485BPOS 1 w20498bpe485bpos.txt FORM 485(B)POS AS FILED WITH SECURITIES AND EXCHANGE COMMISSION ON JULY 31, 2006. FILE NOS. 333-63511 811-09003 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment No. ___ [ ] Post-Effective Amendment No. 18 [X]
and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 19 [X]
(Check Appropriate Box or Boxes) --------------------- VARIABLE ANNUITY ACCOUNT SEVEN (Exact Name of Registrant) AIG SUNAMERICA LIFE ASSURANCE COMPANY ("AIG SUNAMERICA LIFE") (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 AMERICAN HOME ASSURANCE COMPANY (Name of Guarantor) 70 PINE STREET NEW YORK, NY 10270 (Address of Guarantor's Principal Offices) (Zip Code) Guarantor's Telephone Number, including Area Code: (212) 770-7000 CHRISTINE A. NIXON, ESQ. AIG SUNAMERICA LIFE ASSURANCE COMPANY 1 SUNAMERICA CENTER LOS ANGELES, CALIFORNIA 90067-6022 (Name and Address of Agent for Service for Depositor, Registrant and Guarantor) It is proposed that this filing will become effective: [ ] immediately upon filing pursuant to paragraph (b) of Rule 485 [X] on August 28, 2006 pursuant to paragraph (b) of Rule 485 [ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485 [ ] on [INSERT DATE if applicable] pursuant to paragraph (a)(1) of Rule 485 Title of Securities Being Registered: (i) units of interests in Variable Annuity Account Seven of AIG SunAmerica Life Assurance Company under variable annuity contracts and (ii) guarantee related to insurance obligations under the variable annuity contracts. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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 Plus Variable Annuity; Other Information 6. Deductions.................................................. Expenses 7. General Description of Variable Annuity Contracts........... The Polaris Plus Variable Annuity; Purchasing a Polaris Plus Variable Annuity; Investment Options 8. Annuity Period.............................................. 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 Plus 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 Plus Variable Annuity (P) 20. Underwriters................................................ Distribution of Contracts 21. Calculation of Performance Data............................. Performance Data 22. Annuity Payments............................................ 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. [THE POLARIS PLUS LOGO] VARIABLE ANNUITY PROSPECTUS AUGUST 28, 2006 Please read this prospectus carefully FLEXIBLE PAYMENT GROUP AND INDIVIDUAL DEFERRED ANNUITY CONTRACTS before investing and keep it for issued by future reference. It contains AIG SUNAMERICA LIFE ASSURANCE COMPANY important information about the in connection with variable annuity. VARIABLE ANNUITY ACCOUNT SEVEN The annuity has several investment choices - both Variable Portfolios (which are To learn more about the annuity subaccounts of the Separate Account) and fixed account options. Each Variable offered in this prospectus, you can Portfolio invests exclusively in shares of one of the Underlying Funds listed below. obtain a copy of the Statement of The Variable Portfolios are part of the Anchor Series Trust ("AST") or the SunAmerica Additional Information ("SAI") dated Series Trust ("SAST"). August 28, 2006. The SAI has been filed with the United States STOCKS: Securities and Exchange Commission MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP. ("SEC") and is incorporated by - Aggressive Growth Portfolio SAST reference into this prospectus. The - "Dogs" of Wall Street Portfolio* SAST Table of Contents of the SAI appears MANAGED BY ALLIANCEBERNSTEIN L.P. at the end of this prospectus. For a - Alliance Growth Portfolio SAST free copy of the SAI, call us at - Growth-Income Portfolio SAST (800) 445-SUN2 or write to us at our MANAGED BY DAVIS SELECTED ADVISERS, L.P. D/B/A DAVIS ADVISERS Annuity Service Center, P.O. Box - Davis Venture Value Portfolio SAST 54299, Los Angeles, California - Real Estate Portfolio SAST 90054-0299. MANAGED BY FAF ADVISORS, INC. - Equity Income Portfolio SAST In addition, the SEC maintains a - Equity Index Portfolio SAST website (http://www.sec.gov) that MANAGED BY FEDERATED EQUITY MANAGEMENT COMPANY OF PENNSYLVANIA contains the SAI, materials - Federated American Leaders Portfolio* SAST incorporated by reference and other - Telecom Utility Portfolio SAST information filed electronically with MANAGED BY FRANKLIN ADVISORY SERVICES, LLC the SEC by the Company. - Small Company Value Portfolio SAST MANAGED BY J.P. MORGAN INVESTMENT MANAGEMENT, INC. ANNUITIES INVOLVE RISKS, INCLUDING - Global Equities Portfolio SAST POSSIBLE LOSS OF PRINCIPAL, AND ARE MANAGED BY MORGAN STANLEY INVESTMENT MANAGEMENT INC.** NOT A DEPOSIT OR OBLIGATION OF, OR - International Diversified Equities Portfolio SAST GUARANTEED OR ENDORSED BY, ANY BANK. MANAGED BY PUTNAM INVESTMENT MANAGEMENT, LLC THEY ARE NOT FEDERALLY INSURED BY THE - Emerging Markets Portfolio SAST FEDERAL DEPOSIT INSURANCE - International Growth & Income Portfolio SAST CORPORATION, THE FEDERAL RESERVE - Putnam Growth: Voyager Portfolio SAST BOARD OR ANY OTHER AGENCY. MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP - Capital Appreciation Portfolio AST - Growth Portfolio AST BALANCED: MANAGED BY J.P. MORGAN INVESTMENT MANAGEMENT, INC. - SunAmerica Balanced Portfolio SAST MANAGED BY WM ADVISORS, INC. - Asset Allocation Portfolio AST BOND: MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP. - High-Yield Bond Portfolio SAST MANAGED BY FEDERATED INVESTMENT MANAGEMENT COMPANY - Corporate Bond Portfolio SAST MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL - Global Bond Portfolio SAST MANAGED BY MORGAN STANLEY INVESTMENT MANAGEMENT INC.** - Worldwide High Income Portfolio SAST MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP - Government and Quality Bond Portfolio AST CASH: MANAGED BY COLUMBIA MANAGEMENT ADVISORS, LLC - Cash Management Portfolio SAST * "Dogs" of Wall Street Portfolio is an equity fund seeking total return and Federated American Leaders Portfolio is an equity fund seeking growth of capital and income. ** Morgan Stanley Investment Management Inc. does business in certain circumstances as "Van Kampen."
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. -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- TABLE OF CONTENTS -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- GLOSSARY........................................................................ 2 HIGHLIGHTS...................................................................... 3 FEE TABLES...................................................................... 4 Maximum Owner Transaction Expenses........................................... 4 Contract Maintenance Fee..................................................... 4 Separate Account Annual Expenses............................................. 4 Additional Optional Feature Fee.............................................. 4 Optional Income Protector Fee................................................ 4 Underlying Fund Expenses..................................................... 4 EXAMPLES........................................................................ 5 THE POLARIS PLUS VARIABLE ANNUITY............................................... 6 PURCHASING A POLARIS PLUS VARIABLE ANNUITY...................................... 6 Allocation of Purchase Payments.............................................. 7 Accumulation Units........................................................... 7 Right to Cancel.............................................................. 8 Exchange Offers.............................................................. 8 INVESTMENT OPTIONS.............................................................. 8 Variable Portfolios.......................................................... 8 Anchor Series Trust...................................................... 8 SunAmerica Series Trust.................................................. 8 Fixed Accounts............................................................... 9 Dollar Cost Averaging Fixed Accounts......................................... 10 Dollar Cost Averaging Program................................................ 10 Transfers During the Accumulation Phase...................................... 10 Automatic Asset Rebalancing.................................................. 12 Voting Rights................................................................ 12 Substitution, Addition or Deletion of Variable Portfolios.................... 12 ACCESS TO YOUR MONEY............................................................ 12 Withdrawal Restrictions...................................................... 13 Texas Optional Retirement Program............................................ 13 Systematic Withdrawal Program................................................ 13 Loans........................................................................ 14 Free Withdrawal Amount....................................................... 14 Minimum Contract Value....................................................... 14 DEATH BENEFIT................................................................... 14 EXPENSES........................................................................ 14 Separate Account Charges..................................................... 15 Withdrawal Charges........................................................... 15 Exceptions to Withdrawal Charge.............................................. 15 Income Protector............................................................. 16 Underlying Fund Expense...................................................... 16 Transfer Fee................................................................. 16 Premium Tax.................................................................. 16 Income Taxes................................................................. 16 Reduction or Elimination of Charges and Expenses, and Additional Amounts Credited................................................................... 16 INCOME OPTIONS.................................................................. 16 Annuity Date................................................................. 16 Annuity Income Options....................................................... 17 Fixed or Variable Income Payments............................................ 17 Annuity Income Payments...................................................... 17 Transfers During the Income Phase............................................ 18 Deferment of Payments........................................................ 18 The Income Protector......................................................... 18 TAXES........................................................................... 20 Annuity Contracts in General................................................. 20 Tax Treatment of Distributions - Non-Qualified Contracts.................................................... 20 Tax Treatment of Distributions - Qualified Contracts........................................................ 21 Minimum Distributions........................................................ 21 Tax Treatment of Death Benefits.............................................. 22 Contracts Owned by a Trust or Corporation.................................... 22 Gifts, Pledges and/or Assignments of a Contract.............................. 22 Diversification and Investor Control......................................... 22 OTHER INFORMATION............................................................... 23 AIG SunAmerica Life.......................................................... 23 The Separate Account......................................................... 23 The General Account.......................................................... 23 Payments in Connection with Distribution of the Contract..................... 23 Administration............................................................... 24 Legal Proceedings............................................................ 24 Financial Statements......................................................... 25 Registration Statements...................................................... 25 TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION........................ 25 APPENDIX A - CONDENSED FINANCIAL INFORMATION.................................... A-1 APPENDIX B - MARKET VALUE ADJUSTMENT............................................ B-1 APPENDIX C - HYPOTHETICAL EXAMPLE OF THE OPERATION OF THE INCOME PROTECTOR...... C-1 APPENDIX D - STATE CONTRACT AVAILABILITY AND/OR VARIATIONS OF CERTAIN FEATURES AND BENEFITS................................................................... D-1
---------------------------------------------------------------- ---------------------------------------------------------------- GLOSSARY ---------------------------------------------------------------- ---------------------------------------------------------------- We have capitalized some of the technical terms used in this prospectus. To help you understand these terms, we have defined them in this glossary. ACCUMULATION PHASE - The period during which you invest money in your Contract. ACCUMULATION UNITS - A measurement we use to calculate the value of the variable portion of your Contract during the Accumulation Phase. ANNUITANT(S) - The person(s) on whose life (lives) we base annuity payments. For a Contract issued pursuant to IRC Section 403(b), the Participant must be the Annuitant. Under an IRA the owner is always the Annuitant. ANNUITY DATE - The date on which annuity payments are to begin, as selected by you. ANNUITY UNITS - A measurement we use to calculate the amount of annuity payments you receive from the variable portion of your Contract during the Income Phase. BENEFICIARY (IES) - The person(s) designated to receive any benefits under the Contract if you or the Annuitant dies. COMPANY - AIG SunAmerica Life Assurance Company, AIG SunAmerica Life, we, us, or our, the insurer that issues this Contract. CONTRACT - The variable annuity contract issued by AIG SunAmerica Life Assurance Company ("AIG SunAmerica Life"). This includes any applicable group master contract, certificate and endorsement. CONTRACTHOLDER - The party named as the Contractholder on the annuity Contract issued by AIG SunAmerica Life. The Contractholder may be an Employer, a retirement plan trust, an association or any other entity allowed under the law. EMPLOYER - The organization specified in the Contract which offers the Plan to its employees. ERISA - Employee Retirement Income Security Act of 1974 (as amended). FIXED ACCOUNT - An account, if available, that we offer in which you may invest money and earn fixed rates of return. INCOME PHASE - The period during which we make annuity payments to you. IRA - An Individual Retirement Annuity qualified under and issued in accordance with the provisions of Section 408(b) of the IRC. IRC - The Internal Revenue Code of 1986, as amended, and all regulations thereto. IRS - The Internal Revenue Service. 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. PARTICIPANT - An employee or other person affiliated with the Contractholder on whose behalf an account is maintained under the terms of the Contract. PLAN - A retirement program offered by an Employer to its employees for which a Contract is used to accumulate funds which may or may not be regulated by ERISA. PURCHASE PAYMENTS - The money you give us to buy the Contract, as well as any additional money you give us to invest in the Contract after you own it. QUALIFIED (CONTRACT) - A Contract purchased with pretax dollars. These Contracts are generally purchased under a pension plan, specially sponsored program or IRA. SEPARATE ACCOUNT - A segregated asset account maintained separately from the Company's regular portfolio of investment and general accounts. The Separate Account is established by the Company to purchase and hold the Variable Portfolios. TRUSTS - Refers to the Anchor Series Trust and the SunAmerica Series Trust. TSA - A tax sheltered annuity qualified under and issued in accordance with the provisions of Section 403(b) of the IRC. UNDERLYING FUND - 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 has its own investment objective and is invested in the Underlying Funds of the Trusts. 2 ---------------------------------------------------------------- ---------------------------------------------------------------- HIGHLIGHTS ---------------------------------------------------------------- ---------------------------------------------------------------- The Polaris Plus Variable Annuity is a Contract between you and AIG SunAmerica Life Assurance Company ("AIG SunAmerica Life"). It is designed primarily for IRC 403(b) and IRA Contract investments to help you 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 income payments from your annuity to provide for your retirement. FREE LOOK: If you cancel your Contract within 10 days after receiving it (or whatever period is required in your state), we will cancel the Contract without charging a withdrawal charge. You will receive whatever your Contract is worth on the day that we receive your request. This amount may be more or less than your original Purchase Payment. We will return your original Purchase Payment if required by law. Please see PURCHASING A POLARIS PLUS VARIABLE ANNUITY in the prospectus. EXPENSES: There are fees and charges associated with the Contract. Each year we deduct separate account charges, which equal a maximum of 1.25% annually of the average daily value of your Contract allocated to the Variable Portfolios. There are investment charges on amounts invested in the Variable Portfolios. If you elect optional features available under the Contract we may charge additional fees for these features. A separate withdrawal charge schedule applies to each Purchase Payment, depending on your employment status at the time the Contract is issued. The maximum amount of the withdrawal charge declines over five or six years. After a Purchase Payment has been in the Contract for six complete years, or five complete years if you were separated from service at the time the Contract was issued, withdrawal charges no longer apply to that Purchase Payment. Please see the FEE TABLE, PURCHASING A POLARIS PLUS VARIABLE ANNUITY and EXPENSES in the prospectus. ACCESS TO YOUR MONEY: You may withdraw money from your Contract during the Accumulation Phase, however, withdrawal restrictions may apply. If you do so, earnings are deemed to be withdrawn first. You will pay income taxes on earnings and untaxed contributions when you withdraw them. Payments received during the Income Phase may be considered partly a return of your original investment. A federal tax penalty may apply if you make withdrawals before age 59 1/2. As noted above, a withdrawal charge may apply. Please see ACCESS TO YOUR MONEY and TAXES in the prospectus. DEATH BENEFIT: A death benefit feature is available under the Contract to protect your Beneficiaries in the event of your death during the Accumulation Phase. Please see DEATH BENEFITS in the prospectus. INCOME OPTIONS: When you are ready to begin taking annuity income, you can choose to receive annuity income payments on a variable basis, fixed basis or a combination of both. You may also chose from five different annuity income options, including an option for annuity income that you cannot outlive. Please see INCOME OPTIONS in the prospectus. INQUIRIES: If you have questions about your Contract call your financial representative or contact us at AIG SunAmerica Life Assurance Company Annuity Service Center, P.O. Box 54299, Los Angeles, California 90054-0299. Telephone Number: (800) 445-SUN2. Please see ALLOCATION OF PURCHASE PAYMENTS in the prospectus for the address to which you must send Purchase Payments. 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 AND FROM CERTAIN INVESTMENT ADVISERS OF THE UNDERLYING FUNDS, SEE THE PAYMENTS IN CONNECTION WITH DISTRIBUTION OF THE CONTRACT SECTION UNDER OTHER INFORMATION. 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. 3 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- FEE TABLES -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY AT THE TIME THAT YOU BUY THE CONTRACT, TRANSFER CASH VALUE BETWEEN INVESTMENT OPTIONS OR SURRENDER THE CONTRACT. IF APPLICABLE, YOU MAY ALSO BE SUBJECT TO STATE PREMIUM TAXES. MAXIMUM OWNER TRANSACTION EXPENSES MAXIMUM WITHDRAWAL CHARGES (AS A PERCENTAGE OF EACH PURCHASE PAYMENT)(1)................................................. 6%
TRANSFER FEE................................................ None
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....................................................None SEPARATE ACCOUNT ANNUAL EXPENSES (deducted from the average daily ending net asset value allocated to the Variable Portfolio) Mortality and Expense Risk Fees................................................. 1.10% Distribution Expense Fee........................................................ 0.15% ----- TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES...................................... 1.25% =====
ADDITIONAL OPTIONAL FEATURE FEE The Income Protector is optional. You may elect either Income Protector feature described below. OPTIONAL INCOME PROTECTOR FEE (Calculated as a percentage of your Contract value on the date of your effective enrollment in the program and then each subsequent Contract anniversary, plus Purchase Payments made since the prior Contract anniversary, less proportional withdrawals, and fees and charges applicable to those withdrawals)
ANNUAL FEE AS A % OF YOUR OPTION GROWTH RATE INCOME BENEFIT BASE(2) ------ ----------- ------------------------- Income Protector Plus........................................................... 3.25% 0.15% Income Protector Max............................................................ 5.25% 0.30%
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. UNDERLYING FUND EXPENSES(3)
TOTAL ANNUAL TRUST OPERATING EXPENSES MINIMUM MAXIMUM ------------------------------------- ------- ------- (expenses that are deducted from Underlying Funds of the Trusts, including management fees, other expenses and 12b-1 fees, if applicable)....................................... 0.54% 1.90%
FOOTNOTES TO THE FEE TABLE: (1) Withdrawal Charge Schedule (as a percentage of each Purchase Payment withdrawn) declines over 6 or 7 years as follows: YEARS SINCE RECEIPT OF PURCHASE PAYMENT:.................... 1 2 3 4 5 6 7+ Schedule A*................................................. 6% 6% 5% 5% 4% 0% 0% Schedule B**................................................ 6% 6% 5% 5% 4% 4% 0%
* This Withdrawal Charge Schedule applies to participants who are separated from service at the time of Contract issue. See EXPENSES below. ** This Withdrawal Charge Schedule applies to all other participants. (2) The fee is deducted from your Contract value annually. (3) As of January 31, 2006 4 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- MAXIMUM AND MINIMUM EXPENSE EXAMPLES -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- These examples are intended to help you compare the cost of investing in the contract with the cost of investing in other variable annuity contracts. These costs include owner transaction expenses, 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 expense of 1.25%, election of the optional Income Protector Max with an annualized fee of 0.30%, and investment in the Underlying Fund with total expenses of 1.90%) (1) If you surrender your Contract at the end of the applicable time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS --------------------------------------------------------------------- --------------------------------------------------------------------- $948 $1,559 $2,193 $3,730 --------------------------------------------------------------------- ---------------------------------------------------------------------
(2) If you annuitize your Contract at the end of the applicable time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS --------------------------------------------------------------------- --------------------------------------------------------------------- $348 $1,059 $1,793 $3,730 --------------------------------------------------------------------- ---------------------------------------------------------------------
(3) If you do not surrender your Contract:
1 YEAR 3 YEARS 5 YEARS 10 YEARS --------------------------------------------------------------------- --------------------------------------------------------------------- $348 $1,059 $1,793 $3,730 --------------------------------------------------------------------- ---------------------------------------------------------------------
MINIMUM EXPENSE EXAMPLES (assuming minimum separate account annual expense of 1.25%, no optional features are elected and investment in the 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 --------------------------------------------------------------------- --------------------------------------------------------------------- $782 $1,063 $1,370 $2,105 --------------------------------------------------------------------- ---------------------------------------------------------------------
(2) If you annuitize your Contract at the end of the applicable time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS --------------------------------------------------------------------- --------------------------------------------------------------------- $182 $563 $ 970 $2,105 --------------------------------------------------------------------- ---------------------------------------------------------------------
(3) If you do not surrender your Contract:
1 YEAR 3 YEARS 5 YEARS 10 YEARS --------------------------------------------------------------------- --------------------------------------------------------------------- $182 $563 $ 970 $2,105 --------------------------------------------------------------------- ---------------------------------------------------------------------
EXPLANATION OF FEE TABLES AND EXAMPLES 1. The purpose of the Fee Table and Expense Examples is to show you the various expenses you would incur directly and indirectly by investing in the variable annuity contract. The Fee Table and Expense Examples represent both fees of the separate account as well as total annual Underlying Fund expenses. Additional information on the Underlying Fund fees can be found in the Trust prospectuses. 2. In addition to the stated assumptions, the Examples also assume that no transfer fees were imposed. Although premium taxes may apply in certain states, they are not reflected in the Expense Examples. 3. Examples reflecting application of optional features and benefits use the highest fees and charges at which those features are being offered. The fee for the Income Protector feature is not calculated as a percentage of your daily net asset value but on other calculations more fully described in the prospectus. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. CONDENSED FINANCIAL INFORMATION APPEARS IN THE CONDENSED FINANCIAL INFORMATION APPENDIX OF THIS PROSPECTUS. 5 ---------------------------------------------------------------- ---------------------------------------------------------------- THE POLARIS PLUS VARIABLE ANNUITY ---------------------------------------------------------------- ---------------------------------------------------------------- We issue the Polaris Plus variable annuity to certain groups and/or individuals which qualify to purchase Contracts to fund their Tax Sheltered Annuity ("TSA") pursuant to Section 403(b) of the Internal Revenue Code ("IRC") or IRA retirement savings investments pursuant to Section 408(b) of the IRC. For TSA Contracts, the Contract may be issued to a group Contractholder (usually your employer or plan trustee) for the benefit of the Participants in the group (you and other employees in the group). As a Participant under a group Contract you will receive a certificate which explains your rights under the Contract. In certain situations an individual Contract will be issued directly to you. A TSA Polaris Plus participant may choose to convert their 403(b) to an IRA if they separate from service. Generally, all of the same features, charges and benefits will apply to a Contract converted to an IRA, as was applicable to a participant's TSA, so long as no conflict arises with the appropriate provisions of the IRC. We will only specifically address IRAs in this Prospectus to the extent that applicable IRC provisions and/or any other state or federal laws, require different treatment. Generally, an annuity is a Contract between you and an insurance company. For Plans governed by Employee Retirement Income Security Act of 1974 ("ERISA"), the Contract may be owned by Plan Sponsor, Trustee or some other employee association. Your retirement plan allows you to invest money on which you have not already paid taxes and your earnings grow tax deferred. In addition, funding that Plan with a variable annuity provides certain benefits. You should decide whether the benefits are right for you. Among other features the Contract offers: - Investment Options: Various investment options available in one Contract, including both variable and fixed-rate investing. - Death Benefit: If you die during the Accumulation Phase, the insurance company pays a death benefit to your Beneficiary. - Guaranteed Income: You receive a stream of income for your lifetime if elected, or another available period you select. We developed this variable annuity to help you contribute to your retirement savings. Your contributions may come from payroll deductions arranged through your employer for TSAs. Contracts may also be funded by direct transfers or direct rollovers from other retirement savings plans. Existing Polaris Plus 403(b) Contracts may be converted to an IRA upon a separation from service. Additionally, those IRA Contract holders may make on-going contributions subject to restrictions set forth in the IRC. This Contract has two stages, the Accumulation Phase and the Income Phase. Your Contract is in the Accumulation Phase when you make payments into the Contract. During the Accumulation Phase, generally you have the advantage of making Purchase Payments before paying taxes on the contributions. In addition, as a function of IRC provisions, taxes on your earnings are deferred until withdrawal. The Income Phase begins when you request that we start making income payments to you out of the money accumulated in your Contract. The Contract is called a "variable" annuity because it allows you to invest in Variable Portfolios which, like mutual funds, have different investment objectives and performance. You can gain or lose money if you invest in these Variable Portfolios. The amount of money you accumulate in your Contract depends on the performance of the Variable Portfolios in which you invest. The Contract may also offer Fixed Accounts, which 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 Fixed Account in which you are invested. For more information on investment options available under this Contract SEE INVESTMENT OPTIONS BELOW. This annuity is designed to assist in contributing to retirement savings of investors whose personal circumstances allow for a long-term investment time horizon. As a function of the Internal Revenue Code ("IRC"), you may be assessed a 10% federal tax penalty on any withdrawal made prior to your reaching age 59 1/2. Additionally, you will be charged a withdrawal charge on each Purchase Payment withdrawn prior to the end of the applicable withdrawal charge period, SEE FEE TABLES 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 PLUS VARIABLE ANNUITY ---------------------------------------------------------------- ---------------------------------------------------------------- A Purchase Payment is the money you give us to buy a Contract. Any additional money you give us to invest in your Contract after purchase is a subsequent Purchase Payment. You make payments into your Contract in two ways: - salary reduction contributions, arranged through your employer; and/or - direct transfer or direct rollover from an existing retirement plan. If you enter into a salary reduction agreement with your employer to make Purchase Payments, there is no minimum initial payment. If you do not establish such a salary reduction agreement, and only contribute through direct transfer or direct rollover, the minimum initial Purchase Payment is $2,000. 6 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 $1,000,000. For contracts owned by a non-natural owner, we reserve the right to require prior Company approval to accept Purchase Payments greater than $250,000. We reserve the right to change the amount at which pre-approval is required at any time. Purchase Payments that would cause total Purchase Payments in all contracts issued by the Company or its affiliate, First SunAmerica Life Insurance Company, 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. 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. In general, we will not issue a TSA or IRA 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. Upon proof satisfactory to us that minimum distribution requirements are being satisfied or are not yet required, we may issue a contract to anyone under age 81. 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. We allow this contract to be jointly owned. We may require that the joint owners be spouses. However, 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. You may assign this contract before beginning the Income Phase by sending us a written request for an assignment. Your rights and those of any other person with rights under this contract will be subject to the assignment. We reserve the right to not recognize assignments if it changes the risk profile of the owner of the contract, as determined in our sole discretion. Please see the Statement of Additional Information for details on the tax consequences of an assignment. You should consult a qualified tax advisor 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. 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 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 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 money according to your allocation instructions on file. Purchase Payments submitted by check can only be accepted by the Company at the following address: AIG SunAmerica Life Assurance Company P.O. Box 100330 Pasadena, CA 91189-0330 Purchase payments sent to the Annuity Service Center will be forwarded to the address above. Overnight deliveries of Purchase Payments can only be accepted at the following address: JP Morgan Chase National Processing Center Lock Box 100330 Building #6, Suite 120 2710 Media Center Drive Los Angeles, CA 90065 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 appropriate address. ACCUMULATION UNITS When you allocate a Purchase Payment to the Variable Portfolios, we credit your contract with Accumulation Units of the Separate Account. We base the number of Accumulation Units you receive on the unit value of the Variable Portfolio as of the day we receive your money if we receive it before that day's Market Close, or on the next business day's unit value if we receive your money after that day's Market Close. 7 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. RIGHT TO CANCEL You may cancel your contract within ten days after receiving it (or longer if required by state law). We call this a "free look." To cancel, you must mail the contract along with your free look request to our Annuity Service Center at P.O. Box 54299, Los Angeles, California 90054-0299. If you decide to cancel your contract during the free look period, generally we will refund to you the value of your contract on the day we receive your request. Certain states require us to return your Purchase Payments upon a free look request. Additionally, all contracts issued as an IRA require the full return of Purchase Payments upon a free look. 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. With respect to those contracts, we reserve the right to invest your money in the Cash Management Variable 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. 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. ---------------------------------------------------------------- ---------------------------------------------------------------- INVESTMENT OPTIONS ---------------------------------------------------------------- ---------------------------------------------------------------- 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 along with their respective advisers are listed below: ANCHOR SERIES TRUST - CLASS 1 AIG SunAmerica Asset Management Corp. ("AIG SAAMCo"), an indirect wholly-owned subsidiary of AIG, is the investment adviser and Wellington Management Company, LLP is the subadviser to Anchor Series Trust ("AST"). SUNAMERICA SERIES TRUST - CLASS 1 AIG SAAMCo is the investment adviser and various managers are the subadvisers to SunAmerica Series Trust ("SAST"). STOCKS: MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP. - Aggressive Growth Portfolio SAST - "Dogs" of Wall Street Portfolio* SAST MANAGED BY ALLIANCEBERNSTEIN L.P. - Alliance Growth Portfolio SAST - Growth-Income Portfolio SAST MANAGED BY DAVIS SELECTED ADVISERS, L.P. D/B/A DAVIS ADVISERS - Davis Venture Value Portfolio SAST - Real Estate Portfolio SAST 8 MANAGED BY FAF ADVISORS, INC. - Equity Income Portfolio SAST - Equity Index Portfolio SAST MANAGED BY FEDERATED EQUITY MANAGEMENT COMPANY OF PENNSYLVANIA - Federated American Leaders Portfolio* SAST - Telecom Utility Portfolio SAST MANAGED BY FRANKLIN ADVISORY SERVICES, LLC - Small Company Value Portfolio SAST MANAGED BY J.P. MORGAN INVESTMENT MANAGEMENT, INC. - Global Equities Portfolio SAST MANAGED BY MORGAN STANLEY INVESTMENT MANAGEMENT INC.** - International Diversified Equities Portfolio SAST MANAGED BY PUTNAM INVESTMENT MANAGEMENT, LLC - Emerging Markets Portfolio SAST - International Growth & Income Portfolio SAST - Putnam Growth: Voyager Portfolio SAST MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP - Capital Appreciation Portfolio AST - Growth Portfolio AST BALANCED: MANAGED BY J.P. MORGAN INVESTMENT MANAGEMENT, INC. - SunAmerica Balanced Portfolio SAST MANAGED BY WM ADVISORS, INC. - Asset Allocation Portfolio AST BOND: MANAGED BY AIG SUNAMERICA ASSET MANAGEMENT CORP. - High-Yield Bond Portfolio SAST MANAGED BY FEDERATED INVESTMENT MANAGEMENT COMPANY - Corporate Bond Portfolio SAST MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL - Global Bond Portfolio SAST MANAGED BY MORGAN STANLEY INVESTMENT MANAGEMENT INC.** - Worldwide High Income Portfolio SAST MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP - Government and Quality Bond Portfolio AST CASH: MANAGED BY COLUMBIA MANAGEMENT ADVISORS, LLC - Cash Management Portfolio SAST * "Dogs" of Wall Street Portfolio is an equity fund seeking total return and Federated American Leaders Portfolio is an equity fund seeking growth of capital and income. ** Morgan Stanley Investment Management, Inc. does business in certain circumstances as "Van Kampen." YOU SHOULD READ THE PROSPECTUSES FOR THE TRUSTS CAREFULLY. THESE PROSPECTUSES CONTAIN DETAILED INFORMATION ABOUT THE PORTFOLIOS, INCLUDING EACH VARIABLE PORTFOLIO'S INVESTMENT OBJECTIVE AND RISK FACTORS. If applicable, your Plan may limit the Variable Portfolios available under your Contract. 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. We guarantee that the interest rate credited to amounts allocated to any Fixed Account guarantee periods will never be less than the minimum guaranteed 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 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. 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 9 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. If your contract offered Fixed Accounts subject to a market value adjustment, please see the Market Value Adjustment ("MVA") Appendix in this prospectus for additional information. DOLLAR COST AVERAGING FIXED ACCOUNTS You may invest initial rollover 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 and for the 12-month DCA Fixed Account is $1,200. Purchase Payments less than these minimum amounts will automatically be allocated to the Variable Portfolios according to your instructions or your current allocation instruction on file. DCA Fixed Accounts credit a fixed rate of interest and can only be elected to facilitate a DCA program. 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 the Variable Portfolios 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 declining balance as you systematically transfer your money to the Variable Portfolios. Therefore, the actual effective yield will be less than the stated annual crediting rate. Please note, for administrative reasons, we accumulate all subsequent Purchase Payments made in a given month into a single trade, and apply the fixed rate of interest available at that time. 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 the Variable Portfolios 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 other Variable Portfolio ("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 Account only accepts initial or subsequent Purchase Payments. You may not make a transfer from a Variable Portfolio or Fixed Account into a DCA Fixed Account. You may terminate the DCA program at any time. If you terminate the DCA program and money remains in the DCA Fixed Accounts, 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. TRANSFERS DURING THE ACCUMULATION PHASE Subject to our rules, restrictions and policies, during the Accumulation Phase you may transfer funds between the Variable Portfolios and/or any Fixed Accounts by telephone or through the Company's website (www.aigsunamerica.com) or in writing by mail or 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. 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 10 resulting from instructions received over the telephone or the Internet. If we fail to follow our procedures, we may be liable for any losses due to unauthorized or fraudulent instructions. 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. TRANSFER 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 an Underlying Fund. Such risks may include, but are not limited to: (1) interference with the management and planned investment strategies of an Underlying Fund and/or (2) increased brokerage and administrative costs due to forced and unplanned fund turnover; both of which may dilute the value of the shares in the corresponding Underlying Fund and reduce value for all investors in the Variable Portfolio. In addition to negatively impacting the contract 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. All transfer requests in excess of 15 transfers within a rolling twelve-month look-back period must be submitted by United States Postal Service first-class mail ("U.S. Mail"). Once a contract triggers this "Standard U.S. Mail Policy," all transfer requests must be submitted by U.S. Mail for 12 months from the date of the triggering transfer. For example, if you made a transfer on August 16, 2006 and within the previous twelve months (from August 17, 2005 forward) you made 15 transfers including the August 16th transfer, then all transfers made for twelve months after August 16, 2006 must be submitted by U.S. Mail (from August 17, 2006 through August 16, 2007). 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. Transfers resulting from your participation in the DCA or 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 reflect what we consider 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 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 impose further limits on the number and frequency of transfers you can make, impose minimum holding periods and/or reject any transfer request or terminate your transfer privileges. We will notify you in writing if your transfer privileges are terminated. In addition, we reserve the right not to accept 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 or impose other conditions on transfer privileges include: (1) the number of transfers made in a defined period; (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; and/or (6) other activity, as determined by us, that creates an appearance, real or perceived, 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. We cannot guarantee that we will detect and/or deter all Short- Term Trading. 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, 11 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. 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. For information regarding transfers during the Income Phase, SEE INCOME OPTIONS BELOW. AUTOMATIC ASSET REBALANCING Market fluctuations may cause the percentage of your investment in the Variable Portfolios to differ from your original allocations. Under the Automatic Asset Rebalancing program, your investments in the Variable Portfolios are periodically rebalanced to return your allocations to the percentages given at your last instruction for no additional charge. Automatic Asset Rebalancing typically involves shifting a portion of your money out of a Variable Portfolio with a higher return into a Variable Portfolio with a lower return. 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. 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 growth Variable Portfolio represents 40% of your holdings. If you chose quarterly rebalancing, 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 comply with these rules, we will vote the shares in our own right. 