STAGECOACH VARIABLE ANNUITY PLUS
This Prospectus describes a type of annuity (the "Annuity") being offered by
American Skandia Life Assurance Corporation ("we", "our" or "us"), One Corporate
Drive, Shelton, Connecticut, 06484. This flexible premium Annuity may be offered
as individual annuity contracts or as interests in a group annuity. The Table of
Contents is on Page 4. Definitions applicable to this Prospectus are on Page 6.
The highlights of this offering are described beginning on Page 8. This
Prospectus contains a detailed discussion of matters you should consider before
purchasing this Annuity. A Statement of Additional Information has been filed
with the Securities and Exchange Commission and is available from us without
charge upon request. The contents of the Statement of Additional Information are
described on Page 51. 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. This
Prospectus also describes a contract no longer offered by us under which we
continue to accept Purchase Payments (see "Appendix C - Prior Contract).
A Purchase Payment for this Annuity is assessed any applicable tax charge (see
"Tax Charges"). It is then allocated to the investment options you select,
except in certain jurisdictions, where allocations of Purchase Payments we
receive during the "free-look" period that you direct to any Sub-accounts are
temporarily allocated to the WF Money Market Sub-account (see "Allocation of Net
Purchase Payments"). You may transfer Account Value between investment options
(see "Investment Options" and "Transfers"). Account Value may be distributed as
periodic annuity payments in a "payout phase". Such annuity payments can be
guaranteed for life (see "Annuity Payments"). During the "accumulation phase"
(the period before any payout phase), you may surrender the Annuity for its
Surrender Value or make withdrawals (see "Distributions"). Such distributions
may be subject to tax, including a tax penalty, and any applicable contingent
deferred sales charges (see "Contingent Deferred Sales Charge"). A death benefit
may be payable during the accumulation phase (see "Death Benefit").
Account Value in the variable investment options increases or decreases daily to
reflect investment performance and the deduction of charges. No minimum amount
is guaranteed (see "Account Value in the Sub-accounts"). The variable investment
options are Class 1 Sub-accounts of American Skandia Life Assurance Corporation
Variable Account B ("Separate Account B") (see "Separate Accounts" and "Separate
Account B"). Each Sub-account invests exclusively in one portfolio of an
underlying fund or in an underlying fund that does not have distinct portfolios.
As of the date of this Prospectus, the underlying mutual funds are Life &
Annuity Trust ("LA Trust"), American Skandia Trust ("the AST Trust") and The
Alger American Fund. The portfolios of LA Trust in which the Sub-accounts invest
are: (a) WF Asset Allocation, (b) WF U.S. Government Allocation, (c) WF Growth
and Income, and (d) WF Money Market. The portfolios of American Skandia Trust in
which the Sub-accounts invest are: (a) JanCap Growth, (b) T. Rowe Price
International Equity, (c) Founders Capital Appreciation, (d) INVESCO Equity
Income, (e) PIMCO Total Return Bond, (f) PIMCO Limited Maturity Bond, and (g)
Berger Capital Growth. The portfolio of The Alger American Fund is Growth.
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 (see "Separate Accounts"
and "Separate Account D").
(continued on page 2)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PLEASE
READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE.
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FOR FURTHER INFORMATION CALL 1-800-680-8920 Prospectus Dated: May 1, 1997
Statement of Additional Information Dated: May 1, 1997
WFV2-PROS-(5/97)
We guarantee fixed annuity payments. We also guaranty 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 or 408
(see "Certain Tax Considerations").
Purchase Payments under these Annuities are not deposits or obligations of, or
guaranteed or endorsed by, any bank subsidiary of Wells Fargo Bank, N.A., are
not federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other agency and are not insured by the Securities
Investor Protection Corporation ("SIPC") as to the loss of the principal amount
invested. Purchase Payments allocated to the investment options are subject to
investment risks, including possible loss of principal.
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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.........................................................................................................12
CONDENSED FINANCIAL INFORMATION..........................................................................................12
Unit Prices And Numbers Of Units......................................................................................13
Yields On Money Market Sub-account....................................................................................15
INVESTMENT OPTIONS.......................................................................................................15
Variable Investment Options...........................................................................................15
Fixed Investment Options..............................................................................................16
OPERATIONS OF THE SEPARATE ACCOUNTS......................................................................................17
Separate Accounts.....................................................................................................17
Separate Account B....................................................................................................17
Separate Account D....................................................................................................18
INSURANCE ASPECTS OF THE ANNUITY.........................................................................................19
CHARGES ASSESSED OR ASSESSABLE AGAINST THE ANNUITY.......................................................................19
Contingent Deferred Sales Charge......................................................................................19
Tax Charges...........................................................................................................20
Transfer Fee..........................................................................................................20
Allocation Of Annuity Charges.........................................................................................20
CHARGES ASSESSED AGAINST THE ASSETS......................................................................................20
Administration Charge.................................................................................................20
Mortality and Expense Risk Charges....................................................................................20
CHARGES OF THE UNDERLYING MUTUAL FUNDS...................................................................................21
PURCHASING ANNUITIES.....................................................................................................21
Uses Of The Annuity...................................................................................................21
Application And Initial Payment.......................................................................................21
Breakpoints...........................................................................................................21
Exchange Contracts....................................................................................................22
Auto Saver............................................................................................................24
Periodic Purchase Payments............................................................................................24
Right to Return the Annuity...........................................................................................24
Allocation of Net Purchase Payments...................................................................................24
Balanced Investment Program...........................................................................................25
Ownership, Annuitant and Beneficiary Designations.....................................................................25
ACCOUNT VALUE AND SURRENDER VALUE........................................................................................26
Account Value in the Sub-accounts.....................................................................................26
Account Value of the Fixed Allocations................................................................................26
Additional Amounts in the Fixed Allocations...........................................................................26
RIGHTS, BENEFITS AND SERVICES............................................................................................27
Additional Purchase Payments..........................................................................................27
Changing Revocable Designations.......................................................................................28
Allocation Rules......................................................................................................28
Transfers.............................................................................................................28
Renewals............................................................................................................29
Dollar Cost Averaging...............................................................................................29
Rebalancing.........................................................................................................30
Distributions.........................................................................................................30
Surrender...........................................................................................................31
Medically-Related Surrender.........................................................................................31
Free Withdrawals....................................................................................................31
Partial Withdrawals.................................................................................................32
Systematic Withdrawals..............................................................................................32
Minimum Distributions...............................................................................................32
Death Benefit.......................................................................................................33
Annuity Payments....................................................................................................34
Qualified Plan Withdrawal Limitations...............................................................................35
Pricing of Transfers and Distributions................................................................................36
Voting Rights.........................................................................................................36
Transfers, Assignments or Pledges.....................................................................................37
Reports to You........................................................................................................37
SALE OF THE ANNUITIES....................................................................................................37
Distribution..........................................................................................................37
Advertising...........................................................................................................37
CERTAIN TAX CONSIDERATIONS...............................................................................................38
Our Tax Considerations................................................................................................38
Tax Considerations Relating to Your Annuity...........................................................................38
Non-natural Persons.................................................................................................38
Natural Persons.....................................................................................................38
Distributions.......................................................................................................38
Loans, Assignments and Pledges......................................................................................39
Gifts...............................................................................................................39
Penalty on Distributions............................................................................................39
Annuity Payments....................................................................................................40
Tax Free Exchanges..................................................................................................40
Transfers Between Investment Options................................................................................40
Estate and Gift Tax Considerations..................................................................................40
Generation-Skipping Transfers.......................................................................................40
Diversification.....................................................................................................40
Federal Income Tax Withholding......................................................................................40
Tax Considerations When Using Annuities in Conjunction with Qualified Plans...........................................41
Individual Retirement Programs......................................................................................41
Tax Sheltered Annuities.............................................................................................41
Corporate Pension and Profit-sharing Plans..........................................................................41
H.R. 10 Plans.......................................................................................................41
Tax Treatment of Distributions from Qualified Annuities.............................................................41
Section 457 Plans...................................................................................................41
OTHER MATTERS............................................................................................................42
Deferral of Transactions..............................................................................................42
Resolving Material Conflicts..........................................................................................42
Modification..........................................................................................................42
Misstatement of Age or Sex............................................................................................43
Ending the Offer......................................................................................................43
Indemnification.......................................................................................................43
Legal Proceedings.....................................................................................................43
THE COMPANY..............................................................................................................43
Lines of Business.....................................................................................................43
Selected Financial Data...............................................................................................43
Management's Discussion and Analysis of Financial Condition and Results of Operations.................................44
Results of Operation..................................................................................................44
Liquidity and Capital Resources.......................................................................................46
Segment Information.................................................................................................46
Reinsurance...........................................................................................................46
Future Fees Payable to Parent.........................................................................................47
Surplus Notes.........................................................................................................47
Reserves..............................................................................................................48
Competition...........................................................................................................48
Employees.............................................................................................................48
Regulation............................................................................................................48
Executive Officers and Directors......................................................................................49
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION......................................................................51
FINANCIAL STATEMENTS.....................................................................................................51
APPENDIX A FINANCIAL STATEMENTS FOR AMERICAN SKANDIA LIFE ASSURANCE CORPORATION.........................................52
APPENDIX B SHORT DESCRIPTIONS OF THE UNDERLYING MUTUAL FUNDS' PORTFOLIO INVESTMENT
OBJECTIVES AND POLICIES...............................................................................................52
APPENDIX C PRIOR CONTRACT...............................................................................................52
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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, before assessment of any applicable
contingent deferred sales charge. 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 a specific type of Systematic Withdrawal such that the
amounts payable are not less than the minimum amounts that must be distributed
each year from an Annuity if used in relation to certain qualified plans under
the Code.
NET PURCHASE PAYMENT is a Purchase Payment less any applicable charge for taxes.
OFFICE is our business office, American Skandia Life Assurance Corporation, One
Corporate Drive, P.O. Box 883, Shelton, Connecticut 06484.
OWNER is either an eligible entity or person named as having ownership rights in
relation to an Annuity issued as an individual contract. An Annuity may be
issued as a certificate evidencing interest in a group annuity contract. If so,
the rights, benefits and requirements of and the events relating to an Owner, as
described in this Prospectus, will be the rights, benefits and requirements of
and events relating to the person or entity designated as the participant in
such certificate.
PURCHASE PAYMENT is a cash consideration you give us for certain rights,
privileges and benefits provided under an Annuity according to its terms.
SUB-ACCOUNT is a division of Separate Account B. We use Sub-accounts to
calculate variable benefits under this Annuity.
SURRENDER VALUE is the value of your Annuity available upon surrender prior to
the Annuity Date. It equals the Account Value as of the date we price the
surrender less any applicable contingent deferred sales charge.
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 Owner.
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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 and, in
most jurisdictions, fixed investment options.
During the accumulation phase, we currently offer a number of variable
investment options. Each of these investment options is a Class 1 Sub-account of
Separate Account B. Each Sub-account invests exclusively in one underlying
mutual fund or a portfolio of an underlying mutual fund. Certain of the variable
investment options may not be available in all jurisdictions. As of the date of
this Prospectus, we offer thirteen Sub-accounts. Four of the underlying mutual
fund portfolios are managed by Wells Fargo Bank, N.A. The available portfolios
of the LA Trust in which the Sub-accounts invest are as follows: (a) WF Asset
Allocation Fund; (b) WF U.S. Government Allocation Fund; (c) WF Growth and
Income Fund; (d) WF Money Market Fund. BZW Barclays Global Fund Advisors
("BGFA") serves as Sub-advisor for the Asset Allocation Fund and the U.S.
Government Allocation Fund. American Skandia Investment Services, Incorporated
("ASISI"), formerly American Skandia Life Investment Management, Inc., is the
investment manager for the AST Trust. Currently, ASISI engages a sub-advisor
("Sub-advisor") for each portfolio. The Sub-advisor for each portfolio is as
follows: (a) JanCap Growth Portfolio: Janus Capital Corporation; (b) T. Rowe
Price International Equity Portfolio: T. Rowe Price Associates, Inc.; (c)
Founders Capital Appreciation Portfolio: Founders Asset Management, Inc.; (d)
INVESCO Equity Income Portfolio: INVESCO Funds Group, Inc.; (e) PIMCO Total
Return Bond: Pacific Investment Management Company; (f) PIMCO Limited Maturity
Bond: Pacific Investment Management Company; and (g) Berger Capital Growth
Portfolio: Berger Associates, Inc. The Growth Portfolio of The Alger American
Fund is managed by Fred Alger Management, Inc.
In most jurisdictions, we also offer the option during the accumulation phase of
earning one or more fixed rates of interest on all or a portion of your Account
Value. As of the date of this Prospectus, we offered the option to make
allocations at interest rates that could be guaranteed for 1, 2, 3, 5, 7 and 10
years. Each such Fixed Allocation earns the fixed interest rate applicable as of
the date of such allocation. The interest rate credited to a Fixed Allocation
does not change during its Guarantee Period. You may maintain multiple Fixed
Allocations. From time-to-time we declare Current Rates for Fixed Allocations
beginning a new Guarantee Period. The rates we declare are subject to a minimum,
but we may declare higher rates. The minimum is determined in relation to an
index that we do not control.
The end of a Guarantee Period for a specific Fixed Allocation is called its
Maturity Date. At that time, the Guarantee Period normally "renews" and we begin
crediting interest for a new Guarantee Period lasting the same amount of time as
the one just ended. That Fixed Allocation then earns interest during the new
Guarantee Period at a rate that is not less than the one then being earned by
Fixed Allocations for that Guarantee Period by new Annuity purchasers in the
same class. You also may choose a different Guarantee Period from among those we
are then currently making available or you may transfer that Account Value to a
variable Sub-account.
In the payout phase, you may elect fixed annuity payments based on our then
current annuity rates. We may also make available adjustable annuity rates.
For more information, see the section entitled Investment Options, including the
following subsections: (a) Variable Investment Options; and (b) Fixed Investment
Options.
(2) Operations of the Separate Accounts: In the accumulation phase, the
assets supporting guarantees we make in relation to Fixed Allocations are held
in our Separate Account D. This is a "non-unitized" separate account. However,
values and benefits calculated on the basis of Fixed Allocations are guaranteed
by our general account. In the payout phase, fixed annuity payments and any
adjustable annuity payments we may make available are also guaranteed by our
general account, but the assets supporting such payments are not held in
Separate Account D.
In the accumulation phase, the assets supporting the Account Values maintained
in the Sub-accounts are held in our Separate Account B. These are Class 1
Sub-accounts of Separate Account B. Values and benefits based on these
Sub-accounts are not guaranteed and will vary with the investment performance of
the underlying mutual funds or fund portfolios, as applicable.
For more information, see the section entitled Operations of the Separate
Accounts, including the following subsections: (a) Separate Accounts; (b)
Separate Account B; and (c) Separate Account D.
(3) Insurance Aspects of the Annuity: There are insurance risks which
we bear in relation to the Annuity. For more information, see the section
entitled Insurance Aspects of the Annuity.
(4) Charges Assessed or Assessable Against the Annuity: The Annuity
charges which are assessed or may be assessable under certain circumstances are
the contingent deferred sales charge, the maintenance fee, a charge for taxes
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) Contingent Deferred Sales Charge; (b) Tax Charges;
(c) Transfer Fee; and (d) Allocation of Annuity Charges.
(5) Charges Assessed Against the Assets: The charges assessed against
assets in the Sub-accounts are the administration charge and the mortality and
expense risk charges. There are no charges deducted from the assets supporting
Fixed Allocations. For more information, see the section entitled Charges
Assessed Against the Assets, including the following subsections: (a)
Administration Charge; and (b) Mortality and Expense Risk Charges.
(6) Charges of the Underlying Mutual Funds: Each underlying mutual fund
portfolio 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 the fund
prospectus and its statement of additional information.
(7) Purchasing Annuities: Annuities are available for multiple uses,
including as a funding vehicle for various retirement programs which qualify for
special treatment under the Code. We may require a properly completed
Application, an acceptable Purchase Payment, and any other materials under our
underwriting rules before we agree to issue an Annuity. We may offer special
programs in relation to Annuities on which we receive large Purchase Payments
and/or Annuities obtained as an exchange of a contract issued by an insurer not
affiliated with us. You have the right to return an Annuity within a "free-look"
period if you are not satisfied with it. In most jurisdictions, the initial
Purchase Payment and any Purchase Payments received during the "free-look"
period are allocated according to your instructions. In jurisdictions that
require a "free-look" provision such that, if the Annuity is returned under that
provision, we must return at least your Purchase Payments less any withdrawals,
we temporarily allocate such Purchase Payments to the WF 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 WF 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 an Owner and an Annuitant.
You may also make certain other designations that apply to the Annuity if
issued. These designations include a contingent Owner, a Contingent Annuitant
(Contingent Annuitants may be required in conjunction with certain uses of the
Annuity), a Beneficiary, and a contingent Beneficiary. See the section entitled
Purchasing Annuities, including the following subsections: (a) Uses of the
Annuity; (b) Application and Initial Payment; (c) Breakpoints; (d) Exchange
Contracts; (e) Auto Saver; (f) Periodic Purchase Payments; (g) Right to Return
the Annuity; (h) Allocation of Net Purchase Payments; (i) Balanced Investment
Program; and (j) Ownership, Annuitant and Beneficiary Designations.
(8) Account Value and Surrender Value: In the accumulation phase your
Annuity has an Account Value. Your total Account Value as of a particular date
is the sum of your Account Value in each Sub-account and in each Fixed
Allocation. Surrender Value is the Account Value less any applicable contingent
deferred sales charge. 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. Under certain
circumstances, the MVA formula may change. For more information, see the section
entitled Account Value and Surrender Value, including the following subsections:
(a) Account Value in the Sub-accounts; (b) Account Value of Fixed Allocations;
and (c) Additional Amounts in the Fixed Allocations.
(9) Rights, Benefits and Services: You have a number of rights and
benefits under an Annuity once issued. We also currently provide a number of
services to Owners. These rights, benefits and services are subject to a number
of rules and conditions. These rights, benefits and services include, but are
not limited to, those described in this Prospectus. We accept additional
Purchase Payments during the accumulation phase. You may use Auto Saver to make
Purchase Payments. We support certain Periodic Purchase Payment programs 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 and rebalancing during the
accumulation phase. During the accumulation phase, surrender, free withdrawals
and partial withdrawals are available, as are medically-related surrenders under
which the contingent deferred sales charge is waived under specified
circumstances. In the accumulation phase we offer Systematic Withdrawals and,
for Annuities used in qualified plans, Minimum Distributions. We offer fixed
annuity options, and may offer adjustable annuity options that can guarantee
payments for life. In the accumulation phase, a death benefit may be payable.
You may transfer or assign your Annuity unless such rights are limited in
conjunction with certain uses of the Annuity. You may exercise certain voting
rights in relation to the underlying mutual fund portfolios in which the
Sub-accounts invest. You have the right to receive certain reports periodically.
For additional information, see the section entitled Rights, Benefits and
Services including the following subsections: (a) Additional Purchase Payments;
(b) Auto Saver; (c) Changing Revocable Designations; (d) Allocation Rules; (e)
Transfers; (f) Renewals; (g) Dollar Cost Averaging; (h) Rebalancing; (i)
Distributions (including: (i) Surrender; (ii) Medically-Related Surrender; (iii)
Free Withdrawals; (iv) Partial Withdrawals; (v) Systematic Withdrawals; (vi)
Minimum Distributions; (vii) Death Benefit; (viii) Annuity Payments; and (ix)
Qualified Plan Withdrawal Limitations); (j) Pricing of Transfers and
Distributions; (k) Voting Rights; (l) Transfers, Assignments and Pledges; and
(m) 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; and (i) Executive
Officers and Directors.
AVAILABLE INFORMATION: A Statement of Additional Information is available from
us without charge upon request by filling in the coupon at the end of this
Prospectus and sending it (or a written request) to American Skandia Life
Assurance Corporation, Stagecoach Annuity, P.O. Box 883, Shelton, CT 06484. You
also may forward such a request electronically to our Customer Service
Department or call us at 1-(800)-752-6342. Our electronic mail address is
[email protected]. 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 this Prospectus and sending it (or a
written request) to American Skandia Life Assurance Corporation, Attention:
Stagecoach Variable Annuity Administration, 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, 7 World Trade
Center, New York, NY, and the Everett McKinley Dirksen Building, 219 South
Dearborn Street, Chicago, IL. These documents, as well as documents incorporated
by reference, may also be obtained through the SEC's Internet Website
(http://www.sec.gov) for this registration statement as well as for other
registrants that file electronically with the SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE: The Annual Report on Form 10-K
for the year ended December 31, 1996 previously filed by the Company with the
SEC under the Securities Exchange Act of 1934 is incorporated by reference in
this Prospectus.
To the extent and only to the extent that any statement in a document
incorporated by reference into this Prospectus is modified or superseded by a
statement in this Prospectus or in a later-filed document, such statement is
hereby deemed so modified or superseded and not part of this Prospectus.
We furnish you without charge a copy of any or all the documents incorporated by
reference in this Prospectus, including any exhibits to such documents which
have been specifically incorporated by reference. We do so upon receipt of your
written or oral request. Please address your request to American Skandia Life
Assurance Corporation, Attention: Stagecoach, P.O. Box 883, Shelton,
Connecticut, 06484. Our phone number is 1-(800)-680-8920. Our electronic mail
address is [email protected].
CONTRACT EXPENSE SUMMARY: The summary provided below includes information
regarding the expenses for your Annuity, for the Sub-accounts and for the
underlying mutual fund portfolios. The only expense applicable if you allocate
all your Account Value to Fixed Allocations would be the contingent deferred
sales charge.
More detail regarding the expenses of the underlying mutual funds and their
portfolios may be found either in the prospectuses for such mutual funds or in
the annual reports of such mutual funds.
The expenses of our Sub-accounts (not those of the underlying mutual fund
portfolios in which our Sub-accounts invest) are the same no matter which
Sub-account you choose. Therefore, these expenses are only shown once below. In
certain states, premium taxes may be applicable.
<TABLE>
<CAPTION>
Your Transaction Expenses
<S> <C> <C> <C>
Contingent Deferred Sales Charge, 7% of each Purchase Payment,
as a percentage of Purchase Payments liquidated decreasing 1% in the third year,
another 1% in the fourth year
another 1% in the fifth year
another 1% in the sixth year
and another 1% in the 7th year
with none applicable as to a Purchase Payment
starting in the eighth year after
it was allocated to Account Value
Annual Maintenance Fee None
Tax Charges Dependent 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 1.25%
Administration Charges 0.15%
-----
Total Annual Expenses of the Sub-accounts 1.40%
</TABLE>
Underlying Mutual Fund Portfolio Annual Expenses (as a percentage of average net
assets)
Unless otherwise indicated, the expenses shown below are for the year ending
December 31, 1996. "N/A" indicates that no entity has agreed to reimburse the
particular expense indicated. The expenses of the 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
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.
