (b) $15.218 (b) $22.086
Ending Number of AUs.. (a) 1,895,730 (a) 2,107,217 (a) 2,662,401 (a) 2,416,959
(b) -- (b) 65,345 (b) 109,835 (b) 118,289
- -------------------------------------------------------------------------------------
Aggressive Growth (Inception
Date - 6/9/97)
Beginning AUV......... (a) $24.30 (a) $20.283 (a) $13.648 (a) $10.123
(b) $24.30 (b) $20.283 (b) $13.621 (b) $10.078
Ending AUV............ (a) $20.28 (a) $13.648 (a) $10.123 (a) $12.807
(b) $20.28 (b) $13.621 (b) $10.078 (b) $12.719
Ending Number of AUs.. (a) 12,934,676 (a) 11,741,647 (a) 8,530,678 (a) 8,207,281
(b) -- (b) 165,723 (b) 162,350 (b) 145,856
- -------------------------------------------------------------------------------------
Alliance Growth (Inception
Date - 6/2/97)
Beginning AUV......... (a) $48.56 (a) $38.509 (a) $32.621 (a) $22.076
(b) $48.56 (b) $38.509 (b) $32.541 (b) $21.966
Ending AUV............ (a) $38.51 (a) $32.621 (a) $22.076 (a) $27.355
(b) $38.51 (b) $32.541 (b) $21.966 (b) $27.152
Ending Number of AUs.. (a) 33,118,445 (a) 32,796,144 (a) 25,011,645 (a) 20,919,003
(b) -- (b) 424,109 (b) 386,767 (b) 336,505
- -------------------------------------------------------------------------------------
Asset Allocation (Inception
Date - 6/3/97)
Beginning AUV......... (a) $19.81 (a) $19.448 (a) $18.614 (a) $16.951
(b) $19.81 (b) $19.448 (b) $18.582 (b) $16.880
Ending AUV............ (a) $19.45 (a) $18.614 (a) $16.951 (a) $20.546
(b) $19.45 (b) $18.582 (b) $16.880 (b) $20.409
Ending Number of AUs.. (a) 11,738,646 (a) 11,549,900 (a) 10,122,684 (a) 8,968,741
(b) -- (b) 93,512 (b) 106,752 (b) 96,377
- -------------------------------------------------------------------------------------
Blue Chip Growth (Inception
Date - 7/10/00)
Beginning AUV......... (a) $10.00 (a) $8.569 (a) $6.692 (a) $4.661
(b) $10.00 (b) $8.569 (b) $6.674 (b) $4.637
Ending AUV............ (a) $8.57 (a) $6.692 (a) $4.661 (a) $5.785
(b) $8.57 (b) $6.674 (b) $4.637 (b) $5.741
Ending Number of AUs.. (a) 1,222,398 (a) 3,041,531 (a) 2,893,851 (a) 3,002,368
(b) -- (b) 178,390 (b) 201,536 (b) 184,797
- -------------------------------------------------------------------------------------
Cash Management (Inception
Date - 6/5/97)
Beginning AUV......... (a) $12.25 (a) $12.793 (a) $13.062 (a) $13.040
(b) $12.25 (b) $12.793 (b) $13.028 (b) $12.976
Ending AUV............ (a) $12.79 (a) $13.062 (a) $13.040 (a) $12.929
(b) $12.79 (b) $13.028 (b) $12.976 (b) $12.834
Ending Number of AUs.. (a) 14,798,813 (a) 20,961,757 (a) 14,513,235 (a) 8,864,318
(b) -- (b) 554,085 (b) 270,474 (b) 199,902
- -------------------------------------------------------------------------------------
</Table>
A-1
<Table>
<Caption>
FISCAL YEAR FISCAL YEAR
INCEPTION TO ENDED ENDED 11/30/99-
PORTFOLIOS 11/30/97 11/30/98 11/30/99 12/31/99
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Corporate Bond (Inception
Date - 6/9/97)
Beginning AUV......... $ 11.83 $ 12.54 $ 13.15 $ 12.78
Ending AUV............ $ 12.54 $ 13.15 $ 12.78 $ 12.76
Ending Number of AUs.. 328,300 3,633,064 7,121,685 7,196,448
- -------------------------------------------------------------------------------------
Davis Venture Value
(Inception Date - 6/2/97)
Beginning AUV......... $ 18.63 $ 21.30 $ 23.36 $ 26.57
Ending AUV............ $ 21.30 $ 23.36 $ 26.57 $ 27.88
Ending Number of AUs.. 4,281,879 20,734,371 32,218,454 32,960,877
- -------------------------------------------------------------------------------------
"Dogs of Wall Street"
(Inception Date - 4/1/98)
Beginning AUV......... $ -- $ 10.00 $ 9.71 $ 9.12
Ending AUV............ $ -- $ 9.71 $ 9.12 $ 8.99
Ending Number of AUs.. -- 4,324,225 8,879,703 8,952,838
- -------------------------------------------------------------------------------------
Emerging Markets (Inception
Date - 6/5/97)
Beginning AUV......... $ 10.14 $ 7.97 $ 6.14 $ 8.99
Ending AUV............ $ 7.97 $ 6.14 $ 8.99 $ 10.77
Ending Number of AUs.. 663,212 2,574,316 4,857,715 5,310,973
- -------------------------------------------------------------------------------------
Federated American Leaders
(Inception Date - 6/4/97)
Beginning AUV......... $ 12.14 $ 13.62 $ 15.86 $ 16.43
Ending AUV............ $ 13.62 $ 15.86 $ 16.43 $ 16.89
Ending Number of AUs.. 736,333 3,783,248 6,616,993 6,700,126
- -------------------------------------------------------------------------------------
Foreign Value (Inception
Date - 8/11/03)
Beginning AUV......... -- -- -- --
Ending AUV............ -- -- -- --
Ending Number of AUs.. -- -- -- --
- -------------------------------------------------------------------------------------
Global Bond (Inception
Date - 6/11/97)
Beginning AUV......... $ 12.41 $ 13.08 $ 14.40 $ 14.11
Ending AUV............ $ 13.08 $ 14.40 $ 14.11 $ 14.09
Ending Number of AUs.. 183,563 1,342,157 2,692,066 2,749,995
- -------------------------------------------------------------------------------------
Global Equities (Inception
Date - 6/3/97)
Beginning AUV......... $ 16.54 $ 16.90 $ 19.21 $ 24.20
Ending AUV............ $ 16.90 $ 19.21 $ 24.20 $ 26.57
Ending Number of AUs.. 600,294 2,566,912 4,915,631 5,366,080
- -------------------------------------------------------------------------------------
Goldman Sachs Research
(Inception Date - 7/5/00)
Beginning AUV......... -- -- -- --
Ending AUV............ -- -- -- --
Ending Number of AUs.. -- -- -- --
- -------------------------------------------------------------------------------------
Growth-Income (Inception
Date - 6/3/97)
Beginning AUV......... $ 18.84 $ 21.41 $ 25.71 $ 33.11
Ending AUV............ $ 21.41 $ 25.71 $ 33.11 $ 35.91
Ending Number of AUs.. 1,949,292 9,786,202 19,070,913 19,671,134
- -------------------------------------------------------------------------------------
AUV - Accumulation Unit Value
AU - Accumulation Units
(a) Without election of the optional
EstatePlus feature.
