EDB
Filed with the Securities and Exchange Commission on July 22, 1997
Registration No. 333-26695
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-2
Initial 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: July 22, 1997 or as soon as practicable
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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Calculation of Registration Fee
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Title of each Proposed Proposed
class of maximum maximum
securities Amount offering aggregate Amount of
to be to be price offering registration
registered registered per unit price fee
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Annuity Contracts $60,000,000 $18,181.82
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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 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.
EDB
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CROSS REFERENCE SHEET PURSUANT TO REGULATION S-K, ITEM 501
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S-2 Item No. Prospectus Heading
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
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1
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This Prospectus describes a type of annuity (the "Annuity") being offered by
American Skandia Life Assurance Corporation ("we", "our" or "us"), One Corporate
Drive, Shelton, Connecticut, 06484. This flexible premium Annuity may be offered
as individual annuity contracts or as interests in a group annuity. The Table of
Contents is on Page 4. Definitions applicable to this Prospectus are on page 6.
The highlights of this offering are described beginning on Page 8. This
Prospectus contains a detailed discussion of matters you should consider before
purchasing this Annuity. A Statement of Additional Information has been filed
with the Securities and Exchange Commission and is available from us without
charge upon request. The contents of the Statement of Additional Information are
described on page 52. The Annuity or certain of its investment options may not
be available in all jurisdictions. Various rights and benefits may differ
between jurisdictions to meet applicable laws and/or regulations.
A Purchase Payment for this Annuity is assessed any applicable tax charge (see
"Tax Charges"). It is then allocated to the investment options you select,
except in certain jurisdictions, where allocations of Purchase Payments we
receive during the "free-look" period that you direct to any Sub-accounts are
temporarily allocated to the AST Money Market Sub-account (see "Allocation of
Net Purchase Payments"). You may transfer Account Value between investment
options (see "Investment Options" and "Transfers"). Account Value may be
distributed as periodic annuity payments in a "payout phase". Such annuity
payments can be guaranteed for life (see "Annuity Payments"). During the
"accumulation phase" (the period before any payout phase), you may surrender the
Annuity for its Surrender Value or make withdrawals (see "Distributions"). Such
distributions may be subject to tax, including a tax penalty, and any applicable
contingent deferred sales charges (see "Contingent Deferred Sales Charge").
There is a minimum death benefit applicable for a limited time during the
accumulation phase (see "Death Benefit").
Account Value in the variable investment options increases or decreases daily to
reflect investment performance and the deduction of charges. No minimum amount
is guaranteed (see "Account Value in the Sub-accounts"). The variable investment
options are Class 1 Sub-accounts of American Skandia Life Assurance Corporation
Variable Account B ("Separate Account B")(see "Separate Accounts" and "Separate
Account B"). Each Sub-account invests exclusively in one portfolio of an
underlying mutual fund or in an underlying mutual fund. As of the date of this
Prospectus, the underlying mutual funds (and the portfolios of such underlying
mutual funds in which Sub-accounts offered pursuant to this Prospectus invest)
are: (a) American Skandia Trust (portfolios - JanCap Growth, AST Janus Overseas
Growth, Lord Abbett Growth and Income, Federated Utility Income, Federated High
Yield, AST Money Market, T. Rowe Price Asset Allocation, T. Rowe Price
International Equity, T. Rowe Price Natural Resources, T. Rowe Price
International Bond, T. Rowe Price Small Company Value, Founders Capital
Appreciation, Founders Passport, INVESCO Equity Income, PIMCO Total Return Bond,
PIMCO Limited Maturity Bond, Berger Capital Growth, Robertson Stephens Value +
Growth, AST Putnam Value Growth & Income, AST Putnam International Equity, AST
Putnam Balanced, Twentieth Century Strategic Balanced, Twentieth Century
International Growth); (b) The Alger American Fund (portfolios - Growth, Small
Capitalization, MidCap Growth); (c) Neuberger & Berman Advisers Management Trust
(portfolio - Partners); and (d) Montgomery Variable Series (portfolio - Emerging
Markets).
In most jurisdictions, Account Value may be allocated to a fixed investment
option during the accumulation phase. Account Value so allocated earns a fixed
rate of interest for a specified period of time referred to as a Guarantee
Period. Guarantee Periods of different durations may be offered (see "Fixed
Investment Options"). Such an allocation and the interest earned is guaranteed
by us only if held to its Maturity Date, and where required by law, the 30 days
prior to the Maturity Date. You are cautioned that with respect to the Fixed
Investment Options during the accumulation phase, we do not guarantee any
minimum amount, because the value may be increased or decreased by a market
value adjustment (see "Account Value of the Fixed Allocations"). Assets
supporting such allocations in the accumulation phase are held in American
Skandia Life Assurance Corporation Separate Account D ("Separate Account D")
(see "Separate Accounts" and "Separate Account D").
We guarantee fixed annuity payments. We also guarantee any adjustable annuity
payments we may make available (see "Annuity Payments").
(continued on Page 2)
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PLEASE
READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE.
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FOR FURTHER INFORMATION CALL 1-800-752-6342.
Prospectus Dated: July 22, 1997
Statement of Additional Information Dated: July 22, 1997
EDB-PROS-(07/97)
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Taxes on gains during the accumulation phase may be deferred until you begin to
take distributions from your Annuity. Distributions before age 59 1/2 may be
subject to a tax penalty. In the payout phase, a portion of each annuity payment
may be treated as a return of your "investment in the contract" until it is
completely recovered. Transfers between investment options are not subject to
taxation. The Annuity may also qualify for special tax treatment under certain
sections of the Code, including, but not limited to, Sections 401, 403 or 408
(see "Certain Tax Considerations").
Purchase Payments under these Annuities are not deposits or obligations of, or
guaranteed or endorsed by, any bank or bank subsidiary, are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other agency and are not insured by the Securities Investor Protection
Corporation ("SIPC") as to the loss of the principal amount invested.
Purchase Payments are subject to investment risks, including possible loss of
principal.
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This page has been purposely left blank.
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TABLE OF CONTENTS
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DEFINITIONS........................................................................................................................6
HIGHLIGHTS.........................................................................................................................8
AVAILABLE INFORMATION.............................................................................................................10
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...................................................................................10
CONTRACT EXPENSE SUMMARY..........................................................................................................11
EXPENSE EXAMPLES..................................................................................................................12
CONDENSED FINANCIAL INFORMATION...................................................................................................13
Unit Prices And Numbers Of Units...............................................................................................13
Yields On Money Market Sub-account.............................................................................................17
INVESTMENT OPTIONS................................................................................................................17
Variable Investment Options....................................................................................................17
Fixed Investment Options.......................................................................................................18
OPERATIONS OF THE SEPARATE ACCOUNTS...............................................................................................19
Separate Accounts..............................................................................................................19
Separate Account B.............................................................................................................20
Separate Account D.............................................................................................................20
INSURANCE ASPECTS OF THE ANNUITY..................................................................................................21
CHARGES ASSESSED OR ASSESSABLE AGAINST THE ANNUITY................................................................................21
Contingent Deferred Sales Charge...............................................................................................21
Maintenance Fee................................................................................................................22
Tax Charges....................................................................................................................22
Transfer Fee...................................................................................................................22
Allocation Of Annuity Charges..................................................................................................22
CHARGES ASSESSED AGAINST THE ASSETS...............................................................................................22
CHARGES OF THE UNDERLYING MUTUAL FUNDS............................................................................................23
PURCHASING ANNUITIES..............................................................................................................23
Uses Of The Annuity............................................................................................................23
Application And Initial Payment................................................................................................23
Skandia's Systematic Investment Plan...........................................................................................24
Periodic Purchase Payments.....................................................................................................24
Right to Return the Annuity....................................................................................................24
Allocation of Net Purchase Payments............................................................................................24
Balanced Investment Program....................................................................................................24
Ownership, Annuitant and Beneficiary Designations..............................................................................25
ACCOUNT VALUE AND SURRENDER VALUE.................................................................................................25
Account Value in the Sub-accounts..............................................................................................25
Account Value of the Fixed Allocations.........................................................................................26
RIGHTS, BENEFITS AND SERVICES.....................................................................................................26
Additional Purchase Payments...................................................................................................26
Changing Revocable Designations................................................................................................27
Allocation Rules...............................................................................................................27
Transfers......................................................................................................................27
Renewals.....................................................................................................................28
Dollar Cost Averaging........................................................................................................28
Rebalancing..................................................................................................................29
Distributions..................................................................................................................29
Surrender....................................................................................................................29
Medically-Related Surrender..................................................................................................29
Free Withdrawals.............................................................................................................30
Partial Withdrawals..........................................................................................................30
Systematic Withdrawals.......................................................................................................31
Minimum Distributions........................................................................................................31
Death Benefit................................................................................................................32
Annuity Payments.............................................................................................................34
Qualified Plan Withdrawal Limitations........................................................................................35
Pricing of Transfers and Distributions.........................................................................................35
Voting Rights..................................................................................................................36
Transfers, Assignments or Pledges..............................................................................................36
Reports to You.................................................................................................................36
SALE OF THE ANNUITIES.............................................................................................................37
Distribution...................................................................................................................37
Advertising....................................................................................................................37
CERTAIN TAX CONSIDERATIONS........................................................................................................38
Our Tax Considerations.........................................................................................................38
Tax Considerations Relating to Your Annuity....................................................................................38
Non-natural Persons..........................................................................................................38
Natural Persons..............................................................................................................38
Loans, Assignments and Pledges...............................................................................................39
Gifts........................................................................................................................39
Penalty on Distributions.....................................................................................................39
Annuity Payments.............................................................................................................39
Tax Free Exchanges...........................................................................................................39
Transfers Between Investment Options.........................................................................................40
Estate and Gift Tax Considerations...........................................................................................40
Generation-Skipping Transfers................................................................................................40
Diversification..............................................................................................................40
Federal Income Tax Withholding...............................................................................................40
Tax Considerations When Using Annuities in Conjunction with Qualified Plans....................................................40
Individual Retirement Programs...............................................................................................40
Tax Sheltered Annuities......................................................................................................41
Corporate Pension and Profit-sharing Plans...................................................................................41
Tax Treatment of Distributions from Qualified Annuities......................................................................41
Section 457 Plans............................................................................................................41
OTHER MATTERS.....................................................................................................................41
Deferral of Transactions.......................................................................................................41
Resolving Material Conflicts...................................................................................................41
Modification...................................................................................................................42
Misstatement of Age or Sex.....................................................................................................42
Ending the Offer...............................................................................................................42
Indemnification................................................................................................................42
Legal Proceedings..............................................................................................................42
THE COMPANY.......................................................................................................................43
Lines of Business..............................................................................................................43
Selected Financial Data........................................................................................................43
Management's Discussion and Analysis of Financial Condition and Results of Operations..........................................45
Results of Operation...........................................................................................................45
Liquidity and Capital Resources................................................................................................46
Segment Information..........................................................................................................47
Reinsurance....................................................................................................................47
Future Fees Payable to Parent..................................................................................................47
Surplus Notes..................................................................................................................47
Reserves.......................................................................................................................48
Competition....................................................................................................................48
Employees......................................................................................................................48
Regulation.....................................................................................................................48
Executive Officers and Directors...............................................................................................49
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION...............................................................................52
FINANCIAL STATEMENTS..............................................................................................................52
APPENDIX A FINANCIAL STATEMENTS FOR AMERICAN SKANDIA LIFE ASSURANCE CORPORATION..................................................53
APPENDIX B SHORT DESCRIPTIONS OF THE UNDERLYING MUTUAL FUNDS' PORTFOLIO INVESTMENT
OBJECTIVES AND POLICIES.........................................................................................................53
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DEFINITIONS: The following are key terms used in this Prospectus. Other
terms are defined in this Prospectus as they appear.
ACCOUNT VALUE is the value of each allocation to a Sub-account or a Fixed
Allocation prior to the Annuity Date, plus any earnings, and/or less any losses,
distributions and charges thereon, before assessment of any applicable
contingent deferred sales charge and/or any applicable maintenance fee. Account
Value is determined separately for each Sub-account and for each Fixed
Allocation, and then totaled to determine Account Value for your entire Annuity.
Account Value of each Fixed Allocation on other than such Fixed Allocation's
Maturity Date may be calculated using a market value adjustment.
ANNUITANT is the person upon whose life your Annuity is written.
ANNUITY is the type of annuity being offered pursuant to this Prospectus. It is
also, if issued, your individual Annuity, or with respect to a group Annuity,
the certificate evidencing your participation in a group Annuity. It also
represents an account we set up and maintain to track our obligations to you.
ANNUITY DATE is the date annuity payments are to commence.
ANNUITY YEARS are continuous 12-month periods commencing on the Issue Date and
each anniversary of the Issue Date.
APPLICATION is the enrollment form or application form we may require you to
submit for an Annuity.
BENEFICIARY is a person designated as the recipient of the death benefit.
CODE is the Internal Revenue Code of 1986, as amended from time to time.
CONTINGENT ANNUITANT is the person named to become the Annuitant on the
Annuitant's death prior to the Annuity Date.
CURRENT RATES are the interest rates we offer to credit to Fixed Allocations for
the duration of newly beginning Guarantee Periods under this Annuity. Current
Rates are contained in a schedule of rates established by us from time to time
for the Guarantee Periods then being offered. We may establish different
schedules for different classes and for different annuities.
FIXED ALLOCATION is an allocation of Account Value that is to be credited a
fixed rate of interest for a specified Guarantee Period during the accumulation
phase and is to be supported by assets in Separate Account D.
GUARANTEE PERIOD is a period of time during the accumulation phase during which
we credit a fixed rate of interest on a Fixed Allocation.
IN WRITING is in a written form satisfactory to us and filed at the Office.
INSURANCE CHARGE is the combination of the Mortality and Expense Risk Charges
and the Administration Charge as described in the Contract Expense Summary.
INTERIM VALUE is, as of any particular date, the initial value of a Fixed
Allocation plus all interest credited thereon, less the sum of all previous
transfers and withdrawals of any type from such Fixed Allocation of such Interim
Value and interest thereon from the date of each withdrawal or transfer.
ISSUE DATE is the effective date of your Annuity.
MVA is a market value adjustment used in the determination of Account Value of
each Fixed Allocation as of a date other than such Fixed Allocation's Maturity
Date, and, where required by law, the 30 days prior to the Maturity Date.
MATURITY DATE is the last day in a Guarantee Period.
MINIMUM DISTRIBUTIONS are a specific type of Systematic Withdrawal such that the
amounts payable are not less than the minimum amounts that must be distributed
each year from an Annuity if used in relation to certain qualified plans under
the Code.
NET PURCHASE PAYMENT is a Purchase Payment less any applicable charge for taxes.
OFFICE is our business office, American Skandia Life Assurance Corporation,
One Corporate Drive, P.O. Box 883, Shelton, Connecticut 06484.
OWNER is either an eligible entity or person named as having ownership rights in
relation to an Annuity issued as an individual contract. An Annuity may be
issued as a certificate evidencing interest in a group annuity contract. If so,
the rights, benefits and requirements of and the events relating to an Owner, as
described in this Prospectus, will be the rights, benefits and requirements of
and events relating to the person or entity designated as the participant in
such certificate.
PURCHASE PAYMENT is a cash consideration you give to us for certain rights,
privileges and benefits provided under an Annuity according to its terms.
SUB-ACCOUNT is a division of Separate Account B. We use Sub-accounts to
calculate variable benefits under this Annuity.
SURRENDER VALUE is the value of your Annuity available upon surrender prior to
the Annuity Date. It equals the Account Value as of the date we price the
surrender less any applicable contingent deferred sales charge and any
applicable maintenance fee.
SYSTEMATIC WITHDRAWAL is one of a plan of periodic withdrawals of Surrender
Value during the accumulation phase. Such a plan is subject to our rules.
UNIT is a measure used to calculate your Account Value in a Sub-account prior to
the Annuity Date.
UNIT PRICE is used for calculating: (a) the number of Units allocated to a
Sub-account; and (b) the value of transactions into or out of a Sub-account or
benefits based on Account Value in a Sub-account prior to the Annuity Date. Each
Sub-account has its own Unit Price which will vary each Valuation Period to
reflect the investment experience of that Sub-account.
VALUATION DAY is every day the New York Stock Exchange is open for trading or
any other day that the Securities and Exchange Commission requires mutual funds
or unit investment trusts to be valued.
VALUATION PERIOD is the period of time between the close of business of the New
York Stock Exchange on successive Valuation Days.
"We", "us", "our" or "the Company" means American Skandia Life Assurance
Corporation.
"You" or "your" means the Owner.
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HIGHLIGHTS: The following are only the highlights of the Annuity being
offered pursuant to this Prospectus. A more detailed description follows these
highlights.
(1) Investment Options: We currently offer multiple variable and, in most
jurisdictions, fixed investment options.
During the accumulation phase, we currently offer a number of variable
investment options. Each of these investment options is a Class 1 Sub-account of
Separate Account B. Each Sub-account invests exclusively in one underlying
mutual fund, or a portfolio of an underlying mutual fund. The underlying mutual
fund portfolios are managed by various investment advisors, and in certain
cases, various sub-advisors. A short description of the investment objectives
and policies is found in Appendix B. Certain variable investment options may not
be available in all jurisdictions.
As of the date of this Prospectus, the underlying mutual funds (and the
portfolios of such underlying mutual funds in which Sub-accounts offered
pursuant to this Prospectus invest) are: (a) American Skandia Trust (portfolios
- - JanCap Growth, AST Janus Overseas Growth, Lord Abbett Growth and Income,
Federated Utility Income, Federated High Yield, AST Money Market, T. Rowe Price
Asset Allocation, T. Rowe Price International Equity, T. Rowe Price Natural
Resources, T. Rowe Price International Bond, T. Rowe Price Small Company Value,
Founders Capital Appreciation, Founders Passport, INVESCO Equity Income, PIMCO
Total Return Bond, PIMCO Limited Maturity Bond, Berger Capital Growth, Robertson
Stephens Value + Growth, AST Putnam Value Growth & Income, AST Putnam
International Equity, AST Putnam Balanced, Twentieth Century Strategic Balanced,
Twentieth Century International Growth); (b) The Alger American Fund (portfolios
- - Growth, Small Capitalization, MidCap Growth); (c) Neuberger & Berman Advisers
Management Trust (portfolio - Partners); and (d) Montgomery Variable Series
(portfolio - Emerging Markets).
In most jurisdictions, we also offer the option during the accumulation phase of
earning one or more fixed rates of interest on all or a portion of your Account
Value. As of the date of this Prospectus, we offered the option to make
allocations at interest rates that could be guaranteed for 1, 2, 3, 5, 7 and 10
years. Each such Fixed Allocation earns the fixed interest rate applicable as of
the date of such allocation. The interest rate credited to a Fixed Allocation
does not change during its Guarantee Period. You may maintain multiple Fixed
Allocations. From time-to-time we declare Current Rates for Fixed Allocations
beginning a new Guarantee Period. The rates we declare are subject to a minimum,
but we may declare higher rates. The minimum is determined in relation to an
index that we do not control.
The end of a Guarantee Period for a specific Fixed Allocation is called its
Maturity Date. At that time, the Guarantee Period normally "renews" and we begin
crediting interest for a new Guarantee Period lasting the same amount of time as
the one just ended. That Fixed Allocation then earns interest during the new
Guarantee Period at a rate that is not less than the one then being earned by
Fixed Allocations for that Guarantee Period by new Annuity purchasers in the
same class. You also may choose a different Guarantee Period from among those we
are then currently making available or you may transfer that Account Value to a
variable Sub-account.
In the payout phase, you may elect fixed annuity payments based on our then
current annuity rates. We also may make available adjustable annuity rates.
For more information, see the section entitled "Investment Options",
including the following subsections: (a) Variable Investment Options; and (b)
Fixed Investment Options.
(2) Operations of the Separate Accounts: In the accumulation
phase, the assets supporting guarantees we make in relation to Fixed Allocations
are held in our Separate Account D. This is a "non-unitized" separate account.
However, values and benefits calculated on the basis of Fixed Allocations are
guaranteed by our general account. In the payout phase, fixed annuity payments
and any adjustable annuity payments we may make available are also guaranteed by
our general account, but the assets supporting such payments are not held in
Separate Account D.
