ASAP (12/97)
Supplement to Prospectus Dated May 1, 1997
Supplement dated December 22, 1997
A. NEW VARIABLE INVESTMENT OPTIONS
Effective December 22, 1997, the Marsico Capital Growth portfolio of American
Skandia Trust ("AST") is available as a variable investment option under your
Annuity. Effective January 2, 1998, the following portfolios of AST are
available as variable investment options under your Annuity: Lord Abbett Small
Cap Value, Cohen & Steers Realty, Stein Roe Venture and Bankers Trust Enhanced
500.
The following information is added to the table entitled "Underlying Mutual Fund
Portfolio Annual Expenses (as a percentage of average net assets)":
Unless otherwise shown, the expenses shown below are for the year ending
December 31, 1996. "N/A" shown below indicates that no entity has agreed to
reimburse the particular expense indicated.
<TABLE>
<CAPTION>
Management Management Other Other Total Annual Total Annual
Fee Fee Expenses Expenses Expenses Expenses
after any without any after any without any after any without any
applicable applicable applicable applicable applicable applicable
reimbursement reimbursement reimbursement reimbursement reimbursement reimbursement
- ------------------------------------------------------------------------------------------------------------------------------------
American Skandia Trust
<S> <C> <C> <C> <C> <C> <C>
Lord Abbett Small Cap Value(8) N/A 0.95% N/A 0.39% N/A 1.34%
Cohen & Steers Realty(8) N/A 1.00% N/A 0.40% N/A 1.40%
Stein Roe Venture(8) N/A 0.95% N/A 0.39% N/A 1.34%
Bankers Trust Enhanced 500(8) N/A 0.60% 0.20% 0.57% 0.80% 1.17%
Marsico Capital Growth(7) N/A 0.90% N/A 0.38% N/A 1.28%
</TABLE>
(7) This Portfolio is first being offered as of the date of this Supplement.
Expenses shown are estimated and annualized.
(8) These Portfolios are first being offered as of January 2, 1998. Expenses
shown are estimated and annualized.
The following information is added to the table entitled "Expense Examples":
Examples (amounts shown are rounded to the nearest dollar)
<PAGE>
If you surrender your Annuity at the end of the applicable time period, you
would pay the following expenses on a $1,000 investment, assuming 5% annual
return on assets:
After:
Sub-accounts 1 yr. 3 yrs.5 yrs. 10 yrs.
- ------------
Lord Abbett Small Cap Value 104 148 190 315
Cohen & Steers Realty 104 150 193 321
Stein Roe Venture 104 148 190 315
Bankers Trust Enhanced 500 98 131 162 260
Marsico Capital Growth 103 146 187 310
If you do not 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:
After:
Sub-accounts 1 yr. 3 yrs.5 yrs. 10 yrs.
- ------------
Lord Abbett Small Cap Value 29 88 150 315
Cohen & Steers Realty 29 90 153 321
Stein Roe Venture 29 88 150 315
Bankers Trust Enhanced 500 23 71 122 260
Marsico Capital Growth 28 86 147 310
<PAGE>
ASAP2 (12/97)
The following is added to the section entitled "INVESTMENT OPTIONS - Underlying
Mutual Fund: American Skandia Trust":
Sub-account Underlying Mutual Fund Portfolio
Lord Abbett Small Cap Value Lord Abbett Small Cap Value
Cohen & Steers Realty Cohen & Steers Realty
Stein Roe Venture Stein Roe Venture
Bankers Trust Enhanced 500 Bankers Trust Enhanced 500
Marsico Capital Growth Marsico Capital Growth
<PAGE>
B. SHORT DESCRIPTIONS - APPENDIX B
The following short descriptions of the Lord Abbett Small Cap Value Portfolio,
Cohen & Steers Realty Portfolio, Stein Roe Venture Portfolio, Bankers Trust
Enhanced 500 Portfolio, and Marsico Capital Growth Portfolio are to be added:
Lord Abbett Small Cap Value Portfolio: The investment objective of the Lord
Abbett Small Cap Value Portfolio (the "Portfolio") is to seek long-term capital
appreciation. This is a fundamental objective of the Portfolio. The Portfolio
will seek its objective through investments primarily in equity securities,
which are believed to be undervalued in the marketplace. The Portfolio seeks
companies which are primarily small-sized, based on the value of their
outstanding stock. As a result, under normal circumstances, at least 65% of the
Portfolio's total assets will be invested in common stocks issued by smaller,
less well-known companies (with market capitalizations of less than $1 billion)
selected on the basis of fundamental investment analysis. Smaller companies may
carry more risk than larger companies. Generally, small companies rely on
