Filed with the Securities and Exchange Commission on April 26, 1996
Registration No.333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
Registration Statement Under The Securities Act of 1933*
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(Exact name of registrant as specified in its charter)
CONNECTICUT
(State or other jurisdiction of incorporation or organization)
63
(Primary Standard Industrial Classification Code Number)
06-1241288
(I.R.S. Employer Identification No.)
ONE CORPORATE DRIVE, SHELTON, CONNECTICUT 06484 (203) 926-1888
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
M. PATRICIA PAEZ, CORPORATE SECRETARY
ONE CORPORATE DRIVE, SHELTON, CONNECTICUT 06484
(203) 926-1888 (Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copy To:
JOHN T. BUCKLEY, ESQ.
WERNER & KENNEDY
1633 Broadway, New York, New York 10019 (212) 408-6900
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Approximate date of commencement of proposed sale to the public: May 1, 1996 or
as soon as practical after the effective date of this Registration Statement
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following: X.
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Calculation of Registration Fee
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Title of each Proposed Proposed
class of maximum maximum
securities Amount offering aggregate Amount of
to be to be price offering registration
registered registered per unit price** fee
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Annuity Contracts $10,000,000.00 $3448.00
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*The prospectus contained in this Registration Statement also relates to
annuity contracts which are covered by our earlier registration statement,
including Registration File Numbers 33-67614 and 33-89674.
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**The proposed aggregate offering price is estimated solely for determining the
registration fee. The amount to be registered and the proposed maximum offering
price per unit are not applicable since these securities are not issued in
predetermined amounts or units.
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Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with the provisions of Section
8(a) of the Securities Act of 1933 or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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Gal2
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CROSS REFERENCE SHEET PURSUANT TO REGULATION S-K, ITEM 501
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S-1 Item No. Prospectus Heading
1. Forepart of the Registration Statement and Facing Page, Cross Reference Sheet, Outside Front Cover Page
Outside Front Cover Page of Prospectus
2. Inside Front Cover and Outside Back Cover of Prospectus Available Information, Incorporation of Certain
Documents by Reference, Reports to You,
Table of Contents
3. Summary Information, Risk Factors and Ratio of Earnings Highlights, Cover Page, Separate Account D,
to Fixed Charges Insurance Aspects of the Annuity
4. Use of Proceeds Fixed Investment Options, Separate Accounts, Separate Account D
5. Determination of the Offering Price Fixed Investment Options
6. Dilution Not applicable
7. Selling Security Holders Not applicable
8. Plan of Distribution Sale of the Annuities
9. Description of the Securities to be Registered Investment Options, Purchasing Annuities, Account Value and
Surrender Value, Rights, Benefits and Services
10. Interest of named Expert and Counsel Not applicable
11. Information with Respect to the Registrant The Company
12. Disclosure of Commission Position on Indemnification for Indemnification
Securities Act Liabilities
Part II Heading
13. Other Expenses of Issuance Other Expenses of Issuance
and Distribution and Distribution
14. Indemnification of Directors and Officers Indemnification of Directors and Officers
15. Recent Sales of Unregistered Securities Recent Sales of Unregistered Securities
16. Exhibits and Financial Statement Schedules Exhibits and Financial Statement Schedules
17. Undertakings Undertakings
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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 starts on Page 4. Definitions applicable to this Prospectus start 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 40. 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") and set-up fee (see Set-Up Fee). 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 of 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. 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 Sub-accounts of American Skandia Life Assurance Corporation Separate
Account E ("Separate Account E"). Each Sub-account currently invests exclusively
in one of the following portfolios of the Galaxy VIP Fund: (a) Money Market; (b)
Equity; (c) High Quality Bond; and (d) Asset Allocation.
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, and, where required by law, the 30 days
prior to the Maturity Date. You are cautioned that with respect to the Fixed
Investment Options during the accumulation phase, 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"). Fixed allocations were not
available on Annuities solicited prior to March 30, 1994.
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Annuities:
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Are NOT FDIC insured, or insured by the Federal Reserve Board or any other
agency
Are NOT Obligations of Fleet Bank or its affiliates
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Are NOT guaranteed or endorsed by Fleet Bank or its affiliates
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DO involve risks, including possible loss of principal amount invested
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(continued on Page 2)
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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.
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FOR FURTHER INFORMATION CALL 1-800-444-3970.
Prospectus Dated: May 1, 1996 Statement of Additional Information
Dated: May 1, 1996
GA-PROS-(5/96)
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We guarantee fixed annuity payments. We also guarantee any adjustable annuity
payments we may make available (see "Annuity Payments").
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 and 408
(see "Certain Tax Considerations").
Broker-dealers or entities which may offer variable annuities without
registration as broker-dealers may offer Annuities to persons or entities who
have established an account with such broker-dealer or entity. Such eligible
persons also will be customers of one or more subsidiaries of Fleet Financial
Group, Inc. The investment advisor of the underlying mutual fund, Fleet
Investment Advisors, Inc., is a subsidiary of Fleet Financial Group, Inc. In
certain cases, the broker-dealer may also be an affiliate of the investment
advisor of the underlying mutual fund.
(This page has been purposely left blank.)
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TABLE OF CONTENTS
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DEFINITIONS........................................................................................................................6
HIGHLIGHTS.........................................................................................................................8
AVAILABLE INFORMATION.............................................................................................................10
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...................................................................................10
CONTRACT EXPENSE SUMMARY..........................................................................................................10
EXPENSE EXAMPLES..................................................................................................................11
CONDENSED FINANCIAL INFORMATION...................................................................................................12
Unit Prices And Numbers of Units...............................................................................................12
Yields On Money Market Sub-account.............................................................................................12
INVESTMENT OPTIONS................................................................................................................12
Variable Investment Options....................................................................................................12
Fixed Investment Options.......................................................................................................13
OPERATIONS OF THE SEPARATE ACCOUNTS...............................................................................................14
Separate Accounts..............................................................................................................14
Separate Account E............................................................................................................14
Separate Account D.............................................................................................................15
INSURANCE ASPECTS OF THE ANNUITY..................................................................................................16
CHARGES ASSESSED OR ASSESSABLE AGAINST THE ANNUITY................................................................................16
Set-Up Fee.....................................................................................................................16
Maintenance Fee................................................................................................................16
Tax Charges....................................................................................................................16
Transfer Fee...................................................................................................................16
Allocation Of Annuity Charges..................................................................................................16
CHARGES ASSESSED AGAINST THE ASSETS...............................................................................................16
Administration Charge..........................................................................................................16
Mortality and Expense Risk Charges.............................................................................................17
CHARGES OF THE UNDERLYING MUTUAL FUNDS............................................................................................17
PURCHASING ANNUITIES..............................................................................................................17
Uses Of The Annuity............................................................................................................17
Application And Initial Payment................................................................................................17
Bank Drafting..................................................................................................................18
Periodic Purchase Payments.....................................................................................................18
Right to Return the Annuity....................................................................................................18
Allocation of Net Purchase Payments............................................................................................18
Balanced Investment Program....................................................................................................18
Participant, Annuitant and Beneficiary Designations............................................................................19
ACCOUNT VALUE AND SURRENDER VALUE.................................................................................................19
Account Value in the Sub-accounts..............................................................................................19
Account Value of the Fixed Allocations.........................................................................................19
RIGHTS, BENEFITS AND SERVICES.....................................................................................................20
Additional Purchase Payments...................................................................................................20
Changing Revocable Designations................................................................................................20
Allocation Rules...............................................................................................................21
Transfers......................................................................................................................21
Renewals.....................................................................................................................22
Dollar Cost Averaging........................................................................................................22
Distributions..................................................................................................................22
Surrender....................................................................................................................22
Partial Withdrawals..........................................................................................................23
Systematic Withdrawals.......................................................................................................23
Minimum Distributions........................................................................................................23
Death Benefit................................................................................................................23
Annuity Payments.............................................................................................................24
Qualified Plan Withdrawal Limitations........................................................................................25
Pricing of Transfers and Distributions.........................................................................................26
Voting Rights..................................................................................................................26
Transfers, Assignments or Pledges..............................................................................................26
Reports to You.................................................................................................................27
SALE OF THE ANNUITIES.............................................................................................................27
Distribution...................................................................................................................27
Advertising....................................................................................................................27
CERTAIN TAX CONSIDERATIONS........................................................................................................28
Our Tax Considerations.........................................................................................................28
Tax Considerations Relating to Your Annuity....................................................................................28
Non-natural Persons..........................................................................................................28
Natural Persons..............................................................................................................28
Distributions................................................................................................................28
Assignments and Pledges......................................................................................................29
Penalty on Distributions.....................................................................................................29
Annuity Payments.............................................................................................................29
Gifts........................................................................................................................29
Tax Free Exchanges...........................................................................................................29
Transfers Between Investment Options.........................................................................................29
Generation-Skipping Transfers................................................................................................30
Diversification..............................................................................................................30
Federal Income Tax Withholding...............................................................................................30
Tax Considerations When Using Annuities in Conjunction with Qualified Plans....................................................30
Individual Retirement Programs...............................................................................................30
Tax Sheltered Annuities......................................................................................................30
Corporate Pension and Profit-sharing Plans...................................................................................31
H.R. 10 Plans................................................................................................................31
Tax Treatment of Distributions from Qualified Annuities......................................................................31
Section 457 Plans............................................................................................................31
OTHER MATTERS.....................................................................................................................31
Deferral of Transactions.......................................................................................................31
Resolving Material Conflicts...................................................................................................31
Modification...................................................................................................................32
Misstatement of Age or Sex.....................................................................................................32
Ending the Offer...............................................................................................................32
Indemnification................................................................................................................32
Legal Proceedings..............................................................................................................32
THE COMPANY............................................................................................ 32
Lines of Business..............................................................................................................33
Selected Financial Data........................................................................................................33
Management's Discussion and Analysis of Financial Condition and Results of Operations..........................................34
Results of Operations........................................................................................................34
Liquidity and Capital Resources..............................................................................................34
Segment Information..........................................................................................................34
Reinsurance....................................................................................................................34
Surplus Notes..................................................................................................................34
Reserves.......................................................................................................................34
Competition....................................................................................................................34
Employees......................................................................................................................34
Regulation.....................................................................................................................35
Executive Officers and Directors...............................................................................................35
Executive Compensation.........................................................................................................37
Summary Compensation Table...................................................................................................37
Long-Term Incentive Plans - Awards in the Last Fiscal Year...................................................................38
Compensation of Directors....................................................................................................39
Compensation Committee Interlocks and Insider Participation..................................................................39
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION...............................................................................39
FINANCIAL STATEMENTS..............................................................................................................39
APPENDIX A FINANCIAL STATEMENTS FOR AMERICAN SKANDIA LIFE ASSURANCE CORPORATION..................................................40
APPENDIX B SHORT DESCRIPTIONS OF THE UNDERLYING MUTUAL FUNDS' PORTFOLIO INVESTMENT OBJECTIVES AND POLICIES.......................40
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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, 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
and any applicable set-up fee.
OFFICE is our business office, American Skandia Life Assurance Corporation,
One Corporate Drive, P.O. Box 883, Shelton, Connecticut 06484.
PARTICIPANT is either an eligible entity or person named as having ownership
rights in relation to an Annuity issued as a certificate evidencing interest in
a group annuity contract. An Annuity may be issued as an individual contract. If
so, the rights, benefits and requirements of and the events relating to a
Participant, as described in this Prospectus, will be the rights, benefits and
requirements of and events relating to the person or entity designated as the
owner in such contract.
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 E. 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 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", "our", or "the Company" means American Skandia Life Assurance
Corporation.
"You" or "your" means the Participant.
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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
investment options in the accumulation phase. Each of these investment options
is a Sub-account which invests exclusively in a portfolio of an underlying
mutual fund. As of the date of this Prospectus, we offer four Sub-accounts each
of which invests exclusively in one portfolio of the Galaxy VIP Fund. The
available portfolios of the Galaxy VIP Fund are as follows: (a) Money Market
Fund; (b) Equity Fund; (c) High Quality Bond Fund; and (d) Asset Allocation
Fund. In the payout phase, you may elect fixed annuity payments based on our
then current annuity rates. For more information, see the section entitled
Investment Options.
