0000950123-11-008916.txt : 20110727
0000950123-11-008916.hdr.sgml : 20110727
20110203212055
ACCESSION NUMBER: 0000950123-11-008916
CONFORMED SUBMISSION TYPE: N-4
PUBLIC DOCUMENT COUNT: 3
FILED AS OF DATE: 20110204
DATE AS OF CHANGE: 20110502
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: VARIABLE ANNUITY ACCOUNT SEVEN
CENTRAL INDEX KEY: 0001070231
IRS NUMBER: 860198983
STATE OF INCORPORATION: AZ
FISCAL YEAR END: 0430
FILING VALUES:
FORM TYPE: N-4
SEC ACT: 1933 Act
SEC FILE NUMBER: 333-172054
FILM NUMBER: 11572313
BUSINESS ADDRESS:
STREET 1: 1 SUNAMERICA CENTER
CITY: LOS ANGELES
STATE: CA
ZIP: 90067-6022
BUSINESS PHONE: 3107726000
MAIL ADDRESS:
STREET 1: 1 SUNAMERICA CENTER
CITY: LOS ANGELES
STATE: CA
ZIP: 90067-6022
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: VARIABLE ANNUITY ACCOUNT SEVEN
CENTRAL INDEX KEY: 0001070231
IRS NUMBER: 860198983
STATE OF INCORPORATION: AZ
FISCAL YEAR END: 0430
FILING VALUES:
FORM TYPE: N-4
SEC ACT: 1940 Act
SEC FILE NUMBER: 811-09003
FILM NUMBER: 11572314
BUSINESS ADDRESS:
STREET 1: 1 SUNAMERICA CENTER
CITY: LOS ANGELES
STATE: CA
ZIP: 90067-6022
BUSINESS PHONE: 3107726000
MAIL ADDRESS:
STREET 1: 1 SUNAMERICA CENTER
CITY: LOS ANGELES
STATE: CA
ZIP: 90067-6022
0001070231
S000010607
VARIABLE ANNUITY ACCOUNT SEVEN
C000099479
Polaris [TBD] VA
N-4
1
w58218ornv4.txt
FORM N-4
AS FILED WITH SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 3, 2011.
FILE NOS.
811-09003
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM N-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. [ ]
(Check Appropriate Box or Boxes)
------------
VARIABLE ANNUITY ACCOUNT SEVEN
(Exact Name of Registrant)
SUNAMERICA ANNUITY AND LIFE ASSURANCE COMPANY
(Name of Depositor)
1 SUNAMERICA CENTER
LOS ANGELES, CALIFORNIA 90067-6022
(Address of Depositor's Principal Offices) (Zip Code)
Depositor's Telephone Number, including Area Code: (800) 871-2000
MALLARY L. REZNIK, ESQ.
SUNAMERICA ANNUITY AND LIFE ASSURANCE COMPANY
1 SUNAMERICA CENTER
LOS ANGELES, CALIFORNIA 90067-6022
(Name and Address of Agent for Service for Depositor and Registrant)
Approximate Date of Proposed Public Offering: As soon after the effective date
of this registration statement as is practicable.
Title of Securities Being Registered: Units of interest in Variable Annuity
Account Seven of SunAmerica Annuity and Life Assurance Company under variable
annuity contracts.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
shall determine.
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VARIABLE ANNUITY ACCOUNT SEVEN
CROSS REFERENCE SHEET
PART A -- PROSPECTUS
ITEM NUMBER
IN FORM N-4 CAPTION
----------- -------
1. Cover Page.............................. Cover Page
2. Definitions............................. Glossary
3. Synopsis................................ Highlights; Fee Tables; Portfolio
Expenses; Examples
4. Condensed Financial Information......... Appendix - Condensed Financial
Information
5. General Description of Registrant,
Depositor and Portfolio Companies....... The Polaris [TBD] Variable Annuity;
Other Information
6. Deductions.............................. Expenses
7. General Description of Variable Annuity
Contracts............................... The Polaris [TBD] Variable Annuity;
Purchasing a Polaris [TBD] Variable
Annuity; Investment Options
8. Annuity Period.......................... Annuity Income Options
9. Death Benefit........................... Death Benefits
10. Purchases and Contract Value............ Purchasing a Variable Annuity
Contract
11. Redemptions............................. Access To Your Money
12. Taxes................................... Taxes
13. Legal Proceedings....................... Legal Proceedings
14. Table of Contents of Statement of
Additional Information.................. Table of Contents of Statement of
Additional Information
PART B -- STATEMENT OF ADDITIONAL INFORMATION
Certain information required in Part B of the Registration Statement has been
included within the Prospectus forming part of this Registration Statement; the
following cross-references suffixed with a "P" are made by reference to the
captions in the Prospectus.
ITEM NUMBER
IN FORM N-4 CAPTION
----------- -------
15. Cover Page.............................. Cover Page
16. Table of Contents....................... Table of Contents
17. General Information and History......... The Polaris [TBD] Variable Annuity
(P);
Separate Account; General Account
(P);
Investment Options (P);
Other Information (P)
18. Services................................ Other Information (P)
19. Purchase of Securities Being Offered.... Purchasing a Polaris [TBD] Variable
Annuity (P)
20. Underwriters............................ Distribution of Contracts
21. Calculation of Performance Data......... Performance Data
22. Annuity Payments........................ Annuity Income Options (P);
Income Payments; Annuity Unit Values
23. Financial Statements.................... Depositor: Other Information (P);
Financial Statements; Registrant:
Financial Statements
PART C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of this Registration Statement.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
[POLARIS(II) TBD]
PROSPECTUS
MAY 2, 2011
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
issued by Depositor
SUNAMERICA ANNUITY AND LIFE ASSURANCE COMPANY
in all states except in New York where it is issued by
FIRST SUNAMERICA LIFE INSURANCE COMPANY
in connection with
VARIABLE ANNUITY ACCOUNT SEVEN
and
FS VARIABLE SEPARATE ACCOUNT
This variable annuity has several investment choices - Variable Portfolios
(which are subaccounts of the separate account) and available Fixed Account
options. Each Variable Portfolio invests exclusively in shares of one of the
Underlying Funds listed below. The Underlying Funds are part of AIM Variable
Insurance Funds (Invesco Variable Insurance Funds), American Funds Insurance
Series, Anchor Series Trust, Franklin Templeton Variable Insurance Products
Trust, Lord Abbett Series Fund, Inc., Seasons Series Trust and SunAmerica Series
Trust.
UNDERLYING FUNDS: MANAGED BY:
Aggressive Growth Wells Capital Management Incorporated
Alliance Growth AllianceBernstein L.P.
American Funds Asset Capital Research and Management Company
Allocation(1)
American Funds Global Capital Research and Management Company
Growth(1)
American Funds Growth- Capital Research and Management Company
Income(1)
American Funds Growth(1) Capital Research and Management Company
Asset Allocation Edge Asset Management, Inc.
Balanced J.P. Morgan Investment Management Inc.
Blue Chip Growth SunAmerica Asset Management Corp.
Capital Appreciation Wellington Management Company, LLP
Capital Growth OppenheimerFunds, Inc.
Cash Management BofA Advisors, LLC
Corporate Bond Federated Investment Management Company
Davis Venture Value Davis Selected Advisers, L.P.
"Dogs" of Wall Street(2) SunAmerica Asset Management Corp.
Emerging Markets Putnam Investment Management, LLC
Equity Opportunities OppenheimerFunds, Inc.
Foreign Value Templeton Investment Counsel, LLC
Franklin Income Securities Franklin Advisers, Inc.
Fund
Franklin Templeton VIP Franklin Templeton Services, LLC(3)
Founding Funds Allocation
Fund
Fundamental Growth Wells Capital Management Incorporated
Global Bond Goldman Sachs Asset Management International
Global Equities J.P. Morgan Investment Management Inc.
Government and Quality Bond Wellington Management Company, LLP
Growth Wellington Management Company, LLP
Growth-Income J.P. Morgan Investment Management Inc.
Growth Opportunities Invesco Advisers, Inc.
High-Yield Bond PineBridge Investments LLC
International Diversified Morgan Stanley Investment Management Inc.
Equities
International Growth and Putnam Investment Management, LLC
Income
Invesco Van Kampen V.I. Invesco Advisers, Inc.
Capital Growth Fund, Series
II Shares
Invesco Van Kampen V.I. Invesco Advisers, Inc.
Comstock Fund, Series II
Shares
Invesco Van Kampen V.I. Growth Invesco Advisers, Inc.
and Income Fund, Series II
Shares
Lord Abbett Growth and Income Lord, Abbett & Co. LLC
Lord Abbett Mid Cap Value Lord, Abbett & Co. LLC
Marsico Focused Growth Marsico Capital Management, LLC
MFS Massachusetts Investors Massachusetts Financial Services Company
Trust(2)
MFS Total Return Massachusetts Financial Services Company
Mid-Cap Growth J.P. Morgan Investment Management Inc.
Natural Resources Wellington Management Company, LLP
Real Estate Davis Selected Advisers, L.P.
Real Return Wellington Management Company, LLP
Small & Mid Cap Value AllianceBernstein L.P.
Small Company Value Franklin Advisory Services, LLC
Technology Columbia Management Investment Advisers,
LLC(3)
Telecom Utility Massachusetts Financial Services Company
Total Return Bond Pacific Investment Management Company LLC
(1) Separate Investment of American Funds Insurance Series.
(2) "Dogs" of Wall Street is an equity fund seeking total return including
capital appreciation and current income. MFS Massachusetts Investors Trust
is an equity fund seeking reasonable current income and long-term growth of
capital and income.
(3) Franklin Templeton Services, LLC is the administrator of this fund of funds.
Franklin Templeton Services, LLC may receive assistance from Franklin
Advisers, Inc. in monitoring the underlying funds and the VIP Founding
Fund's investment in the underlying funds.
Please read this prospectus carefully before investing and keep it for future
reference. It contains important information about the variable annuity.
To learn more about the annuity offered in this prospectus, you can obtain a
copy of the Statement of Additional Information ("SAI") dated May 2, 2011. The
SAI has been filed with the United States Securities and Exchange Commission
("SEC") and is incorporated by reference into this prospectus. The Table of
Contents of the SAI appears at the end of this prospectus. For a free copy of
the SAI, call us at (800) 445-7862 or write to us at our Annuity Service Center,
P.O. Box 54299, Los Angeles, California 90054-0299.
In addition, the SEC maintains a website (http://www.sec.gov) that contains the
SAI, materials incorporated by reference and other information filed
electronically with the SEC by the Company.
ANNUITIES INVOLVE RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL, AND ARE NOT A
DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THEY ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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GLOSSARY................................................................... 3
HIGHLIGHTS................................................................. 4
FEE TABLE.................................................................. 5
Maximum Owner Transaction Expenses.................................. 5
Maximum Premium Based Charge........................................ 5
Maximum Withdrawal Charges.......................................... 5
Contract Maintenance Fee............................................ 5
Separate Account Annual Expenses.................................... 5
Additional Optional Feature Fee..................................... 5
Optional [to be filed by amendment] Living Benefit Fee............ 5
Underlying Fund Expenses............................................ 5
MAXIMUM AND MINIMUM EXPENSE EXAMPLES....................................... 7
THE POLARIS [TBD] VARIABLE ANNUITY......................................... 8
PURCHASING A POLARIS [TBD] VARIABLE ANNUITY................................ 8
Allocation of Purchase Payments..................................... 9
Accumulation Units.................................................. 10
Free Look........................................................... 10
Exchange Offers..................................................... 11
Important Information for Military Servicemembers................... 11
INVESTMENT OPTIONS......................................................... 11
Variable Portfolios................................................. 11
AIM Variable Insurance Funds
(Invesco Variable Insurance Funds)..................... 11
American Funds Insurance Series................................... 12
Anchor Series Trust............................................... 12
Franklin Templeton Variable Insurance Products Trust.............. 12
Lord Abbett Series Fund, Inc...................................... 12
Seasons Series Trust.............................................. 12
SunAmerica Series Trust........................................... 12
Substitution, Addition or Deletion of Variable Portfolios........... 14
Fixed Accounts...................................................... 14
Dollar Cost Averaging Fixed Accounts................................ 14
Dollar Cost Averaging Program....................................... 15
Polaris Portfolio Allocator Program................................. 15
Transfers During the Accumulation Phase............................. 17
Automatic Asset Rebalancing Program................................. 20
Voting Rights....................................................... 20
ACCESS TO YOUR MONEY....................................................... 20
Free Withdrawal Amount.............................................. 20
Systematic Withdrawal Program....................................... 21
Nursing Home Waiver................................................. 22
Minimum Contract Value.............................................. 22
Qualified Contract Owners........................................... 22
OPTIONAL LIVING BENEFITS................................................... 22
[to be filed by amendment] Living Benefit........................... 24
DEATH BENEFITS............................................................. 32
Extended Legacy Program............................................. 33
Standard Death Benefit.............................................. 34
Optional Maximum Anniversary Value Death Benefit.................... 34
Spousal Continuation................................................ 35
EXPENSES................................................................... 35
Separate Account Expenses........................................... 35
Premium Based Charge................................................ 35
Withdrawal Charge................................................... 36
Underlying Fund Expenses............................................ 37
Contract Maintenance Fee............................................ 37
Transfer Fee........................................................ 37
Optional [to be filed by amendment] Living Benefit Fee.............. 38
Optional Maximum Anniversary Value Death Benefit Fee................ 38
Premium Tax......................................................... 38
Income Taxes........................................................ 38
Reduction or Elimination of Fees, Expenses
and Additional Amounts Credited............................. 38
PAYMENTS IN CONNECTION WITH DISTRIBUTION OF THE CONTRACT................... 38
ANNUITY INCOME OPTIONS..................................................... 40
Annuity Date........................................................ 40
Annuity Income Options.............................................. 40
Fixed or Variable Annuity Income Payments........................... 41
Annuity Income Payments............................................. 41
Transfers During the Income Phase................................... 41
Deferment of Payments............................................... 41
TAXES...................................................................... 41
Annuity Contracts in General........................................ 42
Tax Treatment of Distributions - Non-Qualified Contracts............ 42
Tax Treatment of Distributions - Qualified Contracts................ 43
Required Minimum Distributions...................................... 44
Tax Treatment of Death Benefits..................................... 45
Tax Treatment of Optional Living Benefits........................... 45
Contracts Owned by a Trust or Corporation........................... 45
Gifts, Pledges and/or Assignments of a Contract..................... 45
Diversification and Investor Control................................ 46
OTHER INFORMATION.......................................................... 46
The Distributor..................................................... 46
The Company......................................................... 46
The Separate Account................................................ 47
The General Account................................................. 47
Financial Statements................................................ 48
Administration...................................................... 48
Legal Proceedings................................................... 49
Registration Statements............................................. 49
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION................... 50
APPENDIX A - STATE CONTRACT AVAILABILITY AND/OR VARIABILITY................ A-1
APPENDIX B - FORMULA FOR CALCULATING AND EXAMPLE OF THE [to be filed by
amendment] LIVING BENEFIT FEE............................................ B-1
APPENDIX C - [to be filed by amendment] LIVING BENEFIT OPTIONAL LIVING
BENEFIT EXAMPLES......................................................... C-1
APPENDIX D - DEATH BENEFITS FOLLOWING SPOUSAL CONTINUATION................. D-1
2
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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 - The person on whose life we base annuity income payments after you
begin the Income Phase.
ANNUITY DATE - The date you select on which annuity income payments begin.
ANNUITY UNITS - A measurement we use to calculate the amount of annuity income
payments you receive from the variable portion of your contract during the
Income Phase.
BENEFICIARY - The person you designate to receive any benefits under the
contract if you or the Annuitant dies.
COMPANY - Refers to SunAmerica Annuity and Life Assurance Company ("SunAmerica
Annuity") or First SunAmerica Life Insurance Company ("First SunAmerica" for
contracts issued in New York only), the insurer that issues this contract. The
term "we," "us" and "our" are also used to identify the issuing Company.
CONTINUING SPOUSE - Spouse of original contract owner at the time of death who
elects to continue the contract after the death of the original contract owner.
FIXED ACCOUNT - An account, if available, that we may offer in which you may
invest money and earn a fixed rate of return.
GOOD ORDER - Fully and accurately completed forms, including any necessary
supplementary documentation, applicable to any given transaction or request
received by us.
INCOME PHASE - The period beginning on the Annuity Date during which we make
annuity income payments to you.
INSURABLE INTEREST - Evidence that the Owner(s), Annuitant(s) or
Beneficiary(ies) will suffer a financial loss at the death of the life that
triggers the death benefit. Generally, we consider an interest insurable if a
familial relationship and/or an economic interest exists. A familial
relationship generally includes those persons related by blood or by law. An
economic interest exists when the Owner has a lawful and substantial economic
interest in having the life, health or bodily safety of the insured life
preserved.
LATEST ANNUITY DATE - For contracts issued by SunAmerica Annuity, the first day
of the month following age 95. For contracts issued in New York only by First
SunAmerica, your 90th birthday or tenth contract anniversary, whichever is
later.
MARKET CLOSE - The close of the New York Stock Exchange, usually at 1:00 p.m.
Pacific Time.
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").
NYSE - New York Stock Exchange
OWNER - The person or entity (if a non-natural owner) with an interest or title
to this contract. The term "you" or "your" are also used to identify the Owner.
PREMIUM BASED CHARGE - A charge that is deducted from your contract value on
each Quarter Anniversary following the date each Premium is made and is deducted
for seven years.
PURCHASE PAYMENTS - The money you give us to buy and invest in the contract,
also known as "Premiums."
QUALIFIED (CONTRACT) - A contract purchased with pretax dollars. These contracts
are generally purchased under a pension plan, specially sponsored program or
IRA.
QUARTER ANNIVERSARY - The date following each consecutive 3 month period
starting on the contract issue date.
SEPARATE ACCOUNT - A segregated asset account maintained by the Company
separately from the Company's general account. The Separate Account is divided
into Variable Portfolios.
TRUSTS - Collectively refers to the AIM Variable Insurance Funds (Invesco
Variable Insurance Funds), American Funds Insurance Series, Anchor Series Trust,
Franklin Templeton Variable Insurance Products Trust, Lord Abbett Series Fund,
Inc., Seasons Series Trust and SunAmerica Series Trust.
UNDERLYING FUNDS - The underlying investment portfolios of the Trusts in which
the Variable Portfolios invest.
VARIABLE PORTFOLIO(S) - The variable investment options available under the
contract. Each Variable Portfolio, which is a subaccount of the Separate
Account, invests in shares of one of the Underlying Funds. Each Underlying Fund
has its own investment objective.
3
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HIGHLIGHTS
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The Polaris [TBD] Variable Annuity is a contract between you and the Company. 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
Portfolios and Fixed Accounts. 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
annuity income payments from your annuity to provide for your retirement.
FREE LOOK: You may cancel your contract within 10 days after receiving it (or
whatever period is required in your state), and not be charged a withdrawal
charge. You will receive whatever your contract is worth on the day that we
receive your request. The amount refunded may be more or less than your original
Purchase Payments. We will return your original Purchase Payments if required by
law. PLEASE SEE FREE LOOK IN THE PROSPECTUS.
EXPENSES: There are fees and charges associated with the contract. Each year,
we deduct a $[to be filed by amendment] contract maintenance fee from your
contract, which may be waived for contracts of $75,000 or more. We also deduct
separate account charges which equal [to be filed by amendment]% annually of the
average daily value of your contract allocated to the Variable Portfolios. A
separate withdrawal charge schedule applies to each Premium. Your contract
provides for a free withdrawal amount each year. Withdrawal charges no longer
apply to that Premium after a Premium has been in the contract for seven
complete years. There are investment charges on amounts invested in the Variable
Portfolios, including 12b-1 fees of up to 0.25%. If you elect optional features
available under the contract, we may charge additional fees for those features.
We apply a Premium Based Charge against Premiums that you make to your contract.
The Premium Based Charge equals a percentage of each Premium and varies with
your investment amount. PLEASE SEE FEE TABLE, PURCHASING A POLARIS [TBD]
VARIABLE ANNUITY, FREE WITHDRAWAL AMOUNT AND EXPENSES IN THE PROSPECTUS.
ACCESS TO YOUR MONEY: You may withdraw money from your contract during the
Accumulation Phase. If you make a withdrawal, earnings are deemed to be
withdrawn first. You will pay income taxes on earnings and untaxed contributions
when you withdraw them. Annuity income 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.
You should consider the impact of Excess Withdrawals on the Living Benefit you
elect. Withdrawals in excess of the prescribed amount can have a detrimental
impact on the guaranteed benefit. In addition, if an Excess Withdrawal reduces
your contract value to zero, your contract will terminate and no further
benefits are payable. PLEASE SEE OPTIONAL LIVING BENEFITS IN THE PROSPECTUS.
OPTIONAL LIVING BENEFITS: You may elect the optional living benefit available
under your contract for an additional fee. This living benefit is designed to
protect a portion of your investment in the event your contract value declines
due to unfavorable investment performance during the Accumulation Phase and
before a death benefit is payable. This benefit can provide a guaranteed income
stream during the Accumulation Phase that may last as long as you live. PLEASE
SEE OPTIONAL LIVING BENEFITS IN THE PROSPECTUS.
DEATH BENEFIT: A standard death benefit is available and in addition, optional
death benefit(s) are available for an additional fee. These benefits are
designed to protect your Beneficiaries in the event of your death during the
Accumulation Phase. PLEASE SEE DEATH BENEFITS IN THE PROSPECTUS.
ANNUITY INCOME OPTIONS: When you switch to the Income Phase, you can choose to
receive annuity income payments on a variable basis, fixed basis or a
combination of both. You may also choose from five different annuity income
options, including an option for annuity income that you cannot outlive. PLEASE
SEE ANNUITY INCOME OPTIONS IN THE PROSPECTUS.
INQUIRIES: If you have questions about your contract, call your financial
representative or contact us at Annuity Service Center, P.O. Box 54299, Los
Angeles, California 90054-0299. Telephone Number: (800) 445-7862. PLEASE SEE
ALLOCATION OF PURCHASE PAYMENTS IN THE PROSPECTUS FOR THE ADDRESS TO WHICH YOU
MUST SEND PURCHASE PAYMENTS.
PLEASE SEE THE STATE CONTRACT AVAILABILITY AND/OR VARIABILITY APPENDIX BELOW FOR
STATE SPECIFIC INFORMATION.
THE COMPANY OFFERS SEVERAL DIFFERENT VARIABLE ANNUITY CONTRACTS TO MEET THE
DIVERSE NEEDS OF OUR INVESTORS. OUR CONTRACTS MAY PROVIDE DIFFERENT FEATURES,
BENEFITS, PROGRAMS AND INVESTMENT OPTIONS OFFERED AT DIFFERENT FEES 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 RETIREMENT SAVINGS GOALS.
IF YOU WOULD LIKE MORE INFORMATION REGARDING HOW MONEY IS SHARED AMONGST OUR
BUSINESS PARTNERS, INCLUDING BROKER-DEALERS THROUGH WHICH YOU MAY PURCHASE A
VARIABLE ANNUITY AND FROM CERTAIN INVESTMENT ADVISERS OF THE UNDERLYING FUNDS,
PLEASE SEE PAYMENTS IN CONNECTION WITH DISTRIBUTION OF THE CONTRACT BELOW.
PLEASE READ THE PROSPECTUS CAREFULLY FOR MORE DETAILED INFORMATION REGARDING
THESE AND OTHER FEATURES AND BENEFITS OF THE CONTRACT, AS WELL AS THE RISKS OF
INVESTING.
4
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FEE TABLE
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THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT ARE APPLICABLE TO THE
CONTRACT AND WHEN YOU TRANSFER CONTRACT VALUE BETWEEN INVESTMENT OPTIONS, MAKE
ADDITIONAL PURCHASE PAYMENTS, OR SURRENDER THE CONTRACT. IF APPLICABLE, YOU MAY
ALSO BE SUBJECT TO STATE PREMIUM TAXES.(1)
MAXIMUM OWNER TRANSACTION EXPENSES
MAXIMUM PREMIUM BASED CHARGE
(as a percentage of each Purchase
Payment)(2)............................ [to be filed by amendment]%
MAXIMUM WITHDRAWAL CHARGES
(as a percentage of each Purchase
Payment)(3)............................ [to be filed by amendment]%
TRANSFER FEE
$25 per transfer after the first 15 transfers in any contract year.
THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY PERIODICALLY
DURING THE TIME THAT YOU OWN THE CONTRACT, NOT INCLUDING UNDERLYING FUND
EXPENSES WHICH ARE OUTLINED IN THE NEXT SECTION.
CONTRACT MAINTENANCE FEE(4)............... $[to be filed by amendment] per year
SEPARATE ACCOUNT ANNUAL EXPENSES
(deducted from the average daily ending net asset value allocated to the
Variable Portfolios)
Separate Account Fee(5)......................... [to be filed by amendment]%
Optional Maximum Anniversary Value Death Benefit
Fee(6)....................................... [to be filed by amendment]%
--------------------------
Total Separate Account Annual Expenses....... [to be filed by amendment]%
==========================
ADDITIONAL OPTIONAL FEATURE FEE
You may elect the following optional living benefit which is a guaranteed
minimum withdrawal benefit:
OPTIONAL [to be filed by amendment] LIVING BENEFIT FEE
(calculated as a percentage of the Income Base)(7)
MAXIMUM
NUMBER OF COVERED PERSONS ANNUAL FEE RATE(8)
------------------------- --------------------
For One Covered Person............................ [to be filed by amendment]%
For Two Covered Persons........................... [to be filed by amendment]%
UNDERLYING FUND EXPENSES (AS OF DECEMBER 31, 2009)
[TO BE UPDATED BY AMENDMENT]
THE FOLLOWING SHOWS THE MINIMUM AND MAXIMUM TOTAL OPERATING EXPENSES CHARGED BY
THE UNDERLYING FUNDS OF THE TRUSTS, BEFORE ANY WAIVERS OR REIMBURSEMENTS THAT
YOU MAY PAY PERIODICALLY DURING THE TIME THAT YOU OWN THE CONTRACT. MORE DETAIL
CONCERNING THE UNDERLYING FUNDS' EXPENSES IS CONTAINED IN THE PROSPECTUS FOR
EACH OF THE TRUSTS. PLEASE READ THEM CAREFULLY BEFORE INVESTING.
TOTAL ANNUAL UNDERLYING FUND
EXPENSES(9) MINIMUM MAXIMUM
---------------------------- ------- -------
(expenses that are deducted from
Underlying Funds of the Trusts,
including management fees, 12b-1
fees, if applicable, and other
expenses)........................ 0.54% 1.56%
FOOTNOTES TO THE FEE TABLE:
(1) State premium taxes of up to 3.5% of your Purchase Payments may be deducted
when you make a Purchase Payment or when you fully surrender your contract
or begin the Income Phase. PLEASE SEE PREMIUM TAX AND STATE CONTRACT
AVAILABILITY AND/OR VARIABILITY APPENDIX BELOW.
(2) Each Premium is subject to the Premium Based Charge for a period of [to be
filed by amendment] years and is deducted quarterly from your contract
value. PLEASE SEE EXPENSES SECTION BELOW.
PREMIUM BASED CHARGE AS A QUARTERLY PREMIUM
PERCENTAGE OF BASED CHARGE
ACCUMULATED PREMIUM BREAKPOINT PURCHASE PAYMENTS INVESTED (OVER [to be filed by amendment] YEAR PERIOD)
------------------------------ -------------------------- --------------------------------------------
[to be filed by amendment] [to be filed by amendment] [to be filed by amendment]
The initial Premium Based Charge is determined by the sum of Premiums received
during the first contract quarter and the Accumulated Premium Breakpoint
achieved by that amount. After the first contract Quarter Anniversary, the
Premium Based Charge for each subsequent Premium is determined based on the sum
of all Premiums (including the subsequent Premium) and the Accumulated Premium
Breakpoint achieved by the sum of Premiums as of the Premium receipt date.
PLEASE SEE EXPENSES BELOW.
(3) Withdrawal Charge Schedule (as a percentage of each Premium withdrawn)
declines over [to be filed by amendment] years as follows and applies to
each Premium starting on the Premium receipt date:
YEARS SINCE PREMIUM RECEIPT
------------------------------------------------------
ACCUMULATED PREMIUM BREAKPOINT [to be filed by amendment]+
[to be filed by amendment] [to be filed by amendment]
The Withdrawal Charge for each Premium is determined based on the sum of all
Premiums (including the subsequent Premium) and the Accumulated Premium
Breakpoint achieved as of the Premium receipt date. PLEASE SEE EXPENSES SECTION
BELOW.
5
(4) The contract maintenance fee is assessed annually and may be waived if
contract value is $75,000 or more. The fee is deducted on a pro rata basis
from your contract value on your contract anniversary.
(5) If you do not elect any optional features, your total separate account
annual expenses would be [to be filed by amendment]%. If your Beneficiary
elects to take the death benefit amount under the Extended Legacy Program,
we will deduct an annual Separate Account Charge of [to be filed by
amendment]% which is deducted daily from the average daily ending net asset
value allocated to the Variable Portfolios. PLEASE SEE EXTENDED LEGACY
PROGRAM UNDER DEATH BENEFITS BELOW.
(6) If you do not elect any optional features, your separate account annual
expenses would be [to be filed by amendment]%.
(7) The fee is assessed against the Income Base which determines the basis of
the guaranteed benefit. The annual fee is deducted from your contract value
at the end of the first quarter following election and quarterly thereafter.
For a complete description of how the Income Base is calculated, please see
OPTIONAL LIVING BENEFITS below.
(8) The Initial Annual Fee Rate is guaranteed not to change for the first
Benefit Year. Subsequently, the fee rate may change quarterly subject to the
parameters identified in the table below. Any fee adjustment is based on a
non-discretionary formula tied to the change in the Volatility Index
("VIX(R)"), an index of market volatility reported by the Chicago Board
Options Exchange. If the value of the VIX decreases or increases from the
previous Benefit Quarter Anniversary, your fee rate will decrease or
increase accordingly, subject to the minimums and maximums identified in the
Fee Table. PLEASE SEE APPENDIX B -- FORMULA FOR CALCULATING AND EXAMPLE OF
THE [to be filed by amendment] LIVING BENEFIT FEE BELOW.
----------------------------------------------------------------------------
MAXIMUM
ANNUALIZED
FEE RATE
DECREASE OR
INITIAL MINIMUM INCREASE EACH
ANNUAL ANNUAL BENEFIT
NUMBER OF COVERED PERSONS FEE RATE FEE RATE QUARTER*
----------------------------------------------------------------------------
----------------------------------------------------------------------------
One Covered Person [to be filed [to be filed [to be filed
by amendment]% by amendment]% by amendment]%
----------------------------------------------------------------------------
Two Covered Persons [to be filed [to be filed [to be filed
by amendment]% by amendment]% by amendment]%
----------------------------------------------------------------------------
* The fee rate can increase or decrease no more than [to be filed by
amendment]% each quarter ([to be filed by amendment]).
(9) The maximum expense is for an Underlying Fund of SunAmerica Series Trust, as
of its fiscal year ended January 31, 2010. The minimum expense is for an
Underlying Fund of American Funds Insurance Series Trust as of its fiscal
year ended December 31, 2009.
6
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
MAXIMUM AND MINIMUM EXPENSE EXAMPLES [TO BE FILED BY AMENDMENT]
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
These examples are intended to help you compare the cost of investing in the
contract with the cost of investing in other variable annuity contracts. These
costs include owner transaction expenses, the contract maintenance fee if any,
separate account annual expenses, available optional feature fees and Underlying
Fund expenses.
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 you incur the
maximum or minimum fees and expenses of the Underlying Fund as indicated in the
examples. 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 [to be filed by
amendment]% including the Maximum Anniversary Value death benefit feature, the
optional [to be filed by amendment] Living Benefit feature (for the first year
calculated at the initial annual fee rate of [to be filed by amendment]% and the
maximum annual fee rate of [to be filed by amendment]% for the remaining years),
a maximum Premium Based Charge of [to be filed by amendment]% and investment in
an Underlying Fund with total expenses of 1.56%)
(1) If you surrender your contract at the end of the applicable time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$ $ $ $
(2) If you do not surrender or annuitize your contract at the end of the
applicable time period(4):
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$ $ $ $
MINIMUM EXPENSE EXAMPLES
(assuming minimum separate account annual expenses of [to be filed by
amendment]%, no election of optional features and investment in an Underlying
Fund with total expenses of 0.54%)
(1) If you surrender your contract at the end of the applicable time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$ $ $ $
(2) If you do not surrender or annuitize your contract at the end of the
applicable time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$ $ $ $
EXPLANATION OF FEE TABLE AND EXPENSE EXAMPLES
1. The purpose of the Fee Table and Expense Examples is to show you the various
fees and expenses you would incur directly and indirectly by investing in
this variable annuity contract. The Fee Table and Expense Examples represent
both fees of the separate account as well as the maximum and minimum total
annual Underlying Fund operating expenses. We converted the contract
maintenance fee to a percentage (0.05%). The actual impact of the contract
maintenance fee may differ from this percentage and may be waived for
contract values over $75,000. Additional information on the Underlying Fund
fees can be found in the Trust prospectuses.
2. In addition to the stated assumptions, the Expense Examples also assume
Separate Account fees as indicated and that no transfer fees were imposed. A
maximum Premium Based Charge and withdrawal charge of [to be filed by
amendment]% is used in the Expense Examples because of the $10,000
investment amount. Your expenses may be lower if you are subject to a lower
Premium Based Charge and Withdrawal Charge Schedule. Although premium taxes
may apply in certain states, they are not reflected in the Expense Examples.
3. If you elected other optional features, your expenses would be lower than
those shown in the Maximum Expense Examples. The Maximum Expense Examples
assume that the Income Base, which is used to calculate the [to be filed by
amendment] Living Benefit fee, equals contract value, that no withdrawals
are taken during the stated period, there are two Covered Persons and that
the annual maximum fee rate has been reached. When [to be filed by
amendment] Living Benefit is elected, the fee for two Covered Persons is [to
be filed by amendment]% for the first Benefit Year. After the first Benefit
Year, the fee is recalculated each Benefit Quarter based on a non-
discretionary formula. This formula also allows the fee to decrease for two
Covered Persons to a minimum annual fee rate of [to be filed by amendment]%
4. You do not pay fees for optional features once you begin the Income Phase
(annuitize your contract); therefore, your expenses will be lower than those
shown here. PLEASE SEE ANNUITY INCOME OPTIONS BELOW.
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
AS OF THE DATE OF THIS PROSPECTUS, SALES IN THIS CONTRACT HAVE NOT YET BEGUN.
THEREFORE, CONDENSED FINANCIAL INFORMATION IS NOT YET AVAILABLE.
7
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
THE POLARIS [TBD]
VARIABLE ANNUITY
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
When you purchase a variable annuity, a contract exists between you and the
Company. You are the Owner of the contract. The contract provides several main
benefits:
- Optional Living Benefit: If you elect an optional living benefit, the
Company guarantees to provide a guaranteed income stream, with additional
benefits under the feature you elect, in the event your contract value
declines due to unfavorable investment performance and withdrawals within
the feature's parameters.
- Death Benefit: If you die during the Accumulation Phase, the Company pays
a death benefit to your Beneficiary.
- Guaranteed Income: Once you begin the Income Phase, you receive a stream
of annuity income payments for your lifetime, or another available period
you select.
- Tax Deferral: This means that you do not pay taxes on your earnings from
the contract until you withdraw them.
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 variable annuity was developed to help you plan for your retirement. In the
Accumulation phase, it can help you build assets on a tax-deferred basis. In the
Income phase, it can provide you with guaranteed income through annuity income
payments. Alternatively, you may elect an optional living benefit that is
designed to help you create a guaranteed income stream that may last as long as
you live.
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. 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 Accounts, if available, earn interest at a rate set and guaranteed by the
Company. If you allocate money to a Fixed Account, the amount of money that
accumulates in the contract depends on the total interest credited to the
particular Fixed Account in which you invest.
For more information on investment options available under this contract, PLEASE
SEE INVESTMENT OPTIONS BELOW.
As a function of the Internal Revenue Code ("IRC"), you may be assessed a 10%
federal tax penalty on any withdrawal made prior to your reaching age 59 1/2.
PLEASE SEE TAXES BELOW. Additionally, you will be charged a withdrawal charge on
each Purchase Payment withdrawn prior to the end of the applicable withdrawal
charge period, PLEASE SEE FEE TABLE ABOVE. 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.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PURCHASING A POLARIS [TBD]
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, PLEASE SEE
TAXES BELOW.
-------------------------------------------------------------------
MINIMUM
MINIMUM INITIAL SUBSEQUENT
PURCHASE PAYMENT PURCHASE PAYMENT
-------------------------------------------------------------------
Qualified $10,000 $500
-------------------------------------------------------------------
Non-Qualified $10,000 $500
-------------------------------------------------------------------
Once you have contributed at least the minimum initial Purchase Payment, you can
establish an automatic payment plan that allows you to make subsequent Purchase
Payments of as little as $100.
We reserve the right to refuse any Purchase Payment. Furthermore, we reserve the
right to require Company approval prior to accepting Purchase Payments greater
than $1,500,000. For contracts owned by a non-natural owner, we reserve the
right to require prior Company approval to accept any Purchase Payment. Purchase
Payments that would cause total Purchase Payments in all contracts issued by
SunAmerica Annuity and/or First SunAmerica to the same owner and/or Annuitant to
exceed these limits may also be subject to Company pre-approval. For any
contracts that meet or exceed these dollar amount limitations, 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. In addition, for any contracts that meet or exceed these dollar
amount limitations, we further reserve the right to impose certain limitations
on available living benefits under the contract. The terms creating any limit on
the maximum death or living benefit payable would be mutually agreed upon in
writing by you and the Company prior to purchasing the contract.
8
NON-NATURAL OWNERSHIP
A trust, corporation or other non-natural entity may only purchase this contract
if such entity has sufficiently demonstrated an Insurable Interest in the
Annuitant selected. FOR MORE INFORMATION ON NON-NATURAL OWNERSHIP, PLEASE SEE
TAXES BELOW.
Various considerations may apply with respect to non-natural ownership of this
contract including but not limited to estate planning, tax consequences and the
propriety of this contract as an investment consistent with a non-natural
Owner's organizational documentation. You should consult with your tax and/or
legal advisor in connection with non-natural ownership of this contract.
MAXIMUM ISSUE AGE
We will not issue a contract to anyone age 86 or older on the contract issue
date. We will not accept subsequent Purchase Payments from contract owners 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. If we learn of a misstatement of age, we reserve the
right to fully pursue our remedies including termination of the contract and/or
revocation of any age-driven benefits.
TERMINATION OF THE CONTRACT FOR MISSTATEMENT AND/OR FRAUD
The Company reserves the right to terminate the contract at any time if it
discovers a misstatement or fraudulent representation of any information
provided in connection with the issuance or ongoing administration of the
contract.
JOINT OWNERSHIP
We allow this contract to be jointly owned. We require that the joint Owners be
spouses except in states that allow non-spouses to be joint Owners. The age of
the older Owner is used to determine the availability of most 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.
Certain states require that the benefits and features of the contract be made
available to domestic or civil union partners ("Domestic Partners") who qualify
for treatment as, or are equal to, spouses under state law. Other states allow
same-sex partners to marry ("Same-Sex Spouses"). There are also states that
require us to issue the contract to non-spousal joint Owners. However, Domestic
Partners, Same-Sex Spouses and non-spousal joint Owners who jointly own or are
Beneficiaries of a contract should consult with their tax adviser and/or
financial representative as they are not eligible for spousal continuation under
the contract as allowed by the Internal Revenue Code. Therefore, the ability of
Domestic Partners, Same-Sex Spouses and non-spousal joint Owners to fully
benefit from certain benefits and features of the contract, such as optional
living benefits, if applicable, that guarantee withdrawals over two lifetimes
may be limited by the conflict between certain state and federal laws.
ASSIGNMENT OF THE CONTRACT
You may assign this contract before beginning the Income Phase by sending a
written request to us at the Annuity Service Center for an assignment. Your
rights and those of any other person with rights under this contract will be
subject to the assignment. We will not be bound by any assignment until written
notice is received by us at our Annuity Service Center. We are not responsible
for the validity, tax or other legal consequences of any assignment. An
assignment will not affect any payments we may make or actions we may take
before we receive notice of the assignment.
We reserve the right not to recognize assignments if it changes the risk profile
of the owner of the contract, as determined in our sole discretion or if not
permitted by the Internal Revenue Code. PLEASE SEE THE STATEMENT OF ADDITIONAL
INFORMATION FOR DETAILS ON THE TAX CONSEQUENCES OF AN ASSIGNMENT. You should
consult a qualified tax adviser before assigning the contract.
ALLOCATION OF PURCHASE PAYMENTS
In order to issue your contract, we must receive your initial Purchase Payment
and all required paperwork in Good Order, including Purchase Payment allocation
instructions at our Annuity Service Center. We will accept initial and
subsequent Purchase Payments by electronic transmission from certain broker-
dealer firms. In connection with arrangements we have to transact business
electronically, we may have agreements in place whereby your broker-dealer may
be deemed our agent for receipt of your Purchase Payments. Thus, if we have an
agreement with a broker-dealer deeming them our agent, Purchase Payments
received by the broker-dealer will be priced as of the time they are received by
the broker-dealer. However, if we do not have an agreement with a broker-dealer
deeming them our agent, Purchase Payments received by the broker-dealer will not
be priced until they are received by us. Please check with your financial
representative to determine if his/her broker-dealer has an agreement with the
Company that deems the broker-dealer an agent of the Company.
An initial Purchase Payment will be priced within two business days after it is
received by us in Good Order if the Purchase Payment is received before Market
Close. If the initial Purchase Payment is received in Good Order after Market
Close, the initial Purchase Payment will be priced within two business days
after the next business day. We allocate your initial Purchase Payments as of
the date such Purchase Payments are priced. 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
9
your contract within 5 business days, we will send your money back to you, or
obtain your permission to keep your money until we get the information necessary
to issue the contract.
Any subsequent Purchase Payment will be priced as of the day it is received by
us in Good Order if the request is received before Market Close. If the
subsequent Purchase Payment is received in Good Order after Market Close, it
will be priced as of the next business day. We invest your subsequent Purchase
Payments in the Variable Portfolios and Fixed Accounts according to any
allocation instructions that accompany the subsequent Purchase Payment. If we
receive a Purchase Payment without allocation instructions, we will invest the
Purchase Payment according to your allocation instructions on file. PLEASE SEE
INVESTMENT OPTIONS BELOW.
Purchase Payments submitted by check can only be accepted by the Company at the
Payment Centers at the following addresses:
SunAmerica Annuity
P.O. Box 100330
Pasadena, CA 91189-0330
First SunAmerica (New York contracts only)
P.O. Box 100357
Pasadena, CA 91189-0357
Purchase Payments sent to the Annuity Service Center will be forwarded and
priced when received at the Payment Center.
Overnight deliveries of Purchase Payments can only be accepted at the following
address:
SunAmerica Annuity
Building #6, Suite 120
2710 Media Center Drive
Los Angeles, CA 90065-0330
First SunAmerica (New York contracts only)
Building #6, Suite 120
2710 Media Center Drive
Los Angeles, CA 90065-0357
Delivery of Purchase Payments to any other address will result in a delay in
crediting your contract until the Purchase Payment is received at the Payment
Center.
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 process your Purchase Payment, as described under ALLOCATION OF
PURCHASE PAYMENTS above, if before that day's Market Close, or on the next
business day's unit value if we process your Purchase Payment after that day's
Market Close. 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 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 daily asset based 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 Variable Portfolio A. We determine that the value of an
Accumulation Unit for Variable Portfolio A is $11.10 at Market Close on
Wednesday. We then divide $25,000 by $11.10 and credit your contract on
Wednesday night with 2,252.2523 Accumulation Units for Variable Portfolio
A.
Performance of the Variable Portfolios and the insurance charges 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. We call this a
"free look." Your state may require a longer free look period. Please check with
your financial representative. To cancel, you must mail the contract along with
your written 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
in Good Order at the Annuity Service Center.
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. 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 on the day we receive your request
in Good Order at the Annuity Service Center.
With respect to those contracts, we reserve the right to invest your money in
the Cash Management Variable
10
Portfolio during the free look period. If we place your money in the Cash
Management Variable Portfolio during the free look period, we will allocate your
money according to your instructions at the end of the applicable free look
period.
If you elect the [to be filed by amendment] living benefit, we will allocate 10%
of your Purchase Payment to the Secure Value Account and we reserve the right to
invest the remaining 90% of your Purchase Payment in the Cash Management
Variable Portfolio during the free look period. PLEASE SEE OPTIONAL LIVING
BENEFITS BELOW.
EXCHANGE OFFERS
From time to time, we allow you to exchange an older variable annuity issued by
the Company or one of its affiliates, for a newer product with different
features and benefits issued by the Company or one of its affiliates. Such an
exchange offer will be made in accordance with applicable federal securities
laws and state insurance rules and regulations. We will provide the specific
terms and conditions of any such exchange offer at the time the offer is made.
IMPORTANT INFORMATION FOR MILITARY SERVICEMEMBERS
If you are an active duty full-time servicemember, and are considering the
purchase of this contract, please read the following important information
before investing. Subsidized life insurance is available to members of the Armed
Forces from the Federal Government under the Servicemembers' Group Life
Insurance program (also referred to as "SGLI"). More details may be obtained on-
line at the following website: www.insurance.va.gov. This contract is not
offered or provided by the Federal Government and the Federal Government has in
no way sanctioned, recommended, or encouraged the sale of this contract. No
entity has received any referral fee or incentive compensation in connection
with the offer or sale of this contract, unless that entity has a selling
agreement with the Company.
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INVESTMENT OPTIONS
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VARIABLE PORTFOLIOS
The Variable Portfolios invest in the Underlying Funds of 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 the Company and other affiliated and unaffiliated
insurance companies. Neither the Company nor the Trusts believe that offering
shares of the Trusts in this manner disadvantages you. The Trusts are monitored
for potential conflicts. The Trusts may have other Underlying Funds, in addition
to those listed here, that are not available for investment under this contract.
The Variable Portfolios offered through this contract are selected by us and we
may consider various factors in the selection process, including but not limited
to: asset class coverage, the strength of the investment adviser's or
subadviser's reputation and tenure, brand recognition, performance and the
capability and qualification of each investment firm. Another factor we may
consider is whether the Underlying Fund or its service providers (i.e., the
investment adviser and/or subadviser(s)) or their affiliates will make payments
to us or our affiliates in connection with certain administrative, marketing and
support services, or whether the Underlying Fund's service providers have
affiliates that can provide marketing and distribution support for sales of the
contract. PLEASE SEE PAYMENTS IN CONNECTION WITH DISTRIBUTION OF THE CONTRACT
BELOW.
We review the Variable Portfolios periodically and may make changes if we
determine that a Variable Portfolio no longer satisfies one or more of the
selection criteria and/or if the Variable Portfolio has not attracted
significant allocations from contract owners. We offer Underlying Funds of the
Anchor Series Trust, Seasons Series Trust and SunAmerica Series Trust at least
in part because they are managed by SunAmerica Asset Management Corp.
("SAAMCo"), a wholly-owned subsidiary of SunAmerica Annuity.
You are responsible for allocating Purchase Payments to the Variable Portfolios
as is appropriate for your own individual circumstances, investment goals,
financial situation and risk tolerance. You should periodically review your
allocations and values to ensure they continue to suit your needs. You bear the
risk of any decline in contract value resulting from the performance of the
Variable Portfolios you have selected. In making your investment selections, you
should investigate all information available to you including the Underlying
Fund's prospectus, statement of additional information and annual and semi-
annual reports.
During periods of low short-term interest rates, and in part due to contract
fees and expenses, the yield of the Cash Management Variable Portfolio may
become extremely low and possibly negative. In the case of negative yields, your
investment in the Cash Management Variable Portfolio will lose value.
We do not provide investment advice, nor do we recommend or endorse any
particular Variable Portfolio. The Variable Portfolios along with their
respective advisers are listed below.
AIM VARIABLE INSURANCE FUNDS (INVESCO VARIABLE INSURANCE FUNDS) -- SERIES
II SHARES
Invesco Advisers, Inc. is the investment adviser to AIM Variable Insurance
Funds (Invesco Variable Insurance Funds) ("AVIF"). On June 1, 2010, the
investment adviser for the Invesco Van Kampen V.I. Capital Growth Fund,
Series II Shares, Invesco Van Kampen
11
V.I. Comstock Fund, Series II Shares and the Invesco Van Kampen V.I. Growth
and Income Fund, Series II Shares changed from Van Kampen Asset Management
to Invesco Advisers, Inc. In addition, the trust for the Variable
Portfolios changed from Van Kampen Life Investment Trust to AIM Variable
Insurance Funds (Invesco Variable Insurance Funds).
AMERICAN FUNDS INSURANCE SERIES -- CLASS 2 SHARES
Capital Research and Management Company is the investment adviser to
American Funds Insurance Series ("AFIS").
ANCHOR SERIES TRUST -- CLASS 3 SHARES
SAAMCo is the investment adviser and various managers are the subadviser to
Anchor Series Trust ("AST").
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST -- CLASS 2 SHARES
Franklin Advisers, Inc. is the investment adviser to Franklin Templeton
Variable Insurance Products Trust ("FTVIPT").
Franklin Templeton VIP Founding Funds Allocation Fund ("VIP Founding
Funds") is structured as a Fund-of-Funds. A Fund-of-Funds invests in other
underlying funds. Expenses for a Fund-of-Funds may be higher than that for
other funds because a Fund-of-Funds bears its own expenses and indirectly
bears its proportionate share of expenses of the Underlying Funds in which
it invests. The administrator for the VIP Founding Funds is Franklin
Templeton Services, LLC. Franklin Templeton Services, LLC may receive
assistance from Franklin Advisers, Inc. in monitoring the Underlying Funds
and the VIP Founding Fund's investment in the Underlying Funds. Each
Underlying Fund of the VIP Founding Funds has its own investment adviser.
Please see the Franklin Templeton Variable Insurance Products prospectus
for details.
LORD ABBETT SERIES FUND, INC. -- CLASS VC SHARES
Lord, Abbett & Co. LLC is the investment adviser to Lord Abbett Series
Fund, Inc. ("LASF").
SEASONS SERIES TRUST -- CLASS 3 SHARES
The Real Return Portfolio listed below is part of the Seasons Series Trust
("SST"). SAAMCo manages this Trust and generally engages subadvisers to
provide investment advice for the Underlying Funds.
SUNAMERICA SERIES TRUST -- CLASS 3 SHARES
SAAMCo is the investment adviser and various managers are the subadvisers
to SunAmerica Series Trust ("SAST").
(PLEASE SEE NEXT PAGE FOR FULL LIST OF INVESTMENT OPTIONS)
12
UNDERLYING FUNDS MANAGED BY: TRUST
---------------- ----------- -----
Aggressive Growth Wells Capital Management Incorporated SAST
Alliance Growth AllianceBernstein L.P. SAST
American Funds Asset Allocation Capital Research and Management Company AFIS
American Funds Global Growth Capital Research and Management Company AFIS
American Funds Growth-Income Capital Research and Management Company AFIS
American Funds Growth Capital Research and Management Company AFIS
Asset Allocation Edge Asset Management, Inc. AST
Balanced J.P. Morgan Investment Management Inc. SAST
Blue Chip Growth SunAmerica Asset Management Corp. SAST
Capital Appreciation Wellington Management Company, LLP AST
Capital Growth OppenheimerFunds, Inc. SAST
Cash Management BofA Advisors, LLC SAST
Corporate Bond Federated Investment Management Company SAST
Davis Venture Value Davis Selected Advisers, L.P. SAST
"Dogs" of Wall Street SunAmerica Asset Management Corp. SAST
Emerging Markets Putnam Investment Management, LLC SAST
Equity Opportunities OppenheimerFunds, Inc. SAST
Foreign Value Templeton Investment Counsel, LLC SAST
Franklin Income Securities Fund Franklin Advisers, Inc. FTVIPT
Franklin Templeton VIP Founding Funds Allocation Fund Franklin Templeton Services, LLC FTVIPT
Fundamental Growth Wells Capital Management Incorporated SAST
Global Bond Goldman Sachs Asset Management International SAST
Global Equities J.P. Morgan Investment Management Inc. SAST
Government and Quality Bond Wellington Management Company, LLP AST
Growth Wellington Management Company, LLP AST
Growth-Income J.P. Morgan Investment Management Inc. SAST
Growth Opportunities Invesco Advisers, Inc. SAST
High-Yield Bond PineBridge Investments LLC SAST
International Diversified Equities Morgan Stanley Investment Management Inc. SAST
International Growth and Income Putnam Investment Management, LLC SAST
Invesco Van Kampen V.I. Capital Growth Fund, Series II Shares Invesco Advisers, Inc. AVIF
Invesco Van Kampen V.I. Comstock Fund, Series II Shares Invesco Advisers, Inc. AVIF
Invesco Van Kampen V.I. Growth and Income Fund, Series II Shares Invesco Advisers, Inc. AVIF
Lord Abbett Growth and Income Lord, Abbett & Co. LLC LASF
Lord Abbett Mid Cap Value Lord, Abbett & Co. LLC LASF
Marsico Focused Growth Marsico Capital Management, LLC SAST
MFS Massachusetts Investors Trust Massachusetts Financial Services Company SAST
MFS Total Return Massachusetts Financial Services Company SAST
Mid-Cap Growth J.P. Morgan Investment Management Inc. SAST
Natural Resources Wellington Management Company, LLP AST
Real Estate Davis Selected Advisers, L.P. SAST
Real Return Wellington Management Company, LLP SST
Small & Mid Cap Value AllianceBernstein L.P. SAST
Small Company Value Franklin Advisory Services, LLC SAST
Technology Columbia Management Investment Advisers, LLC SAST
Telecom Utility Massachusetts Financial Services Company SAST
Total Return Bond Pacific Investment Management Company LLC SAST
UNDERLYING FUNDS ASSET CLASS
---------------- -----------
Aggressive Growth STOCK
Alliance Growth STOCK
American Funds Asset Allocation BALANCED
American Funds Global Growth STOCK
American Funds Growth-Income STOCK
American Funds Growth STOCK
Asset Allocation BALANCED
Balanced BALANCED
Blue Chip Growth STOCK
Capital Appreciation STOCK
Capital Growth STOCK
Cash Management CASH
Corporate Bond BOND
Davis Venture Value STOCK
"Dogs" of Wall Street STOCK
Emerging Markets STOCK
Equity Opportunities STOCK
Foreign Value STOCK
Franklin Income Securities Fund BALANCED
Franklin Templeton VIP Founding Funds Allocation Fund BALANCED
Fundamental Growth STOCK
Global Bond BOND
Global Equities STOCK
Government and Quality Bond BOND
Growth STOCK
Growth-Income STOCK
Growth Opportunities STOCK
High-Yield Bond BOND
International Diversified Equities STOCK
International Growth and Income STOCK
Invesco Van Kampen V.I. Capital Growth Fund, Series II Shares STOCK
Invesco Van Kampen V.I. Comstock Fund, Series II Shares STOCK
Invesco Van Kampen V.I. Growth and Income Fund, Series II Shares STOCK
Lord Abbett Growth and Income STOCK
Lord Abbett Mid Cap Value STOCK
Marsico Focused Growth STOCK
MFS Massachusetts Investors Trust STOCK
MFS Total Return BALANCED
Mid-Cap Growth STOCK
Natural Resources STOCK
Real Estate STOCK
Real Return BOND
Small & Mid Cap Value STOCK
Small Company Value STOCK
Technology STOCK
Telecom Utility STOCK
Total Return Bond BOND
YOU SHOULD READ THE PROSPECTUSES FOR THE TRUSTS CAREFULLY. THESE PROSPECTUSES
CONTAIN DETAILED INFORMATION ABOUT THE UNDERLYING FUNDS, INCLUDING EACH
UNDERLYING FUND'S INVESTMENT OBJECTIVE AND RISK FACTORS. YOU MAY OBTAIN AN
ADDITIONAL COPY OF THESE PROSPECTUSES FOR THE TRUSTS BY CALLING OUR ANNUITY
SERVICE CENTER AT (800) 445-7862 OR BY VISITING OUR WEBSITE AT
WWW.SUNAMERICA.COM. YOU MAY ALSO OBTAIN INFORMATION ABOUT THE UNDERLYING FUNDS
(INCLUDING A COPY OF THE STATEMENT OF ADDITIONAL INFORMATION) BY ACCESSING THE
U.S. SECURITIES AND EXCHANGE COMMISSION'S WEBSITE AT WWW.SEC.GOV.
13
SUBSTITUTION, ADDITION OR DELETION OF VARIABLE PORTFOLIOS
We may, subject to any applicable law, make certain changes to the Variable
Portfolios offered in your contract. We may offer new Variable Portfolios or
stop offering existing Variable Portfolios. New Variable Portfolios may be made
available to existing contract owners and Variable Portfolios may be closed to
new or subsequent Purchase Payments, transfers or allocations. In addition, we
may also liquidate the shares of any Variable Portfolio, substitute the shares
of one Underlying Fund held by a Variable Portfolio for another and/or merge
Variable Portfolios or cooperate in a merger of Underlying Funds. To the extent
required by the Investment Company Act of 1940, as amended, we may be required
to obtain SEC approval or your approval.
FIXED ACCOUNTS
Your contract may offer Fixed Accounts for varying guarantee periods. A Fixed
Account may be available for differing lengths of time (such as 1, 3, or 5
years). Each guarantee period may have different guaranteed interest rates.
If you elect [to be filed by amendment] Living Benefit, 10% of your investment
is automatically allocated to a Fixed Account known as the Secure Value Account.
The Secure Value Account is only available with election of this Living Benefit.
PLEASE SEE "ARE THERE INVESTMENT REQUIREMENTS IF I ELECT [to be filed by
amendment] LIVING BENEFIT?" UNDER OPTIONAL LIVING BENEFITS.
We guarantee that the interest rate credited to amounts allocated to any Fixed
Account guarantee periods will never be less than the guaranteed minimum
interest rate specified in your contract. Once the rate is established, it will
not change for the duration of the guarantee period. We determine which, if any,
guarantee periods will be offered at any time in our sole discretion, unless
state law requires us to do otherwise. Please check with your financial
representative regarding the availability of Fixed Accounts.
There are three categories of interest rates for money allocated to the Fixed
Accounts. The applicable rate is guaranteed until the corresponding guarantee
period expires. With each category of interest rate, your money may be credited
a different rate as follows:
- Initial Rate: The rate credited to any portion of the initial Purchase
Payment allocated to a Fixed Account.
- Current Rate: The rate credited to any portion of a subsequent Purchase
Payment allocated to a Fixed Account.
- Renewal Rate: The rate credited to money transferred from a Fixed
Account or a Variable Portfolio into a Fixed Account and to money
remaining in a Fixed Account after expiration of a guarantee period.
When a guarantee period ends, you may leave your money in the same Fixed Account
or you may reallocate your money to another Fixed Account, if available, or to
the Variable Portfolios. If you do not want to leave your money in the same
Fixed Account, you must contact us within 30 days after the end of the guarantee
period and provide us with new allocation instructions. WE DO NOT CONTACT YOU.
IF YOU DO NOT CONTACT US, YOUR MONEY WILL REMAIN IN THE SAME FIXED ACCOUNT WHERE
IT WILL EARN INTEREST AT THE RENEWAL RATE THEN IN EFFECT FOR THAT FIXED ACCOUNT.
We reserve the right to defer payments for a withdrawal from a Fixed Account for
up to six months. PLEASE SEE ACCESS TO YOUR MONEY BELOW.
If available, you may systematically transfer interest earned in available Fixed
Accounts into any of the Variable Portfolios on certain periodic schedules
offered by us. Systematic transfers may be started, changed or terminated at any
time by contacting our Annuity Service Center. Check with your financial
representative about the current availability of this service.
At any time we are crediting the minimum guaranteed interest rate specified in
your contract, we reserve the right to restrict your ability to invest into the
Fixed Accounts. All Fixed Accounts may not be available in your state. Please
check with your financial representative regarding the availability of Fixed
Accounts.
DOLLAR COST AVERAGING FIXED ACCOUNTS
You may invest initial and/or subsequent Purchase Payments in the dollar cost
averaging ("DCA") Fixed Accounts, if available. The minimum Purchase Payment
that you must invest for the 6-month DCA Fixed Account is $600, for the 12-month
DCA Fixed Account ("1-Year DCA Fixed Account") is $1,200 and the 24-month DCA
Fixed Account ("2-Year DCA Fixed Account") is $2,400. Purchase Payments less
than these minimum amounts will automatically be allocated to available
investment options according to your instructions or your current allocation
instruction on file. The 6-month, 1-Year and 2-Year DCA Fixed Accounts may not
be available in your state. Please check with your financial representative for
availability.
DCA Fixed Accounts credit a fixed rate of interest and can only be elected to
facilitate a DCA program. PLEASE SEE DOLLAR COST AVERAGING PROGRAM BELOW for
more information. Interest is credited to amounts allocated to the DCA Fixed
Accounts while your money is transferred to available investment options over
certain specified time frames. The interest rates applicable to the DCA Fixed
Accounts may differ from those applicable to any other Fixed Account but will
never be less than the minimum guaranteed interest rate specified in your
contract. However, when using a DCA Fixed Account, the annual interest rate is
paid on a
14
declining balance as you systematically transfer your money to available
investment options. Therefore, the actual effective yield will be less than the
stated annual crediting rate. We reserve the right to change the availability of
DCA Fixed Accounts offered, unless state law requires us to do otherwise.
DOLLAR COST AVERAGING PROGRAM
The DCA program allows you to invest gradually in available investment options
at no additional cost. Under the program, you systematically transfer a
specified dollar amount or percentage of contract value from a Variable
Portfolio, Fixed Account or DCA Fixed Account ("source account") to any
available investment options ("target account"). Transfers occur on a monthly
periodic schedule. The minimum transfer amount under the DCA program is $100 per
transaction, regardless of the source account. Fixed Accounts are not available
as target accounts for the DCA program. Transfers resulting from your
participation in the DCA program are not counted towards the number of free
transfers per contract year.
We may also offer DCA Fixed Accounts as source accounts exclusively to
facilitate the DCA program for a specified time period. The DCA Fixed Accounts
only accept initial or subsequent Purchase Payments. You may not make a transfer
from a Variable Portfolio or Fixed Account into a DCA Fixed Account.
If you choose to allocate subsequent Purchase Payments to an active DCA program
with a Fixed Account serving as the source account, the rate applicable to that
Fixed Account at the time we receive the subsequent Purchase Payment will
apply. Further, we will begin transferring that subsequent Purchase Payment into
your target allocations on the same day of the month as the initial active DCA
program. Therefore, you may not receive a full 30 days of interest prior to the
first transfer to the target account(s).
You may terminate the DCA program at any time. If you terminate the DCA program
and money remains in the DCA Fixed Account(s), we transfer the remaining money
according to your current allocation instructions on file.
The DCA program is designed to lessen the impact of market fluctuations on your
investment. However, the DCA program can neither guarantee a profit nor protect
your investment against a loss. When you elect the DCA program, you are
continuously investing in securities fluctuating at different price levels. You
should consider your tolerance for investing through periods of fluctuating
price levels.
EXAMPLE OF DCA PROGRAM:
Assume that you want to move $750 each month from one Variable Portfolio to
another Variable Portfolio over six months. You set up a DCA program and
purchase Accumulation Units at the following values:
----------------------------------------------------------------
MONTH ACCUMULATION UNIT UNITS PURCHASED
----------------------------------------------------------------
1 $ 7.50 100
2 $ 5.00 150
3 $10.00 75
4 $ 7.50 100
5 $ 5.00 150
6 $ 7.50 100
----------------------------------------------------------------
You paid an average price of only $6.67 per Accumulation Unit over six
months, while the average market price actually was $7.08. By investing an
equal amount of money each month, you automatically buy more Accumulation
Units when the market price is low and fewer Accumulation Units when the
market price is high. This example is for illustrative purposes only.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE DCA PROGRAM AT ANY
TIME.
POLARIS PORTFOLIO ALLOCATOR PROGRAM
PROGRAM DESCRIPTION
This program may be offered to you at no additional cost to assist in
diversifying your investment across various investment categories. The program
allows you to invest in either one of the four Polaris Portfolio Allocator
models ("Models") or in one of the four Sample Portfolios. Each Model and Sample
Portfolio is comprised of a carefully selected combination of Variable
Portfolios representing various investment categories. The Models allocate
amongst the various asset classes to attempt to match certain combinations of
investor's investment time horizon and risk tolerance. The Sample Portfolios
allocate amongst the various investment categories and coincide with the
recommended weightings for each Sample Portfolio's objective. Please consult
your financial representative about investment in the program.
