424B3 1 v98460f1e424b3.txt PROSPECTUS As filed pursuant to Rule 424(B)(3) under the Securities Act of 1933 Registration No. 333-107162 [SEASONS LOGO] PROSPECTUS ALLOCATED FIXED AND VARIABLE GROUP ANNUITY issued by VARIABLE ANNUITY ACCOUNT FIVE and AIG SUNAMERICA LIFE ASSURANCE COMPANY August 2, 2004 The annuity contract has several investment choices - fixed account options which offer interest rates guaranteed by AIG SunAmerica Life for different periods of time and Variable Portfolios: GROWTH STRATEGY (WHICH INVESTS IN STOCK PORTFOLIO, ASSET ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO AND MULTI-MANAGED GROWTH PORTFOLIO) MODERATE GROWTH STRATEGY (WHICH INVESTS IN STOCK PORTFOLIO, ASSET ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO AND MULTI-MANAGED MODERATE GROWTH PORTFOLIO) BALANCED GROWTH STRATEGY (WHICH INVESTS IN STOCK PORTFOLIO, ASSET ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO AND MULTI-MANAGED INCOME/EQUITY PORTFOLIO) CONSERVATIVE GROWTH STRATEGY (WHICH INVESTS IN STOCK PORTFOLIO, ASSET ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO AND MULTI-MANAGED INCOME PORTFOLIO) which invest in the underlying portfolios of SEASONS SERIES TRUST which is managed by: PUTNAM INVESTMENT MANAGEMENT, INC. T. ROWE PRICE ASSOCIATES, INC. JANUS CAPITAL MANAGEMENT LLC. AIG SUNAMERICA ASSET MANAGEMENT CORP. WELLINGTON MANAGEMENT COMPANY, LLP You can put your money into any one or all of the Variable Portfolios and/or fixed account options. Please read this prospectus carefully before investing and keep it for your future reference. It contains important information you should know about the Seasons Variable Annuity. To learn more about the annuity offered by this prospectus, you can obtain a copy of the Statement of Additional Information ("SAI") dated August 2, 2004. The SAI has been filed with the Securities and Exchange Commission ("SEC") and can be considered part of this prospectus. The table of contents of the SAI appears below in this prospectus. For a free copy of the SAI, call us at 800/445-SUN2 or write our Annuity Service Center at, P.O. Box 54299, Los Angeles, California 90054-0299. A registration statement has been filed with the SEC under the Securities Act of 1933 relating to the contract. This prospectus does not contain all the information in the registration statement as permitted by SEC regulations. The omitted information can be obtained from the SEC's principal office in Washington, D.C., upon payment of a prescribed fee. In addition, the SEC maintains a website (http://www.sec.gov) that contains the SAI, materials incorporated by reference and other information filed electronically with the SEC. ANNUITIES INVOLVE RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL, AND ARE NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THEY ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE AIG SunAmerica Life's Annual Report on Form 10-K for the year ended December 31, 2003 and its quarterly report on Form 10-Q for the quarter ended March 31, 2004 are incorporated herein by reference. All documents or reports filed by AIG SunAmerica Life under Section 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") after the effective date of this prospectus are also incorporated by reference. Statements contained in this prospectus and subsequently filed documents which are incorporated by reference or deemed to be incorporated by reference are deemed to modify or supersede documents incorporated herein by reference. AIG SunAmerica Life files its Exchange Act documents and reports, including its annual and quarterly reports on Form 10-K and Form 10-Q, electronically pursuant to EDGAR under CIK No. 0000006342. AIG SunAmerica Life is subject to the informational requirements of the Securities and Exchange Act of 1934 (as amended). We file reports and other information with the SEC to meet those requirements. You can inspect and copy this information at SEC public facilities at the following locations: WASHINGTON, DISTRICT OF COLUMBIA 450 Fifth Street, N.W., Room 1024 Washington, D.C. 20549 CHICAGO, ILLINOIS 500 West Madison Street Chicago, IL 60661 NEW YORK, NEW YORK 233 Broadway New York, NY 10279 To obtain copies by mail contact the Washington, D.C. location. After you pay the fees as prescribed by the rules and regulations of the SEC, the required documents are mailed. Registration statements under the Securities Act of 1933, as amended, related to the contracts offered by this prospectus are on file with the SEC. This prospectus does not contain all of the information contained in the registration statements and exhibits. For further information regarding the Separate Account, AIG SunAmerica Life and its general account, the Portfolios and the contract, please refer to the registration statements and exhibits. The SEC also maintains a website (http://www.sec.gov) that contains the SAI, materials incorporated by reference and other information filed electronically with the SEC by AIG SunAmerica Life. AIG SunAmerica Life will provide without charge to each person to whom this prospectus is delivered, upon written or oral request, a copy of the above documents incorporated by reference. Requests for these documents should be directed to AIG SunAmerica Life's Annuity Service Center, as follows: AIG SunAmerica Life Life Assurance Company Annuity Service Center P.O. Box 54299 Los Angeles, California 90054-0299 Telephone Number: (800) 445-SUN2 SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION Indemnification for liabilities arising under the Securities Act of 1933 (the "Act") is provided to AIG SunAmerica Life's officers, directors and controlling persons. The SEC has advised that it believes such indemnification is against public policy under the Act and unenforceable. If a claim for indemnification against such liabilities (other than for AIG SunAmerica Life's payment of expenses incurred or paid by its directors, officers or controlling persons in the successful defense of any legal action) is asserted by a director, officer or controlling person of AIG SunAmerica Life in connection with the securities registered under this prospectus, AIG SunAmerica Life will submit to a court with jurisdiction to determine whether the indemnification is against public policy under the Act. AIG SunAmerica Life will be governed by final judgment of the issue. However, if in the opinion of AIG SunAmerica Life's counsel this issue has been determined by controlling precedent, AIG SunAmerica Life will not submit the issue to a court for determination. 2 TABLE OF CONTENTS GLOSSARY.................................................... 4 HIGHLIGHTS.................................................. 5 FEE TABLES.................................................. 6 Maximum Owner Transaction Expenses...................... 6 Separate Account Annual Expenses........................ 6 Portfolio Expenses...................................... 6 MAXIMUM AND MINIMUM EXPENSE EXAMPLES........................ 7 THE SEASONS VARIABLE ANNUITY................................ 8 PURCHASING A SEASONS VARIABLE ANNUITY....................... 9 Allocation of Purchase Payments......................... 9 Accumulation Units...................................... 10 Free Look............................................... 10 Exchange Offers......................................... 10 INVESTMENT OPTIONS.......................................... 11 Variable Portfolios..................................... 11 Seasons Strategies.................................... 11 Seasons Strategy Rebalancing.......................... 13 Fixed Account Options................................... 13 Transfers During the Accumulation Phase................. 14 Dollar Cost Averaging Program........................... 15 Return Plus Program..................................... 16 Voting Rights........................................... 16 Substitution............................................ 16 ACCESS TO YOUR MONEY........................................ 17 Systematic Withdrawal Program........................... 18 Minimum Contract Value.................................. 18 Qualified Contract Owners............................... 18 DEATH BENEFIT............................................... 18 Death of the Annuitant.................................. 19 EXPENSES.................................................... 19 Separate Account Charges................................ 19 Withdrawal Charges...................................... 19 Investment Charges...................................... 20 Contract Maintenance Fee................................ 20 Transfer Fee............................................ 20 Premium Tax............................................. 20 Income Taxes............................................ 20 Reduction or Elimination of Charges and Expenses and Additional Amounts Credited............................ 20 INCOME OPTIONS.............................................. 21 Annuity Date............................................ 21 Income Options.......................................... 21 Allocation of Income Payments........................... 22 Fixed or Variable Income Payments....................... 22 Income Payments......................................... 22 Transfers During the Income Phase....................... 23 Deferment of Payments................................... 23 TAXES....................................................... 23 Annuity Contracts in General............................ 23 Tax Treatment of Distributions--Non-qualified Contracts.............................................. 24 Tax Treatment of Distributions--Qualified Contracts..... 24 Minimum Distributions................................... 24 Tax Treatment of Death Benefits......................... 25 Contracts Owned by a Trust or Corporation............... 25 Gifts, Pledges and/or Assignments of a Contract......... 26 Diversification and Investor Control.................... 26 PERFORMANCE................................................. 26 OTHER INFORMATION........................................... 26 AIG SunAmerica Life..................................... 26 The Separate Account.................................... 27 The General Account..................................... 27 Payments in Connection with Distribution of the Contract............................................... 27 Administration.......................................... 28 Legal Proceedings....................................... 28 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM............... 28 TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.... 29 APPENDIX A--CONDENSED FINANCIALS............................ A-1 APPENDIX B--MARKET VALUE ADJUSTMENT......................... B-1
3 GLOSSARY We have capitalized some of the technical terms used in this prospectus. To help you understand these terms, we define them in this glossary. ACCUMULATION PHASE--The period during which you invest money in your contract. ACCUMULATION UNITS--A measurement we use to calculate the value of the variable portion of your contract during the Accumulation Phase. ANNUITANT(S)--The person(s) on whose life (lives) we base annuity payments. ANNUITY DATE--The date on which annuity payments are to begin, as selected by you. ANNUITY UNITS--A measurement we use to calculate the amount of annuity payments you receive from the variable portion of your contract during the Income Phase. BENEFICIARY (IES)--The person(s) designated to receive any benefits under the contract if you or the Annuitant dies. COMPANY--AIG SunAmerica Life Assurance Company (AIG SunAmerica Life), we, us, the insurer that issues this contract. Only "AIG SunAmerica Life" is the capitalized term in the prospectus. INCOME PHASE--The period during which we make annuity payments to you. IRS--The Internal Revenue Service. LATEST ANNUITY DATE--Your 90th birthday or tenth contract anniversary, whichever is later. NON-QUALIFIED (CONTRACT)--A contract purchased with after-tax dollars. In general, these contracts are not under any pension plan, specially sponsored program or individual retirement account ("IRA"). PURCHASE PAYMENTS--The money you give us to buy the contract, as well as any additional money you give us to invest in the contract after you own it. QUALIFIED (CONTRACT)--A contract purchased with pretax dollars. These contracts are generally purchased under a pension plan, specially sponsored program or individual retirement account ("IRA"). SEASONS STRATEGY (IES)--A sub-account of Variable Annuity Account Five which provides for the variable investment options available under the contract. Each Seasons Strategy has its own investment objective and is invested in the underlying investment portfolios of the Seasons Series Trust. 4 AIG SUNAMERICA LIFE OFFERS SEVERAL DIFFERENT VARIABLE ANNUITY PRODUCTS TO MEET THE DIVERSE NEEDS OF OUR INVESTORS. EACH PRODUCT MAY PROVIDE DIFFERENT FEATURES AND BENEFITS AND CORRESPONDINGLY DIFFERENT FEES, CHARGES AND EXPENSES. WHEN WORKING WITH YOUR FINANCIAL 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 MEET YOUR LONG-TERM RETIREMENT SAVINGS GOALS. HIGHLIGHTS -------------------------------------------------------------------------------- The Seasons Variable Annuity is a contract between you and AIG SunAmerica Life Assurance Company ("AIG SunAmerica"). It is designed to help you invest on a tax-deferred basis and meet long-term financial goals. There are minimum Purchase Payment amounts required to purchase a contract. Purchase payments may be invested in any combination of the four pre-allocated Strategies ("Variable Portfolios") and fixed account options. Like all deferred annuities, the contract has an Accumulation Phase and an Income Phase. During the Accumulation Phase, you invest money in your contract. The Income Phase begins when you start receiving income payments from your annuity to provide for your retirement. FREE LOOK: If you cancel your contract within 10 days after receiving it (or whatever period is required in your state), we will cancel the contract without charging a withdrawal charge. Your will receive whatever your contract is worth on the day that we receive your request. This amount may be more or less than your original Purchase Payment. We will return your original Purchase Payment if required by law. Please see PURCHASING A SEASONS VARIABLE ANNUITY in the prospectus. EXPENSES: There are fees and charges associated with the contract. Each year, we deduct a $35 contract maintenance fee from your contract, which is currently waived for contracts of $50,000 or more. We also deduct insurance charges, which equal 1.40% annually of the average daily value of your contract allocated to the Variable Portfolios. There are investment charges on amounts invested in the Variable Portfolios. A separate withdrawal charge schedule applies to each Purchase Payment. The amount of the withdrawal charge declines over time. After a Purchase Payment has been in the contract for seven complete years, withdrawals charges no longer apply to that portion of the Purchase Payment. Please see the FEE TABLE, PURCHASING A SEASONS VARIABLE ANNUITY and EXPENSES in the prospectus. ACCESS TO YOUR MONEY: You may withdraw money from your contract during the Accumulation Phase. If you do so, earnings are deemed to be withdrawn first. You will pay income taxes on earnings and untaxed contributions when you withdraw them. Payments received during the Income Phase are considered partly a return of your original investment. A federal tax penalty may apply if you make withdrawals before age 59 1/2. As noted above, a withdrawal charge may apply. Please see ACCESS TO YOUR MONEY and TAXES in the prospectus. DEATH BENEFIT: A death benefit feature is available under the contract to protect your Beneficiaries in the event of your death during the Accumulation Phase. Please see DEATH BENEFITS in the prospectus. INCOME OPTIONS: When you are ready to begin taking income, you can choose to receive income payments on a variable basis, fixed basis or a combination of both. You may also chose from five different income options, including an option for income that you cannot outlive. Please see INCOME OPTIONS in the prospectus. INQUIRIES: If you have questions about your contract call your financial 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 READ THE PROSPECTUS CAREFULLY FOR MORE DETAILED INFORMATION REGARDING THESE AND OTHER FEATURES AND BENEFITS OF THE CONTRACT, AS WELL AS THE RISKS OF INVESTING. 5 FEE TABLES -------------------------------------------------------------------------------- THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY AT THE TIME THAT YOU BUY THE CONTRACT, TRANSFER CASH VALUE BETWEEN INVESTMENT OPTIONS OR SURRENDER THE CONTRACT. IF APPLICABLE, YOU MAY ALSO BE SUBJECT TO STATE PREMIUM TAXES. MAXIMUM OWNER TRANSACTION EXPENSES WITHDRAWAL CHARGES (as a percentage of each Purchase Payment)(1)... 7%
TRANSFER FEE No charge for the first 4 transfers each contract year; thereafter, the fee is $25 ($10 in Pennsylvania and Texas) per transfer THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY PERIODICALLY DURING THE TIME THAT YOU OWN THE CONTRACT, NOT INCLUDING UNDERLYING PORTFOLIO FEES AND EXPENSES, WHICH ARE OUTLINED IN THE NEXT SECTION. CONTRACT MAINTENANCE FEE $35 ($30 in North Dakota) which is currently waived if contract value $50,000 or more FOOTNOTE TO FEE TABLES: (1) Withdrawal Charge Schedule (as a percentage of each Purchase Payment) Years:.............. 1 2 3 4 5 6 7 8+ 7% 6% 6% 5% 4% 3% 2% 0%
SEPARATE ACCOUNT ANNUAL EXPENSES (deducted daily as a percentage of your average daily net asset value) Mortality and Expense Risk Fees.............. 1.25% Distribution Expense Charge.................. 0.15% ----- Total Separate Account Annual Expenses....... 1.40%
THE NEXT ITEM SHOWS THE MINIMUM AND MAXIMUM TOTAL OPERATING EXPENSES CHARGED BY THE UNDERLYING PORTFOLIO OF THE TRUST BEFORE ANY WAIVER OR REIMBURSEMENTS THAT YOU MAY PAY PERIODICALLY DURING THE TIME THAT YOU OWN THE CONTRACT. MORE DETAIL CONCERNING TRUST'S FEES AND EXPENSES IS CONTAINED IN THE ATTACHED TRUST PROSPECTUS. PLEASE READ IT CAREFULLY BEFORE INVESTING. PORTFOLIO EXPENSES
TOTAL ANNUAL TRUST OPERATING EXPENSES MINIMUM MAXIMUM ------------------------------------- ------- ------- (expenses that are deducted from underlying portfolios of the Trust, including management fees, other expenses and 12b-1 fees, if applicable)....................... 0.96% 1.04%
6 MAXIMUM AND MINIMUM EXPENSE EXAMPLES -------------------------------------------------------------------------------- These Examples are intended to help you compare the cost of investing in the contract with the cost of investing in other variable annuity contracts. These costs include owner transaction expenses, contract maintenance fee, separate account annual expenses and expenses for the underlying portfolios of the Trust. The Examples assumes that you invest $10,000 in the contract for the time periods indicated; that your investment has a 5% return each year; and that the maximum and minimum fees and expenses of the underlying portfolios of the Trust are reflected. Although your actual costs may be higher or lower, based on these assumptions, your costs at the end of the stated period would be: MAXIMUM EXPENSE EXAMPLES (assuming maximum separate account annual expenses of 1.40% and investment in an underlying portfolio with total expenses of 1.04%) (1) If you surrender your contract at the end of the applicable time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- $952 $1,376 $1,726 $2,826
(2) If you annuitize your contract at the end of the applicable time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- $247 $761 $1,301 $2,776
(3) If you do not surrender your contract:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- $252 $776 $1,326 $2,826
MINIMUM EXPENSE EXAMPLES (assuming minimum separate account annual expenses of 1.40% and investment in an underlying portfolio with total expenses of 0.96%) (1) If you surrender your contract at the end of the applicable time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- $944 $1,351 $1,685 $2,746
(2) If you annuitize your contract at the end of the applicable time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- $239 $736 $1,260 $2,696
(3) If you do not surrender your contract:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- $244 $751 $1,285 $2,746
EXPLANATION OF FEE TABLES AND EXAMPLES 1. The purpose of the Fee Tables is to show you the various expenses you will incur directly and indirectly by investing in the contract. We converted the contract administration fee to a percentage (0.05%). The actual impact of the administration charge may differ from the percentage and which is currently waived for contract values over $50,000. The Examples assume separate account expenses as indicated and that no transfer fees were imposed. Premium taxes are not reflected but may be applicable. Additional information on the portfolio company fees can be found in the Trust prospectus located behind this prospectus. 2. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. CONDENSED FINANCIALS APPEAR IN APPENDIX A OF THIS PROSPECTUS. 7 THE SEASONS VARIABLE ANNUITY -------------------------------------------------------------------------------- An annuity is a contract between you and an insurance company. You are the owner of the contract. The contract provides three main benefits: - Tax Deferral: You do not pay taxes on your earnings from the annuity until you withdraw them. - Death Benefit: If you die during the Accumulation Phase, the insurance company pays a death benefit to your Beneficiary. - Guaranteed Income: If elected, you receive a stream of income for your lifetime, or another available period you select. Tax-qualified retirement plans (e.g., IRAs, 401(k) or 403(b) plans) defer payment of taxes on earnings until withdrawal. If you are considering funding a tax-qualified retirement plan with an annuity, you should know that an annuity does not provide any additional tax deferral treatment of earnings beyond the treatment provided by the tax-qualified retirement plan itself. However, annuities do provide other features and benefits which may be valuable to you. You should fully discuss this decision with your financial representative. This annuity was developed to help you contribute to your retirement savings. The flexibility and diversification offered by this annuity can help you reach your retirement savings goals. This annuity works in two stages, the Accumulation Phase and the Income Phase. Your contract is in the Accumulation Phase during the period when you make payments into the contract. The Income Phase begins when you request us to start making payments to you out of the money accumulated in your contract. The Contract is called a "variable" annuity because it allows you to invest in Variable Portfolios which, like mutual funds, vary with market conditions. You can gain or lose money if you invest in these Variable Portfolios. If you allocate money to the Variable Portfolios, the amount of money you accumulate in your contract depends on the performance of the Variable Portfolios in which you invest. The Contract may also offer several fixed account options for varying time periods. Fixed account options earn interest at a rate set and guaranteed by AIG SunAmerica Life. If you allocate money to the fixed account options, the amount of money that accumulates in the Contract depends on the total interest credited to the particular fixed account option(s) in which you are invested. For more information on Seasons Variable Portfolios and fixed account options available under this contract, SEE INVESTMENT OPTIONS BELOW. AIG SunAmerica Life Assurance Company (AIG SunAmerica Life, The Company, us, we) issues the Seasons Variable Annuity. When you purchase a Seasons Variable Annuity, a contract exists between you and AIG SunAmerica Life. The Company is a stock life insurance company organized under the laws of the state of Arizona. Its principal place of business is 1 SunAmerica Center, Los Angeles, California 90067. The Company conducts life insurance and annuity business in the District of Columbia and all states except New York. AIG SunAmerica Life is an indirect, wholly owned subsidiary of American International Group, Inc., a Delaware corporation. This annuity is designed for investors whose personal circumstances allow for a long-term investment time horizon, to assist in contributing to retirement savings. As a function of the federal tax code you may be assessed a 10% federal tax penalty on any withdrawal made prior to your reaching age 59 1/2. Additionally, this contract provides that you will be charged a withdrawal charge on each Purchase Payment withdrawn if that Purchase Payment has not been invested in this contract for at least 7 years. Because of these potential penalties, you should fully discuss all of the benefits and risks of this contract with your financial adviser prior to purchase. This variable annuity may not be available for sale in your state. Please check with your financial representative regarding availability. 8 PURCHASING A SEASONS VARIABLE ANNUITY -------------------------------------------------------------------------------- A Purchase Payment is the money you give us to buy a contract. Any additional money you give us to invest in the contract after purchase is a subsequent Purchase Payment. This chart shows the minimum initial and subsequent Purchase Payments permitted under your contract. These amounts depend upon whether a contract is Qualified or Non-qualified for tax purposes.
MINIMUM MINIMUM INITIAL SUBSEQUENT PURCHASE PAYMENT PURCHASE PAYMENT ---------------- ---------------- Qualified $2,000 $500 Non-qualified $5,000 $500
We reserve the right to require Company approval prior to accepting Purchase Payments greater than $1,000,000. For contracts owned by a non-natural owner, we reserve the right to require prior Company approval to accept Purchase Payments greater than $250,000. Subsequent Purchase Payments that would cause total Purchase Payments in all contracts issued by the Company and First SunAmerica Life Insurance Company, an affiliate of the Company, to the same owner to exceed these limits may also be subject to company pre-approval. We reserve the right to change the amount at which pre-approval is required, at any time. Once you have contributed at least the minimum initial Purchase Payment, you can establish an optional automatic payment plan that allows you to make subsequent Purchase Payments of as little as $50. We may refuse any Purchase Payment. In general, we will not issue a contract to anyone who is age 70 1/2 or older, unless they certify to us that the minimum distribution required by the IRS is being made. In addition, we may not issue a contract to anyone over age 90. We allow spouses to jointly own this contract. However, the age of the older spouse is used to determine the availability of any age driven benefits. The addition of a joint owner after the contract has been issued is contingent upon prior review and approval by the Company. If we discover a misstatement of age with respect to the contract issue age and any age-driven features in the contract, we reserve the right to fully pursue our remedies including termination of the contract and/or revocation of any age-driven benefit. You may assign this contract before beginning the Income Phase by sending us a written request for an assignment. Your rights and those of any other person with rights under this contract will be subject to the assignment. WE RESERVE THE RIGHT TO NOT RECOGNIZE ASSIGNMENTS IF IT CHANGES THE RISK PROFILE OF THE OWNER OF THE CONTRACT, AS DETERMINED IN OUR SOLE DISCRETION. Please see the Statement of Additional Information for details on the tax consequences of an assignment. This contract is no longer available for purchase by new policyowners. ALLOCATION OF PURCHASE PAYMENTS We invest your Purchase Payments in the fixed accounts and Variable Portfolios according to your instructions. If we receive a Purchase Payment without allocation instructions, we will invest the money according to your last allocation instructions. Purchase Payments are credited based upon the Accumulation Unit Value (AUV) next determined after receipt. SEE INVESTMENT OPTIONS BELOW. In order to issue your contract, we must receive your completed application, Purchase Payment allocation instructions and any other required paper work at our Annuity Service Center. We allocate your initial Purchase Payment within two days of receiving it. If we do not have complete information necessary to issue your contract, we will contact you. If we do not have the information necessary to issue your contract within 5 business days, we will send your money back to you, or ask your permission to keep your money until we get the information necessary to issue the contract. 9 ACCUMULATION UNITS The value of the variable portion of your contract will go up or down depending upon the investment performance of the Variable Portfolios you select. In order to keep track of the value of your contract, we use a unit of measure called an Accumulation Unit which works like a share of a mutual fund. During the Income Phase, we call them Annuity Units. We base the number of Annuity Units you receive on the unit value of the Variable Portfolios as of the day we receive your money, if we receive it before 1 p.m. Pacific Time, or on the next business day's unit value if we receive your money after 1 p.m. Pacific Time. An Accumulation Unit value is determined each day that the New York Stock Exchange ("NYSE") is open. We calculate an Accumulation Unit for each Variable Portfolio after the NYSE closes each day. We do this by: 1. determining the total value of money invested in a particular Variable Portfolio; 2. subtracting from that amount any asset-based charges and any other charges such as taxes we have deducted; and 3. dividing this amount by the number of outstanding Accumulation Units. The value of an Accumulation Unit may go up or down from day to day. When you make a Purchase Payment, we credit your contract with Accumulation Units. The number of Accumulation Units credited is determined by dividing the amount of the Purchase Payment allocated to a Variable Portfolio by the value of the Accumulation Unit for that Seasons Strategy. EXAMPLE: We receive a $25,000 Purchase Payment from you on Wednesday. You want your money to be invested in the Moderate Growth Strategy. We determine that the value of an Accumulation Unit for the Moderate Growth Strategy is $11.10 when the NYSE closes on Wednesday. We then divide $25,000 by $11.10 and credit your contract on Wednesday night with 2,252.252 Accumulation Units for the Moderate Growth Strategy. FREE LOOK You may cancel your contract within ten days after receiving it (or longer if required by state law). We call this a "free look." To cancel, you must mail the contract along with your free look request to our Annuity Service Center at P.O. Box 54299, Los Angeles, California 90054-0299. Unless otherwise required by state law, you will receive back the value of the money allocated to the Variable Portfolios on the day we receive your request plus any Purchase Payment in the fixed account options. This value may be more or less than the money you initially invested. Thus, the investment risk is borne by you during the free look period. Certain states (and under all contracts issued as IRAs) require us to return your Purchase Payments upon a free look request. With respect to those contracts, we reserve the right to put your money in the 1-year fixed account option during the free look period. If you cancel your contract during the free look period, we return the greater of (1) your Purchase Payments, or (2) the value of your contract. At the end of the free look period, we reallocate your money according to your instructions. EXCHANGE OFFERS From time to time, we may offer to allow you to exchange an older variable annuity issued by AIG SunAmerica Life or one of its affiliates, for a newer product with more current features and benefits, also issued by AIG SunAmerica Life or one of its affiliates. Such an Exchange Offer will be made in accordance with the applicable state and federal securities and insurance rules and regulations. We will explain the specific terms and conditions of any such Exchange Offer at the time the offer is made. 10 INVESTMENT OPTIONS -------------------------------------------------------------------------------- VARIABLE PORTFOLIOS The contract offers Variable Portfolios which we call Strategies and fixed account options. We designed the contract to meet your varying investment needs over time. SEASONS STRATEGIES The contract offers multi-manager variable investment Seasons Strategies, each with a different investment objective. We designed the Seasons Strategies to meet your investment needs over time, considering factors such as your age, goals and risk tolerance. However, each Seasons Strategy is designed to achieve different levels of growth over time. Each Seasons Strategy invests in three of the six underlying investment portfolios of the Seasons Series Trust. The allocation of money among these investment portfolios varies depending on the objective of the Strategy. AIG SunAmerica Asset Management Corp. ("AIG SAAMCo"), which is affiliated with AIG SunAmerica Life manages Seasons Series Trust. AIG SAAMCo engaged sub-advisers to provide investment advice for certain investment portfolios. The underlying investment portfolios of Seasons Series Trust include the Asset Allocation: Diversified Growth Portfolio, the Stock Portfolio and the Multi-Managed Growth, Multi-Managed Moderate Growth, Multi-Managed Income/Equity and Multi-Managed Income Portfolios (the "Multi-Managed Portfolios"). Seasons Series Trust contains other underlying investment portfolios in addition to those listed here which are not available for investment under this contract. The Asset Allocation: Diversified Growth Portfolio is managed by Putnam Investment Management, Inc. The Stock Portfolio is managed by T. Rowe Price Associates, Inc. All of the Multi-Managed Portfolios include the same three basic investment components: a growth component managed by Janus Capital Management LLC., a balanced component managed by AIG SAAMCo and a fixed income component managed by Wellington Management Company, LLP. The Growth Strategy and the Moderate Growth Strategy also have an aggressive growth component which AIG SAAMCo manages. The percentage that any one of these components represents in the Multi-Managed Portfolio varies in accordance with the investment objective. YOU SHOULD READ THE PROSPECTUS FOR SEASONS SERIES TRUST CAREFULLY BEFORE INVESTING. THE TRUST PROSPECTUS CONTAINS DETAILED INFORMATION ABOUT THE INVESTMENT PORTFOLIOS AND IS ATTACHED TO THIS PROSPECTUS. Each Seasons Strategy uses an investment approach based on asset allocation. This approach is achieved by each Seasons Strategy investing in distinct percentages in three specific underlying funds of the Seasons Series Trust. In turn, the underlying funds invest in a combination of domestic and international stocks, bonds and cash. Based on the percentage allocation to each specific underlying fund and each underlying fund's investment approach, each Seasons Strategy has a neutral asset allocation mix of stocks, bonds and cash. At the beginning of each quarter a rebalancing occurs among the underlying funds to realign each Seasons Strategy with its distinct percentage investment in the three underlying funds. This rebalancing is designed to help maintain the neutral asset allocation mix for each Seasons Strategy. The pie charts on the following pages demonstrate: - the neutral asset allocation mix for each Seasons Strategy; and - the percentage allocation in which each Seasons Strategy invests. 11 GROWTH STRATEGY MODERATE GROWTH STRATEGY GOAL: Long-term growth of capital, allocating its assets GOAL: Growth of capital through investments in equities, primarily to stocks. This Strategy may be best suited for with a secondary objective of conservation of principal by those with longer periods to invest. allocating more of its assets to bonds than the Growth Strategy. This Strategy may be best suited for those nearing Target Asset Allocation: retirement years but still earning income. Stocks 80% Bonds 15% Cash 5% Target Asset Allocation: [GROWTH CHART] Stocks 70% Bonds 25% Cash 5% [MODERATE GROWTH CHART]
BALANCED GROWTH STRATEGY CONSERVATIVE GROWTH STRATEGY GOAL: Focuses on conservation of principal by investing GOAL: Capital preservation while maintaining some in a more balanced weighting of stocks and bonds, with a potential for growth over the long term. This Strategy may be secondary objective of seeking a high total return. This best suited for those with lower investment risk tolerance. Strategy may be best suited for those approaching retirement and with less tolerance for investment risk. Target Asset Allocation: Target Asset Allocation: Stocks 42% Bonds 53% Cash 5% Stocks 55% Bonds 40% Cash 5% [CONSERVATIVE GROWTH CHART] [BALANCED GROWTH CHART]
12 SEASONS STRATEGY REBALANCING Each Strategy is designed to meet its investment objective by allocating a portion of your money to three different investment portfolios. In order to maintain the mix of investment portfolios consistent with each Strategy's objective, each Strategy within your contract will be rebalanced each quarter. On the first business day of each quarter (or as close to such date as is administratively practicable) your money will be allocated among the various investment portfolios according to the percentages set forth on the prior pages. Additionally, within each Multi-Managed Portfolio, your money will be rebalanced among the various components. We also reserve the right to rebalance any Strategy more frequently if rebalancing is, deemed necessary and not adverse to the interests of contract owners invested in such Strategy. Rebalancing a Strategy may involve shifting a portion of assets out of underlying investment portfolios with higher returns into underlying investment portfolios with relatively lower returns. Transfers made as a result of rebalancing a Strategy are not counted against your four free transfers per year. FIXED ACCOUNT OPTIONS Your contract may offer Fixed Account Guarantee Periods ("FAGP") to which you may allocate certain Purchase Payments or contract value. Available guarantee periods may be for different lengths of time (such as 1, 3 or 5 years) and may have different guaranteed interest rates, as noted below. We guarantee the interest rate credited to amounts allocated to any available FAGP and that the rate will never be less than the minimum guaranteed interest rate as specified in your contract. Once established, the rates for specified payments do not change during the guarantee period. We determine the FAGPs offered at any time in our sole discretion and we reserve the right to change the FAGPs that we make available at any time, unless state law requires us to do otherwise. Please check with your financial representative to learn if any FAGPs are currently offered. There are three interest rate scenarios for money allocated to the FAGPs. Each of these rates may differ from one another. Once declared, the applicable rate is guaranteed until the corresponding guarantee period expires. Under each scenario your money may be credited a different rate of interest as follows: - INITIAL RATE: The rate credited to any portion of the initial Purchase Payment allocated to a FAGP. - CURRENT RATE: The rate credited to any portion of the subsequent Purchase Payments allocated to a FAGP. - RENEWAL RATE: The rate credited to money transferred from a FAGP or a Variable Portfolio into a FAGP and to money remaining in a FAGP after expiration of a guarantee period. When a FAGP ends, you may leave your money in the same FAGP or you may reallocate your money to another FAGP or to the Variable Portfolios. If you want to reallocate your money, you must contact us within 30 days after the end of the current interest guarantee period and instruct us as to where you would like the money invested. We do not contact you. If we do not hear from you, your money will remain in the same FAGP where it will earn interest at the renewal rate then in effect for that FAGP. If you take money out of any available multi-year FAGP before the end of the guarantee period, we make an adjustment to your contract. We refer to the adjustment as a market value adjustment ("MVA"). The MVA reflects any difference in the interest rate environment between the time you place your money in the FAGP and the time when you withdraw or transfer that money. This adjustment can increase or decrease your contract value. Generally, if interest rates drop between the time you put your money into a FAGP and the time you take it out, we credit a positive adjustment to your contract. Conversely, if interest rates increase during the same period, we post a negative adjustment to your contract. You have 30 days after the end of each guarantee period to reallocate your funds without incurring any MVA. APPENDIX B SHOWS HOW WE CALCULATE AND APPLY THE MVA. If available, you may systematically transfer interest in available FAGPs into any of the Variable Portfolios on certain periodic schedules offered by us. Systematic transfers may be started, changed or terminated at any time by contacting our Annuity Service Center. Check with your financial representative about the current availability of this service. 13 All FAGPs may not be available in all states. We reserve the right to refuse any Purchase Payment to available FAGPs if we are crediting a rate equal to the minimum guaranteed interest rate specified in your contract. We may also offer Dollar Cost Averaging Fixed Accounts ("DCAFA"). The rules, restrictions and operation of DCAFAs may differ from the standard FAGPs described above, please see DOLLAR COST AVERAGING below for more details. DOLLAR COST AVERAGING FIXED ACCOUNTS You may invest initial and/or subsequent Purchase Payments in DCAFAs, if available. DCAFAs also credit a fixed rate of interest but are specifically designed to facilitate a dollar cost averaging program. Interest is credited to amounts allocated to the DCAFAs while your investment is transferred to the Variable Portfolios over certain specified time frames. The interest rates applicable to the DCAFA may differ from those applicable to any available FAGPs but will never be less than the minimum annual guaranteed interest rate as specified in your contract. However, when using a DCAFA the annual interest rate is paid on a declining balance as you systematically transfer your investment to the Variable Portfolios. Therefore, the actual effective yield will be less than the annual crediting rate. We determine the DCAFAs offered at any time in our sole discretion and we reserve the right to change to DCAFAs that we make available at any time, unless state law requires us to do otherwise. See DOLLAR COST AVERAGING below for more information. TRANSFERS DURING THE ACCUMULATION PHASE During the Accumulation Phase you may transfer funds between the Variable Portfolios and/or any available fixed account options. Funds already in your contract cannot be transferred into the DCA fixed accounts. You must transfer at least $500 per transfer. If less than $500 remains in any Variable Portfolio after a transfer, that amount must be transferred as well. We will process any transfer request as of the day we receive it in good order if the request is received before the New York Stock Exchange ("NYSE") closes, generally at 1:00 p.m. Pacific Time. If the transfer request is received after the close of the NYSE, the request will be processed on the next business day. Subject to our rules, restrictions and policies, you may request transfers of your account value between the Variable Portfolios and/or the available fixed account options by telephone or through AIG SunAmerica's website (http://www.aigsunamerica.com)or in writing by mail or facsimile. We allow 4 free transfers per contract per year. We charge $25 ($10 in Pennsylvania and Texas) for each additional transfer in any contract year. Transfers resulting from your participation in the DCA or Asset Rebalancing programs do not count against your 4 free transfers per contract year. This product is not designed for professional organizations or individuals engaged in trading strategies that seek to benefit from short term price fluctuations or price irregularities by making programmed transfers, frequent transfers or transfers that are large in relation to the total assets of the underlying portfolio in which the Variable Portfolios invest. These types of trading strategies can be disruptive to the underlying portfolios in which the Variable Portfolios invest and thereby potentially harmful to investors. In connection with our efforts to control harmful trading, we may monitor your trading activity. If we determine, in our sole discretion, that your transfer patterns among the Variable Portfolios and/or available fixed accounts reflect a potentially harmful trading strategy, we reserve the right to take action to protect other investors. Such action may include, but may not be limited to, restricting the way you can request transfers among the Variable Portfolios, imposing penalty fees on such trading activity, and/or otherwise restricting transfer capability in accordance with state and federal rules and regulations. We will notify you, in writing, if we determine in our sole 14 discretion that we must terminate your transfer privileges. Some of the factors we may consider when determining our transfer policies and/or other transfer restrictions may include, but are not limited to: - the number of transfers made in a defined period; - the dollar amount of the transfer; - the total assets of the Variable Portfolio involved in the transfer; - the investment objectives of the particular Variable Portfolios involved in your transfers; and/or - whether the transfer appears to be part of a pattern of transfers to take advantage of short-term market fluctuations or market inefficiencies. All transfer request in excess of 15 transfers per contract year must be submitted in writing by United States Postal Service first-class mail ("U.S. Mail") until your next contract anniversary. Transfer requests sent by same day mail, overnight mail or courier services will not be accepted. Transfer requests that are required to be submitted by U.S. Mail can only be cancelled by a written request sent by U.S. Mail. Transfers resulting from your participation in the DCA or Asset Rebalancing programs are not included for the purposes of determining the number of transfers for the U.S. Mail requirement. We may accept transfers by telephone or the Internet unless you tell us not to on your contract application. When receiving instructions over the telephone or the Internet, we follow appropriate procedures to provide reasonable assurance that the transactions executed are genuine. Thus, we are not responsible for any claim, loss or expense from any error resulting from instructions received over the telephone or the Internet. If we fail to follow our procedures, we may be liable for any losses due to unauthorized or fraudulent instructions. For information regarding transfers during the Income Phase, SEE INCOME OPTIONS BELOW. WE RESERVE THE RIGHT TO MODIFY, SUSPEND, WAIVE OR TERMINATE THIS TRANSFER PROVISION AT ANY TIME. DOLLAR COST AVERAGING PROGRAM The Dollar Cost Averaging ("DCA") Program allows you to systematically transfer a set percentage or amount from any Variable Portfolio or the one year fixed account option (source accounts) to another Variable Portfolio (target account). You can also select to transfer the entire value in a Variable Portfolio or the one year fixed investment option in a stated number of transfers. Transfers may occur on such periodic schedules such as monthly or weekly. You can change the amount or frequency to available options at any time by notifying us in writing. The minimum transfer amount is $500, unless you use the DCAFAs (see below). Fixed Account options are not available as target accounts for the DCA program. We may also offer DCAFAs for a specified time period exclusively to facilitate this program. The DCAFAs only accept new Purchase Payments. You cannot transfer money already in your contract into these options. If you allocate a Purchase Payment into DCAFAs, we transfer all your money allocated to that account into the Variable Portfolios you select over the selected time period at an offered frequency of your choosing. You may terminate your DCA program at any time. If money remains in the DCAFAs, we transfer the remaining money according to your instructions or to your current allocation on file. Transfers under this program do not count against your four free transfers per year. The DCA program is designed to lessen the impact of market fluctuations on your investment. However, we cannot ensure that you will make a profit. When you elect the DCA program, you are continuously investing in securities regardless of fluctuating price levels. You should consider your tolerance for investing through periods of fluctuating price levels. 15 THERE IS NO FEE FOR PARTICIPATING IN THE DCA PROGRAM. WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THIS PROGRAM AT ANY TIME. EXAMPLE: Assume that you want to gradually move $750 each month from the Conservative Growth Strategy to the Growth Strategy over six months. You set up dollar cost averaging and purchase Accumulation Units at the following values:
MONTHS ACCUMULATION UNIT UNITS PURCHASED ------- ----------------- --------------- 1 $ 7.50 100 2 $ 5.00 150 3 $10.00 75 4 $ 7.50 100 5 $ 5.00 150 6 $ 7.50 100
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. RETURN PLUS PROGRAM The Return Plus Program allows you to invest in one or more of the Variable Portfolios without putting the amount of your principal at direct risk. The program accomplishes this by allocating your investment strategically between the fixed account options (other than the DCA fixed accounts) and the Variable Portfolios you select. You decide how much you want to invest and approximately when you want a return of principal. We calculate how much of your Purchase Payment needs to be allocated to the particular fixed account option to ensure that it grows to an amount equal to your total principal invested under this program. The Return Plus Program is only available if we are offering multi-year FAGPs. We reserve the right to modify, suspend or terminate this program at any time. EXAMPLE: Assume that you want to allocate a portion of your initial Purchase Payment of $100,000 to the fixed account option. You want the amount allocated to the fixed account option to grow to $100,000 in 7 years. If the 7-year fixed account option is offering a 5% interest rate, we will allocate $71,069 to the 7-year fixed account option to ensure that this amount will grow to $100,000 at the end of the 7-year period. The remaining $28,931 may be allocated among the Strategy, as determined by you, to provide opportunity for greater growth. VOTING RIGHTS AIG SunAmerica Life is the legal owner of the Seasons Series Trust shares. However, when the underlying investment portfolios of the Seasons Series Trust solicit proxies in conjunction with a vote of shareholders, we must obtain your instructions on how to vote those shares. We vote all of the shares we own in proportion to your instructions. This includes any shares we own on our own behalf. Should we determine that we are no longer required to comply with these rules, we will vote the shares in our own right. SUBSTITUTION We may amend your contract due to changes to the Variable Portfolios offered under your contract. For example, we may offer new Variable Portfolios, delete Variable Portfolios, or stop accepting allocations and/or investments in a particular Variable Portfolios. We may move assets and/or re-direct future premium allocations from one Variable Portfolios to another if we receive investor approval through a proxy vote or SEC approval for a fund 16 substitution. This would occur if a Variable Portfolios is no longer an appropriate investment for the contract, for reason such as continuing substandard performance, or for changes to the portfolio manager, investment objectives, risks and strategies, or federal or state laws. The new Variable Portfolios offered may have different fees and expenses. You will be notified of any upcoming proxies or substitutions that affect your Variable Portfolios choices. ACCESS TO YOUR MONEY -------------------------------------------------------------------------------- You can access money in your contract by making a partial or total withdrawal, and/or by receiving income payments during the Income Phase. SEE INCOME OPTIONS BELOW. Generally, we deduct a withdrawal charge applicable to any total or partial withdrawal and a market value adjustment if a withdrawal comes from the 3, 5, 7 or 10 year fixed account options. If you withdraw your entire contract value, we also deduct any applicable premium taxes and a contract maintenance fee. SEE EXPENSES BELOW. Your contract provides for a free withdrawal amount each year. A free withdrawal amount is the portion of your account that we allow you to take out each year without being charged a surrender penalty. However, upon a future full surrender of your contract we will recoup any surrender charges which would have been due at the time the free withdrawals were taken if your free withdrawal had not been free. Generally, each contract year you may withdraw up to 10% of your Purchase Payments which are subject to a withdrawal charge free of any withdrawal charge. This is the free withdrawal amount. Purchase payments, above and beyond the amount of your free withdrawal amount, that are invested for less than 7 years and withdrawn will result in your paying a penalty in the form of a surrender charge. The amount of the charge and how it applies are discussed more fully below. You should consider, before purchasing this contract, the effect this charge will have on your investment if you need to withdraw more money than the free withdrawal amount. You should fully discuss this decision with your financial representative. The withdrawal charge percentage is determined by the age of the Purchase Payment remaining in the contract at the time of the withdrawal. For the purpose of calculating the withdrawal charge, any prior Free Withdrawal is not subtracted from the total Purchase Payments still subject to withdrawal charges. For example, you make an initial Purchase Payment of $100,000. For purposes of this example we will assume a 0% growth rate over the life of the contract and no subsequent Purchase Payments. In contract year 2 and year 3, you take out your maximum free withdrawal of $10,000 for each year. After that free withdrawal your contract value is $80,000. In contract year 5 you request a full surrender of your contract. We will apply the following calculation, A - (B X C) = D, where: A = Your contract value at the time of your request for surrender ($80,000) B = The amount of your Purchase Payments still subject to withdrawal charge ($100,000) C = The withdrawal charge percentage applicable to the age of each Purchase Payment (6%) [B X C = $6,000] D = Your full surrender value ($74,000) We calculate charges due on a total withdrawal on the day after we receive your request and your contract. We return your contract value less any applicable fees and charges. Under most circumstances, the minimum partial withdrawals amount is $1,000. We require that the value left in any Seasons Strategy or fixed account be at least $500, after the withdrawal. You must send a written withdrawal request. Unless you provide us with different instructions, partial withdrawals will be made in equal amounts from each Seasons Strategy and fixed account option in which your contract is invested. Washington residents should consult their financial adviser for additional information. We may be required to suspend or postpone the payment of a withdrawal for any period of time when: (1) the NYSE is closed (other than a customary weekend and holiday closings); (2) trading with the NYSE is restricted; 17 (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 six months. SYSTEMATIC WITHDRAWAL PROGRAM If you elect, we use money in your contract to pay you monthly, quarterly, semi-annual or annual payments during the Accumulation Phase. Electronic transfer of these funds to your bank account is also available. The minimum amount of each withdrawal is $250. There must be at least $500 remaining in your contract at all times. Withdrawals may be taxable and a 10% IRS tax penalty may apply if you are under age 59 1/2. Any withdrawals you make using this program count against your free withdrawal amount as described above. Withdrawals in excess of the free withdrawal amount may incur a withdrawal charge. There is no additional charge for participating in this program. The program is not available to everyone. Please check with our Annuity Service Center, which can provide the necessary enrollment forms. We reserve the right to modify, suspend or terminate this program at any time. WITHDRAWAL CHARGES, MARKET VALUE ADJUSTMENTS, INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY WITHDRAWAL YOU MAKE, INCLUDING SYSTEMATIC WITHDRAWALS. MINIMUM CONTRACT VALUE Where permitted by state law, we may terminate your contract if both of the following occur: (1) your contract is less than $500 as a result of withdrawals; and (2) you have not made any Purchase Payments during the past three years. We will provide you with sixty days written notice. At the end of the notice period, we will distribute the contract's remaining value to you. QUALIFIED CONTRACT OWNERS Certain qualified plans restrict and/or prohibit your ability to withdraw money from your contract. PLEASE SEE TAXES BELOW for a more detailed explanation. DEATH BENEFIT -------------------------------------------------------------------------------- If you should die during the Accumulation Phase of your contract, we will pay a death benefit to your Beneficiary. If you die during the Income Phase, your beneficiary will receive any remaining guaranteed income payments in accordance with the income options you choose. SEE INCOME OPTIONS BELOW. If you should die prior to reaching age 75 or, in the case of joint owners, if an owner should die prior to the youngest owner reaching age 75, the death benefit will be equal to the greater of: 1. Contract Value at the time we receive all required paperwork and satisfactory proof of death; or 2. Total Purchase Payments less withdrawals, applicable charges, market value adjustments and taxes, accumulated at 3% from the date your contract was issued until the date of death, plus any Purchase Payments received, less any withdrawals, applicable charges, market value adjustments and taxes made or charged, after the date of death. If the contract was issued after your 75th birthday or if you should die after you reach age 75, or, in the case of joint owners, if the contract was issued after both owners' 75th birthday or if an owner dies after the youngest owner reaches age 75, the death benefit will be the greater of: 1. Contract value at the time we receive all required paperwork and satisfactory proof of death; or 2. Total Purchase Payments received by us before age 75 (in the case of joint owners, before the younger owner reaches age 75) less any withdrawals, applicable charges, market value adjustments and taxes, accumulated at 3% from the date your contract was issued until your 75th birthday (or, if there is a joint owner, the 75th Birthday of the youngest owner), plus any subsequent Purchase Payments received, less any withdrawals, applicable charges, market value adjustments and taxes made or charged, after your 75th birthday. 18 You select the Beneficiary to receive any amounts payable on death. You may change the Beneficiary at any time, unless you previously made an irrevocable Beneficiary designation. A new Beneficiary designation is not effective until we record the change. The death benefit must be paid within 5 years of the date of death, unless the Beneficiary elects to have the death benefit payable in the form of an income option. If the Beneficiary elects an income option, it must be paid over the Beneficiary's lifetime or for a period not extending beyond the Beneficiary's life expectancy. Income payments must begin within one year of your death. If the Beneficiary is the spouse of the owner, he or she can elect to continue the contract at the then current value. The death benefit will be calculated and paid out when we receive all required paperwork and satisfactory proof of death. We consider satisfactory proof of death one of the following: (1) a certified copy of a death certificate; (2) a certified copy of a decree of court of competent jurisdiction as to the finding of death; (3) a written statement by a medical doctor who attended the deceased at the time of death; or (4) any other proof satisfactory to us. DEATH OF THE ANNUITANT If the Annuitant dies before annuity payments begin, you can name a new Annuitant. If no Annuitant is named within 30 days, you will become the Annuitant. However, if the owner is a non-natural person (for example, a corporation), then the death of the Annuitant will be treated as the death of the owner, no new Annuitant may be named and the death benefit will be paid. EXPENSES -------------------------------------------------------------------------------- There are charges and expenses associated with your contract. These charges and expenses reduce your investment return. We will not increase the contract maintenance fee and withdrawal charges. However, the investment charges under your contract may increase or decrease. Some states may require that we charge less than the amounts described below. SEPARATE ACCOUNT CHARGES The Company deducts separate account charges in the amount of 1.40%, annually of the value of your contract invested in the Variable Portfolios. We deduct the charge daily. These charges compensate the Company for the mortality and expense risk and the costs of contract distribution assumed by the Company. Generally, the mortality risks assumed by the Company arise from its contractual obligations to make income payments after the Annuity Date and to provide a death benefit. The expense risk assumed by the Company is that the costs of administering the contracts and the Separate Account will exceed the amount received from the administrative fees and charges assessed under the contract. If these charges do not cover all of our expenses, we will pay the difference. Likewise, if these charges exceed our expenses, we will keep the difference. The Insurance Charge is expected to result in a profit. Profit may be used for any legitimate cost/expense including distribution, depending upon market conditions. WITHDRAWAL CHARGES The contract provides a Free Withdrawal Amount every year. SEE ACCESS TO YOUR MONEY ABOVE. If you take money out in excess of the Free Withdrawal Amount, you may incur a withdrawal charge. We apply a withdrawal charge against each Purchase Payment you put into the contract. After a Purchase Payment has been in the contract for seven complete years, no withdrawal charge applies. The withdrawal charge 19 equals a percentage of the Purchase Payment you take out of the contract. The withdrawal charge percentage declines each year a Purchase Payment is in the contract, as follows:
YEAR 1 2 3 4 5 6 7 8 ----------------- --- --- --- --- --- --- --- --- Withdrawal Charge......... 7% 6% 6% 5% 4% 3% 2% 0%
When calculating the withdrawal charge, we treat withdrawals as coming first from the Purchase Payments that have been in your contract the longest. However, for tax purposes, your withdrawals are considered earnings first, then Purchase Payments. Whenever possible, we deduct the withdrawal charge from the money remaining in your contract. If you withdraw all of your contract value, we deduct any applicable withdrawal charges from the amount withdrawn. We will not assess a withdrawal charge for money withdrawn to pay a death benefit. We will not assess a withdrawal charge upon election to receive income payments from your contract. Withdrawals made prior to age 59 1/2 may result in tax penalties SEE TAXES BELOW. INVESTMENT CHARGES Charges are deducted from the assets of the investment portfolios underlying the STRATEGIES for the advisory and other expenses of the portfolios. SEE FEE TABLES ABOVE. FOR MORE DETAILED INFORMATION ON THESE INVESTMENT CHARGES, REFER TO THE ATTACHED TRUST PROSPECTUS. CONTRACT MAINTENANCE FEE During the Accumulation Phase, we subtract a contract maintenance fee from your account once per year. This charge compensates us for the cost of contract administration. We will deduct the $35 contract maintenance fee ($30 in North Dakota) from your account value on your contract anniversary. If you withdraw your entire contract value, we deduct the fee from that withdrawal. If your contract value is $50,000 or more on your contract anniversary date, we will waive the charge. This waiver is subject to change without notice. TRANSFER FEE We currently permit four free transfers between investment options, every contract year. We charge you $25 for each transfer over four in any one year ($10 in Pennsylvania and Texas). We deduct the transfer fee from the Seasons Strategy and/or fixed account option from which you request the transfer SEE INVESTMENT OPTIONS ABOVE. PREMIUM TAX Certain states charge the Company a tax on the premiums you pay into the contract ranging from 0% to 3.5%. We deduct from your contract these premium tax charges where applicable. Currently we deduct the charge for premium taxes when you take a full withdrawal or annuitize the contract. In the future, we may assess this deduction at the time you put Purchase Payment(s) into the contract or upon payment of a death benefit. INCOME TAXES We do not currently deduct income taxes from your contract. We reserve the right to do so in the future. REDUCTION OR ELIMINATION OF CHARGES AND EXPENSES AND ADDITIONAL AMOUNTS CREDITED Sometimes sales of the contracts to groups of similarly situated individuals may lower our administrative and/or sales expenses. We reserve the right to reduce or waive certain charges and expenses when this type of sale occurs. In addition, we may also credit additional interest to policies sold to such groups. We determine which groups are eligible for such treatment. Some of the criteria we evaluate to make a determination are: size of the group; 20 amount of expected Purchase Payments; relationship existing between us and prospective purchaser; nature of the purchase; length of time a group of contracts is expected to remain active; purpose of the purchase and whether that purpose increases the likelihood that our expenses will be reduced; and/or any other factors that we believe indicate that administrative and/or sales expenses may be reduced. AIG SunAmerica Life may make such a determination regarding sales to its employees, its affiliates' employees and employees of currently contracted broker-dealers; its registered representatives and immediate family members of all of those described. We reserve the right to change or modify any such determination or the treatment applied to a particular group, at any time. INCOME OPTIONS -------------------------------------------------------------------------------- ANNUITY DATE During the Income Phase, the money in your Contract is used to make regular income payments to you. You may switch to the Income Phase any time after your second contract anniversary. You select the month and year in which you want income payments to begin. The first day of that month is the Annuity Date. You may change your Annuity Date, so long as you do so at least seven days before the income payments are scheduled to begin. Once you begin receiving income payments, you cannot change your Income Option. Except to the extent discussed under Option 5, once you begin receiving income payments you cannot otherwise access your money through a withdrawal or surrender. Income payments must begin on or before the Latest Annuity Date. If you do not choose an Annuity Date, your income payments will automatically begin on the Latest Annuity Date. Certain states may require your income payments to start earlier. If the Annuity Date is past your 85th birthday, your contract could lose its status as an annuity under Federal tax laws. This may cause you to incur adverse tax consequences. In addition, certain Qualified contracts require you to take minimum distributions after you reach age 70 1/2. SEE TAXES BELOW. INCOME OPTIONS Currently, this Contract offers five standard Income Options. Other payout options may be available. Contact the Annuity Service Center for more information. If you elect to receive income payments but do not select an option, your income payments will be made in accordance with option 4 for a period of 10 years. For income payments selected for joint lives, we pay according to option 3. We base our calculation of income payments on the life of the Annuitant and the annuity factors set forth in your contract. As the contract owner, you may change the Annuitant at any time prior to the Annuity Date. You must notify us if the Annuitant dies before the Annuity Date and then designate a new Annuitant. OPTION 1 - LIFE INCOME ANNUITY This option provides income payments for the life of the Annuitant. Income payments stop when the Annuitant dies. OPTION 2 - JOINT AND SURVIVOR LIFE ANNUITY This option provides income payments for the life of the Annuitant and for the life of another designated person. Upon the death of either person, we will continue to make income payments during the lifetime of the survivor. Income payments stop whenever the survivor dies. 21 OPTION 3 - JOINT AND SURVIVOR LIFE ANNUITY WITH 10 OR 20 YEAR PERIOD CERTAIN This option is similar to option 2 above, with an additional guarantee of payments for at least 10 years. If the Annuitant and the Survivor die before all of the guaranteed payments have been made, the remaining payments are made to the Beneficiary under your Contract. OPTION 4 - LIFE ANNUITY WITH 10 OR 20 YEAR PERIOD CERTAIN This option is similar to option 1 above. In addition, this option provides a guarantee that income payments will be made for at least 10 or 20 years. You select the number of years. If the Annuitant dies before all guaranteed income payments are made, the remaining income payments go to the Beneficiary under your Contract. OPTION 5 - INCOME FOR A SPECIFIED PERIOD This option provides income payments for a guaranteed period ranging from 5 to 30 years. If the Annuitant dies before all of the guaranteed income payments are made, the remaining income payments are made to the Beneficiary under your contract. Additionally, if variable income payments are elected under this option, you (or the Beneficiary under the contract if the Annuitant dies prior to all guaranteed payments being made) may redeem the contract value after the Annuity Date. The amount available upon such redemption would be the discounted present value of any remaining guaranteed payments. The value of an Annuity Unit, regardless of the option chosen, takes into account the Mortality and Expense Risk Charge. Since Option 5 does not contain an element of mortality risk, no benefit is derived from this charge. Please read the Statement of Additional Information ("SAI") for a more detailed discussion of the income options. ALLOCATION OF INCOME PAYMENTS You can choose income payments that are fixed, variable or both. If payments are fixed, AIG SunAmerica Life guarantees the amounts of each payment. If the payments are variable, the amounts are not guaranteed. They will go up and/or down based upon the performance of your Variable Portfolios. FIXED OR VARIABLE INCOME PAYMENTS You can choose income payments that are fixed, variable or both. If at the date when income payments begin you are invested in the Variable Portfolios only, your income payments will be variable. If your money is only in fixed accounts at that time, your income payments will be fixed in amount. INCOME PAYMENTS We make income payments on a monthly, quarterly, semi-annual or annual basis. You instruct us to send you a check or to have the payments directly deposited into your bank account. If state law allows, we distribute annuities with a contract value of $5,000 or less in a lump sum. Also, if the selected income option results in income payments of less than $50 per payment, we may decrease the frequency of the payments, state law allowing. If you are invested in the Variable Portfolios after the Annuity date, your income payments will vary depending on four things: - for life options, your age when payments begin, and; - the value of your contract in the Variable Portfolios on the Annuity Date, and; - the 3.5% assumed investment rate used in the annuity table for the contract, and; - the performance of the Variable Portfolios in which you are invested during the time you receive income payments. 22 If you are invested in both the fixed account options and the Variable Portfolios after the Annuity Date, the allocation of funds between the fixed accounts and Variable Portfolios also impacts the amount of your annuity payments. The value of variable income payments, if elected, is based on an assumed interest rate ("AIR") of 3.5% compounded annually. Variable income payments generally increase or decrease from one income payment date to the next based upon the performance of the applicable Variable Portfolios. If the performance of the Variable Portfolios selected is equal to the AIR, the income payments will remain constant. If performance of Variable Portfolios is greater than the AIR, the income payments will increase and if it is less than the AIR, the income payments will decline. TRANSFERS DURING THE INCOME PHASE You may transfer money among the Variable Portfolios during the Income Phase. Transfers are subject to the same limitations as transfers during the Accumulation Phase. However, you may not transfer money from the fixed account into the Variable Portfolios or from the Variable Portfolios into the fixed accounts during the Income Phase. SEE EXPENSES ABOVE. DEFERMENT OF PAYMENTS We may defer making fixed payments for up to six months, or less if required by law. Interest is credited to you during the deferral period. SEE ALSO ACCESS TO YOUR MONEY ABOVE. Please read the Statement of Additional Information ("SAI") for a more detailed discussion of the income payments. TAXES -------------------------------------------------------------------------------- NOTE: THE BASIC SUMMARY BELOW ADDRESSES BROAD FEDERAL TAXATION MATTERS, AND GENERALLY DOES NOT ADDRESS STATE TAXATION ISSUES OR QUESTIONS. IT IS NOT TAX ADVICE. WE CAUTION YOU TO SEEK COMPETENT TAX ADVICE ABOUT YOUR OWN CIRCUMSTANCES. WE DO NOT GUARANTEE THE TAX STATUS OF YOUR ANNUITY. TAX LAWS CONSTANTLY CHANGE; THEREFORE, WE CANNOT GUARANTEE THAT THE INFORMATION CONTAINED HEREIN IS COMPLETE AND/OR ACCURATE. WE HAVE INCLUDED AN ADDITIONAL DISCUSSION REGARDING TAXES IN THE SAI. ANNUITY CONTRACTS IN GENERAL The Internal Revenue Code ("IRC") provides for special rules regarding the tax treatment of annuity contracts. Generally, taxes on the earnings in your annuity contract are deferred until you take the money out. Qualified retirement investments that satisfy specific tax and ERISA requirements automatically provide tax deferral regardless of whether the underlying contract is an annuity, a trust, or a custodial account. Different rules apply depending on how you take the money out and whether your contract is Qualified or Non-Qualified. If you do not purchase your contract under a pension plan, a specially sponsored employer program or an individual retirement account, your contract is referred to as a Non-Qualified contract. A Non-Qualified contract receives different tax treatment than a Qualified contract. In general, your cost in a Non-Qualified contract is equal to the Purchase Payments you put into the contract. You have already been taxed on the cost basis in your contract. If you purchase your contract under a pension plan, a specially sponsored employer program or as an individual retirement account, your contract is referred to as a Qualified contract. Examples of qualified plans or arrangements are: Individual Retirement Accounts ("IRAs"), Roth IRAs, Tax-Sheltered Annuities (referred to as 403(b) contracts), plans of self-employed individuals (often referred to as H.R.10 Plans or Keogh Plans) and pension and profit sharing plans, including 401(k) plans. Typically, for employer plans and tax-deductible IRA contributions, you have not paid any tax on the Purchase Payments used to buy your contract and therefore, you have no cost basis in your contract. However, you normally will have cost basis in a Roth IRA, and you may have cost basis in a traditional IRA or in another Qualified Contract. 23 TAX TREATMENT OF DISTRIBUTIONS--NON-QUALIFIED CONTRACTS If you make a partial or total withdrawal from a Non-Qualified contract, the IRC treats such a withdrawal as first coming from the earnings and then as coming from your Purchase Payments. Purchase payments made prior to August 14, 1982, however, are an important exception to this general rule, and for tax purposes are treated as being distributed before the earnings on those contributions. If you annuitize your contract, a portion of each income payment will be considered, for tax purposes, to be a return of a portion of your Purchase Payment(s). Any portion of each income payment that is considered a return of your Purchase Payment will not be taxed. Withdrawn earnings are treated as income to you and are taxable. The IRC provides for a 10% penalty tax on any earnings that are withdrawn other than in conjunction with the following circumstances: (1) after reaching age 59 1/2; (2) when paid to your Beneficiary after you die; (3) after you become disabled (as defined in the IRC); (4) when paid in a series of substantially equal installments made for your life or for the joint lives of you and your Beneficiary; (5) under an immediate annuity; or (6) which are attributable to Purchase Payments made prior to August 14, 1982. TAX TREATMENT OF DISTRIBUTIONS--QUALIFIED CONTRACTS Generally, you have not paid any taxes on the Purchase Payments used to buy a Qualified contract. As a result, with certain limited exceptions, any amount of money you take out as a withdrawal or as income payments is taxable income. In the case of certain Qualified contracts, the IRC further provides for a 10% penalty tax on any taxable withdrawal or income payment paid to you other than in conjunction with the following circumstances: (1) after reaching age 59 1/2; (2) when paid to your Beneficiary after you die; (3) after you become disabled (as defined in the IRC); (4) in a series of substantially equal installments, made for your life or for the joint lives of you and your Beneficiary, that begins after separation from service with the employer sponsoring the plan; (5) to the extent such withdrawals do not exceed limitations set by the IRC for deductible amounts paid during the taxable year for medical care; (6) to fund higher education expenses (as defined in the IRC; only from an IRA); (7) to fund certain first-time home purchase expenses (only from an IRA); (8) when you separate from service after attaining age 55 (does not apply to an IRA); (9) when paid for health insurance, if you are unemployed and meet certain requirements; and (10) when paid to an alternate payee pursuant to a qualified domestic relations order. This 10% penalty tax does not apply to withdrawals or income payments from governmental 457(b) eligible deferred compensation plans, except to the extent that such withdrawals or income payments are attributable to a prior rollover to the plan (or earnings thereon) from another plan or arrangement that was subject to the 10% penalty tax. The IRC limits the withdrawal of an employee's voluntary Purchase Payments from a Tax-Sheltered Annuity (TSA). Withdrawals can only be made when an owner: (1) reaches age 59 1/2; (2) severs employment with the employer; (3) dies; (4) becomes disabled (as defined in the IRC); or (5) experiences a financial hardship (as defined in the IRC). In the case of hardship, the owner can only withdraw Purchase Payments. Additional plan limitations may also apply. Amounts held in a TSA annuity contract as of December 31, 1988 are not subject to these restrictions. Qualifying transfers of amounts from one TSA contract to another TSA contract under section 403(b) or to a custodial account under section 403(b)(7), and qualifying transfers to a state defined benefit plan to purchase service credits, are not considered distributions, and thus are not subject to these withdrawal limitations. If amounts are transferred from a custodial account described in Code section 403(b)(7) to this contract the transferred amount will retain the custodial account withdrawal restrictions. Withdrawals from other Qualified Contracts are often limited by the IRC and by the employer's plan. MINIMUM DISTRIBUTIONS Generally, the IRC requires that you begin taking annual distributions from qualified annuity contracts by April 1 of the calendar year following the later of (1) the calendar year in which you attain age 70 1/2 or (2) the calendar year in which you separate from service from the employer sponsoring the plan. If you own an IRA, you must begin taking distributions when you attain age 70 1/2 regardless of when you separate from service from the employer sponsoring the plan. If you own more than one TSA, you may be permitted to take your annual distributions in any combination from your TSAs. A similar rule applies if you own more than one IRA. However, you cannot 24 satisfy this distribution requirement for your TSA contract by taking a distribution from an IRA, and you cannot satisfy the requirement for your IRA by taking a distribution from a TSA. You may be subject to a surrender charge on withdrawals taken to meet minimum distribution requirements, if the withdrawals exceed the contract's maximum penalty free amount. Failure to satisfy the minimum distribution requirements may result in a tax penalty. You should consult your tax advisor for more information. You may elect to have the required minimum distribution amount on your contract calculated and withdrawn each year under the automatic withdrawal option. You may select monthly, quarterly, semiannual, or annual withdrawals for this purpose. This service is provided as a courtesy and we do not guarantee the accuracy of our calculations. Accordingly, we recommend you consult your tax advisor concerning your required minimum distribution. You may terminate your election for automated minimum distribution at any time by sending a written request to our Annuity Service Center. We reserve the right to change or discontinue this service at any time. The IRS issued new regulations, effective January 1, 2003, regarding required minimum distributions from qualified annuity contracts. One of the regulations requires that the annuity contract value used to determine required minimum distributions include the actuarial value of other benefits under the contract, such as optional death benefits. This regulation does not apply to required minimum distributions made under an irrevocable annuity income option. We are currently awaiting further clarification from the IRS on this regulation, including how the value of such benefits is determined. You should discuss the effect of these new regulations with your tax advisor. TAX TREATMENT OF DEATH BENEFITS Any death benefits paid under the contract are taxable to the Beneficiary. The rules governing the taxation of payments from an annuity contract, as discussed above, generally apply whether the death benefits are paid as lump sum or annuity payments. Estate taxes may also apply. Certain enhanced death benefits may be purchased under your contract. Although these types of benefits are used as investment protection and should not give rise to any adverse tax effects, the IRS could take the position that some or all of the charges for these death benefits should be treated as a partial withdrawal from the contract. In that case, the amount of the partial withdrawal may be includible in taxable income and subject to the 10% penalty if the owner is under 59 1/2. If you own a Qualified contract and purchase these enhanced death benefits, the IRS may consider these benefits "incidental death benefits." The IRC imposes limits on the amount of the incidental death benefits allowable for Qualified contracts. If the death benefit(s) selected by you are considered to exceed these limits, the benefit(s)could result in taxable income to the owner of the Qualified contract. Furthermore, the IRC provides that the assets of an IRA (including a Roth IRA) may not be invested in life insurance, but may provide, in the case of death during the Accumulation Phase, for a death benefit payment equal to the greater of Purchase Payments or Contract Value. This contract offers death benefits, which may exceed the greater of Purchase Payments or Contract Value. If the IRS determines that these benefits are providing life insurance, the contract may not qualify as an IRA (including Roth IRAs). You should consult your tax advisor regarding these features and benefits prior to purchasing a contract. CONTRACTS OWNED BY A TRUST OR CORPORATION A Trust or Corporation ("Non-Natural Owner") that is considering purchasing this contract should consult a tax advisor. Generally, the IRC does not treat a Non-Qualified contract owned by a non-natural owner as an annuity contract for Federal income tax purposes. The non-natural owner pays tax currently on the contract's value in excess of the owner's cost basis. However, this treatment is not applied to a contract held by a trust or other entity as an agent for a natural person nor to contracts held by Qualified Plans. See the SAI for a more detailed discussion of the potential adverse tax consequences associated with non-natural ownership of a non-qualified annuity contract. 25 GIFTS, PLEDGES AND/OR ASSIGNMENTS OF A CONTRACT If you transfer ownership of your Non-Qualified contract to a person other than your spouse (or former spouse incident to divorce) as a gift you will pay federal income tax on the contract's cash value to the extent it exceeds your cost basis. The recipient's cost basis will be increased by the amount on which you will pay federal taxes. In addition, the IRC treats any assignment or pledge (or agreement to assign or pledge) of any portion of a Non-Qualified contract as a withdrawal. See the SAI for a more detailed discussion regarding potential tax consequences of gifting, assigning, or pledging a Non-Qualified contract. The IRC prohibits Qualified annuity contracts including IRAs from being transferred, assigned or pledged as security for a loan. This prohibition, however, generally does not apply to loans under an employer-sponsored plan (including loans from the annuity contract) that satisfy certain requirements, provided that: (a) the plan is not an unfunded deferred compensation plan; and (b) the plan funding vehicle is not an IRA. DIVERSIFICATION AND INVESTOR CONTROL The IRC imposes certain diversification requirements on the underlying investments for a variable annuity. We believe that the management of the Underlying Funds monitors the Funds so as to comply with these requirements. To be treated as a variable annuity for tax purposes, the underlying investments must meet these requirements. The diversification regulations do not provide guidance as to the circumstances under which you, and not the Company, would be considered the owner of the shares of the Variable Portfolios under your Non-Qualified Contract, because of the degree of control you exercise over the underlying investments. This diversification requirement is sometimes referred to as "investor control." It is unknown to what extent owners are permitted to select investments, to make transfers among Variable Portfolios or the number and type of Variable Portfolios owners may select from. If any guidance is provided which is considered a new position, then the guidance should generally be applied prospectively. However, if such guidance is considered not to be a new position, it may be applied retroactively. This would mean that you, as the owner of the Non-qualified Contract, could be treated as the owner of the underlying Variable Portfolios. Due to the uncertainty in this area, we reserve the right to modify the contract in an attempt to maintain favorable tax treatment. These investor control limitations generally do not apply to Qualified Contracts, which are referred to as "Pension Plan Contracts" for purposes of this rule, although the limitations could be applied to Qualified Contracts in the future. PERFORMANCE -------------------------------------------------------------------------------- From time to time we will advertise the performance of the Variable Portfolios. Any such performance results are based on historical earnings and are not intended to indicate future performance. We may show performance of each Variable Portfolio in comparison to various appropriate indices and the performance of other similar variable annuity products with similar objectives as reported by such independent reporting services as Morningstar, Inc., Lipper Analytical Services, Inc. and the Variable Annuity Research Data Service ("VARDS"). Please see the Statement of Additional Information for additional information regarding the methods used to calculate performance data. OTHER INFORMATION -------------------------------------------------------------------------------- AIG SUNAMERICA LIFE AIG SunAmerica Life is a stock life insurance company originally organized under the laws of the state of California in April 1965. On January 1, 1996, AIG SunAmerica Life redomesticated under the laws of the state of Arizona. 