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 that could be guaranteed interest rates 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 assets. 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 E. Values and benefits
based on these Sub-accounts are not guaranteed and will vary with the investment
performance of the underlying mutual fund portfolios. In the payout phase, fixed
annuity payments, and any adjustable annuity payments we may make available, are
guaranteed by our general account.
For more information, see the section entitled Operations of the Separate
Accounts, including the following subsections: (a) Separate Accounts; (b)
Separate Account E; 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 set-up fee, the maintenance fee, a charge for taxes and a transfer 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) Set-Up Fee; (b) Maintenance Fee; (c) Tax Charges; (d) Transfer Fee; and (e)
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: The underlying mutual fund
assesses various charges, including charges for investment management and
investment advisory fees. These charges generally differ between portfolios
within the 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. 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 GAL Money Market 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 GAL Money Market
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 a Participant and an Annuitant. You may also make certain
other designations that apply to the Annuity if issued. These designations
include, a contingent Participant, 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) Bank Drafting; (d) Periodic Purchase Payments; (e)
Right to Return the Annuity; (f) Allocation of Net Purchase Payments; (g)
Balanced Investment Program; and (h) Participant, 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 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, and, where required by
law, the 30 days prior to the Maturity Date. For more information, see the
section entitled Account Value and Surrender Value, including the following
subsections: (a) Account Value in the Sub-accounts; and (b) Account Value of
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 Participants. 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. We support certain Periodic Purchase Payments subject to
our rules. You may change revocable designations. You may transfer Account
Values between investment options. Transfers in excess of 12 per Annuity Year
are subject to a fee. We offer dollar cost averaging during the accumulation
phase (see "Dollar Cost Averaging"). During the accumulation phase, surrender
and partial withdrawals are available. 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) Distributions (including: (i)
Surrender; (ii) Partial Withdrawals; (iii) Systematic Withdrawals; (iv) Minimum
Distributions; (v) Death Benefit; (vi) Annuity Payments; and (vii) Qualified
Plan Withdrawal Limitations); (h) Pricing of Transfers and Distributions; (i)
Voting Rights; (j) Transfers, Assignments and Pledges; and (k) 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 Officers
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. It includes further information, as
described in the section of this Prospectus entitled "Contents of the Statement
of Additional Information". You may obtain a copy of the Statement of Additional
Information by filling in the coupon at the end of the Prospectus and sending it
(or a written request) to American Skandia Life Assurance Corporation,
Attention: Galaxy Annuity Customer Service, P.O. Box 883, Shelton, CT 06484.
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, 75 Park Place,
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 of 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: Galaxy Annuity Customer Service, P.O. Box 883,
Shelton, Connecticut, 06484. Our phone number is 1-(800) 444-3970.
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.
More detail regarding the expenses of the underlying mutual fund portfolios
may be found either in the prospectus for that mutual fund or in the annual
report of that mutual fund.
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. In
certain states, premium taxes may be applicable.
Your Transaction Expenses
Sales Load $0
Set-up Fee $25 deducted from the initial
Purchase Payment if less than $10,000
Annual Maintenance Fee Smaller of $30 or 2% of Account Value,
applicable only if at the Valuation Period
such fee is payable, the Account Value of the
Annuity is less than $50,000
Tax Charges nt on the requirements of the applicable jurisdiction
Transfer Fee $10 for each transfer after the twelfth in any Annuity Year
Annual Expenses of the Sub-accounts
(as a percentage of average daily net assets)
Mortality and Expense Risk Charges 0.40%
Administration Charge 0.15%
Total Annual Expenses of the Sub-accounts 0.55%
<PAGE>
Underlying Mutual Fund Portfolio Annual Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Manage- Manage- Total Total
ment ment Other Other Annual Annual
Fee Fee Expenses Expenses Expenses 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
- ------------------------------------------------------------------------------------------------------------
The Galaxy VIP Fund
<S> <C> <C> <C> <C> <C> <C>
Money Market 0.13% 0.40% 0.57% 0.71% 0.70% 1.11%
Equity 0.73% 0.75% 0.67% 0.49% 1.40% 1.24%
High Quality Bond 0.14% 0.55% 0.76% 1.02% 0.90% 1.57%
Asset Allocation 0.47% 0.75% 0.93% 0.79% 1.40% 1.54%
</TABLE>
The underlying mutual fund portfolio information was provided by the underlying
mutual funds. The Company has not independently verified such information.
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) fees and expenses remain constant; (b) there
are no withdrawals of Account Value during the period shown; (c) there are no
transfers or other transactions subject to a fee during the period shown; (d) no
tax charge applies; and (e) 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 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 FUNDS OR
THEIR 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)
Whether or not you surrender your Annuity at the end of the applicable time
period or begin taking annuity payments at such time, you would pay the
following expenses on a $1,000 investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
Sub-accounts After:
<S> <C> <C> <C> <C>
1 yr. 3 yrs. 5 yrs. 10 yrs.
If your initial Purchase Payment is at least $10,000, so that the
set-up fee does not apply, and at the end of each period shown your Account
Value is $50,000 or higher, so that the maintenance fee does not apply:
GAL Money Market 13 40 69 152
GAL Equity 20 62 106 228
GAL High Quality Bond 15 46 79 174
GAL Asset Allocation 20 62 106 228
<PAGE>
If your initial Purchase Payment is at least $10,000, so that the
set-up fee does not apply, and at the end of each period shown your Account
Value is below $50,000, so that the maintenance fee applies:
GAL Money Market 14 44 76 165
GAL Equity 21 66 113 241
GAL High Quality Bond 16 50 86 187
GAL Asset Allocation 21 66 113 241
If your initial Purchase Payment is below $10,000, so that the set-up
fee applies, and at the end of each period shown your Account Value is below
$50,000, so that the maintenance fee applies:
GAL Money Market 22 59 98 203
GAL Equity 29 80 134 278
GAL High Quality Bond 24 65 108 224
GAL Asset Allocation 29 80 134 278
</TABLE>
CONDENSED FINANCIAL INFORMATION: The Unit Prices and number of Units in the
Sub-account are shown below, as is the yield information on the GAL Sub-account.
Unit Prices And Numbers of UnitsUnit Prices And Numbers of Units: The
following table shows: (a) the Unit Price as of the dates shown for the Units in
each of the Sub-accounts of Separate Account E being offered pursuant to this
Prospectus; and (b) the number of Units outstanding in each such Sub-account as
of the dates shown. Each Sub-account became operational in 1993. The portfolios
in which a particular Sub-account invests may or may not have commenced
operations prior to the date such Sub-account became operational. The initial
offering price for each Sub-account was $10.00.
<TABLE>
<CAPTION>
Sub-account
GAL GAL GAL
Money GAL High Quality Asset
Market Equity Bond Allocation
(1993) (1993) (1993) (1993)
No. of Units
<S> <C> <C> <C> <C> <C> <C>
as of 12/31/95 1,350,072 2,119,810 830,395 1,136,906
as of 12/31/94 1,257,546 1,818,564 811,254 1,037,131
as of 12/31/93 1,063,152 1,246,452 929,546 1,126,518
Unit Price
as of 12/31/95 $11.06 $13.44 $12.04 $13.12
as of 12/31/94 10.56 10.66 9.88 10.20
as of 12/31/93 10.22 10.36 10.55 10.48
</TABLE>
Yields On Money Market Sub-accountYields On Money Market Sub-account:
Shown below are the current and effective yields for a hypothetical contract.
The yield is calculated based on the performance of the GAL Money Market
Sub-account during the last seven days of the calendar year ending prior to the
date of this Prospectus. At the beginning of the seven day period, the
hypothetical contract had a balance of one Unit. The current and effective
yields reflect the recurring charges against the Sub-account. Please note that
current and effective yield information will fluctuate. This information may not
provide a basis for comparisons with deposits in banks or other institutions
which pay a fixed yield over a stated period of time, or with investment
companies which do not serve as underlying funds for variable annuities.
<TABLE>
<CAPTION>
Sub-account Current Yield Effective Yield
<S> <C> <C>
GAL Money Market 6.11% 6.30%
</TABLE>
INVESTMENT OPTIONS: We currently offer multiple variable and, in most
jurisdictions, fixed investment options.
Variable Investment Options: During the accumulation phase, we offer a
number of Sub-accounts as investment options. These are all Sub-accounts of
American Skandia Life Assurance Corporation Separate Account E ("Separate
Account E"). Each of these Sub-accounts invests exclusively in one underlying
mutual fund portfolio of The Galaxy VIP Fund. The Sub-accounts and the
portfolios in which they invest are as follows:
Sub-Account Underlying Mutual Fund Portfolio
GAL Money Market Money Market Portfolio
GAL Equity Equity Portfolio
GAL High Quality Bond High Quality Bond Portfolio
GAL Asset Allocation Asset Allocation Portfolio
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 will 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 E (see "Modifications").
The Galaxy VIP Fund is registered under the Investment Company Act of 1940, as
amended (the "1940 Act") as an open-end diversified management investment
company. It was established as a Massachusetts business trust under an Agreement
and Declaration of Trust dated May 27, 1992. As of the date of this Prospectus,
The Galaxy VIP Fund's portfolios offered pursuant to this Prospectus are those
shown above. 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. The Agreement and Declaration
of Trust permits the trustees to issue an unlimited number of full or fractional
shares of each class of stock.
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 the underlying mutual fund and the statement of
additional information for such underlying mutual fund. Also included in such
information is the investment policy of each mutual fund 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 portfolio
will meet its investment objectives.
Shares of the underlying mutual fund 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 Galaxy Annuity Customer Service
1-800-444-3970 or writing to P.O. Box 883, Attention: Galaxy Annuity Customer
Service, 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. No Fixed Allocations were available to Annuities issued prior to
March 30, 1994. 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 individual or group annuity contracts that include the type of
Fixed Allocations offered pursuant to this Prospectus. If such approval is
obtained, we will take those steps needed to offer such Fixed Allocations 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.
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 percent of
interest (1.00%).
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: In the accumulation phase, assets
supporting Account Values are held in our Separate Account D or Separate Account
E established under the laws of the State of Connecticut. Separate Account E
consists of multiple Sub-accounts. 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 E: Separate Account E 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 E. As of the date of this
Prospectus, we offer four Sub-accounts, each of which invests only in a single
corresponding portfolio of The Galaxy VIP Fund. You will find additional
information about the underlying mutual fund portfolios in the prospectus for
such fund. 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.
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 (and, where required by law, the
30 days prior to the 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; private
placements; 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 Standard & Poor's, Moody's Investor Services, Inc. or any
Nationally Recognized Statistical Rating Organization ("NRSRO").
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, Fleet Investment Advisors 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 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
set-up fee, the maintenance fee, a charge for taxes and a transfer 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
dollar cost averaging, Systematic Withdrawals, Minimum Distributions, and
additional reports. As of the date of this prospectus, we do not charge you for
any special services.
Set-Up Fee: We charge a $25.00 set-up fee if your initial Purchase Payment
is less than $10,000. Certain representations regarding the set-up fee are found
in the section entitled Administration Charge.
Maintenance Fee: A maintenance fee equaling the smaller of $30 or 2% of
your then current Account Value is deducted from the Account Values in the
Sub-accounts annually and upon surrender if your Account Value at the Valuation
Period such fee is payable is less than $50,000. 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 3 1/2%. 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
twelfth in any Annuity Year. However, the fee is only charged if there is
Account Value in at least one Sub-account immediately subsequent to such
transfer.
Allocation Of Annuity Charges: Any applicable set-up fee is deducted from
your initial Purchase Payment. 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. Tax charges are assessed against the entire
Purchase Payment or Account Value as applicable. The maintenance fee, if
applicable, 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 maintenance fee, if applicable, is used in calculating
Surrender Value.
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 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 Sub-accounts and Separate Account E 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, the set-up fee 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 Sub-accounts will not
be greater than the total anticipated costs. 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 E itself, preparing and
delivering confirmations and quarterly statements, processing transfer,
withdrawal and surrender requests, responding to Participant 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 set-up fee, 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 a Participant; (c)
the amount of Purchase Payments; and/or (d) other transactions where set-up,
maintenance and/or administration expenses are likely to be reduced.
Any elimination of the set-up fee, 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: The mortality risk charge is 0.30% per
year and the expense risk charge is 0.10% per year. These charges are assessed
in combination each day against each Sub-account at the rate of 0.40% 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.