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, we may be required to obtain SEC approval or your approval. ---------------------------------------------------------------- ---------------------------------------------------------------- ACCESS TO YOUR MONEY ---------------------------------------------------------------- ---------------------------------------------------------------- You can access money in your Contract in three ways: - by receiving income payments during the Income Phase, SEE INCOME OPTIONS BELOW; - by taking a loan in accordance with the provisions of your Plan and/or this Contract (TSA only); or 12 - subject to the restrictions described below, by making a partial or total withdrawal. Any request for withdrawal 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 request for withdrawal is received after Market Close, the request will be priced as of the next business day. Generally, we deduct a withdrawal charge applicable to any partial or total withdrawal before the end of the withdrawal charge period. If you made a total withdrawal, we also deduct premium taxes, if applicable. We may be required to suspend or postpone the payment of a withdrawal for any period of time when: (1) the NYSE is closed (other than a customary weekend and holiday closings); (2) trading with the NYSE is restricted; (3) an emergency exists such that disposal of or determination of the value of shares of the Portfolios is not reasonably practicable; (4) the SEC, by order, so permits for the protection of Contract owners. Additionally, we reserve the right to defer payments for a withdrawal from a fixed account option. Such deferrals are limited to no longer than six months. We may establish certain minimum withdrawal amounts or require that a minimum amount remain in a Variable Portfolio upon withdrawal. Please consult the Annuity Service Center for additional information. You must send a written withdrawal request. Unless you provide us with different instructions, partial withdrawals will be made pro rata from each Variable Portfolio and each fixed account option in which you are invested. WITHDRAWAL RESTRICTIONS Withdrawals under Section 403(b) Contracts are subject to the limitations under Section 403(b)(11) of the IRC and any applicable Plan document. Section 403(b) provides that salary reduction contributions deposited and earnings credited on any salary reduction contributions after December 31, 1988 may only be withdrawn upon (1) death; (2) disability; (3) reaching age 59 1/2; (4) separation from service; or (5) occurrence of a hardship. Amounts accumulated in one Section 403(b)(1) Contract may be transferred to another Section 403(b)(1) Contract or Section 403(b)(7) custodial account without a penalty under the IRC. Amounts accumulated in a Section 403(b)(7) custodial account and deposited in a Contract will be subject to the same withdrawal restrictions as are applicable to post-1988 salary reduction contributions. For more information on these provisions. SEE TAXES BELOW. If your Plan is subject to Title I of ERISA, your withdrawal request must be authorized by the Contractholder on your behalf. All withdrawal requests will require the Contractholder's written authorization and written documentation specifying the portion of your Contract value which is available for distribution to you. If your Plan is not subject to Title I of ERISA and you own a TSA, you must certify to AIG SunAmerica Life that, one of the events listed in the IRC has occurred (and provide supporting information, if requested) and that AIG SunAmerica Life may rely on such representation in granting such a withdrawal request. The above does not apply to transfers to other Qualified investment alternatives. SEE TAXES BELOW. You should consult your tax adviser as well as review the provisions of any applicable Plan before requesting a withdrawal. In addition to the restrictions noted above, a Plan may contain additional withdrawal or transfer restrictions. Early withdrawals from a TSA or IRA, as defined under Section 72(q) and 72(t) of the IRC, may be subject to 10% penalty tax. TEXAS OPTIONAL RETIREMENT PROGRAM If you participate in the Texas Optional Retirement Program ("ORP") you must obtain a certificate of termination from your employer before you can redeem your Contract. We impose this requirement on you because the Texas Attorney General ruled that participants in ORP may redeem their Contract only upon termination of their employment by Texas public institutions of higher education, or upon retirement death or total disability. SYSTEMATIC WITHDRAWAL PROGRAM If you elect and the terms of any applicable Plan and/or the IRC allow, then we use money in your Contract to pay your monthly, quarterly, semiannual or annual payments during the Accumulation Phase. Electronic transfer of these funds to your bank account is also available. However, any such payments you elect to receive are subject to all applicable withdrawal charges, market value adjustments, income taxes, tax penalties and other withdrawal restrictions affecting your Contract. The minimum amount of each withdrawal is $50. There must be a least $500 remaining in your Contract at all times. Withdrawals may be taxable and a 10% IRS tax penalty may apply if you are under age 59 1/2 at the time of withdrawal. There is no additional charge for participating in this program. The program is not available to everyone. Please check with our Annuity Service Center, which can provide the necessary enrollment forms. We reserve the right to modify, suspend or terminate this program at any time. WITHDRAWAL CHARGES, INCOME TAXES, TAX PENALTIES AND CERTAIN WITHDRAWAL RESTRICTIONS MAY APPLY TO ANY WITHDRAWAL YOU MAKE, INCLUDING SYSTEMATIC WITHDRAWALS. 13 LOANS If you own a TSA and, if applicable, your Plan permits, you may take a loan from your Contract during the Accumulation Period. You may apply for a loan under the Contract by completing a loan application available from AIG SunAmerica Life. Loans are secured by a portion of your Contract Value. More information about loans, including interest rates, restrictions, terms of repayment and applicable fees and charges is available in the Certificate, the Endorsement and the Loan Agreement as well as from AIG SunAmerica Life's Annuity Service Center. FREE WITHDRAWAL AMOUNT If your Contract is subject to withdrawal charge schedule A, you may be able to withdraw 15% of your Purchase Payments each Contract year, free of a contractual withdrawal charge. The amount available for free withdrawal each year is reduced by the amount of any Purchase Payment previously withdrawn in that Contract year. However, upon a full surrender of your Contract, any previous free withdrawals would be subject to a surrender charge, if any is applicable at the time of surrender (except in the State of Washington). MINIMUM CONTRACT VALUE Where permitted by state law, we may terminate your contract if both of the following occur: (1) your contract value is less than $500 as a result of withdrawals and/or fees and charges; and (2) you have not made any Purchase Payments during the past three years. 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. ---------------------------------------------------------------- ---------------------------------------------------------------- DEATH BENEFIT ---------------------------------------------------------------- ---------------------------------------------------------------- If you should die during the Accumulation Phase of your Contract, we pay a death benefit to your Beneficiary. For Contracts issued on or after November 24, 2003, the death benefit (unless limited by your Plan) equals the greater of: 1. Total Purchase Payments reduced by the amount of any loan(s) outstanding plus accrued interest and reduced for withdrawals (and any fees and charges applicable to those withdrawals) in the same proportion that each withdrawal reduced Contract Value on the date of the withdrawal as calculated at the time we receive satisfactory proof of death, or; 2. Contract Value at the time we receive satisfactory proof of death and all required paperwork. For information on death benefits included in Contracts issued before November 24, 2003 please see the Statement of Additional Information. We do not pay the death benefit if you die after you switch to the Income Phase. However, if you die during the Income Phase your Beneficiary receives any remaining guaranteed income payments (or a portion thereof) in accordance with the income option you selected. SEE INCOME OPTIONS BELOW. You name your Beneficiary. You may change the Beneficiary at any time, unless you previously made an irrevocable Beneficiary designation. Plans subject to Title 1 of ERISA may impose additional restrictions on beneficiary designation which are discussed in the Beneficiary Designation Form. We calculate and pay the death benefit when we receive satisfactory proof of death and all required paperwork. We consider the following satisfactory proof of death: 1. a certified copy of the death certificate; or 2. a certified copy of a decree of a court of competent jurisdiction as to the finding of death; or 3. a written statement by a medical doctor who attended the deceased at the time of death; or 4. any other proof satisfactory to us. The death benefit must be paid by December 31 of the calendar year containing the fifth anniversary of the date of death unless the Beneficiary elects to have it payable in the form of an income option. If the Beneficiary elects an income option, it must be paid over the Beneficiary's lifetime or for a period not extending beyond the Beneficiary's life expectancy. Payments must begin on or before December 31 of the calendar year immediately following the year of your death. If the Beneficiary is the Participant's surviving spouse, the surviving spouse may elect to receive the entire death benefit in equal or substantially equal payments over their life or over a period not longer than their life expectancy, commencing at any date prior to the later of: (i) December 31 of the calendar year immediately following the calendar year in which the Participant died, and (ii) December 31 of the calendar year in which the Participant would have attained age 70 1/2. For contracts in which the aggregate of all Purchase Payments in contracts issued by AIG SunAmerica Life and/or First SunAmerica to the same owner/annuitant are in excess of $1,000,000, we reserve the right to limit the death benefit amount that is in excess of contract value at the time we receive all paperwork and satisfactory proof of death. Any limit on the maximum death benefit payable would be mutually agreed upon in writing by you and the Company prior to purchasing the contract. ---------------------------------------------------------------- ---------------------------------------------------------------- EXPENSES ---------------------------------------------------------------- ---------------------------------------------------------------- There are fees and expenses associated with your contract which reduce your investment return. We will not increase the contract fees, such as mortality and expense charges or 14 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 APPENDIX D FOR STATE-SPECIFIC EXPENSES. SEPARATE ACCOUNT CHARGES Separate account charges may vary by Plan or group Contract. The annual separate account expenses on this Contract ranges from 0.85% to a maximum of 1.25%, annually of the value of your Contract invested in the Variable Portfolios. We deduct the charge daily. This charge compensates the Company for the mortality and expense risk and the costs of Contract distribution assumed by the Company. The separate account charges applicable to your Contract can be obtained by contacting your Plan Sponsor, Employer or financial representative or consulting your Contract Data page. There is no separate account charge deducted against amounts allocated to the fixed account options. Generally, the mortality risks assumed by the Company arise from its contractual obligations to make income payments after the Annuity Date and to provide a death benefit. The expense risk assumed by the Company is that the costs of administering the Contracts and the Separate Account will exceed the amount received from the administrative fees and charges assessed under the Contract. If these charges do not cover all of our expenses, we will pay the difference. Likewise, if these charges exceed our expenses, we will keep the difference. The separate account charge is expected to result in a profit. Profit may be used for any legitimate cost/expense including distribution, depending upon market conditions. WITHDRAWAL CHARGES A withdrawal charge may apply against each Purchase Payment you put into the Contract if you seek withdrawal of that payment prior to the end of a specified period. The withdrawal charge amount may vary by Plan. If applicable, the withdrawal charge equals a percentage of the Purchase Payment you take out of the Contract. The withdrawal charge percentage may decline over time for each Purchase Payment in the Contract. The applicable withdrawal charge schedule will appear on your Contract Data Page. Currently, the withdrawal charges range from 0% to the maximum withdrawal charge, as noted: SEPARATED FROM SERVICE AT CONTRACT ISSUE (SCHEDULE A)
------------------------------------------------------------------ YEAR 1 2 3 4 5 6 ------------------------------------------------------------------ WITHDRAWAL CHARGE 6% 6% 5% 5% 4% 0% ------------------------------------------------------------------
EMPLOYED AT CONTRACT ISSUE (SCHEDULE B)
------------------------------------------------------------------- YEAR 1 2 3 4 5 6 7 ------------------------------------------------------------------- WITHDRAWAL CHARGE 6% 6% 5% 5% 4% 4% 0% -------------------------------------------------------------------
You may obtain information as to the withdrawal charge applicable to your Contract by contacting your Plan Sponsor, Employer, financial representative or by consulting your Contract Data page. When calculating the withdrawal charge, we treat withdrawals as coming first from the Purchase Payments that have been in your Contract the longest. However, for tax purposes, your withdrawals are considered earnings first, then Purchase Payments. Whenever possible, we deduct the withdrawal charge from the money remaining in your Contract. If you withdraw all of your Contract value, we deduct any applicable withdrawal charge from the amount withdrawn. We calculate charges due on a total withdrawal as of the day after we receive your request and your Contract. We return your Contract value less any applicable fees and charges. You will not receive the benefit of any available and prior free withdrawal amounts (applicable only to those subject to withdrawal charge Schedule A) if you make a complete withdrawal of your Contract. Both the insurance charges and the withdrawal charges may vary by Plan and/or group Contract based on certain objective factors. SEE REDUCTION OR ELIMINATION OF CHARGES AND EXPENSES, AND ADDITIONAL AMOUNTS CREDITED BELOW. EXCEPTIONS TO WITHDRAWAL CHARGE If a withdrawal charge applies to your Contract a withdrawal charge is not applicable to withdrawals requested in the following situations: - Annuitization (except if under the Income Protector Program) SEE INCOME OPTIONS ABOVE; - Death Benefits, SEE DEATH BENEFIT BELOW; - After your 10th Contract anniversary; - If you are subject to withdrawal charge Schedule A, 15% of your Purchase Payments each Contract year; - Disability occurring after Contract issue; - Hardship occurring after Contract issue; - After separation from service occurring after Contract issue. - loans in accordance with the requirements of ERISA and/or the IRC, the Plan and the Contract; and - to avoid Federal Income Tax penalties or satisfy income tax rules applicable to the Contract from which the withdrawal is made. 15 Additionally, upon conversion to an IRA from an existing Polaris Plus 403(b) Contract, IRA Contractholders will receive credit for time served in their prior Polaris Plus TSA variable annuity investment. This means we will carry over the 403(b) Purchase Payment history with respect to any potential withdrawal charges under the IRA. Withdrawals made prior to age 59 1/2 may result in tax penalties. SEE TAXES BELOW. INCOME PROTECTOR We charge a fee for the Income Protector program, as follows:
---------------------------------------------------------------------------------- ANNUALIZED FEE AS A % OF YOUR CONTRACT YEAR INCOME BENEFIT BASE ---------------------------------------------------------------------------------- Income Protector Plus 0.15% ---------------------------------------------------------------------------------- Income Protector Max 0.30% ----------------------------------------------------------------------------------
Since the Income Benefit Base is only a calculation and does not provide a Contract value, we deduct the fee from your actual Contract value beginning on the Contract anniversary on which your enrollment in the program becomes effective. If you elect to participate in the Income Protector program at Contract issue, we begin deducting the annual fee for the Plus or Max option when your participation becomes effective. If you elect to participate in the Income Protector program at some time after Contract issue, we begin deducting the annual fee on the Contract anniversary of or following election. We will deduct this charge from your Contract value on every Contract anniversary up to and including your Income Benefit Date. UNDERLYING FUND EXPENSE INVESTMENT MANAGEMENT FEES The Separate Account purchases shares of the Variable Portfolios. The Accumulation Unit value for each Variable Portfolio reflects the investment management fees and other expenses of the corresponding Underlying Funds. These fees may vary. They are not fixed or specified in your annuity contract, rather the Variable Portfolios are governed by their own boards of trustees. For more detailed information on these Underlying Fund fees, refer to the prospectuses for the Trusts. TRANSFER FEE We currently permit an unlimited number of transfers between investment options, every year. We reserve the right to limit the number of transfers to 15 per year, in the future, for both new and existing Contractholders. If we do impose such a limit you will be charged $25 for each transfer over that limit. SEE INVESTMENT OPTIONS ABOVE. PREMIUM TAX Certain states charge the Company a tax on Purchase Payments up to a maximum of 3.5%. We deduct these premium tax charges when you fully surrender your contract or begin the Income Phase. In the future, we may deduct this premium tax at the time you make a Purchase Payment or upon payment of a death benefit. INCOME TAXES We do not currently deduct income taxes from your contract. We reserve the right to do so in the future. REDUCTION OR ELIMINATION OF CHARGES AND EXPENSES, AND ADDITIONAL AMOUNTS CREDITED Sometimes sales of 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, it affiliates' employees and employees of currently contracted broker-dealers; its registered representatives; and immediate family members of all of those described. WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE ANY SUCH DETERMINATION OR THE TREATMENT APPLIED TO A PARTICULAR GROUP AT ANY TIME. ---------------------------------------------------------------- ---------------------------------------------------------------- INCOME OPTIONS ---------------------------------------------------------------- ---------------------------------------------------------------- ANNUITY DATE During the Income Phase, the money in your Contract is used to make regular income payments to you. You may switch to the Income Phase any time. You select the month and year in which you want income payments to begin. The first day of that month is the Annuity Date. You may change your Annuity Date, so long as you do so at least seven days before the income payments are scheduled to begin. Once you begin receiving income payments, you cannot change your income option. Except as indicated under Option 5, once you begin receiving income payments, you cannot otherwise access your money through withdrawal or surrender. Generally, for Qualified Contracts, the Annuity Date may be any day after you reach age 59 1/2 but not later than your 75th birthday. However, you may be required to begin taking minimum distributions by April 1 following the later of, the 16 year in which you turn age 70 1/2 or the calendar year in which you retire. SEE TAXES BELOW. As to TSAs and IRAs, an income payment is generally considered a withdrawal. Therefore, IRC withdrawal restrictions may limit the time at which income payments may begin. SEE ACCESS TO YOUR MONEY ABOVE. 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. ANNUITY INCOME OPTIONS Currently, this Contract offers 5 standard income options. Other payout options may be available. Contact the Annuity Service Center for more information. If you elect to receive income payments but do not select an option, your income payments will be made in accordance with Option 4 for a period of 10 years. For income payments selected for joint lives, We pay according to Option 3 for a period of 10 years. We base our calculation of income payments on the life of the Annuitant and the annuity rates set forth in your Contract. Under a TSA you, as the Participant, are always the Annuitant. Under an IRA you as the Owner must always be the Annuitant. UNDER CERTAIN QUALIFIED CONTRACTS THE INCOME OPTION YOU SELECT MAY NOT EXCEED YOUR LIFE EXPECTANCY. OPTION 1 - LIFE INCOME ANNUITY This option provides annuity income payments for the life of the Annuitant. Annuity income payments stop when the Annuitant dies. 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 stop when the survivor dies. 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. OPTION 4 - LIFE INCOME ANNUITY WITH 10, 15 OR 20 YEARS GUARANTEED This option is similar to Option 1 above with an additional guarantee of payments for at least 10, 15 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. 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 the mortality and expense risk charge. Since Option 5 does not contain an element of mortality risk, no benefit is derived from this charge. Please read the Statement of Additional Information for a more detailed discussion of the annuity income options. FIXED OR VARIABLE INCOME PAYMENTS You can choose annuity income payments that are fixed, variable or both. Unless otherwise elected, if at the date when income payments begin you are invested in the Variable Portfolios only, your 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 and variable investment options 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. 17 If you are invested in the Variable Portfolios after the Annuity Date, your annuity income payments vary depending on the following: - for life 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 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. SEE ALSO ACCESS TO YOUR MONEY ABOVE FOR A DISCUSSION OF WHEN PAYMENTS FROM A VARIABLE PORTFOLIO MAY BE SUSPENDED OR POSTPONED. THE INCOME PROTECTOR If elected, this feature provides a future "safety net" in the event that, when you choose to begin receiving income payments, your Contract has not performed within a historically anticipated range. The Income Protector program offers you the ability to receive a guaranteed fixed minimum retirement income upon annuitization. With the Income Protector you can know the level of minimum income that will be available to you if, when you chose to begin the income phase of your Contract, down markets have negatively impacted your Contract value. We reserve the right to modify, suspend or terminate the Income Protector program at any time. The Income Protector provides two levels of minimum retirement income. The two available options are the Income Protector Plus and Max. If you enroll in the Income Protector program, We charge a fee based on the level of protection you select. The amount of the fee and how to enroll are described below. In order to utilize the benefit of the program you must follow the provisions discussed below. Certain IRC restrictions on income options available to Qualified retirement investors may have an impact on your ability to benefit from this feature. Qualified investors should read NOTE TO QUALIFIED CONTRACTHOLDERS, below. HOW WE DETERMINE THE AMOUNT OF YOUR MINIMUM GUARANTEED INCOME We base the amount of minimum income available to you if you take income payments using the Income Protector upon a calculation we call the Income Benefit Base. At the time your enrollment in the Income Protector program becomes effective, your Income Benefit Base is equal to your Contract value. Your participation becomes effective on either the date of issue of the Contract (if elected at the time of application) or on the Contract anniversary following your enrollment in the program. The Income Benefit Base is only a calculation. It does not represent a Contract value, nor does it guarantee performance of the Variable Portfolios in which you invest. Your Income Benefit Base increases if you make subsequent Purchase Payments and decreases if you withdraw money from your Contract. The exact Income Benefit Base calculation is equal to (a) plus (b) minus (c) where: (a) is, - for the first year of calculation, your Contract value on the date your participation in the program became effective, or; - for each subsequent year of calculation, the Income Benefit Base on the prior Contract anniversary, and; (b) is the sum of all Purchase Payments made into the Contract since the last Contract anniversary, and; (c) is all withdrawals and applicable fees and charges since the last Contract anniversary (excluding any positive MVA), in an amount proportionate to the amount by which such withdrawals decreased your Contract value. 18 The Income Benefit Base accumulates at one of the following annual growth rates from the date your enrollment becomes effective through your election to begin receiving income under the program:
------------------------------------------------------- OPTIONS GROWTH RATE* ------------------------------------------------------- The Income Protector Plus 3.25% ------------------------------------------------------- The Income Protector Max 5.25% -------------------------------------------------------
* If you elect the Plus or Max feature on a subsequent anniversary, the Growth Rates may be different. The growth rates for the Plus or Max features cease on the Contract anniversary following the Annuitant's 90th birthday. ENROLLING IN THE PROGRAM If you decide that you want the protection offered by the Income Protector program, you must elect the option of your choice by completing the Income Protector Election Form available through our Annuity Service Center. You may only elect one of the options, you can not change your election once made, and you can not terminate your enrollment. In order to obtain the benefit of the Income Protector program you may not begin the income phase for at least seven years following your enrollment. STEP-UP OF YOUR INCOME BENEFIT BASE You may also have the opportunity to "Step-Up" your Income Benefit Base. The Step-Up feature allows you to increase your Income Benefit Base to the amount of your Contract value on your Contract anniversary. You can only elect to Step-Up within the 30 days before the next Contract anniversary. The seven year waiting period required prior to electing income payments through the Income Protector is restarted if you step-up your Income Benefit Base. You must complete the appropriate portion of the Income Protector Election Form to effect a Step-Up. ELECTING TO RECEIVE INCOME PAYMENTS You may elect to begin the Income Phase of your Contract using the Income Protector Program ONLY within the 30 days after the seventh or later Contract anniversary following the later of, - the effective date of your enrollment in the Income Protector program, or - the Contract anniversary of your most recent Step-Up. The Contract anniversary prior to your election to begin receiving income payments is your Income Benefit Date. This is the date as of which we calculate your Income Benefit Base to use in determining your guaranteed minimum fixed retirement income. To arrive at the minimum guaranteed fixed retirement income available to you, we apply the annuity rates stated in your Income Protector Endorsement for the income option you select to your final Income Benefit Base. You then choose if you would like to receive that income annually, quarterly or monthly for the time guaranteed under your selected annuity option. Your final Income Benefit Base is equal to (a) minus (b) where: (a) is your Income Benefit Base as your Income Benefit Date, and; (b) is any partial withdrawals of Contract value and any charges applicable to those withdrawals (excluding any positive MVA) and any withdrawal charges otherwise applicable, calculated as if you fully surrender your Contract at the Income Benefit Date, and any applicable premium taxes. The income options available when using the Income Protector program to receive your retirement income are: - Life Annuity with 10 Year Period Certain, or - Joint and 100% Survivor Annuity with 20 Year Period Certain At the time you elect to begin the income phase, we will calculate your annual income using both your final Income Benefit Base and your Contract value. We will use the same income option for each calculation, however, the annuity factors used to calculate your income under the Income Protector will be different. You will receive whichever provides a greater stream of income. If you take Income Payments using the Income Protector your payments will be fixed in amount. You are not required to use the Income Protector to receive your Income Payments. The general provisions of your Contract provide other income options. However, we will not refund fees paid for the Income Protector if you begin taking Income Payments under the general provisions of your Contract. YOU MAY NEVER NEED TO RELY UPON THE INCOME PROTECTOR, IF YOUR CONTRACT PERFORMS WITHIN A HISTORICALLY ANTICIPATED RANGE. HOWEVER, PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. NOTE TO QUALIFIED CONTRACTHOLDERS Qualified Contracts generally require that you select an income option which does not exceed your life expectancy. That restriction may limit the benefit of the Income Protector program. To utilize the Income Protector you must take income payments under one of two income options. If those income options exceed your life expectancy you may be prohibited from receiving your guaranteed fixed income under the program. If you own a Qualified Contract to which this restriction applies and you elect the Income Protector program, you may pay for this minimum guarantee and not be able to realize the benefit. You should consult your tax advisor for information concerning your particular circumstances. 19 FEES ASSOCIATED WITH THE INCOME PROTECTOR We charge a fee for the Income Protector program, as follows:
------------------------------------------------------- FEE AS A % OF YOUR INCOME OPTIONS BENEFIT BASE --------------------------------------------------------- Income Protector Plus 0.15% --------------------------------------------------------- Income Protector Max 0.30% ---------------------------------------------------------
Since the Income Benefit Base is only a calculation and does not provide a Contract value, we deduct the fee from your actual Contract value beginning on the Contract anniversary on which your enrollment in the program becomes effective. If you elect to participate in the Income Protector program at Contract issue, we begin deducting the annual fee for the Plus or Max option when your participation becomes effective. If you elect to participate in the Income Protector program at some time after Contract issue, we begin deducting the annual fee on the Contract anniversary of or following election. We will deduct this charge from your Contract value on every Contract anniversary up to and including your Income Benefit Date. After a Step-Up, the fee for the Income Protector Max or Plus will be based on your Stepped-Up Income Benefit Base, and will be deducted from your Contract value beginning on the effective date of the step-up. The Income Protector may not be available in your state. Please consult your financial representative for information regarding availability of this program in your state. SEE THE APPENDIX FOR AN EXAMPLE OF THE OPERATION OF THE INCOME PROTECTOR FEATURE. ---------------------------------------------------------------- ---------------------------------------------------------------- TAXES ---------------------------------------------------------------- ---------------------------------------------------------------- NOTE: THE BASIC SUMMARY BELOW ADDRESSES BROAD FEDERAL TAXATION MATTERS, AND GENERALLY DOES NOT ADDRESS STATE TAXATION ISSUES OR QUESTIONS. IT IS NOT TAX ADVICE. WE CAUTION YOU TO SEEK COMPETENT TAX ADVICE ABOUT YOUR OWN CIRCUMSTANCES. WE DO NOT GUARANTEE THE TAX STATUS OF YOUR ANNUITY. TAX LAWS CONSTANTLY CHANGE; THEREFORE, WE CANNOT GUARANTEE THAT THE INFORMATION CONTAINED HEREIN IS COMPLETE AND/OR ACCURATE. WE HAVE INCLUDED AN ADDITIONAL DISCUSSION REGARDING TAXES IN THE 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 a pension plan, a specially sponsored employer program or an individual retirement account, your contract is referred to as a Non-Qualified contract. A Non-Qualified contract receives different tax treatment than a Qualified contract. In general, your cost in a Non-Qualified contract is equal to the Purchase Payments you put into the contract. You have already been taxed on the cost basis in your contract. If you purchase your contract under a pension plan, a specially sponsored employer program, 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. 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 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 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); 20 - 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 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; - which are attributable to Purchase Payments made prior to August 14, 1982. TAX TREATMENT OF DISTRIBUTIONS - QUALIFIED CONTRACTS (INCLUDING GOVERNMENTAL 457(B) ELIGIBLE DEFERRED COMPENSATION PLANS) Generally, you have not paid any taxes on the Purchase Payments used to buy a Qualified contract. As a result, most amounts withdrawn from the contract or received as income payments will be taxable income. Exceptions to this general 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 the Owner's attainment of age 59 1/2 and at least five years in a Roth account under the plan or IRA, 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 amounts representing rollovers from an IRA or employer sponsored plan to which the 10% penalty would otherwise apply. The IRC limits the withdrawal of an employee's voluntary Purchase Payments from a Tax-Sheltered Annuity (TSA). Withdrawals can only be made when an owner: (1) reaches age 59 1/2; (2) severs employment with the employer; (3) dies; (4) becomes disabled (as defined in the IRC); or (5) experiences a financial hardship (as defined in the IRC). In the case of hardship, the owner can only withdraw Purchase Payments. Additional plan limitations may also apply. Amounts held in a TSA annuity contract as of December 31, 1988 are not subject to these restrictions. Qualifying transfers of amounts from one TSA contract to another TSA contract under section 403(b) or to a custodial account under section 403(b)(7), and qualifying transfers to a state defined benefit plan to purchase service credits, are not considered distributions, and thus are not subject to these withdrawal limitations. Transfers among 403(b) annuities and/or 403(b)(7) custodial accounts generally are subject to rules set out in the Code, regulations, IRS pronouncements, and other applicable legal authorities. If amounts are transferred from a custodial account described in Code section 403(b)(7) to this contract the transferred amount will retain the custodial account withdrawal restrictions. Withdrawals from other Qualified Contracts are often limited by the IRC and by the employer's plan. MINIMUM DISTRIBUTIONS Generally, the IRC requires that you begin taking annual distributions from Qualified annuity contracts by April 1 of the calendar year following the later of (1) the calendar year in which you attain age 70 1/2 or (2) the calendar year in which you separate from service from the employer sponsoring the plan. If you own an IRA, you must begin taking distributions when you attain age 70 1/2. If you own more than one TSA, you may be permitted to take your annual distributions in any combination from your TSAs. A similar rule applies if you own more than one IRA. However, you cannot satisfy this distribution requirement for your TSA contract by taking a distribution from an IRA, and you cannot satisfy the requirement for your IRA by taking a distribution from a TSA. 21 You may be subject to a surrender charge on withdrawals taken to meet minimum distribution requirements, if the withdrawals exceed the contract's maximum penalty free amount. Failure to satisfy the minimum distribution requirements may result in a tax penalty. You should consult your tax advisor for more information. You may elect to have the required minimum distribution amount on your contract calculated and withdrawn each year under the automatic withdrawal option. You may select monthly, quarterly, semiannual, or annual withdrawals for this purpose. This service is provided as a courtesy and we do not guarantee the accuracy of our calculations. Accordingly, we recommend you consult your tax advisor concerning your required minimum distribution. You may terminate your election for automated minimum distribution at any time by sending a written request to our Annuity Service Center. We reserve the right to change or discontinue this service at any time. The IRS issued 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. 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 advisor. TAX TREATMENT OF DEATH BENEFITS Any death benefits paid under the contract are taxable to the Beneficiary. The rules governing the taxation of payments from an annuity contract, as discussed above, generally apply whether the death benefits are paid as lump sum or annuity payments. Estate taxes may also apply. Certain enhanced death benefits may be purchased under your contract. Although these types of benefits are used as investment protection and should not give rise to any adverse tax effects, the IRS could take the position that some or all of the charges for these death benefits should be treated as a partial withdrawal from the contract. In that case, the amount of the partial withdrawal may be includible in taxable income and subject to the 10% penalty if the owner is under 59 1/2. If you own a Qualified contract and purchase these enhanced death benefits the IRS may consider these benefits "incidental death benefits" 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) selected by you are considered to exceed 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. CONTRACTS OWNED BY A TRUST OR CORPORATION A Trust or Corporation ("Non-Natural Owner") that is considering purchasing this contract should consult a tax advisor. Generally, the IRC does not treat a Non-qualified contract owned by a non-natural owner as an annuity contract for Federal income tax purposes. The non-natural owner pays tax currently on the contract's value in excess of the owner's cost basis. However, this treatment is not applied to a contract held by a trust or other entity as an agent for a natural person nor to contracts held by Qualified Plans. See the SAI for a more detailed discussion of the potential adverse tax consequences associated with non-natural ownership of a Non-qualified annuity contract. GIFTS, PLEDGES AND/OR ASSIGNMENTS OF A CONTRACT If you transfer ownership of your Non-Qualified contract to a person other than your spouse (or former spouse incident to divorce) as a gift you will pay federal income tax on the contract's cash value to the extent it exceeds your cost basis. The recipient's cost basis will be increased by the amount on which you will pay federal taxes. In addition, the IRC treats any assignment or pledge (or agreement to assign or pledge) of any portion of a Non- Qualified contract as a withdrawal. See the SAI for a more detailed discussion regarding potential tax consequences of gifting, assigning, or pledging a Non-qualified contract. The IRC prohibits Qualified annuity contracts including IRAs from being transferred, assigned or pledged as security for a loan. This prohibition, however, generally does not apply to loans under an employer-sponsored plan (including loans from the annuity contract) that satisfy certain requirements, provided that: (a) the plan is not an unfunded deferred compensation plan; and (b) the plan funding vehicle is not an IRA. DIVERSIFICATION AND INVESTOR CONTROL The IRC imposes certain diversification requirements on the underlying investments for a variable annuity. We believe that the 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 investments must meet these requirements. The diversification regulations do not provide guidance as to the circumstances under which you, and not the Company, would be considered the owner of the shares of the Variable Portfolios under your Non-qualified contract, because of the degree of control you exercise over the underlying investments. This diversification requirement is sometimes 22 referred to as "investor control." It is unknown to what extent owners are permitted to select investments, to make transfers among Variable Portfolios or the number and type of Variable Portfolios owners may select from. If any guidance is provided which is considered a new position, then the guidance should generally be applied prospectively. However, if such guidance is considered not to be a new position, it may be applied retroactively. This would mean that you, as the owner of the Non-qualified Contract, could be treated as the owner of the Underlying 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. ---------------------------------------------------------------- ---------------------------------------------------------------- OTHER INFORMATION ---------------------------------------------------------------- ---------------------------------------------------------------- AIG SUNAMERICA LIFE The Company is a stock life insurance company originally organized under the laws of the state of California in April 1965. On January 1, 1996, the Company redomesticated under the laws of the state of Arizona. Its principal place of business is 1 SunAmerica Center, Los Angeles, California 90067. The Company conducts life insurance and annuity business in the District of Columbia and all states except New York. The Company is an indirect, wholly owned subsidiary of American International Group, Inc. ("AIG"), a Delaware corporation. THE SEPARATE ACCOUNT The Company originally established a separate account, Variable Annuity Account Seven, under Arizona law on August 28, 1998. The Separate Account is registered with the SEC as a unit investment trust under the Investment Company Act, as amended. The Company owns the assets in the Separate Account. However, the assets in the Separate Account are not chargeable with liabilities arising out of any other business conducted by the Company. 