In the accumulation phase, the assets supporting the Account Values maintained
in the Sub-accounts are held in our Separate Account B. These are Class 1
Sub-accounts of Separate Account B. Values and benefits based on these
Sub-accounts are not guaranteed and will vary with the investment performance of
the underlying mutual funds or fund portfolios, as applicable.
For more information, see the section entitled Operations of the Separate
Accounts, including the following subsections: (a) Separate Accounts; (b)
Separate Account B; and (c) Separate Account D.
(3) Insurance Aspects of the Annuity: There are insurance risks which we
bear in relation to the Annuity. For more information, see the section entitled
Insurance Aspects of the Annuity.
(4) Charges Assessed or Assessable Against the Annuity: The Annuity charges
which are assessed or may be assessable under certain circumstances are the
contingent deferred sales charge, the maintenance fee, a charge for taxes and a
transfer fee. These charges are allocated according to our rules. We may also
charge for certain special services. For more information, see the section
entitled Charges Assessed or Assessable Against the Annuity, including the
following subsections: (a) Contingent Deferred Sales Charge; (b) Maintenance
Fee; (c) Tax Charges; (d) Transfer Fee; and (e) Allocation of Annuity Charges.
(5) Charge Assessed Against the Assets: An insurance charge is assessed
against assets in the Sub-accounts. No charge is deducted from the assets
supporting Fixed Allocations. For more information, see the section entitled
Charge Assessed Against the Assets.
(6) Charges Of The Underlying Mutual Funds: Each underlying mutual fund
assesses various charges, including charges for investment management and
investment advisory fees. These charges generally differ between portfolios
within the same underlying mutual fund. You will find additional details in each
fund prospectus and its statement of additional information.
(7) Purchasing Annuities: Annuities are available for multiple uses,
including as a funding vehicle for various retirement programs which qualify for
special treatment under the Code. We may require a properly completed
Application, an acceptable Purchase Payment, and any other materials under our
underwriting rules before we agree to issue an Annuity. You have the right to
return an Annuity within a "free-look" period if you are not satisfied with it.
In most jurisdictions, the initial Purchase Payment and any Purchase Payments
received during the "free-look" period are allocated according to your
instructions. In jurisdictions that require a "free-look" provision such that,
if the Annuity is returned under that provision, we must return at least your
Purchase Payments less any withdrawals, we temporarily allocate such Purchase
Payments to the AST Money Sub-account. Where permitted by law in such
jurisdictions, we will allocate such Purchase Payments according to your
instructions, without any temporary allocation to the AST Money Market
Sub-account, if you execute a return waiver. We offer a balanced investment
program in relation to your initial Purchase Payment. Certain designations must
be made, including an Owner and an Annuitant. You may also make certain other
designations that apply to the Annuity if issued. These designations include, a
contingent Owner, a Contingent Annuitant (Contingent Annuitants may be required
in conjunction with certain uses of the Annuity), a Beneficiary, and a
contingent Beneficiary. See the section entitled Purchasing Annuities, including
the following subsections: (a) Uses of the Annuity; (b) Application and Initial
Payment; (c) Skandia's Systematic Investment Plan; (d) Periodic Purchase
Payments; (e) Right to Return the Annuity; (f) Allocation of Net Purchase
Payments; (g) Balanced Investment Program; and (h) Ownership, Annuitant and
Beneficiary Designations.
(8) Account Value and Surrender Value: In the accumulation phase your
Annuity has an Account Value. Your total Account Value as of a particular date
is the sum of your Account Value in each Sub-account and in each Fixed
Allocation. Surrender Value is the Account Value less any applicable contingent
deferred sales charge and any applicable maintenance fee. To determine your
Account Value in each Sub-account we multiply the Unit Price as of the Valuation
Period for which the calculation is being made times the number of Units
attributable to you in that Sub-account as of that Valuation Period. We also
determine your Account Value separately for each Fixed Allocation. A Fixed
Allocation's Account Value as of a particular date is determined by multiplying
its then current Interim Value times the MVA. No MVA applies to a Fixed
Allocation as of its Maturity Date, and, where required by law, the 30 days
prior to the Maturity Date. Under certain circumstances, the MVA formula may
change. For more information, see the section entitled Account Value and
Surrender Value, including the following subsections: (a) Account Value in the
Sub-accounts; (b) Account Value of Fixed Allocations; and (c) Additional Amounts
in the Fixed Allocations.
(9) Rights, Benefits and Services: You have a number of rights and benefits
under an Annuity once issued. We also currently provide a number of services to
Owners. These rights, benefits and services are subject to a number of rules and
conditions. These rights, benefits and services include, but are not limited to,
those described in this Prospectus. We accept additional Purchase Payments
during the accumulation phase. You may use bank drafting to make Purchase
Payments. We support certain Periodic Purchase Payment programs subject to our
rules. You may change revocable designations. You may transfer Account Values
between investment options. Transfers in excess of 12 per Annuity Year are
subject to a fee. We offer dollar cost averaging and rebalancing during the
accumulation phase. During the accumulation phase, surrender, free withdrawals
and partial withdrawals are available, as are medically-related surrenders under
which the contingent deferred sales charge is waived under specified
circumstances. In the accumulation phase we offer Systematic Withdrawals and,
for Annuities used in qualified plans, Minimum Distributions. We offer fixed
annuity options, and may offer adjustable annuity options, that can guarantee
payments for life. In the accumulation phase, a death benefit may be payable.
You may transfer or assign your Annuity unless such rights are limited in
conjunction with certain uses of the Annuity. You may exercise certain voting
rights in relation to the underlying mutual fund portfolios in which the
Sub-accounts invest. You have the right to receive certain reports periodically.
For additional information, see the section entitled Rights, Benefits and
Services including the following subsections: (a) Additional Purchase Payments;
(b) Changing Revocable Designations; (c) Allocation Rules; (d) Transfers; (e)
Renewals; (f) Dollar Cost Averaging; (g) Rebalancing; (h) Distributions
(including: (i) Surrender; (ii) Medically-Related Surrender; (iii) Free
Withdrawals; (iv) Partial Withdrawals; (v) Systematic Withdrawals; (vi) Minimum
Distributions; (vii) Death Benefit; (viii) Annuity Payments; and (ix) Qualified
Plan Withdrawal Limitations); (i) Pricing of Transfers and Distributions (j)
Voting Rights; (k) Transfers, Assignments and Pledges; and (l) Reports to You.
(10) The Company: American Skandia Life Assurance Corporation is a wholly
owned subsidiary of American Skandia Investment Holding Corporation, whose
indirect parent is Skandia Insurance Company Ltd. Skandia Insurance Company Ltd.
is a Swedish company that holds a number of insurance companies in many
countries. The predecessor to Skandia Insurance Company Ltd. commenced
operations in 1855. For more information, see the section entitled The Company
and the following subsections: (a) Lines of Business; (b) Selected Financial
Data; (c) Management's Discussion and Analysis of Financial Condition and
Results of Operations (including: (i) Results of Operations; (ii) Liquidity and
Capital Resources; and (iii) Segment Information); (d) Reinsurance; (e)
Reserves; (f) Competition; (g) Employees; (h) Regulation; and (i) Executive
Officers and Directors.
AVAILABLE INFORMATION: A Statement of Additional Information is available from
us without charge upon request by filling in the coupon at the end of this
Prospectus and sending it (or a written request) to American Skandia Life
Assurance Corporation, Concierge Desk, P.O. Box 883, Shelton, CT 06484. You also
may forward such a request electronically to our Customer Service Department or
call us at 1-(800)-752-6342. Our electronic mail address is
[email protected]. It includes further information, as described in
the section of this Prospectus entitled "Contents of the Statement of Additional
Information". This Prospectus is part of the registration statements we filed
with the Securities and Exchange Commission ("SEC") regarding this offering.
Additional information on us and this offering is available in those
registration statements and the exhibits thereto. You may obtain copies of these
materials at the prescribed rates from the SEC's Public Reference Section, 450
Fifth Street N.W., Washington, D.C., 20549. You may inspect and copy those
registration statements and exhibits thereto at the SEC's public reference
facilities at the above address, Room 1024, and at the SEC's Regional Offices, 7
World Trade Center, New York, NY, and the Everett McKinley Dirksen Building, 219
South Dearborn Street, Chicago, IL. These documents, as well as documents
incorporated by reference, may also be obtained through the SEC's Internet
Website (http://www.sec.gov) for this registration statement as well as for
other registrants that file electronically with the SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE: 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 and Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997 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 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].
<PAGE>
CONTRACT EXPENSE SUMMARY: The summary provided below includes information
regarding the expenses for your Annuity, for the Sub-accounts and for the
underlying mutual fund portfolios. The only expense applicable if you allocate
all your Account Value to Fixed Allocations would be the contingent deferred
sales charge. More detail regarding the expenses of the underlying mutual funds
and their portfolios may be found either in the prospectuses for such mutual
funds or in the annual reports of such mutual funds. The expenses of our
Sub-accounts (not those of the underlying mutual fund portfolios in which our
Sub-accounts invest) are the same no matter which Sub-account you choose.
Therefore, these expenses are only shown once below. In certain states, premium
taxes may be applicable.
Your Transaction Expenses
Contingent Deferred Sales Charge, as a Year 1-7.5%; year 2-7.0%;
percentage of Purchase Payments liquidated, year 3-6.0%; year 4-5.0%;
outside New York State year 5-4.0%; year 6-3.0%;
year 7-2.0%; year 8 and
thereafter -0% of each Purchase
Payment as measured from the date
it was allocated to Account Value
Contingent Deferred Sales Charge, as a Year 1-7.0%; year 2-6.0%;
percentage of Purchase Payments liquidated, year 3-5.0%; year 4-4.0%;
in New York State year 5-3.0%; year 6-2.0%;
year 7-1.0%; year 8 and
thereafter-0% of each Purchase
Payment as measured from the date
it was allocated to Account Value
Annual Maintenance Fee Smaller of $30 or 2% of Account Value
Tax Charges Dependent on the requirements of the applicable jurisdiction
Transfer Fee $10 for each transfer after the twelfth in any Annuity Year
Annual Expenses of the Sub-accounts
(as a percentage of average daily net assets)
Mortality and Expense Risk Charges 1.25%
Administration Charge 0.15%
-----
Total Annual Expenses of the Sub-accounts* 1.40%
*The combination of the Mortality and Expense Risk Charges and Administration
Charge is referred to as the "Insurance Charge" elsewhere in this Prospectus and
in the Annuity contract.
Underlying Mutual Fund Portfolio Annual Expenses
(as a percentage of average net assets)
Unless otherwise indicated, the expenses shown below are for the year ending
December 31, 1996. "N/A" indicates that no entity has agreed to reimburse the
particular expense indicated. The expenses of the portfolios either are
currently being partially reimbursed or may be partially reimbursed in the
future. Management Fees, Other Expenses and Total Annual Expenses are provided
on both a reimbursed and not reimbursed basis, if applicable.
<PAGE>
<TABLE>
<CAPTION>
Total Total
Annual Annual
Management Management Other Other Expenses Expenses
Fee Fee Expenses Expenses after any without any
after any without any after any without any applicable applicable
Portfolio: voluntary voluntary any applicable applicable waiver or waiver or
waiver waiver reimbursement reimbursement reimbursement reimbursement
- ------------------------------------------------------------------------------------------------------------------------------------
American Skandia Trust
<S> <C> <C> <C> <C> <C> <C>
Lord Abbett Growth and Income N/A 0.75% N/A 0.22% N/A 0.97%
JanCap Growth N/A 0.90% N/A 0.20% N/A 1.10%
AST Janus Overseas Growth(1) N/A 1.00% N/A 0.42% N/A 1.42%
AST Money Market 0.45% 0.50% 0.15% 0.21% 0.60% 0.71%
Federated Utility Income N/A 0.67% N/A 0.26% N/A 0.93%
Federated High Yield N/A 0.75% N/A 0.28% N/A 1.03%
T. Rowe Price Asset Allocation N/A 0.85% N/A 0.35% N/A 1.20%
T. Rowe Price Int'l Equity N/A 1.00% N/A 0.30% N/A 1.30%
T. Rowe Price Natural Resources N/A 0.90% N/A 0.40% N/A 1.30%
T. Rowe Price Int'l Bond(2) N/A 0.80% N/A 0.36% N/A 1.16%
T. Rowe Price Small Co. Value(1) N/A 0.90% N/A 0.37% N/A 1.27%
Founders Capital Appreciation N/A 0.90% N/A 0.26% N/A 1.16%
Founders Passport N/A 1.00% N/A 0.36% N/A 1.36%
INVESCO Equity Income N/A 0.75% N/A 0.23% N/A 0.98%
PIMCO Total Return Bond N/A 0.65% N/A 0.24% N/A 0.89%
PIMCO Limited Maturity Bond N/A 0.65% N/A 0.24% N/A 0.89%
Berger Capital Growth N/A 0.75% N/A 0.26% N/A 1.01%
Robertson Stephens Value + Growth(3)N/A 1.00% N/A 0.33% N/A 1.33%
Twentieth Century Int'l Growth(1) N/A 1.00% N/A 0.42% N/A 1.42%
Twentieth Century Strategic Bal.(1) N/A 0.85% N/A 0.33% N/A 1.18%
AST Putnam Value Growth & Income(1) N/A 0.75% N/A 0.33% N/A 1.08%
AST Putnam Int'l Equity(4) N/A 0.89% N/A 0.27% N/A 1.16%
AST Putnam Balanced(5) N/A 0.75% N/A 0.24% N/A 0.99%
The Alger American Fund
Growth N/A 0.75% N/A 0.04% N/A 0.79%
Small Capitalization N/A 0.85% N/A 0.03% N/A 0.88%
MidCap Growth N/A 0.80% N/A 0.04% N/A 0.84%
Neuberger & Berman Advisers
Management Trust
Partners N/A 0.84% N/A 0.11% N/A 0.95%
Montgomery Variable Series
Emerging Markets(3) 0.23% 1.25% 1.22% 1.22% 1.45% 2.47%
</TABLE>
(1) These Portfolios were first offered publicly in January 1997. Expenses shown
are based on estimated amounts for the current fiscal year.
(2) Prior to May 1, 1996, the Investment Manager had engaged Scudder,
Stevens & Clark, Inc. as Sub-advisor for the Portfolio, for a total Investment
Management fee payable at the annual rate of 1.00% of the average daily net
assets of the Portfolio. As of May 1, 1996, the Investment Manager engaged Rowe
Price-Fleming International, Inc. as Sub-advisor for the Portfolio, for a total
Investment Management fee payable at the annual rate of .80% of the average
daily net assets of the Portfolio. The Management Fee in the above chart
reflects the current Investment Management fee payable to the Investment
Manager.
(3) This Portfolio commenced operation in May, 1996. Expenses shown are
estimated.
(4) Prior to October 15, 1996, the Investment Manager had engaged Seligman
Henderson Co. as Sub-advisor for the Portfolio, for a total Investment
Management fee payable at the annual rate of 1.0% of the average daily net
assets of the Portfolio. The Investment Manager had also voluntarily agreed to
waive a portion of its fee equal to .15% on assets in excess of $75 million. As
of October 15, 1996, the Investment Manager engaged Putnam Investment
Management, Inc. as Sub-advisor for the Portfolio, for a total Investment
Management fee payable at the annual rate of 1.0% of the average daily net
assets of the Portfolio not in excess of $75 million; plus .85% of the
Portfolio's average daily net assets over $75 million. The Management Fee in the
above chart reflects the current Investment Management fee payable to the
Investment Manager.
(5) Prior to October 15, 1996, the Investment Manager had engaged Phoenix
Investment Counsel, Inc. as Sub-advisor for the Portfolio, for a total
Investment Management fee payable at the annual rate of .75% of the average
daily net assets of the Portfolio not in excess of $75 million; plus .65% of the
Portfolio's average daily net assets in excess of $75 million. As of October 15,
1996, the Investment Manager engaged Putnam Investment Management, Inc. as
Sub-advisor for the Portfolio, for a total Investment Management fee payable at
the annual rate of .75% of the average daily net assets of the Portfolio not in
excess of $300 million; plus .70% of the Portfolio's average daily net assets in
excess of $300 million. The Management Fee in the above chart reflects the
current Investment Management fee payable to the Investment Manager.
The purpose of the above table is to assist you in understanding the various
costs and expenses that you would bear directly or indirectly as an investor in
the Portfolio(s).
The underlying mutual fund portfolio information was provided by the underlying
mutual funds. The Company has not independently verified such information.
EXPENSE EXAMPLES: The examples which follow are designed to assist you in
understanding the various costs and expenses you will bear directly or
indirectly if you maintain Account Value in the Sub-accounts. The examples
reflect expenses of our Sub-accounts, as well as those of the underlying mutual
fund portfolios.
The examples shown assume that: (a) all your Account Value is maintained only in
Sub-accounts; (b) fees and expenses remain constant; (c) there are no
withdrawals of Account Value during the period shown; (d) there are no transfers
or other transactions subject to a fee during the period shown; (e) no tax
charge applies; and (f) the expenses throughout the period for the underlying
mutual fund portfolios will be the lower of the expenses without any applicable
reimbursement or expenses after any applicable reimbursement, as shown above in
the section entitled "Contract Expense Summary."
THE EXAMPLES ARE ILLUSTRATIVE ONLY - THEY SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE UNDERLYING MUTUAL FUNDS OR
THEIR PORTFOLIOS - ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The
Sub-accounts are referred to below by their specific names.
Examples (amounts shown are rounded to the nearest dollar)
<PAGE>
If you surrender your Annuity at the end of the
applicable time period, you would pay the following
expenses on a $1,000 investment, assuming 5% annual
return on assets:
If you do not surrender your Annuity at the end of the applicable time
period or begin taking annuity payments at such time, you would pay the
following expenses on a $1,000 investment, assuming 5% annual return on
assets:
<PAGE>
<TABLE>
<CAPTION>
After: After:
Sub-accounts 1 yr. 3 yr. 5 yr. 10 yr. 1 yr. 3 yr. 5 yr. 10 yr.
- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
JanCap Growth 101 141 178 291 26 81 138 291
AST Janus Overseas Growth 105 151 194 324 30 91 154 324
LA Growth and Income 100 137 171 278 25 77 131 278
Fed Utility Inc 100 136 169 274 25 76 129 274
Fed High Yield 101 139 174 285 26 79 134 285
AST Money Market 96 125 152 240 21 65 112 240
T. Rowe Price Asset Allocation 102 144 183 301 27 84 143 301
T. Rowe Price International Equity 103 147 188 311 28 87 148 311
T. Rowe Price Natural Resources 103 147 188 311 28 87 148 311
T. Rowe Price International Bond 102 143 181 298 27 83 141 298
T. Rowe Price Small Company Value 103 146 186 308 28 86 146 308
Founders Capital Appreciation 102 143 181 298 27 83 141 298
Founders Passport 104 149 191 318 29 89 151 318
INVESCO Equity Income 100 137 172 280 25 77 132 280
PIMCO Total Return Bond 99 134 167 270 24 74 127 270
PIMCO Limited Maturity Bond 99 134 167 270 24 74 127 270
Berger Capital Growth 100 138 173 283 25 78 133 283
RS Value + Growth 104 148 189 314 29 88 149 314
AST Putnam Value Growth & Income 101 140 177 290 26 80 137 290
AST Putnam International Equity 102 143 181 298 27 83 141 298
AST Putnam Balanced 100 137 172 280 25 77 132 280
Twentieth Century Strategic Balanced 102 143 182 300 27 83 142 300
Twentieth Century International Growth 105 151 194 324 30 91 154 324
AA Growth 98 131 162 260 23 71 122 260
AA Small Capitalization 99 134 167 270 24 74 127 270
AA MidCap Growth 99 133 164 265 24 73 124 265
NB Partners 100 136 170 277 25 76 130 277
MV Emerging Markets 105 151 195 325 30 91 155 325
</TABLE>
CONDENSED FINANCIAL INFORMATION: The Unit Prices and number of Units in the
Sub-accounts that commenced operations prior to January 1, 1997 are shown below,
as is yield information on the AST Money Market Sub-account. All or some of
these Sub-accounts were available during the periods shown as investment options
for other variable annuities we offer pursuant to different prospectuses. The
charges assessed against the Sub-accounts under the terms of those other
variable annuities are the same as the charges assessed against such
Sub-accounts under the Annuity offered pursuant to this Prospectus.
