Filed with the Securities and Exchange Commission on April 24, 1997
Registration No. 33-89676
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Post-effective Amendment No. 2
On Form S-2
To
Form S-1
Registration Statement Under The Securities Act of 1933*
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(Exact name of registrant as specified in its charter)
CONNECTICUT
(State or other jurisdiction of incorporation or organization)
63
(Primary Standard Industrial Classification Code Number)
06-1241288
(I.R.S. Employer Identification No.)
ONE CORPORATE DRIVE, SHELTON, CONNECTICUT 06484 (203) 926-1888
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
M. PRISCILLA PANNELL, CORPORATE SECRETARY
ONE CORPORATE DRIVE, SHELTON, CONNECTICUT 06484
(203) 926-1888 (Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copy To:
JOHN T. BUCKLEY, ESQ.
WERNER & KENNEDY
1633 Broadway, New York, New York 10019 (212) 408-6900
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Approximate date of commencement of proposed
sale to the public: May 1, 1997 or as soon as practical after
the effective date of this Registration Statement
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following: X . --
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of the Form, check the following: ___.
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<CAPTION>
Calculation of Registration Fee
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<S> <C> <C> <C> <C>
Title of each Proposed Proposed class of maximum maximum securities Amount
offering aggregate Amount of to be to be price offering registration registered
registered per unit price** fee
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Annuity Contracts $0 $0
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*Pursuant to Rule 429 under the Securities Act of 1934, the prospectus contained
in this Registration Statement also relates to annuity contracts which are
covered by earlier registration statements, including Registration File Numbers
33-26122, 33-58536 and 33-84306.
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**The proposed aggregate offering price is estimated solely for determining the
registration fee. The amount to be registered and the proposed maximum offering
price per unit are not applicable since these securities are not issued in
predetermined amounts or units.
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Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with the provisions of Section
8(a) of the Securities Act of 1933 or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine. GMA
gma
CROSS REFERENCE SHEET PURSUANT TO REGULATION S-K, ITEM 501
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<CAPTION>
S-2 Item No. Prospectus Heading
<S> <C> <C>
1. Forepart of the Registration Statement and Facing Page, Cross Reference Sheet,
Outside Front Cover Page of Prospectus Outside Front Cover Page
2. Inside Front Cover and Outside Back Cover of Prospectus Available Information,
Incorporation of Certain Documents by Reference,
Reports to You, Table of Contents
3. Summary Information, Risk Factors and Ratio of Earnings Highlights, Cover Page,
to Fixed Charges Separate Account D,
Insurance Aspects of the Annuity
4. Use of Proceeds Fixed Investment Options, Separate Accounts, Separate Account D
5. Determination of the Offering Price Fixed Investment Options
6. Dilution Not applicable
7. Selling Security Holders Not applicable
8. Plan of Distribution Sale of the Annuities
9. Description of Securities to be Registered Investment Options, Purchasing Annuities,
Account Value and Surrender Value,
Rights, Benefits and Services
10. Interests of named Expert and Counsel Not Applicable
11. Information with Respect to the Registrant The Company
12. Incorporation of Certain Documents by Reference Incorporation of Certain Documents by Reference
13. Disclosure of Commission Position on Indemnification for Indemnification
Securities Act Liabilities
Part II Heading
14. Other Expenses of Issuance Other Expenses of Issuance
and Distribution and Distribution
15. Indemnification of Directors and Officers Indemnification of Directors and Officers
16. Exhibits Exhibits
17. Undertakings Undertakings
</TABLE>
gma
GUARANTEED MATURITY ANNUITY
This Prospectus describes the Guaranteed Maturity Annuity (the "Annuity") issued
by American Skandia Life Assurance Corporation ("Skandia Life"). We may
simultaneously offer several types of contracts. You may or may not be eligible
for more than one type of contract. Certain features, such as the existence of
or level of certain charges, may differ among various types of contracts. We may
also declare different interest rates for different types of contracts. Various
rights and benefits may differ among jurisdictions to meet applicable laws
and/or regulations.
This Annuity is made available as participating interests in a group contract or
as an individual contract. Participants in a group contract are issued
certificates reflecting their rights and privileges. Eligible individuals who
may participate in a group contract include those who have established accounts
with certain broker-dealers who have entered into a distribution agreement to
offer participating interests in a contract, as well as members of other
eligible groups, such as employees of an employer. Purchasers of individual
contracts are issued a contract (see "Distribution"). Both the certificates and
individual contracts are hereafter referred to as the "Contract." Contracts or
certain types of Contracts may not be available in all jurisdictions.
We offer various interest rate Guarantee Periods (see "Guarantee Periods"). The
minimum premium we will accept from you is $5,000, which may be used to purchase
multiple Contracts with different Guarantee Periods. Our minimum amount per
Contract is $2,000. The minimum premium we will accept from you which may be
used to purchase a contract in conjunction with a qualified plan is $2,000. A
Contract is issued as evidence of the acceptance of each premium or portion of a
premium. We issue an additional Contract for any subsequent premium accepted
(see "Application and Premium Payment").
Values and benefits provided by the Annuity are funded by the general account
assets of Skandia Life (see "Investments").
THESE SECURITIES MAY BE SUBJECT TO SUBSTANTIAL CHARGES WHICH COULD RESULT IN
YOUR RECEIPT OF LESS THAN YOUR PREMIUM IF YOU SURRENDER YOUR CONTRACT. WHETHER
SUCH A RESULT ACTUALLY OCCURS DEPENDS ON THE TIMING OF ANY SURRENDER, THE AMOUNT
OF SUCH CHARGES AND THE INTEREST RATES WE ARE CREDITING TO CONTRACTS. SUCH
CHARGES ARE THE MARKET VALUE ADJUSTMENT, ANY SALES CHARGE WE MAY DEDUCT FROM
YOUR PREMIUM, AND ANY SURRENDER CHARGE. The actual charges will be shown in your
Contract. (see "Market Value Adjustment", "Sales Charge" and "Surrenders").
THE INTEREST RATE IN SUBSEQUENT GUARANTEE PERIODS MAY BE MORE OR LESS THAN THE
RATE IN A PREVIOUS PERIOD. However, the rates may not be lower than a minimum
determined in relation to an index, but may be higher. Such index is not
controlled by Skandia Life. A 3% MINIMUM RATE MAY BE REQUIRED FOR CONTRACTS
ISSUED IN CERTAIN JURISDICTIONS, INCLUDING CONTRACTS ISSUED FOR DELIVERY IN NEW
YORK, IF AVAILABLE (see "Interest Rates").
Purchase payments under these Annuities are not deposits or obligations of, or
guaranteed or endorsed by, any bank or bank subsidiary, 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.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PLEASE
READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE.
FOR FURTHER INFORMATION CALL 1-800-752-6342.
================================================================================
GMA-PROS-(5/97)
Issued by: American Skandia Life Assurance Corporation
Prospectus Dated: May 1, 1997
<PAGE>
Supplement to Prospectus Dated May 1, 1997
Supplement Dated May 1, 1997
The Guaranteed Maturity Annuity being offered to you pursuant to this
prospectus imposes no sales charges upon receipt by us of premiums. However, a
surrender charge will be imposed upon a full or partial surrender, calculated at
6% of the Gross Surrender Value deemed to be a liquidation of premiums, if the
surrender or partial surrender is effected within six years of the premium
payment. Amounts taken under the free withdrawal privilege are not considered a
liquidation of premium. See "Surrender Charge" in the accompanying prospectus
for further details.