<TABLE>
<CAPTION>
Total Total
Annual Annual
Management Management Other Other Expenses Expenses
Fee Fee Expenses Expenses after any without any
after any without any after any without any applicable applicable
Portfolio: voluntary voluntary any applicable applicable waiver or waiver or
waiver waiver reimbursement reimbursement reimbursement reimbursement
- ------------------------------------------------------------------------------------------------------------------------------------
Life & Annuity Trust
<S> <C> <C> <C> <C> <C> <C>
WF Asset Allocation 0.54% 0.60% 0.15% 0.20% 0.69% 0.80%
WF U.S. Government Allocation 0.08% 0.60% 0.52% 0.58% 0.60% 1.18%
Money Market 0.16% 0.45% 0.35% 0.77% 0.51% 1.22%
WF Growth & Income 0.38% 0.60% 0.22% 0.52% 0.60% 1.12%
American Skandia Trust
JanCap Growth N/A 0.90% N/A 0.20% N/A 1.10%
T. Rowe Price Int'l Equity N/A 1.00% N/A 0.30% N/A 1.30%
Founders Capital Appreciation N/A 0.90% N/A 0.26% N/A 1.16%
INVESCO Equity Income N/A 0.75% N/A 0.23% N/A 0.98%
PIMCO Total Return Bond N/A 0.65% N/A 0.24% N/A 0.89%
PIMCO Limited Maturity Bond N/A 0.65% N/A 0.24% N/A 0.89%
Berger Capital Growth N/A 0.75% N/A 0.26% N/A 1.01%
The Alger American Fund
Growth N/A 0.75% + 0.04% + 0.79%
</TABLE>
The purpose of the above table is to assist you in understanding the various
costs and expenses that you would bear directly or indirectly as an investor in
the Portfolio(s).
The underlying mutual fund portfolio information was provided by the underlying
mutual funds. The Company has not independently verified such information.
EXPENSE EXAMPLES: The examples which follow are designed to assist you in
understanding the various costs and expenses you will bear directly or
indirectly if you maintain Account Value in the Sub-accounts. The examples
reflect expenses of our Sub-accounts, as well as those for the underlying mutual
fund portfolios.
The examples shown assume that: (a) all your Account Value is maintained only in
Sub-accounts; (b) fees and expenses remain constant; (c) there are no
withdrawals of Account Value during the period shown; (d) there are no transfers
or other transactions subject to a fee during the period shown; (e) no tax
charge applies; and (f) the expenses throughout the period for the underlying
mutual fund portfolios will be the lower of the expenses without any applicable
reimbursement or expenses after any applicable reimbursement, as shown above in
the section entitled "Contract Expense Summary."
THE EXAMPLES ARE ILLUSTRATIVE ONLY - THEY SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE UNDERLYING MUTUAL FUND
PORTFOLIOS - ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The
Sub-accounts are referred to below by their specific names.
Examples (amounts shown are rounded to the nearest dollar)
If you surrender your Annuity at 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>
WF Asset Allocation 91 126 153 243
WF U.S. Government Allocation 90 123 148 233
WF Growth and Income 90 123 148 233
WF Money Market 90 121 144 225
JanCap Growth 96 139 174 285
T. Rowe Price International Equity 98 145 185 306
Founders Capital Appreciation 96 140 177 291
INVESCO Equity Income 94 135 168 273
PIMCO Total Return Bond 93 132 163 264
PIMCO Limited Maturity Bond 93 132 163 264
Berger Capital Growth 95 136 170 277
AA Growth 92 129 158 254
</TABLE>
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:
<TABLE>
<CAPTION>
Sub-accounts After:
1 yr. 3 yrs. 5 yrs. 10 yrs.
<S> <C> <C> <C> <C>
WF Asset Allocation 21 66 113 243
WF U.S. Government Allocation 20 63 108 233
WF Growth and Income 20 63 108 233
WF Money Market 20 61 104 225
JanCap Growth 26 79 134 285
T. Rowe Price International Equity 28 85 145 306
Founders Capital Appreciation 26 80 137 291
INVESCO Equity Income 24 75 128 273
PIMCO Total Return Bond 23 72 123 264
PIMCO Limited Maturity Bond 23 72 123 264
Berger Capital Growth 25 76 130 277
AA Growth 22 69 118 254
</TABLE>
CONDENSED FINANCIAL INFORMATION: The Unit Prices and number of Units in the
Sub-accounts that commenced operations prior to January 1, 1997 are shown below
as is yield information on the WF Money Market Sub-account. All of these
Sub-accounts were available during the periods shown as investment options for
other variable annuities we offer pursuant to different prospectuses. The
charges assessed against the Sub-accounts under the terms of those other
variable annuities are the same as the charges assessed against such
Sub-accounts under the Annuity offered pursuant to this Prospectus.
Unit Prices And Numbers Of Units: The following table shows: (a) the
Unit Price as of the dates shown for Units in each of the Class 1 Sub-accounts
of Separate Account B that commenced operations prior to January 1, 1997 and are
being offered pursuant to this Prospectus or which we offer pursuant to certain
other prospectuses; and (b) the number of Units outstanding in each such
Sub-account as of the dates shown. The year in which operations commenced in
each such Sub-account is noted in parentheses. The portfolios in which a
particular Sub-account invests may or may not have commenced operations prior to
the date such Sub-account commenced operations. The initial offering price for
each Sub-account was $10.00.
<TABLE>
<CAPTION>
Sub-account and the Year Sub-account Operations Commenced
WF WF
WF U.S. Growth WF
Asset Government and Money
Allocation Allocation Income Market
(1994) (1994) (1994) (1994)
---- ------ ------ ------
No. of Units
<S> <C> <C> <C> <C>
as of 12/31/96 3,700,609 1,173,664 2,096,545 1,157,342
as of 12/31/95 1,991,150 428,889 823,247 521,291
as of 12/31/94 743,176 84,609 204,067 144,050
as of 12/31/93 0 0 0 0
as of 12/31/92 0 0 0 0
as of 12/31/91 0 0 0 0
as of 12/31/90 0 0 0 0
as of 12/31/89 0 0 0 0
as of 12/31/88 0 0 0 0
Unit Price
as of 12/31/96 $13.99 $11.50 $15.90 $10.92
as of 12/31/95 12.73 11.21 13.18 10.58
as of 12/31/94 10.01 9.94 10.34 10.18
as of 12/31/93 0 0 0 0
as of 12/31/92 0 0 0 0
as of 12/31/91 0 0 0 0
as of 12/31/90 0 0 0 0
as of 12/31/89 0 0 0 0
as of 12/31/88 0 0 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sub-account and the Year Sub-account Operations Commenced
T. Rowe
Price Founders INVESCO
JanCap International Capital Equity
Growth Equity Appreciation Income
(1992) (1994) (1994) (1994)
No. of Units
<S> <C> <C> <C> <C>
as of 12/31/96 46,779,164 32,628,595 12,282,211 23,592,226
as of 12/31/95 28,662,737 17,935,251 6,076,373 13,883,712
as of 12/31/94 22,354,170 11,166,758 2,575,105 6,633,333
as of 12/31/93 13,603,637 0 0 0
as of 12/31/92 1,476,139 0 0 0
as of 12/31/91 0 0 0 0
as of 12/31/90 0 0 0 0
as of 12/31/89 0 0 0 0
as of 12/31/88 0 0 0 0
Unit Price
as of 12/31/96 $18.79 $11.70 $16.54 $14.23
as of 12/31/95 14.85 10.39 13.97 12.33
as of 12/31/94 10.91 9.49 10.69 9.61
as of 12/31/93 11.59 0 0 0
as of 12/31/92 10.51 0 0 0
as of 12/31/91 0 0 0 0
as of 12/31/90 0 0 0 0
as of 12/31/89 0 0 0 0
as of 12/31/88 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
Sub-account and the Year Sub-account Operations Commenced
PIMCO PIMCO
Total Limited Berger
Return Maturity Capital AA
Bond Bond Growth Growth
(1994) (1995) (1994) (1988)
------ ---- ------ ------
No. of Units
<S> <C> <C> <C> <C>
as of 12/31/96 29,921,643 18,894,375 9,563,858 15,666,357
as of 12/31/95 19,061,840 15,058,644 3,658,836 12,092,291
as of 12/31/94 4,577,708 0 301,267 5,614,760
as of 12/31/93 0 0 0 2,997,458
as of 12/31/92 0 0 0 1,482,037
as of 12/31/91 0 0 0 559,779
as of 12/31/90 0 0 0 82,302
as of 12/31/89 0 0 0 6,900
as of 12/31/88 0 0 0 0
Unit Price
as of 12/31/96 $11.48 $10.62 $13.99 $34.84
as of 12/31/95 11.26 10.37 12.20 31.18
as of 12/31/94 9.61 0 9.94 23.18
as of 12/31/93 0 0 0 23.18
as of 12/31/92 0 0 0 19.19
as of 12/31/91 0 0 0 17.32
as of 12/31/90 0 0 0 12.51
as of 12/31/89 0 0 0 12.19
as of 12/31/88 0 0 0 0
</TABLE>
Information is not shown above for Sub-accounts that had not commenced
operations prior to January 1, 1997.
The financial statements of the Sub-accounts being offered to you are found in
the Statement of Additional Information.
Yields 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 WF 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.
Sub-account Current Yield Effective Yield
WF Money Market 3.39% 3.45%
INVESTMENT OPTIONS: We offer a range of variable and fixed options as ways to
invest your Account Value.
Variable Investment Options: During the accumulation phase, we offer a
number of Sub-accounts as variable investment options. These are all Class 1
Sub-accounts of American Skandia Life Assurance Corporation Variable Account B
("Separate Account B"). Each of these Sub-accounts invests exclusively in one
underlying mutual fund portfolio of the LA Trust, the AST Trust or The Alger
American Fund. As of the date of this Prospectus, the Sub-accounts and the
portfolios in which they invest are as follows:
<TABLE>
<CAPTION>
Underlying Mutual Fund: Life & Annuity Trust
Sub-account Underlying Mutual Fund Portfolio
<S> <C> <C>
WF Asset Allocation Asset Allocation Fund
WF U.S. Government Allocation U.S. Government Allocation Fund
WF Growth and Income Growth and Income Fund
WF Money Market Money Market Fund
Underlying Mutual Fund: American Skandia Trust
Sub-account Underlying Mutual Fund Portfolio
JanCap Growth JanCap Growth
T. Rowe Price International Equity T. Rowe Price International Equity
Founders Capital Appreciation Founders Capital Appreciation
INVESCO Equity Income INVESCO Equity Income
PIMCO Total Return Bond PIMCO Total Return Bond
PIMCO Limited Maturity Bond PIMCO Limited Maturity Bond
Berger Capital Growth Berger Capital Growth
Underlying Mutual Fund: The Alger American Fund
Sub-account Underlying Mutual Fund Portfolio
AA Growth Alger American Growth
</TABLE>
Certain Sub-accounts may not be available in all jurisdictions. If and when we
obtain approval of the applicable authorities to make such variable investment
options available, we will notify Owners of the availability of such
Sub-accounts.
We may make other underlying mutual funds available by creating new
Sub-accounts. Additionally, new portfolios may be made available by the creation
of new Sub-accounts from time to time. Such a new portfolio of an underlying
mutual fund may be disclosed in its prospectus. However, addition of a portfolio
does not require us to create a new Sub-account to invest in that portfolio. We
may take other actions in relation to the Sub-accounts and/or Separate Account B
(see "Modifications").
Each underlying mutual fund, or portfolio thereof, is registered under the
Investment Company Act of 1940, as amended (the "1940 Act") as an open-end
management investment company. Each underlying mutual fund or portfolio thereof
may or may not be diversified as defined in the 1940 Act. As of the date of this
Prospectus, the portfolios in which Sub-accounts offered pursuant to this
Prospectus invest are those shown above. A summary of the investment objectives
and policies of such underlying mutual fund portfolios is found in Appendix B.
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. Shares of the underlying mutual fund
portfolios are available to separate accounts of life insurance companies
offering variable annuity and variable life insurance products. The shares may
also be made available, subject to obtaining all required regulatory approvals,
for direct purchase by various pension and retirement savings plans that qualify
for preferential tax treatment under the Code.
The investment objectives, policies, charges, operations, the attendant risks
and other details pertaining to each underlying mutual fund portfolio are
described in the prospectus of each underlying mutual fund and the statements of
additional information for such underlying mutual fund. Also included in such
information is the investment policy of each mutual fund or portfolio regarding
the acceptable ratings by recognized rating services for bonds and other debt
obligations. There can be no guarantee that any underlying mutual fund or
portfolio will meet its investment objectives.
Shares of the underlying mutual funds may be available to variable life
insurance and variable annuity separate accounts of other insurance companies.
Possible consequences of this multiple availability are discussed in the
subsection entitled Resolving Material Conflicts.
The prospectus for any underlying mutual fund or funds being considered by you
should be read in conjunction herewith. A copy of each prospectus may be
obtained without charge from us by calling 1-800-680-8920 or writing to us at
either P.O. Box 883, Attention: Stagecoach Variable Annuity Administration,
Shelton, Connecticut, 06484-0883, or to our electronic mail address which is
[email protected].
Fixed Investment Options: For the payout phase you may elect fixed
annuity payments based on our then current annuity rates. The discussion below
describes the fixed investment options in the accumulation phase.
As of the date of this Prospectus we offer in most jurisdictions in which the
Annuity is available Fixed Allocations with Guarantee Periods of 1, 2, 3, 5, 7
and 10 years. Each such Fixed Allocation is accounted for separately. Each Fixed
Allocation earns a fixed rate of interest throughout a set period of time called
a Guarantee Period. Multiple Fixed Allocations are permitted, subject to our
allocation rules. The duration of a Guarantee Period may be the same or
different from the duration of the Guarantee Periods of any of your prior Fixed
Allocations.
We may or may not be able to obtain approval in the future in certain
jurisdictions of endorsements to individual or group Annuities that include the
type of Fixed Allocations offered pursuant to this Prospectus. If such approval
is obtained, we will take those steps needed to make such Fixed Allocations
available to purchasers to whom Annuities were issued prior to the date of such
approval.
To the extent permitted by law, we reserve the right at any time to offer
Guarantee Periods with durations that differ from those which were available
when your Annuity was issued. We also reserve the right at any time to stop
accepting new allocations, transfers or renewals for a particular Guarantee
Period. Such an action may have an impact on the MVA (see "Account Value of the
Fixed Allocations").
A Guarantee Period for a Fixed Allocation begins: (a) when all or part of a Net
Purchase Payment is allocated for that particular Guarantee Period; (b) upon
transfer of any of your Account Value to a Fixed Allocation for that particular
Guarantee Period; or (c) when a Guarantee Period attributable to a Fixed
Allocation "renews" after its Maturity Date.
We declare the rates of interest applicable during the various Guarantee Periods
offered. Declared rates are effective annual rates of interest. The rate of
interest applicable to a Fixed Allocation is the one in effect when its
Guarantee Period begins. The rate is guaranteed throughout the Guarantee Period.
We inform you of the interest rate applicable to a Fixed Allocation, as well as
its Maturity Date, when we confirm the allocation. We declare interest rates
applicable to new Fixed Allocations from time-to-time. Any new Fixed Allocation
in an existing Annuity is credited interest at a rate not less than the rate we
are then crediting to Fixed Allocations for the same Guarantee Period selected
by new Annuity purchasers in the same class.
To the extent permitted by law, we reserve the right 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").
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 two and one
quarter percent of interest (2.25%).
Where required by the laws of a particular jurisdiction, a specific minimum
interest rate, compounded yearly, will apply should the index less the reduction
be less than the specific minimum interest rate applicable to that jurisdiction.
WE MAY CHANGE THE INTEREST RATES WE CREDIT NEW FIXED ALLOCATIONS AT ANY TIME.
Any such change does not have an impact on the rates applicable to Fixed
Allocations with Guarantee Periods that began prior to such change. However,
such a change will affect the MVA (see "Account Value of the Fixed
Allocations").
We have no specific formula for determining the interest rates we declare. Rates
may differ between classes and between types of annuities we offer, even for
guarantees of the same duration starting at the same time. We expect our
interest rate declarations for Fixed Allocations to reflect the returns
available on the type of investments we make to support the various classes of
annuities supported by the assets in Separate Account D. However, we may also
take into consideration in determining rates such factors including, but not
limited to, the durations offered by the annuities supported by the assets in
Separate Account D, regulatory and tax requirements, the liquidity of the
secondary markets for the type of investments we make, commissions,
administrative expenses, investment expenses, our mortality and expense risks in
relation to Fixed Allocations, general economic trends and competition. OUR
MANAGEMENT MAKES THE FINAL DETERMINATION AS TO INTEREST RATES TO BE CREDITED. WE
CANNOT PREDICT THE RATES WE WILL DECLARE IN THE FUTURE.
OPERATIONS OF THE SEPARATE ACCOUNTS: The assets supporting our obligations under
the Annuities may be held in various accounts, depending on the obligation being
supported. In the accumulation phase, assets supporting Account Values are held
in separate accounts established under the laws of the State of Connecticut. In
the payout phase, assets supporting fixed annuity payments and any adjustable
annuity payments we make available are held in our general account.
Separate Accounts: We are the legal owner of assets in the separate
accounts. Income, gains and losses, whether or not realized, from assets
allocated to these separate accounts, are credited to or charged against each
such separate account in accordance with the terms of the annuities supported by
such assets without regard to our other income, gains or losses or to the
income, gains or losses in any other of our separate accounts. We will maintain
assets in each separate account with a total market value at least equal to the
reserve and other liabilities we must maintain in relation to the annuity
obligations supported by such assets. These assets may only be charged with
liabilities which arise from such annuities. This may include Annuities offered
pursuant to this Prospectus or certain other annuities we may offer. The
investments made by separate accounts are subject to the requirements of
applicable state laws. These investment requirements may differ between those
for separate accounts supporting variable obligations and those for separate
accounts supporting fixed obligations.
Separate Account B: In the accumulation phase, the assets supporting
obligations based on allocations to the variable investment options are held in
our Separate Account B. Separate Account B consists of multiple Sub-accounts.
Separate Account B was established by us pursuant to Connecticut law. Separate
Account B also holds assets of other annuities issued by us with values and
benefits that vary according to the investment performance of Separate Account
B.
The Sub-accounts offered pursuant to this Prospectus are all Class 1
Sub-accounts of Separate Account B. Each class of Sub-accounts in Separate
Account B has a different level of charges assessed against such Sub-accounts.
The amount of our obligations in relation to allocations to the Sub-accounts is
based on the investment performance of such Sub-accounts. However, the
obligations themselves are our general corporate obligations.
Separate Account B is registered with the SEC under the Investment Company Act
of 1940 (the "1940 Act") as a unit investment trust, which is a type of
investment company. This does not involve any supervision by the SEC of the
investment policies, management or practices of Separate Account B. Each
Sub-account invests only in a single mutual fund or mutual fund portfolio.
The only Sub-accounts available for allocation of your Account Value are those
offered pursuant to this Prospectus. Persons interested in our other annuities
may be offered the same or different Sub-accounts of Separate Account B or any
of our other separate accounts. Such sub-accounts may invest in some or all of
the same underlying mutual funds or portfolios of such underlying mutual funds
as the Sub-accounts offered pursuant to this Prospectus. As of the date of this
Prospectus, the Annuities offered pursuant to this Prospectus and annuities
offered pursuant to a number of other prospectuses maintained assets in Class 1
Sub-accounts. We may offer additional annuities that maintain assets in Class 1
Sub-accounts. In addition, some of the Class 1 Sub-accounts may invest in
underlying mutual funds or underlying mutual fund portfolios in which
Sub-accounts in other classes of Separate Account B invest.
You will find additional information about these underlying mutual funds and
portfolios in the prospectuses for such funds. Portfolios added to the
underlying mutual funds 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, 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 include 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
a nationally recognized statistical rating organization ("NRSRO") such as
Standard & Poor's or Moody's Investor Services, Inc.
We are not obligated to invest according to the aforementioned guidelines or any
other strategy except as may be required by Connecticut and other state
insurance laws.
(3) We have the sole discretion to employ investment managers that we
believe are qualified, experienced and reputable to manage Separate Account D.
Each manager is responsible for investment management of different portions of
Separate Account D. From time to time additional investment managers may be
employed or investment managers may cease being employed. We are under no
obligation to employ or continue to employ any investment manager(s).
(4) The assets in Separate Account D are accounted for at their market
value, rather than at book value.
(5) We are obligated by law to maintain our capital and surplus, as
well as our reserves, at the levels required by applicable state insurance law
and regulation.
INSURANCE ASPECTS OF THE ANNUITY: As an insurance company we bear the insurance
risk inherent in the Annuity. This includes the risks that mortality and
expenses exceed our expectations, and the investment and re-investment risks in
relation to the assets supporting obligations not based on the investment
performance of a separate account. We are subject to regulation that requires
reserving and other practices in a manner that minimizes the insurance risk (see
"Regulation").
CHARGES ASSESSED OR ASSESSABLE AGAINST THE ANNUITY: The Annuity charges which
are assessed or may be assessable under certain circumstances are the contingent
deferred sales charge, a charge for taxes and a transfer fee. These charges are
allocated according to our rules. The transfer charge is not assessed if no
Account Value is maintained in the Sub-accounts at the time such charge is
payable. However, we make certain assumptions regarding 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, rebalancing, Systematic Withdrawals,
Minimum Distributions, and additional reports. As of the date of this
Prospectus, we do not charge you for any special services.
Contingent Deferred Sales Charge: Although we incur sales expenses in
connection with the sale of contracts (for example, preparation of sales
literature, expenses of selling and distributing the contracts, including
commissions, and other promotional costs), we do not deduct any charge from your
Purchase Payments for such expenses. However, a contingent deferred sales charge
may be assessed. We assess a contingent deferred sales charge against the
portion of any withdrawal or surrender that is deemed to be a liquidation of
your Purchase Payments paid within the preceding seven years. The contingent
deferred sales charge applies to each Purchase Payment that is liquidated. It is
a decreasing percentage of the Purchase Payment being liquidated. The charge
decreases as the Purchase Payment ages. The aging of a Purchase Payment is
measured from the date it is applied to your Account Value. The charge is: year
1 -7.0%; year 2 - 7.0%; year 3 - 6.0%; year 4 - 5.0%; year 5 - 4.0%; year 6 -
3.0%; year 7 - 2.0%; year 8 and thereafter - 0%.
Each Annuity Year in the accumulation phase you may withdraw a limited amount of
Account Value without application of any contingent deferred sales charge (see
"Free Withdrawal"). However, for purposes of the contingent deferred sales
charge, amounts withdrawn as a free withdrawal are not considered as liquidation
of Purchase Payments. Account Value is deemed withdrawn according to specific
rules in determining how much, if any, contingent deferred sales charge applies
to a partial withdrawal (see "Partial Withdrawal"). There is no contingent
deferred sales charge if all Purchase Payments were received at least 7 years
prior to the date of either a full surrender or partial withdrawal. Where
permitted by law, any contingent deferred sales charge applicable to a full
surrender is waived if such full surrender qualifies under our rules as a
medically-related withdrawal (see "Medically-Related Surrenders").
From time to time we may reduce the amount of the contingent deferred sales
charge, the period during which it applies, or both, when Annuities are sold to
individuals or a group of individuals in a manner that reduces sales expenses.
We would consider such factors as: (a) the size and type of group; (b) the
amount of Purchase Payments; (c) present Owners making additional Purchase
Payments; and/or (d) other transactions where sales expenses are likely to be
reduced.