Unit Prices And Numbers Of Units: The following table shows:
(a) the Unit Price as of the dates shown for Units in each of the Class 1
Sub-accounts of Separate Account B that commenced operations prior to January 1,
1997 and are being offered pursuant to this Prospectus or which we offer
pursuant to certain other prospectuses; and (b) the number of Units outstanding
in each such Sub-account as of the dates shown. The year in which operations
commenced in each such Sub-account is noted in parentheses. The portfolios in
which a particular Sub-account invests may or may not have commenced operations
prior to the date such Sub-account commenced operations. The initial offering
price for each Sub-account was $10.00.
<PAGE>
Sub-account and the Year Sub-account Operations Commenced
<TABLE>
<CAPTION>
AA AST
Small AA AST Putnam
Capitali- AA MidCap Money International Founders JanCap
zation Growth Growth Market Equity Passport Growth
(1988) (1988) (1993) (1992) (1989) (1995) (1992)
------ ------ ------ ------ ------ ------ ------
No. of Units
<S> <C> <C> <C> <C> <C> <C> <C>
as of 12/31/96 14,939,269 15,666,357 14,528,945 42,435,169 17,220,688 9,922,698 46,779,164
as of 12/31/95 12,317,364 12,092,291 8,299,743 30,564,442 14,393,137 2,601,283 28,662,737
as of 12/31/94 9,356,764 5,614,760 4,308,374 27,491,389 14,043,215 0 22,354,170
as of 12/31/93 7,101,658 2,997,458 1,450,892 11,422,783 9,063,464 0 13,603,637
as of 12/31/92 4,846,024 1,482,037 0 457,872 1,948,773 0 1,476,139
as of 12/31/91 2,172,189 559,779 0 0 1,092,902 0 0
as of 12/31/90 419,718 82,302 0 0 398,709 0 0
as of 12/31/89 35,438 6,900 0 0 29,858 0 0
as of 12/31/88 3,000 0 0 0 0 0 0
Unit Price
as of 12/31/96 $40.85 $34.84 $20.96 $11.16 $19.70 $11.39 $18.79
as of 12/31/95 39.78 31.18 19.00 10.77 18.23 10.23 14.85
as of 12/31/94 27.95 23.18 13.34 10.35 16.80 0 10.91
as of 12/31/93 29.65 23.18 13.74 10.12 16.60 0 11.59
as of 12/31/92 26.54 19.19 0 10.01 12.37 0 10.51
as of 12/31/91 26.00 17.32 0 0 13.69 0 0
as of 12/31/90 16.74 12.51 0 0 12.98 0 0
as of 12/31/89 15.61 12.19 0 0 13.64 0 0
as of 12/31/88 9.63 9.96 0 0 0 0 0
Sub-account and the Year Sub-account Operations Commenced
LA T. Rowe T. Rowe T. Rowe
Growth AST Fed Fed Price Price Price
and Putnam Utility High Asset International Natural
Income Balanced Income Yield Allocation Equity Resources
(1992) (1993) (1993) (1994) (1994) (1994) (1995)
No. of Units
as of 12/31/96 28,937,085 20,691,852 9,062,152 15,460,522 8,863,840 32,628,595 6,061,852
as of 12/31/95 18,411,759 20,163,848 8,642,186 6,915,158 4,868,956 17,935,251 808,605
as of 12/31/94 7,479,449 13,986,604 7,177,232 2,106,791 2,320,063 11,166,758 0
as of 12/31/93 4,058,228 8,743,758 5,390,887 0 0 0 0
as of 12/31/92 956,949 0 0 0 0 0 0
as of 12/31/91 0 0 0 0 0 0 0
as of 12/31/90 0 0 0 0 0 0 0
as of 12/31/89 0 0 0 0 0 0 0
as of 12/31/88 0 0 0 0 0 0 0
Unit Price
as of 12/31/96 $17.79 $13.70 $13.41 $12.62 $13.30 $11.70 $14.19
as of 12/31/95 15.22 12.49 12.20 11.27 11.92 10.39 11.01
as of 12/31/94 11.98 10.34 9.81 9.56 9.80 9.49 0
as of 12/31/93 11.88 10.47 10.69 0 0 0 0
as of 12/31/92 10.60 0 0 0 0 0 0
as of 12/31/91 0 0 0 0 0 0 0
as of 12/31/90 0 0 0 0 0 0 0
as of 12/31/89 0 0 0 0 0 0 0
as of 12/31/88 0 0 0 0 0 0 0
Sub-account and the Year Sub-account Operations Commenced
T. Rowe PIMCO PIMCO
Price Founders INVESCO Total Limited Berger
International Capital Equity Return Maturity Capital NB
Bond Appreciation Income Bond Bond Growth Partners
(1994) (1994) (1994) (1994) (1995) (1994) (1995)
------ ----- ------ ------ ------ ------ ------
No. of Units
as of 12/31/96 8,677,712 12,282,211 23,592,226 29,921,643 18,894,375 9,563,858 18,457,334
as of 12/31/95 4,186,695 6,076,373 13,883,712 19,061,840 15,058,644 3,658,836 7,958,498
as of 12/31/94 1,562,364 2,575,105 6,633,333 4,577,708 0 301,267 0
as of 12/31/93 0 0 0 0 0 0 0
as of 12/31/92 0 0 0 0 0 0 0
as of 12/31/91 0 0 0 0 0 0 0
as of 12/31/90 0 0 0 0 0 0 0
as of 12/31/89 0 0 0 0 0 0 0
as of 12/31/88 0 0 0 0 0 0 0
Unit Price
as of 12/31/96 $10.98 $16.54 $14.23 $11.48 $10.62 $13.99 $15.39
as of 12/31/95 10.51 13.97 12.33 11.26 10.37 12.20 12.05
as of 12/31/94 9.59 10.69 9.61 9.61 0 9.94 0
as of 12/31/93 0 0 0 0 0 0 0
as of 12/31/92 0 0 0 0 0 0 0
as of 12/31/91 0 0 0 0 0 0 0
as of 12/31/90 0 0 0 0 0 0 0
as of 12/31/89 0 0 0 0 0 0 0
as of 12/31/88 0 0 0 0 0 0 0
Sub-account and the Year Sub-account Operations Commenced
</TABLE>
RS MV
Value + Emerging
Growth Markets
(1996) (1996)
No. of Units
as of 12/31/96 4,324,161 2,360,940
as of 12/31/95 0 0
as of 12/31/94 0 0
as of 12/31/93 0 0
as of 12/31/92 0 0
as of 12/31/91 0 0
as of 12/31/90 0 0
as of 12/31/89 0 0
as of 12/31/88 0 0
Unit Price
as of 12/31/96 $10.89 $10.25
as of 12/31/95 0 0
as of 12/31/94 0 0
as of 12/31/93 0 0
as of 12/31/92 0 0
as of 12/31/91 0 0
as of 12/31/90 0 0
as of 12/31/89 0 0
as of 12/31/88 0 0
Information is not shown for Sub-accounts that had not commenced operations
prior to January 1, 1997.
The financial statements of the Sub-accounts being offered to you are found in
the Statement of Additional Information.
Yields On Money Market Sub-account: Shown below are the
current and effective yields for a hypothetical contract. The yield is
calculated based on the performance of the AST Money Market Sub-account during
the last seven days of the calendar year ending prior to the date of this
Prospectus. At the beginning of the seven day period, the hypothetical contract
had a balance of one Unit. The current and effective yields reflect the
recurring charge against the Sub-account. Please note that current and effective
yield information will fluctuate. This information may not provide a basis for
comparisons with deposits in banks or other institutions which pay a fixed yield
over a stated period of time, or with investment companies which do not serve as
underlying funds for variable annuities.
Sub-account Current Yield Effective Yield
AST Money Market 3.53% 3.59%
INVESTMENT OPTIONS: We offer a range of variable and fixed
options as ways to invest your Account Value. Compensation to your
representative may depend on the investment options selected (see "Sale of the
Annuities").
Variable Investment Options: During the accumulation phase, we
offer a number of Sub-accounts as variable investment options. These are all
Class 1 Sub-accounts of American Skandia Life Assurance Corporation Variable
Account B ("Separate Account B"). Each of these Sub-accounts invests exclusively
in one underlying mutual fund, or a portfolio of an underlying mutual fund. As
of the date of this Prospectus, our Sub-accounts and the underlying mutual funds
or portfolios in which they invest are as follows:
<TABLE>
<CAPTION>
Underlying Mutual Fund: The Alger American Fund
Sub-account Underlying Mutual Fund Portfolio
<S> <C> <C> <C> <C> <C>
AA Growth Growth
AA Small Capitalization Small Capitalization
AA MidCap Growth MidCap Growth
Underlying Mutual Fund: Neuberger & Berman Advisers
Management Trust
Sub-account Underlying Mutual Fund Portfolio
NB Partners Partners
Underlying Mutual Fund: American Skandia Trust
Sub-account Underlying Mutual Fund Portfolio
JanCap Growth JanCap Growth
AST Janus Overseas Growth AST Janus Overseas Growth
LA Growth and Income Lord Abbett Growth and Income
Fed Utility Inc Federated Utility Income
Fed High Yield Federated High Yield
AST Money Market AST Money Market
T. Rowe Price Asset Allocation T. Rowe Price Asset Allocation
T. Rowe Price International Equity T. Rowe Price International Equity
T. Rowe Price Natural Resources T. Rowe Price Natural Resources
T. Rowe Price International Bond T. Rowe Price International Bond
T. Rowe Price Small Company Value T. Rowe Price Small Company Value
Founders Capital Appreciation Founders Capital Appreciation
Founders Passport Founders Passport
INVESCO Equity Income INVESCO Equity Income
PIMCO Total Return Bond PIMCO Total Return Bond
PIMCO Limited Maturity Bond PIMCO Limited Maturity Bond
Berger Capital Growth Berger Capital Growth
RS Value + Growth Robertson Stephens Value + Growth
Underlying Mutual Fund: American Skandia Trust
AST Putnam Value Growth & Income AST Putnam Value Growth & Income
AST Putnam International Equity AST Putnam International Equity
AST Putnam Balanced AST Putnam Balanced
Twentieth Century Strategic Balanced Twentieth Century Strategic Balanced
Twentieth Century International Growth Twentieth Century International Growth
Underlying Mutual Fund: Montgomery Variable Series
Sub-account Underlying Mutual Fund Portfolio
MV Emerging Markets Montgomery Variable Series: Emerging Markets
</TABLE>
Certain Sub-accounts may not be available in all jurisdictions. If and when we
obtain approval of the applicable authorities to make such variable investment
options available, we will notify Owners of the availability of such
Sub-accounts.
We may make other underlying mutual funds available by creating new
Sub-accounts. Additionally, new portfolios may be made available by the creation
of new Sub-accounts from time to time. Such a new portfolio of an underlying
mutual fund may be disclosed in its prospectus. However, addition of a portfolio
does not require us to create a new Sub-account to invest in that portfolio. We
may take other actions in relation to the Sub-accounts and/or Separate Account B
(see "Modifications").
Each underlying mutual fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act") as an open-end management investment company.
Each underlying mutual fund or portfolio thereof may or may not be diversified
as defined in the 1940 Act. As of the date of this Prospectus, the portfolios in
which Sub-accounts offered pursuant to this Prospectus invest are those shown
above. A summary of the investment objectives and policies of such underlying
mutual fund portfolios is found in Appendix B. The trustees or directors, as
applicable, of an underlying mutual fund may add, eliminate or substitute
portfolios from time to time. Generally, each portfolio issues a separate class
of shares. Shares of the underlying mutual fund portfolios are available to
separate accounts of life insurance companies offering variable annuity and
variable life insurance products. The shares may also be made available, subject
to obtaining all required regulatory approvals, for direct purchase by various
pension and retirement savings plans that qualify for preferential tax treatment
under the Code.
The investment objectives, policies, charges, operations, the attendant risks
and other details pertaining to each underlying mutual fund portfolio are
described in the prospectus of each underlying mutual fund and the statements of
additional information for such underlying mutual fund. Also included in such
information is the investment policy of each mutual fund or portfolio regarding
the acceptable ratings by recognized rating services for bonds and other debt
obligations. There can be no guarantee that any underlying mutual fund or
portfolio will meet its investment objectives.
Shares of the underlying mutual funds may be available to variable life
insurance and variable annuity separate accounts of other insurance companies.
Possible consequences of this multiple availability are discussed in the
subsection entitled Resolving Material Conflicts.
The prospectus for any underlying mutual fund or funds being considered by you
should be read in conjunction herewith. A copy of each prospectus may be
obtained without charge from us by calling our Concierge Desk, 1-800-752-6342 or
writing to us at either P.O. Box 883, Attention: Concierge Desk, Shelton,
Connecticut, 06484-0883, or to our electronic mail address which is
[email protected].
Fixed Investment Options: For the payout phase you may elect
fixed annuity payments based on our then current annuity rates. The discussion
below describes the fixed investment options in the accumulation phase.
As of the date of this Prospectus we offer in most jurisdictions in which the
Annuity is available Fixed Allocations with Guarantee Periods of 1, 2, 3, 5, 7
and 10 years. Each such Fixed Allocation is accounted for separately. Each Fixed
Allocation earns a fixed rate of interest throughout a set period of time called
a Guarantee Period. Multiple Fixed Allocations are permitted, subject to our
allocation rules. The duration of a Guarantee Period may be the same or
different from the duration of the Guarantee Periods of any of your prior Fixed
Allocations.
We may or may not be able to obtain approval in the future in certain
jurisdictions of endorsements to individual or group annuities that include the
type of Fixed Allocations offered pursuant to this Prospectus. If such approval
is obtained, we may take those steps needed to make such Fixed Allocations
available to purchasers to whom Annuities were issued prior to the date of such
approval.
To the extent permitted by law, we reserve the right at any time to offer
Guarantee Periods with durations that differ from those which were available
when your Annuity was issued. We also reserve the right at any time to stop
accepting new allocations, transfers or renewals for a particular Guarantee
Period. Such an action may have an impact on the MVA (see "Account Value of the
Fixed Allocations").
A Guarantee Period for a Fixed Allocation begins: (a) when all or part of a Net
Purchase Payment is allocated for that particular Guarantee Period; (b) upon
transfer of any of your Account Value to a Fixed Allocation for that particular
Guarantee Period; or (c) when a Guarantee Period attributable to a Fixed
Allocation "renews" after its Maturity Date.
We declare the rates of interest applicable during the various Guarantee Periods
offered. Declared rates are effective annual rates of interest. The rate of
interest applicable to a Fixed Allocation is the one in effect when its
Guarantee Period begins. The rate is guaranteed throughout the Guarantee Period.
We inform you of the interest rate applicable to a Fixed Allocation, as well as
its Maturity Date, when we confirm the allocation. We declare interest rates
applicable to new Fixed Allocations from time-to-time. Any new Fixed Allocation
in an existing Annuity is credited interest at a rate not less than the rate we
are then crediting to Fixed Allocations for the same Guarantee Period selected
by new Annuity purchasers in the same class.
The interest rates we credit are subject to a minimum. We may declare a higher
rate. The minimum is based on both an index and a reduction to the interest rate
determined according to the index.
The index is based on the published rate for certificates of indebtedness
(bills, notes or bonds, depending on the term of indebtedness) of the United
States Treasury at the most recent Treasury auction held at least 30 days prior
to the beginning of the applicable Fixed Allocation's Guarantee Period. The term
(length of time from issuance to maturity) of the certificates of indebtedness
upon which the index is based is the same as the duration of the Guarantee
Period. If no certificates of indebtedness are available for such term, the next
shortest term is used. If the United States Treasury's auction program is
discontinued, we will substitute indexes which in our opinion are comparable. If
required, implementation of such substitute indexes will be subject to approval
by the Securities and Exchange Commission and the Insurance Department of the
jurisdiction in which your Annuity was delivered. (For Annuities issued as
certificates of participation in a group contract, it is our expectation that
approval of only the jurisdiction in which such group contract was delivered
applies.)
The reduction used in determining the minimum interest rate is two and one
quarter percent of interest (2.25%).
Where required by the laws of a particular jurisdiction, a specific minimum
interest rate, compounded yearly, will apply should the index less the reduction
be less than the specific minimum interest rate applicable to that jurisdiction.
WE MAY CHANGE THE INTEREST RATES WE CREDIT NEW FIXED ALLOCATIONS AT ANY TIME.
Any such change does not have an impact on the rates applicable to Fixed
Allocations with Guarantee Periods that began prior to such change. However,
such a change will affect the MVA (see "Account Value of the Fixed
Allocations").
We have no specific formula for determining the interest rates we declare. Rates
may differ between classes and between types of annuities we offer, even for
guarantees of the same duration starting at the same time. We expect our
interest rate declarations for Fixed Allocations to reflect the returns
available on the type of investments we make to support the various classes of
annuities supported by the assets in Separate Account D. However, we may also
take into consideration in determining rates such factors including, but not
limited to, the durations offered by the annuities supported by the assets in
Separate Account D, regulatory and tax requirements, the liquidity of the
secondary markets for the type of investments we make, commissions,
administrative expenses, investment expenses, our insurance risks in relation to
Fixed Allocations, general economic trends and competition. OUR MANAGEMENT MAKES
THE FINAL DETERMINATION AS TO INTEREST RATES TO BE CREDITED. WE CANNOT PREDICT
THE RATES WE WILL DECLARE IN THE FUTURE.
OPERATIONS OF THE SEPARATE ACCOUNTS: The assets supporting our obligations under
the Annuities may be held in various accounts, depending on the obligation being
supported. In the accumulation phase, assets supporting Account Values are held
in separate accounts established under the laws of the State of Connecticut. In
the payout phase, assets supporting fixed annuity payments and any adjustable
annuity payments we make available are held in our general account.
Separate Accounts: We are the legal owner of assets in the
separate accounts. Income, gains and losses, whether or not realized, from
assets allocated to these separate accounts, are credited to or charged against
each such separate account in accordance with the terms of the annuities
supported by such assets without regard to our other income, gains or losses or
to the income, gains or losses in any other of our separate accounts. We will
maintain assets in each separate account with a total market value at least
equal to the reserve and other liabilities we must maintain in relation to the
annuity obligations supported by such assets. These assets may only be charged
with liabilities which arise from such annuities. This may include Annuities
offered pursuant to this Prospectus or certain other annuities we may offer. The
investments made by separate accounts are subject to the requirements of
applicable state laws. These investment requirements may differ between those
for separate accounts supporting variable obligations and those for separate
accounts supporting fixed obligations.
Separate Account B: In the accumulation phase, the assets
supporting obligations based on allocations to the variable investment options
are held in our Separate Account B. Separate Account B consists of multiple
Sub-accounts. Separate Account B was established by us pursuant to Connecticut
law. Separate Account B also holds assets of other annuities issued by us with
values and benefits that vary according to the investment performance of
Separate Account B.
The Sub-accounts offered pursuant to this Prospectus are all Class 1
Sub-accounts of Separate Account B. Each class of Sub-accounts in Separate
Account B has a different level of charges assessed against such Sub-accounts.
The amount of our obligations in relation to allocations to the Sub-accounts is
based on the investment performance of such Sub-accounts. However, the
obligations themselves are our general corporate obligations.
Separate Account B is registered with the SEC under the 1940 Act as a unit
investment trust, which is a type of investment company. This does not involve
any supervision by the SEC of the investment policies, management or practices
of Separate Account B. Each Sub-account invests only in a single mutual fund or
mutual fund portfolio.
The only Sub-accounts available for allocation of your Account Value are those
offered pursuant to this Prospectus. Persons interested in our other annuities
may be offered the same or different Sub-accounts of Separate Account B or any
of our other separate accounts. Such sub-accounts may invest in some or all of
the same underlying mutual funds or portfolios of such underlying mutual funds
as the Sub-accounts offered pursuant to this Prospectus. As of the date of this
Prospectus, the Annuities offered pursuant to this Prospectus and annuities
offered pursuant to a number of other prospectuses maintained assets in Class 1
Sub-accounts. We may offer additional annuities that maintain assets in Class 1
Sub-accounts. In addition, some of the Class 1 Sub-accounts may invest in
underlying mutual funds or underlying mutual fund portfolios in which
Sub-accounts in other classes of Separate Account B invest.
You will find additional information about these underlying mutual funds and
portfolios in the prospectuses for such funds. Portfolios added to the
underlying mutual funds may or may not be offered through added Sub-accounts.
