This Prospectus describes a type of annuity (the "Annuity") being offered by
American Skandia Life Assurance Corporation ("we", "our" or "us"), One
Corporate Drive, Shelton, Connecticut, 06484. This flexible premium Annuity
may be offered as individual annuity contracts or as interests in a group
annuity. The Table of Contents is on Page 4. Definitions applicable to
this Prospectus are on page 6. The highlights of this offering are
described beginning on Page 8. This Prospectus contains a detailed
discussion of matters you should consider before purchasing this Annuity. A
Statement of Additional Information has been filed with the Securities and
Exchange Commission and is available from us without charge upon request.
The contents of the Statement of Additional Information are described on
page 50. The Annuity or certain of its investment options may not be
available in all jurisdictions. Various rights and benefits may differ
between jurisdictions to meet applicable laws and/or regulations.
A Purchase Payment for this Annuity is assessed any applicable tax charge
(see "Tax Charges"). It is then allocated to the investment options you
select, except in certain jurisdictions, where allocations of Purchase
Payments we receive during the "free-look" period that you direct to any
Sub-accounts are temporarily allocated to a money-market type Sub-account
(see "Allocation of Net Purchase Payments"). You may transfer Account Value
between investment options (see "Investment Options" and "Transfers").
Account Value may be distributed as periodic annuity payments in a "payout
phase". Such annuity payments can be guaranteed for life (see "Annuity
Payments"). During the "accumulation phase" (the period before any payout
phase), you may surrender the Annuity for its Surrender Value or make
withdrawals (see "Distributions"). Such distributions may be subject to
tax, including a tax penalty, and any applicable contingent deferred sales
charges (see "Contingent Deferred Sales Charge"). A death benefit may be
payable during the accumulation phase (see "Death Benefit").
Account Value in the variable investment options increases or decreases
daily to reflect investment performance and the deduction of charges. No
minimum amount is guaranteed (see "Account Value in the Sub-accounts"). The
variable investment options are Class 3 Sub-accounts of American Skandia
Life Assurance Corporation Variable Account B ("Separate Account B")(see
"Separate Accounts" and "Separate Account B"). Each Sub-account invests
exclusively in one portfolio of an underlying mutual fund or in an
underlying mutual fund. As of the date of this Prospectus, the underlying
mutual funds (and the portfolios of such underlying mutual funds in which
Sub-accounts offered pursuant to this Prospectus invest) are: (a) American
Skandia Trust (portfolios - JanCap Growth, Lord Abbett Growth and Income,
Seligman Henderson International Equity, Seligman Henderson International
Small Cap, Federated Utility Income, Federated High Yield, AST Phoenix
Balanced Asset, AST Money Market, T. Rowe Price Asset Allocation, T. Rowe
Price International Equity, T. Rowe Price Natural Resources, Founders
Capital Appreciation, INVESCO Equity Income, PIMCO Total Return Bond, PIMCO
Limited Maturity Bond, AST Scudder International Bond, Berger Capital
Growth); (b) The Alger American Fund (portfolios - Growth, Small
Capitalization, MidCap Growth); and (c) Neuberger & Berman Advisers
Management Trust (portfolio - Partners).
In most jurisdictions, Account Value may be allocated to a fixed investment
option during the accumulation phase. Account Value so allocated earns a
fixed rate of interest for a specified period of time referred to as a
Guarantee Period. Guarantee Periods of different durations may be offered
(see "Fixed Investment Options"). Such an allocation and the interest
earned is guaranteed by us only if held to its Maturity Date. Otherwise, we
do not guarantee any minimum amount, because the value may be increased or
decreased by a market value adjustment (see "Account Value of the Fixed
Allocations"). Assets supporting such allocations in the accumulation phase
are held in American Skandia Life Assurance Corporation Separate Account D
("Separate Account D") (see "Separate Accounts" and "Separate Account D").
We guarantee fixed annuity payments. We also guarantee any adjustable
annuity payments we may make available (see "Annuity Payments").
(continued on Page 2)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE
REFERENCE.
FOR FURTHER INFORMATION CALL 1-800-752-6342.
Prospectus Dated: May 1, 1995 Statement of Additional Information Dated:
May 1, 1995
AX-PROS (05/95)
Taxes on gains during the accumulation phase may be deferred until you begin
to take distributions from your Annuity. Distributions before age 59 1/2
may be subject to a tax penalty. In the payout phase, a portion of each
annuity payment may be treated as a return of your "investment in the
contract" until it is completely recovered. Transfers between investment
options are not subject to taxation. The Annuity may also qualify for
special tax treatment under certain sections of the Code, including, but not
limited to, Sections 401, 403 or 408 (see "Certain Tax Considerations").
Purchase payments under these Annuities are not deposits or obligations of,
or guaranteed or endorsed by, any bank or bank subsidiary and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other agency.
(This page has been purposely left blank.)
TABLE OF CONTENTS
DEFINITIONS
HIGHLIGHTS
AVAILABLE INFORMATION
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
CONTRACT EXPENSE SUMMARY
EXPENSE EXAMPLES
INVESTMENT OPTIONS
Variable Investment Options
Fixed Investment Options
OPERATIONS OF THE SEPARATE ACCOUNTS
Separate Accounts
Separate Account B
Separate Account D
INSURANCE ASPECTS OF THE ANNUITY
CHARGES ASSESSED OR ASSESSABLE AGAINST THE ANNUITY
Contingent Deferred Sales Charge
Maintenance Fee
Tax Charges
Transfer Fee
Allocation Of Annuity Charges
CHARGES ASSESSED AGAINST THE ASSETS
Administration Charge
Mortality and Expense Risk Charges
CHARGES OF THE UNDERLYING MUTUAL FUNDS
PURCHASING ANNUITIES
Uses Of The Annuity
Application And Initial Payment
Breakpoints
Exchange Contracts
Bank Drafting
Right to Return the Annuity
Allocation of Net Purchase Payments
Balanced Investment Program
Ownership, Annuitant and Beneficiary Designations
ACCOUNT VALUE AND SURRENDER VALUE
Account Value in the Sub-accounts
Account Value of the Fixed Allocations
Additional Amounts in the Fixed Allocations
RIGHTS, BENEFITS AND SERVICES
Additional Purchase Payments
Changing Revocable Designations
Allocation Rules
Transfers
Renewals
Dollar Cost Averaging
Distributions
Surrender
Medically-Related Surrender
Free Withdrawals
Partial Withdrawals
Systematic Withdrawals
Minimum Distributions
Death Benefit
Death Benefit
Annuity Payments
Qualified Plan Withdrawal Limitations
Pricing of Transfers and Distributions
Voting Rights
Transfers, Assignments or Pledges
Reports to You
THE COMPANY
Lines of Business
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Liquidity and Capital Resources
Segment Information
Reinsurance
Reserves
Competition
Employees
Regulation
Executive Officers and Directors
Executive Compensation
Summary Compensation Table
Long-Term Incentive Plans - Awards in the Last Fiscal Year
Compensation of Directors
Compensation Committee Interlocks and Insider Participation
CERTAIN TAX CONSIDERATIONS
Our Tax Considerations
Tax Considerations Relating to Your Annuity
Non-natural Persons
Natural Persons
Distributions
Assignments and Pledges
Penalty on Distributions
Annuity Payments
Gifts
Tax Free Exchanges
Transfers Between Investment Options
Generation-Skipping Transfers
Diversification
Federal Income Tax Withholding
Tax Considerations When Using Annuities in Conjunction with Qualified Plans
Individual Retirement Programs
Tax Sheltered Annuities
Corporate Pension and Profit-sharing Plans
H.R. 10 Plans
Tax Treatment of Distributions from Qualified Annuities
Section 457 Plans
SALE OF THE ANNUITIES
Distribution
Advertising
OTHER MATTERS
Deferral of Transactions
Resolving Material Conflicts
Modification
Misstatement of Age or Sex
Ending the Offer
Indemnification
Legal Proceedings
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
APPENDIX A FINANCIAL STATEMENTS FOR AMERICAN SKANDIA LIFE ASSURANCE
CORPORATION
APPENDIX B SHORT DESCRIPTION OF THE UNDERLYING MUTUAL FUNDS' PORTFOLIO
INVESTMENT OBJECTIVES AND POLICIES
DEFINITIONS: The following are key terms used in this Prospectus. Other
terms are defined in this Prospectus as they appear.
ACCOUNT VALUE is the value of each allocation to a Sub-account or a Fixed
Allocation prior to the Annuity Date, plus any earnings, and/or less any
losses, distributions and charges thereon, before assessment of any
applicable contingent deferred sales charge and/or any applicable
maintenance fee. Account Value is determined separately for each Sub-
account and for each Fixed Allocation, and then totaled to determine Account
Value for your entire Annuity. Account Value of each Fixed Allocation on
other than such Fixed Allocation's Maturity Date may be calculated using a
market value adjustment.
ANNUITANT is the person upon whose life your Annuity is written.
ANNUITY is the type of annuity being offered pursuant to this Prospectus.
It is also, if issued, your individual Annuity, or with respect to a group
Annuity, the certificate evidencing your participation in a group Annuity.
It also represents an account we set up and maintain to track our
obligations to you.
ANNUITY DATE is the date annuity payments are to commence.
ANNUITY YEARS are continuous 12-month periods commencing on the Issue Date
and each anniversary of the Issue Date.
APPLICATION is the enrollment form or application form we may require you to
submit for an Annuity.
BENEFICIARY is a person designated as the recipient of the death benefit.
CODE is the Internal Revenue Code of 1986, as amended from time to time.
CONTINGENT ANNUITANT is the person named to become the Annuitant on the
Annuitant's death prior to the Annuity Date.
CURRENT RATES are the interest rates we offer to credit to Fixed Allocations
for the duration of newly beginning Guarantee Periods under this Annuity.
Current Rates are contained in a schedule of rates established by us from
time to time for the Guarantee Periods then being offered. We may establish
different schedules for different classes and for different annuities.
FIXED ALLOCATION is an allocation of Account Value that is to be credited a
fixed rate of interest for a specified Guarantee Period during the
accumulation phase and is to be supported by assets in Separate Account D.
GUARANTEE PERIOD is a period of time during the accumulation phase during
which we credit a fixed rate of interest on a Fixed Allocation.
IN WRITING is in a written form satisfactory to us and filed at the Office.
INTERIM VALUE is, as of any particular date, the initial value of a Fixed
Allocation plus all interest credited thereon, less the sum of all previous
transfers and withdrawals of any type from such Fixed Allocation of such
Interim Value and interest thereon from the date of each withdrawal or
transfer.
ISSUE DATE is the effective date of your Annuity.
MVA is a market value adjustment used in the determination of Account Value
of each Fixed Allocation as of a date other than such Fixed Allocation's
Maturity Date, and, where required by law, the 30 days prior to the Maturity
Date.
MATURITY DATE is the last day in a Guarantee Period.
MINIMUM DISTRIBUTIONS are minimum amounts that must be distributed each year
from an Annuity if used in relation to certain qualified plans under the
Code.
NET PURCHASE PAYMENT is a Purchase Payment less any applicable charge for
taxes.
OFFICE is our business office, American Skandia Life Assurance Corporation,
One Corporate Drive, P.O. Box 883, Shelton, Connecticut 06484.
OWNER is either an eligible entity or person named as having ownership
rights in relation to an Annuity issued as an individual contract. An
Annuity may be issued as a certificate evidencing interest in a group
annuity contract. If so, the rights, benefits and requirements of and the
events relating to an Owner, as described in this Prospectus, will be the
rights, benefits and requirements of and events relating to the person or
entity designated as the participant in such certificate.
PURCHASE PAYMENT is a cash consideration you give to us for certain rights,
privileges and benefits provided under an Annuity according to its terms.
SUB-ACCOUNT is a division of Separate Account B. We use Sub-accounts to
calculate variable benefits under this Annuity.
SURRENDER VALUE is the value of your Annuity available upon surrender prior
to the Annuity Date. It equals the Account Value as of the date we price
the surrender less any applicable contingent deferred sales charge and any
applicable maintenance fee.
SYSTEMATIC WITHDRAWAL is one of a plan of periodic withdrawals of Surrender
Value during the accumulation phase. Such a plan is subject to our rules.
UNIT is a measure used to calculate your Account Value in a Sub-account
prior to the Annuity Date.
UNIT PRICE is used for calculating: (a) the number of Units allocated to a
Sub-account; and (b) the value of transactions into or out of a Sub-account
or benefits based on Account Value in a Sub-account prior to the Annuity
Date. Each Sub-account has its own Unit Price which will vary each
Valuation Period to reflect the investment experience of that Sub-account.
VALUATION DAY is every day the New York Stock Exchange is open for trading
or any other day that the Securities and Exchange Commission requires mutual
funds or unit investment trusts to be valued.
VALUATION PERIOD is the period of time between the close of business of the
New York Stock Exchange on successive Valuation Days.
"We", "us", or "our" means American Skandia Life Assurance Corporation.
"You" or "your" means the Owner.
HIGHLIGHTS: The following are only the highlights of the Annuity being
offered pursuant to this Prospectus. A more detailed description follows
these highlights.
(1) Investment Options: We currently offer multiple variable and, in
most jurisdictions, fixed investment options.
During the accumulation phase, we currently offer a number of variable
investment options. Each of these investment options is a Class 3 Sub-
account of Separate Account B. Each Sub-account invests exclusively in one
underlying mutual fund, or a portfolio of an underlying mutual fund. The
underlying mutual fund portfolios are managed by various investment
advisors, and in certain cases, various sub-advisors. A short description
of the investment objectives and policies is found in Appendix A. Certain
variable investment options may not be available in all jurisdictions.
As of the date of this Prospectus, the underlying mutual funds (and the
portfolios of such underlying mutual funds in which Sub-accounts offered
pursuant to this Prospectus invest) are: (a) American Skandia Trust
(portfolios - JanCap Growth, Lord Abbett Growth and Income, Seligman
Henderson International Equity, Seligman Henderson International Small Cap,
Federated Utility Income, Federated High Yield, AST Phoenix Balanced Asset,
AST Money Market, T. Rowe Price Asset Allocation, T. Rowe Price
International Equity, T. Rowe Price Natural Resources, Founders Capital
Appreciation, INVESCO Equity Income, PIMCO Total Return Bond, PIMCO Limited
Maturity Bond, AST Scudder International Bond, Berger Capital Growth); (b)
The Alger American Fund (portfolios - Growth, Small Capitalization, MidCap
Growth); and (c) Neuberger & Berman Advisers Management Trust (portfolio -
Partners).
In most jurisdictions, we also offer the option during the accumulation
phase of earning one or more fixed rates of interest on all or a portion of
your Account Value. As of the date of this Prospectus, we offered the
option to make allocations at interest rates that could be guaranteed for 1,
2, 3, 5, 7 and 10 years. Each such Fixed Allocation earns the fixed
interest rate applicable as of the date of such allocation. The interest
rate credited to a Fixed Allocation does not change during its Guarantee
Period. You may maintain multiple Fixed Allocations. From time-to-time we
declare Current Rates for Fixed Allocations beginning a new Guarantee
Period. The rates we declare are subject to a minimum, but we may declare
higher rates. The minimum is determined in relation to an index that we do
not control.
The end of a Guarantee Period for a specific Fixed Allocation is called its
Maturity Date. At that time, the Guarantee Period normally "renews" and we
begin crediting interest for a new Guarantee Period lasting the same amount
of time as the one just ended. That Fixed Allocation then earns interest
during the new Guarantee Period at a rate that is not less than the one then
being earned by Fixed Allocations for that Guarantee Period by new Annuity
purchasers in the same class. You also may choose a different Guarantee
Period from among those we are then currently making available or you may
transfer that Account Value to a variable Sub-account.
In the payout phase, you may elect fixed annuity payments based on our then
current annuity rates. We also may make available adjustable annuity rates.
For more information, see the section entitled Investment Options, including
the following subsections: (a) Variable Investment Options; and (b) Fixed
Investment Options.
(2) Operations of the Separate Accounts: In the accumulation phase,
the assets supporting guarantees we make in relation to Fixed Allocations
are held in our Separate Account D. This is a "non-unitized" separate
account. However, values and benefits calculated on the basis of Fixed
Allocations are guaranteed by our general account. In the payout phase,
fixed annuity payments and any adjustable annuity payments we may make
available are also guaranteed by our general account, but the assets
supporting such payments are not held in Separate Account D.
In the accumulation phase, the assets supporting the Account Values
maintained in the Sub-accounts are held in our Separate Account B. These
are Class 3 Sub-accounts of Separate Account B. Values and benefits based
on these Sub-accounts are not guaranteed and will vary with the investment
performance of the underlying mutual funds or fund portfolios, as
applicable.
For more information, see the section entitled Operations of the Separate
Accounts, including the following subsections: (a) Separate Accounts; (b)
Separate Account B; and (c) Separate Account D.
(3) Insurance Aspects of the Annuity: There are insurance risks which
we bear in relation to the Annuity. For more information, see the section
entitled Insurance Aspects of the Annuity.
(4) Charges Assessed or Assessable Against the Annuity: The Annuity
charges which are assessed or may be assessable under certain circumstances
are the contingent deferred sales charge, the maintenance fee, a charge for
taxes, a transfer fee and a withdrawal fee. These charges are allocated
according to our rules. We may also charge for certain special services.
For more information, see the section entitled Charges Assessed or
Assessable Against the Annuity, including the following subsections: (a)
Contingent Deferred Sales Charge; (b) Maintenance Fee; (c) Tax Charges; (d)
Transfer Fee; (e) Withdrawal Fee; and (f) Allocation of Annuity Charges.
(5) Charges Assessed Against the Assets: The charges assessed against
assets in the Sub-accounts are the administration charge and the mortality
and expense risk charges. There are no charges deducted from the assets
supporting Fixed Allocations. For more information, see the section
entitled Charges Assessed Against the Assets, including the following
subsections: (a) Administration Charge; and (b) Mortality and Expense Risk
Charges.
(6) Charges Of The Underlying Mutual Funds: Each underlying mutual fund
assesses various charges, including charges for investment management and
investment advisory fees. These charges generally differ between portfolios
within the same underlying mutual fund. You will find additional details in
each fund prospectus and its statement of additional information.
(7) Purchasing Annuities: Annuities are available for multiple uses,
including as a funding vehicle for various retirement programs which qualify
for special treatment under the Code. We may require a properly completed
Application, an acceptable Purchase Payment, and any other materials under
our underwriting rules before we agree to issue an Annuity. We may offer
special programs in relation to Annuities on which we receive large Purchase
Payments and/or Annuities obtained as an exchange of a contract issued by an
insurer not affiliated with us. You have the right to return an Annuity
within a "free-look" period if you are not satisfied with it. In most
jurisdictions, the initial Purchase Payment and any Purchase Payments
received during the "free-look" period are allocated according to your
instructions. In jurisdictions that require a "free-look" provision such
that, if the Annuity is returned under that provision, we must return at
least your Purchase Payments less any withdrawals, we temporarily allocate
such Purchase Payments to the AST Money Market 3 Sub-account. Where
permitted by law in such jurisdictions, we will allocate such Purchase
Payments according to your instructions, without any temporary allocation to
the AST Money Market 3 Sub-account, if you execute a return waiver. We
offer a balanced investment program in relation to your initial Purchase
Payment. Certain designations must be made, including an Owner and an
Annuitant. You may also make certain other designations that apply to the
Annuity if issued. These designations include, a contingent Owner, a
Contingent Annuitant (Contingent Annuitants may be required in conjunction
with certain uses of the Annuity), a Beneficiary, and a contingent
Beneficiary. See the section entitled Purchasing Annuities, including the
following subsections: (a) Uses of the Annuity; (b) Application and Initial
Payment; (c) Breakpoints (d) Exchange Contracts; (e) Bank Drafting (f)
Right to Return the Annuity; (g) Allocation of Net Purchase Payments; (h)
Balanced Investment Program; and (i) Ownership, Annuitant and Beneficiary
Designations.
(8) Account Value and Surrender Value: In the accumulation phase your
Annuity has an Account Value. Your total Account Value as of a particular
date is the sum of your Account Value in each Sub-account and in each Fixed
Allocation. Surrender Value is the Account Value less any applicable
contingent deferred sales charge and any applicable maintenance fee. To
determine your Account Value in each Sub-account we multiply the Unit Price
as of the Valuation Period for which the calculation is being made times the
number of Units attributable to you in that Sub-account as of that Valuation
Period. We also determine your Account Value separately for each Fixed
Allocation. A Fixed Allocation's Account Value as of a particular date is
determined by multiplying its then current Interim Value times the MVA. No
MVA applies to a Fixed Allocation as of its Maturity Date. Under certain
circumstances, the MVA formula may change. For more information, see the
section entitled Account Value and Surrender Value, including the following
subsections: (a) Account Value in the Sub-accounts; (b) Account Value of
Fixed Allocations; and (c) Additional Amounts in the Fixed Allocations..
(9) Rights, Benefits and Services: You have a number of rights and
benefits under an Annuity once issued. We also currently provide a number
of services to Owners. These rights, benefits and services are subject to a
number of rules and conditions. These rights, benefits and services
include, but are not limited to, those described in this Prospectus. We
accept additional Purchase Payments during the accumulation phase. You may
use bank drafting to make Purchase Payments. You may change revocable
designations. You may transfer Account Values between investment options.
Transfers in excess of 4 per Annuity Year are subject to a fee. We offer
dollar cost averaging and rebalancing during the accumulation phase. During
the accumulation phase, surrender, free withdrawals and partial withdrawals
are available, as are medically-related surrenders under which the
contingent deferred sales charge is waived under specified circumstances.
In the accumulation phase we offer Systematic Withdrawals and, for Annuities
used in qualified plans, Minimum Distributions. We offer fixed annuity
options, and may offer adjustable annuity options, that can guarantee
payments for life. In the accumulation phase, a death benefit may be
payable. You may transfer or assign your Annuity unless such rights are
limited in conjunction with certain uses of the Annuity. You may exercise
certain voting rights in relation to the underlying mutual fund portfolios
in which the Sub-accounts invest. You have the right to receive certain
reports periodically.
For additional information, see the section entitled Rights, Benefits and
Services including the following subsections: (a) Additional Purchase
Payments; (b) Changing Revocable Designations; (c) Allocation Rules; (d)
Transfers; (e) Renewals; (f) Dollar Cost Averaging; (g) Rebalancing (h)
Distributions (including: (i) Surrender; (ii) Medically-Related Surrender;
(iii) Free Withdrawals; (iv) Partial Withdrawals; (v) Systematic
Withdrawals; (vi) Minimum Distributions; (vii) Death Benefit; (viii) Annuity
Payments; and (ix) Qualified Plan Withdrawal Limitations); (i) Pricing of
Transfers and Distributions (j) Voting Rights; (k) Transfers, Assignments
and Pledges; and (l) Reports to You.
(10) The Company: American Skandia Life Assurance Corporation is a
wholly owned subsidiary of American Skandia Investment Holding Corporation,
whose indirect parent is Skandia Insurance Company Ltd. Skandia Insurance
Company Ltd. is a Swedish company that holds a number of insurance companies
in many countries. The predecessor to Skandia Insurance Company Ltd.
commenced operations in 1855. For more information, see the section
entitled The Company and the following subsections: (a) Lines of Business;
(b) Selected Financial Data; (c) Management's Discussion and Analysis of
Financial Condition and Results of Operations (including: (i) Results of
Operations; (ii) Liquidity and Capital Resources; and (iii) Segment
Information); (d) Reinsurance; (e) Reserves; (f) Competition; (g) Employees;
(h) Regulation; (i) Executive Officer and Directors; and (j) Executive
Compensation (including: (i) Summary Compensation Table; (ii) Long Term
Incentive Plans-Awards in the Last Fiscal Year; (iii) Compensation of
Directors; and (iv) Compensation Committee Interlocks and Insider
Participation).
AVAILABLE INFORMATION: A Statement of Additional Information is available
from us without charge upon request by writing American Skandia Life
Assurance Corporation, Concierge Desk, P.O. Box 883, Shelton, CT 06484. It
includes further information, as described in the section of this Prospectus
entitled "Contents of the Statement of Additional Information". This
Prospectus is part of the registration statements we filed with the
Securities and Exchange Commission ("SEC") regarding this offering.
Additional information on us and this offering is available in those
registration statements and the exhibits thereto. You may obtain copies of
these materials at the prescribed rates from the SEC's Public Reference
Section, 450 Fifth Street N.W., Washington, D.C., 20549. You may inspect
and copy those registration statements and the exhibits thereto at the SEC's
public reference facilities at the above address, Rm. 1024, and at the SEC's
Regional Offices, 7 World Trade Center, New York, NY, and the Everett
McKinley Dirksen Building, 219 South Dearborn Street, Chicago, IL.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE: To the extent and only to
the extent that any statement in a document incorporated by reference into
this Prospectus is modified or superseded by a statement in this Prospectus
or in a later-filed document, such statement is hereby deemed so modified or
superseded and not part of this Prospectus.
We furnish you without charge a copy of any or all the documents
incorporated by reference in this Prospectus, including any exhibits to such
documents which have been specifically incorporated by reference. We do so
upon receipt of your written or oral request. Please address your request
to American Skandia Life Assurance Corporation, Attention: Concierge Desk,
P.O. Box 883, Shelton, Connecticut, 06484. Our phone number is 1-(800) 752-
6342.
CONTRACT EXPENSE SUMMARY: The summary provided below includes information
regarding the expenses for your Annuity, for the Sub-accounts and for the
underlying mutual fund portfolios. The only expense applicable if you
allocate all your Account Value to Fixed Allocations would be the contingent
deferred sales charge. More detail regarding the expenses of the underlying
mutual fund and their portfolios may be found either in the prospectuses for
such mutual funds or in the annual reports of such mutual funds. The
expenses of our Sub-accounts (not those of the underlying mutual fund
portfolios in which our Sub-accounts invest) are the same no matter which
Sub-account you choose. Therefore, these expenses are only shown once
below.
Your Transaction Expenses
Contingent Deferred Sales Charge, as a Year 1 -6.0%; year 2 -
percentage of Purchase Payments liquidated 6.0%; year 3- 5.0%;
year 4 - 5.0% year 5 - 4.0%;
year 6 - 3.0%; year 7 - 2.0%
year 8 and thereafter - 0% of
each Purchase Payment as
measured from the date it was
allocated to Account Value
Annual Maintenance Fee Smaller of $35 or 2% of Account
Value
Tax Charges Dependent on the requirements of
the applicable jurisdiction.
Transfer Fee $10 for each transfer after the
fourth in any Annuity Year
Withdrawal Fee $10 for each withdrawal of any type after the first in each
Annuity Year (not applicable to death benefit, surrender, medically-related
surrender or annuity payments)
Annual Expenses of the Sub-accounts (as a percentage of average daily net
assets)
Mortality and Expense Risk Charges 0.85%
Administration Charge 0.15%
-----
Total Annual Expenses of the Sub-accounts 1.00%
Underlying Mutual Fund Portfolio Annual Expenses (as a percentage of average
net assets)
Unless otherwise shown, the expenses shown below are for the year ending
December 31, 1994. "N/A" shown below indicates that no entity has agreed to
reimburse the particular expense indicated. "+" indicates that no
reimbursement was provided in 1994, but that the underlying mutual fund has
indicated to us that current arrangements (which may change) provide for
reimbursement.