(b) With election of the optional
EstatePlus feature.
<Caption>
FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED ENDED
PORTFOLIOS 12/31/00 12/31/01 12/31/02 12/31/03
- ------------------------------ ---------------------------------------------------------------------
- ------------------------------ ---------------------------------------------------------------------
Corporate Bond (Inception
Date - 6/9/97)
Beginning AUV......... (a) $12.76 (a) $13.190 (a) $13.972 (a) $14.788
(b) $12.76 (b) $13.190 (b) $13.933 (b) $14.709
Ending AUV............ (a) $13.19 (a) $13.972 (a) $14.788 (a) $16.304
(b) $13.19 (b) $13.933 (b) $14.709 (b) $16.176
Ending Number of AUs.. (a) 7,598,504 (a) 10,226,795 (a) 9,793,558 (a) 9,505,442
(b) -- (b) 249,861 (b) 310,775 (b) 318,157
- -------------------------------------------------------------------------------------
Davis Venture Value
(Inception Date - 6/2/97)
Beginning AUV......... (a) $27.88 (a) $30.052 (a) $26.245 (a) $21.522
(b) $27.88 (b) $30.052 (b) $26.176 (b) $21.413
Ending AUV............ (a) $30.05 (a) $26.245 (a) $21.522 (a) $28.218
(b) $30.05 (b) $26.176 (b) $21.413 (b) $28.004
Ending Number of AUs.. (a) 42,436.151 (a) 45,588,640 (a) 38,952,303 (a) 35,349,926
(b) -- (b) 933,871 (b) 895,679 (b) 851,758
- -------------------------------------------------------------------------------------
"Dogs of Wall Street"
(Inception Date - 4/1/98)
Beginning AUV......... (a) $8.99 (a) $9.122 (a) $9.692 (a) $8.919
(b) $8.99 (b) $9.122 (b) $9.668 (b) $8.875
Ending AUV............ (a) $9.12 (a) $9.692 (a) $8.919 (a) $10.544
(b) $9.12 (b) $9.668 (b) $8.875 (b) $10.466
Ending Number of AUs.. (a) 7,474,726 (a) 8,422,179 (a) 8,137,931 (a) 6,751,376
(b) -- (b) 132,744 (b) 231,993 (b) 209,921
- -------------------------------------------------------------------------------------
Emerging Markets (Inception
Date - 6/5/97)
Beginning AUV......... (a) $10.77 (a) $6.755 (a) $6.539 (a) $5.980
(b) $10.77 (b) $6.755 (b) $6.523 (b) $5.952
Ending AUV............ (a) $6.75 (a) $6.539 (a) $5.980 (a) $8.988
(b) $6.75 (b) $6.523 (b) $5.952 (b) $8.924
Ending Number of AUs.. (a) 8,357,898 (a) 8,225,699 (a) 7,672,975 (a) 7,006,555
(b) -- (b) 84,736 (b) 111,240 (b) 134,595
- -------------------------------------------------------------------------------------
Federated American Leaders
(Inception Date - 6/4/97)
Beginning AUV......... (a) $16.89 (a) $17.029 (a) $16.381 (a) $12.944
(b) $16.89 (b) $17.029 (b) $16.335 (b) $12.875
Ending AUV............ (a) $17.03 (a) $16.381 (a) $12.944 (a) $16.264
(b) $17.03 (b) $16.335 (b) $12.875 (b) $16.138
Ending Number of AUs.. (a) 7,439,722 (a) 9,390,883 (a) 8,394,495 (a) 6,858,474
(b) -- (b) 148,736 (b) 161,493 (b) 152,325
- -------------------------------------------------------------------------------------
Foreign Value (Inception
Date - 8/11/03)
Beginning AUV......... -- -- -- (a) $10.429
-- -- -- (b) $10.394
Ending AUV............ -- -- -- (a) $12.463
-- -- -- (b) $12.410
Ending Number of AUs.. -- -- -- (a) 356,089
-- -- -- (b) 2,169
- -------------------------------------------------------------------------------------
Global Bond (Inception
Date - 6/11/97)
Beginning AUV......... (a) $14.09 (a) $15.158 (a) $15.678 (a) $16.361
(b) $14.09 (b) $15.158 (b) $15.639 (b) $16.279
Ending AUV............ (a) $15.16 (a) $15.678 (a) $16.361 (a) $16.687
(b) $15.16 (b) $15.639 (b) $16.279 (b) $16.562
Ending Number of AUs.. (a) 3,502,566 (a) 4,077,848 (a) 3,474,173 (a) 3,049,878
(b) -- (b) 139,008 (b) 122,154 (b) 113,246
- -------------------------------------------------------------------------------------
Global Equities (Inception
Date - 6/3/97)
Beginning AUV......... (a) $26.57 (a) $21.653 (a) $17.472 (a) $12.588
(b) $26.57 (b) $21.653 (b) $17.425 (b) $12.523
Ending AUV............ (a) $21.65 (a) $17.472 (a) $12.588 (a) $15.688
(b) $21.65 (b) $17.425 (b) $12.523 (b) $15.568
Ending Number of AUs.. (a) 9,807,829 (a) 10,081,336 (a) 7,631,561 (a) 6,384,144
(b) -- (b) 85,889 (b) 97,379 (b) 85,227
- -------------------------------------------------------------------------------------
Goldman Sachs Research
(Inception Date - 7/5/00)