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. THE GENERAL ACCOUNT Money allocated to any Fixed Accounts goes into the Company's general account. The general account consists of all of the company's assets other than assets attributable to a Separate Account. All of the assets in the general account are chargeable with the claims of any of the Company's contract holders as well as all of its creditors. The general account funds are invested as permitted under state insurance laws. The Company has a support agreement in effect between the Company and its ultimate parent company, AIG, and the Company's insurance policy obligations are guaranteed by American Home Assurance Company ("American Home"), a subsidiary of AIG. See the Statement of Additional Information for more information regarding these arrangements. Circumstances affecting AIG can have an impact on the Company. For example, the recent downgrades and ratings actions taken by the major rating agencies with respect to AIG resulted in corresponding downgrades and ratings actions being taken with respect to the Company's ratings. There can be no assurance that such ratings agencies will not take further action with respect to such ratings. Accordingly, we can give no assurance that any further changes in circumstances for AIG will not impact us. GUARANTEE OF INSURANCE OBLIGATIONS Insurance obligations under contracts issued by the Company are guaranteed by American Home, an affiliate of the Company. Insurance obligations include, without limitation, contract value invested in any available Fixed Accounts, death benefits, living benefits and income options. The guarantee does not guarantee contract value or the investment performance of the Variable Portfolios available under the contracts. The guarantee provides that the Company's contract owners can enforce the guarantee directly. The Company expects that the American Home guarantee will be terminated within the next year. However, the insurance obligations on contracts issued prior to termination of the American Home guarantee would continue to be covered, including obligations arising from Purchase Payments received after termination, until satisfied in full. American Home is a stock property-casualty insurance company incorporated under the laws of the State of New York on February 7, 1899. American Home's principal executive office is located at 70 Pine Street, New York, New York 10270. American Home is licensed in all 50 states of the United States and the District of Columbia, as well as certain foreign jurisdictions, and engages in a broad range of insurance and reinsurance activities. American Home is a wholly owned subsidiary of AIG. PAYMENTS IN CONNECTION WITH DISTRIBUTION OF THE CONTRACT PAYMENTS TO BROKER-DEALERS Registered representatives of broker-dealers sell the contract. We pay commissions to the broker-dealers for the sale of your contract ("Contract Commissions"). There are different structures by which a broker-dealer can choose to have their Contract Commissions paid. For example, as one option, we may pay upfront Contract Commission only, that may be up to a maximum 5.25% of each Purchase Payment you invest (which may include promotional amounts). Another option 23 may be a lower upfront Contract Commission on each Purchase Payment, with a trail commission of up to a maximum 0.65% of contract value annually. Generally, the higher the upfront commissions, the lower the trail and vice versa. We pay Contract Commissions directly to the broker-dealer with whom your registered representative is affiliated. Registered representatives may receive a portion of these amounts we pay in accordance with any agreement in place between the registered representative and his/her broker-dealer firm. We may pay support fees in the form of additional cash or non-cash compensation. These payments can take a variety of forms. They may be intended to reimburse the broker-dealer and/or a specific registered representative for specific expenses incurred or may be calculated as a percentage of sales, certain assets under management, and/or assets invested with us for a particular amount of time (persistency bonus). We may also pay support fees as a flat fee. These payments may be consideration for, among other things, presentation within the broker-dealer firm as a preferred product provider, greater access to train and educate the firm's registered representatives about our products, our participation in the firm's sales conferences and educational seminars and broker-dealers' due diligence on our products. Payment of these support fees may result in our products receiving more visible promotion within the firms than other insurers who might not make such payments or might pay smaller amounts. We enter into such arrangements in our discretion and we may negotiate customized arrangements with firms, including affiliated and non-affiliated broker-dealers based on various factors. We do not deduct these amounts directly from your Purchase Payments. We anticipate recovering these amounts from the fees and charges collected under variable contracts sold. Contract commissions and other support fees have a financial impact on the broker-dealer firm and your registered representative and therefore may influence the broker-dealer and its registered representatives to present this contract over others available in the market place. You should discuss with your broker-dealer and/or registered representative how they are compensated for sales of a contract and any resulting real or perceived conflicts of interest. AIG SunAmerica Capital Services, Inc., located at Harborside Financial Center, 3200 Plaza 5, Jersey City, NJ 07311-4992, distributes the contracts. AIG SunAmerica Capital Services, an affiliate of the Company, is a registered broker-dealer under the Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. No underwriting fees are retained in connection with the distribution of the contracts. PAYMENTS WE RECEIVE In addition to amounts received pursuant to established 12b-1 Plans from the Underlying Funds, we receive compensation of up to 0.50% annually based on assets under management from certain Trusts' investment advisers or their affiliates for services related to the availability of the Underlying Funds in the contract. We receive such payments in connection with each of the Trusts available in this Contract. Such amounts received from our affiliate, AIG SAAMCo, are paid pursuant to a profit sharing agreement and are not expected to exceed 0.50% annually based on assets under management. Furthermore, certain investment advisers and/or subadvisers may help offset the costs we incur for training to support sales of the Underlying Funds in the contract. ADMINISTRATION We are responsible for the administrative servicing of your contract. Please contact our Annuity Service Center at (800) 445-SUN2, if you have any comment, question or service request. We send out transaction confirmations and quarterly statements. During the Accumulation Phase, you will receive confirmation of transactions within your contract. Transactions made pursuant to contractual or systematic agreements, such as dollar cost averaging, may be confirmed quarterly. Purchase Payments received through the automatic payment plan or a salary reduction arrangement, may also be confirmed quarterly. For all other transactions, we send confirmations immediately. It is your responsibility to review these documents carefully and notify us of any inaccuracies immediately. We investigate all inquiries. To the extent that we believe we made an error, we retroactively adjust your contract, provided you notify us within 30 days of receiving the transaction confirmation or quarterly statement. Any other adjustments we deem warranted are made as of the time we receive notice of the error. LEGAL PROCEEDINGS There are no pending legal proceedings affecting the Separate Account. The Company and its subsidiaries are parties to various kinds of litigation incidental to their respective business operations. In management's opinion, these matters are not material in relation to the financial position of the Company. On February 9, 2006, AIG announced that it had reached a resolution of claims and matters under investigation with the United States Department of Justice ("DOJ"), the Securities & Exchange Commission, ("SEC"), Department of Justice ("DOJ"), the Office of the New York Attorney General and the New York State Department of Insurance ("NYAG and DOI"). The settlements resolved outstanding litigation filed by the SEC, NYAG and DOI against AIG and conclude negotiations with these authorities and the DOJ in connection with the accounting, financial reporting and insurance brokerage practices of AIG and its subsidiaries, as well as claims relating to the underpayment of certain workers compensation premium taxes and other assessments. As a result of the settlement, the Company obtained temporary permission from the SEC to continue to serve as a 24 depositor for separate accounts. The Company expects that permanent permission to be forthcoming, as the SEC has granted this type of relief to others in the past in similar circumstances. There is no assurance that permanent permission will be granted, however. FINANCIAL STATEMENTS AIG SUPPORT AGREEMENT AIG has entered into a support agreement with the Company under which AIG has agreed to cause the Company to maintain a minimum net worth and liquidity to meet its policy obligations. The support agreement requires AIG to make payments solely to the Company and not to the policyholders. Under no circumstance can a policyholder proceed directly against AIG 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. WHERE YOU CAN FIND MORE INFORMATION The SEC allows us to "incorporate by reference" some of the information the Company and AIG 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 a part of this prospectus. We incorporate by reference the consolidated financial statements (including notes and financial statement schedules thereto) and management's assessment of the effectiveness of internal control over financial reporting (which is included in Management's Report on Internal Control Over Financial Reporting) of AIG included in AIG's Amended Annual Report on Form 10-K/A for the year ended December 31, 2005, filed on June 19, 2006, in reliance on the report (which contains an adverse opinion on the effectiveness of internal control over financial reporting) of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting. AIG is subject to the informational requirements of the Exchange Act. AIG files reports and other information with the SEC to meet those requirements. AIG files this information electronically pursuant to EDGAR, and it is available to the public through the SEC's website at http://www.sec.gov. 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 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: AIG SunAmerica Life Assurance Company Annuity Service Center P.O. Box 54299 Los Angeles, California 90054-0299 Telephone Number: (800) 445-SUN2 The financial statements of the Company, the Separate Account and American Home can be found in the Statement of Additional Information ("SAI"). You may obtain a free copy of this SAI if you contact our Annuity Service Center at 800-445-SUN2. 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. ---------------------------------------------------------------- ---------------------------------------------------------------- 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-SUN2. The contents of the SAI are listed below. Separate Account................................ 3 American Home Assurance Company................. 3 General Account................................. 3 Support Agreement Between the Company and AIG... 4 Performance Data................................ 4 Income Payments................................. 7 Annuity Unit Values............................. 7 Death Benefits for Contracts Issued Before November 24, 2003............................. 12 Taxes........................................... 10 Distribution of Contracts....................... 14 Financial Statements............................ 14
25 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- APPENDIX A - CONDENSED FINANCIAL INFORMATION -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
FOR THE FOR THE FOR THE INCEPTION TO FISCAL FISCAL FISCAL FISCAL YEAR YEAR END YEAR ENDED YEAR ENDED POLARIS PLUS VARIABLE PORTFOLIOS END 4/30/99 4/30/00 4/30/01 4/30/02 ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- ANCHOR SERIES TRUST - CLASS 1 SHARES ----------------------------------------------------------------------------------------------------- Asset Allocation (Inception Date - (a) 3/23/99 (b) 9/19/05) Beginning AUV.............................. (a) 18.47 19.16 19.87 19.099 (b) Ending AUV................................. (a) 19.16 19.87 19.10 18.333 (b) Ending Number of AUs....................... (a) 27,027 593,068 638,666 602,916 (b) ----------------------------------------------------------------------------------------------------- Capital Appreciation (Inception Date - (a) 3/19/99 (b) 10/24/00) Beginning AUV.............................. (a) 27.21 28.69 45.44 37.392 (b) 10.00 8.575 Ending AUV................................. (a) 28.69 45.44 37.39 31.686 (b) 8.57 7.295 Ending Number of AUs....................... (a) 52,736 878,168 935,668 939,065 (b) 818 3,904 ----------------------------------------------------------------------------------------------------- Government and Quality Bond (Inception Date - (a) 3/19/99 (b) 2/8/01) Beginning AUV.............................. (a) 13.60 13.60 13.50 14.844 (b) 10.69 10.717 Ending AUV................................. (a) 13.60 13.50 14.84 15.704 (b) 10.72 11.384 Ending Number of AUs....................... (a) 180,434 3,159,021 3,297,472 3,250,427 (b) 25 3,422 ----------------------------------------------------------------------------------------------------- Growth (Inception Date - (a) 3/19/99 (b) 10/24/00) Beginning AUV.............................. (a) 27.45 28.24 34.09 29.136 (b) 10.00 8.745 Ending AUV................................. (a) 28.24 34.09 29.14 25.649 (b) 8.75 7.729 Ending Number of AUs....................... (a) 49,892 795,149 838,055 829,414 (b) 1,549 4,575 ----------------------------------------------------------------------------------------------------- FOR THE FOR THE FOR THE FOR THE FISCAL FISCAL FISCAL FISCAL YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED POLARIS PLUS VARIABLE PORTFOLIOS 4/30/03 4/30/04 4/30/05 4/30/06 --------------------------------------------- ------------------------------------------------- --------------------------------------------- ------------------------------------------------- ANCHOR SERIES TRUST - CLASS 1 SHARES ----------------------------------------------------------------------------------------------------- Asset Allocation (Inception Date - (a) 3/23/99 (b) 9/19/05) Beginning AUV.............................. 18.333 17.703 20.967 22.195 13.223 Ending AUV................................. 17.703 20.967 22.195 24.400 13.939 Ending Number of AUs....................... 571,196 662,512 566,460 480,138 7 ----------------------------------------------------------------------------------------------------- Capital Appreciation (Inception Date - (a) 3/19/99 (b) 10/24/00) Beginning AUV.............................. 31.686 27.782 34.031 34.158 7.295 6.422 7.899 7.960 Ending AUV................................. 27.782 34.031 34.158 43.027 6.422 7.899 7.960 10.067 Ending Number of AUs....................... 872,982 849,975 718,778 552,955 2,897 2,025 1,009 1,009 ----------------------------------------------------------------------------------------------------- Government and Quality Bond (Inception Date - (a) 3/19/99 (b) 2/8/01) Beginning AUV.............................. 15.704 16.834 16.804 17.353 11.384 12.253 12.280 12.732 Ending AUV................................. 16.834 16.804 17.353 17.180 12.253 12.280 12.732 12.656 Ending Number of AUs....................... 3,259,053 2,682,883 1,995,979 1,474,874 326 175 132 132 ----------------------------------------------------------------------------------------------------- Growth (Inception Date - (a) 3/19/99 (b) 10/24/00) Beginning AUV.............................. 25,649 21.660 26.870 28.327 7.729 6.553 8.163 8.640 Ending AUV................................. 21.660 26.870 28.327 33.323 6.553 8.163 8.640 10.204 Ending Number of AUs....................... 767,232 743,102 606,500 475,482 1,707 1,707 1,317 1,256 -----------------------------------------------------------------------------------------------------
AUV - Accumulation Unit Value AU - Accumulation Units (a) Reflects 1.25% Separate Account Charges (b) Reflects 0.85% Separate Account Charges A-1
FOR THE FOR THE FOR THE INCEPTION TO FISCAL FISCAL FISCAL FISCAL YEAR YEAR END YEAR ENDED YEAR ENDED POLARIS PLUS VARIABLE PORTFOLIOS END 4/30/99 4/30/00 4/30/01 4/30/02 ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- SUNAMERICA SERIES TRUST - CLASS 1 SHARES ----------------------------------------------------------------------------------------------------- Aggressive Growth (Inception Date - (a) 3/19/99 (b) 10/24/00) Beginning AUV.............................. (a) 15.48 16.18 24.02 17.202 (b) 9.66 6.660 Ending AUV................................. (a) 16.18 24.02 17.20 13.067 (b) 6.66 5.079 Ending Number of AUs....................... (a) 28,487 907,848 951,846 893,284 (b) 463 980 ----------------------------------------------------------------------------------------------------- Alliance Growth (Inception Date - (a) 3/19/99 (b) 10/24/00) Beginning AUV.............................. (a) 40.86 40.20 49.82 35.913 (b) 8.81 7.072 Ending AUV................................. (a) 40.20 49.82 35.91 28.657 (b) 7.07 5.666 Ending Number of AUs....................... (a) 147,759 2,826,566 2,862,749 2,724,668 (b) 694 3,136 ----------------------------------------------------------------------------------------------------- Cash Management (Inception Date - (a) 3/23/99 (b) 1/26/01) Beginning AUV.............................. (a) 11.95 11.99 12.45 13.012 (b) 10.22 10.325 Ending AUV................................. (a) 11.99 12.45 13.01 13.185 (b) 10.32 10.505 Ending Number of AUs....................... (a) 337,271 2,131,823 2,060,001 1,839,033 (b) 1,701 3,026 ----------------------------------------------------------------------------------------------------- Corporate Bond (Inception Date - (a) 3/23/99 (b) 4/6/01) Beginning AUV.............................. (a) 13.09 13.15 12.77 13.649 (b) 10.00 9.958 Ending AUV................................. (a) 13.15 12.77 13.65 14.359 (b) 9.96 10.517 Ending Number of AUs....................... (a) 32,037 600,023 644,043 685,610 (b) 5 255 ----------------------------------------------------------------------------------------------------- Davis Venture Value (Inception Date - (a) 3/19/99 (b) 10/24/00) Beginning AUV.............................. (a) 25.34 26.76 30.39 28.201 (b) 10.00 9.864 Ending AUV................................. (a) 26.76 30.39 28.20 25.682 (b) 9.86 9.019 Ending Number of AUs....................... (a) 37,452 748,416 830,018 876,039 (b) 719 4,088 ----------------------------------------------------------------------------------------------------- "Dogs" of Wall Street (Inception Date - (a) 3/19/99 (b) 1/15/04) Beginning AUV.............................. (a) 9.42 10.22 8.41 9.436 (b) Ending AUV................................. (a) 10.22 8.41 9.44 10.177 (b) Ending Number of AUs....................... (a) 30,615 665,329 640,566 657,864 (b) ----------------------------------------------------------------------------------------------------- Emerging Markets (Inception Date - (a) 3/23/99 (b) 10/24/00) Beginning AUV.............................. (a) 6.60 7.63 9.68 6.741 (b) 10.00 9.120 Ending AUV................................. (a) 7.63 9.68 6.74 7.366 (b) 9.12 10.010 Ending Number of AUs....................... (a) 18,838 588,449 588,363 599,115 (b) 90 797 ----------------------------------------------------------------------------------------------------- FOR THE FOR THE FOR THE FOR THE FISCAL FISCAL FISCAL FISCAL YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED POLARIS PLUS VARIABLE PORTFOLIOS 4/30/03 4/30/04 4/30/05 4/30/06 --------------------------------------------- ------------------------------------------------- --------------------------------------------- ------------------------------------------------- SUNAMERICA SERIES TRUST - CLASS 1 SHARES ----------------------------------------------------------------------------------------------------- Aggressive Growth (Inception Date - (a) 3/19/99 (b) 10/24/00) Beginning AUV.............................. 13.067 10.587 12.923 14.167 5.079 4.131 5.063 5.573 Ending AUV................................. 10.587 12.923 14.167 17.412 4.131 5.063 5.573 6.877 Ending Number of AUs....................... 812,929 790,356 693,354 535,535 288 310 22 12 ----------------------------------------------------------------------------------------------------- Alliance Growth (Inception Date - (a) 3/19/99 (b) 10/24/00) Beginning AUV.............................. 28.657 24.004 26.836 27.116 5.666 4.756 5.349 5.426 Ending AUV................................. 24.004 26.836 27.116 34.464 4.765 5.349 5.426 6.924 Ending Number of AUs....................... 2,424,504 2,306,310 1,847,707 1,400,581 1,984 2,006 2,006 1,916 ----------------------------------------------------------------------------------------------------- Cash Management (Inception Date - (a) 3/23/99 (b) 1/26/01) Beginning AUV.............................. 13.185 13.171 13.080 13.092 10.505 10.536 10.505 10.557 Ending AUV................................. 13.171 13.080 13.092 13.373 10.536 10.505 10.557 10.827 Ending Number of AUs....................... 1,553,588 1,210,503 1,115,235 734,314 3,497 3,497 3,497 0 ----------------------------------------------------------------------------------------------------- Corporate Bond (Inception Date - (a) 3/23/99 (b) 4/6/01) Beginning AUV.............................. 14.359 15.637 16.594 17.235 10.517 12.777 Ending AUV................................. 15.637 16.594 17.235 17.476 13.007 Ending Number of AUs....................... 679,219 634,989 500,897 368,666 0 ----------------------------------------------------------------------------------------------------- Davis Venture Value (Inception Date - (a) 3/19/99 (b) 10/24/00) Beginning AUV.............................. 25.682 22.336 29.081 31.579 9.019 7.875 10.294 11.223 Ending AUV................................. 22.336 29.081 31.579 36.641 7.875 10.294 11.223 13.074 Ending Number of AUs....................... 837,110 860,682 736,735 611,559 1,413 1,375 1,204 1,168 ----------------------------------------------------------------------------------------------------- "Dogs" of Wall Street (Inception Date - (a) 3/19/99 (b) 1/15/04) Beginning AUV.............................. 10.177 8.758 10.912 11.108 11.646 11.804 12.064 Ending AUV................................. 8.758 10.912 11.108 11.749 11.804 12.064 12.811 Ending Number of AUs....................... 647,923 609,287 496,507 377,380 8 8 4 ----------------------------------------------------------------------------------------------------- Emerging Markets (Inception Date - (a) 3/23/99 (b) 10/24/00) Beginning AUV.............................. 7.366 6.102 9.107 11.202 10.010 15.408 Ending AUV................................. 6.102 9.107 11.202 18.302 25.275 Ending Number of AUs....................... 518,892 680,531 544,013 595,058 0 -----------------------------------------------------------------------------------------------------
AUV - Accumulation Unit Value AU - Accumulation Units (a) Reflects 1.25% Separate Account Charges (b) Reflects 0.85% Separate Account Charges A-2
FOR THE FOR THE FOR THE INCEPTION TO FISCAL FISCAL FISCAL FISCAL YEAR YEAR END YEAR ENDED YEAR ENDED POLARIS PLUS VARIABLE PORTFOLIOS END 4/30/99 4/30/00 4/30/01 4/30/02 ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- SUNAMERICA SERIES TRUST - CLASS 1 SHARES ----------------------------------------------------------------------------------------------------- Equity Income (Inception Date - (a) 3/23/99 (b) 4/4/01) Beginning AUV.............................. (a) 10.00 10.58 9.90 10.956 (b) 10.16 10.812 Ending AUV................................. (a) 10.58 9.90 10.96 10.476 (b) 10.81 10.378 Ending Number of AUs....................... (a) 36,063 705,007 737,673 790,207 (b) 18 246 ----------------------------------------------------------------------------------------------------- Equity Index (Inception Date - (a) 3/19/99 (b) 1/19/01) Beginning AUV.............................. (a) 10.00 10.26 10.82 9.277 (b) 8.98 8.357 Ending AUV................................. (a) 10.26 10.82 9.28 7.965 (b) 8.36 7.203 Ending Number of AUs....................... (a) 400,093 6,227,727 6,183,325 5,912,696 (b) 201 907 ----------------------------------------------------------------------------------------------------- Federated American Leaders (Inception Date - (a) 3/19/99 (b) N/A) Beginning AUV.............................. (a) 16.63 17.58 16.34 17.333 (b) Ending AUV................................. (a) 17.58 16.34 17.33 15.940 (b) Ending Number of AUs....................... (a) 25,264 422,715 445,284 477,854 (b) ----------------------------------------------------------------------------------------------------- Global Bond (Inception Date - (a) 3/19/99 (b) 10/24/00) Beginning AUV.............................. (a) 14.43 14.54 14.36 15.454 (b) 10.00 10.481 Ending AUV................................. (a) 14.54 14.36 15.45 15.801 (b) 10.48 10.763 Ending Number of AUs....................... (a) 40,454 510,047 517,475 510,010 (b) 446 446 ----------------------------------------------------------------------------------------------------- Global Equities (Inception Date - (a) 3/19/99 (b) 12/11/00) Beginning AUV.............................. (a) 21.05 21.42 27.15 19.986 (b) 10.00 8.673 Ending AUV................................. (a) 21.42 27.15 19.99 16.270 (b) 8.67 7.089 Ending Number of AUs....................... (a) 14,587 587,483 621,167 598,333 (b) 499 1,959 ----------------------------------------------------------------------------------------------------- Growth & Income (Inception Date - (a) 3/19/99 (b) 10/24/00) Beginning AUV.............................. (a) 29.83 30.82 36.49 30.347 (b) 10.00 8.734 Ending AUV................................. (a) 30.82 36.49 30.35 25.714 (b) 8.73 7.431 Ending Number of AUs....................... (a) 124,672 2,435,756 2,501,326 2,430,317 (b) 201 1,872 ----------------------------------------------------------------------------------------------------- High-Yield Bond (Inception Date - (a) 3/19/99 (b) 1/19/01) Beginning AUV.............................. (a) 14.71 15.15 14.78 13.607 (b) 10.00 9.622 Ending AUV................................. (a) 15.15 14.78 13.61 12.745 (b) 9.62 9.049 Ending Number of AUs....................... (a) 23,707 375,439 380,713 368,246 (b) 82 539 ----------------------------------------------------------------------------------------------------- FOR THE FOR THE FOR THE FOR THE FISCAL FISCAL FISCAL FISCAL YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED POLARIS PLUS VARIABLE PORTFOLIOS 4/30/03 4/30/04 4/30/05 4/30/06 --------------------------------------------- ------------------------------------------------- --------------------------------------------- ------------------------------------------------- SUNAMERICA SERIES TRUST - CLASS 1 SHARES ----------------------------------------------------------------------------------------------------- Equity Income (Inception Date - (a) 3/23/99 (b) 4/4/01) Beginning AUV.............................. 10.476 8.968 10.735 11.340 10.378 11.386 Ending AUV................................. 8.968 10.735 11.340 12.864 12.942 Ending Number of AUs....................... 758,827 792,665 603,319 427,471 25 ----------------------------------------------------------------------------------------------------- Equity Index (Inception Date - (a) 3/19/99 (b) 1/19/01) Beginning AUV.............................. 7.965 6.794 8.190 8.555 7.203 7.831 Ending AUV................................. 6.794 8.190 8.555 9.708 8.921 Ending Number of AUs....................... 5,344,702 5,140,659 4,114,983 3,059,876 0 ----------------------------------------------------------------------------------------------------- Federated American Leaders (Inception Date - (a) 3/19/99 (b) N/A) Beginning AUV.............................. 15.940 13.207 16.286 17.263 0 Ending AUV................................. 13.207 16.286 17.263 19.241 0 Ending Number of AUs....................... 463,108 428,881 329,288 225,546 0 ----------------------------------------------------------------------------------------------------- Global Bond (Inception Date - (a) 3/19/99 (b) 10/24/00) Beginning AUV.............................. 15.801 16.849 16.975 17.683 10.763 12.171 Ending AUV................................. 16.849 16.975 17.683 18.119 12.483 Ending Number of AUs....................... 476,778 424,680 337,148 257,706 24 ----------------------------------------------------------------------------------------------------- Global Equities (Inception Date - (a) 3/19/99 (b) 12/11/00) Beginning AUV.............................. 16.270 13.156 15.834 16.714 7.089 5.753 6.938 7.359 Ending AUV................................. 13.156 15.834 16.714 22.433 5.753 6.938 9.911 Ending Number of AUs....................... 550,495 522,178 430,108 351,150 212 212 0 ----------------------------------------------------------------------------------------------------- Growth & Income (Inception Date - (a) 3/19/99 (b) 10/24/00) Beginning AUV.............................. 25.714 22.086 26.313 26.725 7.431 6.407 7.659 7.809 Ending AUV................................. 22.086 26.313 26.725 31.224 6.407 7.659 7.809 9.160 Ending Number of AUs....................... 2,202,766 2,102,000 1,686,135 1,259,880 647 663 262 190 ----------------------------------------------------------------------------------------------------- High-Yield Bond (Inception Date - (a) 3/19/99 (b) 1/19/01) Beginning AUV.............................. 12.745 13.073 15.445 17.310 9.049 12.453 Ending AUV................................. 13.073 15.445 17.310 19.922 14.361 Ending Number of AUs....................... 352,067 340,552 272,262 201,721 22 -----------------------------------------------------------------------------------------------------
AUV - Accumulation Unit Value AU - Accumulation Units (a) Reflects 1.25% Separate Account Charges (b) Reflects 0.85% Separate Account Charges A-3
FOR THE FOR THE FOR THE INCEPTION TO FISCAL FISCAL FISCAL FISCAL YEAR YEAR END YEAR ENDED YEAR ENDED POLARIS PLUS VARIABLE PORTFOLIOS END 4/30/99 4/30/00 4/30/01 4/30/02 ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- SUNAMERICA SERIES TRUST - CLASS 1 SHARES ----------------------------------------------------------------------------------------------------- International Diversified Equities (Inception Date - (a) 3/19/99 (b) 10/4/04) Beginning AUV.............................. (a) 13.99 14.36 15.36 12.332 (b) Ending AUV................................. (a) 14.36 15.36 12.33 10.238 (b) Ending Number of AUs....................... (a) 22,528 381,038 399,062 397,985 (b) ----------------------------------------------------------------------------------------------------- International Growth & Income (Inception Date - (a) 3/24/99 (b) 10/24/00) Beginning AUV.............................. (a) 11.81 12.87 14.13 12.641 (b) 9.09 8.725 Ending AUV................................. (a) 12.87 14.13 12.64 11.010 (b) 8.73 7.631 Ending Number of AUs....................... (a) 14,725 555,461 591,348 600,190 (b) 213 807 ----------------------------------------------------------------------------------------------------- Putnam Growth: Voyager (Inception Date - (a) 3/19/99 (b) 10/24/00) Beginning AUV.............................. (a) 25.97 26.04 30.47 22.464 (b) 10.00 7.727 Ending AUV................................. (a) 26.04 30.47 22.46 17.538 (b) 7.73 6.057 Ending Number of AUs....................... (a) 149,215 1,971,364 1,966,522 1,831,599 (b) 371 1,209 ----------------------------------------------------------------------------------------------------- Real Estate (Inception Date - (a) 3/31/99 (b) 10/24/00) Beginning AUV.............................. (a) 9.06 9.98 9.30 10.856 (b) 10.00 11.068 Ending AUV................................. (a) 9.98 9.30 10.86 12.265 (b) 10.97 12.434 Ending Number of AUs....................... (a) 5,242 182,417 209,952 269,182 (b) 17 1,034 ----------------------------------------------------------------------------------------------------- Small Company Value (Inception Date - (a) 3/23/99 (b) 2/8/01) Beginning AUV.............................. (a) 10.00 10.96 12.65 14.522 (b) 10.00 10.068 Ending AUV................................. (a) 10.96 12.65 14.52 16.627 (b) 10.07 11.574 Ending Number of AUs....................... (a) 4,634 260,742 332,571 458,007 (b) 211 1,010 ----------------------------------------------------------------------------------------------------- SunAmerica Balanced (Inception Date - (a) 3/19/99 (b) 10/24/00) Beginning AUV.............................. (a) 17.30 17.48 19.40 16.396 (b) 9.32 8.067 Ending AUV................................. (a) 17.48 19.40 16.40 14.298 (b) 8.07 7.063 Ending Number of AUs....................... (a) 254,773 4,976,910 4,927,161 4,592,956 (b) 399 2,546 ----------------------------------------------------------------------------------------------------- FOR THE FOR THE FOR THE FOR THE FISCAL FISCAL FISCAL FISCAL YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED POLARIS PLUS VARIABLE PORTFOLIOS 4/30/03 4/30/04 4/30/05 4/30/06 --------------------------------------------- ------------------------------------------------- --------------------------------------------- ------------------------------------------------- SUNAMERICA SERIES TRUST - CLASS 1 SHARES ----------------------------------------------------------------------------------------------------- International Diversified Equities (Inception Date - (a) 3/19/99 (b) 10/4/04) Beginning AUV.............................. 10.238 7.134 9.425 10.452 10.295 11.072 Ending AUV................................. 7.134 9.425 10.452 13.929 11.072 14.799 Ending Number of AUs....................... 378,565 390,108 341,679 317,227 44 44 ----------------------------------------------------------------------------------------------------- International Growth & Income (Inception Date - (a) 3/24/99 (b) 10/24/00) Beginning AUV.............................. 11.010 8.580 11.670 13.105 7.631 5.970 8.153 9.192 Ending AUV................................. 8.580 11.670 13.105 17.683 5.970 8.153 9.192 12.453 Ending Number of AUs....................... 576,640 583,393 551,102 501,721 668 750 750 722 ----------------------------------------------------------------------------------------------------- Putnam Growth: Voyager (Inception Date - (a) 3/19/99 (b) 10/24/00) Beginning AUV.............................. 17.538 14.568 16.767 16.392 6.057 5.051 5.835 5.728 Ending AUV................................. 14.568 16.767 16.392 19.012 5.051 5.835 5.728 6.668 Ending Number of AUs....................... 1,601,326 1,418,311 1,116,207 812,915 174 174 174 189 ----------------------------------------------------------------------------------------------------- Real Estate (Inception Date - (a) 3/31/99 (b) 10/24/00) Beginning AUV.............................. 12.265 12.697 15.878 20.848 12.434 12.984 16.353 21.570 Ending AUV................................. 12.697 15.878 20.848 26.911 16.353 21.570 27.913 Ending Number of AUs....................... 322,682 341,188 319,242 265,567 8 8 16 ----------------------------------------------------------------------------------------------------- Small Company Value (Inception Date - (a) 3/23/99 (b) 2/8/01) Beginning AUV.............................. 16.627 13.176 17.750 20.462 11.574 9.207 12.453 14.413 Ending AUV................................. 13.176 17.750 20.462 27.190 9.207 12.453 14.413 19.229 Ending Number of AUs....................... 457,922 494,691 456,434 384,054 403 427 427 416 ----------------------------------------------------------------------------------------------------- SunAmerica Balanced (Inception Date - (a) 3/19/99 (b) 10/24/00) Beginning AUV.............................. 14.298 12.956 14.239 14.670 7.063 6.426 7.091 7.335 Ending AUV................................. 12.956 14.239 14.670 15.657 6.426 7.091 7.335 7.860 Ending Number of AUs....................... 4,022,365 3,723,491 2,949,416 2,192,601 837 837 630 630 -----------------------------------------------------------------------------------------------------
AUV - Accumulation Unit Value AU - Accumulation Units (a) Reflects 1.25% Separate Account Charges (b) Reflects 0.85% Separate Account Charges A-4
FOR THE FOR THE FOR THE INCEPTION TO FISCAL FISCAL FISCAL FISCAL YEAR YEAR END YEAR ENDED YEAR ENDED POLARIS PLUS VARIABLE PORTFOLIOS END 4/30/99 4/30/00 4/30/01 4/30/02 ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- SUNAMERICA SERIES TRUST - CLASS 1 SHARES ----------------------------------------------------------------------------------------------------- Telecom Utility (Inception Date - (a) 3/19/99 (b) 10/24/00) Beginning AUV.............................. (a) 14.44 14.98 14.69 13.699 (b) 10.00 9.595 Ending AUV................................. (a) 14.98 14.69 13.70 10.772 (b) 9.60 Ending Number of AUs....................... (a) 16,154 457,503 447,434 421,262 (b) 161 ----------------------------------------------------------------------------------------------------- Worldwide High Income (Inception Date - (a) 3/31/99 (b) N/A) Beginning AUV.............................. (a) 13.99 14.77 15.85 14.743 (b) Ending AUV................................. (a) 14.77 15.85 14.74 14.685 (b) Ending Number of AUs....................... (a) 4,828 110,742 125,922 120,482 (b) ----------------------------------------------------------------------------------------------------- FOR THE FOR THE FOR THE FOR THE FISCAL FISCAL FISCAL FISCAL YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED POLARIS PLUS VARIABLE PORTFOLIOS 4/30/03 4/30/04 4/30/05 4/30/06 --------------------------------------------- ------------------------------------------------- --------------------------------------------- ------------------------------------------------- SUNAMERICA SERIES TRUST - CLASS 1 SHARES ----------------------------------------------------------------------------------------------------- Telecom Utility (Inception Date - (a) 3/19/99 (b) 10/24/00) Beginning AUV.............................. 10.772 8.861 10.157 11.746 6.353 7.375 8.589 Ending AUV................................. 8.861 10.157 11.746 12.980 7.375 8.589 9.555 Ending Number of AUs....................... 358,152 330,953 276,507 208,914 15 59 20 ----------------------------------------------------------------------------------------------------- Worldwide High Income (Inception Date - (a) 3/31/99 (b) N/A) Beginning AUV.............................. 14.685 15.732 17.303 18.735 0 Ending AUV................................. 15.732 17.303 18.735 20.622 0 Ending Number of AUs....................... 115,713 118,994 94,361 78,790 0 -----------------------------------------------------------------------------------------------------
AUV - Accumulation Unit Value AU - Accumulation Units (a) Reflects 1.25% Separate Account Charges (b) Reflects 0.85% Separate Account Charges A-5 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- APPENDIX B - MARKET VALUE ADJUSTMENT -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Depending on the issue date of your contract, your contract may offer multi-year Fixed Accounts. If you take money out of any available multi-year Fixed Accounts before the guarantee period ends, we may make an adjustment to your contract. We refer to this as a Market Value Adjustment ("MVA"). The MVA does not apply to any available one-year Fixed Accounts. The MVA reflects any difference in the interest rate environment between the time you placed your money in the multi-year Fixed Accounts and the time when you withdraw or transfer that money. Generally, this adjustment can increase or decrease your contract value or the amount of your withdrawal. If interest rates drop between the time you put your money into a multi-year Fixed Account and the time you take it out, we credit a positive adjustment to your contract. Conversely, if interest rates increase during the same period, we could post a negative adjustment to your contract. You have 30 days after the end of each guarantee period to reallocate your funds without application of any MVA. Regardless of the outcome of the MVA calculation, application of the MVA to any partial or full withdrawal or transfer from the multi-year Fixed Accounts after May 2, 2005, will not result in a negative adjustment to your contract value or the withdrawal amount. Thus, the MVA will not result in a loss of principal or previously credited interest for transactions after May 2, 2005. You will continue to receive any positive adjustment resulting from application of the MVA. The information below applies only if you take money out of multi-year Fixed Accounts before the end of the Guarantee Period. We calculate the MVA by doing a comparison between current rates and the rate being credited to you in the Fixed Accounts. For the current rate we use a rate being offered by us for a guarantee period that is equal to the time remaining in the Fixed Accounts from which you seek withdrawal (rounded up to a full number of years). If we are not currently offering a guarantee period for that period of time, we determine an applicable rate by using a formula to arrive at a number based on the interest rates currently offered for the two closest periods available. Where the MVA is positive, we add the adjustment to your withdrawal amount. If a withdrawal charge applies, it is deducted before the MVA calculation. The MVA is assessed on the amount withdrawn less any withdrawal charges. The MVA is computed by multiplying the amount withdrawn, transferred or taken under an income option by the following factor: [(1+I/(1+J+L)]N/12 - 1 where: I is the interest rate you are earning on the money invested in the Fixed Account; J is the interest rate then currently available for the period of time equal to the number of years remaining in the term you initially agreed to leave your money in the Fixed Account; N is the number of full months remaining in the term you initially agreed to leave your money in the Fixed Account; and L is 0.005 (Some states require a different value. Please see your contract.) We do not assess an MVA against withdrawals from an Fixed Account under the following circumstances: - If a withdrawal or transfer made after May 2, 2005 results in a negative MVA calculation; - If a withdrawal or transfer is made within 30 days after the end of a guarantee period; - If a withdrawal or transfer is made to pay contract fees and charges; - To pay a death benefit; and - Upon beginning an income option, if occurring on the Latest Annuity Date. EXAMPLES OF THE MVA The purpose of the examples below is to show how the MVA adjustments are calculated and may not reflect the Guarantee Periods available or withdrawal charges applicable under your contract. The examples below assume the following: (1) You made an initial Purchase Payment of $10,000 and allocated it to a Fixed Account at a rate of 5%; (2) You make a partial withdrawal of $4,000 at a time when 18 months remain in the term you initially agreed to leave your money in the Fixed Account (N = 18); B-1 (3) You have not made any other transfers, additional Purchase Payments, or withdrawals; and (4) Your contract was issued in a state where L = 0.005. POSITIVE ADJUSTMENT, NO WITHDRAWAL CHARGE APPLIES Assume that on the date of withdrawal, the interest rate in effect for new Purchase Payments in the 1-year Fixed Account is 3.5% and the 3-year Fixed Account is 4.5%. By linear interpolation, the interest rate for the remaining 2 years (18 months rounded up to the next full year) in the contract is calculated to be 4%. No withdrawal charge is reflected in this example, assuming that the Purchase Payment withdrawn falls within the free withdrawal amount. The MVA factor is = [(1+I/(1+J+0.005)]N/12 - 1 = [(1.05)/(1.04+0.005)]18/12 - 1 = (1.004785)(1.5) - 1 = 1.007186 - 1 = + 0.007186 The requested withdrawal amount is multiplied by the MVA factor to determine the MVA: $4,000 X (+0.007186) = +$28.74 $28.74 represents the positive MVA that would be added to the withdrawal. POSITIVE ADJUSTMENT, WITHDRAWAL CHARGE APPLIES Assume that on the date of withdrawal, the interest rate in effect for new Purchase Payments in the 1-year Fixed Account is 3.5% and the 3-year Fixed Account is 4.5%. By linear interpolation, the interest rate for the remaining 2 years (18 months rounded up to the next full year) in the contract is calculated to be 4%. A withdrawal charge of 6% is reflected in this example, assuming that the Purchase Payment withdrawn exceeds the free withdrawal amount. The MVA factor is = [(1+I)/(1+J+0.005)]N/12 - 1 = [(1.05)/(1.04+0.005)]18/12 - 1 = (1.004785)(1.5) - 1 = 1.007186 - 1 = + 0.007186 The requested withdrawal amount, less the withdrawal charge ($4,000 - 6% = $3,760) is multiplied by the MVA factor to determine the MVA: $3,760 X (+0.007186) = +$27.02 $27.02 represents the positive MVA that would be added to the withdrawal. B-2 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- APPENDIX C - HYPOTHETICAL EXAMPLE OF THE OPERATION OF THE INCOME PROTECTOR -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- This table assumes a $100,000 initial investment in a Qualified Contract with no further premiums, no withdrawals, no step-ups, no premium taxes, current growth rates; and the election of optional Income Protector alternatives at Contract issue.
----------------------------------------------------------------------------------------------------------------- INCOME IF AT ISSUE PROTECTOR ANNUAL INCOME IF YOU ANNUITIZE ON THE FOLLOWING CONTRACT ANNIVERSARIES: YOU ARE LEVEL 1 - 6 7 10 15 20 ----------------------------------------------------------------------------------------------------------------- Male or Female Plus 5,500 6,379 8,275 10,931 10,931 Age 45* Max 6,290 7,728 11,035 16,044 16,044 ----------------------------------------------------------------------------------------------------------------- Joint Spousal Owners Plus 4,884 5,603 7,119 9,164 7,164 Age 45 Max 5,586 6,788 9,493 13,451 13,451 -----------------------------------------------------------------------------------------------------------------
* Life Annuity with 10 year Period Certain ** Joint and 100% Survivor Annuity with 20 Year Period Certain This table assumes a $100,000 initial investment in a Nonqualified Contract with no further premiums, no withdrawals, no step-ups, no premium taxes, current growth rates; and the election of optional Income Protector alternatives at Contract issue.