<TABLE>
<CAPTION>
Manage- Manage- Total Total
ment ment Other Other Annual Annual
Fee Fee Expenses Expenses Expense Expenses
after without after without after without
any any any any any any
applicable applicable applicable applicable applicable applicable
reimburse- reimburse- reimburse- reimburse- reimburse- reimburse
ment ment ment ment ment ment
<C> <C> <C> <C> <C> <C>
American Skandia Trust
JanCap Growth N/A 0.90% + 0.28% + 1.18%
Lord Abbett Growth
and Income N/A 0.75% + 0.31% + 1.06%
Seligman Henderson
International Equity(1) 0.90% 1.00% 0.32% 0.32% 1.22% 1.32%
Seligman Henderson
International Small Cap(2) N/A 1.00% 0.75% 1.58% 1.75% 2.58%
Federated Utility
Income N/A 0.75% + 0.24% + 0.99%
Federated High Yield(3) N/A 0.75% 0.40% 0.59% 1.15% 1.34%
T. Rowe Price
Asset Allocation(3) N/A 0.85% 0.40% 0.62% 1.25% 1.47%
T. Rowe Price
International Equity(3) N/A 1.00% 0.75% 0.77% 1.75% 1.77%
T. Rowe Price
Natural Resources(2) N/A 0.90% 0.45% 1.45% 1.35% 2.35%
Founders Capital Appreciation(3) N/A 0.90% 0.40% 0.65% 1.30% 1.55%
INVESCO Equity Income(3) N/A 0.75% + 0.39% + 1.14%
PIMCO Total Return Bond(3) N/A 0.65% + 37% + 1.02%
PIMCO Limited Maturity Bond(2) N/A 0.65% 0.40% 0.86% 1.05% 1.51%
AST Phoenix Balanced Asset N/A 0.75% + 0.24% + 0.99%
AST Money Market 0.45% 0.50% 0.19% 0.26% 0.64% 0.76%
AST Scudder International Bond(4) N/A 1.00% + 0.68% + 1.68%
Berger Capital Growth(5) N/A 0.75% 0.50% 0.95% 1.25% 1.70%
The Alger American Fund
Growth N/A 0.75% + 0.11% + 0.86%
Small Capitalization N/A 0.85% + 0.11% + 0.96%
MidCap Growth N/A 0.80% + 0.17% + 0.97%
Neuberger & Berman Advisers
Management Trust
Partners(6) N/A 0.80% + 0.50% + 1.30%
</TABLE>
(1) This portfolio was formerly known as the Henderson International Growth
Portfolio.
(2) These portfolios commenced operations on or after the date of this
Prospectus. Expenses shown are estimates.
(3) These portfolios commenced operation in January, 1994.
(4) This portfolio commenced operations in May, 1994. Expenses shown are
annualized.
(5) This portfolio commenced operation in October, 1994. Expenses shown
are estimates.
(6) This portfolio commenced operation in October, 1994. Expenses shown
are estimates.
The expenses of the underlying mutual fund portfolios either are currently
being partially reimbursed or may be partially reimbursed in the future.
Management Fees, Other Expenses and Total Annual Expenses are provided above
on both a reimbursed and not reimbursed basis, if applicable. See the
prospectuses or statements of additional information of the underlying
mutual funds for details.
EXPENSE EXAMPLES: The examples which follow are designed to assist you in
understanding the various costs and expenses you will bear directly or
indirectly if you maintain Account Value in the Sub-accounts. The examples
reflect expenses of our Sub-accounts, as well as those for the underlying
mutual fund portfolios.
The examples shown assume that: (a) all your Account Value is maintained
only in Sub-accounts; (b) fees and expenses remain constant; (c) there are
no withdrawals of Account Value during the period shown; (d) there are no
transfers or other transactions subject to a fee during the period shown;
(e) no tax charge applies; and (f) the expenses throughout the period for
the underlying mutual fund portfolios will be the lower of the expenses
without any applicable reimbursement or expenses after any applicable
reimbursement, as shown above in the section entitled Contract Expense
Summary.
THE EXAMPLES ARE ILLUSTRATIVE ONLY - THEY SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE UNDERLYING MUTUAL FUND
PORTFOLIOS - ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The
Sub-accounts are referred to below by their specific names.
Examples (amounts shown are rounded to the nearest dollar)
If you surrender your Annuity at If you do not surrender
the end of the applicable time period, you your Annuity at the end of
would pay the following expenses on a $1,000 the applicable time period
investment, assuming 5% annual return or begin taking annuity
on assets: payments at such time, you
would pay the following
expenses on a $1,000
investment, assuming 5%
annual return on assets:
Sub-accounts After: After:
1 yr. 3 yrs. 1 yr. 3 yrs.
Seligman Henderson International 84 123 24 3
Equity 3
Seligman Henderson International
Small Cap 3 89 139 29 89
LA Growth and Income 3 82 118 22 68
JanCap Growth 3 83 121 23 71
Fed Utility Inc 3 81 115 21 65
Fed High Yield 3 83 121 23 71
AST Phoenix Balanced Asset 3 81 115 21 65
AST Money Market 3 78 105 18 55
T. Rowe Price Asset Allocation 3 84 124 24 74
T. Rowe Price
International Equity 3 89 139 29 89
T. Rowe Price Natural Resources 3 85 127 25 77
Founders Capital Appreciation 3 84 125 24 75
INVESCO Equity Income 3 83 120 23 70
PIMCO Total Return Bond 3 82 117 22 67
PIMCO Limited Maturity Bond 3 82 117 22 67
AST Scudder International Bond 3 88 137 28 87
Berger Capital Growth 3 84 124 24 74
AA Small Capitalization 3 81 115 21 65
AA Growth 3 80 112 20 62
AA MidCap Growth 3 81 115 21 65
NB Partners 3 84 125 24 75
INVESTMENT OPTIONS: We offer a range of variable and fixed options as ways
to invest your Account Value. Compensation to your representative may
depend on the investment options selected (see "Sale of the Annuities").
Variable Investment Options: During the accumulation phase, we offer a
number of Sub-accounts as variable investment options. These are all Class
3 Sub-accounts of American Skandia Life Assurance Corporation Variable
Account B ("Separate Account B"). Each of these Sub-accounts invests
exclusively in one underlying mutual fund, or a portfolio of an underlying
mutual fund. As of the date of this Prospectus, our Sub-accounts and the
underlying mutual funds or portfolios in which they invest are as follows:
Underlying Mutual Fund: The Alger American Fund
Sub-account Underlying Mutual Fund Portfolio
AA Small Capitalization 3 Small Capitalization
AA Growth 3 Growth
AA MidCap Growth 3 MidCap Growth
Underlying Mutual Fund: Neuberger & Berman Advisers
Management Trust
Sub-account Underlying Mutual Fund Portfolio
NB Partners 3 Partners
Underlying Mutual Fund: American Skandia Trust
Sub-account Underlying Mutual Fund Portfolio
Seligman Henderson International Equity 3 Seligman Henderson International
Equity
Seligman Henderson International Small Cap3 Seligman Henderson
International Small Cap
LA Growth and Income 3 Lord Abbett Growth and Income
JanCap Growth 3 JanCap Growth
Fed Utility Inc 3 Federated Utility Income
Fed High Yield 3 Federated High Yield
AST Phoenix Balanced Asset 3 AST Phoenix Balanced Asset
AST Money Market 3 AST Money Market
T. Rowe Price Asset Allocation 3 T. Rowe Price Asset Allocation
T. Rowe Price International Equity 3 T. Rowe Price International Equity
T. Rowe Price Natural Resources 3 T. Rowe Price Natural Resources
Founders Capital Appreciation 3 Founders Capital Appreciation
INVESCO Equity Income 3 INVESCO Equity Income
PIMCO Total Return Bond 3 PIMCO Total Return Bond
PIMCO Limited Maturity Bond 3 PIMCO Limited Maturity Bond
AST Scudder International Bond 3 AST Scudder International Bond
Berger Capital Growth 3 Berger Capital Growth
Certain Sub-accounts may not be available in all jurisdictions. If and when
we obtain approval of the applicable authorities to make such variable
investment options available, we will notify Owners of the availability of
such Sub-accounts.
We may make other underlying mutual funds available by creating new Sub-
accounts. Additionally, new portfolios may be made available by the
creation of new Sub-accounts from time to time. Such a new portfolio of an
underlying mutual fund may be disclosed in its prospectus. However,
addition of a portfolio does not require us to create a new Sub-account to
invest in that portfolio. We may take other actions in relation to the Sub-
accounts and/or Separate Account B (see "Modifications").
Each underlying mutual fund is registered under the Investment Company Act
of 1940, as amended (the "1940 Act") as an open-end management investment
company. Each underlying mutual fund may or may not be diversified as
defined in the 1940 Act. As of the date of this Prospectus, the portfolios
in which Sub-accounts offered pursuant to this Prospectus invest are those
shown above. A summary of the investment objectives and policies of such
underlying mutual fund portfolios is found in Appendix A. The trustees or
directors, as applicable, of an underlying mutual fund may add, eliminate or
substitute portfolios from time to time. Generally, each portfolio issues a
separate class of shares. As of the date of this Prospectus, shares of the
underlying mutual fund portfolios are available only to separate accounts of
life insurance companies offering variable annuity and variable life
insurance products. However, the shares may be made available, subject to
obtaining all required regulatory approvals, for direct purchase by various
pension and retirement savings plans that qualify for preferential tax
treatment under the Code.
The investment objectives, policies, charges, operations, the attendant
risks and other details pertaining to each underlying mutual fund portfolio
are described in the prospectus of each underlying mutual fund and the
statements of additional information for such underlying mutual fund. Also
included in such information is the investment policy of each mutual fund or
portfolio regarding the acceptable ratings by recognized rating services for
bonds and other debt obligations. There can be no guarantee that any
underlying mutual fund or portfolio will meet its investment objectives.
Shares of the underlying mutual funds may be available to variable life
insurance and variable annuity separate accounts of other insurance
companies. Possible consequences of this multiple availability are
discussed in the subsection entitled Resolving Material Conflicts.
The prospectus for any underlying mutual fund or funds being considered by
you should be read in conjunction herewith. A copy of each prospectus may
be obtained without charge from us by calling our Concierge Desk, 1-800-752-
6342 or writing to us at P.O. Box 883, Attention: Concierge Desk, Shelton,
Connecticut, 06484-0883.
Fixed Investment Options: For the payout phase you may elect fixed
annuity payments based on our then current annuity rates. The discussion
below describes the fixed investment options in the accumulation phase.
As of the date of this Prospectus we offer in most jurisdictions in which
the Annuity is available Fixed Allocations with Guarantee Periods of 1, 2,
3, 5, 7 and 10 years. Each such Fixed Allocation is accounted for
separately. Each Fixed Allocation earns a fixed rate of interest throughout
a set period of time called a Guarantee Period. Multiple Fixed Allocations
are permitted, subject to our allocation rules. The duration of a Guarantee
Period may be the same or different from the duration of the Guarantee
Periods of any of your prior Fixed Allocations.
We may or may not be able to obtain approval in the future in certain
jurisdictions of endorsements to individual or group Annuities that include
the type of Fixed Allocations offered pursuant to this Prospectus. If such
approval is obtained, we may take those steps needed to make such Fixed
Allocations available to purchasers to whom Annuities were issued prior to
the date of such approval.
To the extent permitted by law, we reserve the right at any time to offer
Guarantee Periods with durations that differ from those which were available
when your Annuity was issued. We also reserve the right at any time to stop
accepting new allocations, transfers or renewals for a particular Guarantee
Period. Such an action may have an impact on the MVA (see "Account Value
of the Fixed Allocations").
A Guarantee Period for a Fixed Allocation begins: (a) when all or part of a
Net Purchase Payment is allocated for that particular Guarantee Period; (b)
upon transfer of any of your Account Value to a Fixed Allocation for that
particular Guarantee Period; or (c) when a Guarantee Period attributable to
a Fixed Allocation "renews" after its Maturity Date.
We declare the rates of interest applicable during the various Guarantee
Periods offered. Declared rates are effective annual rates of interest.
The rate of interest applicable to a Fixed Allocation is the one in effect
when its Guarantee Period begins. The rate is guaranteed throughout the
Guarantee Period. We inform you of the interest rate applicable to a Fixed
Allocation, as well as its Maturity Date, when we confirm the allocation.
We declare interest rates applicable to new Fixed Allocations from time-to-
time. Any new Fixed Allocation in an existing Annuity is credited interest
at a rate not less than the rate we are then crediting to Fixed Allocations
for the same Guarantee Period selected by new Annuity purchasers in the same
class.
To the extent permitted by law, we reserve the right, from time to time, to
increase interest rates offered to the class of Owners who, during the term
of such offering, choose to participate in various services we make
available. This may include, but is not limited to, Owners who elect to use
dollar cost averaging from Fixed Allocations (see "Dollar Cost Averaging")
or the balanced investment program (see "Balanced Investment Program").
The interest rates we credit are subject to a minimum. We may declare a
higher rate. The minimum is based on both an index and a reduction to the
interest rate determined according to the index.
The index is based on the published rate for certificates of indebtedness
(bills, notes or bonds, depending on the term of indebtedness) of the United
States Treasury at the most recent Treasury auction held at least 30 days
prior to the beginning of the applicable Fixed Allocation's Guarantee
Period. The term (length of time from issuance to maturity) of the
certificates of indebtedness upon which the index is based is the same as
the duration of the Guarantee Period. If no certificates of indebtedness
are available for such term, the next shortest term is used. If the United
States Treasury's auction program is discontinued, we will substitute
indexes which in our opinion are comparable. If required, implementation
of such substitute indexes will be subject to approval by the Securities and
Exchange Commission and the Insurance Department of the jurisdiction in
which your Annuity was delivered. (For Annuities issued as certificates of
participation in a group contract, it is our expectation that approval of
only the jurisdiction in which such group contract was delivered applies.)
The reduction used in determining the minimum interest rate is one and nine-
tenths percent of interest (1.90%).
Where required by the laws of a particular jurisdiction, a specific minimum
interest rate, compounded yearly, will apply should the index less the
reduction be less than the specific minimum interest rate applicable to that
jurisdiction.
WE MAY CHANGE THE INTEREST RATES WE CREDIT NEW FIXED ALLOCATIONS AT ANY
TIME. Any such change does not have an impact on the rates applicable to
Fixed Allocations with Guarantee Periods that began prior to such change.
However, such a change will affect the MVA (see "Account Value of the Fixed
Allocations").
We have no specific formula for determining the interest rates we declare.
Rates may differ between classes and between types of annuities we offer,
even for guarantees of the same duration starting at the same time. We
expect our interest rate declarations for Fixed Allocations to reflect the
returns available on the type of investments we make to support the various
classes of annuities supported by the assets in Separate Account D.
However, we may also take into consideration in determining rates such
factors including, but not limited to, the durations offered by the
annuities supported by the assets in Separate Account D, regulatory and tax
requirements, the liquidity of the secondary markets for the type of
investments we make, commissions, administrative expenses, investment
expenses, our mortality and expense risks in relation to Fixed Allocations,
general economic trends and competition. OUR MANAGEMENT MAKES THE FINAL
DETERMINATION AS TO INTEREST RATES TO BE CREDITED. WE CANNOT PREDICT THE
RATES WE WILL DECLARE IN THE FUTURE.
OPERATIONS OF THE SEPARATE ACCOUNTS: The assets supporting our obligations
under the Annuities may be held in various accounts, depending on the
obligation being supported. In the accumulation phase, assets supporting
Account Values are held in separate accounts established under the laws of
the State of Connecticut. In the payout phase, assets supporting fixed
annuity payments and any adjustable annuity payments we make available are
held in our general account.
Separate Accounts: We are the legal owner of assets in the separate
accounts. Income, gains and losses, whether or not realized, from assets
allocated to these separate accounts, are credited to or charged against
each such separate account in accordance with the terms of the annuities
supported by such assets without regard to our other income, gains or losses
or to the income, gain or losses in any other of our separate accounts. We
will maintain assets in each separate account with a total market value at
least equal to the reserve and other liabilities we must maintain in
relation to the annuity obligations supported by such assets. These assets
may only be charged with liabilities which arise from such annuities. This
may include Annuities offered pursuant to this Prospectus or certain other
annuities we may offer. The investments made by separate accounts are
subject to the requirements of applicable state laws. These investment
requirements may differ between those for separate accounts supporting
variable obligations and those for separate accounts supporting fixed
obligations.
Separate Account B: In the accumulation phase, the assets supporting
obligations based on allocations to the variable investment options are held
in our Separate Account B. Separate Account B consists of multiple Sub-
accounts. Separate Account B was established by us pursuant to Connecticut
law. Separate Account B also holds assets of other annuities issued by us
with values and benefits that vary according to the investment performance
of Separate Account B.
The Sub-accounts offered pursuant to this Prospectus are all Class 3 Sub-
accounts of Separate Account B. Each class of Sub-accounts in Separate
Account B have a different level of charges assessed against such Sub-
accounts.
The amount of our obligations in relation to allocations to the Sub-accounts
is based on the investment performance of such Sub-accounts. However, the
obligations themselves are our general corporate obligations.
Separate Account B is registered with the SEC under the 1940 Act as a unit
investment trust, which is a type of investment company. This does not
involve any supervision by the SEC of the investment policies, management or
practices of Separate Account B. Each Sub-account invests only in a single
mutual fund or mutual fund portfolio.
The only Sub-accounts available for allocation of your Account Value are
those offered pursuant to this Prospectus. Persons interested in our other
annuities may be offered the same or different Sub-accounts of Separate
Account B or any of our other separate accounts. Such sub-accounts may
invest in some or all of the same underlying mutual fund portfolios as the
Sub-accounts offered pursuant to this Prospectus. We may offer additional
annuities that maintain assets in Class 3 Sub-accounts. In addition, some
of the Class 3 Sub-accounts may invest in underlying mutual funds or
underlying mutual fund portfolios in which Sub-accounts in other classes of
Separate Account B invest.
You will find additional information about these underlying mutual funds and
portfolios in the prospectuses for such funds. Portfolios added to the
underlying mutual fund may or may not be offered through added Sub-accounts.
Sub-accounts are permitted to invest in underlying mutual funds or
portfolios that we consider suitable. We also reserve the right to add Sub-
accounts, eliminate Sub-accounts, to combine Sub-accounts, or to substitute
underlying mutual funds or portfolios of underlying mutual funds.
Values and benefits based on allocations to the Sub-accounts will vary with
the investment performance of the underlying mutual funds or fund
portfolios, as applicable. We do not guarantee the investment results of
any Sub-account, nor is there any assurance that the Account Value allocated
to the Sub-accounts will equal the amounts allocated to the Sub-accounts as
of any time other than the Valuation Period of such allocation. You bear
the entire investment risk.
Separate Account D: In the accumulation phase, assets supporting our
obligations based on Fixed Allocations are held in Separate Account D, which
is a "non-unitized" separate account. Such obligations are based on the
interest rates we credit to Fixed Allocations and the terms of the
Annuities. These obligations do not depend on the investment performance of
the assets in Separate Account D. Separate Account D was established by us
pursuant to Connecticut law.
There are no discrete units in Separate Account D. No party with rights
under any annuity nor any group contract owner participates in the
investment gain or loss from assets belonging to Separate Account D. Such
gain or loss accrues solely to us. We retain the risk that the value of the
assets in Separate Account D may drop below the reserves and other
liabilities we must maintain. Should the value of the assets in Separate
Account D drop below the reserve and other liabilities we must maintain in
relation to the annuities supported by such assets, we will transfer assets
from our general account to Separate Account D to make up the difference.
We have the right to transfer to our general account any assets of Separate
Account D in excess of such reserves and other liabilities. We maintain
assets in Separate Account D supporting a number of annuities we offer.
The staff of the Securities and Exchange Commission have raised the issue of
whether the existence of a separate account supporting Fixed Allocations
such as Separate Account D, the assets of which are not chargeable with
liabilities arising out of any other business we conduct, is an investment
company under the 1940 Act. If it is determined that Separate Account D is
an investment company, it will be required to register and comply with the
requirements of the 1940 Act unless Separate Account D seeks and obtains an
exemption from such requirements. We have applied for an exemption without
prejudice to our position that Separate Account D is not an investment
company and that such exemptive relief is not required. Such application
for exemption may or may not be granted.
If you surrender, withdraw or transfer Account Value from a Fixed Allocation
before the end of its Guarantee Period, you bear the risk inherent in the
MVA (see "Account Value of the Fixed Allocations"). The Account Value of a
Fixed Allocation is guaranteed on its Maturity Date to be its then current
Interim Value.
We operate Separate Account D in a fashion designed to meet the obligations
created by Fixed Allocations. Factors affecting these operations include
the following:
(1) The State of New York, which is one of the jurisdictions in which
we are licensed to do business, requires that we meet certain "matching"
requirements. These requirements address the matching of the durations of
the assets with the durations of obligations supported by such assets. We
believe these matching requirements are designed to control an insurer's
ability to risk investing in long-term assets to support short term interest
rate guarantees. We also believe this limitation controls an insurer's
ability to offer unrealistic rate guarantees.
(2) We employ an investment strategy designed to limit the risk of
default. Some of the guidelines of our current investment strategy for
Separate Account D include, but are not limited to, the following:
(a) Investments may be made in cash; debt securities issued by the
United States Government or its agencies and instrumentalities; money market
instruments; short, intermediate and long-term corporate obligations; asset-
backed obligations; and municipal bonds.
(b) At the time of purchase, fixed income securities will be in one
of the top four generic lettered rating classifications as established by
either Standard & Poor's or Moody's Investor Services, Inc.
We are not obligated to invest according to the aforementioned guidelines or
any other strategy except as may be required by Connecticut and other state
insurance laws.
(3) We have the sole discretion to employ investment managers that we
believe are qualified, experienced and reputable to manage Separate Account
D. We currently employ investment managers for Separate Account D
including, but not limited to, J.P. Morgan Investment Management Inc. Each
manager is responsible for investment management of different portions of
Separate Account D. From time to time additional investment managers may be
employed or investment managers may cease being employed. We are under no
obligation to employ or continue to employ any investment manager(s).
(4) The assets in Separate Account D are accounted for at their market
value, rather than at book value.
(5) We are obligated by law to maintain our capital and surplus, as
well as our reserves, at the levels required by applicable state insurance
law and regulation.
INSURANCE ASPECTS OF THE ANNUITY: As an insurance company we bear the
insurance risk inherent in the Annuity. This includes the risks that
mortality and expenses exceed our expectations, and the investment and re-
investment risks in relation to the assets supporting obligations not based
on the investment performance of a separate account. We are subject to
regulation that requires reserving and other practices in a manner that
minimizes the insurance risk (see "Regulation").
CHARGES ASSESSED OR ASSESSABLE AGAINST THE ANNUITY: The Annuity charges
which are assessed or may be assessable under certain circumstances are the
contingent deferred sales charge, the maintenance fee, a charge for taxes, a
transfer fee and a withdrawal fee. These charges are allocated according to
our rules. The maintenance fee and transfer charge are not assessed if no
Account Value is maintained in the Sub-accounts at the time such fee or
charge is payable. However, we make certain assumptions regarding
maintenance and transfer expenses as part of the overall expense assumptions
used in determining the interest rates we credit to Fixed Allocations.
Charges are also assessed against the Sub-accounts and the underlying mutual
funds. We also may charge you for special services, such as rebalancing,
Minimum Distributions, and additional reports. As of the date of this
Prospectus, we do not charge you for any special services.
Contingent Deferred Sales Charge: Although we incur sales expenses in
connection with the sale of contracts (for example, preparation of sales
literature, expenses of selling and distributing the contracts, including
commissions, and other promotional costs), we do not deduct any charge from
your Purchase Payments for such expenses. However, a contingent deferred
sales charge may be assessed. We assess a contingent deferred sales charge
against the portion of any withdrawal or surrender that is deemed to be a
liquidation of your Purchase Payments paid within the preceding seven years.
The contingent deferred sales charge applies to each Purchase Payment that
is liquidated. It is a decreasing percentage of each Purchase Payment being
liquidated. The charge decreases as the Purchase Payment ages. The aging
of a Purchase Payment is measured from the date it is applied to your
Account Value. The charge is: year 1 -6.0%; year 2 - 6.0%; year 3 - 5.0%;
year 4 - 5.0%; year 5 - 4.0%; year 6 - 3.0%; year 7 - 2.0%; year 8 and
thereafter - 0%.
Each Annuity Year in the accumulation phase you may withdraw a limited
amount of Account Value without application of any contingent deferred sales
charge (see "Free Withdrawal"). However, for purposes of the contingent
deferred sales charge, amounts withdrawn as a free withdrawal are not
considered a liquidation of Purchase Payments. Account Value is deemed
withdrawn according to specific rules in determining how much, if any,
contingent deferred sales charge applies to a partial withdrawal (see
"Partial Withdrawal"). There is no contingent deferred sales charge if all
Purchase Payments were received at least 7 years prior to the date of either
a full surrender or partial withdrawal. Where permitted by law, any
contingent deferred sales charge applicable to a full surrender is waived if
such full surrender qualifies under our rules as a medically-related
withdrawal (see "Medically-Related Surrenders").
From time to time we may reduce the amount of the contingent deferred sales
charge, the period during which it applies, or both, when Annuities are sold
to individuals or a group of individuals in a manner that reduces sales
expenses. We would consider such factors as: (a) the size and type of
group; (b) the amount of Purchase Payments; (c) present Owners making
additional Purchase Payments; and/or (d) other transactions where sales
expenses are likely to be reduced.
No contingent deferred sales charge is imposed when any group annuity
contract or any Annuity issued pursuant to this Prospectus is owned on its
Issue Date by: (a) any parent company, affiliate or subsidiary of ours; (b)
an officer, director, employee, retiree, sales representative, or in the
case of an affiliated broker-dealer, registered representative of such
company; (c) a director or trustee of any underlying mutual fund; (d) a
director, officer or employee of any investment manager or sub-advisor
providing investment management and/or advisory services to an underlying
mutual fund or any affiliate of such investment manager or sub-advisor; (e)
a director, officer, employee or registered representative of a broker-
dealer that has a then current selling agreement with American Skandia
Marketing, Incorporated, (formerly Skandia Life Equity Sales Corporation);
(f) the then current spouse of any such person noted in (b) through (e),
above; (g) the parents of any such person noted in (b) through (f), above;
and (h) such person's child or other legal dependent under the age of 21.
No such group annuity contract or Annuity is eligible for any Additional
Amount due to total Purchase Payments received or may qualify under any
Exchange Program (see "Exchange Contracts").
No contingent deferred sales charge is assessed on Minimum Distributions, to
the extent such Minimum Distributions are required from your Annuity at the
time it is taken. However, the charge may be assessed for any partial
withdrawal taken in excess of the Minimum Distribution, even if such amount
is taken to meet minimum distribution requirements in relation to other
savings or investments held pursuant to various retirement plans designed to
qualify for preferred tax treatment under various sections of the Code (see
"Minimum Distributions").
Any elimination of the contingent deferred sales charge or any reduction to
the amount or duration of such charges will not discriminate unfairly
between Annuity purchasers. We will not make any such changes to this
charge where prohibited by law.
Expenses incurred in connection with the sale of Annuities may exceed the
charges made for such purpose. We expect that the contingent deferred sales
charge will not be sufficient to cover the sales expenses. We expect to
meet any deficiency from any profit we may make on Annuities and from our
surplus. This may include proceeds from, among others, the mortality and
expense risk charges assessed against the Sub-accounts.
Maintenance Fee: A maintenance fee equaling the smaller of $35 or 2% of
your then current Account Value is deductible from the Account Values in the
Sub-accounts annually and upon surrender. The fee is limited to the Account
Values in the Sub-accounts as of the Valuation Period such fee is due.
Certain representations regarding the maintenance fee are found in the
section entitled Administration Charge.
Tax Charges: In several states a tax is payable. We will deduct the
amount of tax payable, if any, from your Purchase Payments if the tax is
then incurred or from your Account Value when applied under an annuity
option if the tax is incurred at that time. The amount of the tax varies
from jurisdiction to jurisdiction. It may also vary depending on whether
the Annuity qualifies for certain treatment under the Code. In each
jurisdiction, the state legislature may change the amount of any current
tax, may decide to impose the tax, eliminate it, or change the time it
becomes payable. In those jurisdictions imposing such a tax, the tax rates
currently in effect range up to 31/2%. In addition to state taxes, local
taxes may also apply. The amounts of these taxes may exceed those for state
taxes.
Transfer Fee: We charge $10.00 for each transfer after the fourth in
each Annuity Year. Renewals or transfers of Account Value from a Fixed
Allocation at the end of its Guarantee Period are not subject to the
transfer charge and are not counted in determining whether other transfers
may be subject to the transfer charge (see "Renewals"). The fee is only
charged if there is Account Value in at least one Sub-account immediately
subsequent to such transfer.