26 AIG SunAmerica Life and its affiliates, SunAmerica Life Insurance Company, First SunAmerica Life Insurance Company, AIG SunAmerica Asset Management Corporation, and the AIG Advisors Group. (comprising six wholly owned broker-dealers and two investment advisors), specialize in retirement savings and investment products and services. Business focuses include, fixed and variable annuities, mutual funds, broker-dealer services and trust administration services. THE SEPARATE ACCOUNT AIG SunAmerica Life originally established Variable Annuity Account Five (the "Separate Account"), under Arizona law on July 8, 1996. The Separate Account is registered with the SEC as a unit investment trust under the Investment Company Act of 1940, as amended. AIG SunAmerica Life owns the assets in the Separate Account. However, the assets in the Separate Account are not chargeable with liabilities arising out of any other business conducted by AIG SunAmerica Life. Income gains and losses (realized and unrealized) resulting from assets in the Separate Account are credited to or charged against the Separate Account without regard to other income, gains or losses of AIG SunAmerica Life. Assets in the Separate Account are not guaranteed for AIG SunAmerica Life. THE GENERAL ACCOUNT Money allocated to the fixed account options goes into AIG SunAmerica Life's general account. The general account consists of all of AIG SunAmerica Life's assets other than assets attributable to a separate account. All of the assets in the general account are chargeable with the claims of any AIG SunAmerica Life contract holders as well as all of its creditors. The general account funds are invested as permitted under state insurance laws. PAYMENTS IN CONNECTION WITH DISTRIBUTION OF THE CONTRACT PAYMENTS TO BROKER-DEALERS Registered representatives of broker-dealers sell the contract. We pay commissions to the broker-dealers for the sale of your contract ("Contract Commissions"). There are different structures by which a broker-dealer can choose to have their Contract Commissions paid. For example, as one option, we may pay upfront Contract Commission, only, that may be up to a maximum 7.0% of each Purchase Payment you invest (which may include promotional amounts). Another option may be a lower upfront Contract Commission on each Purchase Payment, with a trail commission of up to a maximum 1.00% of contract value, annually. We pay Contract Commissions directly to the broker-dealer with whom your registered representative is affiliated. Registered representatives may receive a portion of these amounts we pay in accordance with any agreement in place between the registered representative and his/her broker-dealer firm. We (or our affiliates) may pay broker-dealers or permitted third parties cash or non-cash compensation, including reimbursement of expenses incurred in connection with the sale of these contracts. These payments may be intended to reimburse for specific expenses incurred or may be based on sales, certain assets under management or longevity of assets invested with us. For example, we may pay additional amounts in connection with contracts that remain invested with us for a particular period of time. We enter into such arrangements in our discretion and we may negotiate customized arrangements with firms, including affiliated and non-affiliated broker-dealers based on various factors. Promotional incentives may change at any time. We do not deduct these amounts directly from your Purchase Payments. We anticipate recovering these amounts from the fees and charges collected under the contract. Certain compensation payments may increase our cost of doing business in a particular firm and may result in higher contractual fees and charges if you purchase your contract through such a firm. SEE EXPENSES, ABOVE. AIG SunAmerica Capital Services, Inc., Harborside Financial Center, 3200 Plaza 5, Jersey City, NJ 07311-4992, distributes the contracts. AIG SunAmerica Capital Services, an affiliate of AIG SunAmerica Life, is a registered broker-dealer under the Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. No underwriting fees are paid in connection with the distribution of the contracts. 27 PAYMENTS WE RECEIVE In addition to amounts received pursuant to established 12b-1 Plans, we may receive compensation of up to 0.60% from the investment advisers, subadvisers or their affiliates of certain of the underlying Trusts and/or portfolios for services related to the availability of the underlying portfolios in the contract. Furthermore, certain advisers and/or subadvisers may offset the costs we incur for training to support sales of the underlying funds in the contract. ADMINISTRATION We are responsible for the administrative servicing of your contract. Please contact our Annuity Service Center at 1-800-445-SUN2, if you have any comment, question or service request. We send out transaction confirmations and quarterly statements. During the accumulation phase, you will receive confirmation of transactions within your contract. Transactions made pursuant to contractual or systematic agreements, such as deduction of the annual maintenance fee and dollar cost averaging, may be confirmed quarterly. Purchase payments received through the automatic payment plan or a salary reduction arrangement, may also be confirmed quarterly. For other transactions, we send confirmations immediately. During the accumulation and income phases, you will receive a statement of your transactions over the past quarter and a summary of your account values. It is your responsibility to review these documents carefully and notify us of any inaccuracies immediately. We investigate all inquiries. To the extent that we believe we made an error, we retroactively adjust your contract, provided you notify us within 30 days of receiving the transaction confirmation or quarterly statement. Any other adjustments we deem warranted are made as of the time we receive notice of the error. LEGAL PROCEEDINGS There are no pending legal proceedings affecting the Separate Account. AIG SunAmerica Life engages in various kinds of routine litigation. In management's opinion, these matters are not material in relation to the financial position of the Company. A purported class action captioned NIKITA Mehta. as Trustee of the N.D. Mehta Living. Trust vs. AIG SunAmerica Life Assurance Company, Case 04L0199, was filed on April 5, 2004 in the Circuit Court, Twentieth Judicial District in St. Clair County, Illinois. The lawsuit alleges certain improprieties in conjunction with alleged market timing activities. The probability of any particular outcome cannot be reasonably estimated at this time. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- The consolidated financial statements of AIG SunAmerica Life Assurance Company at December 31, 2003 and 2002 and for each of the three years in the period ended December 31, 2003, and the financial statements of Variable Annuity Account Five at April 30, 2004, and for each of the two years in the period ended April 30, 2004, are incorporated herein by reference in this prospectus in reliance on the reports of PricewaterhouseCoopers LLP, independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting. 28 TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION Separate Account............................................ 3 General Account............................................. 4 Performance Data............................................ 4 Income Payments............................................. 4 Annuity Unit Values......................................... 5 Taxes....................................................... 8 Distribution of Contracts................................... 13 Financial Statements........................................ 13
29 APPENDIX A - CONDENSED FINANCIALS --------------------------------------------------------------------------------
ONE MONTH INCEPTION FISCAL YEAR FISCAL YEAR ENDED FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR TO ENDED ENDED MONTH ENDED ENDED ENDED ENDED STRATEGIES 3/31/98 3/31/99 3/31/00 4/30/00 4/30/01 4/30/02 4/30/03 4/30/04 --------------------- --------- ----------- ----------- --------- ----------- ----------- ----------- ----------- -------------------------------------------------------------------------------------------------------------------------------- Growth (Inception Date: 4/15/97) Beginning AUV...... $10.00 $13.09 $15.89 $21.30 $20.24 $17.060 $14.397 $12.770 End AUV............ $13.09 $15.89 $21.30 $20.24 $17.06 $14.397 $12.770 $14.964 Ending Number of AUs............. 3,950,133 7,643,378 8,130,517 8,249,540 7,812,757 6,819,437 5,299,344 4,931,461 -------------------------------------------------------------------------------------------------------------------------------- Moderate Growth (Inception Date: 4/15/97) Beginning AUV...... $10.00 $12.76 $15.09 $19.48 $18.61 $16.298 $14.197 $12.885 End AUV............ $12.76 $15.09 $19.48 $18.61 $16.30 $14.197 $12.885 $14.803 Ending Number of AUs............. 3,639,458 7,968,543 8,508,732 8,649,412 8,525,921 7,608,915 6,095,326 5,578,924 -------------------------------------------------------------------------------------------------------------------------------- Balanced Growth (Inception Date: 4/15/97) Beginning AUV...... $10.00 $12.44 $14.05 $16.68 $16.11 $14.985 $13.731 $12.924 End AUV............ $12.44 $14.05 $16.68 $16.11 $14.99 $13.731 $12.924 $14.471 Ending Number of AUs............. 2,789,702 6,957,319 7,049,356 7,030,568 6,773,402 6,208,464 5,236,458 4,812,477 -------------------------------------------------------------------------------------------------------------------------------- Conservative Growth (Inception Date: 4/15/97) Beginning AUV...... $10.00 $12.06 $13.21 $14.89 $14.50 $14.137 $13.445 $13.071 End AUV............ $12.06 $13.21 $14.89 $14.50 $14.14 $13.445 $13.071 $14.295 Ending Number of AUs............. 1,536,220 5,313,501 5,332,213 5,350,653 5,064,829 4,841,527 4,251,657 3,723,265 --------------------------------------------------------------------------------------------------------------------------------
AUV-Accumulation Unit Value AU-Accumulation Units A-1 APPENDIX B - MARKET VALUE ADJUSTMENT -------------------------------------------------------------------------------- The information in this Appendix applies only if you take money out of a FAGP (with a duration longer than 1 year) before the end of the guarantee period. We calculate the MVA by doing a comparison between current rates and the rate being credited to you in the FAGP. For the current rate we use a rate being offered by us for a guarantee period that is equal to the time remaining in the FAGP from which you seek withdrawal. If we are not currently offering a guarantee period for that period of time, we determine an applicable rate by using a formula to arrive at a number between the interest rates currently offered for the two closest periods available. Where the MVA is negative, we first deduct the adjustment from any money remaining in the FAGP. If there is not enough money in the FAGP to meet the negative deduction, we deduct the remainder from your withdrawal. Where the MVA is positive, we add the adjustment to your withdrawal amount. If a withdrawal charge applies, it is deducted before the MVA calculation. The MVA is assessed on the amount withdrawn less any withdrawal charges. The MVA is computed by multiplying the amount withdrawn, transferred or taken under an income option by the following factor: [(1+I/(1+J+L)][to the power of N/12] - 1 where: I is the interest rate you are earning on the money invested in the FAGP; J is the interest rate then currently available for the period of time equal to the number of years remaining in the term you initially agreed to leave your money in the FAGP; N is the number of full months remaining in the term you initially agreed to leave your money in the FAGP; and L is 0.005 (Some states require a different value. Please see your contract.) We do not assess an MVA against withdrawals under the following circumstances: - If a withdrawal is made within 30 days after the end of a guarantee period; - If a withdrawal is made to pay contract fees and charges; - To pay a death benefit; and - Upon beginning an income option, if occurring on the Latest Annuity Date. EXAMPLES OF THE MVA The purpose of the examples below is to show how the MVA adjustments are calculated and may not reflect the Guarantee periods available or Withdrawal Charges applicable under your contract. The examples below assume the following: (1) You made an initial Purchase Payment of $10,000 and allocated it to a FAGP at a rate of 5%; (2) You make a partial withdrawal of $4,000 when 1 1/2 years (18 months) remain in the term you initially agreed to leave your money in the FAGP (N=18); (3) You have not made any other transfers, additional Purchase Payments, or withdrawals; and (4) Your contract was issued in a state where L=0.005. POSITIVE ADJUSTMENT, NO WITHDRAWAL CHARGE APPLIES Assume that on the date of withdrawal, the interest rate in effect for a new Purchase Payments in the 1-year FAGP is 3.5% and the 3-year FAGP is 4.5%. By linear interpolation, the interest rate for the remaining 2 years (1 1/2 years rounded up to the next full year) in the contract is calculated to be 4%. No withdrawal charge is reflected in this example, assuming that the Purchase Payment withdrawn falls within the free look amount. The MVA factor is = [(1+I/(1+J+0.005)][to the power of N/12] - 1 = [(1.05)/(1.04+0.005)][to the power of 18/12] - 1 = (1.004785)[to the power of 1.5] - 1 = 1.007186 - 1 = + 0.007186 B-1 The requested withdrawal amount is multiplied by the MVA factor to determine the MVA: $4,000 X (+0.007186) = +$28.74 $28.74 represents the positive MVA that would be added to the withdrawal. NEGATIVE ADJUSTMENT, NO WITHDRAWAL CHARGE APPLIES Assume that on the date of withdrawal, the interest rate in effect for new Purchase Payments in the 1-year FAGP is 5.5% and the 3-year FAGP is 6.5%. By linear interpolation, the interest rate for the remaining 2 years (1 1/2 years rounded up to the next full year) in the contract is calculated to be 6%. No withdrawal charge is reflected in this example, assuming that the Purchase Payment withdrawn falls with the free withdrawal amount. The MVA factor is = [(1+I)/(1+J+0.005)][to the power of N/12] - 1 = [(1.05)/(1.06+0.005)][to the power of 18/12] - 1 = (0.985915)[to the power of 1.5] - 1 = 0.978948 - 1 = - 0.021052 The requested withdrawal amount is multiplied by the MVA factor to determine the MVA: $4,000 X (-0.021052) = - $84.21 $84.21 represents the negative MVA that will be deducted from the money remaining in the 3-year FAGP. POSITIVE ADJUSTMENT, WITHDRAWAL CHARGE APPLIES Assume that on the date of withdrawal, the interest rate in effect for a new Purchase Payments in the 1-year FAGP is 3.5% and the 3-year FAGP is 4.5%. By linear interpolation, the interest rate for the remaining 2 years (1 1/2 years rounded up to the next full year) in the contract is calculated to be 4%. A withdrawal charge of 6% is reflected in this example, assuming that the Purchase Payment withdrawn exceeds the free withdrawal amount. The MVA factor is = [(1+I)/(I+J+0.005)][to the power of N/12] - 1 = [(1.05)/(1.04+0.005)][to the power of 18/12] - 1 = (1.004785)[to the power of 1.5] - 1 = 1.007186 - 1 = +0.007186 The requested withdrawal amount, less the withdrawal charge ($4,000 - 6% = $3,760) is multiplied by the MVA factor to determine the MVA: $3,760 X (+0.007186) = +$27.02 $27.02 represents the positive MVA that would be added to the withdrawal. NEGATIVE ADJUSTMENT, WITHDRAWAL CHARGE APPLIES Assume that on the date of withdrawal, the interest rate in effect for new Purchase Payments in the 1-year FAGP is 5.5% and the 3-year FAGP is 6.5%. By linear interpolation, the interest rate for the remaining 2 years (1 1/2 years rounded up to the next full year) in the contract is calculated to be 6%. A withdrawal charge of 6% is reflected in this example, assuming that the Purchase Payment withdrawn exceeds the free withdrawal amount. The MVA factor is = [(1+I)/(I+J+0.005)][to the power of N/12] - 1 = [(1.05)/(1.06+0.005)][to the power of 18/12] - 1 = (0.985916)[to the power of 1.5] - 1 = 0.978949 - 1 = -0.021051 The requested withdrawal amount, less the withdrawal charge ($4,000 - 6% = $3,760) is multiplied by the MVA factor to determine the MVA: $3,760 X (-0.021052) = - $79.16 $79.16 represents the negative MVA that would be deducted from the withdrawal. B-2 Please forward a copy (without charge) of the Seasons Variable Annuity Statement of Additional Information to: (Please print or type and fill in all information.) ------------------------------------------------------------------ Name ------------------------------------------------------------------ Address ------------------------------------------------------------------ City/State/Zip ------------------------------------------------------------------ Date: --------------- Signed: ----------------------------------- Return to: AIG SunAmerica Life Assurance Company, Annuity Service Center, P.O. Box 52499, Los Angeles, California 90054-0299 AIG SUNAMERICA LIFE ASSURANCE COMPANY -------------------------------------------------------------------------------- VARIABLE ANNUITY ACCOUNT FIVE SUPPLEMENT TO THE SEASONS SELECT II VARIABLE ANNUITY (J-3366-PRO (R 07/04)) PROSPECTUS DATED AUGUST 2, 2004 -------------------------------------------------------------------------------- THE PORTION OF THE PROSPECTUS RELATING TO THE SEASONS REWARDS PROGRAM IS SUPPLEMENTED WITH THE FOLLOWING: CURRENT ENHANCEMENT LEVELS The Enhancement Levels, Upfront Payment Enhancement Rate, Deferred Payment Enhancement Rate and Deferred Payment Enhancement Date applicable to all Purchase Payments, are as follows:
UPFRONT PAYMENT DEFERRED PAYMENT ENHANCEMENT LEVEL ENHANCEMENT RATE ENHANCEMENT RATE ----------------- ---------------- ---------------- Under $500,000 4% 0% $500,000 -- more 5% 0%
The applicable Payment Enhancement rate is that which is in effect, when we receive each purchase payment under your contract. Future Upfront Enhancement Rates may change at any time, but will never be less than 2%. We are currently not offering a Deferred Payment Enhancement Rate. Future Deferred Payment Enhancement Rates may increase or stay the same; there is no minimum Deferred Payment Enhancement Rate. The number of years before which you may receive any applicable future Deferred Payment Enhancement may change as well. Date: August 2, 2004 Please keep this Supplement with your Prospectus. Page 1 of 1 (Seasons Select II LOGO) PROSPECTUS August 2, 2004 ALLOCATED FIXED AND VARIABLE GROUP ANNUITY issued by VARIABLE ANNUITY ACCOUNT FIVE and AIG SUNAMERICA LIFE ASSURANCE COMPANY The annuity contract has several investment choices - fixed investment options which offer interest rates guaranteed by AIG SunAmerica Life for different periods of time, and Variable Portfolios:
SELECT PORTFOLIOS FOCUSED PORTFOLIOS SEASONS STRATEGIES LARGE CAP GROWTH FOCUS GROWTH GROWTH STRATEGY LARGE CAP COMPOSITE FOCUS GROWTH AND INCOME (WHICH INVESTS IN STOCK PORTFOLIO, ASSET LARGE CAP VALUE FOCUS VALUE ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO AND MID CAP GROWTH FOCUS TECHNET MULTI-MANAGED GROWTH PORTFOLIO) MID CAP VALUE MODERATE GROWTH STRATEGY SMALL CAP (WHICH INVESTS IN STOCK PORTFOLIO, ASSET INTERNATIONAL EQUITY ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO AND DIVERSIFIED FIXED INCOME MULTI-MANAGED MODERATE GROWTH PORTFOLIO) CASH MANAGEMENT BALANCED GROWTH STRATEGY (WHICH INVESTS IN STOCK PORTFOLIO, ASSET ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO AND MULTI-MANAGED INCOME/EQUITY PORTFOLIO) CONSERVATIVE GROWTH STRATEGY (WHICH INVESTS IN STOCK PORTFOLIO, ASSET ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO AND MULTI-MANAGED INCOME PORTFOLIO)
all of which invest in the underlying portfolios of SEASONS SERIES TRUST which is managed by:
SELECT PORTFOLIOS FOCUSED PORTFOLIOS SEASONS STRATEGIES AIG GLOBAL INVESTMENT CORP. AIG SUNAMERICA ASSET MANAGEMENT CORP. AIG SUNAMERICA ASSET MANAGEMENT CORP. AIG SUNAMERICA ASSET MANAGEMENT AMERICAN CENTURY INVESTMENT MANAGEMENT, INC. JANUS CAPITAL MANAGEMENT LLC. CORP. BAMCO, INC. PUTNAM INVESTMENT MANAGEMENT, INC. GOLDMAN SACHS ASSET MANAGEMENT RCM CAPITAL MANAGEMENT, LLC T. ROWE PRICE ASSOCIATES, INC. GOLDMAN SACHS ASSET MANAGEMENT FRED ALGER MANAGEMENT WELLINGTON MANAGEMENT COMPANY, LLP INT'L HARRIS ASSOCIATES L.P. JANUS CAPITAL MANAGEMENT LLC. J.P. MORGAN INVESTMENT INC. LORD, ABBETT & CO. MARSICO CAPITAL MANAGEMENT LLC T. ROWE PRICE ASSOCIATES, INC. SALOMON BROTHERS ASSET MANAGEMENT WELLINGTON MANAGEMENT COMPANY, THIRD AVENUE MANAGEMENT, LLC LLP THORNBURG INVESTMENT MANAGEMENT, INC.
You can put your money into any one or all of the Variable Portfolios and/or fixed investment options. Please read this prospectus carefully before investing and keep it for your future reference. It contains important information you should know about the Seasons Select(II) Variable Annuity. If elected, this variable annuity provides a payment enhancement program called "Seasons Rewards." Your withdrawal charge schedule will be longer and greater than other contracts offered without the Seasons Rewards program. To learn more about the annuity offered by this prospectus, you can obtain a copy of the Statement of Additional Information ("SAI") dated August 2, 2004. The SAI has been filed with the Securities and Exchange Commission ("SEC") and can be considered part of this prospectus. The table of contents of the SAI appears below in this prospectus. For a free copy of the SAI, call us at 800/445-SUN2 or write our Annuity Service Center at, P.O. Box 54299, Los Angeles, California 90054-0299. A registration statement has been filed with the SEC under the Securities Act of 1933 relating to the contract. This prospectus does not contain all the information in the registration statement as permitted by SEC regulations. The omitted information can be obtained from the SEC's principal office in Washington, D.C., upon payment of a prescribed fee. In addition, the SEC maintains a website (http://www.sec.gov) that contains the SAI, materials incorporated by reference and other information filed electronically with the SEC. ANNUITIES INVOLVE RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL, AND ARE NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THEY ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE AIG SunAmerica Life's Annual Report on Form 10-K for the year ended December 31, 2003 and its quarterly report on Form 10-Q for the quarter ended March 31, 2004 are incorporated herein by reference. All documents or reports filed by AIG SunAmerica Life under Section 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") after the effective date of this prospectus are also incorporated by reference. Statements contained in this prospectus and subsequently filed documents which are incorporated by reference or deemed to be incorporated by reference are deemed to modify or supersede documents incorporated herein by reference. AIG SunAmerica Life files its Exchange Act documents and reports, including its annual and quarterly reports on Form 10-K and Form 10-Q, electronically pursuant to EDGAR under CIK No. 0000006342. AIG SunAmerica Life is subject to the informational requirements of the Securities and Exchange Act of 1934 (as amended). We file reports and other information with the SEC to meet those requirements. You can inspect and copy this information at SEC public facilities at the following locations: WASHINGTON, DISTRICT OF COLUMBIA 450 Fifth Street, N.W., Room 1024 Washington, D.C. 20549 CHICAGO, ILLINOIS 500 West Madison Street Chicago, IL 60661 NEW YORK, NEW YORK 233 Broadway New York, NY 10279 To obtain copies by mail, contact the Washington, D.C. location. After you pay the fees as prescribed by the rules and regulations of the SEC, the required documents are mailed. Registration statements under the Securities Act of 1933, as amended, related to the contracts offered by this prospectus are on file with the SEC. This prospectus does not contain all of the information contained in the registration statements and exhibits. For further information regarding the separate account, AIG SunAmerica Life and its general account, the Variable Portfolios and the contract, please refer to the registration statements and exhibits. The SEC also maintains a website (http://www.sec.gov) that contains the SAI, materials incorporated by reference and other information filed electronically with the SEC by AIG SunAmerica Life. AIG SunAmerica Life will provide without charge to each person to whom this prospectus is delivered, upon written or oral request, a copy of the documents incorporated by reference. Requests for these documents should be directed to AIG SunAmerica Life's Annuity Service Center, as follows: AIG SunAmerica Life Assurance Company Annuity Service Center P.O. Box 54299 Los Angeles, California 90054-0299 Telephone Number: (800) 445-SUN2 SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION Indemnification for liabilities arising under the Securities Act of 1933 (the "1933 Act") is provided to AIG SunAmerica Life's officers, directors and controlling persons. The SEC has advised that it believes such indemnification is against public policy under the 1933 Act and unenforceable. If a claim for indemnification against such liabilities (other than for AIG SunAmerica Life's payment of expenses incurred or paid by its directors, officers or controlling persons in the successful defense of any legal action) is asserted by a director, officer or controlling person of AIG SunAmerica Life in connection with the securities registered under this prospectus, AIG SunAmerica Life will submit to a court with jurisdiction to determine whether the indemnification is against public policy under the Act. AIG SunAmerica Life will be governed by final judgment of the issue. However, if in the opinion of AIG SunAmerica Life's counsel this issue has been determined by controlling precedent, AIG SunAmerica Life will not submit the issue to a court for determination. 2 TABLE OF CONTENTS GLOSSARY.................................................... 4 HIGHLIGHTS.................................................. 5 FEE TABLES.................................................. 6 Maximum Owner Transaction Expenses....................... 6 Separate Account Annual Expenses......................... 6 Optional Feature Fees.................................... 6 Portfolio Expenses....................................... 6 MAXIMUM AND MINIMUM EXPENSE EXAMPLES........................ 7 THE SEASONS SELECT(II) VARIABLE ANNUITY..................... 9 PURCHASING A SEASONS SELECT(II) VARIABLE ANNUITY............ 10 Allocation of Purchase Payments.......................... 10 Seasons Rewards.......................................... 11 Accumulation Units....................................... 12 Free Look................................................ 13 Exchange Offers.......................................... 13 INVESTMENT OPTIONS.......................................... 14 Variable Portfolios...................................... 14 Select and Focused Portfolios.......................... 14 Seasons Strategies..................................... 15 Fixed Investment Options............................... 18 Transfers During the Accumulation Phase.................. 19 Dollar Cost Averaging.................................... 20 Asset Allocation Rebalancing Program..................... 21 Return Plus Program...................................... 21 Voting Rights............................................ 21 Substitution............................................. 21 ACCESS TO YOUR MONEY........................................ 22 Free Withdrawal Provision................................ 22 Systematic Withdrawal Program............................ 23 Nursing Home Waiver...................................... 23 Minimum Contract Value................................... 24 Qualified Contract Owners................................ 24 OPTIONAL LIVING BENEFITS.................................... 24 Seasons Income Rewards Feature........................... 24 Seasons Promise Feature.................................. 28 DEATH BENEFIT............................................... 30 Standard Death Benefit................................... 32 Optional Seasons Estate Advantage Death Benefit.......... 32 Optional Earnings Advantage Benefit...................... 33 Spousal Continuation..................................... 36 EXPENSES.................................................... 37 Separate Account Charges................................. 37 Withdrawal Charges....................................... 37 Investment Charges....................................... 38 Contract Maintenance Fee................................. 38 Transfer Fee............................................. 38 Optional Seasons Income Rewards Fee...................... 38 Optional Seasons Promise Fee............................. 38 Optional Seasons Estate Advantage Fee.................... 39 Optional Earnings Advantage Fee.......................... 39 Premium Tax.............................................. 39 Income Taxes............................................. 39 Reduction or Elimination of Charges and Expenses, and Additional Amounts Credited............................ 39 INCOME OPTIONS.............................................. 39 Annuity Date............................................. 39 Income Options........................................... 40 Allocation of Annuity Payments........................... 40 Transfers During the Income Phase........................ 41 Deferment of Payments.................................... 41 TAXES....................................................... 42 Annuity Contracts in General............................. 42 Tax Treatment of Distributions--Non-qualified Contracts.............................................. 42 Tax Treatment of Distributions--Qualified Contracts...... 42 Minimum Distributions.................................... 43 Tax Treatment of Death Benefits.......................... 44 Contracts Owned by a Trust or Corporation................ 44 Gifts, Pledges and/or Assignments of a Non-Qualified Annuity Contract....................................... 44 Diversification and Investor Control..................... 44 PERFORMANCE................................................. 45 OTHER INFORMATION........................................... 45 AIG SunAmerica Life...................................... 45 The Separate Account..................................... 45 The General Account...................................... 45 Payments in Connection with Distribution of the Contract............................................... 46 Administration........................................... 46 Legal Proceedings........................................ 46 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM............... 47 TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.... 48 APPENDIX A--CONDENSED FINANCIALS............................ A-1 APPENDIX B--SEASONS REWARDS PROGRAM EXAMPLES................ B-1 APPENDIX C--DEATH BENEFITS FOLLOWING SPOUSAL CONTINUATION... C-1 APPENDIX D--SEASONS INCOME REWARDS EXAMPLES................. D-1 APPENDIX E--MARKET VALUE ADJUSTMENT......................... E-1
3 GLOSSARY We have capitalized some of the technical terms used in this prospectus. To help you understand these terms, we define them in this glossary. ACCUMULATION PHASE--The period during which you invest money in your contract. ACCUMULATION UNITS--A measurement we use to calculate the value of the variable portion of your contract during the Accumulation Phase. ANNUITANT(S)--The person(s) on whose life (lives) we base annuity payments. ANNUITY DATE--The date on which annuity payments are to begin, as selected by you. ANNUITY UNITS--A measurement we use to calculate the amount of annuity payments you receive from the variable portion of your contract during the Income Phase. BENEFICIARY(IES)--The person(s) designated to receive any benefits under the contract if you or the Annuitant dies. COMPANY--AIG SunAmerica Life Assurance Company ("AIG SunAmerica Life"), we, us, the issuer of this annuity contract. Only AIG SunAmerica Life is a capitalized term in the prospectus. INCOME PHASE--The period during which we make annuity payments to you. IRS--The Internal Revenue Service. LATEST ANNUITY DATE--Your 95th birthday or tenth anniversary, whichever is later. NON-QUALIFIED (CONTRACT)--A contract purchased with after-tax dollars. In general, these contracts are not under any pension plan, specially sponsored program or individual retirement account ("IRA"). PAYMENT ENHANCEMENT(S)--The amount(s) allocated to your contract by us under the Seasons Rewards Program. Payment enhancements are calculated as a percentage of your Purchase Payments and are considered earnings. SEASONS REWARDS PROGRAM--A program that provides an upfront payment enhancement to your contract in exchange for a surrender charge schedule that declines over 9 years. PURCHASE PAYMENTS--The money you give us to buy the contract, as well as any additional money you give us to invest in the contract after you own it. QUALIFIED (CONTRACT)--A contract purchased with pretax dollars. These contracts are generally purchased under a pension plan, specially sponsored program or individual retirement account ("IRA"). VARIABLE PORTFOLIO(S)--Refers collectively to the Select Portfolios, Focused Portfolios and/or Seasons Strategies. The underlying investment portfolios may be referred to as Underlying Funds. 4 HIGHLIGHTS -------------------------------------------------------------------------------- The Seasons Select(II) Variable Annuity is a contract between you and AIG SunAmerica Life Assurance Company ("AIG SunAmerica Life"). It is designed to help you invest on a tax-deferred basis and meet long-term financial goals. There are minimum Purchase Payment amounts required to purchase a contract. Purchase Payments may be invested in the Select Portfolios, Focused Portfolios and/or pre-allocated Seasons Strategies ("Variable Portfolios") and available fixed account options. You may also elect to participate in the Seasons Rewards program of the contract that can provide you with Payment Enhancements to invest in your contract in exchange for a longer withdrawal charge schedule. Like all deferred annuities, the contract has an Accumulation Phase and an Income Phase. During the Accumulation Phase, you invest money in your contract. The Income Phase begins when you start receiving income payments from your annuity to provide for your retirement. FREE LOOK: If you cancel your contract within 10 days after receiving it (or whatever period is required in your state), we will cancel the contract without charging a withdrawal charge. You will receive whatever your contract is worth on the day that we receive your request. This amount may be more or less than your original Purchase Payment. We will return your original Purchase Payment if required by law. If you elected to participate in Seasons Rewards, you receive any gain and we bear any loss on any Payment Enhancement(s) if you decide to cancel your contract during the free look period. Please see PURCHASING A SEASONS SELECT(II) VARIABLE ANNUITY in the prospectus. EXPENSES: There are fees and charges associated with the contract. Each year, we deduct a $35 contract maintenance fee from your contract, which is currently waived for contracts of $50,000 or more. We also deduct separate account charges, which equal 1.40% annually of the average daily value of your contract allocated to the Variable Portfolios. There are investment charges on amounts invested in the Variable Portfolios. If you elect optional features available under the contract we may charge additional fees for these features. A separate withdrawal charge schedule applies to each Purchase Payment. The percentage of the withdrawal charge declines over time. After a Purchase Payment has been in the contract for seven complete years, or nine complete years if you participate in the Seasons Rewards Program, withdrawal charges no longer apply to that portion of the Purchase Payment. Please see the FEE TABLE, PURCHASING A SEASONS SELECT(II) VARIABLE ANNUITY and EXPENSES in the prospectus. ACCESS TO YOUR MONEY: You may withdraw money from your contract during the Accumulation Phase. If you do so, earnings are deemed to be withdrawn first. You will pay income taxes on earnings and untaxed contributions when you withdraw them. Payments received during the Income Phase are considered partly a return of your original investment. A federal tax penalty may apply if you make withdrawals before age 59 1/2. As noted above, a withdrawal charge may apply. Please see ACCESS TO YOUR MONEY and TAXES in the prospectus. DEATH BENEFIT: A death benefit feature is available under the contract to protect your Beneficiaries in the event of your death during the Accumulation Phase. Please see DEATH BENEFITS in the prospectus. INCOME OPTIONS: When you are ready to begin taking income, you can choose to receive income payments on a variable basis, fixed basis or a combination of both. You may also chose from five different income options, including an option for income that you cannot outlive. Please see INCOME OPTIONS in the prospectus. INQUIRIES: If you have questions about your contract call your financial representative or contact us at AIG SunAmerica Life Assurance Company Annuity Service Center P.O. Box 54299 Los Angeles, California 90054-0299. Telephone Number: (800) 445-SUN2. AIG SUNAMERICA LIFE OFFERS SEVERAL DIFFERENT VARIABLE ANNUITY PRODUCTS TO MEET THE DIVERSE NEEDS OF OUR INVESTORS. EACH PRODUCT MAY PROVIDE DIFFERENT FEATURES AND BENEFITS OFFERED AT DIFFERENT FEES, CHARGES AND EXPENSES. WE ALSO OFFER PRODUCTS THAT DO NOT OFFER THE SEASONS REWARDS PROGRAM. CONTRACTS WITHOUT SEASONS REWARDS PROGRAM HAVE THE SAME MORTALITY AND EXPENSE RISK CHARGES AS THE SAME CONTRACT WITH THE PROGRAM. HOWEVER, CONTRACTS WITHOUT THE SEASONS REWARDS PROGRAM GENERALLY HAVE A SHORTER SURRENDER CHARGE SCHEDULE WHICH MAY HAVE LOWER PERCENTAGES IN CERTAIN YEARS. WHEN WORKING WITH YOUR FINANCIAL REPRESENTATIVE TO DETERMINE THE BEST PRODUCT TO MEET YOUR NEEDS YOU SHOULD CONSIDER, AMONG OTHER THINGS WHETHER THE FEATURES OF THIS CONTRACT AND THE RELATED FEES PROVIDE THE MOST APPROPRIATE PACKAGE TO HELP YOU MEET YOUR LONG-TERM RETIREMENT SAVINGS GOALS. PLEASE READ THE PROSPECTUS CAREFULLY FOR MORE DETAILED INFORMATION REGARDING THESE AND OTHER FEATURES AND BENEFITS OF THE CONTRACT, AS WELL AS THE RISKS OF INVESTING. 5 FEE TABLES -------------------------------------------------------------------------------- THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY AT THE TIME THAT YOU BUY THE CONTRACT, TRANSFER CASH VALUE BETWEEN INVESTMENT OPTIONS OR SURRENDER THE CONTRACT. IF APPLICABLE, YOU MAY ALSO BE SUBJECT TO STATE PREMIUM TAXES. MAXIMUM OWNER TRANSACTION EXPENSES WITHDRAWAL CHARGES (as a percentage of each Purchase Payment)(1) If Seasons Rewards is elected................... 9% If Seasons Rewards is not elected............... 7%
TRANSFER FEE No charge for the first 15 transfers each contract year; thereafter, the fee is $25 ($10 in Pennsylvania and Texas) per transfer THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY PERIODICALLY DURING THE TIME THAT YOU OWN THE CONTRACT, NOT INCLUDING UNDERLYING PORTFOLIO FEES AND EXPENSES, WHICH ARE OUTLINED IN THE NEXT SECTION. CONTRACT MAINTENANCE FEE $35 ($30 in North Dakota) which is currently waived if contract value $50,000 or more. SEPARATE ACCOUNT ANNUAL EXPENSES (deducted daily as a percentage of your average daily net asset value) Mortality and Expense Risk Fees.............. 1.25% Distribution Expense Charge.................. 0.15% Optional Seasons Estate Advantage Fee(2)..... 0.15% Optional Earnings Advantage Fee.............. 0.25% ----- Total Separate Account Annual Expenses....... 1.80%
OPTIONAL FEATURE FEES You may elect either Seasons Income Rewards or Seasons Promise described below: OPTIONAL SEASONS INCOME REWARDS FEE (Calculated as a percentage of your Purchase Payments received in the first 90 days less withdrawals)
CONTRACT YEAR ANNUALIZED FEE(3) ------------- ----------------- 0-7................................ 0.65% 8+................................. 0.45%
OPTIONAL SEASONS PROMISE FEE (Calculated as a percentage of your contract value minus Purchase Payments received after the 90th day since you purchased your contract)
CONTRACT YEAR ANNUALIZED FEE(4) ------------- ----------------- 0-7.................................. 0.50% 8-10................................. 0.25% 11+.................................. none
THE FOLLOWING SHOWS THE MINIMUM AND MAXIMUM TOTAL OPERATING EXPENSES CHARGED BY THE UNDERLYING PORTFOLIO OF THE TRUST BEFORE ANY WAIVER OR REIMBURSEMENTS THAT YOU MAY PAY PERIODICALLY DURING THE TIME YOU OWN THE CONTRACT. MORE DETAIL CONCERNING TRUST'S FEES AND EXPENSES IS CONTAINED IN THE ATTACHED TRUST PROSPECTUS. PLEASE READ IT CAREFULLY BEFORE INVESTING. PORTFOLIO EXPENSES
TOTAL ANNUAL TRUST OPERATING EXPENSES MINIMUM MAXIMUM ------------------------------------- ------- ------- (expenses that are deducted from underlying portfolios of the Trust, including management fees, other expenses and 12b-1 fees, if applicable)....................... 1.02% 2.27%
FOOTNOTES TO THE FEE TABLE: (1) Seasons Rewards is a bonus program. Withdrawal Charge Schedule (as a percentage of each Purchase Payment) YEARS:...................................................... 1 2 3 4 5 6 7 8 9 10+ Seasons Rewards............................................. 9% 8% 7% 6% 6% 5% 4% 3% 2% 0% Non-Seasons Rewards......................................... 7% 6% 6% 5% 4% 3% 2% 0% 0% 0%
(2) The Seasons Estate Advantage feature is optional and if elected, the fee is an annualized charge that is deducted daily from your contract value. (3) The Seasons Income Rewards feature is optional and if elected, the fee is generally calculated as a percentage of your Purchase Payments received in the first 90 days less withdrawals. The fee is deducted from your contract at the end of the first quarter following election and quarterly thereafter. (4) The Seasons Promise feature is optional and if elected, the fee is calculated as a percentage of your contract value minus Purchase Payments received after the 90th day since you purchased your contract. The fee is deducted from your contract value at the end of the first contract quarter and quarterly thereafter. 6 MAXIMUM AND MINIMUM EXPENSE EXAMPLES -------------------------------------------------------------------------------- IF YOU ELECT SEASONS REWARDS PROGRAM These Examples are intended to help you compare the cost of investing in the contract with the cost of investing in other variable annuity contracts. These costs include owner transaction expenses, contract maintenance fees, separate account annual expense, fees for optional features and expenses for the underlying portfolios of the Trusts. The Examples assumes that you invest $10,000 in the contract for the time periods indicated; that your investment has a 5% return each year; and that the maximum fees and expenses of the underlying portfolios of the Trusts are reflected. Although your actual costs may be higher or lower, based on these assumptions your costs at the end of the stated period would be: MAXIMUM EXPENSE EXAMPLES (assuming maximum separate account annual expenses of 1.80% (including the Seasons Estate Advantage and Earnings Advantage) and investment in an underlying portfolio with total expenses of 2.27%.) (1) If you surrender your contract at the end of the applicable time period and you elect the Seasons Estate Advantage Benefit (0.15%), the Earnings Advantage (0.25%) and Seasons Income Rewards (0.65% for years 0-7 and 0.45% for years 8-10).