CHARGES OF THE UNDERLYING MUTUAL FUNDS: The underlying mutual fund assesses
various charges for investment management and investment advisory fees. These
charges generally differ between the portfolios within the underlying mutual
fund. You will find additional details in the fund prospectus and the statement
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. 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.
Application And Initial Payment: Where allowed by law, you must meet our
underwriting requirements and forward a Purchase Payment if you seek to purchase
an Annuity. One requirement is that, at the time of issue of your Annuity, you
must be a customer of one or more subsidiaries of Fleet Financial Group, Inc.
These requirements may also 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 $5,000, unless you authorize the use of bank drafting to make Purchase
Payments (see "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.
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. We will accept an initial
Purchase Payment lower than our standard minimum Purchase Payment requirement of
$5,000 if you also furnish bank drafting instructions that provide amounts that
will meet a $1,000 minimum Purchase Payment requirement to be paid within 12
months. We will accept an initial Purchase Payment in an amount as low as $100,
but it must be accompanied by a bank drafting authorization form allowing
monthly Purchase Payments of at least $75.
Periodic Purchase Payments: We may, from time-to-time, offer opportunities
to make Purchase Payments automatically on a periodic basis, subject to our
rules. These opportunities may include, but are not limited to, certain salary
reduction programs agreed to by an employer. As of the date of this Prospectus,
we only agree to accept Purchase Payments on such a basis if: (a) we receive
your request In Writing for a salary reduction program and we agree to accept
Purchase Payments on this basis; (b) the allocations are only to variable
investment options or the frequency and number of allocations to fixed
investment options is limited in accordance with our rules; and (c) the total of
Purchase Payments in the first Annuity Year is scheduled to equal at least our
then current minimum requirements. We may also require an initial Purchase
Payment to be submitted by check or wire before agreeing to such a program. Our
minimum requirements may differ based on the usage of the Annuity, such as
whether it is being used in conjunction with certain retirement plans.
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". We return the greater of
the "standard refund" or the Purchase Payment received less any withdrawals if
necessary to meet Federal requirements for IRAs or certain state law
requirements. We tell you how we determine the amount payable under any such
right at the time we issue your Annuity.
For annuities subject to New York law notice given by mail and return of the
Annuity by mail are effective on being postmarked, properly addressed and
postage prepaid. If the Annuity is returned to the agent, other than by mail,
the effective date of surrender of the Annuity will be the date the Annuity is
received by the agent. The amount payable as to any amounts allocated to the
variable investment options equals the Account Value as of the date postmarked
or returned to the agent. If you choose to allocate any portion of your Purchase
Payment to the variable investment options, you bear the investment risk during
this period. The amount payable as to any amounts allocated to the fixed
investment options equals the greater of (i) the Purchase Payment less any
withdrawals, or (ii) the current Account Value of the Annuity on the date the
cancellation request is either postmarked or returned to the agent.
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 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 GAL Money Market 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 GAL Money Market 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 are only entitled to the return of the "standard
refund" (see "Right to Return the Annuity").
Balanced Investment Program: We offer a balanced investment program in
relation to your initial Purchase Payment, if Fixed Allocations are available
under your Annuity. If you choose this program, we commit a portion of your
initial Net Purchase Payment 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 initial Purchase Payment at the end of its initial Guarantee
Period, if no amounts are transferred or withdrawn from such Fixed Allocation.
The rest of your initial Net Purchase Payment is invested in the other
investment options you select.
Participant, 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 a Participant, a contingent
Participant, 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.
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.
A Participant must be named. You may name more than one Participant. If you do,
all rights reserved to Participants are then held jointly. We require the
consent In Writing of all joint Participants for any transaction for which we
require the written consent of Participants. 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
Participant may have gift, estate or other tax implications.
You may name a contingent Participant, where allowed by law. 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 nor 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 extend 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 at the time of the death upon which 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 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.
The formula that applies if amounts are surrendered pursuant to the right to
return the Annuity is [(1 + I)/(1 + J)]N/12.
No MVA applies in determining a Fixed Allocation's Account Value on its Maturity
Date, and, where required by law, the 30 days prior to the 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 a 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 a Fixed Allocation. See the
Statement of Additional Information for an illustration of how the MVA works.
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 and on the following pages. 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 fund portfolio 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. 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 $500, unless we authorize lower payments pursuant to a periodic
Purchase Payment Program (see "Periodic Purchase Payments") or less where
required by law. If payments are made by salary deduction, the minimum payment
is $50.00. 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 most recent instructions for allocation of
Net Purchase Payments.
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 Participant, 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 Participant subsequent to the death of the Participant or
the first of any joint Participants to die, except where a spouse-Beneficiary
has become the Participant as a result of an Participant's death; (b) a new
Participant or Annuitant who does not meet our then current underwriting
guidelines; (c) a new Annuitant subsequent to the Annuity Date if the annuity
option selected includes a life contingency; and (d) 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 all four currently available Sub-accounts. Currently, you may also maintain
an unlimited number of Fixed Allocations. We reserve the right, to the extent
permitted by law, to limit the number of fixed allocations or the amount you may
allocate to any Fixed Allocation. 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.
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 twelfth in any Annuity
Year, including transfers transacted as part of a dollar cost averaging program
(see "Dollar Cost Averaging") or any rebalancing, market timing, asset
allocation or similar program which you authorize to be employed on your behalf.
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.
Where permitted, we reserve the right to limit the number of transfers in any
Annuity Year for all existing or new Participants. We also reserve the right to
limit the number of transfers in any Annuity Year or to refuse any transfer
request for a Participant or certain Participants if we believe that: (a)
excessive trading by such Participant or Participants 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.
To the extent permitted by law, we may request up to 2 business days notice of
any transfer into or out of a Fixed Allocation if the market value of such
transfer is at least $1,000,000.00.
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 1-800-444-3970.
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 to
you 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 you, and/or
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, transferring Account Values
between 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, and where
required by law, the 30 days prior to the 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 $25,000 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 applicability 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. As of the date of
this prospectus, we currently do not permit dollar cost averaging programs where
Account Value is transferred to Fixed Allocations. We also reserve the right to
charge a processing fee for this service. 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 an 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; and (f) 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").
Distributions: Distributions available from your Annuity during the
accumulation phase include surrender, 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. Your Annuity must accompany your surrender
request.
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.
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 accrued after the program of
Systematic Withdrawals begins, or payments of fixed dollar amounts that do not
exceed such earnings. A program of Systematic Withdrawals begins on the date we
accept, at our Office, your request for such a program. 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.
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
later of the beginning of its then current Guarantee Period or the
beginning of the Systematic Withdrawal program; and
C is the total of all partial or free withdrawals and any transfers
from such Fixed Allocation since the later of the beginning of its
then current Guarantee Period or the beginning of the Systematic
Withdrawal program.
We offer Systematic Withdrawals 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").
The Surrender Value of your Annuity must be at least $25,000 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.
We reserve the right to charge a processing fee for this service. 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.
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").
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 Participants. If the Annuity is owned by an entity, the
death benefit is payable upon the Annuitant's death (if there is no Contingent
Annuitant). For applicable deaths occurring prior to age 85 of the deceased, the
death benefit is the greater of (a) or (b), where: (a) is your Account Value in
any Sub-accounts plus the Interim Value of your Fixed Allocations; and (b) is
the minimum death benefit. The minimum death benefit is the total of each
Purchase Payment less the total of all withdrawals, of any type. Where allowed
by law, for applicable deaths occurring on or after age 85 of the deceased, the
death benefit is the Account Value.
The amount of the death benefit is determined as of the date we receive In
Writing "due proof of death". The following constitutes "due proof of death":
(a)(i) a certified copy of a death certificate, (ii) a certified copy of a
decree of a court of competent jurisdiction as to the finding of death, or (iii)
any other proof satisfactory to us; (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 Participant. 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 Participant and the Beneficiary is the Participant's spouse, then in lieu
of receiving the death benefit, such Participant's spouse may elect to be
treated as a Participant 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. If the Participant is one or more natural persons, the
oldest of any such Participants 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. For Annuities issued subsequent to our implementation of
a change, we do not guarantee any commutation rights unless required by law. For
Annuities issued prior to implementation of such change, we will commute any
remaining "certain" payments and pay a lump sum if elected by you or, in the
absence of specific instructions by you, by the Beneficiary. To the extent
permitted by law, we will commute any "certain" payments pursuant to such
Annuities using the same interest rate assumed in determining the annuity
payments then due.
In the payout phase, we distribute any payments due subsequent to the death of
any Participant at least as rapidly as under the method of distribution in
effect as of the date of such Participant's death.
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. For annuities subject to New York and
Pennsylvania law, the Annuity Date 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. For Annuities
subject to New York law, 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. 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"). The 3% interest rate noted above is 4% for Annuities issued
prior to the date we implemented this change.
You may elect to have any amount of the proceeds due to the Beneficiary applied
under any of the options described below. Except where a lower amount is
required by law, the minimum monthly annuity payment is $50.
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
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 a Participant 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 on 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 annuity rates for that type of
annuity and for the frequency of payment selected. Our 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. The 3% rates noted above
are 4% for annuities issued prior to the date we implemented the change.
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"). With respect to the restrictions on withdrawals set forth
above, the Company is relying upon 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 the Company.
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 asset allocation or similar program, and annuity payments.
(2) We price "unscheduled" transfers and partial withdrawals as of the
date we receive In Writing at our Office the request for such transactions.
"Unscheduled" transfers include any transfers processed in conjunction with any
market timing, asset allocation or similar program which 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 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" 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 Participants. Participants 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 Participants, 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 Participants 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 Participants 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 Investment Company Act of 1940.
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.
Reports to You: We mail to Owners, at their last known address of record,
any statements and reports required by applicable law or regulation. Owners
should therefore give us prompt notice of any address change. We send a
confirmation statement to Owners each time a transaction is made affecting
Account Value, such as making additional Purchase Payments, transfers, exchanges
or withdrawals. Quarterly statements are also mailed detailing the activity
affecting your Annuity during the calendar quarter. You may request additional
reports. We reserve the right to charge up to $50 for each such additional
report. Instead of immediately confirming transactions made pursuant to some
type of periodic transfer program (such as a dollar cost averaging program) or a
periodic Purchase Payment program, such as a salary reduction arrangement, we
may confirm such transactions in quarterly statements. You should review the
information in these statements carefully. All errors or corrections must be
reported to us at our Office immediately to assure proper crediting to your
Annuity. For transactions for which we immediately send confirmations, we assume
all transactions are accurate unless you notify us otherwise within 30 days
after the date of the transaction. For transactions that are only confirmed on
the quarterly statement, we assume all transactions are accurate unless you
notify us within 30 days of the end of the calendar quarter. We may also send to
Owners each year an annual report and a semi-annual report containing financial
statements for the applicable Sub-accounts, as of December 31 and June 30,
respectively.
SALE OF THE ANNUITIES: American Skandia Marketing, Incorporated ("ASM,
Inc."), formerly Skandia Life Equity Sales Corporation, 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
eligible entities may offer Annuities to persons or entities who have
established an account with the broker-dealer or eligible entity. Such eligible
persons also will be customers of one or more subsidiaries of Fleet Financial
Group, Inc. The investment advisor of the underlying mutual fund, Fleet
Investment Advisors, Inc., is a subsidiary of Fleet Financial Group, Inc. In
certain cases, the broker-dealer may also be an affiliate of the investment
advisor of the underlying mutual fund. ASM, Inc. may offer Annuities directly to
potential purchasers.
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 fund portfolios to such conditions. Actual performance will
also depend on changes in the expenses of the underlying mutual fund portfolios.
Such changes are reflected, in turn, in the Sub-accounts which invests in such
underlying mutual fund portfolios. In addition, the amount of charges assessed
against each Sub-account will affect performance.
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, Morningstar Mutual Fund Source
Book and the Morningstar Variable Annuity/Life Source Book.
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 E.
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 participant 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.
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%, or at least 4% if required by your contract, 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 funds or 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 funds or portfolios. It is possible that differences
might arise between our Separate Account E 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 or 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 E 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 E under the 1940 Act; (f) operate Separate Account E
as a management investment company under the 1940 Act 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 1940 Act; (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 E.
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 E, 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.
THE COMPANY: American Skandia Life Assurance Corporation is a stock
insurance company domiciled in Connecticut with licenses in all 50 states. It 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, and American Skandia Information Services and Technology
Corporation, may undertake certain administrative functions on our behalf. Our
affiliate, American Skandia Investment Services, Incorporated, currently acts as
the investment manager to the American Skandia Trust. We currently engage
Skandia Investment Management, Inc., an affiliated 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.