Withdrawal Fee: No withdrawal fee applies to the first withdrawal of any
type in each Annuity Year. We charge $10.00 for each subsequent withdrawal
of any type in each Annuity Year. No withdrawal fee applies to a death
benefit, surrender, medically-related surrender or annuity payment. The
withdrawal fee is not considered a liquidation of any portion of any
Purchase Payment (see "Free Withdrawals" and "Partial Withdrawals").
Allocation Of Annuity Charges: Charges applicable to a surrender are
used in calculating Surrender Value. Charges applicable to any type of
withdrawal are taken from the investment options in the same ratio as such a
withdrawal is taken from the investment options (see "Allocation Rules").
The transfer fee is assessed against the Sub-accounts in which you maintain
Account Value immediately subsequent to such transfer. The transfer fee is
allocated on a pro-rata basis in relation to the Account Values in such Sub-
accounts as of the Valuation Period for which we price the applicable
transfer. No fee is assessed if there is no Account Value in any Sub-
account at such time.
Tax charges are assessed against the entire Purchase Payment or Account
Value as applicable.
The maintenance fee is assessed against the Sub-accounts on a pro-rata basis
in relation to the Account Values in each Sub-account as of the Valuation
Period for which we price the fee.
The withdrawal fee is added to the gross amount withdrawn. It is allocated
on a pro-rata basis to the same investment options from which the applicable
withdrawal amounts are taken.
CHARGES ASSESSED AGAINST THE ASSETS: There are charges assessed against
assets in the Sub-accounts. These charges are described below. There are
no charges deducted from the Fixed Allocations. The factors we use in
determining the interest rates we credit Fixed Allocations are described
above in the subsection entitled Fixed Investment Options. No charges are
deducted from assets supporting fixed or adjustable annuity payments. The
factors we use in determining fixed or adjustable annuity payments include,
but are not limited to, our expected investment returns, costs, risks and
profit targets. We reserve the right to assess a charge against the Sub-
accounts and the Fixed Allocations equal to any taxes which may be imposed
upon the separate accounts.
Administration Charge: We assess each Class 3 Sub-account, on a daily
basis, an administration charge. The charge is 0.15% per year of the
average daily total value of such Sub-account.
We assess the administration charge and the maintenance fee, described in
the subsection entitled Maintenance Fee, at amounts we believe necessary to
recover the actual costs of maintaining and administering the Account Values
allocated to the Class 3 Sub-accounts and Separate Account B itself. The
administration charge and maintenance fee can be increased only for
Annuities issued subsequent to the effective date of any such change.
A relationship does not necessarily exist between the portion of the
administration charge and the maintenance fee attributable to a particular
Annuity and the expenses attributable to that Annuity. However, we believe
the total administration charges made against the Class 3 Sub-accounts will
not be greater than the total anticipated costs. We allocate costs pro-rata
between classes in Separate Account B in proportion to the assets in various
classes. Types of expenses which might be incurred include, but are not
necessarily limited to, the expenses of: developing and maintaining a
computer support system for administering the Account Values in the Sub-
accounts and Separate Account B itself, preparing and delivering
confirmations and quarterly statements, processing transfer, withdrawal and
surrender requests, responding to Owner inquiries, reconciling and
depositing cash receipts, calculating and monitoring daily values of each
Sub-account, reporting for the Sub-accounts, including quarterly, semi-
annual and annual reports, and mailing and tabulation of shareholder proxy
solicitations.
From time to time we may reduce the amount of the maintenance fee and/or the
administration charge. We may do so when Annuities are sold to individuals
or a group of individuals in a manner that reduces maintenance and/or
administrative expenses. We would consider such factors as: (a) the size
and type of group; (b) the number of Annuities purchased by an Owner; (c)
the amount of Purchase Payments; and/or (d) other transactions where
maintenance and/or administration expenses are likely to be reduced.
Any elimination of the maintenance fee and/or the administration charge or
any reduction of such charges will not discriminate unfairly between Annuity
purchasers. We will not make any changes to these charges where prohibited
by law.
Mortality and Expense Risk Charges: For Class 3 Sub-accounts, the
mortality risk charge is 0.55% per year and the expense risk charge is 0.30%
per year. These charges are assessed in combination each day against each
Sub-account at the rate of 0.85% per year of the average daily total value
of each Sub-account.
With respect to the mortality risk charge, we assume the risk that the
mortality experience under the Annuities may be less favorable than our
assumptions. This could arise for a number of reasons, such as when persons
upon whose lives annuity payments are based live longer than we anticipated,
or when the Sub-accounts decline in value resulting in losses in paying
death benefits. If our mortality assumptions prove to be inadequate, we
will absorb any resulting loss. Conversely, if the actual experience is
more favorable than our assumptions, then we will benefit from the gain. We
also assume the risk that the administration charge may be insufficient to
cover our actual administration costs. If we realize a profit from the
mortality and expense risk charges, such profit may be used to recover sales
expenses incurred which may not be recovered by the contingent deferred
sales charge.
CHARGES OF THE UNDERLYING MUTUAL FUNDS: Each underlying mutual fund
assesses various charges for investment management and investment advisory
fees. These charges generally differ between portfolios within the same
underlying mutual fund. You will find additional details in the fund
prospectuses and the statements of additional information.
PURCHASING ANNUITIES: You may purchase an Annuity for various purposes.
You must meet our requirements before we issue an Annuity and it takes
effect. Certain benefits are available to certain classes of purchasers,
including, but not limited to, those who submit Purchase Payments above
specified breakpoint levels and/or who are exchanging a contract issued by
another insurer for an Annuity. You have a "free-look" period during which
you may return your Annuity for a refund amount which may be less or more
than your Purchase Payment, except in specific circumstances.
Uses Of The Annuity: The Annuity may be issued in connection with or
purchased as a funding vehicle for certain retirement plans designed to meet
the requirements of various sections of the Code. These include, but are
not limited to: (a) Sections 401 (corporate, association, or self-employed
individuals' retirement plans); (b) Section 403(b) (tax-sheltered annuities
available to employees of certain qualifying employers); and (c) Section 408
(individual retirement accounts and individual retirement annuities -
"IRAs"; Simplified Employee Pensions). We may require additional
information regarding such plans before we issue an Annuity to be used in
connection with such retirement plans. We may also restrict or change
certain rights and benefits if, in our opinion, such restrictions or changes
are necessary for your Annuity to be used in connection with such retirement
plans. The Annuity may also be used in connection with plans that do not
qualify under the sections of the Code noted above. Some of the potential
tax consequences resulting from various uses of the Annuities are discussed
in the section entitled "Certain Tax Consequences".
Application And Initial Payment: You must meet our underwriting
requirements and forward a Purchase Payment if you seek to purchase an
Annuity. These requirements may include a properly completed Application.
Where permitted by law, we may issue an Annuity without completion of an
Application for certain classes of Annuities.
The minimum initial Purchase Payment we accept is $10,000 unless you
authorize the use of bank drafting to make Purchase Payments. (see "Bank
Drafting"). If you choose bank drafting, we will accept a lower initial
Purchase Payment provided that the Purchase Payments received in the first
year total at least $10,000. The initial Purchase Payment must be paid by
check or wire transfer. It cannot be made through bank drafting. Our
Office must give you prior approval before we accept a Purchase Payment that
would result in the Account Value of all annuities you maintain with us
exceeding $500,000. We confirm each Purchase Payment in writing. Multiple
annuities purchased from us within the same calendar year may be treated for
tax purposes as if they were a single annuity (see "Certain Tax
Considerations").
We reserve the right to allocate your initial Net Purchase Payment to the
investment options up to two business days after we receive, at our Office,
all of our requirements for issuing the Annuity as applied for. We may
retain the Purchase Payment and not allocate the initial Net Purchase
Payment to the investment options for up to five business days while we
attempt to obtain all such requirements. We will try to reach you or any
other party from whom we need any information or materials. If the
requirements cannot be fulfilled within that time, we will: (a) attempt to
inform you of the delay; and (b) return the amount of the Purchase Payment,
unless you specifically consent to our retaining it until all our
requirements are met. Once our requirements are met, the initial Net
Purchase Payment is applied to the investment options within two business
days. Once we accept your Purchase Payment and our requirements are met, we
issue an Annuity.
Breakpoints: Wherever allowed by law, we reserve the right to credit
certain additional amounts ("Additional Amounts") to your Annuity if the
total of your Purchase Payments exceeds specified breakpoints. Such
Additional Amounts are credited by us on your behalf with funds from our
general account. As of the date of this Prospectus, we were making such a
program available. However, we reserve the right to modify, suspend or
terminate it at any time, or from time to time, without notice.
The current breakpoints for qualifying for Additional Amounts are shown
below. Also shown is the value of such Additional Amounts as a percentage
of your Purchase Payment. The percentage also depends on the age of the
oldest of any Owner or the Annuitant on the date we receive the applicable
Purchase Payment at our Office.
<TABLE>
<CAPTION>
<S> <C> <C>
Age of the oldest of any Owner or the
Annuitant when we receive the applicable Additional Amount as a percentage
Total Purchase Payments received Purchase Payment at our Office of the Purchase Payment
At least $1,000,000.00 but
less than $5,000,000.00 Less than 70 2.00%
At least $1,000,000.00 but At least 70 but
less than $5,000,000.00 less than 80 1.50%
At least $1,000,000.00 but
less than $5,000,000.00 80 or more 1.00%
$5,000,000.00 or more Less than 70 3.00%
$5,000,000.00 or more At least 70 but
less than 80 2.25%
$5,000,000.00 or more 80 or more 1.50%
</TABLE>
However, the value of any Additional Amounts combined with any Exchange
Credits due under any exchange program we offer may not exceed the specified
maximum percentage under such exchange program (see "Exchange Contracts").
Additional Amounts are added at the same time the qualifying Net Purchase
Payment is allocated to the investment options, and are allocated to the
investment options in the same manner as such qualifying Net Purchase
Payment. Should you exercise your right to return the Annuity, the then
current value of any Additional Amount as of the date your Annuity is
canceled will be deducted from your Account Value prior to determining the
amount to be returned to you. We do not consider Additional Amounts to be
"investment in the contract" for income tax purposes (see "Certain Tax
Considerations"). Additional Amounts credited are not included in any
amounts you may withdraw without assessment of the contingent deferred sales
charge (see "Contingent Deferred Sales Charge").
The Additional Amounts payable in relation to a Purchase Payments are a
percentage of that Purchase Payment only. For example, if $750,000 in
Purchase Payments was previously submitted for your Annuity or Annuities and
all Owners and the Annuitant were under age 70 on the Issue Date, and you
then submit an additional $500,000.00 Purchase Payment, the Additional
Amounts we credit in relation to that Purchase Payment would be $10,000 (2%
of $500,000.00). No Additional Amount is then payable in relation to any
previously received Purchase Payments. However, we will apply the
Additional Amounts to a pair or series of Purchase Payments if you provide
us In Writing, prior to the Issue Date, evidence satisfactory to us that you
will submit additional Purchase Payments within a 13 month period. We
require an initial Purchase Payment of at least $500,000.00 before we agree
to such a program if it is designed to provide a total of at least
$1,000,000.00 of Purchase Payments over 13 months. We require an initial
Purchase Payment of at least $2,500,000.00 before we agree to such a program
if it is designed to provide a total of at least $5,000,000.00 over 13
months.
We retain the right to recover an amount from your Annuity if such
additional Purchase Payments are not received. The amount we may recover is
the greater of the value of the Additional Amounts when applied or a
percentage of your Account Value as of the date of such recovery. The
percentage equals the ratio between the Additional Amounts and the Purchase
Payments received. Amounts recovered will be taken pro-rata from the
investment options based on the Account Values in the investment options as
of the date of the recovery. If the amount of the recovery exceeds your
then current Surrender Value, we will recover all remaining Account Value
and terminate your Annuity.
Failure to inform us that you intend to submit a pair or a series of large
Purchase Payments within a 13 month period may result in your Annuity being
credited no Additional Amounts or fewer Additional Amounts than would
otherwise be credited to you.
Exchange Contracts: We reserve the right to offer an exchange program
(the "Exchange Program") available only to purchasers who exchange an
existing contract issued by another insurance company not affiliated with us
(an "Exchange Contract") for an Annuity or who add, under certain qualified
plans, to an existing Annuity by exchanging an Exchange Contract. As of the
date of this Prospectus, where allowed by law, we were making such a program
available. However, we reserve the right to modify, suspend, or terminate
it at any time or from time to time without notice. If such an Exchange
Program is in effect, it will apply to all such exchanges for an Annuity.
Such a program would be available only where permitted by law to owners of
insurance or annuity contracts deemed not to constitute "securities" issued
by an investment company. Therefore, while a currently owned variable
annuity or variable life insurance policy may be exchanged for an Annuity
pursuant to Section 1035 of the Code, or where applicable, may qualify for a
"rollover" or transfer to an Annuity pursuant to certain other sections of
the Code, such an exchange, "rollover" or transfer of such a currently owned
variable annuity or variable life insurance policy subject to the 1940 Act
will not qualify for any Exchange Program being offered in relation to
Annuities offered pursuant to this Prospectus. You should carefully
evaluate whether any particular Exchange Program we offer benefits you more
than if you continue to hold your Exchange Contract. Factors to consider
include, but are not limited to: (a) the amount, if any, of the surrender
charges under your Exchange Contract, which you should ascertain from your
insurance company; (b) the time remaining under your Exchange Contract
during which surrender charges apply; (c) the on-going charges, if any,
under your Exchange Contract versus the on-going charges under an Annuity;
(d) the contingent deferred sales charge under an Annuity; (e) the amount
and timing of any benefits under such an Exchange Program; and (f) the
potentially greater cost to you if the contingent deferred sales charge on
an Annuity or the surrender charge on your Exchange Contract exceeds the
benefits under such an Exchange Program. There could be adverse federal
income tax consequences. You should consult with your tax advisor as to the
tax consequences of such an exchange (see "Tax Free Exchanges").
Under the Exchange Program available as of the date of this Prospectus we
add certain amounts to your Account Value as exchange credits ("Exchange
Credits"). Such Exchange Credits are credited by us on behalf of the Owners
of Exchange Contracts with funds from our general account. Subject to a
specified limit (the "Exchange Credit Limit") discussed below, the Exchange
Credits equal the surrender charge paid, if any, to the other insurance
company plus the difference, if any, between the "annuity value" and the
"surrender value" attributable to a difference in interest rates that have
or would be credited to such values in annuities typically referred to as
"two tier" annuities. Both such amounts hereafter are referred to as a
"surrender charge". A "two-tier" annuity is generally credited higher
interest rates if there are no or limited withdrawals before annuitization,
and a lower interest rate would apply upon surrender and most withdrawals.
Determination of whether an Exchange Contract is a "two tier" annuity
qualifying for Exchange Credits is in our sole discretion.
Exchange Credits are not included in any amounts returned to you during the
"free-look" period described below.
This Exchange Program is subject to the following rules:
(1) We do not add Exchange Credits unless we receive In Writing
evidence satisfactory to us:
(a) of the surrender charge, if any, you paid to surrender the
Exchange Contract and the amount of any such charge (you may have particular
difficulty in obtaining satisfactory evidence of any surrender charge paid
to surrender an Exchange Contract typically referred to as a "two tier"
annuity); and
(b) that you acknowledge that you are aware that the contingent
deferred sales charge under this Annuity will be assessed in full against
any subsequent surrender or partial withdrawal to the extent then
applicable.
(2) The ratio of the Exchange Credits to be added to any Fixed
Allocation is the ratio between such Fixed Allocation and the Purchase
Payment that qualifies for this Exchange Credit on the date we allocate the
Purchase Payment. Exchange Credits not added to Fixed Allocations, if any,
are allocated pro-rata among the Sub-accounts based on your Account Values
in such Sub-accounts at the time we allocate the Exchange Credits.
(3) The Exchange Credit is allocated as of the later of (a), (b) or
(c); where
(a) is the date the applicable Purchase Payment is allocated to the
investment options;
(b) is 30 days after the Issue Date; and
(c) is the date we receive, In Writing, evidence satisfactory to us
of the amount of the surrender charge you paid to surrender the Exchange
Contract.
For the fixed investment options, interest on the Exchange Credits is
credited as of the later of (a) or (b), where:
(a) is the date the applicable Purchase Payment was allocated; and
(b) is the date we receive, In Writing, evidence satisfactory to us
of the amount of the surrender charge you paid to surrender the Exchange
Contract, if more than 30 days after the Issue Date.
(4) The value of the Exchange Credits as of the date of the allocation
to the investment options equals the lesser of the Exchange Credit Limit or
the surrender charge you paid to surrender the Exchange Contract. The
Exchange Credit Limit is a percentage of the net amount payable upon
surrender of the Exchange Contract. The Exchange Credit Limit depends on
the age of the oldest of any Owner or the Annuitant on the date we receive
the applicable Purchase Payment at our Office. The current limits are as
follows:
Age of the oldest of any Owner or the Annuitant when we Exchange Credit
receive the applicable Purchase Payment at our Office Limit
Less than 70 3.25%
At least 70 but less than 80 2.50%
At least 80 1.75%
However, any Exchange Credit Limit is reduced by any Additional Amount
applicable due to the size of Purchase Payments (see "Breakpoints").
The Exchange Credit Limit is not based on any other Purchase Payment. We
reserve the right at any time and from time to time to increase or decrease
the Exchange Credit Limit. However, the Exchange Credit Limit in effect at
any time will apply to all purchases qualifying for the Exchange Program.
(5) The value of any Exchange Credits is not considered "growth" for
purposes of determining amounts available as a free withdrawal (see "Free
Withdrawal").
(6) We do not consider additional amounts credited to Account Value
under the Exchange Program to be an increase in your "investment in the
contract" (see "Certain Tax Considerations").
Bank Drafting: You may make Purchase Payments to your Annuity using bank
drafting, but only for allocations to variable investment options. However,
you must pay at least one prior Purchase Payment by check or wire transfer.
We will accept an initial Purchase Payment lower than our standard minimum
Purchase Payment requirement of $10,000 if you also furnish bank drafting
instructions that provide amounts that will meet a $10,000 minimum Purchase
Payment requirement to be paid within 12 months. We will accept an initial
Purchase Payment in an amount as low as $1,000, but it must be accompanied
by a bank drafting authorization form allowing monthly Purchase Payments of
at least $750. We accept bank drafting payments as low as $50 once we have
received at least $10,000 in Purchase Payments.
Right to Return the Annuity: You have the right to return the Annuity
within twenty-one days of receipt or longer where required by law. The
period in which you can take this action is known as a "free-look" period.
To exercise your right to return the Annuity during the "free-look" period,
you must return the Annuity. The amount to be refunded is the then current
Account Value plus any tax charge deducted. This is the "standard refund".
If necessary to meet Federal requirements for IRAs or certain state law
requirements, we return the greater of the "standard refund" or the Purchase
Payments received less any withdrawals (see "Allocation of Net Purchase
Payments"). We tell you how we determine the amount payable under any such
right at the time we issue your Annuity. Upon the termination of the "free-
look" period, if you surrender your Annuity, you may be assessed certain
charges (see "Charges Assessed or Assessable Against the Annuity").
Allocation of Net Purchase Payments: All allocations of Net Purchase
Payments are subject to our allocation rules (see "Allocation Rules").
Allocation of the portion of the initial Net Purchase Payment and any Net
Purchase Payments received during the free-look period that you wish to
allocate to any Sub-accounts are subject to an additional allocation rule if
state law requires return of at least your Purchase Payments should you
return the Annuity under such free-look provision. If such state law
applies to your Annuity: (a) we allocate any portion of any such Net
Purchase Payments that you indicate you wish to go into the Sub-accounts to
the AST Money Market 3 Sub-account; and (b) at the end of such free-look
period we reallocate Account Value according to your then most recent
allocation instructions to us, subject to our allocation rules. However,
where permitted by law in such jurisdictions, we will allocate such Net
Purchase Payments according to your instructions, without any temporary
allocation to the AST Money Market 3 Sub-account, if you execute a return
waiver ("Return Waiver"). Under the Return Waiver, you waive your right to
the return of the greater of the "standard refund" or the Purchase Payments
received less any withdrawals. Instead, you only are entitled to the return
of the "standard refund" (see "Right to Return the Annuity").
Your initial Purchase Payments, as well as other Purchase Payments will be
allocated in accordance with the then current requirements of any
rebalancing, asset allocation or market timing program which you have
authorized or have authorized an independent third party to use in
connection with your Annuity (see "Allocation Rules").
Balanced Investment Program: We offer a balanced investment program in
relation to your Purchase Payments, if Fixed Allocations are available under
your Annuity. If you choose this program, we commit a portion of your Net
Purchase Payments as a Fixed Allocation for the Guarantee Period you select.
This Fixed Allocation will have grown pre-tax to equal the exact amount of
your entire Purchase Payments at the end of its initial Guarantee Period if
no amounts are transferred or withdrawn from such Fixed Allocation. The
rest of your Net Purchase Payments are invested in variable investment
options you select.
We reserve the right, from time to time, to credit additional amounts to
Fixed Allocations ("Additional Amounts") if you allocate Purchase Payments
in accordance with the balanced investment program we offer. We offer to
do so at our sole discretion. Such an offer is subject to our rules,
including but not limited to, a change to the MVA formula. For more
information, see "Additional Amounts in the Fixed Allocations".
Ownership, Annuitant and Beneficiary Designations: You make certain
designations that apply to the Annuity if issued. These designations are
subject to our rules and to various regulatory or statutory requirements
depending on the use of the Annuity. These designations include an Owner, a
contingent Owner, an Annuitant, a Contingent Annuitant, a Beneficiary, and a
contingent Beneficiary. Certain designations are required, as indicated
below. Such designations will be revocable unless you indicate otherwise or
we endorse your Annuity to indicate that such designation is irrevocable to
meet certain regulatory or statutory requirements. Changing the Owner or
Annuitant designations may affect the minimum death benefit (see " Death
Benefits").
Some of the tax implications of various designations are discussed in the
section entitled "Certain Tax Considerations". However, there are other tax
issues than those addressed in that section, including, but not limited to,
estate and inheritance tax issues. You should consult with a competent tax
counselor regarding the tax implications of various designations. You
should also consult with a competent legal advisor as to the implications of
certain designations in relation to an estate, bankruptcy, community
property where applicable and other matters.
An Owner must be named. You may name more than one Owner. If you do, all
rights reserved to Owners are then held jointly. We require the consent In
Writing of all joint Owners for any transaction for which we require the
written consent of Owners. Where required by law, we require the consent In
Writing of the spouse of any person with a vested interest in an Annuity.
Naming someone other than the payor of any Purchase Payment as Owner may
have gift, estate or other tax implications.
Where allowed by law, you may name a contingent Owner. However, this
designation takes effect only on or after the Annuity Date.
You must name an Annuitant. We do not accept a designation of joint
Annuitants. Where allowed by law, you may name one or more Contingent
Annuitants.
There may be adverse tax consequences if a Contingent Annuitant succeeds an
Annuitant and the Annuity is owned by a trust that is neither tax exempt or
does not qualify for preferred treatment under certain sections of the Code,
such as Section 401 (a "non-qualified" trust). In general, the Code is
designed to prevent the benefit of tax deferral from continuing for long
periods of time on an indefinite basis. Continuing the benefit of tax
deferral by naming one or more Contingent Annuitants when the Annuity is
owned by a non-qualified trust might be deemed an attempt to extent the tax
deferral for an indefinite period. Therefore, adverse tax treatment may
depend on the terms of the trust, who is named as Contingent Annuitant, as
well as the particular facts and circumstances. You should consult your tax
advisor before naming a Contingent Annuitant if you expect to use an Annuity
in such a fashion.
Where allowed by law, you must name Contingent Annuitants according to our
rules when an Annuity is used as a funding vehicle for certain retirement
plans designed to meet the requirements of Section 401 of the Code.
You may name more than one primary and more than one contingent Beneficiary,
and if you do, the proceeds will be paid in equal shares to the survivors in
the appropriate beneficiary class, unless you have requested otherwise In
Writing. If the primary Beneficiary dies before death proceeds become
payable, the proceeds will become payable to the contingent Beneficiary. If
no Beneficiary is alive when death proceeds become payable or in the absence
of any Beneficiary designation, the proceeds will vest in you or your
estate.
ACCOUNT VALUE AND SURRENDER VALUE: In the accumulation phase your Annuity
has an Account Value. Your total Account Value is the sum of your Account
Value in each investment option. Surrender Value is the Account Value less
any applicable contingent deferred sales charge and any applicable
maintenance fee.
Account Value in the Sub-accounts: We determine your Account Value
separately for each Sub-account. To determine the Account Value in each
Sub-account we multiply the Unit Price as of the Valuation Period for which
the calculation is being made times the number of Units attributable to you
in that Sub-account as of that Valuation Period. The method we use to
determine Unit Prices is shown in the Statement of Additional Information.
The number of Units attributable to you in a Sub-account is the number of
Units you purchased less the number transferred or withdrawn. We determine
the number of Units involved in any transaction specified in dollars by
dividing the dollar value of the transaction by the Unit Price of the
effected Sub-account as of the Valuation Period applicable to such
transaction.
Account Value of the Fixed Allocations: We determine the Account Value
of each Fixed Allocation separately. A Fixed Allocation's Account Value as
of a particular date is determined by multiplying its then current Interim
Value times the MVA.
A formula is used to determine the MVA. The formula is applied separately
to each Fixed Allocation. Values and time durations used in the formula are
as of the date for which the Account Value is being determined. The formula
is:
[(1+I) / (1+J+0.0010)]N/12
where:
I is the interest rate being credited to the Fixed Allocation;
J is the interest rate for your class of annuities for new Fixed Allocations
with Guarantee Periods of durations equal to the number of years (rounded to
the next higher integer when occurring on other than an anniversary of the
beginning of the Fixed Allocation's Guarantee Period) remaining in such
Guarantee Period;
N is the number of months (rounded to the next higher integer when occurring
on other than a monthly anniversary of the beginning of the Guarantee
Period) remaining in such Guarantee Period.
No MVA applies in determining a Fixed Allocation's Account Value on its
Maturity Date. If we are not offering a Guarantee Period with a duration
equal to the number of years remaining in a Fixed Allocation's Guarantee
Period, we calculate a rate for "J" above using a specific formula. This
formula is described in the Statement of Additional Information.
Our Current Rates are expected to be sensitive to interest rate
fluctuations, thereby making each MVA equally sensitive to such changes.
There would be a downward adjustment when the applicable Current Rate plus
0.10 percent of interest exceeds the rate credited to the Fixed Allocation
and an upward adjustment when the applicable Current Rate is more than 0.10
percent of interest lower than the rate being credited to the Fixed
Allocation. See the Statement of Additional Information for an illustration
of how the MVA works.
We reserve the right, from time to time, to determine the MVA using an
interest rate lower than the Current Rate for all transactions applicable to
a class of Annuities. We may do so at our sole discretion. This would
benefit all such Annuities if transactions to which the MVA applies occur
while we use such lower interest rate.
Additional Amounts in the Fixed Allocations: To the extent permitted by
law, we reserve the right, from time to time, to credit Additional Amounts
to Fixed Allocations. We may do so at our sole discretion. We may offer to
credit such Additional Amounts only in relation to Fixed Allocations of
specific durations (i.e. 10 years) when used as part of certain programs we
offer such as the balanced investment program and dollar cost averaging (see
"Balanced Investment Program" and "Dollar Cost Averaging"). We would
provide such Additional Amounts with funds from our general account and
credit them to the applicable Fixed Allocation. Such a program is subject
to the following rules:
(1) The Additional Amounts are credited in relation to initial or
additional Purchase Payments, not to Account Value transferred to a Fixed
Allocation for use in the applicable programs. The Additional Amounts are
not credited in relation to any exchange of another annuity issued by us for
an Annuity.
(2) The Additional Amounts are credited as of the later of the date the
applicable Purchase Payment is allocated to the applicable Fixed Allocation
or the 30th day after the Issue Date.
(3) Interest on the Additional Amounts is credited as of the date the
applicable Purchase Payment is allocated to the applicable Fixed Allocation.
(4) The Additional Amounts are a percentage of the amount credited to
the applicable Fixed Allocation. However, we may change the percentage from
time to time.