Your broker-dealer designs the Sample Portfolios. Your broker-dealer may have
revenue sharing arrangements in place with the money managers that manage the
Underlying Funds comprising the Sample Portfolios. Those arrangements are not
related to the availability of the same Underlying Funds in this variable
annuity. Information about your broker-dealer's revenue sharing arrangements can
be obtained from your financial representative or by visiting the broker-
dealer's website.
ENROLLING IN THE POLARIS PORTFOLIO ALLOCATOR PROGRAM
You may enroll in the program by selecting the Model or Sample Portfolio on the
investment option election form. You and your financial representative should
determine the Model
15
or Sample Portfolio most appropriate for you based on your financial needs, risk
tolerance and investment horizon. You may request to discontinue the use of a
Model or Sample Portfolio by providing a written reallocation request, calling
our Annuity Service Center or logging onto our website.
You may also choose to invest gradually into a Model or Sample Portfolio through
the DCA program. PLEASE SEE THE DOLLAR COST AVERAGING PROGRAM ABOVE.
You may only invest in either one Model or one Sample Portfolio at a time.
Participation in this program requires that you invest 100% of your initial
Purchase Payment and subsequent Purchase Payment(s) in the same Model or Sample
Portfolio. Investment outside of the Sample Portfolios is prohibited. If you
attempt to split your investment in one or more Models, your investment may no
longer be consistent with the Model's intended objectives. Additionally, if you
invest in any Variable Portfolios in addition to investing in a Model, such an
investment may no longer be consistent with the Model's intended objectives.
You may request withdrawals, as permitted by your contract, which will be taken
proportionately from each of the allocations in the selected Model or Sample
Portfolio unless otherwise indicated in your withdrawal instructions. If you
choose to make a non-proportional withdrawal from the Variable Portfolios in the
Model or Sample Portfolio, your investment may no longer be consistent with the
Model's or Sample Portfolio's intended objectives. Withdrawals may be subject to
a withdrawal charge. Withdrawals may also be taxable and a 10% IRS penalty may
apply if you are under age 59 1/2.
You can transfer 100% of your investment from one Model or Sample Portfolio to
another Model or Sample Portfolio at any time; you will be transferred into the
most current Model or Sample Portfolio available in your contract. As a result
of a transfer, we will automatically update your allocation instructions on file
with respect to subsequent Purchase Payments and DCA target allocation
instructions, if applicable, and we will automatically update your Automatic
Asset Rebalancing Program instructions to reflect your new investment. PLEASE
SEE DOLLAR COST AVERAGING PROGRAM ABOVE AND AUTOMATIC ASSET REBALANCING PROGRAM
BELOW.
A subsequent Purchase Payment will be invested in the same Model or Sample
Portfolio as your current investment unless we receive different instructions
from you. You should consult with your financial representative to determine if
you should update both your allocation instructions, DCA target allocation
instructions and Automatic Asset Rebalancing Program instructions on file when
you make a subsequent Purchase Payment.
REBALANCING THE POLARIS PORTFOLIO ALLOCATOR MODELS AND THE SAMPLE PORTFOLIOS
You can elect to have your investment in the Model or Sample Portfolio
rebalanced quarterly, semi-annually, or annually to maintain the target asset
allocation among the Variable Portfolios of the Model or Sample Portfolio you
selected.
Over time, the Model or Sample Portfolio you select may no longer align with its
original investment objective due to the effects of Variable Portfolio
performance and changes in the Variable Portfolio's investment objectives.
Therefore, if you do not elect to have your investment in the Model or Sample
Portfolio rebalanced at least annually, then your investment may no longer be
consistent with the Model or Sample Portfolio's intended objectives. In
addition, your investment goals, financial situation and risk tolerance may
change. You should consult your financial representative about how to keep your
Model or Sample Portfolio's allocations in line with your investment goals.
Finally, changes in investment objectives or management of the underlying funds
in the models may mean that, over time, the Models no longer are consistent with
their original investment goals.
If you choose to make investments outside of the Model, only those Variable
Portfolios within the Model you selected will be rebalanced. Investments in
other Variable Portfolios not included in the Model cannot be rebalanced if you
wish to maintain your current Model.
If you elect an optional Living Benefit, you may elect a Model or Sample
Portfolio that complies with the investment requirements of the optional Living
Benefit and your Model or Sample Portfolio will be rebalanced quarterly. PLEASE
SEE OPTIONAL LIVING BENEFITS BELOW.
IMPORTANT INFORMATION ABOUT THE POLARIS PORTFOLIO ALLOCATOR PROGRAM
The Models and Sample Portfolios are not intended as investment advice about
investing in the Variable Portfolios, and we do not provide investment advice
regarding whether a Model or Sample Portfolio should be revised or whether it
remains appropriate to invest in accordance with any particular Model or Sample
Portfolio.
The program does not guarantee greater or more consistent returns. Future market
and investment category performance may differ from the historical performance
upon which the Models and Sample Portfolios may have been built. Also,
allocation to a single investment category may outperform a Model or Sample
Portfolio, so that you could have been better off investing in a single
investment category than in a Model or Sample Portfolio. However, such a
strategy may involve a greater degree of risk because of the concentration of
similar securities in a single investment category. Further, there can be no
assurance that any Variable Portfolio chosen for a particular Model or Sample
Portfolio will perform well
16
or that its performance will closely reflect that of the investment category it
is designed to represent.
The Models and Sample Portfolios represent suggested allocations that are
provided to you as general guidance. You should work with your financial
representative in determining if one of the Models or Sample Portfolios meets
your financial needs, investment time horizon, and is consistent with your risk
tolerance level. Information concerning the specific Models or Sample Portfolios
can be obtained from your financial representative.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE PROGRAM AT ANY TIME.
POLARIS PORTFOLIO ALLOCATOR MODELS
(EFFECTIVE MAY 3, 2010)
----------------------------------------------------------------------------------------
VARIABLE PORTFOLIOS MODEL A MODEL B MODEL C MODEL D
----------------------------------------------------------------------------------------
American Funds Global Growth 6% 9% 9% 10%
----------------------------------------------------------------------------------------
American Funds Growth 2% 2% 3% 3%
----------------------------------------------------------------------------------------
American Funds Growth-Income 1% 1% 1% 1%
----------------------------------------------------------------------------------------
Blue Chip Growth 2% 2% 2% 2%
----------------------------------------------------------------------------------------
Capital Appreciation 2% 3% 3% 4%
----------------------------------------------------------------------------------------
Corporate Bond 8% 7% 5% 0%
----------------------------------------------------------------------------------------
Davis Venture Value 4% 4% 4% 5%
----------------------------------------------------------------------------------------
Emerging Markets 0% 0% 2% 3%
----------------------------------------------------------------------------------------
Foreign Value 6% 9% 10% 10%
----------------------------------------------------------------------------------------
Global Bond 3% 2% 0% 0%
----------------------------------------------------------------------------------------
Government and Quality Bond 8% 5% 3% 0%
----------------------------------------------------------------------------------------
Growth Opportunities 2% 3% 5% 6%
----------------------------------------------------------------------------------------
High-Yield Bond 4% 0% 0% 0%
----------------------------------------------------------------------------------------
International Diversified Equities 0% 0% 0% 5%
----------------------------------------------------------------------------------------
Invesco Van Kampen V.I. Comstock
Fund, Series II Shares* 4% 5% 6% 6%
----------------------------------------------------------------------------------------
Invesco Van Kampen V.I. Growth and
Income Fund, Series II Shares** 6% 6% 7% 7%
----------------------------------------------------------------------------------------
Lord Abbett Growth and Income 1% 2% 3% 3%
----------------------------------------------------------------------------------------
Marsico Focused Growth 0% 1% 2% 3%
----------------------------------------------------------------------------------------
MFS Massachusetts Investors Trust 4% 5% 6% 7%
----------------------------------------------------------------------------------------
Mid-Cap Growth 1% 1% 2% 2%
----------------------------------------------------------------------------------------
Real Estate 2% 3% 4% 5%
----------------------------------------------------------------------------------------
Real Return 13% 9% 4% 1%
----------------------------------------------------------------------------------------
Small & Mid Cap Value 5% 6% 6% 7%
----------------------------------------------------------------------------------------
Small Company Value 2% 3% 5% 6%
----------------------------------------------------------------------------------------
Total Return Bond 14% 12% 8% 4%
----------------------------------------------------------------------------------------
TOTAL 100% 100% 100% 100%
----------------------------------------------------------------------------------------
* (formerly known as Van Kampen LIT Comstock, Class II Shares)
** (formerly known as Van Kampen LIT Growth and Income, Class II Shares)
We reserve the right to change the Variable Portfolios and/or allocations to
certain Variable Portfolios in each model to the extent that Variable Portfolios
are liquidated, substituted, merged or otherwise reorganized.
SAMPLE PORTFOLIOS (EFFECTIVE OCTOBER 25, 2010)
----------------------------------------------------------------------------------------
BALANCED
GROWTH BALANCED ALL
& TOWARD GROWTH EQUITY
VARIABLE PORTFOLIOS INCOME GROWTH FOCUS FOCUS
----------------------------------------------------------------------------------------
American Funds Global Growth 5% 10% 10% 15%
----------------------------------------------------------------------------------------
American Funds Growth 5% 5% 5% 10%
----------------------------------------------------------------------------------------
Corporate Bond 5% 5% 5% 0%
----------------------------------------------------------------------------------------
Foreign Value 10% 10% 15% 15%
----------------------------------------------------------------------------------------
Government and Quality Bond 25% 15% 10% 0%
----------------------------------------------------------------------------------------
Growth Opportunities 5% 5% 5% 7%
----------------------------------------------------------------------------------------
Invesco Van Kampen V.I. Comstock Fund,
Series II Shares* 10% 10% 10% 15%
----------------------------------------------------------------------------------------
Invesco Van Kampen V.I. Growth and
Income Fund, Series II Shares** 10% 15% 15% 15%
----------------------------------------------------------------------------------------
MFS Massachusetts Investors Trust 5% 5% 10% 13%
----------------------------------------------------------------------------------------
Mid-Cap Growth 0% 5% 10% 10%
----------------------------------------------------------------------------------------
Total Return Bond 20% 15% 5% 0%
----------------------------------------------------------------------------------------
TOTAL 100% 100% 100% 100%
----------------------------------------------------------------------------------------
* (formerly known as Van Kampen LIT Comstock, Class II Shares)
** (formerly known as Van Kampen LIT Growth and Income, Class II Shares)
The Models and Sample Portfolios listed above are those that are currently
available. The Models and Sample Portfolios are reconfigured annually. However,
once you invest in either a Model or Sample Portfolio, the percentages of your
contract value allocated to each Variable Portfolio within a Model and Sample
Portfolio will not be changed by us. You should speak with your financial
representative about how to keep the Variable Portfolio allocations in each
Model and Sample Portfolio in line with your investment goals over time.
TRANSFERS DURING THE ACCUMULATION PHASE
Subject to our rules, restrictions and policies described below, during the
Accumulation Phase, you may transfer funds between the Variable Portfolios
and/or any available Fixed Accounts by telephone (800) 445-7862, through the
Company's website (www.sunamerica.com), by U.S. Mail addressed to our Annuity
Service Center, P.O. Box 54299, Los Angeles, California 90054-0299 or by
facsimile. All transfer instructions submitted via facsimile must be sent to
(818) 615-1543; otherwise they will not be considered received by us. We may
accept transfers by telephone or the Internet unless you tell us not to on your
contract application. If your contract was issued in the state of New York, we
may accept transfers by telephone if you complete and send the Telephone
Transfer Agreement form to our Annuity Service Center. When receiving
instructions over the telephone or the Internet, we have 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
17
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.
Any transfer request will be priced as of the day it is received by us in Good
Order if the request is received before Market Close. If the transfer request is
received after Market Close, the request will be priced as of the next business
day.
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.
There is no charge for your first 15 transfers. We charge for transfers in
excess of 15 in any contract year. The fee is $25 for each transfer exceeding
this limit. Transfers resulting from your participation in the DCA or Automatic
Asset Rebalancing programs are not counted towards the number of free transfers
per contract year.
SHORT-TERM TRADING POLICIES
We do not want to issue this variable annuity contract to contract owners
engaged in trading strategies that seek to benefit from short-term price
fluctuations or price inefficiencies in the Variable Portfolios of this product
("Short-Term Trading") and we discourage Short-Term Trading as more fully
described below. However, we cannot always anticipate if a potential contract
owner intends to engage in Short-Term Trading. Short-Term Trading may create
risks that may result in adverse effects on investment return of the Underlying
Fund in which a Variable Portfolio invests. Such risks may include, but are not
limited to: (1) interference with the management and planned investment
strategies of an Underlying Fund; (2) dilution of the interests in the
Underlying Fund due to practices such as "arbitrage"; and/or (3) increased
brokerage and administrative costs due to forced and unplanned fund turnover.
These circumstances may reduce the value of the Variable Portfolio. In addition
to negatively impacting the Owner, a reduction in contract value may also be
harmful to Annuitants and/or Beneficiaries.
We have adopted the following administrative procedures to discourage Short-Term
Trading which are summarized below.
The first 15 transfers in a rolling 12-month look-back period ("12-Month Rolling
Period") can be made by telephone, through the Company's website, or in writing
by mail or by facsimile. The 15th transfer in a 12-Month Rolling Period triggers
the U.S. Mail method of transfer. Therefore, once you make the 15th transfer in
a 12-Month Rolling Period, all transfers must be submitted by United States
Postal Service first-class mail ("U.S. Mail") for 12-months following the date
of the 15th transfer ("Standard U.S. Mail Policy").
For example, if you made a transfer on August 16, 2009 and within the previous
twelve months (from August 17, 2008 forward) you made 15 transfers including the
August 16th transfer, then all transfers made for twelve months after August 16,
2009 must be submitted by U.S. Mail (from August 17, 2009 through August 16,
2010).
U.S. Mail includes any postal service delivery method that offers delivery no
sooner than United States Postal Service first-class mail, as determined in the
Company's sole discretion. We will not accept transfer requests sent by any
other medium except U.S. Mail during this 12-month period. Transfer requests
required to be submitted by U.S. Mail can only be cancelled by a written request
sent by U.S. Mail with the appropriate paperwork received prior to the execution
of the transfer.
All transfers made on the same day prior to Market Close are considered one
transfer request for purposes of applying the Short-Term Trading policy and
calculating the number of free transfers. Transfers resulting from your
participation in the DCA or Automatic Asset Rebalancing programs are not
included for the purposes of determining the number of transfers before applying
the Standard U.S. Mail Policy.
We apply the Standard U.S. Mail Policy uniformly and consistently to all
contract owners except for omnibus group contracts as described below.
We believe that the Standard U.S. Mail Policy is a sufficient deterrent to
Short-Term Trading. However, we may become aware of transfer patterns among the
Variable Portfolios and/or Fixed Accounts which appear to be Short-Term Trading
or otherwise detrimental to the Variable Portfolios but have not yet triggered
the limitations of the Standard U.S. Mail Policy described above. If such
transfer activity comes to our attention, we may require you to adhere to our
Standard U.S. Mail Policy prior to reaching the specified number of transfers
("Accelerated U.S. Mail Policy"). To the extent we become aware of Short-Term
Trading activities which cannot be reasonably controlled solely by the Standard
U.S. Mail Policy or the Accelerated U.S. Mail Policy, we reserve the right to
evaluate, in our sole discretion, whether to: (1) impose further limits on the
size, manner, number and/or frequency of transfers you can make; (2) impose
minimum holding periods; (3) reject any Purchase Payment or transfer request;
(4) terminate your transfer privileges; and/or (5) request that you surrender
your contract. We will notify you in writing if your transfer privileges are
terminated. In addition, we reserve the right not to accept or otherwise
restrict transfers from a third party acting for you and not to accept pre-
authorized transfer forms.
Some of the factors we may consider when determining whether to accelerate the
Standard U.S. Mail Policy, reject transfers or impose other conditions on
transfer privileges include:
(1) the number of transfers made in a defined period;
18
(2) the dollar amount of the transfer;
(3) the total assets of the Variable Portfolio involved in the transfer
and/or transfer requests that represent a significant portion of the
total assets of the Variable Portfolio;
(4) the investment objectives and/or asset classes of the particular
Variable Portfolio involved in your transfers;
(5) whether the transfer appears to be part of a pattern of transfers to
take advantage of short-term market fluctuations or market
inefficiencies;
(6) the history of transfer activity in the contract or in other contracts
we may offer; and/or
(7) other activity, as determined by us, that creates an appearance, real
or perceived, of Short-Term Trading or the possibility of Short-Term
Trading.
Notwithstanding the administrative procedures above, there are limitations on
the effectiveness of these procedures. Our ability to detect and/or deter Short-
Term Trading is limited by operational systems and technological limitations, as
well as our ability to predict strategies employed by contract owners (or those
acting on their behalf) to avoid detection. We cannot guarantee that we will
detect and/or deter all Short-Term Trading and it is likely that some level of
Short-Term Trading will occur before it is detected and steps are taken to deter
it. To the extent that we are unable to detect and/or deter Short-Term Trading,
the Variable Portfolios may be negatively impacted as described above.
Additionally, the Variable Portfolios may be harmed by transfer activity related
to other insurance companies and/or retirement plans or other investors that
invest in shares of the Underlying Fund. Moreover, our ability to deter Short-
Term Trading may be limited by decisions by state regulatory bodies and court
orders which we cannot predict. You should be aware that the design of our
administrative procedures involves inherently subjective decisions which we
attempt to make in a fair and reasonable manner consistent with the interests of
all owners of this contract. We do not enter into agreements with contract
owners whereby we permit or intentionally disregard Short-Term Trading.
The Standard and Accelerated U.S. Mail Policies are applied uniformly and
consistently to contract owners utilizing third party trading
services/strategies performing asset allocation services for a number of
contract owners at the same time. You should be aware that such third party
trading services may engage in transfer activities that can also be detrimental
to the Variable Portfolios, including trading relatively large groups of
contracts simultaneously. These transfer activities may not be intended to take
advantage of short-term price fluctuations or price inefficiencies. However,
such activities can create the same or similar risks as Short-Term Trading and
negatively impact the Variable Portfolios as described above.
Omnibus group contracts may invest in the same Underlying Funds available in
your contract but on an aggregate, not individual basis. Thus, we have limited
ability to detect Short-Term Trading in omnibus group contracts and the Standard
U.S. Mail Policy does not apply to these contracts. Our inability to detect
Short-Term Trading may negatively impact the Variable Portfolios as described
above.
WE RESERVE THE RIGHT TO MODIFY THE POLICIES AND PROCEDURES DESCRIBED IN THIS
SECTION AT ANY TIME. To the extent that we exercise this reservation of rights,
we will do so uniformly and consistently unless we disclose otherwise.
UNDERLYING FUNDS' SHORT-TERM TRADING POLICIES
Please note that the Underlying Funds have their own policies and procedures
with respect to frequent purchases and redemptions of their respective shares.
We reserve the right to enforce these Underlying Fund policies and procedures,
including, but not limited to, the right to collect a redemption fee on shares
of the Underlying Fund if imposed by such Fund's Board of Trustees/Directors. As
of the date of this prospectus, none of the Underlying Funds impose a redemption
fee. We also reserve the right to reject, with or without prior notice, any
purchase, transfer or allocation into a Variable Portfolio if the corresponding
Underlying Fund will not accept such purchase, transfer or allocation for any
reason. The prospectuses for the Underlying Funds describe these procedures,
which may be different among Underlying Funds and may be more or less
restrictive than our policies and procedures.
Under rules adopted by the Securities and Exchange Commission, we also have
written agreements with the Underlying Funds that obligate us to, among other
things, provide the Underlying Funds promptly upon request certain information
about you (e.g., your social security number) and your trading activity. In
addition, we are obligated to execute instructions from the Underlying Funds to
restrict or prohibit further purchases or transfers in an Underlying Fund under
certain circumstances.
Many investments in the Underlying Funds outside of these contracts are omnibus
orders from intermediaries such as other separate accounts or retirement plans.
If an Underlying Fund's policies and procedures fail to successfully detect and
discourage Short-Term trading, there may be a negative impact to the owners of
the Underlying Fund. If an Underlying Fund believes that an omnibus order we
submit may reflect transfer requests from owners engaged in Short-Term Trading,
the Underlying Fund may reject the entire omnibus order and delay or prevent us
from implementing your transfer request.
TRANSFERS DURING THE INCOME PHASE
During the Income Phase, only one transfer per month is permitted between the
Variable Portfolios. No other transfers are allowed during the Income Phase.
Transfers will be
19
effected for the last NYSE business day of the month in which we receive your
request for the transfer.
AUTOMATIC ASSET REBALANCING PROGRAM
Market fluctuations may cause the percentage of your investment in the Variable
Portfolios to differ from your original allocations. Automatic Asset Rebalancing
typically involves shifting portions of your money into and out of investment
options so that the resulting allocations are consistent with your current
investment instructions. Under the Automatic Asset Rebalancing Program, you may
elect to have your investments in the Variable Portfolios and/or Fixed Accounts,
if available, periodically rebalanced to return your allocations to the
percentages given at your last instructions for no additional charge. At your
request, rebalancing occurs on a quarterly, semiannual or annual basis.
Transfers resulting from your participation in this program are not counted
against the number of free transfers per contract year.
If you make a transfer, you must provide updated rebalancing instructions. If
you do not provide new rebalancing instructions at the time you make a transfer,
we will change your ongoing rebalancing instructions to reflect the percentage
allocations among the new Variable Portfolios and/or Fixed Accounts, if
available, resulting from your transfer ("Default Rebalancing Instructions").
For example, your current contract value is allocated 80% in Variable Portfolio
A and 20% in Variable Portfolio B. You request a transfer of 50% from Variable
Portfolio A to Variable Portfolio C. Then your Default Rebalancing Instructions
would be 40% in Variable Portfolio A, 20% in Variable Portfolio B and 40% in
Variable Portfolio C. You may change any applicable Default Rebalancing
Instructions at any time by contacting the Annuity Service Center.
If you elect an optional living benefit, we will automatically enroll you in the
Automatic Asset Rebalancing Program with quarterly rebalancing. If you have
elected [to be filed by amendment] Living Benefit, the amount of your investment
allocated to the Secure Value Account is not part of your allocations and cannot
be rebalanced. PLEASE SEE OPTIONAL LIVING BENEFITS BELOW for a detailed
discussion of the impact of Automatic Asset Rebalancing on the election and/or
cancellation of a living benefit.
EXAMPLE OF AUTOMATIC ASSET REBALANCING PROGRAM:
Assume that you want your initial Purchase Payment split between two
Variable Portfolios. You want 50% in a bond Variable Portfolio and 50% in a
stock Variable 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 bond Variable Portfolio now represents 60% of your
holdings because it has increased in value and the stock Variable Portfolio
represents 40% of your holdings. If you chose quarterly rebalancing and you
have not made any transfer, on the last day of that quarter, we would sell
some of your Accumulation Units in the bond Variable Portfolio to bring its
holdings back to 50% and use the money to buy more Accumulation Units in
the stock Variable Portfolio to increase those holdings to 50%.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE AUTOMATIC ASSET
REBALANCING PROGRAM AT ANY TIME.
VOTING RIGHTS
The Company is the legal owner of the Trusts' shares. However, when an
Underlying Fund solicits proxies in conjunction with a shareholder vote, 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 vote in
the manner described above, we will vote the shares in our own right.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
ACCESS TO YOUR MONEY
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
You can access money in your contract by making a partial or total withdrawal,
and/or by receiving annuity income payments during the Income Phase. PLEASE SEE
ANNUITY INCOME OPTIONS BELOW. Any request for withdrawal will be priced as of
the day it is received by us in Good Order at the Annuity Service Center, if the
request is received before Market Close. If the request for withdrawal is
received after Market Close, the request will be priced as of the next business
day.
We deduct a withdrawal charge applicable to any partial or total withdrawal made
before the end of the withdrawal charge period.
If you have elected the optional living benefit, you should consider the impact
of your withdrawals on the benefit. PLEASE SEE OPTIONAL LIVING BENEFITS BELOW.
FREE WITHDRAWAL AMOUNT
Your contract provides for a free withdrawal amount each year. A free withdrawal
amount, as defined below, is the portion of your contract that we allow you to
take out each year without being charged a withdrawal charge during the
withdrawal charge period. The free withdrawal amount does not reduce the basis
used to calculate future annual free withdrawals and withdrawal charges. As a
result, if you surrender your contract in the future while withdrawal charges
are still applicable, you will not receive the benefit of any previous free
withdrawals upon a full surrender.
Withdrawals of Purchase Payments made prior to the end of the withdrawal charge
schedule, that are in excess of your free withdrawal amount will result in a
withdrawal charge. Before purchasing this contract, you should consider the
effect of withdrawal charges on your investment if you need to withdraw more
money than the free withdrawal amount
20
during the withdrawal charge period. You should fully discuss this decision with
your financial representative.
When you make a partial withdrawal, we deduct it from any remaining penalty-free
withdrawal amount first, next from remaining Purchase Payments on a first-in,
first-out basis, and then from any remaining contract value. 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.
Your annual free withdrawal amount is the greater of*:
1) 10% of remaining Purchase Payments not yet withdrawn each contract year,
and still subject to withdrawal charges; or
2) The Maximum Annual Withdrawal Amount, if you elected a Living Benefit.
--------
* If you are taking required minimum distributions ("RMD") applicable to this
contract only, current company practice is to waive any withdrawal charges
applicable to those withdrawals
Amounts withdrawn free of a withdrawal charge under the 10% provision do not
reduce the amount you invested for purposes of calculating the withdrawal
charges. As a result, if you surrender your contract in the future while
withdrawal charges are still applicable, any previous free withdrawals under the
10% provision would then be subject to applicable withdrawal charges. Purchase
Payments that are no longer subject to a withdrawal charge and not previously
withdrawn may also be withdrawn free of a withdrawal charge at any time. If you
choose to take less than the full 10% free withdrawal amount, as described
above, or the Maximum Annual Withdrawal Amount, if allowed under the Living
Benefit you elected, in any contract year, you may not carry over the unused
amount as a penalty-free withdrawal in subsequent years.
We calculate charges upon surrender of the contract 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 number of years the
Purchase Payment has been in the contract at the time of the withdrawal and the
Accumulated Premium Breakpoint achieved based on the sum of all Purchase
Payments. PLEASE SEE EXPENSES BELOW. For the purpose of calculating the
withdrawal charge, any prior free withdrawal is not subtracted from the total
Purchase Payments still subject to withdrawal charges.
For example, you make an initial Purchase Payment of $100,000. For purposes of
this example we will assume a 0% growth rate over the life of the contract, no
subsequent Purchase Payments and no election of optional features, if
applicable. 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 the 3rd
contract year, you request a total withdrawal of your contract and your
withdrawal charge based on your Accumulated Premium Breakpoint for the 3rd
contract year is 4%. We will apply the following calculation:
A-(B x C)=D, where:
A=Your contract value at the time of your request for withdrawal ($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 (assuming 4% is the applicable percentage) [B x C=$4,000]
D=Your full contract value ($86,000) available for total withdrawal
If you surrender your contract, we may also deduct any premium taxes, if
applicable. PLEASE SEE EXPENSES BELOW.
Under most circumstances, the minimum amount you can withdraw is $1,000. We
require that the value left in any Variable Portfolio or Fixed Accounts be at
least $100, after the withdrawal and your total contract value must be at least
$2,500. The request for withdrawal must be in writing and sent to the Annuity
Service Center. For withdrawals of $500,000 and more, a signature guarantee is
generally required at the time of your request. Unless you provide us with
different instructions, partial withdrawals will be made proportionately from
each Variable Portfolio and the Fixed Account in which you are invested. In the
event that a proportionate 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.
Withdrawals made prior to age 59 1/2 may result in a 10% IRS penalty tax. PLEASE
SEE TAXES BELOW. Under certain Qualified plans, access to the money in your
contract may be restricted.
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; (5) we are on notice that this
contract is the subject of a court proceeding, an arbitration, a regulatory
matter or other legal action.
Additionally, we reserve the right to defer payments for a withdrawal from a
Fixed Account for up to six months.
21
SYSTEMATIC WITHDRAWAL PROGRAM
During the Accumulation Phase, you may elect to receive periodic withdrawals
under the Systematic Withdrawal program for no additional charge. Under the
program, you may choose to take monthly, quarterly, semi-annual or annual
payments from your contract. Electronic transfer of these withdrawals to your
bank account is also available. The minimum amount of each withdrawal is $100.
There must be at least $2,500 remaining in your contract at all times.
Withdrawals may be taxable and a 10% federal penalty tax may apply if you are
under age 59 1/2. A withdrawal charge may apply if the amount of the periodic
withdrawals in any year exceeds the free withdrawal amount permitted each year.
PLEASE SEE ACCESS TO YOUR MONEY ABOVE AND SEE EXPENSES BELOW.
The program is not available to everyone. Please contact our Annuity Service
Center which can provide the necessary enrollment forms.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE SYSTEMATIC WITHDRAWAL
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 on certain withdrawals prior to the Annuity Date. The waiver
applies only to withdrawals made while you are in a nursing home or within 90
days after you leave the nursing home. You cannot use this waiver during the
first 90 days after your contract is issued. In addition, the confinement period
for which you seek the waiver must begin after you purchase your contract. We
will only waive the withdrawal charges on withdrawals or surrenders paid
directly to the contract owner, and not to a third party or other financial
services company.
In order to use this waiver, you must submit with your withdrawal request to the
Annuity Service Center, 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 your contract
value is less than $2,500 as a result of withdrawals and/or fees and charges. We
will provide you with sixty days written notice that your contract is being
terminated. At the end of the notice period, we will distribute the contract's
remaining value to you.
If you elected an optional living benefit, withdrawals taken under the
parameters of the feature that reduce contract value below the Minimum Contract
Value will not terminate your contract. PLEASE SEE OPTIONAL LIVING BENEFITS
BELOW.
QUALIFIED CONTRACT OWNERS
Certain Qualified plans restrict and/or prohibit your ability to withdraw money
from your contract. PLEASE SEE TAXES BELOW for a more detailed explanation.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
OPTIONAL LIVING BENEFITS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
OVERVIEW OF LIVING BENEFITS
The optional Living Benefit is designed to help you create a guaranteed income
stream based on a series of withdrawals you may take from your contract that may
last as long as you live. As long as you take these withdrawals within the
parameters of the Living Benefit, you may receive a guaranteed income stream for
life even if the entire contract value has been reduced to zero. Alternatively,
you should know that you may also receive annuity income payments for life if
you annuitize your contract. PLEASE SEE ANNUITY INCOME OPTIONS BELOW.
The Living Benefit may offer protection in the event your contract value
declines due to unfavorable investment performance, certain withdrawal activity,
if you live longer than expected or any combination of these factors. You may
never need to rely on this protection as the benefit's value is dependent on
your contract's performance, your withdrawal activity and your longevity.
You may elect the following optional Living Benefit, which is a guaranteed
minimum withdrawal benefit, for an additional fee. Though the optional Living
Benefit offers additional protections, the additional fee associated with the
benefit has the impact of reducing the net investment return.
Please read carefully the more detailed description of the Living Benefit
following the summary for information regarding how the benefit works, its
availability, applicable restrictions, fees and additional considerations. You
should analyze the Living Benefit thoroughly and understand it completely before
electing.
[to be filed by amendment] LIVING BENEFIT offers guaranteed lifetime income plus
the opportunity to increase income by locking in the greater of either the
contract's highest Anniversary Value, or an annual Income Credit. The annual [to
be filed by amendment]% Income Credit is an amount we may add to the Income Base
each year for the first 12 Benefit Years.
The [to be filed by amendment]% Income Credit is reduced but not eliminated in
any Benefit Year in which cumulative withdrawals are less than [to be filed by
amendment]% of the Income Base and not greater than the Maximum Annual
Withdrawal Amount thereby providing a guarantee that income can increase during
the first 12 years even after starting withdrawals. After the first 12 years,
only the highest Anniversary Value increase may be available. In addition, if
you do not take any withdrawals during the first 12 years, you could be eligible
for the Minimum Income Base on the 12th Benefit Year Anniversary. The Minimum
Income
22
Base is equal to [to be filed by amendment]% of the first Benefit Year's
Eligible Purchase Payments.
GENERAL INFORMATION APPLICABLE TO THE LIVING BENEFIT
You must invest in accordance with investment requirements outlined below.
The Living Benefit may not be appropriate if you plan to make ongoing Purchase
Payments, such as with contributory IRA's or other tax-qualified plans. The
Living Benefit guarantees that only certain Purchase Payments received during
the contract's first [to be filed by amendment] years are included in the Income
Base.
This optional Living Benefit is designed for individuals and spouses. Thus, if a
contract is jointly owned by non-spousal joint Owners, Domestic Partners or
Same-Sex Spouses and either Owner dies, the surviving Owner must make an
election in accordance with the death benefit provisions of the contract in
compliance with the IRC, which terminates the Living Benefit. PLEASE SEE DEATH
BENEFITS BELOW. Accordingly, the surviving Owner may not receive the full
benefit of the Living Benefit.
Any withdrawals taken may be subject to a 10% IRS tax penalty if you are under
age 59 1/2 at the time of the withdrawal. For information about how the Living
Benefit is treated for income tax purposes, you should consult a qualified tax
advisor concerning your particular circumstances. In addition, if you have a
Qualified contract, tax law and the terms of the plan may restrict withdrawal
amounts.
LIVING BENEFIT DEFINED TERMS
ANNIVERSARY VALUE
The contract value on any Benefit Year Anniversary minus any Ineligible Purchase
Payments (defined below). Continuation Contributions, if applicable, are
included in the calculation of Anniversary Values. PLEASE SEE SPOUSAL
CONTINUATION BELOW.
BENEFIT EFFECTIVE DATE
The date the Living Benefit is elected. The Benefit Effective Date is the same
as the contract issue date.
BENEFIT QUARTER
Each consecutive 3 month period starting on the Benefit Effective Date.
BENEFIT QUARTER ANNIVERSARY
The date following each consecutive 3 month period starting on the Benefit
Effective Date. If the next Benefit Quarter Anniversary has no corresponding
date, then the Benefit Quarter Anniversary will be deemed to be the following
business day.
BENEFIT YEAR
Each consecutive one year period starting on the Benefit Effective Date.
BENEFIT YEAR ANNIVERSARY
The date on which each Benefit Year begins.
CONTRACT YEAR
Each consecutive one year period starting on the contract issue date.
COVERED PERSON(S)
The person, or persons, whose lifetime withdrawals are guaranteed under the
Living Benefit.
ELIGIBLE PURCHASE PAYMENTS
Eligible Purchase Payments are Purchase Payments, or portions thereof, made on
or after the Benefit Effective Date as shown in the table below and are included
in the calculation of the Income Base (defined below). The calculation of
Eligible Purchase Payments does not include Income Credits (defined below) or
the Continuation Contribution, if applicable. However, Continuation
Contributions, if applicable, are included in the calculation of Anniversary
Values. PLEASE SEE SPOUSAL CONTINUATION BELOW. Total Purchase Payments are
limited to $1,500,000 without prior Company approval.
----------------------------------------------------------------------------------
FIRST CONTRACT YEAR SUBSEQUENT CONTRACT YEARS
----------------------------------------------------------------------------------
100% of Purchase Payments Purchase Payments received in contract years
received [to be filed by amendment], capped at
[to be filed by amendment]% of Purchase
Payments received in the first contract year
----------------------------------------------------------------------------------
EXAMPLE: If you made a $[to be filed by amendment] Purchase Payment in contract
year 1, Eligible Purchase Payments will include additional Purchase Payments of
up to $[to be filed by amendment] for years [to be filed by amendment] for a
grand total maximum of $[to be filed by amendment] of Eligible Purchase
Payments.
EXCESS WITHDRAWAL
Any withdrawal, or portion of a withdrawal, that is taken in a Benefit Year
which exceeds the maximum amount that may be withdrawn each Benefit Year. This
withdrawal may include, but is not limited to, any withdrawal taken in a Benefit
Year taken after the maximum amount allowed. An Excess Withdrawal will cause the
Income Base, Income Credit Base, if applicable, and the Maximum Annual
Withdrawal Amount to be recalculated.
INCOME BASE
The Income Base is used to determine the fee and the maximum amount that may be
withdrawn each Benefit Year without reducing the Income Base and Income Credit
Base, if applicable. The Income Base is also used to determine the amount paid
each year over the remaining lifetime of the Covered Person(s) after the
contract value is reduced to zero.
INCOME CREDIT
An amount that may be added to the Income Base during the Income Credit Period
as shown in the following table:
------------------------------------------------------------------------
INCOME CREDIT INCOME CREDIT AVAILABILITY
------------------------------------------------------------------------
[to be filed by amendment]% Available during the first 12 Benefit Years
-- the Income Credit is reduced in years
withdrawals are taken
------------------------------------------------------------------------
23
INCOME CREDIT BASE
The Income Credit Base is used solely as a basis for calculating the Income
Credit during the Income Credit Period.
INCOME CREDIT PERIOD
The period of time over which we calculate the Income Credit.
INELIGIBLE PURCHASE PAYMENTS
Purchase Payments, or portions thereof, received after the 5th contract year, or
that are in excess of the caps discussed in the table under "ELIGIBLE PURCHASE
PAYMENTS" above.
INVESTMENT REQUIREMENTS
We will allocate 10% of every Purchase Payment and Continuation Contribution, if
any, to a fixed interest rate account (the "Secure Value Account"). The
remaining 90% of every Purchase Payment and Continuation Contribution, if any,
(the "Flexible Allocation"), must be allocated by you in accordance with the
investment options outlined under "ARE THERE INVESTMENT REQUIREMENTS IF I ELECT
[to be filed by amendment] LIVING BENEFIT?" below.
MAXIMUM ANNUAL WITHDRAWAL AMOUNT
The maximum amount that may be withdrawn each Benefit Year while the contract
value is greater than zero without reducing the Income Base and the Income
Credit Base, if applicable.
MAXIMUM ANNUAL WITHDRAWAL PERCENTAGE
The percentage used to determine the Maximum Annual Withdrawal Amount available
for withdrawal each Benefit Year while the contract value is greater than zero.
Currently, the Maximum Annual Withdrawal Percentage is the same as the Protected
Income Payment Percentage.
MINIMUM INCOME BASE
The guaranteed minimum amount to which the Income Base could be increased on the
12th Benefit Year Anniversary provided no withdrawals are taken before the 12th
Benefit Year Anniversary.
PROTECTED INCOME PAYMENT
The amount to be paid each year over the remaining lifetime of the Covered
Person(s) after the contract value is reduced to zero but the Income Base is
still greater than zero or if the Latest Annuity Date has been reached.
PROTECTED INCOME PAYMENT PERCENTAGE
The percentage used to determine the Protected Income Payment. Currently, the
Protected Income Payment Percentage is the same as the Maximum Annual Withdrawal
Percentage.
[to be filed by amendment] LIVING BENEFIT
How does [to be filed by amendment] Living Benefit work?
The Living Benefit locks in the greater of two values to determine the Income
Base. The Income Base is the basis for the Covered Person(s)' guaranteed
lifetime benefit which must be taken in a series of withdrawals. The Income Base
is initially equal to the first Eligible Purchase Payment. While the Income Base
is greater than zero, the Income Base is automatically locked in on each Benefit
Year Anniversary, to the greater of (1) the highest Anniversary Value, or (2)
the current Income Base increased by any available Income Credit.
There is an additional guarantee if you do not take any withdrawals before the
12th Benefit Year Anniversary; the Income Base could be increased to equal at
least [to be filed by amendment]% of your first Benefit Year's Eligible Purchase
Payments ("Minimum Income Base"). PLEASE SEE "HOW CAN THE INCOME BASE AND INCOME
CREDIT BASE BE INCREASED?" BELOW.
What determines the amount I can receive each year?
The amount that you receive depends on the age of the Covered Person(s) at the
time of first withdrawal and whether your contract value is greater than or
equal to zero.
While the contract value is greater than zero, the Maximum Annual Withdrawal
Percentage represents the percentage of your Income Base used to calculate the
Maximum Annual Withdrawal Amount that you may withdraw each Benefit Year without
decreasing your Income Base or Income Credit Base, if applicable. The Maximum
Annual Withdrawal Percentage differs depending on whether there are one or two
Covered Person(s) and the age of the Covered Person(s) at the time of the first
withdrawal.
If your contract value has been reduced to zero or the Latest Annuity Date is
reached, the Protected Income Payment Percentage represents the percentage of
your Income Base used to calculate the Protected Income Payment that you will
receive each year over the remaining lifetime of the Covered Person(s). The
Protected Income Payment Percentage differs depending on whether there are one
or two Covered Person(s) and the age of the Covered Person(s) at the time of
first withdrawal. PLEASE SEE "WHAT HAPPENS IF THE CONTRACT VALUE IS REDUCED TO
ZERO WHILE THE INCOME BASE IS GREATER THAN ZERO?" AND "WHAT HAPPENS TO MY LIVING
BENEFIT UPON THE LATEST ANNUITY DATE?" BELOW.
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NUMBER OF COVERED
PERSONS
AND AGE AT FIRST MAXIMUM ANNUAL PROTECTED INCOME
WITHDRAWAL* WITHDRAWAL PERCENTAGE PAYMENT PERCENTAGE
-------------------------------------------------------------------
One Covered Person
(Age [to be filed by
amendment] and Younger) [to be filed by [to be filed by
amendment]% amendment]%
-------------------------------------------------------------------
One Covered Person
(Age [to be filed by
amendment] and Older) [to be filed by [to be filed by
amendment]% amendment]%
-------------------------------------------------------------------
Two Covered Persons
(Age [to be filed by
amendment] and Younger) [to be filed by [to be filed by
amendment]% amendment]%
-------------------------------------------------------------------
Two Covered Persons
(Age [to be filed by
amendment] and Older) [to be filed by [to be filed by
amendment]% amendment]%
-------------------------------------------------------------------
* If there is One Covered Person but there are joint Owners, the Covered Person
is the older Owner. If there are Two Covered Persons, the age at first
withdrawal is based on the age of the younger of Two Covered Persons, if
applicable.
24
Are there investment requirements if I elect [to be filed by amendment] Living
Benefit?
Yes. We will allocate 10% of every Purchase Payment and Continuation
Contribution, if applicable, to a Fixed Account ("Secure Value Account"). The
Secure Value Account is only available for investment for contracts with
election of [to be filed by amendment] Living Benefit. The crediting interest
rate on amounts allocated to the Secure Value Account will never be less than
the guaranteed minimum interest rate specified in your contract. The crediting
interest rate, once established, will not change for each allocation to the
Secure Value Account for the duration of the guarantee period. The guarantee
period for the Secure Value Account is a one year period that automatically
renews every year from the date of each allocation to the Secure Value Account,
unless the Living Benefit has been cancelled. Each allocation to the Secure
Value Account may have different crediting interest rates. The remaining 90% of
every Purchase Payment and Continuation Contribution, if applicable (the
"Flexible Allocation"), must be allocated by you in accordance with the
investment requirements outlined below.
Your Flexible Allocation must comply with the investment requirements in one of
four ways.
FLEXIBLE ALLOCATION -- CHECK-THE-BOX OPTIONS 1-3
After investing 10% in the Secure Value Account, the remaining 90% of Purchase
Payments can be invested in accordance with Option 1, 2 or 3:
------------------------------------------------------------------------------
---------------- -------------------------------------------------------------
Option 1 Invest in one of three available Polaris Portfolio Allocator
Models:
Model A, Model B or Model C
or
Invest in one of three available Sample Portfolios:
Balanced Growth & Income
Balanced Toward Growth
Growth Focus
Option 2 Invest in one or more of the following balanced Variable
Portfolios:
American Funds Asset Allocation
Asset Allocation
Balanced
Franklin Income Securities Fund
MFS Total Return
---------------- -------------------------------------------------------------
Option 3 Invest in the Cash Management Variable Portfolio
---------------- -------------------------------------------------------------
FLEXIBLE ALLOCATION -- BUILD-YOUR-OWN OPTION 4
After investing 10% in the Secure Value Account, the remaining 90% of Purchase
Payments can be invested among the Variable Portfolios and available Fixed
Accounts, as follows:
------------------------------------------------------
INVEST-
MENT INVESTMENT VARIABLE PORTFOLIOS
GROUP REQUIREMENT AND/OR FIXED ACCOUNTS
---------- -------------------------------------------
A. Bond, Minimum 20% Cash Management
Cash Maximum 90% Corporate Bond
and Global Bond
Fixed Government & Quality Bond
Acco- Real Return
unts Total Return Bond
DCA FIXED ACCOUNTS
6-Month DCA
1-Year DCA
2-Year DCA
FIXED ACCOUNTS
1-Year Fixed (if available)
---------- -------------------------------------------
B. Equi- Minimum 0% Aggressive Growth
ty Maximum 70% Alliance Growth
Maxi- American Funds Asset
mum Allocation
American Funds Global
Growth
American Funds Growth
American Funds Growth-
Income
Asset Allocation
Balanced
Blue Chip Growth
Capital Appreciation
Davis Venture Value
"Dogs" of Wall Street
Equity Opportunities
Foreign Value
Franklin Income Securities
Fund
Franklin Templeton VIP
Founding
Funds Allocation Fund
Fundamental Growth
Global Equities
Growth
Growth-Income
High-Yield Bond
International Diversified
Equities
International Growth and
Income
Invesco Van Kampen V.I.
Capital
Growth Fund, Series II
Shares
Invesco Van Kampen V.I.
Comstock
Fund, Series II Shares
Invesco Van Kampen V.I.
Growth
and Income Fund, Series
II Shares
Lord Abbett Growth and
Income
Lord Abbett Mid Cap Value
Marsico Focused Growth
MFS Massachusetts Investors
Trust
MFS Total Return
Small & Mid Cap Value
Telecom Utility
---------- -------------------------------------------
C. Lim- Minimum 0% Capital Growth
ited Maximum 10% Emerging Markets
Equi- Growth Opportunities
ty Mid-Cap Growth
Natural Resources
Real Estate
Small Company Value
Technology
---------- -------------------------------------------
* You may use a DCA Fixed Account to invest your target allocations in
accordance with the investment requirements.
Your allocation instructions accompanying any Purchase Payment as well as your
target allocations if you invest in a DCA Fixed Account must comply with the
investment
25
requirements, described above, in order for your application or subsequent
Purchase Payment(s) allocation instructions to be considered in Good Order. We
will automatically enroll you in the Automatic Asset Rebalancing Program with
quarterly rebalancing. If rebalancing instructions are not provided, we will
align your rebalancing allocations with your Purchase Payment instructions, or
if using a DCA Fixed Account, your target DCA instructions. We require quarterly
rebalancing because market performance and transfer and withdrawal activity may
result in your contract's Flexible Allocations going outside these requirements.
Quarterly rebalancing will ensure that your Flexible Allocation will continue to
comply with the investment requirements for this feature.
We will initiate rebalancing of your Flexible Allocation in accordance with your
most current and compliant Automatic Asset Rebalancing instructions on file,
after any transfer you initiate, or any withdrawal you initiate. Because
automatic transfers and/or systematic withdrawals will not result in rebalancing
before the next automatic quarterly rebalancing occurs, if you make a transfer,
you must provide updated rebalancing instructions for your Flexible Allocation.
If you do not provide new rebalancing instructions at the time you initiate a
transfer, we will change your ongoing rebalancing instructions to reflect the
percentage allocations among the new Variable Portfolios and/or 1-year Fixed
Account, if available, resulting from your transfer ("Default Rebalancing
Instructions"). If at any point, for any reason, your rebalancing instructions
would result in allocations inconsistent with the investment requirements listed
above, we will revert to the last compliant instructions on file. You can modify
your rebalancing instructions, as long as they are consistent with the
investment requirements, at any time by calling the Annuity Service Center.
PLEASE SEE AUTOMATIC ASSET REBALANCING PROGRAM ABOVE.
You may not transfer any amounts between the Secure Value Account and the
Flexible Allocation Variable Portfolios or Fixed Accounts. The Secure Value
Account may not be used as a target account if you are using the Dollar Cost
Averaging program to comply with investment requirements. In addition, we will
not rebalance amounts in the Secure Value Account under the Automatic Asset
Rebalancing Program. You may not request any specific amount of any withdrawal
to be deducted solely from the Secure Value Account. Rather, any withdrawal
reduces the amount invested in the Secure Value Account in the same proportion
that the withdrawal reduces the contract value. PLEASE SEE "WHAT HAPPENS TO THE
SECURE VALUE ACCOUNT AND AUTOMATIC ASSET REBALANCING PROGRAM INSTRUCTIONS IF I
ELECT TO CANCEL [to be filed by amendment] LIVING BENEFIT?" BELOW.
If compliant rebalancing instructions are not provided with every Purchase
Payment, we will rebalance your Flexible Allocation as described in the example
below:
Assume that you want your Purchase Payment split between Group A and Group
B under the Flexible Allocation Build-Your-Own option. 10% of your Purchase
Payment is allocated to the Secure Value Account and 90% of your Purchase
Payment is allocated to the Flexible Allocation. You want to invest 40% of
the Purchase Payment in a bond Variable Portfolio and 50% of the Purchase
Payment in a stock Variable Portfolio.
We will set your rebalancing instructions as follows unless you instruct
otherwise: 44.4% in the bond Variable Portfolio (40%/90% = 44.4%) and 55.6%
in the stock Variable Portfolio (50%/90% = 55.6%). We may need to allocate
slightly more or less to each fund in order for the rebalancing
instructions to total 100% and for each Investment Group to meet the
applicable investment requirement.
Over the next Benefit Quarter, the bond market does very well while the
stock market performs poorly. At the end of the Benefit Quarter, the bond
Variable Portfolio now represents 50% of your holdings because it has
increased in value and the stock Variable Portfolio represents 40% of your
holdings. Upon quarterly rebalancing on the last day of the Benefit
Quarter, we will proportionately rebalance your Flexible Allocation based
on the Flexible Allocation percentages provided for your Purchase Payment.
We would sell some of your Accumulation Units in the bond Variable
Portfolio to bring its holdings back to 44% of the Flexible Allocation
value and use the money to buy more Accumulation Units in the stock
Variable Portfolio to increase those holdings to 56% of the Flexible
Allocation value.
The investment requirements may reduce the need to rely on the guarantees
provided by this Living Benefit because they allocate your investment across
asset classes and potentially limit market volatility. As a result, you may have
better, or worse, investment returns by allocating your investments more
aggressively. We reserve the right to change the investment requirements at any
time for prospectively issued contracts. We may also revise the investment
requirements for any existing contract to the extent that Variable Portfolios
are added, deleted, substituted, merged or otherwise reorganized. We will
promptly notify you of any changes to the investment requirements due to
deletions, substitutions, mergers or reorganizations.
What are the factors used to calculate [to be filed by amendment] Living
Benefit?
The benefit offered by [to be filed by amendment] Living Benefit is calculated
by considering the factors described below.
26
FIRST, we determine the ELIGIBLE PURCHASE PAYMENTS. It is important to note
that only Purchase Payments made during the first [to be filed by amendment]
contract years are taken into consideration in determining the Eligible Purchase
Payments. If you anticipate that you will be making Purchase Payments after the
first [to be filed by amendment] contract years, you should know that those
Purchase Payments will not be included in the calculation of the Eligible
Purchase Payments or Anniversary Values.
SECOND, we consider the INCOME CREDIT PERIOD. The Income Credit Period is the
period of time over which we calculate the Income Credit. The Income Credit
Period begins on the Benefit Effective Date and ends 12 years later.
THIRD, we determine the ANNIVERSARY VALUE which equals your contract value on
any Benefit Year Anniversary minus any Ineligible Purchase Payments. The highest
Anniversary Value is the current Anniversary Value that is greater than (1) all
previous Anniversary Values; and (2) Eligible Purchase Payments.
FOURTH, we determine the INCOME BASE which initially is equal to the first
Eligible Purchase Payment. The Income Base is increased by each subsequent
Eligible Purchase Payment, and is reduced proportionately for Excess
Withdrawals. If you do not take any withdrawals before the 12th Benefit Year
Anniversary; the Income Base could be increased to at least the MINIMUM INCOME
BASE on the 12th Benefit Year Anniversary. The Minimum Income Base is equal to
at least [to be filed by amendment]% of your first Benefit Year's Eligible
Purchase Payments.
FIFTH, we determine the INCOME CREDIT BASE which is used solely as a basis for
calculating the Income Credit during the Income Credit Period. The initial
Income Credit Base is equal to the first Eligible Purchase Payment. The Income
Credit Base is increased by each subsequent Eligible Purchase Payment, and is
reduced proportionately for Excess Withdrawals.
SIXTH, we determine the INCOME CREDIT.
The Income Credit is equal to [to be filed by amendment]% ("Income Credit
Percentage") of the Income Credit Base on each Benefit Year Anniversary during
the Income Credit Period. The Income Credit Percentage on the Benefit Year
Anniversary is reduced but not eliminated in any Benefit Year in which
cumulative withdrawals during the preceding Benefit Year are not greater than
the Maximum Annual Withdrawal Amount.
For example, if you elected one Covered Person and take cumulative withdrawals
prior to the [to be filed by amendment]th birthday of the Covered Person that
are equal to [to be filed by amendment]% of the Income Base in the preceding
Benefit Year, the Income Credit Percentage on the Benefit Year Anniversary is
reduced from [to be filed by amendment]% to [to be filed by amendment]%.
However, if you take cumulative withdrawals in the preceding Benefit Year that
are equal to or greater than the Maximum Annual Withdrawal Amount, the Income
Credit Percentage for that Benefit Year Anniversary is equal to zero. If you
elected two Covered Persons and take cumulative withdrawals prior to the [to be
filed by amendment]th birthday of the younger Covered Person that are equal to
[to be filed by amendment]% of the Income Base in the preceding Benefit Year,
the Income Credit Percentage on the Benefit Year Anniversary is reduced to zero
because the withdrawal is in excess of the Maximum Annual Withdrawal Amount
applicable to two Covered Persons of [to be filed by amendment]%.
SEVENTH, we determine the MAXIMUM ANNUAL WITHDRAWAL PERCENTAGE, which represents
the maximum percentage of the Income Base that can be withdrawn each Benefit
Year while the contract value is greater than zero, without reducing the Income
Base and the Income Credit Base, if applicable. If your contract value is
reduced to zero but your Income Base is greater than zero, the PROTECTED INCOME
PAYMENT PERCENTAGE represents the percentage of the Income Base you will receive
each Benefit Year thereafter.
The Maximum Annual Withdrawal Percentage and Protected Income Payment Percentage
are determined by two factors: 1) whether there is one or two Covered Person(s);
and 2) the age of the Covered Person at the time of first withdrawal.
Please see the table under "WHAT DETERMINES THE AMOUNT I CAN RECEIVE EACH YEAR?"
above for the applicable Maximum Annual Withdrawal Percentage and Protected
Income Payment Percentage.
EIGHTH, we determine the MAXIMUM ANNUAL WITHDRAWAL AMOUNT, which represents the
maximum amount that may be withdrawn each Benefit Year while the contract value
is greater than zero, without reducing the Income Base, and if applicable, the
Income Credit Base. The Maximum Annual Withdrawal Amount is calculated by
multiplying the Income Base by the applicable Maximum Annual Withdrawal
Percentage. If your contract value is reduced to zero but your Income Base is
greater than zero, the PROTECTED INCOME PAYMENT is determined by multiplying the
Income Base by the applicable Protected Income Payment Percentage.
FINALLY, we determine the EXCESS WITHDRAWALS.
How can the Income Base and Income Credit Base be increased?
On each Benefit Year Anniversary, the Income Base is automatically increased to
the greater of (1) the highest Anniversary Value; or (2) the current Income Base
plus the Income Credit, if any. In addition, the Income Base can also be
increased to at least the Minimum Income Base on the 12th Benefit Year
Anniversary provided no withdrawals have been taken before that anniversary.
On each Benefit Year Anniversary during the Income Credit Period, the Income
Credit Base is automatically increased to the highest Anniversary Value, if the
Income Base is increased to the highest Anniversary Value. The Income
27
Credit Base is not increased if an Income Credit is added to the Income Base.
Increases to your Income Base and Income Credit Base occur on Benefit Year
Anniversaries while the contract value is greater than zero. However, Eligible
Purchase Payments increase your Income Base and Income Credit Base at the time
they are received. SINCE HIGHEST ANNIVERSARY VALUES ARE DETERMINED ONLY ON THE
BENEFIT YEAR ANNIVERSARIES, YOUR INCOME BASE AND INCOME CREDIT BASE WILL NOT
INCREASE IF YOUR CONTRACT VALUE WAS HIGHER ON DAYS OTHER THAN THE BENEFIT YEAR
ANNIVERSARIES.
If the contract value has been reduced to zero, the Income Base will no longer
be recalculated on each Benefit Year Anniversary. PLEASE SEE "WHAT ARE THE
EFFECTS OF WITHDRAWALS ON [to be filed by amendment] LIVING BENEFIT?" BELOW.
How do increases and decreases in the Income Base impact the Maximum Annual
Withdrawal Amount?
INCREASES IN THE INCOME BASE
In any Benefit Year during which subsequent Eligible Purchase Payments are
allocated to your contract, any remaining withdrawals of the Maximum Annual
Withdrawal Amount will be based on the increased Maximum Annual Withdrawal
Amount reduced by withdrawals previously taken in that Benefit Year. If the
Income Base is increased on a Benefit Year Anniversary, the Maximum Annual
Withdrawal Amount will be recalculated on that Benefit Year Anniversary by
multiplying the increased Income Base by the applicable Maximum Annual
Withdrawal Percentage.
DECREASES IN THE INCOME BASE
Excess Withdrawals reduce your Income Base on the date the Excess Withdrawal
occurs. Any Excess Withdrawal in a Benefit Year reduces the Income Base in the
same proportion by which the contract value is reduced by the Excess Withdrawal.
As a result of a reduction of the Income Base, the new Maximum Annual Withdrawal
Amount will be equal to the reduced Income Base multiplied by the applicable
Maximum Annual Withdrawal Percentage. The last recalculated Maximum Annual
Withdrawal Amount in a given Benefit Year is available for withdrawal at the
beginning of the next Benefit Year and may be lower than the previous Benefit
Year's Maximum Annual Withdrawal Amount. When the contract value is less than
the Income Base, Excess Withdrawals will reduce the Income Base by an amount
which is greater than the amount of the Excess Withdrawal. In addition, you will
not be eligible for an Income Credit in that Benefit Year. PLEASE SEE "WHAT ARE
THE EFFECTS OF WITHDRAWALS ON [to be filed by amendment] LIVING BENEFIT?" BELOW.
What are the effects of withdrawals on [to be filed by amendment] Living
Benefit?
The Maximum Annual Withdrawal Amount, the Income Base and the Income Credit Base
may change over time as a result of the timing and amount of withdrawals. If you
take a withdrawal before the 12th Benefit Year Anniversary, your Income Base is
not eligible to be increased to the Minimum Income Base.
Withdrawals during a Benefit Year that in total are less than or equal to the
Maximum Annual Withdrawal Amount will not reduce the Income Base or Income
Credit Base. However, if you choose to take less than the Maximum Annual
Withdrawal Amount in any Benefit Year, you may not carry over the unused amount
for withdrawal in subsequent years. Your Maximum Annual Withdrawal Amount in any
year will not be recalculated solely as a result of taking less than the entire
Maximum Annual Withdrawal Amount in the prior year. Please note that if you
delay taking withdrawals for too long, you may limit the number of remaining
years (due to your life expectancy) in which you may take withdrawals.
YOU SHOULD NOT ELECT THE LIVING BENEFIT IF YOU PLAN TO TAKE EXCESS WITHDRAWALS
SINCE THOSE WITHDRAWALS MAY SIGNIFICANTLY REDUCE THE VALUE OF OR TERMINATE THE
LIVING BENEFIT.
The impact of withdrawals on specific factors is further explained below:
INCOME BASE AND INCOME CREDIT BASE: If the sum of withdrawals in any
Benefit Year exceeds the Maximum Annual Withdrawal Amount, the Income Base
and Income Credit Base will be reduced for those withdrawals. For each
Excess Withdrawal taken, the Income Base and Income Credit Base are reduced
in the same proportion by which the contract value is reduced by the amount
in excess of the Maximum Annual Withdrawal Amount. This means that the
reduction in the Income Base and Income Credit Base could be more or less
than a dollar-for-dollar reduction.
MAXIMUM ANNUAL WITHDRAWAL AMOUNT: The Maximum Annual Withdrawal Amount is
recalculated each time there is a change in the Income Base. Accordingly,
if the sum of withdrawals in any Benefit Year does not exceed the Maximum
Annual Withdrawal Amount for that year, the Maximum Annual Withdrawal
Amount will not change for the next year unless your Income Base is
increased. If you take an Excess Withdrawal, the Maximum Annual Withdrawal
Amount will be recalculated by multiplying the reduced Income Base by the
existing Maximum Annual Withdrawal Percentage. This recalculated Maximum
Annual Withdrawal Amount is available for withdrawal at the beginning of
the next Benefit Year and may be lower than your previous Maximum Annual
Withdrawal Amount.
28
PROTECTED INCOME PAYMENT: If the Income Base is greater than zero, but the
contract value has been reduced to zero due to unfavorable investment
performance or withdrawals within the Maximum Annual Withdrawal Amount, we
will pay any remaining Maximum Annual Withdrawal Amount for the current
Benefit Year. Thereafter, you will receive the Protected Income Payment
each year over the remaining lifetime of the Covered Person(s) which is
calculated by multiplying the Income Base by the applicable Protected
Income Payment Percentage. The Income Base is no longer increased on
Benefit Year Anniversaries after the contract value has been reduced to
zero. As a result, the Protected Income Payment is calculated once and will
not change. PLEASE SEE "WHAT HAPPENS IF THE CONTRACT VALUE IS REDUCED TO
ZERO WHILE THE INCOME BASE IS GREATER THAN ZERO?" BELOW.
All withdrawals from the contract, including withdrawals taken under this Living
Benefit, will reduce your contract value and your death benefit and may impact
other provisions of your contract. Unfavorable investment experience and/or fees
will also reduce your contract value. In addition, withdrawals under this Living
Benefit will reduce the free withdrawal amount and may be subject to applicable
withdrawal charges if in excess of the Maximum Annual Withdrawal Amount. The sum
of withdrawals in any Benefit Year up to the Maximum Annual Withdrawal Amount
will not be assessed a withdrawal charge. Partial withdrawals under this Living
Benefit must be deducted proportionately from each Variable Portfolio and Fixed
Account in which you are invested. PLEASE SEE ACCESS TO YOUR MONEY ABOVE AND
EXPENSES BELOW.
What is the fee for [to be filed by amendment] Living Benefit?
The fee for [to be filed by amendment] Living Benefit is assessed against the
Income Base and deducted from the contract value at the end of each Benefit
Quarter beginning on the first Benefit Quarter Anniversary following the Benefit
Effective Date. After the first Benefit Year, on each Benefit Quarter
Anniversary, we will (1) deduct the fee in effect for the previous Benefit
Quarter; and (2) determine the fee rate applicable to the next Benefit Quarter.
Please see fee table below:
----------------------------------------------------------------------------
MAXIMUM
ANNUALIZED
FEE RATE
DECREASE OR
INCREASE
INITIAL MAXIMUM MINIMUM EACH
NUMBER OF ANNUAL FEE ANNUAL FEE ANNUAL FEE BENEFIT
COVERED PERSONS RATE RATE RATE QUARTER*
----------------------------------------------------------------------------
One Covered Person [to be filed [to be filed [to be filed [to be filed
by amendment] by amendment] by amendment] by amendment]
----------------------------------------------------------------------------
Two Covered Persons [to be filed [to be filed [to be filed [to be filed
by amendment] by amendment] by amendment] by amendment]
----------------------------------------------------------------------------
* The quarterly fee rate will not decrease or increase by more than [to be
filed by amendment]% each quarter ([to be filed by amendment]).
The initial Annual Fee Rate is guaranteed not to change for the first Benefit
Year. Subsequently, the fee rate may change quarterly subject to the parameters
identified in the table above. Any fee adjustment is based on a non-
discretionary formula tied to the change in the Volatility Index ("VIX(R)"), an
index of market volatility reported by the Chicago Board Options Exchange. If
the value of the VIX decreases or increases from the previous Benefit Quarter
Anniversary, your fee rate will decrease or increase accordingly, subject to the
minimums and maximums identified in the table above. Should the VIX no longer be
appropriate or available, we would substitute the VIX with another measure of
market volatility for determining the fee. If we substitute the VIX, we will
notify you; however, the maximum and minimum annual fee rates described in this
prospectus are guaranteed for the life of your contract. PLEASE SEE APPENDIX B
-- FORMULA FOR CALCULATING AND EXAMPLE OF THE [to be filed by amendment] LIVING
BENEFIT FEE BELOW.