----------------------------------------------------------------------------------------------------------------- INCOME IF AT ISSUE PROTECTOR ANNUAL INCOME IF YOU ANNUITIZE ON THE FOLLOWING CONTRACT ANNIVERSARIES: YOU ARE LEVEL 1 - 6 7 10 15 20 ----------------------------------------------------------------------------------------------------------------- Male Plus 5,744 6,683 8,717 11,571 11,571 Age 45* Max 6,569 8,096 11,624 16,982 16,982 ----------------------------------------------------------------------------------------------------------------- Female Plus 5,256 6,075 7,833 10,292 10,292 Age 45* Max 6,011 7,360 10,446 15,106 15,106 -----------------------------------------------------------------------------------------------------------------
* Life Annuity with 10 year Period Certain C-1 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- APPENDIX D - STATE CONTRACT AVAILABILITY AND/OR VARIATIONS OF CERTAIN FEATURES AND BENEFITS -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------- PROSPECTUS PROVISION AVAILABILITY OR VARIATION STATES -------------------------------------------------------------------------------------------------------------------- Free Look Free Look period is 20 days. Idaho North Dakota Utah -------------------------------------------------------------------------------------------------------------------- Free Look Free Look period is 30 days. Alaska -------------------------------------------------------------------------------------------------------------------- Free Look If you reside in Arizona and are age 65 or older on your Arizona Contract Date, the Free Look period is 30 days -------------------------------------------------------------------------------------------------------------------- Free Look If you reside in California and are age 60 or older on your California Contract Date, the Free Look period is 30 days. -------------------------------------------------------------------------------------------------------------------- Free Look If you cancel your contract during the Free Look period, we Minnesota return the greater of (1) your Purchase Payments; or (2) the value of your contract. -------------------------------------------------------------------------------------------------------------------- Free Look For Non-Qualified contracts, if you cancel your contract Colorado during the Free Look period, we return Purchase Payment(s). Delaware Georgia Hawaii Idaho Iowa Kentucky Louisiana Massachusetts Michigan Missouri Nebraska Nevada New Hampshire North Carolina Ohio Oklahoma Rhode Island South Carolina Utah Washington West Virginia -------------------------------------------------------------------------------------------------------------------- Market Value Adjustment L equal to 0.0025 Florida -------------------------------------------------------------------------------------------------------------------- Premium Tax We do not deduct premium tax charges when you surrender your New Mexico contract or begin the Income Phase. Oregon Washington --------------------------------------------------------------------------------------------------------------------
D-1 -------------------------------------------------------------------------------- Please forward a copy (without charge) of the Polaris Plus Variable Annuity Statement of Additional Information to: (Please print or type and fill in all information.) ---------------------------------------------------------------- Name ---------------------------------------------------------------- Address ---------------------------------------------------------------- City/State/Zip Date: Signed: ----------------------------------- -----------------------------------
Return to: AIG SunAmerica Life Assurance Company, Annuity Service Center, P.O. Box 54299, Los Angeles, California 90054-0299 -------------------------------------------------------------------------------- STATEMENT OF ADDITIONAL INFORMATION GROUP & INDIVIDUAL FLEXIBLE PAYMENT DEFERRED ANNUITY CONTRACTS ISSUED BY AIG SUNAMERICA LIFE ASSURANCE COMPANY IN CONNECTION WITH VARIABLE ANNUITY ACCOUNT SEVEN Polaris Plus Variable Annuity This Statement of Additional Information is not a prospectus; it should be read with the prospectus dated August 28, 2006 relating to the annuity contracts described above. A copy of the prospectus may be obtained without charge by calling (800) 445-SUN2 or writing us at: AIG SUNAMERICA LIFE ASSURANCE COMPANY ANNUITY SERVICE CENTER P.O. BOX 54299 LOS ANGELES, CALIFORNIA 90054-0299 AUGUST 28, 2006 TABLE OF CONTENTS
PAGE ---- Separate Account........................................... 3 American Home Assurance Company............................ 3 General Account............................................ 3 Support Agreement Between the Company and AIG.............. 4 Performance Data .......................................... 4 Income Payments............................................ 7 Annuity Unit Values........................................ 7 Death Benefits for Contracts Issued Before November 24, 2003...................................... 12 Taxes...................................................... 10 Distribution of Contracts.................................. 14 Financial Statements....................................... 14
-2- SEPARATE ACCOUNT Variable Annuity Account Seven (the "Separate Account") was originally established by AIG SunAmerica Life Assurance Company (the "Company") on August 28, 1998, pursuant to the provisions of Arizona law, as a segregated asset account of the Company. 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 Portfolios, with the assets of each Portfolio invested in the shares of one of the underlying funds. The Company does not guarantee the investment performance of the Separate Account, its Portfolios or the underlying funds. Values allocated to the Separate Account and the amount of variable annuity 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 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 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 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 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 annuity 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 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 payments). AMERICAN HOME ASSURANCE COMPANY American Home Assurance Company ("American Home") is a stock property-casualty insurance company incorporated under the laws of the State of New York on February 7, 1899. American Home's principal executive office is located at 70 Pine Street, New York, New York 10270. American Home is licensed in all 50 states of the United States and the District of Columbia, as well as certain foreign jurisdictions, and engages in a broad range of insurance and reinsurance activities. American Home is a wholly owned subsidiary of American International Group, Inc. ("AIG"). GENERAL ACCOUNT The general account is made up of all of the general assets of the Company other than those -3- allocated to the Separate Account or any other segregated asset account of the Company. Your contract may offer Fixed Account Guarantee Periods ("FAGP") to which you may allocate certain Purchase Payments or contract value. Available guarantee periods may be for different lengths of time (such as 1, 3 or 5 years) and may have different guaranteed interest rates. We may also offer the specific Dollar Cost Averaging Fixed Accounts ("DCAFA"). Assets supporting amounts allocated to fixed investment 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. SUPPORT AGREEMENT BETWEEN THE COMPANY AND AIG The Company has a support agreement in effect between the Company and AIG (the "Support Agreement"), pursuant to which AIG has agreed that AIG 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, AIG will provide such funds at the request of the Company. The Support Agreement is not a direct or indirect guarantee by AIG to any person of any obligations of the Company. AIG 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 AIG 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 AIG. PERFORMANCE DATA PERFORMANCE INFORMATION From time to time the Separate Account may advertise the Cash Management Portfolio's "yield" and "effective yield." Both yield figures are based on historical earnings and are not intended to indicate future performance. The "yield" of the Cash Management Portfolio refers to the net income generated for a contract funded by an investment in the Portfolio (which invests in shares of the Cash Management Portfolio of SunAmerica Series Trust) over a seven-day period (which period will be stated in the advertisement). This income is then "annualized." That is, the amount of income generated by the investment during that week is assumed to be generated each week over a 52-week period and is shown as a percentage of the investment. The "effective yield" is calculated similarly but, when annualized, the income earned by an investment in the Portfolio is assumed to be reinvested at the end of each seven day period. The "effective yield" will be slightly higher than the "yield" because of the compounding effect of this assumed reinvestment. Neither the yield nor the effective yield takes into consideration the effect of any capital changes that might have occurred during the seven day period, nor do they reflect the impact of premium taxes or any withdrawal charges. The impact of other recurring charges (including the mortality and expense risk charge, distribution expense charge and contract maintenance fee) on both yield figures is, however, reflected in them to the same extent it would affect the yield (or effective yield) for a contract of average size. In addition, the Separate Account may advertise "total return" data for the Variable Portfolio (including the Cash Management Account) from the inception of the Separate Account. Like the yield figures described above, total return figures are based on historical data and are not intended to indicate future performance. The "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 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). Recurring contract charges are reflected in the total return figures in the same manner as they are reflected in the yield data for contracts funded through the Cash Management Portfolio. For periods starting prior to the date the subaccounts were first offered to the public, the total return data for the Portfolios of the Separate Account will be derived from the performance of the corresponding Portfolios of Anchor Series Trust and SunAmerica Series Trust, modified to reflect the charges and -4- expenses as if the Separate Account Portfolio had been in existence since the inception date of each respective Anchor Series Trust and SunAmerica Series Trust Portfolio. Thus, such performance figures should not be construed to be actual historic performance of the relevant Separate Account Portfolio. Rather, they are intended to indicate the historical performance of the corresponding Portfolios of Anchor Series Trust and SunAmerica Series Trust, adjusted to provide direct comparability to the performance of the Portfolios after the date the contracts were first offered to the public (which will reflect the effect of fees and charges imposed under the contracts). Anchor Series Trust and SunAmerica Series Trust have served since their inception as underlying investment media for Separate Accounts of other insurance companies in connection with variable contracts not having the same fee and charge schedules as those imposed under the contracts. Performance data for the various Portfolios are computed in the manner 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 -5- 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. OTHER PORTFOLIOS The Portfolios of the Separate Account other than the Cash Management Portfolio also compute their performance data as "total return." Total return for a 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 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 formula: P(1+T)n = ERV where: P = a hypothetical initial payment of $1,000 T = average annual total return n = number of years 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). These rates of return do not reflect election of any optional features. The rates of return would be lower if the optional features were included in the calculations. 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. -6- INCOME PAYMENTS INITIAL MONTHLY ANNUITY PAYMENTS The initial 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 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 employer-sponsored retirement plans, such classification is not permitted) and 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 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 payment. The number of Annuity Units determined for the first variable annuity payment remains constant for the second and subsequent monthly variable annuity payments, assuming that no reallocation of contract values is made. SUBSEQUENT MONTHLY PAYMENTS For fixed income payments, the amount of the second and each subsequent monthly income payment is the same as that determined above for the first monthly payment. For variable income payments, the amount of the second and each subsequent monthly annuity payment is determined by multiplying the number of Annuity Units, as determined in connection with the determination of the initial monthly payment, above, by the Annuity Unit value as of the day preceding the date on which each income payment is due. INCOME PAYMENTS UNDER THE INCOME PROTECTOR PROGRAM If contract holders elect to begin income payments using the Income Protector feature, the income benefit base is determined as described in the prospectus. The initial income payment is determined by applying the income benefit base to the annuity table specifically designated for use in conjunction with the Income Protector feature, either in the contract or in the endorsement to the contract. Those tables are based on a set amount per $1,000 of income benefit base applied. The appropriate rate must be determined by the sex (except where, as in the case of certain Qualified contracts and other employer-sponsored retirement plans, such classification is not permitted) and age of the Annuitant and designated second person, if any, and the income option selected. The income benefit base is applied 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 income payment. The amount of the second and each subsequent income payment is the same as that determined above for the first monthly payment. DEATH BENEFIT FOR CONTRACTS ISSUED BEFORE NOVEMBER 24, 2003 If you should die during the Accumulation Phase of your contract, We pay a death benefit to your Beneficiary. The death benefit (unless limited by your Plan) equals the greater of: 1. Total Purchase Payments minus total withdrawals and loans (and any fees and charges applicable to those withdrawals and/or loans) at the time We receive satisfactory proof of death; or; 2. Contract Value at the time We receive satisfactory proof of death and all required paperwork. We do not pay the death benefit if you die after you switch to the Income Phase. However, if you die during the Income Phase, your Beneficiary receives any remaining guaranteed income payments (or a portion thereof) in accordance with the income option you selected. SEE INCOME OPTIONS BELOW. ANNUITY UNIT VALUES The value of an Annuity Unit is determined independently for each 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 Portfolio exceed 3.5%, variable income payments derived from allocations to that Portfolio will increase over time. Conversely, if the actual rate is less than 3.5%, variable income payments will decrease over time. If the net investment rate equals 3.5%, the variable income payments will remain constant. If a higher assumed investment rate had been used, the -7- initial monthly payment would be higher, but the actual net investment rate would also have to be higher in order for 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 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 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 Portfolio for a certain month is determined by dividing (a) by (b) where: (a) is the Accumulation Unit value of the Portfolio determined as of the end of that month, and (b) is the Accumulation Unit value of the Portfolio determined as of the end of the preceding month. The NIF for a Portfolio for a given month is a measure of the net investment performance of the 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 Portfolio invests; it is also reduced by Separate Account asset charges. ILLUSTRATIVE EXAMPLE Assume that one share of a given 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 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 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 payment tables are based. For example, if the net investment rate for a Portfolio (reflected in the NIF) were equal to the assumed investment rate, the variable annuity payments should remain constant (i.e., the Annuity Unit value should not change). The monthly factor that neutralizes the assumed -8- 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 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 VARIABLE 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 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 Portfolio on that same date is $13.256932, and that the Annuity Unit value on the day immediately prior to the second income payment date is $13.327695. P's first variable 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 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 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 Account to another Account) is also determined at this time and is equal to the amount of the first variable 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 payment is determined by multiplying the number of Annuity Units by the Annuity Unit value as of the day immediately prior to the second payment due date: Second Payment = 43.203812 x $13.327695 = $575.81 The third and subsequent variable income payments are computed in a manner similar to the second variable annuity payment. Note that the amount of the first variable income payment depends on the contract value in the relevant Portfolio on the Annuity Date and thus reflects the investment performance of the 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 Annuity Phase (assuming no transfers from the Portfolio). The net investment performance of the Portfolio during the Annuity Phase is reflected in continuing changes during this phase in the Annuity Unit value, which determines the amounts of the -9- second and subsequent variable annuity payments. DEATH BENEFITS OPTIONS FOR CONTRACTS ISSUED BEFORE NOVEMBER 24, 2003. The following details the death benefit options for contracts issued before November 24, 2003: The death benefit is the greater of: 1. Total Purchase Payments minus total withdrawals and loans (and any fees and charges applicable to those withdrawals and/or loans) at the time We receive satisfactory proof of death, or; 2. Contract Value at the time We receive satisfactory proof of death and all required paperwork. 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 a pension plan, a specially sponsored employer program, 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 Contracts should seek competent financial advice about the tax consequences of any distributions. 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 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 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 the Owner's attainment of age 59 1/2 and at least five years in a Roth account under the plan or IRA, 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 amounts representing rollovers from an IRA or employer sponsored plan to which the 10% penalty would otherwise apply. The Code generally requires the Company (or, in some cases, a plan administrator) to withhold tax on the taxable portion of any distribution or withdrawal from a contract. 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. 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 penalty tax on premature withdrawals, described later in this section. 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 -10- 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 Nonqualified 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." 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 treated as annuities for federal income tax purposes. 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. 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 Nonqualified 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 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 Nonqualified 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 assignment is part of a permitted loan program under an employer-sponsored plan or pursuant to a qualified -11- domestic relations order meeting the requirements of the plan or arrangement under which the contract is issued (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 Nonqualified Contract Under IRC section 72(e)(4)(c), if you transfer ownership of your Nonqualified 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 Nonqualified 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. Trustee to Trustee Transfers of Qualified Contracts The IRC limits the withdrawal of Purchase Payments from certain Tax-Sheltered Annuities (TSAs) and certain other Qualified contracts. Withdrawals 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); or (5) experiences a financial hardship (as defined in the IRC). In the case of hardship, the owner can only withdraw Purchase Payments. Transfers of amounts from one Qualified contract to another Qualified contract of the same plan type or 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. Partial 1035 Exchanges Section 1035 of the Code provides that an annuity contract may be exchanged in a tax-free transaction for another 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 will 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. Although Notice 2003-51 and the IRS's acquiescence in the Tax Court decision indicate that the IRS will respect partial exchanges of annuity contracts under certain circumstances, uncertainty remains, and 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 suitable 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. 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 -12- 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 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 2006 is $15,000. 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 $5,000 in 2006 for employees age 50 or older, provided that other applicable requirements are satisfied. Total combined employer and employee contributions for 2005 may not exceed the lessor of $44,000 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 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 2006 is the lessor of $4,000 or 100% of compensation. Individuals age 50 or older may be able to contribute an additional $1,000 in 2006. 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. (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 2006 is the lessor of $4,000 or 100% of compensation. Individuals age 50 or older may be able to contribute an additional $1,000 in 2006. Unlike traditional IRAs, to which everyone can contribute even if they cannot deduct the full contribution, income limits for Roth IRAs are limitations on who can establish such a contract. Generally, you can contribute to a Roth IRA if you have taxable compensation and your modified adjusted gross income is less than: $160,000 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 $110,000 for single, head of household, or married filing separately and you did not live with your spouse at any time during the year. Certain persons may be eligible to convert a traditional IRA into a Roth IRA. Conversion 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 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, public 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; 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 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 Qualified plans, 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 For tax years beginning in 2002, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) expands the range of eligible tax-free rollover distributions that may be made among qualified contracts. The changes made to the IRC by EGTRRA are scheduled to expire on December 31, 2010. Congress may, however, decide to promulgate legislation making the changes permanent or delaying their expiration. -13- DISTRIBUTION OF CONTRACTS The contracts are offered through AIG SunAmerica Capital Services, Inc., located at Harborside Financial Center, 3200 Plaza 5, Jersey City, New Jersey 07311. AIG 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 National Association of Securities Dealers, Inc. The Company and AIG SunAmerica Capital Services, Inc. are each an indirect wholly owned subsidiary of AIG Retirement Services, Inc. Contracts are offered on a continuous basis. FINANCIAL STATEMENTS The consolidated financial statements of AIG SunAmerica Life Assurance Company at December 31, 2005 and 2004, and for each of the three years in the period ended December 31, 2005, are incorporated by reference in this Statement of Additional Information to Post-Effective Amendment No. 32 under the Securities Act of 1933 and Amendment No. 33 under the Investment Company Act of 1940, File Nos. 333-08859 and 811-07727, filed on May 1, 2006, Accession No. 0000950129-06-004661. The financial statements of the Company should be considered only as bearing on the ability of the Company to meet its obligation under the contracts. The financial statements of Variable Annuity Account Seven at April 30, 2006, and for each of the two years in the period ended April 30, 2006, are presented herein in this Statement of Additional Information. AMERICAN HOME FINANCIAL STATEMENTS The statutory statements of admitted assets and liabilities, capital and surplus of American Home Assurance Company as of December 31, 2005 and 2004, and the related statutory statements of income and changes in capital and surplus, and of cash flow for the years then ended, are also incorporated by reference in this Statement of Additional Information to Post-Effective Amendment No. 6 under the Securities Act of 1933 and Amendment No. 7 under the Investment Company Act of 1940, File Nos. 333-64338 and 811-07727 filed on July 27, 2006, Accession No. 0000950134-06-014060, in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting. You should only consider the financial statements of American Home that we incorporate by reference in this Statement of Additional Information as bearing on the ability of American Home, as guarantor, to meet its obligations under the guarantee. PricewaterhouseCoopers LLP, 350 South Grand Avenue, Los Angeles, California 90071, serves as the independent registered public accounting firm for the Separate Account and the Company. The financial statements referred to above have been included or are incorporated by reference in reliance on the reports of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting. -14- VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY FINANCIAL STATEMENTS APRIL 30, 2006 AND 2005 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY FINANCIAL STATEMENTS APRIL 30, 2006 AND 2005 CONTENTS Report of Independent Registered Public Accounting Firm................. 1 Statement of Assets and Liabilities, April 30, 2006..................... 2 Schedule of Portfolio Investments, April 30, 2006....................... 8 Statement of Operations, for the year ended April 30, 2006.............. 9 Statement of Changes in Net Assets, for the year ended April 30, 2006... 15 Statement of Changes in Net Assets, for the year ended April 30, 2005... 21 Notes to Financial Statements........................................... 27
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors of AIG SunAmerica Life Assurance Company and the Contractholders of its separate account, Variable Annuity Account Seven In our opinion, the accompanying statement of assets and liabilities, including the schedule of portfolio investments, and the related statements of operations and of changes in net assets present fairly, in all material respects, the financial position of each of the Variable Accounts constituting Variable Annuity Account Seven, a separate account of AIG SunAmerica Life Assurance Company (the "Separate Account") at April 30, 2006, the results of each of their operations for the year then ended and the changes in each of their net assets for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Separate Account's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States), which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at April 30, 2006 by correspondence with the custodian, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Los Angeles, California July 13, 2006 1 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 2006
Government Asset Capital and Allocation Appreciation Quality Bond Growth Portfolio Portfolio Portfolio Portfolio (Class 1) (Class 1) (Class 1) (Class 1) ----------- ------------ ------------ ----------- Assets: Investments in Anchor Series Trust, (class 1) at net asset value $17,818,596 $122,002,595 $83,089,300 $79,074,823 Investments in SunAmerica Series Trust, (class 1) at net asset value 0 0 0 0 Investments in Van Kampen Life Investment Trust, (class II) at net asset value 0 0 0 0 Investments in Lord Abbett Series Fund, Inc., (class VC) at net asset value 0 0 0 0 Investments in American Fund Insurance Series, (class 2) at net asset value 0 0 0 0 ----------- ------------ ----------- ----------- Total Assets: $17,818,596 $122,002,595 $83,089,300 $79,074,823 Liabilities: 0 0 0 0 ----------- ------------ ----------- ----------- $17,818,596 $122,002,595 $83,089,300 $79,074,823 =========== ============ =========== =========== Net assets: Accumulation units $17,815,243 $121,950,382 $82,945,843 $79,023,475 Contracts in payout (annuitization) period 3,353 52,213 143,457 51,348 ----------- ------------ ----------- ----------- Total net assets $17,818,596 $122,002,595 $83,089,300 $79,074,823 =========== ============ =========== =========== Accumulation units outstanding 949,755 7,778,119 5,852,159 5,763,643 =========== ============ =========== =========== Contracts with total expenses of 0.85%(1): Net Assets $ 99 $ 10,161 $ 1,670 $ 12,815 Accumulation units outstanding 7 1,009 132 1,256 Unit value of accumulation units $ 13.94 $ 10.07 $ 12.66 $ 10.20 Contracts with total expenses of 0.85% (2): Net Assets $ 5,935,855 $ 91,131,525 $54,278,558 $59,162,824 Accumulation units outstanding 456,585 6,697,364 4,110,902 4,943,646 Unit value of accumulation units $ 13.00 $ 13.61 $ 13.20 $ 11.97 Contracts with total expenses of 1.10%: Net Assets $ 167,231 $ 7,068,890 $ 3,470,197 $ 4,054,520 Accumulation units outstanding 13,025 526,791 266,251 343,259 Unit value of accumulation units $ 12.84 $ 13.42 $ 13.03 $ 11.81 Contracts with total expenses of 1.25%: Net Assets $11,715,411 $ 23,792,019 $25,338,875 $15,844,664 Accumulation units outstanding 480,138 552,955 1,474,874 475,482 Unit value of accumulation units $ 24.40 $ 43.03 $ 17.18 $ 33.32 Aggressive Alliance Blue Chip Growth Growth Growth Portfolio Portfolio Portfolio (Class 1) (Class 1) (Class 1) ----------- ----------- ---------- Assets: Investments in Anchor Series Trust, (class 1) at net asset value $ 0 $ 0 $ 0 Investments in SunAmerica Series Trust, (class 1) at net asset value 11,882,825 59,181,349 1,696,323 Investments in Van Kampen Life Investment Trust, (class II) at net asset value 0 0 0 Investments in Lord Abbett Series Fund, Inc., (class VC) at net asset value 0 0 0 Investments in American Fund Insurance Series, (class 2) at net asset value 0 0 0 ----------- ----------- ---------- Total Assets: $11,882,825 $59,181,349 $1,696,323 Liabilities: 0 0 0 ----------- ----------- ---------- $11,882,825 $59,181,349 $1,696,323 =========== =========== ========== Net assets: Accumulation units $11,882,825 $59,093,723 $1,693,369 Contracts in payout (annuitization) period 0 87,626 2,954 ----------- ----------- ---------- Total net assets $11,882,825 $59,181,349 $1,696,323 =========== =========== ========== Accumulation units outstanding 779,379 2,713,134 288,625 =========== =========== ========== Contracts with total expenses of 0.85%(1): Net Assets $ 79 $ 13,259 $ -- Accumulation units outstanding 12 1,916 -- Unit value of accumulation units $ 6.88 $ 6.92 $ -- Contracts with total expenses of 0.85% (2): Net Assets $ 2,406,731 $10,013,689 $1,530,227 Accumulation units outstanding 229,246 1,202,972 260,028 Unit value of accumulation units $ 10.50 $ 8.32 $ 5.88 Contracts with total expenses of 1.10%: Net Assets $ 151,352 $ 884,591 $ 166,096 Accumulation units outstanding 14,586 107,665 28,597 Unit value of accumulation units $ 10.38 $ 8.22 $ 5.81 Contracts with total expenses of 1.25%: Net Assets $ 9,324,663 $48,269,810 $ -- Accumulation units outstanding 535,535 1,400,581 -- Unit value of accumulation units $ 17.41 $ 34.46 $ --
(1) Offered in Polaris Plus product. (2) Offered in Polaris II Asset Manager and Polaris II A-Class products. See accompanying notes to financial statements. 2 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 2006
Cash Corporate Davis Venture "Dogs" of Management Bond Value Wall Street Portfolio Portfolio Portfolio Portfolio (Class 1) (Class 1) (Class 1) (Class 1) ----------- ----------- ------------- ----------- Assets: Investments in Anchor Series Trust, (class 1) at net asset value $ 0 $ 0 $ 0 $ 0 Investments in SunAmerica Series Trust, (class 1) at net asset value 19,153,946 75,119,224 127,172,101 5,417,029 Investments in Van Kampen Life Investment Trust, (class II) at net asset value 0 0 0 0 Investments in Lord Abbett Series Fund, Inc., (class VC) at net asset value 0 0 0 0 Investments in American Fund Insurance Series, (class 2) at net asset value 0 0 0 0 ----------- ----------- ------------ ---------- Total Assets: $19,153,946 $75,119,224 $127,172,101 $5,417,029 Liabilities: 0 0 0 0 ----------- ----------- ------------ ---------- $19,153,946 $75,119,224 $127,172,101 $5,417,029 =========== =========== ============ ========== Net assets: Accumulation units $19,149,783 $75,110,967 $127,109,590 $5,364,540 Contracts in payout (annuitization) period 4,163 8,257 62,511 52,489 ----------- ----------- ------------ ---------- Total net assets $19,153,946 $75,119,224 $127,172,101 $5,417,029 =========== =========== ============ ========== Accumulation units outstanding 1,566,098 5,268,308 7,926,993 449,685 =========== =========== ============ ========== Contracts with total expenses of 0.85% (1): Net Assets $ -- $ -- $ 15,271 $ 54 Accumulation units outstanding -- -- 1,168 4 Unit value of accumulation units $ -- $ -- $ 13.07 $ 12.81 Contracts with total expenses of 0.85% (2): Net Assets $ 9,032,914 $64,007,513 $ 96,099,862 $ 894,150 Accumulation units outstanding 804,706 4,562,372 6,702,968 65,695 Unit value of accumulation units $ 11.23 $ 14.03 $ 14.34 $ 13.61 Contracts with total expenses of 1.10%: Net Assets $ 300,744 $ 4,668,853 $ 8,648,733 $ 88,927 Accumulation units outstanding 27,078 337,270 611,298 6,606 Unit value of accumulation units $ 11.11 $ 13.84 $ 14.15 $ 13.46 Contracts with total expenses of 1.25%: Net Assets $ 9,820,288 $ 6,442,858 $ 22,408,235 $4,433,898 Accumulation units outstanding 734,314 368,666 611,559 377,380 Unit value of accumulation units $ 13.37 $ 17.48 $ 36.64 $ 11.75 Emerging Equity Equity Markets Income Index Portfolio Portfolio Portfolio (Class 1) (Class 1) (Class 1) ----------- ---------- ----------- Assets: Investments in Anchor Series Trust, (class 1) at net asset value $ 0 $ 0 $ 0 Investments in SunAmerica Series Trust, (class 1) at net asset value 15,776,403 5,499,195 29,704,711 Investments in Van Kampen Life Investment Trust, (class II) at net asset value 0 0 0 Investments in Lord Abbett Series Fund, Inc., (class VC) at net asset value 0 0 0 Investments in American Fund Insurance Series, (class 2) at net asset value 0 0 0 ----------- ---------- ----------- Total Assets: $15,776,403 $5,499,195 $29,704,711 Liabilities: 0 0 0 ----------- ---------- ----------- $15,776,403 $5,499,195 $29,704,711 =========== ========== =========== Net assets: Accumulation units $15,754,472 $5,447,673 $29,636,481 Contracts in payout (annuitization) period 21,931 51,522 68,230 ----------- ---------- ----------- Total net assets $15,776,403 $5,499,195 $29,704,711 =========== ========== =========== Accumulation units outstanding 814,147 427,496 3,059,876 =========== ========== =========== Contracts with total expenses of 0.85% (1): Net Assets $ -- $ 326 $ -- Accumulation units outstanding -- 25 -- Unit value of accumulation units $ -- $ 12.94 $ -- Contracts with total expenses of 0.85% (2): Net Assets $ 4,381,947 $ -- $ -- Accumulation units outstanding 196,270 -- -- Unit value of accumulation units $ 22.33 $ -- $ -- Contracts with total expenses of 1.10%: Net Assets $ 503,761 $ -- $ -- Accumulation units outstanding 22,819 -- -- Unit value of accumulation units $ 22.08 $ -- $ -- Contracts with total expenses of 1.25%: Net Assets $10,890,695 $5,498,869 $29,704,711 Accumulation units outstanding 595,058 427,471 3,059,876 Unit value of accumulation units $ 18.30 $ 12.86 $ 9.71