No contingent deferred sales charge is imposed when any group annuity contract
or any Annuity issued pursuant to this Prospectus is owned on its Issue Date by:
(a) any parent company, affiliate or subsidiary of ours; (b) an officer,
director, employee, retiree, sales representative, or in the case of an
affiliated broker-dealer, registered representative of such company; (c) a
director or trustee of any underlying mutual fund; (d) a director, officer or
employee of any investment manager or sub-advisor providing investment
management and/or advisory services to an underlying mutual fund or any
affiliate of such investment managers sub-advisor; (e) a director, officer,
employee or registered representative of a broker-dealer that has a then current
selling agreement with American Skandia Marketing, Incorporated; (f) the then
current spouse of any such person noted in (b) through (e), above; (g) parents
of any such person noted in (b) through (f) above; and (h) such person's child
or other legal dependent under age of 21. No such group contract or Annuity is
eligible for any Additional Amount due to the size of Purchase Payments (see
"Breakpoints") or may qualify under any Exchange Program (see "Exchange
Contracts").
No contingent deferred sales charge is assessed on Minimum Distributions, to the
extent such Minimum Distributions are required from your Annuity at the time it
is taken. However, the charge may be assessed for any partial withdrawal taken
in excess of the Minimum Distribution, even if such amount is taken to meet
minimum distribution requirements in relation to other savings or investments
held pursuant to various retirement plans designed to qualify for preferred tax
treatment under various sections of the Code (see "Minimum Distributions").
Any elimination of the contingent deferred sales charge or any reduction to the
amount or duration of such charges will not discriminate unfairly between
Annuity purchasers. We will not make any such changes to this charge where
prohibited by law.
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% and
are subject to change. 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
each 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: Charges applicable to a surrender are
used in calculating Surrender Value. Charges applicable to any type of
withdrawal are taken from the investment options in the same ratio as such a
withdrawal is taken from the investment options (see "Allocation Rules"). The
transfer fee is assessed against the Sub-accounts in which you maintain Account
Value immediately subsequent to such transfer. The transfer fee is allocated on
a pro-rata basis in relation to the Account Values in such Sub-accounts as of
the Valuation Period for which we price the applicable transfer. No fee is
assessed if there is no Account Value in any Sub-account at such time. Tax
charges are assessed against the entire Purchase Payment or Account Value as
applicable.
CHARGES ASSESSED AGAINST THE ASSETS: There are charges assessed against assets
in the Sub-accounts. These charges are described below. There are no charges
deducted from the Fixed Allocations. The factors we use in determining the
interest rates we credit Fixed Allocations are described above in the subsection
entitled "Fixed Investment Options". No charges are deducted from assets
supporting fixed or adjustable annuity payments. The factors we use in
determining fixed or adjustable annuity payments include, but are not limited
to, our expected investment returns, costs, risks and profit targets. We reserve
the right to assess a charge against the Sub-accounts and the Fixed Allocations
equal to any taxes which may be imposed upon the separate accounts.
Administration Charge: We assess each Class 1 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.
The administration charge can be increased only for Annuities issued subsequent
to the effective date of any such change. From time to time we may reduce the
amount of the administration charge. We may do so when Annuities are sold to
individuals or a group of individuals in a manner that reduces administrative
expenses. We would consider such factors as: (a) the size and type of group; (b)
the number of Annuities purchased by an Owner; (c) the amount of Purchase
Payments; and/or (d) other transactions where administration expenses are likely
to be reduced.
Any elimination of the administration charge or any reduction of such charge
will not discriminate unfairly between Annuity purchasers. We will not make any
changes to these charges where prohibited by law.
Mortality and Expense Risk Charges: For Class 1 Sub-accounts, the
mortality risk charge is 0.90% per year and the expense risk charge is 0.35% per
year. These charges are assessed in combination each day against each
Sub-account at the rate of 1.25% 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 administration costs.
CHARGES OF THE UNDERLYING MUTUAL FUNDS: Each underlying mutual fund assesses
various charges for investment management and investment advisory fees. These
charges generally differ between portfolios within the same underlying mutual
fund. You will find additional details in each fund prospectus and its 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. Certain
benefits may be available to certain classes of purchasers, including, but not
limited to, those who submit Purchase Payments above specified breakpoint levels
and those who are exchanging a contract issued by another insurer for an
Annuity. You have a "free-look" period during which you may return your Annuity
for a refund amount which may be less or more than your Purchase Payment, except
in specific circumstances.
Uses Of The Annuity: The Annuity may be issued in connection with or
purchased as a funding vehicle for certain retirement plans which meet the
requirements of various sections of the Code, including Sections 401 (corporate,
association, or self-employed individuals' retirement plans), Section 403(b)
(tax-sheltered annuities available to employees of certain qualifying employers)
and Section 408 (individual retirement accounts and individual retirement
annuities - "IRAs"; Simplified Employee Pensions). We may require additional
information regarding the applicable retirement 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. We may elect to no longer offer Annuities in connection with
various retirement plans. The Annuity may also be used in connection with plans
that do not qualify under the sections of the Code noted above. Some of the
potential tax consequences resulting from various uses of the Annuities are
discussed in the section entitled "Certain Tax Considerations".
Application And Initial Payment: You must meet our underwriting
requirements and forward a Purchase Payment if you seek to purchase an Annuity.
These requirements may include a properly completed Application. Where permitted
by law we may issue an Annuity without completion of an Application for certain
classes of Annuities.
The minimum initial Purchase Payment we accept if the Annuity is not to be used
in connection with a plan designed to qualify for special treatment under the
Code is $10,000. However, if you choose Auto Saver, we will accept a lower
initial Purchase Payment provided that the Purchase Payments received in the
first year total at least $10,000. The minimum initial Purchase Payment we
accept if the Annuity is to be used in connection with a plan designed to
qualify for special treatment under the Code is $2,000. However, if you choose
Auto Saver, we will accept a lower initial Purchase Payment provided that the
Purchase Payments received in the first year total at least $2,000. The initial
Purchase Payment must be paid by check or by wire transfer. It cannot be made
through Auto Saver. Our Office must give you prior approval before we accept a
Purchase Payment that would result in the Account Value of all annuities you
maintain with us exceeding $500,000. We confirm each Purchase Payment in
writing. Multiple annuities purchased from us within the same calendar year may
be treated for tax purposes as if they were a single annuity (see "Certain Tax
Considerations").
We reserve the right to allocate your initial Net Purchase Payment to the
investment options up to two business days after we receive, at our Office, all
of our requirements for issuing the Annuity as applied for. We may retain the
Purchase Payment and not allocate the initial Net Purchase Payment to the
investment options for up to five business days while we attempt to obtain all
such requirements. We will try to reach you or any other party from whom we need
any information or materials. If the requirements cannot be fulfilled within
that time, we will (a) attempt to inform you of the delay, and (b) return the
amount of the Purchase Payment, unless you specifically consent to our retaining
it until all our requirements are met. Once our requirements are met, the
initial Net Purchase Payment is applied to the investment options within two
business days. Once we accept your Purchase Payment and our requirements are
met, we issue an Annuity.
Breakpoints: Wherever allowed by law, we reserve the right to credit
certain additional amounts ("Additional Amounts") to your Annuity if you submit
large initial or subsequent Purchase Payments. Such Additional Amounts are
credited by us on your behalf with funds from our general account. As of the
date of this Prospectus, we were making such a program available. However, we
reserve the right to modify, suspend or terminate it at any time, or from time
to time, without notice.
The current breakpoints for qualifying for Additional Amounts are shown below.
Also shown is the value of such Additional Amounts as a percentage of your
Purchase Payment. The percentage also depends on the age of the oldest of any
Owner, if the Owners is a person, or the Annuitant, if the Owner is an entity,
on the date we receive the applicable Purchase Payment at our Office.
<TABLE>
<CAPTION>
Age of the oldest of any Owner or the
Annuitant when we receive the applicable Additional Amount as a percentage
Total Purchase Payments received Purchase Payment at our Office of the Purchase Payment
-------------------------------- ------------------------------ -----------------------
<S> <C> <C>
At least $1,000,000.00 but
less than $5,000,000.00 Less than Age 75 3.00%
At least $1,000,000.00 but Age 75
less than $5,000,000.00 and older 1.50%
$5,000,000.00 or more Less than Age 75 3.75%
$5,000,000.00 or more Age 75
and older 2.00%
</TABLE>
However, the value of any Additional Amounts combined with any Exchange Credits
due under any exchange program we offer may not exceed the specified maximum
percentage under such exchange program (see "Exchange Contracts").
Additional Amounts are added at the same time the qualifying Net Purchase
Payment is allocated to the investment options, and are allocated to the
investment options in the same manner as such qualifying Net Purchase Payment.
Should you exercise your right to return the Annuity, any Additional Amount will
be deducted from your Account Value prior to determining the amount to be
returned to you. We do not consider Additional Amounts to be "investment in the
contract" for income tax purposes (see "Certain Tax Considerations"). Additional
Amounts credited are not included in any amounts you may withdraw without
assessment of the contingent deferred sales charge (see "Contingent Deferred
Sales Charge").
Generally, the breakpoints apply separately to each Purchase Payment. However,
we will apply the breakpoints cumulatively if you provide us In Writing evidence
satisfactory to us that you will submit additional Purchase Payments within a 13
month period. We require an initial Purchase Payment of at least $500,000.00
before we agree to such a program if it is designed to provide a total of at
least $1,000,000.00 of Purchase Payments over 13 months. We require an initial
Purchase Payment of at least $2,500,000.00 before we agree to such a program if
it is designed to provide a total of at least $5,000,000.00 over 13 months.
We retain the right to recover an amount from your Annuity if such additional
Purchase Payments are not received. The amount we may recover is the Additional
Amounts when applied. Amounts recovered will be taken pro-rata from the
investment options based on the Account Values in the investment options as of
the date of the recovery. If the amount of the recovery exceeds your then
current Surrender Value, we will recover all remaining Account Value and
terminate your Annuity.
Failure to inform us In Writing at or prior to the time of the initial Purchase
Payment that you intend to submit a pair or series of large Purchase Payments
within a 13 month period may result in your Annuity being credited no Additional
Amounts or fewer Additional Amounts than would otherwise be credited to you.
Exchange Contracts: We reserve the right to offer an exchange program
(the "Exchange Program") available only to purchasers who exchange an existing
contract issued by another insurance company not affiliated with us (an
"Exchange Contract") for an Annuity or who add, under certain qualified plans,
to an existing Annuity by exchanging an Exchange Contract. As of the date of
this Prospectus, where allowed by law, we were making such a program available.
However, we reserve the right to modify, suspend, or terminate it at any time or
from time to time without notice. If such an Exchange Program is in effect, it
will apply to all such exchanges for an Annuity.
Such a program would be available only where permitted by law to owners of
insurance or annuity contracts deemed not to constitute "securities" issued by
an investment company. Therefore, while a currently owned variable annuity or
variable life insurance policy may be exchanged for an Annuity pursuant to
Section 1035 of the Code, or where applicable, may qualify for a "rollover" or
transfer to an Annuity pursuant to certain other sections of the Code, such an
exchange, "rollover" or transfer of such a currently owned variable annuity or
variable life insurance policy subject to the 1940 Act will not qualify for any
Exchange Program being offered in relation to Annuities offered pursuant to this
Prospectus. You should carefully evaluate whether any particular Exchange
Program we offer benefits you more than if you continue to hold your Exchange
Contract. Factors to consider include, but are not limited to: (a) the amount,
if any, of the surrender charges under your Exchange Contract, which you should
ascertain from your insurance company; (b) the time remaining under your
Exchange Contract during which surrender charges apply; (c) the on-going
charges, if any, under your Exchange Contract versus the on-going charges under
an Annuity; (d) the contingent deferred sales charge under an Annuity; (e) the
amount and timing of any benefits under such an Exchange Program; and (f) the
potentially greater cost to you if the contingent deferred sales charge on an
Annuity or the surrender charge on your Exchange Contract exceeds the benefits
under such an Exchange Program. There could be adverse federal income tax
consequences. You should consult with your tax advisor as to the tax
consequences of such an exchange (see "Tax Free Exchanges").
Under the Exchange Program available as of the date of this Prospectus we add
certain amounts to your Account Value as exchange credits ("Exchange Credits").
Such Exchange Credits are credited by us on behalf of the Owners of Exchange
Contracts with funds from our general account. Subject to a specified limit (the
"Exchange Credit Limit") discussed below, the Exchange Credits equal the
surrender charge paid, if any, to the other insurance company plus the
difference, if any, between the "annuity value" and the "surrender value"
attributable to a difference in interest rates that have been or would be
credited to such values in annuities typically referred to as "two tier"
annuities. Both such amounts hereafter are referred to as a "surrender charge".
Determination of whether an Exchange Contract is a "two tier" annuity qualifying
for Exchange Credits is in our sole discretion. A "two-tier" annuity is
generally credited higher interest rates if there are no or limited withdrawals
before annuitization, and a lower interest rate would apply upon surrender and
most withdrawals.
Exchange Credits are not included in any amounts returned to you during the
"free-look" period described below.
This Exchange Program is subject to the following rules:
(1) We do not add Exchange Credits unless we receive In Writing
evidence satisfactory to us:
(a) of the surrender charge, if any, you paid to surrender the
Exchange Contract and the amount of any such charge (you may have particular
difficulty in obtaining satisfactory evidence of any surrender charge paid to
surrender an Exchange Contract typically referred to as a "two tier" annuity);
and
(b) that you acknowledge that you are aware that the
contingent deferred sales charge under this Annuity will be assessed in full
against any subsequent surrender or partial withdrawal to the extent then
applicable.
(2) The ratio of the Exchange Credits to be added to any Fixed
Allocation is the ratio between such Fixed Allocation and the Purchase Payment
that qualifies for this Exchange Credit on the date we allocate the Purchase
Payment. Exchange Credits not added to Fixed Allocations, if any, are allocated
pro-rata among the Sub-accounts based on your Account Values in such
Sub-accounts at the time we allocate the Exchange Credits.
(3) The Exchange Credit is allocated as of the later of (a), (b) or
(c); where
(a) is the date the applicable Purchase Payment is allocated
to the investment options;
(b) is 30 days after the Issue Date; and
(c) is the date we receive, In Writing, evidence satisfactory
to us of the amount of the surrender charge you paid to surrender the Exchange
Contract.
For the fixed investment options, interest on the Exchange Credits is credited
as of the later of (a) or (b), where:
(a) is the date the applicable Purchase Payment was allocated;
and
(b) is the date we receive, In Writing, evidence satisfactory
to us of the amount of the surrender charge you paid to surrender the Exchange
Contract, if more than 30 days after the Issue Date.
(4) The value of the Exchange Credits as of the date of the allocation
to the investment options equals the lesser of the Exchange Credit Limit or the
surrender charge you paid to surrender the Exchange Contract. The Exchange
Credit Limit is a percentage of the net amount payable upon surrender of the
Exchange Contract. The Exchange Credit Limit depends on: (a) the age of the
oldest of any Owner, if the Owner is a person, or the Annuitant, if the Owner is
an entity, on the date we receive the applicable Purchase Payment at our Office;
and (b) the amount of proceeds we receive upon surrender of the Exchange
Contract ("Exchange Proceeds"). The current limits are as follows:
<TABLE>
<CAPTION>
Age of the oldest of any Owner or the
Annuitant when we receive the Exchange Exchange Credit Limit
applicable Purchase Payment at our Office Proceeds for all other uses
<S> <C> <C>
Under 75 $10,000 or more 5.50%
Under 75 $5,000 to $9,999.99 2.70%
Under 75 Under $5,000 1.80%
75 or over Under $5,000 0.00%
75 or over $5,000 to $9,999.99 0.00%
75 or over $10,000 or more 2.75%
</TABLE>
The Exchange Credit Limit is not based on any other Purchase Payment. We reserve
the right at any time and from time to time to increase or decrease the Exchange
Credit Limit. However, the Exchange Credit Limit in effect at any time will
apply to all purchases qualifying for the Exchange Program. Further, any
Additional Amounts described under "Breakpoints" combined with any Exchange
Credit due may not exceed the Exchange Credit Limit (see "Breakpoints").
(5) The value of any Exchange Credits is not considered "growth" for
purposes of determining amounts available as a free withdrawal (see "Free
Withdrawal").
(6) We do not consider additional amounts credited to Account Value
under the Exchange Program to be an increase in your "investment in the
contract" (see "Certain Tax Considerations").
Auto Saver: You may make Purchase Payments to your Annuity using Auto
Saver, but only for allocations to variable investment options. However, you
must pay at least one prior Purchase Payment by check or wire transfer. We may
accept an initial Purchase Payment lower than our standard minimum Purchase
Payment requirement of $10,000 if you also furnish Auto Saver instructions that
provide amounts that will meet a $10,000 minimum Purchase Payment requirement to
be paid within 12 months. For Annuities designed to qualify for special tax
treatment under the Code, we may accept an initial Purchase Payment lower than
our standard minimum Purchase Payment requirement of $2,000 if you also furnish
Auto Saver instructions that provide amounts that will meet a $2,000 minimum
Purchase Payment requirement to be paid within 12 months. We may accept
additional Purchase Payments in an amount lower than $100, if accompanied by an
Auto Saver authorization form allowing monthly Purchase Payments of at least
$50.
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 or other automatic
periodic transfers to us. 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 amount 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 a specified period known as a "free-look" period. Depending on the
applicable legal and regulatory requirements, this period may be within ten days
of receipt, twenty-one days of receipt or longer. 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 and less any Additional Amounts added due to premium size (see
"Breakpoints"). This is the "standard refund". If necessary to meet Federal
requirements for IRAs or certain state law requirements, we return the greater
of the "standard refund" or the Purchase Payments received less any withdrawals
(see "Allocation of Net Purchase Payments"). For Annuities subject to California
law, owners who are age 60 or older (or annuitants if the annuity is owned by a
non-natural person) may return the Annuity within thirty days of receipt. The
amount refunded is the standard refund. We tell you how we determine the amount
payable under any such right at the time we issue your Annuity. Upon the
termination of the "free-look" period, if you surrender your Annuity, you may be
assessed certain charges (see "Charges Assessed or Assessable Against the
Annuity").
Allocation of Net Purchase Payments: All allocations of Net Purchase
Payments are subject to our allocation rules (see "Allocation Rules").
Allocation of the portion of the initial 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 WF 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 WF 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 only are entitled to the return of the "standard
refund" (see "Right to Return the Annuity").
Your initial Purchase Payment, as well as other Purchase Payments will be
allocated in accordance with the then current requirements of any rebalancing,
asset allocation or market timing program which you have authorized or have
authorized an independent third party to use in connection with your Annuity
(see "Allocation Rules"). You must provide us with allocation instructions In
Writing if you wish to change your current allocations when making subsequent
Purchase Payments.
Balanced Investment Program: We offer a balanced investment program in
relation to your Purchase Payment if Fixed Allocations are available under your
Annuity. If you choose this program, we commit a portion of your 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
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 Net
Purchase Payment is invested in the other investment options you select.
We reserve the right, from time to time, to credit additional amounts to Fixed
Allocations ("Additional Amounts") if you allocate Purchase Payments in
accordance with the balanced investment program we offer. We offer to do so at
our sole discretion. Such an offer is subject to our rules, including but not
limited to, a change to the MVA formula. For more information, see "Additional
Amounts in the Fixed Allocations".
Ownership, Annuitant and Beneficiary Designations: You make certain
designations that apply to the Annuity if issued. These designations are subject
to our rules and to various regulatory or statutory requirements depending on
the use of the Annuity. These designations include an Owner (if the Annuity is
issued as a certificate representing interest in a group annuity contract, the
designation will be for a participant), a contingent Owner, an Annuitant, a
Contingent Annuitant, a Beneficiary, and a contingent Beneficiary. Certain
designations are required, as indicated below. Such designations will be
revocable unless you indicate otherwise or we endorse your Annuity to indicate
that such designation is irrevocable to meet certain regulatory or statutory
requirements. Changing the Owner or Annuitant designations may affect the
minimum death benefit (see " Death Benefits").
Some of the tax implications of various designations are discussed in the
section entitled CERTAIN TAX CONSIDERATIONS. However, there are other tax issues
than those addressed in that section, including, but not limited to, estate and
inheritance tax issues. You should consult with a competent tax counselor
regarding the tax implications of various designations. You should also consult
with a competent legal advisor as to the implications of certain designations in
relation to an estate, bankruptcy, community property, where applicable, and
other matters.
An Owner must be named. You may name more than one Owner. If you do, all rights
reserved to Owners are then held jointly. We require the consent In Writing of
all joint Owners for any transaction for which we require the written consent of
Owners. Where required by law, we require the consent In Writing of the spouse
of any person with a vested interest in an Annuity. Naming someone other than
the payor of any Purchase Payment as Owner may have gift, estate or other tax
implications.
Where allowed by law, you may name a contingent Owner. However, this designation
takes effect only on or after the Annuity Date.
You must name an Annuitant. We do not accept a designation of joint Annuitants.
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
qualifies 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 when death proceeds become payable or in the absence of any Beneficiary
designation, the proceeds will vest in you or your estate.
ACCOUNT VALUE AND SURRENDER VALUE: In the accumulation phase your Annuity has an
Account Value. Your total Account Value is the sum of your Account Value in each
investment option. Surrender Value is the Account Value less any applicable
contingent deferred sales charge.
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) being
credited to new Fixed Allocations with Guarantee Period
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 your Fixed Allocation 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 the Fixed Allocation and an upward
adjustment when the applicable Current Rate is more than 0.10 percent of
interest lower than the rate being credited to the Fixed Allocation. See the
Statement of Additional Information for an illustration of how the MVA works.
We reserve the right, from time to time, to determine the MVA using an interest
rate lower than the Current Rate for all transactions applicable to a class of
Annuities. We may do so at our sole discretion. This would benefit all such
Annuities if transactions to which the MVA applies occur while we use such lower
interest rate.
Additional Amounts in the Fixed Allocations: To the extent permitted by
law, we reserve the right, from time to time, to credit Additional Amounts to
Fixed Allocations. We may do so at our sole discretion. We may offer to credit
such Additional Amounts only in relation to Fixed Allocations of specific
durations (i.e. 7 or 10 years) when used as part of certain programs we offer
such as the balanced investment program and dollar cost averaging (see "Balanced
Investment Program" and "Dollar Cost Averaging"). We would provide such
Additional Amounts with funds from our general account and credit them to the
applicable Fixed Allocation. Such a program is subject to the following rules:
(1) The Additional Amounts are credited in relation to initial or
additional Purchase Payments, not to Account Value transferred to a Fixed
Allocation for use in the applicable programs. The Additional Amounts are not
credited in relation to any exchange of another annuity issued by us for an
Annuity.
(2) The Additional Amounts are credited as of the later of the date the
applicable Purchase Payment is allocated to the applicable Fixed Allocation or
the 30th day after the Issue Date.
(3) Interest on the Additional Amounts is credited as of the date the
applicable Purchase Payment is allocated to the applicable Fixed Allocation.
(4) The Additional Amounts are a percentage of the amount credited to
the applicable Fixed Allocation. However, we may change the percentage from time
to time.
(5) There is an increase to any applicable "adjustment amount" in the
MVA formula, which otherwise is 0.0010, to 0.0020 (see "Account Value of the
Fixed Allocations"). This change would only apply to a transfer, surrender or
withdrawal from the applicable Fixed Allocation, but not to any payments of
death benefit proceeds or a medically-related surrender (see "Medically-Related
Surrender"). This change could reduce your Account Value.
(6) We do not consider Additional Amounts to be "investment in the
contract" for income tax purposes (see "Certain Tax Considerations").
