-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VqUBYhMuXq4Z9UGyjCUiOoVLAhqDliiFPfGeIAWxx3OYhQwo4BIdnq4Is78H3m8h NtDZTSkYEjTV2M2ItLyiPQ== 0000950148-04-000912.txt : 20040507 0000950148-04-000912.hdr.sgml : 20040507 20040507165641 ACCESSION NUMBER: 0000950148-04-000912 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20040507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIG SUNAMERICA LIFE ASSURANCE CO CENTRAL INDEX KEY: 0000006342 IRS NUMBER: 860198983 STATE OF INCORPORATION: AZ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-67689 FILM NUMBER: 04789844 BUSINESS ADDRESS: STREET 1: 1 SUNAMERICA CENTER STREET 2: C/O LUCIA WILLIAMS CITY: LOS ANGELES STATE: CA ZIP: 90067-6022 BUSINESS PHONE: 3107726000 MAIL ADDRESS: STREET 1: 1 SUN AMERICA CENTER CITY: LOS ANGELES STATE: CA ZIP: 90067-6022 FORMER COMPANY: FORMER CONFORMED NAME: ANCHOR NATIONAL LIFE INSURANCE CO DATE OF NAME CHANGE: 19920929 FORMER COMPANY: FORMER CONFORMED NAME: ANCHOR LIFE INSURANCE CO DATE OF NAME CHANGE: 19600201 424B3 1 v95872f4e424b3.txt 424B3 As filed pursuant to Rule 424(b)(3) Under the Securities Act of 1933 Registration No. 333-67689 AIG SUNAMERICA LIFE ASSURANCE COMPANY - -------------------------------------------------------------------------------- VARIABLE ANNUITY ACCOUNT FIVE SUPPLEMENT TO THE SEASONS SELECT VARIABLE ANNUITY PROSPECTUS DATED JULY 29, 2003 - -------------------------------------------------------------------------------- THIS SUPPLEMENT REPLACES ALL PREVIOUS SUPPLEMENTS. THE DATE OF THE PROSPECTUS HAS BEEN CHANGED TO MAY 3, 2004. ALL REFERENCES IN THE PROSPECTUS TO THE DATE OF THE STATEMENT OF ADDITIONAL INFORMATION ARE HEREBY CHANGED TO MAY 3, 2004. THE FOLLOWING REPLACES THE SECTION ENTITLED "TRANSFERS DURING THE ACCUMULATION PHASE" OF THE PROSPECTUS: 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. This product is not designed for professional organizations or individuals engaged in trading strategies that seek to benefit from short term price fluctuations or price irregularities by making programmed transfers, frequent transfers or transfers that are large in relation to the total assets of the underlying portfolio in which the Variable Portfolios invest. These types of trading strategies can be disruptive to the underlying portfolios in which the Variable Portfolios invest and thereby potentially harmful to investors. In connection with our efforts to control harmful trading, we may monitor your trading activity. If we determine, in our sole discretion, that your transfer patterns among the Variable Portfolios and/or available fixed accounts reflect a potentially harmful trading strategy, we reserve the right to take action to protect other investors. Such action may include, but may not be limited to, restricting the way you can request transfers among the Variable Portfolios, imposing penalty fees on such trading activity, and/or otherwise restricting transfer capability in accordance with state and federal rules and regulations. We will notify you, in writing, if we determine in our sole discretion that we must terminate your transfer privileges. Some of the factors we may consider when determining our transfer policies and/or other transfer restrictions may include, but are not limited to: - the number of transfers made in a defined period; - the dollar amount of the transfer; - the total assets of the Variable Portfolio involved in the transfer; - the investment objectives of the particular Variable Portfolios involved in your transfers; and/or - whether the transfer appears to be part of a pattern of transfers to take advantage of short-term market fluctuations or market inefficiencies. Subject to our rules, restrictions and policies, you may request transfers of your account value between the Variable Portfolios and/or the available fixed account options by telephone or through AIG SunAmerica's website (http://www.aigsunamerica.com) or in writing by mail or facsimile. We allow 15 free transfers per contract per year. We charge $25 ($10 in Pennsylvania and Texas) for each additional transfer in any contract year. Transfers resulting from your participation in the DCA or Asset Rebalancing programs do not count against your 15 free transfers per contract year. All transfer request in excess of 15 transfers per contract year must be submitted in writing by United States Postal Service first-class mail ("U.S. Mail") until your next contract anniversary. Transfer requests sent by same day mail, overnight mail or courier services will not be accepted. Transfer requests 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. Date: May 3, 2004 Please keep this Supplement with your Prospectus. Page 2 of 2 [Seasons Select Logo] PROSPECTUS July 29, 2003 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 PORTFOLIO SEASONS STRATEGIES LARGE CAP GROWTH FOCUS GROWTH GROWTH LARGE CAP COMPOSITE MODERATE GROWTH LARGE CAP VALUE BALANCED GROWTH MID CAP GROWTH CONSERVATIVE GROWTH MID CAP VALUE SMALL CAP INTERNATIONAL EQUITY DIVERSIFIED FIXED INCOME CASH MANAGEMENT
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. FRED ALGER MANAGEMENT INC. JANUS CAPITAL MANAGEMENT LLC. AIG SUNAMERICA ASSET MANAGEMENT CORP. MARSICO CAPITAL MANAGEMENT, LLC AIG SUNAMERICA ASSET MANAGEMENT CORP. GOLDMAN SACHS ASSET MANAGEMENT SALOMON BROTHERS ASSET MANAGEMENT PUTNAM INVESTMENT MANAGEMENT, L.L.C. GOLDMAN SACHS MANAGEMENT INTERNATIONAL T. ROWE PRICE ASSOCIATES, INC. JANUS CAPITAL MANAGEMENT LLC. WELLINGTON MANAGEMENT COMPANY, LLP LORD, ABBETT & CO. T. ROWE PRICE ASSOCIATES, INC. WELLINGTON MANAGEMENT COMPANY, LLP
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 Variable Annuity. To learn more about the annuity offered by this prospectus, you can obtain a copy of the Statement of Additional Information ("SAI") dated July 29, 2003. The SAI has been filed with the Securities and Exchange Commission ("SEC") and can be considered part of this prospectus. The table of contents of the SAI appears below in this prospectus. For a free copy of the SAI, call Us at 800/445-SUN2 or write Our Annuity Service Center at, P.O. Box 54299, Los Angeles, California 90054-0299. A registration statement has been filed with the SEC under the Securities Act of 1933 relating to the contract. This prospectus does not contain all the information in the registration statement as permitted by SEC regulations. The omitted information can be obtained from the SEC's principal office in Washington, D.C., upon payment of a prescribed fee. In addition, the SEC maintains a website (http://www.sec.gov) that contains the SAI, materials incorporated by reference and other information filed electronically with the SEC. ANNUITIES INVOLVE RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL, AND ARE NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THEY ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Anchor National Life Insurance Company changed its name to AIG SunAmerica Life Assurance Company on March 1, 2003. Please keep in mind, this is a name change only and will not affect the substance of your contract. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE AIG SunAmerica Life's Annual Report on Form 10-K for the year ended December 31, 2002. File no. 033-47472 is herein incorporated by reference. All documents or reports filed by AIG SunAmerica Life under Section 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") after the effective date of this prospectus are also incorporated by reference. Statements contained in this prospectus and subsequently filed documents which are incorporated by reference or deemed to be incorporated by reference are deemed to modify or supersede documents incorporated herein by reference. AIG SunAmerica Life files its Exchange Act documents and reports, including its annual and quarterly reports on Form 10-K and Form 10-Q, electronically pursuant to EDGAR under CIK No. 0000006342. AIG SunAmerica Life is subject to the informational requirements of the Securities and Exchange Act of 1934 (as amended). We file reports and other information with the SEC to meet those requirements. You can inspect and copy this information at SEC public facilities at the following locations: WASHINGTON, DISTRICT OF COLUMBIA 450 Fifth Street, N.W., Room 1024 Washington, D.C. 20549 CHICAGO, ILLINOIS 500 West Madison Street Chicago, IL 60661 NEW YORK, NEW YORK 233 Broadway New York, NY 10279 To obtain copies by mail, contact the Washington, D.C. location. After you pay the fees as prescribed by the rules and regulations of the SEC, the required documents are mailed. Registration statements under the Securities Act of 1933, as amended, related to the contracts offered by this prospectus are on file with the SEC. This prospectus does not contain all of the information contained in the registration statements and exhibits. For further information regarding the separate account, AIG SunAmerica Life and its general account, the Variable Portfolios and the contract, please refer to the registration statements and exhibits. The SEC also maintains a website (http://www.sec.gov) that contains the SAI, materials incorporated by reference and other information filed electronically with the SEC by AIG SunAmerica Life. AIG SunAmerica Life will provide without charge to each person to whom this prospectus is delivered, upon written or oral request, a copy of the documents incorporated by reference. Requests for these documents should be directed to AIG SunAmerica Life's Annuity Service Center, as follows: AIG SunAmerica Life Assurance Company Annuity Service Center P.O. Box 54299 Los Angeles, California 90054-0299 Telephone Number: (800) 445-SUN2 SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION Indemnification for liabilities arising under the Securities Act of 1933 (the "Act") is provided to AIG SunAmerica Life's officers, directors and controlling persons. The SEC has advised that it believes such indemnification is against public policy under the Act and unenforceable. If a claim for indemnification against such liabilities (other than for AIG SunAmerica Life's payment of expenses incurred or paid by its directors, officers or controlling persons in the successful defense of any legal action) is asserted by a director, officer or controlling person of AIG SunAmerica Life in connection with the securities registered under this prospectus, AIG SunAmerica Life will submit to a court with jurisdiction to determine whether the indemnification is against public policy under the Act. AIG SunAmerica Life will be governed by final judgment of the issue. However, if in the opinion of AIG SunAmerica Life's counsel this issue has been determined by controlling precedent, AIG SunAmerica Life will not submit the issue to a court for determination. 2 TABLE OF CONTENTS GLOSSARY.................................................... 4 HIGHLIGHTS.................................................. 5 FEE TABLES.................................................. 6 Maximum Owner Transaction Expenses...................... 6 Separate Account Annual Expenses........................ 6 Optional Income Protector Fee........................... 6 Portfolio Expenses...................................... 6 EXAMPLES.................................................... 7 THE SEASONS SELECT VARIABLE ANNUITY......................... 8 PURCHASING A SEASONS SELECT VARIABLE ANNUITY................ 9 Allocation of Purchase Payments......................... 9 Accumulation Units...................................... 9 Free Look............................................... 10 Exchange Offers......................................... 10 INVESTMENT OPTIONS.......................................... 10 Variable Investment Options............................. 10 PORTFOLIOS............................................ 11 Portfolio Operation................................... 11 SEASONS STRATEGIES.................................... 12 Seasons Strategy Rebalancing.......................... 