(1) Offered in Polaris Plus product. (2) Offered in Polaris II Asset Manager and Polaris II A-Class products. See accompanying notes to financial statements. 3 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 2006
Federated Goldman American Global Global Sachs Growth- Growth High-Yield Leaders Bond Equities Research Income Opportunities Bond Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) ----------- ----------- ----------- ---------- ----------- ------------- ----------- Assets: Investments in Anchor Series Trust, (class 1) at net asset value $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Investments in SunAmerica Series Trust, (class 1) at net asset value 21,804,571 10,985,195 11,363,594 1,909,317 51,800,247 1,104,632 17,292,845 Investments in Van Kampen Life Investment Trust, (class II) at net asset value 0 0 0 0 0 0 0 Investments in Lord Abbett Series Fund, Inc., (class VC) at net asset value 0 0 0 0 0 0 0 Investments in American Fund Insurance Series, (class 2) at net asset value 0 0 0 0 0 0 0 ----------- ----------- ----------- ---------- ----------- ---------- ----------- Total Assets: $21,804,571 $10,985,195 $11,363,594 $1,909,317 $51,800,247 $1,104,632 $17,292,845 Liabilities: 0 0 0 0 0 0 0 ----------- ----------- ----------- ---------- ----------- ---------- ----------- $21,804,571 $10,985,195 $11,363,594 $1,909,317 $51,800,247 $1,104,632 $17,292,845 =========== =========== =========== ========== =========== ========== =========== Net assets: Accumulation units $21,779,942 $10,958,889 $11,351,419 $1,909,317 $51,672,261 $1,104,632 $17,232,011 Contracts in payout (annuitization) period 24,629 26,306 12,175 0 127,986 0 60,834 ----------- ----------- ----------- ---------- ----------- ---------- ----------- Total net assets $21,804,571 $10,985,195 $11,363,594 $1,909,317 $51,800,247 $1,104,632 $17,292,845 =========== =========== =========== ========== =========== ========== =========== Accumulation units outstanding 1,671,136 737,348 703,263 248,835 2,508,957 183,198 1,158,420 =========== =========== =========== ========== =========== ========== =========== Contracts with total expenses of 0.85% (1): Net Assets $ -- $ 304 $ -- $ -- $ 1,741 $ -- $ 316 Accumulation units outstanding -- 24 -- -- 190 -- 22 Unit value of accumulation units $ -- $ 12.48 $ -- $ -- $ 9.16 $ -- $ 14.36 Contracts with total expenses of 0.85% (2): Net Assets $16,419,258 $ 6,012,330 $ 3,357,106 $1,808,875 $11,608,558 $1,020,513 $12,092,023 Accumulation units outstanding 1,357,985 456,308 338,904 235,585 1,162,523 169,812 870,580 Unit value of accumulation units $ 12.09 $ 13.18 $ 9.91 $ 7.68 $ 9.99 $ 6.01 $ 13.89 Contracts with total expenses of 1.10%: Net Assets $ 1,045,682 $ 303,199 $ 129,179 $ 100,442 $ 851,269 $ 84,119 $ 1,181,725 Accumulation units outstanding 87,605 23,310 13,209 13,250 86,364 13,386 86,097 Unit value of accumulation units $ 11.94 $ 13.01 $ 9.78 $ 7.58 $ 9.86 $ 6.28 $ 13.73 Contracts with total expenses of 1.25%: Net Assets $ 4,339,631 $ 4,669,362 $ 7,877,309 $ -- $39,338,679 $ -- $ 4,018,781 Accumulation units outstanding 225,546 257,706 351,150 -- 1,259,880 -- 201,721 Unit value of accumulation units $ 19.24 $ 18.12 $ 22.43 $ -- $ 31.22 $ -- $ 19.92
(1) Offered in Polaris Plus product. (2) Offered in Polaris II Asset Manager and Polaris II A-Class products. See accompanying notes to financial statements. 4 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 2006
MFS International International Massachusetts Putnam Diversified Growth Investors MFS Mid- MFS Total Growth: Real Equities and Income Trust Cap Growth Return Voyager Estate Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) ------------- ------------- ------------- ---------- ------------ ----------- ----------- Assets: Investments in Anchor Series Trust, (class 1) at net asset value $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Investments in SunAmerica Series Trust, (class 1) at net asset value 8,378,646 24,427,654 6,711,198 4,286,330 150,133,917 28,011,037 16,598,621 Investments in Van Kampen Life Investment Trust, (class II) at net asset value 0 0 0 0 0 0 0 Investments in Lord Abbett Series Fund, Inc., (class VC) at net asset value 0 0 0 0 0 0 0 Investments in American Fund Insurance Series, (class 2) at net asset value 0 0 0 0 0 0 0 ----------- ----------- ---------- ---------- ------------ ----------- ----------- Total Assets: $ 8,378,646 $24,427,654 $6,711,198 $4,286,330 $150,133,917 $28,011,037 $16,598,621 Liabilities: 0 0 0 0 0 0 0 ----------- ----------- ---------- ---------- ------------ ----------- ----------- $ 8,378,646 $24,427,654 $6,711,198 $4,286,330 $150,133,917 $28,011,037 $16,598,621 =========== =========== ========== ========== ============ =========== =========== Net assets: Accumulation units $ 8,355,201 $24,382,329 $6,711,198 $4,286,330 $150,100,622 $27,970,804 $16,594,355 Contracts in payout (annuitization) period 23,445 45,325 0 0 33,295 40,233 4,266 ----------- ----------- ---------- ---------- ------------ ----------- ----------- Total net assets $ 8,378,646 $24,427,654 $6,711,198 $4,286,330 $150,133,917 $28,011,037 $16,598,621 =========== =========== ========== ========== ============ =========== =========== Accumulation units outstanding 749,276 1,624,150 651,510 462,785 10,086,264 2,549,419 561,998 =========== =========== ========== ========== ============ =========== =========== Contracts with total expenses of 0.85%(1): Net Assets $ 651 $ 8,989 $ -- $ -- $ -- $ 1,260 $ 461 Accumulation units outstanding 44 722 -- -- -- 189 16 Unit value of accumulation units $ 14.80 $ 12.45 $ -- $ -- $ -- $ 6.67 $ 27.91 Contracts with total expenses of 0.85% (2): Net Assets $ 3,738,172 $14,891,605 $6,161,415 $4,001,947 $139,491,136 $11,438,585 $ 8,689,382 Accumulation units outstanding 407,610 1,073,873 597,515 431,707 9,362,480 1,580,172 272,232 Unit value of accumulation units $ 9.17 $ 13.87 $ 10.31 $ 9.27 $ 14.90 $ 7.24 $ 31.92 Contracts with total expenses of 1.10% : Net Assets $ 221,022 $ 655,054 $ 549,783 $ 284,383 $ 10,642,781 $ 1,115,921 $ 762,218 Accumulation units outstanding 24,395 47,834 53,995 31,078 723,784 156,143 24,183 Unit value of accumulation units $ 9.06 $ 13.69 $ 10.18 $ 9.15 $ 14.70 $ 7.15 $ 31.52 Contracts with total expenses of 1.25% : Net Assets $ 4,418,801 $ 8,872,006 $ -- $ -- $ -- $15,455,271 $ 7,146,560 Accumulation units outstanding 317,227 501,721 -- -- -- 812,915 265,567 Unit value of accumulation units $ 13.93 $ 17.68 $ -- $ -- $ -- $ 19.01 $ 26.91
(1) Offered in Polaris Plus product. (2) Offered in Polaris II Asset Manager and Polaris II A-Class products. See accompanying notes to financial statements. 5 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 2006
Small Company SunAmerica Telecom Worldwide Emerging Value Balanced Technology Utility High Income Comstock Growth Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class II) (Class II) ------------- ----------- ---------- ---------- ----------- ------------ ---------- Assets: Investments in Anchor Series Trust, (class 1) at net asset value $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Investments in SunAmerica Series Trust,(class 1) at net asset value 10,450,373 39,283,815 409,580 3,055,430 6,610,256 0 0 Investments in Van Kampen Life Investment Trust, (class II) at net asset value 0 0 0 0 0 206,564,506 9,304,238 Investments in Lord Abbett Series Fund,Inc., (class VC) at net asset value 0 0 0 0 0 0 0 Investments in American Fund Insurance Series, (class 2) at net asset value 0 0 0 0 0 0 0 ------------ ----------- ---------- ---------- ----------- ------------ ---------- Total Assets: $10,450,373 $39,283,815 $409,580 $3,055,430 $6,610,256 $206,564,506 $9,304,238 Liabilities: 0 0 0 0 0 0 0 ------------ ----------- ---------- ---------- ----------- ------------ ---------- $10,450,373 $39,283,815 $409,580 $3,055,430 $6,610,256 $206,564,506 $9,304,238 ============ =========== ========== ========== =========== ============ ========== Net assets: Accumulation units $10,450,373 $39,121,874 $409,580 $3,043,011 $6,609,253 $206,548,178 $9,304,238 Contracts in payout (annuitization) period 0 161,941 0 12,419 1,003 16,328 0 ------------ ----------- ---------- ---------- ----------- ------------ ---------- Total net assets $10,450,373 $39,283,815 $409,580 $3,055,430 $6,610,256 $206,564,506 $9,304,238 ============ =========== ========== ========== =========== ============ ========== Accumulation units outstanding 384,470 2,737,772 170,038 247,300 437,925 15,477,003 897,690 ============ =========== ========== ========== =========== ============ ========== Contracts with total expenses of 0.85%(1): Net Assets $ 8,001 $ 4,953 $ -- $ 190 $ -- $ -- $ -- Accumulation units outstanding 416 630 -- 20 -- -- -- Unit value of accumulation units $ 19.23 $ 7.86 $ -- $ 9.56 $ -- $ -- $ -- Contracts with total expenses of 0.85% (2): Net Assets $ -- $ 4,690,686 $360,486 $ 303,454 $4,707,374 $192,470,810 $8,448,884 Accumulation units outstanding -- 515,685 149,420 33,835 338,864 14,410,178 814,588 Unit value of accumulation units $ -- $ 9.10 $ 2.41 $ 8.97 $ 13.89 $ 13.36 $ 10.37 Contracts with total expenses of 1.10% : Net Assets $ -- $ 259,120 $ 49,094 $ 40,146 $ 278,117 $ 14,093,696 $ 855,354 Accumulation units outstanding -- 28,856 20,618 4,531 20,271 1,066,825 83,102 Unit value of accumulation units $ -- $ 8.98 $ 2.38 $ 8.86 $ 13.72 $ 13.21 $ 10.29 Contracts with total expenses of 1.25% : Net Assets $10,442,372 $34,329,056 $ -- $2,711,640 $1,624,765 $ -- $ -- Accumulation units outstanding 384,054 2,192,601 -- 208,914 78,790 -- -- Unit value of accumulation units $ 27.19 $ 15.66 $ -- $ 12.98 $ 20.62 $ -- $ --
(1) Offered in Polaris Plus product. (2) Offered in Polaris II Asset Manager and Polaris II A-Class products. See accompanying notes to financial statements. 6 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 2006
Growth Growth Mid-Cap Asset Global Growth- and Income and Income Value Allocation Growth Growth Income Portfolio Portfolio Portfolio Fund Fund Fund Fund (Class II) (Class VC) (Class VC) (Class 2) (Class 2) (Class 2) (Class 2) ------------ ------------ ------------ ------------ ------------ ------------ ------------ Assets: Investments in Anchor Series Trust, (class 1) at net asset value $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Investments in SunAmerica Series Trust,(class 1) at net asset value 0 0 0 0 0 0 0 Investments in Van Kampen Life Investment Trust, (class II) at net asset value 162,309,479 0 0 0 0 0 0 Investments in Lord Abbett Series Fund, Inc., (class VC) at net asset value 0 158,138,427 130,969,116 0 0 0 0 Investments in American Fund Insurance Series,(class 2) at net asset value 0 0 0 220,278,752 170,740,819 212,253,365 343,442,627 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Total Assets: $162,309,479 $158,138,427 $130,969,116 $220,278,752 $170,740,819 $212,253,365 $343,442,627 Liabilities: 0 0 0 0 0 0 0 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Net assets: $162,309,479 $158,138,427 $130,969,116 $220,278,752 $170,740,819 $212,253,365 $343,442,627 ============ ============ ============ ============ ============ ============ ============ Accumulation units $162,307,091 $158,135,770 $130,967,074 $220,112,788 $170,738,718 $212,204,168 $343,332,568 Contracts in payout (annuitization) period 2,388 2,657 2,042 165,964 2,101 49,197 110,059 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Total net assets $162,309,479 $158,138,427 $130,969,116 $220,278,752 $170,740,819 $212,253,365 $343,442,627 ============ ============ ============ ============ ============ ============ ============ Accumulation units outstanding 11,082,648 12,021,179 9,053,782 14,036,387 8,283,239 10,582,406 19,874,104 ============ ============ ============ ============ ============ ============ ============ Contracts with total expenses of 0.85%(1): Net Assets $ -- $ -- $ -- $ -- $ -- $ -- $ -- Accumulation units outstanding -- -- -- -- -- -- -- Unit value of accumulation units $ -- $ -- $ -- $ -- $ -- $ -- $ -- Contracts with total expenses of 0.85% (2): Net Assets $149,774,567 $146,800,541 $121,709,094 $205,754,028 $160,835,791 $196,441,853 $319,996,683 Accumulation units outstanding 10,216,580 11,151,339 8,407,700 13,103,706 7,798,924 9,787,813 18,505,375 Unit value of accumulation units $ 14.66 $ 13.16 $ 14.48 $ 15.70 $ 20.62 $ 20.07 $ 17.29 Contracts with total expenses of 1.10%: Net Assets $ 12,534,912 $ 11,337,886 $ 9,260,022 $ 14,524,724 $ 9,905,028 $ 15,811,512 $ 23,445,944 Accumulation units outstanding 866,068 869,840 646,082 932,681 484,315 794,593 1,368,729 Unit value of accumulation units $ 14.47 $ 13.03 $ 14.33 $ 15.57 $ 20.45 $ 19.90 $ 17.13 Contracts with total expenses of 1.25%: Net Assets $ -- $ -- $ -- $ -- $ -- $ -- $ -- Accumulation units outstanding -- -- -- -- -- -- -- Unit value of accumulation units $ -- $ -- $ -- $ -- $ -- $ -- $ --
(1) Offered in Polaris Plus product. (2) Offered in Polaris II Asset Manager and Polaris II A-Class products. See accompanying notes to financial statements. 7 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY SCHEDULE OF PORTFOLIO INVESTMENTS APRIL 30, 2006
Net Asset Value Net Asset Variable Accounts Shares Per Share Value Cost ----------------- ---------- --------- ------------ ------------ ANCHOR SERIES TRUST: Asset Allocation Portfolio (Class 1) 1,140,574 $15.62 $ 17,818,596 $ 15,992,801 Capital Appreciation Portfolio (Class 1) 3,103,762 39.31 122,002,595 108,355,349 Government and Quality Bond Portfolio (Class 1) 5,693,547 14.59 83,089,300 84,869,996 Growth Portfolio (Class 1) 2,625,243 30.12 79,074,823 72,632,016 SUNAMERICA SERIES TRUST: Aggressive Growth Portfolio (Class 1) 985,331 $12.06 $ 11,882,825 $ 13,987,583 Alliance Growth Portfolio (Class 1) 2,654,125 22.30 59,181,349 80,171,728 Blue Chip Growth Portfolio (Class 1) 254,752 6.66 1,696,323 1,545,550 Cash Management Portfolio (Class 1) 1,737,268 11.03 19,153,946 18,856,998 Corporate Bond Portfolio (Class 1) 6,462,199 11.62 75,119,224 76,061,723 Davis Venture Value Portfolio (Class 1) 4,231,840 30.05 127,172,101 104,387,042 "Dogs" of Wall Street Portfolio (Class 1) 503,825 10.75 5,417,029 4,766,099 Emerging Markets Portfolio (Class 1) 827,910 19.06 15,776,403 9,853,550 Equity Income Portfolio (Class 1) 419,515 13.11 5,499,195 4,468,252 Equity Index Portfolio (Class 1) 2,661,011 11.16 29,704,711 29,504,130 Federated American Leaders Portfolio (Class 1) 1,240,205 17.58 21,804,571 18,957,816 Global Bond Portfolio (Class 1) 926,635 11.85 10,985,195 10,547,119 Global Equities Portfolio (Class 1) 760,553 14.94 11,363,594 12,153,935 Goldman Sachs Research Portfolio (Class 1) 233,620 8.17 1,909,317 1,649,734 Growth-Income Portfolio (Class 1) 1,977,918 26.19 51,800,247 55,095,159 Growth Opportunities Portfolio (Class 1) 168,661 6.55 1,104,632 981,114 High-Yield Bond Portfolio (Class 1) 2,317,772 7.46 17,292,845 16,585,458 International Diversified Equities Portfolio (Class 1) 832,328 10.07 8,378,646 6,580,786 International Growth and Income Portfolio (Class 1) 1,562,933 15.63 24,427,654 17,692,466 MFS Massachusetts Investors Trust Portfolio (Class 1) 514,188 13.05 6,711,198 6,073,178 MFS Mid-Cap Growth Portfolio (Class 1) 430,615 9.95 4,286,330 4,669,527 MFS Total Return Portfolio (Class 1) 8,524,167 17.61 150,133,917 140,063,540 Putnam Growth: Voyager Portfolio (Class 1) 1,769,562 15.83 28,011,037 35,517,110 Real Estate Portfolio (Class 1) 738,395 22.48 16,598,621 11,801,688 Small Company Value Portfolio (Class 1) 575,185 18.17 10,450,373 6,767,932 SunAmerica Balanced Portfolio (Class 1) 2,750,840 14.28 39,283,815 45,995,018 Technology Portfolio (Class 1) 151,475 2.70 409,580 400,873 Telecom Utility Portfolio (Class 1) 326,606 9.36 3,055,430 3,773,035 Worldwide High Income Portfolio (Class 1) 851,001 7.77 6,610,256 6,610,585 VAN KAMPEN LIFE INVESTMENT TRUST: Comstock Portfolio (Class II) 15,472,997 $13.35 $206,564,506 $191,391,529 Emerging Growth Portfolio (Class II) 317,010 29.35 9,304,238 7,615,753 Growth and Income Portfolio (Class II) 8,107,367 20.02 162,309,479 147,211,391 LORD ABBETT SERIES FUND, INC.: Growth and Income Portfolio (Class VC) 5,587,930 $28.30 $158,138,427 $139,158,304 Mid-Cap Value Portfolio (Class VC) 5,980,325 21.90 130,969,116 115,277,413 AMERICAN FUND INSURANCE SERIES: Asset Allocation Fund (Class 2) 12,368,262 $17.81 $220,278,752 $185,521,004 Global Growth Fund (Class 2) 7,919,333 21.56 170,740,819 134,020,007 Growth Fund (Class 2) 3,398,229 62.46 212,253,365 166,083,462 Growth-Income Fund (Class 2) 8,541,224 40.21 343,442,627 294,626,596
See accompanying notes to financial statements. 8 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY STATEMENT OF OPERATIONS FOR THE YEAR ENDED APRIL 30, 2006
Government Asset Capital and Aggressive Alliance Blue Chip Allocation Appreciation Quality Bond Growth Growth Growth Growth Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) ----------- ------------ ------------ ------------ ---------- ------------ --------- Investment income: Dividends $ 523,456 $ 280,038 $ 2,980,476 $ 562,082 0 $ 239,485 $ 8,852 ----------- ------------ ------------ ------------ ---------- ------------ --------- Total investment income 523,456 280,038 2,980,476 562,082 0 239,485 8,852 ----------- ------------ ------------ ------------ ---------- ------------ --------- Expenses: Mortality and expense risk charge (170,677) (826,202) (677,055) (543,793) (127,244) (648,006) (11,233) Distribution expense charge (26,154) (152,871) (117,644) (100,693) (18,518) (94,055) (2,325) ----------- ------------ ------------ ------------ ---------- ------------ --------- Total expenses (196,831) (979,073) (794,699) (644,486) (145,762) (742,061) (13,558) ----------- ------------ ------------ ------------ ---------- ------------ --------- Net investment income (loss) 326,625 (699,035) 2,185,777 (82,404) (145,762) (502,576) (4,706) ----------- ------------ ------------ ------------ ---------- ------------ --------- Net realized gains (losses) from securities transactions: Proceeds from shares sold 3,538,306 8,296,038 10,548,322 5,522,096 3,663,842 18,023,273 242,538 Cost of shares sold (3,311,098) (9,141,512) (10,243,324) (6,117,416) (4,703,910) (26,588,100) (229,590) ----------- ------------ ------------ ------------ ---------- ------------ --------- Net realized gains (losses) from securities transactions 227,208 (845,474) 304,998 (595,320) (1,040,068) (8,564,827) 12,948 Realized gain distributions 0 0 0 2,360,083 0 0 0 ----------- ------------ ------------ ------------ ---------- ------------ --------- Net realized gains (losses) 227,208 (845,474) 304,998 1,764,763 (1,040,068) (8,564,827) 12,948 ----------- ------------ ------------ ------------ ---------- ------------ --------- Net unrealized appreciation (depreciation) of investments: Beginning of period 697,145 (11,113,983) 1,377,197 (2,879,917) (5,831,095) (45,253,597) 870 End of period 1,825,795 13,647,246 (1,780,696) 6,442,807 (2,104,758) (20,990,379) 150,773 ----------- ------------ ------------ ------------ ---------- ------------ --------- Change in net unrealized appreciation (depreciation) of investments 1,128,650 24,761,229 (3,157,893) 9,322,724 3,726,337 24,263,218 149,903 ----------- ------------ ------------ ------------ ---------- ------------ --------- Increase (decrease) in net assets from operations $ 1,682,483 $ 23,216,720 $ (667,118) $ 11,005,083 2,540,507 $ 15,195,815 $ 158,145 =========== ============ ============ ============ ========== ============ =========
See accompanying notes to financial statements. 9 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY STATEMENT OF OPERATIONS FOR THE YEAR ENDED APRIL 30, 2006 (Continued)
Cash Corporate Davis Venture "Dogs" of Emerging Equity Equity Management Bond Value Wall Street Markets Income Index Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) ------------ ----------- ------------- ----------- ----------- ----------- ------------ Investment income: Dividends $ 167,045 $ 2,789,226 $ 1,079,912 $ 146,150 $ 31,689 $ 103,475 $ 520,703 ------------ ----------- ----------- ----------- ----------- ----------- ------------ Total investment income 167,045 2,789,226 1,079,912 146,150 31,689 103,475 520,703 ------------ ----------- ----------- ----------- ----------- ----------- ------------ Expenses: Mortality and expense risk charge (182,701) (474,371) (883,035) (60,338) (109,865) (66,564) (361,062) Distribution expense charge (29,305) (93,201) (165,687) (8,738) (16,223) (9,077) (49,236) ------------ ----------- ----------- ----------- ----------- ----------- ------------ Total expenses (212,006) (567,572) (1,048,722) (69,076) (126,088) (75,641) (410,298) ------------ ----------- ----------- ----------- ----------- ----------- ------------ Net investment income (loss) (44,961) 2,221,654 31,190 77,074 (94,399) 27,834 110,405 ------------ ----------- ----------- ----------- ----------- ----------- ------------ Net realized gains (losses) from securities transactions: Proceeds from shares sold 22,523,982 3,582,724 7,688,480 1,762,180 4,171,119 2,425,899 10,286,176 Cost of shares sold (22,411,354) (3,488,559) (6,776,577) (1,629,254) (2,873,735) (2,102,343) (10,788,799) ------------ ----------- ----------- ----------- ----------- ----------- ------------ Net realized gains (losses) from securities transactions 112,628 94,165 911,903 132,926 1,297,384 323,556 (502,623) Realized gain distributions 0 0 0 12,085 0 36,998 0 ------------ ----------- ----------- ----------- ----------- ----------- ------------ Net realized gains (losses) 112,628 94,165 911,903 145,011 1,297,384 360,554 (502,623) ------------ ----------- ----------- ----------- ----------- ----------- ------------ Net unrealized appreciation (depreciation) of investments: Beginning of period (87,290) 495,832 7,081,383 574,056 1,677,622 651,664 (4,397,677) End of period 296,948 (942,499) 22,785,059 650,930 5,922,853 1,030,943 200,581 ------------ ----------- ----------- ----------- ----------- ----------- ------------ Change in net unrealized appreciation (depreciation) of investments 384,238 (1,438,331) 15,703,676 76,874 4,245,231 379,279 4,598,258 ------------ ----------- ----------- ----------- ----------- ----------- ------------ Increase (decrease) in net assets from operations $ 451,905 $ 877,488 $16,646,769 $ 298,959 $ 5,448,216 $ 767,667 $ 4,206,040 ============ =========== =========== =========== =========== =========== ============
See accompanying notes to financial statements. 10 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY STATEMENT OF OPERATIONS FOR THE YEAR ENDED APRIL 30, 2006 (Continued)
Federated Goldman American Global Global Sachs Growth- Growth High-Yield Leaders Bond Equities Research Income Opportunities Bond Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) ----------- ----------- ----------- --------- ------------ ------------- ----------- Investment income: Dividends $ 315,396 $ 339,021 $ 27,091 $ 7,309 $ 308,682 $ 0 $ 1,568,422 ----------- ----------- ----------- --------- ------------ --------- ----------- Total investment income 315,396 339,021 27,091 7,309 308,682 0 1,568,422 ----------- ----------- ----------- --------- ------------ --------- ----------- Expenses: Mortality and expense risk charge (163,806) (94,890) (101,675) (11,205) (559,662) (3,138) (131,604) Distribution expense charge (30,330) (15,579) (15,301) (2,353) (82,583) (664) (23,916) ----------- ----------- ----------- --------- ------------ --------- ----------- Total expenses (194,136) (110,469) (116,976) (13,558) (642,245) (3,802) (155,520) ----------- ----------- ----------- --------- ------------ --------- ----------- Net investment income (loss) 121,260 228,552 (89,885) (6,249) (333,563) (3,802) 1,412,902 ----------- ----------- ----------- --------- ------------ --------- ----------- Net realized gains (losses) from securities transactions: Proceeds from shares sold 2,864,259 2,689,064 2,423,996 165,717 15,303,753 113,894 3,398,918 Cost of shares sold (2,679,324) (2,589,596) (3,098,281) (153,678) (17,488,610) (108,379) (3,416,895) ----------- ----------- ----------- --------- ------------ --------- ----------- Net realized gains (losses) from securities transactions 184,935 99,468 (674,285) 12,039 (2,184,857) 5,515 (17,977) Realized gain distributions 0 57,536 0 0 0 0 0 ----------- ----------- ----------- --------- ------------ --------- ----------- Net realized gains (losses) 184,935 157,004 (674,285) 12,039 (2,184,857) 5,515 (17,977) ----------- ----------- ----------- --------- ------------ --------- ----------- Net unrealized appreciation (depreciation) of investments: Beginning of period 905,911 546,185 (4,576,980) 25,593 (14,594,104) (29,192) (176,560) End of period 2,846,755 438,076 (790,341) 259,583 (3,294,912) 123,518 707,387 ----------- ----------- ----------- --------- ------------ --------- ----------- Change in net unrealized appreciation (depreciation) of investments 1,940,844 (108,109) 3,786,639 233,990 11,299,192 152,710 883,947 ----------- ----------- ----------- --------- ------------ --------- ----------- Increase (decrease) in net assets from operations $ 2,247,039 $ 277,447 $ 3,022,469 $ 239,780 $ 8,780,772 $ 154,423 $ 2,278,872 =========== =========== =========== ========= ============ ========= ===========
See accompanying notes to financial statements. 11 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY STATEMENT OF OPERATIONS FOR THE YEAR ENDED APRIL 30, 2006 (Continued)
MFS International International Massachusetts Putnam Diversified Growth Investors MFS Mid- MFS Total Growth: Real Equities and Income Trust Cap Growth Return Voyager Estate Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) ------------- ------------- ------------- ----------- ------------ ------------ ----------- Investment income: Dividends $ 94,531 $ 154,592 $ 50,369 $ 0 $ 2,587,470 $ 179,905 $ 254,895 ----------- ----------- ----------- ----------- ------------ ------------ ----------- Total investment income 94,531 154,592 50,369 0 2,587,470 179,905 254,895 ----------- ----------- ----------- ----------- ------------ ------------ ----------- Expenses: Mortality and expense risk charge (60,305) (163,854) (47,569) (28,370) (883,110) (279,200) (125,386) Distribution expense charge (9,646) (28,271) (9,906) (5,930) (184,150) (44,405) (20,613) ----------- ----------- ----------- ----------- ------------ ------------ ----------- Total expenses (69,951) (192,125) (57,475) (34,300) (1,067,260) (323,605) (145,999) ----------- ----------- ----------- ----------- ------------ ------------ ----------- Net investment income (loss) 24,580 (37,533) (7,106) (34,300) 1,520,210 (143,700) 108,896 ----------- ----------- ----------- ----------- ------------ ------------ ----------- Net realized gains (losses) from securities transactions: Proceeds from shares sold 1,536,417 4,017,078 1,269,888 658,206 1,661,721 7,117,669 2,546,200 Cost of shares sold (1,396,702) (3,426,420) (1,230,526) (782,498) (1,535,571) (10,396,688) (1,757,560) ----------- ----------- ----------- ----------- ------------ ------------ ----------- Net realized gains (losses) from securities transactions 139,715 590,658 39,362 (124,292) 126,150 (3,279,019) 788,640 Realized gain distributions 0 0 0 0 5,620,898 0 950,193 ----------- ----------- ----------- ----------- ------------ ------------ ----------- Net realized gains (losses) 139,715 590,658 39,362 (124,292) 5,747,048 (3,279,019) 1,738,833 ----------- ----------- ----------- ----------- ------------ ------------ ----------- Net unrealized appreciation (depreciation) of investments: Beginning of period 30,285 1,374,207 (339,355) (1,309,412) 8,421,252 (15,414,711) 3,178,207 End of period 1,797,860 6,735,188 638,020 (383,197) 10,070,377 (7,506,073) 4,796,933 ----------- ----------- ----------- ----------- ------------ ------------ ----------- Change in net unrealized appreciation (depreciation) of investments 1,767,575 5,360,981 977,375 926,215 1,649,125 7,908,638 1,618,726 ----------- ----------- ----------- ----------- ------------ ------------ ----------- Increase (decrease) in net assets from operations $ 1,931,870 $ 5,914,106 $ 1,009,631 $ 767,623 $ 8,916,383 $ 4,485,919 $ 3,466,455 =========== =========== =========== =========== ============ ============ ===========
See accompanying notes to financial statements. 12 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY STATEMENT OF OPERATIONS FOR THE YEAR ENDED APRIL 30, 2006 (Continued)
Small Company SunAmerica Telecom Worldwide Emerging Value Balanced Technology Utility High Income Comstock Growth Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class II) (Class II) -------------- ------------- ------------- ----------- ------------ ------------ ----------- Investment income: Dividends $ 542,281 $ 1,100,704 $ 0 $ 146,086 $ 466,563 $ 2,504,354 $ 0 ----------- ------------ --------- ----------- --------- ----------- ---------- Total investment income 542,281 1,100,704 0 146,086 466,563 2,504,354 0 ----------- ------------ --------- ----------- --------- ----------- ---------- Expenses: Mortality and expense risk charge (107,977) (466,226) (2,921) (36,132) (48,863) (1,179,586) (59,836) Distribution expense charge (14,729) (66,151) (606) (5,111) (8,855) (246,251) (12,398) ----------- ------------ --------- ----------- --------- ----------- ---------- Total expenses (122,706) (532,377) (3,527) (41,243) (57,718) (1,425,837) (72,234) ----------- ------------ --------- ----------- --------- ----------- ---------- Net investment income (loss) 419,575 568,327 (3,527) 104,843 408,845 1,078,517 (72,234) ----------- ------------ --------- ----------- --------- ----------- ---------- Net realized gains (losses) from securities transactions: Proceeds from shares sold 2,725,761 13,169,235 220,997 1,326,839 941,917 1,618,173 992,665 Cost of shares sold (1,960,837) (15,881,405) (225,994) (1,664,061) (977,773) (1,470,874) (874,160) ----------- ------------ --------- ----------- --------- ----------- ---------- Net realized gains (losses) from securities transactions 764,924 (2,712,170) (4,997) (337,222) (35,856) 147,299 118,505 Realized gain distributions 61,669 0 0 0 0 11,643,584 0 ----------- ------------ --------- ----------- --------- ----------- ---------- Net realized gains (losses) 826,593 (2,712,170) (4,997) (337,222) (35,856) 11,790,883 118,505 ----------- ------------ --------- ----------- --------- ----------- ---------- Net unrealized appreciation (depreciation) of investments: Beginning of period 2,118,717 (11,807,325) (52,096) (1,295,183) (184,400) 9,553,205 230,691 End of period 3,682,441 (6,711,203) 8,707 (717,605) (329) 15,172,977 1,688,485 ----------- ------------ --------- ----------- --------- ----------- ---------- Change in net unrealized appreciation (depreciation) of investments 1,563,724 5,096,122 60,803 577,578 184,071 5,619,772 1,457,794 ----------- ------------ --------- ----------- --------- ----------- ---------- Increase (decrease) in net assets from operations $ 2,809,892 $ 2,952,279 $ 52,279 $ 345,199 $ 557,060 $18,489,172 $1,504,065 =========== ============ ========= =========== ========= =========== ==========
See accompanying notes to financial statements 13 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY STATEMENT OF OPERATIONS FOR THE YEAR ENDED APRIL 30, 2006 (Continued)
Growth Growth Mid-Cap Asset Global Growth- and Income and Income Value Allocation Growth Growth Income Portfolio Portfolio Portfolio Fund Fund Fund Fund (Class II) (Class VC) (Class VC) (Class 2) (Class 2) (Class 2) (Class 2) ----------- ----------- ----------- ----------- ----------- ----------- ----------- Investment income: Dividends $ 1,476,873 $ 1,304,316 $ 476,455 $ 3,814,184 $ 608,831 $ 1,074,793 $ 3,658,303 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total investment income 1,476,873 1,304,316 476,455 3,814,184 608,831 1,074,793 3,658,303 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Expenses: Mortality and expense risk charge (889,142) (926,236) (741,039) (1,262,833) (845,654) (1,186,985) (1,999,988) Distribution expense charge (185,324) (193,410) (154,531) (263,937) (177,275) (247,271) (417,894) ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total expenses (1,074,466) (1,119,646) (895,570) (1,526,770) (1,022,929) (1,434,256) (2,417,882) ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net investment income (loss) 402,407 184,670 (419,115) 2,287,414 (414,098) (359,463) 1,240,421 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net realized gains (losses) from securities transactions: Proceeds from shares sold 852,636 2,023,337 705,393 2,186,643 933,163 1,859,775 1,565,227 Cost of shares sold (754,411) (1,848,352) (619,036) (1,988,701) (795,379) (1,538,095) (1,402,168) ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net realized gains (losses) from securities transactions 98,225 174,985 86,357 197,942 137,784 321,680 163,059 Realized gain distributions 9,809,788 7,969,150 6,510,234 0 0 0 970,172 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net realized gains (losses) 9,908,013 8,144,135 6,596,591 197,942 137,784 321,680 1,133,231 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net unrealized appreciation (depreciation) of investments: Beginning of period 7,320,536 7,830,637 7,079,872 6,275,018 4,963,041 9,198,396 11,341,371 End of period 15,098,088 18,980,123 15,691,703 34,757,748 36,720,812 46,169,903 48,816,031 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Change in net unrealized appreciation (depreciation) of investments 7,777,552 11,149,486 8,611,831 28,482,730 31,757,771 36,971,507 37,474,660 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Increase (decrease) in net assets from operations $18,087,972 $19,478,291 $14,789,307 $30,968,086 $31,481,457 $36,933,724 $39,848,312 =========== =========== =========== =========== =========== =========== ===========
See accompanying notes to financial statements. 14 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED APRIL 30, 2006