Beginning AUV......... (a) $10.00 (a) $9.735 (a) $7.173 (a) $5.080
(b) $10.00 (b) $9.735 (b) $7.154 (b) $5.054
Ending AUV............ (a) $9.74 (a) $7.173 (a) $5.080 (a) $6.266
(b) $9.74 (b) $7.154 (b) $5.054 (b) $6.218
Ending Number of AUs.. (a) 2,906,979 (a) 3,150,473 (a) 3,781,616 (a) 2,751,886
(b) -- (b) 227,904 (b) 202,239 (b) 180,504
- -------------------------------------------------------------------------------------
Growth-Income (Inception
Date - 6/3/97)
Beginning AUV......... (a) $35.91 (a) $32.417 (a) $26.847 (a) $20.850
(b) $35.91 (b) $32.417 (b) $26.783 (b) $20.748
Ending AUV............ (a) $32.42 (a) $26.847 (a) $20.850 (a) $25.801
(b) $32.42 (b) $26.783 (b) $20.748 (b) $25.611
Ending Number of AUs.. (a) 25,858,191 (a) 26,032,596 (a) 20,340,353 (a) 16,846,784
(b) -- (b) 345,030 (b) 360,087 (b) 310,363
- -------------------------------------------------------------------------------------
</Table>
A-2
<Table>
<Caption>
FISCAL YEAR FISCAL YEAR
INCEPTION TO ENDED ENDED 11/30/99-
PORTFOLIOS 11/30/97 11/30/98 11/30/99 12/31/99
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Growth Opportunities
(Inception Date - 7/6/00)
Beginning AUV.......... -- -- -- --
Ending AUV............. -- -- -- --
Ending Number of AUs... -- -- -- --
- -------------------------------------------------------------------------------------
High-Yield Bond (Inception
Date - 6/9/97)
Beginning AUV......... $ 13.63 $ 14.66 $ 14.25 $ 14.71
Ending AUV............ $ 14.66 $ 14.25 $ 14.71 $ 14.87
Ending Number of AUs.. 758,856 5,006,115 7,918,425 8,096,738
- -------------------------------------------------------------------------------------
International Diversified
Equities (Inception
Date - 6/4/97)
Beginning AUV......... $ 12.04 $ 11.62 $ 13.53 $ 15.49
Ending AUV............ $ 11.62 $ 13.53 $ 15.49 $ 16.92
Ending Number of AUs.. 1,040,812 4,519,545 6,989,492 7,176,791
- -------------------------------------------------------------------------------------
International Growth and
Income (Inception Date -
6/4/97)
Beginning AUV......... $ 9.97 $ 10.33 $ 11.16 $ 13.40
Ending AUV............ $ 10.33 $ 11.16 $ 13.40 $ 14.07
Ending Number of AUs.. 1,310,126 6,738,263 11,676,801 12,288,580
- -------------------------------------------------------------------------------------
Marsico Growth (Inception
Date - 12/29/00)
Beginning AUV......... -- -- -- --
Ending AUV............ -- -- -- --
Ending Number of AUs.. -- -- -- --
- -------------------------------------------------------------------------------------
MFS Massachusetts Investors
Trust (Inception Date -
6/4/97)
Beginning AUV......... $ 15.82 $ 17.63 $ 20.46 $ 22.55
Ending AUV............ $ 17.63 $ 20.46 $ 22.55 $ 23.67
Ending Number of AUs.. 191,101 694,076 4,109,201 4,397,413
- -------------------------------------------------------------------------------------
MFS Mid-Cap Growth
(Inception Date - 4/5/99)
Beginning AUV......... -- -- -- $ 14.23
Ending AUV............ -- -- $ 14.23 $ 16.31
Ending Number of AUs.. -- -- 2,204,857 2,713,848
- -------------------------------------------------------------------------------------
MFS Total Return (Inception
Date - 6/10/97)
Beginning AUV......... $ 14.44 $ 15.45 $ 17.28 $ 18.50
Ending AUV............ $ 15.45 $ 17.28 $ 18.50 $ 18.60
Ending Number of AUs.. 218,391 1,492,175 4,740,884 5,054,346
- -------------------------------------------------------------------------------------
Putnam Growth: Voyager
(Inception Date - 6/3/97)
Beginning AUV......... $ 15.80 $ 18.47 $ 22.29 $ 28.36
Ending AUV............ $ 18.47 $ 22.29 $ 28.36 $ 31.67
Ending Number of AUs.. 831,178 4,949,624 11,111,497 11,459,476
- -------------------------------------------------------------------------------------
Real Estate (Inception
Date - 6/4/97)
Beginning AUV......... $ 9.98 $ 11.44 $ 9.80 $ 8.50
Ending AUV............ $ 11.44 $ 9.80 $ 8.50 $ 8.91
Ending Number of AUs.. 887,321 3,336,767 3,959,755 3,993,765
- -------------------------------------------------------------------------------------
AUV - Accumulation Unit Value
AU - Accumulation Units
(a) Without election of the optional
EstatePlus feature.
(b) With election of the optional
EstatePlus feature.