GMA-SUPP (5/97)
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
DEFINITIONS...............................................................................................................5
SUMMARY...................................................................................................................7
MULTIPLE CONTRACTS.....................................................................................................7
INITIAL GUARANTEE PERIODS..............................................................................................7
SUBSEQUENT GUARANTEE PERIODS...........................................................................................7
ALTERNATE GUARANTEE PERIODS............................................................................................7
SALES CHARGE...........................................................................................................7
INTEREST RATES.........................................................................................................7
DEATH BENEFITS.........................................................................................................7
ANNUITY DATE AND ANNUITY OPTIONS.......................................................................................7
PREMIUM TAXES..........................................................................................................8
SURRENDERS.............................................................................................................8
SURRENDER CHARGE.......................................................................................................8
MARKET VALUE ADJUSTMENT................................................................................................8
MEDICALLY-RELATED WITHDRAWALS..........................................................................................8
FREE WITHDRAWAL PRIVILEGE..............................................................................................8
BREAKPOINTS............................................................................................................8
ANNUITY FEATURES..........................................................................................................9
INTRODUCTION...........................................................................................................9
APPLICATION AND PREMIUM PAYMENT........................................................................................9
RIGHT TO CANCEL........................................................................................................9
SALES CHARGE...........................................................................................................9
INTEREST CREDITING....................................................................................................10
Guarantee Periods...................................................................................................10
Alternate Guarantee Periods.........................................................................................10
Interest Rates......................................................................................................11
SURRENDERS............................................................................................................12
General.............................................................................................................12
Surrender Charge....................................................................................................13
Market Value Adjustment.............................................................................................13
MEDICALLY-RELATED WITHDRAWALS.........................................................................................14
FREE WITHDRAWAL PRIVILEGE.............................................................................................14
QUALIFIED PLAN WITHDRAWAL LIMITATIONS.................................................................................14
DEFERRAL OF PAYMENT...................................................................................................15
DEATH BENEFIT.........................................................................................................15
ANNUITY DATE..........................................................................................................15
ANNUITY OPTIONS.......................................................................................................16
ADMINISTRATION OF TRANSACTIONS........................................................................................16
AGE LIMITS............................................................................................................17
ASSIGNMENTS OR PLEDGES................................................................................................17
PARTICIPANT, ANNUITANT AND BENEFICIARY DESIGNATIONS...................................................................17
MISSTATEMENT OF AGE OR SEX............................................................................................18
CONTRACT MODIFICATION.................................................................................................18
BREAKPOINTS...........................................................................................................18
INVESTMENTS..............................................................................................................18
GENERAL...............................................................................................................18
INVESTMENT MANAGEMENT.................................................................................................19
CURRENT INVESTMENT GUIDELINES.........................................................................................19
CERTAIN TAX CONSIDERATIONS...............................................................................................19
OUR TAX CONSIDERATIONS................................................................................................20
TAX CONSIDERATIONS RELATING TO YOUR ANNUITY...........................................................................20
Non-natural Persons.................................................................................................20
Natural Persons.....................................................................................................20
Distributions.......................................................................................................20
Loans, Assignments and Pledges......................................................................................21
Gifts...............................................................................................................21
Penalty on Distributions............................................................................................21
Annuity Payments....................................................................................................21
Tax-Free Exchanges..................................................................................................22
Estate and Gift Tax Considerations..................................................................................22
Generation-Skipping Transfers.......................................................................................22
Federal Income Tax Withholding......................................................................................22
Tax Considerations When Using Annuities in Conjunction With Qualified Plans...........................................22
Individual Retirement Programs......................................................................................23
Tax Sheltered Annuities.............................................................................................23
Corporate Pension and Profit-sharing Plans..........................................................................23
H.R. 10 Plans.......................................................................................................23
Tax Treatment of Distributions From Qualified Annuities.............................................................23
Section 457 Plans...................................................................................................23
MISCELLANEOUS MATTERS....................................................................................................23
DISTRIBUTION..........................................................................................................23
REPORTS TO YOU........................................................................................................24
LEGAL PROCEEDINGS.....................................................................................................24
LEGAL COUNSEL.........................................................................................................24
EXPERTS...............................................................................................................24
INDEMNIFICATION.......................................................................................................24
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................................................................24
THE COMPANY..............................................................................................................25
Lines of Business.....................................................................................................25
Selected Financial Data...............................................................................................25
Management's Discussion and Analysis of Financial Condition and Results of Operations.................................26
Results of Operation..................................................................................................26
Liquidity and Capital Resources.......................................................................................28
Segment Information.................................................................................................28
Reinsurance...........................................................................................................28
Future Fees Payable to Parent.........................................................................................29
Surplus Notes.........................................................................................................29
Reserves..............................................................................................................30
Competition...........................................................................................................30
Employees.............................................................................................................30
Regulation............................................................................................................30
Executive Officers and Directors......................................................................................30
FINANCIAL STATEMENTS.....................................................................................................33
APPENDIX A FINANCIAL STATEMENTS FOR AMERICAN SKANDIA LIFE ASSURANCE
CORPORATION...........................................................................................................34
APPENDIX B ILLUSTRATION OF MARKET VALUE ADJUSTMENT......................................................................34
APPENDIX C ILLUSTRATION OF INTEREST CREDITING...........................................................................34
</TABLE>
<PAGE>
DEFINITIONS
ANNUITANT is the person upon whose life your Contract is issued.
ANNUITY is the Guaranteed Maturity Annuity.
ANNUITY DATE is the date on which annuity payments are to commence.
BENEFICIARY(IES) is (are) the person(s) designated by you, either as of the
Contract Date or at a later date, as the recipient of the death benefit.
CONTINGENT ANNUITANT is the person designated by you to become the Annuitant on
the Annuitant's death prior to the Annuity Date.
CONTRACT, for purposes of this Prospectus, is your individual Annuity, or with
respect to a group Annuity, the certificate evidencing your participation in an
underlying group Annuity. It also represents an account we set up and maintain
to track our obligations to you.
CONTRACT DATE is the effective date of your Contract (shown as your "Certificate
Date" with respect to a group Annuity).
CONTRACT YEARS are continuous 12-month periods commencing on the Contract Date
and each anniversary of the Contract Date.
CURRENT RATE is the applicable interest rate we offer for a Guarantee Period for
your type of Contract. 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 types of Contracts.
GROSS SURRENDER VALUE is, as of any date, that portion of the Interim Value you
specify for a full or partial surrender.
GUARANTEE PERIOD is the period during which the rate at which interest is
credited to your Contract is guaranteed.
IN WRITING is in a written form satisfactory to us and filed at the Office.
INITIAL GUARANTEE RATE is the rate of interest credited during the initial
Guarantee Period for a Contract.
INTERIM VALUE is, as of any date, the Net Premium credited to a Contract plus
all interest credited on such Net Premium, less the sum of all previous Gross
Surrender Values and interest thereon from the date of each surrender, plus or
minus any market value adjustment made when choosing an alternate Guarantee
Period and interest thereon from the date such alternate Guarantee Period
begins.
NET PREMIUM is a premium less any applicable sales charge applied to premium
when received and any applicable premium tax deducted upon receipt of premium.
NET SURRENDER VALUE is the amount payable on a full or partial surrender after
the application of any charges and market value adjustment.
OFFICE is our business office, American Skandia Life Assurance Corporation, One
Corporate Drive, P.O. Box 883, Shelton, Connecticut 06484.
PARTICIPANT is either an eligible entity or person who participates in a group
Contract or is named as having ownership rights in relation to an Annuity issued
as an individual contract. Eligibility depends on the specific Contract.
SUBSEQUENT GUARANTEE RATE is the rate of interest established by us for
crediting to your Contract during a subsequent Guarantee Period.
SURRENDER DATE is the date we receive a completed request In Writing for a
surrender.
"We", "us", "our" or "the Company" means American Skandia Life Assurance
Corporation.
"You" or "your" means the Participant.
Other terms are defined in this Prospectus as they appear.
<PAGE>
SUMMARY
MULTIPLE CONTRACTS
We issue a Contract for each acceptable premium or portion thereof, subject
to our rules for minimum amounts per Contract. Subsequent discussion in this
Prospectus will be in terms of a single Contract.
INITIAL GUARANTEE PERIODS
You select an initial Guarantee Period among those we currently offer. If
we accept the premium, we then issue a Contract. The initial Guarantee Period
begins on the Contract Date (see "Application and Premium Payment" and
"Guarantee Periods").
SUBSEQUENT GUARANTEE PERIODS
At the end of a Guarantee Period, a subsequent Guarantee Period begins,
unless you have chosen such date as the Annuity Date. We reserve the right to
make available different Guarantee Periods than those which were available when
your Contract was issued. The subsequent Guarantee Period will be the same as
the previous one (or the next shortest one if that duration is no longer
available) unless we receive instructions from you In Writing at least two
business days before the close of the Guarantee Period then ending. However, the
subsequent Guarantee Period may not end beyond the Annuity Date (see "Guarantee
Periods").
ALTERNATE GUARANTEE PERIODS
You may choose, subject to certain limitations, to switch to an alternate
Guarantee Period that would begin before your current Guarantee Period would
normally end. Exercising this privilege will subject your Interim Value to a
market value adjustment, but not to a surrender charge. You may also need to
change your Annuity Date in order to exercise this privilege (see "Alternate
Guarantee Periods").
SALES CHARGE
The amount and schedule of the sales charge, if any, will be shown in your
Contract. As of the date of this Prospectus, we are not offering Contracts with
sales charges in excess of 6% of premium upon receipt. However, we reserve the
right to offer new types of Contracts with sales charges of not more than 8.5%
of premium upon receipt. Sales charge percentages may be level or decrease
according to a specified schedule (see "Sales Charge").
INTEREST RATES
We declare interest rates for the available Guarantee Periods from time to
time. The rate applicable throughout any Guarantee Period is the one in effect
when such Guarantee Period begins. The rates we declare are subject to a
minimum, but we may declare higher rates. The minimum is determined in relation
to an index we do not control. For Contracts issued for delivery in certain
jurisdictions, including New York, if available, rates may not be lower than 3%,
irrespective of the index.
We reserve the right to simultaneously declare Subsequent Guarantee Rates
for existing Contracts that are higher than Current Rates for the Guarantee
Periods of the same duration applicable to newly issued Contracts of the same
type, where allowed by law and regulation (see "Interest Rates").
DEATH BENEFITS
A death benefit of the greater of your Contract's Interim Value or 100% of
premium less the sum of all prior Gross Surrender Values, is provided in the
event of your death or the Annuitant's death (if there is no Contingent
Annuitant) if occurring both (a) prior to the Annuity Date, and (b) before the
beginning of the Contract Year which starts following the earlier of your or the
Annuitant's 85th birthday (see "Death Benefit").
ANNUITY DATE AND ANNUITY OPTIONS
You may choose the Annuity Date. However, it must be the first day of the
first month on or after the end of a Guarantee Period, and after the third
Contract Year. You may choose among a number of annuity options (see "Annuity
Date" and "Annuity Options").
PREMIUM TAXES
In several states, a premium tax is payable, either when premiums are
received or, when the Interim Value is applied under an annuity option. We will
deduct the amount of the premium tax payable, if any, from your premiums or
Interim Value. The amount of the premium tax varies from jurisdiction to
jurisdiction, which any state legislature may change. Also, any state
legislature may decide to impose the tax when premium payments are made. In
those jurisdictions imposing such a tax, the tax rates currently in effect range
up to 3 1/2%. However, local taxes may be higher.