12 Fixed Investment Options................................ 14 Dollar Cost Averaging Fixed Accounts.................... 14 Transfers During the Accumulation Phase................. 15 Dollar Cost Averaging Program........................... 16 Principal Advantage Program............................. 16 Voting Rights........................................... 17 Substitution............................................ 17 ACCESS TO YOUR MONEY........................................ 17 Free Withdrawal Provision............................... 18 Systematic Withdrawal Program........................... 19 Minimum Contract Value.................................. 19 Qualified Contract Owners............................... 19 DEATH BENEFIT............................................... 19 Death of the Annuitant.................................. 20 EXPENSES.................................................... 20 Separate Account Charges................................ 20 Withdrawal Charges...................................... 21 Investment Charges...................................... 21 Contract Maintenance Fee................................ 21 Transfer Fee............................................ 22 Optional Income Protector Fee........................... 22 Premium Tax............................................. 22 Income Taxes............................................ 22 Reduction or Elimination of Charges and Expenses, and Additional Amounts Credited............................ 22 INCOME OPTIONS.............................................. 22 Annuity Date............................................ 22 Income Options.......................................... 23 Allocation of Annuity Payments.......................... 24 Transfers During the Income Phase....................... 24 Deferment of Payments................................... 24 The Income Protector.................................... 25 TAXES....................................................... 27 Annuity Contracts in General............................ 27 Tax Treatment of Distributions--Non-Qualified Contracts.............................................. 28 Tax Treatment of Distributions--Qualified Contracts..... 28 Minimum Distributions................................... 28 Tax Treatment of Death Benefits......................... 29 Contracts Owned by a Trust or Corporation............... 29 Gifts, Pledges and/or Assignments of a Non-Qualified Contract............................................... 29 Diversification and Investor Control.................... 30 PERFORMANCE................................................. 30 OTHER INFORMATION........................................... 30 AIG SunAmerica Life..................................... 30 The Separate Account.................................... 31 The General Account..................................... 31 Distribution of the Contract............................ 31 Administration.......................................... 31 Legal Proceedings....................................... 32 INDEPENDENT ACCOUNTANTS..................................... 32 TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.... 33 APPENDIX A--CONDENSED FINANCIAL INFORMATION................. 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 issuer of this annuity contract. INCOME PHASE--The period during which We make annuity payments to you. IRS--The Internal Revenue Service. LATEST ANNUITY DATE--Your 90(th) birthday or 10(th) 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"). PORTFOLIOS--A sub-account of Variable Annuity Account Five which provides for the variable investment options available under the contract. Each Seasons Strategy, Select and Focused Portfolio has a distinct investment objective and is invested in the underlying investment portfolios of the Seasons Series Trust. This investment option allocates assets to an underlying fund in which a portion of the assets is managed by three different advisors. 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. This investment option allocates assets to three out of six available portfolios, each of which is managed by a different investment advisor. VARIABLE PORTFOLIO(S)--Refers collectively to the Select Portfolios, Focused Portfolios and/or Seasons Strategies. 4 AIG SUNAMERICA LIFE OFFERS SEVERAL DIFFERENT VARIABLE ANNUITY PRODUCTS TO MEET THE DIVERSE NEEDS OF OUR INVESTORS. EACH PRODUCT MAY PROVIDE DIFFERENT FEATURES AND BENEFITS AND CORRESPONDINGLY DIFFERENT FEES, CHARGES AND EXPENSES. WHEN WORKING WITH YOUR FINANCIAL ADVISOR TO DETERMINE THE BEST PRODUCT TO MEET YOUR NEEDS YOU SHOULD CONSIDER, AMONG OTHER THINGS, WHETHER THE FEATURES OF THIS CONTRACT AND THE RELATED FEES PROVIDE THE MOST APPROPRIATE PACKAGE TO HELP MEET YOUR LONG-TERM RETIREMENT SAVINGS GOALS. HIGHLIGHTS - -------------------------------------------------------------------------------- The Seasons Select 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 any combination of the four pre-allocated Strategies, the Select Portfolios, and/or Focused Portfolios ("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. You will receive whatever your contract is worth on the day that We receive your request. This amount may be more or less than your original Purchase Payment. We will return your original Purchase Payment if required by law. Please see PURCHASING A SEASONS SELECT VARIABLE ANNUITY in the prospectus. EXPENSES: There are fees and charges associated with the contract. Each year, We deduct a $35 contract maintenance fee from your contract, which may be waived for contracts of $50,000 or more. We also deduct separate account charges, which equal 1.40% (1.52% if you are age 81 or older at the time of contract issue) 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 under the contract We may charge additional fees for these features. A separate withdrawal charge schedule applies to each Purchase Payment. The amount of the withdrawal charge declines over time. After a Purchase Payment has been in the contract for nine complete years, withdrawal charges no longer apply to that portion of the Purchase Payment. Please see the FEE TABLE, PURCHASING A SEASONS SELECT 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 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)... 9%
- --------------- (1) Withdrawal Charge Schedule (as a percentage of each Purchase Payment) Years:............. 1 2 3 4 5 6 7 8 9 10+ 9% 8% 7% 6% 6% 5% 4% 3% 2% 0%
TRANSFER FEE No charge for the first 15 transfers each contract year; thereafter, the fee is $25 ($10 in Pennsylvania and Texas) per transfer THE FOLLOWING DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY PERIODICALLY DURING THE TIME THAT YOU OWN THE CONTRACT, NOT INCLUDING UNDERLYING PORTFOLIO FEES AND EXPENSES, WHICH ARE OUTLINED IN THE NEXT SECTION. CONTRACT MAINTENANCE FEE $35 ($30 in North Dakota) waived if contract value $50,000 or more SEPARATE ACCOUNT ANNUAL EXPENSES (deducted daily as a percentage of your average daily net asset value) If age 80 or younger at contract issue: Mortality and Expense Risk Fees.............. 1.25% Distribution Expense Charge.................. 0.15% ----- Total Separate Account Annual Expenses....... 1.40% If age 81 or older at contract issue: Mortality and Expense Risk Fees.............. 1.37% Distribution Expense Charge.................. 0.15% ----- Total Separate Account Annual Expenses....... 1.52%
OPTIONAL INCOME PROTECTOR FEE Annual Fee as a % of your Income Benefit Base......................................... 0.10%
The Income Protector is optional and if elected, the fee is deducted annually from your contract value. The Income Benefit Base which is described more fully in the prospectus is generally calculated by using your contract value on the date of your effective enrollment in the program and then each subsequent contract anniversary, adding Purchase Payments made since the prior contract anniversary, less proportional withdrawals, and fees and charges applicable to those withdrawals. THE NEXT ITEM SHOWS THE MINIMUM AND MAXIMUM TOTAL OPERATING EXPENSES CHARGED BY THE UNDERLYING PORTFOLIO OF THE TRUST BEFORE ANY WAIVER OR REIMBURSEMENTS. MORE DETAIL CONCERNING THE 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)....................... 0.86% 1.76%
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 fees, separate account annual expense, fees for optional features and expenses for the underlying portfolios of the Trusts. The Examples assume that you invest $10,000 in the contract for the time periods indicated; that your investment has a 5% return each year; no withdrawals and that the maximum and minimum fees and expenses of the underlying portfolios of the Trusts are reflected. Although your actual costs may be higher or lower, based on these assumptions, your costs at the end of the stated period would be: MAXIMUM EXPENSE EXAMPLES (assuming maximum separate account annual expenses of 1.52%, and investment in an underlying portfolio with total expenses of 1.76%) (1) If you surrender your contract at the end of the applicable time period and you elect the optional Income Protector feature with the following charge (0.10%):
1 YEAR 3 YEARS 5 YEARS 10 YEARS - ------ ------- ------- -------- $1,246 $1,753 $2,384 $3,712
(2) If you do not surrender your contract and you elect the optional Income Protector feature with the following charge (0.10%):
1 YEAR 3 YEARS 5 YEARS 10 YEARS - ------ ------- ------- -------- $346 $1,053 $1,784 $3,712
(3) If you annuitize your contract:
1 YEAR 3 YEARS 5 YEARS 10 YEARS - ------ ------- ------- -------- $319 $974 $1,654 $3,467
MINIMUM EXPENSE EXAMPLES (assuming minimum separate account annual expenses of 1.40% and investment in an underlying portfolio with total expenses of 0.86%) (1) If you surrender your contract at the end of the applicable time period and you do not elect the optional Income Protector feature:
1 YEAR 3 YEARS 5 YEARS 10 YEARS - ------ ------- ------- -------- $1,134 $1,421 $1,835 $2,646
(2) If you do not surrender your contract and you do not elect the optional Income Protector feature:
1 YEAR 3 YEARS 5 YEARS 10 YEARS - ------ ------- ------- -------- $234 $721 $1,235 $2,646
(3) If you annuitize your contract:
1 YEAR 3 YEARS 5 YEARS 10 YEARS - ------ ------- ------- -------- $229 $706 $1,210 $2,595