<Caption>
FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED ENDED
PORTFOLIOS 12/31/00 12/31/01 12/31/02 12/31/03
- ------------------------------ ---------------------------------------------------------------------
- ------------------------------ ---------------------------------------------------------------------
Growth Opportunities
(Inception Date - 7/6/00)
Beginning AUV.......... (a) $10.00 (a) $8.829 (a) $5.807 (a) $3.443
(b) $10.00 (b) $8.829 (b) $5.798 (b) $3.429
Ending AUV............. (a) $8.83 (a) $5.807 (a) $3.443 (a) $4.577
(b) $8.83 (b) $5.798 (b) $3.429 (b) $4.547
Ending Number of AUs... (a) 2,537,947 (a) 4,404,177 (a) 2,821,168 (a) 4,320,776
(b) -- (b) 150,318 (b) 185,337 (b) 173,217
- -------------------------------------------------------------------------------------
High-Yield Bond (Inception
Date - 6/9/97)
Beginning AUV......... (a) $14.87 (a) $13.278 (a) $12.511 (a) $11.607
(b) $14.87 (b) $13.278 (b) $12.489 (b) $11.564
Ending AUV............ (a) $13.28 (a) $12.511 (a) $11.607 (a) $15.041
(b) $13.28 (b) $12.489 (b) $11.564 (b) $14.947
Ending Number of AUs.. (a) 8,995,563 (a) 9,717,178 (a) 9,721,045 (a) 10,841,273
(b) -- (b) 211,929 (b) 277,747 (b) 222,143
- -------------------------------------------------------------------------------------
International Diversified
Equities (Inception
Date - 6/4/97)
Beginning AUV......... (a) $16.92 (a) $13.614 (a) $10.196 (a) $7.175
(b) $16.92 (b) $13.614 (b) $10.162 (b) $7.140
Ending AUV............ (a) $13.61 (a) $10.196 (a) $7.175 (a) $9.314
(b) $13.61 (b) $10.162 (b) $7.140 (b) $9.245
Ending Number of AUs.. (a) 9,563,404 (a) 9,259,404 (a) 8,373,221 (a) 8,452,013
(b) -- (b) 145,800 (b) 161,711 (b) 167,377
- -------------------------------------------------------------------------------------
International Growth and
Income (Inception Date -
6/4/97)
Beginning AUV......... (a) $14.07 (a) $14.023 (a) $10.743 (a) $8.367
(b) $14.07 (b) $14.023 (b) $10.713 (b) $8.322
Ending AUV............ (a) $14.02 (a) $10.743 (a) $8.367 (a) $11.283
(b) $14.02 (b) $10.713 (b) $8.322 (b) $11.195
Ending Number of AUs.. (a) 17,253,320 (a) 17,888,673 (a) 15,524,444 (a) 13,356,805
(b) -- (b) 344,784 (b) 345,080 (b) 303,267
- -------------------------------------------------------------------------------------
Marsico Growth (Inception
Date - 12/29/00)
Beginning AUV......... (a) $10.00 (a) $10.000 (a) $8.521 (a) $7.447
(b) $10.00 (b) $10.000 (b) $8.498 (b) $7.409
Ending AUV............ (a) $10.00 (a) $8.521 (a) $7.447 (a) $9.552
(b) $10.00 (b) $8.498 (b) $7.409 (b) $9.478
Ending Number of AUs.. (a) $46.00 (a) 1,236,562 (a) 5,737,494 (a) 7,350,664
(b) -- (b) 277,115 (b) 370,133 (b) 478,074
- -------------------------------------------------------------------------------------
MFS Massachusetts Investors
Trust (Inception Date -
6/4/97)
Beginning AUV......... (a) $23.67 (a) $23.224 (a) $19.203 (a) $14.944
(b) $23.67 (b) $23.224 (b) $19.159 (b) $14.872
Ending AUV............ (a) $23.22 (a) $19.203 (a) $14.944 (a) $18.028
(b) $23.22 (b) $19.159 (b) $14.872 (b) $17.897
Ending Number of AUs.. (a) 6,735,966 (a) 8,156,869 (a) 6,869,791 (a) 6,036,183
(b) -- (b) 255,263 (b) 243,337 (b) 236,783
- -------------------------------------------------------------------------------------
MFS Mid-Cap Growth
(Inception Date - 4/5/99)
Beginning AUV......... (a) $16.31 (a) $17.607 (a) $13.420 (a) $6.982
(b) $16.31 (b) $17.607 (b) $13.385 (b) $6.947
Ending AUV............ (a) $17.61 (a) $13.420 (a) $6.982 (a) $9.438
(b) $17.61 (b) $13.385 (b) $6.947 (b) $9.367
Ending Number of AUs.. (a) 13,667,663 (a) 16,760,748 (a) 12,529,321 (a) 13,189,307
(b) -- (b) 642,519 (b) 649,185 (b) 649,002
- -------------------------------------------------------------------------------------
MFS Total Return (Inception
Date - 6/10/97)
Beginning AUV......... (a) $18.60 (a) $21.433 (a) $21.225 (a) $19.891
(b) $18.60 (b) $21.433 (b) $21.183 (b) $19.802
Ending AUV............ (a) $21.43 (a) $21.225 (a) $19.891 (a) $22.894
(b) $21.43 (b) $21.183 (b) $19.802 (b) $22.735
Ending Number of AUs.. (a) 7,385,194 (a) 13,032,692 (a) 15,844,679 (a) 15,720,321
(b) -- (b) 673,743 (b) 789,355 (b) 848,211
- -------------------------------------------------------------------------------------
Putnam Growth: Voyager
(Inception Date - 6/3/97)
Beginning AUV......... (a) $31.67 (a) $25.556 (a) $19.097 (a) $13.832
(b) $31.67 (b) $25.556 (b) $19.049 (b) $13.764
Ending AUV............ (a) $25.56 (a) $19.097 (a) $13.832 (a) $16.896
(b) $25.56 (b) $19.049 (b) $13.764 (b) $16.770
Ending Number of AUs.. (a) 15,003,547 (a) 14,599,473 (a) 11,061,667 (a) 8,944,662
(b) -- (b) 133,955 (b) 137,282 (b) 120,024
- -------------------------------------------------------------------------------------
Real Estate (Inception
Date - 6/4/97)
Beginning AUV......... (a) $8.91 (a) $10.856 (a) $11.339 (a) $11.860
(b) $8.91 (b) $10.856 (b) $11.307 (b) $11.799
Ending AUV............ (a) $10.86 (a) $11.339 (a) $11.860 (a) $16.120
(b) $10.86 (b) $11.307 (b) $11.799 (b) $15.997
Ending Number of AUs.. (a) 4,778,388 (a) 5,036,997 (a) 5,553,559 (a) 5,407,606
(b) -- (b) 46,928 (b) 82,996 (b) 85,154
- -------------------------------------------------------------------------------------
</Table>
A-3
<Table>
<Caption>
FISCAL YEAR FISCAL YEAR
INCEPTION TO ENDED ENDED 11/30/99-
PORTFOLIOS 11/30/97 11/30/98 11/30/99 12/31/99
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Small & Mid Cap Value
(Inception Date - 8/11/03)
Beginning AUV.......... -- -- -- --
Ending AUV............. -- -- -- --
Ending Number of AUs... -- -- -- --
- -------------------------------------------------------------------------------------
SunAmerica Balanced
(Inception Date - 6/5/97)
Beginning AUV.......... $ 11.84 $ 13.22 $ 15.60 $ 18.23
Ending AUV............. $ 13.22 $ 15.60 $ 18.23 $ 19.69
Ending Number of AUs... 363,136 3,543,245 11,283,979 11,995,695
- -------------------------------------------------------------------------------------
Technology (Inception Date -
7/5/00)
Beginning AUV......... -- -- -- --
Ending AUV............ -- -- -- --
Ending Number of AUs.. -- -- -- --
- -------------------------------------------------------------------------------------
Telecom Utility (Inception
Date - 6/6/97)
Beginning AUV......... $ 11.41 $ 12.74 $ 14.56 $ 15.16
Ending AUV............ $ 12.74 $ 14.56 $ 15.16 $ 15.11
Ending Number of AUs.. 177,618 1,807,529 4,083,169 4,232,249
- -------------------------------------------------------------------------------------
Worldwide High Income
(Inception Date - 6/5/97)
Beginning AUV......... $ 15.57 $ 15.98 $ 13.57 $ 15.23
Ending AUV............ $ 15.98 $ 13.57 $ 15.23 $ 15.70
Ending Number of AUs.. 596,308 2,430,509 2,853,924 2,824,430
- -------------------------------------------------------------------------------------
American Funds Insurance
Series -- Asset Allocation
(Inception
Date: - 9/30/02)
Beginning AUV.......... -- -- -- --
Ending AUV............. -- -- -- --
Ending Number of AUs... -- -- -- --
- -------------------------------------------------------------------------------------
American Funds Insurance
Series -- Global Growth
(Inception Date: - 9/30/02)
Beginning AUV.......... -- -- -- --
Ending AUV............. -- -- -- --
Ending Number of AUs... -- -- -- --
- -------------------------------------------------------------------------------------
American Funds Insurance
Series -- Growth (Inception
Date: - 9/30/02)
Beginning AUV.......... -- -- -- --
Ending AUV............. -- -- -- --
Ending Number of AUs... -- -- -- --
- -------------------------------------------------------------------------------------
American Funds Insurance
Series -- Growth-Income
(Inception Date: - 9/30/02)
Beginning AUV.......... -- -- -- --
Ending AUV............. -- -- -- --
Ending Number of AUs... -- -- -- --
- -------------------------------------------------------------------------------------
AUV - Accumulation Unit Value
AU - Accumulation Units
(a) Without election of the optional
EstatePlus feature.