SURRENDERS
Total and partial surrenders of your Contract are permitted prior to the
Annuity Date. Such total or partial surrenders may be assessed a surrender
charge and/or a market value adjustment (see "Surrenders"). A full or partial
surrender may result in a taxable event, and in certain situations, a tax
penalty (see "Certain Tax Considerations").
SURRENDER CHARGE
The surrender charge, if any, applicable to any full or partial surrender
is a percentage of either the Gross Surrender Value or that portion of the Gross
Surrender Value deemed to be a liquidation of premium. The type and level of
charges will be shown in your Contract. The charge may be level for a specified
number of years or it may start at a particular level and then grade down to
zero over a specified number of years. The surrender charge may also depend on
the initial Guarantee Period you select. As of the date of this Prospectus, we
were not offering Contracts with surrender charges in excess of 6% of premium.
However, we reserve the right to offer new types of Contracts with sales charges
of not more than 8.5% of premium (see "Surrender Charge").
MARKET VALUE ADJUSTMENT
The market value adjustment may increase or decrease the amount payable to
you on a full or partial surrender. Such a surrender at the end of a Guarantee
Period, and, where required by law, the 30 days prior to the end of a Guarantee
Period, is not affected by this adjustment. In addition, the market value
adjustment will be applied to the Interim Value when choosing an alternate
Guarantee Period.
The adjustment reflects the relationship as of the time of its calculation
between: (a) the rate then being credited to your Contract; and (b) the Current
Rate for your type of Contract with a Guarantee Period equal to the time
remaining to the end of your current Guarantee Period. Our Current Rates are
expected to be sensitive to interest rate fluctuations, thereby making this
adjustment equally sensitive to such changes. There would be a downward
adjustment when the applicable Current Rate plus an adjustment rate exceeds the
rate currently being credited to your Contract. There would be an upward
adjustment when the applicable Current Rate plus the adjustment rate is lower
than the rate currently being credited to your Contract. The adjustment rate is
the same for all contracts of the same type, and cannot exceed 0.25% of interest
for any type of Contract. (see "Market Value Adjustment").
MEDICALLY-RELATED WITHDRAWALS
Where permitted by law, any applicable surrender charge or market value
adjustment is waived on a full surrender if we receive satisfactory evidence of
certain medically-related events or conditions (see "Medically-Related
Withdrawals").
FREE WITHDRAWAL PRIVILEGE
Once each Contract Year after the first you may withdraw an amount without
any applicable surrender charge being assessed. This amount equals the "growth"
in the Contract. "Growth" is defined as: (a) the interest credited to your
Contract in the prior Contract Year, plus (b) the interest credited to your
Contract in Contract Years previous to the last, subject to a market value
adjustment, provided that immediately after the withdrawal (including any market
value adjustment) the remaining Interim Value times the market value adjustment
is at least equal to the unliquidated premium plus the value at the time
credited of any amounts added due to premium size (see "Free Withdrawal
Privilege").
BREAKPOINTS
We reserve the right to make additions to the Interim Values of Contracts
of Owners submitting large amounts of premium, wherever allowed by law. As of
the date of this Prospectus, the breakpoints for such treatment are premiums of
$500,000, $1,000,000 and $5,000,000. We reserve the right to change these
breakpoints (see "Breakpoints").
ANNUITY FEATURES
INTRODUCTION
The Guaranteed Maturity Annuity is designed to allow you to accumulate
funds for long term goals, such as retirement, on a tax-deferred basis. You may
apply the accumulated funds on the Annuity Date to receive a stream of income
payments.
APPLICATION AND PREMIUM PAYMENT
We may require a properly completed application or enrollment form, a
premium, and any other materials under our underwriting rules before we agree to
issue an Annuity. We may issue an Annuity without completion of an application
or enrollment form for certain classes of Annuities, where permitted by law.
We offer various initial Guarantee Periods. Subject to our rules, you may
choose to have your Net Premium or portions thereof accumulate interest for one
or more of the Guarantee Periods then available. While we may issue multiple
Contracts, such multiple Contracts may be treated for tax purposes as if they
were a single Contract (see "Certain Tax Considerations"). No Guarantee Period
may end later than the Annuity Date.
Once we accept your premium and all our requirements are met, we issue a
Contract for each initial Guarantee Period you choose. The minimum premium we
will accept from you is $5,000. Our minimum amount per Contract is $2,000.
Therefore, you could choose one but not more than two Guarantee Periods if you
sent the minimum premium amount. The minimum premium we will accept from you
which may be used to purchase a Contract in conjunction with a qualified plan is
$2,000. Our prior approval is required before we will accept a premium of any
amount that would cause the combined Interim Value of all your Contracts to
exceed $500,000.
We confirm each premium payment in writing.
RIGHT TO CANCEL
You may return your Contract for a refund within a specified 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. Unless we
are required by law to return the premium amount, the amount of the refund will
equal the Interim Value times the market value adjustment as of the date we
receive the cancellation request plus any amount deducted for premium tax and/or
any sales charge, less the accumulated value of any additions we make because of
the amount of premium paid. When your Contract is issued, you will be informed
of the amount due if you exercise this right. Exercising the right requires
return of the Contract to us or to the representative who solicited your
purchase.
SALES CHARGE
The amount and schedule of the sales charge, if any, is shown on the inside
front cover of this Prospectus and will be shown in your Contract. As of the
date of this Prospectus, we were not offering Contracts with sales charges in
excess of 6% of premium upon receipt. However, we reserve the right to offer new
types of Contracts with sales charges of not more than 8.5% of premium upon
receipt. Sales charge percentages may be level or may decrease according to a
specified schedule. For example, a Contract could have a schedule of sales
charges such that 5% is assessed against the first $10,000 of the cumulative
premiums paid by a Participant, 4% is assessed against the next $10,000 of
cumulative premiums paid by that Participant, and 3% assessed against cumulative
premiums paid by a Participant in excess of $20,000. This example is
hypothetical. The actual amount and schedule for such a charge, if any, will be
shown on the inside front cover of your Prospectus as well as in your Contract.
From time to time we may structure sales charges for a group Contract, or
we may reduce or waive sales charges for individual Contracts, when either are
sold in a manner that reduces sales expenses or spreads them out over time. We
would consider various factors, including (1) the size and type of group, (2)
the amount of premiums, (3) additional premiums from existing Participants,
and/or (4) other transactions where our sales expenses are likely to be reduced,
eliminated or spread out over time.
No sales charge is imposed when any group Contract or any individual
Contract issued pursuant to this Prospectus is owned on its Contract Date by:
(a) any parent company, affiliate or subsidiary of American Skandia Life
Assurance Corporation; (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, officer or employee of any
entity providing investment management and/or advisory services to a separate
account in which assets supporting the annuities are maintained or any affiliate
of such entity; (d) a director, officer, employee or registered representative
of a broker-dealer that has a then current selling agreement with American
Skandia Marketing, Incorporated, formerly Skandia Life Equity Sales Corporation;
(e) the then current spouse of any such person noted in (b) through (d) above;
(f) parents of any such person noted in (b) through (d) above, and (g) such
person's child or other legal dependent under the age of 21. No such group
Contract or individual Contract is eligible for any Additional Amount due to the
size of premiums (see "Breakpoints").
Any elimination of any sales charge or any reduction to the amount of such
charges will not discriminate unfairly between Contract purchasers. We will not
make any such changes to this charge where prohibited by law.
DEPENDING ON THE GUARANTEE PERIOD YOU CHOOSE AND THE INTEREST RATE CREDITED
TO YOUR CONTRACT, ASSESSMENT OF A SUBSTANTIAL SALES CHARGE COULD RESULT IN YOUR
RECEIPT OF LESS THAN YOUR PREMIUM EVEN IF YOU SURRENDER YOUR CONTRACT AT THE END
OF A GUARANTEE PERIOD. For example, if you chose a one-year Guarantee Period, we
were crediting 4% interest per year when your Guarantee Period began, and the
sales charge was 5% of your premium, you would receive less than your premium if
you surrendered your Contract at the end of the initial Guarantee Period. You
could also receive less than your premium due to any applicable surrender charge
and the market value adjustment (see "Surrenders").
INTEREST CREDITING
Guarantee Periods
As of the date of this Prospectus, we offer Guarantee Periods with annual
durations of one to ten years. We may change the Guarantee Periods we offer at
some future date; however, any such change will not have an impact on any
Guarantee Period then in effect. See Appendix C for an illustration of how
interest is credited during a Guarantee Period.
At the end of a Guarantee Period that occurs prior to the Annuity Date, a
subsequent Guarantee Period begins. At least 30 days prior to the end of any
Guarantee Period of at least a year's duration, or earlier where 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 Guarantee Period that
is ending is of less than a year's duration. Subject to our rules, a subsequent
Guarantee Period will begin according to your instructions, if received at our
Office not less than two business days prior to the last day of the Guarantee
Period then coming to an end. If you don't send us instructions or instructions
are not received in a timely fashion, the subsequent Guarantee Period will be
equal in duration to the one just ended.