(7) Additional Amounts credited are not included in any amounts you may
withdraw without assessment of the contingent deferred sales charge pursuant to
the Free Withdrawal provision (see "Free Withdrawals").
(8) We determine if a Purchase Payment is received during the period we
are offering such credits based on the earlier of: (a) the date we receive at
our Office the applicable Purchase Payment; or (b) the date we receive at our
Office our requirements in relation to either an exchange of an existing annuity
issued by another insurer or a "rollover" or transfer of such an annuity
pursuant to specific sections of the Code.
(9) No Purchase Payment may be applied to more than one program
crediting Additional Amounts solely to a Fixed Allocation.
(10) We reserve the right to reduce the Additional Amount, when the
Additional Amount combined with amounts we credit under various other programs
we may offer, such as the Exchange Program, exceed the Exchange Credit Limit
(see "Exchange Contracts").
RIGHTS, BENEFITS AND SERVICES: The Annuity provides various rights, benefits and
services subsequent to its issuance and your decision to keep it beyond the
free-look period. A number of these rights, benefits and services, as well as
some of the rules and conditions to which they are subject, are described below.
These rights, benefits and services include, but are not limited to: (a) making
additional Purchase Payments; (b) changing revocable designations; (c)
transferring Account Values between investment options; (d) receiving lump sum
payments, Systematic Withdrawals or Minimum Distributions, annuity payments and
death benefits; (e) transferring or assigning your Annuity; (f) exercising
certain voting rights in relation to the underlying mutual funds in which the
Sub-accounts invest; and (g) receiving reports. These rights, benefits and
services may be limited, eliminated or altered when an Annuity is purchased in
conjunction with a qualified plan. We may require presentation of proper
identification, including a personal identification number ("PIN") issued by us,
prior to accepting any instruction by telephone or other electronic means. To
the extent permitted by law or regulation, neither we or any person authorized
by us will be responsible for any claim, loss, liability or expense in
connection with a telephonic or electronic transfer if we or such other person
acted on such transfer instructions in good faith in reliance on your
authorization of telephone and/or electronic transfers and on reasonable
procedures to identify persons so authorized through verification methods which
may include a request for your Social Security number or a personal
identification number (PIN) as issued by us. We may be liable for losses due to
unauthorized or fraudulent instructions should we not follow such reasonable
procedures.
Additional Purchase Payments: The minimum for any additional Purchase
Payment is $100 except as part of an Auto Saver program (see "Auto Saver"), or
unless we authorize lower payments pursuant to a Periodic Purchase Payment
program (see "Periodic Purchase Payments"), or less where required by law.
Additional Purchase Payments may be paid at any time before the Annuity Date.
Subject to our allocation rules, we allocate additional Net Purchase Payments
according to your written allocation instructions. Should no written
instructions be received with an additional Purchase Payment, we shall return
your additional Purchase Payment.
Changing Revocable Designations: Unless you indicated that a prior
choice was irrevocable or your Annuity has been endorsed to limit certain
changes, you may request to change Owner, Annuitant and Beneficiary designations
by sending a request In Writing. Where allowed by law, such changes will be
subject to our acceptance. Some of the changes we will not accept include, but
are not limited to: (a) a new Owner subsequent to the death of the Owner or the
first of any joint Owners to die, except where a spouse-Beneficiary has become
the Owner as a result of an Owner's death; (b) a new Annuitant subsequent to the
Annuity Date if the annuity option selected includes a life contingency; and (c)
a new Annuitant prior to the Annuity Date if the Annuity is owned by an entity.
Allocation Rules: As of the date of this Prospectus, during the
accumulation phase, you may maintain Account Value in multiple Sub-accounts and
an unlimited number of Fixed Allocations. We reserve the right, to the extent
permitted by law, to limit the number of Sub-accounts or the amount you may
allocate to any Fixed Allocation. As of the date of this Prospectus, we limited
the number of Sub-accounts available at any one time to ten. Should you request
a transaction that would leave less than any minimum amount we then require in
an investment option, we reserve the right, to the extent permitted by law, to
add the balance of your Account Value in the applicable Sub-account or Fixed
Allocation to the transaction and close out your balance in that investment
option.
Should you either: (a) request rebalancing services (see "Rebalancing"); (b)
authorize an independent third party to transact transfers on your behalf and
such third party arranges for rebalancing of any portion of your Account Value
in accordance with any asset allocation strategy; or (c) authorize an
independent third party to transact transfers in accordance with a market timing
strategy; then all Purchase Payments, including the initial Purchase Payment,
received while your Annuity is subject to such an arrangement are allocated to
the same investment options and in the same proportions as then required
pursuant to the applicable rebalancing, asset allocation or market timing
program, unless we have received alternate instructions. Such allocation
requirements terminate simultaneous to the termination of an authorization for
rebalancing or any authorization to a third party to transact transfers on your
behalf. Upon termination of any of the above arrangements, you must provide us
with allocation instructions In Writing for all subsequent Purchase Payments.
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
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 any rebalancing,
market timing, asset allocation or similar program which you employ or you
authorize to be employed on your behalf. Transfers transacted as part of a
dollar cost averaging program are not counted in determining the applicability
of the transfer fee. 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 or through means such as electronic mail with appropriate authorization.
We reserve the right to limit the number of transfers in any Annuity Year for
all existing or new Owners. We also reserve the right to limit the number of
transfers in any Annuity Year or to refuse any transfer request for an Owner or
certain Owners if we believe that: (a) excessive trading by such Owner or Owners
or a specific transfer request or group of transfer requests may have a
detrimental effect on Unit Values or the share prices of the underlying mutual
fund portfolios; 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 an affected underlying mutual fund
portfolio or portfolios.
To the extent permitted by law, we may require 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 1-800-680-8920 or contact our customer service department electronically at
[email protected]. When calling us by phone, please have readily
available your Annuity number and your PIN number. When contacting us
electronically, please provide your PIN number, social security or tax I.D.
number and the Annuity contract number.
Where permitted by law, we may accept your authorization of a third party to
transfer Account Values on your behalf, subject to our rules. We may suspend or
cancel such acceptance at any time. We notify you of any such suspension or
cancellation. We may restrict the investment options that will be available for
transfers or allocations of Net Purchase Payments during any period in which you
authorize such third party to act on your behalf. We give the third party you
authorize prior notification of any such restrictions. However, we will not
enforce such a restriction if we are provided evidence satisfactory to us that:
(a) such third party has been appointed by a court of competent jurisdiction to
act on your behalf; or (b) such third party has been appointed by you to act on
your behalf for all your financial affairs.
We or an affiliate of ours may provide administrative or other support services
to independent third parties you authorize to conduct transfers on your behalf
or who provide recommendations as to how your Account Values should be
allocated. This includes, but is not limited to, 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 parties. 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, and where required by law, the 30 days prior to 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 make 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 $10,000 at the time of the first transfer under a dollar cost
averaging program. Transfers under a dollar cost averaging program are not
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. 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 a market timing or
asset allocation type of program is used in connection with your Annuity.
Dollar cost averaging from Fixed Allocations are subject to the following rules:
(a) you may only use Fixed Allocations with Guarantee Periods of 1, 2 or 3
years; (b) such a program may only be selected in conjunction with and
simultaneous to a new or renewing Fixed Allocation; (c) only averaging of
earnings only or principal plus earnings is permitted; (d) a program averaging
principal plus earnings from a Fixed Allocation must be designed to last that
Fixed Allocation's entire current Guarantee Period; (e) dollar cost averaging
transfers from a Fixed Allocation are not subject to the MVA; (f) dollar cost
averaging may be done on a monthly basis only; and (g) you may not
simultaneously use Account Value in any Fixed Allocation to participate in
dollar cost averaging and receive Systematic Withdrawals or Minimum
Distributions from such Fixed Allocation (see "Systematic Withdrawals" and
"Minimum Distributions").
We reserve the right, from time to time, to credit additional amounts
("Additional Amounts") if you allocate Purchase Payments to Fixed Allocations as
part of a dollar cost averaging program. Such an offer is at our sole discretion
and is subject to our rules, including but not limited to, a change to the MVA
formula. For more information see "Additional Amounts in the Fixed Allocations".
Rebalancing: We offer, during the accumulation phase,
automatic quarterly, semi-annual or annual rebalancing among the variable
investment options of your choice. This provides the convenience of automatic
rebalancing without having to provide us instructions on a periodic basis.
Failure to choose this option does not prevent you from providing us with
transfer instructions from time-to-time that have the effect of rebalancing. It
also does not prevent other requested transfers from being transacted.
Under this program, Account Values in variable investment options are rebalanced
quarterly, semi-annually or annually, as applicable, to the percentages you
request. The rebalancing may occur quarterly, semi-annually or annually based
upon the Issue Date. If a transfer is requested involving any investment option
participating in an automatic rebalancing program, we automatically alter the
rebalancing percentages going forward (unless we receive alternate instructions)
to the ratios between Account Values in the variable investment options as of
the effective date of such requested transfer once it has been processed.
Automatic rebalancing is delayed one quarter if Account Value is being
maintained in the WF Money Market Sub-account for the duration of your Annuity's
"free-look" period and rebalancing would otherwise occur during such period (see
"Allocation of Net Purchase Payments").
You may change the percentage allocable to each variable investment option at
any time. However, you may not choose to allocate less than 5% of Account Value
to any variable investment option.
We do not offer automatic rebalancing in connection with Fixed Allocations. The
Account Value of your Annuity must be at least $10,000 when we receive your
automatic rebalancing request. We may require that all variable investment
options in which you maintain Account Value must be used in the rebalancing
program. You may maintain Account Value in at least two and not more than ten
variable investment options when using a rebalancing program. You may not
simultaneously participate in rebalancing and dollar cost averaging. Rebalancing
also is not available when a program of Systematic Withdrawals of earnings or
earnings plus principal is in effect.
For purposes of determining the number of transfers made in any Annuity Year,
all rebalancing transfers made on the same day are treated as one transfer. We
reserve the right to charge a processing fee for signing up for this service.
To elect to participate or to terminate participation in automatic rebalancing,
we may require instructions In Writing at our Office.
Distributions: Distributions available from your Annuity during the
accumulation phase include surrender, medically-related surrender, free
withdrawals, partial withdrawals, Systematic Withdrawals, (including 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.
Distributions from your Annuity of any amounts derived from Purchase Payments
paid by personal check may be delayed until such time as the check has cleared
the applicable financial institution upon which such check was drawn.
Surrender: Surrender of your Annuity for its Surrender Value
is permitted during the accumulation phase. A contingent deferred sales charge
may apply to such surrender (see "Contingent Deferred Sales Charge"). Your
Annuity must accompany your surrender request.
Medically-Related Surrender: Where permitted by law, you may
apply to surrender your Annuity prior to the Annuity Date without application of
any contingent deferred sales charge, upon occurrence of a "Contingency Event".
This waiver of any applicable contingent deferred sales charge is subject to our
rules, including but not limited to the following: (a) the Annuitant must be
alive as of the date we pay the proceeds of such surrender request; (b) if the
Owner is one or more natural persons, all such Owners must also be alive at such
time; (c) we must receive satisfactory proof of the Annuitant's confinement or
Fatal Illness In Writing; and (d) this benefit is not available if the total
Purchase Payments received exceed $500,000.00 for all annuities issued by us
with this benefit for which the same person is named as Annuitant. For contracts
issued before May 1, 1996 a "Contingency Event" occurs if the Annuitant is:
(1) First confined in a "Medical Care Facility" after the date as of
which such person was designated as the Annuitant remains confined for at least
90 days in a row; or
(2) First diagnosed as having a "Fatal Illness".
For contracts issued on or after May 1, 1996, and where allowed by law, the
Annuitant must have been named or any changes of Annuitant must have been
accepted by us, prior to the "Contingent Event" described above, in order to
qualify for a medically-related surrender.
"Medical Care Facility" means any state licensed facility providing medically
necessary in-patient care which is prescribed by a licensed "Physician" in
writing and based on physical limitations which prohibit daily living in a
non-institutional setting. "Fatal Illness" means a condition diagnosed by a
licensed "Physician" which is expected to result in death within 2 years for 80%
of the diagnosed cases. "Physician" means a person other than you, the Annuitant
or a member of either your or the Annuitant's families who is state licensed to
give medical care or treatment and is acting within the scope of that license.
Specific details and definitions of terms in relation to this benefit may differ
in certain jurisdictions.
Free Withdrawals: Each Annuity Year in the accumulation phase
you may withdraw a limited amount of Account Value without application of any
applicable contingent deferred sales charge. Such free withdrawals are available
to meet liquidity needs. Free withdrawals are not available at the time of a
surrender of an Annuity. Withdrawals of any type made prior to age 59 1/2 may be
subject to a 10% tax penalty (see "Penalty on Distributions").
The minimum amount available as a free withdrawal is $100. Amounts received as
Systematic Withdrawals or as Minimum Distributions are deemed to come first from
the amount available under this Free Withdrawal provision (see "Systematic
Withdrawals" and "Minimum Distributions"). You may also request to receive as a
lump sum any free withdrawal amount not already received that Annuity Year under
a plan of Systematic Withdrawals or as Minimum Distributions.
There is a cumulative maximum free withdrawal amount which is determined in the
following manner. The maximum free withdrawal amount is the lesser of (a) and
(b) where (a) is the contract's Account Value less any remaining contingent
deferred sales charge and (b) is the greater of (1) and (2) where (1) is the
contract's "growth" plus "unliquidated" "old" Purchase Payments and (2) is an
amount which is 10% of the first Purchase Payment and is increased by 10% of
each subsequent Purchase Payment when it is received and by 10% of all
"unliquidated" Purchase Payments on the first day of each Annuity Year after the
first, and is reduced by all amounts received under this Free Withdrawal
provision. "Growth" equals the then current Account Value less all
"unliquidated" Purchase Payments and less the value at the time credited of any
Exchange Credits or Additional Amounts (see "Exchange Contracts" and
"Breakpoints"). In order to determine future increases in the free withdrawal
amount, amounts are deemed to be withdrawn first from "growth" and then from
"unliquidated" "old" Purchase Payments. "Unliquidated" means not previously
surrendered or withdrawn. "Old" Purchase Payments are Purchase Payments
allocated to Account Value more than seven years prior to the partial
withdrawal. For purposes of the contingent deferred sales charge, amounts
withdrawn as a free withdrawal are not considered a liquidation of Purchase
Payments. Therefore, any free withdrawal will not reduce the amount of any
applicable contingent deferred sales charge upon any partial withdrawal or
subsequent surrender.
Partial Withdrawals: You may withdraw part of your Surrender
Value. The minimum partial withdrawal amount 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
under this provision, we reserve the right to treat your request as one for a
full surrender.
Amounts withdrawn that are not in excess of the free withdrawal amount are
deemed to come first from "growth" and then from "unliquidated" "old" Purchase
Payments. On a partial withdrawal, the contingent deferred sales charge is
assessed against any "unliquidated" "new" Purchase Payments withdrawn.
"Unliquidated" means not previously surrendered or withdrawn. "New" Purchase
Payments are those received in the seven (7) years prior to the date as of which
a free withdrawal occurs. For the purpose of determining the applicable
contingent deferred sales charge to be assessed, amounts are deemed to be
withdrawn in the following order:
(1) From any amount then available as a free withdrawal; then from
(2) "Old" Purchase Payments (Purchase Payments allocated to Account
Value more than seven years prior to the partial withdrawal); then from
(3) "New" Purchase Payments (If there are multiple "new" Purchase
Payments, the one received earliest is liquidated first, then the one received
next earliest, and so forth); then from
(4) Other Surrender Value.
Systematic Withdrawals: We offer Systematic Withdrawals of
earnings only, principal plus earnings or a flat dollar amount. Generally,
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.
Systematic Withdrawals are deemed to be withdrawn from Surrender Value in the
same order as partial withdrawals for purposes of determining if the contingent
deferred sales charge applies. Penalties may apply (see "Free Withdrawals").
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.
Systematic Withdrawals are available on a monthly, quarterly, semi-annual or
annual basis. You may not simultaneously receive Systematic Withdrawals from a
Fixed Allocation and participate in a dollar cost averaging program under which
Account Value is transferred from the same Fixed Allocation (see "Dollar Cost
Averaging"). Systematic Withdrawals are concurrently not available while you are
taking any Minimum Distributions (see "Minimum Distributions"). Systematic
Withdrawals of earnings or earnings plus principal are not available while any
rebalancing or asset allocation program is in effect in relation to your
Annuity.
The Surrender Value of your Annuity must be at least $20,000 when we accept your
request for a program of Systematic Withdrawals. The minimum for each Systematic
Withdrawal is $100. For any scheduled Systematic Withdrawal other than the last
that does not meet this minimum, we reserve the right to defer such a withdrawal
and add the amount that would have been withdrawn to the amount that is to be
withdrawn at the next Systematic Withdrawal.
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: Minimum Distributions are a specific
type of Systematic Withdrawal program. Minimum Distributions are subject to all
the rules applicable to Systematic Withdrawals unless we specifically indicate
that one or more of such rules do not apply. In addition, certain rules apply
only to 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. Requests to
calculate a Minimum Distribution amount must be made three (3) days prior to the
date that your Minimum Distribution payment is processed to allow for
calculation and processing of the required amount. 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 concurrently available with any other programs of Systematic Withdrawals.
You may elect to have Minimum Distributions paid out monthly, quarterly,
semi-annually or annually. The $100 minimum for Systematic Withdrawals does not
apply to Minimum Distributions.
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"). "). Minimum Distributions from Fixed Allocations are not subject to
the limitation on Systematic Withdrawals that limits a program of Systematic
Withdrawals from Fixed Allocations only to earnings accrued after program
inception.
No contingent deferred sales charge is assessed against amounts withdrawn as a
Minimum Distribution, but only to the extent of the Minimum Distribution
required from your Annuity at the time it is taken. The contingent deferred
sales charge may apply to additional amounts withdrawn to meet minimum
distribution requirements in relation to other retirement programs you may
maintain.
Amounts withdrawn as Minimum Distributions are considered to come first from the
amounts available as a free withdrawal (see "Free Withdrawals") as of the date
of the yearly calculation of the Minimum Distribution amount. Minimum
Distributions over that amount are not deemed to be a liquidation of new
Purchase Payments (see "Partial Withdrawals").
Death Benefit: In the accumulation phase, a death benefit is
payable. If the Annuity is owned by one or more natural persons, it is payable
upon the first death of such Owners. If the Annuity is owned by an entity, the
death benefit is payable upon the Annuitant's death, if there is no Contingent
Annuitant. If a Contingent Annuitant was designated before the Annuitant's death
and the Annuitant dies, the Contingent Annuitant then becomes the Annuitant.
There may be adverse tax consequences for certain entity Owners if they name a
Contingent Annuitant (see "Ownership, Annuitant and Beneficiary Designations").
The person upon whose death the death benefit is payable is referred to below as
the "decedent". For purposes of this death benefit provision, "withdrawals"
means withdrawals of any type (free withdrawals, partial withdrawals, Systematic
Withdrawals, Minimum Distributions) before assessment of any applicable
contingent deferred sales charge and after any applicable MVA. For purposes of
this provision, persons named Owner or Annuitant within 60 days of the Issue
Date are treated as if they were an Owner or Annuitant on the Issue Date.
The death benefit is as follows, and is subject to the conditions described in
(1),(2) and (3) below:
(1) If death occurs prior to the decedent's age 85: the death benefit
is the greater of your Account Value in Sub-accounts plus the Interim Value of
any Fixed Allocations, and the minimum death benefit ("Minimum Death Benefit").
The Minimum Death Benefit is the sum of all Purchase Payments less the sum of
all withdrawals.
(2) If death occurs when the decedent is age 85 or older: the death
benefit is your Account Value.
(3) If a decedent was not named an Owner or Annuitant as of the Issue
Date and did not become such as a result of a prior Owner's or Annuitant's
death: the Minimum Death Benefit is suspended as to that person for a two year
period from the date he or she first became an Owner or Annuitant. If that
person's death occurs during the suspension period and prior to age 85, the
death benefit is your Account Value in Sub-accounts plus the Interim Value of
any Fixed Allocations. If death occurs during the suspension period when such
decedent is age 85 or older, the death benefit is your Account Value. After the
suspension period is completed, the death benefit is the same as if such person
had been an Owner or Annuitant on the Issue Date.
The amount of the death benefit is determined as of the date we receive In
Writing: (a) "due proof of death"; (b) all representations we require or which
are mandated by applicable law or regulation in relation to the death claim and
the payment of death proceeds; and (c) any applicable election of the mode of
payment of the death benefit, if not previously elected by the Owner. The death
benefit is reduced by any annuity payments made prior to the date we receive In
Writing such due proof of death. The following constitutes "due proof of death":
(a) a certified copy of a death certificate; (b) a certified copy of a decree of
a court of competent jurisdiction as to the finding of death; or (c) any other
proof satisfactory to us.
If the death benefit becomes payable prior to the Annuity Date due to the death
of the Owner and the Beneficiary is the Owner's spouse, then in lieu of
receiving the death benefit, such Owner's spouse may elect to be treated as an
Owner and continue the Annuity.
In the event of your death, the benefit must be distributed within: (a) five
years of the date of death; or (b) over a period not extending beyond the life
expectancy of the Beneficiary or over the life of the Beneficiary. Distribution
after your death to be paid under (b) above, must commence within one year of
the date of death.
If the Annuitant dies before the Annuity Date, the Contingent Annuitant will
become the Annuitant. Where allowed by law, if the Annuity is owned by one or
more natural persons, the oldest of any such Owners not named as the Annuitant
immediately becomes the Contingent Annuitant if: (a) the Contingent Annuitant
predeceases the Annuitant; or (b) if you do not designate a Contingent
Annuitant.
In the payout phase, we continue to pay any "certain" payments (payments not
contingent on the continuance of any life) to the Beneficiary subsequent to the
death of the Annuitant.
Annuity Payments: Annuity payments can be guaranteed for life,
for a certain period, or for a certain period and life. We make available fixed
payments, and as of the date of this Prospectus, adjustable payments (payments
which may or may not be changed on specified adjustment dates based on annuity
purchase rates we are then making available to annuities of the same class). We
may or may not be making adjustable annuities available on the Annuity Date. To
the extent there is any tax basis in the annuity, a portion of each annuity
payment is treated for tax purposes as a return of such basis until such tax
basis is exhausted. The amount deemed such a return of basis is determined in
accordance with the requirements of the Code (see "Certain Tax Considerations").
You may choose an Annuity Date, an annuity option and the frequency of annuity
payments when you purchase an Annuity, or at a later date. Your choice of
Annuity Date and annuity option may be limited depending on your use of the
Annuity and the applicable jurisdiction. Subject to our rules, you may choose an
Annuity Date, option and frequency of payments suitable to your needs and
circumstances. Such rules may include a prohibition on annuitization within 1
year of the Issue Date. You should consult with competent tax and financial
advisors as to the appropriateness of any such choice. Should Annuities subject
to New York law be made available, the Annuity Date for such Annuities may not
exceed the first day of the calendar month following the Annuitant's 85th
birthday. Other jurisdictions may impose similar requirements.
You may change your choices at any time up to 30 days before the earlier of: (a)
the date we would have applied your Account Value to an annuity option had you
not made the change; or (b) the date we will apply your Account Value to an
annuity option in relation to the new Annuity Date you are then selecting. You
must request this change In Writing. The Annuity Date must be the first or the
fifteenth day of a calendar month.