(5) There is an increase to any applicable "adjustment amount" in the
MVA formula, which otherwise is 0.0010, to 0.0020 (see "Account Value of the
Fixed Allocations"). This change would only apply to a transfer, surrender
or withdrawal from the applicable Fixed Allocation, but not to any payments
of death benefit proceeds or a medically-related surrender (see "Medically-
Related Surrender"). This change could reduce your Account Value.
(6) We do not consider Additional Amounts to be "investment in the
contract" for income tax purposes (see "Certain Tax Considerations").
(7) Additional Amounts credited are not included in any amounts you may
withdraw without assessment of the contingent deferred sales charge pursuant
to the Free Withdrawal provision (see "Free Withdrawals").
(8) We determine if a Purchase Payment is received during the period we
are offering such credits based on the earlier of: (a) the date we receive
at our Office the applicable Purchase Payment; or (b) the date we receive at
our Office our requirements in relation to either an exchange of an existing
annuity issued by another insurer or a "rollover" or transfer of such an
annuity pursuant to specific sections of the Code.
(9) No Purchase Payment may be applied to more than one program
crediting Additional Amounts solely to a Fixed Allocation.
(10) We reserve the right to reduce the Additional Amount, when the
Additional Amount combined with amounts we credit under various other
programs we may offer, such as the Exchange Program, exceed the Exchange
Credit Limit (see "Exchange Contracts").
RIGHTS, BENEFITS AND SERVICES: The Annuity provides various rights,
benefits and services subsequent to its issuance and your decision to keep
it beyond the free-look period. A number of these rights, benefits and
services, as well as some of the rules and conditions to which they are
subject, are described below. These rights, benefits and services include,
but are not limited to: (a) making additional Purchase Payments; (b)
changing revocable designations; (c) transferring Account Values between
investment options; (d) receiving lump sum payments, Systematic Withdrawals
or Minimum Distributions, annuity payments and death benefits; (e)
transferring or assigning your Annuity; (f) exercising certain voting rights
in relation to the underlying mutual funds in which the Sub-accounts invest;
and (g) receiving reports. These rights, benefits and services may be
limited, eliminated or altered when an Annuity is purchased in conjunction
with a qualified plan. We may require presentation of proper
identification, including a personal identification number ("PIN") issued by
us, prior to accepting any instruction by telephone. We forward your PIN to
you shortly after your Annuity is issued. To the extent permitted by law or
regulation, neither we nor any person authorized by us will be responsible
for any claim, loss, liability or expense in connection with a telephone
transfer if we or such other person acted on telephone transfer instructions
in good faith in reliance on your telephone transfer authorization and on
reasonable procedures to identify persons so authorized through verification
methods which may include a request for your Social Security number or a
personal identification number (PIN) as issued by us. We may be liable for
losses due to unauthorized or fraudulent instructions should we not follow
such reasonable procedures.
Additional Purchase Payments: The minimum for any additional Purchase
Payment is $100, except as part of a bank drafting program (see "Bank
Drafting"), or less where required by law. Additional Purchase Payments may
be paid at any time before the Annuity Date. Subject to our allocation
rules, we allocate additional Net Purchase Payments according to your
instructions. Should no instructions be received, we shall return your
additional Purchase Payment.
Changing Revocable Designations: Unless you indicated that a prior
choice was irrevocable or your Annuity has been endorsed to limit certain
changes, you may request to change Owner, Annuitant and Beneficiary
designations by sending a request In Writing. Where allowed by law, such
changes will be subject to our acceptance. Some of the changes we will not
accept include, but are not limited to: (a) a new Owner subsequent to the
death of the Owner or the first of any joint Owners to die, except where a
spouse-Beneficiary has become the Owner as a result of an Owner's death; (b)
a new Annuitant subsequent to the Annuity Date if the annuity option
selected includes a life contingency; and (c) a new Annuitant prior to the
Annuity Date if the Annuity is owned by an entity.
Allocation Rules: In the accumulation phase, you may maintain Account
Value in up to ten Sub-accounts. You may also maintain an unlimited number
of Fixed Allocations. Should you request a transaction that would leave
less than any minimum amount we then require in an investment option, we
reserve the right, to the extent permitted by law, to add the balance of
your Account Value in the applicable Sub-account or Fixed Allocation to the
transaction and close out your balance in that investment option.
Should you either: (a) request rebalancing services (see "Rebalancing"):
(b) authorize an independent third party to transact transfers on your
behalf and such third party arranges for rebalancing of any portion of your
Account Value in accordance with any asset allocation strategy; or (c)
authorize an independent third party to transact transfers in accordance
with a market timing strategy; then all Purchase Payments, including the
initial Purchase Payment, received while your Annuity is subject to such an
arrangement are allocated to the same investment options and in the same
proportions as then required pursuant to the applicable rebalancing, asset
allocation or market timing program, unless we have received alternate
instructions. Such allocation requirements terminate simultaneous to the
termination of an authorization for rebalancing or any authorization to a
third party to transact transfers on your behalf.
Withdrawals of any type are taken pro-rata from the investment options based
on the then current Account Values in such investment options unless we
receive instructions from you prior to such withdrawal. For this purpose
only, the Account Value in all your then current Fixed Allocations is deemed
to be in one investment option. If you transfer or withdraw Account Value
from multiple Fixed Allocations and do not provide instructions indicating
the Fixed Allocations from which Account Value should be taken: (a) we
transfer Account Value first from the Fixed Allocation with the shortest
amount of time remaining to the end of its Guarantee Period, and then from
the Fixed Allocation with the next shortest amount of time remaining to the
end of its Guarantee Period, etc.; and (b) if there are multiple Fixed
Allocations with the same amount of time left in each Guarantee Period, as
between such Fixed Allocations we first take Account Value from the Fixed
Allocation that had the shorter Guarantee Period.
Transfers: In the accumulation phase you may transfer Account Value
between investment options, subject to our allocation rules (see "Allocation
Rules"). Transfers are not subject to taxation (see "Transfers Between
Investment Options"). We charge $10.00 for each transfer after the fourth
in each Annuity Year. Renewals or transfers of Account Value from a Fixed
Allocation at the end of its Guarantee Period are not subject to the
transfer charge and are not counted in determining whether other transfers
may be subject to the transfer charge (see "Renewals"). Your transfer
request must be In Writing or meet our requirements for accepting
instructions we receive over the phone.
We reserve the right to limit the number of transfers in any Annuity Year
for all existing or new Owners. We also reserve the right to limit the
number of transfers in any Annuity Year or to refuse any transfer request
for an Owner or certain Owners if we believe that: (a) excessive trading by
such Owner or Owners or a specific transfer request or group of transfer
requests may have a detrimental effect on Unit Values or the share prices of
the underlying mutual funds; or (b) we are informed by one or more of the
underlying mutual funds that the purchase or redemption of shares is to be
restricted because of excessive trading or a specific transfer or group of
transfers is deemed to have a detrimental effect on share prices of affected
underlying mutual funds.
In order to help you determine whether you wish to transfer Account Values
to a Fixed Allocation, you may obtain our Current Rates by writing us or
calling us at 1-800-766-4530.
Where permitted by law, we may accept your authorization of a third party to
transfer Account Values on your behalf, subject to our rules. We may
suspend or cancel such acceptance at any time. We notify you of any such
suspension or cancellation. We may restrict the investment options that
will be available for transfers or allocations of Net Purchase Payments
during any period in which you authorize such third party to act on your
behalf. We give the third party you authorize prior notification of any
such restrictions. However, we will not enforce such a restriction if we
are provided evidence satisfactory to us that: (a) such third party has
been appointed by a court of competent jurisdiction to act on your behalf;
or (b) such third party has been appointed by you to act on your behalf for
all your financial affairs.
We or an affiliate of ours may provide administrative or other support
services to independent third parties you authorize to conduct transfers on
your behalf or who provide recommendations as to how your Account Values
should be allocated. This includes, but is not limited to, rebalancing your
Account Value among investment options in accordance with various investment
allocation strategies such third party may employ, or transferring Account
Values between investment options in accordance with market timing
strategies employed by such third parties. Such independent third parties
may or may not be appointed our agents for the sale of Annuities. However,
we do not engage any third parties to offer investment allocation services
of any type, so that persons or firms offering such services do so
independent from any agency relationship they may have with us for the sale
of Annuities. We therefore take no responsibility for the investment
allocations and transfers transacted on your behalf by such third parties or
any investment allocation recommendations made by such persons. We do not
currently charge you extra for providing these support services.
Renewals: A renewal is a transaction that occurs automatically as of
the last day of a Fixed Allocation's Guarantee Period unless we receive
alternative instructions. This day as to each Fixed Allocation is called
its Maturity Date. As of the end of a Maturity Date, the Fixed Allocation's
Guarantee Period "renews" and a new Guarantee Period of the same duration as
the one just completed begins. However, the renewal will not occur if the
Maturity Date is on the date we apply your Account Value to determine the
annuity payments that begin on the Annuity Date (see "Annuity Payments").
As an alternative to a renewal, you may transfer all or part of that Fixed
Allocation's Account Value to a different Fixed Allocation or you may
transfer such Account Value to one or more Sub-accounts, subject to our
allocation rules. To accomplish this, we must receive instructions from you
In Writing at least two business days before the Maturity Date. No MVA
applies to transfers of a Fixed Allocation's Account Value occurring as of
its Maturity Date. An MVA will apply in determining the Account Value of a
Fixed Allocation at the time annuity payments are determined, unless the
Maturity Date of such Fixed Allocation is the 15th day before the Annuity
Date (see "Annuity Payments").
At least 30 days prior to a Maturity Date, or earlier if required by law or
regulation, we inform you of the Guarantee Periods available as of the date
of such notice. We do not provide a similar notice if the Fixed
Allocation's Guarantee Period is of less than a year's duration. Such
notice may include an example of the rates we are then crediting new Fixed
Allocations as of the date such notice is prepared. The rates actually
credited to a Fixed Allocation as of the date of any renewal or transfer
immediately subsequent to the Maturity Date may be more or less than any
rates quoted in such notice.
If your Fixed Allocation's then ending Guarantee Period is no longer
available for new allocations and renewals or you choose a different
Guarantee Period that is no longer available on the date following the
Maturity Date, we will try to reach you so you may make another choice. If
we cannot reach you, we will assign the next shortest Guarantee Period then
currently available for new allocations and renewals to that Fixed
Allocation.
Dollar Cost Averaging: We offer dollar cost averaging in the
accumulation phase. Dollar cost averaging is a program designed to provide
for regular, approximately level investments over time. You may choose to
transfer earnings only, principal plus earnings or a flat dollar amount. We
make no guarantee that a dollar cost averaging program will result in a
profit or protect against a loss in a declining market. You may select this
program by submitting to us a request In Writing. You may cancel your
participation in this program In Writing or by phone if you have previously
authorized our acceptance of such instructions.
Dollar cost averaging is available from any of the investment options we
choose to make available for such a program. Your Annuity must have an
Account Value of not less than $10,000 at the time we accept your request
for a dollar cost averaging program. Transfers under a dollar cost
averaging program are counted in determining the applicablitity of the
transfer fee (see "Transfers"). We reserve the right to limit the
investment options into which Account Value may be transferred as part of a
dollar cost averaging program. We currently do not permit dollar cost
averaging programs where Account Value is transferred to Fixed Allocations.
Should we suspend or cancel the offering of this service, such suspension or
cancellation will not affect any dollar cost averaging programs then in
effect. Dollar cost averaging is not available while a rebalancing, asset
allocation or market timing type of program is used in connection with your
Annuity.
Dollar cost averaging from Fixed Allocations are subject to the following
rules: (a) you may only use Fixed Allocations with Guarantee Periods of 1,
2 or 3 years; (b) such a program may only be selected in conjunction with
and simultaneous to a new or renewing Fixed Allocation; (c) only averaging
of earnings only or principal plus earnings is permitted; (d) a program
averaging principal plus earnings from a Fixed Allocation must be designed
to last that Fixed Allocation's entire current Guarantee Period; (e) dollar
cost averaging transfers from a Fixed Allocation are not subject to the MVA;
(f) dollar cost averaging may be done on a monthly basis only; and (g) you
may not simultaneously use Account Value in any Fixed Allocation to
participate in dollar cost averaging and receive Systematic Withdrawals or
Minimum Distributions from such Fixed Allocation (see "Systematic
Withdrawals" and "Minimum Distributions").
We reserve the right, from time to time, to credit additional amounts
("Additional Amounts") if you allocate Purchase Payments to Fixed
Allocations as part of a dollar cost averaging program. Such an offer is at
our sole discretion and is subject to our rules, including but not limited
to, a change to the MVA formula. For more information, see "Additional
Amounts in the Fixed Allocations".
Rebalancing: We offer, during the accumulation phase, automatic
quarterly, semi-annual or annual rebalancing among the variable investment
options of your choice. This provides the convenience of automatic
rebalancing without having to provide us instructions on a periodic basis.
Failure to choose this option does not prevent you from providing us with
transfer instructions from time-to-time that have the effect of rebalancing.
It also does not prevent other requested transfers from being transacted.
Under this program, Account Values in variable investment options are
rebalanced quarterly, semi-annually or annually, as applicable, to the
percentages you request. The rebalancing may occur quarterly, semi-
annually or annually based upon the Issue Date. If a transfer is requested
involving any investment option participating in an automatic rebalancing
program, we automatically alter the rebalancing percentages going forward
(unless we receive alternate instructions) to the ratios between Account
Values in the variable investment options as of the effective date of such
requested transfer. Automatic rebalancing is delayed one quarter if Account
Value is being maintained in the AST Money Market 3 Sub-account for the
duration of your Annuity's "free-look" period and rebalancing would
otherwise occur during such period (see "Allocation of Net Purchase
Payments").
You may change the percentage allocable to each variable investment option
at any time. However, you may not choose to allocate less than 5% of
Account Value to any variable investment option.
We do not offer automatic rebalancing in connection with Fixed Allocations.
The Account Value of your Annuity must be at least $10,000 when we receive
your automatic rebalancing request. We may require that all variable
investment options in which you maintain Account Value must be used in the
rebalancing program. You may maintain Account Value in at least two and not
more than ten variable investment options when using a rebalancing program.
You may not simultaneously participate in rebalancing and dollar cost
averaging. Rebalancing also is not available when a program of Systematic
Withdrawals of earnings or earnings plus principal is in effect.
For purposes of determining the number of transfers made in any Annuity
Year, all rebalancing transfers made on the same day are treated as one
transfer. We reserve the right to charge a processing fee for signing up
for this service.
To elect to participate or to terminate participation in automatic
rebalancing, we may require instructions In Writing at our Office in a form
satisfactory to us.
Distributions: Distributions available from your Annuity during the
accumulation phase include surrender, medically-related surrender, free
withdrawals, partial withdrawals, Systematic Withdrawals, Minimum
Distributions (in relation to qualified plans) and a death benefit. In the
payout phase we pay annuity payments. Distributions from your Annuity
generally are subject to taxation, and may be subject to a tax penalty as
well (see "Certain Tax Considerations"). You may wish to consult a
professional tax advisor for tax advice prior to exercising any right to an
elective distribution. During the accumulation phase, any distribution
other than a death benefit: (a) must occur prior to any death that would
cause a death benefit to become payable; and (b) will occur subsequent to
our receipt of a completed request In Writing.
Surrender: Surrender of your Annuity for its Surrender Value is
permitted during the accumulation phase. A contingent deferred sales charge
may apply to such surrender (see "Contingent Deferred Sales Charge"). Your
Annuity must accompany your surrender request.
Medically-Related Surrender: Where permitted by law, you may apply to
surrender your Annuity for its Account Value prior to the Annuity Date upon
occurrence of a "Contingency Event". The Annuitant must be alive as of the
date we pay the proceeds of such surrender request. If the Owner is one or
more natural persons, all such Owners must also be alive at such time.
Specific details and definitions of terms in relation to this benefit may
differ in certain jurisdictions. This waiver of any applicable contingent
deferred sales charge is subject to our rules. This benefit is not
available if the total Purchase Payments received exceed $500,000.00 for all
annuities issued by us with this benefit for which the same person is named
as Annuitant. A "Contingency Event" occurs if the Annuitant is:
(1) First confined in a "Medical Care Facility" while your Annuity is
in force and remains confined for at least 90 days in a row; or
(2) First diagnosed as having a "Fatal Illness" while your Annuity is
in force.
"Medical Care Facility" means any state licensed facility providing
medically necessary in-patient care which is prescribed by a licensed
"Physician" in writing and based on physical limitations which prohibit
daily living in a non-institutional setting. "Fatal Illness" means a
condition diagnosed by a licensed "Physician" which is expected to result in
death within 2 years for 80% of the diagnosed cases. "Physician" means a
person other than you, the Annuitant or a member of either your or the
Annuitant's families who is state licensed to give medical care or treatment
and is acting within the scope of that license. We must receive
satisfactory proof of the Annuitant's confinement or Fatal Illness In
Writing.
Free Withdrawals: Each Annuity Year in the accumulation phase you may
withdraw a limited amount of Account Value without application of any
applicable contingent deferred sales charge. However, only the first
withdrawal of any type per Annuity Year is not subject to the withdrawal fee
(see "Withdrawal Fee"). Such free withdrawals are available to meet
liquidity needs. Free withdrawals are not available at the time of a
surrender of an Annuity. Withdrawals of any type made prior to age 59 1/2
may be subject to a 10% tax penalty (see "Penalty on Distributions").
The minimum amount available as a free withdrawal is $100. Amounts received
as Systematic Withdrawals or as Minimum Distributions are deemed to come
first from the amount available under this Free Withdrawal provision (see
"Systematic Withdrawals" and "Minimum Distributions"). You may also request
to receive as a lump sum any free withdrawal amount not already received
that Annuity Year under a plan of Systematic Withdrawals or as Minimum
Distributions.
The maximum amount available as a free withdrawal during an Annuity Year is
the greater of your Annuity's "growth" or 10% of "new" Purchase Payments.
"Growth" equals the then current Account Value less all "unliquidated"
Purchase Payments and less the value at the time credited of any Exchange
Credits or Additional Amounts (see "Exchange Contracts", "Breakpoints" and
"Additional Amounts in the Fixed Allocations"). "Unliquidated" means not
previously surrendered or withdrawn. "New" Purchase Payments are those
received in the seven (7) years prior to the date as of which a free
withdrawal occurs. For purposes of the contingent deferred sales charge,
amounts withdrawn as a free withdrawal or to pay any withdrawal fee are not
considered a liquidation of Purchase Payments. Therefore, any free
withdrawal will not reduce the amount of any applicable contingent deferred
sales charge upon any partial withdrawal or subsequent surrender.
Partial Withdrawals: You may withdraw part of your Surrender Value.
The minimum partial withdrawal is $100. The Surrender Value that must
remain in the Annuity as of the date of this transaction is $1,000. If the
amount of the partial withdrawal request exceeds the maximum amount
available, we reserve the right to treat your request as one for a full
surrender.
On a partial withdrawal, the contingent deferred sales charge is assessed
against any "unliquidated" "new" Purchase Payments withdrawn.
"Unliquidated" means not previously surrendered or withdrawn. For these
purposes, amounts are deemed to be withdrawn in the following order:
(1) From any amount then available as a free withdrawal; then from
(2) "Old" Purchase Payments (Purchase Payments allocated to Account
Value more than seven years prior to the partial withdrawal); then from
(3) "New" Purchase Payments (If there are multiple "new" Purchase
Payments, the one received earliest is liquidated first, then the one
received next earliest, and so forth); then from
(4) Other Surrender Value.
Only the first withdrawal of any type per Annuity Year is not subject to the
withdrawal fee (see "Withdrawal Fee").
Systematic Withdrawals: We offer Systematic Withdrawals of earnings
only, principal plus earnings or a flat dollar amount. Systematic
Withdrawals from Fixed Allocations are limited to earnings only. You may
choose at any time to begin such a program if withdrawals are to come solely
from Account Value maintained in the Sub-accounts. Systematic Withdrawals
are deemed to be withdrawn from Surrender Value in the same order as partial
withdrawals for purposes of determining if the contingent deferred sales
charge applies. Penalties may apply (see "Free Withdrawals".) Only the
first withdrawal of any type per Annuity Year is not subject to the
withdrawal fee (see "Withdrawal Fee").
A Systematic Withdrawal from a Fixed Allocation is not subject to the MVA.
We calculate the Fixed Allocation's credited interest since the prior
withdrawal as A minus B, plus C, where:
A is the Interim Value of the applicable Fixed Allocation as of the date of
the Systematic Withdrawal;
B is the Interim Value of the applicable Fixed Allocation as of the
beginning of its then current Guarantee Period; and
C is the total of all partial or free withdrawals and any transfers from
such Fixed Allocation since the beginning of its then current Guarantee
Period.
Systematic Withdrawals are available on a monthly, quarterly, semi-annual or
annual basis. You may not simultaneously receive Systematic Withdrawals
from a Fixed Allocation and participate in a dollar cost averaging program
under which Account Value is transferred from the same Fixed Allocation (see
"Dollar Cost Averaging"). Systematic Withdrawals are not available while
you are taking any Minimum Distributions (see "Minimum Distributions").
Systematic Withdrawals of earnings or earnings plus principal are not
available while any rebalancing or asset allocation program is in effect in
relation to your Annuity.
The Surrender Value of your Annuity must be at least $20,000 when we accept
your request for a program of Systematic Withdrawals. The minimum for each
Systematic Withdrawal is $100. For any scheduled Systematic Withdrawal
other than the last that does not meet this minimum, we reserve the right to
defer such a withdrawal and add the amount that would have been withdrawn to
the amount that is to be withdrawn at the next Systematic Withdrawal.
Should we suspend or cancel offering Systematic Withdrawals, such suspension
or cancellation will not affect any Systematic Withdrawal programs then in
effect.
Minimum Distributions: You may elect to have us calculate Minimum
Distributions annually if your Annuity is being used for certain qualified
purposes under the Code. We calculate such amounts assuming the Minimum
Distribution amount is based solely on the value of your Annuity. The
required Minimum Distribution amounts applicable to your particular
situation may depend on other annuities, savings or investments of which we
are unaware, so that the required amount may be greater than the Minimum
Distribution amount we calculate based on the value of your Annuity. We
reserve the right to charge a fee for each annual calculation. Minimum
Distributions are not available if you are taking Systematic Withdrawals
(see "Systematic Withdrawals"). You may elect to have Minimum Distributions
paid out monthly, quarterly, semi-annually or annually. Only one withdrawal
per year of any type is not subject to the withdrawal fee (see "Withdrawal
Fee").
Each Minimum Distribution will be taken from the investment options you
select. However, the portion of any Minimum Distribution that can be taken
from any Fixed Allocations may not exceed the then current ratio between
your Account Value in all Fixed Allocations you maintain and your total
Account Value. No MVA applies to any portion of Minimum Distributions taken
from Fixed Allocations. Minimum Distributions are not available from any
Fixed Allocations if such Fixed Allocation is being used in a dollar cost
averaging program (see "Dollar Cost Averaging").
No contingent deferred sales charge is assessed against amounts withdrawn as
a Minimum Distribution, but only to the extent of the Minimum Distribution
required from your Annuity at the time it is taken. The contingent deferred
sales charge may apply to additional amounts withdrawn to meet minimum
distribution requirements in relation to other retirement programs you may
maintain.
Amounts withdrawn as Minimum Distributions are considered to come first from
the amounts available as a free withdrawal (see "Free Withdrawals") as of
the date of the yearly calculation of the Minimum Distribution amount.
Minimum Distributions over that amount are not deemed to be a liquidation
of Purchase Payments (see "Partial Withdrawals").
Death Benefit: In the accumulation phase, a death benefit is payable.
If the Annuity is owned by one or more natural persons, it is payable upon
the first death of such Owners. If the Annuity is owned by an entity, the
death benefit is payable upon the Annuitant's death, if there is no
Contingent Annuitant. If a Contingent Annuitant was designated before the
Annuitant's death and the Annuitant dies, the Contingent Annuitant then
becomes the Annuitant. There may be adverse tax consequences for certain
entity Owners if they name a Contingent Annuitant (see "Ownership, Annuitant
and Beneficiary Designations").
The person upon whose death the death benefit is payable is referred to
below as the "decedent". For purposes of this death benefit provision,
"withdrawals" means withdrawals of any type (free withdrawals, partial
withdrawals, Systematic Withdrawals, Minimum Distributions) before
assessment of any applicable contingent deferred sales charge and after any
applicable MVA. For purposes of this provision, persons named Owner or
Annuitant within 60 days of the Issue Date are treated as if they were an
Owner or Annuitant on the Issue Date.
The death benefit is as follows, and is subject to the conditions described
in (1),(2) and (3) below:
(1) If death occurs prior to the decedent's age 70: the death benefit
is the greater of your Account Value in Sub-accounts plus the Interim Value
of any Fixed Allocations, or the minimum death benefit ("Minimum Death
Benefit"). The Minimum Death Benefit is the sum of all Purchase Payments
less the sum of all withdrawals.
(2) If death occurs when the decedent is age 70 or older: the death
benefit is your Account Value.
(3) If a decedent was not named an Owner or Annuitant as of the Issue
Date and did not become such as a result of a prior Owner's or Annuitant's
death: the Minimum Death Benefit is suspended as to that person for a two
year period from the date he or she first became an Owner or Annuitant. If
that person's death occurs during the suspension period and prior to age 70,
the death benefit is your Account Value in Sub-accounts plus the Interim
Value of any Fixed Allocations. If death occurs during the suspension
period when such decedent is age 70 or older, the death benefit is your
Account Value. After the suspension period is completed, the death benefit
is the same as if such person had been an Owner or Annuitant on the Issue
Date.
The amount of the death benefit is determined as of the date we receive In
Writing: (a) "due proof of death"; (b) all representations we require or
which are mandated by applicable law or regulation in relation to the death
claim and the payment of death proceeds; and (c) any applicable election of
the mode of payment of the death benefit, if not previously elected by the
Owner. The following constitutes "due proof of death": (a) a certified
copy of a death certificate; (b) a certified copy of a decree of a court of
competent jurisdiction as to the finding of death; or (c) any other proof
satisfactory to us.
The death benefit is reduced by any annuity payments made prior to the date
we receive In Writing such due proof of death.
If the death benefit becomes payable prior to the Annuity Date due to the
death of the Owner and the Beneficiary is the Owner's spouse, then in lieu
of receiving the death benefit, such Owner's spouse may elect to be treated
as an Owner and continue the Annuity.
In the event of your death, the benefit must be distributed within: (a) five
years of the date of death; or (b) over a period not extending beyond the
life expectancy of the Beneficiary or over the life of the Beneficiary.
Distribution after your death to be paid under (b) above, must commence
within one year of the date of death.
If the Annuitant dies before the Annuity Date, the Contingent Annuitant will
become the Annuitant. Where allowed by law, if the Annuity is owned by one
or more natural persons, the oldest of any such Owners not named as the
Annuitant immediately becomes the Contingent Annuitant if: (a) the
Contingent Annuitant predeceases the Annuitant; or (b) if you do not
designate a Contingent Annuitant.
In the payout phase, we continue to pay any "certain" payments (payments not
contingent on the continuance of any life) to the Beneficiary subsequent to
the death of the Annuitant.
Annuity Payments: Annuity payments can be guaranteed for life, for a
certain period, or for a certain period and life. We make available fixed
payments, and as of the date of this Prospectus, adjustable payments
(payments which may or may not be changed on specified adjustment dates
based on annuity purchase rates we are then making available to annuities of
the same class). We may or may not be making adjustable annuities available
on the Annuity Date. To the extent there is any tax basis in the annuity, a
portion of each annuity payment is treated for tax purposes as a return of
such basis until such tax basis is exhausted. The amount deemed such a
return of basis is determined in accordance with the requirements of the
Code (see "Certain Tax Considerations").