EXPLANATION OF FEE TABLES AND EXAMPLES 1. The purpose of the Fee Tables is to show you the various expenses you will incur directly and indirectly by investing in the contract. We converted the contract administration fee to a percentage (0.05%). The actual impact of the administration charge may differ from this percentage and may be waived for contract values over $50,000. Additional information on the portfolio company fees can be found in the Trust prospectus located behind this prospectus. 2. In addition to the stated assumptions, the Examples assume separate account expenses as indicated and that no transfer fees were imposed. Although premium taxes may apply in certain states, they are not reflected in the Examples. 3. Examples reflecting application of optional feature use the highest fees and charges being offered for this feature. 4. 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 SELECT 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: This means that you do not pay taxes on your earnings from the annuity until you withdraw them. - Death Benefit: If you die during the Accumulation Phase, the insurance company pays a death benefit to your Beneficiary. - Guaranteed Income: If elected, you receive a stream of income for your lifetime, or another available period you select. Tax-qualified retirement plans (e.g., IRAs, 401(k) or 403(b) plans) defer payment of taxes on earnings until withdrawal. If you are considering funding a tax-qualified retirement plan with an annuity, you should know that an annuity does not provide any additional tax deferral treatment of earnings beyond the treatment provided by the tax-qualified retirement plan itself. However, annuities do provide other features and benefits which may be valuable to you. You should fully discuss this decision with your financial advisor. This annuity was developed to help you contribute to your retirement savings. This annuity works in two stages, the Accumulation Phase and the Income Phase. Your contract is in the Accumulation Phase during the period when you make payments into the contract. The Income Phase begins when you request Us to start making payments to you out of the money accumulated in your contract. The Contract is called a "variable" annuity because it allows you to invest in variable investment portfolios which We call Variable Portfolios. The Variable Portfolios have specific investment objectives and their performance varies. You can gain or lose money if you invest in these Variable Portfolios. The amount of money you accumulate in your contract depends on the performance of the Variable Portfolios in which you invest. The Contract also offers fixed account options for varying time periods. Fixed account options earn interest at a rate set and guaranteed by AIG SunAmerica Life. If available and 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 Variable Portfolios and fixed account options available under this contract, SEE INVESTMENT OPTIONS BELOW. AIG SunAmerica Life issues the Seasons Select Variable Annuity. When you purchase a Seasons Select 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 may not currently be available in all states. 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 9 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 contract may not be available for sale in your state. Please see your financial advisor for information regarding availability. 8 PURCHASING A SEASONS SELECT 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
Prior Company approval is required to accept Purchase Payments greater than $1,000,000. The Company reserves the right to refuse any Purchase Payment including one which would cause total Purchase Payments to exceed $1,000,000 at the time of the Purchase Payment. Once you have contributed at least the minimum Initial Purchase Payment, you can establish an automatic payment plan that allows you to make subsequent Purchase Payments of as little as $50.00. We may refuse any Purchase Payment. 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. In addition We may not issue a contract to anyone over age 90. We allow spouses to jointly own this contract. However, the age of the older spouse is used to determine the availability of any age driven benefits. The addition of a joint owner after the contract has been issued is contingent upon prior review and approval by the Company. This contract is no longer available for purchase by new policyowners. ALLOCATION OF PURCHASE PAYMENTS We invest your Purchase Payments in the fixed accounts and Variable Portfolios according to your instructions. If We receive a Purchase Payment without allocation instructions, We will invest the money according to your last allocation instructions. Purchase Payments are applied to your contract based upon the value of the variable investment option next determined after receipt of your money. SEE INVESTMENT OPTIONS BELOW. In order to issue your contract, We must receive your completed application, Purchase Payment allocation instructions and any other required paper work at Our Annuity Service Center. We allocate your initial purchase payment within two days of receiving it. If We do not have complete information necessary to issue your contract, We will contact you or your financial advisor. If We do not have the information necessary to issue your contract within 5 business days We will: - Send your money back to you; or - Ask your permission to keep your money until We get the information necessary to issue the contract. ACCUMULATION UNITS The value of the variable portion of your contract will go up or down depending upon the investment performance of the Variable Portfolios you select. In order to keep track of the value of your contract, We use a unit of measure called an Accumulation Unit. 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 calculate an Accumulation Unit for each Variable Portfolio after the NYSE closes each day. We base the number of units you receive on the unit value of the variable investment option as of the date We receive your money, if 9 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 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: 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. 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 investment 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 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 1-year fixed investment 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 and Exchange Offer will be made in accordance with the applicable state and federal securities and insurance rules and regulations. We will explain the specific terms and conditions of any such Exchange Offer at the time the offer is made. INVESTMENT OPTIONS - -------------------------------------------------------------------------------- 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 insurance contracts. A mixture of your investment in the Variable Portfolios and fixed account options may lower the risk associated with investing only in a variable investment option. VARIABLE INVESTMENT OPTIONS 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. 10 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. 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 one Focused Portfolio. 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 ideas. This approach to investing results in a more concentrated portfolio, which will be less diversified than the Select Portfolios, and may be subject to greater market risks. Each underlying PORTFOLIO and the respective managers are:
FOCUSED SELECT PORTFOLIOS PORTFOLIOS LARGE CAP GROWTH MID CAP GROWTH INTERNATIONAL EQUITY FOCUS GROWTH AIG Global Investment Corp. AIG Global Investment Corp. AIG Global Investment Corp. Fred Alger Management Goldman Sachs Asset Management T. Rowe Price Associates, Inc. Goldman Sachs Asset Management Marsico Capital Janus Capital Management LLC Wellington Management Company, International Management LLC LLP Lord, Abbett & Co. Solomon Brothers Asset LARGE CAP COMPOSITE Management AIG Global Investment Corp. MID CAP VALUE DIVERSIFIED FIXED INCOME AIG SunAmerica Asset AIG Global Investment Corp. AIG Global Investment Corp. Management Corp. Goldman Sachs Asset Management AIG SunAmerica Asset T. Rowe Price Associates, Inc. Lord, Abbett & Co. Management Corp. Wellington Management Company, LARGE CAP VALUE SMALL CAP LLP AIG Global Investment Corp. AIG Global Investment Corp. T. Rowe Price Associates, Inc. AIG SunAmerica Asset CASH MANAGEMENT Wellington Management Company, Management Corp. AIG SunAmerica Asset LLP Lord Abbett Management Corp.
PORTFOLIO OPERATION Each PORTFOLIO is designed to meet a distinct investment objective facilitated by the management philosophy of three different money managers (except for the Cash Management portfolio). Generally, an equal portion of the Purchase Payments received for allocation to each PORTFOLIO will be allocated among the three managers for that PORTFOLIO. Each quarter AIG SAAMCo will evaluate the asset allocation between the three managers of each PORTFOLIO. If AIG SAAMCo determines that the assets have become significantly unequal in allocation among the managers, then the in-coming cash flows may be redirected in an attempt to stabilize the allocations. Generally, existing PORTFOLIO assets will not be rebalanced. However, We reserve the right to do so in the event that it is deemed necessary and not adverse to the interests of contract owners invested in the PORTFOLIO. Transfers made as a result of rebalancing a PORTFOLIO are not considered a transfer under your contract. 11 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 SunAmerica Asset Management Corp. manages. The percentage that any one of these components represents in each Multi-Managed Portfolio varies in accordance with the investment objective. Each Seasons Strategy uses an investment approach based on asset allocation. This approach is achieved by each Seasons Strategy investing in distinct percentages in three specific underlying funds of the Seasons Series Trust. In turn, the underlying funds invest in a combination of domestic and international stocks, bonds and cash. Based on the percentage allocation to each specific underlying fund and each underlying fund's investment approach, each Seasons Strategy initially has a neutral asset allocation mix of stocks, bonds and cash. SEASONS STRATEGY REBALANCING Each Seasons Strategy is designed to meet its investment objective by allocating a portion of your money to three different investment portfolios. At the beginning of each quarter a rebalancing occurs among the underlying funds to realign each Seasons Strategy with its distinct percentage investment in the three underlying funds. This rebalancing is designed to help maintain the neutral asset allocation mix for each Seasons Strategy. The pie charts on the following pages demonstrate: - the neutral asset allocation mix for each Seasons Strategy; and - the percentage allocation in which each Seasons Strategy invests. On the first business day of each quarter (or as close to such date as is administratively practicable) your money will be allocated among the various investment portfolios according to the percentages set forth on the prior pages. Additionally, within each Multi-Managed Portfolio, your money will be rebalanced among the various components. We also reserve the right to rebalance any Seasons Strategy more frequently if rebalancing is, deemed necessary and not adverse to the interests of contract owners invested in such Seasons Strategy. Rebalancing a Seasons Strategy may involve shifting a portion of assets out of underlying investment portfolios with higher returns into underlying investment portfolios with relatively lower returns. 12 GROWTH STRATEGY MODERATE GROWTH STRATEGY GOAL: Long-term growth of capital, allocating its GOAL: Growth of capital through investments in equities, assets primarily to stocks. This Strategy may be best with a secondary objective of conservation of principal by suited for those with longer periods to invest. allocating more of its assets to bonds than the Growth Strategy. This Strategy may be best suited for those nearing Target Asset Allocation: retirement years but still earning income. Stocks 80% Bonds 15% Cash Target Asset Allocation: 5% Stocks 70% Bonds 25% Cash [GROWTH CHART] 5% [BALANCED 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] Bonds 53% Cash 5% Stocks 42% [MODERATE GROWTH CHART] Bonds 25% Cash 5% Stocks 70%