limited product lines and markets, financial resources, or other factors, and
this may make them more susceptible to setbacks or economic downturns. Small
capitalized companies may be more volatile in price, normally have fewer shares
outstanding and trade less frequently than large companies. The Portfolio may
invest up to 35% of its total assets in the securities of issuers without regard
to their size or the market capitalization of their common stock. Dividend and
investment income is of incidental importance, and the Portfolio may invest in
securities, which do not produce any income. Although the Portfolio typically
will hold a large, diversified number of securities identified through a
quantitative, value-driven investment strategy, it does entail above-average
investment risk in comparison to the overall U.S. stock market. The Portfolio
also may invest in preferred stocks and bonds, which have either attached
warrants or a conversion privilege into common stocks. In addition, the
Portfolio may purchase options on stocks that it holds as protection against a
significant price decline; purchase and sell stock index options and futures to
hedge overall market risk and the investment of cash flows; and write listed put
and listed covered call options. The Sub-advisor will use such techniques as
market conditions warrant. The Portfolio's ability to use these strategies may
be limited by market conditions, regulatory limitations and tax considerations
and there can be no assurance that any of these strategies will succeed. The
Portfolio may purchase and sell stock index futures, which are traded on a
commodities exchange or board of trade for certain hedging and risk management
purposes, in accordance with regulations of the Commodities Futures Trading
Commission. The Portfolio may invest up to 35% of its net assets (at the time of
investment) in securities that are primarily traded in foreign countries. The
Portfolio may enter into forward foreign currency contracts. The Portfolio also
may purchase foreign currency put options and write foreign currency call
options on U.S. exchanges or U.S. over-the-counter markets. The Portfolio may,
on occasion, enter into repurchase agreements whereby the seller of a security
agrees to repurchase that security at a mutually agreed-upon time and price. The
Portfolio may purchase or sell securities on a when-issued or delayed delivery
basis. The Portfolio may invest in (a) other investment companies to the extent
permitted under applicable law, and (b) straight bonds or other debt securities,
including lower rated, high-yield bonds. The Portfolio has no present intention
to commit more than 5% of gross assets to any one of these identified practices.
The Portfolio will not invest more than 5% of its assets (at the time of
investment) in lower rated (BB/Ba or lower), high-yield bonds.
Cohen & Steers Realty Portfolio: The investment objective of the Cohen & Steers
Realty Portfolio (the "Portfolio") is to maximize total return through
investment in real estate securities. This is a fundamental objective of the
Portfolio. The Portfolio pursues its investment objective of maximizing total
return by seeking, with approximately equal emphasis, capital appreciation (both
realized and unrealized) and current income. There can be no assurance that the
Portfolio's investment objective will be achieved. Under normal circumstances,
the Portfolio will invest substantially all of its assets in the equity
securities of real estate companies. Such equity securities will consist of (i)
common stocks (including shares in real estate investment trusts), (ii) rights
or warrants to purchase common stocks, (iii) securities convertible into common
stocks where the conversion feature represents, in the Sub-advisor's view, a
significant element of the securities' value, and (iv) preferred stocks. For
purposes of the Portfolio's investment policies, a "real estate company" is one
that derives at least 50% of its revenues from the ownership, construction,
financing, management or sale of commercial, industrial, or residential real
estate or that has at least 50% of its assets in such real estate. The Portfolio
may invest without limit in shares of real estate investment trusts ("REITs").