During 1995, Skandia Vida, S.A. de C.V. was formed by the ultimate parent
Skandia Insurance Company Ltd. The Company owns 99.9% ownership in Skandia Vida,
S.A. de C.V. which is a life insurance company domiciled in Mexico. This Mexican
life insurer is a start up company with expectations of selling long term
savings product within Mexico. Total shareholders' equity of Skandia Vida, S.A.
de C.V. is $881,648 at December 31, 1995.
Lines of Business: The Company is in the business of issuing annuity
policies, and has been so since its business inception in 1988. The Company
currently offers the following annuity products: a) certain deferred annuities
that are registered with the Securities and Exchange Commission, including
variable annuities and fixed interest rate annuities that include a market value
adjustment feature; 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, 1995, 1994, 1993, 1992 and 1991 has not been audited.
The selected financial data has been derived from the full financial statements
for the years ended December 31, 1995, 1994, 1993, 1992 and 1991 which were
presented in accordance with generally accepted accounting principles and which
were audited by Deloitte & Touche LLP, independent auditors, whose report
thereon is included herein.
<TABLE>
<CAPTION>
Income Statement Data:
1995 1994 1993 1992 1991
---- ----- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C> <C>
Net investment income $ 1,600,674 $ 1,300,217 $ 692,758 $ 892,053 $ 723,253
Annuity premium income 0 70,000 101,643 1,304,629 2,068,452
Annuity charges and fees* 38,837,358 24,779,785 11,752,984 4,846,134 1,335,079
Net realized capital gains (losses) 36,774 (1,942) 330,024 195,848 4,278
Fee income 6,205,719 2,111,801 938,336 125,179 0
Other income 64,882 24,550 1,269 15,119 45,010
----------- ------------ ----------- ---------- ----------
Total revenues $46,745,407 $ 28,284,411 $13,817,014 $7,378,962 $4,176,072
=========== =========== =========== ========== ==========
Benefits and Expenses:
Return credited to contractowners 10,612,858 (516,730) 252,132 560,243 235,470
Cost of minimum death benefit reinsurance 2,056,606 0 0 0 0
Annuity benefits 555,421 369,652 383,515 276,997 107,536
Increase/(decrease) in annuity policy reserves (6,778,756) 5,766,003 1,208,454 1,331,278 2,045,722
Underwriting, acquisition and
other insurance expenses 35,970,524 18,942,720 9,547,951 11,338,765 7,294,400
Interest expense 6,499,414 3,615,845 187,156 0 0
------------- ----------- ----------- ----------- ----------
Total benefits and expenses $48,916,067 $ 28,177,490 $11,579,208 $13,507,283 $9,683,128
============= =========== =========== =========== ==========
Income tax $ 397,360 $ 247,429 $ 182,965 $ 0 $ 0
============= ============ =========== ============ ==========
Net income (loss) $ (2,568,020) $ 140,508) $ 2,054,841 $ (6,128,321) ($5,507,056
============== ============= ============ ============ ===========
Balance Sheet Data:
Total Assets $5,021,012,890 $2,864,416,329 $1,558,548,537 $552,345,206 $239,435,675
============== ============== ============== ============ ============
Surplus Notes $103,000,000 $ 69,000,000 $ 20,000,000 $ 0 $ 0
============ =========== ============== ============ ============
Shareholder's Equity $59,713,00 $ 52,205,524 $ 52,387,687 $ 46,332,846 $ 14,292,772
========== ============ ============== ============ ============
</TABLE>
*On annuity sales of $1,628,486,000, $1,372,874,000, $890,640,000, $287,596,000,
and $141,017,000 during the years ended December 31, 1995, 1994, 1993, 1992 and
1991, respectively, with contractowner assets under management of
$4,704,044,001, $2,661,161,000, $1,437,554,000, $495,176,000, and $217,425,000
as of December 31, 1995, 1994, 1993, 1992, and 1991, 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 Operation: The Company's long term business plan was developed
reflecting the current sales and marketing approach. Annuity sales increased
19%, 54% and 210% in 1995, 1994 and 1993, respectively. The Company continues to
show significant growth in sales volume and increased market share within the
variable annuity industry. Total assets grew 75%, 84% and 182% in 1995, 1994 and
1993, respectively. These increases were a direct result of the substantial
sales volume increasing separate account assets and deferred acquisition costs.
Liabilities grew 76%, 87%, and 198% in 1995, 1994 and 1993, respectively, as a
result of the reserves required for the increased sales activity and borrowing
during 1995, 1994 and 1993. The borrowing is needed to fund the acquisition
costs of the Company's variable annuity business.
The Company experienced a net loss after tax in 1995 and 1994, which was in
excess of plan. The 1995 result was related to higher than anticipated expense
levels and additional reserving requirements on our market value adjusted
annuities. The increase in expenses was primarily attributable to improving our
service infrastructure and marketing related costs.
The 1994 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.
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 57%, 111% and 143% in 1995, 1994 and 1993,
respectively.
Net investment income increased 23% and 88% in 1995 and 1994, respectively,
and decreased 22% in 1993. The increase in 1995 is a result of a higher average
level of Company bonds and short-term investments. The increase in 1994 is a
result of an 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 194%, 125% and 650% in 1995, 1994 and 1993,
respectively, as a result of income from transfer agency type activities.
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. During 1995 the Company entered into an
agreement to reinsure the guaranteed minimum death benefit exposure on most of
the variable annuity contracts. The costs associated with reinsuring the minimum
death benefit reserve approximates the change in the minimum death benefit
reserve during 1995, thereby having no significant effect on the statement of
operations. 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 contract.
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. In 1995, the Company earned a lower than anticipated separate account
investment return on the market value adjusted contracts in support of the
benefits and required reserves. In addition, the 1995 result includes an
increase in the required reserves associated with this product.
The result for 1994 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.
Underwriting, acquisition and other insurance expenses for 1995 is made up
of $62.8 million of commissions and $42.2 million of general expenses offset by
the net capitalization of deferred acquisition costs totaling $69.2 million.
This compares to the same period last year 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.
Underwriting, acquisition and other insurance expenses in 1993 were made up
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.
Interest expense increased $2.9 million and $3.4 million in 1995 and 1994,
respectively, as a result of Surplus Notes totaling $103 million and $69
million, at 1995 and 1994, respectively.
Liquidity and Capital Resources: The liquidity requirement of ASLAC was met
by cash from insurance operations, investment activities and borrowings from its
parent.
As previously stated, the Company had significant growth during 1995. The
sales volume of $1.628 billion was primarily (approximately 80%) 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 1995, the Company borrowed an additional $34 million from its
parent in the form of Surplus Notes and extended the reinsurance agreement
(which was initiated in 1993 and 1994) along with entering into a third
reinsurance agreement with a large reinsurer in support of its cash needs. 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.
As of December 31, 1995 and December 31, 1994, shareholder's equity was
$59,713,000 and $52,205,524 respectively, which includes the carrying value of
the state insurance licenses in the amount of $4,862,500 and $5,012,500
respectively.
ASLAC 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: The Company cedes reinsurance under modified coinsurance
arrangements. The reinsurance arrangements provide additional capacity for
growth in supporting the cash flow strain from the Company's variable annuity
business. The reinsurance is effected under quota share contracts.
Effective January 1, 1995, the Company reinsured certain mortality risks.
These risks result from the guaranteed minimum death benefit feature in the
variable annuity products.
The effect of the reinsurance agreements on the Company's operations was to
reduce annuity charges and fee income, death benefit expense, and policy
reserves.
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.
Surplus Notes: During 1995, the Company received $34 million from its
parent in exchange for three surplus notes. The amounts were $10 million, $15
million and $9 million, at interest rates of 7.52%, 7.49% and 7.47%,
respectively. Interest expense for these notes was $83,281 for the year ended
December 31, 1995.
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 expense for these notes was
$4,319,612 and $1,618,504 for the years ended December 31, 1995 and 1994,
respectively.
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 expense for this note was $1,387,000, $1,387,000 and $11,400 for the
years ended December 31, 1995, 1994 and 1993, respectively.
Payment of interest and repayment of principal for these notes requires
approval by the Commissioner of the State of Connecticut. In 1995, approval was
granted for the payment of surplus note interest with the stipulation that it be
funded through a capital contribution from the Parent.
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, 1995, we had 198 direct salaried employees.
An affiliate, American Skandia Information Services and Technology Corporation,
which provides services almost exclusively to us, had 67 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.
Executive Officers and Directors:
Our executive officers, directors and certain significant employees, 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.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name/ Position with American Skandia
Age Life Assurance Corporation Principal Occupation
Alan Blank Employee Vice President and,
47 National Sales Manager:
American Skandia
Marketing, Incorporated
Mr. Blank joined us in 1994. He previously held the position of Vice-Chairman at Liberty Securities.
<FN>
Gordon C. Boronow* President President and
43 and Chief Chief Operating Officer:
Operating Officer, American Skandia Life
Director (since July, 1991) Assurance Corporation
</FN>
Nancy F. Brunetti Senior Vice President, Senior Vice President, Business and
34 Business and Application Application Development:
Development American Skandia Life
Director (since February, 1996) 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,
40 Assurance and Financial
Services Division:
Skandia Insurance Company Ltd.
<FN>
Jan R. Carendi* Chief Executive Executive Vice President and
51 Officer and Member of Corporate Management Group:
Chairman of the Skandia Insurance Company Ltd.
Board of Directors
Director (since May, 1988)
</FN>
Lincoln R. Collins Senior Vice President, Senior Vice President,
Product Management Product Management:
35 Director (since February, 1996) American Skandia Life
Assurance Corporation
Henrik Danckwardt Director (since July, 1991) Director of Finance
42 and Administration,
Assurance and Financial
Services Division:
Skandia Insurance Company Ltd.
Wade A. Dokken Director (since July, 1991) Director:
36 and Employee American Skandia Life
Assurance Corporation;
President, Chief Operating Officer
and Chief Marketing Officer:
American Skandia Marketing, Incorporated
N. David Kuperstock Vice President, Vice President,
44 Product Development Product Development:
American Skandia Life
Assurance Corporation
Thomas M. Mazzaferro Executive Vice President and Executive Vice President and
43 Chief Financial Officer, Chief Financial Officer:
Director (since October, 1994) American Skandia Life
Assurance Corporation
Dianne B. Michael Senior Vice President, Senior Vice President,
41 Customer Service Customer Service:
Director (since February, 1996) 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,
41 Assurances and Financial
Services Division:
Skandia Insurance Company Ltd.
M. Patricia Paez Assistant Vice President Assistant Vice President
35 and Corporate Secretary and Corporate Secretary:
American Skandia Life
Assurance Corporation
Don Thomas Peck Employee Vice President,
52 National Sales Manager:
American Skandia
Marketing, Incorporated
Mr. Peck joined us in 1995. He previously held the position of Regional Vice President with MFS Financial Services Inc.
Rodney D. Runestad Vice President and Vice President and
46 Valuation Actuary Valuation Actuary:
American Skandia Life
Assurance Corporation
Hayward Sawyer Employee Vice President and
51 National Sales Manager:
American Skandia
Marketing, Incorporated
Mr. Sawyer joined us in 1994. He previously held the position of Regional Vice President with AIM Distributors, Inc.
Todd L. Slade Vice President, Vice President,
38 Applications Development Applications Development:
American Skandia Life
Assurance Corporation
Anders O. Soderstrom Director (since October, 1994) President and
36 Chief Operating Officer:
American Skandia Information
Services and Technology Corporation
Amanda C. Sutyak Executive Vice President Executive Vice President
38 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
45 Director (since December, 1994) and Corporate Controller:
American Skandia Investment
Holding Corporation
Mr. Svensson joined us in 1994. He previously held the position of Senior Vice President with Nordenbanken.