13 FIXED INVESTMENT OPTIONS Your contract may offer Fixed Account Guarantee Periods ("FAGP") to which you may allocate certain Purchase Payments or contract value. Available guarantee periods may be for different lengths of time (such as 1, 3 or 5 years) and may have different guaranteed interest rates, as noted below. We guarantee the interest rate credited to amounts allocated to any available FAGP and that the rate will never be less than the minimum guaranteed interest rate as specified in your contract. Once established, the rates for specified payments do not change during the guarantee period. We determine the FAGPs offered at any time in Our sole discretion and We reserve the right to change the FAGPs that We make available at any time, unless state law requires Us to do otherwise. Please check with your financial representative to learn if any FAGPs are currently offered. There are three interest rate scenarios for money allocated to the FAGPs. Each of these rates may differ from one another. Once declared, the applicable rate is guaranteed until the corresponding guarantee period expires. Under each scenario your money may be credited a different rate of interest as follows: - INITIAL RATE: The rate credited to any portion of the initial Purchase Payment allocated to a FAGP. - CURRENT RATE: The rate credited to any portion of the subsequent Purchase Payments allocated to a FAGP. - RENEWAL RATE: The rate credited to money transferred from a FAGP or a Variable Portfolio into a FAGP and to money remaining in a FAGP after expiration of a guarantee period. When a FAGP ends, you may leave your money in the same FAGP or you may reallocate your money to another FAGP or to the Variable Portfolios. If you want to reallocate your money, you must contact Us within 30 days after the end of the current interest guarantee period and instruct Us as to where you would like the money invested. We do not contact you. If We do not hear from you, your money will remain in the same FAGP where it will earn interest at the renewal rate then in effect for that FAGP. If you take money out of any available multi-year FAGP before the end of the guarantee period, We make an adjustment to your contract. We refer to the adjustment as a market value adjustment ("MVA"). The MVA reflects any difference in the interest rate environment between the time you place your money in the FAGP and the time when you withdraw or transfer that money. This adjustment can increase or decrease your contract value. Generally, if interest rates drop between the time you put your money into a FAGP and the time you take it out, We credit a positive adjustment to your contract. Conversely, if interest rates increase during the same period, We post a negative adjustment to your contract. You have 30 days after the end of each guarantee period to reallocate your funds without incurring any MVA. APPENDIX B SHOWS HOW WE CALCULATE AND APPLY THE MVA. If available, you may systematically transfer interest earned in available FAGPs into any of the Variable Portfolios on certain periodic schedules offered by Us. If available, these systematic transfers will not count toward the 15 free transfers per contract year and are not subject to a market value adjustment. You may change or terminate these systematic transfers by contacting Our Annuity Service Center. Check with your financial representative regarding the current availability of this service. All FAGPs may not be available in all states. We reserve the right to refuse any Purchase Payment to available FAGPs if We are crediting a rate equal to the minimum guaranteed interest rate specified in your contract. We may also offer the specific Dollar Cost Averaging Fixed Accounts ("DCAFA"). The rules, restrictions and operation of the DCAFAs may differ from the standard FAGPs described above, please see DOLLAR COST AVERAGING PROGRAM below for more details. DOLLAR COST AVERAGING FIXED ACCOUNTS You may invest initial and/or subsequent Purchase Payments in the 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 14 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 the fixed account option. Funds already in your contract cannot be transferred into the DCA fixed accounts. You must transfer at least $500. If less than $500 will remain in any Variable Portfolio after a transfer, that amount must be transferred as well. Subject to certain rules, you may request transfers of your account value between the Variable Portfolios and/or the fixed account options in writing or by telephone. Additionally, you may access your account and request transfers between Variable Portfolios and/or the fixed account options through AIG SunAmerica's website (http://www.aigsunamerica.com). We currently allow 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 program count against your 15 free transfers per contract year. However, transfers resulting from your participation in the asset rebalancing program do not count against your 15 free transfers. We may accept transfer requests by telephone or the Internet unless you tell us not to on your contract application. When receiving instructions over the telephone or the Internet, we follow appropriate procedures to provide reasonable assurance that the transactions executed are genuine. Thus, we are not responsible for any claim, loss or expense from any error resulting from instructions received over the telephone or the Internet. If we fail to follow our procedures, we may be liable for any losses due to unauthorized fraudulent instructions. This product is not designed for professional "market timing" organizations or other 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 market timing strategies are disruptive to the underlying portfolios in which the Variable Portfolios invest and thereby potentially harmful to investors. If we determine, in our sole discretion, that your transfer patterns among the Variable Portfolios reflect a market timing strategy, we reserve the right to take action to protect the other investors. Such action may include but would not be limited to restricting the way you can request transfers among the Variable Portfolios, imposing penalty fees on such trading activity, and/or otherwise restricting transfer options in accordance with state and federal rules and regulations. Regardless of the number of transfers you have made, we will monitor and, upon written notification, may terminate your transfer privileges if we determine that you are engaging in a pattern of transfers that reflects a market timing strategy or is potentially harmful to other policy owners. Some of the factors we will consider include: - the dollar amount of the transfer; - the total assets of the Variable Portfolio involved in the transfer; - the number of transfers completed in the current calendar quarter; or - whether the transfer is part of a pattern of transfers to take advantage of short-term market fluctuations or market inefficiencies. Any transfer request in excess of 12 transfers per contract year must be submitted in writing by U.S. mail. Transfer requests sent by same day mail, overnight mail or courier services will not be accepted. We will process any transfer request as of the day we receive it, if received before close of the New York Stock Exchange ("NYSE"), generally at 1:00 p.m. PST. If the transfer request is received after the close of the NYSE, the request will be processed on the next business day. Transfer requests required to be submitted by U.S. mail can only be cancelled in writing by U.S. mail. We will process a cancellation request only if it is received prior to or simultaneous with the original transfer request. 15 For information regarding transfers during the Income Phase, SEE INCOME OPTIONS BELOW. We reserve the right to modify, suspend, waive or terminate these transfer provisions at any time. DOLLAR COST AVERAGING PROGRAM The Dollar Cost Averaging ("DCA") program allows you to invest gradually in the Variable Portfolios. Under the program you systematically transfer a set dollar amount or percentage of portfolio value from one Variable Portfolio or DCAFAs (source account) to any other Variable Portfolio (target account). Transfers may occur on certain periodic schedules such as monthly or weekly and count against your 15 free transfers per contract year. You may change the frequency to other available options at any time by notifying Us in writing. The minimum transfer amount under the DCA program is $100 per transaction, regardless of the source account. Currently, there is no fee for participating in the DCA program. We may offer DCAFAs exclusively to facilitate the DCA program for a specified time period. The DCAFAs only accept new Purchase Payments. You cannot transfer money already in your contract into the DCAFAs. If you allocate new Purchase Payments into a DCAFA, We transfer all your money into the Variable Portfolios over the selected time period. You cannot change the option once selected. You may terminate the 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. Upon termination of the DCA program, if money remains in the DCA fixed accounts, We transfer the remaining money to the same target account(s) as previously designated, unless We receive different instructions from you. Transfers resulting from a termination of this program do not count towards your 15 free transfers. The DCA program is designed to lessen the impact of market fluctuations on your investment. However, We cannot ensure that you will make a profit. When you elect the DCA program, you are continuously investing in securities regardless of fluctuating price levels. You should consider your tolerance for investing through periods of fluctuating price levels. We reserve the right to modify, suspend or terminate this program at any time. EXAMPLE: Assume that you want to gradually move $750 each quarter from the Cash Management Portfolio to the Mid-Cap Value SELECT PORTFOLIO over six quarters. You set up dollar cost averaging and purchase Accumulation Units at the following values:
QUARTER 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 quarters, while the average market price actually was $7.08. By investing an equal amount of money each month, you automatically buy more Accumulation Units when the market price is low and fewer Accumulation Units when the market price is high. This example is for illustrative purposes only. PRINCIPAL ADVANTAGE PROGRAM The Principal Advantage Program 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 16 your Purchase Payment needs to be allocated to the particular fixed investment option to ensure that it grows to an amount equal to your total principal invested under this program. We reserve the right to modify, suspend or terminate this program at any time. EXAMPLE: Assume that you want to allocate a portion of your initial Purchase Payment of $100,000 to the fixed 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. VOTING RIGHTS AIG SunAmerica Life is the legal owner of the Seasons Series Trust 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. ACCESS TO YOUR MONEY - -------------------------------------------------------------------------------- You can access money in your contract in two ways: - by making a partial or total withdrawal, and/or; - by receiving income payments during the Income Phase. SEE INCOME OPTIONS, BELOW. Generally, We deduct a withdrawal charge applicable to any total or partial withdrawal and a market value adjustment if a withdrawal comes from the multi year fixed investment options prior to the end of a guarantee period. If you withdraw your entire contract value, We also deduct any applicable premium taxes and a contract maintenance fee. SEE EXPENSES, BELOW. We calculate charges due on a total withdrawal on the day after We receive your request and other required paper work. We return your contract value less any applicable fees and charges. The minimum partial withdrawal amount is $1,000. We require that the value left in any Variable Portfolios or fixed account be at least $500 after the withdrawal. You must send a written withdrawal request. Unless you provide Us with different instructions, partial withdrawals will be made in equal amounts from each Variable Portfolio and the fixed investment option in which your contract is invested. Withdrawals from fixed investment options prior to the end of the guarantee period may result in a market value adjustment. We may be required to suspend or postpone the payment of a withdrawal for any period of time when: (1) the NYSE is closed (other than a customary weekend and holiday closings); (2) trading with the NYSE is restricted; (3) an emergency exists such that disposal of or determination of the value of shares of the Portfolios is not reasonably practicable; (4) the SEC, by order, so permits for the protection of contract owners. 