Sub-accounts are permitted to invest in underlying mutual funds or portfolios
that we consider suitable. We also reserve the right to add Sub-accounts,
eliminate Sub-accounts, to combine Sub-accounts, or to substitute underlying
mutual funds or portfolios of underlying mutual funds.
Values and benefits based on allocations to the Sub-accounts will vary with the
investment performance of the underlying mutual funds or fund portfolios, as
applicable. We do not guarantee the investment results of any Sub-account, nor
is there any assurance that the Account Value allocated to the Sub-accounts will
equal the amounts allocated to the Sub-accounts as of any time other than the
Valuation Period of such allocation. You bear the entire investment risk.
Separate Account D: In the accumulation phase, assets
supporting our obligations based on Fixed Allocations are held in Separate
Account D, which is a "non-unitized" separate account. Such obligations are
based on the interest rates we credit to Fixed Allocations and the terms of the
Annuities. These obligations do not depend on the investment performance of the
assets in Separate Account D. Separate Account D was established by us pursuant
to Connecticut law.
There are no discrete units in Separate Account D. No party with rights under
any annuity nor any group contract owner participates in the investment gain or
loss from assets belonging to Separate Account D. Such gain or loss accrues
solely to us. We retain the risk that the value of the assets in Separate
Account D may drop below the reserves and other liabilities we must maintain.
Should the value of the assets in Separate Account D drop below the reserve and
other liabilities we must maintain in relation to the annuities supported by
such assets, we will transfer assets from our general account to Separate
Account D to make up the difference. We have the right to transfer to our
general account any assets of Separate Account D in excess of such reserves and
other liabilities. We maintain assets in Separate Account D supporting a number
of annuities we offer.
If you surrender, withdraw or transfer Account Value from a Fixed Allocation
before the end of its Guarantee Period, you bear the risk inherent in the MVA
(see "Account Value of the Fixed Allocations"). The Account Value of a Fixed
Allocation is guaranteed on its Maturity Date (and, where required by law, the
30 days prior to the Maturity Date) to be its then current Interim Value.
We operate Separate Account D in a fashion designed to meet the obligations
created by Fixed Allocations. Factors affecting these operations include the
following:
(1) The State of New York, which is one of the jurisdictions in which we
are licensed to do business, requires that we meet certain "matching"
requirements. These requirements address the matching of the durations of the
assets with the durations of obligations supported by such assets. We believe
these matching requirements are designed to control an insurer's ability to risk
investing in long-term assets to support short term interest rate guarantees. We
also believe this limitation controls an insurer's ability to offer unrealistic
rate guarantees.
(2) We employ an investment strategy designed to limit the risk of default.
Some of the guidelines of our current investment strategy for Separate Account D
include, but are not limited to, the following:
(a) Investments may include cash; debt securities issued by the United
States Government or its agencies and instrumentalities; money market
instruments; short, intermediate and long-term corporate obligations; private
placements; asset-backed obligations; and municipal bonds.
(b) At the time of purchase, fixed income securities will be in one of the
top four generic lettered rating classifications as established by a nationally
recognized statistical rating organization ("NRSRO") such as Standard & Poor's
or Moody's Investor Services, Inc.
We are not obligated to invest according to the aforementioned guidelines or any
other strategy except as may be required by Connecticut and other state
insurance laws.
(3) We have the sole discretion to employ investment managers that we
believe are qualified, experienced and reputable to manage Separate Account D.
We currently employ investment managers for Separate Account D including, but
not limited to, J.P. Morgan Investment Management Inc. Each manager is
responsible for investment management of different portions of Separate Account
D. From time to time additional investment managers may be employed or
investment managers may cease being employed. We are under no obligation to
employ or continue to employ any investment manager(s).
(4) The assets in Separate Account D are accounted for at their market
value, rather than at book value.
(5) We are obligated by law to maintain our capital and surplus, as well as
our reserves, at the levels required by applicable state insurance law and
regulation.
INSURANCE ASPECTS OF THE ANNUITY: As an insurance company we bear the insurance
risk inherent in the Annuity. This includes the risks that mortality and
expenses exceed our expectations, and the investment and re-investment risks in
relation to the assets supporting obligations not based on the investment
performance of a separate account. We are subject to regulation that requires
reserving and other practices in a manner that minimizes the insurance risk (see
"Regulation").
CHARGES ASSESSED OR ASSESSABLE AGAINST THE ANNUITY: The Annuity charges which
are assessed or may be assessable under certain circumstances are the contingent
deferred sales charge, the maintenance fee, a charge for taxes and a transfer
fee. These charges are allocated according to our rules. The maintenance fee and
transfer charge are not assessed if no Account Value is maintained in the
Sub-accounts at the time such fee or charge is payable. However, we make certain
assumptions regarding maintenance and transfer expenses as part of the overall
expense assumptions used in determining the interest rates we credit to Fixed
Allocations. Charges are also assessed against the Sub-accounts and the
underlying mutual funds. We also may charge you for special services, such as
dollar cost averaging, rebalancing, Systematic Withdrawals, Minimum
Distributions and additional reports. As of the date of this Prospectus, we do
not charge you for any special services.
Contingent Deferred Sales Charge: Although we incur sales
expenses in connection with the sale of contracts (for example, preparation of
sales literature, expenses of selling and distributing the contracts, including
commissions, and other promotional costs), we do not deduct any charge from your
Purchase Payments for such expenses. However, a contingent deferred sales charge
may be assessed. We assess a contingent deferred sales charge against the
portion of any withdrawal or surrender that is deemed to be a liquidation of
your Purchase Payments paid within the preceding seven years. The contingent
deferred sales charge applies to each Purchase Payment that is liquidated. It is
a decreasing percentage of each Purchase Payment being liquidated. The charge
decreases as the Purchase Payment ages. The aging of a Purchase Payment is
measured from the date it is applied to your Account Value. The charge for
Annuities issued for delivery in jurisdictions except New York is: year 1 -
7.5%; year 2 - 7.0%; year 3 - 6.0%; year 4 - 5.0%; year 5 - 4.0%; year 6 - 3.0%;
year 7 - 2.0%; year 8 and thereafter - 0%. The charge for Annuities issued for
delivery in New York is: year 1 -7.0%; year 2 - 6.0%; year 3 - 5.0%; year 4 -
4.0%; year 5 - 3.0%; year 6 - 2.0%; year 7 - 1.0%; year 8 and thereafter - 0%.
Each Annuity Year in the accumulation phase you may withdraw a limited amount of
Account Value without application of any contingent deferred sales charge (see
"Free Withdrawal"). However, for purposes of the contingent deferred sales
charge, amounts withdrawn as a free withdrawal are not considered a liquidation
of Purchase Payments. Account Value is deemed withdrawn according to specific
rules in determining how much, if any, contingent deferred sales charge applies
to a partial withdrawal (see "Partial Withdrawal"). There is no contingent
deferred sales charge on Purchase Payments that were applied at least 7 years
prior to the date of either a full surrender or a partial withdrawal. Where
permitted by law, any contingent deferred sales charge applicable to a full
surrender is waived if such full surrender qualifies under our rules as a
medically-related withdrawal (see "Medically-Related Surrenders").
From time to time we may reduce the amount of the contingent deferred sales
charge, the period during which it applies, or both, when Annuities are sold to
individuals or a group of individuals in a manner that reduces sales expenses.
We would consider such factors as: (a) the size and type of group; (b) the
amount of Purchase Payments; (c) present Owners making additional Purchase
Payments; and/or (d) other transactions where sales expenses are likely to be
reduced.
No contingent deferred sales charge is imposed when any group annuity contract
or any Annuity issued pursuant to this Prospectus is owned on its Issue Date by:
(a) any parent company, affiliate or subsidiary of ours; (b) an officer,
director, employee, retiree, sales representative, or in the case of an
affiliated broker-dealer, registered representative of such company; (c) a
director or trustee of any underlying mutual fund; (d) a director, officer or
employee of any investment manager or sub-advisor providing investment
management and/or advisory services to an underlying mutual fund or any
affiliate of such investment manager or sub-advisor; (e) a director, officer,
employee or registered representative of a broker-dealer that has a then current
selling agreement with American Skandia Marketing, Incorporated; (f) the then
current spouse of any such person noted in (b) through (e), above; (g) the
parents of any such person noted in (b) through (f), above; and (h) such
person's child or other legal dependent under the age of 21.
No contingent deferred sales charge is assessed on Minimum Distributions, to the
extent such Minimum Distributions are required from your Annuity at the time it
is taken. However, the charge may be assessed for any partial withdrawal taken
in excess of the Minimum Distribution, even if such amount is taken to meet
minimum distribution requirements in relation to other savings or investments
held pursuant to various retirement plans designed to qualify for preferred tax
treatment under various sections of the Code (see "Minimum Distributions").
Any elimination of the contingent deferred sales charge or any reduction to the
amount or duration of such charges will not discriminate unfairly between
Annuity purchasers. We will not make any such changes to this charge where
prohibited by law.
Maintenance Fee: A maintenance fee equaling the smaller of $30
or 2% of your then current Account Value is deducted from the Account Values in
the Sub-accounts annually and upon surrender. The fee is limited to the Account
Values in the Sub-accounts as of the Valuation Period such fee is due.
Tax Charges: In several states a tax is payable. We will
deduct the amount of tax payable at the time the tax is imposed under applicable
law. However, we reserve the right to deduct premium taxes, if any, from your
Purchase Payments, from your Account Value at the time of a withdrawal or
surrender of any type, or when applied under an Annuity option. The amount of
the tax varies from jurisdiction to jurisdiction. It may also vary depending on
whether the Annuity qualifies for certain treatment under the Code. In each
jurisdiction, the state legislature may change the amount of any current tax,
may decide to impose the tax, eliminate it, or change the time it becomes
payable. In those jurisdictions imposing such a tax, the tax rates currently in
effect range up to 31/2% and are subject to change. In addition to state taxes,
local taxes may also apply. The amounts of these taxes may exceed those for
state taxes.
Transfer Fee: We charge $10.00 for each transfer after the
twelfth in each Annuity Year. However, the fee is only charged if there is
Account Value in at least one Sub-account immediately subsequent to such
transfer.
Allocation Of Annuity Charges: Charges applicable to a
surrender are used in calculating Surrender Value. Charges applicable to any
type of withdrawal are taken from the investment options in the same ratio as
such a withdrawal is taken from the investment options (see "Allocation Rules").
The transfer fee is assessed against the Sub-accounts in which you maintain
Account Value immediately subsequent to such transfer. The transfer fee is
allocated on a pro-rata basis in relation to the Account Values in such
Sub-accounts as of the Valuation Period for which we price the applicable
transfer. No fee is assessed if there is no Account Value in any Sub-account at
such time. Tax charges are assessed against the entire Purchase Payment or
Account Value as applicable. The maintenance fee is assessed against the
Sub-accounts on a pro-rata basis in relation to the Account Values in each
Sub-account as of the Valuation Period for which we price the fee.
CHARGE ASSESSED AGAINST THE ASSETS: We assess the assets of each Class 1
Sub-account an insurance charge. The charge is assessed daily against each
Sub-account at the rate of 1.40% per year of the average daily total value of
such Sub-account. No Insurance Charge is deducted from the Fixed Allocations.
The factors we use in determining the interest rates we credit Fixed Allocations
are described above in the subsection entitled Fixed Investment Options. No
charge is deducted from assets supporting fixed or adjustable annuity payments.
The factors we use in determining fixed or adjustable annuity payments include,
but are not limited to, our expected investment returns, costs, risks and profit
targets. We reserve the right to assess a charge against the Sub-accounts and
the Fixed Allocations equal to any taxes which may be imposed upon the separate
accounts.
From time to time we may reduce the amount of the insurance charge. We may do so
when Annuities are sold to individuals or a group of individuals in a manner
that reduces maintenance and/or administrative expenses. We would consider such
factors as: (a) the size and type of group; (b) the number of Annuities
purchased by an Owner; (c) the amount of Purchase Payments; and/or (d) other
transactions where maintenance and/or administration expenses are likely to be
reduced. Any reduction of such charge will not discriminate unfairly between
Annuity purchasers. We will not make any change to this charge where prohibited
by law.
We assume the risk that the mortality experience under the Annuities may be less
favorable than our assumptions. This could arise for a number of reasons, such
as when persons upon whose lives annuity payments are based live longer than we
anticipated, or when the Sub-accounts decline in value resulting in losses in
paying death benefits. If our mortality assumptions prove to be inadequate, we
will absorb any resulting loss. Conversely, if the actual experience is more
favorable than our assumptions, then we will benefit from the gain. We also
assume the risk that the insurance charge may be insufficient to cover our
administrative and other costs not related to mortality experience.
CHARGES OF THE UNDERLYING MUTUAL FUNDS: Each underlying mutual fund assesses
various charges for investment management and investment advisory fees. These
charges generally differ between portfolios within the same underlying mutual
fund. You will find additional details in the fund prospectuses and the
statements of additional information.
PURCHASING ANNUITIES: You may purchase an Annuity for various purposes. You must
meet our requirements before we issue an Annuity and it takes effect. Certain
benefits may be available to certain classes of purchasers. You have a
"free-look" period during which you may return your Annuity for a refund amount
which may be less or more than your Purchase Payment, except in specific
circumstances.
Uses Of The Annuity: The Annuity may be issued in connection
with or purchased as a funding vehicle for certain retirement plans designed to
meet the requirements of various sections of the Code. These include, but are
not limited to: (a) Sections 401 (corporate, association, or self-employed
individuals' retirement plans); (b) Section 403(b) (tax-sheltered annuities
available to employees of certain qualifying employers); and (c) Section 408
(individual retirement accounts and individual retirement annuities - "IRAs";
Simplified Employee Pensions). We may require additional information regarding
such plans before we issue an Annuity to be used in connection with such
retirement plans. We may also restrict or change certain rights and benefits if,
in our opinion, such restrictions or changes are necessary for your Annuity to
be used in connection with such retirement plans. We may elect to no longer
offer Annuities in connection with various retirement plans. Currently, the
Annuity is not offered in connection with Section 401 plans. The Annuity may
also be used in connection with plans that do not qualify under the sections of
the Code noted above. Some of the potential tax consequences resulting from
various uses of the Annuities are discussed in the section entitled "Certain Tax
Considerations".
Application And Initial Payment: You must meet our
underwriting requirements and forward a Purchase Payment if you seek to purchase
an Annuity. These requirements may include a properly completed Application.
Where permitted by law, we may issue an Annuity without completion of an
Application for certain classes of Annuities.
As of the Issue Date: (a) if the Annuity is to be owned by natural persons, the
oldest of those persons must be age 75 or under; and (b) if the Annuity is to be
owned by an entity, the Annuitant must be age 75 or under.
The minimum initial Purchase Payment we accept is $1,000 unless you authorize
the use of bank drafting to make Purchase Payments (see "Skandia's Systematic
Investment Plan"). If you choose bank drafting, we will accept a lower initial
Purchase Payment provided that the Purchase Payments received in the first year
total at least $1,000. The initial Purchase Payment must be paid by check or by
wire transfer. It cannot be made through bank drafting. Our Office must give you
prior approval before we accept a Purchase Payment that would result in the
Account Value of all annuities you maintain with us exceeding $500,000. We
confirm each Purchase Payment in writing. Multiple annuities purchased from us
within the same calendar year may be treated for tax purposes as if they were a
single annuity (see "Certain Tax Considerations").
We reserve the right to allocate your initial Net Purchase Payment to the
investment options up to two business days after we receive, at our Office, all
of our requirements for issuing the Annuity as applied for. We may retain the
Purchase Payment and not allocate the initial Net Purchase Payment to the
investment options for up to five business days while we attempt to obtain all
such requirements. We will try to reach you or any other party from whom we need
any information or materials. If the requirements cannot be fulfilled within
that time, we will: (a) attempt to inform you of the delay; and (b) return the
amount of the Purchase Payment, unless you specifically consent to our retaining
it until all our requirements are met. Once our requirements are met, the
initial Net Purchase Payment is applied to the investment options within two
business days. Once we accept your Purchase Payment and our requirements are
met, we issue an Annuity.
Skandia's Systematic Investment Plan ("bank drafting"): You
may make Purchase Payments to your Annuity using bank drafting, but only for
allocations to variable investment options. However, you must pay at least one
prior Purchase Payment by check or wire transfer. We will accept an initial
Purchase Payment lower than our standard minimum Purchase Payment requirement of
$1,000 if you also furnish bank drafting instructions that provide amounts that
will meet a $1,000 minimum Purchase Payment requirement to be paid within 12
months. We will accept an initial Purchase Payment in an amount as low as $100,
but it must be accompanied by a bank drafting authorization form allowing
monthly Purchase Payments of at least $75.
Periodic Purchase Payments: We may, from time-to-time, offer
opportunities to make Purchase Payments automatically on a periodic basis,
subject to our rules. These opportunities may include, but are not limited to,
certain salary reduction programs agreed to by an employer. As of the date of
this Prospectus, we only agree to accept Purchase Payments on such a basis if:
(a) we receive your request In Writing for a salary reduction program and we
agree to accept Purchase Payments on this basis; (b) the allocations are only to
variable investment options or the frequency and number of allocations to fixed
investment options is limited in accordance with our rules; and (c) the total
amount of Purchase Payments in the first Annuity Year is scheduled to equal at
least our then current minimum requirements. We may also require an initial
Purchase Payment to be submitted by check or wire before agreeing to such a
program. Our minimum requirements may differ based on the usage of the Annuity,
such as whether it is being used in conjunction with certain retirement plans.
Right to Return the Annuity: You have the right to return the
Annuity within a specified period known as a "free-look" period. Depending on
the applicable legal and regulatory requirements, this period may be within ten
days of receipt, twenty-one days of receipt or longer. To exercise your right to
return the Annuity during the "free-look" period, you must return the Annuity.
The amount to be refunded is the then current Account Value plus any tax charge
deducted. This is the "standard refund". If necessary to meet Federal
requirements for IRAs or certain state law requirements, we return the greater
of the "standard refund" or the Purchase Payments received less any withdrawals
(see "Allocation of Net Purchase Payments"). We tell you how we determine the
amount payable under any such right at the time we issue your Annuity. Upon the
termination of the "free-look" period, if you surrender your Annuity, you may be
assessed certain charges (see "Charges Assessed or Assessable Against the
Annuity").
For Annuities subject to New York law, notice given by mail and return of the
Annuity by mail are effective on being postmarked, properly addressed and
postage prepaid. If the Annuity is returned to the agent, other than by mail,
the effective date of surrender of the Annuity will be the date the Annuity is
received by the agent. The amount payable as to any amounts allocated to the
variable investment options equals the Account Value plus any fees or charges
deducted as of the date the cancellation request is either postmarked or
returned to the agent. If you choose to allocate any portion of your Purchase
Payment to the variable investment options, you bear the investment risk during
the period. The amount payable as to any amounts allocated to the fixed
investment options equals the greater of (i) the Purchase Payment, less any
withdrawals, or (ii) the current Account Value of the Annuity plus any fees or
charges deducted on the date the cancellation request is either postmarked or
returned to the agent.
Allocation of Net Purchase Payments: All allocations of Net
Purchase Payments are subject to our allocation rules (see "Allocation Rules").
Allocation of the portion of the initial Net Purchase Payment and any Net
Purchase Payments received during the free-look period that you wish to allocate
to any Sub-accounts are subject to an additional allocation rule if state law
requires return of at least your Purchase Payments should you return the Annuity
under such free-look provision. If such state law applies to your Annuity: (a)
we allocate any portion of any such Net Purchase Payments that you indicate you
wish to go into the Sub-accounts to the AST Money Market Sub-account; and (b) at
the end of such free-look period we reallocate Account Value according to your
then most recent allocation instructions to us, subject to our allocation rules.
However, where permitted by law in such jurisdictions, we will allocate such Net
Purchase Payments according to your instructions, without any temporary
allocation to the AST Money Market Sub-account, if you execute a return waiver
("Return Waiver"). Under the Return Waiver, you waive your right to the return
of the greater of the "standard refund" or the Purchase Payments received less
any withdrawals. Instead, you only are entitled to the return of the "standard
refund" (see "Right to Return the Annuity").