REITs pool investors' funds for investment primarily in income producing real
estate or real estate related loans or interests. REITs can generally be
classified as Equity REITs, Mortgage REITs and Hybrid REITs. Equity REITs, which
invest the majority of their assets directly in real property, derive their
income primarily from rents. Mortgage REITs, which invest the majority of their
assets in real estate mortgages, derive their income primarily from interest
payments. Hybrid REITs combine the characteristics of both Equity REITs and
Mortgage REITs. The Portfolio will not invest in real estate directly, but only
in securities issued by real estate companies. However, the Portfolio may be
subject to risks similar to those associated with the direct ownership of real
estate (in addition to securities markets risks) because of its policy of
concentration in the securities of companies in the real estate industry. These
include declines in the value of real estate, risks related to general and local
economic conditions, dependency on management skill, heavy cash flow dependency,
possible lack of availability of mortgage funds, overbuilding, extended
vacancies of properties, increased competition, increases in property taxes and
operating expenses, changes in zoning laws, losses due to costs resulting from
the clean-up of environmental problems, liability to third parties for damages
resulting from environmental problems, casualty or condemnation losses,
limitations on rents, changes in neighborhood values, the appeal of properties
to tenants and changes in interest rates. The Portfolio may invest up to 10% of
its total assets in securities of foreign real estate companies. When, in the
judgment of the Portfolio's Sub-advisor, market or general economic conditions
justify a temporary defensive position, the Portfolio will deviate from its
investment objective and invest all or any portion of its assets in high-grade
debt securities, including corporate debt securities, U.S. government
securities, and short-term money market instruments, without regard to whether
the issuer is a real estate company. The Portfolio may also at any time invest
funds awaiting investment or funds held as reserves to satisfy redemption
requests or to pay dividends and other distributions to shareholders in
short-term money market instruments. The Portfolio will not invest more than 15%
of its net assets in illiquid securities. The Portfolio is classified as a
"non-diversified" investment company under the 1940 Act, which means the
Portfolio is not limited by the 1940 Act in the proportion of its assets that
may be invested in the securities of a single issuer. Because the Portfolio, as
a non-diversified investment company, may invest in a smaller number of issuers
than a diversified investment company, an investment in the Portfolio may
present greater risk to an investor than an investment in a diversified company.
The Portfolio may have higher portfolio turnover than other mutual funds with
similar objectives.
Stein Roe Venture Portfolio: The investment objective of the Stein Roe Venture
Portfolio (the "Portfolio") is long-term capital appreciation. The Portfolio
emphasizes investments in financially strong small and medium-sized companies,
based principally on management appraisal and stock valuation. The Portfolio
will pursue its objective by investing primarily in a diversified portfolio of
common stocks and other equity-type securities (such as preferred stocks,
securities convertible or exchangeable for common stocks, and warrants or rights
to purchase common stocks) of entrepreneurially managed companies that the
Sub-advisor believes represent special opportunities. The Sub-advisor considers
"small" and "medium-sized" companies to be those with market capitalizations of
less than $1 billion and $1 to $3 billion, respectively. The Portfolio is
designed for long-term investors who want greater return potential than is
available from the stock market in general, and who are willing to tolerate the
greater investment risk and market volatility associated with investments in
small and medium-sized companies. Attractive company characteristics include
unit growth, favorable cost structures or competitive positions, and financial
strength that enables management to execute business strategies under difficult
conditions. Although the Portfolio does not attempt to reduce or limit risk
through wide industry diversification of investment, it usually allocates its
investments among a number of different industries rather than concentrating in
a particular industry or group of industries. The Portfolio will not invest more
than 25% of the total value of its assets (at the time of investment) in the
securities of companies in any one industry. In pursuing its investment
objective, the Portfolio may invest in debt securities of corporate and
governmental issuers. The Portfolio may invest up to 35% of its net assets in
debt securities, but does not expect to invest more than 5% of its net assets in
debt securities that are rated below investment grade (i.e., below the four
highest grades assigned by a nationally recognized statistical rating
organization). Securities that are rated below investment grade are considered
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal according to the terms of the obligation, and therefore
carry greater investment risk, including the possibility of issuer default and
bankruptcy. The Portfolio may invest in foreign securities. Other than American
Depositary Receipts (ADRs), foreign debt securities denominated in U.S. dollars,
and securities guaranteed by a U.S. person, the Portfolio is limited to
investing no more than 25% of its total assets in foreign securities. The
Portfolio also may enter into foreign currency contracts as a hedging technique
to limit or reduce exposure to currency fluctuations. In addition, the Portfolio
may use options and futures contracts to limit or reduce exposure to currency
fluctuations. Consistent with its objective, the Portfolio may invest in a broad
array of financial instruments and securities, including conventional
exchange-traded and non-exchange-traded options, futures contracts, futures
options, swaps, caps, floors, collars, securities collateralized by underlying
pools of mortgages or other receivables, floating rate instruments, and other
instruments that securitize assets of various types ("Derivatives"). In each
case, the value of the instrument or security is "derived" from the performance
of an underlying asset or a "benchmark" such as a security index, an interest
rate, or a currency. The Portfolio does not expect to invest more than 5% of its
net assets in any type of Derivative except for options, futures contracts, and
futures options.