Bayard F. Tracy Senior Vice President, Senior Vice President,
48 Institutional Sales, Institutional Sales and Marketing:
Director (since October, 1994) American Skandia Life
Assurance Corporation
</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 1995 $200,315
Chief Executive Officer 1994 170,569
1993 214,121
Gordon C. Boronow 1995 $157,620
President & Chief 1994 129,121
Operating Officer 1993 123,788
Lincoln R. Collins 1995 $156,550
Senior Vice President 1994 92,700
Product Management 1993 72,100
N. David Kuperstock 1995 $133,120
Vice President, Product 1994 103,000
Development 1993 88,864
Bayard F. Tracy 1995 $168,052
Senior Vice President 1994 127,050
Institutional Sales 1993 123,363
</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 $100,000 in the fiscal year immediately
preceding the date of this Prospectus. This program is designed to induce
participants to remain with the company over long periods of time and to tie a
portion of their compensation to the fortunes of the company. Currently, the
program consists of multiple plans. A new plan may be instituted each year.
Participants are awarded units at the beginning of a plan. Generally,
participants must remain employed by the company or its affiliates at the time
such units are payable in order to receive any payments under the plan. There
are certain exceptions, such as in cases of retirement or death.
Changes in the value of units reflect changes in the "embedded value" of
the company. "Embedded value" is the net asset value of the company (valued at
market value and not including the present value of future profits), plus the
present value of the anticipated future profits (valued pursuant to state
insurance law) on its existing contracts. Units will not have any value for
participants if the embedded value does not increase by certain target
percentages during the first four years of a plan. The target percentages may
differ between each plan. Any amounts available under a plan are paid out in the
fifth through eighth years of a plan. Payments will be postponed if the payment
would exceed 20% of any profit (as determined under state insurance law) earned
by the company in the prior fiscal year or 30% of the individual's current year
salary. The amount to be received by a participant at the time any payment is
due will be the then current number of units payable multiplied by the then
current value of such units.
<PAGE>
<TABLE>
<CAPTION>
---------Estimated Future Payouts---------
Name Number of Units Period Until Payout Threshold Target Maximum
(#) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
Number Period until Estimated Future Payouts
Name of Units Payout Threshold Target Maximum
Jan R. Carendi 120,000 Various $648,060
Gordon C. Boronow 110,000 Various $561,558
Lincoln R. Collins 36,750 Various $198,807
N. David Kuperstock 32,000 Various $200,968
Bayard E. Tracy 52,500 Various $286,263
</TABLE>
Compensation of Directors: The following directors were compensated as
shown below in 1995:
Malcolm M. Campbell $4,000 Gunnar Moberg $2,500
Henrik Danckwardt $4,000
Compensation Committee Interlocks and Insider Participation: The
compensation committee of our board of directors as of December 31, 1995
consisted of Malcolm M. Campbell and Henrik Danckwardt.
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
(8) Financial Statements for Separate Account E
FINANCIAL STATEMENTSFINANCIAL STATEMENTS: The financial statements which follow
are those of American Skandia Life Assurance Corporation for the years ended
December 31, 1995, 1994 and 1993, respectively. Financial statements for
Separate Account E are found in the Statement of Additional Information.
<PAGE>
APPENDIXES
APPENDIX A FINANCIAL STATEMENTS FOR AMERICAN SKANDIA LIFE ASSURANCE
CORPORATION
APPENDIX B SHORT DESCRIPTIONS OF THE UNDERLYING MUTUAL FUNDS'
PORTFOLIO INVESTMENT OBJECTIVES AND POLICIES
<PAGE>
- --------------------------------------------------------------------------------
2
- --------------------------------------------------------------------------------
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 consolidated statements of financial condition
of American Skandia Life Assurance Corporation (a wholly-owned subsidiary of
Skandia Insurance Company Ltd.) as of December 31, 1995 and 1994, and the
related consolidated statements of operations, shareholder's equity, and cash
flows for each of the three years in the period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements present fairly, in all
material respects, the consolidated financial position of American Skandia Life
Assurance Corporation as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
March 14, 1996
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1995 1994
--------------------- ----------------------
ASSETS
Investments:
<S> <C> <C>
Fixed maturities - at amortized cost $ 10,112,705 $ 9,621,865
Investment in mutual funds - at market value 1,728,875 840,637
Short-term investments - at amortized cost 15,700,000 24,000,000
--------------------- ----------------------
Total investments 27,541,580 34,462,502
Cash and cash equivalents 13,146,384 23,909,463
Accrued investment income 194,074 173,654
Fixed assets 82,434 0
Deferred acquisition costs 270,222,383 174,009,609
Reinsurance receivable 1,988,042 0
Receivable from affiliates 860,991 459,960
Income tax receivable 563,850 0
State insurance licenses 4,862,500 5,012,500
Other assets 1,589,006 1,261,513
Separate account assets 4,699,961,646 2,625,127,128
--------------------- ----------------------
Total Assets $ 5,021,012,890 $ 2,864,416,329
===================== ======================
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES:
Reserve for future contractowner benefits $ 30,493,018 $ 11,422,381
Annuity policy reserves 19,386,490 24,054,255
Income tax payable 0 36,999
Accounts payable and accrued expenses 32,816,517 31,753,380
Payable to affiliates 314,699 261,552
Payable to reinsurer 64,995,470 40,105,406
Short-term borrowing-affiliate 10,000,000 10,000,000
Surplus notes 103,000,000 69,000,000
Deferred contract charges 332,050 449,704
Separate account liabilities 4,699,961,646 2,625,127,128
--------------------- ----------------------
Total Liabilities 4,961,299,890 2,812,210,805
--------------------- ----------------------
SHAREHOLDER'S EQUITY:
Common stock, $80 par, 25,000 shares
authorized, issued and outstanding 2,000,000 2,000,000
Additional paid-in capital 81,874,666 71,623,932
Unrealized investment gains and losses 111,359 (41,655)
Foreign currency translation (328,252) 0
Accumulated deficit (23,944,773) (21,376,753)
--------------------- ----------------------
Total Shareholder's Equity 59,713,000 52,205,524
--------------------- ----------------------
Total Liabilities and Shareholder's $ 5,021,012,890 $ 2,864,416,329
Equity
===================== ======================
</TABLE>
See notes to consolidated financial statements
10
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1995 1994 1993
---------------- ---------------- ---------------
REVENUES:
<S> <C> <C> <C>
Annuity charges and fees $ 38,837,358 $ 24,779,785 $ 11,752,984
Fee Income 6,205,719 2,111,801 938,336
Net investment income 1,600,674 1,300,217 692,758
Annuity premium income 0 70,000 101,643
Net realized capital gains/(losses) 36,774 (1,942) 330,024
Other 64,882 24,550 1,269
---------------- ---------------- ---------------
Total Revenues 46,745,407 28,284,411 13,817,014
---------------- ---------------- ---------------
BENEFITS AND EXPENSES:
Benefits:
Annuity benefits 555,421 369,652 383,515
Increase/(decrease) in annuity policy reserves (6,778,756) 5,766,003 1,208,454
Cost of minimum death benefit reinsurance 2,056,606 0 0
Return credited to contractowners 10,612,858 (516,730) 252,132
---------------- ---------------- ---------------
6,446,129 5,618,925 1,844,101
---------------- ---------------- ---------------
Expenses:
Underwriting, acquisition and other insurance expenses 35,820,524 18,792,720 9,397,951
Amortization of state insurance licenses 150,000 150,000 150,000
Interest expense 6,499,414 3,615,845 187,156
---------------- ---------------- ---------------
42,469,938 22,558,565 9,735,107
---------------- ---------------- ---------------
Total Benefits and Expenses 48,916,067 28,177,490 11,579,208
---------------- ---------------- ---------------
Income (loss) from operations before federal income taxes (2,170,660) 106,921 2,237,806
Income tax 397,360 247,429 182,965
---------------- ---------------- ---------------
Net income (loss) $ (2,568,020) $ (140,508) $ 2,054,841
================ ================ ===============
</TABLE>
See notes to consolidated financial statements
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1995 1994 1993
----------------- --------------- ---------------
<S> <C> <C> <C>
Common stock, balance at beginning and end of year $ 2,000,000 $ 2,000,000 $ 2,000,000
----------------- --------------- ---------------
Additional paid-in capital:
Balance at beginning of year 71,623,932 71,623,932 67,623,932
Additional contributions 10,250,734 0 4,000,000
----------------- --------------- ---------------
Balance at end of year 81,874,666 71,623,932 71,623,932
----------------- --------------- ---------------
Unrealized investment gains and losses:
Balance at beginning of year (41,655) 0 0
Change in unrealized investment gains and losses 153,014 (41,655) 0
----------------- --------------- ---------------
Balance at end of year 111,359 (41,655) 0
----------------- --------------- ---------------
Foreign currency translation:
Balance at beginning of year 0 0 0
Change in foreign currency translation (328,252) 0 0
----------------- --------------- ---------------
Balance at end of year (328,252) 0 0
----------------- --------------- ---------------
Accumulated deficit:
Balance at beginning of year (21,376,753) (21,236,245) (23,291,086)
Net income (loss) (2,568,020) (140,508) 2,054,841
----------------- --------------- ---------------
Balance at end of year (23,944,773) (21,376,753) (21,236,245)
----------------- --------------- ---------------
TOTAL SHAREHOLDER'S EQUITY $ 59,713,000 $ 52,205,524 $ 52,387,687
================= =============== ===============
</TABLE>
See notes to consolidated financial statements
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1995 1994 1993
------------------ ------------------- -----------------
CASH FLOW FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ (2,568,020) $ (140,508) $ 2,054,841
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
(Decrease)/increase in annuity policy reserves (4,667,765) 6,004,603 4,223,289
Decrease in policy and contract claims 0 0 (52,400)
Amortization of bond discount 23,449 21,964 6,754
Amortization of state insurance licenses 150,000 150,000 150,000
(Decrease)/increase in due to/from affiliates (347,884) 256,779 (397,125)
Change in income tax payable/receivable (600,849) 36,999 0
Increase in other assets (409,927) (742,041) (220,172)
(Increase)/decrease in accrued investment income (20,420) (44,847) 154,902
Change in reinsurance receivable (1,988,042) 0 0
Increase in accounts payables and accrued expenses 1,063,137 13,396,502 14,005,962
Change in deferred acquisition costs (96,212,774) (83,986,073) (57,387,042)
Change in deferred contract charges (117,654) (71,117) 13,898
Change in foreign currency translation (328,252) 0 0
Realized (gain)/loss on sale of investments (36,774) 1,942 (330,024)
------------------ ------------------- -----------------
Net cash used in operating activities (106,061,775) (65,115,797) (37,777,117)
------------------ ------------------- -----------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of fixed maturity investments (614,289) (1,989,120) (6,847,630)
Proceeds from the maturity of fixed maturity investments 100,000 2,010,000 0
Proceeds from the sale of fixed maturity investments 0 0 10,971,574
Purchase of shares in mutual funds (1,566,194) (922,822) 0
Proceeds from sale of shares in mutual funds 867,744 38,588 0
Purchase of short-term investments (202,700,000) (513,100,000) (1,207,575,307)
Sale of short-term investments 211,000,000 508,500,000 1,202,333,907
Investments in separate accounts (1,609,415,439) (1,365,775,177) (890,125,018)
------------------ ------------------- -----------------
Net cash used in investing activities (1,602,328,178) (1,371,238,531) (891,242,474)
------------------ ------------------- -----------------
CASH FLOW FROM FINANCING ACTIVITIES:
Capital contributions from parent 10,250,734 0 4,000,000
Surplus notes 34,000,000 49,000,000 20,000,000
Short-term borrowing 0 0 10,000,000
Increase in payable to reinsurer 24,890,064 28,555,190 11,550,216
Proceeds from annuity sales 1,628,486,076 1,372,873,747 890,639,947
------------------ ------------------- -----------------
Net cash provided by financing activities 1,697,626,874 1,450,428,937 936,190,163
------------------ ------------------- -----------------
Net increase/(decrease) in cash and cash equivalents (10,763,079) 14,074,609 7,170,572
Cash and cash equivalents at beginning of year 23,909,463 9,834,854 2,664,282
------------------ ------------------- -----------------
Cash and cash equivalents at end of year $ 13,146,384 $ 23,909,463 $ 9,834,854
================== =================== =================
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Income taxes paid $ 995,496 $ 161,398 $ 169,339
================== =================== =================
Interest paid $ 540,319 $ 557,639 $ 111,667
================== =================== =================
</TABLE>
See notes to consolidated financial statements
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements
1. BUSINESS OPERATIONS
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, American Skandia Marketing,
Incorporated. The Company currently issues variable, fixed, market
value adjusted and immediate annuities.