Your initial Purchase Payment, as well as other Purchase Payments will be
allocated in accordance with the then current requirements of any rebalancing,
asset allocation or market timing program which you have authorized or have
authorized an independent third party to use in connection with your Annuity
(see "Allocation Rules"). You must provide us with new allocation instructions
In Writing if you wish to change your current allocations when making subsequent
Purchase Payments.
Balanced Investment Program: We offer a balanced investment
program in relation to your Purchase Payments, if Fixed Allocations are
available under your Annuity. If you choose this program, we commit a portion of
your Net Purchase Payments as a Fixed Allocation for the Guarantee Period you
select. This Fixed Allocation will have grown pre-tax to equal the exact amount
of your entire Purchase Payments at the end of its initial Guarantee Period if
no amounts are transferred or withdrawn from such Fixed Allocation. The rest of
your Net Purchase Payments is invested in the variable investment options you
select.
Ownership, Annuitant and Beneficiary Designations: You make
certain designations that apply to the Annuity if issued. These designations are
subject to our rules and to various regulatory or statutory requirements
depending on the use of the Annuity. These designations include an Owner, a
contingent Owner, an Annuitant, a Contingent Annuitant, a Beneficiary, and a
contingent Beneficiary. Certain designations are required, as indicated below.
Such designations will be revocable unless you indicate otherwise or we endorse
your Annuity to indicate that such designation is irrevocable to meet certain
regulatory or statutory requirements. Changing the Owner or Annuitant
designations may affect the minimum death benefit (see " Death Benefits").
Some of the tax implications of various designations are discussed in the
section entitled "Certain Tax Considerations". However, there are other tax
issues than those addressed in that section, including, but not limited to,
estate and inheritance tax issues. You should consult with a competent tax
counselor regarding the tax implications of various designations. You should
also consult with a competent legal advisor as to the implications of certain
designations in relation to an estate, bankruptcy, community property, where
applicable, and other matters.
An Owner must be named. You may name more than one Owner. If you do, all rights
reserved to Owners are then held jointly. We require the consent In Writing of
all joint Owners for any transaction for which we require the written consent of
Owners. Where required by law, we require the consent In Writing of the spouse
of any person with a vested interest in an Annuity. Naming someone other than
the payor of any Purchase Payment as Owner may have gift, estate or other tax
implications.
Where allowed by law, you may name a contingent Owner. However, this designation
takes effect only on or after the Annuity Date.
You must name an Annuitant. We do not accept a designation of joint Annuitants.
Where allowed by law, you may name one or more Contingent Annuitants.
There may be adverse tax consequences if a Contingent Annuitant succeeds an
Annuitant and the Annuity is owned by a trust that is neither tax exempt nor
qualifies for preferred treatment under certain sections of the Code, such as
Section 401 (a "non-qualified" trust). In general, the Code is designed to
prevent the benefit of tax deferral from continuing for long periods of time on
an indefinite basis. Continuing the benefit of tax deferral by naming one or
more Contingent Annuitants when the Annuity is owned by a non-qualified trust
might be deemed an attempt to extend the tax deferral for an indefinite period.
Therefore, adverse tax treatment may depend on the terms of the trust, who is
named as Contingent Annuitant, as well as the particular facts and
circumstances. You should consult your tax advisor before naming a Contingent
Annuitant if you expect to use an Annuity in such a fashion.
Where allowed by law, you must name Contingent Annuitants according to our rules
when an Annuity is used as a funding vehicle for certain retirement plans
designed to meet the requirements of Section 401 of the Code.
You may name more than one primary and more than one contingent Beneficiary, and
if you do, the proceeds will be paid in equal shares to the survivors in the
appropriate beneficiary class, unless you have requested otherwise In Writing.
If the primary Beneficiary dies before death proceeds become payable, the
proceeds will become payable to the contingent Beneficiary. If no Beneficiary is
alive when death proceeds become payable or in the absence of any Beneficiary
designation, the proceeds will vest in you or your estate.
ACCOUNT VALUE AND SURRENDER VALUE: In the accumulation phase your Annuity has an
Account Value. Your total Account Value is the sum of your Account Value in each
investment option. Surrender Value is the Account Value less any applicable
contingent deferred sales charge and any applicable maintenance fee.
Account Value in the Sub-accounts: We determine your Account
Value separately for each Sub-account. To determine the Account Value in each
Sub-account we multiply the Unit Price as of the Valuation Period for which the
calculation is being made times the number of Units attributable to you in that
Sub-account as of that Valuation Period. The method we use to determine Unit
Prices is shown in the Statement of Additional Information.
The number of Units attributable to you in a Sub-account is the number of Units
you purchased less the number transferred or withdrawn. We determine the number
of Units involved in any transaction specified in dollars by dividing the dollar
value of the transaction by the Unit Price of the effected Sub-account as of the
Valuation Period applicable to such transaction.
Account Value of the Fixed Allocations: We determine the
Account Value of each Fixed Allocation separately. A Fixed Allocation's Account
Value as of a particular date is determined by multiplying its then current
Interim Value times the MVA.
A formula is used to determine the MVA. The formula is applied separately to
each Fixed Allocation. Values and time durations used in the formula are as of
the date for which the Account Value is being determined. The formula is:
[(1+I) / (1+J+0.0010)]N/12
where:
I is the interest rate being credited to the Fixed Allocation;
J is the interest rate for your class of annuities for new
Fixed Allocations with Guarantee Periods of durations equal to
the number of years (rounded to the next higher integer when
occurring on other than an anniversary of the beginning of the
Fixed Allocation's Guarantee Period) remaining in such
Guarantee Period;
N is the number of months (rounded to the next higher integer
when occurring on other than a monthly anniversary of the
beginning of the Guarantee Period) remaining in such Guarantee
Period.
The formula that applies if amounts are surrendered pursuant to the right to
return the Annuity is [(1 + I)/(1 + J)]N/12.
No MVA applies in determining a Fixed Allocation's Account Value on its Maturity
Date, and, where required by law, the 30 days prior to the Maturity Date. If we
are not offering a Guarantee Period with a duration equal to the number of years
remaining in a Fixed Allocation's Guarantee Period, we calculate a rate for "J"
above using a specific formula. This formula is described in the Statement of
Additional Information.
Our Current Rates are expected to be sensitive to interest rate fluctuations,
thereby making each MVA equally sensitive to such changes. There would be a
downward adjustment when the applicable Current Rate plus 0.10 percent of
interest exceeds the rate credited to the Fixed Allocation and an upward
adjustment when the applicable Current Rate is more than 0.10 percent of
interest lower than the rate being credited to the Fixed Allocation. See the
Statement of Additional Information for an illustration of how the MVA works.
We reserve the right, from time to time, to determine the MVA using an interest
rate lower than the Current Rate for all transactions applicable to a class of
Annuities. We may do so at our sole discretion. This would benefit all such
Annuities if transactions to which the MVA applies occur while we use such lower
interest rate.
RIGHTS, BENEFITS AND SERVICES: The Annuity provides various rights, benefits and
services subsequent to its issuance and your decision to keep it beyond the
free-look period. A number of these rights, benefits and services, as well as
some of the rules and conditions to which they are subject, are described below.
These rights, benefits and services include, but are not limited to: (a) making
additional Purchase Payments; (b) changing revocable designations; (c)
transferring Account Values between investment options; (d) receiving lump sum
payments, Systematic Withdrawals or Minimum Distributions, annuity payments and
death benefits; (e) transferring or assigning your Annuity; (f) exercising
certain voting rights in relation to the underlying mutual funds in which the
Sub-accounts invest; and (g) receiving reports. These rights, benefits and
services may be limited, eliminated or altered when an Annuity is purchased in
conjunction with a qualified plan. We may require presentation of proper
identification, including a personal identification number ("PIN") issued by us,
prior to accepting any instruction by telephone or other electronic means. We
forward your PIN to you shortly after your Annuity is issued. To the extent
permitted by law or regulation, neither we nor any person authorized by us will
be responsible for any claim, loss, liability or expense in connection with a
telephonic or electronic transfer if we or such other person acted on such
transfer instructions in good faith in reliance on your authorization of
telephone and/or electronic transfers and on reasonable procedures to identify
persons so authorized through verification methods which may include a request
for your Social Security number or a personal identification number (PIN) as
issued by us. We may be liable for losses due to unauthorized or fraudulent
instructions should we not follow such reasonable procedures.
Additional Purchase Payments: The minimum for any additional
Purchase Payment is $100, except as part of a bank drafting program (see
"Skandia's Systematic Investment Plan"), or unless we authorize lower payments
pursuant to a Periodic Purchase Payment program (see "Periodic Purchase
Payments"), or less where required by law. Additional Purchase Payments may be
paid at any time before the Annuity Date. Subject to our allocation rules, we
allocate additional Net Purchase Payments according to your most recent
instructions received at the time of or previous to receipt of an additional
Purchase Payment.
Changing Revocable Designations: Unless you indicated that a
prior choice was irrevocable or your Annuity has been endorsed to limit certain
changes, you may request to change Owner, Annuitant and Beneficiary designations
by sending a request In Writing. Where allowed by law, such changes will be
subject to our acceptance. Some of the changes we will not accept include, but
are not limited to: (a) a new Owner subsequent to the death of the Owner or the
first of any joint Owners to die, except where a spouse-Beneficiary has become
the Owner as a result of an Owner's death; (b) a new Annuitant subsequent to the
Annuity Date if the annuity option selected includes a life contingency; and (c)
a new Annuitant prior to the Annuity Date if the Annuity is owned by an entity.
Allocation Rules: As of the date of this Prospectus, during
the accumulation phase you may maintain Account Value in multiple Sub-accounts
and an unlimited number of Fixed Allocations. We reserve the right, to the
extent permitted by law, to limit the number of Sub-accounts or Fixed
Allocations or the amount you may allocate to any Fixed Allocation. As of the
date of this Prospectus, we limited the number of Sub-accounts available at any
one time to ten. Should you request a transaction that would leave less than any
minimum amount we then require in an investment option, we reserve the right, to
the extent permitted by law, to add the balance of your Account Value in the
applicable Sub-account or Fixed Allocation to the transaction and close out your
balance in that investment option.
Should you either: (a) request rebalancing services (see "Rebalancing"); (b)
authorize an independent third party to transact transfers on your behalf and
such third party arranges for rebalancing of any portion of your Account Value
in accordance with any asset allocation strategy; or (c) authorize an
independent third party to transact transfers in accordance with a market timing
strategy; then all Purchase Payments, including the initial Purchase Payment,
received while your Annuity is subject to such an arrangement are allocated to
the same investment options and in the same proportions as then required
pursuant to the applicable rebalancing, asset allocation or market timing
program, unless we have received alternate instructions. Such allocation
requirements terminate simultaneous to the termination of an authorization for
rebalancing or any authorization to a third party to transact transfers on your
behalf. Upon termination of any of the above arrangements, you must provide us
with allocation instructions In Writing for all subsequent Purchase Payments.
Withdrawals of any type are taken pro-rata from the investment options based on
the then current Account Values in such investment options unless we receive
instructions from you prior to such withdrawal. For this purpose only, the
Account Value in all your then current Fixed Allocations is deemed to be in one
investment option. If you transfer or withdraw Account Value from multiple Fixed
Allocations and do not provide instructions indicating the Fixed Allocations
from which Account Value should be taken: (a) we transfer Account Value first
from the Fixed Allocation with the shortest amount of time remaining to the end
of its Guarantee Period, and then from the Fixed Allocation with the next
shortest amount of time remaining to the end of its Guarantee Period, etc.; and
(b) if there are multiple Fixed Allocations with the same amount of time left in
each Guarantee Period, as between such Fixed Allocations we first take Account
Value from the Fixed Allocation that had the shorter Guarantee Period.
Transfers: In the accumulation phase you may transfer Account
Value between investment options, subject to our allocation rules (see
"Allocation Rules"). Transfers are not subject to taxation (see "Transfers
Between Investment Options"). We charge $10.00 for each transfer after the
twelfth in each Annuity Year, including transfers transacted as part of any
rebalancing, market timing, asset allocation or similar program which you employ
or you authorize to be employed on your behalf. Transfers transacted as part of
a dollar cost averaging program are not counted in determining the applicability
of the transfer fee. Renewals or transfers of Account Value from a Fixed
Allocation at the end of its Guarantee Period are not subject to the transfer
charge and are not counted in determining whether other transfers may be subject
to the transfer charge (see "Renewals"). Your transfer request must be In
Writing or meet our requirements for accepting instructions we receive over the
phone or through means such as electronic mail with appropriate authorization.
We reserve the right to limit the number of transfers in any Annuity Year for
all existing or new Owners. We also reserve the right to limit the number of
transfers in any Annuity Year or to refuse any transfer request for an Owner or
certain Owners if we believe that: (a) excessive trading by such Owner or Owners
or a specific transfer request or group of transfer requests may have a
detrimental effect on Unit Values or the share prices of the underlying mutual
funds; or (b) we are informed by one or more of the underlying mutual funds that
the purchase or redemption of shares is to be restricted because of excessive
trading or a specific transfer or group of transfers is deemed to have a
detrimental effect on share prices of affected underlying mutual funds.
To the extent permitted by law, we may require up to 2 business days' notice of
any transfer into or out of a Fixed Allocation if the market value of such
transfer is at least $1,000,000.00.
In order to help you determine whether you wish to transfer Account Values to a
Fixed Allocation, you may obtain our Current Rates by writing us, calling us at
1-800-766-4530 or contact our customer service department electronically at
[email protected]. When calling by phone, please have readily
available your Annuity number and your PIN number. When contacting us
electronically, please provide your PIN number, social security or tax I.D.
number and the Annuity contract number.
Where permitted by law, we may accept your authorization of a third party to
transfer Account Values on your behalf, subject to our rules. We may suspend or
cancel such acceptance at any time. We notify you of any such suspension or
cancellation. We may restrict the investment options that will be available for
transfers or allocations of Net Purchase Payments during any period in which you
authorize such third party to act on your behalf. We give the third party you
authorize prior notification of any such restrictions. However, we will not
enforce such a restriction if we are provided evidence satisfactory to us that:
(a) such third party has been appointed by a court of competent jurisdiction to
act on your behalf; or (b) such third party has been appointed by you to act on
your behalf for all your financial affairs.
We or an affiliate of ours may provide administrative or other support services
to independent third parties you authorize to conduct transfers on your behalf
or who provide recommendations as to how your Account Values should be
allocated. This includes, but is not limited to, rebalancing your Account Value
among investment options in accordance with various investment allocation
strategies such third party may employ, or transferring Account Values between
investment options in accordance with market timing strategies employed by such
third parties. Such independent third parties may or may not be appointed our
agents for the sale of Annuities. However, we do not engage any third parties to
offer investment allocation services of any type, so that persons or firms
offering such services do so independent from any agency relationship they may
have with us for the sale of Annuities. We therefore take no responsibility for
the investment allocations and transfers transacted on your behalf by such third
parties or any investment allocation recommendations made by such parties. We do
not currently charge you extra for providing these support services.
Renewals: A renewal is a transaction that occurs automatically as of the
last day of a Fixed Allocation's Guarantee Period unless we receive alternative
instructions. This day as to each Fixed Allocation is called its Maturity Date.
As of the end of a Maturity Date, the Fixed Allocation's Guarantee Period
"renews" and a new Guarantee Period of the same duration as the one just
completed begins. However, the renewal will not occur if the Maturity Date is on
the date we apply your Account Value to determine the annuity payments that
begin on the Annuity Date (see "Annuity Payments").
As an alternative to a renewal, you may transfer all or part of that Fixed
Allocation's Account Value to a different Fixed Allocation or you may transfer
such Account Value to one or more Sub-accounts, subject to our allocation rules.
To accomplish this, we must receive instructions from you In Writing at least
two business days before the Maturity Date, and, where required by law, the 30
days prior to the Maturity Date. No MVA applies to transfers of a Fixed
Allocation's Account Value occurring as of its Maturity Date. An MVA will apply
in determining the Account Value of a Fixed Allocation at the time annuity
payments are determined, unless the Maturity Date of such Fixed Allocation is
the 15th day before the Annuity Date (see "Annuity Payments").
At least 30 days prior to a Maturity Date, or earlier if required by law or
regulation, we inform you of the Guarantee Periods available as of the date of
such notice. We do not provide a similar notice if the Fixed Allocation's
Guarantee Period is of less than a year's duration. Such notice may include an
example of the rates we are then crediting new Fixed Allocations as of the date
such notice is prepared. The rates actually credited to a Fixed Allocation as of
the date of any renewal or transfer immediately subsequent to the Maturity Date
may be more or less than any rates quoted in such notice.
If your Fixed Allocation's then ending Guarantee Period is no longer available
for new allocations and renewals or you choose a different Guarantee Period that
is no longer available on the date following the Maturity Date, we will try to
reach you so you may make another choice. If we cannot reach you, we will assign
the next shortest Guarantee Period then currently available for new allocations
and renewals to that Fixed Allocation.
Dollar Cost Averaging: We offer dollar cost averaging in the accumulation
phase. Dollar cost averaging is a program designed to provide for regular,
approximately level investments over time. You may choose to transfer earnings
only, principal plus earnings or a flat dollar amount. We make no guarantee that
a dollar cost averaging program will result in a profit or protect against a
loss in a declining market. You may select this program by submitting to us a
request In Writing. You may cancel your participation in this program In Writing
or by phone if you have previously authorized our acceptance of such
instructions.
Dollar cost averaging is available from any of the investment options we choose
to make available for such a program. Your Annuity must have an Account Value of
not less than $10,000 at the time we accept your request for a dollar cost
averaging program. Transfers under a dollar cost averaging program are not
counted in determining the applicability of the transfer fee (see "Transfers").
We reserve the right to limit the investment options into which Account Value
may be transferred as part of a dollar cost averaging program. We currently do
not permit dollar cost averaging programs where Account Value is transferred to
Fixed Allocations. We also reserve the right to charge a processing fee for this
service. Should we suspend or cancel the offering of this service, such
suspension or cancellation will not affect any dollar cost averaging programs
then in effect. Dollar cost averaging is not available while a rebalancing,
asset allocation or market timing type of program is used in connection with
your Annuity.
Dollar cost averaging from Fixed Allocations are subject to the following rules:
(a) you may only use Fixed Allocations with Guarantee Periods of 1, 2 or 3
years; (b) such a program may only be selected in conjunction with and
simultaneous to a new or renewing Fixed Allocation; (c) only averaging of
earnings only or principal plus earnings is permitted; (d) a program averaging
principal plus earnings from a Fixed Allocation must be designed to last that
Fixed Allocation's entire current Guarantee Period; (e) dollar cost averaging
transfers from a Fixed Allocation are not subject to the MVA; (f) dollar cost
averaging may be done on a monthly basis only; and (g) you may not
simultaneously use Account Value in any Fixed Allocation to participate in
dollar cost averaging and receive Systematic Withdrawals or Minimum
Distributions from such Fixed Allocation (see "Systematic Withdrawals" and
"Minimum Distributions").
Rebalancing: We offer, during the accumulation phase, automatic quarterly,
semi-annual or annual rebalancing among the variable investment options of your
choice. This provides the convenience of automatic rebalancing without having to
provide us instructions on a periodic basis. Failure to choose this option does
not prevent you from providing us with transfer instructions from time-to-time
that have the effect of rebalancing. It also does not prevent other requested
transfers from being transacted.
Under this program, Account Values in variable investment options are rebalanced
quarterly, semi-annually or annually, as applicable, to the percentages you
request. The rebalancing may occur quarterly, semi-annually or annually based
upon the Issue Date. If a transfer is requested involving any investment option
participating in an automatic rebalancing program, we automatically alter the
rebalancing percentages going forward (unless we receive alternate instructions)
to the ratios between Account Values in the variable investment options as of
the effective date of such requested transfer once it has been processed.
Automatic rebalancing is delayed one quarter if Account Value is being
maintained in the AST Money Market Sub-account for the duration of your
Annuity's "free-look" period and rebalancing would otherwise occur during such
period (see "Allocation of Net Purchase Payments").
You may change the percentage allocable to each variable investment option at
any time. However, you may not choose to allocate less than 5% of Account Value
to any variable investment option.
We do not offer automatic rebalancing in connection with Fixed Allocations. The
Account Value of your Annuity must be at least $10,000 when we receive your
automatic rebalancing request. We may require that all variable investment
options in which you maintain Account Value must be used in the rebalancing
program. You may maintain Account Value in at least two and not more than ten
variable investment options when using a rebalancing program. You may not
simultaneously participate in rebalancing and dollar cost averaging. Rebalancing
also is not available when a program of Systematic Withdrawals of earnings or
earnings plus principal is in effect.