17 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 We will recoup any surrender charges which would have been due at the time the free withdrawals were taken if your prior free withdrawal(s) had not been free. To determine your free withdrawal amount and your surrender charge, We refer to two special terms. These are penalty free earnings and the Total Invested Amount. The penalty-free earnings portion of your contract is simply your account value less your Total Invested Amount. The Total Invested Amount is the total of all Purchase Payments you have made into the contract less portions of some prior withdrawals you made. The portions of prior withdrawals that reduce your Total Invested Amount are as follows: 1. Any free withdrawals in any year that were in excess of your penalty free earnings and were based on the part of the Total Investment Amount that was no longer subject to surrender charges at the time of the withdrawal. 2. Any prior withdrawals of the Total Investment Amount on which you already paid a surrender penalty, plus any surrender charge paid on such a 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 the first year after We issue your contract your free withdrawal amount is the greater of: 1. Your penalty-free earnings, or; 2. If you are participating in the Systematic Withdrawal program, a total of 10% of your Total Invested Amount less any 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, above and beyond the amount of your free withdrawal amount, that are invested for less than 9 years and withdrawn will result in your paying a penalty in the form of a surrender charge. The amount of the charge and how it applies are discussed more fully below. You should consider, before purchasing this contract, the effect this charge will have on your investment if you need to withdraw more money than the free withdrawal amount. You should fully discuss this decision with your financial advisor. The withdrawal charge percentage is determined by the age of the Purchase Payment remaining in the contract at the time of the withdrawal. For the purpose of calculating the withdrawal charge, any prior Free Withdrawal is not subtracted from the total Purchase Payments still subject to withdrawal charges. 18 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) SYSTEMATIC WITHDRAWAL PROGRAM If you elect, We use money in your contract to pay you monthly, quarterly, semi-annual or annual payments during the Accumulation Phase. Electronic transfer of these funds to your bank account is also available. The minimum amount of each withdrawal is $250. There must be at least $500 remaining in your contract at all times. Withdrawals may be taxable and a 10% IRS tax penalty may apply if you are under age 59 1/2. Any withdrawals you make using this program count against your free withdrawal amount as described above. Withdrawals in excess of that amount may incur a withdrawal charge. There is no additional charge for participating in this program. The program is not available to everyone. Please check with Our Annuity Service Center, which can provide the necessary enrollment forms. We reserve the right to modify, suspend or terminate this program at any time. MINIMUM CONTRACT VALUE Where permitted by state law, We may terminate your contract if both of the following occur: (1) your contract is less than $500 as a result of withdrawals; and (2) you have not made any Purchase Payments during the past three years. We will provide you with sixty days written notice. At the end of the notice period, We will distribute the contract's remaining value to you. 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. DEATH BENEFIT - -------------------------------------------------------------------------------- If you die during the Accumulation Phase of your contract, We pay a death benefit to your Beneficiary. If at the time We issued your contract, you were 80 years old or younger, the death benefit is the greatest of: 1. the value of your contract on the date We receive all required paperwork and satisfactory proof of death; or 2. total Purchase Payments less withdrawals (and any fees or charges applicable to such withdrawals) in an amount proportionate to the amount by which such withdrawals decreased contract values, compounded at a 4% annual growth rate until the date of death (3% growth rate if 70 or older at the time of contract issue); or 3. the value of your contract on the seventh contract anniversary, plus any Purchase Payments and less withdrawals (and any fees or charges applicable to such withdrawals) in an amount proportionate to the amount by which such withdrawals decreased contract values, since the seventh contract anniversary, all compounded at a 4% annual growth rate until the date of death (3% growth rate if age 70 or older at the time of contract issue); or 19 4. the maximum anniversary value on any contract anniversary prior to your 81st birthday. The anniversary value equals the value of your contract on a contract anniversary plus any Purchase Payments and less any withdrawals (and any fees or charges applicable to such withdrawals) in an amount proportionate to the amount by which such withdrawals decreased contract values, since that contract anniversary. If at the time We issue your contract, you were 81 years old or older, the death benefit is the greater of: 1. the value of your contract on the date We receive all required paperwork and satisfactory proof of death; or 2. total Purchase Payments less withdrawals (and any fees or charges applicable to such withdrawals) in an amount proportionate to the amount by which such withdrawals decreased contract values, compounded at a 3% annual growth rate until the date of death. The death benefit is not paid after you switch to the Income Phase. If you die during the Income Phase, your Beneficiary will receive any remaining guaranteed income payments in accordance with the income option you choose. SEE INCOME OPTIONS, BELOW. You select the Beneficiary to receive any amounts payable on death. You may change the Beneficiary at any time, unless you previously made an irrevocable Beneficiary designation. A new Beneficiary designation is not effective until We record the change. 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 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. The death benefit must be paid within 5 years of the date of death. The Beneficiary may, in the alternative, elect 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, rather than receive a death benefit. 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 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 If you are age 80 or younger when your contract is issued, the Company deducts a mortality and expense risk charge in the amount of 1.40% annually of the value of your contract invested in the Variable Portfolios. If you are age 81 or older when your contract is issued, the Company deducts a mortality and expense risk charge in the amount of 1.52% annually of the value of your contract invested in the Variable Portfolios. We deduct the charge daily. This charge compensates the Company for the mortality and expense risk and the costs of contract distribution assumed by the Company. Generally, the mortality risks assumed by the Company arise from its contractual obligations to make income payments after the Annuity Date and to provide a death benefit. The expense risk assumed by the Company is that 20 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 withdrawal charge percentage declines each year a Purchase Payment is in the contract, as follows:
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 nine complete years, the withdrawal charge no longer applies to that 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. 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. The contract provides a free withdrawal amount every year. SEE ACCESS TO YOUR MONEY ABOVE. We will not assess a withdrawal charge for money withdrawn to pay a death benefit. We do not currently assess a withdrawal charge upon election to receive income payments from your contract. Withdrawals made prior to age 59 1/2 may result in tax penalties. SEE TAXES BELOW. INVESTMENT CHARGES Charges are deducted from the assets of the investment portfolios underlying the Variable Portfolios for the advisory and other expenses of the portfolios. THE FEE TABLE ABOVE ILLUSTRATES THESE CHARGES AND EXPENSES. FOR MORE DETAILED INFORMATION ON THESE INVESTMENT CHARGES, REFER TO THE PROSPECTUS FOR THE SEASONS SERIES TRUST, ATTACHED. 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 ($30 in North Dakota) contract maintenance fee on a pro-rata basis from your account value on your contract anniversary. In the states of Oregon, 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. 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. 21 TRANSFER FEE We currently permit 15 free transfers between investment options, every contract year. We charge you $25 for each transfer over 15 in any one year ($10 in Pennsylvania and Texas). We deduct the transfer fee from the Variable Portfolios and/or fixed investment option from which you request the transfer. SEE INVESTMENT OPTIONS, ABOVE. OPTIONAL INCOME PROTECTOR FEE Please see page 26 of this prospectus for additional information regarding the Income Protector Fee. PREMIUM TAX Certain states charge the Company a tax on the premiums you pay into the contract ranging from 0.0% to 3.5%. We deduct these premium tax charges from your contract when applicable. Currently We deduct the charge for premium taxes when you take a full withdrawal or annuitize the contract. In the future, We may assess this deduction at the time you put Purchase Payment(s) into the contract or upon payment of a death benefit. INCOME TAXES We do not currently deduct income taxes from your contract. We reserve the right to do so in the future. REDUCTION OR ELIMINATION OF CHARGES AND EXPENSES, AND ADDITIONAL AMOUNTS CREDITED Sometimes sales of the contracts to groups of similarly situated individuals may lower Our administrative and/or sales expenses. We reserve the right to reduce or waive certain charges and expenses when this type of sale occurs. In addition, We may also credit additional interest to policies sold to such groups. We determine which groups are eligible for such treatment. Some of the criteria We evaluate to make a determination are: size of the group; amount of expected Purchase Payments; relationship existing between Us and prospective purchaser; nature of the purchase; length of time a group of contracts is expected to remain active; purpose of the purchase and whether that purpose increases the likelihood that Our expenses will be reduced; and/or any other factors that We believe indicate that administrative and/or sales expenses may be reduced. 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. 22 Income payments must begin on or before your 90th birthday or on your tenth contract anniversary, whichever occurs later. If you do not choose an Annuity Date, your income payments will automatically begin on this date. Certain states may require your income payments to start earlier. If the Annuity Date is past your 85th birthday, your contract could lose its status as an annuity under Federal tax laws. This may cause you to incur adverse tax consequences. In addition, 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 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 OR 20 YEAR PERIOD CERTAIN This option is similar to Option 2 above, with an additional guarantee of payments for at least 10 or 20 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. 23 ALLOCATION OF ANNUITY PAYMENTS You can choose income payments that are fixed, variable or both. If payments are fixed, AIG SunAmerica Life guarantees the amounts of each payment. If the payments are variable, the amounts are not guaranteed. They will go up and/or down based upon the performance of the Variable Portfolios in which you invest. FIXED OR VARIABLE INCOME PAYMENTS 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. 