During 1995, Skandia Vida, S.A. de C.V. was formed by the ultimate
parent Skandia Insurance Company Ltd. The Company owns 99.9% ownership
in Skandia Vida, S.A. de C.V. which is a life insurance company
domiciled in Mexico. This Mexican life insurer is a start up company
with expectations of selling long term savings product within Mexico.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Reporting
------------------
The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting
principles. Intercompany transactions and balances have been
eliminated in consolidation.
B. Investments
-----------
The Company has classified its fixed maturity investments as
held to maturity as the Company has the ability and intent to
hold those investments to maturity. Such investments are
carried at amortized cost.
The Company has classified its mutual fund investments as
available for sale. Such investments are carried at market
value and changes in unrealized gains and losses are reported
as a component of shareholder's equity.
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.
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
adoption of SFAS No. 115 had no impact on the Company's
financial statements.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
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. State Insurance 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.
E. Fixed Assets
------------
Fixed Assets consisting of furniture, equipment and leasehold
improvements are carried at cost and depreciated on a straight
line basis over a period of three to five years. Accumulated
depreciation at December 31, 1995 and related depreciation
expense for the year ended December 31, 1995 was $3,749.
F. 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 $1,628,486,000, $1,372,874,000 and
$890,640,000 for 1995, 1994 and 1993, respectively. Annuity
contract assets under management were $4,704,044,000,
$2,661,161,000 and $1,437,554,000 at December 31, 1995, 1994
and 1993, respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
G. 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:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $174,009,609 $ 90,023,536 $32,636,494
Acquisition costs deferred
during the year 106,063,698 85,801,180 59,676,296
Acquisition costs amortized
during the year 9,850,924 1,815,107 2,289,254
------------- --------------- -------------
Balance at end of year $270,222,383 $174,009,609 $90,023,536
============ ============= ===========
</TABLE>
H. 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:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $449,704 $520,821 $506,923
Contract charges deferred
during the year 21,513 87,114 144,537
Contract charges amortized
during the year 139,167 158,231 130,639
--------- --------- ---------
Balance at end of year $332,050 $449,704 $520,821
======== ======== ========
</TABLE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
I. Separate Accounts
-----------------
Assets and liabilities in Separate Account are shown as
separate captions in the consolidated 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 $586,233,752 and
$259,556,863 at December 31, 1995 and 1994, respectively,
relating to annuity contracts for which the contractholder is
guaranteed a fixed rate of return. Separate Account assets of
$588,835,051 and $269,488,557 at December 31, 1995 and 1994,
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.
J. Income taxes
------------
The Company is included in the consolidated federal income tax
return with all Skandia Insurance Company Ltd. subsidiaries in
the U.S. The federal and state income tax provision is
computed on a separate return basis in accordance with the
provisions of the Internal Revenue Code, as amended. Prior to
1995, the Company filed a separate federal income tax return.
K. Translation of Foreign Currency
-------------------------------
The financial position and results of operations of the
Company's foreign operations are measured using local currency
as the functional currency. Assets and liabilities of the
operations are translated at the exchange rate in effect at
each year-end. Statements of operations and shareholder's
equity accounts are translated at the average rate prevailing
during the year. Translation adjustments arising from the use
of differing exchange rates from period to period are included
in shareholder's equity.
L. Estimates
---------
The preparation of financial statements in conformity with
generally accepted accounting principles requires that
management make estimates and assumptions that affect the
reported amount of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. The more significant
estimates and assumptions are related to deferred acquisition
costs and involve policy lapses, investment return and
maintenance expenses. Actual results could differ from those
estimates.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
M. Reinsurance
-----------
The Company cedes reinsurance under modified co-insurance
arrangements. The reinsurance arrangements provides additional
capacity for growth in supporting the cash flow strain from
the Company's variable annuity business. The reinsurance is
effected under quota share contracts.
Effective January 1, 1995, the Company reinsured certain
mortality risks. These risks result from the guaranteed
minimum death benefit feature in the variable annuity
products.
3. INVESTMENTS
The carrying value (amortized cost), gross unrealized gains (losses)
and estimated market value of investments in fixed maturities by
category as of December 31, 1995 and 1994 are shown below. All
securities held at December 31, 1995 are publicly traded.
Investments in fixed maturities as of December 31, 1995 consist of the
following:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Government
Obligations $ 4,304,731 $183,201 $1,778 $4,486,154
Obligations of
State and Political
Subdivisions 256,095 0 3,165 252,930
Corporate
Securities 5,551,879 13,252 346 5,564,785
------------- ---------- -------- ------------
Totals $10,112,705 $196,453 $5,289 $10,303,869
=========== ======== ====== ===========
</TABLE>
The amortized cost and market value of fixed maturities, by contractual
maturity, at December 31, 1995 are shown below.
<TABLE>
<CAPTION>
<S> <C> <C>
Amortized Market
Cost Value
Due in one year or less $ 379,319 $ 393,745
Due after one through five years 6,358,955 6,519,880
Due after five through ten years 3,374,431 3,390,244
------------ -------------
$10,112,705 $10,303,869
=========== ===========
</TABLE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
Investments in fixed maturities as of December 31, 1994 consist of the
following:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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
========== ====== ======== ==========
</TABLE>
Proceeds from maturities and sales of fixed maturity investments during
1995, 1994 and 1993, were $100,000, $2,010,000 and $10,971,574,
respectively.
<TABLE>
<CAPTION>
Gross gains and gross losses realized were as follows:
<S> <C> <C>
Gross Gross
Gains Losses
----- ------
1995 $ 0 $ 0
1994 $ 0 $ 0
1993 $329,000 $ 0
</TABLE>
19
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
The cost, gross unrealized gains (losses) and market value of
investments in mutual funds at December 31, 1995 and 1994 are shown
below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Gross Gross
Unrealized Unrealized Market
Cost Gains Losses Value
1995 $1,617,516 $111,686 $ 327 $1,728,875
========== ======== ========= ==========
1994 $ 882,292 $ 4,483 $ 46,138 $ 840,637
========== ======== ========= ==========
</TABLE>
Proceeds from sales of investments in mutual funds during 1995 and 1994
were $867,744 and $38,588.
Mutual fund gross gains and gross losses were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Gross Gross
Gains Losses
----- ------
1995 $65,236 $28,462
======= =======
1994 $ 510 $ 2,452
======== =======
</TABLE>
4. NET INVESTMENT INCOME
Additional information with respect to net investment income for the
years ended December 31, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Fixed Maturities $ 629,743 $ 616,987 $409,552
Mutual Funds 59,895 12,049 0
Short-Term Investments 256,351 142,421 394,545
Cash and Cash Equivalents 730,581 633,298 15,034
Interest on Policy Loans 4,025 1,275 1,015
------------- ------------- ----------
Total Investment Income 1,680,595 1,406,030 820,146
Investment Expenses 79,921 105,813 127,388
------------ ----------- ---------
Net investment income $1,600,674 $1,300,217 $692,758
========== ========== ========
</TABLE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES
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, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
Deferred Tax (Liabilities):
<S> <C> <C>
Deferred acquisition costs ($57,399,960) ($37,885,053)
Payable to reinsurer (19,802,861) (12,754,591)
Unrealized investment gains and losses (38,976) 14,579
Other (308,304) (214,505)
-------------- --------------
Total ($77,550,101) ($50,839,570)
------------ ------------
Deferred Tax Assets:
Deferred contract charge $ 116,218 $ 157,396
Net separate account liabilities 72,024,094 51,637,155
Reserve for future contractowner benefits 10,672,556 3,997,833
Net operating loss carryforward 0 1,813,670
AMT credit carryforward 286,094 0
Foreign exchange translation 114,888 0
Other 3,661,104 878,030
------------ -------------
Total $86,874,954 $58,484,084
----------- -----------
Net before valuation allowance $ 9,324,853 $ 7,644,514
Valuation allowance (9,324,853) (7,644,514)
------------ ------------
Net deferred tax balance $ 0 $ 0
----------------- -----------------
</TABLE>
The significant components of federal tax expense are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current tax expense $ 394,648 $184,771 $182,965
Deferred tax benefit:
(exclusive of the effects of
the change in valuation allowance) (1,680,339) (365,288) (404,480)
Change in valuation allowance 1,680,339 365,288 404,480
----------- ---------- ---------
Total deferred tax expense 0 0 0
------------ ---------- ---------
Total income tax expense $ 394,648 $184,771 $182,965
============ ======== ========
</TABLE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
The state income tax expense was $2,712 and $62,658 for the years ended
1995 and 1994, respectively.
The federal 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:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income (loss) before taxes ($2,170,660) $106,921 $2,237,806
Income tax rate 35% 35% 35%
------------ ---------- -----------
Tax expense at federal
statutory income tax rate (759,731) 37,422 783,232
Tax effect of:
Permanent tax differences (253,101) (82,188) 63,535
Difference between financial
statement and taxable income 2,986,464 3,161,331 2,414,254
Utilization of net operating
loss carryforwards (1,487,144) (3,116,565) (3,261,021)
Utilization of AMT credits (91,840) 0 0
Alternative minimum tax 0 184,771 182,965
-------------- ----------- -----------
Income tax expense $ 394,648 $ 184,771 $ 182,965
=========== ========== ==========
</TABLE>
6. 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 Information Services and
Technology Corporation, an affiliated company; and likewise, the
Company has charged operating costs to American Skandia Investment
Services, Incorporated, an affiliated company. Income received for
these items was $396,573, $248,799 and $146,134 for the years ended
December 31, 1995, 1994 and 1993, respectively. The total cost to the
Company for these items was $12,687,337, $8,524,840 and $3,537,566 for
the years ended December 31, 1995, 1994 and 1993, respectively. Amounts
receivable from affiliates under this arrangement were $857,156 and
$317,285 as of December 31, 1995 and 1994, respectively. Amounts
payable to affiliates under this arrangement were $304,525 and $261,552
as of December 31, 1995 and 1994, respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
7. LEASES
The Company leases office space under a lease agreement established in
1989 with an affiliate (American Skandia Information Services and
Technology Corporation). The lease expense for 1995, 1994 and 1993 was
$1,265,771, $961,080 and $280,363, respectively. Future minimum lease
payments per year and in aggregate as of December 31, 1995 are as
follows:
1996 1,178,550
1997 1,178,550
1998 1,178,550
1999 1,178,550
2000 and thereafter 6,831,312
-----------
Total $11,545,512
===========
8. 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 $3,267,357 and
$3,410,135 as of December 31, 1995, and 1994, respectively. These
deposits are required to be maintained for the protection of
contractowners within the individual states.
9. RETAINED EARNINGS AND DIVIDEND RESTRICTIONS
Statutory basis shareholder's equity was $132,493,899, $95,001,971 and
$60,666,243 at December 31, 1995, 1994 and 1993, respectively.
The statutory basis net income (loss) was ($7,183,003), ($9,789,297)
and $387,695 for the years ended December 31, 1995, 1994 and 1993,
respectively.
Under state insurance laws, the maximum amount of dividends that can be
paid shareholders without prior approval of the state insurance
departments is subject to restrictions relating to statutory surplus
and net gain from operations. At December 31, 1995, no amounts may be
distributed without prior approval.
10. 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 $627,161, $431,559 and $250,039 for the
years ended December 31, 1995, 1994 and 1993, 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 $4,600,831 and $1,564,407 as of December 31, 1995 and 1994,
respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
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
$139,209 in 1995 and $106,882 in 1994.
11. REINSURANCE
The effect of the reinsurance agreements on the Company's operations
was to reduce annuity charges and fee income, death benefit expense and
policy reserves. The effect of reinsurance for the years ended December
31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Annuity Change in Annuity Return Credited
Charges and Fees Policy Reserves to Contractowners
---------------- --------------- -----------------
Gross $50,334,280 ($4,790,714) $10,945,831
Ceded 11,496,922 1,988,042 332,973
------------- ------------- -------------
Net $38,837,358 ($6,778,756) $10,612,858
=========== =========== ===========
</TABLE>
1994 1993
---------------- ----------------
Annuity Annuity
Charges and Fees Charges and Fees
---------------- ----------------
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
agreements.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
12. SURPLUS NOTES
During 1995, the Company received $34 million from its parent in
exchange for three surplus notes. The amounts were $10 million, $15
million and $9 million, at interest rates of 7.52%, 7.49% and 7.47%,
respectively. Interest expense for these notes was $83,281 for the
year ended December 31, 1995.