Since the fee rate is assessed against the Income Base, an increase in the
Income Base due to an adjustment to an Income Credit, higher Anniversary Value
or subsequent Eligible Purchase Payments, will result in an increase to the
amount of the fee you pay, assuming that the annual fee rate has not decreased
as described above. Please note that this means the addition of an Income Credit
will lead to paying a higher fee in any given period than without the addition
of the Income Credit, and in certain instances, the value of the Income Credit
may be more than offset by the amount of the fee. You will be assessed a non-
refundable fee each quarter regardless of whether or not you take any
withdrawals.
If your contract value falls to zero, the fee will no longer be deducted. We
will not assess the quarterly fee if you annuitize your contract or if a death
benefit is paid before the end of a Benefit Quarter. If the Living Benefit is
still in effect while your contract value is greater than zero, and you
surrender your contract, we will assess a pro-rata charge for the fee applicable
to the Benefit Quarter in which the surrender occurs if you surrender your
contract before the end of a Benefit Quarter. The pro-rata fee is calculated by
multiplying the fee by the number of days between the date when the prior fee
was last assessed and the date of surrender, divided by the number of days
between the prior and the next Benefit Quarter Anniversaries.
What happens if the contract value is reduced to zero while the Income Base is
greater than zero?
If the contract value is reduced to zero but the Income Base is greater than
zero, we will pay the remaining Maximum Annual Withdrawal Amount for that
Benefit Year. Thereafter we will pay the Protected Income Payment over the
remaining lifetime of the Covered Person(s).
IF AN EXCESS WITHDRAWAL REDUCES YOUR CONTRACT VALUE TO ZERO, NO FURTHER BENEFITS
ARE PAYABLE UNDER THE CONTRACT
29
AND YOUR CONTRACT ALONG WITH THE LIVING BENEFIT WILL TERMINATE.
If your contract value is reduced to zero, you may no longer make subsequent
Purchase Payments or transfers, and no death benefit is payable. Therefore, you
should be aware that, particularly during times of unfavorable investment
performance, withdrawals taken under the Living Benefit may reduce the contract
value to zero, thereby terminating any other benefits of the contract. In
addition, an Income Credit is not available if the contract value is reduced to
zero, even if a benefit remains payable.
When the contract value equals zero but the Income Base is greater than zero, to
receive any remaining Living Benefit, you must select one of the following:
1. The Protected Income Payment divided equally and paid on a monthly,
quarterly, semi-annual or annual frequency as selected by you until the
date of death of the Covered Person(s); or
2. Any option mutually agreeable between you and us.
Once you elect an option above, it cannot be changed. If you do not select an
option above, the remaining benefit will be paid as option 1 above. This amount
will be divided equally and paid on a quarterly basis until the date of death of
the Covered Person(s). No amount is payable thereafter.
PLEASE SEE ADDITIONAL IMPORTANT INFORMATION APPLICABLE TO THE OPTIONAL LIVING
BENEFIT BELOW FOR MORE INFORMATION REGARDING [to be filed by amendment] LIVING
BENEFIT.
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--------------------------------------------------------------------------------
ADDITIONAL IMPORTANT INFORMATION APPLICABLE TO THE OPTIONAL LIVING BENEFIT
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
When and how may I elect the Living Benefit?
You may elect the Living Benefit at the time of contract issue (the "Benefit
Effective Date"). You may elect to have the Living Benefit cover only your life
or the lives of both you and your spouse, the "Covered Person(s)." If the
contract is not owned by a natural person, references to Owner(s) apply to the
Annuitant(s). To elect the Living Benefit, Covered Person(s) must meet the age
requirements. The age requirements vary depending on the type of contract and
the number of Covered Persons. The age requirements for optional death benefits
and other optional features may be different than those listed here. You must
meet the age requirements for those features in order to elect them.
IF YOU ELECT ONE COVERED PERSON:
------------------------------------------------------------------------------------
COVERED PERSON
-----------------------------------------
MINIMUM MAXIMUM
AGE AGE
------------------------------------------------------------------------------------
One Owner 45 80
------------------------------------------------------------------------------------
Joint Owners(1) 45 80
------------------------------------------------------------------------------------
IF YOU ELECT TWO COVERED PERSONS:
----------------------------------------------------------------------------------------
COVERED PERSON #1 COVERED PERSON #2
-----------------------------------------------------------------
MINIMUM AGE MAXIMUM AGE MINIMUM AGE MAXIMUM AGE
----------------------------------------------------------------------------------------
NON-QUALIFIED:
Joint Owners(2) 45 80 45 85
----------------------------------------------------------------------------------------
NON-QUALIFIED:
One Owner with 45 80 45 N/A(3)
Spousal Beneficiary
----------------------------------------------------------------------------------------
QUALIFIED:
One Owner with 45 80 45 N/A(3)
Spousal Beneficiary
----------------------------------------------------------------------------------------
(1) Based on the age of the older Owner.
(2) Based on the age of the younger Joint Owner.
(3) The age requirement is based solely on the single owner for purposes of
issuing the contract with the Living Benefit. The spousal beneficiary's age
is not considered in determining the maximum issue age of the second Covered
Person.
If I own a Qualified contract, how do Required Minimum Distributions impact my
Living Benefit?
As the original owner, or Continuing Spouse (two Covered Persons elected)
electing to treat the annuity contract as their own, if you are taking required
minimum distributions ("RMD") from this contract, and the amount of the RMD
(based only on the contract to which the feature is elected and using the
Uniform Lifetime Table or Joint Life Expectancy Table from the regulations under
the Internal Revenue Code) is greater than the Maximum Annual Withdrawal Amount
in any given Benefit Year, no portion of the RMD will be treated as an Excess
Withdrawal.
Any portion of a withdrawal in a Benefit Year that is more than the greater of
both the Maximum Annual Withdrawal Amount and the RMD amount will be considered
an Excess Withdrawal. If you must take RMD from this contract and want to ensure
that these withdrawals are not considered Excess Withdrawals, your withdrawals
must be set up on the Systematic Withdrawal Program for RMDs administered by our
Annuity Service Center.
We will provide RMD favorable treatment, once each Benefit Year, to the greater
of the Maximum Annual Withdrawal Amount or the RMD amount as calculated by us.
Therefore, if you are transferring from another company and are already 70 1/2,
you should take the current tax year's RMD prior to the transfer, as we cannot
systematically calculate the RMD as we do not possess the valuation for the
previous year end. Further, if you are turning 70 1/2, you should know that
although tax code allows for deferral of the first withdrawal to April of the
tax year following your attainment of age 70 1/2, doing so may result in
subsequent withdrawals being treated as Excess Withdrawals for that Benefit
Year.
30
If the RMD amount is greater than the Maximum Annual Withdrawal Amount, but less
than [to be filed by amendment]% of the Income Base, an Income Credit will be
included in determining any Income Base increase in that Benefit Year.
What happens to my Living Benefit upon a spousal continuation if I elected one
Covered Person?
If there is one Covered Person and that person dies, the surviving spousal joint
Owner or spousal beneficiary may elect to:
1. Make a death claim if the contract value is greater than zero, which
terminates the Living Benefit and the contract; or
2. Continue the contract if the contract value is greater than zero,
without the Living Benefit and its corresponding fee.
What happens to my Living Benefit upon a spousal continuation if I elected two
Covered Persons?
If there are two Covered Persons, upon the death of one Covered Person, the
surviving Covered Person may elect to:
1. Make a death claim if the contract value is greater than zero, which
terminates the Living Benefit and the contract; or
2. Continue the contract with the Living Benefit and its corresponding fee.
The components of the Living Benefit in effect at the time of spousal
continuation will not change. The surviving Covered Person can elect to receive
withdrawals in accordance with the provisions of the Living Benefit elected
based on the age of the younger Covered Person at the time the first withdrawal
was taken. If no withdrawals were taken prior to the spousal continuation, the
Maximum Annual Withdrawal Percentage and the Protected Income Payment Percentage
will be based on the age of the surviving Covered Person at the time the first
withdrawal is taken. PLEASE SEE "HOW DOES [to be filed by amendment] LIVING
BENEFIT WORK?" ABOVE.
If spousal continuation occurs during the Income Credit Period, the Continuing
Spouse will continue to receive any increases to the Income Base for highest
Anniversary Values or if applicable, any Income Credit while the contract value
is greater than zero. The Continuing Spouse is also eligible to receive the
Minimum Income Base on the 12th Benefit Year Anniversary if no withdrawals have
been taken during the first 12 Benefit Years following the Benefit Effective
Date.
Can a non-spousal Beneficiary elect to receive any remaining benefits under my
Living Benefit upon the death of the second spouse?
No. Upon the death of the Covered Person(s), if the contract value is greater
than zero, a non-spousal Beneficiary must make an election under the death
benefit provisions of the contract, which terminates the Living Benefit. PLEASE
SEE DEATH BENEFITS BELOW.
What happens to my Living Benefit upon the Latest Annuity Date?
If the contract value and the Income Base are greater than zero on the Latest
Annuity Date, you begin the Income Phase and therefore, you must select one of
the following annuity income options:
1. Annuitize the contract value under the contract's annuity provisions
(please see ANNUITY INCOME OPTIONS below); or
2. Annuitize the contract and elect to receive the current Maximum Annual
Withdrawal Amount as of the Latest Annuity Date for a fixed period while
you are alive; the fixed period is determined by dividing the contract
value on the Latest Annuity Date by the Maximum Annual Withdrawal
Amount. Any applicable Premium Taxes will be deducted from the contract
value prior to determining the fixed period. After that fixed period
ends, you will receive the Protected Income Payment, which is calculated
by multiplying the Income Base by the applicable Protected Income
Payment Percentage, paid until the death(s) of the Covered Person(s).
The Maximum Annual Withdrawal Amount fixed period payments and the
subsequent Protected Income Payments will be divided equally on a
monthly, quarterly, semi-annual or annual frequency, as selected by you.
3. Any annuity income option mutually agreeable between you and us.
Once you begin the Income Phase by electing one of the annuity income payment
options above, the Income Base will no longer be adjusted either for highest
Anniversary Values or additional Income Credits.
If you do not elect an option listed above, on the Latest Annuity Date, we may
annuitize the contract value in accordance with Option 2 above.
Can I elect to cancel my Living Benefit?
The Living Benefit may not be cancelled by you prior to the 5th Benefit Year
Anniversary unless you surrender your contract. The Living Benefit may be
cancelled by you on or after the 5th Benefit Year Anniversary and the
cancellation will be effective as outlined in the table below.
----------------------------------------------------------------------------------
CANCELLATION CANCELLATION
REQUEST RECEIVED EFFECTIVE DATE
----------------------------------------------------------------------------------
Years 1-5 5th Benefit Year Anniversary
----------------------------------------------------------------------------------
Years 5+ Benefit Quarter Anniversary following
the receipt of the cancellation request
----------------------------------------------------------------------------------
Once cancellation is effective, the guarantees under the Living Benefit are
terminated. In addition, the investment
31
requirements for the Living Benefit will no longer apply to your contract. You
may not re-elect or reinstate the Living Benefit after cancellation.
If there are two Covered Persons, upon the death of the first Covered Person,
the surviving Covered Person (generally, the Continuing Spouse) may cancel the
Living Benefit on or after the 5th Benefit Year Anniversary and the cancellation
will be effective as outlined in the table above. After the cancellation
effective date of the Living Benefit, there will be one final fee applicable to
the Benefit Quarter in which the cancellation occurs, on the Benefit Quarter
Anniversary. Thereafter, the fee will no longer be charged.
What happens to the Secure Value Account and Automatic Asset Rebalancing Program
instructions if I elect to cancel my Living Benefit?
Amounts allocated to the Secure Value Account will be automatically transferred
to the 1-Year Fixed Account, if available. If the 1-Year Fixed Account is not
available in the state in which your contract was issued, amounts will be
transferred to the Cash Management Variable Portfolio. From the day following
the automated transfer from the Secure Value Account, you may transfer this
amount to another available investment option under the contract for a period of
90 days during which the transfer will not count against the annual number of
free transfers or U.S. Mail transfers, or incur a transfer fee. Purchase
Payments will no longer be allocated to the Secure Value Account after
cancellation.
The Automatic Asset Rebalancing Program and your instructions on file will not
be terminated or changed upon cancellation of your Living Benefit. Amounts
transferred from the Secure Value Account into the 1-Year Fixed Account or Cash
Management Variable Portfolio, as applicable, will not impact the Automatic
Asset Rebalancing Program instructions on file and that transfer will not result
in new Default Rebalancing Instructions. On or after cancellation of these
features, you may provide new rebalancing instructions or you may choose to
terminate the Automatic Asset Rebalancing Program by contacting the Annuity
Service Center.
Are there circumstances under which my Living Benefit will be automatically
cancelled?
The Living Benefit will automatically be cancelled upon the occurrence of one of
the following:
1. Annuitization of the contract; or
2. Termination or surrender of the contract; or
3. A death benefit is paid resulting in the contract being terminated; or
4. An Excess Withdrawal that reduces the contract value and Income Base to
zero; or
5. Death of the Covered Person, if only one is elected; or, if two are
elected, death of the surviving Covered Person; or
6. A change that removes all Covered Persons from the contract except as
noted below and under "ARE THERE CIRCUMSTANCES UNDER WHICH GUARANTEED
WITHDRAWALS FOR TWO COVERED PERSONS, IF ELECTED, TERMINATE FOR ONE OF
THE COVERED PERSONS?"
If a change of ownership occurs from a natural person to a non-natural entity,
the original natural Owner(s) must also be the Annuitant(s) after the ownership
change to prevent termination of the Living Benefit. A change of ownership from
a non-natural entity to a natural person can only occur if the new natural
Owner(s) was the original natural Annuitant(s) in order to prevent termination
of the Living Benefit. Any ownership change is contingent upon prior review and
approval by the Company.
Are there circumstances under which guaranteed withdrawals for two Covered
Persons, if elected, terminate for one of the Covered Persons?
Under any of the following circumstances, the Living Benefit will provide a
guarantee for one Covered Person and not the lifetime of the other Covered
Person:
1. One of the two Covered Persons is removed from the contract, due to
reasons other than death; or
2. The original spousal joint Owners or spousal beneficiary, who are the
Covered Persons, are no longer married at the time of death of the first
spouse.
Under these circumstances, the fee for the Living Benefit based on two Covered
Persons will continue to be charged and the guaranteed withdrawals are payable
for one Covered Person only. However, the remaining Covered Person may choose to
terminate the Living Benefit as described under "CAN I ELECT TO CANCEL MY LIVING
BENEFIT?" above.
Any amounts that we may pay under the feature in excess of your contract value
are subject to the Company's financial strength and claims-paying ability.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE OPTIONAL LIVING
BENEFITS AT ANY TIME FOR PROSPECTIVELY ISSUED CONTRACTS AS INDICATED ABOVE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
DEATH BENEFITS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
If you die during the Accumulation Phase of your contract, we pay a death
benefit to your Beneficiary. You must select a death benefit option at the time
you purchase your contract. 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.
32
We do not pay a death benefit if you die after you begin the Income Phase; your
Beneficiary would receive any remaining guaranteed annuity income payments in
accordance with the annuity income option you selected. PLEASE SEE ANNUITY
INCOME OPTIONS BELOW.
If the contract is owned by a trust or any other non-natural person, we will
treat the death of the Primary Annuitant as the death of any Owner.
If your contract value is reduced to zero as a result of receiving guaranteed
withdrawals under a living benefit feature, no death benefit will be paid.
PLEASE SEE OPTIONAL LIVING BENEFITS ABOVE.
You designate your Beneficiary, who will receive any death benefit payments. You
may change the Beneficiary at any time, unless you previously made an
irrevocable Beneficiary designation. If your contract is jointly owned, the
surviving joint Owner is the sole Beneficiary. Joint Annuitants, if any, when
the Owner is a non-natural person shall be each other's sole Beneficiary, except
when the Owner is a charitable remainder trust. In designating your Beneficiary,
you may impose restrictions on the timing and manner of the payment of death
benefits. Those restrictions can govern the payment of the death benefit.
If any contract is owned by a trust, whether as an agent for a natural person or
otherwise, you should consider the contractual provisions that apply, including
provisions that apply in the event of the death or change of an Annuitant, in
determining whether the contract is an appropriate trust investment. You may
wish to consult with your tax and/or legal adviser.
We calculate and pay the death benefit when we receive all required paperwork
and satisfactory proof of death at the Annuity Service Center. All death benefit
calculations discussed below are made as of the day a death benefit request is
received by us in Good Order at the Annuity Service Center, (including
satisfactory proof of death) if the request is received before Market Close. If
the death benefit request is received after Market Close, the death benefit
calculations will be as of the next business day. If the death benefit request
is not received by us in Good Order or if notification of the death is made by
the Beneficiary prior to submitting all required paperwork and satisfactory
proof of death, the Beneficiary may have the option of transferring the entire
contract value to the Cash Management Variable Portfolio or available Fixed
Account by contacting the Annuity Service Center. 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.
For contracts in which the aggregate of all Purchase Payments in contracts
issued by SunAmerica Annuity and/or First SunAmerica to the same Owner/Annuitant
are in excess of $1,500,000, 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 in writing by you and the Company prior to
purchasing the contract.
If a Beneficiary does not elect a settlement option, 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 must be paid within 5 years of the date of death unless the
Beneficiary elects to have it payable in the form of an annuity income option.
If the Beneficiary elects an annuity 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. PLEASE SEE SPOUSAL CONTINUATION
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, if available, described below, subject to the
applicable Internal Revenue Code distribution requirements. Payments must begin
no later than the first anniversary of death for Non-Qualified contracts or
December 31st of the year following the year of death for IRAs. Your Beneficiary
cannot participate in the Extended Legacy Program if he/she 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 annuity income
option or participate in the Extended Legacy Program.
EXTENDED LEGACY PROGRAM
The Extended Legacy Program, if available, can allow a Beneficiary under a
SunAmerica Annuity or First SunAmerica contract(s) to take the death benefit
amount in the form of withdrawals over a longer period of time, with the
flexibility to withdraw more than the IRS required minimum distribution. The
Beneficiary may elect the Extended Legacy Program on the Death Claim Form and
the Extended Legacy Guide, which includes important information regarding the
program which may be requested from the Annuity Service Center after the death
of the original Owner. Upon election of the Extended Legacy
33
Program, the contract continues in the original Owner's name for the benefit of
the Beneficiary. Generally, IRS required minimum distributions must be made at
least annually over a period not to exceed the Beneficiary's life expectancy as
determined in the calendar year after the Owner's death.
If the Beneficiary elects to participate in this program and 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.
There are certain limitations applicable to the Extended Legacy Program. No
Purchase Payments are permitted. Living Benefits and Death Benefits that may
have been elected by the original Owner will no longer apply and any charges
associated with these features will no longer apply. The contract may not be
assigned and ownership may not be changed or jointly owned. The Extended Legacy
Program does not apply to rollovers from other companies.
In the event of the Beneficiary's death, any remaining contract value will be
paid to the person(s) named by the Beneficiary.
Beginning on the day we receive all applicable documentation that the claim
process is complete and in Good Order to take the death benefit amount under the
Extended Legacy Program, we will deduct an annual Separate Account Charge of
0.85% which is deducted daily from the average daily ending net asset value
allocated to the Variable Portfolios. The Beneficiary may request transfers
among Variable Portfolios, subject to the same limitations and restrictions that
applied to the original Owner. The Beneficiary may withdraw all or a portion of
the contract value at any time and withdrawals are not subject to withdrawal
charges. Additionally, the Beneficiary may choose to participate in the
Systematic Withdrawal Program and the Automatic Asset Rebalancing Program.
OTHER BENEFICIARY CONTINUATION OPTIONS
Alternatively to the Extended Legacy Program, the Beneficiary may also elect to
receive the death benefit under a 5-year settlement option. The Beneficiary may
take withdrawals as desired, but the entire contract value must be distributed
by December 31st of the year containing the fifth anniversary of death. For
IRAs, the 5-year payout 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 original Owner reaches the age of 70 1/2).
Please consult a qualified adviser regarding tax implications of these options
and your particular circumstances.
DEATH BENEFIT DEFINED TERMS
The term "Net Purchase Payment" is used frequently in describing the death
benefit payable. Net Purchase Payment is an on-going calculation. It does not
represent a contract value.
We determine Net Purchase Payments as Purchase Payments less adjustments for
withdrawals. Net Purchase Payments are increased by the amount of subsequent
Purchase Payments, if any, and reduced for withdrawals, if any, in the same
proportion that the contract value was reduced on the date of such withdrawal.
The term "Withdrawal Adjustment" is used for the standard death benefit, if you
have elected the Living Benefit, to describe the way in which the amount of the
death benefit will be adjusted for withdrawals. If cumulative withdrawals for
the current contract year are less than or equal to the Maximum Annual
Withdrawal Amount, the amount of adjustment will equal the amount of each
withdrawal. If cumulative withdrawals for the current contract year are in
excess of the Maximum Annual Withdrawal Amount, the contract value and the death
benefit are first reduced by the Maximum Annual Withdrawal Amount. The resulting
death benefit is further adjusted by the withdrawal amount in excess of the
Maximum Annual Withdrawal Amount by the percentage by which the Excess
Withdrawal reduced the resulting contract value.
The term "withdrawals" as used in describing the death benefit options is
defined as withdrawals and the fees and charges applicable to those withdrawals.
The Company does not accept Purchase Payments from anyone age 86 or older.
Therefore, the death benefit calculations assume that no Purchase Payments are
received on or after your 86th birthday.
STANDARD DEATH BENEFIT
The standard death benefit is calculated differently depending on whether you
have also elected the Living Benefit described above.
THE FOLLOWING DESCRIBES THE STANDARD DEATH BENEFIT WITHOUT ELECTION OF THE
LIVING BENEFIT:
If the contract is issued prior to your 86th birthday, the death benefit is the
greater of:
1. Contract value; or
2. Net Purchase Payments.
THE FOLLOWING DESCRIBES THE STANDARD DEATH BENEFIT WITH ELECTION OF THE LIVING
BENEFIT:
If the contract is issued prior to your 86th birthday, the death benefit is the
greater of:
1. Contract value; or
34
2. Purchase Payments reduced by:
a. any Withdrawal Adjustments, as defined above, if the Living Benefit
has not terminated; or
b. any Withdrawal Adjustments, as defined above, prior to the date the
Living Benefit is terminated; and reduced for any withdrawals in
the same proportion that the withdrawal reduced the contract value
on the date of such withdrawal on or after the date the Living
Benefit is terminated.
OPTIONAL MAXIMUM ANNIVERSARY VALUE DEATH BENEFIT
The Maximum Anniversary Value death benefit can only be elected prior to your
83rd birthday.
THE FOLLOWING DESCRIBES THE OPTIONAL MAXIMUM ANNIVERSARY VALUE DEATH BENEFIT:
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; or
3. Maximum anniversary value on any contract anniversary prior to the
earlier of your 83rd birthday or date of death. The anniversary value
equals the contract value on a contract anniversary, plus any Purchase
Payments received since that anniversary, and reduced for any withdrawal
since that contract anniversary in the same proportion that the contract
value was reduced on the date of such withdrawal.
SPOUSAL CONTINUATION
The Continuing Spouse may elect to continue the contract after your death.
Generally, the contract, its benefits and elected features, if any, remain the
same. However, Domestic Partners, Same-Sex Spouses and non-spousal joint Owners
who jointly own or are Beneficiaries of a contract should consult with their tax
adviser and/or financial representative as they are not eligible for spousal
continuation under the contract as allowed by the Internal Revenue Code. 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 once, upon the death of the original Owner of the contract. If the
Continuing Spouse terminates any optional death benefit or dies after the Latest
Annuity Date, no optional death benefit will be payable to the Continuing
Spouse's Beneficiary.
To the extent that the Continuing Spouse invests in the Variable Portfolios,
they will be subject to investment risk as was the original Owner. The
Continuing Spouse may not terminate the optional Maximum Anniversary Value death
benefit.
Upon a spousal continuation, 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 satisfactory proof of death of the original Owner
("Continuation Date") at the Annuity Service Center. The Continuation
Contribution is not considered a Purchase Payment for the purposes of any other
calculations except the death benefit following the Continuing Spouse's death.
Generally, the age of the Continuing Spouse on the Continuation Date and on the
date of the Continuing Spouse's death will be used in determining any future
death benefits under the contract. PLEASE SEE THE SPOUSAL CONTINUATION APPENDIX
FOR A DISCUSSION OF THE DEATH BENEFIT CALCULATIONS UPON A CONTINUING SPOUSE'S
DEATH.
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.
PLEASE SEE OPTIONAL LIVING BENEFITS ABOVE FOR INFORMATION ON THE EFFECT OF
SPOUSAL CONTINUATION ON THESE BENEFITS.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
EXPENSES
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--------------------------------------------------------------------------------
There are fees and expenses associated with your contract which reduce your
investment return. We will not increase certain contract fees, such as mortality
and expense charges or withdrawal charges for the life of your contract.
Underlying Fund fees may increase or decrease. Some states may require that we
charge less than the amounts described below. PLEASE SEE THE STATE CONTRACT
AVAILABILITY AND/OR VARIABILITY APPENDIX FOR STATE-SPECIFIC EXPENSES.
We intend to profit from the sale of the contracts. Our profit may be derived as
a result of a variety of pricing factors including but not limited to the fees
and charges assessed under the contract and/or amounts we may receive from an
Underlying Fund, its investment adviser and/or subadvisers (or affiliates
thereof). PLEASE SEE PAYMENTS IN CONNECTION WITH DISTRIBUTION OF THE CONTRACT
BELOW. The fees, charges, amounts received from the Underlying Funds (or
affiliates thereof) and any resulting profit may be used for any corporate
purpose including supporting marketing, distribution and/or administration of
the contract and, in its role as an intermediary, the Underlying Funds.
35
SEPARATE ACCOUNT EXPENSES
The annualized Separate Account expense is [to be filed by amendment]% of the
average daily ending net asset value allocated to the Variable Portfolios. 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 annuity 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 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
mortality and expense risk charge is expected to result in a profit. Profit may
be used for any cost or expense including supporting distribution. PLEASE SEE
PAYMENTS IN CONNECTION WITH DISTRIBUTION OF THE CONTRACT BELOW.
PREMIUM BASED CHARGE
A Premium Based Charge applies to all initial and subsequent Premiums you make
to your contract and is deducted from your contract value on each Quarter
Anniversary following the date each Premium is received by us. The Premium Based
Charge equals a percentage of each Premium and is based on the Accumulated
Premium Breakpoint achieved by the amount of the Premium or the sum of Premiums
received by us, according to the table below.
Each Premium is subject to a Premium Based Charge during the period beginning on
the first Quarter Anniversary following the date the Premium is received by us
and continuing for a total of [to be filed by amendment] Quarter Anniversaries
(over a [to be filed by amendment] year period). Once the Premium Based Charge
has been deducted for [to be filed by amendment] Quarter Anniversaries, the
Premium is no longer subject to the Premium Based Charge.
The Accumulated Premium Breakpoint that determines the Premium Based Charge
percentage applicable on the first Quarter Anniversary is determined by the sum
of Premiums received during the first contract quarter.
For example, if you make an initial Premium of $[to be filed by amendment]
during the first contract quarter, on the first Quarter Anniversary, the
Accumulated Premium Breakpoint achieved is "Less than $[to be filed by
amendment]" and the corresponding Premium Based Charge percentage is [to be
filed by amendment]%.
After the first Quarter Anniversary, the Accumulated Premium Breakpoint and
Premium Based Charge percentage applicable to subsequent Premium(s) are
determined by the sum of all Premiums previously received plus the subsequent
Premium(s) when received by us. If the sum of Premiums results in a higher
Accumulated Premium Breakpoint being achieved, the Premium Based Charge
percentage applicable to the entire subsequent Premium will be based on the
corresponding Accumulated Premium Breakpoint. Once a Premium Based Charge is set
for a Premium, it is fixed for seven years and will not change for that Premium
even if subsequent Premiums are received and/or withdrawals are taken.
For example, assuming an initial Premium of $[to be filed by amendment],
you make a subsequent Premium of $[to be filed by amendment] six months
after the initial Premium. The sum of Premiums, $[to be filed by
amendment], qualifies to meet the next Accumulated Premium Breakpoint of
"$[to be filed by amendment] but less than $[to be filed by amendment]" and
the corresponding Premium Based Charge percentage of [to be filed by
amendment]%. Therefore, the Premium Based Charge percentage for the entire
$[to be filed by amendment] Premium would be [to be filed by amendment]%.
--------------------------------------------------------------------------
Quarterly
Premium
Based Charge
(over [to be
filed by
Accumulated Premium Premium amendment] Year
Breakpoint Based Charge Period)
--------------------------------------------------------------------------
[to be filed by amendment] [to be filed [to be filed
by amendment] by amendment]
--------------------------------------------------------------------------
WITHDRAWAL CHARGE
The contract provides a free withdrawal amount every contract year. PLEASE SEE
ACCESS TO YOUR MONEY ABOVE. You may incur a withdrawal charge if you take a
withdrawal in excess of the free withdrawal amount and/or if you fully surrender
your contract.
We apply a withdrawal charge against each Purchase Payment (also known as
"Premium") you contribute to the contract. After a Premium has been in the
contract for [to be filed by amendment] complete years, a withdrawal charge no
longer applies to that Premium. The withdrawal charge percentage declines over
time for each Premium in the contract.
The Accumulated Premium Breakpoint schedule below is used to determine the
Withdrawal Charge Schedule applicable to each Premium as determined on the day
we receive the Premium. The withdrawal charge applies for [to be filed by
amendment] years to each Premium and subsequent Premium. The Withdrawal Charge
Schedule, once determined, will not change for that Premium even if subsequent
Premiums are made or withdrawals are taken.
Your initial Accumulated Premium Breakpoint is determined by the amount of your
initial Premium. Thereafter, the Accumulated Premium Breakpoint applicable to
subsequent Premiums is determined by the sum of all Premiums received as of the
day the subsequent Premium is made.
You may reduce the applicable percentage but not the duration of your Withdrawal
Charge Schedule by adding
36
subsequent Premiums which may also allow you to achieve the next Accumulated
Premium Breakpoint. If a portion of a subsequent Premium results in a sum of
Premiums that achieves the next Accumulated Premium Breakpoint, according to the
table below, then the entire subsequent Premium will be subject to the
Withdrawal Charge Schedule applicable to that lower Accumulated Premium
Breakpoint.
For example, if you make an initial Premium of $[to be filed by amendment],
the Accumulated Premium Breakpoint achieved is "Less than $[to be filed by
amendment]" and the corresponding Withdrawal Charge Schedule over [to be
filed by amendment] years is "[to be filed by amendment]." If you make a
subsequent Premium of $[to be filed by amendment] six months later, the sum
of Premiums, $[to be filed by amendment], qualifies for the next
Accumulated Premium Breakpoint of "$[to be filed by amendment] but less
than $[to be filed by amendment]." Therefore, the corresponding Withdrawal
Charge Schedule over [to be filed by amendment] years for the entire $[to
be filed by amendment] subsequent Premium would be "[to be filed by
amendment]."
The Accumulated Premium Breakpoints and corresponding Withdrawal Charge
Schedules are listed below:
WITHDRAWAL CHARGE SCHEDULE
--------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
YEARS SINCE RECEIPT OF EACH PREMIUM
ACCUMU-
LATED
PREMIUM
BREAKPOINT [to be filed by amendment]
---------------------------------------------------------------------------------------------------------------------------
[to be
filed by
amendment] [to be filed by amendment]
---------------------------------------------------------------------------------------------------------------------------
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 as coming from earnings first,
then Purchase Payments. PLEASE SEE ACCESS TO YOUR MONEY ABOVE.
If you take a partial withdrawal, we reduce the withdrawn amount from the
contract value by any applicable withdrawal charges. If you fully surrender your
contract value, we deduct any applicable withdrawal charges from the amount
surrendered.
We will not assess a withdrawal charge when we pay a death benefit, assess
contract fees and/or when you switch to the Income Phase. Withdrawals made prior
to age 59 1/2 may result in tax penalties. PLEASE SEE TAXES BELOW.
UNDERLYING FUND EXPENSES
INVESTMENT MANAGEMENT FEES
Each Variable Portfolio purchases shares of a corresponding Underlying Fund. The
Accumulation Unit value for each Variable Portfolio reflects the investment
management fees and other expenses of the corresponding Underlying Fund. These
fees may vary. They are not fixed or specified in your annuity contract, rather
the Underlying Funds are governed by their own boards of trustees.
12b-1 FEES
Certain Underlying Funds available in this product assess a 12b-1 fee of 0.25%
of the average daily net assets allocated to those Underlying Funds. Over time
these fees will increase the cost of your investment.
There is an annualized 0.25% fee applicable to Class 3 shares of Anchor Series
Trust, Seasons Series Trust and SunAmerica Series Trust, Series II shares of AIM
Invesco Insurance Funds (Invesco Variable Insurance Funds) and Class 2 shares of
American Funds Insurance Series and Franklin Templeton Variable Insurance
Products Trust. This amount is generally used to pay financial intermediaries
for services provided over the life of your contract.
The 12b-1 fees compensate us for costs associated with the servicing of these
shares, including, but not limited to, reimbursing us for expenditures we make
to registered representatives in selling firms for providing services to
contract owners who are indirect beneficial owners of these shares and for
maintaining contract owner accounts.
FOR MORE DETAILED INFORMATION ON THESE UNDERLYING FUND FEES, PLEASE REFER TO THE
TRUST PROSPECTUSES.
CONTRACT MAINTENANCE FEE
During the Accumulation Phase, we deduct a contract maintenance fee of $[to be
filed by amendment] from your contract once per year on your contract
anniversary. This charge compensates us for the cost of administering your
contract. The fee is deducted proportionately from your contract value on your
contract anniversary by redeeming the number of Accumulation Units invested in
the Variable Portfolios and the dollar amount invested in available Fixed
Accounts which in total equal the amount of the fee. If you withdraw your entire
contract value, we will deduct the contract maintenance fee from that
withdrawal.
If your contract value is $75,000 or more on your contract anniversary date, we
currently waive this fee. This waiver is subject to change without notice.
TRANSFER FEE
We permit 15 free transfers between investment options each contract year. We
charge you $25 for each additional transfer that contract year.
37
OPTIONAL LIVING BENEFIT FEE
The Living Benefit fee will be assessed as a percentage of the Income Base for
all years in which the Living Benefit is in effect. The fee depends on whether
you elect to cover one or two lives.
The fee is deducted proportionately from your contract value by redeeming the
number of Accumulation Units invested in the Variable Portfolios and the value
in the Fixed Accounts, which in total equals the amount of the fee. If your
contract value is reduced to zero before the Living Benefit has been cancelled,
the fee will no longer be assessed.
We will not assess a quarterly fee if you annuitize your contract or if a death
benefit is paid before the end of the Benefit Quarter. If the Living Benefit is
still in effect while your contract value is greater than zero, and you
surrender your contract, we will assess a pro-rata charge for the fee applicable
to the Benefit Quarter in which the surrender occurs if you surrender your
contract before the end of a Benefit Quarter. The pro-rata fee is calculated by
multiplying the fee by the number of days between the date the fee was last
assessed and the date of surrender, divided by the number of days between the
prior and the next Benefit Quarter Anniversaries.
OPTIONAL [to be filed by amendment] LIVING BENEFIT FEE
----------------------------------------------------------------------------
MAXIMUM
ANNUALIZED
FEE RATE
DECREASE OR
INCREASE
INITIAL MAXIMUM MINIMUM EACH
NUMBER OF ANNUAL FEE ANNUAL FEE ANNUAL FEE BENEFIT
COVERED PERSONS RATE RATE RATE QUARTER*
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One Covered Person [to be filed [to be filed [to be filed [to be filed
by amendment] by amendment] by amendment] by amendment]
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Two Covered Persons [to be filed [to be filed [to be filed [to be filed
by amendment] by amendment] by amendment] by amendment]
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* The fee rate can decrease or increase no more than [to be filed by
amendment]% each quarter ([to be filed by amendment]).
The Initial Annual Fee Rate is guaranteed not to change for the first Benefit
Year. Subsequently, the fee rate may change quarterly subject to the parameters
identified in the table above. After the first Benefit Year, on each "Benefit
Quarter Anniversary," we will (1) deduct the fee in effect for the previous
Benefit Quarter; and (2) determine the fee rate applicable to the next Benefit
Quarter. Any fee adjustment is based on a non-discretionary formula tied to the
change in VIX. If the value of the VIX decreases or increases from the previous
Benefit Quarter Anniversary, your fee rate will decrease or increase
accordingly, subject to the minimums and maximum identified in the table above.
PLEASE SEE APPENDIX B -- FORMULA FOR CALCULATING AND EXAMPLE OF THE [to be filed
by amendment] LIVING BENEFIT FEE BELOW.
OPTIONAL MAXIMUM ANNIVERSARY VALUE DEATH BENEFIT FEE
The fee for the optional Maximum Anniversary Value death benefit is [to be filed
by amendment]% of the average daily ending net asset value allocated to the
Variable Portfolio(s).
PREMIUM TAX
Certain states charge the Company a tax on Purchase Payments up to a maximum of
3.5%. These states permit us to either deduct the premium tax when you make a
Purchase Payment or when you fully surrender your contract or begin the Income
Phase. PLEASE SEE THE STATE CONTRACT AVAILABILITY AND/OR VARIABILITY APPENDIX
BELOW for a listing of the states that charge premium taxes, the percentage of
the tax and distinctions in impact on Qualified and Non-Qualified contracts.
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 FEES, EXPENSES AND ADDITIONAL AMOUNTS CREDITED
Sometimes sales of contracts to groups of similarly situated individuals may
lower our fees and expenses. We reserve the right to reduce or waive certain
fees and expenses when this type of sale occurs. In addition, we may also credit
additional amounts to contracts sold to such groups. We determine which groups
are eligible for this 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 the prospective purchaser; 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 fees and expenses may be
reduced.
The Company 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. Currently, the Company credits an additional amount to contracts sold
to the following groups: (1) employees of the Company and its affiliates, and
their immediate family members; (2) appointed agents and registered
representatives of broker-dealers that sell the Company's and its affiliates'
variable contracts, and the agents' and registered representatives' immediate
family members; (3) trustees of mutual funds offered in the Company's and its
affiliates' variable contracts. The additional amount credited to a contract
sold to one of the above individuals will generally equal the commission payable
on the initial purchase payment for the contract. This means
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that the additional amount will generally be in the range of [to be filed by
amendment]% to [to be filed by amendment]% of the initial Purchase Payment.
Certain broker-dealers may limit crediting this additional amount to employees
only.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE ANY SUCH DETERMINATION OR
THE TREATMENT APPLIED TO A PARTICULAR GROUP AT ANY TIME.
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PAYMENTS IN CONNECTION WITH DISTRIBUTION
OF THE CONTRACT
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PAYMENTS WE MAKE
We make payments in connection with the distribution of the contracts that
generally fall into the three categories below.
COMMISSIONS. Registered representatives of broker-dealers ("selling firms")
licensed under federal securities laws and state insurance laws sell the
contract to the public. The selling firms have entered into written selling
agreements with the Company and SunAmerica Capital Services, Inc. ("SACS"), the
distributor of the contracts. We pay commissions to the selling firms for the
sale of your contract. The selling firms are paid commissions for the promotion
and sale of the contracts according to one or more schedules. The amount and
timing of commissions will vary depending on the selling firm and its selling
agreement with us. For example, as one option, we may pay upfront commission
only, up to a maximum [to be filed by amendment]% of each Purchase Payment you
invest (which may include promotional amounts we may pay periodically as
commission specials). Another option may be a lower upfront commission on each
Purchase Payment, with a trail commission of up to a maximum [to be filed by
amendment]% of contract value annually.
The registered representative who sells you the contract typically receives a
portion of the compensation we pay to his/her selling firm, depending on the
agreement between the selling firms and its registered representative and their
internal compensation program. We are not involved in determining your
registered representatives' compensation.
ADDITIONAL CASH COMPENSATION. We may enter into agreements to pay selling firms
support fees in the form of additional cash compensation ("revenue sharing").
These revenue sharing payments may be intended to reimburse the selling firms
for specific expenses incurred or may be based on sales, certain assets under
management, longevity of assets invested with us and/or a flat fee. Asset-based
payments primarily create incentives to service and maintain previously sold
contracts. Sales-based payments primarily create incentives to make new sales of
contracts.
These revenue sharing payments may be consideration for, among other things,
product placement/preference and visibility, greater access to train and educate
the selling firm's registered representatives about our contracts, our
participation in sales conferences and educational seminars and for selling
firms to perform due diligence on our contracts. The amount of these fees may be
tied to the anticipated level of our access in that selling firm.
We enter into such revenue sharing arrangements in our discretion and we may
negotiate customized arrangements with selling firms, including affiliated and
non-affiliated selling firms based on various factors. These special
compensation arrangements are not offered to all selling firms and the terms of
such arrangements may vary between selling firms depending on, among other
things, the level and type of marketing and distribution support provided,
assets under management and the volume and size of the sales of our contracts.
If allowed by his or her selling firm, a registered representative may purchase
a contract on a basis in which a bonus amount is credited to the contract.
PLEASE SEE REDUCTION OR ELIMINATION OF FEES, EXPENSES AND ADDITIONAL AMOUNTS
CREDITED ABOVE.
We provide a list of selling firms to whom we paid annual amounts greater than
$5,000 under these revenue sharing arrangements in 2009 in the Statement of
Additional Information which is available upon request.
We do not assess a specific charge directly to you or your separate account
assets in order to cover commissions and other sales expenses and incentives we
pay. However, we anticipate recovering these amounts from our profits which are
derived from the fees and charges collected under the contract. We hope to
benefit from these revenue sharing arrangements through increased sales of our
contracts and greater customer service support.
NON-CASH COMPENSATION. Some registered representatives may receive various
types of non-cash compensation such as gifts, promotional items and
entertainment in connection with our marketing efforts. We may also pay for
registered representatives to attend educational and/or business seminars. Any
such compensation is paid in accordance with SEC and FINRA rules.
Revenue sharing arrangements may provide selling firms and/or their registered
representatives with an incentive to favor sales of our contracts over other
variable annuity contracts (or other investments) with respect to which a
selling firm does not receive the same level of additional compensation. You
should discuss with your selling firm and/or registered representative how they
are compensated for sales of a contract and/or any resulting real or perceived
conflicts of interest. You may wish to take such revenue sharing arrangements
into account when considering or evaluating any recommendation relating to this
contract.
39
PAYMENTS WE RECEIVE
We may directly or indirectly receive revenue sharing payments from the Trusts,
their investment advisers, sub-advisers and/or distributors (or affiliates
thereof), in connection with certain administrative, marketing and other
services we provide and related expenses we incur. The availability of these
revenue sharing arrangements creates an incentive for us to seek and offer
Underlying Funds (and classes of shares of such Underlying Funds) that make such
payments to us. Other Underlying Funds (or available classes of shares) may have
lower fees and better overall investment performance. Not all Trusts pay the
same amount of revenue sharing. Therefore, the amount of fees we collect may be
greater or smaller based on the Underlying Funds you select.
We generally receive three kinds of payments described below.
RULE 12b-1 OR SERVICE FEES. We receive 12b-1 fees of up to 0.25% or service
fees of up to 0.50% of the average daily net assets in certain Underlying Funds.
These fees are deducted directly from the assets of the Underlying Funds. PLEASE
SEE EXPENSES ABOVE.
ADMINISTRATIVE, MARKETING AND SUPPORT SERVICE FEES. We receive compensation of
up to 0.50% annually based on assets under management from certain Trusts'
investment advisers, subadvisers and/or distributors (or affiliates thereof).
These payments may be derived, in whole or in part, from the investment
management fees deducted from assets of the Underlying Funds or wholly from the
assets of the Underlying Funds. Contract Owners, through their indirect
investment in the Trusts, bear the costs of these investment management fees,
which in turn will reduce the return on your investment. These amounts are
generally based on assets under management from certain Trusts' investment
advisers or their affiliates and vary by Trust. Some investment advisers,
subadvisers and/or distributors (or affiliates thereof) pay us more than others.
Such amounts received from SAAMCo, a wholly-owned subsidiary of SunAmerica
Annuity, are not expected to exceed 0.50% annually based on assets under
management.
OTHER PAYMENTS. Certain investment advisers, subadvisers and/or distributors
(or affiliates thereof) may help offset the costs we incur for marketing
activities and training to support sales of the Underlying Funds in the
contract. These amounts are paid voluntarily and may provide such advisers
and/or subadvisers access to national and regional sales conferences attended by
our employees and registered representatives. The amounts paid depend on the
nature of the meetings, the number of meetings attended, the costs expected to
be incurred and the level of the subadviser's participation.
In addition, we (and our affiliates) may receive occasional gifts, entertainment
or other compensation as an incentive to market the Underlying Funds and to
cooperate with their marketing efforts. As a result of these payments, the
investment advisers, subadvisers and/or distributors (or affiliates thereof) may
benefit from increased access to our wholesalers and to our affiliates involved
in the distribution of the contract.
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ANNUITY INCOME OPTIONS
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ANNUITY DATE
During the Income Phase, we use the money accumulated in your contract to make
regular annuity income payments to you. You may begin the Income Phase any time
after your second contract anniversary. You must provide us with a written
request of the date you want annuity income payments to begin and send your
request to the Annuity Service Center. Your annuity date is the first day of the
month you select annuity income payments to begin ("Annuity Date"). You may
change your Annuity Date by sending a written request to the Annuity Service
Center, so long as you do so at least thirty days before the annuity income
payments are scheduled to begin. Except as indicated under Option 5 below, once
you begin receiving annuity income payments, you cannot otherwise access your
money through a withdrawal or surrender.
We do not pay a death benefit to your Beneficiary once you begin the Income
Phase. PLEASE SEE DEATH BENEFITS ABOVE.
If your contract value is reduced to zero as a result of receiving guaranteed
withdrawals under a living benefit feature, no annuity income payments will be
available. PLEASE SEE OPTIONAL LIVING BENEFITS ABOVE.
Annuity income payments must begin on or before your Latest Annuity Date. 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. PLEASE SEE TAXES BELOW.
ANNUITY INCOME OPTIONS
You must send a written request to our Annuity Service Center to select an
annuity income option. Once you begin receiving annuity income payments, you
cannot change your annuity income option. If you elect to receive annuity income
payments but do not select an annuity income option, your annuity income
payments shall be in accordance with Option 4 for a period of 10 years; for
annuity income payments based on joint lives, the default is Option 3 for a
period of 10 years.
We base our calculation of annuity income payments on the life expectancy 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.
40
You must notify us if the Annuitant dies before the Annuity Date and designate a
new Annuitant. If we do not receive a new Annuitant election, you may not select
an annuity income option based on the life of the Annuitant.
ANNUITY INCOME OPTION 1 - LIFE INCOME ANNUITY
This option provides annuity income payments for the life of the Annuitant.
Annuity income payments end when the Annuitant dies.
ANNUITY INCOME OPTION 2 - JOINT AND SURVIVOR LIFE INCOME ANNUITY
This option provides annuity 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 annuity income payments during the lifetime of the
survivor. Annuity income payments end when the survivor dies.
ANNUITY INCOME OPTION 3 - JOINT AND SURVIVOR LIFE INCOME ANNUITY WITH 10 OR 20
YEARS GUARANTEED
This option is similar to Option 2 above, with an additional guarantee of
payments for at least 10 or 20 years, depending on the period chosen. If the
Annuitant and the survivor die before all of the guaranteed annuity income
payments have been made, the remaining annuity income payments are made to the
Beneficiary under your contract.
ANNUITY INCOME OPTION 4 - LIFE INCOME ANNUITY WITH 10 OR 20 YEARS GUARANTEED
This option is similar to income Option 1 above with an additional guarantee of
payments for at least 10 or 20 years, depending on the period chosen. If the
Annuitant dies before all guaranteed annuity income payments are made, the
remaining annuity income payments are made to the Beneficiary under your
contract.
ANNUITY INCOME OPTION 5 - INCOME FOR A SPECIFIED PERIOD
This option provides annuity income payments for a guaranteed period ranging
from 5 to 30 years, depending on the period chosen. If the Annuitant dies before
all the guaranteed annuity income payments are made, the remaining annuity
income payments are made to the Beneficiary under your contract. Additionally,
if variable annuity income payments are elected under this option, you (or the
Beneficiary under the contract if the Annuitant dies prior to all guaranteed
annuity income payments being made) may redeem any remaining guaranteed variable
annuity income payments after the Annuity Date. The amount available upon such
redemption would be the discounted present value of any remaining guaranteed
variable annuity 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 separate account charges which includes a mortality and expense risk
charge. Since Option 5 does not contain an element of mortality risk, no benefit
is derived from this charge.
Please see the Statement of Additional Information for a more detailed
discussion of the annuity income options.
FIXED OR VARIABLE ANNUITY INCOME PAYMENTS
You can choose annuity income payments that are fixed, variable or both. Unless
otherwise elected, if at the date when annuity income payments begin you are
invested in the Variable Portfolios only, your annuity income payments will be
variable and if your money is only in Fixed Accounts at that time, your annuity
income payments will be fixed in amount. Further, if you are invested in both
Fixed Accounts and Variable Portfolios when annuity income payments begin, your
payments will be fixed and variable, unless otherwise elected. If annuity income
payments are fixed, the Company guarantees the amount of each payment. If the
annuity income payments are variable, the amount is not guaranteed.
ANNUITY INCOME PAYMENTS
We make annuity income payments on a monthly, quarterly, semi-annual or annual
basis. You instruct us to send you a check or to have the payments directly
deposited into your bank account. If state law allows, we distribute annuities
with a contract value of $5,000 or less in a lump sum. Also, if state law allows
and the selected annuity income option results in annuity income payments of
less than $50 per payment, we may decrease the frequency of payments.
If you are invested in the Variable Portfolios after the Annuity Date, your
annuity income payments vary depending on the following:
- for life income options, your age when annuity income payments begin; and
- the contract value attributable to 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 annuity income payments.
If you are invested in both the Fixed Accounts and the Variable Portfolios after
the Annuity Date, the allocation of funds between the Fixed Accounts and
Variable Portfolios also impacts the amount of your annuity income payments.
The value of variable annuity income payments, if elected, is based on an
assumed interest rate ("AIR") of 3.5% compounded annually. Variable annuity
income payments generally increase or decrease from one annuity income
41
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 annuity income payments will remain constant. If performance of
Variable Portfolios is greater than the AIR, the annuity income payments will
increase and if it is less than the AIR, the annuity income payments will
decline.
TRANSFERS DURING THE INCOME PHASE
During the Income Phase, only one transfer per month is permitted between the
Variable Portfolios. No other transfers are allowed during the Income Phase.
Transfers will be effected for the last NYSE business day of the month in which
we receive your request for the transfer.
DEFERMENT OF PAYMENTS
We may defer making fixed payments for up to six months, or less if required by
law. Interest is credited to you during the deferral period. PLEASE SEE ACCESS
TO YOUR MONEY ABOVE FOR A DISCUSSION OF WHEN PAYMENTS FROM A VARIABLE PORTFOLIO
MAY BE SUSPENDED OR POSTPONED.
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TAXES
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THE BASIC SUMMARY BELOW ADDRESSES BROAD FEDERAL TAXATION MATTERS BASED ON THE
INTERNAL REVENUE TAX CODE, IRS REGULATIONS AND INTERPRETATIONS EXISTING AS OF
THE DATE OF THIS PROSPECTUS AND GENERALLY DOES NOT ADDRESS STATE OR LOCAL
TAXATION ISSUES OR QUESTIONS. IT IS NOT TAX ADVICE, NOR DOES IT INCLUDE ALL THE
FEDERAL TAX RULES THAT MAY AFFECT YOU AND YOUR CONTRACT. WE CAUTION YOU TO SEEK
COMPETENT TAX ADVICE ABOUT YOUR OWN CIRCUMSTANCES FROM A QUALIFIED TAX ADVISOR.
WE DO NOT GUARANTEE THE TAX STATUS OR TREATMENT OF YOUR ANNUITY. TAX LAWS
CONSTANTLY CHANGE; THEREFORE, WE CANNOT GUARANTEE THAT INFORMATION CONTAINED
HEREIN IS COMPLETE AND/OR ACCURATE. FEDERAL INCOME TAX TREATMENT OF THE CONTRACT
IS SOMETIMES UNCERTAIN AND CONGRESS, THE IRS AND/OR THE COURTS MAY MODIFY TAX
LAWS AND TREATMENT RETROACTIVELY. WE HAVE INCLUDED AN ADDITIONAL DISCUSSION
REGARDING TAXES IN THE STATEMENT OF ADDITIONAL INFORMATION.
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 one of a number of types of employer-
sponsored retirement plans, or any Individual Retirement Account or Annuity
("IRA"), 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 one of a number of types of employee-
sponsored retirement plans, or under an IRA, your contract is referred to as a
Qualified contract. Examples of qualified plans or arrangements are: Individual
Retirement Annuities and IRAs, Roth IRAs, Tax-Sheltered Annuities (also referred
to as 403(b) annuities or 403(b) contracts), plans of self-employed individuals
(often referred to as H.R. 10 Plans or Keogh Plans), pension and profit sharing
plans including 401(k) plans, and governmental 457(b) 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 a cost basis in a
Roth IRA, a Roth 403(b) or a Roth 401(k) account, and you may have cost basis in
a traditional IRA or in another Qualified Contract.
AGGREGATION OF CONTRACTS
All Non-Qualified contracts that are issued by us to you during any calendar
year will be treated as one annuity contract for purposes of determining the
taxable amount of any distribution.
TAX TREATMENT OF DISTRIBUTIONS - NON-QUALIFIED CONTRACTS
If you make partial or total withdrawals from a Non-Qualified contract, the IRC
generally treats such withdrawals as coming first from taxable earnings and then
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 generally are treated as being distributed first, before either the
earnings on those contributions, or other Purchase Payments and earnings in the
contract. If you annuitize your contract, a portion of each annuity income
payment will be considered, for tax purposes, to be a return of a portion of
your Purchase Payment, generally until you have received all of your Purchase
Payment. Any portion of each annuity income payment that is considered a return
of your Purchase Payment will not be taxed. Additionally, the taxable portion of
any withdrawals, whether annuitized or other withdrawals, generally is subject
to applicable state and/or local income taxes, and may be subject to an
additional 10% penalty tax unless withdrawn in conjunction with the following
circumstances:
- after attaining age 59 1/2;
- when paid to your Beneficiary after you die;
- after you become disabled (as defined in the IRC);
42
- when paid as a part of a series of substantially equal periodic payments
(not less frequently than annually) made for your life (or life
expectancy) or the joint lives (or joint life expectancies) of you and
your designated beneficiary for a period of 5 years or attainment of age
59 1/2, whichever is later;
- under an immediate annuity contract;
- when attributable to Purchase Payments made prior to August 14, 1982.
On March 30, 2010, the Health Care and Reconciliation Act ("Reconciliation Act")
was signed into law. Among other provisions, the Reconciliation Act imposes a
new tax on net investment income. This tax, which goes into effect in 2013, is
at the rate of 3.8% of applicable thresholds for Modified Adjusted Gross Income
("MAGI") ($250,000 for joint filers; $125,000 for married individuals filing
separately; and, $200,000 for individual filers). An individual with MAGI in
excess of the threshold will be required to pay this new tax on net investment
income in excess of the applicable MAGI threshold. For this purpose, net
investment income generally will include taxable withdrawals from a Non-
Qualified contract, as well as other taxable amounts including amounts taxed
annually to an owner that is not a natural person (see Contracts Owned by a
Trust or Corporation). This new tax generally does not apply to Qualified
contracts, however taxable distributions from such contracts may be taken into
account in determining the applicability of the MAGI thresholds.
A transfer of contract value to another annuity contract generally will be tax
reported as a distribution unless we have sufficient information to confirm that
the transfer qualifies as an exchange under IRC Section 1035 (a "1035
exchange"). We reserve the right to treat partial transfers as tax-reportable
distributions, rather than as partial 1035 exchanges, in recognition of certain
questions which remain notwithstanding recent IRS guidance on the subject. Such
treatment for tax reporting purposes, however, should not prevent a taxpayer
from taking a different position on their return, in accordance with the advice
of their tax counsel or other tax consultant, if they believe the requirements
of IRC Section 1035 have been satisfied.
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, most amounts withdrawn from the contract or
received as annuity income payments will be taxable income. Exceptions to this
general rule include withdrawals attributable to after-tax Roth IRA, Roth
403(b), and Roth 401(k) contributions, as well as any other after-tax amounts
permitted under the employer's plan. Withdrawals from Roth IRAs are generally
treated for federal tax purposes as coming first from the Roth contributions
that have already been taxed, and as entirely tax free. Withdrawals from Roth
403(b) and Roth 401(k) accounts, and withdrawals generally from Qualified
contracts, are treated generally as coming pro-rata from amounts that already
have been taxed and amounts that are taxed upon withdrawal. Withdrawals from
Roth IRA, Roth 403(b) and Roth 401(k) accounts which satisfy certain
qualification requirements, including at least five years in a Roth account
under the plan or IRA and either attainment of age 59 1/2, death or disability
(or, if an IRA for the purchase of a first home), will not be subject to federal
income taxation.
The taxable portion of any withdrawal or income payment from a Qualified
contract will be subject to an additional 10% penalty tax, under the IRC, except
in the following circumstances:
- after attainment of age 59 1/2;
- when paid to your Beneficiary after you die;
- after you become disabled (as defined in the IRC);
- as a part of a series of substantially equal periodic payments (not less
frequently than annually) made for your life (or life expectancy) or the
joint lives (or joint expectancies) of you and your designated
Beneficiary for a period of 5 years or attainment of age 59 1/2,
whichever is later;
- payments to employees after separation from service after attainment of
age 55 (does not apply to IRAs);
- dividends paid with respect to stock of a corporation described in IRC
Section 404(k);
- for payment of medical expenses to the extent such withdrawals do not
exceed limitations set by the IRC for deductible amounts paid during the
taxable year for medical care;
- payments to alternate payees pursuant to a qualified domestic relations
order (does not apply to IRAs);
- for payment of health insurance if you are unemployed and meet certain
requirements;
- distributions from IRAs for higher education expenses;
- distributions from IRAs for first home purchases;
- amounts distributed from a Code Section 457(b) plan other than to the
extent such amounts in a governmental Code Section 457(b) plan represent
rollovers from an IRA or employer-sponsored plan to which the 10% penalty
would otherwise apply and which are treated as distributed from a
Qualified plan for purposes of the premature distribution penalty.
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
43
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 except as otherwise imposed by the plan.
Qualifying transfers (including intra-plan exchanges) of amounts from one TSA
contract or account to another TSA contract or account, and qualifying transfers
to a state defined benefit plan to purchase service credits, where permitted
under the employer's plan, generally are not considered distributions, and thus
are not subject to these withdrawal limitations. If amounts are transferred to a
contract with lesser IRC withdrawal limitations than the account from which it
is transferred, the more restrictive withdrawal limitations will continue to
apply.
Transfers among 403(b) annuities and/or 403(b)(7) custodial accounts generally
are subject to rules set out in the plan, the Code, regulations, IRS
pronouncements, and other applicable legal authorities.
On July 26, 2007, the Department of the Treasury published final 403(b)
regulations that were largely effective on January 1, 2009. These comprehensive
regulations include several new rules and requirements, such as a requirement
that employers maintain their 403(b) plans pursuant to a written plan.
Subsequent IRS guidance permitted the adoption of the written plan, whether in
the form of a single document or as a collection of documents, not later than
December 31, 2009. The final regulations, subsequent IRS guidance, and the terms
of the written plan may impose new restrictions on both new and existing
contracts, including restrictions on the availability of loans, distributions,
transfers and exchanges, regardless of when a contract was purchased. Effective
January 1, 2009, the Company no longer accepts new premium (including
contributions, transfers and exchanges) into new or existing 403(b) contracts.
Prior to the effective date of the final regulations, provisions applicable to
tax-free transfers and exchanges of 403(b) annuity contracts or custodial
accounts became effective September 25, 2007, replacing existing rules under IRS
Revenue Ruling 90-24 ("90-24 transfer"). Under these new rules, transfers and
exchanges (both referred to below as "transfers") are available only to the
extent permitted under the employer's 403(b) plan once established.
Additionally, transfers occurring after September 24, 2007 that did not comply
with these new rules might have become taxable on January 1, 2009, or the date
of the transfer, whichever is later. If you make a transfer to a contract or
custodial account that is not part of the employer's 403(b) plan (other than a
transfer to a different plan), and the provider and employer failed to enter
into an information sharing agreement by January 1, 2009 or, if later, prior to
the transfer, the transfer would be considered a "failed" transfer that is
subject to tax, and as such could be a violation of applicable withdrawal
limitations. Additional guidance issued by the IRS generally permitted a failed
transfer to be corrected no later than June 30, 2009 by re-transferring to a
contract or custodial account that is part of the employer's 403(b) plan or that
is subject to an information-sharing agreement with the employer. The IRS may in
the future issue new guidance, or revise its existing guidance, regarding
corrections of defects in 403(b) plans, including such failed transfers.
In general, certain contracts originally established by a 90-24 transfer prior
to September 25, 2007 are exempt (or grandfathered) from some of the
requirements of the final regulations; provided that no salary reduction or
other contributions have ever been made to the contract, and that no additional
transfers are made to the contract on or after September 25, 2007. Further,
contracts that are not grandfathered were generally required to be part of, and
subject to the requirements of an employer's 403(b) plan upon its establishment,
but no later than by January 1, 2009.
The new rules in the final regulations generally do not affect a participant's
ability to transfer some or all of a 403(b) account to a state-defined benefit
plan to purchase service credits, where such a transfer is otherwise consistent
with applicable rules and requirements and with the terms of the employer's
plan.
You may wish to discuss the new regulations and/or the general information above
with your tax adviser.
Withdrawals from other Qualified contracts are often limited by the IRC and by
the employer's plan.
If you are purchasing the contract as an investment vehicle for a trust under a
Qualified Plan, you should consider that the contract does not provide any
additional tax-deferral benefits beyond the treatment provided by the trust
itself. In addition, if the contract itself is a qualifying arrangement (as with
a 403(b) annuity or Individual Retirement Annuity), the contract generally does
not provide tax deferral benefits beyond the treatment provided to alternative
qualifying arrangements such as trusts or custodial accounts. However, in both
cases the contract offers features and benefits that other investments may not
offer. You and your financial representative should carefully consider whether
the features and benefits, including the investment options, lifetime annuity
income options, and protection through living benefits, death benefits and other
benefits provided under an annuity contract issued in connection with a
Qualified contract are suitable for your needs and objectives and are
appropriate in light of the expense.
REQUIRED MINIMUM DISTRIBUTIONS
Generally, the IRC requires that you begin taking annual distributions from
Qualified annuity contracts by April 1 of
44
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 a traditional IRA, you must
begin receiving minimum distributions for the year in which you reach age
70 1/2. You can delay taking your first distribution until the following year;
however, you must take your distribution on or before April 1 of that same
following year. It is important to note that if you choose to delay your first
distribution, you will be required to withdraw your second required minimum
distribution on or before December 31 in that same year. For each year
thereafter, you must withdraw your required minimum distribution by December 31.
However, The Worker, Retiree, and Employer Recovery Act of 2008, eliminated the
2009 minimum distribution requirement from most eligible retirement plans. We
are not aware of any proposal or legislative or regulatory action to extend this
exemption from the minimum distribution requirement for 2010 or later years.
If you own more than one IRA, you may be permitted to take your annual
distributions in any combination from your IRAs. A similar rule applies if you
own more than one TSA. However, you cannot satisfy this distribution requirement
for your IRA contract by taking a distribution from a TSA, and you cannot
satisfy the requirement for your TSA by taking a distribution from an IRA.
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 adviser 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
adviser 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 regulations, effective January 1, 2003, regarding required
minimum distributions from Qualified annuity contracts. One of the regulations
effective January 1, 2006 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 and living
benefits. As a result, if you request a minimum distribution calculation, or if
one is otherwise required to be provided, in those specific circumstances where
this requirement applies, the calculation may be based upon a value that is
greater than your contract value, resulting in a larger required minimum
distribution. This regulation does not apply to required minimum distributions
made under an irrevocable annuity income option. You should discuss the effect
of these new regulations with your tax adviser.
TAX TREATMENT OF DEATH BENEFITS
Any death benefit paid under the contract is taxable to the Beneficiary. The
rules governing the taxation of payments from an annuity contract, as discussed
above, generally apply whether the death benefit are paid as lump sum or as
annuity income payments. Estate taxes may also apply.