(b) With election of the optional
EstatePlus feature.
<Caption>
FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED ENDED
PORTFOLIOS 12/31/00 12/31/01 12/31/02 12/31/03
- ------------------------------ ---------------------------------------------------------------------
- ------------------------------ ---------------------------------------------------------------------
Small & Mid Cap Value
(Inception Date - 8/11/03)
Beginning AUV.......... -- -- -- (a) $11.330
-- -- -- (b) $11.288
Ending AUV............. -- -- -- (a) $13.588
-- -- -- (b) $13.525
Ending Number of AUs... -- -- -- (a) 192,827
-- -- -- (b) 2,048
- -------------------------------------------------------------------------------------
SunAmerica Balanced
(Inception Date - 6/5/97)
Beginning AUV.......... (a) $19.69 (a) $17.560 (a) $15.021 (a) $12.550
(b) $19.69 (b) $17.560 (b) $14.988 (b) $12.491
Ending AUV............. (a) $17.56 (a) $15.021 (a) $12.550 (a) $14.229
(b) $17.56 (b) $14.988 (b) $12.491 (b) $14.127
Ending Number of AUs... (a) 17,356,197 (a) 18,029,355 (a) 13,838,869 (a) 11,795,775
(b) -- (b) 169,447 (b) 176,634 (b) 167,155
- -------------------------------------------------------------------------------------
Technology (Inception Date -
7/5/00)
Beginning AUV......... (a) $10.00 (a) $6.692 (a) $3.452 (a) $1.722
(b) $10.00 (b) $6.692 (b) $3.444 (b) $1.714
Ending AUV............ (a) $6.69 (a) $3.452 (a) $1.722 (a) $2.557
(b) $6.69 (b) $3.444 (b) $1.714 (b) $2.538
Ending Number of AUs.. (a) 5,369,650 (a) 8,649,828 (a) 7,906,530 (a) 12,912,979
(b) -- (b) 547,923 (b) 508,690 (b) 542,405
- -------------------------------------------------------------------------------------
Telecom Utility (Inception
Date - 6/6/97)
Beginning AUV......... (a) $15.11 (a) $13.538 (a) $11.504 (a) $8.638
(b) $15.11 (b) $13.538 (b) $11.480 (b) $8.597
Ending AUV............ (a) $13.54 (a) $11.504 (a) $8.638 (a) $10.104
(b) $13.54 (b) $11.480 (b) $8.597 (b) $10.031
Ending Number of AUs.. (a) 4,961,979 (a) 4,657,143 (a) 3,982,390 (a) 3,082,570
(b) -- (b) 55,333 (b) 59,762 (b) 55,462
- -------------------------------------------------------------------------------------
Worldwide High Income
(Inception Date - 6/5/97)
Beginning AUV......... (a) $15.70 (a) $15.005 (a) $14.299 (a) $14.029
(b) $15.70 (b) $15.005 (b) $14.278 (b) $13.987
Ending AUV............ (a) $15.00 (a) $14.299 (a) $14.029 (a) $17.402
(b) $15.00 (b) $14.278 (b) $13.987 (b) $17.306
Ending Number of AUs.. (a) 2,942,189 (a) 2,783,883 (a) 2,384,608 (a) 2,417,245
(b) -- (b) 32,981 (b) 17,768 (b) 31,142
- -------------------------------------------------------------------------------------
American Funds Insurance
Series -- Asset Allocation
(Inception
Date: - 9/30/02)
Beginning AUV.......... -- -- (a) $10.000 (a) $10.359
(b) $10.000 (b) $10.353
Ending AUV............. -- -- (a) $10.359 (a) $12.423
(b) $10.353 (b) $12.384
Ending Number of AUs... -- -- (a) 1,031,949 (a) 4,873,672
(b) 54,240 (b) 210,925
- -------------------------------------------------------------------------------------
American Funds Insurance
Series -- Global Growth
(Inception Date: - 9/30/02)
Beginning AUV.......... -- -- (a) $10.000 (a) $10.949
(b) $10.000 (b) $10.936
Ending AUV............. -- -- (a) $10.949 (a) $14.590
(b) $10.936 (b) $14.537
Ending Number of AUs... -- -- (a) 352,490 (a) 2,143,699
(b) 6,497 (b) 79,226
- -------------------------------------------------------------------------------------
American Funds Insurance
Series -- Growth (Inception
Date: - 9/30/02)
Beginning AUV.......... -- -- (a) $10.000 (a) $10.884
(b) $10.000 (b) $10.876
Ending AUV............. -- -- (a) $10.884 (a) $14.667
(b) $10.876 (b) $14.621
Ending Number of AUs... -- -- (a) 876,471 (a) 6,528,755
(b) 13,564 (b) 207,087
- -------------------------------------------------------------------------------------
American Funds Insurance
Series -- Growth-Income
(Inception Date: - 9/30/02)
Beginning AUV.......... -- -- (a) $10.000 (a) $10.884
(b) $10.000 (b) $10.872
Ending AUV............. -- -- (a) $10.884 (a) $14.197
(b) $10.872 (b) $14.148
Ending Number of AUs... -- -- (a) 1,553,328 (a) 8,278,965
(b) 36,692 (b) 358,531
- -------------------------------------------------------------------------------------
</Table>
A-4
<Table>
<Caption>
FISCAL YEAR FISCAL YEAR
INCEPTION TO ENDED ENDED 11/30/99-
PORTFOLIOS 11/30/97 11/30/98 11/30/99 12/31/99
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Lord Abbett Series Fund,
Inc. -
Growth and Income*
(Inception Date - 5/1/02)
Beginning AUV.......... -- -- -- --
Ending AUV............. -- -- -- --
Ending Number of AUs... -- -- -- --
- -------------------------------------------------------------------------------------
Lord Abbett Series Fund,
Inc. -
Mid-Cap Value (Inception
Date - 5/1/02)
Beginning AUV......... -- -- -- --
Ending AUV............ -- -- -- --
Ending Number of AUs.. -- -- -- --
- -------------------------------------------------------------------------------------
Van Kampen LIT Comstock,
Class II Shares (Inception
Date - 10/15/01)
Beginning AUV......... -- -- -- --