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- $1,387 $2,165 $3,047 $4,865
(2) If you annuitize your contract at the end of the applicable time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- $369 $1,123 $1,897 $3,924
(3) If you do not surrender your contract and you elect the Seasons Estate Advantage (0.15%), the Earnings Advantage (0.25%) and Seasons Income Rewards (0.65% for years 0-7 and 0.45% for years 8-10).
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- $487 $1,465 $2,447 $4,865
MINIMUM EXPENSE EXAMPLES (assuming minimum separate account annual expenses of 1.40% and investment in an underlying portfolio with total expenses of 1.02%. (1) If you surrender your contract at the end of the applicable time period and you do not elect any optional features:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- $1,155 $1,485 $1,943 $2,864
(2) If you annuitize your contract at the end of the applicable time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- $245 $755 $1,291 $2,756
(3) If you do not surrender your contract and you do not elect any optional features:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- $255 $785 $1,343 $2,864
7 MAXIMUM AND MINIMUM EXPENSE EXAMPLES -------------------------------------------------------------------------------- IF YOU DO NOT ELECT SEASONS REWARDS PROGRAM These Examples are intended to help you compare the cost of investing in the contract with the cost of investing in other variable annuity contracts. These costs include owner transaction expenses, contract maintenance fees, separate account annual expense, fees for optional features and expenses for the underlying portfolios of the Trusts. The Examples assumes that you invest $10,000 in the contract for the time periods indicated; that your investment has a 5% return each year; and that the maximum fees and expenses of the underlying portfolios of the Trusts are reflected. Although your actual costs may be higher or lower, based on these assumptions your costs at the end of the stated period would be: MAXIMUM EXPENSE EXAMPLES (assuming maximum separate account annual expenses of 1.80% (including the Seasons Estate Advantage and Earnings Advantage) and investment in an underlying portfolio with total expenses of 2.27%.) (1) If you surrender your contract at the end of the applicable time period and you elect the Seasons Estate Advantage Benefit (0.15%), the Earnings Advantage (0.25%) and Seasons Income Rewards (0.65% for years 0-7 and 0.45% for years 8-10).
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- $1,178 $2,036 $2,799 $4,769
(2) If you annuitize your contract at the end of the applicable time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- $369 $1,123 $1,897 $3,924
(3) If you do not surrender your contract and you elect the Seasons Estate Advantage (0.15%), the Earnings Advantage (0.25%) and Seasons Income Rewards (0.65% for years 0-7 and 0.45% for years 8-10).
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- $478 $1,436 $2,399 $4,769
MINIMUM EXPENSE EXAMPLES (assuming minimum separate account annual expenses of 1.40% and investment in an underlying portfolio with total expenses of 1.02%.) (1) If you surrender your contract at the end of the applicable time period and you do not elect any optional features:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- $ 950 $1,370 $1,716 $2,808
(2) If you annuitize your contract at the end of the applicable time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- $245 $755 $1,291 $2,756
(3) If you do not surrender your contract and you do not elect any optional features:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- $250 $770 $1,316 $2,808
EXPLANATION OF FEE TABLES AND EXAMPLES 1. The purpose of the Fee Tables is to show you the various expenses you will incur directly and indirectly by investing in the contract. We converted the contract administration fee to a percentage (0.05%). The actual impact of the administration charge may differ from this percentage and waived for contract values over $50,000. Additional information on the portfolio company fees can be found in the Trust prospectus located behind this prospectus. 2. In addition to the stated assumptions, the Examples assume separate account expenses as indicated and that no transfer fees were imposed. Although premium taxes may apply in certain states, they are not reflected in the Examples. 3. Examples reflecting participation in the Seasons Rewards program reflect the Seasons Rewards withdrawal charge schedule and a 2% upfront payment enhancement. 4. Examples reflecting application of optional features and benefits use the highest fees and charges being offered for these features. If you elected the Seasons Promise program instead of the Seasons Income Rewards program, your expenses would be lower than those shown in these tables. The fee for the Seasons Income Rewards and Seasons Promise programs are not calculated as a percentage of your daily net asset value but on other calculation more fully described in the prospectus. The examples above reflect fees for the Seasons Income Rewards program through 10 years of contract ownership. The fee will continue to be assessed as long as the Withdrawal Benefit Base is greater than zero. 5. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. CONDENSED FINANCIALS APPEAR IN APPENDIX A OF THIS PROSPECTUS. 8 THE SEASONS SELECT(II) VARIABLE ANNUITY -------------------------------------------------------------------------------- An annuity is a contract between you and an insurance company. You are the owner of the contract. The contract provides three main benefits: - Tax Deferral: You do not pay taxes on your earnings from the annuity until you withdraw them. - Death Benefit: If you die during the Accumulation Phase, the insurance company pays a death benefit to your Beneficiary. - Guaranteed Income: If elected, you receive a stream of income for your lifetime, or another available period you select. Tax-qualified retirement plans (e.g., IRAs, 401(k) or 403(b) plans) defer payment of taxes on earnings until withdrawn. If you are considering funding a tax-qualified retirement plan with an annuity, you should know that an annuity does not provide any additional tax deferral treatment of earnings beyond the treatment provided by the tax-qualified retirement plan itself. However, annuities do provide other features and benefits which may be valuable to you. You should fully discuss this decision with your financial representative. This annuity was developed to help you contribute to your retirement savings. This annuity works in two stages, the Accumulation Phase and the Income Phase. Your contract is in the Accumulation Phase during the period when you make payments into the contract. The Income Phase begins when you request that we start making payments to you out of the money accumulated in your contract. The Contract is called a "variable" annuity because it allows you to invest in variable investment portfolios. The Variable Portfolios, are similar to mutual funds, in that they have specific investment objectives and their performance varies. You can gain or lose money if you invest in the Variable Portfolios. The amount of money you accumulate in your contract depends on the performance of the Variable Portfolios in which you invest. The Contract may also offer several fixed account options for varying time periods. Fixed account options earn interest at a rate set and guaranteed by AIG SunAmerica Life. If you allocate money to the fixed account options, the amount of money that accumulates in your Contract depends on the total interest credited to the particular fixed account option(s) in which you are invested. For more information on the Variable Portfolios and fixed account options available under this contract, SEE INVESTMENT OPTIONS BELOW. This annuity is designed for investors whose personal circumstances allow for a long-term investment time horizon, to assist in contributing to retirement savings. As a function of the federal tax code you may be assessed a 10% federal tax penalty on any withdrawal made prior to your reaching age 59 1/2. Additionally, this contract provides that you will be charged a withdrawal charge on each Purchase Payment withdrawn if that Purchase Payment has not been invested in this contract for at least 7 years, or 9 years if you elect to participate in the Seasons Rewards Program. Because of these potential penalties, you should fully discuss all of the benefits and risks of this contract with your financial representative prior to purchase. AIG SunAmerica Life issues the Seasons Select(II) Variable Annuity. When you purchase a Seasons Select(II) Variable Annuity, a contract exists between you and AIG SunAmerica Life. The Company is a stock life insurance company organized under the laws of the state of Arizona. Its principal place of business is 1 SunAmerica Center, Los Angeles, California 90067. The Company conducts life insurance and annuity business in the District of Columbia and all states except New York. AIG SunAmerica Life is an indirect, wholly owned subsidiary of American International Group, Inc., a Delaware corporation. Seasons Select(II) may not currently be available in all states. Please check with your financial representative regarding availability in your state. 9 PURCHASING A SEASONS SELECT(II) VARIABLE ANNUITY -------------------------------------------------------------------------------- An initial Purchase Payment is the money you give us to buy a contract. Any additional money you give us to invest in the contract after purchase is a subsequent Purchase Payment. This chart shows the minimum initial and subsequent Purchase Payments permitted under your contract. These amounts depend upon whether a contract is Qualified or Non-qualified for tax purposes.
MINIMUM MINIMUM SUBSEQUENT MINIMUM INITIAL SUBSEQUENT PURCHASE PAYMENT-- PURCHASE PAYMENT PURCHASE PAYMENT AUTOMATIC PAYMENT PLAN ---------------- ---------------- ---------------------- Qualified $2,000 $500 $50 Non-qualified $5,000 $500 $50
We reserve the right to require Company approval prior to accepting Purchase Payments greater than $1,000,000. For contracts owned by a non-natural owner, we reserve the right to require prior Company approval to accept Purchase Payments greater than $250,000. Subsequent Purchase Payments that would cause total Purchase Payments in all contracts issued by the Company and First SunAmerica Life Insurance Company, an affiliate of the Company, to the same owner to exceed these limits may also be subject to company pre-approval. For any contracts subject to these dollar amount reservations, we further reserve the right to limit the death benefit amount payable in excess of contract value at the time we receive all required paperwork and satisfactory proof of death. Any limit on the maximum death benefit payable would be mutually agreed upon by you and the Company prior to purchasing the contract. We reserve the right to change the amount at which pre-approval is required, at any time. Once you have contributed at least the minimum initial Purchase Payment, you can establish an optional automatic payment plan that allows you to make subsequent Purchase Payments of as little as $50. In addition, we may not issue a contract to anyone age 86 or older. In general, we will not issue a Qualified contract to anyone who is age 70 1/2 or older, unless they certify to us that the minimum distribution required by the federal tax code is being made. We allow spouses to jointly own this contract. However the age of the older spouse is used to determine the availability of any age driven benefits. The addition of a joint owner after the contract has been issued is contingent upon prior review and approval by the Company. If we learn of a misstatement of age, we reserve the right to fully pursue our remedies including termination of the contract and/or revocation of any age-driven benefit. You may assign this contract before beginning the Income Phase by sending us a written request for an assignment. Your rights and those of any other person with rights under this contract will be subject to the assignment. WE RESERVE THE RIGHT TO NOT RECOGNIZE ASSIGNMENTS IF IT CHANGES THE RISK PROFILE OF THE OWNER OF THE CONTRACT, AS DETERMINED IN OUR SOLE DISCRETION. Please see the Statement of Additional Information for details on the tax consequences of an assignment. ALLOCATION OF PURCHASE PAYMENTS We invest your Purchase Payments in the fixed accounts and Variable Portfolios according to your instructions. If we receive a Purchase Payment without allocation instructions, we will invest the money according to your last allocation instructions. Purchase Payments are applied to your contract based upon the value of the variable investment option next determined after receipt of your money. SEE INVESTMENT OPTIONS BELOW. In order to issue your contract, we must receive your completed application, Purchase Payment allocation instructions and any other required paperwork at our Annuity Service Center. We allocate your initial Purchase Payment within two days of receiving it. If we do not have complete information necessary to issue your contract, we will contact you. If we do not have the information necessary to issue your contract within 5 business days we will send your money back to you or ask your permission to keep your money until we get the information necessary to issue the contract. 10 SEASONS REWARDS PROGRAM If you elect to participate in the Seasons Rewards Program at contract issue, we contribute an Upfront Payment Enhancement and, if applicable, a Deferred Payment Enhancement to your contract in conjunction with each Purchase Payment you invest during the life of your contract. If you elect to participate in this program, all Purchase Payments are subject to a nine year withdrawal charge schedule. SEE WITHDRAWAL CHARGES BELOW. These withdrawal charges may offset the value of any bonus, if you make an early withdrawal. SEE EXPENSES BELOW. You may not elect to participate in this program if you are age 81 or older at the time of contract issues. Amounts we contribute to your contract under this program are considered earnings and are allocated to your contract as described below. Purchase Payments may not be invested in the Dollar Cost Averaging fixed accounts if you participate in the Seasons Rewards Program. There may be scenarios in which due to negative market conditions and your inability to remain invested over the long-term, a contract with the Seasons Rewards Program may not perform as well as the contract without the feature. ENHANCEMENT LEVELS The Upfront Payment Enhancement Rate, Deferred Payment Enhancement Rate and Deferred Payment Enhancement Date may be determined based on stated Enhancement Levels. Each Enhancement Level is a range of dollar amounts which may correspond to different enhancement rates and dates. Enhancement Levels may change from time to time, at our sole discretion. The Enhancement Level applicable to your initial Purchase Payment is determined by the amount of that initial Purchase Payment. With respect to any subsequent Purchase Payments we determine your Enhancement Level by adding to your contract value on the date we receive each subsequent Purchase Payment the amount of that subsequent Purchase Payment. UPFRONT PAYMENT ENHANCEMENT An Upfront Payment Enhancement is an amount we add to your contract on the day we receive a Purchase Payment. We calculate an Upfront Payment Enhancement amount as a percentage (the "Upfront Payment Enhancement Rate") of each Purchase Payment. We periodically review and establish the Upfront Payment Enhancement Rate, which may increase or decrease at any time, but will never be less than 2%. The applicable Upfront Payment Enhancement Rate is that which is in effect for any applicable Enhancement Level, when we receive each Purchase Payment under your contract. The Upfront Payment Enhancement amounts are allocated among the fixed and variable investment options according to the current allocation instructions in effect when we receive each Purchase Payment. DEFERRED PAYMENT ENHANCEMENT A Deferred Payment Enhancement is an amount we may add to your contract on a future date (the "Deferred Payment Enhancement Date"). We calculate the Deferred Payment Enhancement amount, if any, as a percentage of each Purchase Payment (the "Deferred Payment Enhancement Rate"). We periodically review and establish the Deferred Payment Enhancement Rates and Deferred Payment Enhancement Dates. The Deferred Payment Enhancement Rate being offered may increase, decrease or be eliminated by us, at any time. The Deferred Payment Enhancement Date, if applicable, may change at any time. The applicable Deferred Payment Enhancement Date and Deferred Payment Enhancement Rate are those which may be in effect for any applicable Enhancement Level, when we receive each Purchase Payment under your contract. Any applicable Deferred Payment Enhancement, when credited, is allocated to the Cash Management portfolio. If you withdraw any portion of a Purchase Payment, to which a Deferred Payment Enhancement applies, prior to the Deferred Payment Enhancement Date, we reduce the amount of the corresponding Deferred Payment Enhancement in the same proportion that your withdrawal (and any fees and charges associated with such withdrawals) reduces that Purchase Payment. For purposes of the Deferred Payment Enhancement, withdrawals are assumed to be taken from earnings first, then from Purchase Payments, on a first-in-first-out basis. APPENDIX B shows how we calculate any Deferred Payment Enhancement. 11 See your financial representative regarding the Current Enhancement Levels and Payment Enhancement Rates. 90 DAY WINDOW Contracts issued with the Seasons Rewards feature may be eligible for a "Look-Back Adjustment." As of the 90th day after your contract was issued, we will total your Purchase Payments made over those 90 days, without considering any investment gain or loss in contract value on those Purchase Payments. If your total Purchase Payments bring you to an Enhancement Level which, as of the date we issued your contract, would have provided for a higher Upfront and/or any applicable Deferred Payment Enhancement Rate on each Purchase Payment, you will get the benefit of the Enhancement Rate(s) that were applicable to that higher Enhancement Level at the time your contract was issued. We will add any applicable Upfront Look Back Adjustment to your contract on the 90th day following the date of contract issue. We will send you a confirmation indicating any applicable Upfront and/or Deferred Look Back Adjustment, on or about the 90th day following the date of contract issuance. We will allocate any applicable Upfront Look Back Adjustment according to your then-current allocation instructions on file for subsequent Purchase Payments at the time we make the contribution. If applicable, any Deferred Look Back Adjustment will be allocated to the Cash Management portfolio. We will not allocate any applicable Deferred Payment Enhancement to your contract if any of the following circumstances occurs prior to the Deferred Payment Enhancement Date: - You surrender your contract; - A death benefit it paid on your contract; - You switch to the Income Phase of your contract; or - You fully withdraw the corresponding Purchase Payment. APPENDIX B provides an example of the 90 Day Window Provision. The Seasons Rewards Program may not be approved for sale in your state or through the broker-dealer with which your financial representative is affiliated. Check with your financial representative regarding the availability of this program. WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE SEASONS REWARDS PROGRAM (IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME. ACCUMULATION UNITS The value of the variable portion of your contract will go up or down depending upon the investment performance of the Variable Portfolios you select. In order to keep track of the value of your contract, we use a unit of measure called an Accumulation Unit which works like a share of a mutual fund. During the Income Phase, we call them Annuity Units. An Accumulation Unit value is determined each day that the New York Stock Exchange ("NYSE") is open. We base the number of units you receive on the unit value of the variable investment option as of the date we receive 12 your money, if we receive it before 1:00 p.m. Pacific Time (PT) and on the next day's unit value if we receive your money after 1:00 p.m. PT. We calculate an Accumulation Unit for each Variable Portfolio after the NYSE closes each day. We do this by: 1. determining the total value of money invested in a particular Variable Portfolio; 2. subtracting from that amount any asset-based charges and any other charges such as taxes we have deducted; and 3. dividing this amount by the number of outstanding Accumulation Units. EXAMPLE (CONTRACTS WITHOUT SEASONS REWARDS): We receive a $25,000 Purchase Payment from you on Wednesday. You allocate the money to the Focus Growth Portfolio. We determine that the value of an Accumulation Unit for the Focus Growth Portfolio is $11.10 when the NYSE closes on Wednesday. We then divide $25,000 by $11.10 and credit your contract on Wednesday night with 2,252.2523 Accumulation Units for the Focus Growth Portfolio. EXAMPLE (CONTRACTS WITH SEASONS REWARDS): We receive a $25,000 Purchase Payment from you on Wednesday. You allocate the money to the Focus Growth Portfolio. If the Upfront Payment Enhancement is 2.00% of your Purchase Payment, we would add an Upfront Payment Enhancement of $500 to your contract. We determine that the value of an Accumulation Unit for the Focus Growth Portfolio is $11.10 when the NYSE closes on Wednesday. We then divide $25,500 by $11.10 and credit your contract on Wednesday with 2,297.2973 Accumulation Units for the Focus Growth Portfolio. FREE LOOK You may cancel your contract within ten days after receiving it (or longer if required by state law). We call this a "free look." To cancel, you must mail the contract along with your free look request to our Annuity Service Center at P.O. Box 54299, Los Angeles, California 90054-0299. Generally we will refund to you the value of your contract on the day we receive your request MINUS any applicable Free Look Payment Enhancement Deduction, if you had elected the Seasons Rewards program. The Free Look Payment Enhancement Deduction is equal of the lesser of (1) the value of any Payment Enhancement(s) on the day we receive your free look request; or (2) the Payment Enhancement amount(s), if any, which we allocated to your contract. Thus, you receive any gain and we bear any loss on any Payment Enhancement(s) if you decide to cancel your contract during the free look period. Certain states require us to return your Purchase Payments upon a free look request. Additionally, all contracts issued as an IRA require the full return of Purchase Payments upon a free look. With respect to those contracts, we reserve the right to put your money in the Cash Management investment option during the free look period and will allocate your money according to your instructions at the end of the applicable free look period. Currently, we do not put your money in the Cash Management investment option during the free look period unless you allocate your money to it. If your contract was issued in a state requiring return of Purchase Payments or as an IRA and you cancel your contract during the free look period, we return the greater of (1) your Purchase Payments; or (2) the value of your contract MINUS the Free Look Payment Enhancement Deduction, if applicable. EXCHANGE OFFERS From time to time, we may offer to allow you to exchange an older variable annuity issued by AIG SunAmerica Life or one of its affiliates, for a newer product with more current features and benefits, also issued by AIG SunAmerica Life or one of its affiliates. Such an exchange offer will be made in accordance with applicable state and federal securities and insurance rules and regulations. We will explain the specific terms and conditions of any such exchange offer at the time the offer is made. 13 INVESTMENT OPTIONS -------------------------------------------------------------------------------- The contract offers Variable Portfolios, and fixed investment options. We designed the contract to meet your varying investment needs over time. You can achieve this by using the Variable Portfolios alone or in concert with the fixed investment options. The Variable Portfolios are only available through the purchase of certain variable annuities. VARIABLE PORTFOLIOS Each of the variable investment options of the contract invests in underlying portfolios of Seasons Series Trust. AIG SunAmerica Asset Management, Corp. ("AIG SAAMCo"), an affiliate of AIG SunAmerica Life, manages Seasons Series Trust. AIG SAAMCo has engaged sub-advisers to provide investment advice for certain of the underlying investment portfolios. YOU SHOULD READ THE PROSPECTUS FOR THE SEASONS SERIES TRUST CAREFULLY BEFORE INVESTING. THE TRUST PROSPECTUS WHICH IS ATTACHED HERETO CONTAINS DETAILED INFORMATION ABOUT THE UNDERLYING INVESTMENT PORTFOLIOS INCLUDING INVESTMENT OBJECTIVE AND RISK FACTORS. SELECT AND FOCUSED PORTFOLIOS The contract offers Select Portfolios, each with a distinct investment objective, utilizing a disciplined investing style to achieve its objective. Each Select Portfolio invests in an underlying investment portfolio of the Seasons Series Trust. Except for the Cash Management portfolio, each underlying portfolio is multi-managed by a team of three money managers, one component of the underlying portfolios is an unmanaged component that tracks a particular target index or subset of an index. The other two components are actively managed. The unmanaged component of each underlying portfolio is intended to balance some of the risks associated with an actively traded portfolio. The contract also currently offers Focused Portfolios. Each multi-managed Focused Portfolio offers you at least three different professional managers, and each of which advises a separate portion of the Focused Portfolio. Each manager actively selects a limited number of stocks that represent their best stock selections. This approach to investing results in a more concentrated portfolio, which will be less diversified than the Select Portfolios, and may be subject to greater market risks. Each underlying Select and Focused Portfolio and the respective managers are:
SELECT PORTFOLIOS LARGE CAP GROWTH MID CAP GROWTH INTERNATIONAL EQUITY AIG Global Investment Corp. AIG Global Investment Corp. AIG Global Investment Corp. Goldman Sachs Asset Management T. Rowe Price Associates, Inc. Goldman Sachs Asset Management Janus Capital Management LLC Wellington Management Company, International LLP Lord, Abbett & Co. LARGE CAP COMPOSITE AIG Global Investment Corp. MID CAP VALUE DIVERSIFIED FIXED INCOME AIG SAAMCo AIG Global Investment Corp. AIG Global Investment Corp. T. Rowe Price Associates, Inc. Goldman Sachs Asset Management AIG SAAMCo Lord, Abbett & Co. Wellington Management Company, LARGE CAP VALUE LLP AIG Global Investment Corp. SMALL CAP T. Rowe Price Associates, Inc. AIG Global Investment Corp. CASH MANAGEMENT Wellington Management Company, Lord Abbett AIG SAAMCo LLP AIG SAAMCo
14
FOCUSED PORTFOLIOS FOCUS GROWTH FOCUS GROWTH & INCOME FOCUS VALUE FOCUS TECHNET Fred Alger Management Harris Associates American Century RCM Capital Marsico Capital L.P. Investment Management Management, LLC Management LLC Marsico Capital Inc. AIG SAAMCo Solomon Brothers Management LLC Third Avenue BAMCO, Inc. Asset Management Thornburg Investment Management, LLC Management, Inc. J.P. Morgan Investment Management Inc.