Enhanced death 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 with enhanced death benefits, the IRS may
consider these benefits "incidental death benefits" or "life insurance." The IRC
imposes limits on the amount of the incidental benefits and/or life insurance
allowable for Qualified contracts and the employer-sponsored plans under which
they are purchased. If the death benefit(s) exceeds these limits, the benefit(s)
could result in taxable income to the owner of the Qualified contract, and in
some cases could adversely impact the qualified status of the Qualified contract
or the plan. You should consult your tax advisor regarding these features and
benefits prior to purchasing a contract.
TAX TREATMENT OF OPTIONAL LIVING BENEFITS
Generally, we will treat amounts credited to the contract value under the
optional living benefit guarantees, for income tax purposes, as earnings in the
contract. Payments in accordance with such guarantees after the contract value
has been reduced to zero may be treated for tax purposes as amounts received as
an annuity, if the other requirements for such treatment are satisfied. All
payments or withdrawals after cost basis has been reduced to zero, whether or
not under such a guarantee, will be treated as taxable amounts.
If available and you elect an optional living benefit, the application of
certain tax rules, including those rules relating to distributions from your
contract, are not entirely clear. Such benefits are not intended to adversely
affect the tax treatment of distributions or of the contract. However, you
should be aware that little guidance is available. You should consult a tax
adviser before electing an optional living benefit.
45
CONTRACTS OWNED BY A TRUST OR CORPORATION
A Trust or Corporation or other owner that is not a natural person ("Non-Natural
Owner") that is considering purchasing this contract should consult a tax
adviser. Generally, the IRC does not confer tax-deferred status upon a Non-
Qualified contract owned by a Non-Natural Owner for Federal income tax purposes.
Instead in such cases, the Non-Natural Owner pays tax each year on the
contract's value in excess of the owner's cost basis, and the contract's cost
basis is then increased by a like amount. 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. Please see the Statement of Additional
Information 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. Please see the Statement of Additional Information 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 manager 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 Funds 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." The
determination of whether you possess sufficient incidents of ownership over
Variable Portfolio assets to be deemed the owner of the Underlying Funds depends
on all of the relevant facts and circumstances. However, IRS Revenue Ruling
2003-91 provides that an annuity owner's ability to choose among general
investment strategies either at the time of the initial purchase or thereafter,
does not constitute control sufficient to cause the contract holder to be
treated as the owner of the Variable Portfolios. The Revenue Ruling provides
that if, based on all the facts and circumstances, you do not have direct or
indirect control over the Separate Account or any Variable Portfolio asset, then
you do not possess sufficient incidents of ownership over the assets supporting
the annuity to be deemed the owner of the assets for federal income tax
purposes. 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 Fund. 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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OTHER INFORMATION
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THE DISTRIBUTOR
SunAmerica Capital Services, Inc. ("SACS"), Harborside Financial Center, 3200
Plaza 5, Jersey City, NJ 07311-4992, distributes the contracts. SACS, an
affiliate of the Company, is a registered broker-dealer under the Securities
Exchange Act of 1934, as amended, and is a member of the Financial Industry
Regulatory Authority ("FINRA"), formerly known as the National Association of
Securities Dealers, Inc. No underwriting fees are retained by SACS in connection
with the distribution of the contracts.
THE COMPANY
SunAmerica Annuity and Life Assurance Company ("SunAmerica Annuity") is a stock
life insurance company organized under the laws of the state of Arizona on
January 1, 1996. Its principal place of business is 1 SunAmerica Center, Los
Angeles, California 90067. SunAmerica Annuity conducts life insurance and
annuity business in the District of Columbia and all states except New York.
For details regarding name changes and redomestication of SunAmerica Annuity,
PLEASE SEE THE STATEMENT OF ADDITIONAL INFORMATION.
46
First SunAmerica Life Insurance Company ("First SunAmerica") is a stock life
insurance company originally organized under the laws of the state of New York
on December 5, 1978. Its principal place of business is One World Financial
Center, 200 Liberty Street, New York, New York 10281. First SunAmerica conducts
life insurance and annuity business only in the state of New York.
OWNERSHIP STRUCTURE OF THE COMPANY
SunAmerica Annuity and First SunAmerica are indirect, wholly owned subsidiaries
of American International Group, Inc. ("AIG"), a Delaware corporation.
AIG is a leading international insurance organization with operations in more
than 130 countries and jurisdictions. AIG companies serve commercial,
institutional and individual customers through one of the most extensive
worldwide property-casualty networks of any insurer. In addition, AIG companies
are leading providers of life insurance and retirement services in the United
States. AIG common stock is listed on the New York Stock Exchange, as well as
the stock exchanges in Ireland and Tokyo.
On September 22, 2008, AIG entered into a revolving credit facility ("FRBNY
Credit Facility") with the Federal Reserve Bank of New York ("NY Fed"). In
connection with the FRBNY Credit Facility, on March 4, 2009, AIG issued its
Series C Perpetual, Convertible, Participating Preferred Stock (the "Series C
Preferred Stock") to the AIG Credit Facility Trust, a trust established for the
sole benefit of the United States Treasury (the "Trust"). The Series C shares
were entitled to approximately 77.8% of the voting power of AIG's outstanding
stock.
On January 14, 2011, AIG completed a series of previously announced integrated
transactions (the "Recapitalization") to recapitalize AIG. In the
Recapitalization, AIG repaid the Federal Reserve Bank of New York ("NY Fed")
approximately $21 billion in cash, representing all amounts owing under the
FRBNY Credit Facility and the facility was terminated. Also as part of the
Recapitalization, (i) the Series C Preferred Stock was exchanged for shares of
AIG Common Stock and subsequently transferred to the U.S. Department of the
Treasury (the "Treasury Department") and the Trust, which had previously held
all shares of the Series C Preferred Stock, was terminated, (ii) AIG's Series E
Preferred Shares and Series F Preferred Shares were exchanged for shares of AIG
Common Stock and a new Series G Preferred Shares (which functions as a $2
billion commitment to provide funding that AIG will have the discretion and
option to use). As a result of the Recapitalization, the United States Treasury
will be a majority shareholder of AIG Common Stock. These transactions do not
alter the Company's obligations to you.
Information regarding AIG as described above is qualified by regulatory filings
AIG files from time to time with the U.S. Securities and Exchange Commission
("SEC") at www.sec.gov. For information on how to locate these documents, SEE
FINANCIAL STATEMENTS, BELOW.
OPERATION OF THE COMPANY
The operations of the Company are influenced by many factors, including general
economic conditions, monetary and fiscal policies of the federal government, and
policies of state and other regulatory authorities. The level of sales of the
Company's financial products is influenced by many factors, including general
market rates of interest, the strength, weakness and volatility of equity
markets, terms and conditions of competing financial products and the relative
value of its brand. Additionally, American International Group-related news may
also have an impact on the Company's operations.
The Company is exposed to market risk, contract owner behavior risk and
mortality/longevity risk. Market volatility may result in increased risks
related to death and living guaranteed benefits on the variable annuity
products, as well as reduced fee income in the case of assets held in the
separate accounts. These guaranteed benefits are sensitive to equity market
conditions. The Company primarily uses capital market hedging strategies to help
cover the risk of paying guaranteed living benefits in excess of account values
as a result of significant downturns in equity markets. The Company has treaties
to reinsure a portion of the guaranteed minimum income benefits and guaranteed
death benefits for equity and mortality risk on some of its older contracts.
Such risk mitigation may or may not reduce the volatility of net income and
capital and surplus resulting from equity market volatility.
The Company is regulated for the benefit of contract owners by the insurance
regulator in its state of domicile; and also by all state insurance departments
where it is licensed to conduct business. The Company is required by its
regulators to hold a specified amount of reserves in order to meet its
contractual obligations to contract owners. Insurance regulations also require
the Company to maintain additional surplus to protect against a financial
impairment the amount of which is based on the risks inherent in the Company's
operations.
THE SEPARATE ACCOUNT
SunAmerica Annuity originally established Variable Annuity Account Seven under
Arizona law on August 28, 1998.
First SunAmerica originally established FS Variable Separate Account under New
York law on September 9, 1994.
These Separate Accounts are registered with the SEC as unit investment trusts
under the Investment Company Act of 1940, as amended.
Purchase Payments you make that are allocated to the Variable Portfolios are
invested in the Separate Account. The Company owns the assets in the Separate
Account and
47
invests them on your behalf, according to your instructions. Purchase Payments
invested in the Separate Account are not guaranteed and will fluctuate with the
value of the Variable Portfolios you select. Therefore, you assume all of the
investment risk for contract value allocated to the Variable Portfolios. These
assets are kept separate from our General Account and may not be charged with
liabilities arising from any other business we may conduct. Additionally, 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 the Company.
You benefit from dividends received by the Separate Account through an increase
in your unit value. The Company expects to benefit from these dividends through
tax credits and corporate dividends received deductions; however, these
corporate deductions are not passed back to the Separate Account or to contract
owners.
THE GENERAL ACCOUNT
Obligations that are paid out of the Company's general account ("General
Account") include any amounts you have allocated to available Fixed Accounts,
including any interest credited thereon, and amounts owed under your contract
for death and/or living benefits which are in excess of portions of contract
value allocated to the Variable Portfolios. The obligations and guarantees under
the contract are the sole responsibility of the Company. Therefore, payments of
these obligations are subject to our financial strength and claims paying
ability, and our long term ability to make such payments.
The General Account assets are invested in accordance with applicable state
regulation. These assets are exposed to the typical risks normally associated
with a portfolio of fixed income securities, namely interest rate, option,
liquidity and credit risk. The Company manages its exposure to these risks by,
among other things, closely monitoring and matching the duration and cash flows
of its assets and liabilities, monitoring or limiting prepayment and extension
risk in its portfolio, maintaining a large percentage of its portfolio in highly
liquid securities and engaging in a disciplined process of underwriting,
reviewing and monitoring credit risk. With respect to the living benefits
available in your contract, we also manage interest rate and certain market risk
through a hedging strategy in the portfolio and we may require that those who
elect a living benefit allocate their Purchase Payments in accordance with
specified investment parameters.
FINANCIAL STATEMENTS
There are three sets of financial statements described below that are important
for you to consider. Information about how to obtain these financial statements
is also provided below.
THE COMPANY AND THE SEPARATE ACCOUNT
The financial statements of the Company and the Separate Account are required to
be provided because you must look to those entities directly to satisfy our
obligations to you under the Contract.
AMERICAN INTERNATIONAL GROUP
American International Group has entered into a support agreement with the
Company under which American International Group has agreed to cause the Company
to maintain a minimum net worth and liquidity to meet its policy obligations.
The support agreement requires American International Group to make payments
solely to the Company and not to the policyholders. Under no circumstance can a
policyholder proceed directly against American International Group for payment
on its own behalf; all actions under the support agreements must be brought by
the Company, or if the Company fails to enforce its rights, by a policyholder on
behalf of the Company.
INSTRUCTIONS TO OBTAIN FINANCIAL STATEMENTS
The SEC allows the Company to "incorporate by reference" some of the information
American International Group files with the SEC, which means that we can
disclose important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus.
[FINANCIAL STATEMENT INFORMATION TO BE UPDATED BY AMENDMENT]
American International Group is subject to the informational requirements of the
Securities Exchange Act of 1934. American International Group files reports and
other information with the SEC to meet those requirements. American
International Group files this information electronically pursuant to EDGAR, and
it is available to the public through the SEC's website at http://www.sec.gov
and American International Group's website at http://www.aig.com.
You can also inspect and copy this information at SEC public facilities at the
following locations:
WASHINGTON, DISTRICT OF COLUMBIA
100 F. Street, N.E., Room 1580
Washington, DC 20549
CHICAGO, ILLINOIS
175 W. Jackson Boulevard
Chicago, IL 60604
NEW YORK, NEW YORK
3 World Financial, Room 4300
New York, NY 10281
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
48
mailed. The Company 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 the Company's Annuity Service Center, as follows:
By Mail:
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
Telephone Number: (800) 445-7862
ADMINISTRATION
We are responsible for the administrative servicing of your contract. Please
contact our Annuity Service Center at (800) 445-7862, if you have any comment,
question or service request.
We send out transaction confirmations and quarterly statements. During the
Accumulation Phase, you will receive confirmation of transactions within your
contract. Transactions made pursuant to contractual or systematic agreements,
such as dollar cost averaging, may be confirmed quarterly. Purchase Payments
received through the automatic payment plan or a salary reduction arrangement,
may also be confirmed quarterly. For all other transactions, we send
confirmations. It is your responsibility to review these documents carefully and
notify our Annuity Service Center of any inaccuracies immediately. We
investigate all inquiries. Depending on the facts and circumstances, we may
retroactively adjust your contract, provided you notify us of your concern
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. If you fail to notify our Annuity Service Center of any
mistakes or inaccuracy within 30 days of receiving the transaction confirmation
or quarterly statement, we will deem you to have ratified the transaction.
LEGAL PROCEEDINGS
Along with other companies, SunAmerica Annuity has received subpoenas for
information in connection with an ongoing investigation by the Securities &
Exchange Commission ("SEC") and the United States Department of Justice ("DOJ")
concerning the issuance of guaranteed investment contracts in connection with
tax exempt bond issuances. SunAmerica Annuity is also responding to subpoenas
concerning the same subject matter sent by or on behalf of various state
attorneys general. SunAmerica Annuity is cooperating fully with the
investigation. The impact of this matter, if any, on SunAmerica Annuity's
financial position cannot be reasonably estimated at this time.
There are no pending legal proceedings affecting Variable Annuity Account Seven
and FS Variable Separate Account. Various lawsuits against SunAmerica Annuity,
First SunAmerica and its subsidiaries have arisen in the ordinary course of
business. In addition, various federal, state and other regulatory agencies may
from time to time review, examine or inquire into the operations, practices and
procedures of SunAmerica Annuity, First SunAmerica and its subsidiaries, such as
through financial examinations, market conduct exams or regulatory inquiries. In
management's opinion, except as noted above, these matters are not material in
relation to the financial position of SunAmerica Annuity and First SunAmerica.
REGISTRATION STATEMENTS
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,
the Company and its general account, the Variable Portfolios and the contract,
please refer to the registration statements and exhibits.
49
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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 the Statement of Additional Information, which is available without
charge upon written request. Please use the request form at the back of this
prospectus and send it to our Annuity Service Center at P.O. Box 54299, Los
Angeles, California 90054-0299 or by calling (800) 445-7862. The table of
contents of the SAI is listed below.
Separate Account and the Company
General Account
Support Agreement Between the Company and American International Group
Information Regarding the Use of the Volatility Index ("VIX")
Performance Data
Annuity Income Payments
Annuity Unit Values
Taxes
Broker-Dealer Firms Receiving Revenue Sharing Payments
Distribution of Contracts
Financial Statements
50
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APPENDIX A - STATE CONTRACT AVAILABILITY AND/OR VARIABILITY
--------------------------------------------------------------------------------
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PROSPECTUS PROVISION AVAILABILITY OR VARIATION STATES
------------------------------------------------------------------------------------
Administration Charge Contract Maintenance Fee is $30. New Mexico
------------------------------------------------------------------------------------
Administrative Charge Charge will be deducted pro-rata from New York
Variable Portfolios only. Oregon
Texas
Washington
------------------------------------------------------------------------------------
Annuity Date You may begin the Income Phase any time Florida
after your first contract anniversary.
------------------------------------------------------------------------------------
Annuity Date You may begin the Income Phase any time New York
after 13 months after contract issue.
------------------------------------------------------------------------------------
Free Look If you reside in Arizona and are age 65 Arizona
or older on your Contract Date, the
Free Look period is 30 days.
------------------------------------------------------------------------------------
Free Look If you reside in California and are age California
60 or older on your Contract Date, the
Free Look period is 30 days.
------------------------------------------------------------------------------------
Latest Annuity Date Latest Annuity Date is the later of age New York
90 or 10 years after contract issue.
------------------------------------------------------------------------------------
Premium Tax We deduct premium tax charges of 0.50% California
for Qualified contracts and 2.35% for
Non-Qualified contracts based on
contract value when you begin the
Income Phase.
------------------------------------------------------------------------------------
Premium Tax We deduct premium tax charges of 0% for Maine
Qualified contracts and 2.0% for Non-
Qualified contracts based on total
Purchase Payments when you begin the
Income Phase.
------------------------------------------------------------------------------------
Premium Tax We deduct premium tax charges of 0% for Nevada
Qualified contracts and 3.5% for Non-
Qualified contracts based on contract
value when you begin the Income Phase.
------------------------------------------------------------------------------------
Premium Tax For the first $500,000 in the contract, South Dakota
we deduct premium tax charges of 0% for
Qualified contracts and 1.25% for Non-
Qualified contracts based on total
Purchase Payments when you begin the
Income Phase. For any amount in excess
of $500,000 in the contract, we deduct
front-end premium tax charges of 0% for
Qualified contracts and 0.80% for Non-
Qualified contracts based on total
Purchase Payments when you begin the
Income Phase.
------------------------------------------------------------------------------------
Premium Tax We deduct premium tax charges of 1.0% West Virginia
for Qualified contracts and 1.0% for
Non-Qualified contracts based on
contract value when you begin the
Income Phase.
------------------------------------------------------------------------------------
Premium Tax We deduct premium tax charges of 0% for Wyoming
Qualified contracts and 1.0% for Non-
Qualified contracts based on total
Purchase Payments when you begin the
Income Phase.
------------------------------------------------------------------------------------
[to be filed by amendment]
Living Benefit Charge will be deducted pro-rata from New York
Variable Portfolios only. Oregon
Texas
Washington
------------------------------------------------------------------------------------
Transfer Privilege Any transfer over the limit of 15 will Pennsylvania
incur a $10 transfer fee. Texas
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A-1
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APPENDIX B -- FORMULA FOR CALCULATING AND EXAMPLE OF THE [to be filed by
amendment] LIVING BENEFIT FEE
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TO BE FILED BY AMENDMENT
B-1
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APPENDIX C -- [to be filed by amendment] OPTIONAL LIVING BENEFIT EXAMPLES
--------------------------------------------------------------------------------
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TO BE FILED BY AMENDMENT
C-1
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APPENDIX D - DEATH BENEFITS FOLLOWING SPOUSAL CONTINUATION
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THE FOLLOWING DETAILS THE DEATH BENEFIT PAYABLE UPON THE CONTINUING SPOUSE'S
DEATH. THE DEATH BENEFIT WE WILL PAY TO THE NEW BENEFICIARY CHOSEN BY THE
CONTINUING SPOUSE VARIES DEPENDING ON WHETHER THE LIVING BENEFIT WAS ELECTED,
THE DEATH BENEFIT ELECTED, THE AGE OF THE CONTINUING SPOUSE AS OF THE
CONTINUATION DATE AND THE CONTINUING SPOUSE'S DATE OF DEATH.
Capitalized terms used in this Appendix have the same meaning as they have in
the prospectus.
The term "Continuation Purchase Payment" is frequently used in describing the
death benefit payable upon a spousal continuation. We define Continuation
Purchase Payment as Purchase Payments made on or after the Continuation Date.
The term "withdrawals" as used in describing the death benefits is defined as
withdrawals and the fees and charges applicable to those withdrawals.
The term "Withdrawal Adjustment" is used, if the Living Benefit had been
elected, to describe the way in which the amount of the death benefit will be
adjusted for withdrawals depending on the amount of the withdrawal. If
cumulative withdrawals for the current contract year are less than or equal to
the Maximum Annual Withdrawal Amount, the amount of adjustment will equal the
amount of each withdrawal. If cumulative withdrawals for the current contract
year are in excess of the Maximum Annual Withdrawal Amount, the contract value
and the death benefit are first reduced by the Maximum Annual Withdrawal Amount.
The resulting death benefit is further adjusted by the withdrawal amount in
excess of the Maximum Annual Withdrawal Amount by the percentage by which the
Excess Withdrawal reduced the resulting contract value.
THE COMPANY WILL NOT ACCEPT PURCHASE PAYMENTS FROM ANYONE AGE 86 OR OLDER.
THEREFORE, THE DEATH BENEFIT CALCULATIONS DESCRIBED BELOW ASSUME THAT NO
PURCHASE PAYMENTS ARE RECEIVED ON OR AFTER THE CONTINUING SPOUSE'S 86TH
BIRTHDAY.
The standard death benefit is calculated differently depending on whether you
have also elected the Living Benefit described above.
A. DEATH BENEFIT PAYABLE UPON CONTINUING SPOUSE'S DEATH:
THE FOLLOWING DESCRIBES THE STANDARD DEATH BENEFIT WITHOUT ELECTION OF THE
LIVING BENEFIT:
If the Continuing Spouse is age 85 or younger on the Continuation Date, the
death benefit will be the greater of:
1. Contract value; or
2. Contract value on the Continuation Date, plus Continuation Purchase
Payments received prior to the Continuing Spouse's 86th birthday,
reduced for any withdrawals in the same proportion that the withdrawal
reduced the contract value on the date of such withdrawal.
THE FOLLOWING DESCRIBES THE STANDARD DEATH BENEFIT WITH ELECTION OF THE LIVING
BENEFIT:
If the Continuing Spouse is age 85 or younger on the Continuation Date, the
death benefit will be the greater of:
1. Contract value; or
2. Continuation Purchase Payments reduced by:
a. any Withdrawal Adjustments after the Continuation Date if the
Living Benefit has not terminated; or
b. any Withdrawal Adjustments after the Continuation Date prior to
the date the Living Benefit was terminated and reduced for any
withdrawals in the same proportion that the withdrawal reduced the
contract value on the date of such withdrawal on or after the date
the Living Benefit was terminated.
If the Continuing Spouse is age 86 or older on the Continuation Date, the death
benefit will be contract value.
B. MAXIMUM ANNIVERSARY DEATH BENEFIT PAYABLE UPON CONTINUING SPOUSE'S DEATH:
If the Continuing Spouse is age 82 or younger on the Continuation Date,
regardless of whether a Living Benefit was elected, then upon the death of the
Continuing Spouse, the death benefit is the greatest of:
1. Contract value; or
2. Contract value on the Continuation Date, plus Continuation Purchase
Payments received prior to the Continuing Spouse's 86th birthday,
reduced for withdrawals in the same proportion that the withdrawal
reduced contract value on that date of such withdrawal; or
3. Maximum anniversary value on any contract anniversary that occurred
after the Continuation Date, but prior to the earlier of the Continuing
Spouse's 83rd birthday or date of death. The anniversary value for any
year is equal to the contract value on the applicable contract
anniversary, plus Continuation 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 contract value was reduced on the date of such
withdrawal.
D-1
If the Continuing Spouse is age 83-85 on the Continuation Date and no Living
Benefit was elected, then the death benefit will be the greater of:
1. Contract value; or
2. Contract value on the Continuation Date, plus Continuation Purchase
Payments received prior to the Continuing Spouse's 86th birthday,
reduced for any withdrawals in the same proportion that the withdrawal
reduced the contract value on the date of such withdrawal.
If the Continuing Spouse is age 83-85 on the Continuation Date and the Living
Benefit was elected, then the death benefit will be the greater of:
1. Contract value; or
2. Continuation Purchase Payments reduced by:
a. any Withdrawal Adjustments after the Continuation Date if the
Living Benefit has not terminated; or
b. any Withdrawal Adjustments after the Continuation Date prior to
the date the Living Benefit was terminated and reduced for any
withdrawals in the same proportion that the withdrawal reduced the
contract value on the date of such withdrawal on or after the date
the Living Benefit was terminated.
If the Continuing Spouse is age 86 or older on the Continuation Date, the death
benefit is equal to the contract value and the fee for the Maximum Anniversary
Value death benefit will no longer be deducted as of the Continuation Date.
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.
D-2
Please forward a copy (without charge) of the Polaris [TBD] Variable Annuity
Statement of Additional Information to:
(Please print or type and fill in all information.)
----------------------------------------------------------
Name
----------------------------------------------------------
Address
----------------------------------------------------------
City/State/Zip
Contract Issue Date: -------------------------------------------------------
Date: ------------------------------ Signed: ----------------------------
Return to: Issuing Company, Annuity Service Center, P.O. Box 54299,
Los Angeles, California 90054-0299
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FIXED AND VARIABLE ANNUITY CONTRACT
ISSUED BY
SUNAMERICA ANNUITY AND LIFE ASSURANCE COMPANY
IN CONNECTION WITH
VARIABLE ANNUITY ACCOUNT SEVEN
Product Name TBD Variable Annuity
This Statement of Additional Information is not a prospectus; it should be read
with the prospectus dated May 2, 2011, relating to the annuity contracts
described above. A copy of the prospectus may be obtained without charge by
calling (800) 445-7862 or writing us at:
SUNAMERICA ANNUITY AND LIFE ASSURANCE COMPANY
ANNUITY SERVICE CENTER
P.O. BOX 54299
LOS ANGELES, CALIFORNIA 90054-0299
May 2, 2011
TABLE OF CONTENTS
PAGE
----
Separate Account and the Company ...................................... 3
General Account ....................................................... 4
Support Agreement Between the Company and American International
Group............................................................... 5
Information Regarding the Use of the Volatility Index ("VIX").......... 6
Performance Data ...................................................... 7
Annuity Income Payments ............................................... 10
Annuity Unit Values ................................................... 11
Taxes ................................................................. 14
Broker-Dealer Firms Receiving Revenue Sharing Payments ................ 24
Distribution of Contracts ............................................. 25
Financial Statements .................................................. 25
-2-
SEPARATE ACCOUNT AND THE COMPANY
Variable Annuity Account Seven ("Separate Account") was originally
established by Anchor National Life Insurance Company ("Anchor National") on
August 28, 1998, pursuant to the provisions of Arizona law, as a segregated
asset account of Anchor National. Anchor National was incorporated in the State
of California on April 12, 1965. Anchor National redomesticated to the State of
Arizona on January 1, 1996. Effective March 1, 2003, Anchor National changed its
name to AIG SunAmerica Life Assurance Company ("SunAmerica Life"). Effective
July 20, 2009, SunAmerica Life changed its name to SunAmerica Annuity and Life
Assurance Company ("Company"). These were name changes only and did not affect
the substance of any contract.
The Company is an indirect, wholly owned subsidiary of American
International Group, Inc. ("American International Group"), a Delaware
corporation. The Company is an Arizona-domiciled life insurance company
principally engaged in the business of writing variable annuity contracts
directed to the market for tax-deferred, long-term savings products. The
Separate Account meets the definition of a "separate account" under the federal
securities laws and is registered with the Securities and Exchange Commission
(the "SEC") as a unit investment trust under the Investment Company Act of 1940.
This registration does not involve supervision of the management of the Separate
Account or the Company by the SEC.
The assets of the Separate Account are the property of the Company.
However, the assets of the Separate Account, equal to its reserves and other
contract liabilities, are not chargeable with liabilities arising out of any
other business the Company may conduct. Income, gains, and losses, whether or
not realized, from assets allocated to the Separate Account are credited to or
charged against the Separate Account without regard to other income, gains, or
losses of the Company.
The Separate Account is divided into Variable Portfolios, with the
assets of each Variable Portfolio invested in the shares of one of the
underlying funds. The Company does not guarantee the investment performance of
the Separate Account, its Variable Portfolios or the underlying funds. Values
allocated to the Separate Account and the amount of variable income payments
will vary with the values of shares of the underlying funds, and are also
reduced by contract charges.
The basic objective of a variable annuity contract is to provide
variable annuity income payments which will be to some degree responsive to
changes in the economic environment, including inflationary forces and changes
in rates of return available from various types of investments. The contract is
designed to seek to accomplish this objective by providing that variable annuity
income payments will reflect the investment performance of the Separate Account
with respect to amounts allocated to it both before and after the Annuity Date.
Since the
-3-
Separate Account is always fully invested in shares of the underlying funds, its
investment performance reflects the investment performance of those entities.
The values of such shares held by the Separate Account fluctuate and are subject
to the risks of changing economic conditions as well as the risk inherent in the
ability of the underlying funds' managements to make necessary changes in their
Variable Portfolios to anticipate changes in economic conditions. Therefore, the
owner bears the entire investment risk that the basic objectives of the contract
may not be realized, and that the adverse effects of inflation may not be
lessened. There can be no assurance that the aggregate amount of variable income
payments will equal or exceed the Purchase Payments made with respect to a
particular account for the reasons described above, or because of the premature
death of an Annuitant.
Another important feature of the contract related to its basic
objective is the Company's promise that the dollar amount of variable annuity
income payments made during the lifetime of the Annuitant will not be adversely
affected by the actual mortality experience of the Company or by the actual
expenses incurred by the Company in excess of expense deductions provided for in
the contract (although the Company does not guarantee the amounts of the
variable annuity income payments).
GENERAL ACCOUNT
The general account is made up of all of the general assets of the
Company other than those allocated to the Separate Account or any other
segregated asset account of the Company. A Purchase Payment may be allocated to
fixed and/or DCA (non-MVA) fixed account options available in connection with
the general account, as elected by the owner at the time of purchasing a
contract or when making a subsequent Purchase Payment. Assets supporting amounts
allocated to fixed account options become part of the Company's general account
assets and are available to fund the claims of all classes of customers of the
Company, as well as of its creditors. Accordingly, all of the Company's assets
held in the general account will be available to fund the Company's obligations
under the contracts as well as such other claims.
The Company will invest the assets of the general account in the manner
chosen by the Company and allowed by applicable state laws regarding the nature
and quality of investments that may be made by life insurance companies and the
percentage of their assets that may be committed to any particular type of
investment. In general, these laws permit investments, within specified limits
and subject to certain qualifications, in federal, state and municipal
obligations, corporate bonds, preferred and common stocks, real estate
mortgages, real estate and certain other investments.
-4-
SUPPORT AGREEMENT BETWEEN THE COMPANY AND AMERICAN INTERNATIONAL GROUP
The Company has a support agreement in effect between the Company and American
International Group (the "Support Agreement"), pursuant to which American
International Group has agreed that American International Group will cause the
Company to maintain a policyholder's surplus of not less than $1,000,000 or such
greater amount as shall be sufficient to enable the Company to perform its
obligations under any policy issued by it. The Support Agreement also provides
that if the Company needs funds not otherwise available to it to make timely
payment of its obligations under policies issued by it, American International
Group will provide such funds at the request of the Company. The Support
Agreement is not a direct or indirect guarantee by American International Group
to any person of any obligations of the Company. American International Group
may terminate the Support Agreement with respect to outstanding obligations of
the Company only under circumstances where the Company attains, without the
benefit of the Support Agreement, a financial strength rating equivalent to that
held by the Company with the benefit of the Support Agreement. Policyholders
have the right to cause the Company to enforce its rights against American
International Group and, if the Company fails or refuses to take timely action
to enforce the Support Agreement or if the Company defaults in any claim or
payment owed to such policyholder when due, have the right to enforce the
Support Agreement directly against American International Group on behalf of the
Company.
-5-
INFORMATION REGARDING THE USE OF THE VOLATILITY INDEX ("VIX")
This variable annuity is not sponsored, endorsed, sold or promoted by Standard &
Poor's Financial Services LLC ("S&P") or the Chicago Board Options Exchange,
Incorporated ("CBOE"). S&P and CBOE make no representation, condition or
warranty, express or implied, to the owners of this variable annuity or any
member of the public regarding the advisability of investing on securities
generally or in this variable annuity or in the ability of the CBOE Volatility
Index (the "VIX") track market performance. S&P's and CBOE's only relationship
to the Company is the licensing of certain trademarks and trade names of S&P,
CBOE and the VIX which is determined, composed, and calculated by S&P without
regard to the Company or this variable annuity. S&P has no obligation to take
the needs of the Company or the owners of this variable annuity into
consideration in determining, composing, or calculating the VIX. S&P and CBOE
are not responsible for and have not participated in the determination of the
timing of, prices at, or quantities of this variable annuity to be issued or in
the determination or calculation of the equation by which this variable annuity
is to be converted into cash. S&P and CBOE have no obligation orliablity in
connection with the administration, marketing or trading of this variable
annuity.
Neither S&P, its affiliates nor their third part licensors, including CBOE,
guarantee the adequacy, accuracy, timeliness or completeness of the VIX or any
data included therein or any communications, including but not limited to, oral
or written communications (including electronic communications) with respect
thereto. S&P, its affiliates and their third party licensors, including CBOE,
shall not be subject to any damages or liability for any errors, omissions or
delays therein. S&P and CBOE make no express or implied warranties, and
expressly disclaim all warranties of merchantability or fitness for a particular
purpose or use with respect to the marks, the VIX or any data included therein.
Without limiting any of the foregoing, in no event whatsoever shall S&P, its
affiliates or their third party licensors, including CBOE, be liable for any
indirect, special, incidental, punitive or consequential damages, including but
not limited to, loss of profits, trading losses, lost time or goodwill, even if
they have been advised of the possibility of such damages, whether in contract,
tort, strict liability or otherwise.
"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)" and "Standard & Poor's 500(TM)"
are trademarks of Standard & Poor's Financial Services LLC ("S&P") and have been
licensed for use by the Company. "CBOE", "CBOE Volatility Index" and "VIX" is a
trademark of the Chicago Board Option Exchange, Incorporated and has neen
licensed for use by S&P.
-6-
PERFORMANCE DATA
From time to time, we periodically advertise performance data relating to
Variable Portfolios and Underlying Funds. We will calculate performance by
determining the percentage change in the value of an Accumulation Unit by
dividing the increase (or decrease) for that unit by the value of the
Accumulation Unit at the beginning of the period. This performance number
reflects the deduction of the Separate Account charges (including certain death
benefit rider charges) and the Underlying Fund expenses. It does not reflect the
deduction of any applicable contract maintenance fee, withdrawal (or sales)
charges, if applicable, or optional feature charges. The deduction of these
charges would reduce the percentage increase or make greater any percentage
decrease. Any advertisement will include total return figures which reflect the
deduction of the Separate Account charges (including certain death benefit
charges), contract maintenance fee, withdrawal (or sales) charges and the
Underlying Fund expenses.
We may advertise the optional living benefits and death benefits using
illustrations showing how the benefit works with historical performance of
specific Underlying Funds or with a hypothetical rate of return (which will not
exceed 12%) or a combination of historical and hypothetical returns. These
illustrations will reflect the deduction of all applicable charges including the
Underlying Fund expenses.
The Separate Account may advertise "total return" data for the Variable
Portfolios. Total return figures are based on historical data and are not
intended to indicate future performance. "Total return" is a computed rate of
return that, when compounded annually over a stated period of time and applied
to a hypothetical initial investment in a Variable Portfolio made at the
beginning of the period, will produce the same contract value at the end of the
period that the hypothetical investment would have produced over the same period
(assuming a complete redemption of the contract at the end of the period).
For periods starting prior to the date the Variable Portfolios first became
available through the Separate Account, the total return data for the Variable
Portfolios of the Separate Account will be derived from the performance of the
corresponding Underlying Funds, modified to reflect the charges and expenses as
if the contract had been in existence since the inception date of each
respective Underlying Fund. Further, returns shown are for the original class of
shares of certain Underlying Funds, adjusted to reflect the fees and charges for
the newer class of shares until performance for the newer class becomes
available. Returns of the newer class of shares will be lower than those of the
original class since the newer class of shares is subject to (higher) service
fees. We commonly refer to these performance calculations as hypothetical
adjusted historical returns. Performance figures similarly adjusted but based on
the Underlying Funds' performance (outside of this Separate Account) should not
be construed to be actual historical performance of the relevant Separate
Account's Variable Portfolio. Rather, they are intended to indicate the
historical performance of the corresponding Underlying Funds, adjusted to
provide direct comparability to the performance of the Variable Portfolios after
the date the contracts were first offered to the public (reflecting certain
contractual fees and charges).
-7-
Performance data is computed in the manners described below.
CASH MANAGEMENT PORTFOLIO
Current yield is computed by first determining the Base Period Return
attributable to a hypothetical contract having a balance of one Accumulation
Unit at the beginning of a 7 day period using the formula:
Base Period Return = (EV-SV)/(SV)
where:
SV = value of one Accumulation Unit at the start of a 7 day
period
EV = value of one Accumulation Unit at the end of the 7 day
period
The change in the value of an Accumulation Unit during the 7 day period
reflects the income received, minus any expenses accrued, during such 7 day
period.
The current yield is then obtained by annualizing the Base Period
Return:
Current Yield = (Base Period Return) x (365/7)
The Cash Management Portfolio also quotes an "effective yield" that
differs from the current yield given above in that it takes into account the
effect of dividend reinvestment in the underlying fund. The effective yield,
like the current yield, is derived from the Base Period Return over a 7 day
period. However, the effective yield accounts for dividend reinvestment by
compounding the current yield according to the formula:
365/7
Effective Yield = [(Base Period Return + 1) - 1]
The yield quoted should not be considered a representation of the yield
of the Cash Management Portfolio in the future since the yield is not fixed.
Actual yields will depend on the type, quality and maturities of the investments
held by the underlying fund and changes in interest rates on such investments.
Yield information may be useful in reviewing the performance of the
Cash Management Portfolio and for providing a basis for comparison with other
investment alternatives. However, the Cash Management Portfolio's yield
fluctuates, unlike bank deposits or other investments that typically pay a fixed
yield for a stated period of time. In periods of very low short-term interest
rates, the Portfolio's yield may become negative, which may result in a decline
in the value of your investment.
-8-
OTHER VARIABLE PORTFOLIOS
The Variable Portfolios of the Separate Account other than the Cash
Management Portfolio compute their performance data as "total return."
Total return for a Variable Portfolio represents a single computed
annual rate of return that, when compounded annually over a specified time
period (one, five, and ten years, or since inception) and applied to a
hypothetical initial investment in a contract funded by that Variable Portfolio
made at the beginning of the period, will produce the same contract value at the
end of the period that the hypothetical investment would have produced over the
same period. The total rate of return (T) is computed so that it satisfies the
following formulas:
n
[(1-SC)P](1+T) = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
SC = sales charge
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5, or 10 year
period as of the end of the period (or fractional
portion thereof)
As with the Cash Management Portfolio yield figures, total return
figures are derived from historical data and are not intended to be a projection
of future performance.
POLARIS PORTFOLIO ALLOCATOR MODELS AND SAMPLE PORTFOLIO PERFORMANCE
Please note, certain broker-dealers offer asset allocation models or sample
portfolios that are different from the Polaris Portfolio Allocator Models. The
performance information described below for the Polaris Portfolio Allocator
Models is also applicable to the Sample Portfolios (collectively, "Models").
The Separate Account also computes "total return" data for each of the Models.
Each Model is comprised of a combination of Variable Portfolios available under
the contract using various asset classes based on historical asset class
performance.
Total return for a Model represents a single computed annual rate of return
that, when compounded annually over a specified time period (one, five, and ten
years, or since inception) and applied to a hypothetical investment in a
contract, will produce the same contract value at the end of the period that the
hypothetical investment would have produced over the same period. It is assumed
that the initial hypothetical investment is made on the Model inception date and
rebalanced in accordance with the Model on each evaluation date. The Model
inception date is the date when the Model was first offered for investment.
-9-
ANNUITY INCOME PAYMENTS
INITIAL MONTHLY ANNUITY INCOME PAYMENTS
The initial annuity income payment is determined by applying separately
that portion of the contract value allocated to the fixed account options and
the Variable Portfolio(s), less any premium tax, and then applying it to the
annuity table specified in the contract for fixed and variable annuity income
payments. Those tables are based on a set amount per $1,000 of proceeds applied.
The appropriate rate must be determined by the sex (except where, as in the case
of certain Qualified contracts and other employee-sponsored retirement plans,
such classification is not permitted), premium taxes, if applicable, age of the
Annuitant and designated second person, if any, and the income option selected.
The dollars applied are then divided by 1,000 and the result multiplied
by the appropriate annuity factor appearing in the table to compute the amount
of the first monthly annuity income payment. In the case of a variable annuity,
that amount is divided by the value of an Annuity Unit as of the Annuity Date to
establish the number of Annuity Units representing each variable annuity income
payment. The number of Annuity Units determined for the first variable annuity
income payment remains constant for the second and subsequent monthly variable
annuity income payments, assuming that no reallocation of contract values is
made.
SUBSEQUENT MONTHLY ANNUITY INCOME PAYMENTS
For fixed annuity income payments, the amount of the second and each
subsequent monthly annuity income payment is the same as that determined above
for the first monthly annuity income payment.
For variable annuity income payments, the amount of the second and each
subsequent monthly annuity income payment is determined by multiplying the
number of Annuity Units, as determined in connection with the determination of
the initial monthly annuity income payment, above, by the Annuity Unit value as
of the day preceding the date on which each annuity income payment is due.
-10-
ANNUITY UNIT VALUES
The value of an Annuity Unit is determined independently for each
Variable Portfolio.
The annuity tables contained in the contract are based on a 3.5% per
annum assumed investment rate. If the actual net investment rate experienced by
a Variable Portfolio exceeds 3.5%, variable annuity income payments derived from
allocations to that Variable Portfolio will increase over time. Conversely, if
the actual rate is less than 3.5%, variable annuity income payments will
decrease over time. If the net investment rate equals 3.5%, the variable annuity
income payments will remain constant. If a higher assumed investment rate had
been used, the initial monthly payment would be higher, but the actual net
investment rate would also have to be higher in order for annuity income
payments to increase (or not to decrease).
The payee receives the value of a fixed number of Annuity Units each
month. The value of a fixed number of Annuity Units will reflect the investment
performance of the Variable Portfolios elected, and the amount of each annuity
income payment will vary accordingly.
For each Variable Portfolio, the value of an Annuity Unit is determined
by multiplying the Annuity Unit value for the preceding month by the Net
Investment Factor for the month for which the Annuity Unit value is being
calculated. The result is then multiplied by a second factor which offsets the
effect of the assumed net investment rate of 3.5% per annum which is assumed in
the annuity tables contained in the contract.
NET INVESTMENT FACTOR
The Net Investment Factor ("NIF") is an index applied to measure the
net investment performance of a Variable Portfolio from one day to the next. The
NIF may be greater or less than or equal to one; therefore, the value of an
Annuity Unit may increase, decrease or remain the same.
The NIF for any Variable Portfolio for a certain month is determined by
dividing (a) by (b) where:
(a) is the Accumulation Unit value of the Variable Portfolio
determined as of the end of that month, and
(b) is the Accumulation Unit value of the Variable Portfolio
determined as of the end of the preceding month.
The NIF for a Variable Portfolio for a given month is a measure of the
net investment performance of the Variable Portfolio from the end of the prior
month to the end of the given month. A NIF of 1.000 results in no change; a NIF
greater than 1.000 results in an increase; and a NIF less than 1.000 results in
a decrease. The NIF is increased (or decreased) in accordance with the increases
(or decreases, respectively) in the value of a share of the underlying fund in
which the Variable Portfolio invests; it is also reduced by Separate Account
asset charges.
-11-
ILLUSTRATIVE EXAMPLE
Assume that one share of a given Variable Portfolio had an Accumulation
Unit value of $11.46 as of the close of the New York Stock Exchange ("NYSE") on
the last business day in September; that its Accumulation Unit value had been
$11.44 at the close of the NYSE on the last business day at the end of the
previous month. The NIF for the month of September is:
NIF = ($11.46/$11.44)
= 1.00174825
The change in Annuity Unit value for a Variable Portfolio from one
month to the next is determined in part by multiplying the Annuity Unit value at
the prior month end by the NIF for that Variable Portfolio for the new month. In
addition, however, the result of that computation must also be multiplied by an
additional factor that takes into account, and neutralizes, the assumed
investment rate of 3.5 percent per annum upon which the annuity income payment
tables are based. For example, if the net investment rate for a Variable
Portfolio (reflected in the NIF) were equal to the assumed investment rate, the
variable annuity income payments should remain constant (i.e., the Annuity Unit
value should not change). The monthly factor that neutralizes the assumed
investment rate of 3.5 percent per annum is:
(1/12)
1/[(1.035) ] = 0.99713732
In the example given above, if the Annuity Unit value for the Variable
Portfolio was $10.103523 on the last business day in August, the Annuity Unit
value on the last business day in September would have been:
$10.103523 x 1.00174825 x 0.99713732 = $10.092213
To determine the initial payment, the initial annuity income payment
for variable annuitization is calculated based on our mortality expectations and
an assumed interest rate (AIR) of 3.5%. Thus the initial variable annuity income
payment is the same as the initial payment for a fixed interest payout annuity
calculated at an effective rate of 3.5%.
The NIF measures the performance of the funds that are the basis for
the amount of future annuity income payments. This performance is compared to
the AIR, and if the growth in the NIF is the same as the AIR rate, the payment
remains the same as the prior month. If the rate of the NIF is different than
the AIR, then this proportion is greater than one and payments are increased. If
the NIF is less than the AIR, then this proportion is less than one and payments
are decreased.
-12-
VARIABLE ANNUITY INCOME PAYMENTS
ILLUSTRATIVE EXAMPLE
Assume that a male owner, P, owns a contract in connection with which P
has allocated all of his contract value to a single Variable Portfolio. P is
also the sole Annuitant and, at age 60, has elected to annuitize his contract
under Option 4, a Life Annuity With 120 Monthly Payments Guaranteed. As of the
last valuation preceding the Annuity Date, P's Account was credited with
7543.2456 Accumulation Units each having a value of $15.432655, (i.e., P's
account value is equal to 7543.2456 x $15.432655 = $116,412.31). Assume also
that the Annuity Unit value for the Variable Portfolio on that same date is
$13.256932, and that the Annuity Unit value on the day immediately prior to the
second annuity income payment date is $13.327695.
P's first variable annuity income payment is determined from the
annuity factor tables in P's contract, using the information assumed above. From
these tables, which supply monthly annuity factors for each $1,000 of applied
contract value, P's first variable annuity income payment is determined by
multiplying the factor of $4.92 (Option 4 tables, male Annuitant age 60 at the
Annuity Date) by the result of dividing P's account value by $1,000:
First Variable Annuity Income Payment = $4.92 x ($116,412.31/$1,000) = $572.75
The number of P's Annuity Units (which will be fixed; i.e., it will not
change unless he transfers his funds to another Variable Portfolio) is also
determined at this time and is equal to the amount of the first variable annuity
income payment divided by the value of an Annuity Unit on the day immediately
prior to annuitization:
Annuity Units = $572.75/$13.256932 = 43.203812
P's second variable annuity income payment is determined by multiplying
the number of Annuity Units by the Annuity Unit value as of the day immediately
prior to the second variable annuity income payment due date and by applying a
monthly factor to neutralize the assumed investment rate of 3.5% per year.
Second Variable Annuity Income Payment =
(1/12)
43.203812 x $13.327695x1/[(1.035) ] = $574.16
The third and subsequent variable annuity income payments are computed
in a manner similar to the second variable annuity income payment.
Note that the amount of the first variable annuity income payment
depends on the contract value in the relevant Variable Portfolio on the Annuity
Date and thus reflects the investment performance of the Variable Portfolio net
of fees and charges during the Accumulation Phase. The amount of that payment
determines the number of Annuity Units, which will remain constant during the
Income Phase (assuming no transfers from the Variable Portfolio). The net
investment performance of the Variable Portfolio during the Income Phase is
reflected in continuing changes during this phase in the Annuity Unit value,
which determines the amounts of the second and subsequent variable annuity
income payments.
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TAXES
GENERAL
Note: We have prepared the following information on taxes as a general
discussion of the subject. It is not intended as tax advice to any individual.
You should consult your own tax adviser about your own circumstances.
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code" or
"IRC") governs taxation of annuities in general. An owner is not taxed on
increases in the value of a contract until distribution occurs, either in the
form of a non-annuity distribution or as income payments under the annuity
option elected. For a lump-sum payment received as a total surrender (total
redemption), the recipient is taxed on the portion of the payment that exceeds
the cost basis of the contract. For a payment received as a withdrawal (partial
redemption), federal tax liability is determined on a last-in, first-out basis,
meaning taxable income is withdrawn before the cost basis of the contract is
withdrawn. A different rule applies to Purchase Payments made (including, if
applicable, in the case of a contract issued in exchange for a prior contract)
prior to August 14, 1982. Those Purchase Payments are considered withdrawn first
for federal income tax purposes, followed by earnings on those Purchase
Payments. For Non-Qualified contracts, the cost basis is generally the Purchase
Payments. The taxable portion of the lump-sum payment is taxed at ordinary
income tax rates. Tax penalties may also apply.
If you purchase your contract under one of a number of types of
employer-sponsored retirement plans, as an individual retirement annuity, or
under an individual retirement account, your contract is referred to as a
Qualified contract. Examples of qualified plans or arrangements are: Individual
Retirement Annuities and Individual Retirement Accounts (IRAs), Roth IRAs,
Tax-Sheltered Annuities (also referred to as 403(b) annuities or 403(b)
contracts), plans of self-employed individuals (often referred to as H.R. 10
Plans or Keogh Plans), pension and profit sharing plans including 401(k) plans,
and governmental 457(b) 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 a cost basis in a Roth IRA, a Roth 403(b) or a
Roth 401(k) account, and you may have cost basis in a traditional IRA or in
another Qualified contract.
For annuity payments, the portion of each payment that is in excess of the
exclusion amount is includible in taxable income. The exclusion amount for
payments based on a fixed annuity option is determined by multiplying the
payment by the ratio that the cost basis of the Contract (if any, and adjusted
for any period or refund feature) bears to the expected return under the
Contract. The exclusion amount for payments based on a variable annuity option
is determined by dividing the cost basis of the Contract (adjusted for any
period certain or refund guarantee) by the number of years over which the
annuity is expected to be paid. Payments received after the investment in the
Contract has been recovered (i.e. when the total of the excludable amount equals
the investment in the Contract) are fully taxable. The taxable portion is taxed
at ordinary income tax rates. For certain types of qualified plans there may be
no cost basis in the Contract within the meaning of Section 72 of the Code.
Owners, annuitants and beneficiaries under the
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Contracts should seek competent financial advice about the tax consequences of
any distributions.
On March 30, 2010, the Health Care and Reconciliation Act ("Reconciliation Act")
was signed into law. Among other provisions, the Reconciliation Act imposes a
new tax on net investment income. This tax, which goes into effect in 2013, is
at the rate of 3.8% of applicable thresholds for Modified Adjusted Gross Income
("MAGI") ($250,000 for joint filers; $125,000 for married individuals filing
separately; and, $200,000 for individual filers). An individual with MAGI in
excess of the threshold will be required to pay this new tax on net investment
income in excess of the applicable MAGI threshold. For this purpose, net
investment income generally will include taxable withdrawals from a
Non-Qualified contract, as well as other taxable amounts including amounts taxed
annually to an owner that is not a natural person. This new tax generally does
not apply to Qualified contracts, however taxable distributions from such
contracts may be taken into account in determining the applicability of the MAGI
thresholds.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Separate Account is not a separate entity from the
Company and its operations form a part of the Company.
WITHHOLDING TAX ON DISTRIBUTIONS
Generally, you have not paid any federal taxes on the Purchase Payments used to
buy a Qualified contract. As a result, most amounts withdrawn from the contract
or received as income payments will be taxable income. Exceptions to this
general rule include withdrawals attributable to after-tax Roth IRA, Roth
403(b), and Roth 401(k) contributions. Withdrawals from Roth IRAs are generally
treated for federal tax purposes as coming first from the Roth contributions
that have already been taxed, and as entirely tax free. Withdrawals from Roth
403(b) and Roth 401(k) accounts, and withdrawals generally from Qualified
contracts, are treated generally as coming pro-rata from amounts that already
have been taxed and amounts that are taxed upon withdrawal. Withdrawals from
Roth IRA, Roth 403(b) and Roth 401(k) accounts which satisfy certain
qualification requirements, including at least five years in a Roth account
under the plan or IRA and either attainment of age 59 1/2, death or disability
(or, if an IRA for the purchase of a first home), will not be subject to federal
income taxation.
The taxable portion of any withdrawal or income payment from a Qualified
contract will be subject to an additional 10% federal penalty tax, under the
IRC, except in the following circumstances:
- after attainment of age 59 1/2;
- when paid to your beneficiary after you die;
- after you become disabled (as defined in the IRC);
- as a part of a series of substantially equal periodic payments (not
less frequently than annually) made for your life (or life expectancy)
or the joint lives (or joint expectancies) of you and your designated
beneficiary for a period of 5 years or attainment of age 59 1/2,
whichever is later;
- payments to employees after separation from service after attainment of
age 55 (does not apply to IRAs);
- dividends paid with respect to stock of a corporation described in IRC
Section 404(k);
- for payment of medical expenses to the extent such withdrawals do not
exceed limitations set by the IRC for deductible amounts paid during
the taxable year for medical care;
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- payments to alternate payees pursuant to a qualified domestic relations
order (does not apply to IRAs);
- for payment of health insurance if you are unemployed and meet certain
requirements;
- distributions from IRAs for higher education expenses;
- distributions from IRAs for first home purchases;
- amounts distributed from a Code Section 457(b) plan other than amounts
representing rollovers from an IRA or employer sponsored plan to which
the 10% penalty would otherwise apply.
The Pension Protection Act of 2006 created other distribution events and
exemptions from the 10% early withdrawal penalty tax. These include payments to
certain reservists called up for active duty between September 11, 2001 and
December 31, 2007 and payments up to $3,000 per year for health, life and
accident insurance by certain retired public safety officers which are federal
income tax-free. The Heroes Earnings Assistance and Relief Tax Act of 2008
expanded the reservist provision to include all individuals called up to active
duty since September 11, 2001.
The Code generally requires the Company (or, in some cases, a plan
administrator) to withhold federal tax on the taxable portion of any
distribution or withdrawal from a contract, subject in certain instances to the
payee's right to elect out of withholding or to elect a different rate of
withholding. For "eligible rollover distributions" from contracts issued under
certain types of qualified plans, not including IRAs, 20% of the distribution
must be withheld, unless the payee elects to have the distribution "rolled over"
or transferred to another eligible plan in a direct "trustee-to- trustee"
transfer. This requirement is mandatory and cannot be waived by the owner.
Withholding on other types of distributions, including distributions from IRAs
can be waived. An "eligible rollover distribution" is the taxable portion of any
amount received by a covered employee from a traditional IRA or retirement plan
qualified under Sections 401 or 403 or, if from a plan of a governmental
employer, under Section 457(b) of the Code, or from a tax-sheltered annuity
qualified under Section 403(b) of the Code other than (1) substantially equal
periodic payments calculated using the life (or life expectancy) of the
employee, or joint lives (or joint life expectancies) of the employee and his or
her designated Beneficiary, or for a specified period of ten years or more; (2)
financial hardship withdrawals; and (3) minimum distributions required to be
made under the Code (4) distribution of contributions to a Qualified contract
which were made in excess of the applicable contribution limit. Failure to "roll
over" the entire amount of an eligible rollover distribution (including an
amount equal to the 20% portion of the distribution that was withheld) could
have adverse tax consequences, including the imposition of a federal penalty tax
on premature withdrawals, described later in this section. Only (1) the
participant, or, (2) in the case of the participant's death, the participant's
surviving spouse, or (3) in the case of a domestic relations order, the
participant's spouse or ex-spouse may roll over a distribution into a plan of
the participant's own. An exception to this rule is that a non-spousal
beneficiary may, subject to plan provisions, roll inherited funds from an
eligible retirement plan into an Inherited IRA. An Inherited IRA is an IRA
created for the sole purpose of receiving funds inherited by non-spousal
beneficiaries of eligible retirement plans. The distribution must be transferred
to the Inherited IRA in a direct "trustee-to-trustee" transfer. Inherited IRAs
must meet the distribution
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requirements relating to IRAs inherited by non-spousal beneficiaries under Code
sections 408(a)(6) and (b)(3) and 401(a)(9).
Beginning in 2008, subject to federal income limitations, funds in a Qualified
contract may be rolled directly over to a Roth IRA.
Withdrawals or distributions from a contract other than eligible rollover
distributions are also subject to withholding on the taxable portion of the
distribution, but the owner may elect in such cases to waive the withholding
requirement. If not waived, withholding is imposed (1) for periodic payments, at
the rate that would be imposed if the payments were wages, or (2) for other
distributions, at the rate of 10%. If no withholding exemption certificate is in
effect for the payee, the rate under (1) above is computed by treating the payee
as a married individual claiming 3 withholding exemptions.
DIVERSIFICATION - SEPARATE ACCOUNT INVESTMENTS
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of Non-Qualified variable annuity contracts. These
requirements generally do not apply to Qualified contracts, which are considered
"Pension Plan Contracts" for purposes of these Code requirements. The Code
provides that a variable annuity contract will not be treated as an annuity
contract for any period (and any subsequent period) for which the investments
are not adequately diversified, in accordance with regulations prescribed by the
United States Treasury Department ("Treasury Department"). Disqualification of
the contract as an annuity contract would result in imposition of federal income
tax to the owner with respect to earnings allocable to the contract prior to the
receipt of any payments under the contract. The Code contains a safe harbor
provision which provides that annuity contracts, such as your contract, meet the
diversification requirements if, as of the close of each calendar quarter, the
underlying assets meet the diversification standards for a regulated investment
company, and no more than 55% of the total assets consist of cash, cash items,
U.S. government securities and securities of other regulated investment
companies.
The Treasury Department has issued regulations which establish diversification
requirements for the investment portfolios underlying variable contracts such as
the contracts. The regulations amplify the diversification requirements for
variable contracts set forth in the Code and provide an alternative to the safe
harbor provision described above. Under the regulations an investment portfolio
will be deemed adequately diversified if (1) no more than 55% of the value of
the total assets of the portfolio is represented by any one investment; (2) no
more than 70% of the value of the total assets of the portfolio is represented
by any two investments; (3) no more than 80% of the value of the total assets of
the portfolio is represented by any three investments; and (4) no more than 90%
of the value of the total assets of the portfolio is represented by any four
investments. For purposes of determining whether or not the diversification
standards imposed on the underlying assets of variable contracts by Section
817(h) of the Code have been met, "each United States government agency or
instrumentality shall be treated as a separate issuer."
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NON-NATURAL OWNERS
Under Section 72(u) of the Code, the investment earnings on premiums for the
contracts will be taxed currently to the Owner if the Owner is a non-natural
person, e.g., a corporation or certain other entities. Such contracts generally
will not be accorded tax-deferred status. However, this treatment is not applied
to a Contract held by a trust or other entity as an agent for a natural person
or to Contracts held by qualified plans. Purchasers should consult their own tax
counsel or other tax adviser before purchasing a Contract to be owned by a
non-natural person.
MULTIPLE CONTRACTS
The Code provides that multiple Non-Qualified annuity contracts which are issued
within a calendar year to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
federal tax consequences of any distribution. Such treatment may result in
adverse tax consequences including more rapid taxation of the distributed
amounts from such combination of contracts. For purposes of this rule, contracts
received in a Section 1035 exchange will be considered issued in the year of the
exchange. (However, they may be treated as issued on the issue date of the
contract being exchanged, for certain purposes, including for determining
whether the contract is an immediate annuity contract.) Owners should consult a
tax adviser prior to purchasing more than one Non-Qualified annuity contract
from the same issuer in any calendar year.
TAX TREATMENT OF ASSIGNMENTS OF QUALIFIED CONTRACTS
Generally, a Qualified contract, including an IRA, may not be assigned or
pledged. One exception to this rule is if the (other than a plan funded with
IRAs) assignment is part of a permitted loan program under an employer-sponsored
plan or pursuant to a domestic relations order meeting the requirements of the
plan or arrangement under which the contract is issued (for many plans, a
Qualified Domestic Relations Order, or QDRO), or, in the case of an IRA,
pursuant to a decree of divorce or separation maintenance or a written
instrument incident to such decree.)
TAX TREATMENT OF GIFTING, ASSIGNING OR TRANSFERRING OWNERSHIP OF A NON-QUALIFIED
CONTRACT
Under IRC Section 72(e)(4)(c), if you transfer ownership of your Non-Qualified
Contract to a person other than your spouse (or former spouse if incident to
divorce) for less than adequate consideration you will be taxed on the earnings
above the purchase payments at the time of transfer. If you transfer ownership
of your Non-Qualified Contract and receive payment less than the Contract's
value, you will also be liable for the tax on the Contract's value above your
purchase payments not previously withdrawn.
The new Contract owner's purchase payments (basis) in the Contract will be
increased to reflect the amount included in your taxable income.
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FEDERAL WITHDRAWAL RESTRICTIONS FROM QUALIFIED CONTRACTS
The IRC limits the withdrawal of Purchase Payments from certain Tax-Sheltered
Annuities (TSAs) and certain other Qualified contracts. Withdrawals generally
can only be made when an owner: (1) reaches age 59 1/2 (70 1/2 in the case of
Section 457(b) Plans); (2) separates from employment from the employer
sponsoring the plan; (3) dies; (4) becomes disabled (as defined in the IRC)
(does not apply to section 457(b) plans); or (5) experiences a financial
hardship (as defined in the IRC). In the case of hardship, the owner generally
can only withdraw Purchase Payments. There are certain exceptions to these
restrictions which are generally based upon the type of investment arrangement,
the type of contributions, and the date the contributions were made. Transfers
of amounts from one Qualified contract to another investment option under the
same plan, or to another contract or account of the same plan type or from a
qualified plan to a state defined benefit plan to purchase service credits are
not considered distributions, and thus are not subject to these withdrawal
limitations. Such transfers may, however, be subject to limitations under the
annuity contract or Plan. On July 26, 2007, the Department of the Treasury
published final 403(b) regulations that are largely effective on January 1,
2009. These comprehensive regulations include several new rules and
requirements, such as a requirement that employers maintain their 403(b) plans
pursuant to a written plan. The final regulations, subsequent IRS guidance, and
the terms of the written plan may impose new restrictions on both new and
existing contracts, including restrictions on the availability of loans,
distributions, transfers and exchanges, regardless of when a contract was
purchased.
Prior to the effective date of the final regulations, provisions applicable to
tax-free transfers AND exchanges (both referred to below as "transfers") of
403(b) annuity contracts or custodial accounts became effective September 25,
2007, replacing existing rules under IRS Revenue Ruling 90-24 ("90-24
transfer"). Under these new rules, transfers are available only to the extent
permitted under the employer's 403(b) plan once established. Additionally,
transfers occurring after September 24, 2007 that did not comply with these new
rules could have become taxable on January 1, 2009, or the date of the transfer,
whichever is later. If you make a transfer to a contract or custodial account
that is not part of the employer's 403(b) plan (other than a transfer to a
contract or custodial account in a different plan), and the provider and
employer failed to enter into an information sharing agreement by January 1,
2009, the transfer would be considered a "failed" transfer that is subject to
tax. Additional guidance issued by the IRS generally permits a failed transfer
to be corrected no later than June 30, 2009 by re-transferring to a contract or
custodial account that is part of the employer's 403(b) plan or that is subject
to an information-sharing agreement with the employer.
In general, certain contracts originally established by a 90-24 transfer prior
to September 25, 2007 are exempt (or grandfathered) from some of the
requirements of the final regulations; provided that no salary reduction or
other contributions have ever been made to the contract, and that no additional
transfers are made to made to the contract on or after September 25, 2007.
Further, contracts that are not grandfathered were generally required to be part
of, and subject to the requirements of an employer's 403(b) plan upon its
establishment, but no later than by January 1, 2009.
The new rules in the final regulations generally do not affect a participant's
ability to transfer some or all of a 403(b) account to a state-defined benefit
plan to purchase service credits, where
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such a transfer is otherwise consistent with applicable rules and requirements
and with the terms of the employer's plan.
You may wish to discuss the new regulations and/or the general information above
with your tax advisor.
PARTIAL 1035 EXCHANGES OF NON-QUALIFIED ANNUITIES
Section 1035 of the Code provides that a Non-Qualified annuity contract may be
exchanged in a tax-free transaction for another Non-Qualified annuity contract.
Historically, it was generally understood that only the exchange of an entire
annuity contract, as opposed to a partial exchange, would be respected by the
IRS as a tax-free exchange. In 1998, the U.S. Tax Court ruled that the direct
transfer of a portion of an annuity contract into another annuity contract
qualified as a tax-free exchange. In 1999, the IRS acquiesced in that Tax Court
decision, but stated that it would nonetheless continue to challenge partial
exchange transactions under certain circumstances. In Notice 2003-51, published
on July 9, 2003, the IRS announced that, pending the publication of final
regulations, it would consider all the facts and circumstances to determine
whether a partial exchange and subsequent withdrawal from, or surrender of,
either the surviving annuity contract or the new annuity contract within 24
months of the partial exchange should be treated as an integrated transaction,
and thus whether the two contracts should be treated as a single contract to
determine the tax treatment of the surrender or withdrawal under Section 72 of
the Code. The IRS made this earlier guidance permanent in Revenue Procedure
2008-24, superseding Notice 2003-51, although it shortened the presumption
period from 24 months to 12 months. Revenue Procedure 2008-24 provides that a
transfer will be treated as a tax-free exchange under Code section 1035 if
either (a) no amounts are withdrawn from, or received in surrender of, either of
the contracts involved in the exchange during the 12 months beginning on the
date on which amounts are treated as received as premiums or other consideration
paid for the contract received in exchange (the date of transfer); or (b) the
taxpayer demonstrates that one of the conditions described in Code section 72(q)
or any similar life event (such as divorce or loss of employment) occurred
between the date of the transfer and the date of the withdrawal or surrender. We
reserve the right to treat partial transfers as tax-reportable distributions,
rather than as partial 1035 exchanges, in recognition of certain questions which
remain notwithstanding recent IRS guidance on the subject. Such treatment for
tax reporting purposes, however, should not prevent a taxpayer from taking a
different position on their return, in accordance with the advice of their tax
counsel or other tax consultant, if they believe the requirements of IRC Section
1035 have been satisfied. Owners should seek their own tax advice regarding such
transactions and the tax risks associated with subsequent surrenders or
withdrawals.