Government Asset Capital and Aggressive Alliance Blue Chip Allocation Appreciation Quality Bond Growth Growth Growth Growth Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) ----------- ------------ ------------ ----------- ----------- ------------ ---------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss) $ 326,625 $ (699,035) $ 2,185,777 $ (82,404) $ (145,762) $ (502,576) $ (4,706) Net realized gains (losses) from securities transactions 227,208 (845,474) 304,998 1,764,763 (1,040,068) (8,564,827) 12,948 Change in net unrealized appreciation (depreciation) of investments 1,128,650 24,761,229 (3,157,893) 9,322,724 3,726,337 24,263,218 149,903 ----------- ------------ ------------ ----------- ----------- ------------ ---------- Increase (decrease) in net assets from operations 1,682,483 23,216,720 (667,118) 11,005,083 2,540,507 15,195,815 158,145 ----------- ------------ ------------ ----------- ----------- ------------ ---------- From capital transactions: Net proceeds from units sold 675,412 8,197,149 3,592,198 4,153,904 587,040 668,035 49,010 Cost of units redeemed (3,445,221) (11,563,557) (12,225,254) (7,720,062) (2,646,194) (14,405,165) (90,168) Annuity benefit payments (5,389) (14,475) (68,846) (14,090) 0 (33,749) (624) Net transfers 1,574,904 18,678,848 17,875,009 15,171,490 (218,791) (2,793,074) 161,378 ----------- ------------ ------------ ----------- ----------- ------------ ---------- Increase (decrease) in net assets from capital transactions (1,200,294) 15,297,965 9,173,107 11,591,242 (2,277,945) (16,563,953) 119,596 ----------- ------------ ------------ ----------- ----------- ------------ ---------- Increase (decrease) in net assets 482,189 38,514,685 8,505,989 22,596,325 262,562 (1,368,138) 277,741 Net assets at beginning of period 17,336,407 83,487,910 74,583,311 56,478,498 11,620,263 60,549,487 1,418,582 ----------- ------------ ------------ ----------- ----------- ------------ ---------- Net assets at end of period $17,818,596 $122,002,595 $ 83,089,300 $79,074,823 $11,882,825 $ 59,181,349 $1,696,323 =========== ============ ============ =========== =========== ============ ========== ANALYSIS OF INCREASE (DECREASE) IN UNITS OUTSTANDING: Contracts with total expenses of 0.85% (1): Units sold 30 0 0 0 0 0 0 Units redeemed 0 0 0 (61) (10) (91) 0 Units transferred (23) 0 0 0 0 1 0 ----------- ------------ ------------ ----------- ----------- ------------ ---------- Increase (decrease) in units outstanding 7 0 0 (61) (10) (90) 0 Beginning units 0 1,009 132 1,317 22 2,006 0 ----------- ------------ ------------ ----------- ----------- ------------ ---------- Ending units 7 1,009 132 1,256 12 1,916 0 =========== ============ ============ =========== =========== ============ ========== Contracts with total expenses of 0.85% (2): Units sold 28,319 589,236 244,599 327,726 38,199 17,153 7,030 Units redeemed (39,507) (355,792) (246,725) (261,755) (20,163) (166,568) (9,794) Units transferred 76,486 1,451,960 1,314,279 1,278,251 11,145 (131,160) 21,516 ----------- ------------ ------------ ----------- ----------- ------------ ---------- Increase (decrease) in units outstanding 65,298 1,685,404 1,312,153 1,344,222 29,181 (280,575) 18,752 Beginning units 391,287 5,011,960 2,798,749 3,599,424 200,065 1,483,547 241,276 ----------- ------------ ------------ ----------- ----------- ------------ ---------- Ending units 456,585 6,697,364 4,110,902 4,943,646 229,246 1,202,972 260,028 =========== ============ ============ =========== =========== ============ ========== Contracts with total expenses of 1.10%: Units sold 64 22,449 6,355 14,104 3,450 1,907 1,340 Units redeemed (34) (42,713) (13,085) (28,072) (1,388) (2,742) (6,201) Units transferred (290) 76,787 62,303 76,435 1,215 (9,167) 6,392 ----------- ------------ ------------ ----------- ----------- ------------ ---------- Increase (decrease) in units outstanding (260) 56,523 55,573 62,467 3,277 (10,002) 1,531 Beginning units 13,285 470,268 210,678 280,792 11,309 117,667 27,066 ----------- ------------ ------------ ----------- ----------- ------------ ---------- Ending units 13,025 526,791 266,251 343,259 14,586 107,665 28,597 =========== ============ ============ =========== =========== ============ ========== Contracts with total expenses of 1.25%: Units sold 13,635 14,898 14,350 10,982 10,915 15,653 0 Units redeemed (126,607) (170,068) (507,290) (145,100) (148,845) (406,203) 0 Units transferred 26,650 (10,653) (28,165) 3,100 (19,889) (56,576) 0 ----------- ------------ ------------ ----------- ----------- ------------ ---------- Increase (decrease) in units outstanding (86,322) (165,823) (521,105) (131,018) (157,819) (447,126) 0 Beginning units 566,460 718,778 1,995,979 606,500 693,354 1,847,707 0 ----------- ------------ ------------ ----------- ----------- ------------ ---------- Ending units 480,138 552,955 1,474,874 475,482 535,535 1,400,581 0 =========== ============ ============ =========== =========== ============ ==========
(1) Offered in Polaris Plus product. (2) Offered in Polaris II Asset Manager and Polaris II A-Class products. See accompanying notes to financial statements. 15 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED APRIL 30, 2006 (Continued)
Davis Cash Corporate Venture "Dogs" of Emerging Equity Equity Management Bond Value Wall Street Markets Income Index Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) ------------ ----------- ------------ ----------- ----------- ----------- ----------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss) $ (44,961) $ 2,221,654 $ 31,190 $ 77,074 $ (94,399) $ 27,834 $ 110,405 Net realized gains (losses) from securities transactions 112,628 94,165 911,903 145,011 1,297,384 360,554 (502,623) Change in net unrealized appreciation (depreciation) of investments 384,238 (1,438,331) 15,703,676 76,874 4,245,231 379,279 4,598,258 ------------ ----------- ------------ ----------- ----------- ----------- ----------- Increase (decrease) in net assets from operations 451,905 877,488 16,646,769 298,959 5,448,216 767,667 4,206,040 ------------ ----------- ------------ ----------- ----------- ----------- ----------- From capital transactions: Net proceeds from units sold 1,568,769 4,562,715 7,196,365 92,633 525,547 102,167 210,447 Cost of units redeemed (13,166,081) (6,191,943) (12,631,985) (1,346,890) (1,563,728) (2,012,642) (8,822,236) Annuity benefit payments (31,108) (3,933) (14,485) (13,622) (2,948) (9,775) (42,654) Net transfers 9,760,814 25,951,566 21,265,637 (118,940) 4,021,975 (189,629) (1,051,572) ------------ ----------- ------------ ----------- ----------- ----------- ----------- Increase (decrease) in net assets from capital transactions (1,867,606) 24,318,405 15,815,532 (1,386,819) 2,980,846 (2,109,879) (9,706,015) ------------ ----------- ------------ ----------- ----------- ----------- ----------- Increase (decrease) in net assets (1,415,701) 25,195,893 32,462,301 (1,087,860) 8,429,062 (1,342,212) (5,499,975) Net assets at beginning of period 20,569,647 49,923,331 94,709,800 6,504,889 7,347,341 6,841,407 35,204,686 ------------ ----------- ------------ ----------- ----------- ----------- ----------- Net assets at end of period $ 19,153,946 $75,119,224 $127,172,101 $ 5,417,029 $15,776,403 $ 5,499,195 $29,704,711 ============ =========== ============ =========== =========== =========== =========== ANALYSIS OF INCREASE (DECREASE) IN UNITS OUTSTANDING: Contracts with total expenses of 0.85% (1): Units sold 0 0 0 0 0 0 0 Units redeemed (3,497) 0 (36) (4) 0 0 0 Units transferred 0 0 0 0 0 25 0 ------------ ----------- ------------ ----------- ----------- ----------- ----------- Increase (decrease) in units outstanding (3,497) 0 (36) (4) 0 25 0 Beginning units 3,497 0 1,204 8 0 0 0 ------------ ----------- ------------ ----------- ----------- ----------- ----------- Ending units 0 0 1,168 4 0 25 0 ============ =========== ============ =========== =========== =========== =========== Contracts with total expenses of 0.85% (2): Units sold 122,291 304,843 457,147 946 23,377 0 0 Units redeemed (498,350) (246,223) (476,215) (3,177) (8,190) 0 0 Units transferred 670,415 1,739,199 1,455,270 (3,536) 97,201 0 0 ------------ ----------- ------------ ----------- ----------- ----------- ----------- Increase (decrease) in units outstanding 294,356 1,797,819 1,436,202 (5,767) 112,388 0 0 Beginning units 510,350 2,764,553 5,266,766 71,462 83,882 0 0 ------------ ----------- ------------ ----------- ----------- ----------- ----------- Ending units 804,706 4,562,372 6,702,968 65,695 196,270 0 0 ============ =========== ============ =========== =========== =========== =========== Contracts with total expenses of 1.10%: Units sold 911 14,793 32,964 497 1,411 0 0 Units redeemed (21,932) (22,500) (41,221) 0 (147) 0 0 Units transferred 16,211 110,681 76,263 324 13,280 0 0 ------------ ----------- ------------ ----------- ----------- ----------- ----------- Increase (decrease) in units outstanding (4,810) 102,974 68,006 821 14,544 0 0 Beginning units 31,888 234,296 543,292 5,785 8,275 0 0 ------------ ----------- ------------ ----------- ----------- ----------- ----------- Ending units 27,078 337,270 611,298 6,606 22,819 0 0 ============ =========== ============ =========== =========== =========== =========== Contracts with total expenses of 1.25%: Units sold 14,921 4,943 18,863 6,727 3,621 8,539 22,460 Units redeemed (558,327) (139,194) (167,767) (118,917) (99,882) (168,559) (961,872) Units transferred 162,485 2,020 23,728 (6,937) 147,306 (15,828) (115,695) ------------ ----------- ------------ ----------- ----------- ----------- ----------- Increase (decrease) in units outstanding (380,921) (132,231) (125,176) (119,127) 51,045 (175,848) (1,055,107) Beginning units 1,115,235 500,897 736,735 496,507 544,013 603,319 4,114,983 ------------ ----------- ------------ ----------- ----------- ----------- ----------- Ending units 734,314 368,666 611,559 377,380 595,058 427,471 3,059,876 ============ =========== ============ =========== =========== =========== ===========
(1) Offered in Polaris Plus product. (2) Offered in Polaris II Asset Manager and Polaris II A-Class products. See accompanying notes to financial statements. 16 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED APRIL 30, 2006 (Continued)
Federated Goldman American Global Global Sachs Growth- Growth High-Yield Leaders Bond Equities Research Income Opportunities Bond Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) ----------- ------------ ------------ ----------- ------------ ------------- ----------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss) $ 121,260 $ 228,552 $ (89,885) $ (6,249) $ (333,563) $ (3,802) $ 1,412,902 Net realized gains (losses) from securities transactions 184,935 157,004 (674,285) 12,039 (2,184,857) 5,515 (17,977) Change in net unrealized appreciation (depreciation) of investments 1,940,844 (108,109) 3,786,639 233,990 11,299,192 152,710 883,947 ----------- ----------- ------------ ---------- ------------ ---------- ----------- Increase (decrease) in net assets from operations 2,247,039 277,447 3,022,469 239,780 8,780,772 154,423 2,278,872 ----------- ----------- ------------ ---------- ------------ ---------- ----------- From capital transactions: Net proceeds from units sold 540,989 979,346 333,172 149,954 717,189 117,738 757,623 Cost of units redeemed (2,914,770) (2,079,086) (2,151,179) (130,851) (12,980,612) (34,019) (2,445,278) Annuity benefit payments (4,050) (11,692) (2,266) 0 (70,322) 0 (29,715) Net transfers 3,368,313 2,078,606 758,565 481,684 (1,138,547) 579,156 1,994,265 ----------- ----------- ------------ ---------- ------------ ---------- ----------- Increase (decrease) in net assets from capital transactions 990,482 967,174 (1,061,708) 500,787 (13,472,292) 662,875 276,895 ----------- ----------- ------------ ---------- ------------ ---------- ----------- Increase (decrease) in net assets 3,237,521 1,244,621 1,960,761 740,567 (4,691,520) 817,298 2,555,767 Net assets at beginning of period 18,567,050 9,740,574 9,402,833 1,168,750 56,491,767 287,334 14,737,078 ----------- ----------- ------------ ---------- ------------ ---------- ----------- Net assets at end of period $21,804,571 $10,985,195 $ 11,363,594 $1,909,317 $ 51,800,247 $1,104,632 $17,292,845 =========== =========== ============ ========== ============ ========== =========== ANALYSIS OF INCREASE (DECREASE) IN UNITS OUTSTANDING: Contracts with total expenses of 0.85% (1): Units sold 0 0 0 0 0 0 0 Units redeemed 0 0 0 0 (71) 0 0 Units transferred 0 24 0 0 (1) 0 22 ----------- ----------- ------------ ---------- ------------ ---------- ----------- Increase (decrease) in units outstanding 0 24 0 0 (72) 0 22 Beginning units 0 0 0 0 262 0 0 ----------- ----------- ------------ ---------- ------------ ---------- ----------- Ending units 0 24 0 0 190 0 22 =========== =========== ============ ========== ============ ========== =========== Contracts with total expenses of 0.85% (2): Units sold 39,116 68,576 26,172 19,761 24,062 21,813 52,603 Units redeemed (88,015) (44,960) (23,645) (17,207) (103,275) (6,103) (83,812) Units transferred 283,165 160,772 43,118 66,847 (9,807) 90,670 120,678 ----------- ----------- ------------ ---------- ------------ ---------- ----------- Increase (decrease) in units outstanding 234,266 184,388 45,645 69,401 (89,020) 106,380 89,469 Beginning units 1,123,719 271,920 293,259 166,184 1,251,543 63,432 781,111 ----------- ----------- ------------ ---------- ------------ ---------- ----------- Ending units 1,357,985 456,308 338,904 235,585 1,162,523 169,812 870,580 =========== =========== ============ ========== ============ ========== =========== Contracts with total expenses of 1.10%: Units sold 1,468 3,667 410 845 1,130 0 2,547 Units redeemed (3,464) (4,199) (1,579) (1,022) (9,252) 0 (1,032) Units transferred 20,342 468 6,408 1,334 2,597 11,360 31,261 ----------- ----------- ------------ ---------- ------------ ---------- ----------- Increase (decrease) in units outstanding 18,346 (64) 5,239 1,157 (5,525) 11,360 32,776 Beginning units 69,259 23,374 7,970 12,093 91,889 2,026 53,321 ----------- ----------- ------------ ---------- ------------ ---------- ----------- Ending units 87,605 23,310 13,209 13,250 86,364 13,386 86,097 =========== =========== ============ ========== ============ ========== =========== Contracts with total expenses of 1.25%: Units sold 4,008 2,564 5,295 0 16,104 0 2,587 Units redeemed (101,588) (81,665) (99,055) 0 (404,513) 0 (73,270) Units transferred (6,162) (341) 14,802 0 (37,846) 0 142 ----------- ----------- ------------ ---------- ------------ ---------- ----------- Increase (decrease) in units outstanding (103,742) (79,442) (78,958) 0 (426,255) 0 (70,541) Beginning units 329,288 337,148 430,108 0 1,686,135 0 272,262 ----------- ----------- ------------ ---------- ------------ ---------- ----------- Ending units 225,546 257,706 351,150 0 1,259,880 0 201,721 =========== =========== ============ ========== ============ ========== ===========
(1) Offered in Polaris Plus product. (2) Offered in Polaris II Asset Manager and Polaris II A-Class products. See accompanying notes to financial statements. 17 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED APRIL 30, 2006 (Continued)
MFS International International Massachusetts Diversified Growth Investors MFS Mid- Equities and Income Trust Cap Growth Portfolio Portfolio Portfolio Portfolio (Class 1) (Class 1) (Class 1) (Class 1) ------------- ------------- ------------- ---------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss) $ 24,580 $ (37,533) $ (7,106) $ (34,300) Net realized gains (losses) from securities transactions 139,715 590,658 39,362 (124,292) Change in net unrealized appreciation (depreciation) of investments 1,767,575 5,360,981 977,375 926,215 ---------- ----------- ---------- ---------- Increase (decrease) in net assets from operations 1,931,870 5,914,106 1,009,631 767,623 ---------- ----------- ---------- ---------- From capital transactions: Net proceeds from units sold 239,021 1,176,462 181,961 253,615 Cost of units redeemed (857,455) (2,068,906) (799,776) (410,610) Annuity benefit payments (4,340) (9,157) 0 0 Net transfers 1,388,501 2,883,831 (178,623) 148,221 ---------- ----------- ---------- ---------- Increase (decrease) in net assets from capital transactions 765,727 1,982,230 (796,438) (8,774) ---------- ----------- ---------- ---------- Increase (decrease) in net assets 2,697,597 7,896,336 213,193 758,849 Net assets at beginning of period 5,681,049 16,531,318 6,498,005 3,527,481 ---------- ----------- ---------- ---------- Net assets at end of period $8,378,646 $24,427,654 $6,711,198 $4,286,330 ========== =========== ========== ========== ANALYSIS OF INCREASE (DECREASE) IN UNITS OUTSTANDING: Contracts with total expenses of 0.85% (1): Units sold 0 40 0 0 Units redeemed 0 (38) 0 0 Units transferred 0 (30) 0 0 ---------- ----------- ---------- ---------- Increase (decrease) in units outstanding 0 (28) 0 0 Beginning units 44 750 0 0 ---------- ----------- ---------- ---------- Ending units 44 722 0 0 ========== =========== ========== ========== Contracts with total expenses of 0.85% (2): Units sold 22,212 78,465 18,798 28,171 Units redeemed (20,605) (56,149) (67,884) (43,026) Units transferred 113,278 179,178 (25,158) 17,671 ---------- ----------- ---------- ---------- Increase (decrease) in units outstanding 114,885 201,494 (74,244) 2,816 Beginning units 292,725 872,379 671,759 428,891 ---------- ----------- ---------- ---------- Ending units 407,610 1,073,873 597,515 431,707 ========== =========== ========== ========== Contracts with total expenses of 1.10%: Units sold 772 2,383 302 1,113 Units redeemed (572) (1,879) (15,209) (3,648) Units transferred 8,986 10,529 6,459 (1,730) ---------- ----------- ---------- ---------- Increase (decrease) in units outstanding 9,186 11,033 (8,448) (4,265) Beginning units 15,209 36,801 62,443 35,343 ---------- ----------- ---------- ---------- Ending units 24,395 47,834 53,995 31,078 ========== =========== ========== ========== Contracts with total expenses of 1.25%: Units sold 5,086 14,303 0 0 Units redeemed (59,018) (94,212) 0 0 Units transferred 29,480 30,528 0 0 ---------- ----------- ---------- ---------- Increase (decrease) in units outstanding (24,452) (49,381) 0 0 Beginning units 341,679 551,102 0 0 ---------- ----------- ---------- ---------- Ending units 317,227 501,721 0 0 ========== =========== ========== ========== Putnam MFS Total Growth: Real Return Voyager Estate Portfolio Portfolio Portfolio (Class 1) (Class 1) (Class 1) ------------ ----------- ----------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss) $ 1,520,210 $ (143,700) $ 108,896 Net realized gains (losses) from securities transactions 5,747,048 (3,279,019) 1,738,833 Change in net unrealized appreciation (depreciation) of investments 1,649,125 7,908,638 1,618,726 ------------ ----------- ----------- Increase (decrease) in net assets from operations 8,916,383 4,485,919 3,466,455 ------------ ----------- ----------- From capital transactions: Net proceeds from units sold 9,190,814 336,311 835,405 Cost of units redeemed (9,200,114) (5,951,423) (1,883,800) Annuity benefit payments (11,285) (12,859) (1,001) Net transfers 44,584,228 (60,921) 3,279,811 ------------ ----------- ----------- Increase (decrease) in net assets from capital transactions 44,563,643 (5,688,892) 2,230,415 ------------ ----------- ----------- Increase (decrease) in net assets 53,480,026 (1,202,973) 5,696,870 Net assets at beginning of period 96,653,891 29,214,010 10,901,751 ------------ ----------- ----------- Net assets at end of period $150,133,917 $28,011,037 $16,598,621 ============ =========== =========== ANALYSIS OF INCREASE (DECREASE) IN UNITS OUTSTANDING: Contracts with total expenses of 0.85% (1): Units sold 0 63 0 Units redeemed 0 0 (4) Units transferred 0 (48) 12 ------------ ----------- ----------- Increase (decrease) in units outstanding 0 15 8 Beginning units 0 174 8 ------------ ----------- ----------- Ending units 0 189 16 ============ =========== =========== Contracts with total expenses of 0.85% (2): Units sold 619,683 31,484 22,956 Units redeemed (584,419) (112,381) (10,302) Units transferred 2,967,511 47,256 101,018 ------------ ----------- ----------- Increase (decrease) in units outstanding 3,002,775 (33,641) 113,672 Beginning units 6,359,705 1,613,813 158,560 ------------ ----------- ----------- Ending units 9,362,480 1,580,172 272,232 ============ =========== =========== Contracts with total expenses of 1.10%: Units sold 19,395 298 1,463 Units redeemed (54,534) (5,539) (643) Units transferred 133,379 17,804 9,393 ------------ ----------- ----------- Increase (decrease) in units outstanding 98,240 12,563 10,213 Beginning units 625,544 143,580 13,970 ------------ ----------- ----------- Ending units 723,784 156,143 24,183 ============ =========== =========== Contracts with total expenses of 1.25%: Units sold 0 6,256 6,654 Units redeemed 0 (282,383) (64,835) Units transferred 0 (27,165) 4,506 ------------ ----------- ----------- Increase (decrease) in units outstanding 0 (303,292) (53,675) Beginning units 0 1,116,207 319,242 ------------ ----------- ----------- Ending units 0 812,915 265,567 ============ =========== ===========
(1) Offered in Polaris Plus product. (2) Offered in Polaris II Asset Manager and Polaris II A-Class products. See accompanying notes to financial statements. 18 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED APRIL 30, 2006 (Continued)
Small Company SunAmerica Telecom Worldwide Emerging Value Balanced Technology Utility High Income Comstock Growth Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class II) (Class II) ----------- ------------ ---------- ---------- ----------- ------------ ---------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss) $ 419,575 $ 568,327 $ (3,527) $ 104,843 $ 408,845 $ 1,078,517 $ (72,234) Net realized gains (losses) from securities transactions 826,593 (2,712,170) (4,997) (337,222) (35,856) 11,790,883 118,505 Change in net unrealized appreciation (depreciation) of investments 1,563,724 5,096,122 60,803 577,578 184,071 5,619,772 1,457,794 ----------- ------------ -------- ---------- ---------- ------------ ---------- Increase (decrease) in net assets from operations 2,809,892 2,952,279 52,279 345,199 557,060 18,489,172 1,504,065 ----------- ------------ -------- ---------- ---------- ------------ ---------- From capital transactions: Net proceeds from units sold 220,135 665,492 29,990 31,804 385,257 15,667,720 506,241 Cost of units redeemed (2,188,049) (11,104,522) (42,919) (922,293) (788,445) (10,326,623) (692,267) Annuity benefit payments 0 (56,719) 0 (2,066) (596) (1,979) 0 Net transfers 262,603 (1,274,322) 80,236 (3,305) 1,437,806 58,916,203 931,978 ----------- ------------ -------- ---------- ---------- ------------ ---------- Increase (decrease) in net assets from capital transactions (1,705,311) (11,770,071) 67,307 (895,860) 1,034,022 64,255,321 745,952 ----------- ------------ -------- ---------- ---------- ------------ ---------- Increase (decrease) in net assets 1,104,581 (8,817,792) 119,586 (550,661) 1,591,082 82,744,493 2,250,017 Net assets at beginning of period 9,345,792 48,101,607 289,994 3,606,091 5,019,174 123,820,013 7,054,221 ----------- ------------ -------- ---------- ---------- ------------ ---------- Net assets at end of period $10,450,373 $ 39,283,815 $409,580 $3,055,430 $6,610,256 $206,564,506 $9,304,238 =========== ============ ======== ========== ========== ============ ========== ANALYSIS OF INCREASE (DECREASE) IN UNITS OUTSTANDING: Contracts with total expenses of 0.85% (1): Units sold 0 0 0 0 0 0 0 Units redeemed (11) 0 0 (7) 0 0 0 Units transferred 0 0 0 (32) 0 0 0 ----------- ------------ -------- ---------- ---------- ------------ ---------- Increase (decrease) in units outstanding (11) 0 0 (39) 0 0 0 Beginning units 427 630 0 59 0 0 0 ----------- ------------ -------- ---------- ---------- ------------ ---------- Ending units 416 630 0 20 0 0 0 =========== ============ ======== ========== ========== ============ ========== Contracts with total expenses of 0.85% (2): Units sold 0 36,044 13,009 1,265 22,950 1,206,203 45,157 Units redeemed 0 (29,890) (17,809) (4,551) (24,946) (765,233) (66,478) Units transferred 0 (29,137) 28,163 (2,796) 99,058 4,485,675 97,315 ----------- ------------ -------- ---------- ---------- ------------ ---------- Increase (decrease) in units outstanding 0 (22,983) 23,363 (6,082) 97,062 4,926,645 75,994 Beginning units 0 538,668 126,057 39,917 241,802 9,483,533 738,594 ----------- ------------ -------- ---------- ---------- ------------ ---------- Ending units 0 515,685 149,420 33,835 338,864 14,410,178 814,588 =========== ============ ======== ========== ========== ============ ========== Contracts with total expenses of 1.10%: Units sold 0 0 0 0 3,458 47,852 7,356 Units redeemed 0 (1,667) (109) (308) (1,034) (54,278) (3,426) Units transferred 0 (69) 6,073 463 843 227,007 (2,593) ----------- ------------ -------- ---------- ---------- ------------ ---------- Increase (decrease) in units outstanding 0 (1,736) 5,964 155 3,267 220,581 1,337 Beginning units 0 30,592 14,654 4,376 17,004 846,244 81,765 ----------- ------------ -------- ---------- ---------- ------------ ---------- Ending units 0 28,856 20,618 4,531 20,271 1,066,825 83,102 =========== ============ ======== ========== ========== ============ ========== Contracts with total expenses of 1.25%: Units sold 9,244 22,257 0 1,601 1,704 0 0 Units redeemed (93,020) (712,688) 0 (70,598) (22,257) 0 0 Units transferred 11,396 (66,384) 0 1,404 4,982 0 0 ----------- ------------ -------- ---------- ---------- ------------ ---------- Increase (decrease) in units outstanding (72,380) (756,815) 0 (67,593) (15,571) 0 0 Beginning units 456,434 2,949,416 0 276,507 94,361 0 0 ----------- ------------ -------- ---------- ---------- ------------ ---------- Ending units 384,054 2,192,601 0 208,914 78,790 0 0 =========== ============ ======== ========== ========== ============ ==========
(1) Offered in Polaris Plus product. (2) Offered in Polaris II Asset Manager and Polaris II A-Class products. See accompanying notes to financial statements. 19 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED APRIL 30, 2006 (Continued)
Growth Growth Asset Global Growth- and Income and Income Mid-Cap Value Allocation Growth Growth Income Portfolio Portfolio Portfolio Fund Fund Fund Fund (Class II) (Class VC) (Class VC) (Class 2) (Class 2) (Class 2) (Class 2) ------------ ------------ ------------- ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss) $ 402,407 $ 184,670 $ (419,115) $ 2,287,414 $ (414,098) $ (359,463) $ 1,240,421 Net realized gains (losses) from securities transactions 9,908,013 8,144,135 6,596,591 197,942 137,784 321,680 1,133,231 Change in net unrealized appreciation (depreciation) of investments 7,777,552 11,149,486 8,611,831 28,482,730 31,757,771 36,971,507 37,474,660 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Increase (decrease) in net assets from operations 18,087,972 19,478,291 14,789,307 30,968,086 31,481,457 36,933,724 39,848,312 ------------ ------------ ------------ ------------ ------------ ------------ ------------ From capital transactions: Net proceeds from units sold 12,069,474 11,224,795 11,964,628 17,573,618 16,964,885 20,060,523 27,031,723 Cost of units redeemed (7,412,538) (8,183,721) (6,098,153) (10,380,483) (6,394,530) (8,889,784) (15,491,271) Annuity benefit payments (1,723) (9,646) 0 (43,132) (1,382) (12,959) (34,044) Net transfers 51,206,976 33,877,085 39,341,805 46,681,262 50,042,028 44,625,590 76,115,384 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Increase (decrease) in net assets from capital transactions 55,862,189 36,908,513 45,208,280 53,831,265 60,611,001 55,783,370 87,621,792 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Increase (decrease) in net assets 73,950,161 56,386,804 59,997,587 84,799,351 92,092,458 92,717,094 127,470,104 Net assets at beginning of period 88,359,318 101,751,623 70,971,529 135,479,401 78,648,361 119,536,271 215,972,523 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Net assets at end of period $162,309,479 $158,138,427 $130,969,116 $220,278,752 $170,740,819 $212,253,365 $343,442,627 ============ ============ ============ ============ ============ ============ ============ ANALYSIS OF INCREASE (DECREASE) IN UNITS OUTSTANDING: Contracts with total expenses of 0.85% (1): Units sold 0 0 0 0 0 0 0 Units redeemed 0 0 0 0 0 0 0 Units transferred 0 0 0 0 0 0 0 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Increase (decrease) in units outstanding 0 0 0 0 0 0 0 Beginning units 0 0 0 0 0 0 0 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Ending units 0 0 0 0 0 0 0 ============ ============ ============ ============ ============ ============ ============ Contracts with total expenses of 0.85% (2): Units sold 844,756 881,084 835,526 1,187,113 902,712 1,040,142 1,611,924 Units redeemed (496,485) (600,490) (396,816) (672,756) (314,457) (418,378) (854,149) Units transferred 3,438,131 2,656,929 2,725,724 3,123,012 2,615,092 2,301,880 4,410,518 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Increase (decrease) in units outstanding 3,786,402 2,937,523 3,164,434 3,637,369 3,203,347 2,923,644 5,168,293 Beginning units 6,430,178 8,213,816 5,243,266 9,466,337 4,595,577 6,864,169 13,337,082 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Ending units 10,216,580 11,151,339 8,407,700 13,103,706 7,798,924 9,787,813 18,505,375 ============ ============ ============ ============ ============ ============ ============ Contracts with total expenses of 1.10%: Units sold 34,156 50,118 36,254 41,172 27,563 42,349 48,959 Units redeemed (39,615) (70,785) (42,721) (47,320) (35,189) (62,839) (96,717) Units transferred 296,176 153,511 138,242 123,518 137,060 127,642 280,968 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Increase (decrease) in units outstanding 290,717 132,844 131,775 117,370 129,434 107,152 233,210 Beginning units 575,351 736,996 514,307 815,311 354,881 687,441 1,135,519 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Ending units 866,068 869,840 646,082 932,681 484,315 794,593 1,368,729 ============ ============ ============ ============ ============ ============ ============ Contracts with total expenses of 1.25%: Units sold 0 0 0 0 0 0 0 Units redeemed 0 0 0 0 0 0 0 Units transferred 0 0 0 0 0 0 0 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Increase (decrease) in units outstanding 0 0 0 0 0 0 0 Beginning units 0 0 0 0 0 0 0 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Ending units 0 0 0 0 0 0 0 ============ ============ ============ ============ ============ ============ ============
(1) Offered in Polaris Plus product. (2) Offered in Polaris II Asset Manager and Polaris II A-Class products. See accompanying notes to financial statements. 20 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED APRIL 30, 2005
Government Asset Capital and Aggressive Alliance Blue Chip Allocation Appreciation Quality Bond Growth Growth Growth Growth Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) ----------- ------------ ------------ ----------- ----------- ------------ ---------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss) $ 279,192 $ (776,093) $ 2,519,408 $ (237,934) $ (145,663) $ (593,330) $ (9,702) Net realized gains (losses) 69,932 (1,620,423) 606,069 (1,069,943) (1,278,230) (12,312,668) 4,598 Change in net unrealized appreciation (depreciation) of investments 683,116 2,820,684 (756,938) 3,988,324 2,585,655 13,963,931 (13,519) ----------- ----------- ------------ ----------- ----------- ------------ ---------- Increase (decrease) in net assets from operations 1,032,240 424,168 2,368,539 2,680,447 1,161,762 1,057,933 (18,623) ----------- ----------- ------------ ----------- ----------- ------------ ---------- From capital transactions: Net proceeds from units sold 759,855 9,083,076 4,942,159 5,847,872 588,490 695,193 174,190 Cost of units redeemed (4,312,935) (7,409,256) (12,322,363) (5,408,018) (1,492,810) (11,563,869) (124,846) Annuity benefit payments 0 0 0 0 0 0 0 Net transfers 2,230,802 13,100,928 10,753,689 10,094,261 (339,540) (4,932,062) 307,089 ----------- ----------- ------------ ----------- ----------- ------------ ---------- Increase (decrease) in net assets from capital transactions (1,322,278) 14,774,748 3,373,485 10,534,115 (1,243,860) (15,800,738) 356,433 ----------- ----------- ------------ ----------- ----------- ------------ ---------- Increase (decrease) in net assets (290,038) 15,198,916 5,742,024 13,214,562 (82,098) (14,742,805) 337,810 Net assets at beginning of period 17,626,445 68,288,994 68,841,287 43,263,936 11,702,361 75,292,292 1,080,772 ----------- ----------- ------------ ----------- ----------- ------------ ---------- Net assets at end of period $17,336,407 $83,487,910 $ 74,583,311 $56,478,498 $11,620,263 $ 60,549,487 $1,418,582 =========== =========== ============ =========== =========== ============ ========== ANALYSIS OF INCREASE (DECREASE) IN UNITS OUTSTANDING: Contracts with total expenses of 0.85% (1): Units sold 0 0 0 0 0 0 0 Units redeemed 0 (1,016) (43) (390) (288) 0 0 Units transferred 0 0 0 0 0 0 0 ----------- ----------- ------------ ----------- ----------- ------------ ---------- Increase (decrease) in units outstanding 0 (1,016) (43) (390) (288) 0 0 Beginning units 0 2,025 175 1,707 310 2,006 0 ----------- ----------- ------------ ----------- ----------- ------------ ---------- Ending units 0 1,009 132 1,317 22 2,006 0 =========== =========== ============ =========== =========== ============ ========== Contracts with total expenses of 0.85% (2): Units sold 28,947 750,204 339,124 543,080 43,902 7,213 30,606 Units redeemed (27,906) (255,018) (172,126) (167,072) (10,798) (148,071) (20,126) Units transferred 65,376 1,167,935 914,501 987,723 (13,360) (320,588) 52,831 ----------- ----------- ------------ ----------- ----------- ------------ ---------- Increase (decrease) in units outstanding 66,417 1,663,121 1,081,499 1,363,731 19,744 (461,446) 63,311 Beginning units 324,870 3,348,839 1,717,250 2,235,693 180,321 1,944,993 177,965 ----------- ----------- ------------ ----------- ----------- ------------ ---------- Ending units 391,287 5,011,960 2,798,749 3,599,424 200,065 1,483,547 241,276 =========== =========== ============ =========== =========== ============ ========== Contracts with total expenses of 1.10%: Units sold 356 32,849 22,535 21,110 5,462 1,183 2,179 Units redeemed (5) (14,601) (3,342) (9,612) 0 (543) (2,868) Units transferred 654 112,325 53,171 71,151 (6,291) (21,324) 4,291 ----------- ----------- ------------ ----------- ----------- ------------ ---------- Increase (decrease) in units outstanding 1,005 130,573 72,364 82,649 (829) (20,684) 3,602 Beginning units 12,280 339,695 138,314 198,143 12,138 138,351 23,464 ----------- ----------- ------------ ----------- ----------- ------------ ---------- Ending units 13,285 470,268 210,678 280,792 11,309 117,667 27,066 =========== =========== ============ =========== =========== ============ ========== Contracts with total expenses of 1.25%: Units sold 19,153 18,318 13,023 9,011 12,227 22,685 0 Units redeemed (183,961) (129,888) (586,285) (129,700) (98,631) (382,987) 0 Units transferred 68,756 (19,627) (113,642) (15,913) (10,598) (98,301) 0 ----------- ----------- ------------ ----------- ----------- ------------ ---------- Increase (decrease) in units outstanding (96,052) (131,197) (686,904) (136,602) (97,002) (458,603) 0 Beginning units 662,512 849,975 2,682,883 743,102 790,356 2,306,310 0 ----------- ----------- ------------ ----------- ----------- ------------ ---------- Ending units 566,460 718,778 1,995,979 606,500 693,354 1,847,707 0 =========== =========== ============ =========== =========== ============ ==========
(1) Offered in Polaris Plus product. (2) Offered in Polaris II Asset Manager and Polaris II A-Class products. See accompanying notes to financial statements. 21 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED APRIL 30, 2005 (Continued)
Davis Cash Corporate Venture "Dogs" of Emerging Equity Equity Management Bond Value Wall Street Markets Income Index Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) ----------- ----------- ------------ ----------- ----------- ----------- ----------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss) $ (74,985) $ 1,506,075 $ (101,742) $ 86,933 $ (10,939) $ 5,573 $ (60,757) Net realized gains (losses) (117,379) 144,510 219,287 164,085 672,343 190,451 (1,453,539) Change in net unrealized appreciation (depreciation) of investments 232,755 (315,120) 7,181,836 (122,029) 654,462 240,449 3,294,245 ----------- ----------- ------------ ----------- ----------- ----------- ----------- Increase (decrease) in net assets from operations 40,391 1,335,465 7,299,381 128,989 1,315,866 436,473 1,779,949 ----------- ----------- ------------ ----------- ----------- ----------- ----------- From capital transactions: Net proceeds from units sold 5,059,861 6,665,687 7,354,308 144,881 122,769 135,992 221,586 Cost of units redeemed (6,764,313) (3,410,815) (10,602,922) (1,482,939) (835,812) (1,887,756) (7,793,002) Annuity benefit payments 0 0 0 0 0 0 0 Net transfers 1,789,357 16,845,807 13,152,902 201,004 (414,047) (352,474) (1,107,940) ----------- ----------- ------------ ----------- ----------- ----------- ----------- Increase (decrease) in net assets from capital transactions 84,905 20,100,679 9,904,288 (1,137,054) (1,127,090) (2,104,238) (8,679,356) ----------- ----------- ------------ ----------- ----------- ----------- ----------- Increase (decrease) in net assets 125,296 21,436,144 17,203,669 (1,008,065) 188,776 (1,667,765) (6,899,407) Net assets at beginning of period 20,444,351 28,487,187 77,506,131 7,512,954 7,158,565 8,509,172 42,104,093 ----------- ----------- ------------ ----------- ----------- ----------- ----------- Net assets at end of period $20,569,647 $49,923,331 $ 94,709,800 $ 6,504,889 $ 7,347,341 $ 6,841,407 $35,204,686 =========== =========== ============ =========== =========== =========== =========== ANALYSIS OF INCREASE (DECREASE) IN UNITS OUTSTANDING: Contracts with total expenses of 0.85% (1): Units sold 0 0 0 0 0 0 0 Units redeemed 0 0 (171) 0 0 0 0 Units transferred 0 0 0 8 0 0 0 ----------- ----------- ------------ ----------- ----------- ----------- ----------- Increase (decrease) in units outstanding 0 0 (171) 8 0 0 0 Beginning units 3,497 0 1,375 0 0 0 0 ----------- ----------- ------------ ----------- ----------- ----------- ----------- Ending units 3,497 0 1,204 8 0 0 0 =========== =========== ============ =========== =========== =========== =========== Contracts with total expenses of 0.85% (2): Units sold 408,004 453,832 523,155 8,371 6,278 0 0 Units redeemed (178,331) (99,690) (376,619) (2,601) (9,986) 0 0 Units transferred (95,112) 1,193,832 900,406 4,962 6,581 0 0 ----------- ----------- ------------ ----------- ----------- ----------- ----------- Increase (decrease) in units outstanding 134,561 1,547,974 1,046,942 10,732 2,873 0 0 Beginning units 375,789 1,216,579 4,219,824 60,730 81,009 0 0 ----------- ----------- ------------ ----------- ----------- ----------- ----------- Ending units 510,350 2,764,553 5,266,766 71,462 83,882 0 0 =========== =========== ============ =========== =========== =========== =========== Contracts with total expenses of 1.10%: Units sold 42,040 28,306 36,687 0 0 0 0 Units redeemed (17,411) (3,002) (27,345) (8,194) (13) 0 0 Units transferred (37,222) 66,040 102,571 5,759 2,045 0 0 ----------- ----------- ------------ ----------- ----------- ----------- ----------- Increase (decrease) in units outstanding (12,593) 91,344 111,913 (2,435) 2,032 0 0 Beginning units 44,481 142,952 431,379 8,220 6,243 0 0 ----------- ----------- ------------ ----------- ----------- ----------- ----------- Ending units 31,888 234,296 543,292 5,785 8,275 0 0 =========== =========== ============ =========== =========== =========== =========== Contracts with total expenses of 1.25%: Units sold 11,548 5,245 23,862 3,549 4,340 12,161 25,567 Units redeemed (353,965) (117,860) (190,319) (122,394) (69,741) (169,872) (917,780) Units transferred 247,149 (21,477) 42,510 6,065 (71,117) (31,635) (133,463) ----------- ----------- ------------ ----------- ----------- ----------- ----------- Increase (decrease) in units outstanding (95,268) (134,092) (123,947) (112,780) (136,518) (189,346) (1,025,676) Beginning units 1,210,503 634,989 860,682 609,287 680,531 792,665 5,140,659 ----------- ----------- ------------ ----------- ----------- ----------- ----------- Ending units 1,115,235 500,897 736,735 496,507 544,013 603,319 4,114,983 =========== =========== ============ =========== =========== =========== ===========