Bankers Trust Enhanced 500 Portfolio: The investment objective of the Bankers
Trust Enhanced 500 Portfolio (the "Portfolio") is to outperform the Standard &
Poor's 500 Composite Stock Price Index (the "S&P 500(R)") through stock
selection resulting in different weightings of common stocks relative to the
index. The Portfolio will include the common stock of companies included in the
S&P 500. The S&P 500 is an index of 500 common stocks, most of which trade on
the New York Stock Exchange Inc. The Sub-advisor believes that the S&P 500 is
representative of the performance of publicly traded common stocks in the U.S.
in general. In seeking to outperform the S&P 500, the Sub-advisor starts with a
portfolio of stocks representative of the holdings of the index. It then uses a
set of quantitative criteria that are designed to indicate whether a particular
stock will predictably generate returns that will exceed or be less than the
performance of the S&P 500. Based on these criteria, the Sub-advisor determines
whether the Portfolio should overweight, underweight or hold a neutral position
in the stock relative to the proportion of the S&P 500 that the stock
represents. While the majority of the issues held by the Portfolio will have
neutral weightings to the S&P 500, approximately 100 will be over or
underweighted relative to the index. The Sub-advisor will not purchase the stock
of its parent company, Bankers Trust New York Corporation, which is included in
the S&P 500, and instead will overweight its holdings of companies engaged in
similar businesses. The Portfolio is not managed according to traditional
methods of "active" investment management, which involve the buying and selling
of securities based upon economic, financial and market analysis and investment
judgment. Instead, the Portfolio utilizes a "quantitative" investment approach
and attempts to outperform the S&P 500 through statistical procedures.
Therefore, the Sub-advisor will not attempt to judge the merits of any
particular stock as an investment. The Portfolio may be appropriate for
investors who are willing to endure stock market fluctuations in pursuit of
potentially higher long-term returns. The Portfolio invests for growth and does
not pursue income. No more than 15% of the Portfolio's net assets may be
invested in illiquid or not readily marketable securities (including repurchase
agreements and time deposits with maturities of more than seven days). The
Portfolio may maintain up to 25% of its assets in short-term debt securities and
money market instruments. Short-term fixed income securities may be used to
invest uncommitted cash balances, to maintain liquidity to meet shareholder
redemptions or to serve as collateral for the obligations underlying the
Portfolio's investment in securities index futures or related options or
warrants. The Portfolio may invest in various instruments that are commonly
known as derivatives. The Portfolio will only use derivatives for cash
management purposes. The Portfolio may enter into securities index futures
contracts and related options provided that not more than 5% of its assets are
required as a margin deposit for futures contracts or options and provided that
not more than 20% of the Portfolio's assets are invested in futures and options
at any time. The Portfolio may invest in convertible securities, which are bonds
or preferred stocks that may be converted at a stated price within a specific
period of time into a specified number of shares of common stock of the same or
different issuer. "Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard &
Poor's 500," and "500" are trademarks of the McGraw-Hill Companies, Inc. and
have been licensed for use by American Skandia Investment Services, Incorporated
and Bankers Trust. The Portfolio is not sponsored, endorsed, sold or promoted by
Standard & Poor's and Standard & Poor's makes no representation regarding the
advisability of investing in the Portfolio.
Marsico Capital Growth Portfolio: The investment objective of the Portfolio is
to seek capital growth. This is a fundamental objective of the Portfolio. Income
realization is not an investment objective and any income realized on the
Portfolio's investments, therefore, will be incidental to the Portfolio's
objective. Please refer to the Portfolio prospectus for a more detailed
description of the investment objective and the risks involved therein. The
Portfolio will pursue its objective by investing primarily in common stocks.