QUALIFIED PLANS
The contracts offered by this prospectus are designed to be available for use
under various types of qualified plans. Taxation of owners in each qualified
plan varies with the type of plan and terms and conditions of each specific
plan. Owners and Beneficiaries are cautioned that benefits under a qualified
plan may be subject to limitations under the IRC and the employer-sponsored
plan, in addition to the terms and conditions of the contracts issued pursuant
to the plan.
Following are general descriptions of the types of qualified plans with which
the contracts may be used. Such descriptions are not exhaustive and are for
general information purposes only. The tax rules regarding qualified plans are
very complex and will have differing applications depending on individual facts
and circumstances. Each purchaser should obtain competent tax advice prior to
purchasing a contract issued under a qualified plan.
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Contracts issued pursuant to qualified plans include special provisions
restricting contract provisions that may otherwise be available and described in
this prospectus. Generally, contracts issued pursuant to qualified plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain contractual withdrawal penalties
and restrictions may apply to surrenders from Qualified contracts.
(a) Plans of Self-Employed Individuals: "H.R. 10 Plans"
Section 401 of the Code permits self-employed individuals to establish qualified
plans for themselves and their employees, commonly referred to as "H.R. 10" or
"Keogh" Plans. Contributions made to the plan for the benefit of the employees
will not be included in the gross income of the employees, for federal tax
purposes, until distributed from the plan. The tax consequences to owners may
vary depending upon the particular plan design. However, the Code places
limitations and restrictions on these plans, such as: amounts of allowable
contributions; form, manner and timing of distributions; vesting and
non-forfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. Purchasers of contracts for use with an H.R. 10 Plan should obtain
competent tax advice as to the tax treatment and suitability of such an
investment.
(b) Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities" by
public schools and certain charitable, education and scientific organizations
described in Section 501(c)(3) of the Code. These qualifying employers may make
contributions to the contracts for the benefit of their employees. Such
contributions are not includible in the gross income of the employee until the
employee receives distributions from the contract. The amount of contributions
to the tax-sheltered annuity is limited to certain maximums imposed by the Code.
One of these limits, on the amount that the employee may contribute on a
voluntary basis, is imposed by the annuity contract as well as by the Code. That
limit for 2010 is the lesser of 100% of includible compensation or $16,500. The
limit may be increased by up to $3,000 for certain employees with at least
fifteen years of full-time equivalent service with an eligible employer, and by
an additional $5,500 in 2010 for employees age 50 or older, provided that other
applicable requirements are satisfied. Total combined employer and employee
contributions for 2010 may not exceed the lesser of $49,000 or 100% of
compensation. Furthermore, the Code sets forth additional restrictions governing
such items as transferability, distributions, nondiscrimination and withdrawals.
Any employee should obtain competent tax advice as to the tax treatment and
suitability of such an Investment.
(c) Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as a traditional "Individual Retirement
Annuity" ("IRA"). Under applicable limitations, certain amounts may be
contributed to an IRA which will be deductible from the
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individual's gross income. The ability to deduct an IRA contribution to a
traditional IRA is subject to limits based upon income levels, retirement plan
participation status, and other factors. The maximum IRA (traditional and/or
Roth) contribution for 2010 is the lesser of $5,000 or 100% of compensation.
Individuals age 50 or older may be able to contribute an additional $1,000 in
2010. IRAs are subject to limitations on eligibility, contributions,
transferability and distributions. Sales of contracts for use with IRAs are
subject to special requirements imposed by the Code, including the requirement
that certain informational disclosure be given to persons desiring to establish
an IRA. Purchasers of contracts to be qualified as IRAs should obtain competent
tax advice as to the tax treatment and suitability of such an investment. If
neither the Owner or the Owner's spouse is covered by an employer retirement
plan, the IRA contribution may be fully deductible. If the Owner, or if filing
jointly, the Owner or spouse, is covered by an employer retirement plan, the
Owner may be entitled to only a partial (reduced) deduction or no deduction at
all, depending on adjusted gross income, The rules concerning what constitutes
"coverage" are complex and purchasers should consult their tax advisor or
Internal Revenue Service Publication 590 for more details. The effect of income
on the deduction, is sometimes called the adjusted gross income limitation (AGI
limit). A modified AGI at or below a certain threshold level allows a full
deduction of contributions regardless of coverage under an employer's plan. If
you and your spouse are filing jointly and have a modified AGI of less than
$89,000, your contribution may be fully deductible; if your income is between
$89,000 and $109,000, your contribution may be partially deductible and if your
income is $109,000 or more, your contribution may not be deductible. If you are
single and your income is less than $56,000, your contribution may be fully
deductible; if your income is between $56,000 and $66,000, your contribution may
be partially deductible and if your income is $66,000 or more, your contribution
may not be deductible. If you are married filing separately and you lived with
your spouse at anytime during the year, and your income exceeds $10,000, none of
your contribution may be deductible. If you and your spouse file jointly, and
you are not covered by a plan but your spouse is and if your modified AGI is
between $167,000 and $177,000, your contribution may be partially deductible.
(d) Roth IRAs
Section 408(A) of the Code permits an individual to contribute to an individual
retirement program called a Roth IRA. Contributions to a Roth IRA are not
deductible but distributions are tax-free if certain requirements are satisfied.
The maximum IRA (traditional and/or Roth) contribution for 2010 is the lesser of
$5,000 or 100% of compensation. Individuals age 50 or older may be able to
contribute an additional $1,000 in 2010. Unlike traditional IRAs, to which
everyone can contribute even if they cannot deduct the full contribution, Roth
IRAs have income limitations on who can establish such a contract. Generally,
you can make a full or partial contribution to a Roth IRA if you have taxable
compensation and your modified adjusted gross income is less than: $167,000 for
married filing jointly or qualifying widow(er), $10,000 for married filing
separately and you lived with your spouse at any time during the year, and
$105,000 for single, head of household, or married filing separately and you did
not live with your spouse at any time during the year. All persons may be
eligible to convert a distribution from an employer-sponsored plan or from a
traditional IRA into a Roth IRA.
Conversions or rollovers from qualified plans into Roth IRAs normally require
taxes to be paid on any previously untaxed amounts included in the amount
converted. If the Contracts are made available for use with Roth IRAs, they may
be subject to special requirements imposed by the
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Internal Revenue Service ("IRS"). Purchasers of the Contracts for this purpose
will be provided with such supplementary information as may be required by the
IRS or other appropriate agency.
(e) Pension and Profit-Sharing Plans
Section 401(a) of the Code permits certain employers to establish various types
of retirement plans, including 401(k) plans, for employees. However,
governmental employers may not establish new 401(k) plans. These retirement
plans may permit the purchase of the contracts to provide benefits under the
plan. Contributions to the plan for the benefit of employees will not be
includible in the gross income of the employee until distributed from the plan.
The tax consequences to owners may vary depending upon the particular plan
design. However, the Code places limitations on all plans on such items as
amount of allowable contributions; form, manner and timing of distributions;
investing and non-forfeitability of interests; nondiscrimination in eligibility
and participation; and the tax treatment of distributions, withdrawals and
surrenders. Purchasers of contracts for use with pension or profit sharing plans
should obtain competent tax advice as to the tax treatment and suitability of
such an investment.
(f) Deferred Compensation Plans - Section 457(b)
Under Section 457(b) of the Code, governmental and certain other tax-exempt
employers may establish, for the benefit of their employees, deferred
compensation plans, which may invest in annuity contracts. The Code, as in the
case of employer sponsored retirement plans generally establishes limitations
and restrictions on eligibility, contributions and distributions. Under these
plans, contributions made for the benefit of the employees will not be
includible in the employees' gross income until distributed from the plan. Funds
in a non-governmental 457(b) plan remain assets of the employer and are subject
to claims by the creditors of the employer. As of January 1, 1999, all 457(b)
plans of state and local governments must hold assets and income in a qualifying
trust, custodial account, or annuity contract for the exclusive benefit of
participants and their Beneficiaries.
ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001 AND PENSION PROTECTION
ACT OF 2006
For tax years beginning in 2002, the Economic Growth and Tax Relief
Reconciliation Act of 2001 (EGTRRA) expanded the range of eligible tax-free
rollover distributions that may be made among qualified plans and increased
contribution limits applicable to these plans. The changes made to the IRC by
EGTRRA were scheduled to expire on December 31, 2010. The Pension Protection Act
of 2006 made permanent those provisions of EGTRRA relating to IRAs and employer
sponsored plans.
-23-
BROKER-DEALER FIRMS
RECEIVING REVENUE SHARING PAYMENTS
The following list includes the names of member firms of the FINRA (or their
affiliated broker-dealers) that we believe received a revenue sharing payment of
more than $5,000 as of the calendar year ending December 31, 2009, from
SunAmerica Annuity and Life Assurance Company and First SunAmerica Life
Insurance Company, both affiliated companies. Your registered representative can
provide you with more information about the compensation arrangements that apply
upon the sale of the Contract.
AmTrust Investment Services, Inc.
Citigroup Global Markets Inc.
CUSO Financial Services, L.P.
Edward D. Jones & Co., L.P.
Financial Network Investment Corporation
FSC Securities Corp.
ING Financial Partners, Inc.
LPL Financial Corporation
Morgan Keegan & Company, Inc.
Morgan Stanley & Co., Incorporated
Multi Financial Securities Corp.
NEXT Financial Group, Inc.
Primevest Financial Services, Inc.
RBC Capital Markets Corporation
Royal Alliance Associates, Inc.
SagePoint Financial, Inc.
Sammons Securities Co. LLC
Securities America, Inc.
Summit Brokerage Services, Inc.
UBS Financial Services Inc.
WAMU Investments, Inc.
We will update this list annually; interim arrangements may not be reflected.
You are encouraged to review the prospectus for each Underlying Fund for any
other compensation arrangements pertaining to the distribution of Underlying
Fund shares.
Certain broker dealers with which we have selling agreements are our affiliates.
In an effort to promote the sale of our products, affiliated firms may pay their
registered representatives additional cash incentives which may include but are
not limited to bonus payments, expense payments, health and retirement benefits
or the waiver of overhead costs or expenses in connection with the sale of the
Contracts, that they would not receive in connection with the sale of contracts
issued by unaffiliated companies.
-24-
DISTRIBUTION OF CONTRACTS
The contracts are offered on a continuous basis through SunAmerica Capital
Services, Inc., located at Harborside Financial Center, 3200 Plaza 5, Jersey
City, NJ 07311-4992. SunAmerica Capital Services, Inc. is registered as a
broker-dealer under the Securities Exchange Act of 1934, as amended, and is a
member of the Financial Industry Regulatory Authority. The Company and
SunAmerica Capital Services, Inc. are each an indirect, wholly owned subsidiary
of American International Group. No underwriting fees are paid in connection
with the distribution of the contracts.
FINANCIAL STATEMENTS
[TO BE UPDATED BY AMENDMENT]
-25-
PART C -- OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The following financial statements are included in Part B of this Registration
Statement:
[TO BE UPDATED BY AMENDMENT].
(b) Exhibits
(1) Resolutions Establishing Separate Account.................................. 2
(2) Custody Agreements......................................................... Not Applicable
(3) (a) Form of Distribution Contract......................................... 1
(b) Form of Selling Agreement............................................. 1
(4) Variable Annuity Contract
(a) Form of Annuity Contract.............................................. To be Filed by
Amendment
(b) Form of Optional Guaranteed Living Benefit Endorsement................ 8
(c) Maximum Anniversary Value Optional Death Benefit...................... To be Filed by
Amendment
(d) Nursing Home Waiver Endorsement....................................... 4
(e) Form of Variable Annuity Death Claim.................................. To be Filed by
Amendment
(5) Application for Contract................................................... To be Filed by
Amendment
(6) Corporate Documents of Depositor
(a) Amended and Restated Articles of Incorporation........................ 7
(b) Article of Amendment to the Amended and Restated Articles of
Incorporation......................................................... 7
(c) Amended and Restated Bylaws........................................... 7
(7) Reinsurance Contract....................................................... Not Applicable
(8) Material Contracts
(a) Form of Anchor Series Trust Fund Participation Agreement.............. 1
(b) Form of SunAmerica Series Trust Fund Participation Agreement.......... 1
(c) Form of American Funds Fund Participation Agreement................... 3
(d) Form of Lord Abbett Fund Participation Agreement...................... 3
(e) Form of Franklin Templeton Variable Insurance Products Trust Fund
Participation Agreement............................................... 6
(f) AIM Variable Insurance Funds (Invesco Variable Insurance Funds) Fund
Participation Agreement............................................... 9
(9) (a) Opinion of Counsel and Consent of Depositor........................... To be Filed by
Amendment
(10) Consent of Independent Registered Public Accounting Firm................... To be Filed by
Amendment
(11) Financial Statements Omitted from Item 23.................................. Not Applicable
(12) Initial Capitalization Agreement........................................... Not Applicable
(13) Other
(a) Diagram and Listing of All Persons Directly or Indirectly Controlled
By or Under Common Control with SunAmerica Annuity and Life Assurance
Company, the Depositor of Registrant.................................. 9
(b) Power of Attorney -- SunAmerica Annuity and Life Assurance Company
Directors............................................................. Filed Herewith
(c) Support Agreement of American International Group, Inc................ 5
--------
1 Incorporated by reference to Initial Registration Statement, File Nos. 333-
25473 and 811-03859, filed on April 18, 1997, Accession No. 0000950148-97-
000989.
2 Incorporated by reference to Initial Registration Statement, File Nos. 333-
65965 and 811-09003, filed on October 21, 1998, Accession No. 0000950148-98-
002332.
3 Incorporated by reference to Pre-Effective Amendment No. 1 and Amendment No.
1, File Nos. 333-91860 and 811-03859, filed on October 28, 2002, Accession No.
0000898430-02-003844.
4 Incorporated by reference to Post-Effective Amendment No. 26 and Amendment No.
27, File Nos. 333-08859 and 811-07727, filed on July 20, 2004, Accession No.
0000950129-04-005000.
5 Incorporated by reference to Post-Effective Amendment No. 20 and Amendment No.
22, File Nos. 333-65965 and 811-09003, filed on August 29, 2005, Accession No.
0000950129-05-008801.
6 Incorporated by reference to Post-Effective Amendment No. 10 and Amendment No.
11, File Nos. 333-137882 and 811-09003, filed on April 29, 2008, Accession No.
0000950134-08-007757.
7 Incorporated by reference to Post-Effective Amendment No. 8 and Amendment No.
9, File Nos. 333-137866 and 811-07727, filed on July 21, 2009, Accession No.
0000950123-09-023939.
8 Incorporated by reference to Post-Effective Amendment No. 3 and Amendment No.
4, File Nos. 333-157199 and 811-03859, filed on December 21, 2009, Accession
No. 0000950123-09-072050.
9 Incorporated by reference to Post-Effective Amendment No. 7 and Amendment No.
8, File Nos. 333-157199 and 811-03859, filed on August 25, 2010, Accession No.
0000950123-10-080861.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
(a) The officers and directors of SunAmerica Annuity and Life Assurance Company,
Depositor, are listed below. Their principal business address is 1 SunAmerica
Center, Los Angeles, California 90067-6022, unless otherwise noted.
NAME POSITION
---- --------
Jana W. Greer(1) Director, President and Chief Executive Officer
Michael J. Akers(2) Director and Senior Vice President
N. Scott Gillis(1) Director, Senior Vice President and Chief
Financial Officer
Roger E. Hahn(2) Director
William J. Kane(3) Director
Scott H. Richland(4) Director
Edwin R. Raquel(1) Senior Vice President and Chief Actuary
Christine A. Nixon Senior Vice President and Secretary
Stewart R. Polakov(1) Senior Vice President and Controller
Mallary L. Reznik Senior Vice President, General Counsel and Chief
Compliance Officer (Rule 38A-1)
Timothy W. Still(1) Senior Vice President
Edward T. Texeria(1) Senior Vice President and Chief Accounting Officer
Gavin D. Friedman Vice President and Deputy General Counsel
William T. Devanney, Jr.(1) Vice President
Rodney A. Haviland(1) Vice President
Stephen J. Stone(1) Vice President
Monica F. Suryapranata(1) Vice President and Variable Annuity Product
Controller
Manda Ghaferi Assistant Vice President
Virginia N. Puzon Assistant Secretary
--------
(1) 21650 Oxnard Street, Woodland Hills, CA 91367
(2) 2929 Allen Parkway, Houston, TX 77019
(3) 10816 Andora Avenue, Chatsworth, CA 91311
(4) P.O. Box 297, Palos Verdes Estates, CA 90274
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH DEPOSITOR OR
REGISTRANT
The Registrant is a separate account of SunAmerica Annuity and Life Assurance
Company ("Depositor"). Depositor is a subsidiary of American International
Group, Inc. For a complete listing and diagram of all persons directly or
indirectly controlled by or under common control with the Depositor or
Registrant, see Exhibit 13(a). An organizational chart for American
International Group, Inc. can be found as Exhibit 21 in American International
Group, Inc.'s Form 10-K, SEC File No. 001-08787, Accession No. 0001047469-10-
001465, filed on February 26, 2010.
ITEM 27. NUMBER OF CONTRACT OWNERS
SALES OF THIS CONTRACT HAVE NOT YET BEGUN.
ITEM 28. INDEMNIFICATION
Insofar as indemnification for liability arising under the Securities Act of
1933 ("Act") may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SunAmerica Annuity and Life Assurance Company
Section 10-851 of the Arizona Corporations and Associations law permits the
indemnification of directors, officers, employees and agents of Arizona
corporations. Article Eight of the Company's Restated Articles of Incorporation,
as amended and restated (the "Articles") and Article Five of the Company's
Bylaws ("Bylaws") authorize the indemnification of directors and officers to the
full extent permitted by the laws, including the advance of expenses under the
procedures set forth therein. In addition, the Company's officers and directors
are covered by certain directors' and officers' liability insurance policies
maintained by the Company's parent. Reference is made to Section 10-851 of the
Arizona Corporations and Associations Law, Article Eight of the Articles, and
Article Five of the Bylaws.
Additionally, pursuant to the Distribution Agreement filed as Exhibit 3(a) to
this Registration Statement, Depositor has agreed to indemnify and hold harmless
SunAmerica Capital Services, Inc. ("Distributor") for damages and expenses
arising out of (1) any untrue statement or alleged untrue statement of a
material fact contained in materials prepared by Depositor in conjunction with
the offer and sale of the contracts, or Depositor's failure to comply with
applicable law or other material breach of the Distribution Agreement. Likewise,
the Distributor has agreed to indemnify and hold harmless Depositor and its
affiliates, including its officers, directors and the separate account, for
damages and expenses arising out of any untrue statement or alleged untrue
statement of a material fact contained in materials prepared by Distributor in
conjunction with the offer and sale of the contracts, or Distributor's failure
to comply with applicable law or other material breach of the Distribution
Agreement.
Pursuant to the Selling Agreement, a form of which was filed as Exhibit 3(b) to
this Registration Statement, Depositor and Distributor are generally indemnified
by selling broker/dealers firms from wrongful conduct or omissions in
conjunction with the sale of the contracts.
ITEM 29. PRINCIPAL UNDERWRITER
(a) SunAmerica Capital Services, Inc. acts as distributor for the following
investment companies:
SunAmerica Annuity and Life Assurance Company -- Variable Separate Account
SunAmerica Annuity and Life Assurance Company -- Variable Annuity Account
One
SunAmerica Annuity and Life Assurance Company -- Variable Annuity Account
Two
SunAmerica Annuity and Life Assurance Company -- Variable Annuity Account
Four
SunAmerica Annuity and Life Assurance Company -- Variable Annuity Account
Five
SunAmerica Annuity and Life Assurance Company -- Variable Annuity Account
Seven
SunAmerica Annuity and Life Assurance Company -- Variable Annuity Account
Nine
First SunAmerica Life Insurance Company -- FS Variable Separate Account
First SunAmerica Life Insurance Company -- FS Variable Annuity Account One
First SunAmerica Life Insurance Company -- FS Variable Annuity Account Two
First SunAmerica Life Insurance Company -- FS Variable Annuity Account Five
First SunAmerica Life Insurance Company -- FS Variable Annuity Account Nine
Anchor Series Trust
SunAmerica Series Trust
SunAmerica Equity Funds
SunAmerica Income Funds
SunAmerica Focused Series, Inc.
SunAmerica Money Market Funds, Inc.
SunAmerica Senior Floating Rate Fund, Inc.
(b) Directors, Officers and principal place of business:
OFFICER/DIRECTORS* POSITION
------------------ --------
Peter A. Harbeck Director
James T. Nichols Director, President & Chief Executive Officer
Stephen A. Maginn(1) Director, Chief Distribution Officer
Frank Curran Vice President, Controller, Financial Operation
Principal and Chief Financial Officer, Treasurer
James D. Siegel Chief Compliance Officer
John T. Genoy Vice President
Mallary L. Reznik(2) Vice President
Christine A. Nixon(2) Secretary
Virginia N. Puzon(2) Assistant Secretary
--------
* Unless otherwise indicated, the principal business address of SunAmerica
Capital Services, Inc. and of each of the above individuals is Harborside
Financial Center, 3200 Plaza 5, Jersey City, New Jersey 07311.
(1) Principal business address is 21650 Oxnard Street, Woodland Hills, CA
91367.
(2) Principal business address is 1 SunAmerica Center, Los Angeles,
California 90067.
(c) SunAmerica Capital Services, Inc. retains no compensation or commissions
from the Registrant.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All of the accounts, books, records or other documents required to be kept by
Section 31(a) of the Investment Company Act of 1940 and its rules are maintained
by Depositor at 21650 Oxnard Ave., Woodland Hills, California 91367.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
General Representations
-----------------------
The Registrant and its Depositor are relying upon Rule 6c-7 of the Investment
Company Act of 1940 with respect to annuity contracts offered as funding
vehicles to participants in the Texas Optional Retirement Program, and the
provisions of Paragraphs (a) - (d) of the Rule have been complied with.
The Registrant hereby represents that it is relying on the No-Action Letter
issued by the Division of Investment Management to the American Council of Life
Insurance dated November 28, 1988 (Commission Ref. No. IP-6-88). Registrant has
complied with conditions one through four on the No-Action Letter.
Depositor represents that the fees and charges to be deducted under the
Contracts described in the prospectus contained in this Registration Statement,
in the aggregate, are reasonable in relation to the services rendered, the
expenses expected to be incurred, and the risks assumed by Depositor in
accordance with Section 26(f)(2)(A) of the Investment Company Act of 1940.
Undertakings of the Registrant
------------------------------
Registrant undertakes to: (a) file post-effective amendments to this
Registration Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16 months
old for so long as payments under the variable annuity Contracts may be
accepted; (b) include either (1) as part of any application to purchase a
contract offered by the prospectus forming a part of the Registration Statement,
a space that an applicant can check to request a Statement of Additional
Information, or (2) a postcard or similar written communication affixed to or
included in the prospectus that the Applicant can remove to send for a Statement
of Additional Information; and (c) deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form N-4 promptly upon written or oral request.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this Registration Statement to be signed on its
behalf, in the City of Los Angeles, and State of California, on this 31st day of
January, 2011.
VARIABLE ANNUITY ACCOUNT SEVEN
(Registrant)
By: SUNAMERICA ANNUITY AND LIFE
ASSURANCE COMPANY
By: /s/ MALLARY L. REZNIK
------------------------------------
MALLARY L. REZNIK,
SENIOR VICE PRESIDENT & GENERAL
COUNSEL
By: SUNAMERICA ANNUITY AND LIFE
ASSURANCE COMPANY
(Depositor)
By: /s/ MALLARY L. REZNIK
------------------------------------
MALLARY L. REZNIK,
SENIOR VICE PRESIDENT & GENERAL
COUNSEL
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below hereby constitutes and appoints MALLARY L. REZNIK and MANDA GHAFERI, or
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including pre-
and post-effective amendments) to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith, as
fully to all intents as he might or could do in person, including specifically,
but without limiting the generality of the foregoing, to (i) take any action to
comply with any rules, regulations or requirements of the Securities and
Exchange Commission under the federal securities laws; (ii) make application for
and secure any exemptions from the federal securities laws; (iii) register
additional annuity contracts under the federal securities laws, if registration
is deemed necessary. The undersigned hereby ratifies and confirms all that said
attorneys-in-fact and agents, or any of them, or their substitutes, shall do or
cause to be done by virtue thereof.
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JANA W. GREER Director, President & Chief January 28, 2011
----------------------------- Executive Officer
JANA W. GREER (Principal Executive Officer)
/s/ MICHAEL J. AKERS Director January 27, 2011
-----------------------------
MICHAEL J. AKERS
/s/ N. SCOTT GILLIS Director, Senior Vice President & January 31, 2011
----------------------------- Chief Financial Officer
N. SCOTT GILLIS (Principal Financial Officer)
/s/ ROGER E. HAHN Director January 27, 2011
-----------------------------
ROGER E. HAHN
/s/ WILLIAM J. KANE Director January 28, 2011
-----------------------------
WILLIAM J. KANE
/s/ SCOTT H. RICHLAND Director January 28, 2011
-----------------------------
SCOTT H. RICHLAND
/s/ STEWART R. POLAKOV Senior Vice President & Controller January 28, 2011
----------------------------- (Principal Accounting Officer)
STEWART R. POLAKOV
COVER
2
filename2.txt
February 3, 2011
VIA EDGAR, ELECTRONIC MAIL AND U.S. MAIL
Securities and Exchange Commission
Division of Investment Management
100 F Street N.E.
Washington, D.C. 20549
Re: Variable Annuity Account Seven ("Registrant")
SunAmerica Annuity and Life Assurance Company ("Depositor")
Polaris [TBD] Variable Annuity
Initial Form N-4
File Nos.: 333- and 811-09003
Ladies and Gentlemen:
On behalf of the Registrant and Depositor, submitted herewith pursuant
to the Securities Act of 1933 ("1933 Act") and the Investment Company Act of
1940 ("1940 Act") is a copy of the Initial N-4 registration statement ("Initial
N-4") filed on February 3, 2011. The purpose of this filing is to register a new
variable annuity product. The marketing name is yet to be determined.
The Registrant and its distributor SunAmerica Capital Services, Inc.
("SACS") respectfully request, consistent with Rule 461(a) under the 1933 Act,
that the Commission, pursuant to delegated authority, grant acceleration of the
effective date of this filing and that such Registration Statement be declared
effective at 9:00 a.m., Eastern Time, on April 29, 2011, or as soon as
practicable thereafter. Depositor, Registrant and SACS are aware of their
obligations under the 1933 Act.
Depositor and Registrant acknowledge that:
- Should the Commission or the Staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing; and
- The action of the Commission or the Staff, acting pursuant to delegated
authority, in declaring the filing effective, does not relieve
Depositor and Registrant from full responsibility for the adequacy and
accuracy of the disclosure in the filing; and
- Depositor and Registrant may not assert this action as a defense in any
proceeding initiated by the Commission or any other person under the
federal securities laws of the United States.
Please contact Manda Ghaferi at (310) 772-6545 if you have any
questions or need more information.
Sincerely,
SUNAMERICA ANNUITY AND LIFE ASSURANCE COMPANY
By: /S/ MALLARY L. REZNIK
----------------------------------------------------------
Mallary L. Reznik, Senior Vice President & General Counsel
SUNAMERICA CAPITAL SERVICES, INC.
By: /S/ MALLARY L. REZNIK
----------------------------------------------------------
Mallary L. Reznik, Vice President
cc: Jeff Foor, Esq.
CORRESP
3
filename3.txt
VIA EDGAR and Overnight Mail
February 3, 2011
Mr. Jeffrey Foor
Division of Investment Management
United States Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Variable Annuity Account Seven ("Registrant")
SunAmerica Annuity and Life Assurance Company ("Depositor")
Polaris [TBD] Variable Annuity
Initial Form N-4
File Nos. 333-______ and 811-09003
Dear Mr. Foor:
On behalf of the Registrant and Depositor, submitted herewith pursuant to
the Securities Act of 1933 ("1933 Act") and the Investment Company Act of 1940
("1940 Act") is a copy of the Initial N-4 registration statement ("Initial N-4")
filed on February 3, 2011. The purpose of this filing is to register a new
variable annuity product; the marketing name has not yet been finalized and
therefore is labeled as "Polaris [TBD] Variable Annuity".
We are filing the prospectus with certain information bracketed which we
intend to include in a pre-effective amendment. However, we have submitted, as
correspondence herein, a non-bracketed prospectus in order to facilitate the
Staff's review of the filing. In addition, under separate cover, we are
submitting an acceleration request with the appropriate Tandy representations.
The Registrant has removed all financial statements and references to
Independent Auditors from this Initial N-4. Registrant commits to file a
pre-effective amendment that will incorporate the Staff's comments as well as
include the appropriate financial statements and Auditor's consent.
Registrant would like to begin marketing this contract on May 2, 2011. For
that to be feasible, we would appreciate receiving comments from the Staff by
April 11, 2011. We would then have sufficient time to work with the Staff to
address any comments, file a pre-effective amendment and print final
prospectuses for delivery to our fulfillment vendor. We would appreciate the
Staff's efforts to accommodate this schedule.
Should you have any questions or need any additional information, please do
not hesitate to contact me at (310) 772-6545. Thank you.
Very truly yours,
/s/ Manda Ghaferi
---------------------------------------------
Manda Ghaferi
Assistant General Counsel
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
[POLARIS(II) TBD]
PROSPECTUS
MAY 2, 2011
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
issued by Depositor
SUNAMERICA ANNUITY AND LIFE ASSURANCE COMPANY
in all states except in New York where it is issued by
FIRST SUNAMERICA LIFE INSURANCE COMPANY
in connection with
VARIABLE ANNUITY ACCOUNT SEVEN
and
FS VARIABLE SEPARATE ACCOUNT
This variable annuity has several investment choices - Variable Portfolios
(which are subaccounts of the separate account) and available Fixed Account
options. Each Variable Portfolio invests exclusively in shares of one of the
Underlying Funds listed below. The Underlying Funds are part of AIM Variable
Insurance Funds (Invesco Variable Insurance Funds), American Funds Insurance
Series, Anchor Series Trust, Franklin Templeton Variable Insurance Products
Trust, Lord Abbett Series Fund, Inc., Seasons Series Trust and SunAmerica Series
Trust.
UNDERLYING FUNDS: MANAGED BY:
Aggressive Growth Wells Capital Management Incorporated
Alliance Growth AllianceBernstein L.P.
American Funds Asset Capital Research and Management Company
Allocation(1)
American Funds Global Capital Research and Management Company
Growth(1)
American Funds Growth- Capital Research and Management Company
Income(1)
American Funds Growth(1) Capital Research and Management Company
Asset Allocation Edge Asset Management, Inc.
Balanced J.P. Morgan Investment Management Inc.
Blue Chip Growth SunAmerica Asset Management Corp.
Capital Appreciation Wellington Management Company, LLP
Capital Growth OppenheimerFunds, Inc.
Cash Management BofA Advisors, LLC
Corporate Bond Federated Investment Management Company
Davis Venture Value Davis Selected Advisers, L.P.
"Dogs" of Wall Street(2) SunAmerica Asset Management Corp.
Emerging Markets Putnam Investment Management, LLC
Equity Opportunities OppenheimerFunds, Inc.
Foreign Value Templeton Investment Counsel, LLC
Franklin Income Securities Franklin Advisers, Inc.
Fund
Franklin Templeton VIP Franklin Templeton Services, LLC(3)
Founding Funds Allocation
Fund
Fundamental Growth Wells Capital Management Incorporated
Global Bond Goldman Sachs Asset Management International
Global Equities J.P. Morgan Investment Management Inc.
Government and Quality Bond Wellington Management Company, LLP
Growth Wellington Management Company, LLP
Growth-Income J.P. Morgan Investment Management Inc.
Growth Opportunities Invesco Advisers, Inc.
High-Yield Bond PineBridge Investments LLC
International Diversified Morgan Stanley Investment Management Inc.
Equities
International Growth and Putnam Investment Management, LLC
Income
Invesco Van Kampen V.I. Invesco Advisers, Inc.
Capital Growth Fund, Series
II Shares
Invesco Van Kampen V.I. Invesco Advisers, Inc.
Comstock Fund, Series II
Shares
Invesco Van Kampen V.I. Growth Invesco Advisers, Inc.
and Income Fund, Series II
Shares
Lord Abbett Growth and Income Lord, Abbett & Co. LLC
Lord Abbett Mid Cap Value Lord, Abbett & Co. LLC
Marsico Focused Growth Marsico Capital Management, LLC
MFS Massachusetts Investors Massachusetts Financial Services Company
Trust(2)
MFS Total Return Massachusetts Financial Services Company
Mid-Cap Growth J.P. Morgan Investment Management Inc.
Natural Resources Wellington Management Company, LLP
Real Estate Davis Selected Advisers, L.P.
Real Return Wellington Management Company, LLP
Small & Mid Cap Value AllianceBernstein L.P.
Small Company Value Franklin Advisory Services, LLC
Technology Columbia Management Investment Advisers,
LLC(3)
Telecom Utility Massachusetts Financial Services Company
Total Return Bond Pacific Investment Management Company LLC
(1) Separate Investment of American Funds Insurance Series.
(2) "Dogs" of Wall Street is an equity fund seeking total return including
capital appreciation and current income. MFS Massachusetts Investors Trust
is an equity fund seeking reasonable current income and long-term growth of
capital and income.
(3) Franklin Templeton Services, LLC is the administrator of this fund of funds.
Franklin Templeton Services, LLC may receive assistance from Franklin
Advisers, Inc. in monitoring the underlying funds and the VIP Founding
Fund's investment in the underlying funds.
Please read this prospectus carefully before investing and keep it for future
reference. It contains important information about the variable annuity.
To learn more about the annuity offered in this prospectus, you can obtain a
copy of the Statement of Additional Information ("SAI") dated May 2, 2011. The
SAI has been filed with the United States Securities and Exchange Commission
("SEC") and is incorporated by reference into this prospectus. The Table of
Contents of the SAI appears at the end of this prospectus. For a free copy of
the SAI, call us at (800) 445-7862 or write to us at our Annuity Service Center,
P.O. Box 54299, Los Angeles, California 90054-0299.
In addition, the SEC maintains a website (http://www.sec.gov) that contains the
SAI, materials incorporated by reference and other information filed
electronically with the SEC by the Company.
ANNUITIES INVOLVE RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL, AND ARE NOT A
DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THEY ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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GLOSSARY................................................................... 3
HIGHLIGHTS................................................................. 4
FEE TABLE.................................................................. 5
Maximum Owner Transaction Expenses.................................. 5
Maximum Premium Based Charge........................................ 5
Maximum Withdrawal Charges.......................................... 5
Contract Maintenance Fee............................................ 5
Separate Account Annual Expenses.................................... 5
Additional Optional Feature Fee..................................... 5
Optional SunAmerica Income Plus Fee............................... 5
Underlying Fund Expenses............................................ 5
MAXIMUM AND MINIMUM EXPENSE EXAMPLES....................................... 7
THE POLARIS [TBD] VARIABLE ANNUITY......................................... 8
PURCHASING A POLARIS [TBD] VARIABLE ANNUITY................................ 8
Allocation of Purchase Payments..................................... 9
Accumulation Units.................................................. 10
Free Look........................................................... 10
Exchange Offers..................................................... 11
Important Information for Military Servicemembers................... 11
INVESTMENT OPTIONS......................................................... 11
Variable Portfolios................................................. 11
AIM Variable Insurance Funds
(Invesco Variable Insurance Funds)..................... 11
American Funds Insurance Series................................... 12
Anchor Series Trust............................................... 12
Franklin Templeton Variable Insurance Products Trust.............. 12
Lord Abbett Series Fund, Inc...................................... 12
Seasons Series Trust.............................................. 12
SunAmerica Series Trust........................................... 12
Substitution, Addition or Deletion of Variable Portfolios........... 14
Fixed Accounts...................................................... 14
Dollar Cost Averaging Fixed Accounts................................ 14
Dollar Cost Averaging Program....................................... 15
Polaris Portfolio Allocator Program................................. 15
Transfers During the Accumulation Phase............................. 17
Automatic Asset Rebalancing Program................................. 20
Voting Rights....................................................... 20
ACCESS TO YOUR MONEY....................................................... 20
Free Withdrawal Amount.............................................. 20
Systematic Withdrawal Program....................................... 21
Nursing Home Waiver................................................. 22
Minimum Contract Value.............................................. 22
Qualified Contract Owners........................................... 22
OPTIONAL LIVING BENEFITS................................................... 22
SunAmerica Income Plus.............................................. 24
DEATH BENEFITS............................................................. 32
Extended Legacy Program............................................. 33
Standard Death Benefit.............................................. 34
Optional Maximum Anniversary Value Death Benefit.................... 34
Spousal Continuation................................................ 35
EXPENSES................................................................... 35
Separate Account Expenses........................................... 35
Premium Based Charge................................................ 35
Withdrawal Charge................................................... 36
Underlying Fund Expenses............................................ 37
Contract Maintenance Fee............................................ 37
Transfer Fee........................................................ 37
Optional SunAmerica Income Plus Fee................................. 38
Optional Maximum Anniversary Value Death Benefit Fee................ 38
Premium Tax......................................................... 38
Income Taxes........................................................ 38
Reduction or Elimination of Fees, Expenses
and Additional Amounts Credited............................. 38
PAYMENTS IN CONNECTION WITH DISTRIBUTION OF THE CONTRACT................... 38
ANNUITY INCOME OPTIONS..................................................... 40
Annuity Date........................................................ 40
Annuity Income Options.............................................. 40
Fixed or Variable Annuity Income Payments........................... 41
Annuity Income Payments............................................. 41
Transfers During the Income Phase................................... 41
Deferment of Payments............................................... 41
TAXES...................................................................... 41
Annuity Contracts in General........................................ 42
Tax Treatment of Distributions - Non-Qualified Contracts............ 42
Tax Treatment of Distributions - Qualified Contracts................ 43
Required Minimum Distributions...................................... 44
Tax Treatment of Death Benefits..................................... 45
Tax Treatment of Optional Living Benefits........................... 45
Contracts Owned by a Trust or Corporation........................... 45
Gifts, Pledges and/or Assignments of a Contract..................... 45
Diversification and Investor Control................................ 46
OTHER INFORMATION.......................................................... 46
The Distributor..................................................... 46
The Company......................................................... 46
The Separate Account................................................ 47
The General Account................................................. 47
Financial Statements................................................ 48
Administration...................................................... 48
Legal Proceedings................................................... 49
Registration Statements............................................. 49
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION................... 50
APPENDIX A - STATE CONTRACT AVAILABILITY AND/OR VARIABILITY................ A-1
APPENDIX B - FORMULA FOR CALCULATING AND EXAMPLE OF THE SUNAMERICA INCOME
PLUS FEE................................................................. B-1
APPENDIX C - SUNAMERICA INCOME PLUS OPTIONAL LIVING BENEFIT EXAMPLES....... C-1
APPENDIX D - DEATH BENEFITS FOLLOWING SPOUSAL CONTINUATION................. D-1
2
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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 - The person on whose life we base annuity income payments after you
begin the Income Phase.
ANNUITY DATE - The date you select on which annuity income payments begin.
ANNUITY UNITS - A measurement we use to calculate the amount of annuity income
payments you receive from the variable portion of your contract during the
Income Phase.
BENEFICIARY - The person you designate to receive any benefits under the
contract if you or the Annuitant dies.
COMPANY - Refers to SunAmerica Annuity and Life Assurance Company ("SunAmerica
Annuity") or First SunAmerica Life Insurance Company ("First SunAmerica" for
contracts issued in New York only), the insurer that issues this contract. The
term "we," "us" and "our" are also used to identify the issuing Company.
CONTINUING SPOUSE - Spouse of original contract owner at the time of death who
elects to continue the contract after the death of the original contract owner.
FIXED ACCOUNT - An account, if available, that we may offer in which you may
invest money and earn a fixed rate of return.
GOOD ORDER - Fully and accurately completed forms, including any necessary
supplementary documentation, applicable to any given transaction or request
received by us.
INCOME PHASE - The period beginning on the Annuity Date during which we make
annuity income payments to you.
INSURABLE INTEREST - Evidence that the Owner(s), Annuitant(s) or
Beneficiary(ies) will suffer a financial loss at the death of the life that
triggers the death benefit. Generally, we consider an interest insurable if a
familial relationship and/or an economic interest exists. A familial
relationship generally includes those persons related by blood or by law. An
economic interest exists when the Owner has a lawful and substantial economic
interest in having the life, health or bodily safety of the insured life
preserved.
LATEST ANNUITY DATE - For contracts issued by SunAmerica Annuity, the first day
of the month following age 95. For contracts issued in New York only by First
SunAmerica, your 90th birthday or tenth contract anniversary, whichever is
later.
MARKET CLOSE - The close of the New York Stock Exchange, usually at 1:00 p.m.
Pacific Time.
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").
NYSE - New York Stock Exchange
OWNER - The person or entity (if a non-natural owner) with an interest or title
to this contract. The term "you" or "your" are also used to identify the Owner.
PREMIUM BASED CHARGE - A charge that is deducted from your contract value on
each Quarter Anniversary following the date each Premium is made and is deducted
for seven years.
PURCHASE PAYMENTS - The money you give us to buy and invest in the contract,
also known as "Premiums."
QUALIFIED (CONTRACT) - A contract purchased with pretax dollars. These contracts
are generally purchased under a pension plan, specially sponsored program or
IRA.
QUARTER ANNIVERSARY - The date following each consecutive 3 month period
starting on the contract issue date.
SEPARATE ACCOUNT - A segregated asset account maintained by the Company
separately from the Company's general account. The Separate Account is divided
into Variable Portfolios.
TRUSTS - Collectively refers to the AIM Variable Insurance Funds (Invesco
Variable Insurance Funds), American Funds Insurance Series, Anchor Series Trust,
Franklin Templeton Variable Insurance Products Trust, Lord Abbett Series Fund,
Inc., Seasons Series Trust and SunAmerica Series Trust.
UNDERLYING FUNDS - The underlying investment portfolios of the Trusts in which
the Variable Portfolios invest.
VARIABLE PORTFOLIO(S) - The variable investment options available under the
contract. Each Variable Portfolio, which is a subaccount of the Separate
Account, invests in shares of one of the Underlying Funds. Each Underlying Fund
has its own investment objective.
3
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HIGHLIGHTS
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The Polaris [TBD] Variable Annuity is a contract between you and the Company. 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
Portfolios and Fixed Accounts. 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
annuity income payments from your annuity to provide for your retirement.
FREE LOOK: You may cancel your contract within 10 days after receiving it (or
whatever period is required in your state), and not be charged a withdrawal
charge. You will receive whatever your contract is worth on the day that we
receive your request. The amount refunded may be more or less than your original
Purchase Payments. We will return your original Purchase Payments if required by
law. PLEASE SEE FREE LOOK IN THE PROSPECTUS.
EXPENSES: There are fees and charges associated with the contract. Each year,
we deduct a $50 contract maintenance fee from your contract, which may be waived
for contracts of $75,000 or more. We also deduct separate account charges which
equal 0.95% annually of the average daily value of your contract allocated to
the Variable Portfolios. A separate withdrawal charge schedule applies to each
Premium. Your contract provides for a free withdrawal amount each year.
Withdrawal charges no longer apply to that Premium after a Premium has been in
the contract for seven complete years. There are investment charges on amounts
invested in the Variable Portfolios, including 12b-1 fees of up to 0.25%. If you
elect optional features available under the contract, we may charge additional
fees for those features. We apply a Premium Based Charge against Premiums that
you make to your contract. The Premium Based Charge equals a percentage of each
Premium and varies with your investment amount. PLEASE SEE FEE TABLE, PURCHASING
A POLARIS [TBD] VARIABLE ANNUITY, FREE WITHDRAWAL AMOUNT AND EXPENSES IN THE
PROSPECTUS.
ACCESS TO YOUR MONEY: You may withdraw money from your contract during the
Accumulation Phase. If you make a withdrawal, earnings are deemed to be
withdrawn first. You will pay income taxes on earnings and untaxed contributions
when you withdraw them. Annuity income 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.
You should consider the impact of Excess Withdrawals on the Living Benefit you
elect. Withdrawals in excess of the prescribed amount can have a detrimental
impact on the guaranteed benefit. In addition, if an Excess Withdrawal reduces
your contract value to zero, your contract will terminate and no further
benefits are payable. PLEASE SEE OPTIONAL LIVING BENEFITS IN THE PROSPECTUS.
OPTIONAL LIVING BENEFITS: You may elect the optional living benefit available
under your contract for an additional fee. This living benefit is designed to
protect a portion of your investment in the event your contract value declines
due to unfavorable investment performance during the Accumulation Phase and
before a death benefit is payable. This benefit can provide a guaranteed income
stream during the Accumulation Phase that may last as long as you live. PLEASE
SEE OPTIONAL LIVING BENEFITS IN THE PROSPECTUS.
DEATH BENEFIT: A standard death benefit is available and in addition, optional
death benefit(s) are available for an additional fee. These benefits are
designed to protect your Beneficiaries in the event of your death during the
Accumulation Phase. PLEASE SEE DEATH BENEFITS IN THE PROSPECTUS.
ANNUITY INCOME OPTIONS: When you switch to the Income Phase, you can choose to
receive annuity income payments on a variable basis, fixed basis or a
combination of both. You may also choose from five different annuity income
options, including an option for annuity income that you cannot outlive. PLEASE
SEE ANNUITY INCOME OPTIONS IN THE PROSPECTUS.
INQUIRIES: If you have questions about your contract, call your financial
representative or contact us at Annuity Service Center, P.O. Box 54299, Los
Angeles, California 90054-0299. Telephone Number: (800) 445-7862. PLEASE SEE
ALLOCATION OF PURCHASE PAYMENTS IN THE PROSPECTUS FOR THE ADDRESS TO WHICH YOU
MUST SEND PURCHASE PAYMENTS.
PLEASE SEE THE STATE CONTRACT AVAILABILITY AND/OR VARIABILITY APPENDIX BELOW FOR
STATE SPECIFIC INFORMATION.
THE COMPANY OFFERS SEVERAL DIFFERENT VARIABLE ANNUITY CONTRACTS TO MEET THE
DIVERSE NEEDS OF OUR INVESTORS. OUR CONTRACTS MAY PROVIDE DIFFERENT FEATURES,
BENEFITS, PROGRAMS AND INVESTMENT OPTIONS OFFERED AT DIFFERENT FEES 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 RETIREMENT SAVINGS GOALS.
IF YOU WOULD LIKE MORE INFORMATION REGARDING HOW MONEY IS SHARED AMONGST OUR
BUSINESS PARTNERS, INCLUDING BROKER-DEALERS THROUGH WHICH YOU MAY PURCHASE A
VARIABLE ANNUITY AND FROM CERTAIN INVESTMENT ADVISERS OF THE UNDERLYING FUNDS,
PLEASE SEE PAYMENTS IN CONNECTION WITH DISTRIBUTION OF THE CONTRACT BELOW.
PLEASE READ THE PROSPECTUS CAREFULLY FOR MORE DETAILED INFORMATION REGARDING
THESE AND OTHER FEATURES AND BENEFITS OF THE CONTRACT, AS WELL AS THE RISKS OF
INVESTING.
4
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FEE TABLE
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THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT ARE APPLICABLE TO THE
CONTRACT AND WHEN YOU TRANSFER CONTRACT VALUE BETWEEN INVESTMENT OPTIONS, MAKE
ADDITIONAL PURCHASE PAYMENTS, OR SURRENDER THE CONTRACT. IF APPLICABLE, YOU MAY
ALSO BE SUBJECT TO STATE PREMIUM TAXES.(1)
MAXIMUM OWNER TRANSACTION EXPENSES
MAXIMUM PREMIUM BASED CHARGE
(as a percentage of each Purchase
Payment)(2)............................ 5.00%
MAXIMUM WITHDRAWAL CHARGES
(as a percentage of each Purchase
Payment)(3)............................ 6.00%
TRANSFER FEE
$25 per transfer after the first 15 transfers in any contract year.
THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY PERIODICALLY
DURING THE TIME THAT YOU OWN THE CONTRACT, NOT INCLUDING UNDERLYING FUND
EXPENSES WHICH ARE OUTLINED IN THE NEXT SECTION.
CONTRACT MAINTENANCE FEE(4)....................................... $50 per year
SEPARATE ACCOUNT ANNUAL EXPENSES
(deducted from the average daily ending net asset value allocated to the
Variable Portfolios)
Separate Account Fee(5)......................... 0.95%
Optional Maximum Anniversary Value Death Benefit
Fee(6)....................................... 0.25%
-----
Total Separate Account Annual Expenses....... 1.20%
=====
ADDITIONAL OPTIONAL FEATURE FEE
You may elect the following optional living benefit which is a guaranteed
minimum withdrawal benefit:
OPTIONAL SUNAMERICA INCOME PLUS FEE
(calculated as a percentage of the Income Base)(7)
MAXIMUM
NUMBER OF COVERED PERSONS ANNUAL FEE RATE(8)
------------------------- --------------------
For One Covered Person............................ 2.20%
For Two Covered Persons........................... 2.70%
UNDERLYING FUND EXPENSES (AS OF DECEMBER 31, 2009)
[TO BE UPDATED BY AMENDMENT]
THE FOLLOWING SHOWS THE MINIMUM AND MAXIMUM TOTAL OPERATING EXPENSES CHARGED BY
THE UNDERLYING FUNDS OF THE TRUSTS, BEFORE ANY WAIVERS OR REIMBURSEMENTS THAT
YOU MAY PAY PERIODICALLY DURING THE TIME THAT YOU OWN THE CONTRACT. MORE DETAIL
CONCERNING THE UNDERLYING FUNDS' EXPENSES IS CONTAINED IN THE PROSPECTUS FOR
EACH OF THE TRUSTS. PLEASE READ THEM CAREFULLY BEFORE INVESTING.
TOTAL ANNUAL UNDERLYING FUND
EXPENSES(9) MINIMUM MAXIMUM
---------------------------- ------- -------
(expenses that are deducted from
Underlying Funds of the Trusts,
including management fees, 12b-1
fees, if applicable, and other
expenses)........................ 0.54% 1.56%
FOOTNOTES TO THE FEE TABLE:
(1) State premium taxes of up to 3.5% of your Purchase Payments may be deducted
when you make a Purchase Payment or when you fully surrender your contract
or begin the Income Phase. PLEASE SEE PREMIUM TAX AND STATE CONTRACT
AVAILABILITY AND/OR VARIABILITY APPENDIX BELOW.
(2) Each Premium is subject to the Premium Based Charge for a period of 7 years
and is deducted quarterly from your contract value. PLEASE SEE EXPENSES
SECTION BELOW.
PREMIUM BASED CHARGE AS A QUARTERLY PREMIUM
PERCENTAGE OF BASED CHARGE
ACCUMULATED PREMIUM BREAKPOINT PURCHASE PAYMENTS INVESTED (OVER 7 YEAR PERIOD)
------------------------------ -------------------------- --------------------
Less than $50,000....................... 5.00% 0.1786%
$50,000 but less than $100,000.......... 4.50% 0.1607%
$100,000 but less than $250,000......... 3.50% 0.1250%
$250,000 but less than $500,000......... 2.50% 0.0893%
$500,000 but less than $1,000,000....... 2.00% 0.0714%
$1,000,000 or more...................... 1.25% 0.0446%
The initial Premium Based Charge is determined by the sum of Premiums received
during the first contract quarter and the Accumulated Premium Breakpoint
achieved by that amount. After the first contract Quarter Anniversary, the
Premium Based Charge for each subsequent Premium is determined based on the sum
of all Premiums (including the subsequent Premium) and the Accumulated Premium
Breakpoint achieved by the sum of Premiums as of the Premium receipt date.
PLEASE SEE EXPENSES BELOW.
(3) Withdrawal Charge Schedule (as a percentage of each Premium withdrawn)
declines over 7 years as follows and applies to each Premium starting on the
Premium receipt date:
YEARS SINCE PREMIUM RECEIPT
------------------------------------------------------
ACCUMULATED PREMIUM BREAKPOINT 1 2 3 4 5 6 7 8+
Less than $50,000....................................... 6% 5% 5% 4% 3% 2% 1% 0%
$50,000 but less than $100,000.......................... 5.5% 5% 5% 4% 3% 2% 1% 0%
$100,000 but less than $250,000......................... 4.5% 4% 4% 3% 3% 2% 1% 0%
$250,000 but less than $500,000......................... 3.5% 3% 3% 2.25% 2% 2% 1% 0%
$500,000 but less than $1,000,000....................... 3% 2% 2% 1.5% 1% 1% 1% 0%
$1,000,000 or more...................................... 2.25% 1.5% 1.5% 1% 1% 0.75% 0.5% 0%
The Withdrawal Charge for each Premium is determined based on the sum of all
Premiums (including the subsequent Premium) and the Accumulated Premium
Breakpoint achieved as of the Premium receipt date. PLEASE SEE EXPENSES SECTION
BELOW.
5
(4) The contract maintenance fee is assessed annually and may be waived if
contract value is $75,000 or more. The fee is deducted on a pro rata basis
from your contract value on your contract anniversary.
(5) If you do not elect any optional features, your total separate account
annual expenses would be 0.95%. If your Beneficiary elects to take the death
benefit amount under the Extended Legacy Program, we will deduct an annual
Separate Account Charge of 0.85% which is deducted daily from the average
daily ending net asset value allocated to the Variable Portfolios. PLEASE
SEE EXTENDED LEGACY PROGRAM UNDER DEATH BENEFITS BELOW.
(6) If you do not elect any optional features, your separate account annual
expenses would be 0.95%.
(7) The fee is assessed against the Income Base which determines the basis of
the guaranteed benefit. The annual fee is deducted from your contract value
at the end of the first quarter following election and quarterly thereafter.
For a complete description of how the Income Base is calculated, please see
OPTIONAL LIVING BENEFITS below.
(8) The Initial Annual Fee Rate is guaranteed not to change for the first
Benefit Year. Subsequently, the fee rate may change quarterly subject to the
parameters identified in the table below. Any fee adjustment is based on a
non-discretionary formula tied to the change in the Volatility Index
("VIX(R)"), an index of market volatility reported by the Chicago Board
Options Exchange. If the value of the VIX decreases or increases from the
previous Benefit Quarter Anniversary, your fee rate will decrease or
increase accordingly, subject to the minimums and maximums identified in the
Fee Table. PLEASE SEE APPENDIX B -- FORMULA FOR CALCULATING AND EXAMPLE OF
THE SUNAMERICA INCOME PLUS FEE BELOW.
-------------------------------------------------------------------
MAXIMUM
ANNUALIZED
FEE RATE
DECREASE OR
INITIAL MINIMUM INCREASE EACH
ANNUAL ANNUAL BENEFIT
NUMBER OF COVERED PERSONS FEE RATE FEE RATE QUARTER*
-------------------------------------------------------------------
-------------------------------------------------------------------
One Covered Person 1.10% 0.60% +/-0.25%
-------------------------------------------------------------------
Two Covered Persons 1.35% 0.60% +/-0.25%
-------------------------------------------------------------------
* The fee rate can increase or decrease no more than 0.0625% each
quarter (0.25%/ 4).
(9) The maximum expense is for an Underlying Fund of SunAmerica Series Trust, as
of its fiscal year ended January 31, 2010. The minimum expense is for an
Underlying Fund of American Funds Insurance Series Trust as of its fiscal
year ended December 31, 2009.
6
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MAXIMUM AND MINIMUM EXPENSE EXAMPLES [TO BE UPDATED BY AMENDMENT]
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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, the contract maintenance fee if any,
separate account annual expenses, available optional feature fees and Underlying
Fund expenses.
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 you incur the
maximum or minimum fees and expenses of the Underlying Fund as indicated in the
examples. 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 1.20% including the
Maximum Anniversary Value death benefit feature, the optional SunAmerica Income
Plus feature (for the first year calculated at the initial annual fee rate of
1.35% and the maximum annual fee rate of 2.70% for the remaining years), a
maximum Premium Based Charge of 5.00% and investment in an Underlying Fund with
total expenses of 1.56%)
(1) If you surrender your contract at the end of the applicable time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$1,088 $2,220 $3,226 $5,629
(2) If you do not surrender or annuitize your contract at the end of the
applicable time period(4):
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$488 $1,720 $2,926 $5,629
MINIMUM EXPENSE EXAMPLES
(assuming minimum separate account annual expenses of 0.95%, no election of
optional features and investment in an Underlying Fund with total expenses of
0.54%)
(1) If you surrender your contract at the end of the applicable time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$828 $1,196 $1,482 $2,279
(2) If you do not surrender or annuitize your contract at the end of the
applicable time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$228 $696 $1,182 $2,279
EXPLANATION OF FEE TABLE AND EXPENSE EXAMPLES
1. The purpose of the Fee Table and Expense Examples is to show you the various
fees and expenses you would incur directly and indirectly by investing in
this variable annuity contract. The Fee Table and Expense Examples represent
both fees of the separate account as well as the maximum and minimum total
annual Underlying Fund operating expenses. We converted the contract
maintenance fee to a percentage (0.05%). The actual impact of the contract
maintenance fee may differ from this percentage and may be waived for
contract values over $75,000. Additional information on the Underlying Fund
fees can be found in the Trust prospectuses.
2. In addition to the stated assumptions, the Expense Examples also assume
Separate Account fees as indicated and that no transfer fees were imposed. A
maximum Premium Based Charge and withdrawal charge of 5.00% is used in the
Expense Examples because of the $10,000 investment amount. Your expenses may
be lower if you are subject to a lower Premium Based Charge and Withdrawal
Charge Schedule. Although premium taxes may apply in certain states, they
are not reflected in the Expense Examples.
3. If you elected other optional features, your expenses would be lower than
those shown in the Maximum Expense Examples. The Maximum Expense Examples
assume that the Income Base, which is used to calculate the SunAmerica
Income Plus fee, equals contract value, that no withdrawals are taken during
the stated period, there are two Covered Persons and that the annual maximum
fee rate has been reached. When SunAmerica Income Plus is elected, the fee
for two Covered Persons is 1.35% for the first Benefit Year. After the first
Benefit Year, the fee is recalculated each Benefit Quarter based on a non-
discretionary formula. This formula also allows the fee to decrease for two
Covered Persons to a minimum annual fee rate of 0.60%
4. You do not pay fees for optional features once you begin the Income Phase
(annuitize your contract); therefore, your expenses will be lower than those
shown here. PLEASE SEE ANNUITY INCOME OPTIONS BELOW.
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
AS OF THE DATE OF THIS PROSPECTUS, SALES IN THIS CONTRACT HAVE NOT YET BEGUN.
THEREFORE, CONDENSED FINANCIAL INFORMATION IS NOT YET AVAILABLE.
7
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THE POLARIS [TBD]
VARIABLE ANNUITY
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When you purchase a variable annuity, a contract exists between you and the
Company. You are the Owner of the contract. The contract provides several main
benefits:
- Optional Living Benefit: If you elect an optional living benefit, the
Company guarantees to provide a guaranteed income stream, with additional
benefits under the feature you elect, in the event your contract value
declines due to unfavorable investment performance and withdrawals within
the feature's parameters.
- Death Benefit: If you die during the Accumulation Phase, the Company pays
a death benefit to your Beneficiary.
- Guaranteed Income: Once you begin the Income Phase, you receive a stream
of annuity income payments for your lifetime, or another available period
you select.
- Tax Deferral: This means that you do not pay taxes on your earnings from
the contract until you withdraw them.
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 variable annuity was developed to help you plan for your retirement. In the
Accumulation phase, it can help you build assets on a tax-deferred basis. In the
Income phase, it can provide you with guaranteed income through annuity income
payments. Alternatively, you may elect an optional living benefit that is
designed to help you create a guaranteed income stream that may last as long as
you live.
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. 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 Accounts, if available, earn interest at a rate set and guaranteed by the
Company. If you allocate money to a Fixed Account, the amount of money that
accumulates in the contract depends on the total interest credited to the
particular Fixed Account in which you invest.
For more information on investment options available under this contract, PLEASE
SEE INVESTMENT OPTIONS BELOW.
As a function of the Internal Revenue Code ("IRC"), you may be assessed a 10%
federal tax penalty on any withdrawal made prior to your reaching age 59 1/2.
PLEASE SEE TAXES BELOW. Additionally, you will be charged a withdrawal charge on
each Purchase Payment withdrawn prior to the end of the applicable withdrawal
charge period, PLEASE SEE FEE TABLE ABOVE. 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.
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PURCHASING A POLARIS [TBD]
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, PLEASE SEE
TAXES BELOW.
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MINIMUM
MINIMUM INITIAL SUBSEQUENT
PURCHASE PAYMENT PURCHASE PAYMENT
-------------------------------------------------------------------
Qualified $10,000 $500
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Non-Qualified $10,000 $500
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Once you have contributed at least the minimum initial Purchase Payment, you can
establish an automatic payment plan that allows you to make subsequent Purchase
Payments of as little as $100.
We reserve the right to refuse any Purchase Payment. Furthermore, we reserve the
right to require Company approval prior to accepting Purchase Payments greater
than $1,500,000. For contracts owned by a non-natural owner, we reserve the
right to require prior Company approval to accept any Purchase Payment. Purchase
Payments that would cause total Purchase Payments in all contracts issued by
SunAmerica Annuity and/or First SunAmerica to the same owner and/or Annuitant to
exceed these limits may also be subject to Company pre-approval. For any
contracts that meet or exceed these dollar amount limitations, 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. In addition, for any contracts that meet or exceed these dollar
amount limitations, we further reserve the right to impose certain limitations
on available living benefits under the contract. The terms creating any limit on
the maximum death or living benefit payable would be mutually agreed upon in
writing by you and the Company prior to purchasing the contract.
8
NON-NATURAL OWNERSHIP
A trust, corporation or other non-natural entity may only purchase this contract
if such entity has sufficiently demonstrated an Insurable Interest in the
Annuitant selected. FOR MORE INFORMATION ON NON-NATURAL OWNERSHIP, PLEASE SEE
TAXES BELOW.
Various considerations may apply with respect to non-natural ownership of this
contract including but not limited to estate planning, tax consequences and the
propriety of this contract as an investment consistent with a non-natural
Owner's organizational documentation. You should consult with your tax and/or
legal advisor in connection with non-natural ownership of this contract.
MAXIMUM ISSUE AGE
We will not issue a contract to anyone age 86 or older on the contract issue
date. We will not accept subsequent Purchase Payments from contract owners 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. If we learn of a misstatement of age, we reserve the
right to fully pursue our remedies including termination of the contract and/or
revocation of any age-driven benefits.
TERMINATION OF THE CONTRACT FOR MISSTATEMENT AND/OR FRAUD
The Company reserves the right to terminate the contract at any time if it
discovers a misstatement or fraudulent representation of any information
provided in connection with the issuance or ongoing administration of the
contract.
JOINT OWNERSHIP
We allow this contract to be jointly owned. We require that the joint Owners be
spouses except in states that allow non-spouses to be joint Owners. The age of
the older Owner is used to determine the availability of most 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.
Certain states require that the benefits and features of the contract be made
available to domestic or civil union partners ("Domestic Partners") who qualify
for treatment as, or are equal to, spouses under state law. Other states allow
same-sex partners to marry ("Same-Sex Spouses"). There are also states that
require us to issue the contract to non-spousal joint Owners. However, Domestic
Partners, Same-Sex Spouses and non-spousal joint Owners who jointly own or are
Beneficiaries of a contract should consult with their tax adviser and/or
financial representative as they are not eligible for spousal continuation under
the contract as allowed by the Internal Revenue Code. Therefore, the ability of
Domestic Partners, Same-Sex Spouses and non-spousal joint Owners to fully
benefit from certain benefits and features of the contract, such as optional
living benefits, if applicable, that guarantee withdrawals over two lifetimes
may be limited by the conflict between certain state and federal laws.