Ending AUV............ -- -- -- --
Ending Number of AUs.. -- -- -- --
- -------------------------------------------------------------------------------------
Van Kampen LIT Emerging
Growth, Class II Shares
(Inception
Date - 10/15/01)
Beginning AUV......... -- -- -- --
Ending AUV............ -- -- -- --
Ending Number of AUs.. -- -- -- --
- -------------------------------------------------------------------------------------
Van Kampen LIT Growth and
Income, Class II Shares
(Inception
Date - 10/15/01)
Beginning AUV......... -- -- -- --
Ending AUV............ -- -- -- --
Ending Number of AUs.. -- -- -- --
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
AUV - Accumulation Unit Value
AU - Accumulation Units
(a) Without election of the optional
EstatePlus feature.
(b) With election of the optional
EstatePlus feature.
<Caption>
FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED ENDED
PORTFOLIOS 12/31/00 12/31/01 12/31/02 12/31/03
- ------------------------------ ---------------------------------------------------------------------
- ------------------------------ ---------------------------------------------------------------------
Lord Abbett Series Fund,
Inc. -
Growth and Income*
(Inception Date - 5/1/02)
Beginning AUV.......... -- -- (a) $10.000 (a) $8.180
(b) $10.000 (b) $8.159
Ending AUV............. -- -- (a) $8.180 (a) $10.556
(b) $8.159 (b) $10.503
Ending Number of AUs... -- -- (a) 2,080,159 (a) 4,373,549
(b) 41,556 (b) 249,363
- -------------------------------------------------------------------------------------
Lord Abbett Series Fund,
Inc. -
Mid-Cap Value (Inception
Date - 5/1/02)
Beginning AUV......... -- -- (a) $10.000 (a) $8.524
(b) $10.000 (b) $8.509
Ending AUV............ -- -- (a) $8.524 (a) $10.475
(b) $8.509 (b) $10.430
Ending Number of AUs.. -- -- (a) 1,675,350 (a) 3,582,951
(b) 47,182 (b) 172,132
- -------------------------------------------------------------------------------------
Van Kampen LIT Comstock,
Class II Shares (Inception
Date - 10/15/01)
Beginning AUV......... -- (a) $10.000 (a) $10.214 (a) $8.098
(b) $10.000 (b) $10.216 (b) $8.081
Ending AUV............ -- (a) $10.214 (a) $8.098 (a) $10.431
(b) $10.216 (b) $8.081 (b) $10.382
Ending Number of AUs.. -- (a) 664,336 (a) 5,538,887 (a) 8,080,079
(b) 10,966 (b) 162,364 (b) 482,806
- -------------------------------------------------------------------------------------
Van Kampen LIT Emerging
Growth, Class II Shares
(Inception
Date - 10/15/01)
Beginning AUV......... -- (a) $10.000 (a) $10.377 (a) $6.883
(b) $10.000 (b) $10.334 (b) $6.837
Ending AUV............ -- (a) $10.377 (a) $6.883 (a) $8.612
(b) $10.334 (b) $6.837 (b) $8.533
Ending Number of AUs.. -- (a) 125,556 (a) 714,688 (a) 1,129,170
(b) 1,065 (b) 43,328 (b) 75,718
- -------------------------------------------------------------------------------------
Van Kampen LIT Growth and
Income, Class II Shares
(Inception
Date - 10/15/01)
Beginning AUV......... -- (a) $10.000 (a) $10.556 (a) $8.857
(b) $10.000 (b) $10.549 (b) $8.833
Ending AUV............ -- (a) $10.556 (a) $8.857 (a) $11.139
(b) $10.549 (b) $8.833 (b) $11.081
Ending Number of AUs.. -- (a) 242,732 (a) 4,541,821 (a) 5,593,346
(b) 6,733 (b) 107,418 (b) 209,230
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</Table>
A-5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX B - MARKET VALUE ADJUSTMENT ("MVA")
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The information in this Appendix applies only if you take money out of a FAGP
with duration longer than 1-year before the end of the guarantee period.
We calculate the MVA by doing a comparison between current rates and the rate
being credited to you in the FAGP. For the current rate we use a rate being
offered by us for a guarantee period that is equal to the time remaining in the
FAGP from which you seek withdrawal (rounded up to a full number of years). If
we are not currently offering a guarantee period for that period of time, we
determine an applicable rate by using a formula to arrive at a number based on
the interest rates currently offered for the two closest periods available.
Where the MVA is negative, we first deduct the adjustment from any money
remaining in the FAGP. If there is not enough money in the FAGP to meet the
negative deduction, we deduct the remainder from your withdrawal. Where the MVA
is positive, we add the adjustment to your withdrawal amount. If a withdrawal
charge applies, it is deducted before the MVA calculation. The MVA is assessed
on the amount withdrawn less any withdrawal charges.
The MVA is computed by multiplying the amount withdrawn, transferred or taken
under an income option by the following factor:
[1+I/(1+J+L)] (N/12) - 1
where:
I is the interest rate you are earning on the money invested in the FAGP;
J is the interest rate then currently available for the period of time
equal to the number of years remaining in the term you initially agreed to
leave your money in the FAGP; and
N is the number of full months remaining in the term you initially agreed
to leave your money in the FAGP.