You may choose an Annuity Date, an annuity option and the frequency of
annuity payments when you purchase an Annuity, or at a later date. Your
choice of Annuity Date and annuity option may be limited depending on your
use of the Annuity and the applicable jurisdiction. Subject to our rules,
you may choose an Annuity Date, option and frequency of payments suitable to
your needs and circumstances. You should consult with competent tax and
financial advisors as to the appropriateness of any such choice. Should
Annuities subject to New York law be made available, the Annuity Date for
such Annuities may not exceed the first day of the calendar month following
the Annuitant's 85th birthday.
You may change your choices at any time up to 30 days before the earlier of:
(a) the date we would have applied your Account Value to an annuity option
had you not made the change; or (b) the date we will apply your Account
Value to an annuity option in relation to the new Annuity Date you are then
selecting. You must request this change In Writing. The Annuity Date must
be the first or the fifteenth day of a calendar month.
In the absence of an election In Writing: (a) the Annuity Date is the first
day of the calendar month first following the later of the Annuitant's 85th
birthday or the fifth anniversary of our receipt at our Office of your
request to purchase an Annuity; and (b) where allowed by law, fixed monthly
payments will commence under option 2, described below, with 10 years
certain. Should Annuities subject to New York law be made available, for
such Annuities, in the absence of an election In Writing: (a) the Annuity
Date is the first day of the calendar month following the Annuitant's 85th
birthday; and (b) fixed monthly payments will commence under Option 2,
described below, with 10 years certain. The amount to be applied is your
Annuity's Account Value 15 business days prior to the Annuity Date. In
determining your annuity payments, we credit interest using our then current
crediting rate for this purpose, which is not less than 3% of interest per
year, between the date Account Value is applied to an annuity option and the
Annuity Date. If there is any remaining contingent deferred sales charge
applicable as of the Annuity Date, then the annuity option you select must
include a certain period of not less than 5 years' duration. As a result of
this rule, making additional Purchase Payments within seven years of the
Annuity Date will prevent you from choosing an annuity option with a certain
period of less than 5 years' duration. Annuity options in addition to those
shown are available with our consent. The minimum initial amount payable is
the minimum initial annuity amount we allow under our then current rules.
Should you wish to receive a lump sum payment, you must request to surrender
your Annuity prior to the Annuity Date (see "Surrender").
You may elect to have any amount of the proceeds due to the Beneficiary
applied under any of the options described below, but only to the extent
selecting such an option does not alter the tax status of the Annuity.
Except where a lower amount is required by law, the minimum monthly annuity
payment is $100.
If you have not made an election prior to proceeds becoming due, the
Beneficiary may elect to receive the death benefit under one of the annuity
options. However, if you made an election, the Beneficiary may not alter
such election.
For purposes of the annuity options described below, the term "key life"
means the person or persons upon whose life any payments dependent upon the
continuation of life are based.
(1) Option 1 - Payments for Life: Under this option, income is payable
periodically prior to the death of the key life, terminating with the last
payment due prior to such death. Since no minimum number of payments is
guaranteed, this option offers the maximum level of periodic payments of the
life contingent annuity options. It is possible that only one payment will
be payable if the death of the key life occurs before the date the second
payment was due, and no other payments nor death benefits would be payable.
(2) Option 2 - Payments for Life with 10, 15, or 20 Years Certain:
Under this option, income is payable periodically for 10, 15, or 20 years,
as selected, and thereafter until the death of the key life. Should the
death of the key life occur before the end of the period selected, the
remaining payments are paid to the Beneficiary to the end of such period.
(3) Option 3 - Payments Based on Joint Lives: Under this option,
income is payable periodically during the joint lifetime of two key lives,
and thereafter during the remaining lifetime of the survivor, ceasing with
the last payment prior to the survivor's death. No minimum number of
payments is guaranteed under this option. It is possible that only one
payment will be payable if the death of all the key lives occurs before the
date the second payment was due, and no other payments nor death benefits
would be payable.
(4) Option 4 - Payments for a Certain Period: Under this option,
income is payable periodically for a specified number of years. The number
of years is subject to our then current rules. Should the payee die before
the end of the specified number of years, the remaining payments are paid to
the Beneficiary to the end of such period. Note that under this option,
payments are not based on how long we expect any key life to live.
Therefore, that portion of the mortality risk charge assessed to cover the
risk that key lives outlive our expectations provides no benefit to an Owner
selecting this option.
The first payment varies according to the annuity options and payment
frequency selected. The first periodic payment is determined by multiplying
the Account Value (expressed in thousands of dollars) as of the close of
business of the fifteenth day preceding the Annuity Date, plus interest at
not less than 3% per year from such date to the Annuity Date, by the amount
of the first periodic payment per $1,000 of value obtained from our then
current annuity rates for that type of annuity and for the frequency of
payment selected. Our then current rates will not be less than our
guaranteed minimum rates. These guaranteed minimum rates are derived from
the 1983a Individual Annuity Mortality Table with ages set back one year for
males and two years for females and with an assumed interest rate of 3% per
annum. Where required by law or regulation, such annuity table will have
rates that do not differ according to the gender of the key life.
Otherwise, the rates will differ according to the gender of the key life.
Qualified Plan Withdrawal Limitations: The Annuities are endorsed
such that there are surrender or withdrawal limitations when used in
relation to certain retirement plans for employees which qualify under
various sections of the Code. These limitations do not affect certain roll-
overs or exchanges between qualified plans. Distribution of amounts
attributable to contributions made pursuant to a salary reduction agreement
(as defined in Code section 403(b)), or attributable to transfers to a tax
sheltered annuity from a custodial account (as defined in Code section
403(b)(7)), is restricted to the employee's: (a) separation from service;
(b) death; (c) disability (as defined in Section 72(m)(7) of the Code); (d)
reaching age 59 1/2; or (e) hardship. Hardship withdrawals are restricted
to amounts attributable to salary reduction contributions, and do not
include investment results. In the case of tax sheltered annuities, these
limitations do not apply to certain salary reduction contributions made and
investment results earned prior to dates specified in the Code. In
addition, the limitation on hardship withdrawals does not apply to salary
reduction contributions made and investment results earned prior to dates
specified in the Code which have been transferred from custodial accounts.
Rollovers from the types of plans noted to another qualified plan or to an
individual retirement account or individual retirement annuity are not
subject to the limitations noted. Certain distributions, including
rollovers, that are not transferred directly to the trustee of another
qualified plan, the custodian of an individual retirement account or the
issuer of an individual retirement annuity may be subject to automatic 20%
withholding for Federal income tax. This may also trigger withholding for
state income taxes (see "Certain Tax Considerations").
We may make annuities available through the Texas Optional Retirement
Program subsequent to receipt of the required regulatory approvals and
implementation. In addition to the restrictions required for such Annuities
to qualify under Section 403(b) of the Code, Annuities issued in the Texas
Optional Retirement Program are amended as follows: (a) no benefits are
payable unless you die during, or are retired or terminated from, employment
in all Texas institutions of higher education; and (b) if a second year of
participation in such program is not begun, the total first year State of
Texas' contribution will be returned, upon its request, to the appropriate
institute of higher education.
With respect to the restrictions on withdrawals set forth above, we are
relying upon: 1) a no-action letter dated November 28, 1988 from the staff
of the Securities and Exchange Commission to the American Council of Life
Insurance with respect to annuities issued under Section 403(b) of the Code,
the requirements of which have been complied with by us; and 2) Rule 6c-7
under the 1940 Act with respect to annuities made available through the
Texas Optional Retirement Program, the requirements of which have been
complied with by us.
Pricing of Transfers and Distributions: We "price" transfers and
distributions on the dates indicated below.
(1) We price "scheduled" transfers and distributions as of the date
such transactions are so scheduled. "Scheduled" transactions include
transfers under a dollar cost averaging program, Systematic Withdrawals,
Minimum Distributions, transfers previously scheduled with us at our Office
pursuant to any on-going rebalancing, asset allocation or similar program,
and annuity payments.
(2) We price "unscheduled" transfers, partial withdrawals and free
withdrawals as of the date we receive at our Office the request for such
transactions. "Unscheduled" transfers include any transfers processed in
conjunction with any market timing program, or transfers not previously
scheduled with us at our Office pursuant to any rebalancing, asset
allocation or similar program which you employ or you authorize to be
employed on your behalf. "Unscheduled" transfers received pursuant to an
authorization to accept transfers over the phone are priced as of the
Valuation Period we receive the request at our Office for such transactions.
(3) We price surrenders, medically-related surrenders and death
benefits as of the date we receive at our Office all materials we require
for such transactions and such materials are satisfactory to us (see
"Surrenders", "Medically-related Surrenders" and "Death Benefits").
The pricing of transfers and distributions involving Sub-accounts includes
the determination of the applicable Unit Price for the Units transferred or
distributed. The pricing of transfers and distributions involving Fixed
Allocations includes the determination of any applicable MVA. Any
applicable MVA alters the amount available when all the Account Value in a
Fixed Allocation is being transferred or distributed. Any applicable MVA
alters the amount of Interim Value needed when only a portion of the Account
Value is being transferred or distributed. Unit Prices may change each
Valuation Period to reflect the investment performance of the Sub-accounts.
The MVA applicable to each Fixed Allocation changes once each month and also
each time we declare a different rate for new Fixed Allocations. Payment is
subject to our right to defer transactions for a limited period (see
"Deferral of Transactions").
Voting Rights: You have voting rights in relation to Account Value
maintained in the Sub-accounts. You do not have voting rights in relation
to Account Value maintained in any Fixed Allocations or in relation to fixed
or adjustable annuity payments.
We will vote shares of the underlying mutual funds or portfolios in which
the Sub-accounts invest in the manner directed by Owners. Owners give
instructions equal to the number of shares represented by the Sub-account
Units attributable to their Annuity.
We will vote the shares attributable to assets held in the Sub-accounts
solely for us rather than on behalf of Owners, or any share as to which we
have not received instructions, in the same manner and proportion as the
shares for which we have received instructions. We will do so separately
for each Sub-account from various classes that may invest in the same
underlying mutual fund portfolio.
The number of votes for an underlying mutual fund or portfolio will be
determined as of the record date for such underlying mutual fund or
portfolio as chosen by its board of trustees or board of directors, as
applicable. We will furnish Owners with proper forms and proxies to enable
them to instruct us how to vote.
You may instruct us how to vote on the following matters: (a) changes to
the board of trustees or board of directors, as applicable; (b) changing the
independent accountant; (c) approval of changes to the investment advisory
agreement or adoption of a new investment advisory agreement; (d) any change
in the fundamental investment policy; and (e) any other matter requiring a
vote of the shareholders.
With respect to approval of changes to the investment advisory agreement,
approval of a new investment advisory agreement or any change in fundamental
investment policy, only Owners maintaining Account Value as of the record
date in a Sub-account investing in the applicable underlying mutual fund
portfolio will instruct us how to vote on the matter, pursuant to the
requirements of Rule 18f-2 under the 1940 Act.
Transfers, Assignments or Pledges: Generally, your rights in an
Annuity may be transferred, assigned or pledged for loans at any time.
However, these rights may be limited depending on your use of the Annuity.
These transactions may be subject to income taxes and certain penalty taxes
(see "Certain Tax Considerations"). You may transfer, assign or pledge your
rights to another person at any time, prior to any death upon which the
death benefit is payable. You must request a transfer or provide us a copy
of the assignment In Writing. A transfer or assignment is subject to our
acceptance. Prior to receipt of this notice, we will not be deemed to know
of or be obligated under any assignment prior to our receipt and acceptance
thereof. We assume no responsibility for the validity or sufficiency of any
assignment. Transfer of all or a portion of ownership rights may affect the
minimum death benefit (see "Death Benefits").
Reports to You: We will provide you with reports once each quarter. You
may request additional reports. We reserve the right to charge up to $50
for each such additional report.
THE COMPANY: American Skandia Life Assurance Corporation is a wholly owned
subsidiary of American Skandia Investment Holding Corporation, whose
indirect parent is Skandia Insurance Company Ltd. Skandia Insurance Company
Ltd. is part of a group of companies whose predecessor commenced operations
in 1855. Two of our affiliates, American Skandia Marketing, Incorporated,
formerly Skandia Life Equity Sales Corporation, and American Skandia
Information Services and Technology Corporation, formerly American Skandia
Business Services Corporation, may undertake certain administrative
functions on our behalf. Our affiliate, American Skandia Investment
Services, Incorporated, formerly American Skandia Life Investment
Management, Inc., currently acts as the investment manager to the American
Skandia Trust. We currently engage Skandia Investment Management, Inc., an
affiliate whose indirect parent is Skandia Insurance Company Ltd., as
investment manager for our general account. We are under no obligation to
engage or continue to engage any investment manager.
Lines of Business: As of the date of this Prospectus, we offer: (a)
certain deferred annuities that are registered with the Securities and
Exchange Commission, including variable annuities, fixed interest rate
annuities that include a market value adjustment feature, and annuities that
offer both variable and fixed investment options, such as the Annuities
offered pursuant to this Prospectus; (b) certain other fixed deferred
annuities that are not registered with the Securities and Exchange
Commission; and (c) fixed and adjustable immediate annuities. We may, in
the future, offer other annuities, life insurance and other forms of
insurance.
Selected Financial Data: The following selected financial data are
qualified by reference to, and should be read in conjunction with, the
financial statements, including related notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus. The selected financial data as of
and for each of the five years ended December 31, 1994, 1993, 1992, 1991 and
1990 has been audited by Deloitte & Touche LLP, independent auditors whose
report thereon is included herein.
<TABLE>
<CAPTION>
Income Statement Data:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990
Revenues:
Net investment income $1,300,217 $692,758 $892,053 $723,253 $846,522
Annuity premium income 70,000 101,643 1,304,629 2,068,452 1,268,612
Annuity charges and fees* 24,779,785 11,752,984 4,846,134 1,335,079 220,362
Net realized capital gains (losses) (1,942) 330,024 195,848 4,278 (60,167)
Fee income 2,111,801 938,336 125,179 0 0
Other income 24,550 1,269 15,119 45,010 18,890
------------ ------------ ------------ ------------ ------------
Total revenues $28,284,411 $13,817,014 $7,378,962 $4,176,072 $2,294,219
============ ============ =========== =========== ===========
Benefits and Expenses:
Return credited to contractowners (516,730) 252,132 560,243 235,470 454,212
Annuity benefits 369,652 383,515 276,997 107,536 16,425
Increase in annuity policy reserves 5,766,003 1,208,454 1,331,278 2,045,722 1,253,859
Underwriting, acquisition and
other insurance expenses 18,942,720 9,547,951 11,338,765 7,294,400 6,796,317
Interest expense 3,615,845 187,156 0 0 0
------------ ------------ ------------ ------------ ------------
Total benefits and expenses $28,177,490 $11,579,208 $13,507,283 $9,683,128 $8,520,813
============ ============ ============ =========== ===========
Income tax $247,429 $182,965 $0 $0 $0
============ ============ ============ ============ ============
Net income (loss) ($140,508) $2,054,841 ($6,128,321) ($5,507,056) ($6,226,594)
============ ============ ============ ============ ============
Balance Sheet Data:
Total Assets $2,864,416,329 $1,558,548,537 $552,345,206 $239,435,675 $76,259,603
=============== =============== ============= ============ ============
Surplus Notes $69,000,000 $20,000,000 $0 $0 $0
============ ============ ============ ============ ============
Shareholder's Equity $52,205,524 $52,387,687 $46,332,846 $14,292,772 $12,848,857
============ ============ ============ ============ ============
</TABLE>
*On annuity sales of $1,372,874,000, $890,640,000, $287,596,000,
$141,017,000 and $53,218,000 during the years ended December 31, 1994, 1993,
1992, 1991, and 1990, respectively, with contractowner assets under
management of $2,661,161,000, $1,437,554,000, $495,176,000, $217,425,000 and
$60,633,000 as of December 31, 1994, 1993, 1992, 1991, and 1990
respectively.
The above selected financial data should be read in conjunction with the
financial statements and the notes thereto.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations: The Company's long term business plan was
developed reflecting the current sales and marketing approach. Sales volume
increased 54%, 210% and 104% in 1994, 1993, and 1992, respectively. This
was the fifth year of significant growth in sales volume for the Company.
Assets grew 84%, 182% and 131% in 1994, 1993 and 1992, respectively. These
increases were a direct result of the substantial sales volume increasing
separate account assets and deferred acquisition costs. Liabilities grew
87%, 198% and 125% in 1994, 1993 and 1992, respectively, as result of the
reserves required for the increased sales activity and also borrowing during
1994 and 1993 needed to fund the acquisition costs of the Company's variable
annuity business.
The Company experienced a net loss after tax in 1994, which was in excess of
plan. This loss is a result of additional reserving of approximately $4.6
million to cover the minimum death benefit exposure in the Company's annuity
contracts along with higher than expected general expenses relative to sales
volume. The additional reserve may be required from time to time, within
the variable annuity market place, and is a result of volatility in the
financial markets as it relates to the underlying separate account
investments. The Company achieved profits in 1993 of $2 million which was
expected.
In 1992, the Company experienced a net loss after tax. Losses were
anticipated in the early years of operation, however 1992 was greater than
anticipated, due to management's decision to invest in developing
proprietary distribution as well as upgrading the core processing system.
Increasing volume of annuity sales results in higher assets under
management. The fees realized on assets under management has resulted in
annuity charges and fees to increase 111%, 143% and 263% in 1994, 1993 and
1992, respectively.
Net investment income increased 88%, decreased 22% and increased 23% in
1994, 1993 and 1992, respectively. The increase in 1994 is a result of the
increase in the Company's bonds and short-term investments, which were $33.6
million and $29.1 million at December 31, 1994 and 1993, respectively. The
decrease in 1993 is a result of the need to liquidate investments to support
the cash needs required to fund the acquisition costs on the variable
annuity business.
Fee income has increased 125% and 650% in 1994 and 1993, respectively, as a
result of income from transfer agency type activities and fees for service
in support of marketing public mutual funds.
Return credited to contractowners represents revenues on the variable and
market value adjusted annuities offset by the benefit payments and change in
reserves required on this business. Also included are the benefit payments
and change in reserves on immediate annuity contracts without significant
mortality risks. The result for the year was better than anticipated due to
separate account investment return on the market value adjusted contracts
being in excess of the benefits and required reserves.
Annuity benefits represent payments on annuity contracts with mortality
risks, this being the immediate annuity with life contingencies and
supplementary contracts with life contingencies.
Increase in annuity policy reserves represent change in reserves for the
immediate annuity with life contingencies, supplementary contracts with life
contingencies and minimum death benefit. The significant increase in 1994
reflects the required increase in the minimum death benefit reserve on
variable annuity contracts. This increase covers the escalating death
benefit in the product which was further enhanced as a result of poor
performance of the underlying mutual funds within the variable annuity
contracts.
Underwriting, acquisition and other insurance expenses are made up of $46.2
million of commissions and $26.2 million of general expenses offset by the
net capitalization of deferred acquisition costs totaling $53.7 million.
This compares to the same period last year of $36.7 million of commissions
and $19.3 million of general expenses offset by the net capitalization of
deferred acquisition costs totaling $46.3 million.
Underwriting, acquisition and other insurance expenses in 1992 were made up
of $16.1 million of commissions and $15.5 million of general expenses offset
by the net capitalization of deferred acquisition costs totaling $20.3
million.
Interest expense increased $3.4 million over the previous year as a result
of the $69 million in surplus notes.
Liquidity and Capital Resources: The liquidity requirement of the
Company was met by cash from insurance operations, investment activities and
borrowings from its parent.
As previously stated, the Company had significant growth during 1994. The
sales volume of $1.372 billion was primarily (approximately 90%) variable
annuities which carry a contingent deferred sales charge. This type of
product causes a temporary cash strain in that 100% of the proceeds are
invested in separate accounts supporting the product leaving a cash (but not
capital) strain caused by the acquisition cost for the new business. This
cash strain required the Company to look beyond the insurance operations and
investments of the Company. During 1994, the Company borrowed an additional
$49 million from its parent in the form of surplus notes and extended the
reinsurance agreement (which was initiated in 1993) with a large reinsurer
in support of its cash needs. The Company also entered into a second
reinsurance agreement effective January 1, 1994. The reinsurance agreements
are modified coinsurance arrangements where the reinsurer shares in the
experience of a specific book of business. The income and expense items
presented above are net of reinsurance.
The Company is reviewing various options to fund the cash strain anticipated
from the acquisition costs on the coming years' sales volume.
The tremendous growth of this young organization has depended on capital
support from its parent. In 1992 and 1993, the parent contributed the
capital needed to provide a capital base for the Company's planned future
growth.
As of December 31, 1994 and December 31, 1993, shareholder's equity was
$52,205,524 and $52,387,687 respectively, which includes the carrying value
of the state insurance licenses in the amount of $5,012,500 and $5,162,500
respectively.
The Company has long term surplus notes with its parent and a short term
borrowing with an affiliate. No dividends have been paid to its parent
company.
Segment Information: As of the date of this Prospectus, we offered
only variable and fixed deferred annuities and immediate annuities.
Reinsurance: We have entered into two reinsurance agreements with a
large reinsurer. These reinsurance agreements are modified coinsurance
arrangements with the reinsurer sharing in the experience of a specific
block of business which includes the annuities described in this Prospectus.
Reserves: We are obligated to carry on our statutory books, as
liabilities, actuarial reserves to meet our obligations on outstanding
annuity or life insurance contracts. This is required by the life insurance
laws and regulations in the jurisdictions in which we do business. Such
reserves are based on mortality and/or morbidity tables in general use in
the United States. In general, reserves are computed amounts that, with
additions from premiums to be received, and with interest on such reserves
compounded at certain assumed rates, are expected to be sufficient to meet
our policy obligations at their maturities if death occurs in accordance
with the mortality tables employed. In the accompanying Financial
Statements these reserves for policy obligations are determined in
accordance with generally accepted accounting principles and are included in
the liabilities of our separate accounts and the general account liabilities
for future benefits of annuity or life insurance contracts we issue.
Competition: We are engaged in a business that is highly competitive due
to the large number of insurance companies and other entities competing in
the marketing and sale of insurance products. There are approximately 2300
stock, mutual and other types of insurers in the life insurance business in
the United States.
Employees: As of December 31, 1994, we had 158 direct salaried
employees. An affiliate, American Skandia Information Services and
Technology Corporation, (formerly American Skandia Business Services
Corporation), that provides services almost exclusively to us, had 52 direct
salaried employees.
Regulation: We are organized as a Connecticut stock life insurance
company, and are subject to Connecticut law governing insurance companies.
We are regulated and supervised by the Connecticut Commissioner of
Insurance. By March 1 of every year, we must prepare and file an annual
statement, in a form prescribed by the Connecticut Insurance Department,
which covers our operations for the preceding calendar year, and must
prepare and file our statement of financial condition as of December 31 of
such year. The Commissioner and his or her agents have the right at all
times to review or examine our books and assets. A full examination of our
operations will be conducted periodically according to the rules and
practices of the National Association of Insurance Commissioners ("NAIC").
We are subject to the insurance laws and various federal and state
securities laws and regulations and to regulatory agencies, such as the
Securities and Exchange Commission (the "SEC") and the Connecticut Banking
Department, which administer those laws and regulations.
We can be assessed up to prescribed limits for policyholder losses incurred
by insolvent insurers under the insurance guaranty fund laws of most states.
We cannot predict or estimate the amount any such future assessments we may
have to pay. However, the insurance guaranty laws of most states provide
for deferring payment or exempting a company from paying such an assessment
if it would threaten such insurer's financial strength.
Several states, including Connecticut, regulate insurers and their
affiliates under insurance holding company laws and regulations. This
applies to us and our affiliates. Under such laws, inter-company
transactions, such as dividend payments to parent companies and transfers of
assets, may be subject to prior notice and approval, depending on factors
such as the size of the transaction in relation to the financial position of
the companies.
Currently, the federal government does not directly regulate the business of
insurance. However, federal legislative, regulatory and judicial decisions
and initiatives often have significant effects on our business. Types of
changes that are most likely to affect our business include changes to: (a)
the taxation of life insurance companies; (b) the tax treatment of insurance
products; (c) the securities laws, particularly as they relate to insurance
and annuity products; (d) the "business of insurance" exemption from many of
the provisions of the anti-trust laws; (e) the barriers preventing most
banks from selling or underwriting insurance: and (f) any initiatives
directed toward improving the solvency of insurance companies. We would
also be affected by federal initiatives that have impact on the ownership of
or investment in United States companies by foreign companies or investors.
<TABLE>
<CAPTION>
Executive Officers and Directors:
Our executive officers and directors, their ages, positions with us and principal occupations are indicated below.
The immediately preceding work experience is provided for officers that have not been employed by us or an affiliate
for at least five years as of the date of this Prospectus.
<S> <C> <C>
Name/ Position with American Skandia
Age Life Assurance Corporation Principal Occupation
Alan Blank Vice President, Vice President,
46 National Sales Manager, National Sales Manager, Banking:
Banking American Skandia Life
Assurance Corporation
Mr. Blank joined us in 1994. He previously held the position of Vice-Chairman at Liberty Securities.
Gordon C. Boronow* President President and
42 and Chief Chief Operating Officer:
Operating Officer, American Skandia Life
Director (since July, 1991) Assurance Corporation
Nancy F. Brunetti Vice President, Vice President, Business and
33 Business and Application Application Development:
Development American Skandia Life
Assurance Corporation
Ms. Brunetti joined us in 1992. She previously held the position of Senior Business Analyst at Monarch Life Insurance Company.
Malcolm M. Campbell Director (since April, 1991) Director of Operations,
39 Assurance and Financial
Services Division:
Skandia Insurance Company Ltd.
Jan R. Carendi* Chief Executive Executive Vice President and
50 Officer and Member of Corporate Management Group:
Chairman of the Skandia Insurance Company Ltd.
Board of Directors
Director (since May, 1988)
Lincoln R. Collins Vice President, Vice President, Product Management:
34 Product Management American Skandia Life
Assurance Corporation
Gene Crawford Vice President, Vice President,
50 Human Resources Human Resources:
American Skandia Investment
Holding Corporation
Ms. Crawford joined us in 1994. She previously held the position of Vice President with Skandia Direct Operations
Corporation.
Henrik Danckwardt Director (since July, 1991) Director of Finance
41 and Administration,
Assurance and Financial
Services Division:
Skandia Insurance Company Ltd.
Wade A. Dokken Executive Vice President Executive Vice President
35 and Chief and Chief
Marketing Officer Marketing Officer:
Director (since July, 1991) American Skandia Life
Assurance Corporation;
President and
Chief Operating Officer:
American Skandia Marketing, Incorporated
Kevin J. Hart Vice President and Vice President and
40 National Sales Manager, National Sales Manager,
Wirehouses Wirehouses:
American Skandia Life
Assurance Corporation
Mr. Hart joined us in 1993. He previously held the position of Regional Vice President with G. T. Global.
N. David Kuperstock Vice President, Vice President,
43 Product Development Product Development:
American Skandia Life
Assurance Corporation
Thomas M. Mazzaferro Senior Vice President and Senior Vice President and
42 Chief Financial Officer, Chief Financial Officer:
Director (since October, 1994) American Skandia Life
Assurance Corporation
Dianne Michael Vice President, Vice President,
40 Concierge Desk Concierge Desk:
American Skandia Life
Assurance Corporation
Ms. Michael joined us in 1995. She previously held the position of Vice President with J. P. Morgan Investment
Management Inc.
Gunnar Moberg Director (since November, 1994) Director - Marketing and Sales,
40 Assurances and Financial
Services Division:
Skandia Insurance Company Ltd.
M. Patricia Paez Assistant Vice President, Assistant Vice President,
34 and Corporate Secretary Corporate Secretary:
American Skandia Life
Assurance Corporation
Rodney D. Runestad Vice President and Vice President and
45 Valuation Actuary Valuation Actuary:
American Skandia Life
Assurance Corporation
Hayward Sawyer Vice President and Vice President and
50 National Sales Manager, National Sales Manager,
Financial Planners Financial Planners:
American Skandia Life
Assurance Corporation
Mr. Sawyer joined us in 1994. He previously held the position of Regional Vice President with AIM Distributors, Inc.
Robert B. Seaberg Vice President and Vice President and
47 National Marketing Director National Marketing Director:
American Skandia Life
Assurance Corporation
Mr. Seaberg joined us in 1993. He previously held the position of Senior Vice President with USF&G Investor Life
Services.