Common stock investments will be in industries and companies that the
Sub-advisor believes are experiencing favorable demand for their products and
services, and which operate in a favorable competitive and regulatory
environment. Although the Sub-advisor expects to invest primarily in equity
securities, the Sub-advisor may increase the Portfolio's cash position without
limitation when the Sub-advisor is of the opinion that appropriate investment
opportunities for capital growth with desirable risk/reward characteristics are
unavailable. The Portfolio may also invest to a lesser degree in preferred
stocks, convertible securities, warrants, and debt securities when the Portfolio
perceives an opportunity for capital growth from such securities or so that the
Portfolio may receive a return on its idle cash. Debt securities that the
Portfolio may purchase include corporate bonds and debentures (not to exceed 5%
of net assets in bonds rated below investment grade), government securities,
mortgage- and asset-backed securities, zero-coupon bonds, indexed/structured
notes, high-grade commercial paper, certificates of deposit and repurchase
agreements. The Portfolio may invest in "special situations" from time to time.
A "special situation" arises when, in the opinion of the Sub-advisor, the
securities of a particular company will be recognized and appreciate in value
due to a specific development, such as a technological breakthrough, management
change or new product at that company. Investment in "special situations"
carries an additional risk of loss in the event that the anticipated development
does not occur or does not attract the expected attention. The Portfolio may
also purchase securities of foreign issuers, including foreign equity and debt
securities and depositary receipts. Foreign securities are selected on a
stock-by-stock basis without regard to any defined allocation among countries or
geographic regions. The Portfolio may purchase and write options on securities,
financial indices, and foreign currencies, and may invest in futures contracts
on securities, financial indices, and foreign currencies ("futures contracts"),
options on futures contracts, forward contracts and swaps and swap-related
products. These instruments will be used primarily to hedge the Portfolio's
positions against potential adverse movements in securities prices, foreign
currency markets or interest rates. The Portfolio is permitted to enter into
reverse repurchase agreements. In a reverse repurchase agreement, the Portfolio
sells a security and agrees to repurchase it at a mutually agreed upon date and
price. The Portfolio may purchase securities on a when-issued or delayed
delivery basis, which generally involves the purchase of a security with payment
and delivery due at some time in the future. The Portfolio does not earn
interest on such securities until settlement and bears the risk of market value
fluctuations between the purchase and settlement dates. The Portfolio may invest
no more than 5% of its net assets (at the time of investment) in lower-rated
high-yield bonds. Because investment changes usually will be made without
reference to the length of time a security has been held, a significant number
of short-term transactions may result. To a limited extent, the Portfolio may
also purchase individual securities in anticipation of relatively short-term
price gains, and the rate of portfolio turnover will not be a determining factor
in the sale of such securities. Although it is the general policy of the
Portfolio to purchase and hold securities for capital growth, changes in the
Portfolio will be made as the Sub-advisor deems advisable. For example,
portfolio changes may result from liquidity needs, securities having reached a
price objective, or by reason of developments not foreseen at the time of the
original investment decision. Portfolio changes may be effected for other
reasons. In such circumstances, investment income will increase and may
constitute a large portion of the return on the Portfolio and the Portfolio will
not participate in the market advances or declines to the extent that it would
if it were fully invested.
<PAGE>
C. APPENDIX C - PRIOR CONTRACT
The new variable investment options are available to the PSA Contracts described
herein. The following information is added to the table entitled "Expense
Examples":
Examples
(amounts shown are rounded to the nearest dollar)
If you surrender your contract at the end of the applicable time period, you
would pay the following expenses on a $1,000 investment, assuming 5% annual
return on assets:
<TABLE>
<CAPTION>
Sub-accounts After:
1 yr. 3 yrs. 5 yrs. 10 yrs.
<S> <C> <C> <C> <C>
Lord Abbett Small Cap Value 99 138 180 315
Cohen & Steers Realty 99 140 183 321
Stein Roe Venture 99 138 180 315
Bankers Trust Enhanced 500 93 122 153 262
Marsico Capital Growth 98 136 177 310
</TABLE>
If you do not surrender your contract you would pay the following expenses on a
$1,000 investment, assuming 5% annual return on assets: - SAME AS IN EXPENSE
TABLE NOTED IN "A" ABOVE.