L is 0.005 (some states require a different value, see your Contract)
We do not assess a MVA against withdrawals from a FAGP under the following
circumstances:
- If a withdrawal is made within 30 days after the end of a guarantee
period;
- If a withdrawal is made to pay contract fees and charges;
- To pay a death benefit; and
- Upon beginning an income option, if occurring on the Latest Annuity Date.
EXAMPLES OF THE MVA
The purpose of the examples below is to show how the MVA adjustments are
calculated and may not reflect the Guarantee periods available or Surrender
Charges applicable under your contract.
The examples below assume the following:
(1) You made an initial Purchase Payment of $10,000 and allocated it to a
FAGP at a rate of 5%;
(2) You make a partial withdrawal of $4,000 when 1 1/2 years (18 months)
remain in the term you initially agreed to leave your money in the FAGP
(N=18); and
(3) You have not made any other transfers, additional Purchase Payments, or
withdrawals.
(4) You contract was issued in a state where L = 0.005.
POSITIVE ADJUSTMENT, NO WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 3.5% and the 3-year FAGP is 4.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 4%. No
withdrawal charge is reflected in this example, assuming that the Purchase
Payment withdrawn falls within the free look amount.
The MVA factor is = [(1+I/(1+J+0.005)](N/12) - 1
= [(1.05)/(1.04+0.005)](18/12) - 1
= (1.004785) (1.5) - 1
= 1.007186 - 1
= + 0.007186
B-1
The requested withdrawal amount is multiplied by the MVA factor to determine the
MVA:
$4,000 X (+0.007186) = +$28.74
$28.74 represents the positive MVA that would be added to the withdrawal.
NEGATIVE ADJUSTMENT, NO WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 5.5% and the 3-year FAGP is 6.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 6%. No
withdrawal charge is reflected in this example, assuming that the Purchase
Payment withdrawn falls with the free withdrawal amount.
The MVA factor is = [(1+I)/(1+J+0.005)](N/12) - 1
= [(1.05)/(1.06+0.005)](18/12) - 1
= (0.985915)(1.5) - 1
= 0.978948 - 1
= - 0.021052
The requested withdrawal amount is multiplied by the MVA factor to determine the
MVA:
$4,000 X (- 0.021052) = - $84.21
$84.21 represents the negative MVA that will be deducted from the money
remaining in the 3-year FAGP.
POSITIVE ADJUSTMENT, WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 3.5% and the 3-year FAGP is 4.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 4%. A
withdrawal charge of 6% is reflected in this example, assuming that the Purchase
Payment withdrawn exceeds the free withdrawal amount.
The MVA factor is = [(1+I)/(I+J+0.005)](N/12) - 1
= [(1.05)/(1.04+0.005)](18/12) - 1
= (1.004785)(1.5) - 1
= 1.007186 - 1
= +0.007186
The requested withdrawal amount, less the withdrawal charge ($4,000 - 6% =
$3,760) is multiplied by the MVA factor to determine the MVA:
$3,760 X (+0.007186) = +$27.02
$27.02 represents the positive MVA that would be added to the withdrawal.
NEGATIVE ADJUSTMENT, WITHDRAWAL CHARGE APPLIES
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year FAGP is 5.5% and the 3-year FAGP is 6.5%. By
linear interpolation, the interest rate for the remaining 2 years (1 1/2 years
rounded up to the next full year) in the contract is calculated to be 6%. A
withdrawal charge of 6% is reflected in this example, assuming that the Purchase
Payment withdrawn exceeds the free withdrawal amount.
The MVA factor is = [(1+I)/(I+J+0.005)](N/12) - 1
= [(1.05)/(1.06+0.005)](18/12) - 1
= (0.985915)(1.5) - 1
= 0.978948 - 1
= - 0.021052
The requested withdrawal amount, less the withdrawal charge ($4,000 - 6% =
$3,760) is multiplied by the MVA factor to determine the MVA:
$3,760 X (- 0.021052) = - $79.16
$79.16 represents the negative MVA that would be deducted from the withdrawal.
B-2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX C - DEATH BENEFITS FOLLOWING SPOUSAL CONTINUATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Capitalized terms used in this Appendix have the same meaning as they have in
prospectus.
The term "Continuation Net Purchase Payment" is used frequently to describe the
death benefit options payable to the beneficiary of the Continuing Spouse. We
define Continuation Net Purchase Payment as Net Purchase Payments made as of the
Continuation Date. For the purpose of calculating Continuation Net Purchase
Payments, the amount that equals the contract value on the Continuation Date,
including the Continuation Contribution is considered a Purchase Payment. If the
Continuing Spouse makes no additional Purchase Payments or withdrawal,
Continuation Net Purchase Payments equals the contract value on the Continuation
Date, including the Continuation Contribution.
The term "withdrawals" as used in describing the death benefit options below is
defined as withdrawals and any fees and charges applicable to those withdrawals.
The following details the death benefit options and EstatePlus benefit upon the
Continuing Spouse's death:
The death benefit we will pay to the new Beneficiary chosen by the Continuing
Spouse varies depending on the death benefit option elected by the original
owner of the contract and the age of the Continuing Spouse as of the
Continuation Date.
A. DEATH BENEFIT PAYABLE UPON CONTINUING SPOUSE'S DEATH:
1. Purchase Payment Accumulation Option
If the original owner of the contract elected Option 1, Purchase
Payment Accumulation Option, and the Continuing Spouse is age 74 or younger
on the Continuation Date, then upon the death of the Continuing Spouse, the
death benefit will be the greatest of:
a. Contract value; or
b. Contract value on the Continuation Date plus Continuation Net
Purchase Payments, compounded at 3% annual growth rate, to the
earlier of the Continuing Spouse's 75th birthday or date of death;
reduced for any withdrawals and increased by any Continuation Net
Purchase Payments received after the Continuing Spouse's 75th
birthday to the earlier of the Continuing Spouse's 86th birthday or
date of death; or
c. Contract value on the seventh contract anniversary (from the issue
date of the original owner), reduced for withdrawals since the
seventh contract anniversary in the same proportion that the
contract value was reduced on the date of such withdrawal, plus any
Net Purchase Payments received between the seventh contract
anniversary date but prior to the Continuing Spouse's 86th
birthday.