PORTFOLIO OPERATION Each Select and Focused Portfolio is designed to meet a distinct investment objective facilitated by the management philosophy of three different money managers (except for the Cash Management portfolio). Generally, the Purchase Payments received for allocation to each Select and Focused Portfolio will be allocated equally among the three managers for that Select and Focused Portfolio. Each quarter AIG SAAMCo will evaluate the asset allocation between the three managers of each Select and Focused Portfolio. If AIG SAAMCo determines that the assets have become significantly unequal in allocation among the managers, then the incoming cash flows may be redirected in an attempt to stabilize the allocations. Generally, existing Select and Focused Portfolio assets will not be rebalanced. However, we reserve the right to do so in the event that it is deemed necessary and not adverse to the interests of contract owners invested in the Select and Focused Portfolio. SEASONS STRATEGIES The contract offers multi-manager variable investment Seasons Strategies, each with a different investment objective. We designed the Seasons Strategies utilizing an asset allocation approach to meet your investment needs over time, considering factors such as your age, goals and risk tolerance. However, each Seasons Strategy is designed to achieve different levels of growth over time. Each Seasons Strategy invests in three underlying investment portfolios of the Seasons Series Trust. The allocation of money among these investment portfolios varies depending on the objective of the Seasons Strategy. The underlying investment portfolios of Seasons Series Trust in which the Seasons Strategies invest include the Asset Allocation: Diversified Growth Portfolio, the Stock Portfolio and the Multi-Managed Growth, Multi-Managed Moderate Growth, Multi-Managed Income/Equity and Multi-Managed Income Portfolios (the "Multi-Managed Portfolios"). The Asset Allocation: Diversified Growth Portfolio is managed by Putnam Investment Management, Inc. The Stock Portfolio is managed by T. Rowe Price Associates, Inc. All of the Multi-Managed Portfolios include the same three basic investment components: a growth component managed by Janus Capital Management LLC., a balanced component managed by AIG SunAmerica Asset Management Corp. and a fixed income component managed by Wellington Management Company, LLP. The Growth Seasons Strategy and the Moderate Growth Seasons Strategy also have an aggressive growth component which AIG SAAMCo manages. The percentage that any one of these components represents in each Multi-Managed Portfolio varies in accordance with the investment objective. Each Seasons Strategy uses an investment approach based on asset allocation. This approach is achieved by each Seasons Strategy investing in distinct percentages in three specific underlying funds of the Seasons Series Trust. In turn, the underlying funds invest in a combination of domestic and international stocks, bonds and cash. Based on the percentage allocation to each specific underlying fund and each underlying fund's investment approach, each Seasons Strategy initially has a neutral asset allocation mix of stocks, bonds and cash. SEASONS STRATEGY REBALANCING Each Seasons Strategy is designed to meet its investment objective by allocating a portion of your money to three different investment portfolios. At the beginning of each quarter a rebalancing occurs among the underlying funds to realign each Seasons Strategy with its distinct percentage investment in the three underlying funds. This 15 rebalancing is designed to help maintain the neutral asset allocation mix for each Seasons Strategy. The pie charts on the following pages demonstrate: - the neutral asset allocation mix for each Seasons Strategy; and - the percentage allocation in which each Seasons Strategy invests. On the first business day of each quarter (or as close to such date as is administratively practicable) your money will be allocated among the various investment portfolios according to the percentages set forth on the following pages. Additionally, within each Multi-Managed Portfolio, your money will be rebalanced among the various components. We also reserve the right to rebalance any Seasons Strategy more frequently if rebalancing is, deemed necessary and not adverse to the interests of contract owners invested in such Seasons Strategy. Rebalancing a Seasons Strategy may involve shifting a portion of assets out of underlying investment portfolios with higher returns into underlying investment portfolios with relatively lower returns. 16 GROWTH STRATEGY MODERATE GROWTH STRATEGY GOAL: Long-term growth of capital, allocating its GOAL: Growth of capital through investments in equities, assets primarily to stocks. This Strategy may be best with a secondary objective of conservation of principal by suited for those with longer periods to invest. allocating more of its assets to bonds than the Growth Strategy. This Strategy may be best suited for those nearing Target Asset Allocation: retirement years but still earning income. Stocks 80% Bonds 15% Cash 5% Target Asset Allocation: [GROWTH CHART] Stocks 70% Bonds 25% Cash 5% [MODERATE GROWTH CHART]
BALANCED GROWTH STRATEGY CONSERVATIVE GROWTH STRATEGY GOAL: Focuses on conservation of principal by GOAL: Capital preservation while maintaining some investing in a more balanced weighting of stocks and potential for growth over the long term. This Strategy may bonds, with a secondary objective of seeking a high total be best suited for those with lower investment risk return. This Strategy may be best suited for those tolerance. approaching retirement and with less tolerance for investment risk. Target Asset Allocation: Target Asset Allocation: Stocks 42% Bonds 53% Cash 5% Stocks 55% Bonds 40% Cash 5% [CONSERVATIVE GROWTH CHART] [BALANCED GROWTH CHART]
17 FIXED INVESTMENT OPTIONS Your contract may offer Fixed Account Guarantee Periods ("FAGP") to which you may allocate certain Purchase Payments or contract value. Available guarantee periods may be for different lengths of time (such as 1, 3 or 5 years) and may have different guaranteed interest rates, as noted below. We guarantee the interest rate credited to amounts allocated to any available FAGP and that the rate will never be less than the minimum guaranteed interest rate as specified in your contract. Once established, the rates for specified payments do not change during the guarantee period. We determine the FAGPs offered at any time in our sole discretion and we reserve the right to change the FAGPs that we make available at any time, unless state law requires us to do otherwise. Please check with your financial representative to learn if any FAGPs are currently offered. There are three interest rate scenarios for money allocated to the FAGPs. Each of these rates may differ from one another. Once declared, the applicable rate is guaranteed until the corresponding guarantee period expires. Under each scenario your money may be credited a different rate of interest as follows: - INITIAL RATE: The rate credited to any portion of the initial Purchase Payment allocated to a FAGP. - CURRENT RATE: The rate credited to any portion of the subsequent Purchase Payments allocated to a FAGP. - RENEWAL RATE: The rate credited to money transferred from a FAGP or a Variable Portfolio into a FAGP and to money remaining in a FAGP after expiration of a guarantee period. When a FAGP ends, you may leave your money in the same FAGP or you may reallocate your money to another FAGP or to the Variable Portfolios. If you want to reallocate your money, you must contact us within 30 days after the end of the current interest guarantee period and instruct us as to where you would like the money invested. WE DO NOT CONTACT YOU. IF WE DO NOT HEAR FROM YOU, YOUR MONEY WILL REMAIN IN THE SAME FAGP WHERE IT WILL EARN INTEREST AT THE RENEWAL RATE THEN IN EFFECT FOR THAT FAGP. If you purchased your contract prior to August 2, 2004 and you take money out of any available multi-year FAGP, before the end of the guarantee period, we make an adjustment to your contract. We refer to the adjustment as a market value adjustment ("MVA"). The MVA reflects any difference in the interest rate environment between the time you place your money in the FAGP and the time when you withdraw or transfer that money. This adjustment can increase or decrease your contract value. Generally, if interest rates drop between the time you put your money into a FAGP and the time you take it out, we credit a positive adjustment to your contract. Conversely, if interest rates increase during the same period, we post a negative adjustment to your contract. You have 30 days after the end of each guarantee period to reallocate your funds without incurring any MVA. APPENDIX E shows how we calculate and apply the MVA. If available, you may systematically transfer interest earned in available FAGPs into any of the Variable Portfolios on certain periodic schedules offered by us. If available, these systematic transfers will not count toward the 15 free transfers per contract year. You may change or terminate these systematic transfers by contacting our Annuity Service Center. Check with your financial representative regarding the current availability of this service. All FAGPs may not be available in all states. We reserve the right to refuse any Purchase Payment to available FAGPs if we are crediting a rate equal to the minimum guaranteed interest rate specified in your contract. If you do not elect to participate in the Seasons Rewards program, we may also offer Dollar Cost Averaging Fixed Accounts ("DCAFA"). The rules, restrictions and operation of DCAFAs may differ from the standard FAGPs described above, please see DOLLAR COST AVERAGING below for more details. DOLLAR COST AVERAGING FIXED ACCOUNTS If you do not elect the Seasons Rewards program, you may invest initial and/or subsequent Purchase Payments in DCAFAs, if available. The minimum Purchase Payment that you must invest for the 6-month DCAFA is $600 and $1,200 for the 12-month DCAFA, if such accounts are available. Purchase Payments less than these minimum amounts will automatically be allocated to the Variable Portfolios ("target account(s)") according to your instructions to us or your current allocation on file. DCAFAs also credit a fixed rate of interest but are specifically designed to facilitate a dollar cost averaging program. Interest is credited to amounts allocated to the DCAFAs 18 while your investment is transferred to the Variable Portfolios over certain specified time frames. The interest rates applicable to the DCAFA may differ from those applicable to any available FAGPs but will never be less than the minimum annual guaranteed interest rate as specified in your contract. However, when using a DCAFA the annual interest rate is paid on a declining balance as you systematically transfer your investment to the Variable Portfolios. Therefore, the actual effective yield will be less than the annual crediting rate. We determine the DCAFAs offered at any time in our sole discretion and we reserve the right to change to DCAFAs that we make available at any time, unless state law requires us to do otherwise. See DOLLAR COST AVERAGING PROGRAM below for more information. TRANSFERS DURING THE ACCUMULATION PHASE During the Accumulation Phase you may transfer funds between the Variable Portfolios and/or any available fixed account options. Funds already in your contract cannot be transferred into the DCA fixed accounts. You must transfer at least $500 per transfer. If less than $500 remains in any Variable Portfolio after a transfer, that amount must be transferred as well. We will process any transfer request as of the day we receive it in good order if the request is received before the New York Stock Exchange ("NYSE") closes, generally at 1:00 p.m. Pacific Time. If the transfer request is received after the close of the NYSE, the request will be processed on the next business day. Subject to our rules, restrictions and policies, you may request transfers of your account value between the Variable Portfolios and/or the available fixed account options by telephone or through AIG SunAmerica's website (http://www.aigsunamerica.com) or in writing by mail or facsimile. We allow 15 free transfers per contract per year. We charge $25 ($10 in Pennsylvania and Texas) for each additional transfer in any contract year. Transfers resulting from your participation in the DCA or Asset Rebalancing programs do not count against your 15 free transfers per contract year. This product is not designed for professional organizations or individuals engaged in trading strategies that seek to benefit from short term price fluctuations or price irregularities by making programmed transfers, frequent transfers or transfers that are large in relation to the total assets of the underlying portfolio in which the Variable Portfolios invest. These types of trading strategies can be disruptive to the underlying portfolios in which the Variable Portfolios invest and thereby potentially harmful to investors. In connection with our efforts to control harmful trading, we may monitor your trading activity. If we determine, in our sole discretion, that your transfer patterns among the Variable Portfolios and/or available fixed accounts reflect a potentially harmful trading strategy, we reserve the right to take action to protect other investors. Such action may include, but may not be limited to, restricting the way you can request transfers among the Variable Portfolios, imposing penalty fees on such trading activity, and/or otherwise restricting transfer capability in accordance with state and federal rules and regulations. We will notify you, in writing, if we determine in our sole discretion that we must terminate your transfer privileges. Some of the factors we may consider when determining our transfer policies and/or other transfer restrictions may include, but are not limited to: - the number of transfers made in a defined period; - the dollar amount of the transfer; - the total assets of the Variable Portfolio involved in the transfer; - the investment objectives of the particular Variable Portfolios involved in your transfers; and/or - whether the transfer appears to be part of a pattern of transfers to take advantage of short-term market fluctuations or market inefficiencies. All transfer request in excess of 15 transfers per contract year must be submitted in writing by United States Postal Service first-class mail ("U.S. Mail") until your next contract anniversary. Transfer requests sent by same day mail, overnight mail or courier services will not be accepted. Transfer requests that are required to be submitted by U.S. Mail can only be cancelled by a written request sent by U.S. Mail. Transfers resulting from your participation 19 in the DCA or Asset Rebalancing programs are not included for the purposes of determining the number of transfers for the U.S. Mail requirement. We may accept transfers by telephone or the Internet unless you tell us not to on your contract application. When receiving instructions over the telephone or the Internet, we follow appropriate procedures to provide reasonable assurance that the transactions executed are genuine. Thus, we are not responsible for any claim, loss or expense from any error resulting from instructions received over the telephone or the Internet. If we fail to follow our procedures, we may be liable for any losses due to unauthorized or fraudulent instructions. For information regarding transfers during the Income Phase, see INCOME OPTIONS below. We reserve the right to modify, suspend, waive or terminate this transfer provision at any time. DOLLAR COST AVERAGING PROGRAM The Dollar Cost Averaging ("DCA") program allows you to invest gradually in the variable investment options. Under the program you systematically transfer a set dollar amount or percentage from any Variable Portfolio or DCAFA available (source accounts) to any other Variable Portfolio (target account). Transfers may occur on such periodic schedules such as monthly or weekly. You may change the frequency to other available options at any time by notifying us in writing. Fixed account options are not available as target accounts for the DCA program. The minimum transfer amount under the DCA program is $100 per transfer. We may also offer DCAFAs for a specified time period exclusively to facilitate this program. If you elect to participate in the Seasons Rewards Program, the DCAFAs are not available under your contract. The DCAFAs only accept new Purchase Payments. You cannot transfer money already in your contract into these options. If you allocate a Purchase Payment into DCAFAs, we transfer all your money allocated to that account into the Variable Portfolios you select over the selected time period at an offered frequency of your choosing. The minimum Purchase Payment that you must invest for the 6-month DCAFA is $600 and $1,200 for the 12-month DCAFA, if such accounts are available. Purchase Payments less than these minimum amounts will automatically be allocated to the target account(s) according to your instructions to us or your current allocation instructions on file. You may terminate your DCA program at any time. If money remains in the DCAFA, we transfer the remaining money according to your instructions or to your current allocation on file. Transfers resulting from a termination of this program do not count towards your 15 free transfers. The DCA program is designed to lessen the impact of market fluctuations on your investment. However, we cannot ensure that you will make a profit. When you elect the DCA program, you are continuously investing in securities regardless of fluctuating price levels. You should consider your tolerance for investing through periods of fluctuating price levels. There is no fee for participating in the DCA program. We reserve the right to modify, suspend or terminate this program at any time. EXAMPLE: Assume that you want to gradually move $750 each month from the Cash Management Portfolio to the Mid-Cap Value Select Portfolio over six months. You set up dollar cost averaging and purchase Accumulation Units at the following values:
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
20 You paid an average price of only $6.67 per Accumulation Unit over six months, while the average market price actually was $7.08. By investing an equal amount of money each month, you automatically buy more Accumulation Units when the market price is low and fewer Accumulation Units when the market price is high. This example is for illustrative purposes only. ASSET ALLOCATION REBALANCING PROGRAM Earnings in your contract may cause the percentage of your investment in each investment option to differ from your original allocations. The Automatic Asset Rebalancing Program addresses this situation. At your election, we periodically rebalance your investments in the Variable Portfolios to return your allocations to their original percentages. Asset rebalancing typically involves shifting a portion of your money out of an investment option with a higher return into an investment option with a lower return. At your request, rebalancing occurs on a quarterly, semi-annual or annual basis. Transfers made as a result of rebalancing do not count against your 15 free transfers for the contract year. There is no fee for participating in the Asset Allocation Rebalancing program. We reserve the right to modify, suspend or terminate this program at any time. RETURN PLUS PROGRAM The Return Plus Program, available if we are offering multi-year FAGPs, allows you to invest in one or more of the Variable Portfolios without putting your principal at direct risk. The program accomplishes this by allocating your investment strategically between the fixed investment options (other than the DCA fixed accounts) and the Variable Portfolios you select. You decide how much you want to invest and approximately when you want a return of principal. We calculate how much of your Purchase Payment to allocate to the particular fixed investment option to ensure that it grows to an amount equal to your total principal invested under this program. EXAMPLE: Assume that you want to allocate a portion of your initial Purchase Payment of $100,000 to the fixed investment option. You want the amount allocated to the fixed investment option to grow to $100,000 in 7 years. If the 7-year fixed investment option is offering a 5% interest rate, we will allocate $71,069 to the 7-year fixed investment option to ensure that this amount will grow to $100,000 at the end of the 7-year period. The remaining $28,931 may be allocated among the Variable Portfolios, as determined by you, to provide opportunity for greater growth. We reserve the right to modify, suspend or terminate this program at any time. VOTING RIGHTS AIG SunAmerica Life is the legal owner of the Trust's shares. However, when an underlying portfolio solicits proxies in conjunction with a vote of shareholders, we must obtain your instructions on how to vote those shares. We vote all of the shares we own in proportion to your instructions. This includes any shares we own on our own behalf. Should we determine that we are no longer required to comply with these rules, we will vote the shares in our own right. SUBSTITUTION We may amend your contract due to changes to the investment variable portfolios offered under your contract. For example, we may offer new portfolios, delete portfolios, or stop accepting allocations and/or investments in a particular portfolio. We may move assets and re-direct future premium allocations from one portfolio to another if we receive investor approval through a proxy vote or SEC approval for a fund substitution. This would occur if a portfolio is no longer an appropriate investment for the contract, for reasons such as continuing substandard performance, or for changes to the portfolio manager, investment objectives, risks and strategies, or federal or state laws. The new investment variable Portfolio offered may have different fees and expenses. You will be notified of any upcoming proxies or substitutions that affect your portfolio choices. 21 ACCESS TO YOUR MONEY -------------------------------------------------------------------------------- You can access money in your contract by making a partial or total withdrawal, and/or by receiving income payments during the Income Phase. SEE INCOME OPTIONS BELOW. Generally, we deduct a withdrawal charge applicable to any partial or total withdrawal if a withdrawal comes from the multi year fixed investment options prior to the end of a guarantee period. If you withdraw your entire contract value, we also deduct any applicable premium taxes and a contract maintenance fee. SEE EXPENSES BELOW. We calculate charges due on a total withdrawal on the day after we receive your request and other required paper work. We return your contract value less any applicable fees and charges. The minimum partial withdrawal amount is $1,000. We require that the value left in the contract be at least $500 after the withdrawal. You must send a written withdrawal request to our Annuity Service Center. Unless you provide us with different instructions, partial withdrawals will be made in equal amounts from each Variable Portfolio and the fixed investment option in which your contract is invested. Withdrawals from available fixed investment options prior to the end of the guarantee period may result in a MVA. We may be required to suspend or postpone the payment of a withdrawal for any period of time when: (1) the NYSE is closed (other than customary weekend and holiday closings); (2) trading with the NYSE is restricted; (3) an emergency exists such that disposal of or determination of the value of shares of the Portfolios is not reasonably practicable; (4) the SEC, by order, so permits for the protection of contract owners. Additionally, we reserve the right to defer payments for a withdrawal from a fixed investment option. Such deferrals are limited to no longer than six months. FREE WITHDRAWAL PROVISION Your contract provides for a free withdrawal amount each year. A free withdrawal amount is the portion of your account that we allow you to take out each year without being charged a surrender penalty. However, upon a future full surrender of your contract, any previous free withdrawals would be subject to a surrender charge, if any is applicable at the time of the full surrender (except in the state of Washington). If you participate in the Seasons Rewards Program, you will not receive any applicable Deferred Payment Enhancement if you fully withdraw a Purchase Payment or your contract value prior to the corresponding Deferred Payment Enhancement Date. SEE SEASONS REWARDS PROGRAM ABOVE. To determine your free withdrawal amount and the amount, if any, on which we assess a withdrawal charge, we refer to two special terms. These are penalty-free earnings and the Total Invested Amount. The penalty-free earnings portion of your contract is your account value less your Total Invested Amount. The Total Invested Amount is the total of all Purchase Payments you have made into the contract less portions of some prior withdrawals you made. The portions of prior withdrawals that reduce your Total Invested Amount are as follows: 1. Any prior withdrawals on which you previously paid a withdrawal charge, plus the amount of the withdrawal charge. 2. Any prior free withdrawals in any year that were in excess of your penalty-free earnings and were free because the Purchase Payment withdrawn is no longer subject to surrender charges at the time of the withdrawal. When you make a withdrawal, we assume that it is taken from penalty-free earnings first, then from the Total Invested Amount on a first-in, first-out basis. This means that you can also access your Purchase Payments which are no longer subject to a surrender charge before those Purchase Payments which are still subject to the surrender charge. During your first contract year your free withdrawal amount is the greater of: 1. Your penalty-free earnings, or; 22 2. If you are participating in the Systematic Withdrawal program, a total of 10% of your Total Invested Amount less any prior withdrawals taken during the contract year. After the first contract year, you can take out the greater of the following amounts each year: 1. Your penalty free earnings and any portion of your Total Invested Amount no longer subject to surrender charges, or; 2. 10% of the portion of your Total Invested Amount that has been in your contract for at least one year less any withdrawals taken during the contract year. Purchase Payments withdrawn, above and beyond the amount of your free withdrawal amount, which have been invested for less than 7 years, or 9 years if you elect to participate in the Seasons Rewards Program, will result in your paying a withdrawal charge. The amount of the charge and how it applies are discussed more fully below. You should consider, before purchasing this contract, the effect this charge will have on your investment if you need to withdraw more money than the free withdrawal amount. You should fully discuss this decision with your financial representative. The withdrawal charge percentage applicable is determined by the age of the Purchase Payment being withdrawn. For purposes of calculating the surrender charge in the event of a full surrender, the charge is calculated based on the remaining Total Invested Amount still subject to surrender charge. For example, you make an initial Purchase Payment of $100,000. For purposes of this example, we will assume a 0% growth rate over the life of the contract, no election of the Seasons Rewards Program, Income Protector Program or Seasons Estate Advantage and no subsequent Purchase Payments. In contract year 2 and year 3, you take out your maximum free withdrawal of $10,000 for each year. After those free withdrawals your contract value is $80,000. In contract year 5 you request a full surrender of your contract. We will apply the following calculation, A - (B X C) = D, where: A = Your contract value at the time of your request for surrender ($80,000) B = The amount of your Total Invested Amount still subject to surrender charge ($100,000) C = The withdrawal charge percentage applicable to the age of each Purchase Payment at the time of full surrender (4%) [B X C = $4,000] D = Your full surrender value ($76,000) SYSTEMATIC WITHDRAWAL PROGRAM If you elect, we use money in your contract to pay you monthly, quarterly, semi-annual or annual payments during the Accumulation Phase. Electronic transfer of these funds to your bank account is also available. The minimum amount of each withdrawal is $100 ($250 for Oregon). There must be at least $500 remaining in your contract at all times. Withdrawals may be taxable and a 10% IRS tax penalty may apply if you are under age 59 1/2. Any withdrawals you make using this program count against your free withdrawal amount as described above. Withdrawals in excess of that amount may incur a withdrawal charge. There is no additional charge for participating in this program. The program is not available to everyone. Please check with our Annuity Service Center, which can provide the necessary enrollment forms. We reserve the right to modify, suspend or terminate this program at any time. NURSING HOME WAIVER If you purchased your contract on or about August 2, 2004, and if you are confined to a nursing home for 60 days or longer, we may waive the withdrawal charge and/or market value adjustment on certain withdrawals prior to the Annuity Date (not available in Texas). The waiver applies only to withdrawals made while you are in a nursing home or within 90 days after you leave the nursing home. Your contract prohibits use of this waiver during the first 90 days after you purchase your contract. In addition, the confinement period for which you seek the waiver must begin after you purchase your contract. We will only waive the withdrawal charges on withdrawals or surrenders of contract value paid directly to the owner, not to a third party or other financial services company. 23 In order to use this waiver, you must submit with your withdrawal request, the following documents: (1) a doctor's note recommending admittance to a nursing home; (2) an admittance form which shows the type of facility you entered; and (3) a bill from the nursing home which shows that you met the 60 day confinement requirement. MINIMUM CONTRACT VALUE Where permitted by state law, we may terminate your contract if both of the following occur: (1) your contract is $500 or less as a result of withdrawals; and (2) you have not made any Purchase Payments during the past three years. We will provide you with sixty days written notice. At the end of the notice period, we will distribute the contract's remaining value to you, less any applicable charges. QUALIFIED CONTRACT OWNERS Certain Qualified plans restrict and/or prohibit your ability to withdraw money from your contract. SEE TAXES BELOW for a more detailed explanation. OPTIONAL LIVING BENEFITS -------------------------------------------------------------------------------- YOU MAY ELECT ONE OF THE OPTIONAL LIVING BENEFITS DESCRIBED BELOW. THESE FEATURES ARE DESIGNED TO PROTECT A PORTION OF YOUR INVESTMENT IN THE EVENT YOUR CONTRACT VALUE DECLINES DUE TO UNFAVORABLE INVESTMENT PERFORMANCE DURING THE ACCUMULATION PHASE AND BEFORE A DEATH BENEFIT IS PAYABLE. PLEASE SEE THE DESCRIPTIONS BELOW FOR DETAILED INFORMATION. SEASONS INCOME REWARDS FEATURE What is Seasons Income Rewards? Seasons Income Rewards is an optional feature subject to state availability. If you elect this feature, for which you will be charged an annualized fee, you are guaranteed to receive withdrawals over a minimum number of years that in total equals at least the initial Purchase Payment adjusted for withdrawals, even if the contract value falls to zero. Seasons Income Rewards may offer protection in the event your contract value declines due to unfavorable investment performance. How can I elect the feature? You may elect the feature only at the time of contract issue and must choose either Option 1 or Option 2. The date you elect the feature (which is also the contract issue date) is your BENEFIT EFFECTIVE DATE. The earliest you may begin taking withdrawals under the benefit after a specified waiting period is the BENEFIT AVAILABILITY DATE. You cannot elect the feature if you are age 81 or older on the Benefit Effective Date. Generally, once you elect the feature, it cannot be canceled. The Seasons Income Rewards has rules and restrictions that are discussed more fully below. Seasons Income Rewards is not available if you elect the Seasons Promise. SEE SEASONS PROMISE BELOW. Seasons Income Rewards may not be available in your state or through the broker-dealer with which your financial representative is affiliated. Please check with your financial representative for availability. How is the benefit calculated? There are several components that comprise the integral aspects of this benefit. In order to determine the benefit's value at any point in time, we calculate each of the components as described below. We calculate Eligible Purchase Payments, Withdrawal Benefit Base, Step-Up Amount and Stepped-Up Benefit Base. 24 First, we determine the ELIGIBLE PURCHASE PAYMENTS according to the table below.
------------------------------------------------------------------------------------------- TIME ELAPSED SINCE PERCENTAGE OF ELIGIBLE BENEFIT EFFECTIVE DATE PURCHASE PAYMENTS ------------------------------------------------------------------------------------------- 0-90 Days 100% ------------------------------------------------------------------------------------------- 91 Days + 0% -------------------------------------------------------------------------------------------
Second, we determine the WITHDRAWAL BENEFIT BASE ("WBB"). THE WBB is used to calculate the amount of total guaranteed withdrawals and the annual maximum withdrawal amount available under the benefit. On the Benefit Availability Date, the WBB equals the sum of all Eligible Purchase Payments, reduced for any withdrawals in the same proportion that the withdrawal reduced the contract value on the date of the withdrawal. The WBB does not include any payment enhancements that are offered in association with the Seasons Rewards program. Third, we determine a STEP UP AMOUNT, if any, which is calculated as a specified percentage of the WBB on the Benefit Availability Date. For contracts issued on or after May 19, 2004, you will not receive a Step-Up Amount if you take any withdrawals prior to the Benefit Availability Date. The Step-Up Amount is not considered a Purchase Payment and cannot be used in calculating any other benefits, such as the death benefits, contract values or annuitization value. Fourth, we determine the STEPPED-UP BENEFIT BASE ("SBB") which is the total amount available for withdrawal under the benefit and is used to calculate the minimum time period over which you may take withdrawals under the benefit. The SBB equals the WBB plus the Step-Up Amount. Fifth, we determine the MAXIMUM ANNUAL WITHDRAWAL AMOUNT ("MAWA") which is a stated percentage of the WBB. Finally, we determine the MINIMUM WITHDRAWAL PERIOD ("MWP") which is the minimum period at any point in time over which you may take withdrawals under the benefit. The MWP is calculated by dividing the SBB by the MAWA. The table below is a summary of the two Seasons Income Rewards options we are offering as applicable on the Benefit Availability Date:
------------------------------------------------------------------------------------------------------ MWP* (IF MAWA TAKEN STEP-UP MAWA EACH BENEFIT AVAILABILITY DATE AMOUNT* PERCENTAGE YEAR) ------------------------------------------------------------------------------------------------------ Option 1 3 years following Benefit Effective Date 10% of 10% of WBB 11 years WBB ------------------------------------------------------------------------------------------------------ Option 2 5 Years following Benefit Effective Date 20% of 10% of WBB 12 years WBB ------------------------------------------------------------------------------------------------------
* You will not receive a Step-Up Amount if you take a withdrawal prior to the Benefit Availability Date. The MWP will be 10 years if you do not receive a Step-Up Amount. What is the fee for Seasons Income Rewards? The annualized Seasons Income Rewards fee will be assessed against the WBB and deducted quarterly from your contract value, starting on the first quarter following the Benefit Effective Date and ending upon the termination of the benefit. If your contract value falls to zero before the benefit has been terminated, the fee will no longer be assessed. We will not assess the quarterly fee if you surrender or annuitize before the end of the quarter.
------------------------------------------------------------------------------------------- TIME ELAPSED SINCE THE BENEFIT EFFECTIVE DATE ANNUALIZED FEE ------------------------------------------------------------------------------------------- 0-7 years 0.65% of WBB ------------------------------------------------------------------------------------------- 8+ years 0.45% of WBB -------------------------------------------------------------------------------------------
25 What is the effect of withdrawals on Seasons Income Rewards? The benefit amount, MAWA and MWP may change over time as a result of withdrawal activity. Withdrawals after the Benefit Availability Date equal to or less than the MAWA generally reduce the benefit by the amount of the withdrawal. Withdrawals in excess of the MAWA may reduce the benefit based on the relative size of the withdrawal in relation to the contract value at the time of the withdrawal. This means if investment performance is down and contract value is reduced, withdrawals greater than the MAWA will result in a greater reduction of the benefit. We further explain the impact of withdrawals and the effect on each component of Seasons Income Rewards through the calculations below: CONTRACT VALUE: Any withdrawal reduces the contract value by the amount of the withdrawal. WBB: Withdrawals prior to the Benefit Availability Date reduce the WBB in the same proportion that the contract value was reduced at the time of the withdrawal and eliminate any Step-Up Amount. Withdrawals after the Benefit Availability Date will not reduce the WBB until the sum of withdrawals exceeds the Step-Up amount. Thereafter, any withdrawal or portion thereof that exceeds the Step-Up Amount will reduce the WBB as follows: If the withdrawal does not cause total withdrawals in the Benefit Year to exceed the MAWA, the WBB will be reduced by the amount of the withdrawal. If the withdrawal causes total withdrawals in the Benefit Year to exceed the MAWA, the WBB is reduced to the lesser of (a) or (b), where: a. is the WBB immediately prior to the withdrawal minus the amount of the withdrawal, or; b. is the WBB immediately prior to the withdrawal minus the portion of the withdrawal that makes total withdrawals in that Benefit Year equal to the current MAWA, and further reduced proportionately by the same amount by which the contract value is reduced by the remaining portion of the withdrawal. SBB: Since withdrawals prior to the Benefit Availability Date eliminate any Step-Up Amount, the SBB will be equal to the WBB if you take withdrawals prior to the Benefit Availability Date. After the Benefit Availability Date, any withdrawal that does not cause total withdrawals in a Benefit Year to exceed the MAWA will reduce the SBB by the amount of the withdrawal. After the Benefit Availability Date, any withdrawal that causes total withdrawals in a Benefit Year to exceed the MAWA (in that Benefit Year) reduces the SBB to the lesser of (a) or (b), where: a. is the SBB immediately prior to the withdrawal minus the amount of the withdrawal, or; b. is the SBB immediately prior to the withdrawal minus the amount of the withdrawal that makes total withdrawals in that Benefit Year equal to the current MAWA, and further reduced proportionately by the same amount by which the contract value is reduced by the remaining portion of the withdrawal. MAWA: If the sum of withdrawals in a Benefit Year does not exceed the MAWA for that Benefit Year, the MAWA does not change for the next Benefit Year. If total withdrawals in a Benefit Year exceed the MAWA, the MAWA will be recalculated at the start of the next Benefit Year. The new MAWA will equal the SBB on that Benefit Year anniversary divided by the MWP on that Benefit Year Anniversary. The new MAWA may be lower than your previous MAWAs. MWP: After each withdrawal a new MWP is calculated. If total withdrawals in a Benefit Year are less than or equal to MAWA the new MWP equals the SBB after the withdrawal divided by the current MAWA. During any Benefit Year in which the sum of withdrawals exceeds the MAWA, the new MWP equals the MWP calculated at the end of the prior Benefit Year reduced by one year. Appendix D provides examples of the effect withdrawals have on the Seasons Income Rewards feature. 26 What happens if my contract value is reduced to zero? If the contract value is zero but the SBB is greater than zero, a benefit remains payable under Seasons Income Rewards feature. While a benefit is payable under Seasons Income Rewards until the SBB is reduced to zero, the contract is terminated when the contract value equals zero. At such time, except for Seasons Income Rewards, all benefits of the contract are terminated. In that event, you may not make subsequent Purchase Payments. Therefore, under adverse market conditions, withdrawals under the benefit may reduce the contract value to zero, thereby eliminating any death benefit or future income payments. To receive your remaining Seasons Income Rewards benefit, you may select one of the following options: a. lump sum distribution of the present value of the total remaining guaranteed withdrawals; or b. the current MAWA, paid equally on a quarterly, semi-annual or annual frequency as selected by you until the SBB equals zero; or c. any payment option mutually agreeable between you and us. If you do not select a payment option, the remaining benefit will be paid as the current MAWA on a quarterly basis. What happens to Seasons Income Rewards upon a spousal continuation? A spousal beneficiary of the original owner may elect to continue or cancel Seasons Income Rewards and its accompanying fee. The Benefit Effective Date, Benefit Availability Date, WBB, SBB and any other corresponding component of the feature will not change as a result of a spousal continuation. A Continuation Contribution is not considered an Eligible Purchase Payment for purposes of determining the benefit. SEE SPOUSAL CONTINUATION BELOW. Can my non-spousal beneficiary elect to receive any remaining withdrawals under Seasons Income Rewards upon my death? If the SBB is greater than zero when the original owner dies, a non-spousal beneficiary may elect to continue receiving any remaining withdrawals under the benefit. The Benefit Effective Date, Benefit Availability Date, WBB, SBB and any other corresponding component of the feature will not change. If a contract value remains, the fee for the benefit will continue to be assessed. Electing to receive the remaining withdrawals will terminate any death benefit payable to the non-spousal beneficiary. Can Seasons Income Rewards be cancelled? Once you elect the feature, you may not cancel it. The feature automatically terminates upon the occurrence of one of the following: 1. SBB is equal to zero; or 2. Annuitization of the contract; or 3. Full Surrender of the contract; or 4. Death benefit is paid; or 5. Upon a spousal continuation, the Continuing Spouse elects not to continue the contract with the feature. We reserve the right to terminate this feature if, withdrawals in excess of MAWA in any Benefit Year reduce the SBB by 50% or more. Important Information The Seasons Income Rewards may not guarantee an income stream based on all Purchase Payments made into your contract nor does it guarantee any investment gains. This feature also does not guarantee lifetime income 27 payments. If you plan to make subsequent Purchase Payments over the life of your contract, which are not considered Eligible Purchase Payments under the feature, Seasons Income Rewards does not guarantee a withdrawal of those subsequent Purchase Payments. You may never need to rely on Seasons Income Rewards if your contract performs within a historically anticipated range. However, past performance is no guarantee of future results. Withdrawals under the benefit are treated like any other withdrawal for the purpose of reducing the contract value, free withdrawal amounts and all other benefits, features and conditions of your contract. If you need to or are required to take required minimum distributions ("RMD") under the Internal Revenue Code ("IRC") from this contract prior to the Benefit Availability Date, you should know that withdrawals may negatively impact the value of Seasons Income Rewards. You will not receive a Step-Up Amount if you take withdrawals before the Benefit Availability Date. See WHAT IS THE EFFECT OF WITHDRAWALS ON SEASON INCOME REWARDS above. Any withdrawals taken under this benefit or under the contract, may be subject to a 10% IRS tax penalty if you are under age 59 1/2 at the time of the withdrawal. For information about how the benefit is treated for income tax purposes, you should consult a qualified tax advisor concerning your particular circumstances. The Seasons Income Rewards cannot be elected if you elect the Seasons Promise feature. We reserve the right to limit the maximum WBB to $1 million. Seasons Income Rewards may not be available in your state or through the broker-dealer with which your financial representative is affiliated. Please check with your financial representative for availability. For prospectively issued contracts, we reserve the right to limit the investment options available under the contract if you elect Seasons Income Rewards. We reserve the right to modify, suspend or terminate Seasons Income Rewards (in its entirety or any component) at any time for prospectively issued contracts. SEASONS PROMISE FEATURE What is Seasons Promise? The Seasons Promise is an optional feature of your variable annuity. If you elect this feature, for which you will be charged an annualized fee, at the end of applicable waiting period your contract will be worth at least the amount of your initial Purchase Payment (less adjustments for withdrawals). The Seasons Promise may offer protection in the event that your contract value declines due to unfavorable investment performance in your contract. You may only elect the Seasons Promise feature if you are under age 86. If you elect the Seasons Promise, at the end of the applicable waiting period we will evaluate your contract to determine if a Seasons Promise benefit is payable to you. The applicable waiting period is ten full contract years from your contract issue date. The last day in the waiting period is your benefit date, the date on which we will calculate any Seasons Promise benefit payable to you. How can I elect the feature? You may only elect this feature at the time your contract is issued, so long as the applicable waiting period prior to receiving the benefit ends before your latest Annuity Date. You can elect this feature on your contract application. The effective date for this feature will be your contract issue date. Seasons Promise is not available if you elect the Seasons Income Rewards. SEE SEASONS INCOME REWARDS ABOVE. The Seasons Promise feature may not be available in your state or through the broker-dealer with which your financial representative is affiliated. Please check with your financial representative for availability. Can Seasons Promise be cancelled? Generally, this feature and its corresponding charge cannot be cancelled or terminated prior to the end of the waiting period. The feature terminates automatically following the end of the waiting period. In addition, the 28 Seasons Promise will no longer be available and no benefit will be paid if a death benefit is paid or if the contract is fully surrendered or annuitized before the end of the waiting period. How is the benefit calculated? The Seasons Promise is a one-time adjustment to your contract value in the event that your contract value at the end of the waiting period is less than the guaranteed amount. The amount of the benefit payable to you, if any, at the end of the waiting period will be based upon the amount of your initial Purchase Payment and may also include certain portions of subsequent Purchase Payments contributed to your contract over specified periods of time, as follows:
PERCENTAGE OF PURCHASE PAYMENTS INCLUDED IN THE TIME ELAPSED SINCE EFFECTIVE DATE SEASONS PROMISE BENEFIT CALCULATION --------------------------------- ----------------------------------------------- 0-90 days 100% 91+ days 0%
The Seasons Promise benefit calculation is equal to your Seasons Promise Base, as defined below, minus your Contract Value on the benefit date. If the resulting amount is positive, you will receive a benefit under the feature. If the resulting amount is negative, you will not receive a benefit. Your Seasons Promise Base is equal to (a) minus (b) where: (a) is the Purchase Payments received on or after the effective date multiplied by the applicable percentages in the table above, and; (b) is an adjustment for all withdrawals and applicable fees and charges made subsequent to the effective date, in an amount proportionate to the amount by which the withdrawal decreased the contract value at the time of the withdrawal. Payment Enhancements under the Seasons Rewards feature are not considered Purchase Payments and are not used in the calculation of the Seasons Promise Base. We will allocate any benefit amount contributed to the contract value on the benefit date to the Cash Management portfolio. Any Seasons Promise benefit paid is not considered a Purchase Payment for purposes of calculating other benefits. Benefits based on earnings, such as Earnings Advantage, will continue to define earnings as the difference between contract value and Purchase Payments adjusted for withdrawals. For information about how the benefit is treated for income tax purposes, you should consult a qualified tax advisor for information concerning your particular circumstances. What is the fee for Seasons Promise? Seasons Promise is an optional feature. If elected, you will incur an additional charge for this feature. The annualized charge will be deducted from your contract value on a quarterly basis throughout the waiting period, beginning at the end of the first contract quarter following the effective date of the feature and up to and including on the benefit date. Once the feature is terminated, as discussed above, the charge will no longer be deducted. We will also not assess the quarterly fee if you surrender or annuitize before the end of the quarter.