WE MAY CHANGE THE GUARANTEE PERIODS AVAILABLE AT ANY TIME, INCLUDING THE
PERIOD BETWEEN THE DATE WE MAIL YOU NOTICE AND THE DATE YOUR SUBSEQUENT
GUARANTEE PERIOD BEGINS. If you choose a duration that is no longer available on
the date your subsequent Guarantee Period begins and we cannot reach you to
choose a different duration, the next shortest duration will apply. Similarly,
if you have made no choice but we no longer are making available Guarantee
Periods equaling the one then ending for your Contract, the next shortest
duration will apply. However, in no event will the Guarantee Period end after
the Annuity Date.
Alternate Guarantee Periods
You may choose to switch to an alternate Guarantee Period that would begin
before your current Guarantee Period would normally end, subject to the
following rules:
1. We must receive your request In Writing at our Office.
2. The beginning of the new Guarantee Period is the first business day
after the date we receive all the information we need to process your request.
3. The Guarantee Period you choose must be one we are making available on
the date the new Guarantee Period is to begin.
4. Your Annuity Date must be the first day of the month on or immediately
after an anniversary of the date on which the new Guarantee Period begins. If
necessary to meet this requirement, you must choose a new Annuity Date before we
will process your request.
5. The new Guarantee Period may not extend beyond the Annuity Date.
6. We will process only one such request per Contract per Contract Year.
7. In certain Contracts, you may not choose a shorter Guarantee Period than
the Initial Guarantee Period until after the date the Initial Guaranteed Period
was scheduled to end.
Any applicable market value adjustment formula will be applied to your
Contract's Interim Value immediately prior to the beginning of the new Guarantee
Period. No surrender charge will be assessed. The resulting Interim Value will
be credited interest at the Subsequent Guarantee Rate for the new Guarantee
Period.
EXERCISING THIS PRIVILEGE MAY OR MAY NOT INCREASE YOUR INTERIM VALUE OVER
TIME. That will depend on such factors as any market value adjustment applicable
at the time the privilege is exercised, the Guarantee Period you choose and
Subsequent Guarantee Rate we are then crediting for that Guarantee Period, the
length of time you subsequently hold your Contract, and any subsequent partial
surrenders or withdrawals under the Free Withdrawal Privilege.
Interest Rates
Declared rates are effective annual rates of interest. The rate is
guaranteed throughout the Guarantee Period. The Initial Guarantee Rate applies
to the Net Premium less all Gross Surrender Values during the initial Guarantee
Period. The Subsequent Guarantee Rate for any subsequent Guarantee Period
applies to the Interim Value on the date such subsequent Guarantee Period begins
less all Gross Surrender Values after that date.
We inform you of the Initial Guarantee Rate when we confirm acceptance of
your premium and issuance of your Contract. You will be informed of the
Subsequent Guarantee Rate applicable to any subsequent Guarantee Period as part
of the annual report we send you.
AT ANY TIME WE MAY CHANGE INTEREST RATES. Any such change does not have an
impact on the rates applicable to Guarantee Periods already in effect. However,
such a change will affect the Market Value Adjustment (see "Market Value
Adjustment).
When a subsequent Guarantee Period begins, the rate applied to your
Contract will not be less than the rate then applicable to new Contracts of the
same type with the same Guarantee Period.
Interest rates are subject to a minimum. We may declare higher rates. The
minimum for each Guarantee Period is based on both an index and a reduction to
the interest rate determined according to the index.
Each 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 Guarantee Period to which the minimum is to apply. The
term (length of time from issuance to maturity) of the certificates of
indebtedness upon which the index used for any Guarantee Period is the same as
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 the Contract was delivered. (For group
Contracts, it is our expectation that approval of only the jurisdiction in which
the underlying group contract was delivered would apply.)
The reduction used in determining the minimum is an amount not to exceed 2%
percent of interest. We may reduce this amount for a particular type of Contract
if we can expect reduced sales expenses or other expenses in relation to sales
of that Contract.
In certain jurisdictions, including New York, if available, in no event
will the minimum be less than 3% per year, compounded yearly.
Your Contract may include a provision committing us to declare Subsequent
Guarantee Rates applicable to certain Subsequent Guarantee Periods at higher
rates than the Current Rates for that type of Contract. The manner in which
Subsequent Guarantee Rates are increased will be uniform for all Participants in
any one particular group Contract. The manner in which such Subsequent Guarantee
Rates are increased will be uniform for all owners of any one particular type of
individual Contract, wherever such an increase in rates is allowed by law and/or
regulation. For any particular Contract, the number of Contract Years required
before such an increase in rates applies or the size of such increase will
depend on our expectations as to sales expenses and other expenses in relation
to sales of that type of Contract.
We have no specific formula for determining the interest rates we declare.
Rates may differ, between types of Contracts, even for Guarantee Periods of the
same duration starting at the same time. We expect such rates to reflect the
returns available on the type of investments we make to support these types of
Contracts. However, we may also take into consideration in determining rates
such factors including, but not limited to, the duration of the Guarantee
Period, regulatory and tax requirements, the liquidity of the secondary markets
for the type of investments we make, commissions, administrative expenses,
investment expenses, 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.
YOU MAY OBTAIN OUR CURRENT RATES BY WRITING US OR CALLING US AT
1-800-766-4530.
SURRENDERS
General
You may request a full or partial surrender. Your Annuity must accompany
your surrender request. Partial surrenders may only be made if:
(a) the Gross Surrender Value is at least $1,000; and
(b) the Gross Surrender Value plus $1,000 does not exceed the
amount payable if you completely surrender your Contract on
that date.
The amount payable to you is the Net Surrender Value. The method for
determining the Net Surrender Value is shown in your Contract, and is either
expressed as a percentage of the Gross Surrender Value or as a percentage of the
premium being liquidated. Assuming that:
A = the Gross Surrender Value;
B = the surrender charge, if any, as of the date we receive the surrender
request In Writing; and
C = the market value adjustment described below as of the date we receive
the surrender request In Writing;
i. if the surrender charge is expressed as a percentage of the Gross
Surrender Value, then the Net Surrender Value equals (A - B) X C;
ii. if the surrender charge is expressed as a percentage of the premium
being liquidated, then the Net Surrender Value equals (A X C) - B; and
iii. if there is no surrender charge, then the Net Surrender Value equals A
X C.
THESE SECURITIES MAY BE SUBJECT TO A SUBSTANTIAL SURRENDER CHARGE AND/OR
MARKET VALUE ADJUSTMENT IF NOT HELD TO THE END OF A GUARANTEE PERIOD, WHICH
COULD RESULT IN YOUR RECEIPT OF LESS THAN YOUR PREMIUM. You may avoid any
applicable surrender charge by holding your Contract until the time surrender
charges no longer apply, which will be shown in your Contract. No market value
adjustment applies to any surrender occurring at the end of a Guarantee Period,
and, where required by law, the 30 days prior to the end of the Guarantee
Period. However, any sales charges, if applicable, could also result in your
receipt of less than your premium under certain circumstances (see "Sales
Charge").
Where permitted by law, any applicable surrender charge is waived if a full
surrender qualifies under our rules as a medically-related withdrawal (see
"Medically-Related Withdrawals").
Under certain circumstances, some or all of the monies surrendered may be
considered as taxable income and may also be subject to certain penalty
provisions of the Internal Revenue Code (see "Certain Tax Considerations").
<PAGE>
Surrender Charge
The surrender charge, if any, applicable to any full or partial surrender
is a percentage of either the Gross Surrender Value or that portion of the Gross
Surrender Value deemed to be a liquidation of premium. The type and level of
charges will be shown in your Contract. The charge may be level for a specified
number of years or it may start at a particular level and then grade down to
zero over a specified number of years. The charge may also depend on the
duration of the Initial Guarantee Period you select. As of the date of this
Prospectus, we were not offering Contracts with surrender charges in excess of
6% of premium. However, we reserve the right to offer new types of Contracts
with sales charges of not more than 8.5% of premium. In addition, if both a
Sales Charge and a Surrender Charge exist in the same Contract, the total of
both charges will not exceed 8.5% of premium.
When the surrender charge is assessable against the amount of premium being
liquidated, then surrenders or partial surrenders, except for those amounts
taken under the free withdrawal provision, are deemed for the purpose of this
charge to be first a liquidation of premium. Amounts taken under the free
withdrawal privilege are not considered a liquidation of premium. On a partial
surrender, Gross Surrender Value is deemed to come first from: (a) any interest
then available under the free withdrawal provision; then from (b) any premium
not yet liquidated, and then from (c) any remaining interest and any amounts
credited due to premium size (see "Breakpoints"). This does not coincide with
the treatment of such surrenders for tax purposes (see "Certain Tax
Considerations).
From time to time we may structure surrender charges for a group Contract,
or we may reduce or waive surrender charges for individual Contracts, when
either are sold in a manner that reduces sales expenses or spreads them out over
time. We would consider various factors including (1) the size and type of
group, (2) the amount of premiums, (3) additional premiums from existing
Participants, and/or (4) other transactions where our sales expenses are likely
to be reduced, eliminated or spread out over time.
No surrender charge is imposed when any group Contract or any individual
Contract issued pursuant to this Prospectus is owned on its Contract Date by:
(a) any parent company, affiliate or subsidiary of American Skandia Life
Assurance Corporation; (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, officer or employee of any
entity providing investment management and/or advisory services to a separate
account in which assets supporting the annuities are maintained or an affiliate
of such entity; (d) a director, officer, employee or registered representative
of a broker-dealer that has a then current selling agreement with American
Skandia Marketing, Incorporated, (e) the then current spouse of any such person
noted in (b) through (d) above; (f) parents of any such person noted in (b)
through (d) above; and (g) such person's child or other legal dependent under
the age of 21. No such group Contract or individual Contract is eligible for any
Additional Amount due to the size of premiums (see "Breakpoints").