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 impacts the amount of your annuity payments. The value of variable income payments, if elected, is based on an assumed interest rate ("AIR") of 3.5% compounded annually. Variable income payments generally increase or decrease from one income payment date to the next based upon the performance of the applicable Variable Portfolios. If the performance of the Variable Portfolios selected is equal to the AIR, the income payments will remain constant. If performance of Variable Portfolios is greater than the AIR, the income payments will increase and if it is less than the AIR, the income payments will decline. TRANSFERS DURING THE INCOME PHASE During the Income Phase, one (1) 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 for a discussion of when payments from a Variable Portfolio may be suspended or postponed. Please read the Statement of Additional Information for a more detailed discussion of the income options. 24 THE INCOME PROTECTOR If you purchase your contract after July 5, 2000, you may elect to enroll in the Income Protector Program. The Income Protector Program provides a future "safety net" which offers you the ability to receive a guaranteed fixed minimum retirement income when you choose to begin receiving income payments. With the Income Protector you can know the level of minimum income that will be available to you upon annuitization, regardless of fluctuating market conditions. In order to utilize the program, you must follow the provisions discussed below. You are not required to use the Income Protector to receive income payments. The general provisions of your contract provide other income options. However, We will not refund fees paid for the Income Protector if you begin taking income payments under the general provisions of your contract. YOU MAY NEVER NEED TO RELY UPON INCOME PROTECTOR IF YOUR CONTRACT PERFORMS WITHIN A HISTORICALLY ANTICIPATED RANGE. HOWEVER, PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Certain federal tax code restrictions on the income options available to qualified retirement investors may have an impact on your ability to benefit from this feature. Qualified investors should read NOTE TO QUALIFIED CONTRACT HOLDERS, below. HOW DO WE DETERMINE THE AMOUNT OF YOUR MINIMUM GUARANTEED INCOME? If you elect the Income Protector Program, We base the amount of minimum retirement income available to you upon a calculation We call the Income Benefit Base. At the time your enrollment in the Income Protector program becomes effective, your Initial Income Benefit Base is equal to your contract value. If elected, your participation becomes effective on either the date of issue of the contract (if the feature is elected at the time of application) or on the contract anniversary following your enrollment in the program. The Income Benefit Base is only a calculation. It does not represent a contract value, nor does it guarantee performance of the Variable Portfolios in which you invest. Your Income Benefit Base increases if you make subsequent Purchase Payments and decreases if you withdraw money from your contract. The exact Income Benefit Base calculation is equal to (a) plus (b) minus (c) where: (a) is equal to, for the first year of calculation, your contract value on the date your participation became effective, and for each subsequent year of calculation, the Income Benefit Base of your prior contract anniversary, and; (b) is equal to the sum of all subsequent Purchase Payments made into the contract since the prior contract anniversary, and; (c) is equal to all withdrawals and applicable fees, charges and any negative MVA (but excluding administration fees, mortality and expense charges and fee for enrollment into the program) since the prior contract anniversary, including premium taxes in an amount proportionate to the amount by which such withdrawals decreased your contract value. Your Income Benefit Base may accumulate at the elected growth rate, if available, from the date your election becomes effective through your Income Benefit Date. ENROLLING IN THE PROGRAM If you decide that you want the protection offered by the Income Protector program, you must elect the option of your choice by completing the Income Protector Election Form. You can not terminate your enrollment once elected. ELECTING TO RECEIVE INCOME In order to exercise the Income Protector feature, you may not begin the income phase for at least nine years following the date your enrollment in the program became effective. Further, you may begin taking income payments using the Income Protector feature only within 30 days after the ninth or later contract anniversary following the effective date of your enrollment in the Income Protector program. 25 The contract anniversary prior to your election to begin receiving income payments is your Income Benefit Date. We calculate your Income Benefit Base as of that date to use in determining your guaranteed minimum fixed retirement income. To determine the minimum guaranteed retirement income available to you, We apply your final Income Benefit Base to the annuity rates stated in your Income Protector endorsement for the income option you select. You then choose if you would like to receive the income annually, semi-annually, quarterly or monthly for the time guaranteed under your selected income option. Your final Income Benefit Base is equal to (a) minus (b) where: (a) is your Income Benefit Base as of your Income Benefit Date, and; (b) is any partial withdrawals of contract value and any charges applicable to those withdrawals (including any negative MVA) and any withdrawal charges otherwise applicable, calculated as if you fully surrender your contract as of the Income Benefit Date, and any applicable premium taxes. The income options available when using the Income Protector feature to receive your retirement income are: - Life Annuity with 10 years guaranteed, or - Joint and 100% Survivor Life Annuity with 20 years guaranteed At the time you elect to begin receiving income payments, We will calculate your income payments using both your income benefit base and your contract value. We will use the same income option for each calculation; however, the annuity factors used to calculate your income under the Income Protector feature will be different. You will receive whichever provides a greater stream of income. If you elect to receive income payments using the Income Protector feature your income payments will be fixed in amount. NOTE TO QUALIFIED CONTRACT HOLDERS Qualified contracts generally require that you select an income option that does not exceed your life expectancy. That restriction, if it applies to you, may limit the benefit of the Income Protector program. To utilize the Income Protector feature, you must take income payments under one of the two income options described above. If those income options exceed your life expectancy, you may be prohibited from receiving your guaranteed fixed income under the program. If you own a qualified contract to which this restriction applies and you elect the Income Protector program, you may pay for this minimum guarantee and not be able to realize the benefit. You may wish to consult your tax advisor for information concerning your particular circumstances. FEES ASSOCIATED WITH THE INCOME PROTECTOR PROGRAM If you elect to participate in the Income Protector program We deduct a fee equal to 0.10% of your Income Benefit Base from your contract value on each contract anniversary beginning with the contract anniversary following the anniversary on which your enrollment in the program becomes effective. We will deduct this charge from your contract value on every contract anniversary up to and including your Income Benefit Date. Additionally, if you fully surrender your contract prior to your contract anniversary, We will deduct the fee at the time of surrender based on your Income Benefit Base as of the surrender date. Once elected, the Income Protector Program and its corresponding charges may not be terminated until full surrender or annuitization of the contract occurs. 26 HYPOTHETICAL EXAMPLE OF THE OPERATION OF THE INCOME PROTECTOR PROGRAM: This table assumes a $100,000 initial investment in a Non-qualified contract and the election of the optional Income Protector program at contract issue with no further premiums, no withdrawals or premium taxes.
- ---------------------------------------------------------------------------------------------------------------------------- ANNUAL INCOME IF YOU ANNUITIZE ON THE FOLLOWING CONTRACT ANNIVERSARIES: IF AT ISSUE YOU ARE . . . 1-8 9 10 15 20 - ---------------------------------------------------------------------------------------------------------------------------- Male (M), Age 60* N/A 6,480 6,672 7,716 8,832 - ---------------------------------------------------------------------------------------------------------------------------- Female (F), Age 60* N/A 5,700 5,880 6,900 8,112 - ---------------------------------------------------------------------------------------------------------------------------- M and F, Age 60** N/A 4,920 5,028 5,544 5,928 - ----------------------------------------------------------------------------------------------------------------------------
* Life Annuity with 10 Year Period Certain ** Joint and 100% Survivor Annuity with 20 Year Period Certain The Income Protector program may not be available in all states. Check with your financial adviser for availability in your state. We reserve the right to modify, suspend or terminate the program at any time. Please read the Statement of Additional Information, available upon request, for a more detailed discussion of the income options. TAXES - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NOTE: WE PREPARED THE FOLLOWING INFORMATION ON TAXES AS A GENERAL DISCUSSION OF THE SUBJECT. THIS INFORMATION ADDRESSES GENERAL FEDERAL TAXATION MATTERS, AND GENERALLY DOES NOT ADDRESS STATE TAXATION ISSUES OR QUESTIONS. IT IS NOT TAX ADVICE. RECENT TAX LEGISLATION INCLUDED MANY CHANGES THAT COULD AFFECT THE TAXATION OF INVESTMENT INCOME. YOU MAY WISH TO SEEK COMPETENT TAX ADVICE ABOUT YOUR OWN CIRCUMSTANCES. WE DO NOT GUARANTEE THE TAX STATUS OF YOUR ANNUITY. TAX LAWS CONSTANTLY CHANGE, THEREFORE, WE CANNOT GUARANTEE THAT THE INFORMATION CONTAINED HEREIN IS COMPLETE AND/OR ACCURATE. WE HAVE INCLUDED AN ADDITIONAL DISCUSSION REGARDING TAXES IN THE SAI. ANNUITY CONTRACTS IN GENERAL The Internal Revenue Code ("IRC") provides for special rules regarding the tax treatment of annuity contracts Generally, taxes on the earnings in your annuity contract are deferred until you take the money out. Qualified retirement investments that satisfy specific tax and ERISA requirements automatically provide tax deferral regardless of whether the underlying contract is an annuity, a trust or a custodial account. Different rules apply depending on how you take the money out and whether your contract is Qualified or Non-Qualified. If you do not purchase your contract under a pension plan, a specially sponsored employer program or an individual retirement account, your contract is referred to as a Non-Qualified contract. A Non-Qualified contract receives different tax treatment than a Qualified contract. In general, your cost basis in a Non-Qualified contract is equal to the Purchase Payments you put into the contract. You have already been taxed on the cost basis in your contract. If you purchase your contract under a pension plan, a specially sponsored employer program or as an individual retirement account, your contract is referred to as a Qualified contract. Examples of qualified plans are: Individual Retirement Accounts ("IRAs"), Roth IRAs, Tax-Sheltered Annuities (referred to as 403(b) contracts), plans of self-employed individuals (often referred to as H.R. 10 Plans or Keogh Plans) and pension and profit sharing plans, including 401(k) plans. Typically you have not paid any tax on the Purchase Payments used to buy your contract and therefore, you have no cost basis in your contract. However, you normally will have cost basis in a Roth IRA, and you may have cost basis in a traditional IRA or in another Qualified Contract. 