Todd L. Slade Vice President, Vice President,
37 Applications Development Applications Development:
American Skandia Life
Assurance Corporation
Anders O. Soderstrom Director (since October, 1994) President and
35 Chief Operating Officer:
American Skandia Information
Services and Technology Corporation
Amanda C. Sutyak Executive Vice President Executive Vice President
37 and Deputy Chief and Deputy Chief
Operating Officer, Operating Officer:
Director (since July, 1991) American Skandia Life
Assurance Corporation
C. Ake Svensson Treasurer, Vice President, Treasurer
44 Director (since December, 1994) and Corporate Controller:
American Skandia Investment
Holding Corporation
Bayard F. Tracy Senior Vice President, Senior Vice President,
47 Institutional Sales and Institutional Sales and Marketing:
Marketing, American Skandia Life
Director (since October, 1994) Assurance Corporation
Jeffrey M. Ulness Vice President, Vice President,
34 Securities and Marketing Counsel Securities and Marketing Counsel:
American Skandia Life
Assurance Corporation
Mr. Ulness joined us in 1994. He previously held positions of Counsel at North American Security Life Insurance Company
from March, 1991 to July, 1994 and Associate at LeBoeuf, Lamb, Leiby, Green and MacRae from January, 1990 to March 1991.
*Trustees of American Skandia Trust, one of the underlying mutual funds in which the Sub-accounts offered pursuant to
this Prospectus invest.
</TABLE>
Executive Compensation
Summary Compensation Table: The summary table below summarizes the
compensation payable to our Chief Executive Officer and to the most highly
compensated of our executive officers whose compensation exceeded $100,000
in the fiscal year immediately preceding the date of this Prospectus.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Name and Principal Annual Annual Other Annual
Position Year Salary Bonus Compensation
($) ($) ($)
Jan R. Carendi - 1994 $170,569
Chief Executive 1993 214,121
Officer 1992 124,078 0 $46,803
Alan Blank - 1994 $265,125
Vice President and 1993 0
National Sales Manager, 1992 0
Banking
Wade A. Dokken - 1994 $558,299
Executive Vice President 1993 318,637
and Chief Marketing 1992 343,975
Officer
Kevin J. Hart 1994 $671,804
Vice President and 1993 334,992
National Sales Manager, 1992 0
Wirehouses
Robert Seaberg 1994 $207,625
Vice President, 1993 54,075 0 $21,575
Marketing 1992 0
</TABLE>
Long-Term Incentive Plans - Awards in the Last Fiscal Year: The
following table provides information regarding our long-term incentive plan.
Units are awarded to executive officers and other personnel. The table
shows units awarded to our Chief Executive Officer and the most highly
compensated of our executive officers whose compensation exceeded $100,000
in the fiscal year immediately preceding the date of this Prospectus. This
program is designed to induce participants to remain with the company over
long periods of time and to tie a portion of their compensation to the
fortunes of the company. Currently, the program consists of multiple plans.
A new plan may be instituted each year. Participants are awarded units at
the beginning of a plan. Generally, participants must remain employed by
the company or its affiliates at the time such units are payable in order to
receive any payments under the plan. There are certain exceptions, such as
in cases of retirement or death.
Changes in the value of units reflect changes in the "embedded value" of the
company. "Embedded value" is the net asset value of the company (valued at
market value and not including the present value of future profits), plus
the present value of the anticipated future profits (valued pursuant to
state insurance law) on its existing contracts. Units will not have any
value for participants if the embedded value does not increase by certain
target percentages during the first four years of a plan. The target
percentages may differ between each plan. Any amounts available under a
plan are paid out in the fifth through eighth years of a plan. Payments are
postponed if the payment would exceed 20% of any profit (as determined under
state insurance law) earned by the company in the prior fiscal year.
Amounts otherwise payable as of the end of 1994 were so postponed. The
amount to be received by a participant at the time any payment is due will
be the then current number of units payable multiplied by the then current
value of such units.
<TABLE>
<CAPTION>
---------Estimated Future Payouts---------
Name Number of Units Period Until Payout Threshold Target Maximum
(#) ($) ($) ($)
<S> <C> <C> <C>
Jan R. Carendi 70,000 Various $207,830
Alan Blank 4,583 Various 0
Wade A. Dokken 64,270 Various $542,495
Kevin J. Hart 15,500 Various $14,738
Robert Seaberg 5,000 Various 0
</TABLE>
Compensation of Directors: The following directors were compensated
as shown below in 1994:
Malcolm M. Campbell $3,500 Gunnar Moberg $1,250
Henrik Danckwardt $4,000
Compensation Committee Interlocks and Insider Participation: The
compensation committee of our board of directors as of December 31, 1994
consisted of Malcolm M. Campbell and Henrik Danckwardt.
CERTAIN TAX CONSIDERATIONS: The following is a brief summary of certain
Federal income tax laws as they are currently interpreted. No one can be
certain that the laws or interpretations will remain unchanged or that
agencies or courts will always agree as to how the tax law or regulations
are to be interpreted. This discussion is not intended as tax advice. You
may wish to consult a professional tax advisor for tax advice as to your
particular situation.
Our Tax Considerations: We are taxed as a life insurance company under
Part I, subchapter L, of the Code.
Tax Considerations Relating to Your Annuity: Section 72 of the Code
governs the taxation of annuities in general. Taxation of an annuity is
largely dependent upon: (a) whether it is used in a qualified pension or
profit sharing plan or other retirement arrangement eligible for special
treatment under the Code; and (b) the status of the beneficial owner as
either a natural or non-natural person (when the annuity is not used in a
retirement plan eligible for special tax treatment). Non-natural persons
include corporations, trusts, and partnerships, except where these entities
own an annuity for the benefit of a natural person. Natural persons are
individuals.
Non-natural Persons: Any increase during a tax year in the value of
an annuity if not used in a retirement plan eligible for special treatment
under the Code is currently includible in the gross income of a non-natural
person that is the contractholder. There are exceptions if an annuity is
held by: (a) a structured settlement company; (b) an employer with respect
to a terminated pension plan; (c) entities other than employers, such as a
trust, holding an annuity as an agent for a natural person; or (d) a
decedent's estate by reason of the death of the decedent.
Natural Persons: Increases in the value of an annuity when the
contractholder is a natural person generally are not taxed until
distribution occurs. Distribution can be in a lump sum payment or in
annuity payments under the annuity option elected. Certain other
transactions may be deemed to be a distribution. The provisions of Section
72 of the Code concerning these distributions are summarized briefly below.
Distributions: Distributions received before the annuity payments
begin are treated as being derived first from "income on the contract" and
includible in gross income. The amount of the distribution exceeding
"income on the contract" is not included in gross income. "Income on the
contract" for an annuity is computed by subtracting from the value of all
"related contracts" (our term, discussed below) the taxpayer's "investment
in the contract": an amount equal to total purchase payments for all
"related contracts" less any previous distributions or portions of such
distributions from such "related contracts" not includible in gross income.
"Investment in the contract" may be affected by whether an annuity or any
"related contract" was purchased as part of a tax-free exchange of life
insurance or annuity contracts under Section 1035 of the Code.
"Related contracts" may mean all annuity contracts or certificates
evidencing participation in a group annuity contract for which the taxpayer
is the beneficial owner and which are issued by the same insurer within the
same calendar year, irrespective of the named annuitants. It is clear that
"related contracts" include contracts prior to when annuity payments begin.
However, there may be circumstances under which "related contracts" may
include contracts recognized as immediate annuities under state insurance
law or annuities for which annuity payments have begun. In a ruling
addressing the applicability of a penalty on distributions, the Internal
Revenue Service treated distributions from a contract recognized as an
immediate annuity under state insurance law like distributions from a
deferred annuity. The situation addressed by such ruling included the fact
that: (a) the immediate annuity was obtained pursuant to an exchange of
contracts; and (b) the purchase payments for the exchanged contract were
contributed more than one year prior to the first annuity payment payable
under the immediate annuity. This ruling also may or may not imply that
annuity payments from a deferred annuity on or after its annuity date may be
treated the same as distributions prior to the annuity date if such deferred
annuity was: (a) obtained pursuant to an exchange of contracts; and (b) the
purchase payments for the exchanged contract were made or may be deemed to
have been made more than one year prior to the first annuity payment.
If "related contracts" include immediate annuities or annuities for which
annuity payments have begun, then "related contracts" would have to be taken
into consideration in determining the taxable portion of each annuity
payment (as outlined in the "Annuity Payments" subsection below) as well as
in determining the taxable portion of distributions from an annuity or any
"related contracts" before annuity payments have begun. We cannot guarantee
that immediate annuities or annuities for which annuity payments have begun
could not be deemed to be "related contracts". You are particularly
cautioned to seek advice from your own tax advisor on this matter.
Assignments and Pledges: Any assignment or pledge of any portion of
the value of an annuity before annuity payments have begun are treated as a
distribution subject to taxation under the distribution rules set forth
above. Any gain in an annuity subsequent to the assignment or pledge of an
entire annuity while such assignment or pledge remains in effect is treated
as "income on the contract" in the year in which it is earned. For
annuities not issued for use as qualified plans (see "Tax Considerations
When Using Annuities in Conjunction with Qualified Plans"), the cost basis
of the annuity is increased by the amount of any assignment or pledge
includible in gross income. The cost basis is not affected by any repayment
of any loan for which the annuity is collateral or by payment of any
interest thereon.
Penalty on Distributions: Subject to certain exceptions, any
distribution is subject to a penalty equal to 10% of the amount includible
in gross income. This penalty does not apply to certain distributions,
including: (a) distributions made on or after the taxpayer's age 59 1/2; (b)
distributions made on or after the death of the holder of the contract, or,
where the holder of the contract is not a natural person, the death of the
annuitant; (c) distributions attributable to the taxpayer's becoming
disabled; (d) distributions which are part of a scheduled series of
substantially equal periodic payments for the life (or life expectancy) of
the taxpayer (or the joint lives of the taxpayer and the taxpayer's
Beneficiary); (e) distributions of amounts which are allocable to
"investments in the contract" made prior to August 14, 1982; (f) payments
under an immediate annuity as defined in the Code; (g) distributions under a
qualified funding asset under Code Section 130(d); or (h) distributions from
an annuity purchased by an employer on the termination of a qualified
pension plan that is held by the employer until the employee separates from
service.
Any modification, other than by reason of death or disability, of
distributions which are part of a scheduled series of substantially equal
periodic payments as noted in (d), above, that occur before the taxpayer's
age 59 1/2 or within 5 years of the first of such scheduled payments will
result in the requirement to pay the taxes that would have been due had the
payments been treated as subject to tax in the years received, plus interest
for the deferral period. It is our understanding that the Internal Revenue
Service does not consider a scheduled series of distributions to qualify
under (d), above, if the holder of the annuity retains the right to modify
such distributions at will, even if such right is not exercised, or, for a
variable annuity, if the distributions are not based on a substantially
equal number of Units, rather than a substantially equal dollar amount.
The Internal Revenue Service has ruled that the exception to the 10% penalty
described above for "non-qualified" immediate annuities as defined under the
Code may not apply to annuity payments under a contract recognized as an
immediate annuity under state insurance law obtained pursuant to an exchange
of contracts if: (a) purchase payments for the exchanged contract were
contributed or deemed to be contributed more than one year prior to the
first annuity payment payable under the immediate annuity; and (b) the
annuity payments under the immediate annuity do not meet the requirements of
any other exception to the 10% penalty. This ruling may or may not imply
that the exception to the 10% penalty may not apply to annuity payments paid
pursuant to a deferred annuity obtained pursuant to an exchange of contract
if: (a) purchase payments for the exchanged contract were contributed or
may be deemed to be contributed more than one year prior to the first
annuity payment pursuant to the deferred annuity contract; or (b) the
annuity payments pursuant to the deferred annuity do not meet the
requirements of any other exception to the 10% penalty.
Annuity Payments: The taxable portion of each payment is determined
by a formula which establishes the ratio that "investment in the contract"
bears to the total value of annuity payments to be made. However, the total
amount excluded under this ratio is limited to the "investment in the
contract". The formula differs between fixed and variable annuity payments.
Where the annuity payments cease because of the death of the person upon
whose life payments are based and, as of the date of death, the amount of
annuity payments excluded from taxable income by the exclusion ratio does
not exceed the investment in the contract, then the remaining portion of
unrecovered investment is allowed as a deduction in the tax year of such
death.
Gifts: The gift of an annuity to other than the spouse of the
contract holder (or former spouse incident to a divorce) is treated for tax
purposes as a distribution.
Tax Free Exchanges: Section 1035 of the Code permits certain tax-free
exchanges of a life insurance, annuity or endowment contract for an annuity.
If an annuity is obtained by a tax-free exchange of a life insurance,
annuity or endowment contract purchased prior to August 14, 1982, then any
distributions other than as annuity payments which do not exceed the portion
of the "investment in the contract" (purchase payments made into the other
contract, less prior distributions) prior to August 14, 1982, are not
included in taxable income. In all other respects, the general provisions
of the Code apply to distributions from annuities obtained as part of such
an exchange.
Transfers Between Investment Options: Transfers between investment
options are not subject to taxation. The Treasury Department may promulgate
guidelines under which a variable annuity will not be treated as an annuity
for tax purposes if persons with ownership rights have excessive control
over the investments underlying such variable annuity. Such guidelines may
or may not address the number of investment options or the number of
transfers between investment options offered under a variable annuity. It
is not known whether such guidelines, if in fact promulgated, would have
retroactive effect. It is also not known what effect, if any, such
guidelines may have on transfers between the investment options of the
Annuity offered pursuant to this Prospectus. We will take any action,
including modifications to your Annuity or the Sub-accounts, required to
comply with such guidelines if promulgated.
Generation-Skipping Transfers: Under the Code certain taxes may be
due when all or part of an annuity is transferred to or a death benefit is
paid to an individual two or more generations younger than the contract
holder. These taxes tend to apply to transfers of significantly large
dollar amounts. We may be required to determine whether a transaction must
be treated as a direct skip as defined in the Code and the amount of the
resulting tax. If so required, we will deduct from your Annuity or from any
applicable payment to be treated as a direct skip any amount we are required
to pay as a result of the transaction.
Diversification: Section 817(h) of the Code provides that a variable
annuity contract, in order to qualify as an annuity, must have an
"adequately diversified" segregated asset account (including investments in
a mutual fund by the segregated asset account of insurance companies). The
Treasury Department's regulations prescribe the diversification requirements
for variable annuity contracts. We believe the underlying mutual fund
portfolios should comply with the terms of these regulations.
Federal Income Tax Withholding: Section 3405 of the Code provides for
Federal income tax withholding on the portion of a distribution which is
includible in the gross income of the recipient. Amounts to be withheld
depend upon the nature of the distribution. However, under most
circumstances a recipient may elect not to have income taxes withheld or
have income taxes withheld at a different rate by filing a completed
election form with us.
Certain distributions, including rollovers, from most retirement plans, may
be subject to automatic 20% withholding for Federal income taxes. This will
not apply to: (a) any portion of a distribution paid as Minimum
Distributions; (b) direct transfers to the trustee of another retirement
plan; (c) distributions from an individual retirement account or individual
retirement annuity; (d) distributions made as substantially equal periodic
payments for the life or life expectancy of the participant in the
retirement plan or the life or life expectancy of such participant and his
or her designated beneficiary under such plan; and (e) certain other
distributions where automatic 20% withholding may not apply.
Tax Considerations When Using Annuities in Conjunction with Qualified
Plans: There are various types of qualified plans for which an annuity may
be suitable. Benefits under a qualified plan may be subject to that plan's
terms and conditions irrespective of the terms and conditions of any annuity
used to fund such benefits ("qualified contract"). We have provided below
general descriptions of the types of qualified plans in conjunction with
which we may issue an Annuity. These descriptions are not exhaustive and
are for general informational purposes only. We are not obligated to make
or continue to make new Annuities available for use with all the types of
qualified plans shown below.
The tax rules regarding qualified plans are complex. The application of
these rules depend on individual facts and circumstances. Before purchasing
an Annuity for use in funding a qualified plan, you should obtain competent
tax advice, both as to the tax treatment and suitability of such an
investment.
Qualified contracts include special provisions changing or restricting
certain rights and benefits otherwise available to non-qualified annuities.
You should read your Annuity carefully to review any such changes or
limitations. The changes and limitations may include, but may not be
limited to, restrictions on ownership, transferability, assignability,
contributions, distributions, as well as reductions to the minimum allowable
purchase payment for an annuity and any subsequent annuity you may purchase
for use as a qualified contract. Additionally, various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations.
Individual Retirement Programs: Eligible individuals may maintain an
individual retirement account or individual retirement annuity ("IRA").
Subject to limitations, contributions of certain amounts may be deductible
from gross income. Purchasers of IRAs are to receive a special disclosure
document, which describes limitations on eligibility, contributions,
transferability and distributions. It also describes the conditions under
which distributions from IRAs and other qualified plans may be rolled over
or transferred into an IRA on a tax-deferred basis. Eligible employers that
meet specified criteria may establish simplified employee pensions for
employees using the employees' IRAs. These arrangements are known as SEP-
IRAs. Employer contributions that may be made to SEP-IRAs are larger than
the amounts that may be contributed to other IRAs, and may be deductible to
the employer.
Tax Sheltered Annuities: A tax sheltered annuity ("TSA") under
Section 403(b) of the Code is a contract into which contributions may be
made for the benefit of their employees by certain qualifying employers:
public schools and certain charitable, educational and scientific
organizations. Such contributions are not taxable to the employee until
distributions are made from the TSA. The Code imposes limits on
contributions, transfers and distributions. Nondiscrimination requirements
apply as well.
Corporate Pension and Profit-sharing Plans: Annuities may be used to
fund employee benefits of various retirement plans established by corporate
employers. Contributions to such plans are not taxable to the employee
until distributions are made from the retirement plan. The Code imposes
limitations on contributions and distributions. The tax treatment of
distributions is subject to special provisions of the Code, and also depends
on the design of the specific retirement plan. There are also special
requirements as to participation, nondiscrimination, vesting and
nonforfeitability of interests.
H.R. 10 Plans: Annuities may also be used to fund benefits of
retirement plans established by self-employed individuals for themselves and
their employees. These are commonly known as "H.R. 10 Plans" or "Keogh
Plans". These plans are subject to most of the same types of limitations
and requirements as retirement plans established by corporations. However,
the exact limitations and requirements may differ from those for corporate
plans.
Tax Treatment of Distributions from Qualified Annuities: A 10%
penalty tax applies to the taxable portion of a distribution from a
qualified contract unless one of the following exceptions apply to such
distribution: (a) it is part of a properly executed transfer to another
IRA, an individual retirement account or another eligible qualified plan;
(b) it occurs on or after the taxpayer's age 59 1/2; (c) it is subsequent to
the death or disability of the taxpayer (for this purpose disability is as
defined in Section 72(m)(7) of the Code); (d) it is part of substantially
equal periodic payments to be paid not less frequently than annually for the
taxpayer's life or life expectancy or for the joint lives or life
expectancies of the taxpayer and a designated beneficiary; (e) it is
subsequent to a separation from service after the taxpayer attains age 55;
(f) it does not exceed the employee's allowable deduction in that tax year
for medical care; and (g) it is made to an alternate payee pursuant to a
qualified domestic relations order. The exceptions stated above in (e), (f)
and (g) do not apply to IRAs.
Section 457 Plans: Under Section 457 of the Code, deferred
compensation plans established by governmental and certain other tax exempt
employers for their employees may invest in annuity contracts. The Code
limits contributions and distributions, and imposes eligibility requirements
as well. Contributions are not taxable to employees until distributed from
the plan. However, plan assets remain the property of the employer and are
subject to the claims of the employer's general creditors until such assets
are made available to participants or their beneficiaries.
SALE OF THE ANNUITIES: Ameican Skandia Marketing, Incorporated ("ASM,
Inc."), a wholly-owned subsidiary of American Skandia Investment Holding
Corporation, acts as the principal underwriter of the Annuities. ASM,
Inc.'s principal business address is One Corporate Drive, Shelton,
Connecticut 06484. ASM, Inc. is a member of the National Association of
Securities Dealers, Inc. ("NASD").
Distribution: ASM, Inc. will enter into distribution agreements with
certain broker-dealers registered under the Securities and Exchange Act of
1934 or with entities which may otherwise offer the Annuities that are
exempt from such registration. Under such distribution agreements such
broker-dealers or entities may offer Annuities to persons who have
established an account with the broker-dealer or entity. In addition, ASM,
Inc. may offer Annuities directly to potential purchasers. The maximum
concession to be paid on premiums received is 5.5%.
As of the date of this Prospectus, we expect to pay an on-going service fee
in relation to providing certain statistical information upon request by
Owners about the variable investment options and the underlying mutual fund
portfolios. The fee is payable to the service providers based on your
Annuity's Account Value maintained in the variable investment options. No
fee is payable based on any Account Values maintained in any Fixed
Allocations. Under most circumstances, we will engage the broker-dealer of
record for your Annuity, or the entity of record if such entity could offer
Annuities with registration as a broker-dealer (i.e. certain banks), to be
your resource for the statistical information, and to be available upon your
request to both provide and explain such information to you. The broker-
dealer of record or the entity of record is the firm which sold you the
Annuity, unless later changed. Some portion of the fee we pay for this
service may be payable to your representative. Therefore, your
representative may receive on-going service fee compensation, but only in
relation to Account Values maintained in variable investment options.
As of the date of this Prospectus, we were promoting the sale of our
products and the solicitation of additional purchase payments, where
applicable, for our products, including Annuities offered pursuant to this
Prospectus, through a program of non-cash rewards to registered
representatives of participating broker-dealers. We may withdraw or alter
this promotion at any time.
Advertising: We may advertise certain information regarding the
performance of the investment options. Details on how we calculate
performance measures for the Sub-accounts are found in the Statement of
Additional Information. This performance information may help you review
the performance of the investment options and provide a basis for comparison
with other annuities. This information may be less useful when comparing
the performance of the investment options with other savings or investment
vehicles. Such other investments may not provide some of the benefits of
annuities, or may not be designed for long-term investment purposes.
Additionally other savings or investment vehicles may not be treated like
annuities under the Code.
The information we may advertise regarding the Fixed Allocations may include
the then current interest rates we are crediting to new Fixed Allocations.
Information on Current Rates will be as of the date specified in such
advertisement. Rates will be included in advertisements to the extent
permitted by law. Given that the actual rates applicable to any Fixed
Allocation are as of the date of any such Fixed Allocation's Guarantee
Period begins, the rate credited to a Fixed Allocation may be more or less
than those quoted in an advertisement.
Performance information on the Sub-accounts is based on past performance
only and is no indication of future performance. Performance of the Sub-
accounts should not be considered a representation of the performance of
such Sub-accounts in the future. Performance of the Sub-accounts is not
fixed. Actual performance will depend on the type, quality and, for some of
the Sub-accounts, the maturities of the investments held by the underlying
mutual funds or portfolios and upon prevailing market conditions and the
response of the underlying mutual funds to such conditions. Actual
performance will also depend on changes in the expenses of the underlying
mutual funds or portfolios. Such changes are reflected, in turn, in the
Sub-accounts which invests in such underlying mutual fund or portfolio. In
addition, the amount of charges assessed against each Sub-account will
affect performance.
Some of the underlying mutual fund portfolios existed prior to the inception
of these Sub-accounts. Performance quoted in advertising regarding such
Sub-accounts may indicate periods during which the Sub-accounts have been in
existence but prior to the initial offering of the Annuities, or periods
during which the underlying mutual fund portfolios have been in existence,
but the Sub-accounts have not. Such hypothetical performance is calculated
using the same assumptions employed in calculating actual performance since
inception of the Sub-accounts.
As part of any advertisement of Standard Total Return, we may advertise the
"Non-standard Total Return" of the Sub-accounts. Non-standard Total Return
does not take into consideration the Annuity's contingent deferred sales
charge.
Advertisements we distribute may also compare the performance of our Sub-
accounts with: (a) certain unmanaged market indices, including but not
limited to the Dow Jones Industrial Average, the Standard & Poor's 500, the
Shearson Lehman Bond Index, the Frank Russell non-U.S. Universal Mean, the
Morgan Stanley Capital International Index of Europe, Asia and Far East
Funds, and the Morgan Stanley Capital International World Index; and/or (b)
other management investment companies with investment objectives similar to
the mutual fund or portfolio underlying the Sub-accounts being compared.
This may include the performance ranking assigned by various publications,
including but not limited to the Wall Street Journal, Forbes, Fortune,
Money, Barron's, Business Week, USA Today and statistical services,
including but not limited to Lipper Analytical Services Mutual Funds Survey,
Lipper Annuity and Closed End Survey, the Variable Annuity Research Data
Survey, SEI, the Morningstar Mutual Fund Sourcebook and the Morningstar
Variable Annuity/Life Sourcebook.
American Skandia Life Assurance Corporation may advertise its rankings
and/or ratings by independent financial ratings services. Such rankings may
help you in evaluating our ability to meet our obligations in relation to
Fixed Allocations, pay minimum death benefits, pay annuity payments or
administer Annuities. Such rankings and ratings do not reflect or relate to
the performance of Separate Account B.
OTHER MATTERS: Outlined below are certain miscellaneous matters you should
know before investing in an Annuity.
Deferral of Transactions: We may defer any distribution or transfer from
a Fixed Allocation or an annuity payout for a period not to exceed the
lesser of 6 months or the period permitted by law. If we defer a
distribution or transfer from any Fixed Allocation or any annuity payout for
more than thirty days, or less where required by law, we pay interest at the
minimum rate required by law but not less than 3% per year on the amount
deferred. We may defer payment of proceeds of any distribution from any
Sub-account or any transfer from a Sub-account for a period not to exceed 7
calendar days from the date the transaction is effected. Any deferral
period begins on the date such distribution or transfer would otherwise have
been transacted (see "Pricing of Transfers and Distributions").
All procedures, including payment, based on the valuation of the Sub-
accounts may be postponed during the period: (1) the New York Stock
Exchange is closed (other than customary holidays or weekends) or trading on
the New York Stock Exchange is restricted as determined by the SEC; (2) the
SEC permits postponement and so orders; or (3) the SEC determines that an
emergency exists making valuation or disposal of securities not reasonably
practical.
Resolving Material Conflicts: Underlying mutual fund portfolios may be
available to registered separate accounts offering either or both life and
annuity contracts of insurance companies not affiliated with us. We also
may offer life insurance and/or annuity contracts that offer different
variable investment options from those offered under this Annuity, but which
invest in the same underlying mutual fund portfolios. It is possible that
differences might arise between our Separate Account B and one or more
accounts of other insurance companies which participate in a portfolio. It
is also possible that differences might arise between a Sub-account offered
under this Annuity and variable investment options offered under different
life insurance policies or annuities we offer, even though such different
variable investment options invest in the same underlying mutual fund
portfolio. In some cases, it is possible that the differences could be
considered "material conflicts". Such a "material conflict" could also
arise due to changes in the law (such as state insurance law or Federal tax
law) which affect either these different life and annuity separate accounts
or differing life insurance policies and annuities. It could also arise by
reason of differences in voting instructions of persons with voting rights
under our policies and/or annuities and those of other companies, persons
with voting rights under annuities and those with rights under life
policies, or persons with voting rights under one of our life policies or
annuities with those under other life policies or annuities we offer. It
could also arise for other reasons. We will monitor events so we can
identify how to respond to such conflicts. If such a conflict occurs, we
will take the necessary action to protect persons with voting rights under
our life policies or annuities vis-a-vis those with rights under life
policies or annuities offered by other insurance companies. We will also
take the necessary action to treat equitably persons with voting rights
under this Annuity and any persons with voting rights under any other life
policy or annuity we offer.