ASSIGNMENT OF THE CONTRACT
You may assign this contract before beginning the Income Phase by sending a
written request to us at the Annuity Service Center for an assignment. Your
rights and those of any other person with rights under this contract will be
subject to the assignment. We will not be bound by any assignment until written
notice is received by us at our Annuity Service Center. We are not responsible
for the validity, tax or other legal consequences of any assignment. An
assignment will not affect any payments we may make or actions we may take
before we receive notice of the assignment.
We reserve the right not to recognize assignments if it changes the risk profile
of the owner of the contract, as determined in our sole discretion or if not
permitted by the Internal Revenue Code. PLEASE SEE THE STATEMENT OF ADDITIONAL
INFORMATION FOR DETAILS ON THE TAX CONSEQUENCES OF AN ASSIGNMENT. You should
consult a qualified tax adviser before assigning the contract.
ALLOCATION OF PURCHASE PAYMENTS
In order to issue your contract, we must receive your initial Purchase Payment
and all required paperwork in Good Order, including Purchase Payment allocation
instructions at our Annuity Service Center. We will accept initial and
subsequent Purchase Payments by electronic transmission from certain broker-
dealer firms. In connection with arrangements we have to transact business
electronically, we may have agreements in place whereby your broker-dealer may
be deemed our agent for receipt of your Purchase Payments. Thus, if we have an
agreement with a broker-dealer deeming them our agent, Purchase Payments
received by the broker-dealer will be priced as of the time they are received by
the broker-dealer. However, if we do not have an agreement with a broker-dealer
deeming them our agent, Purchase Payments received by the broker-dealer will not
be priced until they are received by us. Please check with your financial
representative to determine if his/her broker-dealer has an agreement with the
Company that deems the broker-dealer an agent of the Company.
An initial Purchase Payment will be priced within two business days after it is
received by us in Good Order if the Purchase Payment is received before Market
Close. If the initial Purchase Payment is received in Good Order after Market
Close, the initial Purchase Payment will be priced within two business days
after the next business day. We allocate your initial Purchase Payments as of
the date such Purchase Payments are priced. 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
9
your contract within 5 business days, we will send your money back to you, or
obtain your permission to keep your money until we get the information necessary
to issue the contract.
Any subsequent Purchase Payment will be priced as of the day it is received by
us in Good Order if the request is received before Market Close. If the
subsequent Purchase Payment is received in Good Order after Market Close, it
will be priced as of the next business day. We invest your subsequent Purchase
Payments in the Variable Portfolios and Fixed Accounts according to any
allocation instructions that accompany the subsequent Purchase Payment. If we
receive a Purchase Payment without allocation instructions, we will invest the
Purchase Payment according to your allocation instructions on file. PLEASE SEE
INVESTMENT OPTIONS BELOW.
Purchase Payments submitted by check can only be accepted by the Company at the
Payment Centers at the following addresses:
SunAmerica Annuity
P.O. Box 100330
Pasadena, CA 91189-0330
First SunAmerica (New York contracts only)
P.O. Box 100357
Pasadena, CA 91189-0357
Purchase Payments sent to the Annuity Service Center will be forwarded and
priced when received at the Payment Center.
Overnight deliveries of Purchase Payments can only be accepted at the following
address:
SunAmerica Annuity
Building #6, Suite 120
2710 Media Center Drive
Los Angeles, CA 90065-0330
First SunAmerica (New York contracts only)
Building #6, Suite 120
2710 Media Center Drive
Los Angeles, CA 90065-0357
Delivery of Purchase Payments to any other address will result in a delay in
crediting your contract until the Purchase Payment is received at the Payment
Center.
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 process your Purchase Payment, as described under ALLOCATION OF
PURCHASE PAYMENTS above, if before that day's Market Close, or on the next
business day's unit value if we process your Purchase Payment after that day's
Market Close. 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 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 daily asset based 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 Variable Portfolio A. We determine that the value of an
Accumulation Unit for Variable Portfolio A is $11.10 at Market Close on
Wednesday. We then divide $25,000 by $11.10 and credit your contract on
Wednesday night with 2,252.2523 Accumulation Units for Variable Portfolio
A.
Performance of the Variable Portfolios and the insurance charges 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. We call this a
"free look." Your state may require a longer free look period. Please check with
your financial representative. To cancel, you must mail the contract along with
your written 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
in Good Order at the Annuity Service Center.
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. 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 on the day we receive your request
in Good Order at the Annuity Service Center.
With respect to those contracts, we reserve the right to invest your money in
the Cash Management Variable
10
Portfolio during the free look period. If we place your money in the Cash
Management Variable Portfolio during the free look period, we will allocate your
money according to your instructions at the end of the applicable free look
period.
If you elect the SunAmerica Income Plus living benefit, we will allocate 10% of
your Purchase Payment to the Secure Value Account and we reserve the right to
invest the remaining 90% of your Purchase Payment in the Cash Management
Variable Portfolio during the free look period. PLEASE SEE OPTIONAL LIVING
BENEFITS BELOW.
EXCHANGE OFFERS
From time to time, we allow you to exchange an older variable annuity issued by
the Company or one of its affiliates, for a newer product with different
features and benefits issued by the Company or one of its affiliates. Such an
exchange offer will be made in accordance with applicable federal securities
laws and state insurance rules and regulations. We will provide the specific
terms and conditions of any such exchange offer at the time the offer is made.
IMPORTANT INFORMATION FOR MILITARY SERVICEMEMBERS
If you are an active duty full-time servicemember, and are considering the
purchase of this contract, please read the following important information
before investing. Subsidized life insurance is available to members of the Armed
Forces from the Federal Government under the Servicemembers' Group Life
Insurance program (also referred to as "SGLI"). More details may be obtained on-
line at the following website: www.insurance.va.gov. This contract is not
offered or provided by the Federal Government and the Federal Government has in
no way sanctioned, recommended, or encouraged the sale of this contract. No
entity has received any referral fee or incentive compensation in connection
with the offer or sale of this contract, unless that entity has a selling
agreement with the Company.
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INVESTMENT OPTIONS
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VARIABLE PORTFOLIOS
The Variable Portfolios invest in the Underlying Funds of 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 the Company and other affiliated and unaffiliated
insurance companies. Neither the Company nor the Trusts believe that offering
shares of the Trusts in this manner disadvantages you. The Trusts are monitored
for potential conflicts. The Trusts may have other Underlying Funds, in addition
to those listed here, that are not available for investment under this contract.
The Variable Portfolios offered through this contract are selected by us and we
may consider various factors in the selection process, including but not limited
to: asset class coverage, the strength of the investment adviser's or
subadviser's reputation and tenure, brand recognition, performance and the
capability and qualification of each investment firm. Another factor we may
consider is whether the Underlying Fund or its service providers (i.e., the
investment adviser and/or subadviser(s)) or their affiliates will make payments
to us or our affiliates in connection with certain administrative, marketing and
support services, or whether the Underlying Fund's service providers have
affiliates that can provide marketing and distribution support for sales of the
contract. PLEASE SEE PAYMENTS IN CONNECTION WITH DISTRIBUTION OF THE CONTRACT
BELOW.
We review the Variable Portfolios periodically and may make changes if we
determine that a Variable Portfolio no longer satisfies one or more of the
selection criteria and/or if the Variable Portfolio has not attracted
significant allocations from contract owners. We offer Underlying Funds of the
Anchor Series Trust, Seasons Series Trust and SunAmerica Series Trust at least
in part because they are managed by SunAmerica Asset Management Corp.
("SAAMCo"), a wholly-owned subsidiary of SunAmerica Annuity.
You are responsible for allocating Purchase Payments to the Variable Portfolios
as is appropriate for your own individual circumstances, investment goals,
financial situation and risk tolerance. You should periodically review your
allocations and values to ensure they continue to suit your needs. You bear the
risk of any decline in contract value resulting from the performance of the
Variable Portfolios you have selected. In making your investment selections, you
should investigate all information available to you including the Underlying
Fund's prospectus, statement of additional information and annual and semi-
annual reports.
During periods of low short-term interest rates, and in part due to contract
fees and expenses, the yield of the Cash Management Variable Portfolio may
become extremely low and possibly negative. In the case of negative yields, your
investment in the Cash Management Variable Portfolio will lose value.
We do not provide investment advice, nor do we recommend or endorse any
particular Variable Portfolio. The Variable Portfolios along with their
respective advisers are listed below.
AIM VARIABLE INSURANCE FUNDS (INVESCO VARIABLE INSURANCE FUNDS) -- SERIES
II SHARES
Invesco Advisers, Inc. is the investment adviser to AIM Variable Insurance
Funds (Invesco Variable Insurance Funds) ("AVIF"). On June 1, 2010, the
investment adviser for the Invesco Van Kampen V.I. Capital Growth Fund,
Series II Shares, Invesco Van Kampen
11
V.I. Comstock Fund, Series II Shares and the Invesco Van Kampen V.I. Growth
and Income Fund, Series II Shares changed from Van Kampen Asset Management
to Invesco Advisers, Inc. In addition, the trust for the Variable
Portfolios changed from Van Kampen Life Investment Trust to AIM Variable
Insurance Funds (Invesco Variable Insurance Funds).
AMERICAN FUNDS INSURANCE SERIES -- CLASS 2 SHARES
Capital Research and Management Company is the investment adviser to
American Funds Insurance Series ("AFIS").
ANCHOR SERIES TRUST -- CLASS 3 SHARES
SAAMCo is the investment adviser and various managers are the subadviser to
Anchor Series Trust ("AST").
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST -- CLASS 2 SHARES
Franklin Advisers, Inc. is the investment adviser to Franklin Templeton
Variable Insurance Products Trust ("FTVIPT").
Franklin Templeton VIP Founding Funds Allocation Fund ("VIP Founding
Funds") is structured as a Fund-of-Funds. A Fund-of-Funds invests in other
underlying funds. Expenses for a Fund-of-Funds may be higher than that for
other funds because a Fund-of-Funds bears its own expenses and indirectly
bears its proportionate share of expenses of the Underlying Funds in which
it invests. The administrator for the VIP Founding Funds is Franklin
Templeton Services, LLC. Franklin Templeton Services, LLC may receive
assistance from Franklin Advisers, Inc. in monitoring the Underlying Funds
and the VIP Founding Fund's investment in the Underlying Funds. Each
Underlying Fund of the VIP Founding Funds has its own investment adviser.
Please see the Franklin Templeton Variable Insurance Products prospectus
for details.
LORD ABBETT SERIES FUND, INC. -- CLASS VC SHARES
Lord, Abbett & Co. LLC is the investment adviser to Lord Abbett Series
Fund, Inc. ("LASF").
SEASONS SERIES TRUST -- CLASS 3 SHARES
The Real Return Portfolio listed below is part of the Seasons Series Trust
("SST"). SAAMCo manages this Trust and generally engages subadvisers to
provide investment advice for the Underlying Funds.
SUNAMERICA SERIES TRUST -- CLASS 3 SHARES
SAAMCo is the investment adviser and various managers are the subadvisers
to SunAmerica Series Trust ("SAST").
(PLEASE SEE NEXT PAGE FOR FULL LIST OF INVESTMENT OPTIONS)
12
UNDERLYING FUNDS MANAGED BY: TRUST
---------------- ----------- -----
Aggressive Growth Wells Capital Management Incorporated SAST
Alliance Growth AllianceBernstein L.P. SAST
American Funds Asset Allocation Capital Research and Management Company AFIS
American Funds Global Growth Capital Research and Management Company AFIS
American Funds Growth-Income Capital Research and Management Company AFIS
American Funds Growth Capital Research and Management Company AFIS
Asset Allocation Edge Asset Management, Inc. AST
Balanced J.P. Morgan Investment Management Inc. SAST
Blue Chip Growth SunAmerica Asset Management Corp. SAST
Capital Appreciation Wellington Management Company, LLP AST
Capital Growth OppenheimerFunds, Inc. SAST
Cash Management BofA Advisors, LLC SAST
Corporate Bond Federated Investment Management Company SAST
Davis Venture Value Davis Selected Advisers, L.P. SAST
"Dogs" of Wall Street SunAmerica Asset Management Corp. SAST
Emerging Markets Putnam Investment Management, LLC SAST
Equity Opportunities OppenheimerFunds, Inc. SAST
Foreign Value Templeton Investment Counsel, LLC SAST
Franklin Income Securities Fund Franklin Advisers, Inc. FTVIPT
Franklin Templeton VIP Founding Funds Allocation Fund Franklin Templeton Services, LLC FTVIPT
Fundamental Growth Wells Capital Management Incorporated SAST
Global Bond Goldman Sachs Asset Management International SAST
Global Equities J.P. Morgan Investment Management Inc. SAST
Government and Quality Bond Wellington Management Company, LLP AST
Growth Wellington Management Company, LLP AST
Growth-Income J.P. Morgan Investment Management Inc. SAST
Growth Opportunities Invesco Advisers, Inc. SAST
High-Yield Bond PineBridge Investments LLC SAST
International Diversified Equities Morgan Stanley Investment Management Inc. SAST
International Growth and Income Putnam Investment Management, LLC SAST
Invesco Van Kampen V.I. Capital Growth Fund, Series II Shares Invesco Advisers, Inc. AVIF
Invesco Van Kampen V.I. Comstock Fund, Series II Shares Invesco Advisers, Inc. AVIF
Invesco Van Kampen V.I. Growth and Income Fund, Series II Shares Invesco Advisers, Inc. AVIF
Lord Abbett Growth and Income Lord, Abbett & Co. LLC LASF
Lord Abbett Mid Cap Value Lord, Abbett & Co. LLC LASF
Marsico Focused Growth Marsico Capital Management, LLC SAST
MFS Massachusetts Investors Trust Massachusetts Financial Services Company SAST
MFS Total Return Massachusetts Financial Services Company SAST
Mid-Cap Growth J.P. Morgan Investment Management Inc. SAST
Natural Resources Wellington Management Company, LLP AST
Real Estate Davis Selected Advisers, L.P. SAST
Real Return Wellington Management Company, LLP SST
Small & Mid Cap Value AllianceBernstein L.P. SAST
Small Company Value Franklin Advisory Services, LLC SAST
Technology Columbia Management Investment Advisers, LLC SAST
Telecom Utility Massachusetts Financial Services Company SAST
Total Return Bond Pacific Investment Management Company LLC SAST
UNDERLYING FUNDS ASSET CLASS
---------------- -----------
Aggressive Growth STOCK
Alliance Growth STOCK
American Funds Asset Allocation BALANCED
American Funds Global Growth STOCK
American Funds Growth-Income STOCK
American Funds Growth STOCK
Asset Allocation BALANCED
Balanced BALANCED
Blue Chip Growth STOCK
Capital Appreciation STOCK
Capital Growth STOCK
Cash Management CASH
Corporate Bond BOND
Davis Venture Value STOCK
"Dogs" of Wall Street STOCK
Emerging Markets STOCK
Equity Opportunities STOCK
Foreign Value STOCK
Franklin Income Securities Fund BALANCED
Franklin Templeton VIP Founding Funds Allocation Fund BALANCED
Fundamental Growth STOCK
Global Bond BOND
Global Equities STOCK
Government and Quality Bond BOND
Growth STOCK
Growth-Income STOCK
Growth Opportunities STOCK
High-Yield Bond BOND
International Diversified Equities STOCK
International Growth and Income STOCK
Invesco Van Kampen V.I. Capital Growth Fund, Series II Shares STOCK
Invesco Van Kampen V.I. Comstock Fund, Series II Shares STOCK
Invesco Van Kampen V.I. Growth and Income Fund, Series II Shares STOCK
Lord Abbett Growth and Income STOCK
Lord Abbett Mid Cap Value STOCK
Marsico Focused Growth STOCK
MFS Massachusetts Investors Trust STOCK
MFS Total Return BALANCED
Mid-Cap Growth STOCK
Natural Resources STOCK
Real Estate STOCK
Real Return BOND
Small & Mid Cap Value STOCK
Small Company Value STOCK
Technology STOCK
Telecom Utility STOCK
Total Return Bond BOND
YOU SHOULD READ THE PROSPECTUSES FOR THE TRUSTS CAREFULLY. THESE PROSPECTUSES
CONTAIN DETAILED INFORMATION ABOUT THE UNDERLYING FUNDS, INCLUDING EACH
UNDERLYING FUND'S INVESTMENT OBJECTIVE AND RISK FACTORS. YOU MAY OBTAIN AN
ADDITIONAL COPY OF THESE PROSPECTUSES FOR THE TRUSTS BY CALLING OUR ANNUITY
SERVICE CENTER AT (800) 445-7862 OR BY VISITING OUR WEBSITE AT
WWW.SUNAMERICA.COM. YOU MAY ALSO OBTAIN INFORMATION ABOUT THE UNDERLYING FUNDS
(INCLUDING A COPY OF THE STATEMENT OF ADDITIONAL INFORMATION) BY ACCESSING THE
U.S. SECURITIES AND EXCHANGE COMMISSION'S WEBSITE AT WWW.SEC.GOV.
13
SUBSTITUTION, ADDITION OR DELETION OF VARIABLE PORTFOLIOS
We may, subject to any applicable law, make certain changes to the Variable
Portfolios offered in your contract. We may offer new Variable Portfolios or
stop offering existing Variable Portfolios. New Variable Portfolios may be made
available to existing contract owners and Variable Portfolios may be closed to
new or subsequent Purchase Payments, transfers or allocations. In addition, we
may also liquidate the shares of any Variable Portfolio, substitute the shares
of one Underlying Fund held by a Variable Portfolio for another and/or merge
Variable Portfolios or cooperate in a merger of Underlying Funds. To the extent
required by the Investment Company Act of 1940, as amended, we may be required
to obtain SEC approval or your approval.
FIXED ACCOUNTS
Your contract may offer Fixed Accounts for varying guarantee periods. A Fixed
Account may be available for differing lengths of time (such as 1, 3, or 5
years). Each guarantee period may have different guaranteed interest rates.
If you elect SunAmerica Income Plus, 10% of your investment is automatically
allocated to a Fixed Account known as the Secure Value Account. The Secure Value
Account is only available with election of this Living Benefit. PLEASE SEE "ARE
THERE INVESTMENT REQUIREMENTS IF I ELECT SUNAMERICA INCOME PLUS?" UNDER OPTIONAL
LIVING BENEFITS.
We guarantee that the interest rate credited to amounts allocated to any Fixed
Account guarantee periods will never be less than the guaranteed minimum
interest rate specified in your contract. Once the rate is established, it will
not change for the duration of the guarantee period. We determine which, if any,
guarantee periods will be offered at any time in our sole discretion, unless
state law requires us to do otherwise. Please check with your financial
representative regarding the availability of Fixed Accounts.
There are three categories of interest rates for money allocated to the Fixed
Accounts. The applicable rate is guaranteed until the corresponding guarantee
period expires. With each category of interest rate, your money may be credited
a different rate as follows:
- Initial Rate: The rate credited to any portion of the initial Purchase
Payment allocated to a Fixed Account.
- Current Rate: The rate credited to any portion of a subsequent Purchase
Payment allocated to a Fixed Account.
- Renewal Rate: The rate credited to money transferred from a Fixed
Account or a Variable Portfolio into a Fixed Account and to money
remaining in a Fixed Account after expiration of a guarantee period.
When a guarantee period ends, you may leave your money in the same Fixed Account
or you may reallocate your money to another Fixed Account, if available, or to
the Variable Portfolios. If you do not want to leave your money in the same
Fixed Account, you must contact us within 30 days after the end of the guarantee
period and provide us with new allocation instructions. WE DO NOT CONTACT YOU.
IF YOU DO NOT CONTACT US, YOUR MONEY WILL REMAIN IN THE SAME FIXED ACCOUNT WHERE
IT WILL EARN INTEREST AT THE RENEWAL RATE THEN IN EFFECT FOR THAT FIXED ACCOUNT.
We reserve the right to defer payments for a withdrawal from a Fixed Account for
up to six months. PLEASE SEE ACCESS TO YOUR MONEY BELOW.
If available, you may systematically transfer interest earned in available Fixed
Accounts into any of the Variable Portfolios on certain periodic schedules
offered by us. Systematic transfers may be started, changed or terminated at any
time by contacting our Annuity Service Center. Check with your financial
representative about the current availability of this service.
At any time we are crediting the minimum guaranteed interest rate specified in
your contract, we reserve the right to restrict your ability to invest into the
Fixed Accounts. All Fixed Accounts may not be available in your state. Please
check with your financial representative regarding the availability of Fixed
Accounts.
DOLLAR COST AVERAGING FIXED ACCOUNTS
You may invest initial and/or subsequent Purchase Payments in the dollar cost
averaging ("DCA") Fixed Accounts, if available. The minimum Purchase Payment
that you must invest for the 6-month DCA Fixed Account is $600, for the 12-month
DCA Fixed Account ("1-Year DCA Fixed Account") is $1,200 and the 24-month DCA
Fixed Account ("2-Year DCA Fixed Account") is $2,400. Purchase Payments less
than these minimum amounts will automatically be allocated to available
investment options according to your instructions or your current allocation
instruction on file. The 6-month, 1-Year and 2-Year DCA Fixed Accounts may not
be available in your state. Please check with your financial representative for
availability.
DCA Fixed Accounts credit a fixed rate of interest and can only be elected to
facilitate a DCA program. PLEASE SEE DOLLAR COST AVERAGING PROGRAM BELOW for
more information. Interest is credited to amounts allocated to the DCA Fixed
Accounts while your money is transferred to available investment options over
certain specified time frames. The interest rates applicable to the DCA Fixed
Accounts may differ from those applicable to any other Fixed Account but will
never be less than the minimum guaranteed interest rate specified in your
contract. However, when using a DCA Fixed Account, the annual interest rate is
paid on a
14
declining balance as you systematically transfer your money to available
investment options. Therefore, the actual effective yield will be less than the
stated annual crediting rate. We reserve the right to change the availability of
DCA Fixed Accounts offered, unless state law requires us to do otherwise.
DOLLAR COST AVERAGING PROGRAM
The DCA program allows you to invest gradually in available investment options
at no additional cost. Under the program, you systematically transfer a
specified dollar amount or percentage of contract value from a Variable
Portfolio, Fixed Account or DCA Fixed Account ("source account") to any
available investment options ("target account"). Transfers occur on a monthly
periodic schedule. The minimum transfer amount under the DCA program is $100 per
transaction, regardless of the source account. Fixed Accounts are not available
as target accounts for the DCA program. Transfers resulting from your
participation in the DCA program are not counted towards the number of free
transfers per contract year.
We may also offer DCA Fixed Accounts as source accounts exclusively to
facilitate the DCA program for a specified time period. The DCA Fixed Accounts
only accept initial or subsequent Purchase Payments. You may not make a transfer
from a Variable Portfolio or Fixed Account into a DCA Fixed Account.
If you choose to allocate subsequent Purchase Payments to an active DCA program
with a Fixed Account serving as the source account, the rate applicable to that
Fixed Account at the time we receive the subsequent Purchase Payment will
apply. Further, we will begin transferring that subsequent Purchase Payment into
your target allocations on the same day of the month as the initial active DCA
program. Therefore, you may not receive a full 30 days of interest prior to the
first transfer to the target account(s).
You may terminate the DCA program at any time. If you terminate the DCA program
and money remains in the DCA Fixed Account(s), we transfer the remaining money
according to your current allocation instructions on file.
The DCA program is designed to lessen the impact of market fluctuations on your
investment. However, the DCA program can neither guarantee a profit nor protect
your investment against a loss. When you elect the DCA program, you are
continuously investing in securities fluctuating at different price levels. You
should consider your tolerance for investing through periods of fluctuating
price levels.
EXAMPLE OF DCA PROGRAM:
Assume that you want to move $750 each month from one Variable Portfolio to
another Variable Portfolio over six months. You set up a DCA program and
purchase Accumulation Units at the following values:
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MONTH ACCUMULATION UNIT UNITS PURCHASED
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1 $ 7.50 100
2 $ 5.00 150
3 $10.00 75
4 $ 7.50 100
5 $ 5.00 150
6 $ 7.50 100
----------------------------------------------------------------
You paid an average price of only $6.67 per Accumulation Unit over six
months, while the average market price actually was $7.08. By investing an
equal amount of money each month, you automatically buy more Accumulation
Units when the market price is low and fewer Accumulation Units when the
market price is high. This example is for illustrative purposes only.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE DCA PROGRAM AT ANY
TIME.
POLARIS PORTFOLIO ALLOCATOR PROGRAM
PROGRAM DESCRIPTION
This program may be offered to you at no additional cost to assist in
diversifying your investment across various investment categories. The program
allows you to invest in either one of the four Polaris Portfolio Allocator
models ("Models") or in one of the four Sample Portfolios. Each Model and Sample
Portfolio is comprised of a carefully selected combination of Variable
Portfolios representing various investment categories. The Models allocate
amongst the various asset classes to attempt to match certain combinations of
investor's investment time horizon and risk tolerance. The Sample Portfolios
allocate amongst the various investment categories and coincide with the
recommended weightings for each Sample Portfolio's objective. Please consult
your financial representative about investment in the program.
Your broker-dealer designs the Sample Portfolios. Your broker-dealer may have
revenue sharing arrangements in place with the money managers that manage the
Underlying Funds comprising the Sample Portfolios. Those arrangements are not
related to the availability of the same Underlying Funds in this variable
annuity. Information about your broker-dealer's revenue sharing arrangements can
be obtained from your financial representative or by visiting the broker-
dealer's website.
ENROLLING IN THE POLARIS PORTFOLIO ALLOCATOR PROGRAM
You may enroll in the program by selecting the Model or Sample Portfolio on the
investment option election form. You and your financial representative should
determine the Model
15
or Sample Portfolio most appropriate for you based on your financial needs, risk
tolerance and investment horizon. You may request to discontinue the use of a
Model or Sample Portfolio by providing a written reallocation request, calling
our Annuity Service Center or logging onto our website.
You may also choose to invest gradually into a Model or Sample Portfolio through
the DCA program. PLEASE SEE THE DOLLAR COST AVERAGING PROGRAM ABOVE.
You may only invest in either one Model or one Sample Portfolio at a time.
Participation in this program requires that you invest 100% of your initial
Purchase Payment and subsequent Purchase Payment(s) in the same Model or Sample
Portfolio. Investment outside of the Sample Portfolios is prohibited. If you
attempt to split your investment in one or more Models, your investment may no
longer be consistent with the Model's intended objectives. Additionally, if you
invest in any Variable Portfolios in addition to investing in a Model, such an
investment may no longer be consistent with the Model's intended objectives.
You may request withdrawals, as permitted by your contract, which will be taken
proportionately from each of the allocations in the selected Model or Sample
Portfolio unless otherwise indicated in your withdrawal instructions. If you
choose to make a non-proportional withdrawal from the Variable Portfolios in the
Model or Sample Portfolio, your investment may no longer be consistent with the
Model's or Sample Portfolio's intended objectives. Withdrawals may be subject to
a withdrawal charge. Withdrawals may also be taxable and a 10% IRS penalty may
apply if you are under age 59 1/2.
You can transfer 100% of your investment from one Model or Sample Portfolio to
another Model or Sample Portfolio at any time; you will be transferred into the
most current Model or Sample Portfolio available in your contract. As a result
of a transfer, we will automatically update your allocation instructions on file
with respect to subsequent Purchase Payments and DCA target allocation
instructions, if applicable, and we will automatically update your Automatic
Asset Rebalancing Program instructions to reflect your new investment. PLEASE
SEE DOLLAR COST AVERAGING PROGRAM ABOVE AND AUTOMATIC ASSET REBALANCING PROGRAM
BELOW.
A subsequent Purchase Payment will be invested in the same Model or Sample
Portfolio as your current investment unless we receive different instructions
from you. You should consult with your financial representative to determine if
you should update both your allocation instructions, DCA target allocation
instructions and Automatic Asset Rebalancing Program instructions on file when
you make a subsequent Purchase Payment.
REBALANCING THE POLARIS PORTFOLIO ALLOCATOR MODELS AND THE SAMPLE PORTFOLIOS
You can elect to have your investment in the Model or Sample Portfolio
rebalanced quarterly, semi-annually, or annually to maintain the target asset
allocation among the Variable Portfolios of the Model or Sample Portfolio you
selected.
Over time, the Model or Sample Portfolio you select may no longer align with its
original investment objective due to the effects of Variable Portfolio
performance and changes in the Variable Portfolio's investment objectives.
Therefore, if you do not elect to have your investment in the Model or Sample
Portfolio rebalanced at least annually, then your investment may no longer be
consistent with the Model or Sample Portfolio's intended objectives. In
addition, your investment goals, financial situation and risk tolerance may
change. You should consult your financial representative about how to keep your
Model or Sample Portfolio's allocations in line with your investment goals.
Finally, changes in investment objectives or management of the underlying funds
in the models may mean that, over time, the Models no longer are consistent with
their original investment goals.
If you choose to make investments outside of the Model, only those Variable
Portfolios within the Model you selected will be rebalanced. Investments in
other Variable Portfolios not included in the Model cannot be rebalanced if you
wish to maintain your current Model.
If you elect an optional Living Benefit, you may elect a Model or Sample
Portfolio that complies with the investment requirements of the optional Living
Benefit and your Model or Sample Portfolio will be rebalanced quarterly. PLEASE
SEE OPTIONAL LIVING BENEFITS BELOW.
IMPORTANT INFORMATION ABOUT THE POLARIS PORTFOLIO ALLOCATOR PROGRAM
The Models and Sample Portfolios are not intended as investment advice about
investing in the Variable Portfolios, and we do not provide investment advice
regarding whether a Model or Sample Portfolio should be revised or whether it
remains appropriate to invest in accordance with any particular Model or Sample
Portfolio.
The program does not guarantee greater or more consistent returns. Future market
and investment category performance may differ from the historical performance
upon which the Models and Sample Portfolios may have been built. Also,
allocation to a single investment category may outperform a Model or Sample
Portfolio, so that you could have been better off investing in a single
investment category than in a Model or Sample Portfolio. However, such a
strategy may involve a greater degree of risk because of the concentration of
similar securities in a single investment category. Further, there can be no
assurance that any Variable Portfolio chosen for a particular Model or Sample
Portfolio will perform well
16
or that its performance will closely reflect that of the investment category it
is designed to represent.
The Models and Sample Portfolios represent suggested allocations that are
provided to you as general guidance. You should work with your financial
representative in determining if one of the Models or Sample Portfolios meets
your financial needs, investment time horizon, and is consistent with your risk
tolerance level. Information concerning the specific Models or Sample Portfolios
can be obtained from your financial representative.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE PROGRAM AT ANY TIME.
POLARIS PORTFOLIO ALLOCATOR MODELS
(EFFECTIVE MAY 3, 2010)
----------------------------------------------------------------------------------------
VARIABLE PORTFOLIOS MODEL A MODEL B MODEL C MODEL D
----------------------------------------------------------------------------------------
American Funds Global Growth 6% 9% 9% 10%
----------------------------------------------------------------------------------------
American Funds Growth 2% 2% 3% 3%
----------------------------------------------------------------------------------------
American Funds Growth-Income 1% 1% 1% 1%
----------------------------------------------------------------------------------------
Blue Chip Growth 2% 2% 2% 2%
----------------------------------------------------------------------------------------
Capital Appreciation 2% 3% 3% 4%
----------------------------------------------------------------------------------------
Corporate Bond 8% 7% 5% 0%
----------------------------------------------------------------------------------------
Davis Venture Value 4% 4% 4% 5%
----------------------------------------------------------------------------------------
Emerging Markets 0% 0% 2% 3%
----------------------------------------------------------------------------------------
Foreign Value 6% 9% 10% 10%
----------------------------------------------------------------------------------------
Global Bond 3% 2% 0% 0%
----------------------------------------------------------------------------------------
Government and Quality Bond 8% 5% 3% 0%
----------------------------------------------------------------------------------------
Growth Opportunities 2% 3% 5% 6%
----------------------------------------------------------------------------------------
High-Yield Bond 4% 0% 0% 0%
----------------------------------------------------------------------------------------
International Diversified Equities 0% 0% 0% 5%
----------------------------------------------------------------------------------------
Invesco Van Kampen V.I. Comstock
Fund, Series II Shares* 4% 5% 6% 6%
----------------------------------------------------------------------------------------
Invesco Van Kampen V.I. Growth and
Income Fund, Series II Shares** 6% 6% 7% 7%
----------------------------------------------------------------------------------------
Lord Abbett Growth and Income 1% 2% 3% 3%
----------------------------------------------------------------------------------------
Marsico Focused Growth 0% 1% 2% 3%
----------------------------------------------------------------------------------------
MFS Massachusetts Investors Trust 4% 5% 6% 7%
----------------------------------------------------------------------------------------
Mid-Cap Growth 1% 1% 2% 2%
----------------------------------------------------------------------------------------
Real Estate 2% 3% 4% 5%
----------------------------------------------------------------------------------------
Real Return 13% 9% 4% 1%
----------------------------------------------------------------------------------------
Small & Mid Cap Value 5% 6% 6% 7%
----------------------------------------------------------------------------------------
Small Company Value 2% 3% 5% 6%
----------------------------------------------------------------------------------------
Total Return Bond 14% 12% 8% 4%
----------------------------------------------------------------------------------------
TOTAL 100% 100% 100% 100%
----------------------------------------------------------------------------------------
* (formerly known as Van Kampen LIT Comstock, Class II Shares)
** (formerly known as Van Kampen LIT Growth and Income, Class II Shares)
We reserve the right to change the Variable Portfolios and/or allocations to
certain Variable Portfolios in each model to the extent that Variable Portfolios
are liquidated, substituted, merged or otherwise reorganized.
SAMPLE PORTFOLIOS (EFFECTIVE OCTOBER 25, 2010)
----------------------------------------------------------------------------------------
BALANCED
GROWTH BALANCED ALL
& TOWARD GROWTH EQUITY
VARIABLE PORTFOLIOS INCOME GROWTH FOCUS FOCUS
----------------------------------------------------------------------------------------
American Funds Global Growth 5% 10% 10% 15%
----------------------------------------------------------------------------------------
American Funds Growth 5% 5% 5% 10%
----------------------------------------------------------------------------------------
Corporate Bond 5% 5% 5% 0%
----------------------------------------------------------------------------------------
Foreign Value 10% 10% 15% 15%
----------------------------------------------------------------------------------------
Government and Quality Bond 25% 15% 10% 0%
----------------------------------------------------------------------------------------
Growth Opportunities 5% 5% 5% 7%
----------------------------------------------------------------------------------------
Invesco Van Kampen V.I. Comstock Fund,
Series II Shares* 10% 10% 10% 15%
----------------------------------------------------------------------------------------
Invesco Van Kampen V.I. Growth and
Income Fund, Series II Shares** 10% 15% 15% 15%
----------------------------------------------------------------------------------------
MFS Massachusetts Investors Trust 5% 5% 10% 13%
----------------------------------------------------------------------------------------
Mid-Cap Growth 0% 5% 10% 10%
----------------------------------------------------------------------------------------
Total Return Bond 20% 15% 5% 0%
----------------------------------------------------------------------------------------
TOTAL 100% 100% 100% 100%
----------------------------------------------------------------------------------------
* (formerly known as Van Kampen LIT Comstock, Class II Shares)
** (formerly known as Van Kampen LIT Growth and Income, Class II Shares)
The Models and Sample Portfolios listed above are those that are currently
available. The Models and Sample Portfolios are reconfigured annually. However,
once you invest in either a Model or Sample Portfolio, the percentages of your
contract value allocated to each Variable Portfolio within a Model and Sample
Portfolio will not be changed by us. You should speak with your financial
representative about how to keep the Variable Portfolio allocations in each
Model and Sample Portfolio in line with your investment goals over time.
TRANSFERS DURING THE ACCUMULATION PHASE
Subject to our rules, restrictions and policies described below, during the
Accumulation Phase, you may transfer funds between the Variable Portfolios
and/or any available Fixed Accounts by telephone (800) 445-7862, through the
Company's website (www.sunamerica.com), by U.S. Mail addressed to our Annuity
Service Center, P.O. Box 54299, Los Angeles, California 90054-0299 or by
facsimile. All transfer instructions submitted via facsimile must be sent to
(818) 615-1543; otherwise they will not be considered received by us. We may
accept transfers by telephone or the Internet unless you tell us not to on your
contract application. If your contract was issued in the state of New York, we
may accept transfers by telephone if you complete and send the Telephone
Transfer Agreement form to our Annuity Service Center. When receiving
instructions over the telephone or the Internet, we have 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
17
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.
Any transfer request will be priced as of the day it is received by us in Good
Order if the request is received before Market Close. If the transfer request is
received after Market Close, the request will be priced as of the next business
day.
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.
There is no charge for your first 15 transfers. We charge for transfers in
excess of 15 in any contract year. The fee is $25 for each transfer exceeding
this limit. Transfers resulting from your participation in the DCA or Automatic
Asset Rebalancing programs are not counted towards the number of free transfers
per contract year.
SHORT-TERM TRADING POLICIES
We do not want to issue this variable annuity contract to contract owners
engaged in trading strategies that seek to benefit from short-term price
fluctuations or price inefficiencies in the Variable Portfolios of this product
("Short-Term Trading") and we discourage Short-Term Trading as more fully
described below. However, we cannot always anticipate if a potential contract
owner intends to engage in Short-Term Trading. Short-Term Trading may create
risks that may result in adverse effects on investment return of the Underlying
Fund in which a Variable Portfolio invests. Such risks may include, but are not
limited to: (1) interference with the management and planned investment
strategies of an Underlying Fund; (2) dilution of the interests in the
Underlying Fund due to practices such as "arbitrage"; and/or (3) increased
brokerage and administrative costs due to forced and unplanned fund turnover.
These circumstances may reduce the value of the Variable Portfolio. In addition
to negatively impacting the Owner, a reduction in contract value may also be
harmful to Annuitants and/or Beneficiaries.
We have adopted the following administrative procedures to discourage Short-Term
Trading which are summarized below.
The first 15 transfers in a rolling 12-month look-back period ("12-Month Rolling
Period") can be made by telephone, through the Company's website, or in writing
by mail or by facsimile. The 15th transfer in a 12-Month Rolling Period triggers
the U.S. Mail method of transfer. Therefore, once you make the 15th transfer in
a 12-Month Rolling Period, all transfers must be submitted by United States
Postal Service first-class mail ("U.S. Mail") for 12-months following the date
of the 15th transfer ("Standard U.S. Mail Policy").
For example, if you made a transfer on August 16, 2009 and within the previous
twelve months (from August 17, 2008 forward) you made 15 transfers including the
August 16th transfer, then all transfers made for twelve months after August 16,
2009 must be submitted by U.S. Mail (from August 17, 2009 through August 16,
2010).
U.S. Mail includes any postal service delivery method that offers delivery no
sooner than United States Postal Service first-class mail, as determined in the
Company's sole discretion. We will not accept transfer requests sent by any
other medium except U.S. Mail during this 12-month period. Transfer requests
required to be submitted by U.S. Mail can only be cancelled by a written request
sent by U.S. Mail with the appropriate paperwork received prior to the execution
of the transfer.
All transfers made on the same day prior to Market Close are considered one
transfer request for purposes of applying the Short-Term Trading policy and
calculating the number of free transfers. Transfers resulting from your
participation in the DCA or Automatic Asset Rebalancing programs are not
included for the purposes of determining the number of transfers before applying
the Standard U.S. Mail Policy.
We apply the Standard U.S. Mail Policy uniformly and consistently to all
contract owners except for omnibus group contracts as described below.
We believe that the Standard U.S. Mail Policy is a sufficient deterrent to
Short-Term Trading. However, we may become aware of transfer patterns among the
Variable Portfolios and/or Fixed Accounts which appear to be Short-Term Trading
or otherwise detrimental to the Variable Portfolios but have not yet triggered
the limitations of the Standard U.S. Mail Policy described above. If such
transfer activity comes to our attention, we may require you to adhere to our
Standard U.S. Mail Policy prior to reaching the specified number of transfers
("Accelerated U.S. Mail Policy"). To the extent we become aware of Short-Term
Trading activities which cannot be reasonably controlled solely by the Standard
U.S. Mail Policy or the Accelerated U.S. Mail Policy, we reserve the right to
evaluate, in our sole discretion, whether to: (1) impose further limits on the
size, manner, number and/or frequency of transfers you can make; (2) impose
minimum holding periods; (3) reject any Purchase Payment or transfer request;
(4) terminate your transfer privileges; and/or (5) request that you surrender
your contract. We will notify you in writing if your transfer privileges are
terminated. In addition, we reserve the right not to accept or otherwise
restrict transfers from a third party acting for you and not to accept pre-
authorized transfer forms.
Some of the factors we may consider when determining whether to accelerate the
Standard U.S. Mail Policy, reject transfers or impose other conditions on
transfer privileges include:
(1) the number of transfers made in a defined period;
18
(2) the dollar amount of the transfer;
(3) the total assets of the Variable Portfolio involved in the transfer
and/or transfer requests that represent a significant portion of the
total assets of the Variable Portfolio;
(4) the investment objectives and/or asset classes of the particular
Variable Portfolio involved in your transfers;
(5) whether the transfer appears to be part of a pattern of transfers to
take advantage of short-term market fluctuations or market
inefficiencies;
(6) the history of transfer activity in the contract or in other contracts
we may offer; and/or
(7) other activity, as determined by us, that creates an appearance, real
or perceived, of Short-Term Trading or the possibility of Short-Term
Trading.
Notwithstanding the administrative procedures above, there are limitations on
the effectiveness of these procedures. Our ability to detect and/or deter Short-
Term Trading is limited by operational systems and technological limitations, as
well as our ability to predict strategies employed by contract owners (or those
acting on their behalf) to avoid detection. We cannot guarantee that we will
detect and/or deter all Short-Term Trading and it is likely that some level of
Short-Term Trading will occur before it is detected and steps are taken to deter
it. To the extent that we are unable to detect and/or deter Short-Term Trading,
the Variable Portfolios may be negatively impacted as described above.
Additionally, the Variable Portfolios may be harmed by transfer activity related
to other insurance companies and/or retirement plans or other investors that
invest in shares of the Underlying Fund. Moreover, our ability to deter Short-
Term Trading may be limited by decisions by state regulatory bodies and court
orders which we cannot predict. You should be aware that the design of our
administrative procedures involves inherently subjective decisions which we
attempt to make in a fair and reasonable manner consistent with the interests of
all owners of this contract. We do not enter into agreements with contract
owners whereby we permit or intentionally disregard Short-Term Trading.
The Standard and Accelerated U.S. Mail Policies are applied uniformly and
consistently to contract owners utilizing third party trading
services/strategies performing asset allocation services for a number of
contract owners at the same time. You should be aware that such third party
trading services may engage in transfer activities that can also be detrimental
to the Variable Portfolios, including trading relatively large groups of
contracts simultaneously. These transfer activities may not be intended to take
advantage of short-term price fluctuations or price inefficiencies. However,
such activities can create the same or similar risks as Short-Term Trading and
negatively impact the Variable Portfolios as described above.
Omnibus group contracts may invest in the same Underlying Funds available in
your contract but on an aggregate, not individual basis. Thus, we have limited
ability to detect Short-Term Trading in omnibus group contracts and the Standard
U.S. Mail Policy does not apply to these contracts. Our inability to detect
Short-Term Trading may negatively impact the Variable Portfolios as described
above.
WE RESERVE THE RIGHT TO MODIFY THE POLICIES AND PROCEDURES DESCRIBED IN THIS
SECTION AT ANY TIME. To the extent that we exercise this reservation of rights,
we will do so uniformly and consistently unless we disclose otherwise.
UNDERLYING FUNDS' SHORT-TERM TRADING POLICIES
Please note that the Underlying Funds have their own policies and procedures
with respect to frequent purchases and redemptions of their respective shares.
We reserve the right to enforce these Underlying Fund policies and procedures,
including, but not limited to, the right to collect a redemption fee on shares
of the Underlying Fund if imposed by such Fund's Board of Trustees/Directors. As
of the date of this prospectus, none of the Underlying Funds impose a redemption
fee. We also reserve the right to reject, with or without prior notice, any
purchase, transfer or allocation into a Variable Portfolio if the corresponding
Underlying Fund will not accept such purchase, transfer or allocation for any
reason. The prospectuses for the Underlying Funds describe these procedures,
which may be different among Underlying Funds and may be more or less
restrictive than our policies and procedures.
Under rules adopted by the Securities and Exchange Commission, we also have
written agreements with the Underlying Funds that obligate us to, among other
things, provide the Underlying Funds promptly upon request certain information
about you (e.g., your social security number) and your trading activity. In
addition, we are obligated to execute instructions from the Underlying Funds to
restrict or prohibit further purchases or transfers in an Underlying Fund under
certain circumstances.
Many investments in the Underlying Funds outside of these contracts are omnibus
orders from intermediaries such as other separate accounts or retirement plans.
If an Underlying Fund's policies and procedures fail to successfully detect and
discourage Short-Term trading, there may be a negative impact to the owners of
the Underlying Fund. If an Underlying Fund believes that an omnibus order we
submit may reflect transfer requests from owners engaged in Short-Term Trading,
the Underlying Fund may reject the entire omnibus order and delay or prevent us
from implementing your transfer request.
TRANSFERS DURING THE INCOME PHASE
During the Income Phase, only one transfer per month is permitted between the
Variable Portfolios. No other transfers are allowed during the Income Phase.
Transfers will be
19
effected for the last NYSE business day of the month in which we receive your
request for the transfer.
AUTOMATIC ASSET REBALANCING PROGRAM
Market fluctuations may cause the percentage of your investment in the Variable
Portfolios to differ from your original allocations. Automatic Asset Rebalancing
typically involves shifting portions of your money into and out of investment
options so that the resulting allocations are consistent with your current
investment instructions. Under the Automatic Asset Rebalancing Program, you may
elect to have your investments in the Variable Portfolios and/or Fixed Accounts,
if available, periodically rebalanced to return your allocations to the
percentages given at your last instructions for no additional charge. At your
request, rebalancing occurs on a quarterly, semiannual or annual basis.
Transfers resulting from your participation in this program are not counted
against the number of free transfers per contract year.
If you make a transfer, you must provide updated rebalancing instructions. If
you do not provide new rebalancing instructions at the time you make a transfer,
we will change your ongoing rebalancing instructions to reflect the percentage
allocations among the new Variable Portfolios and/or Fixed Accounts, if
available, resulting from your transfer ("Default Rebalancing Instructions").
For example, your current contract value is allocated 80% in Variable Portfolio
A and 20% in Variable Portfolio B. You request a transfer of 50% from Variable
Portfolio A to Variable Portfolio C. Then your Default Rebalancing Instructions
would be 40% in Variable Portfolio A, 20% in Variable Portfolio B and 40% in
Variable Portfolio C. You may change any applicable Default Rebalancing
Instructions at any time by contacting the Annuity Service Center.
If you elect an optional living benefit, we will automatically enroll you in the
Automatic Asset Rebalancing Program with quarterly rebalancing. If you have
elected SunAmerica Income Plus, the amount of your investment allocated to the
Secure Value Account is not part of your allocations and cannot be rebalanced.
PLEASE SEE OPTIONAL LIVING BENEFITS BELOW for a detailed discussion of the
impact of Automatic Asset Rebalancing on the election and/or cancellation of a
living benefit.
EXAMPLE OF AUTOMATIC ASSET REBALANCING PROGRAM:
Assume that you want your initial Purchase Payment split between two
Variable Portfolios. You want 50% in a bond Variable Portfolio and 50% in a
stock Variable 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 bond Variable Portfolio now represents 60% of your
holdings because it has increased in value and the stock Variable Portfolio
represents 40% of your holdings. If you chose quarterly rebalancing and you
have not made any transfer, on the last day of that quarter, we would sell
some of your Accumulation Units in the bond Variable Portfolio to bring its
holdings back to 50% and use the money to buy more Accumulation Units in
the stock Variable Portfolio to increase those holdings to 50%.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE AUTOMATIC ASSET
REBALANCING PROGRAM AT ANY TIME.
VOTING RIGHTS
The Company is the legal owner of the Trusts' shares. However, when an
Underlying Fund solicits proxies in conjunction with a shareholder vote, 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 vote in
the manner described above, we will vote the shares in our own right.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
ACCESS TO YOUR MONEY
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
You can access money in your contract by making a partial or total withdrawal,
and/or by receiving annuity income payments during the Income Phase. PLEASE SEE
ANNUITY INCOME OPTIONS BELOW. Any request for withdrawal will be priced as of
the day it is received by us in Good Order at the Annuity Service Center, if the
request is received before Market Close. If the request for withdrawal is
received after Market Close, the request will be priced as of the next business
day.
We deduct a withdrawal charge applicable to any partial or total withdrawal made
before the end of the withdrawal charge period.
If you have elected the optional living benefit, you should consider the impact
of your withdrawals on the benefit. PLEASE SEE OPTIONAL LIVING BENEFITS BELOW.
FREE WITHDRAWAL AMOUNT
Your contract provides for a free withdrawal amount each year. A free withdrawal
amount, as defined below, is the portion of your contract that we allow you to
take out each year without being charged a withdrawal charge during the
withdrawal charge period. The free withdrawal amount does not reduce the basis
used to calculate future annual free withdrawals and withdrawal charges. As a
result, if you surrender your contract in the future while withdrawal charges
are still applicable, you will not receive the benefit of any previous free
withdrawals upon a full surrender.
Withdrawals of Purchase Payments made prior to the end of the withdrawal charge
schedule, that are in excess of your free withdrawal amount will result in a
withdrawal charge. Before purchasing this contract, you should consider the
effect of withdrawal charges on your investment if you need to withdraw more
money than the free withdrawal amount
20
during the withdrawal charge period. You should fully discuss this decision with
your financial representative.
When you make a partial withdrawal, we deduct it from any remaining penalty-free
withdrawal amount first, next from remaining Purchase Payments on a first-in,
first-out basis, and then from any remaining contract value. 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.
Your annual free withdrawal amount is the greater of*:
1) 10% of remaining Purchase Payments not yet withdrawn each contract year,
and still subject to withdrawal charges; or
2) The Maximum Annual Withdrawal Amount, if you elected a Living Benefit.
--------
* If you are taking required minimum distributions ("RMD") applicable to this
contract only, current company practice is to waive any withdrawal charges
applicable to those withdrawals
Amounts withdrawn free of a withdrawal charge under the 10% provision do not
reduce the amount you invested for purposes of calculating the withdrawal
charges. As a result, if you surrender your contract in the future while
withdrawal charges are still applicable, any previous free withdrawals under the
10% provision would then be subject to applicable withdrawal charges. Purchase
Payments that are no longer subject to a withdrawal charge and not previously
withdrawn may also be withdrawn free of a withdrawal charge at any time. If you
choose to take less than the full 10% free withdrawal amount, as described
above, or the Maximum Annual Withdrawal Amount, if allowed under the Living
Benefit you elected, in any contract year, you may not carry over the unused
amount as a penalty-free withdrawal in subsequent years.
We calculate charges upon surrender of the contract 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 number of years the
Purchase Payment has been in the contract at the time of the withdrawal and the
Accumulated Premium Breakpoint achieved based on the sum of all Purchase
Payments. PLEASE SEE EXPENSES BELOW. For the purpose of calculating the
withdrawal charge, any prior free withdrawal is not subtracted from the total
Purchase Payments still subject to withdrawal charges.
For example, you make an initial Purchase Payment of $100,000. For purposes of
this example we will assume a 0% growth rate over the life of the contract, no
subsequent Purchase Payments and no election of optional features, if
applicable. 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 the 3rd
contract year, you request a total withdrawal of your contract and your
withdrawal charge based on your Accumulated Premium Breakpoint for the 3rd
contract year is 4%. We will apply the following calculation:
A-(B x C)=D, where:
A=Your contract value at the time of your request for withdrawal ($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 (assuming 4% is the applicable percentage) [B x C=$4,000]
D=Your full contract value ($86,000) available for total withdrawal
If you surrender your contract, we may also deduct any premium taxes, if
applicable. PLEASE SEE EXPENSES BELOW.
Under most circumstances, the minimum amount you can withdraw is $1,000. We
require that the value left in any Variable Portfolio or Fixed Accounts be at
least $100, after the withdrawal and your total contract value must be at least
$2,500. The request for withdrawal must be in writing and sent to the Annuity
Service Center. For withdrawals of $500,000 and more, a signature guarantee is
generally required at the time of your request. Unless you provide us with
different instructions, partial withdrawals will be made proportionately from
each Variable Portfolio and the Fixed Account in which you are invested. In the
event that a proportionate 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.
Withdrawals made prior to age 59 1/2 may result in a 10% IRS penalty tax. PLEASE
SEE TAXES BELOW. Under certain Qualified plans, access to the money in your
contract may be restricted.
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; (5) we are on notice that this
contract is the subject of a court proceeding, an arbitration, a regulatory
matter or other legal action.
Additionally, we reserve the right to defer payments for a withdrawal from a
Fixed Account for up to six months.
21
SYSTEMATIC WITHDRAWAL PROGRAM
During the Accumulation Phase, you may elect to receive periodic withdrawals
under the Systematic Withdrawal program for no additional charge. Under the
program, you may choose to take monthly, quarterly, semi-annual or annual
payments from your contract. Electronic transfer of these withdrawals to your
bank account is also available. The minimum amount of each withdrawal is $100.
There must be at least $2,500 remaining in your contract at all times.
Withdrawals may be taxable and a 10% federal penalty tax may apply if you are
under age 59 1/2. A withdrawal charge may apply if the amount of the periodic
withdrawals in any year exceeds the free withdrawal amount permitted each year.
PLEASE SEE ACCESS TO YOUR MONEY ABOVE AND SEE EXPENSES BELOW.
The program is not available to everyone. Please contact our Annuity Service
Center which can provide the necessary enrollment forms.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE SYSTEMATIC WITHDRAWAL
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 on certain withdrawals prior to the Annuity Date. The waiver
applies only to withdrawals made while you are in a nursing home or within 90
days after you leave the nursing home. You cannot use this waiver during the
first 90 days after your contract is issued. In addition, the confinement period
for which you seek the waiver must begin after you purchase your contract. We
will only waive the withdrawal charges on withdrawals or surrenders paid
directly to the contract owner, and not to a third party or other financial
services company.
In order to use this waiver, you must submit with your withdrawal request to the
Annuity Service Center, 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 your contract
value is less than $2,500 as a result of withdrawals and/or fees and charges. We
will provide you with sixty days written notice that your contract is being
terminated. At the end of the notice period, we will distribute the contract's
remaining value to you.
If you elected an optional living benefit, withdrawals taken under the
parameters of the feature that reduce contract value below the Minimum Contract
Value will not terminate your contract. PLEASE SEE OPTIONAL LIVING BENEFITS
BELOW.
QUALIFIED CONTRACT OWNERS
Certain Qualified plans restrict and/or prohibit your ability to withdraw money
from your contract. PLEASE SEE TAXES BELOW for a more detailed explanation.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
OPTIONAL LIVING BENEFITS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
OVERVIEW OF LIVING BENEFITS
The optional Living Benefit is designed to help you create a guaranteed income
stream based on a series of withdrawals you may take from your contract that may
last as long as you live. As long as you take these withdrawals within the
parameters of the Living Benefit, you may receive a guaranteed income stream for
life even if the entire contract value has been reduced to zero. Alternatively,
you should know that you may also receive annuity income payments for life if
you annuitize your contract. PLEASE SEE ANNUITY INCOME OPTIONS BELOW.
The Living Benefit may offer protection in the event your contract value
declines due to unfavorable investment performance, certain withdrawal activity,
if you live longer than expected or any combination of these factors. You may
never need to rely on this protection as the benefit's value is dependent on
your contract's performance, your withdrawal activity and your longevity.
You may elect the following optional Living Benefit, which is a guaranteed
minimum withdrawal benefit, for an additional fee. Though the optional Living
Benefit offers additional protections, the additional fee associated with the
benefit has the impact of reducing the net investment return.
Please read carefully the more detailed description of the Living Benefit
following the summary for information regarding how the benefit works, its
availability, applicable restrictions, fees and additional considerations. You
should analyze the Living Benefit thoroughly and understand it completely before
electing.
SUNAMERICA INCOME PLUS(R) offers guaranteed lifetime income plus the opportunity
to increase income by locking in the greater of either the contract's highest
Anniversary Value, or an annual Income Credit. The annual 6% Income Credit is an
amount we may add to the Income Base each year for the first 12 Benefit Years.
The 6% Income Credit is reduced but not eliminated in any Benefit Year in which
cumulative withdrawals are less than 6% of the Income Base and not greater than
the Maximum Annual Withdrawal Amount thereby providing a guarantee that income
can increase during the first 12 years even after starting withdrawals. After
the first 12 years, only the highest Anniversary Value increase may be
available. In addition, if you do not take any withdrawals during the first 12
years, you could be eligible for the Minimum Income Base on the 12th Benefit
Year Anniversary. The Minimum Income
22
Base is equal to 200% of the first Benefit Year's Eligible Purchase Payments.
GENERAL INFORMATION APPLICABLE TO THE LIVING BENEFIT
You must invest in accordance with investment requirements outlined below.
The Living Benefit may not be appropriate if you plan to make ongoing Purchase
Payments, such as with contributory IRA's or other tax-qualified plans. The
Living Benefit guarantees that only certain Purchase Payments received during
the contract's first 5 years are included in the Income Base.
This optional Living Benefit is designed for individuals and spouses. Thus, if a
contract is jointly owned by non-spousal joint Owners, Domestic Partners or
Same-Sex Spouses and either Owner dies, the surviving Owner must make an
election in accordance with the death benefit provisions of the contract in
compliance with the IRC, which terminates the Living Benefit. PLEASE SEE DEATH
BENEFITS BELOW. Accordingly, the surviving Owner may not receive the full
benefit of the Living Benefit.
Any withdrawals taken may be subject to a 10% IRS tax penalty if you are under
age 59 1/2 at the time of the withdrawal. For information about how the Living
Benefit is treated for income tax purposes, you should consult a qualified tax
advisor concerning your particular circumstances. In addition, if you have a
Qualified contract, tax law and the terms of the plan may restrict withdrawal
amounts.
LIVING BENEFIT DEFINED TERMS
ANNIVERSARY VALUE
The contract value on any Benefit Year Anniversary minus any Ineligible Purchase
Payments (defined below). Continuation Contributions, if applicable, are
included in the calculation of Anniversary Values. PLEASE SEE SPOUSAL
CONTINUATION BELOW.
BENEFIT EFFECTIVE DATE
The date the Living Benefit is elected. The Benefit Effective Date is the same
as the contract issue date.
BENEFIT QUARTER
Each consecutive 3 month period starting on the Benefit Effective Date.
BENEFIT QUARTER ANNIVERSARY
The date following each consecutive 3 month period starting on the Benefit
Effective Date. If the next Benefit Quarter Anniversary has no corresponding
date, then the Benefit Quarter Anniversary will be deemed to be the following
business day.
BENEFIT YEAR
Each consecutive one year period starting on the Benefit Effective Date.
BENEFIT YEAR ANNIVERSARY
The date on which each Benefit Year begins.
CONTRACT YEAR
Each consecutive one year period starting on the contract issue date.
COVERED PERSON(S)
The person, or persons, whose lifetime withdrawals are guaranteed under the
Living Benefit.
ELIGIBLE PURCHASE PAYMENTS
Eligible Purchase Payments are Purchase Payments, or portions thereof, made on
or after the Benefit Effective Date as shown in the table below and are included
in the calculation of the Income Base (defined below). The calculation of
Eligible Purchase Payments does not include Income Credits (defined below) or
the Continuation Contribution, if applicable. However, Continuation
Contributions, if applicable, are included in the calculation of Anniversary
Values. PLEASE SEE SPOUSAL CONTINUATION BELOW. Total Purchase Payments are
limited to $1,500,000 without prior Company approval.
----------------------------------------------------------------------------------
FIRST CONTRACT YEAR SUBSEQUENT CONTRACT YEARS
----------------------------------------------------------------------------------
100% of Purchase Payments Purchase Payments received in contract years 2-5,
received capped at 200% of Purchase Payments received in
the first contract year
----------------------------------------------------------------------------------
EXAMPLE: If you made a $100,000 Purchase Payment in contract year 1, Eligible
Purchase Payments will include additional Purchase Payments of up to $200,000
for years 2-5 for a grand total maximum of $900,000 of Eligible Purchase
Payments.
EXCESS WITHDRAWAL
Any withdrawal, or portion of a withdrawal, that is taken in a Benefit Year
which exceeds the maximum amount that may be withdrawn each Benefit Year. This
withdrawal may include, but is not limited to, any withdrawal taken in a Benefit
Year taken after the maximum amount allowed. An Excess Withdrawal will cause the
Income Base, Income Credit Base, if applicable, and the Maximum Annual
Withdrawal Amount to be recalculated.
INCOME BASE
The Income Base is used to determine the fee and the maximum amount that may be
withdrawn each Benefit Year without reducing the Income Base and Income Credit
Base, if applicable. The Income Base is also used to determine the amount paid
each year over the remaining lifetime of the Covered Person(s) after the
contract value is reduced to zero.
INCOME CREDIT
An amount that may be added to the Income Base during the Income Credit Period
as shown in the following table:
-------------------------------------------------------------------
INCOME CREDIT INCOME CREDIT AVAILABILITY
-------------------------------------------------------------------
6% Available during the first 12 Benefit Years
-- the Income Credit is reduced in years
withdrawals are taken
-------------------------------------------------------------------
23
INCOME CREDIT BASE
The Income Credit Base is used solely as a basis for calculating the Income
Credit during the Income Credit Period.
INCOME CREDIT PERIOD
The period of time over which we calculate the Income Credit.
INELIGIBLE PURCHASE PAYMENTS
Purchase Payments, or portions thereof, received after the 5th contract year, or
that are in excess of the caps discussed in the table under "ELIGIBLE PURCHASE
PAYMENTS" above.
INVESTMENT REQUIREMENTS
We will allocate 10% of every Purchase Payment and Continuation Contribution, if
any, to a fixed interest rate account (the "Secure Value Account"). The
remaining 90% of every Purchase Payment and Continuation Contribution, if any,
(the "Flexible Allocation"), must be allocated by you in accordance with the
investment options outlined under "ARE THERE INVESTMENT REQUIREMENTS IF I ELECT
SUNAMERICA INCOME PLUS?" below.
MAXIMUM ANNUAL WITHDRAWAL AMOUNT
The maximum amount that may be withdrawn each Benefit Year while the contract
value is greater than zero without reducing the Income Base and the Income
Credit Base, if applicable.
MAXIMUM ANNUAL WITHDRAWAL PERCENTAGE
The percentage used to determine the Maximum Annual Withdrawal Amount available
for withdrawal each Benefit Year while the contract value is greater than zero.
Currently, the Maximum Annual Withdrawal Percentage is the same as the Protected
Income Payment Percentage.
MINIMUM INCOME BASE
The guaranteed minimum amount to which the Income Base could be increased on the
12th Benefit Year Anniversary provided no withdrawals are taken before the 12th
Benefit Year Anniversary.
PROTECTED INCOME PAYMENT
The amount to be paid each year over the remaining lifetime of the Covered
Person(s) after the contract value is reduced to zero but the Income Base is
still greater than zero or if the Latest Annuity Date has been reached.
PROTECTED INCOME PAYMENT PERCENTAGE
The percentage used to determine the Protected Income Payment. Currently, the
Protected Income Payment Percentage is the same as the Maximum Annual Withdrawal
Percentage.
SUNAMERICA INCOME PLUS
How does SunAmerica Income Plus work?
The Living Benefit locks in the greater of two values to determine the Income
Base. The Income Base is the basis for the Covered Person(s)' guaranteed
lifetime benefit which must be taken in a series of withdrawals. The Income Base
is initially equal to the first Eligible Purchase Payment. While the Income Base
is greater than zero, the Income Base is automatically locked in on each Benefit
Year Anniversary, to the greater of (1) the highest Anniversary Value, or (2)
the current Income Base increased by any available Income Credit.
There is an additional guarantee if you do not take any withdrawals before the
12th Benefit Year Anniversary; the Income Base could be increased to equal at
least 200% of your first Benefit Year's Eligible Purchase Payments ("Minimum
Income Base"). PLEASE SEE "HOW CAN THE INCOME BASE AND INCOME CREDIT BASE BE
INCREASED?" BELOW.
What determines the amount I can receive each year?
The amount that you receive depends on the age of the Covered Person(s) at the
time of first withdrawal and whether your contract value is greater than or
equal to zero.
While the contract value is greater than zero, the Maximum Annual Withdrawal
Percentage represents the percentage of your Income Base used to calculate the
Maximum Annual Withdrawal Amount that you may withdraw each Benefit Year without
decreasing your Income Base or Income Credit Base, if applicable. The Maximum
Annual Withdrawal Percentage differs depending on whether there are one or two
Covered Person(s) and the age of the Covered Person(s) at the time of the first
withdrawal.