For purposes of determining the number of transfers made in any Annuity Year,
all rebalancing transfers made on the same day are treated as one transfer. We
reserve the right to charge a processing fee for signing up for this service.
To elect to participate or to terminate participation in automatic rebalancing,
we may require instructions In Writing at our Office in a form satisfactory to
us.
Distributions: Distributions available from your Annuity
during the accumulation phase include surrender, medically-related surrender,
free withdrawals, partial withdrawals, Systematic Withdrawals (including Minimum
Distributions in relation to qualified plans) and a death benefit. In the payout
phase we pay annuity payments. Distributions from your Annuity generally are
subject to taxation, and may be subject to a tax penalty as well (see "Certain
Tax Considerations"). You may wish to consult a professional tax advisor for tax
advice prior to exercising any right to an elective distribution. During the
accumulation phase, any distribution other than a death benefit: (a) must occur
prior to any death that would cause a death benefit to become payable; and (b)
will occur subsequent to our receipt of a completed request In Writing.
Distributions from your Annuity of any amounts derived from Purchase Payments
paid by personal check may be delayed until such time as the check has cleared
the applicable financial institution upon which such check was drawn.
Surrender: Surrender of your Annuity for its Surrender Value is permitted
during the accumulation phase. A contingent deferred sales charge may apply to
such surrender (see "Contingent Deferred Sales Charge"). Your Annuity must
accompany your surrender request.
Medically-Related Surrender: Where permitted by law, you may apply to
surrender your Annuity for its Account Value prior to the Annuity Date without
application of any contingent deferred sales charge upon occurrence of a
"Contingency Event". This waiver of any applicable contingent deferred sales
charge is subject to our rules, including but not limited to the following: (a)
the Annuitant must be named or any change of Annuitant must be accepted by us,
prior to the "Contingent Event" described below; (b) the Annuitant must be alive
as of the date we pay the proceeds of such surrender request; (c) if the Owner
is one or more natural persons, all such Owners must also be alive at such time;
(d) we must receive satisfactory proof of the Annuitant's confinement or Fatal
Illness In Writing; and (e) this benefit is not available if the total Purchase
Payments received exceed $500,000.00 for all annuities issued by us with this
benefit for which the same person is named as Annuitant.
A "Contingency Event" occurs if the Annuitant is:
(1) First confined in a "Medical Care Facility" while your Annuity is in
force and remains confined for at least 90 days in a row; or
(2) First diagnosed as having a "Fatal Illness" while your Annuity is in
force.
"Medical Care Facility" means any state licensed facility providing medically
necessary in-patient care which is prescribed by a licensed "Physician" in
writing and based on physical limitations which prohibit daily living in a
non-institutional setting. "Fatal Illness" means a condition diagnosed by a
licensed "Physician" which is expected to result in death within 2 years for 80%
of the diagnosed cases. "Physician" means a person other than you, the Annuitant
or a member of either your or the Annuitant's families who is state licensed to
give medical care or treatment and is acting within the scope of that license.
Specific details and definitions of terms in relation to this benefit may differ
in certain jurisdictions.
Free Withdrawals: Each Annuity Year in the accumulation phase you may
withdraw a limited amount of Account Value without application of any applicable
contingent deferred sales charge. Such free withdrawals are available to meet
liquidity needs. Free withdrawals are not available at the time of a surrender
of an Annuity. Withdrawals of any type made prior to age 59 1/2 may be subject
to a 10% tax penalty (see "Penalty on Distributions").
The minimum amount available as a free withdrawal is $100. Amounts received as
Systematic Withdrawals or as Minimum Distributions are deemed to come first from
the amount available under this Free Withdrawal provision (see "Systematic
Withdrawals" and "Minimum Distributions"). You may also request to receive as a
lump sum any free withdrawal amount not already received that Annuity Year under
a plan of Systematic Withdrawals or as Minimum Distributions.
The maximum amount available as a free withdrawal during any Annuity Year, where
permitted by law, is the greater of (a) or (b), where:
(a) is the Annuity's "growth" (defined below); and
(b) is 10% of "new" Purchase Payments ("new" Purchase Payments are defined
below).
"Growth" equals the then current Account Value less all "unliquidated" Purchase
Payments. "Unliquidated" means not previously surrendered or withdrawn. "New"
Purchase Payments are those received in the seven (7) years prior to the date as
of which a free withdrawal occurs. For purposes of the contingent deferred sales
charge, amounts withdrawn as a free withdrawal are not considered a liquidation
of Purchase Payments. Therefore, any free withdrawal will not reduce the amount
of any applicable contingent deferred sales charge upon any partial withdrawal
or subsequent surrender.
Partial Withdrawals: You may withdraw part of your Surrender Value. The
minimum partial withdrawal is $100. The Surrender Value that must remain in the
Annuity as of the date of this transaction is $1,000. If the amount of the
partial withdrawal request exceeds the maximum amount available, we reserve the
right to treat your request as one of a full surrender.
On a partial withdrawal, the contingent deferred sales charge is assessed
against any "unliquidated" "new" Purchase Payments withdrawn. "Unliquidated"
means not previously surrendered or withdrawn. For these purposes, amounts are
deemed to be withdrawn in the following order:
(1) From any amount then available as a free withdrawal; then from
(2) "Old" Purchase Payments (Purchase Payments allocated to Account Value
more than seven years prior to the partial withdrawal); then from
(3) "New" Purchase Payments (If there are multiple "new" Purchase Payments,
the one received earliest is liquidated first, then the one received next
earliest, and so forth).
Systematic Withdrawals: We offer Systematic Withdrawals of earnings only,
principal plus earnings or a flat dollar amount. Generally, Systematic
Withdrawals from Fixed Allocations are limited to earnings accrued after the
program of Systematic Withdrawals begins, or payments of fixed dollar amounts
that do not exceed such earnings. However, we will permit Systematic Withdrawals
from Fixed Allocations of principal plus earnings in connection with a program
of "substantially equal periodic payments" designed to meet the requirements of
Section 72(t) of the Code, as described in more detail below. A program of
Systematic Withdrawals begins on the date we accept, at our Office, your request
for such a program. Systematic Withdrawals are deemed to be withdrawn from
Surrender Value in the same order as partial withdrawals for purposes of
determining if the contingent deferred sales charge applies. Penalties may apply
(see "Free Withdrawals".)
A Systematic Withdrawal from a Fixed Allocation is not subject to the MVA unless
it is part of a program of withdrawals of principal plus earnings which we only
allow in conjunction with a program of "substantially equal periodic payments"
designed to meet the requirements of Section 72(t) of the Code. We calculate the
Fixed Allocation's credited interest since the prior withdrawal as A minus B,
plus C, where:
A is the Interim Value of the applicable Fixed Allocation as of the date of
the Systematic Withdrawal;
B is the Interim Value of the applicable Fixed Allocation as of the later
of the beginning of its then current Guarantee Period or the beginning of the
Systematic Withdrawal program; and
C is the total of all partial or free withdrawals and any transfers from
such Fixed Allocation since the later of the beginning of its then current
Guarantee Period or the beginning of the Systematic Withdrawal program.
Systematic Withdrawals are available on a monthly, quarterly, semi-annual or
annual basis. You may not simultaneously receive Systematic Withdrawals from a
Fixed Allocation and participate in a dollar cost averaging program under which
Account Value is transferred from the same Fixed Allocation (see "Dollar Cost
Averaging"). Systematic Withdrawals are not concurrently available while you are
taking any Minimum Distributions (see "Minimum Distributions") Averaging.
Systematic Withdrawals of earnings or earnings plus principal are not available
while any rebalancing or asset allocation program is in effect in relation to
your Annuity.
The Surrender Value of your Annuity must be at least $20,000 when we accept your
request for a program of Systematic Withdrawals. The minimum for each Systematic
Withdrawal is $100. For any scheduled Systematic Withdrawal other than the last
that does not meet this minimum, we reserve the right to defer such a withdrawal
and add the amount that would have been withdrawn to the amount that is to be
withdrawn at the next Systematic Withdrawal.
If your Annuity is used as a funding vehicle for certain retirement plans that
receive special tax treatment under Sections 401, 403(b) or 408 of the Code,
Section 72(t) of the Code may provide an exception to the 10% penalty tax on
distributions made prior to age 59 1/2 if you elect to receive distributions as
a series of "substantially equal periodic payments". Distributions in any
Annuity Year received under this provision that exceed the maximum amount
available as a free withdrawal will be subject to contingent deferred sales
charges. If distributions are to be taken from Fixed Allocations pursuant to a
program based on payments of principal and earnings, such amounts will be
subject to the MVA. To receive distributions in the form of "substantially equal
periodic payments" in accordance with the exception to the 10% penalty found in
Section 72(t) of the Code, you must provide us with certain required information
In Writing on a form acceptable to us.
We reserve the right to charge a processing fee for this service. Should we
suspend or cancel offering Systematic Withdrawals, such suspension or
cancellation will not affect any Systematic Withdrawal programs then in effect.
Minimum Distributions: Minimum Distributions are a special type of
Systematic Withdrawal program. Minimum Distributions are subject to all the
rules applicable to Systematic Withdrawals unless we specifically indicate that
one or more of such rules do not apply. In addition, certain rules apply only to
Minimum Distributions.
You may elect to have us calculate Minimum Distributions annually if your
Annuity is being used for certain qualified purposes under the Code. Requests to
calculate a Minimum Distribution amount must be made three (3) days prior to the
date that your Minimum Distribution payment is processed to allow for
calculation and processing of the required amount. We calculate such amounts
assuming the Minimum Distribution amount is based solely on the value of your
Annuity. The required Minimum Distribution amounts applicable to your particular
situation may depend on other annuities, savings or investments of which we are
unaware, so that the required amount may be greater than the Minimum
Distribution amount we calculate based on the value of your Annuity. We reserve
the right to charge a fee for each annual calculation. Minimum Distributions are
not concurrently available with any other program of Systematic Withdrawals. You
may elect to have Minimum Distributions paid out monthly, quarterly,
semi-annually or annually. The $100 minimum for Systematic Withdrawals does not
apply to Minimum Distributions.
Each Minimum Distribution will be taken from the investment options you select.
However, the portion of any Minimum Distribution that can be taken from any
Fixed Allocations may not exceed the then current ratio between your Account
Value in all Fixed Allocations you maintain and your total Account Value. No MVA
applies to any portion of Minimum Distributions taken from Fixed Allocations.
Minimum Distributions are not available from any Fixed Allocations if such Fixed
Allocation is being used in a dollar cost averaging program (see "Dollar Cost
Averaging"). Minimum Distributions from Fixed Allocations are not subject to the
limitation on Systematic Withdrawals that limits a program of Systematic
Withdrawals from Fixed Allocations only to earnings accrued after program
inception.
No contingent deferred sales charge is assessed against amounts withdrawn as a
Minimum Distribution, but only to the extent of the Minimum Distribution
required from your Annuity at the time it is taken. The contingent deferred
sales charge may apply to additional amounts withdrawn to meet minimum
distribution requirements in relation to other retirement programs you may
maintain.
Amounts withdrawn as Minimum Distributions are considered to come first from the
amounts available as a free withdrawal (see "Free Withdrawals") as of the date
of the yearly calculation of the Minimum Distribution amount. Minimum
Distributions over that amount are not deemed to be a liquidation of Purchase
Payments (see "Partial Withdrawals").
Death Benefit: In the accumulation phase, a death benefit is
available. If the Annuity is owned by one or more natural persons, the death
benefit is payable upon the first death of such Owners. If the Annuity is owned
by an entity, the death benefit is payable upon the Annuitant's death, if there
is no Contingent Annuitant. If a Contingent Annuitant was designated before the
Annuitant's death and the Annuitant dies, the Contingent Annuitant then becomes
the Annuitant and a death benefit is not currently payable. There may be adverse
tax consequences for certain entity Owners if they name a Contingent Annuitant
(see "Ownership, Annuitant and Beneficiary Designations").
The person upon whose death the death benefit is paid is referred to below as
the "decedent." The death benefit is calculated according to the following
rules:
For Annuities with one Owner, if the current Owner dies before the "Death
Benefit Target Date" as defined below, the death benefit equals the greater of
A, B and C where:
A is the Account Value in the Sub-accounts plus the Interim
Value in any Fixed Allocations as of the date we receive In Writing "due proof
of death" as described below;
B is the sum of all Purchase Payments each increasing daily at
an interest rate of 5% per year minus the sum of all withdrawals each increasing
daily, from the date of each withdrawal, at an interest rate of 5% per year to
the Owner's date of death, but not to exceed 200% of the difference between the
sum of all Purchase Payments and the sum of all withdrawals as of the Owner's
date of death plus the sum of all Purchase Payments after such date less the sum
of all withdrawals since the Owner's date of death; and
C is the "Highest Anniversary Value" on or immediately
preceding the Owner's date of death plus the sum of all Purchase Payments since
such date less the sum of all withdrawals since such date.
The Highest Anniversary Value is determined as of the date of the Owner's death
and equals the greatest of all previous "Anniversary Values" on or before the
Death Benefit Target Date. "Anniversary Value" is the Account Value in the
Sub-accounts plus the Interim Value in the Fixed Allocations on each anniversary
of the Issue Date plus the sum of all Purchase Payments since such anniversary
less the sum of all withdrawals since such anniversary. For Annuities with one
Owner, the "Death Benefit Target Date" is the anniversary of the Issue Date that
occurs on or immediately after the date the current Owner reaches age 80.
If the current Owner dies on or after the Death Benefit Target Date, the death
benefit equals the greater of D, E and F where:
D is the Account Value as of the date we receive In Writing
"due proof of death" as described below (an MVA may be applicable to amounts in
any Fixed Allocations); and
E is the sum of all Purchase Payments received prior to the Death
Benefit Target Date, each increasing daily at an interest rate of 5% per year
minus the sum of all withdrawals received prior to the Death Benefit Target
Date, each increasing daily at an interest rate of 5% per year, but not to
exceed 200% of the difference between the sum of all Purchase Payments and the
sum of all withdrawals as of the Death Benefit Target Date plus the sum of all
Purchase Payments since such date less the sum of all withdrawals since the
Death Benefit Target Date; and
F is the Highest Anniversary Value calculated as of the Death Benefit
Target Date plus the sum of all Purchase Payments since such date less the sum
of all withdrawals since such date.
For Annuities with joint Owners, the death benefit is calculated according to
the rules set out above except that the "Death Benefit Target Date" is the
anniversary of the Issue Date that occurs on or immediately after the date the
oldest current Owner reaches age 80 regardless of whether such Owner is the
decedent.
For example, if either of two Owners dies after either Owner has reached the
Death Benefit Target Date, the death benefit would be the greatest of A, B and C
where:
A is the Account Value (an MVA may be applicable to any amounts in
Fixed Allocations) as of the date we receive "due proof of death" as described
below;
B is the sum of all Purchase Payments each increasing daily at an
interest rate of 5% per year minus the sum of all withdrawals each increasing
daily, from the date of each withdrawal, at an interest rate of 5% per year as
of the Death Benefit Target Date, but not to exceed 200% of the difference
between the sum of all Purchase Payments and the sum of all withdrawals as of
the Death Benefit Target Date plus the sum of all Purchase Payments since such
date less the sum of all withdrawals since such date; and
C is the Highest Anniversary Value as described above calculated as of
the Death Benefit Target Date plus the sum of all Purchase Payments since such
date less the sum of all withdrawals since such date.
For entity owned Annuities (the decedent must be the Annuitant), if no
Contingent Annuitants were named as of the decedent's date of death, the death
benefit is calculated as described above for Annuities with one Owner, except
the term "Annuitant" replaces the term "Owner". The "Death Benefit Target Date"
is the anniversary of the Issue Date that occurs on or immediately after the
date the Annuitant reaches age 80.
For purposes of this death benefit provision, "withdrawals" means withdrawals of
any type (free withdrawals, partial withdrawals, Systematic Withdrawals) before
assessment of any applicable contingent deferred sales charge and after any
applicable MVA. For purposes of this provision, persons named as Owner or
Annuitant within 60 days of the Issue Date are treated as if they were an Owner
or Annuitant on the Issue Date.
If a decedent was not named as an Owner or Annuitant as of the Issue Date and
did not become such as a result of a prior Owner's or Annuitant's death, the
death benefit described above is suspended as to that person for a two year
period from the date he or she first became an Owner or Annuitant. If that
person's death occurs during the suspension period and on or before the
applicable Death Benefit Target Date, the death benefit is the Account Value in
the Sub-accounts plus the Interim Value in the Fixed Allocations. If death
occurs during the suspension period and after the applicable Death Benefit
Target Date, the death benefit is the Account Value. After the suspension period
is completed, the death benefit is the same as if such person had been an Owner
or Annuitant on the Issue Date.
The amount of the death benefit is determined as of the date we receive In
Writing: (a) "due proof of death"; (b) all representations we require or which
are mandated by applicable law or regulation in relation to the death claim and
the payment of death proceeds; and (c) any applicable election of the mode of
payment of the death benefit, if not previously elected by the Owner. The death
benefit is reduced by any annuity payments made prior to the date we receive In
Writing such due proof of death. The following constitutes "due proof of death":
(a) a certified copy of a death certificate; (b) a certified copy of a decree of
a court of competent jurisdiction as to the finding of death; or (c) any other
proof satisfactory to us.
During the accumulation period, if the Owner dies and the Beneficiary is the
Owner's spouse, then such Owner's spouse may elect to be treated as the current
Owner and continue the Annuity in lieu of receiving the death benefit.
During the accumulation period, if the Annuity is entity owned and a Contingent
Annuitant replaces an Annuitant, the age of any such Contingent Annuitant on the
date of death will be used to calculate the death benefit.
In the event of your death, the benefit must be distributed within: (a) five
years of the date of death; or (b) over a period not extending beyond the life
expectancy of the Beneficiary or over the life of the Beneficiary. Distribution
after your death to be paid under (b) above, must commence within one year of
the date of death.
If the Annuitant dies before the Annuity Date, the Contingent Annuitant will
become the Annuitant. Where allowed by law, if the Annuity is owned by one or
more natural persons, the oldest of any such Owners not named as the Annuitant
immediately becomes the Contingent Annuitant if: (a) the Contingent Annuitant
predeceases the Annuitant; or (b) if you do not designate a Contingent
Annuitant.
In the payout phase, we continue to pay any "certain" payments (payments not
contingent on the continuance of any life) to the Beneficiary since the death of
the Annuitant.
Annuity Payments: Annuity payments can be guaranteed for life, for a
certain period, or for a certain period and life. We make available fixed
payments, and as of the date of this Prospectus, adjustable payments (payments
which may or may not be changed on specified adjustment dates based on annuity
purchase rates we are then making available to annuities of the same class). We
may or may not be making adjustable annuities available on the Annuity Date. To
the extent there is any tax basis in the annuity, a portion of each annuity
payment is treated for tax purposes as a return of such basis until such tax
basis is exhausted. The amount deemed such a return of basis is determined in
accordance with the requirements of the Code (see "Certain Tax Considerations").
You may choose an Annuity Date, an annuity option and the frequency of annuity
payments when you purchase an Annuity, or at a later date. Your choice of
Annuity Date and annuity option may be limited depending on your use of the
Annuity and the applicable jurisdiction. Subject to our rules, you may choose an
Annuity Date, option and frequency of payments suitable to your needs and
circumstances. You should consult with competent tax and financial advisors as
to the appropriateness of any such choice. For Annuities subject to New York
law, the Annuity Date for such Annuities may not exceed the first day of the
calendar month following the Annuitant's 90th birthday.
You may change your choices at any time up to 30 days before the earlier of: (a)
the date we would have applied your Account Value to an annuity option had you
not made the change; or (b) the date we will apply your Account Value to an
annuity option in relation to the new Annuity Date you are then selecting. You
must request this change In Writing. The Annuity Date must be the first or the
fifteenth day of a calendar month.