27 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 you Beneficiary; (5) under an immediate annuity; or (6) which are attributable to Purchase Payments made prior to August 14, 1982. TAX TREATMENT OF DISTRIBUTIONS--QUALIFIED CONTRACTS Generally, you have not paid any taxes on the Purchase Payments used to buy a Qualified contract. As a result, with certain limited exceptions, any amount of money you take out as a withdrawal or as income payments is taxable income. The IRC further provides for a 10% penalty tax on any taxable withdrawal or income payment paid to you other than in conjunction with the following circumstances: (1) after reaching age 59 1/2; (2) when paid to your Beneficiary after you die; (3) after you become disabled (as defined in the IRC); (4) in a series of substantially equal installments, made for your life or for the joint lives of you and your Beneficiary, that begins after separation from service with the employer sponsoring the plan; (5) to the extent such withdrawals do not exceed limitations set by the IRC for deductible amounts paid during the taxable year for medical care; (6) to fund higher education expenses (as defined in IRC; only from an IRA); (7) to fund certain first-time home purchase expenses (only from an IRA); and, except in the case of an IRA; (8) when you separate from service after attaining age 55; (9) when paid for health insurance if you are unemployed and meet certain requirements; and (10) when paid to an alternate payee pursuant to a qualified domestic relations order. The IRC limits the withdrawal of an employee's voluntary Purchase Payments to a Tax-Sheltered Annuity (TSA). Withdrawals can only be made when an owner: (1) reaches age 59 1/2; (2) severs employment with the employer; (3) dies; (4) becomes disabled (as defined in the IRC); or (5) experiences a hardship (as defined in the IRC). In the case of hardship, the owner can only withdraw Purchase Payments. Additional plan limitations may also apply. Amounts held in a TSA annuity contract as of December 31, 1988 are not subject to these restrictions. Qualifying transfers of amounts from one TSA contract to another TSA contract under section 403(b) or to a custodial account under section 403(b)(7), and qualifying transfers to a state defined benefit plan to purchase service credits, are not considered distributions, and thus are not subject to these withdrawal limitations. If amounts are transferred from a custodial account described in Code section 403(b)(7) to this contract the transferred amount will retain the custodial account withdrawal restrictions. Withdrawals from other Qualified Contracts are often limited by the IRC and by the employer's plan. MINIMUM DISTRIBUTIONS Generally, the IRS requires that you begin taking annual distributions from qualified annuity contracts by April 1 of the calendar year following the later of (1) the calendar year in which you attain age 70 1/2 or (2) the calendar year in which you retire. If you own an IRA, you must begin taking distributions when you attain age 70 1/2, regardless of when you retire. If you own more than one TSA, you may be permitted to take your annual distributions in any combination from your TSAs. A similar rule applies if you own more than one IRA. However, you cannot satisfy this distribution requirement for your TSA contract by taking a distribution from an IRA, and you cannot satisfy the requirement for your IRA by taking a distribution from a TSA. You may be subject to a surrender charge on withdrawals taken to meet minimum distribution requirements, if the withdrawals exceed the contract's maximum penalty free amount. 28 Failure to satisfy the minimum distribution requirements may result in a tax penalty. You should consult your tax advisor for more information. You may elect to have the required minimum distribution amount on your contract calculated and withdrawn each year under the automatic withdrawal option. You may select either monthly, quarterly, semiannual or annual withdrawals for this purpose. This service is provided as a courtesy and We do not guarantee the accuracy of Our calculations. Accordingly, We recommend you consult your tax advisor concerning your required minimum distribution. You may terminate your election for automated minimum distribution at any time by sending a written request to Our Annuity Service Center. We reserve the right to change or discontinue this service at any time. TAX TREATMENT OF DEATH BENEFITS Any death benefits paid under the contract are taxable to the Beneficiary. The rules governing the taxation of payments from an annuity contract, as discussed above, generally apply whether the death benefits are paid as lump sum or annuity payments. Estate taxes may also apply. Certain enhanced death benefits may be purchased under your contract. Although these types of benefits are used as investment protection and should not give rise to any adverse tax effects, the IRS could take the position that some or all of the charges for these death benefits should be treated as a partial withdrawal from the contract. In such case, the amount of the partial withdrawal may be includible in taxable income and subject to the 10% penalty if the owner is under 59 1/2. If you own a Qualified contract and purchase these enhanced death benefits, the IRS may consider these benefits "incidental death benefits." The IRC imposes limits on the amount of the incidental death benefits allowable for Qualified contracts. If the death benefit(s) selected by you are considered to exceed these limits, the benefit(s) could result in taxable income to the owner of the Qualified contract. Furthermore, the IRC provides that the assets of an IRA (including a Roth IRA) may not be invested in life insurance, but may provide, in the case of death during the Accumulation Phase, for a death benefit payment equal to the greater of Purchase Payments or contract value. This contract offers death benefits, which may exceed the greater of Purchase Payments or contract value. If the IRS determines that these benefits are providing life insurance, the contract may not qualify as an IRA (including Roth IRAs). You should consult your tax adviser regarding these features and benefits prior to purchasing a contract. CONTRACTS OWNED BY A TRUST OR CORPORATION A trust or corporation ("Non-Natural Owner") that is considering purchasing this contract should consult a tax advisor. Generally, the IRC does not treat a Non-Qualified contract owned by a non-natural owner as an annuity contract for Federal income tax purposes. The non-natural owner pays tax currently on the contract's value in excess of the owner's cost basis. However, this treatment is not applied to a contract held by a trust or other entity as an agent for a natural person nor to contracts held by Qualified Plans. See the SAI for a more detailed discussion of the potential adverse tax consequences associated with non-natural ownership of a non-qualified annuity contract. GIFTS, PLEDGES AND/OR ASSIGNMENTS OF A NON-QUALIFIED CONTRACT If you transfer ownership of your Non-Qualified contract to a person other than your spouse (or former spouse incident to divorce) as a gift you will pay federal income tax on the contract's cash value to the extent it exceeds your cost basis. The recipient's cost basis will be increased by the amount on which you will pay federal taxes. Also, the IRC treats any assignment or pledge (or agreement to assign or pledge) of any portion of a Non-Qualified contract as a withdrawal. See the SAI for a more detailed discussion regarding potential tax consequences of gifting, assigning or pledging a non-qualified contract. 29 DIVERSIFICATION AND INVESTOR CONTROL The IRC imposes certain diversification requirements on the underlying investments for a variable annuity. We believe that the underlying portfolios' management monitors the portfolios so as to comply with these requirements. To be treated as a variable annuity for tax purposes, the underlying investments must meet these requirements. The diversification regulations do not provide guidance as to the circumstances under which you, and not AIG SunAmerica Life, would be considered the owner of the shares of the portfolios under your Nonqualified Contract, because of the degree of control you exercise over the underlying investments. This diversification requirement is sometimes referred to as "investor control." It is unknown to what extent owners are permitted to select investments, to make transfers among VARIABLE PORTFOLIOS or the number and type of VARIABLE PORTFOLIOS owners may select from. If any guidance is provided which is considered a new position, then the guidance would generally be applied prospectively. However, if such guidance is considered not to be a new position, it may be applied retroactively. This would mean you, as the owner of the Nonqualified Contract, could be treated as the owner of the underlying portfolios. Due to the uncertainty in this area, We reserve the right to modify the contract in an attempt to maintain favorable tax treatment. These investor control limitations generally do not apply to Qualified Contracts, which are referred to as "Pension Plan Contracts" for purposes of this rule, although the limitations could be applied to Qualified Contracts in the future. PERFORMANCE - -------------------------------------------------------------------------------- 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 indexes and the performance of other similar variable annuity products with similar objectives as reported by such independent reporting services as Morningstar, Inc., Lipper Analytical Services, Inc. and the Variable Annuity Research Data Service ("VARDS"). Please see the Statement of Additional Information for additional information regarding the methods used to calculate performance data. AIG SunAmerica Life may also advertise the rating and other information assigned to it by independent industry ratings organizations. Some of those organizations are A.M. Best Company ("A.M. Best"), Moody's Investor's Service ("Moody's"), Standard & Poor's Insurance Rating Services ("S&P"), and Fitch Ratings. A.M. Best's and Moody's ratings reflect their current opinion of Our financial strength and performance in comparison to others in the life and health insurance industry. S&P's and Fitch Ratings measure the ability of an insurance company to meet its obligations under insurance policies it issues. These two ratings do not measure the insurer's ability to meet non-policy obligations. Ratings in general do not relate to the performance of the Variable Portfolios. 