If your contract value has been reduced to zero or the Latest Annuity Date is
reached, the Protected Income Payment Percentage represents the percentage of
your Income Base used to calculate the Protected Income Payment that you will
receive each year over the remaining lifetime of the Covered Person(s). The
Protected Income Payment Percentage differs depending on whether there are one
or two Covered Person(s) and the age of the Covered Person(s) at the time of
first withdrawal. PLEASE SEE "WHAT HAPPENS IF THE CONTRACT VALUE IS REDUCED TO
ZERO WHILE THE INCOME BASE IS GREATER THAN ZERO?" AND "WHAT HAPPENS TO MY LIVING
BENEFIT UPON THE LATEST ANNUITY DATE?" BELOW.
-------------------------------------------------------------------
NUMBER OF COVERED
PERSONS
AND AGE AT FIRST MAXIMUM ANNUAL PROTECTED INCOME
WITHDRAWAL* WITHDRAWAL PERCENTAGE PAYMENT PERCENTAGE
-------------------------------------------------------------------
One Covered Person
(Age 64 and Younger) 4.0% 4.0%
-------------------------------------------------------------------
One Covered Person
(Age 65 and Older) 5.0% 5.0%
-------------------------------------------------------------------
Two Covered Persons
(Age 64 and Younger) 3.5% 3.5%
-------------------------------------------------------------------
Two Covered Persons
(Age 65 and Older) 4.5% 4.5%
-------------------------------------------------------------------
* If there is One Covered Person but there are joint Owners, the Covered Person
is the older Owner. If there are Two Covered Persons, the age at first
withdrawal is based on the age of the younger of Two Covered Persons, if
applicable.
24
Are there investment requirements if I elect SunAmerica Income Plus?
Yes. We will allocate 10% of every Purchase Payment and Continuation
Contribution, if applicable, to a Fixed Account ("Secure Value Account"). The
Secure Value Account is only available for investment for contracts with
election of SunAmerica Income Plus. The crediting interest rate on amounts
allocated to the Secure Value Account will never be less than the guaranteed
minimum interest rate specified in your contract. The crediting interest rate,
once established, will not change for each allocation to the Secure Value
Account for the duration of the guarantee period. The guarantee period for the
Secure Value Account is a one year period that automatically renews every year
from the date of each allocation to the Secure Value Account, unless the Living
Benefit has been cancelled. Each allocation to the Secure Value Account may have
different crediting interest rates. The remaining 90% of every Purchase Payment
and Continuation Contribution, if applicable (the "Flexible Allocation"), must
be allocated by you in accordance with the investment requirements outlined
below.
Your Flexible Allocation must comply with the investment requirements in one of
four ways.
FLEXIBLE ALLOCATION -- CHECK-THE-BOX OPTIONS 1-3
After investing 10% in the Secure Value Account, the remaining 90% of Purchase
Payments can be invested in accordance with Option 1, 2 or 3:
------------------------------------------------------------------------------
---------------- -------------------------------------------------------------
Option 1 Invest in one of three available Polaris Portfolio Allocator
Models:
Model A, Model B or Model C
or
Invest in one of three available Sample Portfolios:
Balanced Growth & Income
Balanced Toward Growth
Growth Focus
Option 2 Invest in one or more of the following balanced Variable
Portfolios:
American Funds Asset Allocation
Asset Allocation
Balanced
Franklin Income Securities Fund
MFS Total Return
---------------- -------------------------------------------------------------
Option 3 Invest in the Cash Management Variable Portfolio
---------------- -------------------------------------------------------------
FLEXIBLE ALLOCATION -- BUILD-YOUR-OWN OPTION 4
After investing 10% in the Secure Value Account, the remaining 90% of Purchase
Payments can be invested among the Variable Portfolios and available Fixed
Accounts, as follows:
------------------------------------------------------
INVEST-
MENT INVESTMENT VARIABLE PORTFOLIOS
GROUP REQUIREMENT AND/OR FIXED ACCOUNTS
---------- -------------------------------------------
A. Bond, Minimum 20% Cash Management
Cash Maximum 90% Corporate Bond
and Global Bond
Fixed Government & Quality Bond
Acco- Real Return
unts Total Return Bond
DCA FIXED ACCOUNTS
6-Month DCA
1-Year DCA
2-Year DCA
FIXED ACCOUNTS
1-Year Fixed (if available)
---------- -------------------------------------------
B. Equi- Minimum 0% Aggressive Growth
ty Maximum 70% Alliance Growth
Maxi- American Funds Asset
mum Allocation
American Funds Global
Growth
American Funds Growth
American Funds Growth-
Income
Asset Allocation
Balanced
Blue Chip Growth
Capital Appreciation
Davis Venture Value
"Dogs" of Wall Street
Equity Opportunities
Foreign Value
Franklin Income Securities
Fund
Franklin Templeton VIP
Founding
Funds Allocation Fund
Fundamental Growth
Global Equities
Growth
Growth-Income
High-Yield Bond
International Diversified
Equities
International Growth and
Income
Invesco Van Kampen V.I.
Capital
Growth Fund, Series II
Shares
Invesco Van Kampen V.I.
Comstock
Fund, Series II Shares
Invesco Van Kampen V.I.
Growth
and Income Fund, Series
II Shares
Lord Abbett Growth and
Income
Lord Abbett Mid Cap Value
Marsico Focused Growth
MFS Massachusetts Investors
Trust
MFS Total Return
Small & Mid Cap Value
Telecom Utility
---------- -------------------------------------------
C. Lim- Minimum 0% Capital Growth
ited Maximum 10% Emerging Markets
Equi- Growth Opportunities
ty Mid-Cap Growth
Natural Resources
Real Estate
Small Company Value
Technology
---------- -------------------------------------------
* You may use a DCA Fixed Account to invest your target allocations in
accordance with the investment requirements.
Your allocation instructions accompanying any Purchase Payment as well as your
target allocations if you invest in a DCA Fixed Account must comply with the
investment
25
requirements, described above, in order for your application or subsequent
Purchase Payment(s) allocation instructions to be considered in Good Order. We
will automatically enroll you in the Automatic Asset Rebalancing Program with
quarterly rebalancing. If rebalancing instructions are not provided, we will
align your rebalancing allocations with your Purchase Payment instructions, or
if using a DCA Fixed Account, your target DCA instructions. We require quarterly
rebalancing because market performance and transfer and withdrawal activity may
result in your contract's Flexible Allocations going outside these requirements.
Quarterly rebalancing will ensure that your Flexible Allocation will continue to
comply with the investment requirements for this feature.
We will initiate rebalancing of your Flexible Allocation in accordance with your
most current and compliant Automatic Asset Rebalancing instructions on file,
after any transfer you initiate, or any withdrawal you initiate. Because
automatic transfers and/or systematic withdrawals will not result in rebalancing
before the next automatic quarterly rebalancing occurs, if you make a transfer,
you must provide updated rebalancing instructions for your Flexible Allocation.
If you do not provide new rebalancing instructions at the time you initiate a
transfer, we will change your ongoing rebalancing instructions to reflect the
percentage allocations among the new Variable Portfolios and/or 1-year Fixed
Account, if available, resulting from your transfer ("Default Rebalancing
Instructions"). If at any point, for any reason, your rebalancing instructions
would result in allocations inconsistent with the investment requirements listed
above, we will revert to the last compliant instructions on file. You can modify
your rebalancing instructions, as long as they are consistent with the
investment requirements, at any time by calling the Annuity Service Center.
PLEASE SEE AUTOMATIC ASSET REBALANCING PROGRAM ABOVE.
You may not transfer any amounts between the Secure Value Account and the
Flexible Allocation Variable Portfolios or Fixed Accounts. The Secure Value
Account may not be used as a target account if you are using the Dollar Cost
Averaging program to comply with investment requirements. In addition, we will
not rebalance amounts in the Secure Value Account under the Automatic Asset
Rebalancing Program. You may not request any specific amount of any withdrawal
to be deducted solely from the Secure Value Account. Rather, any withdrawal
reduces the amount invested in the Secure Value Account in the same proportion
that the withdrawal reduces the contract value. PLEASE SEE "WHAT HAPPENS TO THE
SECURE VALUE ACCOUNT AND AUTOMATIC ASSET REBALANCING PROGRAM INSTRUCTIONS IF I
ELECT TO CANCEL SUNAMERICA INCOME PLUS?" BELOW.
If compliant rebalancing instructions are not provided with every Purchase
Payment, we will rebalance your Flexible Allocation as described in the example
below:
Assume that you want your Purchase Payment split between Group A and Group
B under the Flexible Allocation Build-Your-Own option. 10% of your Purchase
Payment is allocated to the Secure Value Account and 90% of your Purchase
Payment is allocated to the Flexible Allocation. You want to invest 40% of
the Purchase Payment in a bond Variable Portfolio and 50% of the Purchase
Payment in a stock Variable Portfolio.
We will set your rebalancing instructions as follows unless you instruct
otherwise: 44.4% in the bond Variable Portfolio (40%/90% = 44.4%) and 55.6%
in the stock Variable Portfolio (50%/90% = 55.6%). We may need to allocate
slightly more or less to each fund in order for the rebalancing
instructions to total 100% and for each Investment Group to meet the
applicable investment requirement.
Over the next Benefit Quarter, the bond market does very well while the
stock market performs poorly. At the end of the Benefit Quarter, the bond
Variable Portfolio now represents 50% of your holdings because it has
increased in value and the stock Variable Portfolio represents 40% of your
holdings. Upon quarterly rebalancing on the last day of the Benefit
Quarter, we will proportionately rebalance your Flexible Allocation based
on the Flexible Allocation percentages provided for your Purchase Payment.
We would sell some of your Accumulation Units in the bond Variable
Portfolio to bring its holdings back to 44% of the Flexible Allocation
value and use the money to buy more Accumulation Units in the stock
Variable Portfolio to increase those holdings to 56% of the Flexible
Allocation value.
The investment requirements may reduce the need to rely on the guarantees
provided by this Living Benefit because they allocate your investment across
asset classes and potentially limit market volatility. As a result, you may have
better, or worse, investment returns by allocating your investments more
aggressively. We reserve the right to change the investment requirements at any
time for prospectively issued contracts. We may also revise the investment
requirements for any existing contract to the extent that Variable Portfolios
are added, deleted, substituted, merged or otherwise reorganized. We will
promptly notify you of any changes to the investment requirements due to
deletions, substitutions, mergers or reorganizations.
What are the factors used to calculate SunAmerica Income Plus?
The benefit offered by SunAmerica Income Plus is calculated by considering the
factors described below.
26
FIRST, we determine the ELIGIBLE PURCHASE PAYMENTS. It is important to note that
only Purchase Payments made during the first 5 contract years are taken into
consideration in determining the Eligible Purchase Payments. If you anticipate
that you will be making Purchase Payments after the first 5 contract years, you
should know that those Purchase Payments will not be included in the calculation
of the Eligible Purchase Payments or Anniversary Values.
SECOND, we consider the INCOME CREDIT PERIOD. The Income Credit Period is the
period of time over which we calculate the Income Credit. The Income Credit
Period begins on the Benefit Effective Date and ends 12 years later.
THIRD, we determine the ANNIVERSARY VALUE which equals your contract value on
any Benefit Year Anniversary minus any Ineligible Purchase Payments. The highest
Anniversary Value is the current Anniversary Value that is greater than (1) all
previous Anniversary Values; and (2) Eligible Purchase Payments.
FOURTH, we determine the INCOME BASE which initially is equal to the first
Eligible Purchase Payment. The Income Base is increased by each subsequent
Eligible Purchase Payment, and is reduced proportionately for Excess
Withdrawals. If you do not take any withdrawals before the 12th Benefit Year
Anniversary; the Income Base could be increased to at least the MINIMUM INCOME
BASE on the 12th Benefit Year Anniversary. The Minimum Income Base is equal to
at least 200% of your first Benefit Year's Eligible Purchase Payments.
FIFTH, we determine the INCOME CREDIT BASE which is used solely as a basis for
calculating the Income Credit during the Income Credit Period. The initial
Income Credit Base is equal to the first Eligible Purchase Payment. The Income
Credit Base is increased by each subsequent Eligible Purchase Payment, and is
reduced proportionately for Excess Withdrawals.
SIXTH, we determine the INCOME CREDIT.
The Income Credit is equal to 6% ("Income Credit Percentage") of the Income
Credit Base on each Benefit Year Anniversary during the Income Credit Period.
The Income Credit Percentage on the Benefit Year Anniversary is reduced but not
eliminated in any Benefit Year in which cumulative withdrawals during the
preceding Benefit Year are not greater than the Maximum Annual Withdrawal
Amount.
For example, if you elected one Covered Person and take cumulative withdrawals
prior to the 65th birthday of the Covered Person that are equal to 4% of the
Income Base in the preceding Benefit Year, the Income Credit Percentage on the
Benefit Year Anniversary is reduced from 6% to 2%. However, if you take
cumulative withdrawals in the preceding Benefit Year that are equal to or
greater than the Maximum Annual Withdrawal Amount, the Income Credit Percentage
for that Benefit Year Anniversary is equal to zero. If you elected two Covered
Persons and take cumulative withdrawals prior to the 65th birthday of the
younger Covered Person that are equal to 3.6% of the Income Base in the
preceding Benefit Year, the Income Credit Percentage on the Benefit Year
Anniversary is reduced to zero because the withdrawal is in excess of the
Maximum Annual Withdrawal Amount applicable to two Covered Persons of 3.5%.
SEVENTH, we determine the MAXIMUM ANNUAL WITHDRAWAL PERCENTAGE, which represents
the maximum percentage of the Income Base that can be withdrawn each Benefit
Year while the contract value is greater than zero, without reducing the Income
Base and the Income Credit Base, if applicable. If your contract value is
reduced to zero but your Income Base is greater than zero, the PROTECTED INCOME
PAYMENT PERCENTAGE represents the percentage of the Income Base you will receive
each Benefit Year thereafter.
The Maximum Annual Withdrawal Percentage and Protected Income Payment Percentage
are determined by two factors: 1) whether there is one or two Covered Person(s);
and 2) the age of the Covered Person at the time of first withdrawal.
Please see the table under "WHAT DETERMINES THE AMOUNT I CAN RECEIVE EACH YEAR?"
above for the applicable Maximum Annual Withdrawal Percentage and Protected
Income Payment Percentage.
EIGHTH, we determine the MAXIMUM ANNUAL WITHDRAWAL AMOUNT, which represents the
maximum amount that may be withdrawn each Benefit Year while the contract value
is greater than zero, without reducing the Income Base, and if applicable, the
Income Credit Base. The Maximum Annual Withdrawal Amount is calculated by
multiplying the Income Base by the applicable Maximum Annual Withdrawal
Percentage. If your contract value is reduced to zero but your Income Base is
greater than zero, the PROTECTED INCOME PAYMENT is determined by multiplying the
Income Base by the applicable Protected Income Payment Percentage.
FINALLY, we determine the EXCESS WITHDRAWALS.
How can the Income Base and Income Credit Base be increased?
On each Benefit Year Anniversary, the Income Base is automatically increased to
the greater of (1) the highest Anniversary Value; or (2) the current Income Base
plus the Income Credit, if any. In addition, the Income Base can also be
increased to at least the Minimum Income Base on the 12th Benefit Year
Anniversary provided no withdrawals have been taken before that anniversary.
On each Benefit Year Anniversary during the Income Credit Period, the Income
Credit Base is automatically increased to the highest Anniversary Value, if the
Income Base is increased to the highest Anniversary Value. The Income
27
Credit Base is not increased if an Income Credit is added to the Income Base.
Increases to your Income Base and Income Credit Base occur on Benefit Year
Anniversaries while the contract value is greater than zero. However, Eligible
Purchase Payments increase your Income Base and Income Credit Base at the time
they are received. SINCE HIGHEST ANNIVERSARY VALUES ARE DETERMINED ONLY ON THE
BENEFIT YEAR ANNIVERSARIES, YOUR INCOME BASE AND INCOME CREDIT BASE WILL NOT
INCREASE IF YOUR CONTRACT VALUE WAS HIGHER ON DAYS OTHER THAN THE BENEFIT YEAR
ANNIVERSARIES.
If the contract value has been reduced to zero, the Income Base will no longer
be recalculated on each Benefit Year Anniversary. PLEASE SEE "WHAT ARE THE
EFFECTS OF WITHDRAWALS ON SUNAMERICA INCOME PLUS?" BELOW.
How do increases and decreases in the Income Base impact the Maximum Annual
Withdrawal Amount?
INCREASES IN THE INCOME BASE
In any Benefit Year during which subsequent Eligible Purchase Payments are
allocated to your contract, any remaining withdrawals of the Maximum Annual
Withdrawal Amount will be based on the increased Maximum Annual Withdrawal
Amount reduced by withdrawals previously taken in that Benefit Year. If the
Income Base is increased on a Benefit Year Anniversary, the Maximum Annual
Withdrawal Amount will be recalculated on that Benefit Year Anniversary by
multiplying the increased Income Base by the applicable Maximum Annual
Withdrawal Percentage.
DECREASES IN THE INCOME BASE
Excess Withdrawals reduce your Income Base on the date the Excess Withdrawal
occurs. Any Excess Withdrawal in a Benefit Year reduces the Income Base in the
same proportion by which the contract value is reduced by the Excess Withdrawal.
As a result of a reduction of the Income Base, the new Maximum Annual Withdrawal
Amount will be equal to the reduced Income Base multiplied by the applicable
Maximum Annual Withdrawal Percentage. The last recalculated Maximum Annual
Withdrawal Amount in a given Benefit Year is available for withdrawal at the
beginning of the next Benefit Year and may be lower than the previous Benefit
Year's Maximum Annual Withdrawal Amount. When the contract value is less than
the Income Base, Excess Withdrawals will reduce the Income Base by an amount
which is greater than the amount of the Excess Withdrawal. In addition, you will
not be eligible for an Income Credit in that Benefit Year. PLEASE SEE "WHAT ARE
THE EFFECTS OF WITHDRAWALS ON SUNAMERICA INCOME PLUS?" BELOW.
What are the effects of withdrawals on SunAmerica Income Plus?
The Maximum Annual Withdrawal Amount, the Income Base and the Income Credit Base
may change over time as a result of the timing and amount of withdrawals. If you
take a withdrawal before the 12th Benefit Year Anniversary, your Income Base is
not eligible to be increased to the Minimum Income Base.
Withdrawals during a Benefit Year that in total are less than or equal to the
Maximum Annual Withdrawal Amount will not reduce the Income Base or Income
Credit Base. However, if you choose to take less than the Maximum Annual
Withdrawal Amount in any Benefit Year, you may not carry over the unused amount
for withdrawal in subsequent years. Your Maximum Annual Withdrawal Amount in any
year will not be recalculated solely as a result of taking less than the entire
Maximum Annual Withdrawal Amount in the prior year. Please note that if you
delay taking withdrawals for too long, you may limit the number of remaining
years (due to your life expectancy) in which you may take withdrawals.
YOU SHOULD NOT ELECT THE LIVING BENEFIT IF YOU PLAN TO TAKE EXCESS WITHDRAWALS
SINCE THOSE WITHDRAWALS MAY SIGNIFICANTLY REDUCE THE VALUE OF OR TERMINATE THE
LIVING BENEFIT.
The impact of withdrawals on specific factors is further explained below:
INCOME BASE AND INCOME CREDIT BASE: If the sum of withdrawals in any
Benefit Year exceeds the Maximum Annual Withdrawal Amount, the Income Base
and Income Credit Base will be reduced for those withdrawals. For each
Excess Withdrawal taken, the Income Base and Income Credit Base are reduced
in the same proportion by which the contract value is reduced by the amount
in excess of the Maximum Annual Withdrawal Amount. This means that the
reduction in the Income Base and Income Credit Base could be more or less
than a dollar-for-dollar reduction.
MAXIMUM ANNUAL WITHDRAWAL AMOUNT: The Maximum Annual Withdrawal Amount is
recalculated each time there is a change in the Income Base. Accordingly,
if the sum of withdrawals in any Benefit Year does not exceed the Maximum
Annual Withdrawal Amount for that year, the Maximum Annual Withdrawal
Amount will not change for the next year unless your Income Base is
increased. If you take an Excess Withdrawal, the Maximum Annual Withdrawal
Amount will be recalculated by multiplying the reduced Income Base by the
existing Maximum Annual Withdrawal Percentage. This recalculated Maximum
Annual Withdrawal Amount is available for withdrawal at the beginning of
the next Benefit Year and may be lower than your previous Maximum Annual
Withdrawal Amount.
28
PROTECTED INCOME PAYMENT: If the Income Base is greater than zero, but the
contract value has been reduced to zero due to unfavorable investment
performance or withdrawals within the Maximum Annual Withdrawal Amount, we
will pay any remaining Maximum Annual Withdrawal Amount for the current
Benefit Year. Thereafter, you will receive the Protected Income Payment
each year over the remaining lifetime of the Covered Person(s) which is
calculated by multiplying the Income Base by the applicable Protected
Income Payment Percentage. The Income Base is no longer increased on
Benefit Year Anniversaries after the contract value has been reduced to
zero. As a result, the Protected Income Payment is calculated once and will
not change. PLEASE SEE "WHAT HAPPENS IF THE CONTRACT VALUE IS REDUCED TO
ZERO WHILE THE INCOME BASE IS GREATER THAN ZERO?" BELOW.
All withdrawals from the contract, including withdrawals taken under this Living
Benefit, will reduce your contract value and your death benefit and may impact
other provisions of your contract. Unfavorable investment experience and/or fees
will also reduce your contract value. In addition, withdrawals under this Living
Benefit will reduce the free withdrawal amount and may be subject to applicable
withdrawal charges if in excess of the Maximum Annual Withdrawal Amount. The sum
of withdrawals in any Benefit Year up to the Maximum Annual Withdrawal Amount
will not be assessed a withdrawal charge. Partial withdrawals under this Living
Benefit must be deducted proportionately from each Variable Portfolio and Fixed
Account in which you are invested. PLEASE SEE ACCESS TO YOUR MONEY ABOVE AND
EXPENSES BELOW.
What is the fee for SunAmerica Income Plus?
The fee for SunAmerica Income Plus is assessed against the Income Base and
deducted from the contract value at the end of each Benefit Quarter beginning on
the first Benefit Quarter Anniversary following the Benefit Effective Date.
After the first Benefit Year, on each Benefit Quarter Anniversary, we will (1)
deduct the fee in effect for the previous Benefit Quarter; and (2) determine the
fee rate applicable to the next Benefit Quarter. Please see fee table below:
----------------------------------------------------------------------------
MAXIMUM
ANNUALIZED
FEE RATE
DECREASE OR
INCREASE
INITIAL MAXIMUM MINIMUM EACH
NUMBER OF ANNUAL FEE ANNUAL FEE ANNUAL FEE BENEFIT
COVERED PERSONS RATE RATE RATE QUARTER*
----------------------------------------------------------------------------
One Covered Person 1.10% 2.20% 0.60% +/-0.25%
----------------------------------------------------------------------------
Two Covered Persons 1.35% 2.70% 0.60% +/-0.25%
----------------------------------------------------------------------------
* The quarterly fee rate will not decrease or increase by more than 0.0625% each
quarter (0.25% / 4).
The initial Annual Fee Rate is guaranteed not to change for the first Benefit
Year. Subsequently, the fee rate may change quarterly subject to the parameters
identified in the table above. Any fee adjustment is based on a non-
discretionary formula tied to the change in the Volatility Index ("VIX(R)"), an
index of market volatility reported by the Chicago Board Options Exchange. If
the value of the VIX decreases or increases from the previous Benefit Quarter
Anniversary, your fee rate will decrease or increase accordingly, subject to the
minimums and maximums identified in the table above. Should the VIX no longer be
appropriate or available, we would substitute the VIX with another measure of
market volatility for determining the fee. If we substitute the VIX, we will
notify you; however, the maximum and minimum annual fee rates described in this
prospectus are guaranteed for the life of your contract. PLEASE SEE APPENDIX
B -- FORMULA FOR CALCULATING AND EXAMPLE OF THE SUNAMERICA INCOME PLUS FEE
BELOW.
Since the fee rate is assessed against the Income Base, an increase in the
Income Base due to an adjustment to an Income Credit, higher Anniversary Value
or subsequent Eligible Purchase Payments, will result in an increase to the
amount of the fee you pay, assuming that the annual fee rate has not decreased
as described above. Please note that this means the addition of an Income Credit
will lead to paying a higher fee in any given period than without the addition
of the Income Credit, and in certain instances, the value of the Income Credit
may be more than offset by the amount of the fee. You will be assessed a non-
refundable fee each quarter regardless of whether or not you take any
withdrawals.
If your contract value falls to zero, the fee will no longer be deducted. We
will not assess the quarterly fee if you annuitize your contract or if a death
benefit is paid before the end of a Benefit Quarter. If the Living Benefit is
still in effect while your contract value is greater than zero, and you
surrender your contract, we will assess a pro-rata charge for the fee applicable
to the Benefit Quarter in which the surrender occurs if you surrender your
contract before the end of a Benefit Quarter. The pro-rata fee is calculated by
multiplying the fee by the number of days between the date when the prior fee
was last assessed and the date of surrender, divided by the number of days
between the prior and the next Benefit Quarter Anniversaries.
What happens if the contract value is reduced to zero while the Income Base is
greater than zero?
If the contract value is reduced to zero but the Income Base is greater than
zero, we will pay the remaining Maximum Annual Withdrawal Amount for that
Benefit Year. Thereafter we will pay the Protected Income Payment over the
remaining lifetime of the Covered Person(s).
IF AN EXCESS WITHDRAWAL REDUCES YOUR CONTRACT VALUE TO ZERO, NO FURTHER BENEFITS
ARE PAYABLE UNDER THE CONTRACT
29
AND YOUR CONTRACT ALONG WITH THE LIVING BENEFIT WILL TERMINATE.
If your contract value is reduced to zero, you may no longer make subsequent
Purchase Payments or transfers, and no death benefit is payable. Therefore, you
should be aware that, particularly during times of unfavorable investment
performance, withdrawals taken under the Living Benefit may reduce the contract
value to zero, thereby terminating any other benefits of the contract. In
addition, an Income Credit is not available if the contract value is reduced to
zero, even if a benefit remains payable.
When the contract value equals zero but the Income Base is greater than zero, to
receive any remaining Living Benefit, you must select one of the following:
1. The Protected Income Payment divided equally and paid on a monthly,
quarterly, semi-annual or annual frequency as selected by you until the
date of death of the Covered Person(s); or
2. Any option mutually agreeable between you and us.
Once you elect an option above, it cannot be changed. If you do not select an
option above, the remaining benefit will be paid as option 1 above. This amount
will be divided equally and paid on a quarterly basis until the date of death of
the Covered Person(s). No amount is payable thereafter.
PLEASE SEE ADDITIONAL IMPORTANT INFORMATION APPLICABLE TO THE OPTIONAL LIVING
BENEFIT BELOW FOR MORE INFORMATION REGARDING SUNAMERICA INCOME PLUS.
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ADDITIONAL IMPORTANT INFORMATION APPLICABLE TO THE OPTIONAL LIVING BENEFIT
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When and how may I elect the Living Benefit?
You may elect the Living Benefit at the time of contract issue (the "Benefit
Effective Date"). You may elect to have the Living Benefit cover only your life
or the lives of both you and your spouse, the "Covered Person(s)." If the
contract is not owned by a natural person, references to Owner(s) apply to the
Annuitant(s). To elect the Living Benefit, Covered Person(s) must meet the age
requirements. The age requirements vary depending on the type of contract and
the number of Covered Persons. The age requirements for optional death benefits
and other optional features may be different than those listed here. You must
meet the age requirements for those features in order to elect them.
IF YOU ELECT ONE COVERED PERSON:
------------------------------------------------------------------------------------
COVERED PERSON
-----------------------------------------
MINIMUM MAXIMUM
AGE AGE
------------------------------------------------------------------------------------
One Owner 45 80
------------------------------------------------------------------------------------
Joint Owners(1) 45 80
------------------------------------------------------------------------------------
IF YOU ELECT TWO COVERED PERSONS:
----------------------------------------------------------------------------------------
COVERED PERSON #1 COVERED PERSON #2
-----------------------------------------------------------------
MINIMUM AGE MAXIMUM AGE MINIMUM AGE MAXIMUM AGE
----------------------------------------------------------------------------------------
NON-QUALIFIED:
Joint Owners(2) 45 80 45 85
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NON-QUALIFIED:
One Owner with 45 80 45 N/A(3)
Spousal Beneficiary
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QUALIFIED:
One Owner with 45 80 45 N/A(3)
Spousal Beneficiary
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(1) Based on the age of the older Owner.
(2) Based on the age of the younger Joint Owner.
(3) The age requirement is based solely on the single owner for purposes of
issuing the contract with the Living Benefit. The spousal beneficiary's age
is not considered in determining the maximum issue age of the second Covered
Person.
If I own a Qualified contract, how do Required Minimum Distributions impact my
Living Benefit?
As the original owner, or Continuing Spouse (two Covered Persons elected)
electing to treat the annuity contract as their own, if you are taking required
minimum distributions ("RMD") from this contract, and the amount of the RMD
(based only on the contract to which the feature is elected and using the
Uniform Lifetime Table or Joint Life Expectancy Table from the regulations under
the Internal Revenue Code) is greater than the Maximum Annual Withdrawal Amount
in any given Benefit Year, no portion of the RMD will be treated as an Excess
Withdrawal.
Any portion of a withdrawal in a Benefit Year that is more than the greater of
both the Maximum Annual Withdrawal Amount and the RMD amount will be considered
an Excess Withdrawal. If you must take RMD from this contract and want to ensure
that these withdrawals are not considered Excess Withdrawals, your withdrawals
must be set up on the Systematic Withdrawal Program for RMDs administered by our
Annuity Service Center.
We will provide RMD favorable treatment, once each Benefit Year, to the greater
of the Maximum Annual Withdrawal Amount or the RMD amount as calculated by us.
Therefore, if you are transferring from another company and are already 70 1/2,
you should take the current tax year's RMD prior to the transfer, as we cannot
systematically calculate the RMD as we do not possess the valuation for the
previous year end. Further, if you are turning 70 1/2, you should know that
although tax code allows for deferral of the first withdrawal to April of the
tax year following your attainment of age 70 1/2, doing so may result in
subsequent withdrawals being treated as Excess Withdrawals for that Benefit
Year.
30
If the RMD amount is greater than the Maximum Annual Withdrawal Amount, but less
than 6% of the Income Base, an Income Credit will be included in determining any
Income Base increase in that Benefit Year.
What happens to my Living Benefit upon a spousal continuation if I elected one
Covered Person?
If there is one Covered Person and that person dies, the surviving spousal joint
Owner or spousal beneficiary may elect to:
1. Make a death claim if the contract value is greater than zero, which
terminates the Living Benefit and the contract; or
2. Continue the contract if the contract value is greater than zero,
without the Living Benefit and its corresponding fee.
What happens to my Living Benefit upon a spousal continuation if I elected two
Covered Persons?
If there are two Covered Persons, upon the death of one Covered Person, the
surviving Covered Person may elect to:
1. Make a death claim if the contract value is greater than zero, which
terminates the Living Benefit and the contract; or
2. Continue the contract with the Living Benefit and its corresponding fee.
The components of the Living Benefit in effect at the time of spousal
continuation will not change. The surviving Covered Person can elect to receive
withdrawals in accordance with the provisions of the Living Benefit elected
based on the age of the younger Covered Person at the time the first withdrawal
was taken. If no withdrawals were taken prior to the spousal continuation, the
Maximum Annual Withdrawal Percentage and the Protected Income Payment Percentage
will be based on the age of the surviving Covered Person at the time the first
withdrawal is taken. PLEASE SEE "HOW DOES SUNAMERICA INCOME PLUS WORK?" ABOVE.
If spousal continuation occurs during the Income Credit Period, the Continuing
Spouse will continue to receive any increases to the Income Base for highest
Anniversary Values or if applicable, any Income Credit while the contract value
is greater than zero. The Continuing Spouse is also eligible to receive the
Minimum Income Base on the 12th Benefit Year Anniversary if no withdrawals have
been taken during the first 12 Benefit Years following the Benefit Effective
Date.
Can a non-spousal Beneficiary elect to receive any remaining benefits under my
Living Benefit upon the death of the second spouse?
No. Upon the death of the Covered Person(s), if the contract value is greater
than zero, a non-spousal Beneficiary must make an election under the death
benefit provisions of the contract, which terminates the Living Benefit. PLEASE
SEE DEATH BENEFITS BELOW.
What happens to my Living Benefit upon the Latest Annuity Date?
If the contract value and the Income Base are greater than zero on the Latest
Annuity Date, you begin the Income Phase and therefore, you must select one of
the following annuity income options:
1. Annuitize the contract value under the contract's annuity provisions
(please see ANNUITY INCOME OPTIONS below); or
2. Annuitize the contract and elect to receive the current Maximum Annual
Withdrawal Amount as of the Latest Annuity Date for a fixed period while
you are alive; the fixed period is determined by dividing the contract
value on the Latest Annuity Date by the Maximum Annual Withdrawal
Amount. Any applicable Premium Taxes will be deducted from the contract
value prior to determining the fixed period. After that fixed period
ends, you will receive the Protected Income Payment, which is calculated
by multiplying the Income Base by the applicable Protected Income
Payment Percentage, paid until the death(s) of the Covered Person(s).
The Maximum Annual Withdrawal Amount fixed period payments and the
subsequent Protected Income Payments will be divided equally on a
monthly, quarterly, semi-annual or annual frequency, as selected by you.
3. Any annuity income option mutually agreeable between you and us.
Once you begin the Income Phase by electing one of the annuity income payment
options above, the Income Base will no longer be adjusted either for highest
Anniversary Values or additional Income Credits.
If you do not elect an option listed above, on the Latest Annuity Date, we may
annuitize the contract value in accordance with Option 2 above.
Can I elect to cancel my Living Benefit?
The Living Benefit may not be cancelled by you prior to the 5th Benefit Year
Anniversary unless you surrender your contract. The Living Benefit may be
cancelled by you on or after the 5th Benefit Year Anniversary and the
cancellation will be effective as outlined in the table below.
----------------------------------------------------------------------------------
CANCELLATION CANCELLATION
REQUEST RECEIVED EFFECTIVE DATE
----------------------------------------------------------------------------------
Years 1-5 5th Benefit Year Anniversary
----------------------------------------------------------------------------------
Years 5+ Benefit Quarter Anniversary following
the receipt of the cancellation request
----------------------------------------------------------------------------------
Once cancellation is effective, the guarantees under the Living Benefit are
terminated. In addition, the investment
31
requirements for the Living Benefit will no longer apply to your contract. You
may not re-elect or reinstate the Living Benefit after cancellation.
If there are two Covered Persons, upon the death of the first Covered Person,
the surviving Covered Person (generally, the Continuing Spouse) may cancel the
Living Benefit on or after the 5th Benefit Year Anniversary and the cancellation
will be effective as outlined in the table above. After the cancellation
effective date of the Living Benefit, there will be one final fee applicable to
the Benefit Quarter in which the cancellation occurs, on the Benefit Quarter
Anniversary. Thereafter, the fee will no longer be charged.
What happens to the Secure Value Account and Automatic Asset Rebalancing Program
instructions if I elect to cancel my Living Benefit?
Amounts allocated to the Secure Value Account will be automatically transferred
to the 1-Year Fixed Account, if available. If the 1-Year Fixed Account is not
available in the state in which your contract was issued, amounts will be
transferred to the Cash Management Variable Portfolio. From the day following
the automated transfer from the Secure Value Account, you may transfer this
amount to another available investment option under the contract for a period of
90 days during which the transfer will not count against the annual number of
free transfers or U.S. Mail transfers, or incur a transfer fee. Purchase
Payments will no longer be allocated to the Secure Value Account after
cancellation.
The Automatic Asset Rebalancing Program and your instructions on file will not
be terminated or changed upon cancellation of your Living Benefit. Amounts
transferred from the Secure Value Account into the 1-Year Fixed Account or Cash
Management Variable Portfolio, as applicable, will not impact the Automatic
Asset Rebalancing Program instructions on file and that transfer will not result
in new Default Rebalancing Instructions. On or after cancellation of these
features, you may provide new rebalancing instructions or you may choose to
terminate the Automatic Asset Rebalancing Program by contacting the Annuity
Service Center.
Are there circumstances under which my Living Benefit will be automatically
cancelled?
The Living Benefit will automatically be cancelled upon the occurrence of one of
the following:
1. Annuitization of the contract; or
2. Termination or surrender of the contract; or
3. A death benefit is paid resulting in the contract being terminated; or
4. An Excess Withdrawal that reduces the contract value and Income Base to
zero; or
5. Death of the Covered Person, if only one is elected; or, if two are
elected, death of the surviving Covered Person; or
6. A change that removes all Covered Persons from the contract except as
noted below and under "ARE THERE CIRCUMSTANCES UNDER WHICH GUARANTEED
WITHDRAWALS FOR TWO COVERED PERSONS, IF ELECTED, TERMINATE FOR ONE OF
THE COVERED PERSONS?"
If a change of ownership occurs from a natural person to a non-natural entity,
the original natural Owner(s) must also be the Annuitant(s) after the ownership
change to prevent termination of the Living Benefit. A change of ownership from
a non-natural entity to a natural person can only occur if the new natural
Owner(s) was the original natural Annuitant(s) in order to prevent termination
of the Living Benefit. Any ownership change is contingent upon prior review and
approval by the Company.
Are there circumstances under which guaranteed withdrawals for two Covered
Persons, if elected, terminate for one of the Covered Persons?
Under any of the following circumstances, the Living Benefit will provide a
guarantee for one Covered Person and not the lifetime of the other Covered
Person:
1. One of the two Covered Persons is removed from the contract, due to
reasons other than death; or
2. The original spousal joint Owners or spousal beneficiary, who are the
Covered Persons, are no longer married at the time of death of the first
spouse.
Under these circumstances, the fee for the Living Benefit based on two Covered
Persons will continue to be charged and the guaranteed withdrawals are payable
for one Covered Person only. However, the remaining Covered Person may choose to
terminate the Living Benefit as described under "CAN I ELECT TO CANCEL MY LIVING
BENEFIT?" above.
Any amounts that we may pay under the feature in excess of your contract value
are subject to the Company's financial strength and claims-paying ability.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE OPTIONAL LIVING
BENEFITS AT ANY TIME FOR PROSPECTIVELY ISSUED CONTRACTS AS INDICATED ABOVE.
--------------------------------------------------------------------------------
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DEATH BENEFITS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
If you die during the Accumulation Phase of your contract, we pay a death
benefit to your Beneficiary. You must select a death benefit option at the time
you purchase your contract. 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.
32
We do not pay a death benefit if you die after you begin the Income Phase; your
Beneficiary would receive any remaining guaranteed annuity income payments in
accordance with the annuity income option you selected. PLEASE SEE ANNUITY
INCOME OPTIONS BELOW.
If the contract is owned by a trust or any other non-natural person, we will
treat the death of the Primary Annuitant as the death of any Owner.
If your contract value is reduced to zero as a result of receiving guaranteed
withdrawals under a living benefit feature, no death benefit will be paid.
PLEASE SEE OPTIONAL LIVING BENEFITS ABOVE.
You designate your Beneficiary, who will receive any death benefit payments. You
may change the Beneficiary at any time, unless you previously made an
irrevocable Beneficiary designation. If your contract is jointly owned, the
surviving joint Owner is the sole Beneficiary. Joint Annuitants, if any, when
the Owner is a non-natural person shall be each other's sole Beneficiary, except
when the Owner is a charitable remainder trust. In designating your Beneficiary,
you may impose restrictions on the timing and manner of the payment of death
benefits. Those restrictions can govern the payment of the death benefit.
If any contract is owned by a trust, whether as an agent for a natural person or
otherwise, you should consider the contractual provisions that apply, including
provisions that apply in the event of the death or change of an Annuitant, in
determining whether the contract is an appropriate trust investment. You may
wish to consult with your tax and/or legal adviser.
We calculate and pay the death benefit when we receive all required paperwork
and satisfactory proof of death at the Annuity Service Center. All death benefit
calculations discussed below are made as of the day a death benefit request is
received by us in Good Order at the Annuity Service Center, (including
satisfactory proof of death) if the request is received before Market Close. If
the death benefit request is received after Market Close, the death benefit
calculations will be as of the next business day. If the death benefit request
is not received by us in Good Order or if notification of the death is made by
the Beneficiary prior to submitting all required paperwork and satisfactory
proof of death, the Beneficiary may have the option of transferring the entire
contract value to the Cash Management Variable Portfolio or available Fixed
Account by contacting the Annuity Service Center. 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.
For contracts in which the aggregate of all Purchase Payments in contracts
issued by SunAmerica Annuity and/or First SunAmerica to the same Owner/Annuitant
are in excess of $1,500,000, 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 in writing by you and the Company prior to
purchasing the contract.
If a Beneficiary does not elect a settlement option, 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 must be paid within 5 years of the date of death unless the
Beneficiary elects to have it payable in the form of an annuity income option.
If the Beneficiary elects an annuity 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. PLEASE SEE SPOUSAL CONTINUATION
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, if available, described below, subject to the
applicable Internal Revenue Code distribution requirements. Payments must begin
no later than the first anniversary of death for Non-Qualified contracts or
December 31st of the year following the year of death for IRAs. Your Beneficiary
cannot participate in the Extended Legacy Program if he/she 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 annuity income
option or participate in the Extended Legacy Program.
EXTENDED LEGACY PROGRAM
The Extended Legacy Program, if available, can allow a Beneficiary under a
SunAmerica Annuity or First SunAmerica contract(s) to take the death benefit
amount in the form of withdrawals over a longer period of time, with the
flexibility to withdraw more than the IRS required minimum distribution. The
Beneficiary may elect the Extended Legacy Program on the Death Claim Form and
the Extended Legacy Guide, which includes important information regarding the
program which may be requested from the Annuity Service Center after the death
of the original Owner. Upon election of the Extended Legacy
33
Program, the contract continues in the original Owner's name for the benefit of
the Beneficiary. Generally, IRS required minimum distributions must be made at
least annually over a period not to exceed the Beneficiary's life expectancy as
determined in the calendar year after the Owner's death.
If the Beneficiary elects to participate in this program and 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.
There are certain limitations applicable to the Extended Legacy Program. No
Purchase Payments are permitted. Living Benefits and Death Benefits that may
have been elected by the original Owner will no longer apply and any charges
associated with these features will no longer apply. The contract may not be
assigned and ownership may not be changed or jointly owned. The Extended Legacy
Program does not apply to rollovers from other companies.
In the event of the Beneficiary's death, any remaining contract value will be
paid to the person(s) named by the Beneficiary.
Beginning on the day we receive all applicable documentation that the claim
process is complete and in Good Order to take the death benefit amount under the
Extended Legacy Program, we will deduct an annual Separate Account Charge of
0.85% which is deducted daily from the average daily ending net asset value
allocated to the Variable Portfolios. The Beneficiary may request transfers
among Variable Portfolios, subject to the same limitations and restrictions that
applied to the original Owner. The Beneficiary may withdraw all or a portion of
the contract value at any time and withdrawals are not subject to withdrawal
charges. Additionally, the Beneficiary may choose to participate in the
Systematic Withdrawal Program and the Automatic Asset Rebalancing Program.
OTHER BENEFICIARY CONTINUATION OPTIONS
Alternatively to the Extended Legacy Program, the Beneficiary may also elect to
receive the death benefit under a 5-year settlement option. The Beneficiary may
take withdrawals as desired, but the entire contract value must be distributed
by December 31st of the year containing the fifth anniversary of death. For
IRAs, the 5-year payout 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 original Owner reaches the age of 70 1/2).
Please consult a qualified adviser regarding tax implications of these options
and your particular circumstances.
DEATH BENEFIT DEFINED TERMS
The term "Net Purchase Payment" is used frequently in describing the death
benefit payable. Net Purchase Payment is an on-going calculation. It does not
represent a contract value.
We determine Net Purchase Payments as Purchase Payments less adjustments for
withdrawals. Net Purchase Payments are increased by the amount of subsequent
Purchase Payments, if any, and reduced for withdrawals, if any, in the same
proportion that the contract value was reduced on the date of such withdrawal.
The term "Withdrawal Adjustment" is used for the standard death benefit, if you
have elected the Living Benefit, to describe the way in which the amount of the
death benefit will be adjusted for withdrawals. If cumulative withdrawals for
the current contract year are less than or equal to the Maximum Annual
Withdrawal Amount, the amount of adjustment will equal the amount of each
withdrawal. If cumulative withdrawals for the current contract year are in
excess of the Maximum Annual Withdrawal Amount, the contract value and the death
benefit are first reduced by the Maximum Annual Withdrawal Amount. The resulting
death benefit is further adjusted by the withdrawal amount in excess of the
Maximum Annual Withdrawal Amount by the percentage by which the Excess
Withdrawal reduced the resulting contract value.
The term "withdrawals" as used in describing the death benefit options is
defined as withdrawals and the fees and charges applicable to those withdrawals.
The Company does not accept Purchase Payments from anyone age 86 or older.
Therefore, the death benefit calculations assume that no Purchase Payments are
received on or after your 86th birthday.
STANDARD DEATH BENEFIT
The standard death benefit is calculated differently depending on whether you
have also elected the Living Benefit described above.
THE FOLLOWING DESCRIBES THE STANDARD DEATH BENEFIT WITHOUT ELECTION OF THE
LIVING BENEFIT:
If the contract is issued prior to your 86th birthday, the death benefit is the
greater of:
1. Contract value; or
2. Net Purchase Payments.
THE FOLLOWING DESCRIBES THE STANDARD DEATH BENEFIT WITH ELECTION OF THE LIVING
BENEFIT:
If the contract is issued prior to your 86th birthday, the death benefit is the
greater of:
1. Contract value; or
34
2. Purchase Payments reduced by:
a. any Withdrawal Adjustments, as defined above, if the Living Benefit
has not terminated; or
b. any Withdrawal Adjustments, as defined above, prior to the date the
Living Benefit is terminated; and reduced for any withdrawals in
the same proportion that the withdrawal reduced the contract value
on the date of such withdrawal on or after the date the Living
Benefit is terminated.
OPTIONAL MAXIMUM ANNIVERSARY VALUE DEATH BENEFIT
The Maximum Anniversary Value death benefit can only be elected prior to your
83rd birthday.
THE FOLLOWING DESCRIBES THE OPTIONAL MAXIMUM ANNIVERSARY VALUE DEATH BENEFIT:
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; or
3. Maximum anniversary value on any contract anniversary prior to the
earlier of your 83rd birthday or date of death. The anniversary value
equals the contract value on a contract anniversary, plus any Purchase
Payments received since that anniversary, and reduced for any withdrawal
since that contract anniversary in the same proportion that the contract
value was reduced on the date of such withdrawal.
SPOUSAL CONTINUATION
The Continuing Spouse may elect to continue the contract after your death.
Generally, the contract, its benefits and elected features, if any, remain the
same. However, Domestic Partners, Same-Sex Spouses and non-spousal joint Owners
who jointly own or are Beneficiaries of a contract should consult with their tax
adviser and/or financial representative as they are not eligible for spousal
continuation under the contract as allowed by the Internal Revenue Code. 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 once, upon the death of the original Owner of the contract. If the
Continuing Spouse terminates any optional death benefit or dies after the Latest
Annuity Date, no optional death benefit will be payable to the Continuing
Spouse's Beneficiary.
To the extent that the Continuing Spouse invests in the Variable Portfolios,
they will be subject to investment risk as was the original Owner. The
Continuing Spouse may not terminate the optional Maximum Anniversary Value death
benefit.
Upon a spousal continuation, 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 satisfactory proof of death of the original Owner
("Continuation Date") at the Annuity Service Center. The Continuation
Contribution is not considered a Purchase Payment for the purposes of any other
calculations except the death benefit following the Continuing Spouse's death.
Generally, the age of the Continuing Spouse on the Continuation Date and on the
date of the Continuing Spouse's death will be used in determining any future
death benefits under the contract. PLEASE SEE THE SPOUSAL CONTINUATION APPENDIX
FOR A DISCUSSION OF THE DEATH BENEFIT CALCULATIONS UPON A CONTINUING SPOUSE'S
DEATH.
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.
PLEASE SEE OPTIONAL LIVING BENEFITS ABOVE FOR INFORMATION ON THE EFFECT OF
SPOUSAL CONTINUATION ON THESE BENEFITS.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
EXPENSES
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
There are fees and expenses associated with your contract which reduce your
investment return. We will not increase certain contract fees, such as mortality
and expense charges or withdrawal charges for the life of your contract.
Underlying Fund fees may increase or decrease. Some states may require that we
charge less than the amounts described below. PLEASE SEE THE STATE CONTRACT
AVAILABILITY AND/OR VARIABILITY APPENDIX FOR STATE-SPECIFIC EXPENSES.
We intend to profit from the sale of the contracts. Our profit may be derived as
a result of a variety of pricing factors including but not limited to the fees
and charges assessed under the contract and/or amounts we may receive from an
Underlying Fund, its investment adviser and/or subadvisers (or affiliates
thereof). PLEASE SEE PAYMENTS IN CONNECTION WITH DISTRIBUTION OF THE CONTRACT
BELOW. The fees, charges, amounts received from the Underlying Funds (or
affiliates thereof) and any resulting profit may be used for any corporate
purpose including supporting marketing, distribution and/or administration of
the contract and, in its role as an intermediary, the Underlying Funds.
35
SEPARATE ACCOUNT EXPENSES
The annualized Separate Account expense is 0.95% of the average daily ending net
asset value allocated to the Variable Portfolios. 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 annuity 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 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
mortality and expense risk charge is expected to result in a profit. Profit may
be used for any cost or expense including supporting distribution. PLEASE SEE
PAYMENTS IN CONNECTION WITH DISTRIBUTION OF THE CONTRACT BELOW.
PREMIUM BASED CHARGE
A Premium Based Charge applies to all initial and subsequent Premiums you make
to your contract and is deducted from your contract value on each Quarter
Anniversary following the date each Premium is received by us. The Premium Based
Charge equals a percentage of each Premium and is based on the Accumulated
Premium Breakpoint achieved by the amount of the Premium or the sum of Premiums
received by us, according to the table below.
Each Premium is subject to a Premium Based Charge during the period beginning on
the first Quarter Anniversary following the date the Premium is received by us
and continuing for a total of 28 Quarter Anniversaries (over a 7 year period).
Once the Premium Based Charge has been deducted for 28 Quarter Anniversaries,
the Premium is no longer subject to the Premium Based Charge.
The Accumulated Premium Breakpoint that determines the Premium Based Charge
percentage applicable on the first Quarter Anniversary is determined by the sum
of Premiums received during the first contract quarter.
For example, if you make an initial Premium of $40,000 during the first
contract quarter, on the first Quarter Anniversary, the Accumulated Premium
Breakpoint achieved is "Less than $50,000" and the corresponding Premium
Based Charge percentage is 5.00%.
After the first Quarter Anniversary, the Accumulated Premium Breakpoint and
Premium Based Charge percentage applicable to subsequent Premium(s) are
determined by the sum of all Premiums previously received plus the subsequent
Premium(s) when received by us. If the sum of Premiums results in a higher
Accumulated Premium Breakpoint being achieved, the Premium Based Charge
percentage applicable to the entire subsequent Premium will be based on the
corresponding Accumulated Premium Breakpoint. Once a Premium Based Charge is set
for a Premium, it is fixed for seven years and will not change for that Premium
even if subsequent Premiums are received and/or withdrawals are taken.
For example, assuming an initial Premium of $40,000, you make a subsequent
Premium of $20,000 six months after the initial Premium. The sum of
Premiums, $60,000, qualifies to meet the next Accumulated Premium
Breakpoint of "$50,000 but less than $100,000" and the corresponding
Premium Based Charge percentage of 4.50%. Therefore, the Premium Based
Charge percentage for the entire $20,000 Premium would be 4.50%.
--------------------------------------------------------------------------
Quarterly
Premium
Based Charge
Accumulated Premium Premium (over 9 Year
Breakpoint Based Charge Period)
--------------------------------------------------------------------------
Less than $50,000 5.00% 0.1786%
$50,000 but less than
$100,000 4.50% 0.1607%
$100,000 but less than
$250,000 3.50% 0.1250%
$250,000 but less than
$500,000 2.50% 0.0893%
$500,000 but less than
$1,000,000 2.00% 0.0714%
$100,000,000 or more 1.25% 0.0446%
--------------------------------------------------------------------------
WITHDRAWAL CHARGE
The contract provides a free withdrawal amount every contract year. PLEASE SEE
ACCESS TO YOUR MONEY ABOVE. You may incur a withdrawal charge if you take a
withdrawal in excess of the free withdrawal amount and/or if you fully surrender
your contract.
We apply a withdrawal charge against each Purchase Payment (also known as
"Premium") you contribute to the contract. After a Premium has been in the
contract for 7 complete years, a withdrawal charge no longer applies to that
Premium. The withdrawal charge percentage declines over time for each Premium in
the contract.
The Accumulated Premium Breakpoint schedule below is used to determine the
Withdrawal Charge Schedule applicable to each Premium as determined on the day
we receive the Premium. The withdrawal charge applies for 7 years to each
Premium and subsequent Premium. The Withdrawal Charge Schedule, once determined,
will not change for that Premium even if subsequent Premiums are made or
withdrawals are taken.
Your initial Accumulated Premium Breakpoint is determined by the amount of your
initial Premium. Thereafter, the Accumulated Premium Breakpoint applicable to
subsequent Premiums is determined by the sum of all Premiums received as of the
day the subsequent Premium is made.
You may reduce the applicable percentage but not the duration of your Withdrawal
Charge Schedule by adding
36
subsequent Premiums which may also allow you to achieve the next Accumulated
Premium Breakpoint. If a portion of a subsequent Premium results in a sum of
Premiums that achieves the next Accumulated Premium Breakpoint, according to the
table below, then the entire subsequent Premium will be subject to the
Withdrawal Charge Schedule applicable to that lower Accumulated Premium
Breakpoint.
For example, if you make an initial Premium of $40,000, the Accumulated
Premium Breakpoint achieved is "Less than $50,000" and the corresponding
Withdrawal Charge Schedule over 7 years is "6%, 5%, 5%, 4%, 3%, 2%, 1%,
0%." If you make a subsequent Premium of $20,000 six months later, the sum
of Premiums, $60,000, qualifies for the next Accumulated Premium Breakpoint
of "$50,000 but less than $100,000." Therefore, the corresponding
Withdrawal Charge Schedule over 7 years for the entire $20,000 subsequent
Premium would be "5.5%, 5%, 5%, 4%, 3%, 2%, 1%, 0%."
The Accumulated Premium Breakpoints and corresponding Withdrawal Charge
Schedules are listed below:
WITHDRAWAL CHARGE SCHEDULE
--------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
YEARS SINCE RECEIPT OF EACH PREMIUM
ACCUMU-
LATED
PREMIUM
BREAKPOINT 1 2 3 4 5 6 7 8+
---------------------------------------------------------------------------------------------------------------------------
Less than
$50,000 6% 5% 5% 4% 3% 2% 1% 0%
---------------------------------------------------------------------------------------------------------------------------
$50,000
but less
than
$100,000 5.5% 5% 5% 4% 3% 2% 1% 0%
---------------------------------------------------------------------------------------------------------------------------
$100,000
but less
than
$250,000 4.5% 4% 4% 3% 3% 2% 1% 0%
---------------------------------------------------------------------------------------------------------------------------
$250,000
but less
than
$500,000 3.5% 3% 3% 2.25% 2% 2% 1% 0%
---------------------------------------------------------------------------------------------------------------------------
$500,000
but less
than
$1,000,0-
00 3% 2% 2% 1.5% 1% 1% 1% 0%
---------------------------------------------------------------------------------------------------------------------------
$1,000,0-
00 or
more 2.25% 1.5% 1.5% 1% 1% 0.75% 0.5% 0%
---------------------------------------------------------------------------------------------------------------------------
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 as coming from earnings first,
then Purchase Payments. PLEASE SEE ACCESS TO YOUR MONEY ABOVE.
If you take a partial withdrawal, we reduce the withdrawn amount from the
contract value by any applicable withdrawal charges. If you fully surrender your
contract value, we deduct any applicable withdrawal charges from the amount
surrendered.
We will not assess a withdrawal charge when we pay a death benefit, assess
contract fees and/or when you switch to the Income Phase. Withdrawals made prior
to age 59 1/2 may result in tax penalties. PLEASE SEE TAXES BELOW.
UNDERLYING FUND EXPENSES
INVESTMENT MANAGEMENT FEES
Each Variable Portfolio purchases shares of a corresponding Underlying Fund. The
Accumulation Unit value for each Variable Portfolio reflects the investment
management fees and other expenses of the corresponding Underlying Fund. These
fees may vary. They are not fixed or specified in your annuity contract, rather
the Underlying Funds are governed by their own boards of trustees.
12b-1 FEES
Certain Underlying Funds available in this product assess a 12b-1 fee of 0.25%
of the average daily net assets allocated to those Underlying Funds. Over time
these fees will increase the cost of your investment.
There is an annualized 0.25% fee applicable to Class 3 shares of Anchor Series
Trust, Seasons Series Trust and SunAmerica Series Trust, Series II shares of AIM
Invesco Insurance Funds (Invesco Variable Insurance Funds) and Class 2 shares of
American Funds Insurance Series and Franklin Templeton Variable Insurance
Products Trust. This amount is generally used to pay financial intermediaries
for services provided over the life of your contract.
The 12b-1 fees compensate us for costs associated with the servicing of these
shares, including, but not limited to, reimbursing us for expenditures we make
to registered representatives in selling firms for providing services to
contract owners who are indirect beneficial owners of these shares and for
maintaining contract owner accounts.
FOR MORE DETAILED INFORMATION ON THESE UNDERLYING FUND FEES, PLEASE REFER TO THE
TRUST PROSPECTUSES.
CONTRACT MAINTENANCE FEE
During the Accumulation Phase, we deduct a contract maintenance fee of $50 from
your contract once per year on your contract anniversary. This charge
compensates us for the cost of administering your contract. The fee is deducted
proportionately from your contract value on your contract anniversary by
redeeming the number of Accumulation Units invested in the Variable Portfolios
and the dollar amount invested in available Fixed Accounts which in total equal
the amount of the fee. If you withdraw your entire contract value, we will
deduct the contract maintenance fee from that withdrawal.
If your contract value is $75,000 or more on your contract anniversary date, we
currently waive this fee. This waiver is subject to change without notice.
TRANSFER FEE
We permit 15 free transfers between investment options each contract year. We
charge you $25 for each additional transfer that contract year.
37
OPTIONAL LIVING BENEFIT FEE
The Living Benefit fee will be assessed as a percentage of the Income Base for
all years in which the Living Benefit is in effect. The fee depends on whether
you elect to cover one or two lives.
The fee is deducted proportionately from your contract value by redeeming the
number of Accumulation Units invested in the Variable Portfolios and the value
in the Fixed Accounts, which in total equals the amount of the fee. If your
contract value is reduced to zero before the Living Benefit has been cancelled,
the fee will no longer be assessed.
We will not assess a quarterly fee if you annuitize your contract or if a death
benefit is paid before the end of the Benefit Quarter. If the Living Benefit is
still in effect while your contract value is greater than zero, and you
surrender your contract, we will assess a pro-rata charge for the fee applicable
to the Benefit Quarter in which the surrender occurs if you surrender your
contract before the end of a Benefit Quarter. The pro-rata fee is calculated by
multiplying the fee by the number of days between the date the fee was last
assessed and the date of surrender, divided by the number of days between the
prior and the next Benefit Quarter Anniversaries.
OPTIONAL SUNAMERICA INCOME PLUS LIVING BENEFIT FEE
----------------------------------------------------------------------------
MAXIMUM
ANNUALIZED
FEE RATE
DECREASE OR
INCREASE
INITIAL MAXIMUM MINIMUM EACH
NUMBER OF ANNUAL FEE ANNUAL FEE ANNUAL FEE BENEFIT
COVERED PERSONS RATE RATE RATE QUARTER*
----------------------------------------------------------------------------
One Covered Person 1.10% 2.20% 0.60% +/-0.25%
----------------------------------------------------------------------------
Two Covered Persons 1.35% 2.70% 0.60% +/-0.25%
----------------------------------------------------------------------------
* The fee rate can decrease or increase no more than 0.0625% each quarter
(0.25%/ 4).
The Initial Annual Fee Rate is guaranteed not to change for the first Benefit
Year. Subsequently, the fee rate may change quarterly subject to the parameters
identified in the table above. After the first Benefit Year, on each "Benefit
Quarter Anniversary," we will (1) deduct the fee in effect for the previous
Benefit Quarter; and (2) determine the fee rate applicable to the next Benefit
Quarter. Any fee adjustment is based on a non-discretionary formula tied to the
change in VIX. If the value of the VIX decreases or increases from the previous
Benefit Quarter Anniversary, your fee rate will decrease or increase
accordingly, subject to the minimums and maximum identified in the table above.
PLEASE SEE APPENDIX B -- FORMULA FOR CALCULATING AND EXAMPLE OF THE SUNAMERICA
INCOME PLUS FEE BELOW.
OPTIONAL MAXIMUM ANNIVERSARY VALUE DEATH BENEFIT FEE
The fee for the optional Maximum Anniversary Value death benefit is 0.25% of the
average daily ending net asset value allocated to the Variable Portfolio(s).
PREMIUM TAX
Certain states charge the Company a tax on Purchase Payments up to a maximum of
3.5%. These states permit us to either deduct the premium tax when you make a
Purchase Payment or when you fully surrender your contract or begin the Income
Phase. PLEASE SEE THE STATE CONTRACT AVAILABILITY AND/OR VARIABILITY APPENDIX
BELOW for a listing of the states that charge premium taxes, the percentage of
the tax and distinctions in impact on Qualified and Non-Qualified contracts.
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 FEES, EXPENSES AND ADDITIONAL AMOUNTS CREDITED
Sometimes sales of contracts to groups of similarly situated individuals may
lower our fees and expenses. We reserve the right to reduce or waive certain
fees and expenses when this type of sale occurs. In addition, we may also credit
additional amounts to contracts sold to such groups. We determine which groups
are eligible for this 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 the prospective purchaser; 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 fees and expenses may be
reduced.
The Company 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. Currently, the Company credits an additional amount to contracts sold
to the following groups: (1) employees of the Company and its affiliates, and
their immediate family members; (2) appointed agents and registered
representatives of broker-dealers that sell the Company's and its affiliates'
variable contracts, and the agents' and registered representatives' immediate
family members; (3) trustees of mutual funds offered in the Company's and its
affiliates' variable contracts. The additional amount credited to a contract
sold to one of the above individuals will generally equal the commission payable
on the initial purchase payment for the contract. This means
38
that the additional amount will generally be in the range of 0.25% to 5.50% of
the initial Purchase Payment.
Certain broker-dealers may limit crediting this additional amount to employees
only.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE ANY SUCH DETERMINATION OR
THE TREATMENT APPLIED TO A PARTICULAR GROUP AT ANY TIME.
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--------------------------------------------------------------------------------
PAYMENTS IN CONNECTION WITH DISTRIBUTION
OF THE CONTRACT
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--------------------------------------------------------------------------------
PAYMENTS WE MAKE
We make payments in connection with the distribution of the contracts that
generally fall into the three categories below.
COMMISSIONS. Registered representatives of broker-dealers ("selling firms")
licensed under federal securities laws and state insurance laws sell the
contract to the public. The selling firms have entered into written selling
agreements with the Company and SunAmerica Capital Services, Inc. ("SACS"), the
distributor of the contracts. We pay commissions to the selling firms for the
sale of your contract. The selling firms are paid commissions for the promotion
and sale of the contracts according to one or more schedules. The amount and
timing of commissions will vary depending on the selling firm and its selling
agreement with us. For example, as one option, we may pay upfront commission
only, up to a maximum 5.50% of each Purchase Payment you invest (which may
include promotional amounts we may pay periodically as commission specials).
Another option may be a lower upfront commission on each Purchase Payment, with
a trail commission of up to a maximum 0.25% of contract value annually.
The registered representative who sells you the contract typically receives a
portion of the compensation we pay to his/her selling firm, depending on the
agreement between the selling firms and its registered representative and their
internal compensation program. We are not involved in determining your
registered representatives' compensation.
ADDITIONAL CASH COMPENSATION. We may enter into agreements to pay selling firms
support fees in the form of additional cash compensation ("revenue sharing").
These revenue sharing payments may be intended to reimburse the selling firms
for specific expenses incurred or may be based on sales, certain assets under
management, longevity of assets invested with us and/or a flat fee. Asset-based
payments primarily create incentives to service and maintain previously sold
contracts. Sales-based payments primarily create incentives to make new sales of
contracts.