In the absence of an election In Writing: (a) the Annuity Date is the first day
of the calendar month first following the later of the Annuitant's 85th birthday
or the fifth anniversary of our receipt at our Office of your request to
purchase an Annuity; and (b) where allowed by law, fixed monthly payments will
commence under option 2, described below, with 10 years certain. For Annuities
subject to New York law , in the absence of an election In Writing: (a) the
Annuity Date is the first day of the calendar month following the Annuitant's
90th birthday; and (b) fixed monthly payments will commence under Option 2,
described below, with 10 years certain. The amount to be applied is your
Annuity's Account Value 15 business days prior to the Annuity Date. In
determining your annuity payments, we credit interest using our then current
crediting rate for this purpose, which is not less than 3% of interest per year,
between the date Account Value is applied to an annuity option and the Annuity
Date. If there is any remaining contingent deferred sales charge applicable as
of the Annuity Date, then, where permitted by law, the annuity option you select
must include a certain period of not less than 5 years' duration. As a result of
this rule, making additional Purchase Payments within seven years of the Annuity
Date will prevent you from choosing an annuity option with a certain period of
less than 5 years' duration. Annuity options in addition to those shown are
available with our consent. The minimum initial amount payable is the minimum
initial annuity amount we allow under our then current rules. Should you wish to
receive a lump sum payment, you must request to surrender your Annuity prior to
the Annuity Date (see "Surrender").
You may elect to have any amount of the proceeds due to the Beneficiary applied
under any of the options described below, but only to the extent selecting such
an option does not alter the tax status of the Annuity. Except where a lower
amount is required by law, the minimum monthly annuity payment is $100.
If you have not made an election prior to proceeds becoming due, the Beneficiary
may elect to receive the death benefit under one of the annuity options.
However, if you made an election, the Beneficiary may not alter such election.
For purposes of the annuity options described below, the term "key life" means
the person or persons upon whose life any payments dependent upon the
continuation of life are based.
(1) Option 1 - Payments for Life: Under this option, income is
payable periodically prior to the death of the key life, terminating with the
last payment due prior to such death. Since no minimum number of payments is
guaranteed, this option offers the maximum level of periodic payments of the
life contingent annuity options. It is possible that only one payment will be
payable if the death of the key life occurs before the date the second payment
was due, and no other payments nor death benefits would be payable.
(2) Option 2 - Payments for Life with 10, 15, or 20 Years
Certain: Under this option, income is payable periodically for 10, 15, or 20
years, as selected, and thereafter until the death of the key life. Should the
death of the key life occur before the end of the period selected, the remaining
payments are paid to the Beneficiary to the end of such period.
(3) Option 3 - Payments Based on Joint Lives: Under this
option, income is payable periodically during the joint lifetime of two key
lives, and thereafter during the remaining lifetime of the survivor, ceasing
with the last payment prior to the survivor's death. No minimum number of
payments is guaranteed under this option. It is possible that only one payment
will be payable if the death of all the key lives occurs before the date the
second payment was due, and no other payments nor death benefits would be
payable.
(4) Option 4 - Payments for a Certain Period: Under this
option, income is payable periodically for a specified number of years. The
number of years is subject to our then current rules. Should the payee die
before the end of the specified number of years, the remaining payments are paid
to the Beneficiary to the end of such period. Note that under this option,
payments are not based on how long we expect any key life to live. Therefore,
that portion of the insurance charge assessed to cover the risk that key lives
outlive our expectations provides no benefit to an Owner selecting this option.
The first payment varies according to the annuity options and payment frequency
selected. The first periodic payment is determined by multiplying the Account
Value (expressed in thousands of dollars) as of the close of business on the
fifteenth day preceding the Annuity Date, plus interest at not less than 3% per
year from such date to the Annuity Date, by the amount of the first periodic
payment per $1,000 of value obtained from our annuity rates for that type of
annuity and for the frequency of payment selected. Our rates will not be less
than our guaranteed minimum rates. These guaranteed minimum rates are derived
from the 1983a Individual Annuity Mortality Table with ages set back one year
for males and two years for females and with an assumed interest rate of 3% per
annum. Where required by law or regulation, such annuity table will have rates
that do not differ according to the gender of the key life. Otherwise, the rates
will differ according to the gender of the key life.
Qualified Plan Withdrawal Limitations: The Annuities are endorsed such that
there are surrender or withdrawal limitations when used in relation to certain
retirement plans for employees which are designed to qualify under various
sections of the Code. These limitations do not affect certain roll-overs or
exchanges between qualified plans. Distribution of amounts attributable to
contributions made pursuant to a salary reduction agreement (as defined in Code
section 403(b)), or attributable to transfers to a tax sheltered annuity from a
custodial account (as defined in Code section 403(b)(7)), is restricted to the
employee's: (a) separation from service; (b) death; (c) disability (as defined
in Section 72(m)(7) of the Code); (d) reaching age 59 1/2; or (e) hardship.
Hardship withdrawals are restricted to amounts attributable to salary reduction
contributions, and do not include investment results. In the case of tax
sheltered annuities, these limitations do not apply to certain salary reduction
contributions made and investment results earned prior to dates specified in the
Code. In addition, the limitation on hardship withdrawals does not apply to
salary reduction contributions made and investment results earned prior to dates
specified in the Code which have been transferred from custodial accounts.
Rollovers from the types of plans noted to another qualified plan or to an
individual retirement account or individual retirement annuity are not subject
to the limitations noted. Certain distributions, including rollovers, that are
not transferred directly to the trustee of another qualified plan, the custodian
of an individual retirement account or the issuer of an individual retirement
annuity may be subject to automatic 20% withholding for Federal income tax. This
may also trigger withholding for state income taxes (see "Certain Tax
Considerations").
We may make annuities available through the Texas Optional Retirement Program
subsequent to receipt of the required regulatory approvals and implementation.
In addition to the restrictions required for such Annuities to qualify under
Section 403(b) of the Code, Annuities issued in the Texas Optional Retirement
Program are amended as follows: (a) no benefits are payable unless you die
during, or are retired or terminated from, employment in all Texas institutions
of higher education; and (b) if a second year of participation in such program
is not begun, the total first year State of Texas' contribution will be
returned, upon its request, to the appropriate institute of higher education.
Pricing of Transfers and Distributions: We "price" transfers and
distributions on the dates indicated below.
(1) We price "scheduled" transfers and distributions as of the
date such transactions are so scheduled. "Scheduled" transactions include
transfers under a dollar cost averaging program, Systematic Withdrawals, Minimum
Distributions, transfers previously scheduled with us at our Office pursuant to
any on-going rebalancing, asset allocation or similar program, and annuity
payments.
(2) We price "unscheduled" transfers, partial withdrawals and
free withdrawals as of the date we receive at our Office the request for such
transactions. "Unscheduled" transfers include any transfers processed in
conjunction with any market timing program, or transfers not previously
scheduled with us at our Office pursuant to any rebalancing, asset allocation or
similar program which you employ or you authorize to be employed on your behalf.
"Unscheduled" transfers received pursuant to an authorization to accept
transfers, using voice or data transmission over the phone are priced as of the
Valuation Period we receive the request at our Office for such transactions.
(3) We price surrenders, medically-related surrenders and
death benefits as of the date we receive at our Office all materials we require
for such transactions and such materials are satisfactory to us (see
"Surrenders", "Medically-related Surrenders" and "Death Benefits").
The pricing of transfers and distributions involving Sub-accounts includes the
determination of the applicable Unit Price for the Units transferred or
distributed. The pricing of transfers and distributions involving Fixed
Allocations includes the determination of any applicable MVA. Any applicable MVA
alters the amount available when all the Account Value in a Fixed Allocation is
being transferred or distributed. Any applicable MVA alters the amount of
Interim Value needed when only a portion of the Account Value is being
transferred or distributed. Unit Prices may change each Valuation Period to
reflect the investment performance of the Sub-accounts. The MVA applicable to
each Fixed Allocation changes once each month and also each time we declare a
different rate for new Fixed Allocations. Payment is subject to our right to
defer transactions for a limited period (see "Deferral of Transactions").
Voting Rights: You have voting rights in relation to Account
Value maintained in the Sub-accounts. You do not have voting rights in relation
to Account Value maintained in any Fixed Allocations or in relation to fixed or
adjustable annuity payments.
We will vote shares of the underlying mutual funds or portfolios in which the
Sub-accounts invest in the manner directed by Owners. Owners give instructions
equal to the number of shares represented by the Sub-account Units attributable
to their Annuity.
We will vote the shares attributable to assets held in the Sub-accounts solely
for us rather than on behalf of Owners, or any share as to which we have not
received instructions, in the same manner and proportion as the shares for which
we have received instructions. We will do so separately for each Sub-account
from various classes that may invest in the same underlying mutual fund
portfolio.
The number of votes for an underlying mutual fund or portfolio will be
determined as of the record date for such underlying mutual fund or portfolio as
chosen by its board of trustees or board of directors, as applicable. We will
furnish Owners with proper forms and proxies to enable them to instruct us how
to vote.
You may instruct us how to vote on the following matters: (a) changes to the
board of trustees or board of directors, as applicable; (b) changing the
independent accountant; (c) approval of changes to the investment advisory
agreement or adoption of a new investment advisory agreement; (d) any change in
the fundamental investment policy; and (e) any other matter requiring a vote of
the shareholders.
With respect to approval of changes to the investment advisory agreement,
approval of a new investment advisory agreement or any change in fundamental
investment policy, only Owners maintaining Account Value as of the record date
in a Sub-account investing in the applicable underlying mutual fund portfolio
will instruct us how to vote on the matter, pursuant to the requirements of Rule
18f-2 under the 1940 Act.
Transfers, Assignments or Pledges: Generally, your rights in an Annuity may
be transferred, assigned or pledged for loans at any time. However, these rights
may be limited depending on your use of the Annuity. These transactions may be
subject to income taxes and certain penalty taxes (see "Certain Tax
Considerations"). You may transfer, assign or pledge your rights to another
person at any time, prior to any death upon which the death benefit is payable.
You must request a transfer or provide us a copy of the assignment In Writing. A
transfer or assignment is subject to our acceptance. Prior to receipt of this
notice, we will not be deemed to know of or be obligated under any assignment
prior to our receipt and acceptance thereof. We assume no responsibility for the
validity or sufficiency of any assignment. Transfer of all or a portion of
ownership rights may affect the minimum death benefit (see "Death Benefits").
Reports to You: We mail to Owners, at their last known address
of record, any statements and reports required by applicable law or regulation.
Owners should therefore give us prompt notice of any address change. We send a
confirmation statement to Owners each time a transaction is made affecting
Account Value, such as making additional Purchase Payments, transfers, exchanges
or withdrawals. Quarterly statements are also mailed detailing the activity
affecting your Annuity during the calendar quarter. You may request additional
reports. We reserve the right to charge up to $50 for each such additional
report. Instead of immediately confirming transactions made pursuant to some
type of periodic transfer program (such as a dollar cost averaging program) or a
periodic Purchase Payment program, such as a salary reduction arrangement, we
may confirm such transactions in quarterly statements. You should review the
information in these statements carefully. All errors or corrections must be
reported to us at our Office as soon as possible and no later than the date
below to assure proper accounting to your Annuity. For transactions for which we
immediately send confirmations, we assume all transactions are accurate unless
you notify us otherwise within 10 days from the date you receive the
confirmation. For transactions that are only confirmed on the quarterly
statement, we assume all transactions are accurate unless you notify us within
10 days from the date you receive the quarterly statement. All transactions
confirmed immediately or by quarterly statement are deemed conclusive after the
applicable 10 day period. We may also send to Owners each year an annual report
and a semi-annual report containing financial statements for the applicable
Sub-accounts, as of December 31 and June 30, respectively.
SALE OF THE ANNUITIES: American Skandia Marketing, Incorporated ("ASM, Inc."), a
wholly-owned subsidiary of American Skandia Investment Holding Corporation, acts
as the principal underwriter of the Annuities. ASM, Inc.'s principal business
address is One Corporate Drive, Shelton, Connecticut 06484. ASM, Inc. is a
member of the National Association of Securities Dealers, Inc.
("NASD").
Distribution: ASM, Inc. will enter into distribution
agreements with certain broker-dealers registered under the Securities and
Exchange Act of 1934 or with entities which may otherwise offer the Annuities
that are exempt from such registration. Under such distribution agreements such
broker-dealers or entities may offer Annuities to persons who have established
an account with the broker-dealer or entity. In addition, ASM, Inc. may offer
Annuities directly to potential purchasers. The maximum initial concession to be
paid on premiums received is 7.0% and a portion of compensation may be paid from
time to time based on all or a portion of Account Value. We reserve the right to
base concessions from time-to-time on the investment options chosen by Annuity
Owners, including investment options that may be deemed our "affiliates" or
"affiliates" of ASM, Inc. under the Investment Company Act of 1940.
From time to time we may promote the sale of our products and the solicitation
of additional purchase payments, where applicable, for our products, including
Annuities offered pursuant to this Prospectus, through programs of non-cash
rewards to registered representatives of participating broker-dealers. We may
withdraw or alter such promotions at any time.
Advertising: We may advertise certain information regarding
the performance of the investment options. Details on how we calculate
performance measures for the Sub-accounts are found in the Statement of
Additional Information. This performance information may help you review the
performance of the investment options and provide a basis for comparison with
other annuities. This information may be less useful when comparing the
performance of the investment options with other savings or investment vehicles.
Such other investments may not provide some of the benefits of annuities, or may
not be designed for long-term investment purposes. Additionally other savings or
investment vehicles may not be treated like annuities under the Code.
The information we may advertise regarding the Fixed Allocations may include the
then current interest rates we are crediting to new Fixed Allocations.
Information on Current Rates will be as of the date specified in such
advertisement. Rates will be included in advertisements to the extent permitted
by law. Given that the actual rates applicable to any Fixed Allocation are as of
the date of any such Fixed Allocation's Guarantee Period begins, the rate
credited to a Fixed Allocation may be more or less than those quoted in an
advertisement.
Performance information on the Sub-accounts is based on past performance only
and is no indication of future performance. Performance of the Sub-accounts
should not be considered a representation of the performance of such
Sub-accounts in the future. Performance of the Sub-accounts is not fixed. Actual
performance will depend on the type, quality and, for some of the Sub-accounts,
the maturities of the investments held by the underlying mutual funds or
portfolios and upon prevailing market conditions and the response of the
underlying mutual funds to such conditions. Actual performance will also depend
on changes in the expenses of the underlying mutual funds or portfolios. Such
changes are reflected, in turn, in the Sub-accounts which invest in such
underlying mutual fund or portfolio. In addition, the amount of the charge
assessed against each Sub-account will affect performance.
Some of the underlying mutual fund portfolios existed prior to the inception of
these Sub-accounts. Performance quoted in advertising regarding such
Sub-accounts may indicate periods during which the Sub-accounts have been in
existence but prior to the initial offering of the Annuities, or periods during
which the underlying mutual fund portfolios have been in existence, but the
Sub-accounts have not. Such hypothetical performance is calculated using the
same assumptions employed in calculating actual performance since inception of
the Sub-accounts.
As part of any advertisement of Standard Total Return, we may advertise the
"Non-standard Total Return" of the Sub-accounts. Non-standard Total Return does
not take into consideration the Annuity's contingent deferred sales charge.
Advertisements we distribute may also compare the performance of our
Sub-accounts with: (a) certain unmanaged market indices, including but not
limited to the Dow Jones Industrial Average, the Standard & Poor's 500, the
Shearson Lehman Bond Index, the Frank Russell non-U.S. Universal Mean, the
Morgan Stanley Capital International Index of Europe, Asia and Far East Funds,
and the Morgan Stanley Capital International World Index; and/or (b) other
management investment companies with investment objectives similar to the mutual
fund or portfolio underlying the Sub-accounts being compared. This may include
the performance ranking assigned by various publications, including but not
limited to the Wall Street Journal, Forbes, Fortune, Money, Barron's, Business
Week, USA Today and statistical services, including but not limited to Lipper
Analytical Services Mutual Funds Survey, Lipper Annuity and Closed End Survey,
the Variable Annuity Research Data Survey, SEI, the Morningstar Mutual Fund
Sourcebook and the Morningstar Variable Annuity/Life Sourcebook.
American Skandia Life Assurance Corporation may advertise its rankings and/or
ratings by independent financial ratings services. Such rankings may help you in
evaluating our ability to meet our obligations in relation to Fixed Allocations,
pay minimum death benefits, pay annuity payments or administer Annuities. Such
rankings and ratings do not reflect or relate to the performance of Separate
Account B.
CERTAIN TAX CONSIDERATIONS: The following is a brief summary of certain
Federal income tax laws as they are currently interpreted. No one can be certain
that the laws or interpretations will remain unchanged or that agencies or
courts will always agree as to how the tax law or regulations are to be
interpreted. This discussion is not intended as tax advice. You may wish to
consult a professional tax advisor for tax advice as to your particular
situation.
Our Tax Considerations: We are taxed as a life insurance company under Part
I, subchapter L, of the Code.
Tax Considerations Relating to Your Annuity: Section 72 of the Code governs
the taxation of annuities in general. Taxation of an annuity is largely
dependent upon: (a) whether it is used in a qualified pension or profit sharing
plan or other retirement arrangement eligible for special treatment under the
Code; and (b) the status of the beneficial owner as either a natural or
non-natural person (when the annuity is not used in a retirement plan eligible
for special tax treatment). Non-natural persons include corporations, trusts,
and partnerships, except where these entities own an annuity as an agent or
nominal owner for a natural person who is the beneficial owner. Natural persons
are individuals.
Non-natural Persons: Any increase during a tax year in the value of an
annuity if not used in a retirement plan eligible for special treatment under
the Code is currently includible in the gross income of a non-natural person
that is the contractholder. There are exceptions if an annuity is held by: (a) a
structured settlement company; (b) an employer with respect to a terminated
pension plan; (c) entities other than employers, such as a trust, holding an
annuity as an agent for a natural person; or (d) a decedent's estate by reason
of the death of the decedent.
Natural Persons: Increases in the value of an annuity when the
contractholder is a natural person generally are not taxed until distribution
occurs. Distribution can be in a lump sum payment or in annuity payments under
the annuity option elected. Certain other transactions may be deemed to be a
distribution. The provisions of Section 72 of the Code concerning these
distributions are summarized briefly below.
Distributions: Generally, distributions received before the annuity
payments begin are treated as being derived first from "income on the contract"
and includible in gross income. The amount of the distribution exceeding "income
on the contract" is not included in gross income. "Income on the contract" for
an annuity is computed by subtracting from the value of all "related contracts"
(our term, discussed below) the taxpayer's "investment in the contract": an
amount equal to total purchase payments for all "related contracts" less any
previous distributions or portions of such distributions from such "related
contracts" not includible in gross income. "Investment in the contract" may be
affected by whether an annuity or any "related contract" was purchased as part
of a tax-free exchange of life insurance or annuity contracts under Section 1035
of the Code.
"Related contracts" may mean all annuity contracts or certificates evidencing
participation in a group annuity contract for which the taxpayer is the
policyholder and which are issued by the same insurer within the same calendar
year, irrespective of the named annuitants. It is clear that "related contracts"
include contracts prior to when annuity payments begin. However, there may be
circumstances under which "related contracts" may include contracts recognized
as immediate annuities under state insurance law or annuities for which annuity
payments have begun. In a ruling addressing the applicability of a penalty on
distributions, the Internal Revenue Service treated distributions from a
contract recognized as an immediate annuity under state insurance law like
distributions from a deferred annuity. The situation addressed by such ruling
included the fact that: (a) the immediate annuity was obtained pursuant to an
exchange of contracts; and (b) the purchase payments for the exchanged contract
were contributed more than one year prior to the first annuity payment payable
under the immediate annuity. This ruling also may or may not imply that annuity
payments from a deferred annuity on or after its annuity date may be treated the
same as distributions prior to the annuity date if such deferred annuity was:
(a) obtained pursuant to an exchange of contracts; and (b) the purchase payments
for the exchanged contract were made or may be deemed to have been made more
than one year prior to the first annuity payment.
If "related contracts" include immediate annuities or annuities for which
annuity payments have begun, then "related contracts" would have to be taken
into consideration in determining the taxable portion of each annuity payment
(as outlined in the "Annuity Payments" subsection below) as well as in
determining the taxable portion of distributions from an annuity or any "related
contracts" before annuity payments have begun. We cannot guarantee that
immediate annuities or annuities for which annuity payments have begun could not
be deemed to be "related contracts". You are particularly cautioned to seek
advice from your own tax advisor on this matter.