(1) Offered in Polaris Plus product. (2) Offered in Polaris II Asset Manager and Polaris II A-Class products. See accompanying notes to financial statements. 22 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED APRIL 30, 2005 (Continued)
Federated Goldman American Global Global Sachs Growth- Growth High-Yield Leaders Bond Equities Research Income Opportunities Bond Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) ----------- ----------- ----------- ---------- ------------ ------------- ----------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss) $ 75,026 $ (104,371) $ (85,304) $ (8,934) $ (290,117) $ (2,579) $ 1,070,230 Net realized gains (losses) (11,047) 179,792 (1,383,493) 4,238 (3,885,367) (8,788) (133,650) Change in net unrealized appreciation (depreciation) of investments 975,025 313,217 2,045,721 14,913 5,424,196 11,852 644,569 ----------- ----------- ----------- ---------- ------------ -------- ----------- Increase (decrease) in net assets from operations 1,039,004 388,638 576,924 10,217 1,248,712 485 1,581,149 ----------- ----------- ----------- ---------- ------------ -------- ----------- From capital transactions: Net proceeds from units sold 1,719,976 485,308 98,230 36,847 867,029 39,191 946,600 Cost of units redeemed (2,250,555) (1,616,453) (1,675,397) (47,366) (11,438,199) (43,506) (2,243,288) Annuity benefit payments 0 0 0 0 0 0 0 Net transfers 2,169,385 1,401,658 (617,553) 348,596 (3,001,055) 32,524 2,421,609 ----------- ----------- ----------- ---------- ------------ -------- ----------- Increase (decrease) in net assets from capital transactions 1,638,806 270,513 (2,194,720) 338,077 (13,572,225) 28,209 1,124,921 ----------- ----------- ----------- ---------- ------------ -------- ----------- Increase (decrease) in net assets 2,677,810 659,151 (1,617,796) 348,294 (12,323,513) 28,694 2,706,070 Net assets at beginning of period 15,889,240 9,081,423 11,020,629 820,456 68,815,280 258,640 12,031,008 ----------- ----------- ----------- ---------- ------------ -------- ----------- Net assets at end of period $18,567,050 $ 9,740,574 $ 9,402,833 $1,168,750 $ 56,491,767 $287,334 $14,737,078 =========== =========== =========== ========== ============ ======== =========== ANALYSIS OF INCREASE (DECREASE) IN UNITS OUTSTANDING: Contracts with total expenses of 0.85% (1): Units sold 0 0 0 0 0 0 0 Units redeemed 0 0 (212) 0 (401) 0 0 Units transferred 0 0 0 0 0 0 0 ----------- ----------- ----------- ---------- ------------ -------- ----------- Increase (decrease) in units outstanding 0 0 (212) 0 (401) 0 0 Beginning units 0 0 212 0 663 0 0 ----------- ----------- ----------- ---------- ------------ -------- ----------- Ending units 0 0 0 0 262 0 0 =========== =========== =========== ========== ============ ======== =========== Contracts with total expenses of 0.85% (2): Units sold 150,555 34,397 982 4,275 27,546 9,262 73,683 Units redeemed (59,636) (7,489) (38,951) (2,416) (137,724) (9,817) (76,386) Units transferred 199,599 103,882 (57,440) 46,975 (158,332) 9,061 195,892 ----------- ----------- ----------- ---------- ------------ -------- ----------- Increase (decrease) in units outstanding 290,518 130,790 (95,409) 48,834 (268,510) 8,506 193,189 Beginning units 833,201 141,130 388,668 117,350 1,520,053 54,926 587,922 ----------- ----------- ----------- ---------- ------------ -------- ----------- Ending units 1,123,719 271,920 293,259 166,184 1,251,543 63,432 781,111 =========== =========== =========== ========== ============ ======== =========== Contracts with total expenses of 1.10%: Units sold 7,292 389 0 1,375 1,487 0 2,184 Units redeemed (3,722) (127) 0 (4,860) (10,391) 0 (913) Units transferred 21,487 11,254 (1) 5,370 3,035 (1,530) 5,766 ----------- ----------- ----------- ---------- ------------ -------- ----------- Increase (decrease) in units outstanding 25,057 11,516 (1) 1,885 (5,869) (1,530) 7,037 Beginning units 44,202 11,858 7,971 10,208 97,758 3,556 46,284 ----------- ----------- ----------- ---------- ------------ -------- ----------- Ending units 69,259 23,374 7,970 12,093 91,889 2,026 53,321 =========== =========== =========== ========== ============ ======== =========== Contracts with total expenses of 1.25%: Units sold 4,367 3,024 5,513 0 22,329 0 4,121 Units redeemed (94,146) (88,477) (84,959) 0 (375,713) 0 (78,088) Units transferred (9,814) (2,079) (12,624) 0 (62,481) 0 5,677 ----------- ----------- ----------- ---------- ------------ -------- ----------- Increase (decrease) in units outstanding (99,593) (87,532) (92,070) 0 (415,865) 0 (68,290) Beginning units 428,881 424,680 522,178 0 2,102,000 0 340,552 ----------- ----------- ----------- ---------- ------------ -------- ----------- Ending units 329,288 337,148 430,108 0 1,686,135 0 272,262 =========== =========== =========== ========== ============ ======== ===========
(1) Offered in Polaris Plus product. (2) Offered in Polaris II Asset Manager and Polaris II A-Class products. See accompanying notes to financial statements. 23 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED APRIL 30, 2005 (Continued)
MFS International International Massachusetts Putnam Diversified Growth Investors MFS Mid- MFS Total Growth: Real Equities and Income Trust Cap Growth Return Voyager Estate Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio (Class 1)(3) (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) ------------- ------------- ------------- ---------- ------------ ----------- ----------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss) $ 53,213 $ 23,614 $ (4,696) $ (32,811) $ (526,066) $ (309,575) $ 138,014 Net realized gains (losses) (232,265) 247,353 (162,494) (255,921) 33,598 (4,006,120) 575,831 Change in net unrealized appreciation (depreciation) of investments 772,069 1,359,370 747,007 188,672 5,865,886 3,685,641 1,704,155 ---------- ----------- ----------- ---------- ----------- ----------- ----------- Increase (decrease) in net assets from operations 593,017 1,630,337 579,817 (100,060) 5,373,418 (630,054) 2,418,000 ---------- ----------- ----------- ---------- ----------- ----------- ----------- From capital transactions: Net proceeds from units sold 163,277 674,999 38,731 150,061 9,882,513 1,517,225 629,767 Cost of units redeemed (846,976) (2,084,144) (638,207) (375,590) (4,573,898) (4,826,203) (1,337,383) Annuity benefit payments 0 0 0 0 0 0 0 Net transfers 426,376 2,380,027 (770,503) 119,765 29,744,683 2,050,847 1,643,040 ---------- ----------- ----------- ---------- ----------- ----------- ----------- Increase (decrease) in net assets from capital transactions (257,323) 970,882 (1,369,979) (105,764) 35,053,298 (1,258,131) 935,424 ---------- ----------- ----------- ---------- ----------- ----------- ----------- Increase (decrease) in net assets 335,694 2,601,219 (790,162) (205,824) 40,426,716 (1,888,185) 3,353,424 Net assets at beginning of period 5,345,355 13,930,099 7,288,167 3,733,305 56,227,175 31,102,195 7,548,327 ---------- ----------- ----------- ---------- ----------- ----------- ----------- Net assets at end of period $5,681,049 $16,531,318 $ 6,498,005 $3,527,481 $96,653,891 $29,214,010 $10,901,751 ========== =========== =========== ========== =========== =========== =========== ANALYSIS OF INCREASE (DECREASE) IN UNITS OUTSTANDING: Contracts with total expenses of 0.85% (1): Units sold 44 0 0 0 0 0 0 Units redeemed 0 0 0 0 0 0 0 Units transferred 0 0 0 0 0 0 0 ---------- ----------- ----------- ---------- ----------- ----------- ----------- Increase (decrease) in units outstanding 44 0 0 0 0 0 0 Beginning units 0 750 0 0 0 174 8 ---------- ----------- ----------- ---------- ----------- ----------- ----------- Ending units 44 750 0 0 0 174 8 ========== =========== =========== ========== =========== =========== =========== Contracts with total expenses of 0.85% (2): Units sold 10,707 44,005 2,216 19,773 689,888 205,730 18,646 Units redeemed (39,157) (56,727) (65,488) (46,114) (322,299) (98,000) (8,889) Units transferred 61,437 136,881 (70,368) 13,508 2,042,223 442,883 40,330 ---------- ----------- ----------- ---------- ----------- ----------- ----------- Increase (decrease) in units outstanding 32,987 124,159 (133,640) (12,833) 2,409,812 550,613 50,087 Beginning units 259,738 748,220 805,399 441,724 3,949,893 1,063,200 108,473 ---------- ----------- ----------- ---------- ----------- ----------- ----------- Ending units 292,725 872,379 671,759 428,891 6,359,705 1,613,813 158,560 ========== =========== =========== ========== =========== =========== =========== Contracts with total expenses of 1.10%: Units sold 3,008 3,967 2,451 0 45,400 12,185 2,163 Units redeemed 0 (3,597) (8,209) (1,167) (15,100) (2,324) (337) Units transferred 758 662 (22,893) 1,413 163,195 40,277 6,523 ---------- ----------- ----------- ---------- ----------- ----------- ----------- Increase (decrease) in units outstanding 3,766 1,032 (28,651) 246 193,495 50,138 8,349 Beginning units 11,443 35,769 91,094 35,097 432,049 93,442 5,621 ---------- ----------- ----------- ---------- ----------- ----------- ----------- Ending units 15,209 36,801 62,443 35,343 625,544 143,580 13,970 ========== =========== =========== ========== =========== =========== =========== Contracts with total expenses of 1.25%: Units sold 7,296 16,893 0 0 0 7,129 7,757 Units redeemed (57,522) (117,917) 0 0 0 (247,761) (58,532) Units transferred 1,797 68,733 0 0 0 (61,472) 28,829 ---------- ----------- ----------- ---------- ----------- ----------- ----------- Increase (decrease) in units outstanding (48,429) (32,291) 0 0 0 (302,104) (21,946) Beginning units 390,108 583,393 0 0 0 1,418,311 341,188 ---------- ----------- ----------- ---------- ----------- ----------- ----------- Ending units 341,679 551,102 0 0 0 1,116,207 319,242 ========== =========== =========== ========== =========== =========== ===========
(1) Offered in Polaris Plus product. (2) Offered in Polaris II Asset Manager and Polaris II A-Class products. (3) For the period from October 4, 2004 (inception) to April 30, 2005 See accompanying notes to financial statements. 24 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED APRIL 30, 2005 (Continued)
Small Company SunAmerica Telecom Worldwide Emerging Value Balanced Technology Utility High Income Comstock Growth Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio (Class 1) (Class 1) (Class 1) (Class 1) (Class 1) (Class II) (Class II) ------------- ------------- ---------- ---------- ----------- ------------ ----------- INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss) $ (122,372) $ 180,265 $ (2,394) $ 137,498 $ 226,435 $ 343,195 $ (56,950) Net realized gains (losses) 583,113 (3,306,941) (27,705) (374,219) (91,718) 3,899,186 31,713 Change in net unrealized appreciation (depreciation) of investments 868,854 4,874,152 12,016 784,358 209,145 4,235,788 70,516 ----------- ------------ -------- ---------- ---------- ------------ ---------- Increase (decrease) in net assets from operations 1,329,595 1,747,476 (18,083) 547,637 343,862 8,478,169 45,279 ----------- ------------ -------- ---------- ---------- ------------ ---------- From capital transactions: Net proceeds from units sold 257,132 696,597 13,775 25,471 469,270 21,289,649 860,562 Cost of units redeemed (1,666,934) (10,285,933) (5,742) (668,478) (867,446) (4,871,831) (594,712) Annuity benefit payments 0 0 0 0 0 0 0 Net transfers 639,979 (1,663,666) 35,062 27,257 1,384,736 45,257,144 1,261,129 ----------- ------------ -------- ---------- ---------- ------------ ---------- Increase (decrease) in net assets from capital transactions (769,823) (11,253,002) 43,095 (615,750) 986,560 61,674,962 1,526,979 ----------- ------------ -------- ---------- ---------- ------------ ---------- Increase (decrease) in net assets 559,772 (9,505,526) 25,012 (68,113) 1,330,422 70,153,131 1,572,258 Net assets at beginning of period 8,786,020 57,607,133 264,982 3,674,204 3,688,752 53,666,882 5,481,963 ----------- ------------ -------- ---------- ---------- ------------ ---------- Net assets at end of period $ 9,345,792 $ 48,101,607 $289,994 $3,606,091 $5,019,174 $123,820,013 $7,054,221 =========== ============ ======== ========== ========== ============ ========== ANALYSIS OF INCREASE (DECREASE) IN UNITS OUTSTANDING: Contracts with total expenses of 0.85% (1): Units sold 0 0 0 44 0 0 0 Units redeemed 0 (207) 0 0 0 0 0 Units transferred 0 0 0 0 0 0 0 ----------- ------------ -------- ---------- ---------- ------------ ---------- Increase (decrease) in units outstanding 0 (207) 0 44 0 0 0 Beginning units 427 837 0 15 0 0 0 ----------- ------------ -------- ---------- ---------- ------------ ---------- Ending units 427 630 0 59 0 0 0 =========== ============ ======== ========== ========== ============ ========== Contracts with total expenses of 0.85% (2): Units sold 0 54,370 6,779 4 35,302 1,714,056 89,427 Units redeemed 0 (64,021) (2,706) (5,591) (17,330) (390,905) (55,478) Units transferred 0 17,473 13,649 4,726 97,487 3,650,551 136,590 ----------- ------------ -------- ---------- ---------- ------------ ---------- Increase (decrease) in units outstanding 0 7,822 17,722 (861) 115,459 4,973,702 170,539 Beginning units 0 530,846 108,335 40,778 126,343 4,509,831 568,055 ----------- ------------ -------- ---------- ---------- ------------ ---------- Ending units 0 538,668 126,057 39,917 241,802 9,483,533 738,594 =========== ============ ======== ========== ========== ============ ========== Contracts with total expenses of 1.10%: Units sold 0 0 0 0 348 131,536 9,836 Units redeemed 0 (5,061) (111) 0 (5,427) (31,974) (13,058) Units transferred 0 8,109 1,126 227 7,367 283,910 8,941 ----------- ------------ -------- ---------- ---------- ------------ ---------- Increase (decrease) in units outstanding 0 3,048 1,015 227 2,288 383,472 5,719 Beginning units 0 27,544 13,639 4,149 14,716 462,772 76,046 ----------- ------------ -------- ---------- ---------- ------------ ---------- Ending units 0 30,592 14,654 4,376 17,004 846,244 81,765 =========== ============ ======== ========== ========== ============ ========== Contracts with total expenses of 1.25% : Units sold 12,860 15,942 0 2,210 1,611 0 0 Units redeemed (83,395) (660,961) 0 (55,673) (31,798) 0 0 Units transferred 32,278 (129,056) 0 (983) 5,554 0 0 ----------- ------------ -------- ---------- ---------- ------------ ---------- Increase (decrease) in units outstanding (38,257) (774,075) 0 (54,446) (24,633) 0 0 Beginning units 494,691 3,723,491 0 330,953 118,994 0 0 ----------- ------------ -------- ---------- ---------- ------------ ---------- Ending units 456,434 2,949,416 0 276,507 94,361 0 0 =========== ============ ======== ========== ========== ============ ==========
(1) Offered in Polaris Plus product (2) Offered in Polaris II Asset Manager and Polaris II A-Class products. See accompanying notes to financial statements. 25 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED APRIL 30, 2005 (Continued)
Growth Growth Asset and Income and Income Mid-Cap Value Allocation Portfolio Portfolio Portfolio Fund (Class II) (Class VC) (Class VC) (Class 2) ----------- ------------ ------------- ------------ INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss) $ 186,483 $ 44,657 $ (277,450) $ 1,138,383 Net realized gains (losses) 2,073,384 782,049 859,510 20,285 Change in net unrealized appreciation (depreciation) of investments 4,444,668 3,667,498 3,708,013 3,715,934 ----------- ------------ ----------- ------------ Increase (decrease) in net assets from operations 6,704,535 4,494,204 4,290,073 4,874,602 ----------- ------------ ----------- ------------ From capital transactions: Net proceeds from units sold 15,669,020 15,892,732 14,895,030 24,819,057 Cost of units redeemed (3,064,973) (4,488,083) (2,834,761) (5,961,979) Annuity benefit payments 0 0 0 0 Net transfers 32,051,774 37,263,206 25,754,469 52,070,232 ----------- ------------ ----------- ------------ Increase (decrease) in net assets from capital transactions 44,655,821 48,667,855 37,814,738 70,927,310 ----------- ------------ ----------- ------------ Increase (decrease) in net assets 51,360,356 53,162,059 42,104,811 75,801,912 Net assets at beginning of period 36,998,962 48,589,564 28,866,718 59,677,489 ----------- ------------ ----------- ------------ Net assets at end of period $88,359,318 $101,751,623 $70,971,529 $135,479,401 =========== ============ =========== ============ ANALYSIS OF INCREASE (DECREASE) IN UNITS OUTSTANDING: Contracts with total expenses of 0.85% (1): Units sold 0 0 0 0 Units redeemed 0 0 0 0 Units transferred 0 0 0 0 ----------- ------------ ----------- ------------ Increase (decrease) in units outstanding 0 0 0 0 Beginning units 0 0 0 0 ----------- ------------ ----------- ------------ Ending units 0 0 0 0 =========== ============ =========== ============ Contracts with total expenses of 0.85% (2): Units sold 1,218,039 1,351,530 1,178,524 1,828,263 Units redeemed (226,126) (350,966) (213,895) (410,582) Units transferred 2,471,098 3,123,054 1,967,314 3,706,981 ----------- ------------ ----------- ------------ Increase (decrease) in units outstanding 3,463,011 4,123,618 2,931,943 5,124,662 Beginning units 2,967,167 4,090,198 2,311,323 4,341,675 ----------- ------------ ----------- ------------ Ending units 6,430,178 8,213,816 5,243,266 9,466,337 =========== ============ =========== ============ Contracts with total expenses of 1.10%: Units sold 91,448 79,559 65,902 89,345 Units redeemed (27,902) (49,242) (21,806) (46,734) Units transferred 198,598 233,885 182,661 314,974 ----------- ------------ ----------- ------------ Increase (decrease) in units outstanding 262,144 264,202 226,757 357,585 Beginning units 313,207 472,794 287,550 457,726 ----------- ------------ ----------- ------------ Ending units 575,351 736,996 514,307 815,311 =========== ============ =========== ============ Contracts with total expenses of 1.25% : Units sold 0 0 0 0 Units redeemed 0 0 0 0 Units transferred 0 0 0 0 ----------- ------------ ----------- ------------ Increase (decrease) in units outstanding 0 0 0 0 Beginning units 0 0 0 0 ----------- ------------ ----------- ------------ Ending units 0 0 0 0 =========== ============ =========== ============ Global Growth- Growth Growth Income Fund Fund Fund (Class 2) (Class 2) (Class 2) ----------- ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: From operations: Net investment income (loss) $ (313,646) $ (615,497) $ 61,652 Net realized gains (losses) 8,931 29,267 55,989 Change in net unrealized appreciation (depreciation) of investments 3,457,953 5,248,445 4,273,491 ----------- ------------ ------------ Increase (decrease) in net assets from operations 3,153,238 4,662,215 4,391,132 ----------- ------------ ------------ From capital transactions: Net proceeds from units sold 17,691,675 24,559,123 43,691,075 Cost of units redeemed (2,451,140) (5,009,461) (9,715,249) Annuity benefit payments 0 0 0 Net transfers 33,471,734 42,607,569 79,440,990 ----------- ------------ ------------ Increase (decrease) in net assets from capital transactions 48,712,269 62,157,231 113,416,816 ----------- ------------ ------------ Increase (decrease) in net assets 51,865,507 66,819,446 117,807,948 Net assets at beginning of period 26,782,854 52,716,825 98,164,575 ----------- ------------ ------------ Net assets at end of period $78,648,361 $119,536,271 $215,972,523 =========== ============ ============ ANALYSIS OF INCREASE (DECREASE) IN UNITS OUTSTANDING: Contracts with total expenses of 0.85% (1): Units sold 0 0 0 Units redeemed 0 0 0 Units transferred 0 0 0 ----------- ------------ ------------ Increase (decrease) in units outstanding 0 0 0 Beginning units 0 0 0 ----------- ------------ ------------ Ending units 0 0 0 =========== ============ ============ Contracts with total expenses of 0.85% (2): Units sold 1,091,019 1,532,159 2,811,271 Units redeemed (136,047) (280,341) (590,123) Units transferred 2,023,672 2,536,349 4,933,681 ----------- ------------ ------------ Increase (decrease) in units outstanding 2,978,644 3,788,167 7,154,829 Beginning units 1,616,933 3,076,002 6,182,253 ----------- ------------ ------------ Ending units 4,595,577 6,864,169 13,337,082 =========== ============ ============ Contracts with total expenses of 1.10%: Units sold 53,135 64,065 133,618 Units redeemed (21,283) (41,047) (59,461) Units transferred 133,583 224,966 418,369 ----------- ------------ ------------ Increase (decrease) in units outstanding 165,435 247,984 492,526 Beginning units 189,446 439,457 642,993 ----------- ------------ ------------ Ending units 354,881 687,441 1,135,519 =========== ============ ============ Contracts with total expenses of 1.25% : Units sold 0 0 0 Units redeemed 0 0 0 Units transferred 0 0 0 ----------- ------------ ------------ Increase (decrease) in units outstanding 0 0 0 Beginning units 0 0 0 ----------- ------------ ------------ Ending units 0 0 0 =========== ============ ============
(1) Offered in Polaris Plus product. (2) Offered in Polaris II Asset Manager and Polaris II A-Class products. See accompanying notes to financial statements. 26 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION Variable Annuity Account Seven of AIG SunAmerica Life Assurance Company (the "Separate Account") is an investment account of AIG SunAmerica Life Assurance Company, (the "Company"). The Company is a direct wholly owned subsidiary of SunAmerica Life Insurance Company, which is a subsidiary of AIG Retirement Services, Inc., the retirement services and asset management organization within American International Group, Inc. ("AIG"). AIG is a holding company which through its subsidiaries is engaged in a broad range of insurance and insurance-related activities, financial services, retirement savings and asset management. The Separate Account is registered as a unit investment trust pursuant to the provisions of the Investment Company Act of 1940, as amended. The Separate Account contracts are sold through the Company's affiliated broker-dealers, independent broker-dealers, full-service securities firms and financial institutions. The distributor of these contracts is AIG SunAmerica Capital Services, Inc., an affiliate of the Company. No underwriting fees are paid in connection with the distribution of the contracts. The Separate Account offers the following products: Polaris Plus, Polaris II Asset Manager, and Polaris II A-Class. The Separate Account is composed of a total of forty-two variable portfolios of different classes (the "Variable Accounts"). Each of the Variable Accounts is invested solely in the shares of (1) one of the four currently available investment portfolios of Anchor Series Trust ("Anchor Trust"), (2) one of the twenty-nine currently available investment portfolios of SunAmerica Series Trust ("SunAmerica Trust"), (3) one of the three currently available investment portfolios of Van Kampen Life Investment Trust ("Van Kampen Trust"), (4) one of the two currently available investment portfolios of Lord Abbett Series Fund, Inc. ("Lord Abbett Fund"), or (5) one of the four currently available investment portfolios of American Fund Insurance Series ("American Series"). The Anchor Trust, the SunAmerica Trust, the Van Kampen Trust, the Lord Abbett Fund and the American Series (collectively referred to as the "Trusts") are diversified open-ended investment companies, which retain investment advisers to assist in the investment activities of the Trusts. The Anchor and SunAmerica Trusts are affiliated investment companies. The participant may elect to have investments allocated to one of the offered guaranteed-interest funds of the Company (the "General Account"), which are not a part of the Separate Account. The financial statements include balances allocated by the participants to the forty-two Variable Accounts and do not include balances allocated to the General Account. 27 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVESTMENT ACCOUNTING AND VALUATION: The investments are stated at the net asset value of each of the portfolios of the Trusts as determined at the close of the business day. Purchases and sales of shares of the portfolios are valued at the net asset values of such portfolios, which value their investment securities at fair value, on the date the shares are purchased or sold. Dividends and capital gains distributions are recorded on the ex-distribution date. Realized gains and losses on the sale of investments in the Trusts are recognized at the date of sale and are determined on an average cost basis. Accumulation unit values are computed daily based on total net assets of the portfolios. FEDERAL INCOME TAXES: The Company qualifies for federal income tax treatment granted to life insurance companies under subchapter L of the Internal Revenue Service Code (the "Code"). The operations of the Separate Account are part of the total operations of the Company and are not taxed separately. Under the current provisions of the Code, the Company does not expect to incur federal income taxes on the earnings of the Separate Account to the extent that the earnings are credited under the contracts. Based on this, no charge is being made currently to the Separate Account for federal income taxes. The Separate Account is not treated as a regulated investment company under the Code. USE OF ESTIMATES: The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect amounts reported therein. Actual results could differ from these estimates. RESERVES FOR CONTRACTS IN PAYOUT (ANNUITIZATION) PERIOD: For contract owners who select a variable payout option, reserves are initially established based on estimated mortality (where applicable) and other assumptions, including provisions for the risk of adverse deviation from assumptions. An assumed interest rate of 3.5% is used in determining annuity payments. At each reporting period, the assumptions must be evaluated based on current experience, and the reserves must be adjusted accordingly. To the extent additional reserves are established due to mortality risk experience, the Company makes payments to the Separate Account. If there are excess reserves remaining at the time annuity payments cease, the assets supporting those reserves are transferred from the Separate Account to the Company. Annuity reserves are calculated according to the Annuity 2000 Mortality Table, the 1971 Individual Annuity Mortality Table, and the 1983(a) Individual Mortality Table depending on the calendar year of annuitization. 28 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS 3. CHARGES AND DEDUCTIONS Charges and deductions are applied against the current value of the Separate Account and are paid as follows: WITHDRAWAL CHARGE: The Polaris Plus contract provides that in the event that a contract holder withdraws all or a portion of the contract value during the surrender charge period, withdrawal charges may be assessed on the excess of the free withdrawal amounts as defined in the contract. The withdrawal charges are based on tables of charges applicable to the contracts, with a maximum charge of 6% of any amount withdrawn that exceed the free withdrawal amount and are recorded as a redemption in the accompanying Statement of Changes in Net Assets. MORTALITY AND EXPENSE RISK CHARGE: The Company deducts mortality and expense risk charges, computed on a daily basis as a percentage of the net asset value. The total annual rate of the net asset value of each portfolio, depending on the benefit options elected for each product, is as follows: Polaris Plus, 0.70% or 1.10%, and Polaris II Asset Manager and Polaris II A-Class, 0.70% or 0.95%. The mortality risk charge is compensation for the mortality risks assumed by the Company from its contractual obligations to make annuity payments after the contract has annuitized for the life of the annuitant and to provide the standard death benefit. The expense risk charge is compensation for assuming the risk that the current contract administration charges will be insufficient in the future to cover the cost of administering the contract. DISTRIBUTION EXPENSE CHARGE: The Company deducts a distribution expense charge at an annual rate of 0.15% of the net asset value of each portfolio, computed on a daily basis. This charge is for all expenses associated with the distribution of the contract. If this charge is not sufficient to cover the cost of distributing the contract, the Company will bear the excess cost. TRANSFER FEE: A transfer fee of $25 ($10 in Pennsylvania and Texas), depending on the contract provisions, may be assessed on each transfer of funds in excess of the maximum transactions allowed within a contract year and is recorded as a redemption in the accompanying Statement of Changes in Net Assets. 29 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS 3. CHARGES AND DEDUCTIONS (continued) INCOME PROTECTOR FEE: The optional Income Protector Program, offered in Polaris Plus, provides a guaranteed fixed minimum retirement income upon annuitization. The fee is either 0.15% or 0.30% of the Income Benefit Base, deducted annually from the contract value, and is recorded as a redemption in the accompanying Statement of Changes in Net Assets. The Income Benefit Base is calculated using the contract value on the effective date of the enrollment in the program and then each subsequent contract anniversary, adjusted for the applicable growth rates, purchase payments, proportional withdrawals, fees and charges. SALES CHARGE: For the Polaris II A-Class product, an up-front sales charge may be applied against the gross purchase payments made on the contract. The sales charge ranges from 0.50% to 5.75% of the gross purchase payment invested, depending on the investment amount, and is paid to the Company. The net proceeds from units sold are recorded in the accompanying Statement of Changes in Net Assets. PREMIUM TAXES: Premium taxes or other taxes payable to a state or other governmental entity will be charged against the contract values. The rate will range from 0% to 3.5%. Some states assess premium taxes at the time purchase payments are made; others assess premium taxes at the time annuity payments begin or at the time of surrender. The Company currently deducts premium taxes at the time of surrender or upon annuitization; however, it reserves the right to deduct any premium taxes when incurred or upon payment of the death benefit. SEPARATE ACCOUNT INCOME TAXES: The Company currently does not maintain a provision for taxes, but has reserved the right to establish such a provision for taxes in the future if it determines, in its sole discretion, that it will incur a tax as a result of the operation of the Separate Account. 4. PURCHASES AND SALES OF INVESTMENTS The aggregate cost of the Trusts' shares acquired and the aggregate proceeds from shares sold during the year ended April 30, 2006 consist of the following:
Cost of Shares Proceeds from Variable Accounts Acquired Shares Sold ----------------- -------------- ------------- ANCHOR TRUST: Asset Allocation Portfolio (Class 1) $ 2,664,637 $ 3,538,306 Capital Appreciation Portfolio (Class1) 22,894,968 8,296,038 Government and Quality Bond Portfolio (Class 1) 21,907,206 10,548,322 Growth Portfolio (Class 1) 19,391,017 5,522,096
30 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS 4. PURCHASES AND SALES OF INVESTMENTS (continued)
Cost of Shares Proceeds from Variable Accounts Acquired Shares Sold ----------------- -------------- ------------- SUNAMERICA TRUST: Aggressive Growth Portfolio (Class 1) $ 1,240,135 $ 3,663,842 Alliance Growth Portfolio (Class 1) 956,744 18,023,273 Blue Chip Growth Portfolio (Class 1) 357,428 242,538 Cash Management Portfolio (Class 1) 20,611,415 22,523,982 Corporate Bond Portfolio (Class 1) 30,122,783 3,582,724 Davis Venture Value Portfolio (Class 1) 23,535,202 7,688,480 "Dogs" of Wall Street Portfolio (Class 1) 464,520 1,762,180 Emerging Markets Portfolio (Class 1) 7,057,566 4,171,119 Equity Income Portfolio (Class 1) 380,852 2,425,899 Equity Index Portfolio (Class 1) 690,566 10,286,176 Federated American Leaders Portfolio (Class 1) 3,976,001 2,864,259 Global Bond Portfolio (Class 1) 3,942,326 2,689,064 Global Equities Portfolio (Class 1) 1,272,403 2,423,996 Goldman Sachs Research Portfolio (Class 1) 660,255 165,717 Growth-Income Portfolio (Class 1) 1,497,898 15,303,753 Growth Opportunities Portfolio (Class 1) 772,967 113,894 High-Yield Bond Portfolio (Class 1) 5,088,715 3,398,918 International Diversified Equities Portfolio (Class 1) 2,326,724 1,536,417 International Growth and Income Portfolio (Class 1) 5,961,775 4,017,078 MFS Massachusetts Investors Trust Portfolio (Class 1) 466,344 1,269,888 MFS Mid-Cap Growth Portfolio (Class 1) 615,132 658,206 MFS Total Return Portfolio (Class 1) 53,366,472 1,661,721 Putnam Growth: Voyager Portfolio (Class 1) 1,285,077 7,117,669 Real Estate Portfolio (Class 1) 5,835,704 2,546,200 Small Company Value Portfolio (Class 1) 1,501,694 2,725,761 SunAmerica Balanced Portfolio (Class 1) 1,967,491 13,169,235 Technology Portfolio (Class 1) 284,777 220,997 Telecom Utility Portfolio (Class 1) 535,821 1,326,839 Worldwide High Income Portfolio (Class 1) 2,384,784 941,917 VAN KAMPEN TRUST: Comstock Portfolio (Class II) $78,595,595 $ 1,618,173 Emerging Growth Portfolio (Class II) 1,666,383 992,665 Growth and Income Portfolio (Class II) 66,927,020 852,636
31 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS 4. PURCHASES AND SALES OF INVESTMENTS (continued)
Cost of Shares Proceeds from Variable Accounts Acquired Shares Sold ----------------- -------------- ------------- LORD ABBETT FUND: Growth and Income Portfolio (Class VC) $47,085,670 $2,023,337 Mid-Cap Value Portfolio (Class VC) 52,004,792 705,393 AMERICAN SERIES: Asset Allocation Fund (Class 2) $58,305,322 $2,186,643 Global Growth Fund (Class 2) 61,130,066 933,163 Growth Fund (Class 2) 57,283,682 1,859,775 Growth-Income Fund (Class 2) 91,397,612 1,565,227
32 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS 5. UNIT VALUES A summary of unit values and units outstanding for the variable accounts and the expense ratios, excluding expenses of the underlying funds, total return and investment income ratios for the years ended April 30, 2006, 2005, 2004, 2003 and 2002 follows:
At April 30 For the Year Ended April 30 ---------------------------------------------------- ----------------------------------------------- Unit Fair Value Expense Ratio Investment Total Return Lowest to Net Assets Lowest Income Lowest to Year Units Highest ($) (6) ($) to Highest (1) Ratio (2) Highest (3) ---- --------- --------------- ----------- -------------- ---------- ----------------- Asset Allocation Portfolio (Class 1) 2006 949,755 13.94 to 24.40(7) 17,818,596 0.85% to 1.25% 2.99% 9.93% to 10.37%(8) 2005 971,032 11.78 to 22.20(7) 17,336,407 0.85% to 1.25% 2.73% 5.86% to 6.28% 2004 999,662 11.08 to 20.97(7) 17,626,445 0.85% to 1.25% 3.34% 18.44% to 18.91% 2003 842,182 9.27 to 17.70 12,636,500 0.85% to 1.25% 3.89% -3.43% to -3.05% 2002 871,609 9.59 to 18.33 13,635,471 0.85% to 1.25% 3.34% -4.01% to -3.63% Capital Appreciation Portfolio (Class 1) 2006 7,778,119 13.61 to 43.03(7) 122,002,595 0.85% to 1.25% 0.27% 25.96% to 26.47% 2005 6,202,015 10.76 to 34.16(7) 83,487,910 0.85% to 1.25% 0.00% 0.37% to 0.78% 2004 4,540,534 10.68 to 34.03(7) 68,288,994 0.85% to 1.25% 0.00% 22.49% to 23.00% 2003 3,312,355 6.42 to 27.78 45,411,415 0.85% to 1.25% 0.00% -12.32% to -11.97% 2002 3,065,679 7.30 to 31.69 50,711,970 0.85% to 1.25% 0.25% -15.26% to -14.92% Government and Quality Bond Portfolio (Class 1) 2006 5,852,159 13.20 to 17.18(7) 83,089,300 0.85% to 1.25% 3.77% -1.00% to -0.60% 2005 5,005,538 13.28 to 17.35(7) 74,583,311 0.85% to 1.25% 4.64% 3.27% to 3.69% 2004 4,538,622 12.81 to 16.80(7) 68,841,287 0.85% to 1.25% 4.04% -0.18% to 0.22% 2003 4,435,309 12.25 to 16.83 69,894,786 0.85% to 1.25% 3.39% 7.20% to 7.63% 2002 3,705,363 11.38 to 15.70 56,444,402 0.85% to 1.25% 4.34% 5.79% to 6.22% Growth Portfolio (Class 1) 2006 5,763,643 11.97 to 33.32(7) 79,074,823 0.85% to 1.25% 0.82% 17.64 to 18.11% 2005 4,488,033 10.13 to 28.33(7) 56,478,498 0.85% to 1.25% 0.53% 5.42% to 5.85% 2004 3,178,645 9.57 to 26.87(7) 43,263,936 0.85% to 1.25% 0.47% 24.05% to 24.56% 2003 2,185,613 6.55 to 21.66 27,512,769 0.85% to 1.25% 0.41% -15.55% to -15.22% 2002 1,992,150 7.73 to 25.65 31,805,872 0.85% to 1.25% 0.14% -11.97% to -11.61% Aggressive Growth Portfolio (Class 1) 2006 779,379 10.50 to 17.41(7) 11,882,825 0.85% to 1.25% 0.00% 22.91% to 23.40% 2005 904,750 8.51 to 14.17(7) 11,620,263 0.85% to 1.25% 0.00% 9.63% to 10.06%(8) 2004 983,125 7.73 to 12.92(7) 11,702,361 0.85% to 1.25% 0.00% 22.07% to 22.56% 2003 961,812 4.13 to 10.59 9,544,290 0.85% to 1.25% 0.24% -18.98% to -18.65% 2002 1,103,249 5.08 to 13.07 13,297,839 0.85% to 1.25% 0.42% -24.04% to -23.73% Alliance Growth Portfolio (Class 1) 2006 2,713,134 8.32 to 34.46(7) 59,181,349 0.85% to 1.25% 0.38% 27.10% to 27.61% 2005 3,450,927 6.52 to 27.12(7) 60,549,487 0.85% to 1.25% 0.33% 1.04% to 1.45%(8) 2004 4,391,660 6.43 to 26.84(7) 75,292,292 0.85% to 1.25% 0.25% 11.80% to 12.25% 2003 4,857,901 4.77 to 24.00 72,130,071 0.85% to 1.25% 0.30% -16.24% to -15.90% 2002 5,535,320 5.67 to 28.66 97,221,210 0.85% to 1.25% 0.00% -20.20% to -19.88% Blue Chip Growth Portfolio (Class 1) 2006 288,625 5.81 to 5.88 1,696,323 0.85% to 1.10% 0.56% 10.92% to 11.20% 2005 268,342 5.24 to 5.29 1,418,582 0.85% to 1.10% 0.16% -1.71% to -1.46% 2004 201,429 5.33 to 5.37 1,080,772 0.85% to 1.10% 0.16% 16.36% to 16.65% 2003 165,075 4.58 to 4.60 759,737 0.85% to 1.10% 0.26% -18.61% to -18.39% 2002 120,407 5.62 to 5.64 679,101 0.85% to 1.10% 0.06% -20.83% to -20.64%
33 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS 5. UNIT VALUES (Continued)
At April 30 For the Year Ended April 30 ------------------------------------------ --------------------------------------------- Unit Fair Value Expense Ratio Investment Total Return Lowest to Net Assets Lowest Income Lowest to Year Units Highest ($) (6) ($) to Highest (1) Ratio (2) Highest (3) ---- --------- --------------- ----------- -------------- ---------- ----------------- Cash Management Portfolio (Class 1) 2006 1,566,098 11.23 to 13.37 (7) 19,153,946 0.85% to 1.25% 0.86% 2.15% to 2.56% 2005 1,660,970 10.94 to 13.09 (7) 20,569,647 0.85% to 1.25% 0.77% 0.09% to 0.49% 2004 1,634,270 10.89 to 13.08 (7) 20,444,351 0.85% to 1.25% 2.09% -0.69% to -0.29% 2003 1,922,742 10.54 to 13.17 24,491,587 0.85% to 1.25% 3.63% -0.11% to 0.29% 2002 2,019,793 10.51 to 13.18 26,214,963 0.85% to 1.25% 3.98% 1.33% to 1.75% Corporate Bond Portfolio (Class 1) 2006 5,268,308 14.03 to 17.48 (7) 75,119,224 0.85% to 1.25% 4.39% 1.40% to 1.81% 2005 3,499,746 13.78 to 17.23 (7) 49,923,331 0.85% to 1.25% 4.75% 3.86% to 4.28% 2004 1,994,520 13.21 to 16.59 (7) 28,487,187 0.85% to 1.25% 5.35% 6.12% to 6.55% 2003 1,170,704 12.33 to 15.64 16,712,027 0.85% to 1.25% 5.94% 8.90% to 9.34% 2002 934,852 10.52 to 14.36 12,670,300 0.85% to 1.25% 5.50% 5.20% to 5.62% Davis Venture Value Portfolio (Class 1) 2006 7,926,993 14.34 to 36.64 (7) 127,172,101 0.85% to 1.25% 0.96% 16.03% to 16.50% 2005 6,547,997 12.31 to 31.58 (7) 94,709,800 0.85% to 1.25% 0.85% 8.59% to 9.02% (8) 2004 5,513,260 11.29 to 29.08 (7) 77,506,131 0.85% to 1.25% 0.77% 30.20% to 30.72% 2003 4,665,711 7.87 to 22.34 51,742,583 0.85% to 1.25% 0.65% -13.03% to -12.68% 2002 4,325,979 9.02 to 25.68 56,606,074 0.85% to 1.25% 0.49% -8.93% to -8.57% "Dogs" of Wall Street Portfolio (Class 1) 2006 449,685 11.75 to 13.61 5,417,029 0.85% to 1.25% 2.52% 5.77% to 6.19% 2005 573,762 11.11 to 12.82 6,504,889 0.85% to 1.25% 2.44% 1.80% to 2.20% (8) 2004 678,245 10.91 to 12.54 7,512,954 0.85% to 1.25% 2.52% 24.60% to 25.10% (8) 2003 733,143 8.76 to 10.02 6,528,585 0.85% to 1.25% 1.90% -13.94% to -13.59% 2002 727,879 10.18 to 11.60 7,507,418 0.85% to 1.25% 2.16% 7.85% to 8.29% Emerging Markets Portfolio (Class 1) 2006 814,147 18.30 to 22.33 15,776,403 0.85% to 1.25% 0.28% 63.38% to 64.03% 2005 636,170 11.20 to 13.61 7,347,341 0.85% to 1.25% 1.01% 23.01% to 23.50% 2004 767,783 9.11 to 11.02 7,158,565 0.85% to 1.25% 0.00% 49.25% to 49.84% 2003 632,213 6.10 to 7.35 3,999,291 0.85% to 1.25% 0.29% -17.16% to -16.84% 2002 739,403 7.37 to 10.01 5,654,737 0.85% to 1.25% 0.28% 9.27% to 9.76% Equity Income Portfolio (Class 1) 2006 427,496 12.86 to 12.94 5,499,195 0.85% to 1.25% 1.73% 8.62% to 13.44% (8) 2005 603,319 11.34 6,841,407 1.25% 1.33% 5.63% 2004 792,665 10.73 8,509,172 1.25% 1.53% 19.71% 2003 758,827 8.97 6,804,963 1.25% 2.03% -14.39% 2002 790,453 10.38 to 10.48 8,280,359 0.85% to 1.25% 1.67% -4.39% to -4.01% Equity Index Portfolio (Class 1) 2006 3,059,876 9.71 29,704,711 1.25% 1.60% 13.47% 2005 4,114,983 8.56 35,204,686 1.25% 1.10% 4.45% 2004 5,140,659 8.19 42,104,093 1.25% 1.01% 20.56% 2003 5,344,702 6.79 36,310,699 1.25% 1.07% -14.70% 2002 5,913,603 7.20 to 7.97 47,100,945 0.85% to 1.25% 0.81% -14.14% to -13.81%
34 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS 5. UNIT VALUES (Continued)
At April 30 For the Year Ended April 30 ----------------------------------------- --------------------------------------------- Unit Fair Value Expense Ratio Investment Total Return Lowest to Net Assets Lowest Income Lowest to Year Units Highest ($) (6) ($) to Highest (1) Ratio (2) Highest (3) ---- --------- --------------- ---------- -------------- ---------- ----------------- Federated American Leaders (Class 1) 2006 1,671,136 12.09 to 19.24 (7) 21,804,571 0.85% to 1.25% 1.55% 11.45% to 11.90% 2005 1,522,266 10.81 to 17.26 (7) 18,567,050 0.85% to 1.25% 1.42% 6.00% to 6.43% 2004 1,306,284 10.15 to 16.29 (7) 15,889,240 0.85% to 1.25% 1.43% 23.31% to 23.81% 2003 1,047,833 8.16 to 13.21 10,910,210 0.85% to 1.25% 1.16% -17.15% to -16.81% 2002 968,846 9.83 to 15.94 12,456,497 0.85% to 1.25% 1.27% -8.03% to -7.67% Global Bond Portfolio (Class 1) 2006 737,348 13.18 to 18.12 (7) 10,985,195 0.85% to 1.25% 3.23% 2.47% to 2.88% (8) 2005 632,442 12.81 to 17.68 (7) 9,740,574 0.85% to 1.25% 0.00% 4.17% to 4.59% 2004 577,668 12.25 to 16.98 (7) 9,081,423 0.85% to 1.25% 0.00% 0.75% to 1.16% 2003 557,751 12.04 to 16.85 9,012,858 0.85% to 1.25% 1.64% 6.63% to 7.06% 2002 560,409 10.76 to 15.80 8,628,048 0.85% to 1.25% 9.06% 2.24% to 2.69% Global Equities Portfolio (Class 1) 2006 703,263 9.91 to 22.43 (7) 11,363,594 0.85% to 1.25% 0.26% 34.21% to 34.75% 2005 731,337 7.35 to 16.71 (7) 9,402,833 0.85% to 1.25% 0.32% 5.56% to 5.98% (8) 2004 919,029 6.94 to 15.83 (7) 11,020,629 0.85% to 1.25% 0.25% 20.36% to 20.84% 2003 1,037,728 5.71 to 13.16 10,038,817 0.85% to 1.25% 0.00% -19.14% to -18.82% 2002 1,238,372 7.05 to 16.27 14,260,497 0.85% to 1.25% 0.10% -18.59% to -18.26% Goldman Sachs Research Portfolio (Class 1) 2006 248,835 7.58 to 7.68 1,909,317 0.85% to 1.10% 0.45% 16.75% to 17.04% 2005 178,277 6.49 to 6.56 1,168,750 0.85% to 1.10% 0.00% 1.68% to 1.93% 2004 127,558 6.39 to 6.44 820,456 0.85% to 1.10% 0.00% 22.42% to 22.73% 2003 86,857 5.22 to 5.24 455,203 0.85% to 1.10% 0.00% -14.09% to -13.87% 2002 87,811 6.07 to 6.09 534,501 0.85% to 1.10% 0.00% -30.33% to -30.14% Growth-Income Portfolio (Class 1) 2006 2,508,957 9.99 to 31.22 (7) 51,800,247 0.85% to 1.25% 0.56% 16.84% to 17.30% 2005 3,029,829 8.51 to 26.72 (7) 56,491,767 0.85% to 1.25% 0.72% 1.56% to 1.97% 2004 3,720,474 8.35 to 26.31 (7) 68,815,280 0.85% to 1.25% 0.93% 19.14% to 19.62% 2003 4,056,149 6.41 to 22.09 61,581,722 0.85% to 1.25% 0.96% -14.11% to -13.76% 2002 4,836,055 7.43 to 25.71 81,959,764 0.85% to 1.25% 0.78% -15.27% to -14.92% Growth Opportunities Portfolio (Class 1) 2006 183,198 6.01 to 6.28 1,104,632 0.85% to 1.10% 0.00% 36.75% to 37.11% 2005 65,458 4.38 to 4.60 287,334 0.85% to 1.10% 0.00% -0.83% to -0.59% 2004 58,482 4.41 to 4.63 258,640 0.85% to 1.10% 0.00% 20.89% to 21.23% 2003 48,330 3.64 to 3.83 175,830 0.85% to 1.10% 0.00% -27.41% to -26.86% 2002 75,698 5.01 to 5.24 379,270 0.85% to 1.10% 0.01% -27.11 to -26.93% High-Yield Bond Portfolio (Class 1) 2006 1,158,420 14.36 to 19.92 (7) 17,292,845 0.85% to 1.25% 9.75% 15.09% to 15.55% (8) 2005 1,106,694 12.02 to 17.31 (7) 14,737,078 0.85% to 1.25% 8.64% 12.08% to 12.53% (8) 2004 974,758 10.68 to 15.44 (7) 12,031,008 0.85% to 1.25% 6.43% 18.15% to 18.62% 2003 638,229 8.97 to 13.07 7,178,636 0.85% to 1.25% 14.87% 2.57% to 2.98% 2002 556,317 8.73 to 12.74 6,337,878 0.85% to 1.25% 13.39% -6.34% to -5.95%
35 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS 5. UNIT VALUES (Continued)
At April 30 For the Year Ended April 30 ------------------------------------------ ---------------------------------------------- Unit Fair Value Expense Ratio Investment Total Return Lowest to Net Assets Lowest Income Lowest to Year Units Highest ($) (6) ($) to Highest (1) Ratio (2) Highest (3) ---- ---------- ----------------- ----------- -------------- ---------- ------------------ International Diversified Equities Portfolio (Class 1) 2006 749,276 13.93 to 14.80 (7) 8,378,646 0.85% to 1.25% 1.44% 33.28% to 33.81% (8) 2005 649,657 10.45 to 11.07 (7) 5,681,049 0.85% to 1.25% 2.04% 7.55%(9) to 10.90% (8) 2004 661,289 6.16 to 9.42 (7) 5,345,355 0.85% to 1.25% 4.03% 32.11% to 32.64% 2003 584,446 4.62 to 7.13 3,655,991 0.85% to 1.25% 0.00% -30.32% to -30.04% 2002 616,557 6.61 to 10.24 5,524,611 0.85% to 1.25% 0.00% -16.98% to -16.64% International Growth and Income Portfolio (Class 1) 2006 1,624,150 13.87 to 17.68 (7) 24,427,654 0.85% to 1.25% 0.81% 34.94% to 35.48% 2005 1,461,032 10.24 to 13.10 (7) 16,531,318 0.85% to 1.25% 1.18% 12.29% to 12.74% (8) 2004 1,368,132 9.08 to 11.67 (7) 13,930,099 0.85% to 1.25% 1.31% 36.02% to 36.57% 2003 1,447,371 5.97 to 8.58 10,734,722 0.85% to 1.25% 0.61% -22.08% to -21.76% 2002 1,529,262 7.63 to 11.01 14,502,139 0.85% to 1.25% 0.31% -12.90% to -12.55% MFS Massachusetts Investors Trust Portfolio (Class 1) 2006 651,510 10.18 to 10.31 6,711,198 0.85% to 1.10% 0.76% 16.12% to 16.41% 2005 734,202 8.77 to 8.86 6,498,005 0.85% to 1.10% 0.81% 8.60% to 8.88% 2004 896,493 8.07 to 8.14 7,288,167 0.85% to 1.10% 0.80% 15.30% to 15.59% 2003 992,326 7.00 to 7.04 6,981,443 0.85% to 1.10% 0.91% -14.63% to -14.42% 2002 1,038,423 8.20 to 8.22 8,539,104 0.85% to 1.10% 0.59% -15.74% to -15.53% MFS Mid-Cap Growth Portfolio (Class 1) 2006 462,785 9.15 to 9.27 4,286,330 0.85% to 1.10% 0.00% 21.60% to 21.90% 2005 464,234 7.53 to 7.60 3,527,481 0.85% to 1.10% 0.00% -3.17% to -2.93% 2004 476,821 7.77 to 7.83 3,733,305 0.85% to 1.10% 0.00% 32.81% to 33.15% 2003 482,982 5.85 to 5.88 2,840,743 0.85% to 1.10% 0.00% -29.02% to -28.84% 2002 468,320 8.24 to 8.27 3,871,747 0.85% to 1.10% 0.00% -37.49% to -37.32% MFS Total Return Portfolio (Class 1) 2006 10,086,264 14.70 to 14.90 150,133,917 0.85% to 1.10% 2.06% 7.31% to 7.57% 2005 6,985,249 13.70 to 13.85 96,653,891 0.85% to 1.10% 0.18% 7.58% to 7.85% 2004 4,381,942 12.74 to 12.84 56,227,175 0.85% to 1.10% 4.00% 13.47% to 13.75% 2003 2,609,969 11.23 to 11.29 29,450,456 0.85% to 1.10% 1.79% -5.04% to -4.80% 2002 1,469,115 11.82 to 11.86 17,418,122 0.85% to 1.10% 1.59% 0.33% to 0.59% Putnam Growth: Voyager Portfolio (Class 1) 2006 2,549,419 7.24 to 19.01 (7) 28,011,037 0.85% to 1.25% 0.61% 15.98% to 16.45% 2005 2,873,774 6.22 to 16.39 (7) 29,214,010 0.85% to 1.25% 0.13% -2.23% to -1.84% (8) 2004 2,575,127 6.33 to 16.77 (7) 31,102,195 0.85% to 1.25% 0.25% 15.09% to 15.56% 2003 2,441,491 5.05 to 14.57 27,931,800 0.85% to 1.25% 0.20% -16.94% to -16.60% 2002 2,811,912 6.06 to 17.54 38,564,294 0.85% to 1.25% 0.00% -21.93% to -21.61% Real Estate Portfolio (Class 1) 2006 561,998 26.91 to 31.92 16,598,621 0.85% to 1.25% 1.81% 29.08% to 29.59% 2005 491,780 20.85 to 24.63 10,901,751 0.85% to 1.25% 2.52% 31.30% to 31.83% (8) 2004 455,290 15.88 to 18.68 7,548,327 0.85% to 1.25% 2.34% 25.05% to 25.56% (8) 2003 414,863 12.70 to 14.88 5,468,503 0.85% to 1.25% 2.55% 3.52% to 3.94% 2002 340,849 12.27 to 14.32 4,325,632 0.85% to 1.25% 2.83% 12.98% to 13.44%
36 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS 5. UNIT VALUES (Continued)
At April 30 For the Year Ended April 30 ------------------------------------------ ---------------------------------------------- Unit Fair Value Expense Ratio Investment Total Return Lowest to Net Assets Lowest Income Lowest to Year Units Highest ($) (6) ($) to Highest (1) Ratio (2) Highest (3) ---- ---------- ----------------- ----------- -------------- ---------- ------------------ Small Company Portfolio (Class 1) 2006 384,470 19.23 to 27.19 10,450,373 0.85% to 1.25% 6.09% 32.88% to 33.41% 2005 456,861 14.41 to 20.46 9,345,792 0.85% to 1.25% 0.00% 15.28% to 15.74% 2004 495,118 12.45 to 17.75 8,786,020 0.85% to 1.25% 0.00% 34.71% to 35.25% 2003 458,325 9.21 to 13.18 6,037,265 0.85% to 1.25% 0.00% -20.75% to -20.45% 2002 459,017 11.57 to 16.63 7,626,802 0.85% to 1.25% 0.00% 14.49% to 14.96% SunAmerica Balanced Portfolio (Class 1) 2006 2,737,772 9.10 to 15.66 (7) 39,283,815 0.85% to 1.25% 2.52% 6.73% to 7.15% 2005 3,519,306 8.49 to 14.67 (7) 48,101,607 0.85% to 1.25% 1.56% 3.02% to 3.44% (8) 2004 4,282,718 8.21 to 14.24 (7) 57,607,133 0.85% to 1.25% 2.24% 9.90% to 10.35% 2003 4,597,911 6.43 to 12.96 56,393,035 0.85% to 1.25% 3.07% -9.38% to -9.02% 2002 5,247,157 7.06 to 14.30 71,012,625 0.85% to 1.25% 2.20% -12.80% to -12.45% Technology Portfolio (Class 1) 2006 170,038 2.38 to 2.41 409,580 0.85% to 1.10% 0.00% 16.64% to 16.93% 2005 140,711 2.04 to 2.06 289,994 0.85% to 1.10% 0.00% -5.35% to -5.11% 2004 121,974 2.16 to 2.17 264,982 0.85% to 1.10% 0.00% 19.47% to 19.77% 2003 66,761 1.81 to 1.82 121,123 0.85% to 1.10% 0.00% -27.75% to -27.59% 2002 49,194 2.50 to 2.51 123,314 0.85% to 1.10% 0.00% -42.89% to -42.70% Telecom Utility Portfolio (Class 1) 2006 247,300 9.56 to 12.98 (7) 3,055,430 0.85% to 1.25% 4.30% 10.50% to 11.25% 2005 320,859 8.08 to 11.75 (7) 3,606,091 0.85% to 1.25% 4.90% 15.64% to 16.47% (8) 2004 375,895 7.37 to 10.16 (7) 3,674,204 0.85% to 1.25% 6.05% 14.63% to 15.08% (8) 2003 423,820 6.02 to 8.86 3,570,779 0.85% to 1.25% 10.91% -17.74% to -17.41% 2002 501,860 7.31 to 10.77 5,128,284 0.85% to 1.25% 3.44% -21.36% to -20.48% Worldwide High Income Portfolio (Class 1) 2006 437,925 13.89 to 20.62 (7) 6,610,256 0.85% to 1.25% 7.77% 10.07% to 10.51% 2005 353,167 12.57 to 18.74 (7) 5,019,174 0.85% to 1.25% 6.07% 8.28% to 8.72% 2004 260,053 11.56 to 17.30 (7) 3,688,752 0.85% to 1.25% 7.56% 9.98% to 10.43% 2003 185,292 10.42 to 15.73 2,548,697 0.85% to 1.25% 13.83% 7.13% to 7.56% 2002 166,212 9.71 to 14.68 2,214,342 0.85% to 1.25% 13.23% -0.40% to 0.00% Comstock Portfolio (Class II) 2006 15,477,003 13.21 to 13.36 206,564,506 0.85% to 1.10% 1.49% 11.07% to 11.35% 2005 10,329,777 11.89 to 12.00 123,820,013 0.85% to 1.10% 1.21% 10.80% to 11.08% 2004 4,972,603 10.73 to 10.80 53,666,882 0.85% to 1.10% 1.13% 28.12% to 28.44% 2003 1,877,262 8.38 to 8.41 15,778,868 0.85% to 1.10% 1.27% -16.36% to -16.15% 2002 489,178 10.02 to 10.03 4,904,860 0.85% to 1.10% 0.66% 0.17%(4) to 0.27% (4) Emerging Growth Portfolio (Class II) 2006 897,690 10.29 to 10.37 9,304,238 0.85% to 1.10% 0.00% 20.26% to 20.56% 2005 820,359 8.56 to 8.60 7,054,221 0.85% to 1.10% 0.01% 0.80% to 1.05% 2004 644,101 8.49 to 8.51 5,481,963 0.85% to 1.10% 0.00% 15.82% to 16.11% 2003 261,331 7.33 1,916,147 0.85% to 1.10% 0.00% -22.60% to -22.40% 2002 65,032 9.45 to 9.47 614,792 0.85% to 1.10% 0.07% -5.51%(4) to -5.29% (4)
37 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS 5. UNIT VALUES (Continued)
At April 30 For the Year Ended April 30 ----------------------------------------- ----------------------------------------------- Unit Fair Value Expense Ratio Investment Total Return Lowest to Net Assets Lowest Income Lowest to Year Units Highest ($) (6) ($) to Highest (1) Ratio (2) Highest (3) ---- ---------- ---------------- ----------- -------------- ---------- ------------------- Growth and Income Portfolio (Class II) 2006 11,082,648 14.47 to 14.66 162,309,479 0.85% to 1.10% 1.16% 15.84% to 16.13% 2005 7,005,529 12.49 to 12.62 88,359,318 0.85% to 1.10% 1.12% 11.56% to 11.84% 2004 3,280,374 11.20 to 11.29 36,998,962 0.85% to 1.10% 1.11% 24.39% to 24.70% 2003 1,101,314 9.00 to 9.05 9,962,263 0.85% to 1.10% 1.13% -16.45% to -16.24% 2002 208,564 10.78 to 10.81 2,253,232 0.85% to 1.10% 1.03% 7.76% (4) to 8.07% (4) Growth and Income Portfolio (Class VC) 2006 12,021,179 13.03 to 13.16 158,138,427 0.85% to 1.10% 0.99% 15.44% to 15.73% 2005 8,950,812 11.29 to 11.37 101,751,623 0.85% to 1.10% 0.90% 6.50% to 6.76% 2004 4,562,992 10.60 to 10.65 48,589,564 0.85% to 1.10% 0.65% 24.13% to 24.44% 2003 1,144,287 8.54 to 8.56 9,794,470 0.85% to 1.10% 0.67% -14.60% to -14.39% 2002 -- -- -- -- -- -- Mid-Cap Value Portfolio (Class VC) 2006 9,053,782 14.33 to 14.48 130,969,116 0.85% to 1.10% 0.45% 17.07% to 17.36% 2005 5,757,573 12.24 to 12.33 70,971,529 0.85% to 1.10% 0.31% 10.71% to 10.99% 2004 2,598,873 11.06 to 11.11 28,866,718 0.85% to 1.10% 0.50% 32.32% to 32.65% 2003 667,309 8.36 to 8.38 5,589,117 0.85% to 1.10% 0.65% -16.42% to -16.22% 2002 -- -- -- -- -- -- Asset Allocation Fund (Class 2) 2006 14,036,387 15.57 to 15.70 220,278,752 0.85% to 1.10% 2.12% 18.81% to 19.11% 2005 10,281,648 13.11 to 13.18 135,479,401 0.85% to 1.10% 1.95% 5.72% to 5.99% 2004 4,799,401 12.40 to 12.44 59,677,489 0.85% to 1.10% 2.07% 15.28% to 15.56% 2003 853,127 10.75 to 10.76 9,181,839 0.85% to 1.10% 1.53% 7.55% (5) to 7.63% (5) 2002 -- -- -- -- -- -- Global Growth Fund (Class 2) 2006 8,283,239 20.45 to 20.62 170,740,819 0.85% to 1.10% 0.50% 29.43% to 29.75% 2005 4,950,458 15.80 to 15.89 78,648,361 0.85% to 1.10% 0.26% 6.89% to 7.16% 2004 1,806,379 14.78 to 14.83 26,782,854 0.85% to 1.10% 0.11% 31.24% to 31.56% 2003 180,601 11.26 to 11.27 2,036,008 0.85% to 1.10% 0.00% 12.64% (5) to 12.74% (5) 2002 -- -- -- -- -- -- Growth Fund (Class 2) 2006 10,582,406 19.90 to 20.07 212,253,365 0.85% to 1.10% 0.63% 26.41% to 26.72% 2005 7,551,610 15.74 to 15.84 119,536,271 0.85% to 1.10% 0.17% 5.31% to 5.57% 2004 3,515,459 14.95 to 15.00 52,716,825 0.85% to 1.10% 0.10% 27.20% to 27.51% 2003 503,213 11.75 to 11.77 5,920,073 0.85% to 1.10% 0.02% 17.53% (5) to 17.66% (5) 2002 -- -- -- -- -- -- Growth - Income Fund (Class 2) 2006 19,874,104 17.13 to 17.29 343,442,627 0.85% to 1.10% 1.28% 15.53% to 15.81% 2005 14,472,601 14.83 to 14.93 215,972,523 0.85% to 1.10% 0.88% 3.51% to 3.77% 2004 6,825,246 14.32 to 14.39 98,164,575 0.85% to 1.10% 0.87% 26.01% to 26.33% 2003 1,076,060 11.37 to 11.39 12,254,361 0.85% to 1.10% 0.65% 13.68% (5) to 13.90% (5) 2002 -- -- -- -- -- --
38 VARIABLE ANNUITY ACCOUNT SEVEN OF AIG SUNAMERICA LIFE ASSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS 5. UNIT VALUES (Continued) (1) These amounts represent the annualized contract expenses of the variable account, consisting primarily of mortality and expense charges, for each period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying investment portfolios have been excluded. For additional information on charges and deductions, see footnote 3. (2) These amounts represent the dividends, excluding distributions of capital gains, received by the variable account from the underlying investment portfolio, net of management fees assessed by the portfolio manager, divided by the average net assets. These ratios exclude those expenses, such as mortality and expense charges, that are assessed against contract owner accounts either through reductions in the unit values or the redemption of units. The recognition of investment income by the variable account is affected by the timing of the declaration of dividends by the underlying investment portfolio in which the variable account invests. The average net assets are calculated by adding ending net asset balances at the end of each month of the year and dividing it by the number of months that the portfolio had an ending asset balance during the year. (3) These amounts represent the total return for the periods indicated, including changes in the value of the underlying investment portfolio, and expenses assessed through the reduction of unit values. These ratios do not include any expenses assessed through the redemption of units. Investment options with a date notation indicate the effective date of that investment option in the variable account. The total return is calculated for each period indicated or from the effective date through the end of the reporting period. In 2004, the Separate Account adopted SOP 03-5, Financial Highlights of Separate Accounts: An Amendment to the Audit and Accounting Guide Audits of Investment Companies (the "SOP"). In accordance with the SOP, the total return range is presented as a range of minimum to maximum values, based on the product grouping representing the minimum and maximum expense ratio. As such, some individual contract total returns are not within the range presented due to a variable account being added to a product during the year. Prior to 2004, the total return range of minimum and maximum values was calculated independently of the product groupings that produced the lowest and highest expense ratio. (4) For the period from October 15, 2001 (inception) to April 30, 2002. (5) For the period from September 30, 2002 (inception) to April 30, 2003. (6) In 2004, in accordance with the SOP, the unit fair value range is presented as a range of minimum to maximum values, based on the product grouping representing the minimum and maximum expense ratio. As such, some individual contract unit values are not within the range presented due to differences in the unit fair value at the products launch date and other market conditions. Prior to 2004, the unit fair value range of minimum and maximum values was calculated independently of the product grouping that produced the lowest and highest expense ratio. (7) Individual contract unit fair values are not all within the range presented due to differences in the unit fair value at a product's launch date and other market conditions. (8) Individual contract total returns are not all within the total return range presented due to a variable account being added to a product during the year. (9) For the period from October 4, 2004 (inception) to April 30, 2005. 39 PART C -- OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements Consolidated financial statements of AIG SunAmerica Life Assurance Company at December 31, 2005 and 2004, and for each of the three years in the period ended December 31, 2005, are incorporated by reference to Post-Effective Amendment No. 32 under the Securities Act of 1933 and Amendment No. 33 under the Investment Company Act of 1940, File Nos. 333-08859 and 811-07727, filed on May 1, 2006, Accession No. 0000950129-06-004661. Financial statements of Variable Annuity Account Seven at April 30, 2006, and for each of the two years in the period ended April 30, 2006 are included herein. The statutory statements of admitted assets, liabilities, capital and surplus of American Home Assurance Company as of December 31, 2005 and 2004, and the related statutory statements of income and changes in capital and surplus, and of cash flow for the years then ended are also incorporated by reference to Post-Effective Amendment No. 6 under the Securities Act of 1933 and Amendment No. 7 under the Investment Company Act of 1940, File Nos. 333-64338 and 811-07727, filed on July 27, 2006, Accession No. 0000950134-06-014060. (b) Exhibits (1) Resolutions Establishing Separate Account........................ * (2) Custody Agreements............................................... Not applicable (3) (a) Form of Distribution Contract............................... ** (b) Form of Selling Agreement................................... ** (4) Variable Annuity Contract (a) Variable Annuity Contract................................... ** (b) Variable Annuity Certificate................................ ** (c) Tax Sheltered Annuity (403(b)) Endorsement.................. ** (5) (a) Application for Contract.................................... ** (6) Corporate Documents of Depositor (a) Amended and Restated Articles of Incorporation of Depositor dated December 19, 2001..................................... *** (b) Articles of Amendment to Amended and Restated Articles of Incorporation dated September 30, 2002...................... **** (c) Amended and Restated By-Laws dated December 19, 2001........ *** (7) Reinsurance Contract............................................. Not Applicable (8) Material Contracts (a) Form of Anchor Series Trust Fund Participation Agreement.... ** (b) Form of SunAmerica Series Trust Fund Participation Agreement................................................... ** (9) (a) Opinion of Counsel and Consent of Depositor................. ** (b) Opinion of Counsel and Consent of Sullivan & Cromwell LLP, Counsel to American Home Assurance Company.................. ++ (10) Consent of Independent Registered Public Accounting Firm......... Filed Herewith (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 AIG SunAmerica, the Depositor of Registrant................................. # (b) Power of Attorney (1) AIG SunAmerica Life Assurance Company................... # (2) American Home Assurance Company......................... ## (c) Support Agreement of American International Group, Inc. .... + (d) General Guarantee Agreement by American Home Assurance Company..................................................... +
--------------- * Incorporated by reference to Initial Registration Statement, File Nos. 333-63511 and 811-09003, filed on September 16, 1998, Accession No. 0000950148-98-002194. ** Incorporated by reference to Pre-Effective Amendment No. 2 and Amendment No. 3, File Nos. 333-63511 and 811-09003, filed on December 7, 1998, Accession No. 0000950148-98-002682. *** Incorporated by reference to Post-Effective Amendment No. 8 and Amendment No. 9, File Nos. 333-63511 and 811-09003, filed on April 11, 2002, Accession No. 0000950148-02-000967. **** Incorporated by reference to Post-Effective Amendment No. 10 and Amendment No. 11, File Nos. 333-63511 and 811-09003, filed on April 7, 2003, Accession No. 0000950148-03-000788. + Incorporated by reference to Post-Effective Amendment No. 15 and Amendment No. 16, File Nos. 333-63511 and 811-09003, filed on August 29, 2005, Accession No. 0000950129-05-008795. ++ Incorporated by reference to Post-Effective Amendment No. 18 and Amendment No. 22, File Nos. 333-67685 and 811-07727, filed on October 21, 2005, Accession No. 0000950134-05-019473. # Incorporated by reference to Post-Effective Amendment No. 13 and Amendment No. 14, File Nos. 333-92396 and 811-07727, filed on May 1, 2006, Accession No. 0000950148-06-000036. ## Incorporated by reference to Post-Effective Amendment No. 23 and Amendment No. 24, File Nos. 033-86642 and 811-08874, filed on June 23, 2006, Accession No. 0000950129-06-006598. ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR (a) The officers and directors of AIG SunAmerica 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 ---- -------- Jay S. Wintrob Director, Chief Executive Officer Jana W. Greer(1) Director and President Michael J. Akers(2) Director and Senior Vice President Marc H. Gamsin Director and Senior Vice President N. Scott Gillis(1) Director, Senior Vice President and Chief Financial Officer Christopher J. Swift(3) Director Gregory M. Outcalt Senior Vice President 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 Timothy W. Still(1) Senior Vice President Gavin D. Friedman Vice President Mallary L. Reznik Vice President Stephen Stone(1) Vice President Monica Suryapranata(1) Vice President Edward T. Texeria(1) Vice President Rodney A. Haviland(1) Vice President Virginia N. Puzon Assistant Secretary
--------------- (1) 21650 Oxnard Street, Woodland Hills, CA 91367 (2) 2929 Allen Parkway, Houston, TX 77019 (3) 70 Pine Street, New York, NY 10270 ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH DEPOSITOR OR REGISTRANT The Registrant is a separate account of AIG SunAmerica Life (Depositor). Depositor is a subsidiary of American International Group, Inc. ("AIG"). 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 AIG can be found in Form 10-K/A, SEC file number 001-08787, Accession Number 0000950123-06-007835 filed June 19, 2006. ITEM 27. NUMBER OF CONTRACT OWNERS As of June 30, 2006, the number of Polaris Plus contracts funded by Variable Annuity Account Seven was 16,815 of which 16,814 were qualified contracts and 1 were non-qualified contracts. 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. AIG SunAmerica 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 By-Laws ("By-Laws") 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 By-Laws. Additionally, pursuant to the Distribution Agreement filed as Exhibit 3(a) to this Registration Statement, Depositor has agreed to indemnify and hold harmless AIG 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) AIG SunAmerica Capital Services, Inc. acts as distributor for the following investment companies: AIG SunAmerica Life Assurance Company -- Variable Separate Account AIG SunAmerica Life Assurance Company -- Variable Annuity Account One AIG SunAmerica Life Assurance Company -- Variable Annuity Account Two AIG SunAmerica Life Assurance Company -- Variable Annuity Account Four AIG SunAmerica Life Assurance Company -- Variable Annuity Account Five AIG SunAmerica Life Assurance Company -- Variable Annuity Account Seven AIG SunAmerica 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 AIG 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 President & Chief Executive Officer Debbie Potash-Turner Senior Vice President, Chief Financial Officer & Controller John T. Genoy Vice President Kathleen S. Stevens Manager, Compliance Christine A. Nixon** Secretary Virginia N. Puzon** Assistant Secretary
--------------- * Unless otherwise indicated, the principal business address of AIG SunAmerica Capital Services, Inc. and of each of the above individuals is Harborside Financial Center, 3200 Plaza 5, Jersey City, New Jersey 07311. ** Principal business address is 1 SunAmerica Center, Los Angeles, California 90067. (c) AIG 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. Undertakings of the Depositor Regarding Guarantor ------------------------------------------------------ During any time there are insurance obligations outstanding and covered by the guarantee issued by the American Home Assurance Company ("American Home Guarantee Period"), filed as an exhibit to this Registration Statement (the "American Home Guarantee"), the Depositor hereby undertakes to provide notice to policy owners covered by the American Home Guarantee promptly after the happening of significant events related to the American Home Guarantee. These significant events include: (i) termination of the American Home Guarantee that has a material adverse effect on the policy owner's rights under the American Home Guarantee; (ii) a default under the American Home Guarantee that has a material adverse effect on the policy owner's rights under the American Home Guarantee; or (iii) the insolvency of American Home Assurance Company ("American Home"). Depositor hereby undertakes during the American Home Guarantee Period to cause Registrant to file post-effective amendments to this Registration Statement as frequently as is necessary to ensure that the current annual audited statutory financial statements of American Home in the Registration Statement are updated to be as of a date not more than 16 months prior to the effective date of this Registration Statement, and to cause Registrant to include as an exhibit to this Registration Statement the consent of the independent registered public accounting firm of American Home regarding such financial statements. During the American Home Guarantee Period, the Depositor hereby undertakes to include in the prospectus to policy owners, an offer to supply the Statement of Additional Information which shall contain the annual audited statutory financial statements of American Home, free of charge upon a policy owner's request. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, Variable Annuity Account Seven certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of this Registration Statement and has caused these Post-Effective Amendments No. 18 and Amendment No. 19 to be signed on its behalf, in the City of Los Angeles, and State of California, on this 31st day of July, 2006. VARIABLE ANNUITY ACCOUNT SEVEN (Registrant) By: AIG SUNAMERICA LIFE ASSURANCE COMPANY By: /s/ JAY S. WINTROB --------------------------------------- JAY S. WINTROB, CHIEF EXECUTIVE OFFICER By: AIG SUNAMERICA LIFE ASSURANCE COMPANY (Depositor) By: /s/ JAY S. WINTROB --------------------------------------- JAY S. WINTROB, CHIEF EXECUTIVE OFFICER 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 --------- ----- ---- *JAY S. WINTROB Chief Executive Officer, & Director July 31, 2006 ------------------------------------------------ (Principal Executive Officer) JAY S. WINTROB *MARC H. GAMSIN Director July 31, 2006 ------------------------------------------------ MARC H. GAMSIN *N. SCOTT GILLIS Senior Vice President, July 31, 2006 ------------------------------------------------ Chief Financial Officer & Director N. SCOTT GILLIS (Principal Financial Officer) *JANA W. GREER Director July 31, 2006 ------------------------------------------------ JANA W. GREER *CHRISTOPHER J. SWIFT Director July 31, 2006 ------------------------------------------------ CHRISTOPHER J. SWIFT *STEWART R. POLAKOV Senior Vice President & Controller July 31, 2006 ------------------------------------------------ (Principal Accounting Officer) STEWART R. POLAKOV /s/ MALLARY L. REZNIK Attorney-in-Fact July 31, 2006 ------------------------------------------------ *MALLARY L. REZNIK
American Home Assurance Company has caused this Registration Statement to be signed on its behalf by the undersigned, in the City of New York, and the State of New York, on this 31st day of July, 2006. By: AMERICAN HOME ASSURANCE COMPANY By: /s/ ROBERT S. SCHIMEK --------------------------------------- ROBERT S. SCHIMEK, SENIOR VICE PRESIDENT AND TREASURER M. BERNARD AIDINOFF* Director July 31, 2006 ------------------------------------------------ M. BERNARD AIDINOFF JOHN QUINLAN DOYLE* Director and President July 31, 2006 ------------------------------------------------ JOHN QUINLAN DOYLE NEIL ANTHONY FAULKNER* Director July 31, 2006 ------------------------------------------------ NEIL ANTHONY FAULKNER DAVID NEIL FIELDS* Director July 31, 2006 ------------------------------------------------ DAVID NEIL FIELDS KENNETH VINCENT HARKINS* Director July 31, 2006 ------------------------------------------------ KENNETH VINCENT HARKINS Director July 31, 2006 ------------------------------------------------ CHARLES DANGELO DAVID LAWRENCE HERZOG* Director July 31, 2006 ------------------------------------------------ DAVID LAWRENCE HERZOG ROBERT EDWARD LEWIS* Director July 31, 2006 ------------------------------------------------ ROBERT EDWARD LEWIS KRISTIAN PHILIP MOOR* Director and Chairman July 31, 2006 ------------------------------------------------ KRISTIAN PHILIP MOOR WIN JAY NEUGER* Director July 31, 2006 ------------------------------------------------ WIN JAY NEUGER ROBERT S. SCHIMEK* Director, July 31, 2006 ------------------------------------------------ Senior Vice President and Treasurer ROBERT S. SCHIMEK NICHOLAS SHAW TYLER* Director July 31, 2006 ------------------------------------------------ NICHOLAS SHAW TYLER NICHOLAS CHARLES WALSH* Director July 31, 2006 ------------------------------------------------ NICHOLAS CHARLES WALSH By: /s/ ROBERT S. SCHIMEK Attorney-in-Fact July 31, 2006 ------------------------------------------ *ROBERT S. SCHIMEK
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ----------- ----------- (10) Consent of Independent Registered Public Accounting Firm