In the absence of an election In Writing: (a) the Annuity Date is the first day
of the calendar month first following the later of the Annuitant's 85th birthday
or the fifth anniversary of our receipt at our Office of your request to
purchase an Annuity; and (b) where allowed by law, fixed monthly payments will
commence under option 2, described below, with 10 years certain. Should
Annuities subject to New York law be made available, for such Annuities, in the
absence of an election In Writing: (a) the Annuity Date is the first day of the
calendar month following the Annuitant's 85th birthday; and (b) fixed monthly
payments will commence under Option 2, described below, with 10 years certain.
Other jurisdictions may impose similar requirements. The amount to be applied is
your Annuity's Account Value 15 business days prior to the Annuity Date. In
determining your annuity payments, we credit interest using our then current
crediting rate for this purpose, which is not less than 3% of interest per year,
between the date Account Value is applied to an annuity option and the Annuity
Date. If there is any remaining contingent deferred sales charge applicable as
of the Annuity Date, then the annuity option you select must include a certain
period of not less than 5 years' duration. As a result of this rule, making
additional Purchase Payments within seven years of the Annuity Date will prevent
you from choosing an annuity option with a certain period of less than 5 years'
duration. Annuity options in addition to those shown are available with our
consent. The minimum initial amount payable is the minimum initial annuity
amount we allow under our then current rules. Should you wish to receive a lump
sum payment, you must request to surrender your Annuity prior to the Annuity
Date (see "Surrender").
You may elect to have any amount of the proceeds due to the Beneficiary applied
under any of the options described below, but only to the extent selecting such
an option does not alter the tax status of the Annuity. Except where a lower
amount is required by law, the minimum monthly annuity payment is $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
life contingent annuity options. It is possible that only one payment will be
payable if the death of the key life occurs before the date the second payment
was due, and no other payments nor death benefits would be payable.
(2) Option 2 - Payments for Life with 10, 15, or 20 Years Certain:
Under this option, income is payable periodically for 10, 15, or 20 years, as
selected, and thereafter until the death of the key life. Should the death of
the key life occur before the end of the period selected, the remaining payments
are paid to the Beneficiary to the end of such period.
(3) Option 3 - Payments Based on Joint Lives: Under this option, income
is payable periodically during the joint lifetime of two key lives, and
thereafter during the remaining lifetime of the survivor, ceasing with the last
payment prior to the survivor's death. No minimum number of payments is
guaranteed under this option. It is possible that only one payment will be
payable if the death of all the key lives occurs before the date the second
payment was due, and no other payments nor death benefits would be payable.
(4) Option 4 - Payments for a Certain Period: Under this option, income
is payable periodically for a specified number of years. The number of years is
subject to our then current rules. Should the payee die before the end of the
specified number of years, the remaining payments are paid to the Beneficiary to
the end of such period. Note that under this option, payments are not based on
how long we expect any key life to live. Therefore, that portion of the
mortality risk charge assessed to cover the risk that key lives outlive our
expectations provides no benefit to an Owner selecting this option.
The first payment varies according to the annuity options and payment frequency
selected. The first Periodic Payment is determined by multiplying the Account
Value (expressed in thousands of dollars) as of the close of business 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.
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 are designed to qualify
under various sections of the Code. These limitations do not affect certain
roll-overs or exchanges between qualified plans. Distribution of amounts
attributable to contributions made pursuant to a salary reduction agreement (as
defined in Code section 403(b)), or attributable to transfers to a tax sheltered
annuity from a custodial account (as defined in Code section 403(b)(7)), is
restricted to the employee's: (a) separation from service; (b) death; (c)
disability (as defined in Section 72(m)(7) of the Code); (d) reaching age 59
1/2; or (e) hardship. Hardship withdrawals are restricted to amounts
attributable to salary reduction contributions, and do not include investment
results. In the case of tax sheltered annuities, these limitations do not apply
to certain salary reduction contributions made and investment results earned
prior to dates specified in the Code. In addition, the limitation on hardship
withdrawals does not apply to salary reduction contributions made and investment
results earned prior to dates specified in the Code which have been transferred
from custodial accounts. Rollovers from the types of plans noted to another
qualified plan or to an individual retirement account or individual retirement
annuity are not subject to the limitations noted. Certain distributions,
including rollovers, that are not transferred directly to the trustee of another
qualified plan, the custodian of an individual retirement account or the issuer
of an individual retirement annuity may be subject to automatic 20% withholding
for Federal income tax. This may also trigger withholding for state income taxes
(see "Certain Tax Considerations").
We may make annuities available through the Texas Optional Retirement Program
subsequent to receipt of the required regulatory approvals and implementation.
In addition to the restrictions required for such Annuities to qualify under
Section 403(b) of the Code, Annuities issued in the Texas Optional Retirement
Program are amended as follows: (a) no benefits are payable unless you die
during, or are retired or terminated from, employment in all Texas institutions
of higher education; and (b) if a second year of participation in such program
is not begun, the total first year State of Texas' contribution will be
returned, upon its request, to the appropriate institute of higher education.
With respect to the restrictions on withdrawals set forth above, we are relying
upon: 1) a no-action letter dated November 28, 1988 from the staff of the
Securities and Exchange Commission to the American Council of Life Insurance
with respect to annuities issued under Section 403(b) of the Code, the
requirements of which have been complied with by the us; and 2) Rule 6c-7 under
the 1940 Act with respect to annuities made available through the Texas Optional
Retirement Program, the requirements of which have been complied with by the us.
Pricing of Transfers and Distributions: We "price" transfers and
distributions on the dates indicated below:
(1) We price "scheduled" transfers and distributions as of the date
such transactions are so scheduled. "Scheduled" transactions include transfers
under a dollar cost averaging program, Systematic Withdrawals, Minimum
Distributions, transfers previously scheduled with us at our Office pursuant to
any on-going rebalancing, asset allocation or similar program, and annuity
payments.
(2) We price "unscheduled" transfers, partial withdrawals and free
withdrawals as of the date we receive at our Office the request for such
transactions. "Unscheduled" transfers include any transfers processed in
conjunction with any market timing program, or transfers not previously
scheduled with us at our Office pursuant to any rebalancing, asset allocation or
similar program which you employ or you authorize to be employed on your behalf.
"Unscheduled" transfers received pursuant to an authorization to accept
transfers, using voice or data transmission over the phone are priced as of the
Valuation Period we receive the request at our Office for such transactions.
(3) We price surrenders, medically-related surrenders and death
benefits as of the date we receive at our Office all materials we require for
such transactions and such materials are satisfactory to us (see "Surrenders",
"Medically-related Surrenders" and "Death Benefits").
The pricing of transfers and distributions involving Sub-accounts includes the
determination of 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 (but not pricing) is subject to our right to defer
transactions for a limited period (see "Deferral of Transactions").
Voting Rights: You have voting rights in relation to Account Value
maintained in the Sub-accounts. You do not have voting rights in relation to
Account Value maintained in any Fixed Allocations or in relation to fixed or
adjustable annuity payments.
We will vote shares of the underlying mutual funds or portfolios in which the
Sub-accounts invest in the manner directed by Owners. Owners give instructions
equal to the number of shares represented by the Sub-account Units attributable
to their Annuity.
We will vote the shares attributable to assets held in the Sub-accounts solely
for us rather than on behalf of Owners, or any share as to which we have not
received instructions, in the same manner and proportion as the shares for which
we have received instructions. We will do so separately for each Sub-account
from various classes that may invest in the same underlying mutual fund
portfolio.
The number of votes for an underlying mutual fund or portfolio will be
determined as of the record date for such underlying mutual fund or portfolio as
chosen by its board of trustees or board of directors, as applicable. We will
furnish Owners with proper forms and proxies to enable them to instruct us how
to vote.
You may instruct us how to vote on the following matters: (a) changes to the
board of trustees or board of directors, as applicable; (b) changing the
independent accountant; (c) approval of changes to the investment advisory
agreement or adoption of a new investment advisory agreement; (d) any change in
the fundamental investment policy; and (e) any other matter requiring a vote of
the shareholders.
With respect to approval of changes to the investment advisory agreement,
approval of a new investment advisory agreement or any change in fundamental
investment policy, only Owners maintaining Account Value as of the record date
in a Sub-account investing in the applicable underlying mutual fund portfolio
will instruct us how to vote on the matter, pursuant to the requirements of Rule
18f-2 under the 1940 Act.
Transfers, Assignments or Pledges: Generally, your rights in an Annuity
may be transferred, assigned or pledged for loans at any time. However, these
rights may be limited depending on your use of the Annuity. These transactions
may be subject to income taxes and certain penalty taxes (see "CERTAIN TAX
CONSIDERATIONS"). You may transfer, assign or pledge your rights to another
person at any time, prior to any death upon which the death benefit is payable.
You must request a transfer or provide us a copy of the assignment In Writing. A
transfer or assignment is subject to our acceptance. Prior to receipt of this
notice, we will not be deemed to know of or be obligated under any assignment
prior to our receipt and acceptance thereof. We assume no responsibility for the
validity or sufficiency of any assignment. Transfer of all or a portion of
ownership rights may affect the minimum death benefit (see "Death Benefits").
Reports to You: We 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 as soon as possible and no later than the date
below to assure proper accounting to your Annuity. For transactions for which we
immediately send confirmations, we assume all transactions are accurate unless
you notify us otherwise within 10 days from the date you receive the
confirmation. For transactions that are only confirmed on the quarterly
statement, we assume all transactions are accurate unless you notify us within
10 days from the date you receive the quarterly statement. All transactions
confirmed immediately or by quarterly statement are deemed conclusive after the
applicable 10 day period. 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."), a
wholly-owned subsidiary of American Skandia Investment Holding Corporation, acts
as the principal underwriter of the Annuities. ASM, Inc.'s principal business
address is One Corporate Drive, Shelton, Connecticut 06484. ASM, Inc. is a
member of the National Association of Securities Dealers, Inc. ("NASD").
Distribution: ASM, Inc. will enter into distribution agreements with
certain broker-dealers registered under the Securities and Exchange Act of 1934
or with entities which may otherwise offer the Annuities that are exempt from
such registration. Under such distribution agreements such broker-dealers or
entities may offer Annuities to persons who have established an account with the
broker-dealer or entity. In addition, ASM, Inc. may offer Annuities directly to
potential purchasers. The maximum concession to be paid on premiums received is
7.0%. We reserve the right to base concessions from time-to-time on the
investment options chosen by Annuity Owners, including investment options that
may be deemed our "affiliates" or "affiliates" of ASM, Inc. under the Investment
Company Act of 1940 ("1940 Act").
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 fund 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 invest in such underlying
mutual fund portfolio. In addition, the amount of charges assessed against each
Sub-account will affect performance.
Some of the underlying mutual fund portfolios existed prior to the inception of
these Sub-accounts. Performance quoted in advertising regarding such
Sub-accounts may indicate periods during which the Sub-accounts have been in
existence but prior to the initial offering of the Annuities, or periods during
which the underlying mutual fund portfolios have been in existence, but the
Sub-accounts have not. Such hypothetical performance is calculated using the
same assumptions employed in calculating actual performance since inception of
the Sub-accounts.
As part of any advertisement of Standard Total Return, we may advertise the
"Non-standard Total Return" of the Sub-accounts. Non-standard Total Return does
not take into consideration the Annuity's contingent deferred sales charge
and/or the Annual Maintenance Fee.
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
Sourcebook and the Morningstar Variable Annuity/Life Sourcebook.
American Skandia Life Assurance Corporation may advertise its rankings and/or
ratings by independent financial ratings services. Such rankings may help you in
evaluating our ability to meet our obligations in relation to Fixed Allocations,
pay minimum death benefits, pay annuity payments or administer Annuities. Such
rankings and ratings do not reflect or relate to the performance of Separate
Account B.
CERTAIN TAX CONSIDERATIONS: The following is a brief summary of certain Federal
income tax laws as they are currently interpreted. No one can be certain that
the laws or interpretations will remain unchanged or that agencies or courts
will always agree as to how the tax law or regulations are to be interpreted.
This discussion is not intended as tax advice. You may wish to consult a
professional tax advisor for tax advice as to your particular situation.
Our Tax Considerations: We are taxed as a life insurance company under
Part I, subchapter L, of the Code.
Tax Considerations Relating to Your Annuity: Section 72 of the Code
governs the taxation of annuities in general. Taxation of an annuity is largely
dependent upon: (a) whether it is used in a qualified pension or profit sharing
plan or other retirement arrangement eligible for special treatment under the
Code; and (b) the status of the beneficial owner as either a natural or
non-natural person (when the annuity is not used in a retirement plan eligible
for special tax treatment). Non-natural persons include corporations, trusts,
and partnerships, except where these entities own an annuity as an agent or
nominal owner for a natural person who is the beneficial owner. 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: Generally, 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
policyholder 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.
Amounts received under a contract on its complete surrender, redemption, or
maturity are includible in gross income to the extent that they exceed the cost
of the contract, i.e., they exceed the total premiums or other consideration
paid for the contract minus amounts received under the contract that were not
reportable as gross income.
Loans, Assignments and Pledges: Any amount received directly
or indirectly as a loan from, or 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.
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 income
tax purposes as a distribution.
Penalty on Distributions: Subject to certain exceptions, any
distribution from an annuity not used in conjunction with qualified plans 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 received
as an annuity on or after the annuity start date 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.
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.
Estate and Gift Tax Considerations: You should obtain
competent tax advice with respect to possible federal and state gift tax
consequences flowing from the ownership and transfer of annuities.
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 savings incentive match plans for employees
using the employees' IRAs. These arrangements are known as Simple-IRAs. Employer
contributions that may be made to Simple-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 B and one or more accounts of other
insurance companies which participate in a portfolio. It is also possible that
differences might arise between a Sub-account offered under this Annuity and
variable investment options offered under different life insurance policies or
annuities we offer, even though such different variable investment options
invest in the same underlying mutual fund 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 B or
a portion thereof with other "unitized" separate accounts; (c) terminate
offering certain Guarantee Periods for new or renewing Fixed Allocations; (d)
combine Separate Account D with other "non-unitized" separate accounts; (e)
deregister Separate Account B under the 1940 Act; (f) operate Separate Account B
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; (i) make
changes required by any change in other Federal or state laws relating to
retirement annuities or annuity contracts; and (j) discontinue offering any
variable investment option at any time.
Also, from time to time, we may make additional Sub-accounts available to you.
These Sub-accounts will invest in underlying mutual funds or portfolios of
underlying mutual funds we believe to be suitable for the Annuity. We may or may
not make a new Sub-account available to invest in any new portfolio of one of
the current underlying mutual funds should such a portfolio be made available to
Separate Account B.
We may eliminate Sub-accounts, combine two or more Sub-accounts or substitute
one or more new underlying mutual funds or portfolios for the one in which a
Sub-account is invested. Substitutions may be necessary if we believe an
underlying mutual fund or portfolio no longer suits the purpose of the Annuity.
This may happen due to a change in laws or regulations, or a change in the
investment objectives or restrictions of an underlying mutual fund or portfolio,
or because the underlying mutual fund or portfolio is no longer available for
investment, or for some other reason. We would obtain prior approval from the
insurance department of our state of domicile, if so required by law, before
making such a substitution, deletion or addition. We also would obtain prior
approval from the SEC so long as required by law, and any other required
approvals before making such a substitution, deletion or addition.
We reserve the right to transfer assets of Separate Account B, which we
determine to be associated with the class of contracts to which your Annuity
belongs, to another "unitized" separate account. We also reserve the right to
transfer assets of Separate Account D which we determine to be associated with
the class of contracts to which your annuity belongs, to another "non-unitized"
separate account. We notify you (and/or any payee during the payout phase) of
any modification to your Annuity. We may endorse your Annuity to reflect the
change.
Misstatement of Age or Sex: If there has been a misstatement of the age
and/or sex of any person upon whose life annuity payments or the minimum death
benefit are based, we make adjustments to conform to the facts. As to annuity
payments: (a) any underpayments by us will be remedied on the next payment
following correction; and (b) any overpayments by us will be charged against
future amounts payable by us under your Annuity.
Ending the Offer: We may limit or discontinue offering Annuities.
Existing Annuities will not be affected by any such action.
Indemnification: Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers or
persons controlling the registrant pursuant to the foregoing provisions, the
registrant has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is therefore unenforceable.
Legal Proceedings: As of the date of this Prospectus, neither we nor
ASM, Inc. were involved in any litigation outside of the ordinary course of
business, and know of no material claims.
THE COMPANY: American Skandia Life Assurance Corporation (ASLAC) 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
(ASIHC), whose ultimate parent is Skandia Insurance Company Ltd., a Swedish
company. The Company markets its products to broker-dealers and financial
planners through an internal field marketing staff. In addition, the Company
markets through and in conjunction with financial institutions such as banks
that are permitted directly, or through affiliates, to sell 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 products within Mexico. The Company's investment in Skandia Vida, S.A.
de C.V. is $1,398,285 at December 31,1996.
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.
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 years
ended December 31, 1996, 1995, 1994, 1993 and 1992 has not been audited. The
selected financial data has been derived from the full financial statements for
the years ended December 31, 1996, 1995, 1994, 1993 and 1992 which were
presented in conformity with generally accepted accounting principles and which
were audited by Deloitte & Touche LLP, independent auditors, whose report on the
Company's consolidated financial statements as of December 31, 1996 and 1995,
and for the three years in the period ended December 31, 1996, is included
herein.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Income Statement Data:
Revenues:
<S> <C> <C> <C> <C>
Annuity charges and fees* $ 69,779,522 $ 38,837,358 $ 24,779,785 $ 11,752,984 $ 4,846,134
Fee income 16,419,690 6,205,719 2,111,801 938,336 125,179
Net investment income 1,585,819 1,600,674 1,300,217 692,758 892,053
Annuity premium income 125,000 0 70,000 101,643 1,304,629
Net realized capital
gains/(losses) 134,463 36,774 (1,942) 330,024 195,848
Other income 34,154 64,882 24,550 1,269 15,119
---------------------------------------- ------------------ -----------------------
Total revenues $ 88,078,648 $ 46,745,407 $ 28,284,411 $ 13,817,014 $ 7,378,962
================ ================ ============== ============== =============
Benefits and Expenses:
Annuity benefits 613,594 555,421 369,652 383,515 276,997
Increase/(decrease) in annuity
policy reserves 634,540 (6,778,756) 5,766,003 1,208,454 1,331,278
Cost of minimum death benefit
reinsurance 2,866,835 2,056,606 0 0 0
Return credited
to contractowners 672,635 10,612,858 (516,730) 252,132 560,243
Underwriting, acquisition and
other insurance expenses 49,915,661 35,970,524 18,942,720 9,547,951 11,338,765
Interest expense 10,790,716 6,499,414 3,615,845 187,156 0
----------------------------------- ----------------- ----------------- ---------
Total benefits and expenses$ 65,493,981 $ 48,916,067 $ 28,177,490 $ 11,579,208 $ 13,507,283
================================ =============== ============== =============
Income tax (benefit) expense$ (4,038,357)$ 397,360 $ 247,429 $ 182,965 $ 0
=================================== ================= ========================
Net income (loss) $ 26,623,024 $ (2,568,020) $ (140,508) $ 2,054,841 $ (6,128,321)
================================= ================= =============================
Balance Sheet Data:
Total Assets $ 8,334,662,876 $ 5,021,012,890 $2,864,416,329 $1,558,548,537 $ 552,345,206
============== ============== ============== ============== ===============
Future fees payable
to parent $ 47,111,936 $ 0 $ 0 $ 0 $ 0
=============== ================ =============== =============== ===============
Surplus Notes $ 213,000,000 $ 103,000,000 $ 69,000,000 $ 20,000,000 $ 0
=============== =============== ================ ==============================
Shareholder's Equity $ 126,345,031 $ 59,713,000 $ 52,205,524 $ 52,387,687 $ 46,332,846
=============== =============== ================ ================= ===========
</TABLE>
*On annuity sales of $2,795,114,000, $1,628,486,000, $1,372,874,000,
$890,640,000 and $287,596,000 during the years ended December 31, 1996, 1995,
1994, 1993, and 1992, respectively, with contractowner assets under management
of $7,764,891,000, $4,704,044,000, $2,661,161,000, $1,437,554,000 and
$495,176,000 as of December 31, 1996, 1995, 1994, 1993 and 1992, respectively.
The above selected financial data should be read in conjunction with the
financial statements and the notes thereto.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations: The Company's long term business plan was
developed reflecting the current sales and marketing approach. Annuity sales
increased 72%, 19% and 54% in 1996, 1995 and 1994, respectively. The Company
continues to show significant growth in sales volume and increased market share
within the variable annuity industry. This growth is a result of innovative
product development activities, expansion of distribution channels and a focused
effort on customer orientation.
The Company primarily offers and sells a wide range of deferred annuities
through three focused marketing, sales and service teams, each of which
specializes in addressing one of the Company's primary distribution channels:
(a) financial planning firms; (b) broker-dealers that generally are members of
the New York Stock Exchange, including "wirehouse" and regional broker-dealer
firms; and (c) broker-dealers affiliated with banks or which specialize in
marketing to customers of banks. Starting in 1994, the Company expanded these
teams, adding more field marketing and internal sales support personnel. The
Company also offers a number of specialized products distributed by select,
large distributors. In 1995 and 1996 the Company restructured its internal
support operations to support the specialized marketing, sales and service needs
of the primary distribution channels and of the select distributors of
specialized products. There has been continued growth and success in expanding
the number of selling agreements in the primary distribution channels. There has
also been increased success in enhancing the relationships with the registered
representative/insurance agents of all the selling firms.
Total assets grew 66%, 75% and 84% in 1996, 1995 and 1994, respectively. These
increases were a direct result of the substantial sales volume increasing
separate account assets and deferred acquisition costs. Liabilities grew 65%,
76%, and 87% in 1996, 1995 and 1994, respectively, as a result of the reserves
required for the increased sales activity along with borrowing during 1996, 1995
and 1994. The borrowing is needed to fund the acquisition costs of the Company's
variable annuity business.
The Company experienced a net gain after tax in 1996 and a net loss after tax in
1995 and 1994. The 1996 result was related to the strong sales volume, favorable
market climate, expense savings relative to sales volume and recognition of
certain tax benefits.
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, which was in part responsible for
this strong sales and financial performance in 1996.
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.
Increasing volume of annuity sales results in higher assets under management.
The fees realized on assets under management have resulted in annuity charges
and fees increasing 80%, 57% and 111% in 1996, 1995 and 1994, respectively.
Net investment income decreased 1% in 1996 and increased 23% and 88% in 1995 and
1994 respectively. The level net investment income in 1996 is a result of the
consistent investment holdings throughout most of the year. The increase in 1995
and 1994 was a result of a higher average level of Company bonds and short-term
investments.
Fee income has increased 165%, 194% and 125% in 1996, 1995 and 1994,
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/(decrease) in annuity policy reserves represents 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 1996 and 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 one of the Company's
products which was further enhanced as a result of poor market conditions which
resulted in lower returns in 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. The
1996 return credited to contractowners in the amount of $0.7 million represents
a favorable investment return on the market value adjusted contracts relating to
the benefits and required reserves, offset by the effect of bond market
fluctuations on December 31, 1996 in the amount of $1.8 million. While the
assets relating to the market value adjusted contracts reflect the market
interest rate fluctuations which occurred on December 31, 1996, the liabilities
are based on the interest rates set for new contracts which are generally based
on the prior day's interest rates. During the first week of January 1997
interest rates were established for new contracts, thereby bringing the
liabilities relating to the market value adjusted contracts in line with the
related assets.