Any elimination of any surrender charge or any reduction to the amount of
such charges will not discriminate unfairly between Contract purchasers. We will
not make any such changes to this charge where prohibited by law.
Market Value Adjustment
The market value adjustment ("MVA") may increase or decrease the amount
payable to you on a full or partial surrender. Such a surrender at the end of a
Guarantee Period, and, where required by law, the 30 days prior to the end of a
Guarantee Period, or which qualifies under our rules as a medically-related
withdrawal is not affected by the MVA.
In addition, the market value adjustment will be applied to the Interim
Value when choosing an alternate Guarantee Period, except where required by law,
if the change to an alternate Guarantee Period occurs not more than 30 days
before the end of the Guarantee Period.
The MVA reflects the relationship as of the time it is calculated between:
(a) the rate then being credited to your Contract; and (b) our Current Rate for
your type of Contract with a Guarantee Period equal to the time remaining to the
end of your current Guarantee Period. Our Current Rates are expected to be
sensitive to interest rate fluctuations, thereby making this adjustment
sensitive to such fluctuations. There would be a downward adjustment when the
applicable Current Rate plus an adjustment rate exceeds the rate currently being
credited to your Contract. There would be an upward adjustment when the
applicable Current Rate plus the adjustment rate is lower than the rate
currently being credited to your Contract. The adjustment rate is the same for
all Contracts of the same type, and cannot exceed 0.25% for any type of
Contract.
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 Contracts. This would benefit all such Contracts if transactions to
which the MVA applies occur while we use such lower interest rate.
The formula we use to determine the MVA is:
[(1+I)/(1+J+the adjustment amount)] N/12
where:
I is the Guarantee Rate applicable to the Guarantee Period for your
Contract;
J is the Current Rate for your type of Contract for the Guarantee Period
equal to the number of years (rounded to the next higher number when occurring
on other than an anniversary of the beginning of the current Guarantee Period)
remaining in your current Guarantee Period; and
N is the number of months (rounded to the next higher number when occurring
on other than a monthly anniversary of the beginning of the current Guarantee
Period) remaining to the end of your 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.
Nonetheless, a full or partial surrender at the end of a Guarantee Period
is not affected by the MVA.
See Appendix B for illustrations of how the MVA works.
MEDICALLY-RELATED WITHDRAWALS
Where permitted by law, you may apply to surrender your rights under your
Contract for its Interim Value prior to the Annuity Date upon occurrence of a
"Contingency Event". The Annuitant must be alive as of the date we pay the
proceeds of such surrender request. If the Owner is one or more natural persons,
all such Owners must be alive at such time. This waiver of any applicable
surrender charge and market value adjustment is subject to our rules. For
contracts issued before May 1, 1996, a "Contingency Event" occurs if the
Annuitant is:
1. First confined in a "Medical Care Facility" while your Contract is in
force and remains confined for at least 90 days in a row; or
2. First diagnosed as having a Fatal Illness while your Contract is in
force.
"Medical Care Facility" means any state licensed facility providing
medically necessary in-patient care which is prescribed by a licensed
"Physician" in writing and based on physical limitations which prohibit daily
living in a non-institutional setting. "Fatal Illness" means a condition
diagnosed by a licensed Physician which is expected to result in death within 2
years for 80% of the diagnosed cases. "Physician" means a person other than you,
the Annuitant or a member of either your or the Annuitant's families who is
state licensed to give medical care or treatment and is acting within the scope
of that license. We must receive satisfactory proof of the Annuitant's
confinement or Fatal Illness In Writing.
Specific details and definitions of terms in relation to this benefit
may differ in certain jurisdictions.
FREE WITHDRAWAL PRIVILEGE
Once each Contract Year after the first you may withdraw an amount without
any applicable surrender charge being assessed. This amount equals the "growth"
in the Contract. "Growth" is defined as: (a) the interest credited to your
Contract in the prior Contract Year, plus (b) the interest credited to your
Contract in Contract Years previous to the last, subject to a market value
adjustment, provided that immediately after the withdrawal (including any market
value adjustment) the remaining Interim Value times the market value adjustment
is at least equal to the unliquidated premium plus the value at the time
credited of any amounts or due to premium size. Amounts credited due to premium
size are not considered to be interest only for purposes of this free withdrawal
privilege (see "Breakpoints"). Withdrawals of any type made prior to age 59 1/2
may be subject to 10% tax penalty (see "Penalty on Distributions").
QUALIFIED PLAN WITHDRAWAL LIMITATIONS
There are surrender or withdrawal limitations in relation to certain
retirement plans for employees which qualify under various sections of the
Internal Revenue Code of 1986, as amended (the "Code"). These limitations do not
affect certain roll-overs or exchanges between qualified plans. Generally,
distribution of amounts attributable to contributions made pursuant to a salary
reduction agreement (as defined in Code section 402(g)(3)(A)), or attributable
to transfers 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 (as defined for purposes of Code Section 401(k)). 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 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.
DEFERRAL OF PAYMENT
We may defer payment of any partial or total surrender for the period
permitted by law. In no event may this deferral of payment exceed 6 months from
the date we receive the request In Writing. If we defer payment for more than 30
days, we pay interest on the amount deferred in accordance with your Contract.
DEATH BENEFIT
On the Contracts we offer as of the date of this Prospectus, "death" means
either your death, or the Annuitant's death if there is no Contingent Annuitant.
The amount payable on death prior to the Annuity Date and before the Contract
anniversary following the earlier of your or the Annuitant's 85th birthday is
the greater of (1) the Interim Value of your Contract as of the date we receive
due proof of death, or (2) the premium allocated to your Contract less the sum
of all prior Gross Surrender Values. The amount of the death benefit at any
later date prior to the Annuity Date is the Interim Value as of the date we
receive "due proof of death". The following constitutes "due proof of death":
(a)(i) a certified copy of a death certificate, (ii) a certified copy of a
decree of a court of competent jurisdiction as to the finding of death, or (iii)
any other proof satisfactory to us; (b) all representations we require or which
are mandated by applicable law or regulation in relation to the death claim and
the payment of death proceeds; and (c) any applicable election of the mode of
payment of the death benefit, if not previously elected by the Participant. The
amount of the death benefit is reduced by any annuity payments made prior to the
date we receive In Writing due "proof of death".
We may offer contracts that pay the death benefit upon the death of: (a)
the Participant when the Participant is a natural person; and (b) the Annuitant
(unless a Contingent Annuitant was previously designated) when the Participant
is not a natural person (such as a trustee). In such Contracts the death benefit
would be payable if the death occurred before the 85th birthday of the
applicable decedent.
In the absence of your election In Writing 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 modify such
election. 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. However, if the Contingent Annuitant predeceased the
Annuitant or there is no Contingent Annuitant designation, the death benefit
becomes payable to the Beneficiary.
The death of the first of any joint Participant is deemed the death of the
Participant for determining payment of the death benefit.
If the Beneficiary is your spouse and your death occurs prior to the
Annuity Date and the Annuitant or Contingent Annuitant is living, then in lieu
of receiving the death benefit, your spouse may elect to be treated as the
Participant.
ANNUITY DATE
You may choose an Annuity Date when you purchase an Annuity or at a later
date. It must be the first day of the first month on or after the end of a
Guarantee Period. It must also be after the third Contract Year unless the
Annuitant has a medically-related condition that would permit a
medically-related withdrawal (see "Medically-Related Withdrawals"). It can be
changed at any time but such requests must be received In Writing at our Office
at least 30 days before the current Annuity Date. In the absence of an election
In Writing and where permitted by law: (a) the Annuity Date is the start of the
Contract Year 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. Your choice of Annuity Date may be limited in certain jurisdictions.
ANNUITY OPTIONS
You may select an annuity option when you purchase an Annuity, or at a
later date. You may change this at any time up to 30 days before the Annuity
Date by sending us a request In Writing. In the absence of an election from you,
payments will automatically commence on the Annuity Date under option 2, with
120 payments certain. The amount to be applied is the value of your Contract on
the Annuity Date. Annuity options in addition to those shown are available with
our consent.
You may elect to have any amount of the proceeds due to the Beneficiary
applied under any of the options described below. Except where a lower amount is
required by law, the minimum monthly annuity payment is $50.
If you have not made an election prior to proceeds becoming due, the
Beneficiary may elect to receive the death benefit under one of the annuity
options. However, if you made an election, the Beneficiary may not alter such
election.
Option 1: Life Annuity
This annuity is payable monthly during the lifetime of the payee,
terminating with the last payment due prior to the death of the payee. Since no
minimum number of payments is guaranteed, this option offers the maximum level
of monthly payments of the annuity options. It is possible that the payee could
receive only one payment if he or she died before the date the second payment
was due, and no others payments nor death benefits would be payable.
Option 2: Life Annuity with 120, 180, or 240 Monthly Payments Certain
This annuity provides monthly income to the payee for a fixed period of
120, 180, or 240 months, as selected, and for as long thereafter as the payee
lives. Should the payee die before the end of the fixed period, the remaining
payments are paid to the Beneficiary to the end of such period.
Option 3: Payments Based on Joint Lives
Under this option, income is payable monthly 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 key lives occurs before the date the
second payment was due, and no other payments nor death benefits would be
payable.