Modification: We reserve the right to any or all of the following: (a)
combine a Sub-account with other Sub-accounts; (b) combine Separate Account
B or a portion thereof with other "unitized" separate accounts; (c)
terminate offering certain Guarantee Periods for new or renewing Fixed
Allocations; (d) combine Separate Account D with other "non-unitized"
separate accounts; (e) deregister Separate Account B under the Investment
Company Act of 1940; (f) operate Separate Account B as a management
investment company under the Investment Company Act of 1940 or in any other
form permitted by law; (g) make changes required by any change in the
Securities Act of 1933, the Exchange Act of 1934 or the Investment Company
Act of 1940; (h) make changes that are necessary to maintain the tax status
of your Annuity under the Code; and (i) make changes required by any change
in other Federal or state laws relating to retirement annuities or annuity
contracts.
Also, from time to time, we may make additional Sub-accounts available to
you. These Sub-accounts will invest in underlying mutual funds or
portfolios of underlying mutual funds we believe to be suitable for the
Annuity. We may or may not make a new Sub-account available to invest in
any new portfolio of one of the current underlying mutual funds should such
a portfolio be made available to Separate Account B.
We may eliminate Sub-accounts, combine two or more Sub-accounts or
substitute one or more new underlying mutual funds or portfolios for the one
in which a Sub-account is invested. Substitutions may be necessary if we
believe an underlying mutual fund or portfolio no longer suits the purpose
of the Annuity. This may happen due to a change in laws or regulations, or
a change in the investment objectives or restrictions of an underlying
mutual fund or portfolio, or because the underlying mutual fund or portfolio
is no longer available for investment, or for some other reason. We would
obtain prior approval from the insurance department of our state of
domicile, if so required by law, before making such a substitution, deletion
or addition. We also would obtain prior approval from the SEC so long as
required by law, and any other required approvals before making such a
substitution, deletion or addition.
We reserve the right to transfer assets of Separate Account B, which we
determine to be associated with the class of contracts to which your Annuity
belongs, to another "unitized" separate account. We also reserve the right
to transfer assets of Separate Account D which we determine to be associated
with the class of contracts to which your annuity belongs, to another "non-
unitized" separate account. We notify you (and/or any payee during the
payout phase) of any modification to your Annuity. We may endorse your
Annuity to reflect the change.
Misstatement of Age or Sex: If there has been a misstatement of the age
and/or sex of any person upon whose life annuity payments or the minimum
death benefit are based, we make adjustments to conform to the facts. As to
annuity payments: (a) any underpayments by us will be remedied on the next
payment following correction; and (b) any overpayments by us will be charged
against future amounts payable by us under your Annuity.
Ending the Offer: We may limit or discontinue offering Annuities.
Existing Annuities will not be affected by any such action.
Indemnification: Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers or
persons controlling the registrant pursuant to the foregoing provisions, the
registrant has been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is therefore unenforceable.
Legal Proceedings: As of the date of this Prospectus, neither we nor
ASM, Inc. were involved in any litigation outside of the ordinary course of
business, and know of no material claims.
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION: The following are the
contents of the Statement of Additional Information:
(1) General Information Regarding American Skandia Life Assurance
Corporation
(2) Principal Underwriter
(3) Calculation of Performance Data
(4) Unit Price Determinations
(5) Calculating the Market Value Adjustment
(6) Independent Auditors
(7) Legal Experts
FINANCIAL STATEMENTS: The financial statements which follow in Appendix A
are those of American Skandia Life Assurance Corporation for the years ended
December 31, 1994, 1993 and 1992, respectively.
APPENDIXES
APPENDIX A FINANCIAL STATEMENTS FOR AMERICAN SKANDIA LIFE ASSURANCE
CORPORATION
APPENDIX B UNDERLYING MUTUAL FUNDS' PORTFOLIO INVESTMENT OBJECTIVES AND
POLICIES
APPENDIX A
FINANCIAL STATEMENTS FOR AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
American Skandia Life Assurance Corporation
Shelton, Connecticut
We have audited the accompanying statements of financial condition of
American Skandia Life Assurance Corporation (a wholly-owned subsidiary of
its ultimate parent, Skandia Insurance Company Ltd.) as of December 31, 1994
and 1993, and the related statements of operations, shareholder's equity,
and cash flows for each of the three years in the period ended December 31,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of American Skandia Life Assurance
Corporation as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1994 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
March 15, 1995
<TABLE>
<CAPTION>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
STATEMENTS OF FINANCIAL CONDITION
AS OF DECEMBER 31,
1994 1993
<S> <C> <C>
ASSETS
Investments:
Fixed maturities - at amortized cost $ 9,621,865 $ 9,664,709
Investment in mutual funds - at market value 840,637 0
Short-term investments - at amortized cost 24,000,000 19,400,000
----------- -----------
Total investments 34,462,502 29,064,709
Cash and cash equivalents 23,909,463 9,834,854
Accrued investment income 173,654 128,807
Deferred acquisition costs 174,009,609 90,023,536
Receivable from affiliates 459,960 728,095
State insurance licenses 5,012,500 5,162,500
Other assets 1,261,513 519,472
Separate account assets 2,625,127,128 1,423,086,564
-------------- --------------
Total Assets $2,864,416,329 $1,558,548,537
============== ==============
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES:
Reserve for future contractowner benefits $ 11,422,381 $ 4,323,811
Annuity policy reserves 24,054,255 18,049,652
Income tax payable 36,999 13,626
Accounts payable and accrued expenses 31,753,380 18,343,252
Payable to affiliates 261,552 272,908
Payable to reinsurer 40,105,406 11,550,216
Short-term borrowing-affiliate 10,000,000 10,000,000
Surplus notes 69,000,000 20,000,000
Deferred contract charges 449,704 520,821
Separate account liabilities 2,625,127,128 1,423,086,564
-------------- --------------
Total Liabilities 2,812,210,805 1,506,160,850
-------------- --------------
SHAREHOLDER'S EQUITY:
Common stock, $80 par, 25,000 shares
authorized, issued and outstanding 2,000,000 2,000,000
Additional paid-in capital 71,623,932 71,623,932
Unrealized investment gains and losses (41,655) 0
Accumulated deficit (21,376,753) (21,236,245)
-------------- --------------
Total Shareholder's Equity 52,205,524 52,387,687
-------------- --------------
Total Liabilities and Shareholder's Equity $2,864,416,329 $1,558,548,537
============== ==============
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1993 1992
REVENUES:
Net investment income $ 1,300,217 $ 692,758 $ 892,053
Annuity premium income 70,000 101,643 1,304,629
Annuity charges and fees 24,779,785 11,752,984 4,846,134
Net realized capital gains/(losses) (1,942) 330,024 195,848
Fee Income 2,111,801 938,336 125,179
Other 24,550 1,269 15,119
---------- -------- --------
Total Revenues 28,284,411 13,817,014 7,378,962
----------- ----------- ----------
BENEFITS AND EXPENSES:
Benefits:
Return credited to contractowners (516,730) 252,132 560,243
Annuity benefits 369,652 383,515 276,997
Increase in annuity policy reserves 5,766,003 1,208,454 1,331,278
---------- ---------- ----------
5,618,925 1,844,101 2,168,518
---------- ---------- ----------
Expenses:
Underwriting, acquisition and other insurance expenses 18,792,720 9,397,951 11,188,765
Amortization of state insurance licenses 150,000 150,000 150,000
Interest expense 3,615,845 187,156 0
----------- ---------- ------------
22,558,565 9,735,107 11,338,765
----------- ---------- -----------
Total Benefits and Expenses 28,177,490 11,579,208 13,507,283
----------- ----------- -----------
Income (loss) from operations before federal income taxes 106,921 2,237,806 (6,128,321)
Income tax 247,429 182,965 0
---------- ---------- -----------
Net income (loss) $ (140,508) $ 2,054,841 $ (6,128,321)
========= ========= ===========
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 1993 1992
Common stock, balance at beginning and end of $ 2,000,000 $ 2,000,000 $ 2,000,000
year ----------- ----------- -----------
Additional paid-in capital:
Balance at beginning of year 71,623,932 67,623,932 29,455,537
Additional contributions 0 4,000,000 38,168,395
----------- ----------- -----------
Balance at end of year 71,623,932 71,623,932 67,623,932
----------- ----------- -----------
Unrealized investment gains and losses:
Balance at beginning of year 0 0 0
Change in unrealized investment gains and losses (41,655) 0 0
----------- ----------- -----------
Balance at end of year (41,655) 0 0
----------- ----------- -----------
Accumulated deficit:
Balance at beginning of year (21,236,245) (23,291,086) (17,162,765)
Net income (loss) (140,508) 2,054,841 (6,128,321)
------------ ------------ ------------
Balance at end of year (21,376,753) (21,236,245) (23,291,086)
------------ ------------ ------------
TOTAL SHAREHOLDER'S EQUITY $ 52,205,524 $ 52,387,687 $ 46,332,846
=========== =========== ===========
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1993 1992
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ (140,508) $ 2,054,841 $ (6,128,321)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Increase in annuity policy reserves 6,004,603 4,223,289 4,642,056
Increase/(decrease) in policy and contract claims 0 (52,400) 52,400
Amortization of bond (discount)/premium 21,964 6,754 (3,028)
Amortization of state insurance licenses 150,000 150,000 150,000
Increase in receivables and other assets (473,906) (550,486) (368,781)
(Increase)/decrease in accrued investment income (44,847) 154,902 (117,211)
Increase in accounts payables and accrued expenses 13,422,145 13,939,151 2,183,766
Change in deferred acquisition costs (83,986,073) (57,387,042) (20,333,049)
Change in deferred contract charges (71,117) 13,898 79,549
Realized loss/(gain) on sale of investments 1,942 (330,024) (195,848)
------------ ------------ ------------
Net cash used in operating activities (65,115,797) (37,777,117) (20,038,467)
------------ ------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of fixed maturity investments (1,989,120) (6,847,630) (28,893,029)
Proceeds from sale and maturity of fixed maturity investments 2,010,000 10,971,574 25,076,925
Purchase of shares in mutual funds (922,822) 0 0
Proceeds from sale of shares in mutual funds 38,588 0 0
Purchase of short-term investments (513,100,000) (1,207,575,307) (226,075,687)
Sale of short-term investments 508,500,000 1,202,333,907 211,916,764
Investments in separate accounts (1,365,775,177) (890,125,018) (286,852,200)
--------------- --------------- -------------
Net cash used in investing activities (1,371,238,531) (891,242,474) (304,827,227)
--------------- ------------- -------------
CASH FLOW FROM FINANCING ACTIVITIES:
Capital contributions from parent 0 4,000,000 38,168,395
Surplus notes 49,000,000 20,000,000 0
Short-term borrowing 0 10,000,000 0
Increase in payable to reinsurer 28,555,190 11,550,216 0
Proceeds from annuity sales 1,372,873,747 890,639,947 287,595,902
-------------- ------------ ------------
Net cash provided by financing activities 1,450,428,937 936,190,163 325,764,297
-------------- ------------ ------------
Net increase in cash and cash equivalents 14,074,609 7,170,572 898,603
Cash and cash equivalents at beginning of year 9,834,854 2,664,282 1,765,679
---------- ---------- ----------
Cash and cash equivalents at end of year $ 23,909,463 $ 9,834,854 $ 2,664,282
=========== =========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Income taxes paid $ 161,398 $ 169,339 $ 0
=========== =========== ===========
Interest paid $ 557,639 $ 111,667 $ 0
=========== =========== ===========
See notes to financial statements
</TABLE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Financial Statements
1. ORGANIZATION AND OPERATION
American Skandia Life Assurance Corporation (the "Company") is a wholly-
owned subsidiary of American Skandia Investment Holding Corporation (the
"Parent"), which in turn is a wholly-owned subsidiary of Skandia Insurance
Company Ltd., a Swedish corporation.
The Company develops annuity products and issues its products through its
affiliated broker/dealer company, Skandia Life Equity Sales Corporation.
The Company currently issues variable, fixed, market value adjusted and
immediate annuities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Reporting
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles.
B. Investments
Investments in fixed maturities are reported at amortized cost.
Investments in mutual funds are reported at market value. Short-term
investments are reported at cost which approximates market value.
Realized gains and losses on disposal of investments are determined by
the specific identification method and are included in revenues.
C. Cash Equivalents
The Company considers all highly liquid time deposits purchased with a
maturity of three months or less to be cash equivalents.
D. Licenses
Licenses to do business in all states have been capitalized and
reflected at the purchase price of $6 million less accumulated amortization.
The cost of the licenses is being amortized over 40 years.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Financial Statements (continued)
3. NET INVESTMENT INCOME
Additional information with respect to net investment income for the
years ended December 31, 1994, 1993 and 1992 is as follows:
1994 1993 1992
Fixed Maturities $ 616,987 $409,552 $836,885
Mutual Funds 12,049 0 0
Short-Term Investments 142,421 394,545 105,846
Cash and Cash Equivalents 633,298 15,034 23,844
Interest on Policy Loans 1,275 1,015 0
----------- -------- ---------
Total Investment Income 1,406,030 820,146 966,575
Investment Expenses 105,813 127,388 74,522
--------- ------- -------
Net investment income $1,300,217 $692,758 $892,053
========== ======== ========
4. INVESTMENTS
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 115, "Accounting for Certain Investments in Debt and Equity Securities",
effective January 1, 1994.
The Company has classified its debt securities as held-to-maturity in
that it has the explicit intent to hold these securities to maturity.
Therefore, these securities are carried at amortized cost.
The Company has classified its mutual fund investments as available-for-
sale. Therefore, these investments are carried at market value and changes
in unrealized gains and losses are reported as a component of shareholder's
equity.
The adoption of SFAS No. 115 had no impact on the Company's financial
statements.
The carrying value (amortized cost), gross unrealized gains (losses) and
estimated market value of investments in fixed maturities by category as of
December 31, 1994 and 1993 are shown below. All securities are publicly
traded for which market values were obtained from an independent pricing
service.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Financial Statements (continued)
Investments in fixed maturities as of December 31, 1994 and 1993 consist of
the following:
1994
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Government
Obligations $3,796,390 $2,119 $156,759 $3,641,750
Obligations of
State and Political
Subdivisions 261,852 0 9,156 252,696
Corporate
Securities 5,563,623 0 547,023 5,016,600
---------- ------ -------- ----------
Totals $9,621,865 $2,119 $712,938 $8,911,046
========== ====== ======== ==========
The amortized cost and market value of fixed maturities, by contractual
maturity, at December 31, 1994 are shown below.
Amortized Market
Cost Value
Due in one year or less $ 100,112 $ 101,000
Due after one through five years 6,251,719 5,905,746
Due after five through ten years 3,270,034 2,904,300
---------- ----------
$9,621,865 $8,911,046
========== ==========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Financial Statements (continued)
1993
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ------ ------ -----
U. S.
Government
Obligations $3,823,900 $119,184 $ 1,144 $3,941,940
Obligations of
State and
Political
Subdivisions 267,331 0 428 266,903
Corporate
Securities 5,573,478 0 21,079 5,552,399
--------- ------- ------ ---------
Totals $9,664,709 $119,184 $22,651 $9,761,242
========= ======= ====== =========
Proceeds from maturities and sales of investments in debt securities
during 1994, 1993 and 1992 were $2,010,000, 10,971,574, and $25,076,925,
respectively.
Gross gains and gross losses realized were as follows:
Gross Gross
Gains Losses
1994 $ 0 $ 0
1993 $ 329,000 $ 0
1992 $ 498,790 $ 301,596
Investments in mutual funds at December 31, 1994 are as follows:
Gross Gross
Unrealized Unrealized Market
Cost Gains Losses Value
---- ---------- ---------- ------
Mutual Funds $882,292 $4,483 $46,138 $840,637
Proceeds from sales of investments in mutual funds during 1994 were
$38,588. Gross losses were $1,942.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Financial Statements (continued)
5. RECOGNITION OF REVENUE AND CONTRACT BENEFITS
Annuity contracts without significant mortality risk, as defined by
Financial Accounting Standard No. 97, are classified as investment contracts
(variable, market value adjusted and certain immediate annuities) and those
with mortality risk (immediate annuities) as insurance products. The policy
of revenue and contract benefit recognition is described below.
Revenues for variable annuity contracts consist of charges against
contractowner account values for mortality and expense risks and
administration fees and an annual maintenance fee per contract. Benefit
reserves for variable annuity contracts represent the account value of the
contracts, and are included in the separate account liabilities.
Revenues for market value adjusted annuity contracts consist of separate
account investment income reduced by benefit payments and change in reserves
in support of contractowner obligations, all of which is included in return
credited to contractowners. Benefit reserves for these contracts represent
the account value of the contracts, and are included in the general account
liability for future contractowner benefits to the extent in excess of the
separate account liabilities.
Revenues for immediate annuity contracts without life contingencies
consist of net investment income. Revenues for immediate annuity contracts
with life contingencies consist of single premium payments recognized as
annuity considerations when received. Benefit reserves for these contracts
are based on the Society of Actuaries 1983 - a Table with an assumed
interest rate of 8.25%.
Annuity sales were $1,372,874,000, $890,640,000, $287,596,000 for 1994,
1993 and 1992, respectively. Annuity contract assets under management were
$2,661,161,000, $1,437,554,000, and $495,176,000 at December 31, 1994, 1993
and 1992, respectively.
6. DEFERRED ACQUISITION COSTS
The costs of acquiring new business, which vary with and are primarily
related to the production of new business, are being amortized in relation
to the present value of estimated gross profits. These costs include
commissions, cost of contract issuance, and certain selling expenses that
vary with production. Details of the deferred acquisition costs for the
years ended December 31 follow:
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Financial Statements (continued)
1994 1993 1992
---- ---- ----
Balance at beginning of year $ 90,023,536 $32,636,494 $12,303,445
Acquisition costs deferred
during the year 85,801,180 59,676,296 21,406,981
Acquisition costs amortized
during the year 1,815,107 2,289,254 1,073,932
--------- --------- ---------
Balance at end of year $174,009,609 $90,023,536 $32,636,494
=========== ========== ==========
7. DEFERRED CONTRACT CHARGES
Certain contracts are assessed a front-end fee at the time of issue.
These fees are deferred and recognized in income in relation to the present
value of estimated gross profits of the related contracts. Details of the
deferred contract charges for the years ended December 31 follow:
1994 1993 1992
Balance at beginning of year $520,821 $506,923 $427,374
Contract charges deferred
during the year 87,114 144,537 168,091
Contract charges amortized
during the year 158,231 130,639 88,542
------- ------- ------
Balance at end of year $449,704 $520,821 $506,923
======= ======= =======
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Financial Statements (continued)
8. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 109 "Accounting for Income Taxes", effective January 1, 1993. The
Company previously accounted for income taxes in accordance with Accounting
Principles Board Opinion ("APB") No. 11. There was no cumulative effect of
adopting SFAS No. 109 on the Company's financial statements on the date of
adoption.
The Company files a separate federal income tax return. As of December
31, 1994, the Company has a net operating tax loss carryforward of
$4,182,332, which expires in 2007.
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes,
and (b) operating loss and tax credit carryforwards. The tax effects of
significant items comprising the Company's deferred tax balance as of
December 31, 1994 and 1993, are as follows:
1994 1993
Deferred Tax (Liabilities):
Deferred acquisition costs ($37,885,053) ($23,152,548)
Payable to reinsurer 12,754,591) (3,824,435)
Other (214,505) (101,517)
------------- -------------
Total ($50,854,149) ($27,078,500)
------------ -------------
Deferred Tax Assets:
Deferred contract charge $ 157,396 $ 182,287
Net separate account liabilities 51,637,155 27,935,015
Reserve for future contractowner benefits 3,997,833 1,513,334
Net operating loss carryforward 1,813,670 4,536,790
Other 878,030 190,300
--------- ---------
Total $58,484,084 $34,357,726
---------- ----------
Net before valuation allowance $ 7,629,935 $ 7,279,226
Valuation allowance (7,629,935) (7,279,226)
----------- ----------
Net deferred tax balance $ 0 $ 0
---------- -----------
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Financial Statements (continued)
The significant components of tax expense are as follows:
Federal State
1994 1993 1994
---- ---- ----
Current tax expense $184,771 $182,965 $62,658
Deferred tax expense (benefit):
(exclusive of the effects of
the change in valuation allowance) (350,709) (404,480) 0
Change in valuation allowance 350,709 404,480 0
------- ------- ------
Total deferred tax expense 0 0 0
------- ------- ------
Total income tax expense $184,771 $182,965 $62,658
The income tax expense was different from the amount computed by applying
the federal statutory tax rate of 35% to pre-tax income from continuing
operations as follows:
1994 1993
Income before taxes $106,921 $2,237,806
Income tax rate 35% 35%
------- ---------
Tax expense at federal
statutory income tax rate 37,422 783,232
Tax effect of:
Permanent tax differences (82,188) 63,535
Difference between financial
statement and taxable income 3,161,331 2,414,254
Utilization of net operating
loss carryforwards (3,116,565) (3,261,021)
Alternative minimum tax 184,771 182,965
---------- ---------
Income tax expense $ 184,771 $ 182,965
========== ===========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Financial Statements (continued)
9. RELATED PARTY TRANSACTIONS
Certain operating costs (including personnel, rental of office space,
furniture, and equipment) and investment expenses have been charged to the
Company at cost by American Skandia Business Services Corporation, an
affiliated company; and likewise, the Company has charged operating costs to
American Skandia Life Investment Management, Inc., an affiliated company.
Income received for these items was $248,799 and $146,134 for the years
ended December 31, 1994 and 1993, respectively. The total cost to the
Company for these items was $8,524,840, $3,537,566 and $3,244,582 for the
years ended December 31, 1994, 1993, and 1992 respectively. Amounts
receivable from affiliates under this arrangement were $317,285 and $446,388
as of December 31, 1994 and 1993, respectively. Amounts payable to
affiliates under this arrangement were $261,552 and $272,615 as of December
31, 1994 and 1993, respectively.
10. LEASES
The Company leases office space under a lease agreement established in
1989 with an affiliate (American Skandia Business Services Corporation).
The lease expense for 1994, 1993 and 1992 was $961,080, $280,363 and
$222,948, respectively. Future minimum lease payments per year and in
aggregate as of December 31, 1994 are as follows:
1995 $900,896
1996 900,896
1997 900,896
1998 900,896
1999 and thereafter 6,122,817
---------
Total $9,726,401
==========
11. RESTRICTED ASSETS
In order to comply with certain state insurance departments'
requirements, the Company maintains bonds/notes on deposit with various
states. The carrying value of these deposits amounted to $3,410,135 and
$3,015,949 as of December 31, 1994 and 1993, respectively. These deposits
are required to be maintained for the protection of contractowners within
the individual states.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Financial Statements (continued)
12. RETAINED EARNINGS AND DIVIDEND RESTRICTIONS
Statutory basis shareholder's equity was $95,001,971, $60,666,243, and
$36,468,375, at December 31, 1994, 1993 and 1992, respectively.
The statutory basis net income(loss) was ($9,789,297), $387,695, and
($9,390,154) for the years ended December 31, 1994, 1993 and 1992,
respectively.
Under state insurance laws, the maximum amount of dividends that can be
paid to shareholders without prior approval of the state insurance
departments is subject to restrictions relating to statutory surplus and net
gain from operations. No amounts may be distributed without approval at
December 31, 1994.
13. SEPARATE ACCOUNTS
Assets and liabilities in Separate Account are shown as separate captions
in the statement of financial condition. The assets consist of long-term
bonds, investments in mutual funds and short-term securities, all of which
are carried at market value.
Included in Separate Account liabilities is $259,556,863 and $86,056,159
at December 31, 1994 and 1993, respectively, relating to annuity contracts
for which the contractholder is guaranteed a fixed rate of return. Separate
Account assets of $269,488,557 and $86,079,532 at December 31, 1994 and
1993, respectively, consisting of long term bonds, short term securities,
transfers due from general account and cash are in support of these annuity
contracts, as pursuant to state regulation.
Effective January 1, 1994 the Company has reclassified from revenues the
separate account investment return. Separate Account investment return
represents investment income and realized/unrealized gains and losses earned
in the separate accounts. The Separate Account investment return is now
being netted against a similar amount included in benefits and expenses
which represents separate account investment return credited to the
contractowner; consequently having no effect on the net income (loss) of the
Company. Such amounts were ($20.3) million, $101.3 million, and $27 million
for the years ended December 31, 1994, 1993 and 1992, respectively. Prior
to 1994, the Separate Account investment return was reported as revenue.
Since this revenue is directly credited to the reserve for the Company's
obligation to contractowners, it was netted in return credited to
contractowners under benefits and expenses.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Financial Statements (continued)
The Company analyzed the presentation of the Separate Account operations
and believes a better presentation is to offset the separate account
investment return directly against the return credited to contractowners.
This is based on the fact that the Separate Account investment return does
not benefit the Company but constitutes a credit (charge) to the
contractowners. This is a presentation change and has no effect on the net
income (loss) reported by the Company. The related revenue and expense
categories on the Statement of Operations for the years ended December 31,
1993 and 1992, respectively, have been reclassified to reflect this
presentation change.
14. CONTRACT WITHDRAWAL PROVISIONS
Approximately 98% of the Company's separate account liabilities are subject
to discretionary withdrawal with market value adjustment by contractholders.
Separate account assets which are carried at market value are adequate to
pay such withdrawals which are generally subject to surrender charges
ranging from 7.5% to 1% for contracts held less than 7 years.
15. EMPLOYEE BENEFITS
In 1989, the Company established a 401(k) plan for which substantially
all employees are eligible. Company contributions to this plan on behalf of
the participants were $431,559, $250,039, and $195,785 for the years ended
December 31, 1994, 1993, and 1992, respectively.
The Company has a long-term incentive plan where units are awarded to
executive officers and other personnel. The program consists of multiple
plans. A new plan is instituted each year. Generally, participants must
remain employed by the Company or its affiliates at the time such units are
payable in order to receive any payments under the plan. The accrued
liability representing the value of these units is $1,564,407 and $496,235
as of December 31, 1994 and 1993, respectively.
In 1994, the Company established a deferred compensation plan which is
available to the internal field marketing staff and certain officers.
Company contributions to this plan on behalf of the participants were
$106,882.
16. REINSURANCE
The Company cedes reinsurance under a modified co-insurance arrangement.
The reinsurance arrangement provides additional capacity for growth in
supporting the cash flow strain from the Company's variable annuity
business. The reinsurance is effected under a quota share contract. The
Company did not reinsure any of its business prior to 1993.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Financial Statements (continued)
The effect of the reinsurance agreement on the Company's operations was
to reduce annuity charges and fee income for 1994 and 1993 as follows:
1994 1993
---- ----
Gross $30,116,166 $12,446,277
Ceded 5,336,381 693,293
----------- -----------
Net $24,779,785 $11,752,984
=========== ===========
Such ceded reinsurance does not relieve the Company from its obligations
to policyholders. The Company remains liable to its policyholders for the
portion reinsured to the extent that any reinsurer does not meet the
obligations assumed under the reinsurance agreement.
17. SURPLUS NOTES
During 1994, the Company received $49 million from its parent in exchange
for four surplus notes, two in the amount of $10 million, one in the amount
of $15 million and one in the amount of $14 million, at interest rates of
7.28%, 7.90%, 9.13% and 9.78%, respectively. Interest payable at December
31, 1994 for these notes is $1,618,504.
During 1993, the Company received $20 million from its parent in exchange
for a surplus note in the amount of $20 million at a 6.84% interest rate.
Interest payable at December 31, 1994 is $1,398,400.
Payment of interest and repayment of principal for these notes was not
approved by the Insurance Commissioner of the State of Connecticut.
18. SHORT TERM BORROWING
During 1993, the Company received a $10 million loan payable from Skandia
AB, a Swedish affiliate. The loan matures on March 6, 1995 and bears
interest at 7.225%. The total interest expense to the Company was $569,618
and $149,861 for the years ended December 31, 1994 and 1993, respectively,
of which $50,174 and $38,194 was payable as of December 31, 1994 and 1993,
respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Financial Statements (continued)
<TABLE>
<CAPTION>
19 QUARTERLY FINANCIAL DATA (Unaudited)
The following table summarizes information with respect to the operations of the Company. The 1993 information
has been reclassified as discussed in Note 13.