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 1996 is made up of
$133.9 million of commissions and $19.8 million of general expenses offset by
the net capitalization of deferred acquisition costs totaling $153.9 million.
This compares to the same period last year 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.
Underwriting, acquisition and other insurance expenses in 1994 were made up of
$46.2 million of commissions and $26.2 million of general expenses offset by the
net capitalization of deferred acquisition costs totaling $53.7 million.
Interest expense increased $4.3 million, $2.9 million and $3.4 million in 1996,
1995 and 1994, respectively, as a result of Surplus Notes totaling $213 million,
$103 million and $69 million, at December 31, 1996, 1995 and 1994, respectively.
Income tax reflected a benefit of $4,038,357 for the year ended December 31,
1996, compared with expense of $397,360 and $247,429 for the years ended
December 31, 1995 and 1994, respectively. The 1996 benefit is related to
management's release of the deferred tax valuation allowance of $9,324,853
established at December 31, 1995. Management believes that based on the taxable
income produced in the current year and the continued growth in annuity
products, the Company will produce sufficient taxable income in the future to
realize its deferred tax assets. Income tax expense in 1995 and 1994 relates
principally to increases in the deferred tax valuation allowance of $1,680,339
and $365,288 for the years ended December 31, 1995 and 1994, respectively, as
well as the Company being in an Alternative Minimum Tax position for both years.
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 1996. The sales
volume of $2.795 billion was primarily (approximately 96%) 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 1996, the Company borrowed an additional $110 million from its parent in
the form of Surplus Notes and extended its reinsurance agreements (which were
initiated in 1993, 1994 and 1995). 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.
In addition, on December 17, 1996 the company sold to its Parent, effective
September 1, 1996, certain rights to receive future fees and charges expected to
be realized on the variable portion of a designated block of deferred annuity
contracts issued during the period January 1, 1994 through June 30, 1996. In
connection with this transaction the Parent issued collateralized notes through
a trust in a private placement which are secured by the rights to receive future
fees and charges purchased from the Company.
Under the terms of the Purchase Agreement, the rights sold provide for the
Parent to receive 80% of future mortality and expense charges and contingent
deferred sales charges, after reinsurance, expected to be realized over the
remaining surrender charge period of the designated contracts (generally, 6.5
years). The company did not sell the right to receive future fees and charges
after the expiration of the surrender charge period.
The proceeds from the sale have been recorded as a liability and are being
amortized over the remaining surrender charge period of the designated contracts
using the interest method. The present value at September 1, 1996 (discounted at
7.5%) of future fees and charges expected to be realized on the designated
contracts was $50,221,438.
The Company expects to use borrowing, reinsurance and the sale of future fee
revenues 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. On December 19, 1996, the company received $39 million from its
parent to support the capital needs of its anticipated 1997 growth in business.
As of December 31, 1996 and December 31, 1995, shareholder's equity was
$126,345,031 and $59,713,000 respectively, which includes the carrying value of
state insurance licenses in the amount of $4,712,500 and $4,862,500,
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 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.
The Company reinsures 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 agreements.
Future Fees Payable to Parent: On December 17, 1996 the Company sold to
its Parent, effective September 1, 1996, certain rights to receive future fees
and charges expected to be realized on the variable portion of a designated
block of deferred annuity contracts issued during the period January 1, 1994
through June 30, 1996. In connection with this transaction, the Parent issued
collateralized notes in a private placement which are secured by the rights to
receive future fees and charges purchased from the Company.
Under the terms of the Purchase Agreement, the rights sold provide for the
Parent to receive 80% of future mortality and expense charges and contingent
deferred sales charges, after reinsurance, expected to be realized over the
remaining surrender charge period of the designated contracts (generally, 6.5
years). The Company did not sell the right to receive future fees and charges
after the expiration of the surrender charge period.
The proceeds from the sale have been recorded as a liability and are being
amortized over the remaining surrender charge period of the designated contracts
using the interest method. The present value at September 1, 1996 (discounted at
7.5%), of future fees and charges expected to be realized on the designated
contracts was $50,221,438. Payments representing fees and charges realized
during the period September 1, 1996 through December 31, 1996 in the aggregate
amount of $3,109,502, were made by the Company to the Parent. Interest expense
of $42,260 has been included in the statement of operations.
Surplus Notes: The Company has issued surplus notes to its Parent in
exchange for cash. Surplus notes outstanding as of December 31, 1996 were as
follows:
Issue
Interest
Amount
Date Rate
December 29, 1993 $ 20,000,000 6.84%
February 18, 1994 10,000,000 7.28%
March 28, 1994 10,000,000 7.90%
September 30, 1994 15,000,000 9.13%
December 28, 1994 14,000,000 9.78%
December 19, 1995 10,000,000 7.52%
December 20, 1995 15,000,000 7.49%
December 22, 1995 9,000,000 7.47%
June 28, 1996 40,000,000 8.41%
December 30, 1996 70,000,000 8.03%
---- ----------
Total $213,000,000
Payment of interest and repayment of principal for these notes is subject to
certain conditions and requires approval by the Insurance Commissioner of the
State of Connecticut.
Interest expense on surplus notes was $10,087,347, $5,789,893 and $3,016,905 for
the years ended December 31, 1996, 1995 and 1994, respectively. Interest
approved and paid during 1996 was $6,438,867. Interest accrued at December 31,
1996 amounted to $3,648,480, of which $2,080,680 has been approved and paid in
1997. The remaining $1,567,800 was not approved for payment. The 1995 and 1994
amounts were approved at December 31, 1995 with stipulation that they 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, 1996, we had 310 direct salaried
employees. An affiliate, American Skandia Information Services and Technology
Corporation, which provides services almost exclusively to us, had 54 direct
salaried employees.
Regulation: We are organized as a Connecticut stock life insurance
company, and are subject to Connecticut law governing insurance companies. We
are regulated and supervised by the Connecticut Commissioner of Insurance. By
March 1 of every year, we must prepare and file an annual statement, in a form
prescribed by the Connecticut Insurance Department, which covers our operations
for the preceding calendar year, and must prepare and file our statement of
financial condition as of December 31 of such year. The Commissioner and his or
her agents have the right at all times to review or examine our books and
assets. A full examination of our operations will be conducted periodically
according to the rules and practices of the National Association of Insurance
Commissioners ("NAIC"). We are subject to the insurance laws and various federal
and state securities laws and regulations and to regulatory agencies, such as
the Securities and Exchange Commission (the "SEC") and the Connecticut Banking
Department, which administer those laws and regulations.
We can be assessed up to prescribed limits for policyholder losses incurred by
insolvent insurers under the insurance guaranty fund laws of most states. We
cannot predict or estimate the amount any such future assessments we may have to
pay. However, the insurance guaranty laws of most states provide for deferring
payment or exempting a company from paying such an assessment if it would
threaten such insurer's financial strength.
Several states, including Connecticut, regulate insurers and their affiliates
under insurance holding company laws and regulations. This applies to us and our
affiliates. Under such laws, inter-company transactions, such as dividend
payments to parent companies and transfers of assets, may be subject to prior
notice and approval, depending on factors such as the size of the transaction in
relation to the financial position of the companies.
Currently, the federal government does not directly regulate the business of
insurance. However, federal legislative, regulatory and judicial decisions and
initiatives often have significant effects on our business. Types of changes
that are most likely to affect our business include changes to: (a) the taxation
of life insurance companies; (b) the tax treatment of insurance products; (c)
the securities laws, particularly as they relate to insurance and annuity
products; (d) the "business of insurance" exemption from many of the provisions
of the anti-trust laws; (e) the barriers preventing most banks from selling or
underwriting insurance: and (f) any initiatives directed toward improving the
solvency of insurance companies. We would also be affected by federal
initiatives that have impact on the ownership of or investment in United States
companies by foreign companies or investors.
<TABLE>
<CAPTION>
Executive Officers and Directors:
Our executive officers, 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.
<S> <C> <C> <C> <C>
Name/ Position with American Skandia
Age Life Assurance Corporation Principal Occupation
Gordon C. Boronow* President President and
44 and Chief Chief Operating Officer:
Operating Officer, American Skandia Life
Director (since July, 1991) Assurance Corporation
Nancy F. Brunetti Senior Vice President, Senior Vice President, Customer
35 Customer Service and Service and Business Operations:
Business Operations 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,
41 Assurance and Financial
Services Division:
Skandia Insurance Company Ltd.
Jan R. Carendi* Chief Executive Executive Vice President and
52 Officer and Member of Corporate Management Group:
Chairman of the Skandia Insurance Company Ltd.
Board of Directors
Director (since May, 1988)
Cindy C. Ciccarello Vice President, Vice President,
38 Customer Service Customer Service:
American Skandia Life
Assurance Corporation
Ms. Ciccarello joined us in 1997. She previously held the position of Assistant
Vice President at Phoenix Duff & Phelps from 1996 to 1997 and positions of
Director and Operations Manager at Phoenix Equity Planning Corporation from 1989
to 1996.
Lincoln R. Collins Senior Vice President, Senior Vice President,
36 Product Management Product Management:
Director (since February, 1996) American Skandia Life
Assurance Corporation
William F. Cordner, Jr. Vice President, Vice President,
50 Customer Focus Teams Customer Focus Teams:
American Skandia Life
Assurance Corporation
Mr. Cordner joined us in 1996. He previously held the position of Vice President
at United Healthcare from 1993 to 1996 and Vice President at The Travelers
Insurance Company from 1990 to 1993.
Henrik Danckwardt Director (since July, 1991) Director of Finance
43 and Administration,
Assurance and Financial
Services Division:
Skandia Insurance Company Ltd.
Wade A. Dokken Director (since July, 1991) Director:
37 and Employee American Skandia Life
Assurance Corporation;
President, Chief Operating Officer
and Chief Marketing Officer:
American Skandia Marketing, Incorporated
Teresa Grove Vice President, Vice President,
41 Customer Service Customer Service:
American Skandia Life
Assurance Corporation
Ms. Grove joined us in 1996. She previously held positions of Operations Manager
at Twentieth Century/Benham from January, 1992 to September, 1996 and Operations
Manager at Lateef Management Association from January, 1989 to June, 1991.
Brian L. Hirst Vice President, Vice President,
49 Corporate Actuary Corporate Actuary:
American Skandia Life
Assurance Corporation
Mr. Hirst joined us in 1996. He previously held the positions of Vice President
from 1993 to 1996 and Second Vice President from 1987 to 1992 at Allmerica
Financial.
N. David Kuperstock Vice President, Vice President,
45 Product Development Product Development:
American Skandia Life
Assurance Corporation
Thomas M. Mazzaferro Executive Vice President and Executive Vice President and
44 Chief Financial Officer, Chief Financial Officer:
Director (since October, 1994) American Skandia Life
Assurance Corporation
Gunnar J. Moberg Director (since November, 1994) Director - Marketing and Sales,
42 Assurances and Financial
Services Division:
Skandia Insurance Company Ltd.
David R. Monroe Vice President and Vice President and
35 Controller Controller:
American Skandia Life
Assurance Corporation
Mr. Monroe joined us in 1996. He previously held positions of Assistant Vice
President and Director at Allmerica Financial from August, 1994 to July, 1996
and Senior Manager at KPMG Peat Marwick from July, 1983 to July, 1994.
Polly Rae Vice President, Vice President,
34 Service Development Service Development:
American Skandia Life
Assurance Corporation
Rodney D. Runestad Vice President Vice President:
47 American Skandia Life
Assurance Corporation
Anders O. Soderstrom Director (since October, 1994) President and
37 Chief Operating Officer:
American Skandia Information
Services and Technology Corporation
Amanda C. Sutyak Executive Vice President Executive Vice President
39 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
46 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 Director (since October, 1994) Senior Vice President
49 and National Sales Manager:
American Skandia
Marketing, Incorporated
Jeffrey M. Ulness Vice President, Vice President,
36 Product Management Product Management:
American Skandia Life
Assurance Corporation
Mr. Ulness joined us in 1994. He previously held the positions of Counsel at
North American Security Life Insurance Company from March, 1991 to July, 1994
and Associate at LeBoeuf, Lamb, Leiby, Green and MacRae from January, 1990 to
March 1991.
- --------
* Trustees of American Skandia Trust, one of the underlying mutual funds in
which the Sub-accounts offered pursuant to this Prospectus invest.
</TABLE>
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATIONCONTENTS 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) Appendix A - Financial Statements for Separate Account B (Class 1
Sub-accounts)
FINANCIAL STATEMENTS: The consolidated financial statements which follow in
Appendix A are those of American Skandia Life Assurance Corporation as of
December 31, 1996 and 1995, and for the three years in the period ended December
31, 1996. Financial statements for the Class 1 Sub-accounts of Separate Account
B are found in the Statement of Additional Information.
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
APPENDIX C PRIOR CONTRACT APPENDIX C PRIOR CONTRACT
<PAGE>
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 and subsidiary (a wholly-owned
subsidiary of Skandia Insurance Company Ltd.) as of December 31, 1996 and 1995,
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, 1996.
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 and subsidiary as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche, LLP
New York, New York
March 10, 1997
<PAGE>
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,
<S> <C> <C>
1996 1995
ASSETS
Investments:
Fixed maturities - at amortized cost $ 10,090,369 $ 10,112,705
Fixed maturities - at market value 87,369,724 0
Investment in mutual funds - at market value 2,637,731 1,728,875
Short-term investments - at amortized cost 18,100,000 15,700,000
Total investments 118,197,824 27,541,580
Cash and cash equivalents 14,199,412 13,146,384
Accrued investment income 1,958,546 194,074
Fixed assets 229,780 82,434
Deferred acquisition costs 438,640,918 270,222,383
Reinsurance receivable 2,167,818 1,988,042
Receivable from affiliates 691,532 860,991
Income tax receivable - current 0 563,850
Income tax receivable - deferred 17,217,582 0
State insurance licenses 4,712,500 4,862,500
Other assets 2,207,171 1,589,006
Separate account assets 7,734,439,793 4,699,961,646
Total Assets $ 8,334,662,876 $ 5,021,012,890
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES:
Reserve for future contractowner benefits $ 36,245,936 $ 30,493,018
Annuity policy reserves 21,238,749 19,386,490
Income tax payable 1,124,151 0
Accounts payable and accrued expenses 65,198,965 32,816,517
Payable to affiliates 685,724 314,699
Future fees payable to parent 47,111,936 0
Payable to reinsurer 79,000,262 64,995,470
Short-term borrowing-affiliate 10,000,000 10,000,000
Surplus notes 213,000,000 103,000,000
Deferred contract charges 272,329 332,050
Separate account liabilities 7,734,439,793 4,699,961,646
Total Liabilities 8,208,317,845 4,961,299,890
SHAREHOLDER'S EQUITY:
Common stock, $80 par, 25,000 shares
authorized, issued and outstanding 2,000,000 2,000,000
Additional paid-in capital 122,250,117 81,874,666
Unrealized investment gains and losses, net (319,631) 111,359
Foreign currency translation, net (263,706) (328,252)
Retained earnings (deficit) 2,678,251 (23,944,773)
Total Shareholder's Equity 126,345,031 59,713,000
Total Liabilities and Shareholder's Equity $ 8,334,662,876 $ 5,021,012,890
</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 OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1996 1995 1994
------------ ------------ ------------
REVENUES:
Annuity charges and fees $ 69,779,522 $ 38,837,358 $ 24,779,785
Fee income 16,419,690 6,205,719 2,111,801
Net investment income 1,585,819 1,600,674 1,300,217
Annuity premium income 125,000 0 70,000
Net realized capital gains/(losses) 134,463 36,774 (1,942)
Other 34,154 64,882 24,550
------------ ------------ ------------
Total Revenues 88,078,648 46,745,407 28,284,411
------------ ------------ ------------
BENEFITS AND EXPENSES:
Benefits:
Annuity benefits 613,594 555,421 369,652
Increase/(decrease) in annuity policy reserves 634,540 (6,778,756) 5,766,003
Cost of minimum death benefit reinsurance 2,866,835 2,056,606 0
Return credited to contractowners 672,635 10,612,858 (516,730)
------------ ------------ ------------
4,787,604 6,446,129 5,618,925
------------ ------------ ------------
Expenses:
Underwriting, acquisition and other insurance expenses 49,765,661 35,820,524 18,792,720
Amortization of state insurance licenses 150,000 150,000 150,000
Interest expense 10,790,716 6,499,414 3,615,845
------------ ------------ ------------
60,706,377 42,469,938 22,558,565
------------ ------------ ------------
Total Benefits and Expenses 65,493,981 48,916,067 28,177,490
------------ ------------ ------------
Income (loss) from operations before federal income taxes 22,584,667 (2,170,660) 106,921
Income tax (benefit) expense (4,038,357) 397,360 247,429
------------ ------------ ------------
Net income (loss) $ 26,623,024 $ (2,568,020) $ (140,508)
============ =========== ===========
</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 SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1996 1995 1994
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 81,874,666 71,623,932 71,623,932
Additional contributions 40,375,451 10,250,734 0
----------- ----------- -----------
Balance at end of year 122,250,117 81,874,666 71,623,932
----------- ----------- -----------
Unrealized investment gains and losses:
Balance at beginning of year 111,359 (41,655) 0
Change in unrealized investment gains and losses, net (430,990) 153,014 (41,655)
----------- ----------- -----------
Balance at end of year (319,631) 111,359 (41,655)
Foreign currency translation:
Balance at beginning of year (328,252) 0 0
Change in foreign currency translation, net 64,546 (328,252) 0
----------- ----------- -----------
Balance at end of year (263,706) (328,252) 0
----------- ----------- -----------
Retained earnings (deficit):
Balance at beginning of year (23,944,773) (21,376,753) (21,236,245)
Net income (loss) 26,623,024 (2,568,020) (140,508)
----------- ----------- -----------
Balance at end of year 2,678,251 (23,944,773) (21,376,753)
----------- ----------- -----------
TOTAL SHAREHOLDER'S EQUITY $ 126,345,031 $ 59,713,000 $ 52,205,524
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1996 1995 1994
--------------- --------------- ---------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 26,623,024 $ (2,568,020) $ (140,508)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Increase/decrease) in annuity policy reserves 1,852,259 (4,667,765) 6,004,603
Increase/(decrease) in policy contract claims
Amortization of bond discount 27,340 23,449 21,964
Amortization of state insurance licenses 150,000 150,000 150,000
Change in due to/from affiliates 540,484 (347,884) 256,779
Change in income tax payable/receivable 1,688,001 (600,849) 36,999
Increase in other assets (765,511) (409,927) (742,041)
Increase in accrued investment income (1,764,472) (20,420) (44,847)
Increase in reinsurance receivable (179,776) (1,988,042) 0
Increase in accounts payables and accrued expenses 32,382,448 1,063,137 13,396,502
Increase in deferred acquisition costs (168,418,535) (96,212,774) (83,986,073)
Decrease in deferred contract charges (59,721) (117,654) (71,117)
Increase in foreign currency translation, net (77,450) (328,252) 0
Deferred income taxes (16,903,477) 0 0
Realized (gain)/loss on sale of investments (134,463) (36,774) 1,942
------------- -------------- -------------
Net cash used in operating activities (125,039,849) (106,061,775) (65,115,797)
------------- ------------- -------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of fixed maturities (96,812,903) (614,289) (1,989,120)
Proceeds from sales and maturities of available-for-sale fixed maturities 8,732,390 0 0
Proceeds from maturities of held-to-maturity fixed maturities 215,000 100,000 2,010,000
Purchase of shares in mutual funds (2,160,347) (1,566,194) (922,822)
Proceeds from sale of shares in mutual funds 1,273,640 867,744 38,588
Net sale (purchase) of short-term investments (2,400,000) 8,300,000 (4,600,000)
Investments in separate accounts (2,789,361,685) (1,609,415,439) (1,365,775,177)
------------- ------------- -------------
Net cash used in investing activities (2,880,513,905) (1,602,328,178) (1,371,238,531)
------------- ------------- -------------
CASH FLOW FROM FINANCING ACTIVITIES:
Capital contributions from parent 40,375,451 10,250,734 0
Surplus notes 110,000,000 34,000,000 49,000,000
Increase in future fees payable to parent 47,111,936 0 0
Short-term borrowing
Increase in payable to reinsurer 14,004,792 24,890,064 28,555,190
Proceeds from annuity sales 2,795,114,603 1,628,486,076 1,372,873,747
------------- ------------- -------------
Net cash provided by financing activities 3,006,606,782 1,697,626,874 1,450,428,937
------------- ------------- -------------
Net increase/(decrease) in cash and cash equivalents 1,053,028 (10,763,079) 14,074,609
Cash and cash equivalents at beginning of year 13,146,384 23,909,463 9,834,854
------------- ------------- -------------
Cash and cash equivalents at end of year $ 14,199,412 $ 13,146,384 $ 23,909,463
============= ============= =============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Income taxes paid $ 11,177,120 $ 995,496 $ 161,398
============= ============= =============
Interest paid $ 7,094,767 $ 540,319 $ 557,639
============= ============= =============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
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.
The Company's consolidated financial statements include the accounts of
Skandia Vida, S.A. de C.V. ("Skandia Vida"), a life insurance company
domiciled in Mexico, which was formed in 1995 by the ultimate parent
Skandia Insurance Company Ltd. The Company has a 99.9% ownership
interest in Skandia Vida, which is a start up company with expectations
of selling long term savings products 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
either held-to-maturity or available-for-sale. Investments
classified as held-to-maturity are investments that the
Company has the ability and intent to hold to maturity. Such
investments are carried at amortized cost. Those investments
which are classified as available-for-sale are carried at
market value and changes in unrealized gains and losses are
reported as a component of shareholder's equity.
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.
<PAGE>
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 amounted to $32,641 and $3,749 at December 31,
1996 and 1995, respectively. Depreciation expense for the
years ended December 31, 1996 and 1995 was $28,892 and $3,749
respectively.
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 Table-a with assumed interest
rates that vary by issue year. Assumed interest rates ranged
from 6.5% to 8.25% at both December 31, 1996 and 1995.
Annuity sales were $2,795,114,000, $1,628,486,000 and
$1,372,874,000 for the years ended December 31, 1996, 1995 and
1994, respectively. Annuity contract assets under management
were $7,764,891,000, $4,704,044,000 and $2,661,161,000 at
December 31, 1996, 1995 and 1994, respectively.
<PAGE>
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
deferred and 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>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Balance at beginning of year $270,222,383 $174,009,609 $ 90,023,536
Acquisition costs deferred
during the year 190,995,588 106,063,698 85,801,180
Acquisition costs amortized
during the year 22,577,053 9,850,924 1,815,107
------------ ------------ ------------
Balance at end of year $438,640,918 $270,222,383 $174,009,609
============ ============ ============
</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>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Balance at beginning of year $332,050 $449,704 $520,821
Contract charges deferred
during the year 42,740 21,513 87,114
Contract charges amortized
during the year 102,461 139,167 158,231
-------- -------- --------
Balance at end of year $272,329 $332,050 $449,704
======== ======== ========
</TABLE>
<PAGE>
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. Separate Account 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 $644,233,883 and
$586,233,752 at December 31, 1996 and 1995, respectively,
relating to annuity contracts for which the contractholder is
guaranteed a fixed rate of return. Separate Account assets of
$644,233,883 and $588,835,051 at December 31, 1996 and 1995,
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 as adjusted for
consolidated items such as net operating losses which are
utilized in the consolidated federal income tax return in
accordance with the provisions of the Internal Revenue Code,
as amended. Prior to 1995, the Company filed a separate 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.