Option 4: Payments for a Designated Period
This annuity provides an amount payable 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 Annuitants
to live.
The monthly payment varies according to the annuity option you select. The
monthly payment is determined by multiplying the value of your Contract on the
Annuity Date (expressed in thousands of dollars) less any amount then assessed
for premium tax, by the amount of the first monthly payment per $1,000 obtained
from our annuity rates. These rates will not be less than those provided in the
tables included in the Contract. These tables 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 4% per annum. Where
required by law or regulation, such annuity tables 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.
Annuity payments will be made on the first day of each month once payments
begin.
ADMINISTRATION OF TRANSACTIONS
In administering transactions, we may require presentation of proper
identification prior to processing, including the use of a personal
identification number ("PIN") issued by us, prior to accepting any instruction
by telephone or other electronic means. We forward your PIN to you shortly after
your Annuity is issued. 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 switch to an alternate Guarantee
Period or any other transaction for which we accept instructions by telephone if
we or such other person acted on telephone instructions in good faith in
reliance on your telephone instruction authorization and on reasonable
procedures to identify persons so authorized through verification methods which
may include a request for your Social Security or tax I.D. 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.
AGE LIMITS
Both you and the Annuitant, if you are not the Annuitant, must be less than
85 years of age on the Contract Date.
ASSIGNMENTS OR PLEDGES
Generally, your rights in a Contract may be assigned or pledged for loans
at any time. However, these rights may be limited depending on your use of the
Annuity. The assignment and/or loan proceeds may be subject to income taxes and
certain penalty taxes (see "Certain Tax Considerations"). You may assign your
rights to another person at any time, during the Annuitant's lifetime. You must
give us a copy of the assignment In Writing. An assignment is subject to our
acceptance. Prior to receipt of this notice, we will not be deemed to know of or
be obligated under the assignment prior to our receipt and acceptance thereof.
We assume no responsibility for the validity or sufficiency of any assignment.
PARTICIPANT, ANNUITANT AND BENEFICIARY DESIGNATIONS
When you purchase an Annuity, you must make certain designations, including
a Participant and an Annuitant. You may also make certain other designations.
These designations include a contingent Participant, a Contingent Annuitant, a
Beneficiary, and a contingent Beneficiary. Certain designations are required, as
indicated below. Such designations will be revocable unless you indicate
otherwise or we endorse your Annuity to indicate that such designation is
irrevocable to meet certain regulatory or statutory requirements.
Some of the tax implications of the various designations are discussed in
the section entitled "Certain Tax Considerations". However, there are other tax
issues than those addressed in that section, including, but not limited to,
estate and inheritance tax issues. You should consult with a competent tax
counselor regarding the tax implications of various designations. You should
also consult with a competent legal advisor as to the implications of certain
designations in relation to an estate, bankruptcy, community property where
applicable and other matters.
A Participant must be designated. You may designate more than one
Participant. If you do, all rights reserved to Participants are then held
jointly. We require consent In Writing of all joint Participants for any
transaction for which we require the written consent of Participants. Where
required by law, we require the consent of the spouse of any person with a
vested interest in an Annuity. Naming someone other than the payor of a premium
as the Participant may have gift, estate or other tax implications.
You may designate more than one primary or 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.
The Beneficiary is the person or persons entitled to receive the death benefit
or remaining certain payments under an annuity option with certain payments.
Unless you indicated that a prior choice was irrevocable, you may change these
designations at any time during the Annuitant's lifetime by sending a request In
Writing.
If the primary Beneficiary dies before death proceeds become payable, the
proceeds will become payable to the contingent Beneficiary. If no Beneficiary is
alive at the time of the death upon which death proceeds become payable or in
the absence of any Beneficiary designation, the proceeds will vest in you or
your estate.
You may name one or more Contingent Annuitants. There may be adverse tax
consequences if a Contingent Annuitant succeeds an Annuitant and the Contract is
owned by a trust that is neither tax exempt nor does not qualify for preferred
treatment under certain sections of the Code, such as Section 401 (a
"non-qualified" trust). In general, the Code is designed to prevent the benefit
of tax deferral from continuing for long periods of time on an indefinite basis.
Continuing the benefit of tax deferral by naming one or more Contingent
Annuitants when the Contract 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 a Contract in such a fashion. You must name Contingent Annuitants
according to our rules when a Contract is used as a funding vehicle for certain
retirement plans designed to meet the requirements of Section 401 of the
Internal Revenue Code.
MISSTATEMENT OF AGE OR SEX
If the age and/or sex of the Annuitant has been misstated, we make
adjustments to conform to the facts. Any underpayments by us will be remedied on
the next payment following correction. Any overpayments by us will be charged
against future amounts payable by us under your annuity.
CONTRACT MODIFICATION
We reserve the right to make changes that are necessary to maintain the tax
status of the Annuity under the Internal Revenue Code and/or make changes
required by any change in other Federal or state laws relating to retirement
annuities or annuity contracts. Where required by law or regulation, approval of
the contract owner will be obtained prior to any such change.
BREAKPOINTS
Wherever allowed by law, we reserve the right to make additions to the
Interim Values of Contracts of Participants submitting large amounts of premium.
The current breakpoints for qualifying for such additional amounts and the
amount we credit are as follows:
Premiums received Additional Amount
as a percentage of premium
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%
As of the date of the Prospectus we make such a program available for
Contracts that do not otherwise differentiate sales charges or surrender charges
on the amount of premium received. However, we reserve the right to modify,
suspend or terminate it at any time, or from time to time, without notice.
If you submit premium to purchase multiple Contracts, we divide the
additions to the Contracts then being purchased in the same proportion as the
premium is being divided among such Contracts.
Should you have a right to cancel your Contract (see "Right to Cancel") and
exercise such a right, the accumulated value of the additional amount credited
will not be included in the amount returned to you.
We do not consider additional amounts credited due to premium size to be an
increase in your "investment in the contract" (see "Certain Tax Considerations).
Additional amounts credited are not included in any amounts you may
withdraw without assessment of any applicable surrender charge (see "Free
Withdrawal Privilege").
INVESTMENTS
GENERAL
Our investments are subject to the requirements of applicable state
laws. Such laws address the nature and quality of investments, as well as the
percentage of our assets which we may commit to a particular type of investment.
Subject to certain limitations and qualifications, such laws generally permit
investment in federal, state and municipal obligations, corporate bonds,
preferred and common stock, real estate mortgages, real estate and certain other
investments.
Assets supporting the Annuities are accounted for in one or more
non-unitized separate accounts established by us under the laws of the State of
Connecticut. Such separate accounts may contain assets from various types of
annuities we offer, the assets of which are permitted to be held in such
accounts under applicable law and regulation. Neither you nor the owner of any
underlying group Annuity participate in the performance of the assets through
any unit values in such a non-unitized separate account. There are no discrete
units for such a separate account. Contracts do not represent units of ownership
of assets belonging to this separate account.
We own the assets in each separate account. The assets accrue solely to
our benefit. Neither you nor any group Contract owner participate in the
investment gain or loss from assets belonging to such separate account(s). Such
gain or loss accrues solely to us.
We believe that the assets equal to the reserve and other liabilities
of such separate accounts are not chargeable with liabilities arising from our
other business if so stated in our annuity contract and certificate forms. We
have obtained approval in each jurisdiction in which our annuities are available
for sale of language stating that:
(A) Income, gains and losses, whether or not realized,
from assets allocated to any such separate account
are credited to or charged against such separate
account without regard to our other income, gains or
losses;
(B) Assets equal to the reserves and other liabilities of
such separate accounts are not chargeable with
liabilities that arise from any business we conduct
other than from the operation of the Annuities or
other annuities which are supported by such separate
accounts; and
(C) We have the right to transfer to our general account
any assets of such separate account which are in
excess of such reserves and other liabilities.
All benefits attributable to Contracts and interests purchased in the
group contracts are contract guarantees we make and are accounted for in the
separate account(s). However, all of our general account assets are available to
meet our obligations under the Contracts.
INVESTMENT MANAGEMENT
We have the sole discretion to employ investment managers that we
believe are qualified, experienced and reputable to manage the assets supporting
the Guaranteed Maturity Annuity including, but not limited to, J. P. Morgan
Investment Management Inc. Each manager is responsible for investment management
of different portions of a separate account supporting one or more Contracts. We
are under no obligation to employ or continue to employ any investment
manager(s).
CURRENT INVESTMENT GUIDELINES
Some of the guidelines of our current investment strategy are outlined
below. However, we are not obligated to invest according to this or any other
strategy except as may be required by Connecticut and other state insurance
laws.
Our current guidelines for the portfolio of investments in any
non-unitized separate account include, but are not limited to the following:
1. Investments may be made in cash; debt securities issued by the
United States Government or its agencies and instrumentalities; money market
instruments; short, intermediate and long-term corporate obligations; private
placements; asset-backed obligations; and municipal bonds.
2. 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. or any Should a fixed income
security fall below one of these top four generic lettered rating
classifications subsequent to purchase, we may or may not sell such security. We
may change these guidelines at any time.
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 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.
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 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". 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 apply to distributions from annuities
obtained as part of such an exchange.
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.
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, 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 a required minimum
distribution when an annuity is used in conjunction with certain retirement
plans; (b) direct transfers to trustees 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.
<PAGE>
Individual Retirement Programs
Eligible individuals may maintain an individual retirement
account or 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 know as
SEP-IRAs, and may be deductible to the employer. 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.