CONTRACT YEAR ANNUALIZED FEE* ------------- --------------- 0-7 0.50% 8-10 0.25% 11+ None
--------------- * As a percentage of your contract value minus Purchase Payments received after the 90th day since the purchase of your contract. The amount of this charge is subject to change at any time for prospectively issued contracts. 29 What Happens to Seasons Promise upon a Spousal Continuation? If your qualified spouse chooses to continue this contract upon your death, this benefit cannot be terminated. The effective date, the waiting period and the corresponding benefit payment date will not change as a result of a spousal continuation. SEE SPOUSAL CONTINUATION BELOW. Important Information The Seasons Promise feature may not guarantee a return of all of your Purchase Payments. If you plan to add subsequent Purchase Payments over the life of your contract, you should know that the Seasons Promise would not protect the majority of those payments. Since the Seasons Promise feature may not guarantee a return of all Purchase Payments at the end of the waiting period, it is important to realize that subsequent Purchase Payments made into the contract may decrease the value of the Seasons Promise benefit. For example, if near the end of the waiting period your Seasons Promise Base is greater than your contract value, and you then make a subsequent Purchase Payment that causes your Contract Value to be larger than your Seasons Promise Base on your benefit date, you will not receive any benefit even though you have paid for the Seasons Promise feature throughout the waiting period. You should discuss subsequent Purchase Payments with your financial representative as such activity may reduce the value of this Seasons Promise benefit. We reserve the right to modify, suspend or terminate the Seasons Promise feature (in its entirety or any component) at any time for prospectively issued contracts. DEATH BENEFIT -------------------------------------------------------------------------------- If you die during the Accumulation Phase of your contract, we pay a death benefit to your Beneficiary. At the time you purchase your contract, you must select one of the two death benefits options described below. Once selected, you cannot change your death benefit option. You should discuss the available options with your financial representative to determine which option is best for you. We will not pay a Deferred Payment Enhancement, if available, on a Purchase Payment if you die before the corresponding Deferred Payment Enhancement Date. SEE SEASONS REWARDS PROGRAM ABOVE. We do not pay the death benefit if you die after you switch to the Income Phase. However, if you die during the Income Phase, your Beneficiary receives any remaining guaranteed income payments in accordance with the income option you selected. SEE INCOME OPTIONS BELOW. You designate your Beneficiary to receive any death benefit payments. You may change the Beneficiary at any time, unless you previously made an irrevocable Beneficiary designation. We calculate and pay the death benefit when we receive all required paperwork and satisfactory proof of death. We consider the following satisfactory proof of death: 1. a certified copy of the death certificate; or 2. a certified copy of a decree of a court of competent jurisdiction as to the finding of death; or 3. a written statement by a medical doctor who attended the deceased at the time of death; or 4. any other proof satisfactory to us. If the Annuitant dies before the annuity payments begin, you can name a new Annuitant. If no Annuitant is named within 30 days, you will become the Annuitant. However, if the owner is a non-natural person (for example, a trust), then the death of the Annuitant will be treated as the death of the owner, no new Annuitant may be named and the death benefit will be paid. If the Beneficiary is the spouse of a deceased owner, he or she can elect to continue the Contract. SEE SPOUSAL CONTINUATION BELOW. 30 If a Beneficiary does not elect a specific form of pay out within 60 days of our receipt of all required paperwork and satisfactory proof of death, we pay a lump sum death benefit to the Beneficiary. The death benefit may be paid immediately in the form of a lump sum payment or paid under one of the available Income Options. PLEASE SEE INCOME OPTIONS BELOW. A Beneficiary may also elect to continue the contract and take the death benefit amount in a series of payments based upon the Beneficiary's life expectancy under the Extended Legacy program described below, subject to the applicable Internal Revenue Code distribution requirements. Payments must begin under the selected Income Option or the Extended Legacy program no later than the first anniversary of your death for non-qualified contracts or December 31st of the year following the year of your death for IRAs. Your Beneficiary cannot participate in the Extended Legacy program if your Beneficiary has already elected another settlement option. Beneficiaries who do not begin taking payments within these specified time periods will not be eligible to elect an Income Option or participate in the Extended Legacy program. EXTENDED LEGACY PROGRAM AND BENEFICIARY CONTINUATION OPTIONS The Extended Legacy program can allow a Beneficiary to take the death benefit amount in the form of income payments over a longer period of time with the flexibility to withdraw more than the IRS required minimum distribution if they wish. The contract continues in the original owner's name for the benefit of the Beneficiary. The Extended Legacy program allows the Beneficiary to take distributions in the form of a series of payments similar to the required minimum distributions under an IRA. Generally, IRS required minimum distributions must be made at least annually over a period not to exceed the Beneficiary's life expectancy as determined in the calendar year after your death. Under this program, a Beneficiary may withdraw all or a portion of the contract value at any time, name their own beneficiary to receive any remaining unpaid interest in the contract in the event of their death and make transfers among investment options. If the contract value is less than the death benefit amount as of the date we receive satisfactory proof of death and all required paperwork, we will increase the contract value by the amount which the death benefit exceeds contract value. Participation in the program may impact certain features of the contract that are detailed in the Death Claim Form. Please see your financial representative for additional information. Alternatively to the Extended Legacy program, the Beneficiary may also elect to receive the death benefit under a 5-year option. The Beneficiary may take withdrawals as desired, but the entire contract value must be distributed by the fifth anniversary of your death for Non-qualified contracts or by December 31st of the year containing the fifth anniversary of your death for IRAs. For IRAs, the five-year option is not available if the date of death is after the required beginning date for distributions (April 1 of the year following the year the owner reaches the age of 70 1/2). Please consult your tax advisor regarding tax implications and your particular circumstances. DEFINED TERMS The term Net Purchase Payment is used frequently in explaining these death benefit options. Net Purchase Payments is an on-going calculation. It does not represent a contract value. We define Net Purchase Payments as Purchase Payments less an Adjustment for each withdrawal. If you have not taken any withdrawals from your contract, Net Purchase Payments equals total purchase payments into your contract. To calculate the Adjustment amount for the first withdrawal made under the contract, we determine the percentage by which the withdrawal reduced the contract value. For example, a $10,000 withdrawal from a $100,000 contract is a 10% reduction in value. This percentage is calculated by dividing the amount of each withdrawal (and any applicable fees and charges) by the contract value immediately before taking the withdrawal. The resulting percentage is then multiplied by the amount of the total Purchase Payments and subtracted from the amount of the total Purchase Payments on deposit at the time of the withdrawal. The resulting amount is the initial Net Purchase Payment. To arrive at the Net Purchase Payment calculation for subsequent withdrawals, we determine the percentage by which the contract value is reduced by taking the amount of the withdrawal in relation to the contract value 31 immediately before taking the withdrawal. We then multiply the Net Purchase Payment calculation as determined prior to the withdrawal, by this percentage. We subtract that result from the Net Purchase Payment calculation as determined prior to the withdrawal to arrive at all subsequent Net Purchase Payment calculations. The term "withdrawals" as used in describing the death benefit options below is defined as withdrawals and the fees and charges applicable to those withdrawals. IF YOU PURCHASED YOUR CONTRACT ON OR ABOUT AUGUST 2, 2004, SUBJECT TO STATE AVAILABILITY, THE FOLLOWING DEATH BENEFIT PROVISIONS APPLY: STANDARD DEATH BENEFIT If your contract is issued prior to your 83rd birthday, the standard death benefit on your contract is the greater of: 1. Contract Value; or 2. Net Purchase Payments received prior to your 86th birthday. If your contract is issued on or after your 83rd birthday but prior to your 86th birthday, the standard death benefit on your contract is the greater of: 1. Contract Value; or 2. The lesser of: a. Net Purchase Payments received prior to your 86th birthday; or b. 125% of Contract Value OPTIONAL SEASONS ESTATE ADVANTAGE DEATH BENEFIT For an additional fee, you may elect one of the Seasons Estate Advantage benefits below, which can provide greater protection for your beneficiaries. If you elect one of the Seasons Estate Advantage benefits, you must choose either Option 1 or Option 2 at the time you purchase your contract and you cannot change your election thereafter at anytime. The fee for the Seasons Estate Advantage benefit is 0.15% of the average daily ending value of the assets you have allocated to the Variable Portfolios. OPTION 1 - PURCHASE PAYMENT ACCUMULATION OPTION If the contract is issued prior to your 75th birthday, the death benefit is the greatest of: 1. Contract value; or 2. Net Purchase Payments, compounded at 3% annual growth rate to the earlier of the 75th birthday or the date of death, plus Net Purchase Payments received after the 75th birthday but prior to the 86th birthday or date of death; or 3. Contract value on the seventh contract anniversary, reduced for withdrawals since the seventh contract anniversary in the same proportion that the contract value was reduced on the date of such withdrawal, plus Net Purchase Payments received between the seventh contract anniversary but prior to the 86th birthday. The Purchase Payment Accumulation Option can only be elected prior to your 75th birthday. OPTION 2 - MAXIMUM ANNIVERSARY VALUE OPTION If the contract is issued prior to your 83rd birthday, the death benefit is the greatest of: 1. Contract value; or 2. Net Purchase Payments received prior to your 86th birthday; or 32 3. Maximum anniversary value on any contract anniversary prior to your 83rd birthday. The anniversary values equal the contract value on a contract anniversary plus any Purchase Payments since that anniversary but prior to your 86th birthday; and reduced for any withdrawals since that contract anniversary in the same proportion that the withdrawal reduced the contract value on the date of the withdrawal. The Maximum Anniversary option may only be elected prior to your 83rd birthday. If you are age 90 or older at the time of death and selected the Maximum Anniversary Value Option, the death benefit will be equal to the contract value. Accordingly, you will not get any benefit from this option if you are age 90 or older at the time of your death. OPTIONAL EARNINGS ADVANTAGE BENEFIT The Earnings Advantage benefit, if elected, may increase your death benefit amount. In order to elect the Earnings Advantage, you must have also elected one of the optional Seasons Estate Advantage benefits described above. If you have earnings in your contract at the time of death, we will add a percentage of those earnings (the "Earnings Advantage Percentage"), subject to a maximum dollar amount (the "Maximum Earnings Advantage Percentage"), to the death benefit payable. The contract year of your death will determine the Earnings Advantage Percentage and the Maximum Earnings Advantage Percentage. The table below provides the details if you are age 69 or younger at the time we issue your contract:
------------------------------------------------------------------------------------------ EARNINGS ADVANTAGE CONTRACT YEAR OF DEATH PERCENTAGE MAXIMUM EARNINGS ADVANTAGE PERCENTAGE ------------------------------------------------------------------------------------------ Years 0-4 25% of earnings 40% of Net Purchase Payments ------------------------------------------------------------------------------------------ Years 5-9 40% of earnings 65% of Net Purchase Payments* ------------------------------------------------------------------------------------------ Years 10+ 50% of earnings 75% of Net Purchase Payments* ------------------------------------------------------------------------------------------
If you are between your 70th and 81st birthdays at the time we issue your contract the table below shows the available Earnings Advantage benefit:
------------------------------------------------------------------------------------------ EARNINGS ADVANTAGE CONTRACT YEAR OF DEATH PERCENTAGE MAXIMUM EARNINGS ADVANTAGE PERCENTAGE ------------------------------------------------------------------------------------------ All Contract Years 25% of earnings 40% of Net Purchase Payments* ------------------------------------------------------------------------------------------
* Purchase Payments received after the 5th contract anniversary must remain in the contract for at least 6 full months to be included as part of Net Purchase Payments for the purpose of the Maximum Earnings Advantage calculation. What is the Contract Year of Death? Contract Year of Death is the number of full 12 month periods beginning with the date your contract is issued and ending on the date of death. What is the Earnings Advantage Percentage Amount? We determine the amount of the Earnings Advantage benefit, based on a percentage of the earnings in your contract at the time of your death. For the purpose of this calculation, earnings equals contract value minus Net Purchase Payments as of the date of death. If the earnings amount is negative, no Earnings Advantage amount will be added. What is the Maximum Earnings Advantage Amount? The Earnings Advantage is subject to a maximum dollar amount. The maximum Earnings Advantage amount is equal to a percentage of your Net Purchase Payments. You must elect Earnings Advantage at the time of contract application. Once elected, you may not terminate or change this election. 33 We assess a 0.25% fee for Earnings Advantage. On a daily basis we deduct this annual charge from the average daily ending value of the assets you have allocated to the Variable Portfolios. Earnings Advantage is not available if you are age 81 or older at the time we issue your contract. Furthermore, a Continuing Spouse cannot continue with Earnings Advantage if he/she is age 81 or older on the Continuation Date. SEE SPOUSAL CONTINUATION BELOW. The Earnings Advantage is not payable after the latest Annuity Date. You may pay for the Earnings Advantage and your beneficiary may never receive the benefit if you live past the latest Annuity Date. SEE INCOME OPTIONS BELOW. Earnings Advantage may not be available in your state or through the broker-dealer with which your financial representative is affiliated. See your financial representative for information regarding availability. WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE EARNINGS ADVANTAGE BENEFIT (IN ITS ENTIRETY OR ANY COMPONENT AT ANY TIME) AT ANY TIME FOR PROSPECTIVELY ISSUED CONTRACTS. IF YOU PURCHASED YOUR CONTRACT PRIOR TO AUGUST 2, 2004, THE FOLLOWING DEATH BENEFIT PROVISIONS APPLY: STANDARD DEATH BENEFIT The standard death benefit on your contract, if you are age 74 or younger at the time of death, is the greater of: 1. Net Purchase Payments compounded at a 3% annual growth rate from the date of issue until the date of death, plus any Purchase Payments recorded after the date of death; and reduced for any withdrawals (and fees and charges applicable to those withdrawals) recorded after the date of death, in the same proportion that the withdrawal reduced the contract value on the date of the withdrawal. 2. the contract value on the date we receive all required paperwork and satisfactory proof of death. If you are age 75 or older at the time of death, the death benefit is the greater of: 1. Net Purchase Payments compounded at a 3% annual growth rate from date of issue until the your 75th birthday, plus any Purchase Payments recorded after the 75th birthday; and reduced for any withdrawals (and fees and charges applicable to those withdrawals) recorded after the 75th birthday, in the same proportion that the withdrawal reduced the contract value on the date of the withdrawal. 2. the contract value at the time we receive all required paperwork and satisfactory proof of death. SEASONS ESTATE ADVANTAGE The Seasons Estate Advantage is an optional feature that offers a choice between two enhanced death benefits, each of which includes an Earnings Advantage component. You must elect Seasons Estate Advantage at the time we issue your contract and once elected it cannot be terminated by you. Seasons Estate Advantage is not available if you are age 81 or older at the time of contract issue. If you elect Seasons Estate Advantage, we will pay your Beneficiary the sum of A plus B, where: A. is the amount payable under the selected enhanced death benefit (see option 1 or 2 below); and B. is the amount payable, if any, under the Earnings Advantage benefit. A. ENHANCED DEATH BENEFIT OPTIONS: 1. 5% Accumulation Option -- the death benefit is the greater of: a. the contract value on the date we receive all required paperwork and satisfactory proof of death; or b. Net Purchase Payments compounded to the earlier of the 80th birthday or the date of death, at a 5% annual growth rate, plus any Purchase Payments recorded after the 80th birthday or the date of death; 34 and reduced for any withdrawals (and fees and charges applicable to those withdrawals) recorded after the 80th birthday or the date of death, in the same proportion that the withdrawal reduced the contract value on the date of the withdrawal, up to a maximum benefit of two times the Net Purchase Payments made over the life of your contract. If you die after the Latest Annuity Date and you selected the 5% Accumulation option, any death benefit payable under the contract will be the Standard Death Benefit as described above. Therefore, your beneficiary will not receive any benefit from Seasons Estate Advantage. The 5% Accumulation option may not be available in all states. 2. Maximum Anniversary Value Option -- the death benefit is the greater of: a. Net Purchase Payments; or b. the contract value on the date we receive all required paperwork and satisfactory proof of death; or c. the maximum anniversary value on any contract anniversary prior to your 81st birthday. The anniversary value equals the contract value on a contract anniversary increased by any Purchase Payments recorded after that anniversary; and reduced for any withdrawals (and fees and charges applicable to those withdrawals) recorded after the anniversary, in the same proportion that the withdrawal reduced the contract value on the date of the withdrawal. If you are age 90 or older at the time of death and you had selected the Maximum Anniversary Value option, the death benefit will be equal to the contract value on the date we receive all required paperwork and satisfactory proof of death. Therefore, your beneficiary will not receive any benefit from Season's Estate Advantage. The Maximum Anniversary Value option may not be available in all states. B. EARNINGS ADVANTAGE BENEFIT: The Earnings Advantage benefit may increase the death benefit amount. If you have earnings in your contract at the time of death, we will add a percentage of those earnings (the "Earnings Advantage Percentage"), subject to a maximum dollar amount (the "Maximum Earnings Advantage Percentage"), to the death benefit payable. The Contract Year of Death will determine the Earnings Advantage Percentage and the Maximum Earnings Advantage Percentage, as set forth below:
-------------------------------------------------------------------------------------------- EARNINGS ADVANTAGE CONTRACT YEAR OF DEATH PERCENTAGE MAXIMUM EARNINGS ADVANTAGE PERCENTAGE -------------------------------------------------------------------------------------------- Years 0-4 25% of earnings 25% of Net Purchase Payments -------------------------------------------------------------------------------------------- Years 5-9 40% of earnings 40% of Net Purchase Payments* -------------------------------------------------------------------------------------------- Years 10+ 50% of earnings 50% of Net Purchase Payments* --------------------------------------------------------------------------------------------
* Purchase Payments must be invested for at least six months at the time of your death to be included as part of Net Purchase Payments for the purposes of the Maximum Earnings Advantage calculation. What is the Contract Year of Death? Contract Year of Death is the number of full 12 month periods beginning with the date your contract is issued and ending on the date of death. What is the Earnings Advantage Percentage Amount? We determine the amount of the Earnings Advantage based upon a percentage of earnings in your contract at the time of your death. For the purpose of this calculation, earnings are defined as (1) minus (2) where (1) equals the contract value on the date of death; and (2) equals Net Purchase Payments. 35 What is the Maximum Earnings Advantage? The Earnings Advantage amount is subject to a maximum. The maximum Earnings Advantage amount is equal to a percentage of your Net Purchase Payments. The Earnings Advantage feature may not be available in all states. If you elect the 5% Accumulation enhanced death benefit option or the Maximum Anniversary enhanced death benefit, the Earnings Advantage benefit will only be paid if your date of death is prior to your Latest Annuity Date. We assess a fee for Seasons Estate Advantage. We deduct daily the annual charge of 0.25% of the average daily ending value of the assets you have allocated to the Variable Portfolios. This fee will terminate, if the benefit is no longer available to you based on your age, as discussed above. In the state of Washington only the Maximum Anniversary Value component of the Seasons Estate Advantage death benefit is available. Neither the 5% Accumulation nor the Earnings Advantage is available in Washington. The fee charged for the Maximum Anniversary Value option in Washington is 0.25% of the average daily ending value of the assets allocated to the Variable Portfolios. WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE SEASONS ESTATE ADVANTAGE FEATURE (IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME ON PROSPECTIVELY ISSUED CONTRACTS. SPOUSAL CONTINUATION If you are the original owner of the contract and the Beneficiary is your spouse, your spouse may elect to continue the contract after your death. The spouse becomes the new owner ("Continuing Spouse"). Generally, the contract and its elected features, if any, remain the same. The Continuing Spouse is subject to the same fees, charges and expenses applicable to the original owner of the contract. A spousal continuation can only take place upon the death of the original owner of the contract. To the extent that the Continuing Spouse invests in the Variable Portfolios or the available multi-year FAGPs, they will be subject to investment risk as was the original owner. Upon a spouse's continuation of the contract, we will contribute to the contract value an amount by which the death benefit that would have been paid to the beneficiary upon the death of the original owner exceeds the contract value ("Continuation Contribution"), if any. We calculate the Continuation Contribution as of the date of the original owner's death. We will add the Continuation Contribution as of the date we receive both the Continuing Spouse's written request to continue the contract and proof of death of the original owner in a form satisfactory to us ("Continuation Date"). The Continuation Contribution is not considered a Purchase Payment for the purposes of any other calculations except as explained in Appendix D. Generally, the age of the Continuing Spouse on the Continuation Date and on the date of the Continuing Spouse's death will be used in determining any future death benefits under the Contract. The Continuing Spouse, generally, cannot change any contract provisions as the new owner. However, on the Continuation Date, the Continuing Spouse may terminate the original owner's election of the Earnings Advantage benefit. We will terminate the Earnings Advantage benefit if the Continuing Spouse is age 81 or older on the Continuation Date. If the Earnings Advantage benefit is terminated or if the Continuing Spouse dies after the latest Annuity Date, no benefit will be payable under the Earnings Advantage benefit. SEE APPENDIX C FOR A DISCUSSION OF THE DEATH BENEFIT CALCULATIONS AFTER A SPOUSAL CONTINUATION. WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE SPOUSAL CONTINUATION PROVISION (IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME FOR PROSPECTIVELY ISSUED CONTRACTS. 36 EXPENSES -------------------------------------------------------------------------------- There are charges and expenses associated with your contract. These charges and expenses reduce your investment return. We will not increase the contract maintenance fee or withdrawal charges under your contract. However the investment charges under your contract may increase or decrease. Some states may require that we charge less than the amounts described below. SEPARATE ACCOUNT CHARGES The Company deducts separate account charges in the amount of 1.40% annually of the value of your contract invested in the Variable Portfolios. We deduct the charge daily. These charges compensate the Company for the mortality and expense risk and the costs of contract distribution assumed by the Company. Generally, the mortality risks assumed by the Company arise from its contractual obligations to make income payments after the Annuity Date and to provide a death benefit. The expense risk assumed by the Company is that the costs of administering the contracts and the Separate Account will exceed the amount received from the administrative fees and charges assessed under the contract. If these charges do not cover all of our expenses, we will pay the difference. Likewise, if these charges exceed our expenses, we will keep the difference. The Insurance Charge is expected to result in a profit. Profit may be used for any legitimate cost/expense including distribution, depending upon market conditions. WITHDRAWAL CHARGES During the Accumulation Phase you may make withdrawals from your contract. However, a withdrawal charge may apply. We apply a withdrawal charge upon an early withdrawal against each Purchase Payment you put into the contract. The withdrawal charge equals a percentage of the Purchase Payment you take out of the contract. The contract does provide a free withdrawal amount every year. SEE ACCESS TO YOUR MONEY ABOVE. The withdrawal charge percentage declines each year a Purchase Payment is in the contract, as follows: WITHDRAWAL CHARGE WITHOUT THE SEASONS REWARDS PROGRAM (SCHEDULE A)
YEAR 1 2 3 4 5 6 7 8+ ----------------- --- --- --- --- --- --- --- --- Withdrawal Charge......... 7% 6% 6% 5% 4% 3% 2% 0%
WITHDRAWAL CHARGE WITH THE SEASONS REWARDS PROGRAM (SCHEDULE B)
YEAR 1 2 3 4 5 6 7 8 9 10+ ----------------- --- --- --- --- --- --- --- --- --- --- Withdrawal Charge......... 9% 8% 7% 6% 6% 5% 4% 3% 2% 0%
After a Purchase Payment has been in the contract for seven complete years, or nine complete years if you elect to participate in the Seasons Rewards Program, the withdrawal charge no longer applies to that Purchase Payment. When calculating the withdrawal charge, we treat withdrawals as coming first from the Purchase Payments that have been in your contract the longest. However, for tax purposes, your withdrawals are considered earnings first, then Purchase Payments. The Seasons Rewards Program is designed to reward long term investing. We expect that if you remain committed to this investment over the long term, we will profit as a result of fees charged over the life of your contract. However, neither the mortality and expense fees, distribution expenses, contract administration fee nor investment management fees are higher on the Seasons Rewards Program than contracts that do not feature the Program. Whenever possible, we deduct the withdrawal charge from the money remaining in your contract from each of your investment options on a pro-rata basis. If you withdraw all of your contract value, we deduct any applicable withdrawal charges from the amount withdrawn. We will not assess a withdrawal charge for money withdrawn to pay a death benefit. We do not currently assess a withdrawal charge upon election to receive income payments from your contract. Withdrawals made prior to age 59 1/2 may result in tax penalties. SEE TAXES BELOW. 37 INVESTMENT CHARGES Investment Management Fees Charges are deducted from the assets of the investment portfolios underlying the Variable Portfolios for the advisory and other expenses of the portfolios. SEE FEE TABLES ABOVE. 12b-1 Fees Portfolio shares are all subject to fees imposed under a servicing plan adopted by the Seasons Series Trust pursuant to Rule 12b-1 under the Investment Company Act of 1940. The service fee of 0.25% (also known as a 12b-1 fee) is used generally to pay financial intermediaries for services provided over the life of the contract. If your contract was issued prior to November 17, 2003, the service fee is 0.15%. FOR MORE DETAILED INFORMATION ON THESE INVESTMENT CHARGES, REFER TO THE ATTACHED PROSPECTUS FOR THE SEASONS SERIES TRUST. CONTRACT MAINTENANCE FEE During the Accumulation Phase, we subtract a contract maintenance fee from your account once per year. This charge compensates us for the cost of contract administration. If your contract value is $50,000 or more on your contract anniversary date, we are currently waiving this charge. This waiver is subject to change without notice. We will deduct the $35 ($30 in North Dakota) contract maintenance fee on a pro-rata basis from your account value on your contract anniversary. In the states of Pennsylvania, Texas and Washington a contract maintenance fee will be deducted pro-rata from the Variable Portfolios in which you are invested, only. If you withdraw your entire contract value, we deduct the fee from that withdrawal. TRANSFER FEE We currently permit 15 free transfers between investment options each contract year. We charge you $25 for each additional transfer that contract year ($10 in Pennsylvania and Texas). SEE INVESTMENT OPTIONS ABOVE. OPTIONAL SEASONS INCOME REWARDS FEE The annualized Seasons Income Rewards fee is calculated as a percentage of your Withdrawal Benefit Base. The fee will be assessed and deducted periodically from your contract value, starting on the first quarter following the Benefit Effective Date and ending upon the termination of the benefit. If your contract falls to zero before the benefit has been terminated, the fee will no longer be assessed.
TIME ELAPSED SINCE BENEFIT EFFECTIVE DATE ANNUALIZED FEE ---------------------- -------------- 0-7 years 0.65% 8+ years 0.45%
OPTIONAL SEASONS PROMISE FEE The fee for the option Seasons Promise feature is calculated as a percentage of your contract value minus purchase payments received after the 90th day since the purchase of your contract. The amount of this charge is subject to change at any time for prospectively issued contracts.