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.
The Company reinsures certain mortality risks. These risks
result from the guaranteed minimum death benefit feature in
the variable annuity products.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
3. INVESTMENTS
The amortized cost, gross unrealized gains (losses) and estimated
market value of available-for-sale and held-to-maturity fixed
maturities and equity securities by category as of December 31, 1996
and 1995 are shown below. All securities held at December 31, 1996 are
publicly traded.
Investments in fixed maturities as of December 31, 1996 consist of the
following:
Held-to-Maturity
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Government
Obligations $ 4,299,803 $88,268 $22,937 $ 4,365,134
Obligations of
State and Political
Subdivisions 250,119 229 0 250,348
Corporate
Securities 5,540,447 0 62,660 5,477,787
----------- ------- ------- -----------
Totals $10,090,369 $88,497 $85,597 $10,093,269
=========== ======= ======= ===========
</TABLE>
<TABLE>
<CAPTION>
Available-for-Sale
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Government
Obligations $14,508,780 0 $ 79,745 $14,429,035
Obligations of
State and Political
Subdivisions 202,516 26 0 202,542
Other Government
Obligations 5,047,790 0 7,440 5,040,350
Corporate
Securities 68,101,413 83,312 486,928 67,697,797
----------- ------- -------- -----------
Totals $87,860,499 $83,338 $574,113 $87,369,724
=========== ======= ======== ===========
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
The amortized cost and market value of fixed maturities, by contractual
maturity, at December 31, 1996 are shown below.
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
<S> <C> <C> <C> <C>
Amortized Market Amortized Market
Cost Value Cost Value
Due in one year or less $ 697,626 $ 699,861 $ 5,047,790 $ 5,040,350
Due after one through five years 9,138,036 9,143,290 29,864,609 29,756,002
Due after five through ten years 254,707 250,118 52,948,100 52,573,372
----------- ----------- ----------- -----------
Total $10,090,369 $10,093,269 $87,860,499 $87,369,724
=========== =========== =========== ===========
</TABLE>
Investments in fixed maturities as of December 31, 1995 consist of the
following:
<TABLE>
<CAPTION>
Held-to-Maturity
<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>
Proceeds from sales and maturities of fixed maturity investments during
1996, 1995 and 1994, were $8,947,390, $100,000 and $2,010,000,
respectively.
There were no gross gains and losses realized during the years ended
December 31, 1996, 1995 and 1994.
<PAGE>
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, 1996 and 1995 are shown
below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Gross Gross
Unrealized Unrealized Market
Cost Gains Losses Value
1996 $2,638,695 $ 59,278 $60,242 $2,637,731
========== ======== ======= ==========
1995 $1,617,516 $111,686 $ 327 $1,728,875
========== ======== ======= ==========
</TABLE>
Proceeds from sales of investments in mutual funds during 1996, 1995
and 1994 were $1,273,640, $867,744 and $38,588, respectively.
Mutual fund gross realized gains and losses were as follows:
Gross Gross
Gains Losses
1996 $139,814 $ 5,351
======== =======
1995 $ 65,236 $28,462
======== =======
1994 $ 510 $ 2,452
======== =======
4. NET INVESTMENT INCOME
Additional information with respect to net investment income for the
years ended December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Fixed maturities $ 836,591 $ 629,743 $ 616,987
Mutual funds 143,737 59,895 12,049
Short-term investments 92,987 256,351 142,421
Cash and cash equivalents 591,666 730,581 633,298
Interest on policy loans 5,274 4,025 1,275
---------- ---------- ----------
Total investment income 1,670,255 1,680,595 1,406,030
Investment expenses 84,436 79,921 105,813
---------- ---------- ----------
Net investment income $1,585,819 $1,600,674 $1,300,217
========== ========== ==========
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES
The significant components of income tax expense are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Current tax expense $12,865,120 $397,360 $247,429
Deferred tax (benefit) expense (16,903,477) 0 0
------------- -------- --------
Total income tax (benefit) expense ($ 4,038,357) $397,360 $247,429
============= ======== ========
</TABLE>
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, 1996 and 1995, are as follows:
<TABLE>
<S> <C> <C>
1996 1995
---- ----
Deferred Tax (Liabilities):
Deferred acquisition costs ($103,072,477) ($57,399,960)
Payable to reinsurer (23,025,326) (19,802,861)
Policy Fees (491,640) (308,304)
Unrealized investment gains 0 (38,976)
------------ -----------
Total (126,589,443) (77,550,101)
------------ -----------
Deferred Tax Assets:
Net separate account liabilities 121,092,798 72,024,094
Reserve for future contractowner benefits 12,686,078 10,672,556
Other reserve differences 4,527,886 1,492,044
Deferred compensation 4,392,526 2,169,060
Surplus notes blocked interest 548,730 0
Unrealized investment losses 172,109 0
Foreign exchange translation 141,996 114,888
Deferred contract charge 95,315 116,218
AMT credit carryforward 0 286,094
Other 149,587 0
------------ -----------
Total 143,807,025 86,874,954
------------ -----------
Net before valuation allowance 17,217,582 9,324,853
Valuation allowance 0 (9,324,853)
------------ -----------
Net deferred tax balance $ 17,217,582 $ 0
============ ===========
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
Management believes that based on the taxable income produced in the
current year and the continued growth in annuity products, the Company
will produce sufficient taxable income in the furture to realize its
deferred tax assets. As such, the Company released the deferred tax
valuation allowance of $9,324,853 established as of December 31, 1995.
The income tax expense was different from the amount computed by
applying the federal statutory tax rate of 35% to pre-tax income from
continuing operations as follows:
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Income (loss) before taxes $22,584,667 ($2,170,660) $106,921
Income tax rate 35% 35% 35%
----------- ----------- ---------
Tax expense at federal
statutory income tax rate 7,904,633 (759,731) 37,422
Tax effect of:
Change in valuation allowance (9,324,853) 1,680,339 365,288
Dividend received deduction (2,266,051) (477,139) 0
Other (352,086) (46,109) (155,281)
----------- ---------- --------
Income tax (benefit) expense ($ 4,038,357) $ 397,360 $247,429
============ ========== ========
</TABLE>
6. RELATED PARTY TRANSACTIONS
Certain operating costs (including personnel, rental of office space,
furniture, and equipment) 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. Operating costs for these items was $11,581,114,
$12,687,337 and $8,524,840 for the years ended December 31, 1996, 1995
and 1994, respectively. Income received for these items was $1,148,364,
$396,573 and $248,799 for the years ended December 31, 1996, 1995 and
1994, respectively. Amounts receivable from affiliates under this
arrangement were $548,792 and $857,156 as of December 31, 1996 and
1995, respectively. Amounts payable to affiliates under this
arrangement were $619,089 and $304,525 as of December 31, 1996 and
1995, respectively.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
7. FUTURE FEES PAYABLE TO PARENT
On December 17, 1996 the Company sold to its Parent, effective
September 1, 1996, certain rights to receive future fees and charges
expected to be realized on the variable portion of a designated block
of deferred annuity contracts issued during the period January 1, 1994
through June 30, 1996. In connection with this transaction, the Parent
issued collateralized notes in a private placement which are secured by
the rights to receive future fees and charges purchased from the
Company.
Under the terms of the Purchase Agreement, the rights sold provide for
the Parent to receive 80% of future mortality and expense charges and
contingent deferred sales charges, after reinsurance, expected to be
realized over the remaining surrender charge period of the designated
contracts (generally, 6.5 years). The Company did not sell the right to
receive future fees and charges after the expiration of the surrender
charge period.
The proceeds from the sale have been recorded as a liability and are
being amortized over the remaining surrender charge period of the
designated contracts using the interest method. The present value at
September 1, 1996 (discounted at 7.5%), of future fees and charges
expected to be realized on the designated contracts was $50,221,438.
Payments representing fees and charges realized during the period
September 1, 1996 through December 31, 1996 in the aggregate amount of
$3,109,502, were made by the Company to the Parent. Interest expense of
$42,260 has been included in the statement of operations.
Expected payments of future fees payable to Parent are as follows:
Year Ending
December 31, Amount
1997 $ 9,308,527
1998 9,782,558
1999 10,002,274
2000 10,061,058
2001 6,412,114
2002 1,392,003
2003 153,402
-----------
Total $47,111,936
The Commissioner of the State of Connecticut has approved the sale of
future fees and charges; however, in the event that the Company becomes
subject to an order of liquidation or rehabilitation, the Commissioner
has the ability to stop the payments due to the Parent under the
Purchase Agreement, subject to certain terms and conditions.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
8. LEASES
The Company leases office space under a lease agreement established in
1989 with American Skandia Information Services and Technology
Corporation. The lease expense for 1996, 1995 and 1994 was $1,583,391,
$1,218,806 and $961,080, respectively. Future minimum lease payments
per year and in aggregate as of December 31, 1996 are as follows:
1997 1,413,180
1998 1,571,400
1999 1,571,400
2000 1,740,750
2001 and thereafter 6,527,813
-----------
Total $12,824,543
9. RESTRICTED ASSETS
In order to comply with certain state insurance departments'
requirements, the Company maintains cash, bonds and notes on deposit
with various states. The carrying value of these deposits amounted to
$3,766,564 and $3,267,357 as of December 31, 1996, and 1995,
respectively. These deposits are required to be maintained for the
protection of contractowners within the individual states.
10. RETAINED EARNINGS AND DIVIDEND RESTRICTIONS
Statutory basis shareholder's equity was $275,835,076, $132,493,899 and
$95,001,971 at December 31, 1996, 1995 and 1994, respectively.
The statutory basis net loss was $5,405,179, $7,183,003 and $9,789,297
for the years ended December 31, 1996, 1995 and 1994, 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, 1996, no amounts may be
distributed without prior approval.
11. 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 $850,111, $627,161 and $431,559 for the
years ended December 31, 1996, 1995 and 1994, respectively.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
The Company and it's affiliate cooperatively have 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 $9,212,369 and $4,600,831 as of December 31,
1996 and 1995, respectively. Payments under this plan were $601,603 for
the year ended December 31, 1996.
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
$244,601 in 1996 and $139,209 in 1995.
12. 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, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996
------------------------------------------------------------------
<S> <C> <C> <C>
Annuity Change in Annuity Return Credited
Charges and Fees Policy Reserves to Contractowners
Gross $87,369,693 $814,306 $779,070
Ceded 17,590,171 179,766 106,435
----------- -------- --------
Net $69,779,522 $634,540 $672,635
=========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1995 1994
------------------------------------------------------------------ ----------------
<S> <C> <C> <C> <C>
Annuity Change in Annuity Return Credited Annuity
Charges and Fees Policy Reserves to Contractowners Charges and Fees
Gross $50,334,280 ($4,790,714) $10,945,831 $30,116,166
Ceded 11,496,922 1,988,042 332,973 5,336,381
----------- ---------- ----------- -----------
Net $38,837,358 ($6,778,756) $10,612,858 $24,779,785
=========== =========== =========== ===========
</TABLE>
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.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
13. SURPLUS NOTES
The Company has issued surplus notes to its Parent in exchange for
cash. Surplus notes outstanding as of December 31, 1996 were as
follows:
Issue Interest
Date Amount Rate
December 29, 1993 $ 20,000,000 6.84%
February 18, 1994 10,000,000 7.28%
March 28, 1994 10,000,000 7.90%
September 30, 1994 15,000,000 9.13%
December 28, 1994 14,000,000 9.78%
December 19, 1995 10,000,000 7.52%
December 20, 1995 15,000,000 7.49%
December 22, 1995 9,000,000 7.47%
June 28, 1996 40,000,000 8.41%
December 30, 1996 70,000,000 8.03%
------------
Total $213,000,000
Payment of interest and repayment of principal for these notes is
subject to certain conditions and requires approval by the Insurance
Commissioner of the State of Connecticut.
Interest expense on surplus notes was $10,087,347, $5,789,893 and
$3,016,905 for the years ended December 31, 1996, 1995 and 1994,
respectively. Interest approved and paid during 1996 was $6,438,867.
Interest accrued at December 31, 1996 amounted to $3,648,480, of which
$2,080,680 has been approved and paid in 1997. The remaining $1,567,800
was not approved for payment. The 1995 and 1994 amounts were approved
at December 31, 1995 with stipulation that they be funded through a
capital contribution from the parent.
14. SHORT-TERM BORROWING
During 1993, the Company received a $10 million loan from Skandia AB, a
Swedish affiliate. Upon renewal during 1995 the loan became payable to
the Parent rather than Skandia AB. The loan matures on March 10, 1997
and bears interest at 6.46%. The total interest expense to the Company
was $642,886, $709,521 and $569,618 and for the years ended December
31, 1996, 1995 and 1994, respectively, of which $206,361 and $219,375
was payable as of December 31, 1996 and 1995, respectively.
15. 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
8.5% to 1% for contracts held less than 8 years.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes information with respect to the
operations of the Company on a quarterly basis:
<TABLE>
<CAPTION>
Three Months Ended
<S> <C> <C> <C> <C>
1996 March 31 June 30 September 30 December 31
---- ----------- ----------- ------------ -----------
Premiums and other insurance
revenues $16,605,765 $20,452,733 $22,366,166 $26,933,702
Net investment income 455,022 282,926 270,092 577,779
Net realized capital gains 92,072 13,106 5,606 23,679
----------- ----------- ----------- -----------
Total revenues $17,152,859 $20,748,765 $22,641,864 $27,535,160
=========== =========== =========== ===========
Benefits and expenses $12,725,411 $ 9,429,735 $17,007,137 $25,191,857
=========== =========== =========== ===========
Net income $ 2,658,941 $ 7,695,490 $ 2,538,513 $14,470,976
=========== =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
<S> <C> <C> <C> <C>
1995 March 31 June 30 September 30 December 31
---- ----------- ----------- ------------ -----------
Premiums and other insurance
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)
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
<S> <C> <C> <C> <C>
1994 March 31 June 30 September 30 December 31
---- ----------- ----------- ------------ -----------
Premiums and other insurance
revenues $ 5,594,065 $ 6,348,777 $ 7,411,686 $ 7,631,608
Net investment income 252,914 336,149 264,605 446,549
Net realized capital gains (losses) 0 (30,829) 25,914 2,973
----------- ----------- ----------- -----------
Total revenues $ 5,846,979 $ 6,654,097 $ 7,702,205 $ 8,081,130
=========== =========== =========== ===========
Benefits and expenses $ 5,701,460 $ 7,883,829 $ 8,157,535 $ 6,434,666
=========== =========== =========== ===========
Net income (loss) $ 104,636 ($ 1,257,768) ($ 503,793) $ 1,516,417
=========== =========== =========== ===========
</TABLE>
As described in Note 5, the valuation allowance relating to deferred
income taxes was released during the three months ended December 31,
1996.
APPENDIX B
SHORT DESCRIPTIONS OF THE
UNDERLYING MUTUAL FUNDS' PORTFOLIO INVESTMENT OBJECTIVES AND POLICIES
Short descriptions of the series of the Life & Annuity Trust, the applicable
portfolios of the American Skandia Trust and the Growth portfolio of The Alger
American Fund are found below.
Please refer to the prospectuses of each underlying mutual fund for more
complete details on expenses, investment policies, and risk factors applicable
to certain portfolios. Additional underlying mutual fund prospectuses or
Statements of Additional Information may be obtained by calling 1-800-680-8920
or writing to us at P.O. Box 883, Attention: Stagecoach Variable Annuity
Administration, Shelton, Connecticut, 06484-0883.
Life & Annuity Trust
Asset Allocation Fund: The Asset Allocation Fund seeks over the long-term a high
level of total return, including net realized and unrealized capital gains and
net investment income, consistent with reasonable risk. The Fund seeks to
achieve its objective by pursuing an asset allocation strategy. This strategy is
based upon the premise that certain asset classes from time to time are either
under- or over- valued relative to each other by the market, and that
undervalued asset classes represent relatively better long-term, risk-adjusted
investment opportunities. Timely, low-cost shifts among common stocks, U.S.
Treasury bonds and money market instruments (as determined by their perceived
relative over- or under- valuation) can, therefore, produce attractive
investment returns. Using this strategy, Barclays Global Fund Advisors ("BGFA"),
as the Fund's investment sub-adviser, regularly determines the appropriate mix
of asset classes and the Fund's portfolio is periodically adjusted to achieve
this mix. The Fund is not designed to profit from short-term market changes.
In determining the appropriate mix, BGFA uses an investment model (the "Asset
Allocation Model" or "Model") developed over the past 20 years, which is also
used by BGFA as a basis for managing large employee benefit trust funds and
other institutional accounts. The Asset Allocation Model, which is proprietary
to BGFA, analyzes extensive financial data from numerous sources and recommends
a portfolio allocation among common stocks, U.S. Treasury bonds and money market
instruments. As further described in the Fund's "Prospectus Appendix -
Additional Investment Policies," BGFA implements the Asset Allocation Model's
recommendations and monitors the performance of the Model based on its
assessment of current economic conditions and investment opportunities. The
allocation of investments within the Fund's portfolio is based solely on the
recommendation of the Model. At any given time, substantially all of the Fund's
assets may be invested in a single asset class and the relative allocation among
the asset classes may shift significantly from time to time.
Growth and Income Fund: The Growth and Income Fund seeks to earn current income
and achieve long-term capital appreciation. It seeks to achieve this objective
by investing primarily in common stocks and preferred stocks and debt securities
that are convertible into common stocks. Under normal market conditions, the
Fund invests at least 65% of its total assets in common stocks and securities
which are convertible into common stocks and at least 65% of its total assets in
income-producing securities. Up to 10% of the Fund's assets may be invested in
securities of foreign issuers. The Growth and Income Fund invests in common
stocks of issuers that exhibit a strong earnings growth trend and that are
believed by Wells Fargo Bank, as investment adviser, to have above average
prospects for future earnings growth. The Fund maintains a portfolio of common
stocks diversified among industries and companies. The Fund may invest in common
stocks of large companies (i.e., those companies with more than $750 million in
capitalization) that Wells Fargo Bank believes offer the potential for long-term
earnings growth or above-average dividend yield. Some investments also may be
made in common stocks of medium and smaller sized companies (i.e., those
companies with at least $250 million, but less than $750 million in
capitalization ) that appear to have the potential to generate high levels of
future revenue and earnings growth and where the investment opportunity may not
be fully reflected in the price of the securities but that may involve greater
risks than investments in larger companies. The Growth and Income Fund intends
generally to invest less than 50% of its assets in the securities of medium and
smaller sized companies and the remainder in securities of larger sized
companies. However, the actual percentages may vary according to changes in
market conditions and the judgment of the Fund's investment adviser of how best
to achieve the Fund's investment objective. The Growth and Income Fund also may
invest in convertible securities that provide current income and are issued by
companies with the characteristics described above and that have a strong
earnings and credit record. At most, 5% of the Fund's net assets will be
invested in convertible debt securities that are either rated below the four
highest rating categories by one or more nationally recognized statistical
rating organizations, such as Moody's Investor Service, Inc. or Standard &
Poor's Ratings Group (which includes securities also known as "junk bonds"), or
unrated securities determined by Wells Fargo Bank to be of comparable quality.
Money Market Fund: The Money Market Fund seeks to provide investors with a high
level of income, while preserving capital and liquidity, by investing in
high-quality, short-term securities. The Fund only invests its assets in U.S.
dollar-denominated, high-quality money market instruments, and may engage in
certain other investment activities as described in the Prospectus. Permitted
investments consist of obligations of the U.S. Government, its agencies or
instrumentalities (including government-sponsored enterprises), obligations of
domestic and foreign banks, commercial paper, and repurchase agreements and
other debt obligations such as municipal obligations, asset-backed securities
and securities issued by special purpose entities. The Fund also may invest in
unrated instruments determined by Wells Fargo Bank to be of comparable quality
to other rated instruments that the Fund is permitted to purchase and otherwise
purchased in accordance with Fund procedures. The Money Market Fund is not
insured or guaranteed by the U.S. Government. There can be no assurance that a
stable net asset value will be maintained. A more complete description of these
investments and investment activities is contained in the Fund's "Prospectus
Appendix - Additional Investment Policies" and in the Fund's SAI.
U.S. Government Allocation Fund: The U.S. Government Allocation Fund seeks over
the long-term a high level of total return, including net realized and
unrealized capital gains and net investment income, consistent with reasonable
risk. The Fund seeks to achieve its objective by pursuing a strategy of
allocating and reallocating its investments among the following three classes of
debt instruments: long-term U.S. Treasury bonds, intermediate-term U.S. Treasury
notes, and short-term money market instruments. This strategy is based upon the
premise that those classes of debt securities, from time to time, are either
over- or under-valued relative to each other by the market, and that
under-valued asset classes represent relatively better long-term investment
opportunities. Timely, low-cost shifts among such securities (as determined by
their perceived relative over- or under-valuation) can, therefore produce
attractive long-term investment returns. Using this strategy, BGFA regularly
determines the appropriate mix of asset classes, and the Fund's portfolio is
periodically adjusted to achieve this mix. Under normal market conditions, the
Fund invests at least 65% of the value of its total assets in U.S. Government
obligations. In determining the appropriate mix, BGFA, as the Fund's investment
sub-adviser, uses an investment model, (the "U.S. Government Allocation Model,"
or "Model") which is also used by BGFA as a basis for managing large employee
benefit trust funds and other institutional accounts. The model, which is
proprietary to BGFA, analyzes risk, correlation and expected return data and
recommends a portfolio allocation among the three classes of debt instruments.
As further described in the Fund's "Prospectus Appendix - Additional Investment
Policies," BGFA implements the U.S. Government Allocation Model's
recommendations and monitors the performance of the Model based on its
assessment of current economic conditions and investment opportunities. The
allocation of investments within the Fund's portfolio is based solely on the
recommendation of the Model. At any given time, substantially all of the Fund's
assets may be invested in a single asset class, and the relative allocation
among the asset classes may shift significantly from time to time. The Fund is
not designed to profit from short-term market changes. The Fund may purchase
U.S. Treasury bonds with remaining maturities of at least 20 years. Under normal
market conditions, the dollar-weighted average maturity of this portion of the
Fund's portfolio is expected to range between 22 and 28 years. The Fund may
purchase U.S. Treasury notes and other U.S. Treasury securities with remaining
maturities ranging from one to 20 years. Under normal market conditions, the
dollar-weighted average maturity of this portion of the Fund's portfolio is
expected to range between three and seven years. The Fund may purchase
short-term money market instruments with remaining maturities of one year or
less. The Fund also may enter into futures and options contracts and options on
futures contracts and make margin payments in connection with such contracts,
invest in unrated instruments determined by the Fund's adviser to be of
investment quality comparable to other rated instruments that the Fund is
permitted to purchase, and purchase securities on a delayed delivery or
when-issued basis.
American Skandia Trust
JanCap Growth Portfolio: The investment objective of the JanCap Growth Portfolio
is growth of capital in a manner consistent with the preservation of capital.
Realization of income is not a significant investment consideration and any
income realized on investments, therefore, will be incidental to this objective.