If the Continuing Spouse is age 75-82 on the Continuation Date, then
the death benefit will be the greatest of:
a. Contract value; or
b. Contract value on the Continuation Date plus any Continuation Net
Purchase Payments received prior to the Continuing Spouse's 86th
birthday; or
c. Maximum anniversary value on any contract anniversary that occurred
after the Continuation Date, but prior to the Continuing Spouse's
83rd birthday. The anniversary value for any year is equal to the
contract value on the applicable contract anniversary date, plus
any Purchase Payments received since that anniversary date but
prior to the Continuing Spouse's 86th birthday, and reduced for any
withdrawals since that contract anniversary in the same proportion
that the withdrawal reduced the contract value on the date of
withdrawal.
If the Continuing Spouse is age 83-85 on the Continuation Date, then
the death benefit will be the greatest of:
a. Contract value; or
b. the lesser of:
(1) Contract value on the Continuation Date plus Continuation Net
Purchase Payments received prior to the Continuing Spouse's
86th birthday; or
(2) 125% of the contract value.
If the Continuing Spouse is age 86 or older as of the Continuation
Date and the original owner of the contract elected the Purchase Payment
Accumulation death benefit, the death benefit will be equal to the contract
value.
2. Maximum Anniversary Value Option
If the original owner of the contract elected Option 2, Maximum
Anniversary Option, and the Continuing Spouse is age 82 or younger on the
Continuation Date, then upon the death of the Continuing Spouse, the death
benefit will be the greatest of:
a. Contract value; or
b. Contract value on the Continuation Date plus Continuation Net
Purchase Payments received prior to the Continuing Spouse's 86th
birthday; or
C-1
c. Maximum anniversary value on any contract anniversary that occurred
after the Continuation Date, but prior to the Continuing Spouse's
83rd birthday. The anniversary value for any year is equal to the
contract value on the applicable contract anniversary date after
the Continuation Date, plus any Purchase Payments received since
that anniversary date but prior to the Continuing Spouse's 86th
birthday, and reduced for any withdrawals since that contract
anniversary in the same proportion that the withdrawal reduced the
contract value on the date of withdrawal.
If the Continuing Spouse is age 83-85 on the Continuation Date, then
the death benefit will be the greater of:
a. Contract value; or
b. the lesser of:
(3) Contract value on the Continuation Date plus any Continuation
Net Purchase Payments received prior to the Continuing Spouse's
86th birthday; or
(4) 125% of the contract value.
If the Continuing Spouse is age 86 or older at the time of death,
under the Maximum Anniversary death benefit, their Beneficiary will receive
only the contract value.
Please see the Statement of Additional Information for a description of the
death benefit calculations following a Spousal Continuation for contracts issued
on or before May 31, 2004.
B. THE ESTATEPLUS BENEFIT PAYABLE UPON CONTINUING SPOUSE'S DEATH:
The EstatePlus benefit may increase the death benefit amount. The EstatePlus
benefit is only available if the original owner elected EstatePlus and it has
not been terminated. If the Continuing Spouse had earnings in the contract at
the time of his/her death, we will add a percentage of those earnings (the
"EstatePlus Percentage"), subject to a maximum dollar amount (the "Maximum
EstatePlus Percentage"), to the death benefit payable, based on the number of
years the Continuing Spouse has held the contract since the Continuation Date.
The EstatePlus benefit, if any, is added to the death benefit payable under the
Purchase Payment Accumulation or the Maximum Anniversary option.
The term "Continuation Net Purchase Payment" is used frequently to describe the
EstatePlus benefit payable to the beneficiary of the Continuing Spouse. We
define Continuation Net Purchase Payment as Net Purchase Payments made as of the
Continuation Date. For the purpose of calculating Continuation Net Purchase
Payments, the amount that equals the contract value on the Continuation Date,
including the Continuation Contribution is considered a Purchase Payment. If the
Continuing Spouse makes no additional Purchase Payments or withdrawal,
Continuation Net Purchase Payments equals the contract value on the Continuation
Date, including the Continuation Contribution.
The following table provides the details, if the Continuing Spouse is age 69 or
younger on the Continuation Date:
<Table>
<Caption>
- -------------------------------------------------------------
CONTRACT YEAR ESTATEPLUS MAXIMUM
OF DEATH PERCENTAGE ESTATEPLUS PERCENTAGE
- -------------------------------------------------------------
Years 0-4 25% of earnings 40% of Continuation
Net Purchase Payments
- -------------------------------------------------------------
Years 5-9 40% of earnings 65% of Continuation
Net Purchase
Payments*
- -------------------------------------------------------------
Years 10+ 50% of earnings 75% of Continuation
Net Purchase
Payments*
- -------------------------------------------------------------
</Table>
If the Continuing Spouse is between their 70th and 81st birthdays on the
Continuation Date, the table below shows the available EstatePlus benefit:
<Table>
<Caption>
- -------------------------------------------------------------
CONTRACT YEAR ESTATEPLUS MAXIMUM
OF DEATH PERCENTAGE ESTATEPLUS PERCENTAGE
- -------------------------------------------------------------
All Contract 25% of earnings 40% of Continuation
Years Net Purchase
Payments*
- -------------------------------------------------------------
</Table>
* Purchase Payments received after the 5(th) year following the Continuation
Date must remain in the contract for at least six months to be included as
part of Continuation Net Purchase Payments for purpose of the Maximum
EstatePlus 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 EstatePlus amount?
We determine the EstatePlus amount based upon a percentage of earnings in the
contract at the time of the Continuing Spouse's death. For the purpose of this
calculation, earnings are defined as (1) minus (2) where
(1) equals the contract value on the Continuing Spouse's date of
death;
(2) equals the Continuation Net Purchase Payment(s).
C-2
What is the Maximum EstatePlus amount?
The EstatePlus benefit is subject to a maximum dollar amount. The Maximum
EstatePlus amount is a percentage of the Continuation Net Purchase Payments.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE SPOUSAL CONTINUATION
PROVISION (IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME FOR PROSPECTIVELY
ISSUED CONTRACTS.
C-3
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APPENDIX D - HYPOTHETICAL EXAMPLE OF THE OPERATION OF THE INCOME PROTECTOR
FEATURE
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This table assumes $100,000 initial investment in a Non-qualified contract with
no withdrawals, additional Purchase Payments or premium taxes.
<Table>
<Caption>
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Minimum annual income if you elect to receive income payments
If at issue on contract anniversary . . .
you are . . . 7 10 15 20
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Male 6,108 6,672 7,716 8,832
age 60*
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Female 5,388 5,880 6,900 8,112
age 60*
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Joint** 4,716 5,028 5,544 5,928
Male-60
Female-60
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</Table>
* Life annuity with 10 years guaranteed
** Joint and survivor life annuity with 20 years guaranteed
D-1
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Please forward a copy (without charge) of the Polaris(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
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