CONTRACT YEAR ANNUALIZED FEE* ------------- --------------- 0-7 0.50% 8-10 0.25% 11+ None
38 OPTIONAL SEASONS ESTATE ADVANTAGE FEE The fee for the optional Seasons Estate Advantage benefits is 0.15% of the average daily ending value of the assets you have allocated to the Variable Portfolios. OPTIONAL EARNINGS ADVANTAGE FEE We charge 0.25% for the optional Earnings Advantage benefit. On a daily basis we deduct this charge from the average daily ending value of the assets you have allocated to the Variable Portfolios. PREMIUM TAX Certain states charge the Company a tax on the premiums you pay into the contract ranging from 0% to 3.5%. We deduct from your contract these premium tax charges where applicable. Currently we deduct the charge for premium taxes when you fully surrender or annuitize the contract. In the future, we may assess this deduction at the time you put Purchase Payment(s) into the contract or upon payment of a death benefit. INCOME TAXES We do not currently deduct income taxes from your contract. We reserve the right to do so in the future. REDUCTION OR ELIMINATION OF CHARGES AND EXPENSES, AND ADDITIONAL AMOUNTS CREDITED Sometimes sales of the contracts to groups of similarly situated individuals may lower our administrative and/or sales expenses. We reserve the right to reduce or waive certain charges and expenses when this type of sale occurs. In addition, we may also credit additional interest to policies sold to such groups. We determine which groups are eligible for such treatment. Some of the criteria we evaluate to make a determination are: size of the group; amount of expected Purchase Payments; relationship existing between us and prospective purchaser; nature of the purchase; length of time a group of contracts is expected to remain active; purpose of the purchase and whether that purpose increases the likelihood that our expenses will be reduced; and/or any other factors that we believe indicate that administrative and/or sales expenses may be reduced. AIG SunAmerica Life may make such a determination regarding sales to its employees, it affiliates' employees and employees of currently contracted broker-dealers; its registered representatives and immediate family members of all of those described. We reserve the right to change or modify any such determination or the treatment applied to a particular group, at any time. INCOME OPTIONS -------------------------------------------------------------------------------- ANNUITY DATE During the Income Phase, the money in your Contract is used to make regular income payments to you. You may switch to the Income Phase any time after your second contract anniversary. You select the month and year in which you want income payments to begin. The first day of that month is the Annuity Date. You may change your Annuity Date, so long as you do so at least seven days before the income payments are scheduled to begin. Once you begin receiving income payments, you cannot change your Income Option. Except as discussed under Option 5, once you begin receiving income payments, you cannot otherwise access your money through a withdrawal or surrender. Other pay out options may be available. Contact our Annuity Service Center for more information. If you participate in the Seasons Rewards Program and switch to the Income Phase prior to a Deferred Payment Enhancement Date, if applicable, we will not allocate any corresponding Deferred Payment Enhancement to your contract. SEE SEASONS REWARDS PROGRAM ABOVE. 39 Income payments must begin on or before the Latest Annuity Date. If you do not choose an Annuity Date, your income payments will automatically begin on the Latest Annuity Date. Certain states may require your income payments to start earlier. If the Annuity Date is past your 85th birthday, your contract could lose its status as an annuity under Federal tax laws. This may cause you to incur adverse tax consequences. In addition, certain Qualified contracts require you to take minimum distributions after you reach age 70 1/2. SEE TAXES BELOW. INCOME OPTIONS Currently, this Contract offers five Income Options. Other income options may be available. Please contact the Annuity Service Center for more information. If you elect to receive income payments but do not select an option, your income payments will be made in accordance with Option 4 for a period of 10 years. For income payments selected for joint lives, we pay according to Option 3. We base our calculation of income payments on the life of the Annuitant and the annuity rates set forth in your contract. As the contract owner, you may change the Annuitant at any time prior to the Annuity Date. You must notify us if the Annuitant dies before the Annuity Date and then designate a new Annuitant. OPTION 1 - LIFE INCOME ANNUITY This option provides income payments for the life of the Annuitant. Income payments stop when the Annuitant dies. OPTION 2 - JOINT AND SURVIVOR LIFE ANNUITY This option provides income payments for the life of the Annuitant and for the life of another designated person. Upon the death of either person, we will continue to make income payments during the lifetime of the survivor. Income payments stop whenever the survivor dies. OPTION 3 - JOINT AND 100% SURVIVOR LIFE ANNUITY WITH 10 YEAR PERIOD CERTAIN This option is similar to Option 2 above, with an additional guarantee of payments for at least 10 years. If the Annuitant and the Survivor die before all of the payments have been made, the remaining payments are made to the Beneficiary under your Contract. OPTION 4 - LIFE ANNUITY WITH 10 OR 20 YEAR PERIOD CERTAIN This option is similar to Option 1 above. In addition, this option provides a guarantee that income payments will be made for at least 10 or 20 years. You select the number of years. If the Annuitant dies before all guaranteed income payments are made, the remaining income payments go to the Beneficiary under your Contract. OPTION 5 - INCOME FOR A SPECIFIED PERIOD This option provides income payments for a guaranteed period ranging from 5 to 30 years. If the Annuitant dies before all the guaranteed income payments are made, the remaining income payments are made to the Beneficiary under your contract. Additionally, if variable income payments are elected under this option, you (or the Beneficiary under the contract if the Annuitant dies prior to all guaranteed payments being made) may redeem the contract value (in full or in part) after the Annuity Date. The amount available upon such redemption would be the discounted present value of any remaining guaranteed payments. The value of an Annuity Unit, regardless of the option chosen, takes into account the mortality and expense risk charge. Since Option 5 does not contain an element of mortality risk, no benefit is derived from this charge. ALLOCATION OF ANNUITY PAYMENTS You can choose income payments that are fixed, variable or both. If payments are fixed, AIG SunAmerica Life guarantees the amounts of each payment. If the payments are variable, the amounts are not guaranteed. They will go up and/or down based upon the performance of the Variable Portfolios in which you invest. 40 FIXED OR VARIABLE INCOME PAYMENTS If at the date when income payments begin you are invested in the Variable Portfolios only, your income payments will be variable. If your money is only in fixed accounts at that time, your income payments will be fixed in amount. If you are invested in both fixed and variable options at the time you begin the Income Phase, a portion of your income payments will be fixed and a portion will be variable. INCOME PAYMENTS We make income payments on a monthly, quarterly, semi-annual or annual basis. You instruct us to send you a check or to have the payments direct deposited into your bank account. If state law allows, we distribute annuities with a contract value of $5,000 or less in a lump sum. Also, if the selected income option results in annuity payments of less than $50 per payment, we may decrease the frequency of the payments, state law allowing. Your income payments will vary if you are invested in the Variable Portfolios after the Annuity date depending on four factors: - for life options, your age when payments begin and in most states if a non-qualified contract, your gender; and - the value of your contract in the Variable Portfolios on the Annuity Date; and - the 3.5% assumed investment rate for variable income payments used in the annuity table for the contract; and - the performance of the Variable Portfolios in which you are invested during the time you receive income payments. If you are invested in both the fixed account options and the Variable Portfolios after the Annuity Date, the allocation of funds between the fixed accounts and Variable Portfolios also impact the amount of your annuity payments. The value of variable income payments, if elected, is based on an assumed interest rate ("AIR") of 3.5% compounded annually. Variable income payments generally increase or decrease from one income payment date to the next based upon the performance of the applicable Variable Portfolios. If the performance of the Variable Portfolios selected is equal to the AIR, the income payments will remain constant. If performance of Variable Portfolios is greater than the AIR, the income payments will increase and if it is less than the AIR, the income payments will decline. TRANSFERS DURING THE INCOME PHASE During the Income Phase, one transfer per month is permitted between the Variable Portfolios. No other transfers are allowed during the Income Phase. DEFERMENT OF PAYMENTS We may defer making fixed payments for up to six months, or less if required by law. Interest is credited to you during the deferral period. SEE ALSO ACCESS TO YOUR MONEY ABOVE. Please read the Statement of Additional Information, available upon request, for a more detailed discussion of the income options. You may wish to consult your tax advisor for information concerning your particular circumstances. 41 TAXES -------------------------------------------------------------------------------- NOTE: THE BASIC SUMMARY BELOW ADDRESSES BROAD FEDERAL TAXATION MATTERS, AND GENERALLY DOES NOT ADDRESS STATE TAXATION ISSUES OR QUESTIONS. IT IS NOT TAX ADVICE. WE CAUTION YOU TO SEEK COMPETENT TAX ADVICE ABOUT YOUR OWN CIRCUMSTANCES. WE DO NOT GUARANTEE THE TAX STATUS OF YOUR ANNUITY. TAX LAWS CONSTANTLY CHANGE; THEREFORE, WE CANNOT GUARANTEE THAT THE INFORMATION CONTAINED HEREIN IS COMPLETE AND/OR ACCURATE. WE HAVE INCLUDED AN ADDITIONAL DISCUSSION REGARDING TAXES IN THE SAI. ANNUITY CONTRACTS IN GENERAL The Internal Revenue Code ("IRC") provides for special rules regarding the tax treatment of annuity contracts. Generally, taxes on the earnings in your annuity contract are deferred until you take the money out. Qualified retirement investments that satisfy specific tax and ERISA requirements automatically provide tax deferral regardless of whether the underlying contract is an annuity, a trust, or a custodial account. Different rules apply depending on how you take the money out and whether your contract is Qualified or Non-Qualified. If you do not purchase your contract under a pension plan, a specially sponsored employer program or an individual retirement account, your contract is referred to as a Non-Qualified contract. A Non-Qualified contract receives different tax treatment than a Qualified contract. In general, your cost in a Non-Qualified contract is equal to the Purchase Payments you put into the contract. You have already been taxed on the cost basis in your contract. If you purchase your contract under a pension plan, a specially sponsored employer program or as an individual retirement account, your contract is referred to as a Qualified contract. Examples of qualified plans or arrangements are: Individual Retirement Accounts ("IRAs"), Roth IRAs, Tax-Sheltered Annuities (referred to as 403(b) contracts), plans of self-employed individuals (often referred to as H.R.10 Plans or Keogh Plans) and pension and profit sharing plans, including 401(k) plans. Typically, for employer plans and tax-deductible IRA contributions, you have not paid any tax on the Purchase Payments used to buy your contract and therefore, you have no cost basis in your contract. However, you normally will have cost basis in a Roth IRA, and you may have cost basis in a traditional IRA or in another Qualified Contract. TAX TREATMENT OF DISTRIBUTIONS--NON-QUALIFIED CONTRACTS If you make a partial or total withdrawal from a Non-Qualified contract, the IRC treats such a withdrawal as first coming from the earnings and then as coming from your Purchase Payments. Purchase payments made prior to August 14, 1982, however, are an important exception to this general rule, and for tax purposes are treated as being distributed before the earnings on those contributions. If you annuitize your contract, a portion of each income payment will be considered, for tax purposes, to be a return of a portion of your Purchase Payment(s). Any portion of each income payment that is considered a return of your Purchase Payment will not be taxed. Withdrawn earnings are treated as income to you and are taxable. The IRC provides for a 10% penalty tax on any earnings that are withdrawn other than in conjunction with the following circumstances: (1) after reaching age 59 1/2; (2) when paid to your Beneficiary after you die; (3) after you become disabled (as defined in the IRC); (4) when paid in a series of substantially equal installments made for your life or for the joint lives of you and your Beneficiary; (5) under an immediate annuity; or (6) which are attributable to Purchase Payments made prior to August 14, 1982. TAX TREATMENT OF DISTRIBUTIONS--QUALIFIED CONTRACTS (INCLUDING GOVERNMENTAL 457(B) ELIGIBLE DEFERRED COMPENSATION PLANS) Generally, you have not paid any taxes on the Purchase Payments used to buy a Qualified contract. As a result, with certain limited exceptions, any amount of money you take out as a withdrawal or as income payments is taxable income. In the case of certain Qualified contracts, the IRC further provides for a 10% penalty tax on any taxable withdrawal or income payment paid to you other than in conjunction with the following circumstances: (1) after reaching age 59 1/2; (2) when paid to your Beneficiary after you die; (3) after you become disabled (as defined in the IRC); (4) in a series of substantially equal installments, made for your life or for the joint lives of you and your Beneficiary, that begins after separation from service with the employer sponsoring the plan; (5) to the extent such 42 withdrawals do not exceed limitations set by the IRC for deductible amounts paid during the taxable year for medical care; (6) to fund higher education expenses (as defined in the IRC; only from an IRA); (7) to fund certain first-time home purchase expenses (only from an IRA); (8) when you separate from service after attaining age 55 (does not apply to an IRA); (9) when paid for health insurance, if you are unemployed and meet certain requirements; and (10) when paid to an alternate payee pursuant to a qualified domestic relations order. This 10% penalty tax does not apply to withdrawals or income payments from governmental 457(b) eligible deferred compensation plans, except to the extent that such withdrawals or income payments are attributable to a prior rollover to the plan (or earnings thereon) from another plan or arrangement that was subject to the 10% penalty tax. The IRC limits the withdrawal of an employee's voluntary Purchase Payments from a Tax-Sheltered Annuity (TSA). Withdrawals can only be made when an owner: (1) reaches age 59 1/2; (2) severs employment with the employer; (3) dies; (4) becomes disabled (as defined in the IRC); or (5) experiences a financial hardship (as defined in the IRC). In the case of hardship, the owner can only withdraw Purchase Payments. Additional plan limitations may also apply. Amounts held in a TSA annuity contract as of December 31, 1988 are not subject to these restrictions. Qualifying transfers of amounts from one TSA contract to another TSA contract under section 403(b) or to a custodial account under section 403(b)(7), and qualifying transfers to a state defined benefit plan to purchase service credits, are not considered distributions, and thus are not subject to these withdrawal limitations. If amounts are transferred from a custodial account described in Code section 403(b)(7) to this contract the transferred amount will retain the custodial account withdrawal restrictions. Withdrawals from other Qualified Contracts are often limited by the IRC and by the employer's plan. MINIMUM DISTRIBUTIONS Generally, the IRC requires that you begin taking annual distributions from qualified annuity contracts by April 1 of the calendar year following the later of (1) the calendar year in which you attain age 70 1/2 or (2) the calendar year in which you separate from service from the employer sponsoring the plan. If you own an IRA, you must begin taking distributions when you attain age 70 1/2 regardless of when you separate from service from the employer sponsoring the plan. If you own more than one TSA, you may be permitted to take your annual distributions in any combination from your TSAs. A similar rule applies if you own more than one IRA. However, you cannot satisfy this distribution requirement for your TSA contract by taking a distribution from an IRA, and you cannot satisfy the requirement for your IRA by taking a distribution from a TSA. You may be subject to a surrender charge on withdrawals taken to meet minimum distribution requirements, if the withdrawals exceed the contract's maximum penalty free amount. Failure to satisfy the minimum distribution requirements may result in a tax penalty. You should consult your tax advisor for more information. You may elect to have the required minimum distribution amount on your contract calculated and withdrawn each year under the automatic withdrawal option. You may select monthly, quarterly, semiannual, or annual withdrawals for this purpose. This service is provided as a courtesy and we do not guarantee the accuracy of our calculations. Accordingly, we recommend you consult your tax advisor concerning your required minimum distribution. You may terminate your election for automated minimum distribution at any time by sending a written request to our Annuity Service Center. We reserve the right to change or discontinue this service at any time. The IRS issued new regulations, effective January 1, 2003, regarding required minimum distributions from qualified annuity contracts. One of the regulations requires that the annuity contract value used to determine required minimum distributions include the actuarial value of other benefits under the contract, such as optional death benefits. This regulation does not apply to required minimum distributions made under an irrevocable annuity income option. We are currently awaiting further clarification from the IRS on this regulation, including how the value of such benefits is determined. You should discuss the effect of these new regulations with your tax advisor. 43 TAX TREATMENT OF DEATH BENEFITS Any death benefits paid under the contract are taxable to the Beneficiary. The rules governing the taxation of payments from an annuity contract, as discussed above, generally apply whether the death benefits are paid as lump sum or annuity payments. Estate taxes may also apply. Certain enhanced death benefits may be purchased under your contract. Although these types of benefits are used as investment protection and should not give rise to any adverse tax effects, the IRS could take the position that some or all of the charges for these death benefits should be treated as a partial withdrawal from the contract. In that case, the amount of the partial withdrawal may be includible in taxable income and subject to the 10% penalty if the owner is under 59 1/2. If you own a Qualified contract and purchase these enhanced death benefits, the IRS may consider these benefits "incidental death benefits." The IRC imposes limits on the amount of the incidental death benefits allowable for Qualified contracts. If the death benefit(s) selected by you are considered to exceed these limits, the benefit(s)could result in taxable income to the owner of the Qualified contract. Furthermore, the IRC provides that the assets of an IRA (including a Roth IRA) may not be invested in life insurance, but may provide, in the case of death during the Accumulation Phase, for a death benefit payment equal to the greater of Purchase Payments or Contract Value. This contract offers death benefits, which may exceed the greater of Purchase Payments or Contract Value. If the IRS determines that these benefits are providing life insurance, the contract may not qualify as an IRA (including Roth IRAs). You should consult your tax advisor regarding these features and benefits prior to purchasing a contract. CONTRACTS OWNED BY A TRUST OR CORPORATION A Trust or Corporation ("Non-Natural Owner") that is considering purchasing this contract should consult a tax advisor. Generally, the IRC does not treat a Non-Qualified contract owned by a non-natural owner as an annuity contract for Federal income tax purposes. The non-natural owner pays tax currently on the contract's value in excess of the owner's cost basis. However, this treatment is not applied to a contract held by a trust or other entity as an agent for a natural person nor to contracts held by Qualified Plans. See the SAI for a more detailed discussion of the potential adverse tax consequences associated with non-natural ownership of a non-qualified annuity contract. GIFTS, PLEDGES AND/OR ASSIGNMENTS OF A CONTRACT If you transfer ownership of your Non-Qualified contract to a person other than your spouse (or former spouse incident to divorce) as a gift you will pay federal income tax on the contract's cash value to the extent it exceeds your cost basis. The recipient's cost basis will be increased by the amount on which you will pay federal taxes. In addition, the IRC treats any assignment or pledge (or agreement to assign or pledge) of any portion of a Non-Qualified contract as a withdrawal. See the SAI for a more detailed discussion regarding potential tax consequences of gifting, assigning, or pledging a Non-Qualified contract. The IRC prohibits Qualified annuity contracts including IRAs from being transferred, assigned or pledged as security for a loan. This prohibition, however, generally does not apply to loans under an employer-sponsored plan (including loans from the annuity contract) that satisfy certain requirements, provided that: (a) the plan is not an unfunded deferred compensation plan; and (b) the plan funding vehicle is not an IRA. DIVERSIFICATION AND INVESTOR CONTROL The IRC imposes certain diversification requirements on the underlying investments for a variable annuity. We believe that the management of the Underlying Funds monitors the Funds so as to comply with these requirements. To be treated as a variable annuity for tax purposes, the underlying investments must meet these requirements. The diversification regulations do not provide guidance as to the circumstances under which you, and not the Company, would be considered the owner of the shares of the Variable Portfolios under your Non-Qualified Contract, because of the degree of control you exercise over the underlying investments. This diversification 44 requirement is sometimes referred to as "investor control." It is unknown to what extent owners are permitted to select investments, to make transfers among Variable Portfolios or the number and type of Variable Portfolios owners may select from. If any guidance is provided which is considered a new position, then the guidance should generally be applied prospectively. However, if such guidance is considered not to be a new position, it may be applied retroactively. This would mean that you, as the owner of the Non-qualified Contract, could be treated as the owner of the underlying Variable Portfolios. Due to the uncertainty in this area, we reserve the right to modify the contract in an attempt to maintain favorable tax treatment. These investor control limitations generally do not apply to Qualified Contracts, which are referred to as "Pension Plan Contracts" for purposes of this rule, although the limitations could be applied to Qualified Contracts in the future. PERFORMANCE -------------------------------------------------------------------------------- From time to time we will advertise the performance of the Variable Portfolios. Any such performance results are based on historical earnings and are not intended to indicate future performance. We advertise the Cash Management Portfolio's yield and effective yield. In addition, the other Variable Portfolios advertise total return, gross yield and yield-to-maturity. These figures represent past performance of the Variable Portfolios. These performance numbers do not indicate future results. We may show performance of each Variable Portfolios in comparison to various appropriate indices and the performance of other similar variable annuity products with similar objectives as reported by such independent reporting services as Morningstar, Inc., Lipper Analytical Services, Inc. and the Variable Annuity Research Data Service ("VARDS"). OTHER INFORMATION -------------------------------------------------------------------------------- AIG SUNAMERICA LIFE AIG SunAmerica Life is a stock life insurance company originally organized under the laws of the state of California in April, 1965. On January 1, 1996, AIG SunAmerica Life redomesticated under the laws of the state of Arizona. AIG SunAmerica Life and its affiliates, SunAmerica Life Insurance Company, First SunAmerica Life Insurance Company, AIG SunAmerica Asset Management Corporation and the AIG Advisors Group Inc. (comprising six wholly owned broker-dealers and two investment advisors), specialize in retirement savings and investment products and services. Business focuses include fixed and variable annuities, mutual funds and broker-dealer services. THE SEPARATE ACCOUNT AIG SunAmerica Life originally established, Variable Annuity Account Five (the "Separate Account"), under Arizona law on July 8, 1996. The Separate Account is registered with the SEC as a unit investment trust under the Investment Company Act of 1940, as amended. AIG SunAmerica Life owns the assets in the Separate Account. However, the assets in the Separate Account are not chargeable with liabilities arising out of any other business conducted by AIG SunAmerica Life. Income gains and losses (realized and unrealized) resulting from assets in the Separate Account are credited to or charged against the Separate Account without regard to other income, gains or losses of AIG SunAmerica Life. Assets in the Separate Account are not guaranteed by AIG SunAmerica Life. THE GENERAL ACCOUNT Money allocated to the fixed account options goes into AIG SunAmerica Life's general account. The general account consists of all of AIG SunAmerica Life's assets other than assets attributable to a separate account. All of the assets in the general account are chargeable with the claims of any AIG SunAmerica Life contract holders as well as all of its creditors. The general account funds are invested as permitted under state insurance laws. 45 PAYMENTS IN CONNECTION WITH DISTRIBUTION OF THE CONTRACT PAYMENTS TO BROKER-DEALERS Registered representatives of broker-dealers sell the contract. We pay commissions to the broker-dealers for the sale of your contract ("Contract Commissions"). There are different structures by which a broker-dealer can choose to have their Contract Commissions paid. For example, as one option, we may pay upfront Contract Commission, only, that may be up to a maximum 8% of each Purchase Payment you invest (which may include promotional amounts). Another option may be a lower upfront Contract Commission on each Purchase Payment, with a trail commission of up to a maximum 1.50% of contract value, annually. We pay Contract Commissions directly to the broker-dealer with whom your registered representative is affiliated. Registered representatives may receive a portion of these amounts we pay in accordance with any agreement in place between the registered representative and his/her broker-dealer firm. We (or our affiliates) may pay broker-dealers or permitted third parties cash or non-cash compensation, including reimbursement of expenses incurred in connection with the sale of these contracts. These payments may be intended to reimburse for specific expenses incurred or may be based on sales, certain assets under management or longevity of assets invested with us. For example, we may pay additional amounts in connection with contracts that remain invested with us for a particular period of time. We enter into such arrangements in our discretion and we may negotiate customized arrangements with firms, including affiliated and non-affiliated broker-dealers based on various factors. Promotional incentives may change at any time. We do not deduct these amounts directly from your Purchase Payments. We anticipate recovering these amounts from the fees and charges collected under the contract. Certain compensation payments may increase our cost of doing business in a particular firm and may result in higher contractual fees and charges if you purchase your contract through such a firm. SEE EXPENSES ABOVE. AIG SunAmerica Capital Services, Inc., Harborside Financial Center, 3200 Plaza 5, Jersey City, NJ 07311-4992, distributes the contracts. AIG SunAmerica Capital Services, an affiliate of AIG SunAmerica Life, is a registered broker-dealer under the Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. No underwriting fees are paid in connection with the distribution of the contracts. PAYMENTS WE RECEIVE In addition to amounts received pursuant to established 12b-1 Plans, we may receive compensation of up to 0.60% from the investment advisers, subadvisers or their affiliates of certain of the underlying Trusts and/or portfolios for services related to the availability of the underlying portfolios in the contract. Furthermore, certain advisers and/or subadvisers may offset the costs we incur for training to support sales of the underlying funds in the contract. ADMINISTRATION We are responsible for the administrative servicing of your contract. During the Accumulation Phase, you will receive confirmation of transactions within your contract. Transactions made pursuant to contractual or systematic agreements, such as deduction of the annual maintenance fee and dollar cost averaging, may be confirmed quarterly. Purchase payments received through the Automatic Payment Plan or a salary reduction arrangement, may also be confirmed quarterly. For other transactions, we send confirmations immediately. During the Accumulation and Income Phases, you will receive a statement of your transactions over the past quarter and a summary of your account values. Please contact our Annuity Service Center at 1-800-445-SUN2, if you have any comment, question or service request. We send out transaction confirmations and quarterly statements. It is your responsibility to review these documents carefully and notify us of any inaccuracies immediately. We investigate all inquiries. To the extent that we believe we made an error, we retroactively adjust your contract, provided you notify us within 30 days of receiving the transaction confirmation or quarterly statement. Any other adjustments we deem warranted are made as of the time we receive notice of the error. LEGAL PROCEEDINGS There are no pending legal proceedings affecting the Separate Account. AIG SunAmerica Life engages in various kinds of routine litigation. In management's opinion, these matters are not material in relation to the financial 46 position of the Company. A purported class action captioned NIKITA Mehta, as Trustee of the N.D. Mehta Living Trust vs. AIG SunAmerica Life Assurance Company, Case 04L0199, was filed on April 5, 2004 in the Circuit Court, Twentieth Judicial District in St. Clair County, Illinois. The lawsuit alleges certain improprieties in conjunction with alleged market timing activities. The probability of any particular outcome cannot be reasonably estimated at this time. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- The consolidated financial statements of AIG SunAmerica Life Assurance Company at December 31, 2003 and 2002 and for each of the three years in the period ended December 31, 2003, and the financial statements of Variable Annuity Account Five at April 30, 2004, and for each of the two years in the period ended April 30, 2004, are incorporated herein by reference in this prospectus in reliance on the reports of PricewaterhouseCoopers LLP, independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting. 47 TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION Separate Account............................................ 3 General Account............................................. 3 Performance Data............................................ 4 Income Payments............................................. 7 Income Protector............................................ 7 Annuity Unit Values......................................... 10 Taxes....................................................... 11 Distribution of Contracts................................... 16 Financial Statements........................................ 16
48 APPENDIX A - CONDENSED FINANCIALS --------------------------------------------------------------------------------
FISCAL FISCAL FISCAL FISCAL FISCAL YEAR ONE MONTH YEAR YEAR YEAR YEAR INCEPTION TO ENDED ENDED ENDED ENDED ENDED ENDED SEASONS STRATEGIES 3/31/99 3/31/00 4/30/00 4/30/01 4/30/02 4/30/03 4/30/04 ----------------------- ------------ --------- --------- ---------------- ---------- ---------- ----------- ------------------------------------------------------------------------------------------------------------------------ Growth (Inception Date: 4/15/97) Beginning AUV........ 15.05 15.89 21.30 (a) $ 20.24 $ 17.039 $ 14.356 $ 12.715 (b) $ 20.24 $ 17.018 $ 14.302 $ 12.635 Ending AUV........... 15.89 21.30 20.24 (a) $ 17.04 $ 14.356 $ 12.715 $ 14.878 (b) $ 17.02 $ 14.302 $ 12.635 $ 14.748 Ending Number of AUs............... 31,169 1,653,495 1,871,300 (a) 398,040 1,596,999 2,178,753 3,020,703 (b) 1,431,268 5,159,748 5,698,422 6,514,187 ------------------------------------------------------------------------------------------------------------------------ Moderate Growth (Inception Date: 4/15/97) Beginning AUV........ 14.25 15.09 19.48 (a) $ 18.62 $ 16.288 $ 14.164 $ 12.833 (b) $ 18.62 $ 16.267 $ 14.111 $ 12.753 Ending AUV........... 15.09 19.48 18.62 (a) $ 16.29 $ 14.164 $ 12.833 $ 14.722 (b) $ 16.27 $ 14.111 $ 12.753 $ 14.594 Ending Number of AUs............... 93,136 1,559,019 1,760,865 (a) 483,256 2,793,004 4,278,227 6,054,737 (b) 1,692,012 7,849,672 9,973,728 11,785,293 ------------------------------------------------------------------------------------------------------------------------ Balanced Growth (Inception Date: 4/15/97) Beginning AUV........ 13.80 14.05 16.68 (a) $ 16.11 $ 14.973 $ 13.695 $ 12.870 (b) $ 16.11 $ 14.956 $ 13.645 $ 12.791 Ending AUV........... 14.05 16.68 16.11 (a) $ 14.97 $ 13.695 $ 12.870 $ 14.390 (b) $ 14.96 $ 13.645 $ 12.791 $ 14.265 Ending Number of AUs............... 85,553 991,695 1,061,795 (a) 375,068 2,883,697 4,762,059 6,508,746 (b) 1,049,088 5,761,721 7,977,286 10,269,407 ------------------------------------------------------------------------------------------------------------------------ Conservative Growth (Inception Date: 4/15/97) Beginning AUV........ 13.03 13.21 14.89 (a) $ 14.50 $ 14.127 $ 13.410 $ 13.016 (b) $ 14.50 $ 14.101 $ 13.353 $ 12.928 Ending AUV........... 13.21 14.89 14.50 (a) $ 14.13 $ 13.410 $ 13.016 $ 14.214 (b) $ 14.10 $ 13.353 $ 12.928 $ 14.082 Ending Number of AUs............... 33,892 623,175 629,067 (a) 181,135 2,004,171 3,771,996 4,522,063 (b) 795,377 3,915,976 6,606,977 7,653,618 ------------------------------------------------------------------------------------------------------------------------
(a) Without election of optional Estate Advantage feature. (b) With election of optional Estate Advantage feature, which became available for sale on October 16, 2000. AUV-Accumulation Unit Value AU-Accumulation Units A-1
FISCAL FISCAL FISCAL FISCAL FISCAL YEAR ONE MONTH YEAR YEAR YEAR YEAR INCEPTION TO ENDED ENDED ENDED ENDED ENDED ENDED SELECT PORTFOLIOS 3/31/99 3/31/00 4/30/00 4/30/01 4/30/02 4/30/03 4/30/04 ----------------------- ------------ --------- ------------ ---------------- ---------- ---------- ---------- -------------------------------------------------------------------------------------------------------------------------- Large Cap Growth (Inception Date: 3/1/99) Beginning AUV........ 10.00 10.68 14.94 (a) $ 13.99 $ 10.121 $ 7.931 $ 6.806 (b) $ 13.99 $ 10.107 $ 7.900 $ 6.763 Ending AUV........... 10.68 14.94 13.99 (a) $ 10.12 $ 7.931 $ 6.806 $ 8.101 (b) $ 10.11 $ 7.900 $ 6.763 $ 8.029 Ending Number of AUs............... 85,647 1,058,317 1,158,071 (a) 138,746 858,299 1,469,235 2,278,875 (b) 1,108,465 3,700,885 4,665,791 5,712,326 -------------------------------------------------------------------------------------------------------------------------- Large Cap Composite (Inception Date: 3/1/99) Beginning AUV........ 10.00 10.41 12.88 (a) $ 12.30 $ 10.419 $ 8.858 $ 7.441 (b) $ 12.30 $ 10.405 $ 8.825 $ 7.394 Ending AUV........... 10.41 12.88 12.30 (a) $ 10.42 $ 8.858 $ 7.441 $ 8.814 (b) $ 10.40 $ 8.825 $ 7.394 $ 8.736 Ending Number of AUs............... 33,347 316,855 361,941 (a) 30,196 358,258 763,947 1,088,687 (b) 397,804 1,315,528 1,546,325 1,800,336 -------------------------------------------------------------------------------------------------------------------------- Large Cap Value (Inception Date: 3/1/99) Beginning AUV........ 10.00 10.32 10.75 (a) $ 10.79 $ 12.354 $ 11.297 $ 9.433 (b) $ 10.79 $ 12.338 $ 11.254 $ 9.374 Ending AUV........... 10.32 10.75 10.79 (a) $ 12.35 $ 11.297 $ 9.433 $ 11.652 (b) $ 12.34 $ 11.254 $ 9.374 $ 11.550 Ending Number of AUs............... 34,004 531,732 571,490 (a) 110,091 957,260 1,479,497 2,077,059 (b) 899,551 3,590,415 4,109,010 4,937,302 -------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth (Inception Date: 3/1/99) Beginning AUV........ 10.00 10.62 18.41 (a) $ 16.85 $ 13.691 $ 12.185 $ 10.242 (b) $ 16.85 $ 13.674 $ 12.140 $ 10.178 Ending AUV........... 10.62 18.41 16.85 (a) $ 13.69 $ 12.185 $ 10.242 $ 13.748 (b) $ 13.67 $ 12.140 $ 10.178 $ 13.627 Ending Number of AUs............... 27,096 529,844 612,249 (a) 80,629 523,422 776,963 1,315,460 (b) 678,174 2,223,309 2,421,115 3,257,802 --------------------------------------------------------------------------------------------------------------------------
(a) Without election of optional Estate Advantage feature. (b) With election of optional Estate Advantage feature, which became available for sale on October 16, 2000. AUV-Accumulation Unit Value AU-Accumulation Units A-2
FISCAL FISCAL FISCAL FISCAL FISCAL YEAR ONE MONTH YEAR YEAR YEAR YEAR INCEPTION TO ENDED ENDED ENDED ENDED ENDED ENDED SELECT PORTFOLIOS 3/31/99 3/31/00 4/30/00 4/30/01 4/30/02 4/30/03 4/30/04 ----------------------- ------------ --------- --------- ---------------- ---------- ---------- ---------- ----------------------------------------------------------------------------------------------------------------------- Mid Cap Value (Inception Date: 3/1/99) Beginning AUV........ 10.00 10.10 10.93 (a) $ 11.14 $ 14.202 $ 15.629 $ 13.157 (b) $ 11.14 $ 14.184 $ 15.569 $ 13.073 Ending AUV........... 10.10 10.93 11.14 (a) $ 14.20 $ 15.629 $ 13.157 $ 17.260 (b) $ 14.18 $ 15.569 $ 13.073 $ 17.107 Ending Number of AUs............... 11,278 297,306 318,151 (a) 98,363 661,329 1,014,719 1,300,186 (b) 598,874 2,517,897 2,482,363 3,090,567 ----------------------------------------------------------------------------------------------------------------------- Small Cap (Inception Date: 3/1/99) Beginning AUV........ 10.00 10.35 15.00 (a) $ 13.56 $ 11.201 $ 10.455 $ 8.091 (b) $ 13.56 $ 11.186 $ 10.415 $ 8.040 Ending AUV........... 10.35 15.00 13.56 (a) $ 11.20 $ 10.455 $ 8.091 $ 10.387 (b) $ 11.19 $ 10.415 $ 8.040 $ 10.295 Ending Number of AUs............... 22,807 432,850 481,239 (a) 61,891 553,867 893,438 1,608,225 (b) 499,597 2,317,632 2,518,712 3,597,088 ----------------------------------------------------------------------------------------------------------------------- International Equity (Inception Date: 3/1/99) Beginning AUV........ 10.00 10.51 13.61 (a) $ 12.46 $ 9.608 $ 7.768 $ 5.829 (b) $ 12.46 $ 9.595 $ 7.742 $ 5.802 Ending AUV........... 10.51 13.61 12.46 (a) $ 9.61 $ 7.768 $ 5.829 $ 7.817 (b) $ 9.60 $ 7.742 $ 5.802 $ 7.762 Ending Number of AUs............... 23,961 314,634 384,946 (a) 87,318 833,895 1,625,696 2,159,492 (b) 532,261 1,773,503 2,547,690 4,127,078 ----------------------------------------------------------------------------------------------------------------------- Diversified Fixed Income (Inception Date: 3/10/99) Beginning AUV........ 10.00 10.02 10.00 (a) $ 9.96 $ 10.570 $ 10.912 $ 11.733 (b) $ 9.96 $ 10.555 $ 10.870 $ 11.658 Ending AUV........... 10.02 10.00 9.96 (a) $ 10.57 $ 10.912 $ 11.733 $ 11.680 (b) $ 10.56 $ 10.870 $ 11.658 $ 11.577 Ending Number of AUs............... 31,762 474,014 513,721 (a) 217,162 1,388,027 3,232,484 3,279,348 (b) 732,849 3,049,466 8,024,390 6,462,854 ----------------------------------------------------------------------------------------------------------------------- Cash Management (Inception Date: 3/26/99) Beginning AUV........ 10.00 10.00 10.32 (a) $ 10.35 $ 10.774 $ 10.836 $ 10.753 (b) $ 10.35 $ 10.759 $ 10.794 $ 10.685 Ending AUV........... 10.00 10.32 10.35 (a) $ 10.77 $ 10.836 $ 10.753 $ 10.620 (b) $ 10.76 $ 10.794 $ 10.685 $ 10.526 Ending Number of AUs............... 970 380,169 235,608 (a) 713,829 1,156,309 1,444,740 2,008,414 (b) 1,188,716 1,692,359 2,232,294 2,166,413 -----------------------------------------------------------------------------------------------------------------------