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 Corp., and the AIG Advisors Group, Inc. (comprising six 30 wholly owned broker-dealers), 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 a separate account, 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. DISTRIBUTION OF THE CONTRACT Registered representatives of broker-dealers sell the contract. We pay commissions to these representatives for the sale of the contracts. We do not expect the total commissions to exceed 7.5% of your Purchase Payments. We may also pay a bonus to representatives for contracts which stay active for a particular period of time, in addition to standard commissions. We do not deduct commissions paid to registered representatives directly from your Purchase Payments. From time to time, We may pay or allow additional promotional incentives in the form of cash or other compensation. We reserve the right to offer these additional incentives only to certain broker-dealers that sell or are expected to sell, certain minimum amounts of the contract, or other contracts offered by Us. Promotional incentives may change at any time. AIG SunAmerica Capital Services, Inc., Harborside Financial Plaza, 3200 Plaza 5, Jersey City, NJ 07311 distributes the contracts. AIG SunAmerica Capital Services is an affiliate of AIG SunAmerica Life, and is a registered as a broker-dealer under the Exchange Act of 1934 and a member of the National Association of Securities Dealers, Inc. No underwriting fees are paid in connection with the distribution of the contracts. ADMINISTRATION We are responsible for the administrative servicing of your contract. Please contact Our Annuity Service Center at 1-800-445-SUN2, if you have any comment, question or service request. We send out transaction confirmations and quarterly statements. During the accumulation phase, you will receive confirmation of transactions within your contract. Transactions made pursuant to contractual or systematic agreements, such as dollar cost averaging, may be confirmed quarterly. Purchase payments received through the automatic payment plan or a salary reduction arrangement, may also be confirmed quarterly. For other transactions, We send confirmations immediately. It is your responsibility to review these documents carefully and notify Us of any inaccuracies immediately. We investigate all inquiries. To the extent that We believe We made an error, We retroactively adjust your contract, provided you notify Us within 30 days of receiving the transaction confirmation or quarterly statement. Any other adjustments We deem warranted are made as of the time We receive notice of the error. 31 LEGAL PROCEEDINGS There are no pending legal proceedings affecting the Separate Account. AIG SunAmerica Life engages in various kinds of routine litigation. In management's opinion these matters are not of material importance to the Company's total assets nor are they with respect to the assets of the Separate Account. INDEPENDENT ACCOUNTANTS - -------------------------------------------------------------------------------- The consolidated financial statements for AIG SunAmerica Life Assurance Company (formerly Anchor National Life Insurance Company) at December 31, 2002 and 2001, and for each of the three years in the period ended December 31, 2002 and the financial statements of Variable Annuity Account Five at April 30, 2003, and for each of the two years in the period ended April 30, 2003, are incorporated herein by reference in this prospectus in reliance on the reports of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 32 TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION Separate Account............................................ 3 General Account............................................. 4 Performance Data............................................ 4 Annuity Payments............................................ 8 Annuity Unit Values......................................... 8 Taxes....................................................... 11 Distribution of Contracts................................... 16 Financial Statements........................................ 16
33 APPENDIX A - CONDENSED FINANCIAL INFORMATION - --------------------------------------------------------------------------------
FISCAL 3/31/00 4/30/00 4/30/01 4/30/02 YEAR TO TO TO TO STRATEGIES INCEPTION TO 3/31/99 3/31/00 4/30/00 4/30/01 4/30/02 4/30/03 - ------------------------- -------------------- --------- --------- --------- --------- --------- - ----------------------------------------------------------------------------------------------------------- Growth (Inception Date: (a) 3/4/99 (b) 4/6/99) Beginning AUV.......... (a) 15.05 15.89 21.30 20.24 17.060 14.397 (b) 0 16.27 21.27 20.22 17.018 14.344 End AUV................ (a) 15.89 21.30 20.24 17.06 14.397 12.770 (b) 0 21.27 20.22 17.02 14.344 12.707 Ending Number of AUs... (a) 31,169 1,653,495 1,871,300 4,391,169 3,845,259 2,885,924 (b) 0 126,216 132,445 278,263 243,444 203,459 - ----------------------------------------------------------------------------------------------------------- Moderate Growth (Inception Date: (a) 3/3/99 (b) 4/26/99) Beginning AUV.......... (a) 14.25 15.09 19.48 18.62 16.298 14.197 (b) 0 15.79 19.46 18.59 16.259 14.145 End AUV................ (a) 15.09 19.48 18.62 16.30 14.197 12.885 (b) 0 19.46 18.59 16.26 14.145 12.823 Ending Number of AUs... (a) 93,136 1,559,019 1,760,865 3,829,366 3,880,927 2,933,797 (b) 0 53,392 69,503 228,084 227,877 180,653 - ----------------------------------------------------------------------------------------------------------- Balanced Growth (Inception Date: (a) 3/5/99 (b) 4/5/99) Beginning AUV.......... (a) 13.80 14.05 16.68 16.11 14.986 13.731 (b) 0 14.26 16.66 16.09 14.948 13.681 End AUV................ (a) 14.05 16.68 16.11 14.99 13.731 12.924 (b) 0 16.66 16.09 14.95 13.681 12.861 Ending Number of AUs... (a) 85,553 991,695 1,061,795 2,286,317 2,273,698 1,998,503 (b) 0 113,160 109,857 305,108 227,027 168,763 - ----------------------------------------------------------------------------------------------------------- Conservative Growth (Inception Date: (a) 3/5/99 (b) 3/19/99) Beginning AUV.......... (a) 13.03 13.21 14.89 14.50 14.137 13.445 (b) 13.25 13.21 14.87 14.48 14.101 13.395 End AUV................ (a) 13.21 14.89 14.50 14.14 13.445 13.071 (b) 13.21 14.87 14.48 14.10 13.395 13.007 Ending Number of AUs... (a) 33,892 623,175 629,067 1,262,136 1,376,306 1,326,779 (b) 5,689 77,606 81,771 149,827 132,461 123,733 - -----------------------------------------------------------------------------------------------------------
AUV-Accumulation Unit Value AU-Accumulation Units (a) Reflects age 80 or younger (b) Reflects age 81 or older A-1
FISCAL 3/31/00 4/30/00 4/30/01 4/30/02 YEAR TO TO TO TO SELECT PORTFOLIOS INCEPTION TO 3/31/99 3/31/00 4/30/00 4/30/01 4/30/02 4/30/03 - ------------------------- -------------------- --------- --------- --------- --------- --------- - ----------------------------------------------------------------------------------------------------------- Large Cap Growth (Inception Date: (a) 3/1/99 (b) 4/6/99) Beginning AUV.......... (a) 10.00 10.68 14.94 13.99 10.128 7.948 (b) 0 10.00 13.53 12.67 9.160 7.180 End AUV................ (a) 10.68 14.94 13.99 10.13 7.948 6.832 (b) 0 13.53 12.67 9.16 7.180 6.164 Ending Number of AUs... (a) 85,647 1,058,317 1,158,071 2,665,362 2,259,645 1,778,572 (b) 0 59,510 77,385 228,987 221,014 176,478 - ----------------------------------------------------------------------------------------------------------- Large Cap Composite (Inception Date: (a) 3/1/99 (b) 4/8/99) Beginning AUV.......... (a) 10.00 10.41 12.88 12.30 10.426 8.876 (b) 0 10.00 11.87 11.34 9.599 8.162 End AUV................ (a) 10.41 12.88 12.30 10.43 8.876 7.467 (b) 0 11.87 11.34 9.60 8.162 6.858 Ending Number of AUs... (a) 33,347 316,855 361,941 715,674 670,641 583,952 (b) 0 17,244 18,966 35,031 23,619 20,743 - ----------------------------------------------------------------------------------------------------------- Large Cap Value (Inception Date: (a) 3/1/99 (b) 4/6/99) Beginning AUV.......... (a) 10.00 10.32 10.75 10.79 12.363 11.322 (b) 0 10.00 10.32 10.35 11.848 10.837 End AUV................ (a) 10.32 10.75 10.79 12.36 11.322 9.468 (b) 0 10.32 10.35 11.85 10.837 9.052 Ending Number of AUs... (a) 34,004 531,732 571,490 1,296,249 1,462,924 1,174,422 (b) 0 9,381 11,064 43,104 60,523 48,995 - ----------------------------------------------------------------------------------------------------------- Mid Cap Growth (Inception Date: (a) 3/1/99 (b) 4/8/99) Beginning AUV.......... (a) 10.00 10.62 18.41 16.85 13.703 12.213 (b) 0 10.00 16.95 15.50 12.595 11.212 End AUV................ (a) 10.62 18.41 16.85 13.70 12.213 10.280 (b) 0 16.95 15.50 12.59 11.212 9.426 Ending Number of AUs... (a) 27,096 529,844 612,249 1,483,760 1,377,519 1,039,978 (b) 0 22,616 35,007 116,099 94,966 77,977 - ----------------------------------------------------------------------------------------------------------- Mid Cap Value (Inception Date: (a) 3/1/99 (b) 4/8/99) Beginning AUV.......... (a) 10.00 10.10 10.93 11.14 14.212 15.662 (b) 0 10.00 10.78 10.98 13.996 15.405 End AUV................ (a) 10.10 10.93 11.14 14.21 15.662 13.204 (b) 0 10.78 10.98 14.00 15.405 12.972 Ending Number of AUs... (a) 11,278 297,306 318,151 796,922 1,019,911 797,665 (b) 0 18,247 33,708 115,825 82,010 36,957 - -----------------------------------------------------------------------------------------------------------
AUV-Accumulation Unit Value AU-Accumulation Units (a) Reflects age 80 or younger (b) Reflects age 81 or older A-2
FISCAL 3/31/00 4/30/00 4/30/01 4/30/02 YEAR TO TO TO TO SELECT PORTFOLIOS INCEPTION TO 3/31/99 3/31/00 4/30/00 4/30/01 4/30/02 4/30/03 - ------------------------- -------------------- --------- --------- --------- --------- --------- - ----------------------------------------------------------------------------------------------------------- Small Cap (Inception Date: (a) 3/1/99 (b) 4/8/99) Beginning AUV.......... (a) 10.00 10.35 15.00 13.56 11.209 10.477 (b) 0 10.00 14.46 13.07 10.786 10.070 End AUV................ (a) 10.35 15.00 13.56 11.21 10.477 8.120 (b) 0 14.46 13.07 10.79 10.070 7.795 Ending Number of AUs... (a) 22,807 432,850 481,239 1,239,523 1,275,746 1,003,103 (b) 0 17,502 32,914 74,871 72,435 65,526 - ----------------------------------------------------------------------------------------------------------- International Equity (Inception Date: (a) 3/1/99 (b) 4/6/99) Beginning AUV.......... (a) 10.00 10.51 13.61 12.46 9.609 7.780 (b) 0 10.00 12.71 11.63 8.962 7.247 End AUV................ (a) 10.51 13.61 12.46 9.61 7.780 5.855 (b) 0 12.71 11.63 8.96 7.247 5.447 Ending Number of AUs... (a) 23,961 314,634 384,946 1,208,881 1,109,279 950,385 (b) 0 9,229 23,901 59,533 57,707 40,366 - ----------------------------------------------------------------------------------------------------------- Diversified Fixed Income (Inception Date: (a) 3/10/99 (b) 4/8/99) Beginning AUV.......... (a) 10.00 10.02 10.00 9.96 10.576 10.935 (b) 0 10.00 9.87 9.82 10.422 10.762 End AUV................ (a) 10.02 10.00 9.96 10.58 10.935 11.774 (b) 0 9.87 9.82 10.42 10.762 11.574 Ending Number of AUs... (a) 31,762 474,014 513,721 1,135,253 1,338,549 1,415,730 (b) 0 12,327 13,385 68,020 73,370 73,584 - ----------------------------------------------------------------------------------------------------------- Cash Management (Inception Date: (a) 3/26/99 (b) 4/8/99) Beginning AUV.......... (a) 10.00 10.00 10.32 10.35 10.780 10.857 (b) 0 10.00 10.30 10.33 10.744 10.808 End AUV................ (a) 10.00 10.32 10.35 10.78 10.857 10.791 (b) 0 10.30 10.33 10.74 10.808 10.727 Ending Number of AUs... (a) 970 380,169 235,608 583,476 487,732 513,839 (b) 0 19,302 26,880 34,844 43,620 33,488 - -----------------------------------------------------------------------------------------------------------
FOCUSED PORTFOLIOS - ------------------------- - ------------------------------------------------------------------------------------------------------- Focus Growth (Inception Date: (a) 7/7/00 (b) 7/7/00) Beginning AUV.......... (a) 0 0 0 10.00 7.648 6.585 (b) 0 0 0 10.00 7.204 6.195 End AUV................ (a) 0 0 0 7.65 6.584 5.597 (b) 0 0 0 7.20 6.195 5.259 Ending Number of AUs... (a) 0 0 0 1,140,438 1,102,958 1,038,908 (b) 0 0 0 70,478 70,526 61,088 - -------------------------------------------------------------------------------------------------------
AUV-Accumulation Unit Value AU-Accumulation Units (a) Reflects age 80 or younger (b) Reflects age 81 or older A-3 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. B-1 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 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. B-2 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-3 Please forward a copy (without charge) of the Seasons Select 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 -----END PRIVACY-ENHANCED MESSAGE-----