These revenue sharing payments may be consideration for, among other things,
product placement/preference and visibility, greater access to train and educate
the selling firm's registered representatives about our contracts, our
participation in sales conferences and educational seminars and for selling
firms to perform due diligence on our contracts. The amount of these fees may be
tied to the anticipated level of our access in that selling firm.
We enter into such revenue sharing arrangements in our discretion and we may
negotiate customized arrangements with selling firms, including affiliated and
non-affiliated selling firms based on various factors. These special
compensation arrangements are not offered to all selling firms and the terms of
such arrangements may vary between selling firms depending on, among other
things, the level and type of marketing and distribution support provided,
assets under management and the volume and size of the sales of our contracts.
If allowed by his or her selling firm, a registered representative may purchase
a contract on a basis in which a bonus amount is credited to the contract.
PLEASE SEE REDUCTION OR ELIMINATION OF FEES, EXPENSES AND ADDITIONAL AMOUNTS
CREDITED ABOVE.
We provide a list of selling firms to whom we paid annual amounts greater than
$5,000 under these revenue sharing arrangements in 2009 in the Statement of
Additional Information which is available upon request.
We do not assess a specific charge directly to you or your separate account
assets in order to cover commissions and other sales expenses and incentives we
pay. However, we anticipate recovering these amounts from our profits which are
derived from the fees and charges collected under the contract. We hope to
benefit from these revenue sharing arrangements through increased sales of our
contracts and greater customer service support.
NON-CASH COMPENSATION. Some registered representatives may receive various
types of non-cash compensation such as gifts, promotional items and
entertainment in connection with our marketing efforts. We may also pay for
registered representatives to attend educational and/or business seminars. Any
such compensation is paid in accordance with SEC and FINRA rules.
Revenue sharing arrangements may provide selling firms and/or their registered
representatives with an incentive to favor sales of our contracts over other
variable annuity contracts (or other investments) with respect to which a
selling firm does not receive the same level of additional compensation. You
should discuss with your selling firm and/or registered representative how they
are compensated for sales of a contract and/or any resulting real or perceived
conflicts of interest. You may wish to take such revenue sharing arrangements
into account when considering or evaluating any recommendation relating to this
contract.
39
PAYMENTS WE RECEIVE
We may directly or indirectly receive revenue sharing payments from the Trusts,
their investment advisers, sub-advisers and/or distributors (or affiliates
thereof), in connection with certain administrative, marketing and other
services we provide and related expenses we incur. The availability of these
revenue sharing arrangements creates an incentive for us to seek and offer
Underlying Funds (and classes of shares of such Underlying Funds) that make such
payments to us. Other Underlying Funds (or available classes of shares) may have
lower fees and better overall investment performance. Not all Trusts pay the
same amount of revenue sharing. Therefore, the amount of fees we collect may be
greater or smaller based on the Underlying Funds you select.
We generally receive three kinds of payments described below.
RULE 12b-1 OR SERVICE FEES. We receive 12b-1 fees of up to 0.25% or service
fees of up to 0.50% of the average daily net assets in certain Underlying Funds.
These fees are deducted directly from the assets of the Underlying Funds. PLEASE
SEE EXPENSES ABOVE.
ADMINISTRATIVE, MARKETING AND SUPPORT SERVICE FEES. We receive compensation of
up to 0.50% annually based on assets under management from certain Trusts'
investment advisers, subadvisers and/or distributors (or affiliates thereof).
These payments may be derived, in whole or in part, from the investment
management fees deducted from assets of the Underlying Funds or wholly from the
assets of the Underlying Funds. Contract Owners, through their indirect
investment in the Trusts, bear the costs of these investment management fees,
which in turn will reduce the return on your investment. These amounts are
generally based on assets under management from certain Trusts' investment
advisers or their affiliates and vary by Trust. Some investment advisers,
subadvisers and/or distributors (or affiliates thereof) pay us more than others.
Such amounts received from SAAMCo, a wholly-owned subsidiary of SunAmerica
Annuity, are not expected to exceed 0.50% annually based on assets under
management.
OTHER PAYMENTS. Certain investment advisers, subadvisers and/or distributors
(or affiliates thereof) may help offset the costs we incur for marketing
activities and training to support sales of the Underlying Funds in the
contract. These amounts are paid voluntarily and may provide such advisers
and/or subadvisers access to national and regional sales conferences attended by
our employees and registered representatives. The amounts paid depend on the
nature of the meetings, the number of meetings attended, the costs expected to
be incurred and the level of the subadviser's participation.
In addition, we (and our affiliates) may receive occasional gifts, entertainment
or other compensation as an incentive to market the Underlying Funds and to
cooperate with their marketing efforts. As a result of these payments, the
investment advisers, subadvisers and/or distributors (or affiliates thereof) may
benefit from increased access to our wholesalers and to our affiliates involved
in the distribution of the contract.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
ANNUITY INCOME OPTIONS
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--------------------------------------------------------------------------------
ANNUITY DATE
During the Income Phase, we use the money accumulated in your contract to make
regular annuity income payments to you. You may begin the Income Phase any time
after your second contract anniversary. You must provide us with a written
request of the date you want annuity income payments to begin and send your
request to the Annuity Service Center. Your annuity date is the first day of the
month you select annuity income payments to begin ("Annuity Date"). You may
change your Annuity Date by sending a written request to the Annuity Service
Center, so long as you do so at least thirty days before the annuity income
payments are scheduled to begin. Except as indicated under Option 5 below, once
you begin receiving annuity income payments, you cannot otherwise access your
money through a withdrawal or surrender.
We do not pay a death benefit to your Beneficiary once you begin the Income
Phase. PLEASE SEE DEATH BENEFITS ABOVE.
If your contract value is reduced to zero as a result of receiving guaranteed
withdrawals under a living benefit feature, no annuity income payments will be
available. PLEASE SEE OPTIONAL LIVING BENEFITS ABOVE.
Annuity income payments must begin on or before your Latest Annuity Date. 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. PLEASE SEE TAXES BELOW.
ANNUITY INCOME OPTIONS
You must send a written request to our Annuity Service Center to select an
annuity income option. Once you begin receiving annuity income payments, you
cannot change your annuity income option. If you elect to receive annuity income
payments but do not select an annuity income option, your annuity income
payments shall be in accordance with Option 4 for a period of 10 years; for
annuity income payments based on joint lives, the default is Option 3 for a
period of 10 years.
We base our calculation of annuity income payments on the life expectancy 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.
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You must notify us if the Annuitant dies before the Annuity Date and designate a
new Annuitant. If we do not receive a new Annuitant election, you may not select
an annuity income option based on the life of the Annuitant.
ANNUITY INCOME OPTION 1 - LIFE INCOME ANNUITY
This option provides annuity income payments for the life of the Annuitant.
Annuity income payments end when the Annuitant dies.
ANNUITY INCOME OPTION 2 - JOINT AND SURVIVOR LIFE INCOME ANNUITY
This option provides annuity 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 annuity income payments during the lifetime of the
survivor. Annuity income payments end when the survivor dies.
ANNUITY INCOME OPTION 3 - JOINT AND SURVIVOR LIFE INCOME ANNUITY WITH 10 OR 20
YEARS GUARANTEED
This option is similar to Option 2 above, with an additional guarantee of
payments for at least 10 or 20 years, depending on the period chosen. If the
Annuitant and the survivor die before all of the guaranteed annuity income
payments have been made, the remaining annuity income payments are made to the
Beneficiary under your contract.
ANNUITY INCOME OPTION 4 - LIFE INCOME ANNUITY WITH 10 OR 20 YEARS GUARANTEED
This option is similar to income Option 1 above with an additional guarantee of
payments for at least 10 or 20 years, depending on the period chosen. If the
Annuitant dies before all guaranteed annuity income payments are made, the
remaining annuity income payments are made to the Beneficiary under your
contract.
ANNUITY INCOME OPTION 5 - INCOME FOR A SPECIFIED PERIOD
This option provides annuity income payments for a guaranteed period ranging
from 5 to 30 years, depending on the period chosen. If the Annuitant dies before
all the guaranteed annuity income payments are made, the remaining annuity
income payments are made to the Beneficiary under your contract. Additionally,
if variable annuity income payments are elected under this option, you (or the
Beneficiary under the contract if the Annuitant dies prior to all guaranteed
annuity income payments being made) may redeem any remaining guaranteed variable
annuity income payments after the Annuity Date. The amount available upon such
redemption would be the discounted present value of any remaining guaranteed
variable annuity 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 separate account charges which includes a mortality and expense risk
charge. Since Option 5 does not contain an element of mortality risk, no benefit
is derived from this charge.
Please see the Statement of Additional Information for a more detailed
discussion of the annuity income options.
FIXED OR VARIABLE ANNUITY INCOME PAYMENTS
You can choose annuity income payments that are fixed, variable or both. Unless
otherwise elected, if at the date when annuity income payments begin you are
invested in the Variable Portfolios only, your annuity income payments will be
variable and if your money is only in Fixed Accounts at that time, your annuity
income payments will be fixed in amount. Further, if you are invested in both
Fixed Accounts and Variable Portfolios when annuity income payments begin, your
payments will be fixed and variable, unless otherwise elected. If annuity income
payments are fixed, the Company guarantees the amount of each payment. If the
annuity income payments are variable, the amount is not guaranteed.
ANNUITY INCOME PAYMENTS
We make annuity income payments on a monthly, quarterly, semi-annual or annual
basis. You instruct us to send you a check or to have the payments directly
deposited into your bank account. If state law allows, we distribute annuities
with a contract value of $5,000 or less in a lump sum. Also, if state law allows
and the selected annuity income option results in annuity income payments of
less than $50 per payment, we may decrease the frequency of payments.
If you are invested in the Variable Portfolios after the Annuity Date, your
annuity income payments vary depending on the following:
- for life income options, your age when annuity income payments begin; and
- the contract value attributable to 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 annuity income payments.
If you are invested in both the Fixed Accounts and the Variable Portfolios after
the Annuity Date, the allocation of funds between the Fixed Accounts and
Variable Portfolios also impacts the amount of your annuity income payments.
The value of variable annuity income payments, if elected, is based on an
assumed interest rate ("AIR") of 3.5% compounded annually. Variable annuity
income payments generally increase or decrease from one annuity income
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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 annuity income payments will remain constant. If performance of
Variable Portfolios is greater than the AIR, the annuity income payments will
increase and if it is less than the AIR, the annuity income payments will
decline.
TRANSFERS DURING THE INCOME PHASE
During the Income Phase, only one transfer per month is permitted between the
Variable Portfolios. No other transfers are allowed during the Income Phase.
Transfers will be effected for the last NYSE business day of the month in which
we receive your request for the transfer.
DEFERMENT OF PAYMENTS
We may defer making fixed payments for up to six months, or less if required by
law. Interest is credited to you during the deferral period. PLEASE SEE ACCESS
TO YOUR MONEY ABOVE FOR A DISCUSSION OF WHEN PAYMENTS FROM A VARIABLE PORTFOLIO
MAY BE SUSPENDED OR POSTPONED.
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TAXES
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THE BASIC SUMMARY BELOW ADDRESSES BROAD FEDERAL TAXATION MATTERS BASED ON THE
INTERNAL REVENUE TAX CODE, IRS REGULATIONS AND INTERPRETATIONS EXISTING AS OF
THE DATE OF THIS PROSPECTUS AND GENERALLY DOES NOT ADDRESS STATE OR LOCAL
TAXATION ISSUES OR QUESTIONS. IT IS NOT TAX ADVICE, NOR DOES IT INCLUDE ALL THE
FEDERAL TAX RULES THAT MAY AFFECT YOU AND YOUR CONTRACT. WE CAUTION YOU TO SEEK
COMPETENT TAX ADVICE ABOUT YOUR OWN CIRCUMSTANCES FROM A QUALIFIED TAX ADVISOR.
WE DO NOT GUARANTEE THE TAX STATUS OR TREATMENT OF YOUR ANNUITY. TAX LAWS
CONSTANTLY CHANGE; THEREFORE, WE CANNOT GUARANTEE THAT INFORMATION CONTAINED
HEREIN IS COMPLETE AND/OR ACCURATE. FEDERAL INCOME TAX TREATMENT OF THE CONTRACT
IS SOMETIMES UNCERTAIN AND CONGRESS, THE IRS AND/OR THE COURTS MAY MODIFY TAX
LAWS AND TREATMENT RETROACTIVELY. WE HAVE INCLUDED AN ADDITIONAL DISCUSSION
REGARDING TAXES IN THE STATEMENT OF ADDITIONAL INFORMATION.
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 one of a number of types of employer-
sponsored retirement plans, or any Individual Retirement Account or Annuity
("IRA"), 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 one of a number of types of employee-
sponsored retirement plans, or under an IRA, your contract is referred to as a
Qualified contract. Examples of qualified plans or arrangements are: Individual
Retirement Annuities and IRAs, Roth IRAs, Tax-Sheltered Annuities (also referred
to as 403(b) annuities or 403(b) contracts), plans of self-employed individuals
(often referred to as H.R. 10 Plans or Keogh Plans), pension and profit sharing
plans including 401(k) plans, and governmental 457(b) 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 a cost basis in a
Roth IRA, a Roth 403(b) or a Roth 401(k) account, and you may have cost basis in
a traditional IRA or in another Qualified Contract.
AGGREGATION OF CONTRACTS
All Non-Qualified contracts that are issued by us to you during any calendar
year will be treated as one annuity contract for purposes of determining the
taxable amount of any distribution.
TAX TREATMENT OF DISTRIBUTIONS - NON-QUALIFIED CONTRACTS
If you make partial or total withdrawals from a Non-Qualified contract, the IRC
generally treats such withdrawals as coming first from taxable earnings and then
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 generally are treated as being distributed first, before either the
earnings on those contributions, or other Purchase Payments and earnings in the
contract. If you annuitize your contract, a portion of each annuity income
payment will be considered, for tax purposes, to be a return of a portion of
your Purchase Payment, generally until you have received all of your Purchase
Payment. Any portion of each annuity income payment that is considered a return
of your Purchase Payment will not be taxed. Additionally, the taxable portion of
any withdrawals, whether annuitized or other withdrawals, generally is subject
to applicable state and/or local income taxes, and may be subject to an
additional 10% penalty tax unless withdrawn in conjunction with the following
circumstances:
- after attaining age 59 1/2;
- when paid to your Beneficiary after you die;
- after you become disabled (as defined in the IRC);
42
- when paid as a part of a series of substantially equal periodic payments
(not less frequently than annually) made for your life (or life
expectancy) or the joint lives (or joint life expectancies) of you and
your designated beneficiary for a period of 5 years or attainment of age
59 1/2, whichever is later;
- under an immediate annuity contract;
- when attributable to Purchase Payments made prior to August 14, 1982.
On March 30, 2010, the Health Care and Reconciliation Act ("Reconciliation Act")
was signed into law. Among other provisions, the Reconciliation Act imposes a
new tax on net investment income. This tax, which goes into effect in 2013, is
at the rate of 3.8% of applicable thresholds for Modified Adjusted Gross Income
("MAGI") ($250,000 for joint filers; $125,000 for married individuals filing
separately; and, $200,000 for individual filers). An individual with MAGI in
excess of the threshold will be required to pay this new tax on net investment
income in excess of the applicable MAGI threshold. For this purpose, net
investment income generally will include taxable withdrawals from a Non-
Qualified contract, as well as other taxable amounts including amounts taxed
annually to an owner that is not a natural person (see Contracts Owned by a
Trust or Corporation). This new tax generally does not apply to Qualified
contracts, however taxable distributions from such contracts may be taken into
account in determining the applicability of the MAGI thresholds.
A transfer of contract value to another annuity contract generally will be tax
reported as a distribution unless we have sufficient information to confirm that
the transfer qualifies as an exchange under IRC Section 1035 (a "1035
exchange"). We reserve the right to treat partial transfers as tax-reportable
distributions, rather than as partial 1035 exchanges, in recognition of certain
questions which remain notwithstanding recent IRS guidance on the subject. Such
treatment for tax reporting purposes, however, should not prevent a taxpayer
from taking a different position on their return, in accordance with the advice
of their tax counsel or other tax consultant, if they believe the requirements
of IRC Section 1035 have been satisfied.
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, most amounts withdrawn from the contract or
received as annuity income payments will be taxable income. Exceptions to this
general rule include withdrawals attributable to after-tax Roth IRA, Roth
403(b), and Roth 401(k) contributions, as well as any other after-tax amounts
permitted under the employer's plan. Withdrawals from Roth IRAs are generally
treated for federal tax purposes as coming first from the Roth contributions
that have already been taxed, and as entirely tax free. Withdrawals from Roth
403(b) and Roth 401(k) accounts, and withdrawals generally from Qualified
contracts, are treated generally as coming pro-rata from amounts that already
have been taxed and amounts that are taxed upon withdrawal. Withdrawals from
Roth IRA, Roth 403(b) and Roth 401(k) accounts which satisfy certain
qualification requirements, including at least five years in a Roth account
under the plan or IRA and either attainment of age 59 1/2, death or disability
(or, if an IRA for the purchase of a first home), will not be subject to federal
income taxation.
The taxable portion of any withdrawal or income payment from a Qualified
contract will be subject to an additional 10% penalty tax, under the IRC, except
in the following circumstances:
- after attainment of age 59 1/2;
- when paid to your Beneficiary after you die;
- after you become disabled (as defined in the IRC);
- as a part of a series of substantially equal periodic payments (not less
frequently than annually) made for your life (or life expectancy) or the
joint lives (or joint expectancies) of you and your designated
Beneficiary for a period of 5 years or attainment of age 59 1/2,
whichever is later;
- payments to employees after separation from service after attainment of
age 55 (does not apply to IRAs);
- dividends paid with respect to stock of a corporation described in IRC
Section 404(k);
- for payment of medical expenses to the extent such withdrawals do not
exceed limitations set by the IRC for deductible amounts paid during the
taxable year for medical care;
- payments to alternate payees pursuant to a qualified domestic relations
order (does not apply to IRAs);
- for payment of health insurance if you are unemployed and meet certain
requirements;
- distributions from IRAs for higher education expenses;
- distributions from IRAs for first home purchases;
- amounts distributed from a Code Section 457(b) plan other than to the
extent such amounts in a governmental Code Section 457(b) plan represent
rollovers from an IRA or employer-sponsored plan to which the 10% penalty
would otherwise apply and which are treated as distributed from a
Qualified plan for purposes of the premature distribution penalty.
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
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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 except as otherwise imposed by the plan.
Qualifying transfers (including intra-plan exchanges) of amounts from one TSA
contract or account to another TSA contract or account, and qualifying transfers
to a state defined benefit plan to purchase service credits, where permitted
under the employer's plan, generally are not considered distributions, and thus
are not subject to these withdrawal limitations. If amounts are transferred to a
contract with lesser IRC withdrawal limitations than the account from which it
is transferred, the more restrictive withdrawal limitations will continue to
apply.
Transfers among 403(b) annuities and/or 403(b)(7) custodial accounts generally
are subject to rules set out in the plan, the Code, regulations, IRS
pronouncements, and other applicable legal authorities.
On July 26, 2007, the Department of the Treasury published final 403(b)
regulations that were largely effective on January 1, 2009. These comprehensive
regulations include several new rules and requirements, such as a requirement
that employers maintain their 403(b) plans pursuant to a written plan.
Subsequent IRS guidance permitted the adoption of the written plan, whether in
the form of a single document or as a collection of documents, not later than
December 31, 2009. The final regulations, subsequent IRS guidance, and the terms
of the written plan may impose new restrictions on both new and existing
contracts, including restrictions on the availability of loans, distributions,
transfers and exchanges, regardless of when a contract was purchased. Effective
January 1, 2009, the Company no longer accepts new premium (including
contributions, transfers and exchanges) into new or existing 403(b) contracts.
Prior to the effective date of the final regulations, provisions applicable to
tax-free transfers and exchanges of 403(b) annuity contracts or custodial
accounts became effective September 25, 2007, replacing existing rules under IRS
Revenue Ruling 90-24 ("90-24 transfer"). Under these new rules, transfers and
exchanges (both referred to below as "transfers") are available only to the
extent permitted under the employer's 403(b) plan once established.
Additionally, transfers occurring after September 24, 2007 that did not comply
with these new rules might have become taxable on January 1, 2009, or the date
of the transfer, whichever is later. If you make a transfer to a contract or
custodial account that is not part of the employer's 403(b) plan (other than a
transfer to a different plan), and the provider and employer failed to enter
into an information sharing agreement by January 1, 2009 or, if later, prior to
the transfer, the transfer would be considered a "failed" transfer that is
subject to tax, and as such could be a violation of applicable withdrawal
limitations. Additional guidance issued by the IRS generally permitted a failed
transfer to be corrected no later than June 30, 2009 by re-transferring to a
contract or custodial account that is part of the employer's 403(b) plan or that
is subject to an information-sharing agreement with the employer. The IRS may in
the future issue new guidance, or revise its existing guidance, regarding
corrections of defects in 403(b) plans, including such failed transfers.
In general, certain contracts originally established by a 90-24 transfer prior
to September 25, 2007 are exempt (or grandfathered) from some of the
requirements of the final regulations; provided that no salary reduction or
other contributions have ever been made to the contract, and that no additional
transfers are made to the contract on or after September 25, 2007. Further,
contracts that are not grandfathered were generally required to be part of, and
subject to the requirements of an employer's 403(b) plan upon its establishment,
but no later than by January 1, 2009.
The new rules in the final regulations generally do not affect a participant's
ability to transfer some or all of a 403(b) account to a state-defined benefit
plan to purchase service credits, where such a transfer is otherwise consistent
with applicable rules and requirements and with the terms of the employer's
plan.
You may wish to discuss the new regulations and/or the general information above
with your tax adviser.
Withdrawals from other Qualified contracts are often limited by the IRC and by
the employer's plan.
If you are purchasing the contract as an investment vehicle for a trust under a
Qualified Plan, you should consider that the contract does not provide any
additional tax-deferral benefits beyond the treatment provided by the trust
itself. In addition, if the contract itself is a qualifying arrangement (as with
a 403(b) annuity or Individual Retirement Annuity), the contract generally does
not provide tax deferral benefits beyond the treatment provided to alternative
qualifying arrangements such as trusts or custodial accounts. However, in both
cases the contract offers features and benefits that other investments may not
offer. You and your financial representative should carefully consider whether
the features and benefits, including the investment options, lifetime annuity
income options, and protection through living benefits, death benefits and other
benefits provided under an annuity contract issued in connection with a
Qualified contract are suitable for your needs and objectives and are
appropriate in light of the expense.
REQUIRED MINIMUM DISTRIBUTIONS
Generally, the IRC requires that you begin taking annual distributions from
Qualified annuity contracts by April 1 of
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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 a traditional IRA, you must
begin receiving minimum distributions for the year in which you reach age
70 1/2. You can delay taking your first distribution until the following year;
however, you must take your distribution on or before April 1 of that same
following year. It is important to note that if you choose to delay your first
distribution, you will be required to withdraw your second required minimum
distribution on or before December 31 in that same year. For each year
thereafter, you must withdraw your required minimum distribution by December 31.
However, The Worker, Retiree, and Employer Recovery Act of 2008, eliminated the
2009 minimum distribution requirement from most eligible retirement plans. We
are not aware of any proposal or legislative or regulatory action to extend this
exemption from the minimum distribution requirement for 2010 or later years.
If you own more than one IRA, you may be permitted to take your annual
distributions in any combination from your IRAs. A similar rule applies if you
own more than one TSA. However, you cannot satisfy this distribution requirement
for your IRA contract by taking a distribution from a TSA, and you cannot
satisfy the requirement for your TSA by taking a distribution from an IRA.
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 adviser 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
adviser 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 regulations, effective January 1, 2003, regarding required
minimum distributions from Qualified annuity contracts. One of the regulations
effective January 1, 2006 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 and living
benefits. As a result, if you request a minimum distribution calculation, or if
one is otherwise required to be provided, in those specific circumstances where
this requirement applies, the calculation may be based upon a value that is
greater than your contract value, resulting in a larger required minimum
distribution. This regulation does not apply to required minimum distributions
made under an irrevocable annuity income option. You should discuss the effect
of these new regulations with your tax adviser.
TAX TREATMENT OF DEATH BENEFITS
Any death benefit paid under the contract is taxable to the Beneficiary. The
rules governing the taxation of payments from an annuity contract, as discussed
above, generally apply whether the death benefit are paid as lump sum or as
annuity income payments. Estate taxes may also apply.
Enhanced death 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 with enhanced death benefits, the IRS may
consider these benefits "incidental death benefits" or "life insurance." The IRC
imposes limits on the amount of the incidental benefits and/or life insurance
allowable for Qualified contracts and the employer-sponsored plans under which
they are purchased. If the death benefit(s) exceeds these limits, the benefit(s)
could result in taxable income to the owner of the Qualified contract, and in
some cases could adversely impact the qualified status of the Qualified contract
or the plan. You should consult your tax advisor regarding these features and
benefits prior to purchasing a contract.
TAX TREATMENT OF OPTIONAL LIVING BENEFITS
Generally, we will treat amounts credited to the contract value under the
optional living benefit guarantees, for income tax purposes, as earnings in the
contract. Payments in accordance with such guarantees after the contract value
has been reduced to zero may be treated for tax purposes as amounts received as
an annuity, if the other requirements for such treatment are satisfied. All
payments or withdrawals after cost basis has been reduced to zero, whether or
not under such a guarantee, will be treated as taxable amounts.
If available and you elect an optional living benefit, the application of
certain tax rules, including those rules relating to distributions from your
contract, are not entirely clear. Such benefits are not intended to adversely
affect the tax treatment of distributions or of the contract. However, you
should be aware that little guidance is available. You should consult a tax
adviser before electing an optional living benefit.
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CONTRACTS OWNED BY A TRUST OR CORPORATION
A Trust or Corporation or other owner that is not a natural person ("Non-Natural
Owner") that is considering purchasing this contract should consult a tax
adviser. Generally, the IRC does not confer tax-deferred status upon a Non-
Qualified contract owned by a Non-Natural Owner for Federal income tax purposes.
Instead in such cases, the Non-Natural Owner pays tax each year on the
contract's value in excess of the owner's cost basis, and the contract's cost
basis is then increased by a like amount. 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. Please see the Statement of Additional
Information 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. Please see the Statement of Additional Information 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 manager 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 Funds 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." The
determination of whether you possess sufficient incidents of ownership over
Variable Portfolio assets to be deemed the owner of the Underlying Funds depends
on all of the relevant facts and circumstances. However, IRS Revenue Ruling
2003-91 provides that an annuity owner's ability to choose among general
investment strategies either at the time of the initial purchase or thereafter,
does not constitute control sufficient to cause the contract holder to be
treated as the owner of the Variable Portfolios. The Revenue Ruling provides
that if, based on all the facts and circumstances, you do not have direct or
indirect control over the Separate Account or any Variable Portfolio asset, then
you do not possess sufficient incidents of ownership over the assets supporting
the annuity to be deemed the owner of the assets for federal income tax
purposes. 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 Fund. 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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OTHER INFORMATION
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THE DISTRIBUTOR
SunAmerica Capital Services, Inc. ("SACS"), Harborside Financial Center, 3200
Plaza 5, Jersey City, NJ 07311-4992, distributes the contracts. SACS, an
affiliate of the Company, is a registered broker-dealer under the Securities
Exchange Act of 1934, as amended, and is a member of the Financial Industry
Regulatory Authority ("FINRA"), formerly known as the National Association of
Securities Dealers, Inc. No underwriting fees are retained by SACS in connection
with the distribution of the contracts.
THE COMPANY
SunAmerica Annuity and Life Assurance Company ("SunAmerica Annuity") is a stock
life insurance company organized under the laws of the state of Arizona on
January 1, 1996. Its principal place of business is 1 SunAmerica Center, Los
Angeles, California 90067. SunAmerica Annuity conducts life insurance and
annuity business in the District of Columbia and all states except New York.
For details regarding name changes and redomestication of SunAmerica Annuity,
PLEASE SEE THE STATEMENT OF ADDITIONAL INFORMATION.
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First SunAmerica Life Insurance Company ("First SunAmerica") is a stock life
insurance company originally organized under the laws of the state of New York
on December 5, 1978. Its principal place of business is One World Financial
Center, 200 Liberty Street, New York, New York 10281. First SunAmerica conducts
life insurance and annuity business only in the state of New York.
OWNERSHIP STRUCTURE OF THE COMPANY
SunAmerica Annuity and First SunAmerica are indirect, wholly owned subsidiaries
of American International Group, Inc. ("AIG"), a Delaware corporation.
AIG is a leading international insurance organization with operations in more
than 130 countries and jurisdictions. AIG companies serve commercial,
institutional and individual customers through one of the most extensive
worldwide property-casualty networks of any insurer. In addition, AIG companies
are leading providers of life insurance and retirement services in the United
States. AIG common stock is listed on the New York Stock Exchange, as well as
the stock exchanges in Ireland and Tokyo.
On September 22, 2008, AIG entered into a revolving credit facility ("FRBNY
Credit Facility") with the Federal Reserve Bank of New York ("NY Fed"). In
connection with the FRBNY Credit Facility, on March 4, 2009, AIG issued its
Series C Perpetual, Convertible, Participating Preferred Stock (the "Series C
Preferred Stock") to the AIG Credit Facility Trust, a trust established for the
sole benefit of the United States Treasury (the "Trust"). The Series C shares
were entitled to approximately 77.8% of the voting power of AIG's outstanding
stock.
On January 14, 2011, AIG completed a series of previously announced integrated
transactions (the "Recapitalization") to recapitalize AIG. In the
Recapitalization, AIG repaid the Federal Reserve Bank of New York ("NY Fed")
approximately $21 billion in cash, representing all amounts owing under the
FRBNY Credit Facility and the facility was terminated. Also as part of the
Recapitalization, (i) the Series C Preferred Stock was exchanged for shares of
AIG Common Stock and subsequently transferred to the U.S. Department of the
Treasury (the "Treasury Department") and the Trust, which had previously held
all shares of the Series C Preferred Stock, was terminated, (ii) AIG's Series E
Preferred Shares and Series F Preferred Shares were exchanged for shares of AIG
Common Stock and a new Series G Preferred Shares (which functions as a $2
billion commitment to provide funding that AIG will have the discretion and
option to use). As a result of the Recapitalization, the United States Treasury
will be a majority shareholder of AIG Common Stock. These transactions do not
alter the Company's obligations to you.
Information regarding AIG as described above is qualified by regulatory filings
AIG files from time to time with the U.S. Securities and Exchange Commission
("SEC") at www.sec.gov. For information on how to locate these documents, SEE
FINANCIAL STATEMENTS, BELOW.
OPERATION OF THE COMPANY
The operations of the Company are influenced by many factors, including general
economic conditions, monetary and fiscal policies of the federal government, and
policies of state and other regulatory authorities. The level of sales of the
Company's financial products is influenced by many factors, including general
market rates of interest, the strength, weakness and volatility of equity
markets, terms and conditions of competing financial products and the relative
value of its brand. Additionally, American International Group-related news may
also have an impact on the Company's operations.
The Company is exposed to market risk, contract owner behavior risk and
mortality/longevity risk. Market volatility may result in increased risks
related to death and living guaranteed benefits on the variable annuity
products, as well as reduced fee income in the case of assets held in the
separate accounts. These guaranteed benefits are sensitive to equity market
conditions. The Company primarily uses capital market hedging strategies to help
cover the risk of paying guaranteed living benefits in excess of account values
as a result of significant downturns in equity markets. The Company has treaties
to reinsure a portion of the guaranteed minimum income benefits and guaranteed
death benefits for equity and mortality risk on some of its older contracts.
Such risk mitigation may or may not reduce the volatility of net income and
capital and surplus resulting from equity market volatility.
The Company is regulated for the benefit of contract owners by the insurance
regulator in its state of domicile; and also by all state insurance departments
where it is licensed to conduct business. The Company is required by its
regulators to hold a specified amount of reserves in order to meet its
contractual obligations to contract owners. Insurance regulations also require
the Company to maintain additional surplus to protect against a financial
impairment the amount of which is based on the risks inherent in the Company's
operations.
THE SEPARATE ACCOUNT
SunAmerica Annuity originally established Variable Annuity Account Seven under
Arizona law on August 28, 1998.
First SunAmerica originally established FS Variable Separate Account under New
York law on September 9, 1994.
These Separate Accounts are registered with the SEC as unit investment trusts
under the Investment Company Act of 1940, as amended.
Purchase Payments you make that are allocated to the Variable Portfolios are
invested in the Separate Account. The Company owns the assets in the Separate
Account and
47
invests them on your behalf, according to your instructions. Purchase Payments
invested in the Separate Account are not guaranteed and will fluctuate with the
value of the Variable Portfolios you select. Therefore, you assume all of the
investment risk for contract value allocated to the Variable Portfolios. These
assets are kept separate from our General Account and may not be charged with
liabilities arising from any other business we may conduct. Additionally, 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 the Company.
You benefit from dividends received by the Separate Account through an increase
in your unit value. The Company expects to benefit from these dividends through
tax credits and corporate dividends received deductions; however, these
corporate deductions are not passed back to the Separate Account or to contract
owners.
THE GENERAL ACCOUNT
Obligations that are paid out of the Company's general account ("General
Account") include any amounts you have allocated to available Fixed Accounts,
including any interest credited thereon, and amounts owed under your contract
for death and/or living benefits which are in excess of portions of contract
value allocated to the Variable Portfolios. The obligations and guarantees under
the contract are the sole responsibility of the Company. Therefore, payments of
these obligations are subject to our financial strength and claims paying
ability, and our long term ability to make such payments.
The General Account assets are invested in accordance with applicable state
regulation. These assets are exposed to the typical risks normally associated
with a portfolio of fixed income securities, namely interest rate, option,
liquidity and credit risk. The Company manages its exposure to these risks by,
among other things, closely monitoring and matching the duration and cash flows
of its assets and liabilities, monitoring or limiting prepayment and extension
risk in its portfolio, maintaining a large percentage of its portfolio in highly
liquid securities and engaging in a disciplined process of underwriting,
reviewing and monitoring credit risk. With respect to the living benefits
available in your contract, we also manage interest rate and certain market risk
through a hedging strategy in the portfolio and we may require that those who
elect a living benefit allocate their Purchase Payments in accordance with
specified investment parameters.
FINANCIAL STATEMENTS
There are three sets of financial statements described below that are important
for you to consider. Information about how to obtain these financial statements
is also provided below.
THE COMPANY AND THE SEPARATE ACCOUNT
The financial statements of the Company and the Separate Account are required to
be provided because you must look to those entities directly to satisfy our
obligations to you under the Contract.
AMERICAN INTERNATIONAL GROUP
American International Group has entered into a support agreement with the
Company under which American International Group has agreed to cause the Company
to maintain a minimum net worth and liquidity to meet its policy obligations.
The support agreement requires American International Group to make payments
solely to the Company and not to the policyholders. Under no circumstance can a
policyholder proceed directly against American International Group for payment
on its own behalf; all actions under the support agreements must be brought by
the Company, or if the Company fails to enforce its rights, by a policyholder on
behalf of the Company.
INSTRUCTIONS TO OBTAIN FINANCIAL STATEMENTS
The SEC allows the Company to "incorporate by reference" some of the information
American International Group files with the SEC, which means that we can
disclose important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus.
[FINANCIAL STATEMENT INFORMATION TO BE UPDATED BY AMENDMENT]
American International Group is subject to the informational requirements of the
Securities Exchange Act of 1934. American International Group files reports and
other information with the SEC to meet those requirements. American
International Group files this information electronically pursuant to EDGAR, and
it is available to the public through the SEC's website at http://www.sec.gov
and American International Group's website at http://www.aig.com.
You can also inspect and copy this information at SEC public facilities at the
following locations:
WASHINGTON, DISTRICT OF COLUMBIA
100 F. Street, N.E., Room 1580
Washington, DC 20549
CHICAGO, ILLINOIS
175 W. Jackson Boulevard
Chicago, IL 60604
NEW YORK, NEW YORK
3 World Financial, Room 4300
New York, NY 10281
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
48
mailed. The Company 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 the Company's Annuity Service Center, as follows:
By Mail:
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
Telephone Number: (800) 445-7862
ADMINISTRATION
We are responsible for the administrative servicing of your contract. Please
contact our Annuity Service Center at (800) 445-7862, if you have any comment,
question or service request.
We send out transaction confirmations and quarterly statements. During the
Accumulation Phase, you will receive confirmation of transactions within your
contract. Transactions made pursuant to contractual or systematic agreements,
such as dollar cost averaging, may be confirmed quarterly. Purchase Payments
received through the automatic payment plan or a salary reduction arrangement,
may also be confirmed quarterly. For all other transactions, we send
confirmations. It is your responsibility to review these documents carefully and
notify our Annuity Service Center of any inaccuracies immediately. We
investigate all inquiries. Depending on the facts and circumstances, we may
retroactively adjust your contract, provided you notify us of your concern
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. If you fail to notify our Annuity Service Center of any
mistakes or inaccuracy within 30 days of receiving the transaction confirmation
or quarterly statement, we will deem you to have ratified the transaction.
LEGAL PROCEEDINGS
Along with other companies, SunAmerica Annuity has received subpoenas for
information in connection with an ongoing investigation by the Securities &
Exchange Commission ("SEC") and the United States Department of Justice ("DOJ")
concerning the issuance of guaranteed investment contracts in connection with
tax exempt bond issuances. SunAmerica Annuity is also responding to subpoenas
concerning the same subject matter sent by or on behalf of various state
attorneys general. SunAmerica Annuity is cooperating fully with the
investigation. The impact of this matter, if any, on SunAmerica Annuity's
financial position cannot be reasonably estimated at this time.
There are no pending legal proceedings affecting Variable Annuity Account Seven
and FS Variable Separate Account. Various lawsuits against SunAmerica Annuity,
First SunAmerica and its subsidiaries have arisen in the ordinary course of
business. In addition, various federal, state and other regulatory agencies may
from time to time review, examine or inquire into the operations, practices and
procedures of SunAmerica Annuity, First SunAmerica and its subsidiaries, such as
through financial examinations, market conduct exams or regulatory inquiries. In
management's opinion, except as noted above, these matters are not material in
relation to the financial position of SunAmerica Annuity and First SunAmerica.
REGISTRATION STATEMENTS
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,
the Company and its general account, the Variable Portfolios and the contract,
please refer to the registration statements and exhibits.
49
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Additional information concerning the operations of the Separate Account is
contained in the Statement of Additional Information, which is available without
charge upon written request. Please use the request form at the back of this
prospectus and send it to our Annuity Service Center at P.O. Box 54299, Los
Angeles, California 90054-0299 or by calling (800) 445-7862. The table of
contents of the SAI is listed below.
Separate Account and the Company
General Account
Support Agreement Between the Company and American International Group
Information Regarding the Use of the Volatility Index ("VIX")
Performance Data
Annuity Income Payments
Annuity Unit Values
Taxes
Broker-Dealer Firms Receiving Revenue Sharing Payments
Distribution of Contracts
Financial Statements
50
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
APPENDIX A - STATE CONTRACT AVAILABILITY AND/OR VARIABILITY
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
------------------------------------------------------------------------------------
PROSPECTUS PROVISION AVAILABILITY OR VARIATION STATES
------------------------------------------------------------------------------------
Administration Charge Contract Maintenance Fee is $30. New Mexico
------------------------------------------------------------------------------------
Administrative Charge Charge will be deducted pro-rata from New York
Variable Portfolios only. Oregon
Texas
Washington
------------------------------------------------------------------------------------
Annuity Date You may begin the Income Phase any time Florida
after your first contract anniversary.
------------------------------------------------------------------------------------
Annuity Date You may begin the Income Phase any time New York
after 13 months after contract issue.
------------------------------------------------------------------------------------
Free Look If you reside in Arizona and are age 65 Arizona
or older on your Contract Date, the
Free Look period is 30 days.
------------------------------------------------------------------------------------
Free Look If you reside in California and are age California
60 or older on your Contract Date, the
Free Look period is 30 days.
------------------------------------------------------------------------------------
Latest Annuity Date Latest Annuity Date is the later of age New York
90 or 10 years after contract issue.
------------------------------------------------------------------------------------
Premium Tax We deduct premium tax charges of 0.50% California
for Qualified contracts and 2.35% for
Non-Qualified contracts based on
contract value when you begin the
Income Phase.
------------------------------------------------------------------------------------
Premium Tax We deduct premium tax charges of 0% for Maine
Qualified contracts and 2.0% for Non-
Qualified contracts based on total
Purchase Payments when you begin the
Income Phase.
------------------------------------------------------------------------------------
Premium Tax We deduct premium tax charges of 0% for Nevada
Qualified contracts and 3.5% for Non-
Qualified contracts based on contract
value when you begin the Income Phase.
------------------------------------------------------------------------------------
Premium Tax For the first $500,000 in the contract, South Dakota
we deduct premium tax charges of 0% for
Qualified contracts and 1.25% for Non-
Qualified contracts based on total
Purchase Payments when you begin the
Income Phase. For any amount in excess
of $500,000 in the contract, we deduct
front-end premium tax charges of 0% for
Qualified contracts and 0.80% for Non-
Qualified contracts based on total
Purchase Payments when you begin the
Income Phase.
------------------------------------------------------------------------------------
Premium Tax We deduct premium tax charges of 1.0% West Virginia
for Qualified contracts and 1.0% for
Non-Qualified contracts based on
contract value when you begin the
Income Phase.
------------------------------------------------------------------------------------
Premium Tax We deduct premium tax charges of 0% for Wyoming
Qualified contracts and 1.0% for Non-
Qualified contracts based on total
Purchase Payments when you begin the
Income Phase.
------------------------------------------------------------------------------------
SunAmerica Income Plus Charge will be deducted pro-rata from New York
Variable Portfolios only. Oregon
Texas
Washington
------------------------------------------------------------------------------------
Transfer Privilege Any transfer over the limit of 15 will Pennsylvania
incur a $10 transfer fee. Texas
------------------------------------------------------------------------------------
A-1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
APPENDIX B -- FORMULA FOR CALCULATING AND EXAMPLE OF THE SUNAMERICA INCOME PLUS
FEE
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The fee for SunAmerica Income Plus is assessed against the Income Base and
deducted from the contract value at the end of each Benefit Quarter.
--------------------------------------------------------------------
MAXIMUM
ANNUALIZED
FEE RATE
DECREASE OR
INCREASE
NUMBER OF INITIAL MAXIMUM MINIMUM EACH
COVERED ANNUAL ANNUAL ANNUAL BENEFIT
PERSONS FEE RATE FEE RATE FEE RATE QUARTER*
--------------------------------------------------------------------
One 1.10% 2.20% 0.60% +/-0.25%
Covered
Person
--------------------------------------------------------------------
Two 1.35% 2.70% 0.60% +/-0.25%
Covered
Persons
--------------------------------------------------------------------
* The fee rate can increase or decrease no more than 0.0625% each quarter
(0.25%/ 4).
The non-discretionary formula used in the calculation of the Annual Fee Rate
applicable after the first Benefit Year is:
INITIAL ANNUAL FEE RATE + [0.05% X (VALUE OF THE VIX AS OF MARKET CLOSE ON EACH
DAY THE FEE IS CALCULATED 20)]
The Initial Annual Fee Rate is guaranteed for the first Benefit Year.
Subsequently, the fee rate may change quarterly subject to the parameters
identified in the table above. Any fee adjustment is based on the non-
discretionary formula stated above which is tied to the change in the Volatility
Index ("VIX"), an index of market volatility reported by the Chicago Board
Options Exchange. If the value of the VIX increases or decreases from the
previous Benefit Quarter Anniversary, your fee rate will increase or decrease
accordingly, subject to the maximums and minimums identified in the table above.
You may find the value of the VIX for any given day by going to the Chicago
Board Options Exchange website, www.cboe.com.
EXAMPLE
ASSUME YOU ELECT SUNAMERICA INCOME PLUS FOR ONE COVERED PERSON AND YOU INVEST A
SINGLE PURCHASE PAYMENT OF $100,000 WITH NO ADDITIONAL PURCHASE PAYMENTS AND NO
WITHDRAWALS BEFORE THE 16TH BENEFIT QUARTER. ASSUME THE VALUE OF THE VIX,
CALCULATED FORMULA VALUE, ANNUAL FEE RATE AND QUARTERLY FEE RATE ARE AS FOLLOWS:
--------------------------------------------------------------------
CALCULATED
BENEFIT VALUE OF FORMULA ANNUAL QUARTERLY
QUARTER VIX VALUE* FEE RATE FEE RATE**
--------------------------------------------------------------------
1st 24.82 N/A 1.10% 0.2750%
--------------------------------------------------------------------
2nd 21.49 N/A 1.10% 0.2750%
--------------------------------------------------------------------
3rd 24.16 N/A 1.10% 0.2750%
--------------------------------------------------------------------
4th 19.44 N/A 1.10% 0.2750%
--------------------------------------------------------------------
5th 16.88 0.94% 0.94% 0.2350%
--------------------------------------------------------------------
* The Calculated Formula Value equals the number resulting from application of
the formula stated above. This amount is compared to the minimum and maximum
fee and the maximum quarterly fee increase to determine the annual fee rate
each quarter.
** The Quarterly Fee Rate is the Annual Fee Rate divided by 4.
IN THE 5TH BENEFIT QUARTER, THE VALUE OF THE VIX DECREASES TO 16.88. WE
CALCULATE THE ANNUAL FEE RATE IN THE 5TH BENEFIT QUARTER AS FOLLOWS:
STEP 1: CALCULATION OF THE ANNUAL FEE RATE
Initial Annual Fee Rate + [0.05% x (Value of VIX - 20)]
1.10% + [0.05% x (16.88 - 20)]
1.10% +[0.05% x (-3.12)]
1.10% + (-0.0016) = 0.94% (Annual Fee Rate)
STEP 2: DETERMINE WHETHER THE ANNUAL FEE RATE CALCULATED IN STEP 1 IS WITHIN THE
MAXIMUM OR MINIMUM ANNUAL FEE RATE AND WITHIN THE MAXIMUM QUARTERLY
ANNUALIZED FEE RATE INCREASE OR DECREASE
1.10% - 0.94% = 0.16% which is within 0.25% of the previous Annual Fee Rate
(1.10%).
0.94% is higher than the Minimum Annual Fee Rate (0.60%) and is lower than the
Maximum Annual Fee Rate (2.20%).
Therefore, the Annual Fee Rate for the 5th Benefit Quarter is 0.94%.
The Quarterly Fee Rate is 0.2350% (or 0.94% divided by 4).
B-1
AFTER THE 5TH BENEFIT QUARTER, ASSUME THE VALUE OF THE VIX, CALCULATED FORMULA
VALUE, ANNUAL FEE RATE AND QUARTERLY FEE RATE ARE AS FOLLOWS:
--------------------------------------------------------------------
CALCULATED
BENEFIT VALUE OF FORMULA ANNUAL QUARTERLY
QUARTER VIX VALUE FEE RATE FEE RATE
--------------------------------------------------------------------
6th 20.00 1.10% 1.10% 0.2750%
--------------------------------------------------------------------
7th 25.57 1.38% 1.35% 0.3375%
--------------------------------------------------------------------
8th 30.22 1.61% 1.60% 0.4000%
--------------------------------------------------------------------
9th 26.02 1.40% 1.40% 0.3500%
--------------------------------------------------------------------
10th 22.83 1.24% 1.24% 0.3100%
--------------------------------------------------------------------
11th 19.88 1.09% 1.09% 0.2725%
--------------------------------------------------------------------
12th 20.60 1.13% 1.13% 0.2825%
--------------------------------------------------------------------
13th 14.44 0.82% 0.88% 0.2200%
--------------------------------------------------------------------
14th 13.41 0.77% 0.77% 0.1925%
--------------------------------------------------------------------
15th 9.11 0.56% 0.60% 0.1500%
--------------------------------------------------------------------
16th 16.30 0.92% 0.85% 0.2125%
--------------------------------------------------------------------
IN THE 7TH BENEFIT QUARTER, THE VALUE OF THE VIX INCREASES TO 25.57. WE
CALCULATE THE ANNUAL FEE RATE IN THE 7TH BENEFIT QUARTER AS FOLLOWS:
STEP 1: CALCULATION OF THE ANNUAL FEE RATE
Initial Annual Fee Rate + [0.05% x (Value of VIX - 20)]
1.10% + [0.05% x (25.57 - 20)]
1.10% + [0.05% x (5.57)]
1.10% + (0.00278) = 1.38% (Annual Fee Rate)
STEP 2: DETERMINE WHETHER THE ANNUAL FEE RATE CALCULATED IN STEP 1 IS WITHIN THE
MAXIMUM OR MINIMUM ANNUAL FEE RATE AND WITHIN THE MAXIMUM QUARTERLY
ANNUALIZED FEE RATE INCREASE OR DECREASE
1.10% - 1.38% = 0.28% which is more than 0.25% higher than the previous Annual
Fee Rate of 1.10%.
The Annual Fee Rate is adjusted to be exactly 0.25% higher than the previous
Annual Fee Rate, which is 1.35% (1.10% + 0.25%). This is within the Minimum and
Maximum Annual Fee Rates.
Therefore, the Quarterly Fee Rate is 0.3375% (or 1.35% divided by 4).
IN THE 13TH BENEFIT QUARTER, THE VALUE OF THE VIX DECREASES TO 14.44. WE
CALCULATE THE ANNUAL FEE RATE IN THE 13TH BENEFIT QUARTER AS FOLLOWS:
STEP 1: CALCULATION OF THE ANNUAL FEE RATE
Initial Fee Rate + [0.05% x (Value of VIX - 20)]
1.10% + [0.05% x (14.44 - 20)]
1.10% + [0.05% x (-5.56)]
1.10% + (-0.00278) = 0.82% (Annual Fee Rate)
STEP 2: DETERMINE WHETHER THE ANNUAL FEE RATE CALCULATED IN STEP 1 IS WITHIN THE
MAXIMUM OR MINIMUM ANNUAL FEE RATE AND WITHIN THE MAXIMUM QUARTERLY
ANNUALIZED FEE RATE INCREASE OR DECREASE
1.13% - 0.82% = 0.31% which is more than a 0.25% Quarterly Annualized Fee Rate
Decrease from the previous Annual Fee Rate of 1.13%.
Therefore, the Annual Fee Rate is adjusted to be exactly 0.25% lower than the
previous Annual Fee Rate, which is 0.88% (1.13% - 0.25%).
IN THE 15TH BENEFIT QUARTER, THE VALUE OF THE VIX DECREASES TO 9.11. WE
CALCULATE THE ANNUAL FEE RATE IN THE 15TH BENEFIT QUARTER AS FOLLOWS:
STEP 1: CALCULATION OF THE ANNUAL FEE RATE
Initial Fee Rate + [0.05% x (Value of VIX - 20)]
1.10% + [0.05% x (9.11 - 20)]
1.10% + [0.05% x (-10.89)]
1.10% + (-0.005445) = 0.56% (Annual Fee Rate)
STEP 2: DETERMINE WHETHER THE ANNUAL FEE RATE CALCULATED IN STEP 1 IS WITHIN THE
MAXIMUM OR MINIMUM ANNUAL FEE RATE AND WITHIN THE MAXIMUM QUARTERLY
ANNUALIZED FEE RATE INCREASE OR DECREASE
The Annual Fee Rate of 0.56% is lower than the Minimum Annual Fee Rate (0.60%).
Therefore, the Annual Fee Rate is adjusted to be exactly the Minimum Annual Fee
Rate, which is 0.60%.
After the 16th Benefit Quarter, the Annual Fee Rate will continue to increase or
decrease depending on the movement of the value of the VIX, If your contract
value falls to zero before the feature has been terminated, the fee will no
longer be deducted.
B-2
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
APPENDIX C -- SUNAMERICA INCOME PLUS OPTIONAL LIVING BENEFIT EXAMPLES
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SUNAMERICA INCOME PLUS EXAMPLES
The following examples demonstrate the operation of the SunAmerica Income Plus
feature:
EXAMPLE 1:
Assume you elect SUNAMERICA INCOME PLUS for one Covered Person and you invest a
single Purchase Payment of $100,000, and you make no additional Purchase
Payments, and no withdrawals before the 1st contract anniversary. Assume that on
your 1st contract anniversary, your contract value is $103,000.
Your initial Income Base and Income Credit Base are equal to 100% of your
Eligible Purchase Payments, or $100,000. Your Income Credit ($6,000) on the 1st
contract anniversary is the Income Credit Percentage (6%) multiplied by the
Income Credit Base ($100,000). On your 1st contract anniversary, your Income
Base is equal to the greatest of your current Income Base ($100,000), your
contract value ($103,000), or your Income Credit plus your current Income Base
($106,000). Assume that the Covered Person is 65 and is alive, your Maximum
Annual Withdrawal Percentage is 5.0%, then as of your 1st contract anniversary,
you may take withdrawals of up to your $5,300 Maximum Annual Withdrawal Amount
(5.0% of the Income Base) each year as long as you do not take any Excess
Withdrawals.
EXAMPLE 2: IMPACT OF SUBSEQUENT ELIGIBLE PURCHASE PAYMENTS WITH NO WITHDRAWALS
AND NO HIGHEST ANNIVERSARY VALUES
Assume you elect SUNAMERICA INCOME PLUS for one Covered Person who is older than
age 64 and you invest an initial Purchase Payment of $100,000, you make
subsequent Purchase Payments of $230,000 in year 2, $30,000 in year 5, and
$50,000 in year 6, and you take no withdrawals before the 6th contract
anniversary. Assume further that on your 1st contract anniversary, your contract
value increases to $103,000, but through each subsequent contract year, there is
effectively 0% growth net of fees in your contract value. Your contract values,
Income Bases, Income Credit Bases, Income Credits, and Maximum Annual Withdrawal
Amounts are given as follows:
----------------------------------------------------------------------------------
MAXIMUM
INCOME ANNUAL
CONTRACT CONTRACT INCOME CREDIT INCOME WITHDRAWAL
ANNIVERSARY VALUE BASE BASE CREDIT AMOUNT
----------------------------------------------------------------------------------
1(st) $103,000 $106,000 $100,000 $6,000 $5,300
----------------------------------------------------------------------------------
2(nd) $333,000 $324,000 $300,000 $18,000 $16,200
----------------------------------------------------------------------------------
3(rd) $333,000 $342,000 $300,000 $18,000 $17,100
----------------------------------------------------------------------------------
4(th) $333,000 $360,000 $300,000 $18,000 $18,000
----------------------------------------------------------------------------------
5(th) $363,000 $409,800 $330,000 $19,800 $20,490
----------------------------------------------------------------------------------
6(th) $413,000 $429,600 $330,000 $19,800 $21,480
----------------------------------------------------------------------------------
Since the Income Base equals the Income Base at the beginning of that contract
year plus the subsequent Eligible Purchase Payments made in Benefit Year 2, your
new Income Base at the time of deposit equals $306,000 and Income Credit Base at
the time of deposit equals $300,000. $30,000 of the $230,000 Purchase Payment is
considered Ineligible Purchase Payments because it exceeds 200% of the Eligible
Purchase Payment made in the 1st contract year. On your 2nd contract
anniversary, your Income Credit is $18,000 and your Income Base equals $324,000.
Your Income Base is not increased to the $333,000 contract value because the
highest Anniversary Value is reduced for $30,000 of Ineligible Purchase
Payments. Assuming your Maximum Annual Withdrawal Percentage is 5%, then your
Maximum Annual Withdrawal Amount would be $16,200 if you were to start taking
withdrawals after the 2nd contract anniversary. However, continuing to assume
you do not take any withdrawals in years 3 and 4, your Income Base will increase
by your Income Credit and as a result, your Maximum Annual Withdrawal Amount
will also increase. After your Purchase Payment in year 5, your new Income Base
at the time of deposit equals $390,000. On your 5th contract anniversary, your
Income Credit Base is $330,000, Income Credit equals $19,800, and Income Base
equals $409,800. Any Purchase Payments made on or after your 5th contract
anniversary are considered Ineligible Purchase Payments. Therefore, your $50,000
Purchase Payment in year 6 will not increase the Income Base, Income Credit
Base, or Income Credit. And your Income Base is $429,600. If you were to start
taking withdrawals after the 6th contract anniversary, and your Maximum Annual
Withdrawal Percentage remains at 5%, your Maximum Annual Withdrawal Amount would
be $21,480.
EXAMPLE 3 - IMPACT OF WITHDRAWALS WITHOUT HIGHEST ANNIVERSARY VALUES
Assume you elect SUNAMERICA INCOME PLUS for one Covered Person and you invest a
single Purchase Payment of $100,000. Assume that the Covered Person is older
than age 64 at the first withdrawal. You make no additional Purchase Payments
and no withdrawals before the 8th contract anniversary. Assume further that on
your 1st contract anniversary, your contract value increases to $103,000, but
through each subsequent contract year, there is effectively 0% growth net of
fees in your contract value. Assume that your contract values, Income Bases,
Income
C-1
Credit Bases, Income Credits, and Maximum Annual Withdrawal Amounts are as
follows:
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MAXIMUM
INCOME ANNUAL
CONTRACT CONTRACT INCOME CREDIT INCOME WITHDRAWAL
ANNIVERSARY VALUE BASE BASE CREDIT AMOUNT
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1st $103,000 $106,000 $100,000 $6,000 $5,300
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2nd $103,000 $112,000 $100,000 $6,000 $5,600
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3rd $103,000 $118,000 $100,000 $6,000 $5,900
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4th $103,000 $124,000 $100,000 $6,000 $6,200
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5th $103,000 $130,000 $100,000 $6,000 $6,500
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6th $103,000 $136,000 $100,000 $6,000 $6,800
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7th $103,000 $142,000 $100,000 $6,000 $7,100
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8th $103,000 $148,000 $100,000 $6,000 $7,400
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9th $98,560 $151,000 $100,000 $3,000 $7,550
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10th $91,010 $152,000 $100,000 $1,000 $7,600
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On your 8th contract anniversary your Income Base is stepped-up to $148,000, and
assume your Maximum Annual Withdrawal Percentage is 5%, your Maximum Annual
Withdrawal Amount would be $7,400. But if you make a withdrawal of only $4,440
(3% of the $148,000 Income Base) which is less than your Maximum Annual
Withdrawal Amount, then your Net Income Credit Percentage for that year equals
3%. Therefore, your new Income Credit is 3% of your Income Credit Base ($3,000).
Your Income Base is equal to the greatest of your contract value ($98,560) or
your Income Credit plus your current Income Base ($151,000). Other withdrawals
of less than the Maximum Annual Withdrawal Amount have similar impact. On your
10th contract anniversary, if your Maximum Annual Withdrawal Percentage is 5%,
your new Maximum Annual Withdrawal Amount will be $7,600. Therefore, if you do
not take any Excess Withdrawals, you may take up to $7,600 each year as long as
the Covered Person is alive.
C-2
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APPENDIX D - DEATH BENEFITS FOLLOWING SPOUSAL CONTINUATION
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THE FOLLOWING DETAILS THE DEATH BENEFIT PAYABLE UPON THE CONTINUING SPOUSE'S
DEATH. THE DEATH BENEFIT WE WILL PAY TO THE NEW BENEFICIARY CHOSEN BY THE
CONTINUING SPOUSE VARIES DEPENDING ON WHETHER THE LIVING BENEFIT WAS ELECTED,
THE DEATH BENEFIT ELECTED, THE AGE OF THE CONTINUING SPOUSE AS OF THE
CONTINUATION DATE AND THE CONTINUING SPOUSE'S DATE OF DEATH.
Capitalized terms used in this Appendix have the same meaning as they have in
the prospectus.
The term "Continuation Purchase Payment" is frequently used in describing the
death benefit payable upon a spousal continuation. We define Continuation
Purchase Payment as Purchase Payments made on or after the Continuation Date.
The term "withdrawals" as used in describing the death benefits is defined as
withdrawals and the fees and charges applicable to those withdrawals.
The term "Withdrawal Adjustment" is used, if the Living Benefit had been
elected, to describe the way in which the amount of the death benefit will be
adjusted for withdrawals depending on the amount of the withdrawal. If
cumulative withdrawals for the current contract year are less than or equal to
the Maximum Annual Withdrawal Amount, the amount of adjustment will equal the
amount of each withdrawal. If cumulative withdrawals for the current contract
year are in excess of the Maximum Annual Withdrawal Amount, the contract value
and the death benefit are first reduced by the Maximum Annual Withdrawal Amount.
The resulting death benefit is further adjusted by the withdrawal amount in
excess of the Maximum Annual Withdrawal Amount by the percentage by which the
Excess Withdrawal reduced the resulting contract value.
THE COMPANY WILL NOT ACCEPT PURCHASE PAYMENTS FROM ANYONE AGE 86 OR OLDER.
THEREFORE, THE DEATH BENEFIT CALCULATIONS DESCRIBED BELOW ASSUME THAT NO
PURCHASE PAYMENTS ARE RECEIVED ON OR AFTER THE CONTINUING SPOUSE'S 86TH
BIRTHDAY.
The standard death benefit is calculated differently depending on whether you
have also elected the Living Benefit described above.
A. DEATH BENEFIT PAYABLE UPON CONTINUING SPOUSE'S DEATH:
THE FOLLOWING DESCRIBES THE STANDARD DEATH BENEFIT WITHOUT ELECTION OF THE
LIVING BENEFIT:
If the Continuing Spouse is age 85 or younger on the Continuation Date, the
death benefit will be the greater of:
1. Contract value; or
2. Contract value on the Continuation Date, plus Continuation Purchase
Payments received prior to the Continuing Spouse's 86th birthday,
reduced for any withdrawals in the same proportion that the withdrawal
reduced the contract value on the date of such withdrawal.
THE FOLLOWING DESCRIBES THE STANDARD DEATH BENEFIT WITH ELECTION OF THE LIVING
BENEFIT:
If the Continuing Spouse is age 85 or younger on the Continuation Date, the
death benefit will be the greater of:
1. Contract value; or
2. Continuation Purchase Payments reduced by:
a. any Withdrawal Adjustments after the Continuation Date if the
Living Benefit has not terminated; or
b. any Withdrawal Adjustments after the Continuation Date prior to
the date the Living Benefit was terminated and reduced for any
withdrawals in the same proportion that the withdrawal reduced the
contract value on the date of such withdrawal on or after the date
the Living Benefit was terminated.
If the Continuing Spouse is age 86 or older on the Continuation Date, the death
benefit will be contract value.
B. MAXIMUM ANNIVERSARY DEATH BENEFIT PAYABLE UPON CONTINUING SPOUSE'S DEATH:
If the Continuing Spouse is age 82 or younger on the Continuation Date,
regardless of whether a Living Benefit was elected, then upon the death of the
Continuing Spouse, the death benefit is the greatest of:
1. Contract value; or
2. Contract value on the Continuation Date, plus Continuation Purchase
Payments received prior to the Continuing Spouse's 86th birthday,
reduced for withdrawals in the same proportion that the withdrawal
reduced contract value on that date of such withdrawal; or
3. Maximum anniversary value on any contract anniversary that occurred
after the Continuation Date, but prior to the earlier of the Continuing
Spouse's 83rd birthday or date of death. The anniversary value for any
year is equal to the contract value on the applicable contract
anniversary, plus Continuation 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 contract value was reduced on the date of such
withdrawal.
D-1
If the Continuing Spouse is age 83-85 on the Continuation Date and no Living
Benefit was elected, then the death benefit will be the greater of:
1. Contract value; or
2. Contract value on the Continuation Date, plus Continuation Purchase
Payments received prior to the Continuing Spouse's 86th birthday,
reduced for any withdrawals in the same proportion that the withdrawal
reduced the contract value on the date of such withdrawal.
If the Continuing Spouse is age 83-85 on the Continuation Date and the Living
Benefit was elected, then the death benefit will be the greater of:
1. Contract value; or
2. Continuation Purchase Payments reduced by:
a. any Withdrawal Adjustments after the Continuation Date if the
Living Benefit has not terminated; or
b. any Withdrawal Adjustments after the Continuation Date prior to
the date the Living Benefit was terminated and reduced for any
withdrawals in the same proportion that the withdrawal reduced the
contract value on the date of such withdrawal on or after the date
the Living Benefit was terminated.
If the Continuing Spouse is age 86 or older on the Continuation Date, the death
benefit is equal to the contract value and the fee for the Maximum Anniversary
Value death benefit will no longer be deducted as of the Continuation Date.
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.
D-2
Please forward a copy (without charge) of the Polaris [TBD] Variable Annuity
Statement of Additional Information to:
(Please print or type and fill in all information.)
----------------------------------------------------------
Name
----------------------------------------------------------
Address
----------------------------------------------------------
City/State/Zip
Contract Issue Date: -------------------------------------------------------
Date: ------------------------------ Signed: ----------------------------
Return to: Issuing Company, Annuity Service Center, P.O. Box 54299, Los
Angeles, California 90054-0299