The objective will be pursued by emphasizing investments in common stocks.
Common stock investments will be in industries and companies that the
Portfolio's sub-advisor believes are experiencing favorable demand for their
products and services, and which operate in a favorable competitive and
regulatory environment. Investments may be made to a lesser degree in preferred
stocks, convertible securities, warrants, and debt securities of U.S. issuers,
when the Portfolio's sub-advisor perceives an opportunity for capital growth
from such securities or so that a return may be received on the Portfolio's idle
cash. Debt securities which the Portfolio may purchase include corporate bonds
and debentures (not to exceed 5% of net assets in bonds rated below investment
grade), mortgage-backed and asset-backed securities, zero-coupon bonds,
indexed/structured notes, high-grade commercial paper, certificates of deposit
and repurchase agreements. Securities of foreign issuers, including securities
of foreign governments and Euromarket securities, also may be purchased.
Although it is the general policy of the JanCap Growth Portfolio to purchase and
hold securities for capital growth, changes will be made whenever the
Portfolio's sub-advisor believes they are advisable. Because investment changes
usually will be made without reference to the length of time a security has been
held, a significant number of short-term transactions may result.
Investments also may be made in "special situations" from time to time. A
"special situation" arises when, in the opinion of the Portfolio's sub-advisor,
the securities of a particular company will be recognized and appreciate in
value due to a specific development, such as a technological breakthrough,
management change or a new product at that company. Subject to certain
limitations, the JanCap Growth Portfolio may purchase and write options on
securities (including index options) and options on foreign currencies, and may
invest in futures contracts 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 for hedging purposes. Investment of up to 15% of the JanCap Growth
Portfolio's total assets may be made in securities that are considered illiquid
because of the absence of a readily available market or due to legal or
contractual restrictions.
T. Rowe Price International Equity Portfolio: The investment objective of the T.
Rowe Price International Equity Portfolio is to seek a total return on its
assets from long-term growth of capital and income, principally through
investments in common stocks of established, non-U.S. companies. Investments may
be made solely for capital appreciation or solely for income or any combination
of both for the purpose of achieving a higher overall return. Total return
consists of capital appreciation or depreciation, dividend income, and currency
gains or losses. The Portfolio intends to diversify investments broadly among
countries and to normally have at least three different countries represented in
the Portfolio. The Portfolio may invest in countries of the Far East and Western
Europe as well as South Africa, Australia, Canada and other areas (including
developing countries). Under unusual circumstances, the Portfolio may invest
substantially all of its assets in one or two countries. The Portfolio may also
invest in a variety of other equity-related securities, such as preferred
stocks, warrants, and convertible securities, as well as corporate and
governmental debt securities, when considered consistent with the Portfolio's
investment objective and program.
Founders Capital Appreciation Portfolio: The investment objective of Founders
Capital Appreciation Portfolio is capital appreciation. The Portfolio will
normally invest at least 65% of its total assets in common stocks of U.S.
companies with market capitalizations of $1.5 billion or less. These stocks
normally will be traded in the over-the-counter market. The Portfolio may engage
in short-term trading and therefore normally will have annual portfolio turnover
rates which are considered to be high. Investment in such companies may involve
greater risk than is associated with more established companies. The Portfolio
may invest in convertible securities, preferred stocks, bonds, debentures, and
other corporate obligations, when these investments offer opportunities for
capital appreciation.
INVESCO Equity Income Portfolio: The investment objective of the INVESCO Equity
Income Portfolio is to seek high current income while following sound investment
practices. Capital growth potential is an additional, but secondary,
consideration in the selection of portfolio securities. The Portfolio seeks to
achieve its objective by investing in securities which will provide a relatively
high-yield and stable return and which, over a period of years, may also provide
capital appreciation. The Portfolio normally will invest at least 65% of its
assets in dividend-paying, marketable common stocks of domestic and foreign
industrial issuers. The Portfolio also will invest in convertible bonds,
preferred stocks and debt securities. The Portfolio may depart from the basic
investment objective and assume a defensive position with a large portion of its
assets temporarily invested in high quality corporate bonds, or notes and
government issues, or held in cash. The Portfolio's investments in common stocks
may decline in value. To minimize the risk this presents, the Portfolio only
invests in dividend-paying common stocks of domestic and foreign industrial
issuers which are marketable, and will not invest more than 5% of the
Portfolio's assets in the securities of any one company or more than 25% of the
Portfolio's assets in any one industry. There are no fixed-limitations regarding
portfolio turnover. The rate of portfolio turnover may fluctuate as a result of
constantly changing economic conditions and market circumstances. Securities
initially satisfying the Portfolio's basic objectives and policies may be
disposed of when they are no longer suitable. As a result, it is anticipated
that the Portfolio's annual portfolio turnover rate may be higher than that of
other investment companies seeking current income with capital growth as a
secondary consideration.
PIMCO Total Return Bond Portfolio: The investment objective of the PIMCO Total
Return Bond Portfolio is to seek to maximize total return, consistent with
preservation of capital. The Sub-advisor will seek to employ prudent investment
management techniques, especially in light of the broad range of investment
instruments in which the Portfolio may invest. The proportion of the Portfolio's
assets committed to investment in securities with particular characteristics
(such as maturity, type and coupon rate) will vary based on the outlook for the
U.S. and foreign economies, the financial markets and other factors. The
Portfolio will invest at least 65% of its assets in the following types of
securities which may be issued by domestic or foreign entities and denominated
in U.S. dollars or foreign currencies: securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities; corporate debt securities;
corporate commercial paper; mortgage and other asset-backed securities; variable
and floating rate debt securities; bank certificates of deposit; fixed time
deposits and bankers' acceptances; repurchase agreements and reverse repurchase
agreements; obligations of foreign governments or their subdivisions, agencies
and instrumentalities, international agencies or supranational entities; and
foreign currency exchange-related securities, including foreign currency
warrants. The Portfolio will invest in a diversified portfolio of fixed-income
securities of varying maturities with a portfolio duration from three to six
years. The Portfolio may invest up to 10% of its assets in fixed income
securities that are rated below investment grade (i.e., rated below Baa by
Moody's or BBB by S&P or, if unrated, determined by the Sub-advisor to be of
comparable quality). These securities are regarded as high risk and
predominantly speculative with respect to the issuer's continuing ability to
meet principal and interest payments. The Portfolio may also invest up to 20% of
its assets in securities denominated in foreign currencies. The "total return"
sought by the Portfolio will consist of interest and dividends from underlying
securities, capital appreciation reflected in unrealized increases in value of
portfolio securities (realized by the shareholder only upon selling shares) or
realized from the purchase and sale of securities, and use of futures and
options, or gains from favorable changes in foreign currency exchange rates. The
Portfolio may invest directly in U.S. dollar- or foreign currency-denominated
fixed income securities of non-U.S. issuers. The Portfolio will limit its
foreign investments to securities of issuers based in developed countries
(including newly industrialized countries, such as Taiwan, South Korea and
Mexico). Investing in the securities of issuers in any foreign country involves
special risks. The Portfolio will limit its investments in newly industrialized
countries to 10% of its assets.
PIMCO Limited Maturity Bond Portfolio: The investment objective of the PIMCO
Limited Maturity Bond Portfolio is to seek to maximize total return, consistent
with preservation of capital and prudent investment management. The Portfolio
will invest at least 65% of its total assets in the following types of
securities, which may be issued by domestic or foreign entities and denominated
in U.S. dollars or foreign currencies: securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities; corporate debt securities;
corporate commercial paper; mortgage and other asset-backed securities; variable
and floating rate debt securities; bank certificates of deposit, fixed time
deposits and bankers' acceptances; repurchase agreements and reverse repurchase
agreements; obligations of foreign governments or their subdivisions, agencies
and instrumentalities, international agencies or supranational entities; and
foreign currency exchange-related securities, including foreign currency
warrants. The Portfolio may hold different percentages of its assets in these
various types of securities, and may invest all of its assets in derivative
instruments or in mortgage- or asset-backed securities. There are special risks
involved in these instruments. The Portfolio will invest in a diversified
portfolio of fixed income securities of varying maturities with a portfolio
duration from one to three years. The Portfolio may invest up to 10% of its
assets in corporate debt securities that are rated below investment grade but
rated B or higher by Moody's or S&P (or, if unrated, determined by the
Sub-advisor to be of comparable quality). The Portfolio may also invest up to
20% of its assets in securities denominated in foreign currencies. The "total
return" sought by the Portfolio will consist of interest and dividends from
underlying securities, capital appreciation reflected in unrealized increases in
value of portfolio securities (realized by the shareholder only upon selling
shares) or realized from the purchase and sale of securities, and use of futures
and options, or gains from favorable changes in foreign currency exchange rates.
The Portfolio may invest directly in U.S. dollar- or foreign
currency-denominated fixed income securities of non-U.S. issuers. The Portfolio
will limit its foreign investments to securities of issuers based in developed
countries (including newly industrialized countries, such as Taiwan, South Korea
and Mexico). Investing in the securities of issuers in any foreign country
involves special risks. The Portfolio will limit its investments in newly
industrialized countries to 5% of its assets.
Berger Capital Growth Portfolio: The investment objective of the Berger Capital
Growth Portfolio is long-term capital appreciation. The Portfolio seeks to
achieve this objective by investing primarily in common stocks of established
companies which the Sub-advisor believes offer favorable growth prospects.
Current income is not an investment objective of the Portfolio, and any income
produced will be a by-product of the effort to achieve the Portfolio's
objective.
In general, investment decisions for the Portfolio are based on an approach
which seeks out successful companies because they are believed to be more apt to
become profitable investments. To evaluate a prospective investment, the
Sub-advisor analyzes information from various sources, including industry
economic trends, earnings expectations and fundamental securities valuation
factors to identify companies which in the Sub-advisor's opinion are more likely
to have predictable, above average earnings growth, regardless of the company's
size and geographic location. The Sub-advisor also takes into account a
company's management and its innovations in products and services in evaluating
its prospects for continued or future earnings growth.
In selecting its portfolio securities, the Portfolio places primary emphasis on
established companies which it believes to have favorable growth prospects.
Common stocks usually constitute all or most of the Portfolio's investment
holdings, but the Portfolio remains free to invest in securities other than
common stocks, and may do so when deemed appropriate by the Sub-advisor to
achieve the objective of the Portfolio. The Portfolio may, from time to time,
take substantial positions in securities convertible into common stocks, and it
may also purchase government securities, preferred stocks and other senior
securities if its Sub-advisor believes these are likely to be the best suited at
that time to achieve the Portfolio's objective. The Portfolio's policy of
investing in securities believed to have a potential for capital growth means
that a Portfolio share may be subject to greater fluctuations in value than if
the Portfolio invested in other securities.
The Alger American Fund
Alger American Growth Portfolio: The investment objective of the Alger American
Growth Portfolio is long-term capital appreciation. Income is a consideration in
the selection of investments but is not an investment objective of the
portfolio. It seeks to achieve its objective by investing in equity securities,
such as common or preferred stocks that are listed on a national securities
exchange, or securities convertible into or exchangeable for equity securities,
including warrants and rights, often selected by the investment manager on the
basis of original research produced by its research analysts. Except during
temporary defensive periods, the portfolio invests at least 65 percent of its
total assets in equity securities of companies that, at the time of purchase,
have total market capitalization of $1 billion or greater.
<PAGE>
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APPENDIX C - PRIOR CONTRACT
Prior to September, 1995, the Company issued a variable annuity which
is no longer being issued but under which Purchase Payments may continue to be
made ("prior contract"). This annuity was marketed as the Stagecoach Variable
Annuity - "SVA" contract, and was sold during the period from May, 1994 until
September, 1995. Assets supporting the SVA contracts are maintained in Class 1
Sub-accounts of Separate Account B.
The principal differences between the contracts offered by this
Prospectus - ("current contract") - marketed as the Stagecoach Variable Annuity
Plus - "SVAP" contract, and the prior contract relate to the investment options
available under the contract, charges made by the Company and death benefit
provisions.
DEFINITIONS
One of the definitions used in the SVA contract is slightly different
from the definitions used in SVAP contract.
The defined term of "Account Value" used in the SVAP prospectus is the same as
the defined term of "Cash Value" in the former SVA Prospectus, the first
sentence is replaced with the following:
ACCOUNT VALUE is the value of each allocation to a Sub-account or a
Fixed Allocation prior to the Annuity Date, plus any earnings, and/or
less any losses, distributions and charges thereon, before the
assessment of any applicable contingent deferred sales charge and/or
any applicable maintenance fee.
Investment Options
The variable investment options of the SVA contract do not include the
following Sub-accounts offered by SVAP that invest in the following portfolios
of the underlying mutual funds offered by SVAP: Four portfolios of the American
Skandia Trust (the "AST Trust") (a) PIMCO Total Return Bond; (b) PIMCO Limited
Maturity Bond; and (c) Berger Capital Growth as well as the Growth portfolio of
the Alger American Fund. Any disclosure or discussion about these portfolios is
not applicable to the SVA contract.
Charges
There is no maintenance fee applicable to the SVAP. The maintenance fee
for SVA is $30 or 2% of your current Account Value which is deducted from
Account Value in the Sub-accounts annually and upon surrender. The fee is
limited to the Account Value in the Sub-accounts as of the Valuation Period such
fee is due. We assess the maintenance fee to cover the actual cost of
maintaining the Account Values allocated to Class 1 Sub-accounts and Separate
Account B itself. The maintenance fee is assessed against the Sub-accounts on a
pro-rata basis in relation to the Account Values in each Sub-account as of the
Valuation Period for which we price the fee. The representations contained in
the section "Administration Charge" are also applicable to the maintenance fee.
The maintenance fee can be increased only for Annuities issued subsequent to the
effective date of such change.
Expense Examples
The Expense Examples for SVA are as follows:
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>
WF Asset Allocation 92 128 157 250
WF U.S. Government Allocation 91 125 152 240
WF Growth and Income 91 125 152 240
WF Money Market 90 122 147 230
JanCap Growth 96 141 178 291
T. Rowe Price International Equity 98 147 188 311
Founders Capital Appreciation 97 143 181 298
INVESCO Equity Income 95 137 172 280
</TABLE>
<TABLE>
<CAPTION>
If you do not surrender your contract you would pay the following expenses on a $1,000 investment, assuming 5% annual return on
assets:
Sub-accounts After:
1 yr. 3 yrs. 5 yrs. 10 yrs.
<S> <C> <C> <C> <C>
WF Asset Allocation 22 68 117 250
WF U.S. Government Allocation 21 65 112 240
WF Growth and Income 21 65 112 240
WF Money Market 20 62 107 230
JanCap Growth 26 81 138 291
T. Rowe Price International Equity 28 87 148 311
Founders Capital Appreciation 27 83 141 298
INVESCO Equity Income 25 77 132 280
</TABLE>
Breakpoints
The percentage of the breakpoints in SVA do not depend on the age of the oldest
of any Owner or the Annuitant.
The current breakpoints for SVA for qualifying for the Additional Units, and the
value of such Units on the Valuation Day they are allocated to the Sub-accounts
are as follows:
<TABLE>
<CAPTION>
Value of Additional Units
Premium received as a percentage of premium
<S> <C>
At least $500,000 but less than $1,000,000 1.25%
At least $1,000,000 but less than $5,000,000 3.00%
At least $5,000,000 or more 3.75%
</TABLE>
We currently plan to make such a program available. However, we reserve the
right to modify, suspend or terminate it at any time, or from time to time,
without notice.
Exchange Contracts:
Subparagraph (4) under the section entitled "Exchange Contracts" is replaced
with the following for SVA:
(4) The value of the Exchange Credits as of the date of the allocation
to the investment options equals the lesser of the Exchange Credit
Limit or the surrender charge you paid to surrender the Exchange
Contract. The Exchange Credit Limit currently is 5.5% of the net
amount payable upon surrender of the Exchange Contract (except for
Exchange Contracts which are purchased by retirement plans designed to
qualify under Section 401 of the Code, where the Exchange Credit Limit
is 5%), less the value of any Additional Amounts we may credit because
of the size of your initial Purchase Payment (see "Breakpoints"). It
is not based on any other Purchase Payment. We reserve the right at
any time and from time to time to increase or decrease the Exchange
Credit Limit. However, the Exchange Credit Limit in effect at any time
will apply to all purchases qualifying for the Exchange Program.
Auto Saver
The term "auto saver" used in SVAP is the same as the term "bank drafting" used
in SVA. For SVA, the minimum initial Purchase Payment that must be met within 12
months, when such a program is utilized, is $1,000, and additional Purchase
Payments can be as low as $50 if accompanied by Auto Saver authorization.
Additional Amounts in the Fixed Allocation
There is currently no provision regarding "Additional Amounts in the Fixed
Allocation" applicable to SVA.
Rebalancing Program
There is currently no "Rebalancing" available under the SVA contract.
Death Benefits
The amount of death benefit for SVA during the accumulation phase
differs from SVAP as follows:
In the accumulation phase, a death benefit is payable. If the Annuity
is owned by one or more natural persons, it is payable upon the first
death of such Owners. If the Annuity is owned by an entity, the death
benefit is payable upon the Annuitant's death (if there is no
Contingent Annuitant). For applicable deaths occurring prior to age 85
of the deceased, the death benefit is the greater of (a) or (b), less
any remaining contingent deferred sales charge if the deceased was age
75 or greater at the time of death, 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. In most jurisdictions, the minimum
death benefit is the total of each Purchase Payment growing daily at
the equivalent of 5% per year starting as to each Purchase Payment on
the date it is allocated to the Account Value, less the total of each
withdrawal, of any type, growing daily at the equivalent of 5% per
year, starting as of the date of each such withdrawal. However, this
minimum death benefit may not exceed 200% of (A) minus (B), where: (A)
is the total of all Purchase Payments received; and (B) is the total of
all withdrawals of any type. In jurisdictions where such minimum death
benefit described above is not available, the minimum death benefit is
the total of all Purchase Payments received for your Annuity less the
total of all withdrawals of any type from your Annuity. In all
jurisdictions, for applicable deaths occurring on or after age 85 of
the deceased, the death benefit is the Account Value less any remaining
contingent deferred sales charge.
The amount of the death benefit for SVA during the payout phase differs
from SVA as follows:
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 to commutation
rights, 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 Owner at least as rapidly as under the method of
distribution in effect as of the date of such Owner's death.
Individual Retirement Programs and Tax Sheltered Annuities
With respect to Individual Retirement Programs such as an individual retirement
account or individual retirement annuity ("IRA"), IRAs generally may not provide
life insurance, but they may provide a de minimus death benefit. The SVA
contract provides an increasing minimum death benefit that might be deemed to be
other than a de minimus death benefit, and if so, might be deemed to be life
insurance. You are particularly cautioned to seek advice from your own tax
advisor on this matter. With respect to a tax sheltered annuity ("TSA"),
Purchasers of the SVA contracts for such purposes should seek competent advice
as to eligibility, limitations on permissible amounts of Purchase Payments and
other tax consequences associated with the contracts. In particular, purchasers
should consider that the contract provides an increasing minimum death benefit.
It is possible that such death benefit could be characterized as an incidental
death benefit. If the death benefit were so characterized, this could result in
currently taxable income to purchasers. In addition, there are limitations on
the amount of incidental death benefits that may be provided under a TSA. Even
if the death benefit under the contract were characterized as an incidental
death benefit, it is unlikely to violate those limits unless the purchaser also
purchases a life insurance contract as part of his or her TSA plan.
Annuity Payments
For SVA, there was a change in the minimum assumed interest rate used in
determining guaranteed minimum annuity rates and the minimum interest rate
applied from the date Cash Value is applied toward annuitization until the first
annuity payment. The Annuities first issued had a rate of 4% per year for these
purposes. Annuities issued after regulatory approval was obtained for a change
had a rate of 3% per year.
Performance Information
The calculation of performance information is set forth in the SVAP
Statement of Additional Information. The Non-standard Total return SVA and the
Standard Total Return for SVA Sub-accounts are as follows:
<TABLE>
<CAPTION>
Standard Total Return Non-standard Total Return
(Assuming maximum sales charge (Assuming maximum sales charge
and maximum maintenance fees) and no maintenance fees)
Incep- Incep-
1 3 5 10 tion-to- 1 3 5 10 tion-to-
yr. yr. yr. yr. date yr. yr. yr. yr. date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WF Asset Allocation 2.78% N/A N/A N/A 11.26% 2.86% N/A N/A N/A 11.35%
WF U.S. Government Allocation -4.51% N/A N/A N/A 3.18% -4.44% N/A N/A N/A 3.27%
WF Growth and Income 13.50% N/A N/A N/A 16.82% 13.59% N/A N/A N/A 16.91%
JanCap Growth 19.28% 15.90% N/A N/A 15.70% 19.37% 15.99% N/A N/A 15.80%
T. Rowe Price International Equity 5.43% 3.45% N/A N/A 3.46% 5.51% 3.52% N/A N/A 3.54%
Founders Capital Appreciation 11.17% 16.70% N/A N/A 16.77% 11.25% 16.79% N/A N/A 16.86%
INVESCO Equity Income 8.28% 10.80% N/A N/A 10.84% 8.36% 10.88% N/A N/A 10.92%
</TABLE>
<TABLE>
<CAPTION>
Non-standard Total Return Non-standard Total Return
(Assuming no sales charge (Assuming no sales charge
and no maintenance fees) with maintenance fees)
Incep- Incep-
1 3 5 10 tion-to- 1 3 5 10 tion-to-
yr. yr. yr. yr. date yr. yr. yr. yr. date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WF Asset Allocation 9.80% N/A N/A N/A 13.16% 9.72% N/A N/A N/A 13.07%
WF U.S. Government Allocation 2.51% N/A N/A N/A 5.35% 2.43% N/A N/A N/A 5.27%
WF Growth and Income 20.52% N/A N/A N/A 18.57% 20.44% N/A N/A N/A 18.48%
JanCap Growth 26.30% 17.45% N/A N/A 16.40% 26.22% 17.37% N/A N/A 16.30%
T. Rowe Price International Equity 12.45% 5.35% N/A N/A 5.38% 12.37% 5.28% N/A N/A 5.30%
Founders Capital Appreciation 18.19% 18.23% N/A N/A 18.31% 18.11% 18.15% N/A N/A 18.23%
INVESCO Equity Income 15.30% 12.48% N/A N/A 12.53% 15.22% 12.40% N/A N/A 12.45%
</TABLE>
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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: Stagecoach
For Written Requests:
P.O. Box 883
Shelton, Connecticut 06484
For Electronic Requests:
[email protected]
For Requests by Phone:
1-(800)-752-6342
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PLEASE SEND ME A STATEMENT OF ADDITIONAL INFORMATION THAT
CONTAINS FURTHER DETAILS ABOUT THE AMERICAN SKANDIA ANNUITY
DESCRIBED IN PROSPECTUS WFV2-PROS (5/97).
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ADDITIONAL INFORMATION: Inquiries will be answered by calling your
representative or by writing to:
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
at
P.O. Box 883
Shelton, Connecticut 06484
or
[email protected]
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: 1-800-680-8920 Telephone: 1-800-680-8920
http://www.American Skandia.com http://www.AmericanSkandia.com
AMERICAN SKANDIA MARKETING, INCORPORATED
One Corporate Drive
Shelton, Connecticut 06484
Telephone: (203) 926-1888
http://www.AmericanSkandia.com