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
expense for these notes was $4,319,612 and $1,618,504 for the years
ended December 31, 1995 and 1994, respectively.
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 expense for this note was $1,387,000,
$1,387,000 and $11,400 for the years ended December 31, 1995, 1994 and
1993, respectively.
Payment of interest and repayment of principal for these notes requires
approval by the Commissioner of the State of Connecticut. In 1995,
approval was granted for the payment of surplus note interest with the
stipulation that it be funded through a capital contribution from the
Parent.
13. SHORT-TERM BORROWING
During 1993, the Company received a $10 million loan from Skandia AB, a
Swedish affiliate. Upon the last renewal the loan became payable to the
Parent rather than Skandia AB. The loan matures on March 6, 1996 and
bears interest at 6.75.%. The total interest expense to the Company was
$709,521, $569,618 and $149,861 for the years ended December 31, 1995,
1994 and 1993, respectively, of which $219,375 and $50,174 was payable
as of December 31, 1995 and 1994, respectively.
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.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes information with respect to the
operations of the Company.
<TABLE>
<CAPTION>
Three Months Ended
------------------
1995 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
Premiums and other insurance
<S> <C> <C> <C> <C>
revenues $ 8,891,903 $10,066,478 $11,960,530 $14,189,048
Net investment income 551,690 434,273 293,335 321,376
Net realized capital gains (losses) (16,082) (370) 44,644 8,582
------------- ---------------- -------------- ---------------
Total revenues $ 9,427,511 $10,500,381 $12,298,509 $14,519,006
============ =========== =========== ===========
Benefits and expenses $11,438,798 $ 9,968,595 $11,600,587 $15,908,087
=========== ============ =========== ===========
Net income (loss) ($ 2,026,688) $ 531,486 $ 678,312 ($1,751,130)
============ ============= ============= ===========
Three Months Ended
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
============ =========== ========= ==========
</TABLE>
<PAGE>
APPENDIX B
SHORT DESCRIPTIONS OF THE
UNDERLYING MUTUAL FUNDS' PORTFOLIO INVESTMENT OBJECTIVES AND POLICIES
The investment objectives for the portfolios of each underlying mutual fund are
in bold face. Please refer to the prospectus of the underlying mutual fund for
more complete details and risk factors applicable to certain portfolios.
Galaxy VIP Fund
GAL Money Market Fund: The Money Market Fund's investment objective is to seek
as high a level of current income as is consistent with liquidity and stability
of principal. The Fund seeks to achieve its objective by investing in "money
market" instruments that are determined by the investment adviser to present
minimal credit risk and meet certain rating criteria. Instruments that may be
purchased by the Money Market Fund include obligations of domestic and foreign
banks (including negotiable certificates of deposit, non-negotiable time
deposits, savings deposits, and bankers' acceptances); commercial paper
(including variable and floating rate notes); obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities; and repurchase
agreements issued by financial institutions such as banks and broker/dealers.
These instruments have remaining maturities of thirteen months or less (except
for certain variable and floating rate notes and securities underlying certain
repurchase agreements).
In accordance with a rule promulgated by the Securities and Exchange Commission,
the Money Market Fund will purchase only those instruments which meet the
applicable quality requirements described below. The Money Market Fund will not
purchase a security (other than a U.S. Government security) unless the security
or the issuer with respect to comparable securities (i) is rated by at least two
nationally recognized statistical rating organizations ("Rating Organizations")
(such as S&P or Moody's) in the highest category for short-term debt securities,
(ii) is rated by the only Rating Organization that has issued a rating in such
Rating Organization's highest category for short-term debt, or (iii) if not
rated, the security is determined to be of comparable quality. Determinations of
comparable quality will be made in accordance with procedures established by the
Board of Trustees.
GAL Equity Fund: The Equity Fund's investment objective is to seek long-term
growth by investing in companies that the Fund's investment adviser believes
have above-average earnings potential. The Fund seeks to achieve its investment
objective by investing, under normal market and economic conditions, at least
75% of its total assets in a broadly diversified portfolio of equity securities
such as common stock, preferred stock, common stock warrants and securities
convertible into common stock of companies that the investment adviser believes
will increase future earnings to a level above the average earnings of similar
issuers. Such companies often retain their earnings to finance current and
future growth and, for this reason, generally pay little or no dividends. Equity
securities in which the Fund invests are selected based on analyses of trends in
industries and companies, earning power, growth features, quality and depth of
management, marketing and manufacturing skills, financial conditions and other
investment criteria. By investing in convertible securities, the Fund will seek
the opportunity, through the conversion feature, to participate in the capital
appreciation of the common stock into which the securities are convertible.
All debt obligations, including convertible bonds, purchased by the Fund will be
rated at the time of purchase in one of the four highest rating categories by
S&P (AAA, AA, A and BBB) or Moody's (Aaa, Aa, A and Baa) or, if not rated, will
be determined to be of an equivalent quality by the investment adviser. Debt
securities rated BBB by S&P or Baa by Moody's are generally considered to be
investment grade securities although they may have speculative characteristics
and changes in economic conditions or circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case for
higher grade debt obligations.
The Equity Fund may invest indirectly in foreign securities through the purchase
of American Depository Receipts("ADRs") and European Depository Receipts
("EDRs"). In addition, the Fund may invest in securities issued by foreign
branches of U.S. banks and foreign banks, Canadian commercial paper and Canadian
securities listed on a national securities exchange, and Europaper (U.S.
dollar-denominated commercial paper of foreign issuers). The Fund may also write
covered call options.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments and obligations issued or guaranteed by the
U.S. Government, its agencies and instrumentalities at such times and in such
proportions as, in the opinion of the investment adviser, prevailing market or
economic conditions warrant.
GAL Asset Allocation Fund: The investment objective of the Asset Allocation Fund
is to seek a high total return by providing both a current level of income that
is greater than that provided by the popular stock market averages as well as
long-term growth in the value of the Fund's assets. The Fund seeks to achieve
its investment objective and at the same time reduce volatility by allocating
its assets among short-term obligations, common stock, preferred stock and
bonds. The proportion of the Fund's assets invested in each type of security
will vary from time to time as a result of the investment adviser's
interpretation of economic and market conditions. However, at least 25% of the
Fund's total assets will at all times be invested in fixed-income senior
securities, including debt securities and preferred stocks. Debt securities
purchased by the Fund will be rated at the time of purchase in one of the four
highest rating categories by S&P (AAA, AA, A and BBB) or Moody's (Aaa, Aa, A and
Baa) (or which, if unrated, are determined by the investment adviser to be of
comparable quality). Debt securities rated BBB by S&P or Baa by Moody's are
generally considered to be investment grade securities although they may have
speculative characteristics and changes in economic conditions or circumstances
are more likely to lead to a weakened capacity to make principal and interest
payments than is the case for higher grade debt obligations. In selecting common
stock for purchase by the Fund, the investment adviser will analyze trends in
industries and companies, earning power, growth features, quality and depth of
management, marketing and manufacturing skills, financial conditions and other
investment criteria.
The Asset Allocation Fund may also invest up to 20% of its total assets in
foreign securities, either directly or indirectly through ADRs and EDRs. The
Fund may write covered call options, purchase asset-backed securities and
mortgage-backed securities and enter into foreign currency exchange
transactions.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments and obligations issued or guaranteed by the
U.S. Government, its agencies and instrumentalities at such times and in such
proportions as, in the opinion of the investment adviser, prevailing market and
economic conditions warrant.
Investments in foreign securities involve higher costs for the Fund than
investments in U.S. securities, including higher transaction costs as well as
the imposition in some cases of additional taxes by foreign governments. For
example, fixed commissions on foreign stock exchanges are generally higher than
the negotiated commissions on U.S. exchanges and the Fund may be subject in some
cases to withholding and/or transfer taxes. In addition, foreign investments may
include additional risks associated with currency exchange rates, less complete
financial information about the issuers, less market liquidity, and political
instability. Future political and economic developments, the possible imposition
of withholding taxes on interest income, the possible seizure or nationalization
of foreign holdings, the possible establishment of exchange controls, or the
adoption of other governmental restrictions, might adversely affect the payment
of principal and interest on foreign obligations.
Although the Asset Allocation Fund may invest in securities denominated in
foreign currencies, the Fund values its securities and other assets in U.S.
dollars. As a result, the net asset value of the Fund's shares may fluctuate
with U.S. dollar exchange rates as well as with price changes of the Fund's
securities in the various local markets and currencies. Thus, an increase in the
value of the U.S. dollar compared to the currencies in which the Fund makes its
investments could reduce the effect of increases and magnify the effect of
decreases in the price of the Fund's securities in their local markets.
Conversely, a decrease in the value of the U.S. dollar will have the opposite
effect of magnifying the effect of increases and reducing the effect of
decreases in the prices of the Fund's securities in their local markets. In
addition to favorable and unfavorable currency exchange-rate developments, the
Fund is subject to the possible imposition of exchange control regulations or
freezes on convertibility of currency.
GAL High Quality Bond Fund: The High Quality Bond Fund's investment objective is
to seek a high level of current income consistent with prudent risk of capital.
The Fund invests its assets in corporate debt obligations such as bonds,
debentures, obligations convertible into common stock, "money market"
instruments such as bank obligations and commercial paper, in obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, and in
debt obligations of supranational entities. Supranational entities include
international organizations designated or supported by governmental entities to
promote economic reconstruction or development and international banking
institutions and related government agencies. Examples of these include The
International Bank for Reconstruction and Development ("World Bank"), The Asian
Development Bank and The InterAmerican Development Bank. Obligations of
supranational entities may be supported by appropriated but unpaid commitments
of their member countries, and there is no assurance that these commitments will
be undertaken or met in the future. The failure by a member country to honor
such commitments could adversely affect the payment of principal and interest on
these obligations. The Fund may also invest, from time to time, in obligations
issued by state and local governmental issuers ("Municipal Securities"). The
purchase of Municipal Securities may be advantageous when, as a result of
prevailing economic, regulatory or other circumstances, the performance of such
securities, on a pretax basis, is comparable to that of corporate or U.S. debt
obligations. The High Quality Bond Fund may enter into interest rate futures
contracts to hedge against changes in market values of fixed-income instruments
that the Fund holds or intends to purchase. At least 65% of the Fund's total
assets will be invested in non-convertible bonds. Any common stock received
through the conversion of convertible debt obligations will be sold in an
orderly manner as soon as possible.
Under normal market and economic conditions, the Fund will invest at least 80%
of its assets in high quality debt obligations that are rated, at the time of
purchase, within the two highest ratings of S&P (AAA and AA) or Moody's (Aaa and
Aa) (or which, if unrated, are determined by the investment adviser to be of
comparable quality) and in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and other "money market"
instruments. Unrated securities will be determined to be of comparable quality
to high quality debt obligations if, among other things, other outstanding
obligations of the issuers of such securities are rated AA or A-2/P-2 or better.
When, in the opinion of the investment adviser, a defensive investment posture
is warranted, the Fund may invest temporarily and without limitation in high
quality, short-term "money market" instruments.
The Fund may also invest up to 5% of its total assets in dollar-denominated high
quality debt obligations of U.S. companies issued outside the United States. In
addition, the Fund may acquire high quality obligations issued by Canadian
Provincial Governments which are similar to U.S. Municipal Securities except
that the income derived therefrom is fully subject to U.S. Federal taxation.
These instruments are denominated in either Canadian or U.S. dollars and have an
established over-the-counter market in the United States.
The Fund seeks to provide a current yield greater than that generally available
from a portfolio of high quality short-term obligations. The High Quality Bond
Fund's average weighted maturity will vary from time to time depending on, among
other things, current market and economic conditions and the comparative yields
on instruments with different maturities. The Fund adjusts its average weighted
maturity and its holdings of corporate and U.S. Government debt securities in a
manner consistent with the investment adviser's assessment of prospective
changes in interest rates. The success of this strategy depends upon the
investment adviser's ability to predict changes in interest rates.
The value of the Fund's portfolio securities will generally vary inversely with
changes in prevailing interest rates. The high quality credit criteria applied
to the selection of portfolio securities are intended to reduce adverse price
changes due to credit considerations.