Three Months Ended
<S><C> <C> <C> <C> <C>
1994 March 31 June 30 September 30 December 31
Premiums and other insurance
revenues $5,594,065 $6,348,777 $7,411,686 $7,631,608
Net investment income 252,914 336,149 264,605 446,549
Net realized capital gains (losses) 0 (30,829) 25,914 2,973
---------- ---------- ---------- ----------
Total revenues $5,846,979 $6,654,097 $7,702,205 $8,081,130
========== ========== ========== ==========
Benefits and expenses $5,701,460 $7,883,829 $8,157,535 $6,434,666
========== ========== ========== ==========
Net income (loss) $104,636 ($1,257,768) ($503,793) $1,516,417
========== ========== ========== ==========
Three Months Ended
1993 March 31 June 30 September 30 December 31
Premiums and other insurance
revenues $2,022,274 $2,809,431 $3,440,822 $4,521,705
Net investment income 296,167 156,692 90,177 149,722
Net realized capital gains (losses) 329,000 (640) 1,664 0
----------- ----------- ----------- -----------
Total revenues $2,647,441 $2,965,483 $3,532,663 $4,671,427
========== ========== ========== ==========
Benefits and expenses $1,878,923 $2,186,773 $3,371,426 $4,142,086
========== ========== ========== ==========
Net income $735,444 $757,619 $94,582 $467,196
========== ========== ========== ==========
</TABLE>
APPENDIX B
SHORT DESCRIPTION OF THE
UNDERLYING MUTUAL FUNDS' PORTFOLIO INVESTMENT OBJECTIVES AND POLICIES
The investment objectives for each underlying mutual fund are in bold face.
Please refer to the prospectuses of each underlying mutual fund for more
complete details and risk factors applicable to certain portfolios.
American Skandia Trust
Seligman Henderson International Equity Portfolio: The investment objective
of Henderson International Equity Portfolio is long-term capital
appreciation consistent with preservation of capital primarily through
investment in securities of non-United States issuers. The portfolio may
invest in securities of issuers domiciled in any country but under normal
conditions investments may be made in two principal regions: The United
Kingdom and Continental Europe; and the Pacific Basin Countries.
Continental European countries may include, from time to time, Austria,
Belgium, Denmark, Federal Republic of Germany, Finland, France, Greece,
Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden and
Switzerland. Countries in the Pacific Basin may include Australia, Hong
Kong, India, Japan, Korea, Malaysia, New Zealand, People's Republic of
China, Philippines, Singapore, Taiwan, and Thailand. The portfolio believes
that it will usually have assets invested in both of these regions.
Although under normal market conditions the portfolio will invest in a
minimum of five countries, it may have assets invested in many of the above
countries. Investments will not normally be made in securities of issuers
located in the United States or Canada.
Seligman Henderson International Small Cap Portfolio: The investment
objective of the Seligman Henderson International Small Cap Portfolio is
long-term capital appreciation. The portfolio seeks to achieve this
objective primarily by making international investments in securities of
companies with small to medium market capitalizations. The portfolio may
invest in securities of issuers domiciled in any country. Under normal
conditions investments will be made in three principal regions: The United
Kingdom/Continental Europe; the Pacific Basin; and Latin American. Under
normal market conditions, the portfolio's assets will be invested in
securities of issuers located in at least three different countries.
Investments will not normally be made in securities of issuers located in
the United States or Canada. Some of the countries in which the portfolio
may invest may be considered to be developing and may involve special risks.
The portfolio may invest in all types of securities, most of which will be
denominated in currencies other than the U.S. dollar. The portfolio will
normally invest its assets in equity securities, including common stock,
securities convertible into common stock, depository receipts for these
securities and warrants. The portfolio may, however, invest up to 25% of
its assets in preferred stock and debt securities if the Sub-advisor
believes that the capital appreciation available from an investment in such
securities will equal or exceed the capital appreciation available from an
investment in equity securities. In extraordinary circumstances, the
portfolio may invest for temporary defensive purposes, without limit, in
large capitalization companies or increase its investments in debt
securities
Equity securities in which the portfolio will invest may be listed on a
foreign stock exchange or traded in foreign over-the-counter markets. Under
normal market conditions, the portfolio will invest at least 65% of its
total assets in securities of small-to medium-sized companies with market
capitalizations up to $750 million, although up to 35% of its total assets
may be invested in securities of companies with market capitalizations over
$750 million There is no requirement that the debt securities in which the
portfolio may invest be rated by a recognized rating agency. However, it is
the portfolio's policy that investments in debt securities, whether rated or
unrated, will be made only if they are "investment grade" securities or are,
in the opinion of the Sub-advisor, of equivalent quality to "investment
grade" securities. The portfolio may also invest in securities represented
by European Depository Receipts ("EDRs") or American Depository Receipts
("ADRs"). Investments in small companies may involve greater risks, such as
limited product lines, markets and financial or managerial resources. Less
frequently-traded securities may be subject to more abrupt price movements
than securities of larger companies.
Lord Abbett Growth and Income Portfolio: The investment objective of the
Lord Abbett Growth and Income Portfolio is long-term growth of capital and
income while attempting to avoid excessive fluctuations in market value.
This objective will be pursued by investing in securities which are selling
at reasonable prices in relation to value. Normally, investments will be
made in common stocks of large, seasoned companies which are in sound
financial condition and are expected to show above-average growth.
AST Money Market Portfolio: The investment objectives of the AST Money
Market Portfolio are to maximize current income and maintain high levels of
liquidity. This portfolio attempts to accomplish its objectives by
maintaining a dollar-weighted average maturity of not more than 90 days and
by investing in the types of securities described below which have effective
maturities of not more than 397 days. Investments may include obligations
of the United States government, its agencies or instrumentalities;
certificates of deposit, time deposits and bankers' acceptances of certain
financial institutions which have more than $2 billion in total assets;
commercial paper and corporate bonds; asset-backed securities; and
repurchase and reverse repurchase agreements. Securities may be purchased
on a when-issued or delayed delivery basis. Subject to applicable
investment restrictions, the AST Money Market Portfolio also may lend its
securities.
T. Rowe Price Asset Allocation Portfolio: The investment objective of the
T. Rowe Price Asset Allocation Portfolio is to seek a high level of total
return by investing primarily in a diversified group of fixed income and
equity securities. The portfolio is designed to balance the potential
appreciation of common stocks with the income and principal stability of
bonds over the long term. Under normal market conditions over the long-
term, the portfolio expects to allocate its assets (other than cash
reserves) so that approximately 40% of such assets will be in fixed income
securities and approximately 60% in equity securities.
The portfolio's fixed income securities will be allocated among investment
grade, high yield and non-dollar debt securities. The weighted average
maturity for this portion of the portfolio is generally expected to be
between four and nine years, although it may vary significantly. High-
yielding, income-producing debt securities (commonly referred to as "junk
bonds") and preferred stocks including convertible securities may be
purchased without regard to maturity, however, the average maturity of the
bonds is expected to be approximately 10 years, although it may vary if
market conditions warrant. Quality will generally range from lower-medium
to low and the portfolio may also purchase bonds in default if, in the
opinion of the Sub-advisor, there is significant potential for capital
appreciation.
The portfolio's equity securities will be allocated among large and small-
cap U.S. and non-dollar equity securities. Large-cap will be stocks in the
S&P 500 and stocks of well-established companies which can produce
increasing dividend income. Small-cap will be common stocks of small
companies or companies which offer the possibility of accelerated earnings
growth because of rejuvenated management, new products or structural changes
in the economy. Current income is not a factor in the selection of these
stocks.
The portfolio will generally trade in securities (either common stocks or
bonds) for short-term profits, but, when circumstances warrant, securities
may be purchased and sold without regard to the length of time held.
T. Rowe Price International Equity Portfolio: The investment objective of
the T. Rowe Price International Equity Portfolio is to seek total return on
its assets through investments in common stocks of established, non-U.S.
companies. Investments may be made solely for capital appreciation or
solely for income or any combination of both for the purpose of achieving a
higher overall return. Total return consists of capital appreciation or
depreciation, dividend income, and currency gains or losses. The portfolio
intends to diversify investments broadly among countries and to normally
have at least three different countries represented in the portfolio. The
portfolio may invest in countries of the Far East and Western Europe as well
as South Africa, Australia, Canada and other areas (including developing
countries). Under unusual circumstances, the portfolio may invest
substantially all of its assets in one or two countries.
T. Rowe Price Natural Resources Portfolio: The investment objective of the
T. Rowe Price Natural Resources Portfolio is to seek long-term growth of
capital through investment primarily in common stocks of companies which own
or develop natural resources and other basic commodities. Current income is
not a factor in the selection of stocks for investment by the portfolio.
Total return will consist primarily of capital appreciation (or
depreciation). The portfolio will invest substantially all of its assets in
common stocks of companies which own or develop natural resources and other
basic commodities. However, it may also purchase other types of securities,
such as selected, non-resource growth companies, foreign securities,
convertible securities and warrants, when considered consistent with the
portfolio's investment objective and policies. The portfolio may also
engage in a variety of investment management practices, such as buying and
selling futures and options.
Some of the most important factors evaluated by the Sub-advisor in selecting
natural resource companies are the capability for expanded production,
superior exploration programs and production facilities, and the potential
to accumulate new resources. The portfolio expects to invest in those
natural resource companies which own or develop energy sources (such as oil,
gas, coal and uranium), precious metals, forest products, real estate,
nonferrous metals, diversified resources, and other basic commodities which,
in the opinion of the Sub-advisor, can be produced and marketed profitably
during periods of rising labor costs and prices. However, the percentage of
the portfolio's assets invested in natural resource and related businesses
versus the percentage invested in non-resource companies may vary greatly
depending upon economic monetary conditions and the outlook for inflation.
The earnings of natural resource companies may be expected to follow
irregular patterns, because these companies are particularly influenced by
the forces of nature and international politics. Companies which own or
develop real estate might also be subject to irregular fluctuations of
earnings, because these companies are affected by changes in the
availability of money, interest rates, and other factors.
The portfolio may invest up to 50% of its total assets in foreign
securities. These include non-dollar denominated securities traded outside
of the U.S. and dollar denominated securities traded in the U.S. (such as
ADRs). Some of the countries in which the portfolio may invest may be
considered to be developing and may involve special risks The portfolio
will not purchase a non-investment grade debt security (or junk bond) if
immediately after such purchase the portfolio would have more than 10% of
its total assets invested in such securities. Junk bonds are regarded as
predominantly speculative and high risk. The portfolio may invest up to 10%
of its total assets in hybrid instruments. Such instruments may take a
variety of forms, such as debt instruments with interest or principal
payments determined by reference to the value of a currency, security index
or commodity at a future point in time
Founders Capital Appreciation Portfolio: The investment objective of
Founders Capital Appreciation Portfolio is capital appreciation. The
portfolio will normally invest at least 65% of its total assets in common
stocks of U.S. companies with market capitalizations of $1.5 billion or
less. These stocks normally will be traded in the over-the-counter market.
Since it may engage in short-term trading, the portfolio normally will have
annual portfolio turnover rates in excess of 100%.
INVESCO Equity Income Portfolio: The investment objective of the INVESCO
Equity Income Portfolio is to seek high current income while following sound
investment practices. Capital growth potential is an additional, but
secondary, consideration in the selection of portfolio securities. The
portfolio seeks to achieve its objective by investing in securities which
will provide a relatively high-yield and stable return and which, over a
period of years, may also provide capital appreciation. The portfolio
normally will invest between 60% and 75% of its assets in dividend-paying,
marketable common stocks of domestic and foreign industrial issuers. The
portfolio also will invest in convertible bonds, preferred stocks and debt
securities. The portfolio may depart from the basic investment objective
and assume a defensive position with a large portion of its assets
temporarily invested in high quality corporate bonds, or notes and
government issues, or held in cash. The portfolio's investments in common
stocks may decline in value. To minimize the risk this presents, the
portfolio only invests in dividend-paying common stocks of domestic and
foreign industrial issuers which are marketable, and will not invest more
than 5% of the portfolio's assets in the securities of any one company or
more than 25% of the portfolio's assets in any one industry. The
portfolio's investments in debt securities will generally be subject to both
credit risk and market risk. There are no fixed-limitations regarding
portfolio turnover. The rate of portfolio turnover may fluctuate as a
result of constantly changing economic conditions and market circumstances.
Securities initially satisfying the portfolio's basic objectives and
policies may be disposed of when they are no longer suitable. As a result,
it is anticipated that the portfolio's annual portfolio turnover rate may be
in excess of 100%, and may be higher than that of other investment companies
seeking current income with capital growth as a secondary consideration.
Increased portfolio turnover would cause the portfolio to incur greater
brokerage costs than would otherwise be the case.
PIMCO Total Return Bond Portfolio: The investment objective of the PIMCO
Total Return Bond Portfolio is to seek to maximize total return. A
secondary objective is preservation of capital. The Sub-advisor will seek
to employ prudent investment management techniques, especially in light of
the broad range of investment instruments in which the portfolio may invest.
The proportion of the portfolio's assets committed to investment in
securities with particular characteristics (such as maturity, type and
coupon rate) will vary based on the outlook for the U.S. and foreign
economies, the financial markets and other factors. The portfolio will
invest at least 65% of its assets in the following types of securities which
may be issued by domestic or foreign entities and denominated in U.S.
dollars or foreign currencies: securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; corporate debt securities;
corporate commercial paper; mortgage and other asset-backed securities;
variable and floating rate debt securities; bank certificates of deposit;
fixed time deposits and bankers' acceptances; repurchase agreements and
reverse repurchase agreements; obligations of foreign governments or their
subdivisions, agencies and instrumentalities, international agencies or
supranational entities; and foreign currency exchange-related securities,
including foreign currency warrants. The portfolio will invest in a
diversified portfolio of fixed-income securities of varying maturities with
a portfolio duration from three to six years. The portfolio may invest up
to 20% of assets in corporate debt securities that are rated below
investment grade (i.e., rated below Baa by Moody's or BBB by S&P or, if
unrated, determined by the Sub-advisor to be of comparable quality). These
securities are regarded as high risk and predominantly speculative with
respect to the issuer's continuing ability to meet principal and interest
payments (see the underlying fund prospectus for details).
PIMCO Limited Maturity Bond Portfolio: The investment objective of the
PIMCO Limited Maturity Bond Portfolio is to seek to maximize total return,
consistent with preservation of capital and prudent investment management.
The portfolio will invest at least 65% of its total assets in the following
types of securities, which may be issued by domestic or foreign entities and
denominated in U.S. dollars or foreign currencies: securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities ("U.S.
Government securities"); corporate debt securities; corporate commercial
paper; mortgage and other asset-backed securities; variable and floating
rate debt securities; bank certificates of deposit, fixed time deposits and
bankers' acceptances; repurchase agreements and reverse repurchase
agreements; obligations of foreign governments or their subdivisions,
agencies and instrumentalities, international agencies or supranational
entities; and foreign currency exchange-related securities, including
foreign currency warrants.
The portfolio may hold different percentages of its assets in these various
types of securities, and may invest all of its assets in derivative
instruments or in mortgage- or asset-backed securities. There are special
risks involved in these instruments. The portfolio will invest in a
diversified portfolio of fixed income securities of varying maturities with
a portfolio duration from one to three years. The portfolio may invest up
to 10% of its assets in corporate debt securities that are rated below
investment grade but rated B or higher by Moody's or S&P (or, if unrated,
determined by the Sub-advisor to be of comparable quality). The portfolio
may also invest up to 20% of its assets in securities denominated in foreign
currencies. The "total return" sought by the portfolio will consist of
interest and dividends from underlying securities, capital appreciation
reflected in unrealized increases in value of portfolio securities (realized
by the shareholder only upon selling shares) or realized from the purchase
and sale of securities, and use of futures and options, or gains from
favorable changes in foreign currency exchange rates The portfolio may
invest directly in U.S. dollar- or foreign currency-denominated fixed income
securities of non-U.S. issuers. The portfolio will limit its foreign
investments to securities of issuers based in developed countries (including
Newly Industrialized Countries, "NICs", such as Taiwan, South Korea and
Mexico). Investing in the securities of issuers in any foreign country
involves special risks.
JanCap Growth Portfolio: The investment objective of the JanCap Growth
Portfolio is growth of capital in a manner consistent with the preservation
of capital. Realization of income is not a significant investment
consideration and any income realized on investments, therefore, will be
incidental to this objective. The objective will be pursued by emphasizing
investments in common stocks. Common stock investments will be in
industries and companies that the portfolio's sub-advisor believes are
experiencing favorable demand for their products and services, and which
operate in a favorable competitive and regulatory environment. Investments
may be made to a lesser degree in preferred stocks, convertible securities,
warrants, and debt securities of U.S. issuers, when the JanCap Growth
Portfolio perceives an opportunity for capital growth from such securities
or so that a return may be received on its idle cash. Debt securities which
the portfolio may purchase include corporate bonds and debentures (not to
exceed 5% of net assets in bonds rated below investment grade), mortgage-
backed and asset-backed securities, zero-coupon bonds, indexed/structured
notes, high-grade commercial paper, certificates of deposit and repurchase
agreements. Securities of foreign issuers, including securities of foreign
governments and Euromarket securities, also may be purchased. Although it
is the general policy of the JanCap Growth Portfolio to purchase and hold
securities for capital growth, changes will be made whenever the portfolio's
sub-advisor believes they are advisable. Because investment changes usually
will be made without reference to the length of time a security has been
held, a significant number of short-term transactions may result.
Investments also may be made in "special situations" from time to time. A
"special situation" arises when, in the opinion of the portfolio's sub-
advisor, the securities of a particular company will be recognized and
appreciate in value due to a specific development, such as a technological
breakthrough, management change or a new product at that company. Subject
to certain limitations, the JanCap Growth Portfolio may purchase and write
options on securities (including index options) and options on foreign
currencies, and may invest in futures contracts for the purchase or sale of
instruments based on financial indices, including interest rates or an index
of U.S. Government or foreign government securities or equity or fixed-
income securities, futures contracts on foreign currencies and fixed income
securities ("futures contracts"), options on futures contracts, forward
contracts and swaps and swap-related products. These instruments will be
used primarily for hedging purposes. Investment of up to 15% of the JanCap
Growth Portfolio's total assets may be made in securities that are
considered illiquid because of the absence of a readily available market or
due to legal or contractual restrictions.
Federated Utility Income Portfolio: The investment objective of the
Federated Utility Income Portfolio is to achieve high current income and
moderate capital appreciation by investing primarily in a professionally
managed and diversified portfolio of equity and debt securities of utility
companies. The portfolio intends to achieve its investment objective by
investing in equity and debt securities of utility companies that produce,
transmit or distribute gas and electric energy as well as those companies
that provide communications facilities, such as telephone and telegraph
companies. As a matter of investment policy that can be changed without
shareholder vote, the portfolio will invest at least 65% of its total assets
in securities of utility companies.
Federated High Yield Portfolio: The investment objective of the Federated
High Yield Portfolio is to seek high current income by investing primarily
in a diversified portfolio of fixed income securities. The portfolio will
invest 65% of its assets in lower-rated fixed income bonds. Lower-rated
debt obligations are generally considered to be high-risk investments. The
corporate debt obligations in which the portfolio invests are usually not in
the three highest rating categories of a nationally recognized rating
organization (AAA, AA, or A for Standard & Poor's and Aaa, Aa or A for
Moody's) but are in the lower rating categories or are unrated but are of
comparable quality and have speculative characteristics or are speculative.
Lower-rated or unrated bonds are commonly referred to as "junk bonds".
There is no minimal acceptable rating for a security to be purchased or held
in the portfolio, and the portfolio may, from time to time, purchase or hold
securities rated in the lowest rating category. Under normal circumstances,
the portfolio will not invest more than 10% of the value of its total assets
in equity securities. The fixed income securities in which the portfolio
may invest include, but are not limited to: preferred stocks, bonds,
debentures, notes, equipment lease certificates and equipment trust
certificates. The portfolio will invest primarily in fixed rate corporate
debt obligations.
AST Phoenix Balanced Asset Portfolio: The AST Phoenix Balanced Asset
Portfolio seeks as its investment objective reasonable income, long-term
capital growth and conservation of capital. The portfolio intends to invest
based on combined considerations of risk, income, capital enhancement and
protection of capital value. The portfolio may invest in any type or class
of security. Normally, the portfolio will invest in common stocks and fixed
income securities; however, it may also invest in securities convertible
into common stocks. At least 25% of the value of its assets will be
invested in fixed income senior securities. The portfolio may also engage
in certain options transactions and enter into financial futures contracts
and related options for hedging purposes and may invest in deferred or zero
coupon debt obligations. In implementing the investment objective of the
portfolio, the sub-advisor will select securities believed to have potential
for the production of current income, with emphasis on securities that also
have potential for capital enhancement. In an effort to protect its assets
against major market declines, or for other temporary defensive purposes,
the portfolio may actively pursue a policy of retaining cash or investing
part or all of its assets in cash equivalents, such as government securities
and high grade commercial paper.
AST Scudder International Bond Portfolio: The AST Scudder International
Bond Portfolio seeks to provide income primarily by investing in a managed
portfolio of high-grade debt securities denominated in foreign currencies
("international bonds"). As a secondary objective, the portfolio seeks
protection and possible enhancement of principal value by actively managing
currency, bond market and maturity exposure and by security selection. The
portfolio is intended for long-term investors who can accept the risks
associated with investing in international bonds. Total return from
investment in the portfolio will consist of income after expenses, bond
price gains (or losses) in terms of the local currency and currency gains
(or losses). For tax purposes, realized gains and losses on currency are
regarded as ordinary income and loss and could, under certain circumstances,
have an impact on distributions. The value of the portfolio will fluctuate
in response to various economic factors, the most important of which are
fluctuations in foreign currency exchange rates and interest rates.
The portfolio will normally invest at least 65% of its total assets in bonds
denominated in foreign currencies. Because the portfolio's investments are
primarily denominated in foreign currencies, exchange rates are likely to
have a significant impact on total portfolio performance. For example, a
fall in the U.S. dollar's value relative to the Japanese yen will increase
the U.S. dollar value of a Japanese bond held in the portfolio, even though
the price of that bond in yen terms remains unchanged. Conversely, if the
U.S. dollar rises in value relative to the yen, the U.S. dollar value of a
Japanese bond will fall. Investors should be aware that exchange rate
movements can be significant and endure for long periods of time.
Because of the portfolio's long-term investment objective, investors should
not rely on an investment in the portfolio for their short-term financial
needs and should not view the portfolio as a vehicle for playing short-term
swings in the international bond and foreign exchange markets. Shares of
the portfolio alone should not be regarded as a complete investment program.
Also, investors should be aware that investing in international bonds may
involve a higher degree of risk than investing in U.S. bonds.
Berger Capital Growth Portfolio: The investment objective of the Berger
Capital Growth Portfolio is to achieve long-term capital appreciation. The
portfolio seeks to achieve this objective primarily by investing in common
stocks of established companies. As a high level of income return is not an
investment objective, any income produced will be a by-product of the effort
to achieve the portfolio's objective. In selecting its portfolio
securities, the sub-advisor will place primary emphasis on established
companies which it believes to have favorable growth prospects. Common
stocks usually constitute all or most of the portfolio's investment
holdings, but the portfolio remains free to invest in securities other than
common stocks, and may do so when deemed substantial positions in securities
convertible into common stocks, and it may also purchase government
securities, preferred stocks and other senior securities if the sub-advisor
believes these are likely to be the best suited at that time to achieve the
portfolio's objective. The portfolio's policy of investing in securities
believed to have a potential for capital growth means that the assets of the
portfolio generally may be subject to greater fluctuation in value than if
the portfolio invested in other securities.
The Alger American Fund
Alger American Small Capitalization Portfolio: The investment objective of
the Alger American Small Capitalization Portfolio is long-term capital
appreciation. Income is a consideration in the selection of investments but
is not an investment objective of the portfolio. It seeks to achieve this
objective by investing its assets in equity securities, such as common or
preferred stocks and limited partnership interests that are listed on a
national securities exchange, or securities convertible into or exchangeable
for equity securities, including warrants and rights, selected by the
investment manager on the basis of original research produced by its
research analysts. Except during temporary defensive periods, the portfolio
invests at least 85 percent of its net assets in equity securities and at
least 65 percent of its net assets in equity securities of companies that,
at the time of purchase, have "total market capitalization" - present market
value per share multiplied by the total number of shares outstanding - of
less than $1 billion. Investing in smaller, newer issuers generally
involves greater risk than investing in larger, more established issuers.
Alger American Growth Portfolio: The investment objective of the Alger
American Growth Portfolio is long-term capital appreciation. Income is a
consideration in the selection of investments but is not an investment
objective of the portfolio. It seeks to achieve its objective by investing
in equity securities, such as common or preferred stocks and limited
partnership interests that are listed on a national securities exchange, or
securities convertible into or exchangeable for equity securities, including
warrants and rights, selected by the investment manager on the basis of
original research produced by its research analysts. Except during
temporary defensive periods, the portfolio may invest at least 85 percent of
its net assets in equity securities and at least 65 percent of its net
assets in equity securities of companies that, at the time of purchase, have
total market capitalization of $1 billion or greater.
Alger American MidCap Growth Portfolio: The investment objective of the
Alger American MidCap Growth Portfolio is long-term capital appreciation.
Income is a consideration in the selection of investments but is not an
investment objective of the portfolio. It seeks to achieve its objective by
investing in equity securities, such as common or preferred stocks and
limited partnership interests that are listed on a national securities
exchange, or securities convertible into or exchangeable for equity
securities, including warrants and rights, selected by the investment
manager on the basis of original research produced by its research analysts.
Except during temporary defensive periods, the portfolio may invest at least
85 percent of its net assets in equity securities and at least 65 percent of
its net assets in equity securities of companies that, at the time of
purchase, of the securities, have total market capitalization between $750
million and $3.5 billion.
Neuberger & Berman Advisers Management Trust
(Each portfolio of the Neuberger & Berman Advisers Management Trust invests
exclusively in a corresponding series of Advisers Managers Trust in what is
sometimes known as a "master/feeder" fund structure. Therefore, the
investment objective of each portfolio matches that of the series of the
Advisers Managers Trust in which the portfolio invests. Therefore, the
following information is presented in terms of the applicable series of the
Advisers Management Trust).
AMT Partners Investments: The investment objective of the AMT Partners
Investments is to seek capital growth. This investment objective is non-
fundamental.
The AMT Partners Investments invests primarily in common stocks of
established companies, using the value-oriented investment approach. The
series seeks capital growth through an investment approach that is designed
to increase capital with reasonable risk. Its investment program seeks
securities believed to be undervalued based on strong fundamentals such as
low price-to-earnings ratios, consistent cash flow, and support from asset
values.
Up to 15% of the series' net assets may be invested in corporate debt
securities rated below investment grade or in comparable unrated securities.
Securities rated below investment grade as well as unrated securities are
often considered to be speculative and usually entail greater risk.
This prospectus contains a short description of the contents of the
Statement of Additional Information. You have the right to receive from us
such Statement of Additional Information. To do so, please complete the
following, detach it and forward it to us at:
American Skandia Life Assurance Corporation
Attention: Concierge Desk
P.O. Box 883
Shelton, Connecticut 06484
PLEASE SEND ME A STATEMENT OF ADDITIONAL INFORMATION THAT CONTAINS FURTHER
DETAILS ABOUT THE AMERICAN SKANDIA ANNUITY DESCRIBED IN PROSPECTUS AXM-PROS
(05/95).
_______________________________________________________
(print your name)
_______________________________________________________
(address)
_______________________________________________________
(city/state/zip code)
ADDITIONAL INFORMATION: Inquiries will be answered by calling your
representative or by writing to:
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
P.O. Box 883
Shelton, Connecticut 06484
Issued by: Serviced at:
AMERICAN SKANDIA LIFE AMERICAN SKANDIA LIFE
ASSURANCE CORPORATION ASSURANCE CORPORATION
One Corporate Drive P.O. Box 883
Shelton, Connecticut 06484 Shelton, Connecticut 06484
Telephone: 1-800-752-6342 Telephone: 1-800-752-6342
Distributed by:
AMERICAN SKANDIA MARKETING, INCORPORATED
One Corporate Drive
Shelton, Connecticut 06484
Telephone: (203) 926-1888
AXIOM 4/19/95 1:00 PM