MISCELLANEOUS MATTERS
DISTRIBUTION
American Skandia Marketing, Incorporated, 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").
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 the entity. In addition, ASM, Inc. may solicit other eligible
groups and certain individuals. The maximum concession to be paid on premiums
received is 6.0%. We reserve the right to provide higher levels of compensation
for the sale of Contracts when Participants select initial Guarantee Periods
with longer durations than we pay in relation to shorter initial Guarantee
Periods.
As of the date of this Prospectus, we were promoting the sale of our
products and solicitation of additional purchase payments, where applicable, for
our products, including contracts offered pursuant to this Prospectus, through a
program of non-cash rewards to registered representatives of participating
broker-dealers. We may withdraw or alter this promotion at any time.
REPORTS TO YOU
We mail to Participants, at their last known address of record, any
statements and reports required by applicable law or regulation. Participants
should therefore give us prompt notice of any address change. We send a
confirmation statement to Participants each time a transaction is made affecting
Interim Value. 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. 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.
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.
LEGAL COUNSEL
Counsel with respect to Federal laws and regulations applicable to the
issue and sale of the Contracts and with respect to Connecticut law is Werner &
Kennedy, 1633 Broadway, New York, NY 10019.
EXPERTS
The consolidated financial statements as of December 31, 1996 and 1995,
and for the three years in the period ended December 31, 1996 included in this
Prospectus have been audited by Deloitte & Touche LLP, Two World Financial
Center, New York, New York 10281-1433, independent auditors, as stated in this
report herein, and are included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
To the extent and only to the extent that any statement in a document
incorporated by reference into this Prospectus is modified or superseded by a
statement in this Prospectus or in a later-filed document, such statement is
hereby deemed so modified or superseded and not part of this Prospectus. 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.
We furnish you without charge a copy of any or all of the documents
incorporated by reference in this Prospectus, including any exhibits to such
documents which have been specifically incorporated herein by reference. We do
so upon receipt of your written or oral request. Please address your request to
American Skandia Life Assurance Corporation, Attention: Concierge Desk, P.O. Box
883, Shelton, Connecticut, 06484. Our phone number is 1-800-752-6342. Our
electronic mail address is [email protected].
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>
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.
<PAGE>
APPENDIXES
APPENDIX A FINANCIAL STATEMENTS FOR AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
APPENDIX B ILLUSTRATION OF MARKET VALUE ADJUSTMENT
APPENDIX C ILLUSTRATION OF INTEREST CREDITING
<PAGE>
1
APPENDIX A
FINANCIAL STATEMENTS FOR AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
<PAGE>
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 - ILLUSTRATION OF MARKET VALUE ADJUSTMENT
The formula used to determine the market value adjustment ("MVA") is
applied as of the date we receive a request In Writing for a full or partial
surrender. When choosing an alternate Guarantee Period, the formula is applied
as of the first business day after the date we receive all the information we
need to process your request. Values and time durations used in the formula are
as of such date. Current Rates and available Guarantee Periods are those for
your type of Contract. The formula is:
[ (1+I) / (1+J+ the adjustment amount) ] N/12
where:
I is the Guarantee Rate applicable to the Guarantee Period for your
Contract;
J is the Current Rate for the Guarantee Period equal to the number of years
(rounded to the next higher number when occurring on other than an anniversary
of the beginning of the current Guarantee Period) remaining in your current
Guarantee Period ("Remaining Period");
N is the number of months (rounded to the next higher number when occurring
on other than a monthly anniversary of the beginning of the current Guarantee
Period) remaining in your Guarantee Period.
Nonetheless, a full or partial surrender at the end of a Guarantee Period
is not affected by the MVA.
If we are no longer offering a Guarantee Period equal to the Remaining
Period but are offering Guarantee Periods that are both shorter and longer than
the Remaining Period, we will interpolate a rate for J between our Current Rates
for the next shortest and next longest Guarantee Periods then being offered. If
we are no longer offering a Guarantee Period equal to the Remaining Period and
also are no longer offering Guarantee Periods that are both longer and shorter
than the Remaining Period, we will determine rates for both I and J based on the
Moody's Corporate Bond Yield Average - Monthly Average Corporates (the
"Average"), as published by Moody's Investor Services, Inc., its successor, or
an equivalent service should such Average no longer be published by Moody's. For
determining I, we will use the Average for the applicable Guarantee Period
published on or immediately prior to the start of your current Guarantee Period.
For determining J, we will use the Average for the Remaining Period published on
or immediately prior to the date the MVA is calculated.
In the special case where I = J, the MVA is set equal to 1.
The following examples show the effect of the MVA on a surrender. The
examples assume surrender charges do not apply and:
Interim Value at Beginning of Guarantee Period: $50,000
Guarantee Period: 5 years
Guarantee Rate: 5% effective annual rate
Date of Calculation: End of the third year since
the beginning of the
Guarantee Period
(two exact years remaining
to the end of the Guarantee
Period)
Adjustment Amount: 0.25% of interest
Example of Upward Adjustment
Assume J = 3.5% (Current Rate for Contracts electing a two year Guarantee
Period)
At this point I = 5% (0.05) and N = 24 (number of months remaining in the
Guarantee Period)
Interim Value prior to application of MVA: $57,881.25
MVA = [(1+I)/(1+J+0.0025)] N/12 = [1.05/1.0375] 2 = 1.024242
Net Surrender Value = Interim Value X MVA = $59,284.38.
Example of Downward Adjustment
Assume J = 6% (Current Rate for Contracts electing a two year Guarantee Period)
At this point I = 5% (0.05) and N = 24 (number of months remaining in the
Guarantee Period)
Interim Value prior to application of MVA: $57,881.25.
MVA = [(1+I)/(1+J+0.0025)] N/12 = [1.05/1.0625] 2 = .97661
Net Surrender Value = Interim Value X MVA = $56,527.35.
================================================================================
<PAGE>
APPENDIX C - ILLUSTRATION OF INTEREST CREDITING
THIS EXAMPLE ASSUMES NO PARTIAL SURRENDERS DURING THE GUARANTEE PERIOD. WHETHER
A SURRENDER CHARGE APPLIES TO ANY INTERIM PARTIAL SURRENDERS OR TO A FULL OR
PARTIAL SURRENDER AT THE END OF THE GUARANTEE PERIOD DEPENDS ON THE STRUCTURE OF
SURRENDER CHARGES AS SHOWN IN YOUR CONTRACT, AND WHETHER THAT GUARANTEE PERIOD
EXTENDS BEYOND THE DATE SURRENDER CHARGES APPLY. THE MARKET VALUE ADJUSTMENT
WOULD APPLY TO ANY INTERIM PARTIAL SURRENDER EXCEPT, WHERE REQUIRED BY LAW, AN
INTERIM PARTIAL SURRENDER OCCURRING NOT MORE THAN 30 DAYS BEFORE THE END OF A
GUARANTEE PERIOD.
THE HYPOTHETICAL INTEREST RATE USED IS ILLUSTRATIVE ONLY AND IS NOT INTENDED TO
PREDICT FUTURE INTEREST RATES TO BE DECLARED FOR ANY CONTRACT. ACTUAL INTEREST
RATES DECLARED FOR ANY GIVEN CONTRACT AT ANY GIVEN TIME MAY BE MORE OR LESS THAN
THOSE SHOWN.
In this example the Guarantee Period begins on the Contract Date. Should an
alternate Guarantee Period be chosen, Guarantee Periods may begin and end on
other than anniversaries of the Contract Date.
Interim Value at beginning of Guarantee Period: $50,000
Guarantee Period: 5 Years
Guaranteed Rate: 5% Effective Annual Rate
<TABLE>
<CAPTION>
Interest Credited Cumulative
During Interest
Year Contract Year Credited
---- ------------- --------
<S> <C> <C> <C>
1 $2,500.00 $2,500.00
2 2,625.00 5,125.00
3 2,756.25 7,881.25
4 2,894.06 10,775.31
5 3,038.77 13,814.08
</TABLE>
<PAGE>
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 CORP. ASSURANCE CORP.
One Corporate Drive P.O. Box 883
Shelton, Connecticut 06484 Shelton, Connecticut 06484
Telephone: 1-800-752-6342 Telephone: 1-800-752-6342
http://www.AmericanSkandia.com http://www.AmericanSkandia.com
Distributed by:
AMERICAN SKANDIA MARKETING, INCORPORATED
One Corporate Drive
Shelton, Connecticut 06484
Telephone: (203) 926-1888
http://www.AmericanSkandia.com
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
Not Applicable
Item 15. Indemnification of Directors and Officers
Under Section 33-320a of the Connecticut General Statutes, the
Registrant must indemnify a director or officer against
judgments, fines, penalties, amounts paid in settlement and
reasonable expenses including attorneys' fees, for actions
brought or threatened to be brought against him in his
capacity as a director or officer when certain disinterested
parties determine that he acted in good faith and in a manner
he reasonably believed to be in the best interests of the
Registrant. In any criminal action or proceeding, it also must
be determined that the director or officer had no reason to
believe his conduct was unlawful. The director or officer must
also be indemnified when he is successful on the merits in the
defense of a proceeding or in circumstances where a court
determines that he is fairly and reasonably entitled to be
indemnified, and the court approves the amount. In shareholder
derivative suits, the director or officer must be finally
adjudged not to have breached his duty to the Registrant, or a
court must determine that he is fairly and reasonably entitled
to be indemnified and must approve the amount. In a claim
based upon the director's or officer's purchase or sale of the
Registrant's securities, the director or officer may obtain
indemnification only if a court determines that, in view of
all the circumstances, he is fairly and reasonably entitled to
be indemnified and then for such amount as the court shall
determine. The By-Laws of Skandia Life also provide directors
and officers with rights of indemnification, consistent with
Connecticut law.