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: Galaxy Annuity Customer Service
P.O. Box 883
Shelton, Connecticut 06484
================================================================================
PLEASE SEND ME A STATEMENT OF ADDITIONAL INFORMATION THAT
CONTAINS FURTHER DETAILS ABOUT THE GALAXY ANNUITY.(05/96)
================================================================================
================================================================================
---------------------------------------------------------------
================================================================================
================================================================================
(print your name)
----------------------------------------------------------------
(address)
---------------------------------------------------------------
(city/state/zip code)
================================================================================
<PAGE>
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 by:
AMERICAN SKANDIA LIFE AMERICAN SKANDIA LIFE
ASSURANCE CORPORATION ASSURANCE CORPORATION
One Corporate Drive P.O. Box 883
Shelton, Connecticut 06484 Shelton, Connecticut 06484
Telephone: 1-800-444-3970 Telephone: 1-800-444-3970
Distributed by:
AMERICAN SKANDIA MARKETING, INCORPORATED
One Corporate Drive
Shelton, Connecticut 06484
Telephone: (203) 926-1888
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution: Not Applicable.
Item 14. Indemnification of Directors and Officers: Under Section 33-320a of the
Connecticut General Statutes, the Registrant must indemnify a director or
officer against judgments, fines, penalties, amounts paid in settlement and
reasonable expenses including attorneys' fees, for actions brought or threatened
to be brought against him in his capacity as a director or officer when certain
disinterested parties determine that he acted in good faith and in a manner he
reasonably believed to be in the best interests of the Registrant. In any
criminal action or proceeding, it also must be determined that the director or
officer had no reason to believe his conduct was unlawful. The director or
officer must also be indemnified when he is successful on the merits in the
defense of a proceeding or in circumstances where a court determines that he is
fairly and reasonable entitled to be indemnified, and the court approves the
amount. In shareholder derivative suits, the director or officer must be finally
adjudged not to have breached this duty to the Registrant or a court must
determine that he is fairly and reasonably entitled to be indemnified and must
approve the amount. In a claim based upon the director's or officer's purchase
or sale of the Registrants' securities, the director or officer may obtain
indemnification only if a court determines that, in view of all the
circumstances, he is fairly and reasonably entitled to be indemnified and then
for such amount as the court shall determine. The By-Laws of American Skandia
Life Assurance Corporation ("ASLAC") also provide directors and officers with
rights of indemnification, consistent with Connecticut Law.
The foregoing statements are subject to the provisions of Section 33-320a.
Directors and officers of ASLAC and American Skandia Marketing, Incorporated
("ASM, Inc."), formerly Skandia Life Equity Sales Corporation, can also be
indemnified pursuant to Indemnity Agreements between each director and officer
and American Skandia Investment Holding Corporation, a corporation organized
under the laws of the state of Delaware. The provisions of the Indemnity
Agreement are governed by Section 45 of the General Corporation Law of the State
of Delaware.
The directors and officers of ASLAC and ASM, Inc. are covered under a directors
and officers liability insurance policy issued by an unaffiliated insurance
company and an insurance policy issued to Skandia Insurance Company Ltd., their
ultimate parent. Such policy will reimburse ASLAC or ASM, Inc., as applicable,
for any payments that it shall make to directors and officers pursuant to law
and, subject to certain exclusions contained in the policy, will pay any other
costs, charges and expenses, settlements and judgments arising from any
proceeding involving any director or officer of ASLAC or ASM, Inc., as
applicable, in his or her past or present capacity as such.
Item 15. Recent Sales of Unregistered Securities: ASLAC has not offered or
sold any unregistered securities.
Item 16. Exhibits and Financial Statement Schedules:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Exhibits Page
1 Underwriting agreement (Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement No. 33-26122, filed March 1, 1990).
2 Plan of acquisition, reorganization, arrangement, liquidation or succession Not applicable
3 Articles of incorporation and by-laws (Incorporated by reference to Pre-Effective Amendment No. 2 to
Registration Statement No. 33-19363, filed July 27, 1988).
4 Instruments defining the rights of security holders, including indentures (Incorporated by reference to
initial Registration Statement No. 33-67614, filed August 17, 1993).
5 Opinion re legality. (Included as Exhibit 23b)
6 - 9 Not applicable
10 Material contracts (Investment Management Agreements)
(a) Agreement with Fleet Investment Advisors, Inc. (Incorporated by reference to initial Registration
Statement No. 33-86918, filed December 1, 1994).
(b) Agreement with J. P. Morgan Investment Management Inc. (Incorporated by reference to Post-Effective
Amendment No. 5 to Registration Statement No. 33-26122, filed April 23, 1991).
11 - 22 Not applicable
23 Consents of experts and counsel
23a Consent of Deloitte & Touche LLP.
23b Opinion & consent of Werner & Kennedy.
24 Power of Attorney
(a) For Directors Boronow, Campbell, Carendi, Danckwardt, Dokken and Sutyak - incorporated by reference
to Post-Effective Amendment No. 10 to Registration Statement No. 33-19363, filed February 28, 1992
(i) Filed via EDGAR with Pre-effective Amendment No. 1 to Registration
Statement No. 333-00941, filed April 26, 1996
(b) For Directors Mazzaferro, Moberg, Soderstrom and Tracy incorporated by reference to initial
Registration Statement No. 33-86918, filed December 1, 1994
(i) Filed via EDGAR with Pre-effective Amendment No. 1 to Registration
Statement No. 333-00941, filed April 26, 1996
(c) For Director Svensson incorporated by reference to initial Registration Statement No. 33-88360,
filed January 10, 1995
(i) Filed via EDGAR with Pre-effective Amendment No. 1 to Registration
Statement No. 333-00941, filed April 26, 1996
(d) For Directors Brunetti, Collins and Michael incorporated by reference to initial Registration
Statement No. 333-00941, filed February 15, 1996
- ---------------------------------------------------------------------------------------------------------------------------
25 - 28 Not applicable
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Item 17. Undertakings: The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
post-effective amendments to this registration statement:
(i) To include any prospectus required by section 10 (a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(5) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
- --------------------------------------------------------------------------------
LEGAL EXPERTS: Counsel with respect to Federal laws and regulations applicable
to the issue and sale of the Annuities and with respect to Connecticut law is
Werner & Kennedy, 1633 Broadway, New York, New York 10019.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Shelton, State of
Connecticut, on April 26, 1996.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
Registrant
By:/s/ M. Patricia Paez Attest:/s/ Diana D. Steigauf
M. Patricia Paez, Corporate Secretary Diana D. Steigauf
<TABLE>
<CAPTION>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
Signature Title Date
<S> <C> <C>
(Principal Executive Officer)
Jan R. Carendi* Chief Executive Officer, April 26, 1996
Jan R. Carendi Chairman of the Board and Director
(Principal Financial Officer and Principal Accounting Officer)
/s/ Thomas M. Mazzaferro Executive Vice President and April 26, 1996
Thomas M. Mazzaferro Chief Financial Officer
(Board of Directors)
Jan. R. Carendi* Gordon C. Boronow* Malcolm M. Campbell*
Jan. R. Carendi Gordon C. Boronow Malcolm M. Campbell
Henrik Danckwardt* Amanda C. Sutyak* Wade A. Dokken*
Henrik Danckwardt Amanda C. Sutyak Wade A. Dokken
Thomas M. Mazzaferro** Gunnar Moberg** Bayard F. Tracy**
Thomas M. Mazzaferro Gunnar Moberg Bayard F. Tracy
Anders Soderstrom** C. Ake Svensson*** Lincoln R. Collins****
Anders Soderstrom C. Ake Svensson Lincoln R. Collins
Nancy F. Brunetti**** Dianne B. Michael****
Nancy F. Brunetti Dianne B. Michael
*/**/***/****By: /s/M. Patricia Paez
M. Patricia Paez
<FN>
*Pursuant to Powers of Attorney previously filed with Post-Effective Amendment No. 10 to Registration Statement No. 33-19363
**Pursuant to Powers of Attorney previously filed with the initial filing of Registration Statement No. 33-86918.
***Pursuant to Power of Attorney previously filed with the initial filing of Registration Statement No. 33-88630.
****Pursuant to Powers of Attorney filed with the initial filing of Registration Statement No. 333-00941.
</FN>
</TABLE>
Exhibits
Exhibit 23a Consent of Deloitte & Touche LLP
Exhibit 23b Opinion & Consent of Werner & Kennedy
Exhibit 23a
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of American Skandia Life
Assurance Corporation on Form S-1 of our report dated March 14, 1996 relating to
American Skandia Life Assurance Corporation and to the reference to us under the
heading "Selected Financial Data" appearing in the Prospectus which is a part of
such Registration Statement.
/s/ Deloitte & Touche LLP
New York, New York
April 26, 1996
(212) 408-6900
April 26, 1996
American Skandia Life Assurance Corporation
One Corporate Drive
Shelton, Connecticut 06484
Re: Initial Registration Statement on Form S-1 filed by
American Skandia Life Assurance Corporation, Registrant
Registration No.: 333-_____
Our File No.
74877-00-101
Dear Mesdames and Messrs.:
You have requested us, as general counsel to American Skandia
Life Assurance Corporation ("American Skandia"), to furnish you with this
opinion in connection with the above-referenced registration statement by
American Skandia, as Registrant, under the Securities Act of 1933, as amended,
(the "Registration Statement") of a certain Combination Variable Annuity
Contract (the "Contract") that will be issued by American Skandia. We understand
that the above registration is a combination registration with Post-effective
Amendment No. 10 to Form N-4 filed by American Skandia Life Assurance
Corporation, Depositor, and American Skandia Life Assurance Corporation Variable
Account E, Registrant, Registration No.: 33-47976, Investment Company No.:
811-7260.
We have made such examination of the statutes and authorities,
corporate records of American Skandia, and other documents as in our judgment
are necessary to form a basis for opinions hereinafter expressed.
In our examination, we have assumed the genuineness of all
signatures on, and authenticity of, and the conformity to original documents of
all copies submitted to us. As to various questions of fact material to our
opinion, we have relied upon statements and certificates of officers and
representatives of American Skandia and others.
Based upon the foregoing, we are of the opinion that:
1. American Skandia is a validly existing corporation under the laws of the
State of Connecticut.
2. The form of the Contract has been duly authorized by
American Skandia, and has been or will be filed in
states where it is eligible for approval, and upon
issuance in accordance with the laws of such
jurisdictions, and with the terms of the Prospectus
and the Statement of Additional Information included
as part of the Registration Statement, will be valid
and binding upon American Skandia.
<PAGE>
We hereby consent to the use of this opinion as an exhibit to
this Initial Registration Statement on Form S-1 under the Securities Act of
1933, as amended, and to the reference to our name under the heading "Legal
Experts" included in the Registration Statement.
Very truly yours,
/s/WERNER & KENNEDY
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> Galaxy Variable Annuity VIP Fund
</LEGEND>
<CIK> 881453
<NAME> American Skandia Life Assurance Corporation
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 60,227,180
<INVESTMENTS-AT-VALUE> 68,338,075
<RECEIVABLES> 12,345
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 68,350,420
<PAYABLE-FOR-SECURITIES> 12,345
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 12,345
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 68,338,075
<DIVIDEND-INCOME> 1,941,170
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (345,290)
<NET-INVESTMENT-INCOME> 1,595,880
<REALIZED-GAINS-CURRENT> 296,908
<APPREC-INCREASE-CURRENT> 9,012,454
<NET-CHANGE-FROM-OPS> 10,906,242
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 17,090,146
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 881453
<NAME> ASLAC1295
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 10,112,705
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,728,875
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 27,541,580
<CASH> 13,146,384
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 270,222,383
<TOTAL-ASSETS> 5,021,012,890 <F1>
<POLICY-LOSSES> 49,879,508
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 103,000,000
0
0
<COMMON> 2,000,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,021,012,890 <F2>
0
<INVESTMENT-INCOME> 1,600,674
<INVESTMENT-GAINS> 36,774
<OTHER-INCOME> 45,107,959
<BENEFITS> 6,446,129
<UNDERWRITING-AMORTIZATION> 35,970,524
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> (2,170,660)
<INCOME-TAX> 397,360
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,568,020)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1> Included in Total Assets are assets held in Separate Accounts of
$4,699,961,646.
<F2> Included in Total Liabilities and Equity are Liabilities related to
Separate Acocunts of $4,699,961,646.
</FN>
</TABLE>