(a) Without election of optional Estate Advantage feature. (b) With election of optional Estate Advantage feature, which became available for sale on October 16, 2000. AUV-Accumulation Unit Value AU-Accumulation Units A-3
FISCAL FISCAL FISCAL FISCAL FISCAL YEAR ONE MONTH YEAR YEAR YEAR YEAR INCEPTION TO ENDED ENDED ENDED ENDED ENDED ENDED FOCUSED PORTFOLIOS 3/31/99 3/31/00 4/30/00 4/30/01 4/30/02 4/30/03 4/30/04 ------------------------ ------------ ------- --------- ---------------- ---------- ---------- ---------- ---------------------------------------------------------------------------------------------------------------------- Focus Growth (Inception Date: 7/7/00) Beginning AUV......... -- -- -- (a) $ 10.00 $ 7.642 $ 6.570 $ 5.576 (b) $ 10.00 $ 7.633 $ 6.545 $ 5.541 Ending AUV............ -- -- -- (a) $ 7.64 $ 6.570 $ 5.576 $ 7.134 (b) $ 7.63 $ 6.545 $ 5.541 $ 7.071 Ending Number of AUs.. -- -- -- (a) 336,517 977,193 2,176,848 3,296,151 (b) 1,598,717 4,088,242 3,979,461 5,224,743 ---------------------------------------------------------------------------------------------------------------------- Focus Growth and Income (Inception Date: 12/29/00) Beginning AUV......... -- -- -- (a) $ 10.00 $ 9.354 $ 8.537 $ 7.467 (b) $ 10.00 $ 8.942 $ 8.140 $ 7.102 Ending AUV............ -- -- -- (a) $ 9.35 $ 8.537 $ 7.467 $ 9.044 (b) $ 8.94 $ 8.140 $ 7.102 $ 8.581 Ending Number of AUs.. -- -- -- (a) 22,928 343,267 902,816 1,733,568 (b) 197,045 1,284,539 1,860,715 3,312,701 ---------------------------------------------------------------------------------------------------------------------- Focus Value (Inception Date: 10/04/01) Beginning AUV......... -- -- -- (a) $ 0 $ 10.000 $ 10.740 $ 9.425 (b) 0 $ 10.000 $ 10.727 $ 9.390 Ending AUV............ -- -- -- (a) $ 0 $ 10.740 $ 9.425 $ 12.277 (b) $ 0 $ 10.727 $ 9.390 $ 12.188 Ending Number of AUs.. -- -- -- (a) 0 216,178 848,182 213,874 (b) 0 990,167 1,081,447 170,927 ---------------------------------------------------------------------------------------------------------------------- Focus TechNet (Inception Date: 12/29/00) Beginning AUV......... -- -- -- (a) $ 10.00 $ 6.327 $ 3.299 $ 2.800 (b) $ 10.00 $ 7.009 $ 3.646 $ 3.087 Ending AUV............ -- -- -- (a) $ 6.33 $ 3.299 $ 2.800 $ 4.294 (b) $ 7.01 $ 3.646 $ 3.087 $ 4.725 Ending Number of AUs.. -- -- -- (a) 55,512 295,604 1,567,573 621,963 (b) 233,849 1,089,889 1,582,813 293,811 ----------------------------------------------------------------------------------------------------------------------
(a) Without election of optional Estate Advantage feature. (b) With election of optional Estate Advantage feature, which became available for sale on October 16, 2000. AUV-Accumulation Unit Value AU-Accumulation Units A-4 APPENDIX B - SEASONS REWARDS PROGRAM EXAMPLES -------------------------------------------------------------------------------- The following examples assume an initial $125,000 Purchase Payment is made and that the Company is offering Upfront and Deferred Payment Enhancements in accordance with this chart:
-------------------------------------------------------------------------------------------------------- UPFRONT PAYMENT DEFERRED PAYMENT DEFERRED PAYMENT ENHANCEMENT LEVEL ENHANCEMENT RATE ENHANCEMENT RATE ENHANCEMENT DATE -------------------------------------------------------------------------------------------------------- Under $100,000 2% 0% N/A -------------------------------------------------------------------------------------------------------- $100,000 - $499,999 2% 1% Nine years from the date we receive each Purchase Payment. -------------------------------------------------------------------------------------------------------- $500,000 - more 2% 2% Nine years from the date we receive each Purchase Payment. --------------------------------------------------------------------------------------------------------
I. DEFERRED PAYMENT ENHANCEMENT If you elect to participate in the Seasons Rewards Program at contract issue, we contribute at least 2% of each Purchase Payment to your contract for each Purchase Payment we receive, as an Upfront Payment Enhancement. Any applicable Deferred Payment Enhancement is allocated to your contract on the corresponding Deferred Payment Enhancement Date and, if declared by the Company, is a percentage of your remaining Purchase Payment on the Deferred Payment Enhancement Date. Deferred Purchase Payment Enhancements are reduced proportionately by partial withdrawals of that Purchase Payment prior to the Deferred Payment Enhancement Date. The Deferred Payment Enhancement Rate may increase, decrease or be eliminated at any time. EXAMPLE 1 - NO WITHDRAWALS ARE MADE The Upfront Payment Enhancement allocated to your contract is $2,500 (2% of $125,000). On your 9th contract anniversary, the Deferred Payment Enhancement Date, your Deferred Payment Enhancement of $1,250 (1% of your remaining Purchase Payment or $125,000) will be allocated to your contract. EXAMPLE 2 - WITHDRAWAL MADE PRIOR TO DEFERRED PAYMENT ENHANCEMENT DATE As in Example 1, your Upfront Payment Enhancement is $2,500. This example also assumes the following: (1) Your contract value on your 5th contract anniversary is $190,000. (2) You request a withdrawal of $75,000 on your 5th contract anniversary. (3) No subsequent Purchase Payments have been made. (4) No prior withdrawals have been taken. (5) Funds are not allocated to any of the MVA Fixed Accounts. On your 5th contract anniversary, your penalty-free earnings in the contract are $65,000 ($190,000 contract value less your $125,000 investment in the contract). Therefore, you are withdrawing $10,000 of your initial Purchase Payment. Your contract value will also be reduced by a $500 withdrawal charge on the $10,000 Purchase Payment (5% of $10,000). Your gross withdrawal is $75,500 of which $10,500 constitutes part of your Purchase Payment. The withdrawal of $10,500 of your $125,000 Purchase Payment is a withdrawal of 8.4% of your Purchase Payment. Therefore, only 91.6% or $114,500 of your initial Purchase Payment remains in your contract. On your 9th contract anniversary, the Deferred Payment Enhancement Date, assuming no other transactions occur affecting the Purchase Payment, we allocate your Deferred Payment Enhancement of $1,145 (1% of your remaining Purchase Payment, $114,500) to your contract. B-1 II. 90 DAY WINDOW Contracts issued with the Seasons Rewards feature may be eligible for a "Look-Back Adjustment." As of the 90th day after your contract was issued, we will total your Purchase Payments remaining in your contract at that time, without considering any investment gain or loss in contract value on those Purchase Payments. If your total Purchase Payments bring you to an Enhancement Level which, as of the date we issued your contract, would have provided for a higher Upfront and/or Deferred Payment Enhancement Rate on each Purchase Payment, you will get the benefit of the Enhancement Rate(s) that were applicable to that higher Enhancement Level at the time your contract was issued. This example assumes the following: (1) No withdrawal in the first 90 days. (2) Initial Purchase Payment of $50,000 on November 1, 2000. (3) Subsequent Purchase Payment of $50,000 on January 15, 2001. (4) Subsequent Purchase Payment of $25,000 on January 28, 2001. ENHANCEMENT AT THE TIME PURCHASE PAYMENT RECEIVED
--------------------------------------------------------------------------------------------------- DEFERRED PURCHASE UPFRONT DEFERRED PAYMENT PAYMENT PAYMENT PAYMENT ENHANCEMENT DATE OF PURCHASE PAYMENT AMOUNT ENHANCEMENT ENHANCEMENT DATE --------------------------------------------------------------------------------------------------- November 1, 2000 $50,000 2% 0% N/A --------------------------------------------------------------------------------------------------- January 15, 2001 $50,000 2% 1% January 15, 2010 --------------------------------------------------------------------------------------------------- January 28, 2001 $25,000 2% 1% January 28, 2010 ---------------------------------------------------------------------------------------------------
ENHANCEMENT ADJUSTMENTS ON THE 90TH DAY FOLLOWING CONTRACT ISSUE The sum of all Purchase Payments made in the first 90 days of the contract equals $125,000. According to the Enhancement Levels in effect at the time this contract was issued, a $125,000 Purchase Payment would have received a 2% Upfront Payment Enhancement and a 1% Deferred Payment Enhancement. Under the 90 Day Window provision all Purchase Payments made within those first 90 days would receive the benefit of the parameters in place at the time the contract was issued, as if all of the Purchase Payments were received on the date of issue. Thus, the first two payment enhancements would be adjusted at the end of the 90 days as follows:
--------------------------------------------------------------------------------------------------- DEFERRED PURCHASE UPFRONT DEFERRED PAYMENT PAYMENT PAYMENT PAYMENT ENHANCEMENT DATE OF PURCHASE PAYMENT AMOUNT ENHANCEMENT ENHANCEMENT DATE --------------------------------------------------------------------------------------------------- November 1, 2000 $50,000 2% 1% November 1, 2009 --------------------------------------------------------------------------------------------------- January 15, 2001 $50,000 2% 1% January 15, 2010 --------------------------------------------------------------------------------------------------- January 28, 2001 $25,000 2% 1% January 28, 2010 ---------------------------------------------------------------------------------------------------
B-2 APPENDIX C - DEATH BENEFITS FOLLOWING SPOUSAL CONTINUATION -------------------------------------------------------------------------------- IF YOU PURCHASED YOUR CONTRACT ON OR ABOUT AUGUST 2, 2004, THE DEATH BENEFITS FOLLOWING SPOUSAL CONTINUATION ARE AS FOLLOWS: Capitalized terms used in this Appendix have the same meaning as they have in the prospectus. The term "Continuation Net Purchase Payment" is used frequently to describe the death benefit options payable to the beneficiary of the Continuing Spouse. We define Continuation Net Purchase Payment as Net Purchase Payments made as of the Continuation Date. For the purpose of calculating Continuation Net Purchase Payments, the amount that equals the contract value on the Continuation Date, including the Continuation Contribution is considered a Purchase Payment. If the Continuing Spouse makes no additional Purchase Payments or withdrawal, Continuation Net Purchase Payments equals the contract value on the Continuation Date, including the Continuation Contribution. The term "withdrawals" as used in describing the death benefit options below is defined as withdrawals and any fees and charges applicable to those withdrawals. The following details the death benefit options and Earnings Advantage benefit upon the Continuing Spouse's death: The death benefit we will pay the Continuing Spouse's Beneficiary varies depending on the death benefit option elected by the original owner of the contract and the age of the Continuing Spouse Continuation Date. A. DEATH BENEFIT PAYABLE UPON CONTINUING SPOUSE'S DEATH: 1. STANDARD DEATH BENEFIT If the original owner of the contract elected the standard death benefit and the Continuing Spouse is age 82 or younger on the Continuation Date, then upon the death of the Continuing Spouse, the death benefit will be the greater of: a. Contract value; or b. Contract value on the Continuation Date plus any Continuation Net Purchase Payments received prior to the Continuing Spouse's 86th birthday. If the Continuing Spouse is age 83-85 on the Continuation Date, the death benefit will be the greater of: a. Contract value; or b. The lesser of: (1) Contract value on the Continuation Date plus Continuation Net Purchase Payments received prior to the Continuing Spouse's 86th birthday; or (2) 125% of the contract value. If the Continuing Spouse is age 86 and older on the Continuation Date, the death benefit is equal to the contract value. 2. PURCHASE PAYMENT ACCUMULATION OPTION If the original owner of the contract elected the Purchase Payment Accumulation Option, and the Continuing Spouse is age 74 or younger on the Continuation Date, then upon the death of the Continuing Spouse, the death benefit will be the greatest of: a. Contract value; or b. Contract value on the Continuation Date plus Continuation Net Purchase Payments, compounded at 3% annual growth rate, to the earlier of the Continuing Spouse's 75th birthday or date of death; plus any C-1 Continuation Net Purchase Payment received after the Continuing Spouse's 75th birthday to the earlier of the Continuing Spouse's 86th birthday or date of death; or c. Contract value on the seventh contract anniversary (based on the original contract issue date), reduced for withdrawals since the seventh contract anniversary in the same proportion that the contract value was reduced on the date of each such withdrawal that occurs after the seventh contract anniversary, plus Net Purchase Payments received between the seventh contract anniversary date but prior to the Continuing Spouse's 86th birthday. If the Continuing Spouse is age 75-82 on the Continuation Date and the Continuing Spouse dies prior to his/her 86th birthday, then the death benefit will be the greatest of: a. Contract value; or b. Contract value on the Continuation Date plus any Continuation Net Purchase Payments received prior to the Continuing Spouse's 86th birthday; or c. Maximum anniversary value on any contract anniversary that occurred after the Continuation Date, but prior to the Continuing Spouse's 83rd birthday. The anniversary value for any year is equal to the contract value on the applicable contract anniversary date, plus any Net Purchase Payments received since that anniversary date but prior to the Continuing Spouse's 86th birthday, and reduced for any Gross Withdrawals since that contract anniversary in the same proportion that the withdrawal reduced the contract value on the date of such withdrawal. If the Continuing Spouse is age 83-85 on the Continuation Date, the death benefit will be the Standard Death Benefit described above and the fee for the Purchase Payment Accumulation option will no longer be deducted as of the Continuation Date. 3. MAXIMUM ANNIVERSARY VALUE OPTION If the original owner of the contract elected the Maximum Anniversary Option, and the Continuing Spouse is age 82 or younger on the Continuation Date and the Continuing Spouse dies prior to his/her 86th birthday, then upon the death of the Continuing Spouse, the death benefit will be the greatest of: a. Contract value; or b. Contract value on the Continuation Date plus Continuation Net Purchase Payments received prior to the Continuing Spouse's 86th birthday; or c. Maximum anniversary value on any contract anniversary that occurred after the Continuation Date, but prior to the Continuing Spouse's 83rd birthday. The anniversary value for any year is equal to the contract value on the applicable contract anniversary date after the Continuation Date, plus any Continuation Net Purchase Payments received since that anniversary date but prior to the Continuing Spouse's 86th birthday, and reduced for any Gross Withdrawals since that contract anniversary in the same proportion that the withdrawal reduced the contract value on the date of withdrawal. If the Continuing Spouse is age 83-85 on the Continuation Date, the death benefit will be the Standard Death Benefit described above and the fee for the Maximum Anniversary Value option will no longer be deducted as of the Continuation Date. If the Continuing Spouse is age 86 or older on the Continuation Date or on the date of death, the death benefit under both the Purchase Payment Accumulation and Maximum Anniversary options is equal to the contract value. B. THE EARNINGS ADVANTAGE BENEFIT PAYABLE UPON CONTINUING SPOUSE'S DEATH: The Earnings Advantage benefits may increase the death benefit amount. The Earnings Advantage is only available if the original owner elected Earnings Advantage, and it has not been terminated. If the Continuing Spouse had earnings in the contract at the time of his/her death, we will add a percentage of those earnings (the "Earnings C-2 Advantage Percentage"), subject to a maximum dollar amount (the "Maximum Earnings Advantage Percentage"), to the death benefit payable, based on the number of years the Continuing Spouse has held the contract since the Continuation Date. The Earnings Advantage, if any, is added to the death benefit payable under the Purchase Payment Accumulation or the Maximum Anniversary option. On the Continuation Date, if the Continuing Spouse is 69 or younger and a Continuation Contribution is added, the table below shows the available Earnings Advantage benefit:
------------------------------------------------------------------------------------------- EARNINGS ADVANTAGE CONTRACT YEAR OF DEATH PERCENTAGE MAXIMUM EARNINGS ADVANTAGE AMOUNT ------------------------------------------------------------------------------------------- Years 0-4 25% of Earnings 40% of Continuation Net Purchase Payments ------------------------------------------------------------------------------------------- Years 5-9 40% of Earnings 65% of Continuation Net Purchase Payments* ------------------------------------------------------------------------------------------- Years 10+ 50% of Earnings 75% of Continuation Net Purchase Payments* -------------------------------------------------------------------------------------------
On the Continuation Date, if the Continuing Spouse is between your 70th and 81st birthdays and a Continuation Contribution is added, table below shows the available Earnings Advantage benefit:
------------------------------------------------------------------------------------------ EARNINGS ADVANTAGE CONTRACT YEAR OF DEATH PERCENTAGE MAXIMUM EARNINGS ADVANTAGE AMOUNT ------------------------------------------------------------------------------------------ All Contract Years 25% of Earnings 40% of Continuation Net Purchase Payments* ------------------------------------------------------------------------------------------
* PURCHASE PAYMENTS RECEIVED AFTER THE 5TH ANNIVERSARY OF THE CONTINUATION DATE MUST REMAIN IN THE CONTRACT FOR AT LEAST 6 FULL MONTHS TO BE INCLUDED AS PART OF THE CONTINUATION NET PURCHASE PAYMENTS FOR THE PURPOSE OF THE MAXIMUM EARNINGS ADVANTAGE PERCENTAGE CALCULATION. If a Continuation Contribution is not added on the Continuation Date, the Continuing Spouse's age as of the original contract issue date is used to calculate the Earnings Advantage, if any. What is the Contract Year of Death? Contract Year of Death is the number of full 12 month periods starting on the Continuation Date and ending on the Continuing Spouse's date of death. What is the Earnings Advantage amount? We determine the Earnings Advantage amount based upon a percentage of earnings in the contract at the time of the Continuing Spouse's death. For the purpose of this calculation, earnings are defined as (1) minus (2) where: (1) equals the contract value on the Continuing Spouse's date of death; (2) equals the Continuation Net Purchase Payment(s). What is the Maximum Earnings Advantage amount? The Earnings Advantage is subject to a maximum dollar amount. The Maximum Earnings Advantage amount is a percentage of the Continuation Net Purchase Payments. WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE SPOUSAL CONTINUATION PROVISION (IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME WITH RESPECT TO PROSPECTIVELY ISSUED CONTRACTS. IF YOU PURCHASED YOUR CONTRACT PRIOR TO AUGUST 2, 2004, THE DEATH BENEFITS FOLLOWING SPOUSAL CONTINUATION ARE AS FOLLOWS: The term "Continuation Net Purchase Payment" is used frequently to describe the death benefit options payable to the beneficiary of a Continuing Spouse. We define Continuation Net Purchase Payment as Net Purchase Payments made as of the Continuation Date plus any Purchase Payments recorded after the Continuation Date; and reduced for any withdrawals (and fees and charges applicable to those withdrawals) recorded after the Continuation Date, in the same proportion that the withdrawal reduced the contract value on the date of the withdrawal. For the purposes of calculating Continuation Net Purchase Payments, the amount that equals the contract value on the C-3 Continuation Date, including the Continuation Contribution is considered a Purchase Payment. If the Continuing Spouse makes no additional Purchase Payments or withdrawals, Continuation Net Purchase Payments equal the contract value on the Continuation Date, including the Continuation Contribution. All other capitalized terms have the meanings defined in the glossary and/or prospectus. STANDARD DEATH BENEFIT PAYABLE UPON CONTINUING SPOUSE'S DEATH I. If the Standard Death Benefit is applicable upon the Continuing Spouse's death and a Continuation Contribution was made: A. If the Continuing Spouse is age 74 or younger at the time of death, we will pay the beneficiary the greater of: 1. Continuation Net Purchase Payments compounded at a 3% annual growth rate from the Continuation Date until the date of death of the Continuing Spouse, plus any Purchase Payments recorded after the date of death of the Continuing Spouse; and reduced for any withdrawals (and fees and charges applicable to those withdrawals) recorded after the date of death, in the same proportion that the withdrawal reduced the contract value on the date of the withdrawal. 2. The contract value on the date we receive all required paperwork and satisfactory proof of death. B. If the Continuing Spouse is age 75 or older at the time of death the Standard Death Benefit is the greater of: 1. Continuation Net Purchase Payments compounded at a 3% annual growth rate from the Continuation Date until the Continuing Spouse's 75th birthday, plus any Purchase Payments recorded after the Continuing Spouse's 75th birthday; and reduced for any withdrawal (and fees and charges applicable to those withdrawals) recorded after the 75th birthday, in the same proportion that the withdrawal reduced the contract value on the date of the withdrawal. 2. The contract value on the date we receive all required paperwork and satisfactory proof of death. II. If the Standard Death Benefit is applicable upon the Continuing Spouse's death and no Continuation Contributions was made: A. If the Continuing Spouse is age 74 or younger at the time of death, the death benefit is the greater of: 1. Net Purchase Payments compounded at a 3% annual growth rate from the date of issue until the date of death, plus any Purchase Payments recorded after the date of death; and reduced for any withdrawals (and fees and charges applicable to those withdrawals) recorded after the date of death, in the same proportion that the withdrawal reduced the contract value on the date of withdrawal. 2. the contract value on the date we receive all required paperwork and satisfactory proof of death. B. If the Continuing Spouse is age 75 or older at the time of death, the death benefit is the greater of: 1. Net Purchase Payments compounded at a 3% annual growth rate from the date of issue until your Continuing Spouse's 75(th) birthday, plus any Purchase Payments recorded after the 75(th) birthday, and reduced for any withdrawals (and fees and charges applicable to those withdrawals) recorded after the 75(th) birthday, in the same proportion that the withdrawal reduced the contract value on the date of the withdrawal. 2. the contract value at the time we receive all required paperwork and satisfactory proof of death. C-4 SEASONS ESTATE ADVANTAGE DEATH BENEFIT PAYABLE UPON CONTINUING SPOUSE'S DEATH If Seasons Estate Advantage is applicable upon the Continuing Spouse's death, we will pay the Beneficiary the sum of A plus B, where: A. equals the amount payable under the selected enhanced death benefit (option 1 or 2 below, as selected by the original owner); and B. equals the amount payable, if any, under the Earnings Advantage benefit. A. ENHANCED DEATH BENEFIT OPTIONS FOR SPOUSAL CONTINUATION: I. If the 5% Accumulation option is selected and a Continuation Contribution was made the death benefit is the greater of: a. The contract value on the date we receive all required paperwork and satisfactory proof of the Continuing Spouse's death; or b. Continuation Net Purchase Payments made from the Continuation Date including the Continuation Contribution, compounded to the earlier of the Continuing Spouse's 80th birthday or the date of death at a 5% annual growth rate, plus any Purchase Payments recorded after the 80th birthday or the date of death; and reduced for any withdrawals (and fees and charges applicable to those withdrawals) recorded after the 80th birthday or the date of death, in the same proportion that the withdrawal reduced the contract value on the date of the withdrawal, up to a maximum benefit of two times the Continuation Net Purchase Payments. II. If 5% Accumulation Option is selected and no Continuation Contribution was made: a. the contract value on the date we receive all required paperwork and satisfactory proof of the Continuing Spouse's death; or b. Net Purchase Payments made from the date of issue compounded to the earlier of the Continuing Spouse's 80(th) birthday or the date of death at a 5% annual growth rate, plus any Purchase Payments recorded after the 80(th) birthday or the date of death; and reduced for any withdrawals (and fees and charges applicable to those withdrawals) recorded after the 80(th) birthday or the date of death, in the same proportion that the withdrawal reduced the contract value on the date of the withdrawal, up to a maximum of two times the Net Purchase Payments. If the Continuing Spouse dies after the latest Annuity Date and the 5% Accumulation option applied, any death benefit payable under the contract will be the Standard Death Benefit as described above. The Continuing Spouse's beneficiary will not receive any benefit from Seasons Estate Advantage. III. If the Maximum Anniversary Value option is selected and if the Continuing Spouse is younger than age 90 at the time of death and a Continuation Contribution was made, the death benefit is the greater of: a. Continuation Net Purchase Payments; or b. The contract value on the date we receive all required paperwork and satisfactory proof of the Continuing Spouse's death; or c. The maximum anniversary value on any contract anniversary (of the original issue date) occurring after the Continuation Date but prior to the Continuing Spouse's 81st birthday. The anniversary value equals the value on the contract anniversary plus any Purchase Payments recorded after that anniversary; and reduced for any withdrawals (and fees and charges applicable to those withdrawals) recorded after that anniversary, in the same proportion that the withdrawal reduced the contract value on the date of the withdrawal. C-5 IV. If the Maximum Anniversary Value option is selected and no Continuation Contribution was made the death benefit is the greater of: a. Net Purchase Payments; or b. The contract value on the date we receive all required paperwork and satisfactory proof of the Continuing Spouse's death; or c. The maximum anniversary value on any contract anniversary (of the original issue date) occurring after the issue date but before the Continuing Spouse's 81st birthday. The anniversary value equals the value on the contract anniversary plus any Purchase Payments recorded after that anniversary; and reduced for any withdrawals (and fees and charges applicable to those withdrawals) recorded after that anniversary, in the same proportion that the withdrawal reduced the contract value on the date of the withdrawal. If the Continuing Spouse is age 90 or older at the time of death and the Maximum Anniversary Value option applied, the death benefit will be equal to the contract value at the time we receive all required paperwork and satisfactory proof of death. The Continuing Spouse's beneficiary will not receive any benefit from Seasons Estate Advantage. However, the Continuing Spouse's Beneficiary may still receive a benefit from Earnings Advantage if the date of death is prior to the Latest Annuity Date. B. EARNINGS ADVANTAGE BENEFIT FOR SPOUSAL CONTINUATION: The Earnings Advantage benefit may increase the death benefit amount. The Earnings Advantage benefit is only available if the original owner elected Seasons Estate Advantage and it has not been discontinued or terminated. If the Continuing Spouse had earnings in the contract at the time of his/her death, we will add a percentage of those earnings (the "Earnings Advantage Percentage"), subject to a maximum dollar amount (the "Maximum Earnings Advantage Percentage"), to the death benefit payable. If a Continuation Contribution has been made, the Contract Year of Death will determine the Earnings Advantage Percentage and the Maximum Earnings Advantage amount, as set forth below:
------------------------------------------------------------------------------------------- EARNINGS ADVANTAGE CONTRACT YEAR OF DEATH PERCENTAGE MAXIMUM EARNINGS ADVANTAGE AMOUNT ------------------------------------------------------------------------------------------- Years 0-4 25% of earnings 25% of Continuation Net Purchase Payments ------------------------------------------------------------------------------------------- Years 5-9 40% of earnings 40% of Continuation Net Purchase Payments* ------------------------------------------------------------------------------------------- Years 10+ 50% of earnings 50% of Continuation Net Purchase Payments* -------------------------------------------------------------------------------------------
* PURCHASE PAYMENTS MUST BE INVESTED FOR AT LEAST SIX MONTHS AT THE TIME OF YOUR DEATH TO BE INCLUDED AS PART OF CONTINUATION NET PURCHASE PAYMENTS FOR PURPOSES OF THE MAXIMUM EARNINGS ADVANTAGE CALCULATION. What is the Contract Year of Death? Contract Year of Death is the number of full 12 month periods starting on the Continuation Date and ending on the Continuing Spouse's date of death. What is the Earnings Advantage Amount? We determine the Earnings Advantage amount based upon a percentage of earnings in the contract at the time of the Continuing Spouse's death. For the purpose of this calculation, earnings are defined as (1) minus (2) where: (1) equals the contract value on the Continuing Spouse's date of death; (2) equals the Continuation Net Purchase Payment(s). What is the Maximum Earnings Advantage Amount? The Earnings Advantage amount is subject to a maximum. The Maximum Earnings Advantage amount is a percentage of the Continuation Net Purchase Payments. C-6 The Earnings Advantage benefit will only be paid if the Continuing Spouse's date of death is prior to reaching age 95. WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE SPOUSAL CONTINUATION PROVISION (IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME ON PROSPECTIVELY ISSUED CONTRACTS. C-7 APPENDIX D - SEASONS INCOME REWARDS EXAMPLES -------------------------------------------------------------------------------- The examples below describe how the Seasons Income Rewards benefit is calculated in different situations: EXAMPLE 1 - CALCULATION OF BENEFIT Assume you elect Seasons Income Rewards option 2 and you invest a single Purchase Payment of $100,000. If you make no additional Purchase Payments and no withdrawals, your WBB is $100,000 on the Benefit Availability Date. Your SBB equals WBB plus the Step-Up Amount ($100,000 + (20% X $100,000) = $120,000). Your MAWA as of the Benefit Availability Date is 10% of your WBB ($100,000 X 10% = $10,000). The MWP is equal to the SBB divided by the MAWA which is 12 years ($120,000/$10,000). Therefore, you may take $120,000 in withdrawals of up to $10,000 annually over a minimum of 12 years on or after the Benefit Availability Date. EXAMPLE 2 - IMPACT OF WITHDRAWALS PRIOR TO THE BENEFIT AVAILABILITY DATE: Assume you elect Seasons Income Rewards option 2 and you invest a single Purchase Payment of $100,000. You make a withdrawal of $11,000 prior to the Benefit Availability Date. Prior to the withdrawal, your contract value is $110,000. You make no other withdrawals before the Benefit Availability Date. Immediately following the withdrawal, your WBB is recalculated by first determining the proportion by which your contract value was reduced by the withdrawal ($11,000/$110,000 = 10%). Next, we reduce your WBB by the percentage by which the contract value was reduced by the withdrawal ($100,000 -- (10% X 100,000) = $90,000). Since the Step-Up Amount is zero because a withdrawal was made prior to the Benefit Availability Date, your SBB on the Benefit Availability Date equals your WBB. Therefore, the SBB also equals $90,000. Your MAWA is 10% of the WBB on the Benefit Availability Date ($90,000). This equals $9,000. Therefore, you may take withdrawals of up to $9,000 annually over a minimum of 10 years ($90,000/$9,000 = 10). EXAMPLE 3 - IMPACT OF WITHDRAWALS LESS THAN OR EQUAL TO MAWA AFTER THE BENEFIT AVAILABILITY DATE: Assume you elect Seasons Income Rewards option 2 and you invest a single Purchase Payment of $100,000. You make a withdrawal of $7,500 during the first year after the Benefit Availability Date. Because the withdrawal is less than or equal to your MAWA ($10,000), your SBB ($120,000) is reduced by the total dollar amount of the withdrawal ($7,500). Your new SBB equals $112,500. Your MAWA remains $10,000. Your new MWP following the withdrawal is equal to the new SBB divided by your current MAWA, ($112,500/$10,000). Therefore, you may take withdrawals of up to $10,000 over a minimum of 11 years and 3 months. EXAMPLE 4 - IMPACT OF WITHDRAWALS IN EXCESS OF MAWA AFTER THE BENEFIT AVAILABILITY DATE: Assume you elect Seasons Income Rewards option 2 and you invest a single Purchase Payment of $100,000. Your WBB is $100,000 and your SBB is $120,000. You make a withdrawal of $15,000 during the first year after the Benefit Availability Date. Your contract value is $125,000 at the time of the withdrawal. Because the withdrawal is greater than your MAWA ($10,000), we recalculate your SBB ($120,000) by taking the lesser of two calculations. For the first calculation, we deduct the amount of the withdrawal from the SBB ($120,000 -- $15,000 = $105,000). For the second calculation, we deduct the amount of the MAWA from the SBB ($120,000 -- $10,000 = $110,000). Next, we calculate the excess portion of the withdrawal ($5,000) and determine the proportion by which the contract value was reduced by the excess portion of the withdrawal. ($5,000/$125,000 = 4%). Finally we reduce $110,000 by that proportion (4%) which equals $105,600. Your SBB is the lesser of these two calculations or $105,000. The MWP following the withdrawal is equal to the MWP at the end of the prior year (12 years) reduced by one year (11 years). Your MAWA is your SBB divided by your MWP ($105,000/11) which equals $9,545.45. D-1 APPENDIX E - MARKET VALUE ADJUSTMENT -------------------------------------------------------------------------------- Multi-year FAGPs subject to a MVA are only available if you purchased your contract prior to August 2, 2004. This information applies only if you take money out of a FAGP (with a duration longer than 1 year) before the end of the guarantee period. We calculate the MVA by doing a comparison between current rates and the rate being credited to you in the FAGP. For the current rate we use a rate being offered by us for a guarantee period that is equal to the time remaining in the FAGP from which you seek withdrawal. If we are not currently offering a guarantee period for that period of time, we determine an applicable rate by using a formula to arrive at a number between the interest rates currently offered for the two closest periods available. Where the MVA is negative, we first deduct the adjustment from any money remaining in the FAGP. If there is not enough money in the FAGP to meet the negative deduction, we deduct the remainder from your withdrawal. Where the MVA is positive, we add the adjustment to your withdrawal amount. If a withdrawal charge applies, it is deducted before the MVA calculation. The MVA is assessed on the amount withdrawn less any withdrawal charges. The MVA is computed by multiplying the amount withdrawn, transferred or taken under an income option by the following factor: [(1+I/(1+J+L)][to the power of N/12] - 1 where: I is the interest rate you are earning on the money invested in the FAGP; J is the interest rate then currently available for the period of time equal to the number of years remaining in the term you initially agreed to leave your money in the FAGP; N is the number of full months remaining in the term you initially agreed to leave your money in the FAGP; and L is 0.005 (Some states require a different value. Please see your contract.) We do not assess an MVA against withdrawals under the following circumstances: - If a withdrawal is made within 30 days after the end of a guarantee period; - If a withdrawal is made to pay contract fees and charges; - To pay a death benefit; and - Upon beginning an income option, if occurring on the Latest Annuity Date. EXAMPLES OF THE MVA The purpose of the examples below is to show how the MVA adjustments are calculated and may not reflect the Guarantee periods available or Withdrawal Charges applicable under your contract. The examples below assume the following: (1) You made an initial Purchase Payment of $10,000 and allocated it to a FAGP at a rate of 5%; (2) You make a partial withdrawal of $4,000 when 1 1/2 years (18 months) remain in the term you initially agreed to leave your money in the FAGP (N=18); (3) You have not made any other transfers, additional Purchase Payments, or withdrawals; and (4) Your contract was issued in a state where L=0.005. POSITIVE ADJUSTMENT, NO WITHDRAWAL CHARGE APPLIES Assume that on the date of withdrawal, the interest rate in effect for a new Purchase Payments in the 1-year FAGP is 3.5% and the 3-year FAGP is 4.5%. By linear interpolation, the interest rate for the remaining 2 years (1 1/2 years rounded up to the next full year) in the contract is calculated to be 4%. No withdrawal charge is reflected in this example, assuming that the Purchase Payment withdrawn falls within the free look amount. E-1 The MVA factor is = [(1+I/(1+J+0.005)][to the power of N/12] - 1 = [(1.05)/(1.04+0.005)][to the power of 18/12] - 1 = (1.004785)[to the power of 1.5] - 1 = 1.007186 - 1 = +0.007186 The requested withdrawal amount is multiplied by the MVA factor to determine the MVA: $4,000 X (+0.007186) = +$28.74 $28.74 represents the positive MVA that would be added to the withdrawal. NEGATIVE ADJUSTMENT, NO WITHDRAWAL CHARGE APPLIES Assume that on the date of withdrawal, the interest rate in effect for new Purchase Payments in the 1-year FAGP is 5.5% and the 3-year FAGP is 6.5%. By linear interpolation, the interest rate for the remaining 2 years (1 1/2 years rounded up to the next full year) in the contract is calculated to be 6%. No withdrawal charge is reflected in this example, assuming that the Purchase Payment withdrawn falls with the free withdrawal amount. The MVA factor is = [(1+I)/(1+J+0.005)][to the power of N/12] - 1 = [(1.05)/(1.06+0.005)][to the power of 18/12] - 1 = (0.985915)[to the power of 1.5] - 1 = 0.978948 - 1 = -0.021052 The requested withdrawal amount is multiplied by the MVA factor to determine the MVA: $4,000 X (-0.021052) = -$84.21 $84.21 represents the negative MVA that will be deducted from the money remaining in the 3-year FAGP. POSITIVE ADJUSTMENT, WITHDRAWAL CHARGE APPLIES Assume that on the date of withdrawal, the interest rate in effect for a new Purchase Payments in the 1-year FAGP is 3.5% and the 3-year FAGP is 4.5%. By linear interpolation, the interest rate for the remaining 2 years (1 1/2 years rounded up to the next full year) in the contract is calculated to be 4%. A withdrawal charge of 6% is reflected in this example, assuming that the Purchase Payment withdrawn exceeds the free withdrawal amount. The MVA factor is = [(1+I)/(I+J+0.005)][to the power of N/12] - 1 = [(1.05)/(1.04+0.005)][to the power of 18/12] - 1 = (1.004785)[to the power of 1.5] - 1 = 1.007186 - 1 = +0.007186 The requested withdrawal amount, less the withdrawal charge ($4,000 - 6% = $3,760) is multiplied by the MVA factor to determine the MVA: $3,760 X (+0.007186) = +$27.02 $27.02 represents the positive MVA that would be added to the withdrawal. NEGATIVE ADJUSTMENT, WITHDRAWAL CHARGE APPLIES Assume that on the date of withdrawal, the interest rate in effect for new Purchase Payments in the 1-year FAGP is 5.5% and the 3-year FAGP is 6.5%. By linear interpolation, the interest rate for the remaining 2 years (1 1/2 years rounded up to the next full year) in the contract is calculated to be 6%. A withdrawal charge of 6% is reflected in this example, assuming that the Purchase Payment withdrawn exceeds the free withdrawal amount. The MVA factor is = [(1+I)/(I+J+0.005)][to the power of N/12] - 1 = [(1.05)/(1.06+0.005)][to the power of 18/12] - 1 = (0.985916)[to the power of 1.5] - 1 = 0.978949 - 1 = -0.021051 E-2 The requested withdrawal amount, less the withdrawal charge ($4,000 -- 6% = $3,760) is multiplied by the MVA factor to determine the MVA: $3,760 X (-0.021052) = -$79.16 $79.16 represents the negative MVA that would be deducted from the withdrawal. E-3 Please forward a copy (without charge) of the Seasons Select(II) Variable Annuity Statement of Additional Information to: (Please print or type and fill in all information.) ------------------------------------------------------------------ Name ------------------------------------------------------------------ Address ------------------------------------------------------------------ City/State/Zip ------------------------------------------------------------------ Date: ------------ Signed: --------------------------------------- Return to: AIG SunAmerica Life Assurance Company, Annuity Service Center, P.O. Box 52499, Los Angeles, California 90054-0299