The foregoing statements are subject to the provisions of
Section 33-320a.
Directors and officers of Skandia Life and American Skandia
Marketing, Incorporated ("ASM, Inc.") can also be indemnified
pursuant to Indemnity Agreements between each director and
officer and American Skandia Investment Holding Corporation, a
corporation organized under the laws of the state of Delaware.
The provisions of the Indemnity Agreements are governed by
Section 45 of the General Corporation Law of the State of
Delaware.
The directors and officers of Skandia Life and ASM, Inc. are
covered under a directors and officers liability insurance
policy issued to Skandia Insurance Company Ltd., their
ultimate parent. Such policy will reimburse Skandia Life or
ASM, Inc., as applicable, for any payments that it shall make
to directors, officers and controlling persons of Registrant
pursuant to law and, subject certain exclusions in the policy,
will pay any other costs, charges, expenses, settlements or
judgements arising from any proceeding involving any director
or officer of Skandia Life or ASM, Inc., as applicable in his
or her past present capacity as such.
The Company has not offered or sold any unregistered
securities.
<TABLE>
<CAPTION>
Item 16. Exhibits
Exhibits Page
<S> <C> <C>
1 Underwriting agreement (Incorporated by reference to Post-Effective Amendment No. 1 to
Registration Statement No. 33-26122, filed March 1, 1990)
2 Plan of acquisition, reorganization, arrangement, liquidation or succession Not applicable
3 Articles of incorporation and by-laws (Incorporated by reference to Pre-Effective
Amendment No. 2 to Registration Statement No. 33-19363, filed July 27, 1988)
4 Instruments defining the rights of security holders, including indentures
(Incorporated by reference to initial Registration Statement No. 33-89676, filed
February 22, 1995)
5 Opinion re legality (included as Exhibit 23b)
6 - 9 Not applicable
10 Material contracts (Investment Management Agreement)
(a) Agreement with J.P. Morgan Investment Management Inc. incorporated by reference to
Post-Effective Amendment No. 5 to Registration Statement No. 33-26122, filed April 23,
1991
(i) Filed via EDGAR with Post-Effective Amendment No. 1 to Registration Statement No.
333-00941, filed February 25, 1997
(b) Agreement with Fleet Investment Advisors Inc., incorporated by reference to the
initial filing of Registration Statement No. 33-86918 filed December 1, 1994
(i) Filed via EDGAR with Post-Effective Amendment No. 1 to Registration Statement No.
333-00941, filed February 25, 1997
11 - 22 Not applicable
23a Consent of Deloitte & Touche LLP
23b Opinion & Consent of Werner & Kennedy
24 Power of Attorney
Directors Boronow, Campbell, Carendi, Danckwardt, Dokken, Sutyak, Mazzaferro, Moberg,
Soderstrom, Tracy, Svensson, Brunetti, and Collins to be filed via EDGAR with
Post-effective Amendment No. 2 to Registration Statement No. 333-00941
25 - 28 Not applicable
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
An index to the financial statement schedules is omitted because it is not
required or is not applicable.
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, post-effective amendments to this registration
statement:
(i) To include any prospectus required by section 10 (a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4) The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Shelton, State of Connecticut, April 24, 1997.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
Registrant
By:/s/ Mary Priscilla Pannell Attest:/s/ Diana D. Steigauf
Mary Priscilla Pannell, Corporate Secretary Diana D. Steigauf
<TABLE>
<CAPTION>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
Signature Title Date
<S> <C> <C>
(Principal Executive Officer)
Jan R. Carendi* Chief Executive Officer, April 24, 1997
Jan R. Carendi Chairman of the Board and Director
(Principal Financial Officer)
/s/ Thomas M. Mazzaferro Executive Vice President and April 24, 1997
Thomas M. Mazzaferro Chief Financial Officer
(Principal Accounting Officer)
/s/ David R. Monroe Vice President and April 24, 1997
David R. Monroe Controller
(Board of Directors)
Jan. R. Carendi* Gordon C. Boronow* Malcolm M. Campbell*
Jan. R. Carendi Gordon C. Boronow Malcolm M. Campbell
Henrik Danckwardt* Amanda C. Sutyak* Wade A. Dokken*
Henrik Danckwardt Amanda C. Sutyak Wade A. Dokken
Thomas M. Mazzaferro* Gunnar Moberg* Bayard F. Tracy*
Thomas M. Mazzaferro Gunnar Moberg Bayard F. Tracy
Anders Soderstrom* C. Ake Svensson* Lincoln R. Collins**
Anders Soderstrom C. Ake Svensson Lincoln R. Collins
Nancy F. Brunetti*
Nancy F. Brunetti
*By: /s/Mary Priscilla Pannell
Mary Priscilla Pannell
<FN>
*Pursuant to Powers of Attorney filed with Post-Effective Amendment No. 2 to Registration Statement No. 333-00941
</FN>
</TABLE>
Exhibits
Exhibit 23a Consent of Deloitte & Touche LLP
Exhibit 23b Opinion & consent of Werner & Kennedy
Exhibit 23a
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-effective Amendment No. 2 to Registration
Statement No. 33-89676 of American Skandia Life Assurance Corporation on Form
S-2 of our report dated March 10, 1997, included and incorporated by reference
in the Annual Report on Form 10-K of American Skandia Life Assurance Corporation
for the year ended December 31, 1996, and to the use of our report dated March
10, 1997, appearing in the Prospectus, which is a part of this Registration
Statement. We also consent to the reference to us under the headings "Experts"
and "Selected Financial Data" appearing in the Prospectus which is a part of
such Registration Statement.
/s/ Deloitte & Touche LLP
New York, New York
April 23, 1997
(212) 408-6900
Letterhead
Werner & Kennedy
1633 Broadway
New York, NY 10019
April 24, 1997
American Skandia Life Assurance Corporation
One Corporate Drive
Shelton, Connecticut 06484
Re: Post-effective Amendment No. 2 on Form S-2 filed by
American Skandia Life Assurance Corporation, Registrant
Registration No.: 33-89676
Dear Mesdames and Messrs.:
You have requested us, as general counsel to American Skandia Life
Assurance Corporation ("American Skandia"), to furnish you with this opinion in
connection with the above-referenced registration statement by American Skandia,
a Registrant, under the Securities Act of 1933, as amended, (the "Registration
Statement") of a certain Modified Guaranteed Annuity Contract (the "Contract")
that will be issued by American Skandia.
We have made such examination of the statutes and authorities,
corporate records of American Skandia, and other documents as in our judgment
are necessary to form a basis for opinions hereinafter expressed.
In our examinations, we have assumed the genuineness of all signatures
on, and authenticity of, and the conformity to original documents of all copies
submitted to us. As to various questions of fact material to our opinion, we
have relied upon statements and certificates of officers and representatives of
American Skandia and others.
Based upon the foregoing, we are of the opinion that:
1. American Skandia is a validly existing corporation under the laws of the
State of Connecticut.
2. The form of the Contract has been duly authorized by American Skandia,
and has been or will be filed in states where it is eligible for approval, and
upon issuance in accordance with the laws of such jurisdictions, and with the
terms of the Prospectus, will be valid and binding upon American Skandia.
American Skandia Life
Assurance Corporation
April 24, 1997
Page 2
We hereby consent to the use of this opinion as an exhibit to
Post-effective Amendment No. 2 to the Registration Statement on Form S-2 under
the Securities Act of 1933, as amended, and to the reference to our name under
the heading "Legal Experts" included in the Registration Statement.
Very truly yours,
/s/WERNER & KENNEDY
(W&K33-89676)
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 881453
<NAME> ASLAC1996
<MULTIPLIER> 1
<CURRENCY> U.S Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 87,369,724
<DEBT-CARRYING-VALUE> 97,950,868
<DEBT-MARKET-VALUE> 97,462,993
<EQUITIES> 2,637,731
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 118,197,824
<CASH> 14,199,412
<RECOVER-REINSURE> 2,167,818
<DEFERRED-ACQUISITION> 438,640,918
<TOTAL-ASSETS> 8,334,662,876 <F1>
<POLICY-LOSSES> 57,484,685
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 213,000,000
<COMMON> 2,000,000
0
0
<OTHER-SE> 124,345,031
<TOTAL-LIABILITY-AND-EQUITY> 8,334,662,876 <F2>
125,000
<INVESTMENT-INCOME> 1,585,819
<INVESTMENT-GAINS> 134,463
<OTHER-INCOME> 86,233,366 <F3>
<BENEFITS> 4,787,604
<UNDERWRITING-AMORTIZATION> 22,577,053
<UNDERWRITING-OTHER> 27,188,608
<INCOME-PRETAX> 22,584,667
<INCOME-TAX> (4,038,357)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,623,024
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1> Included in Total Assets are Assets Held in Separate Accounts of
$7,734,439,793.
<F2> Included in Total Liabilities and Equity are Liabilities Related to Separate Accounts of $7,734,439,793.
<F3> Other income includes annuity charges and fees of $69,779,522 and fee income of $16,419,690.
</FN>
</TABLE>