Amounts received under a contract on its complete surrender, redemption, or
maturity are includible in gross income to the extent that they exceed the cost
of the contract, i.e., they exceed the total premiums or other consideration
paid for the contract minus amounts received under the contract that were not
reportable as gross income.
Loans, Assignments and Pledges: Any amount received directly or indirectly
as a loan from, or any assignment or pledge of any portion of the value of an
annuity before annuity payments have begun are treated as a distribution subject
to taxation under the distribution rules set forth above. Any gain in an annuity
subsequent to the assignment or pledge of an entire annuity while such
assignment or pledge remains in effect is treated as "income on the contract" in
the year in which it is earned. For annuities not issued for use as qualified
plans (see "Tax Considerations When Using Annuities in Conjunction with
Qualified Plans"), the cost basis of the annuity is increased by the amount of
any assignment or pledge includible in gross income. The cost basis is not
affected by any repayment of any loan for which the annuity is collateral or by
payment of any interest thereon.
Gifts: The gift of an annuity to other than the spouse of the contract
holder (or former spouse incident to a divorce) is treated for income tax
purposes as a distribution.
Penalty on Distributions: Subject to certain exceptions, any distribution
from an annuity not used in conjunction with qualified plans is subject to a
penalty equal to 10% of the amount includible in gross income. This penalty does
not apply to certain distributions, including: (a) distributions made on or
after the taxpayer's age 59 1/2; (b) distributions made on or after the death of
the holder of the contract, or, where the holder of the contract is not a
natural person, the death of the annuitant; (c) distributions attributable to
the taxpayer's becoming disabled; (d) distributions which are part of a
scheduled series of substantially equal periodic payments for the life (or life
expectancy) of the taxpayer (or the joint lives of the taxpayer and the
taxpayer's Beneficiary); (e) distributions of amounts which are allocable to
"investments in the contract" made prior to August 14, 1982; (f) payments under
an immediate annuity as defined in the Code; (g) distributions under a qualified
funding asset under Code Section 130(d); or (h) distributions from an annuity
purchased by an employer on the termination of a qualified pension plan that is
held by the employer until the employee separates from service.
Any modification, other than by reason of death or disability, of distributions
which are part of a scheduled series of substantially equal periodic payments as
noted in (d), above, that occur before the taxpayer's age 59 1/2 or within 5
years of the first of such scheduled payments will result in the requirement to
pay the taxes that would have been due had the payments been treated as subject
to tax in the years received, plus interest for the deferral period. It is our
understanding that the Internal Revenue Service does not consider a scheduled
series of distributions to qualify under (d), above, if the holder of the
annuity retains the right to modify such distributions at will, even if such
right is not exercised, or, for a variable annuity, if the distributions are not
based on a substantially equal number of Units, rather than a substantially
equal dollar amount.
The Internal Revenue Service has ruled that the exception to the 10% penalty
described above for "non-qualified" immediate annuities as defined under the
Code may not apply to annuity payments under a contract recognized as an
immediate annuity under state insurance law obtained pursuant to an exchange of
contracts if: (a) purchase payments for the exchanged contract were contributed
or deemed to be contributed more than one year prior to the first annuity
payment payable under the immediate annuity; and (b) the annuity payments under
the immediate annuity do not meet the requirements of any other exception to the
10% penalty. This ruling may or may not imply that the exception to the 10%
penalty may not apply to annuity payments paid pursuant to a deferred annuity
obtained pursuant to an exchange of contract if: (a) purchase payments for the
exchanged contract were contributed or may be deemed to be contributed more than
one year prior to the first annuity payment pursuant to the deferred annuity
contract; or (b) the annuity payments pursuant to the deferred annuity do not
meet the requirements of any other exception to the 10% penalty.
Annuity Payments: The taxable portion of each payment received as an
annuity on or after the annuity start date is determined by a formula which
establishes the ratio that "investment in the contract" bears to the total value
of annuity payments to be made. However, the total amount excluded under this
ratio is limited to the "investment in the contract". The formula differs
between fixed and variable annuity payments. Where the annuity payments cease
because of the death of the person upon whose life payments are based and, as of
the date of death, the amount of annuity payments excluded from taxable income
by the exclusion ratio does not exceed the investment in the contract, then the
remaining portion of unrecovered investment is allowed as a deduction in the tax
year of such death.
Tax Free Exchanges: Section 1035 of the Code permits certain tax-free
exchanges of a life insurance, annuity or endowment contract for an annuity. If
an annuity is obtained by a tax-free exchange of a life insurance, annuity or
endowment contract purchased prior to August 14, 1982, then any distributions
other than as annuity payments which do not exceed the portion of the
"investment in the contract" (purchase payments made into the other contract,
less prior distributions) prior to August 14, 1982, are not included in taxable
income. In all other respects, the general provisions of the Code apply to
distributions from annuities obtained as part of such an exchange.
Transfers Between Investment Options: Transfers between investment options
are not subject to taxation. The Treasury Department may promulgate guidelines
under which a variable annuity will not be treated as an annuity for tax
purposes if persons with ownership rights have excessive control over the
investments underlying such variable annuity. Such guidelines may or may not
address the number of investment options or the number of transfers between
investment options offered under a variable annuity. It is not known whether
such guidelines, if in fact promulgated, would have retroactive effect. It is
also not known what effect, if any, such guidelines may have on transfers
between the investment options of the Annuity offered pursuant to this
Prospectus. We will take any action, including modifications to your Annuity or
the Sub-accounts, required to comply with such guidelines if promulgated.
Estate and Gift Tax Considerations: You should obtain competent tax advice
with respect to possible federal and state gift tax consequences flowing from
the ownership and transfer of annuities.
Generation-Skipping Transfers: Under the Code certain taxes may be due when
all or part of an annuity is transferred to or a death benefit is paid to an
individual two or more generations younger than the contract holder. These taxes
tend to apply to transfers of significantly large dollar amounts. We may be
required to determine whether a transaction must be treated as a direct skip as
defined in the Code and the amount of the resulting tax. If so required, we will
deduct from your Annuity or from any applicable payment to be treated as a
direct skip any amount we are required to pay as a result of the transaction.
Diversification: Section 817(h) of the Code provides that a variable
annuity contract, in order to qualify as an annuity, must have an "adequately
diversified" segregated asset account (including investments in a mutual fund by
the segregated asset account of insurance companies). The Treasury Department's
regulations prescribe the diversification requirements for variable annuity
contracts. We believe the underlying mutual fund portfolios should comply with
the terms of these regulations.
Federal Income Tax Withholding: Section 3405 of the Code provides for
Federal income tax withholding on the portion of a distribution which is
includible in the gross income of the recipient. Amounts to be withheld depend
upon the nature of the distribution. However, under most circumstances a
recipient may elect not to have income taxes withheld or have income taxes
withheld at a different rate by filing a completed election form with us.
Certain distributions, including rollovers, from most retirement plans, may be
subject to automatic 20% withholding for Federal income taxes. This will not
apply to: (a) any portion of a distribution paid as Minimum Distributions; (b)
direct transfers to the trustee of another retirement plan; (c) distributions
from an individual retirement account or individual retirement annuity; (d)
distributions made as substantially equal periodic payments for the life or life
expectancy of the participant in the retirement plan or the life or life
expectancy of such participant and his or her designated beneficiary under such
plan; and (e) certain other distributions where automatic 20% withholding may
not apply.
Tax Considerations When Using Annuities in Conjunction with
Qualified Plans: There are various types of qualified plans for which an annuity
may be suitable. Benefits under a qualified plan may be subject to that plan's
terms and conditions irrespective of the terms and conditions of any annuity
used to fund such benefits ("qualified contract"). We have provided below
general descriptions of the types of qualified plans in conjunction with which
we may issue an Annuity. These descriptions are not exhaustive and are for
general informational purposes only. We are not obligated to make or continue to
make new Annuities available for use with all the types of qualified plans shown
below.
The tax rules regarding qualified plans are complex. The application of these
rules depend on individual facts and circumstances. Before purchasing an Annuity
for use in funding a qualified plan, you should obtain competent tax advice,
both as to the tax treatment and suitability of such an investment.
Qualified contracts include special provisions changing or restricting certain
rights and benefits otherwise available to non-qualified annuities. You should
read your Annuity carefully to review any such changes or limitations. The
changes and limitations may include, but may not be limited to, restrictions on
ownership, transferability, assignability, contributions, distributions, as well
as reductions to the minimum allowable purchase payment for an annuity and any
subsequent annuity you may purchase for use as a qualified contract.
Additionally, various penalty and excise taxes may apply to contributions or
distributions made in violation of applicable limitations.
Individual Retirement Programs: Eligible individuals may maintain an
individual retirement account or individual retirement annuity ("IRA"). Subject
to limitations, contributions of certain amounts may be deductible from gross
income. Purchasers of IRAs are to receive a special disclosure document, which
describes limitations on eligibility, contributions, transferability and
distributions. It also describes the conditions under which distributions from
IRAs and other qualified plans may be rolled over or transferred into an IRA on
a tax-deferred basis. Eligible employers that meet specified criteria may
establish savings incentive match plans for employees using the employees' IRAs.
These arrangements are known as Simple-IRAs. Employer contributions that may be
made to Simple-IRAs are larger than the amounts that may be contributed to other
IRAs, and may be deductible to the employer.
Tax Sheltered Annuities: A tax sheltered annuity ("TSA") under Section
403(b) of the Code is a contract into which contributions may be made for the
benefit of their employees by certain qualifying employers: public schools and
certain charitable, educational and scientific organizations. Such contributions
are not taxable to the employee until distributions are made from the TSA. The
Code imposes limits on contributions, transfers and distributions.
Nondiscrimination requirements apply as well.
Corporate Pension and Profit-sharing Plans: Annuities may be used to fund
employee benefits of various retirement plans established by corporate
employers. Contributions to such plans are not taxable to the employee until
distributions are made from the retirement plan. The Code imposes limitations on
contributions and distributions. The tax treatment of distributions is subject
to special provisions of the Code, and also depends on the design of the
specific retirement plan. There are also special requirements as to
participation, nondiscrimination, vesting and nonforfeitability of interests.
H.R. 10 Plans: Annuities may also be used to fund benefits of retirement
plans established by self-employed individuals for themselves and their
employees. These are commonly known as "H.R. 10 Plans" or "Keogh Plans". These
plans are subject to most of the same types of limitations and requirements as
retirement plans established by corporations. However, the exact limitations and
requirements may differ from those for corporate plans.
Tax Treatment of Distributions from Qualified Annuities: A 10% penalty tax
applies to the taxable portion of a distribution from a qualified contract
unless one of the following exceptions apply to such distribution: (a) it is
part of a properly executed transfer to another IRA, an individual retirement
account or another eligible qualified plan; (b) it occurs on or after the
taxpayer's age 59 1/2; (c) it is subsequent to the death or disability of the
taxpayer (for this purpose disability is as defined in Section 72(m)(7) of the
Code); (d) it is part of substantially equal periodic payments to be paid not
less frequently than annually for the taxpayer's life or life expectancy or for
the joint lives or life expectancies of the taxpayer and a designated
beneficiary; (e) it is subsequent to a separation from service after the
taxpayer attains age 55; (f) it does not exceed the employee's allowable
deduction in that tax year for medical care; and (g) it is made to an alternate
payee pursuant to a qualified domestic relations order. The exceptions stated
above in (e), (f) and (g) do not apply to IRAs.
Section 457 Plans: Under Section 457 of the Code, deferred compensation
plans established by governmental and certain other tax exempt employers for
their employees may invest in annuity contracts. The Code limits contributions
and distributions, and imposes eligibility requirements as well. Contributions
are not taxable to employees until distributed from the plan. However, plan
assets remain the property of the employer and are subject to the claims of the
employer's general creditors until such assets are made available to
participants or their beneficiaries.
OTHER MATTERS: Outlined below are certain miscellaneous matters you should
know before investing in an Annuity.
Deferral of Transactions: We may defer any distribution or
transfer from a Fixed Allocation or an annuity payout for a period not to exceed
the lesser of 6 months or the period permitted by law. If we defer a
distribution or transfer from any Fixed Allocation or any annuity payout for
more than thirty days, or less where required by law, we pay interest at the
minimum rate required by law but not less than 3% or at least 4% if required by
your contract, per year on the amount deferred. We may defer payment of proceeds
of any distribution from any Sub-account or any transfer from a Sub-account for
a period not to exceed 7 calendar days from the date the transaction is
effected. Any deferral period begins on the date such distribution or transfer
would otherwise have been transacted (see "Pricing of Transfers and
Distributions").
All procedures, including payment, based on the valuation of the Sub-accounts
may be postponed during the period: (1) the New York Stock Exchange is closed
(other than customary holidays or weekends) or trading on the New York Stock
Exchange is restricted as determined by the SEC; (2) the SEC permits
postponement and so orders; or (3) the SEC determines that an emergency exists
making valuation or disposal of securities not reasonably practical.
Resolving Material Conflicts: Underlying mutual funds or
portfolios may be available to registered separate accounts offering either or
both life and annuity contracts of insurance companies not affiliated with us.
We also may offer life insurance and/or annuity contracts that offer different
variable investment options from those offered under this Annuity, but which
invest in the same underlying mutual funds or portfolios. It is possible that
differences might arise between our Separate Account B and one or more accounts
of other insurance companies which participate in a portfolio. It is also
possible that differences might arise between a Sub-account offered under this
Annuity and variable investment options offered under different life insurance
policies or annuities we offer, even though such different variable investment
options invest in the same underlying mutual fund or portfolio. In some cases,
it is possible that the differences could be considered "material conflicts".
Such a "material conflict" could also arise due to changes in the law (such as
state insurance law or Federal tax law) which affect either these different life
and annuity separate accounts or differing life insurance policies and
annuities. It could also arise by reason of differences in voting instructions
of persons with voting rights under our policies and/or annuities and those of
other companies, persons with voting rights under annuities and those with
rights under life policies, or persons with voting rights under one of our life
policies or annuities with those under other life policies or annuities we
offer. It could also arise for other reasons. We will monitor events so we can
identify how to respond to such conflicts. If such a conflict occurs, we will
take the necessary action to protect persons with voting rights under our life
policies or annuities vis-a-vis those with rights under life policies or
annuities offered by other insurance companies. We will also take the necessary
action to treat equitably persons with voting rights under this Annuity and any
persons with voting rights under any other life policy or annuity we offer.
Modification: We reserve the right to any or all of the
following: (a) combine a Sub-account with other Sub-accounts; (b) combine
Separate Account B or a portion thereof with other "unitized" separate accounts;
(c) terminate offering certain Guarantee Periods for new or renewing Fixed
Allocations; (d) combine Separate Account D with other "non-unitized" separate
accounts; (e) deregister Separate Account B under the 1940 Act; (f) operate
Separate Account B as a management investment company under the 1940 Act or in
any other form permitted by law; (g) make changes required by any change in the
Securities Act of 1933, the Exchange Act of 1934 or the 1940 Act; (h) make
changes that are necessary to maintain the tax status of your Annuity under the
Code; (i) make changes required by any change in other Federal or state laws
relating to retirement annuities or annuity contracts; and (j) discontinue
offering any variable investment option at any time.
Also, from time to time, we may make additional Sub-accounts available to you.
These Sub-accounts will invest in underlying mutual funds or portfolios of
underlying mutual funds we believe to be suitable for the Annuity. We may or may
not make a new Sub-account available to invest in any new portfolio of one of
the current underlying mutual funds should such a portfolio be made available to
Separate Account B.
We may eliminate Sub-accounts, combine two or more Sub-accounts or substitute
one or more new underlying mutual funds or portfolios for the one in which a
Sub-account is invested. Substitutions may be necessary if we believe an
underlying mutual fund or portfolio no longer suits the purpose of the Annuity.
This may happen due to a change in laws or regulations, or a change in the
investment objectives or restrictions of an underlying mutual fund or portfolio,
or because the underlying mutual fund or portfolio is no longer available for
investment, or for some other reason. We would obtain prior approval from the
insurance department of our state of domicile, if so required by law, before
making such a substitution, deletion or addition. We also would obtain prior
approval from the SEC so long as required by law, and any other required
approvals before making such a substitution, deletion or addition.
We reserve the right to transfer assets of Separate Account B, which we
determine to be associated with the class of contracts to which your Annuity
belongs, to another "unitized" separate account. We also reserve the right to
transfer assets of Separate Account D which we determine to be associated with
the class of contracts to which your annuity belongs, to another "non-unitized"
separate account. We notify you (and/or any payee during the payout phase) of
any modification to your Annuity. We may endorse your Annuity to reflect the
change.
Misstatement of Age or Sex: If there has been a misstatement
of the age and/or sex of any person upon whose life annuity payments or the
minimum death benefit are based, we make adjustments to conform to the facts. As
to annuity payments: (a) any underpayments by us will be remedied on the next
payment following correction; and (b) any overpayments by us will be charged
against future amounts payable by us under your Annuity.
Ending the Offer: We may limit or discontinue offering Annuities. Existing
Annuities will not be affected by any such action.
Indemnification: Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to directors, officers
or persons controlling the registrant pursuant to the foregoing provisions, the
registrant has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is therefore unenforceable.
Legal Proceedings: As of the date of this Prospectus, neither we nor ASM,
Inc. were involved in any litigation outside of the ordinary course of business,
and know of no material claims.
THE COMPANY: American Skandia Life Assurance Corporation (ASLAC) is a stock
insurance company domiciled in Connecticut with licenses in all 50 states. It is
a wholly-owned subsidiary of American Skandia Investment Holding Corporation
(ASIHC), whose ultimate parent is Skandia Insurance Company Ltd., a Swedish
company. The Company markets its products to broker-dealers and financial
planners through an internal field marketing staff. In addition, the Company
markets through and in conjunction with financial institutions such as banks
that are permitted directly, or through affiliates, to sell annuities.
As of July 1995, Skandia Vida, S.A. de C.V. was formed by the ultimate
parent, Skandia Insurance Company, Ltd., a Swedish corporation. The Company has
a 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. Total
shareholder's equity of Skandia Vida, S.A. de C.V. is $1,358,906 as of March 31,
1997.
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 five
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 accordance 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. The selected financial data as of and for the three month period ended
March 31, 1997 and 1996 are taken or derived from the company's unaudited
interim financial statements included elsewhere in the Registration Statement
and, in the opinion of management, have been prepared on the same basis as the
audited financial statements included herein and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of such data. The results of operations for an interim period are
not necessarily indicative of the results for the full year or any other period.
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE MONTH
PERIOD ENDED
March 31, March 31, FOR THE YEAR ENDED DECEMBER 31,
--------- ------------ ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
Income Statement Data:
Revenues:
Annuity charges and fees* $24,368,624 $13,429,275 $69,779,522 $38,837,358 $24,779,785 $11,752,984 $4,846,134
Fee income 5,524,257 3,162,040 16,419,690 6,205,719 2,111,801 938,336 125,179
Net investment income 1,368,683 455,022 1,585,819 1,600,674 1,300,217 692,758 892,053
Annuity premium income 275,000 0 125,000 0 70,000 101,643 1,304,629
Net realized capital
gains/(losses) 20,604 92,072 134,463 36,774 (1,942) 330,024 195,848
Other income 17,939 14,450 34,154 64,882 24,550 1,269 15,119
---------- ---------- ---------- ---------- ---------- ---------- ---------
Total revenues $31,575,107 $17,152,859 $88,078,648 $46,745,407 $28,284,411 $13,817,014 $7,378,962
========== ========== ========== ========== ========== ========== =========
Benefits and Expenses:
Annuity benefits 144,687 117,986 613,594 555,421 369,652 383,515 276,997
Increase/(decrease) in annuity
policy reserves 783,550 173,873 634,540 (6,778,756) 5,766,003 1,208,454 1,331,278
Cost of minimum death benefit
reinsurance 876,078 643,610 2,866,835 2,056,606 0 0 0
Return credited
to contractowners (6,745,574) 1,004,430 672,635 10,612,858 (516,730) 252,132 560,243
Underwriting, acquisition and
other insurance expenses 17,720,966 8,553,827 49,915,661 35,970,524 18,942,720 9,547,951 11,338,765
Interest expense 5,539,574 2,231,685 10,790,716 6,499,414 3,615,845 187,156 0
---------- --------- ---------- ---------- ---------- --------- ----------
Total benefits $18,319,281 $12,725,411 $65,493,981 $48,916,067 $28,177,490 $11,579,208 $13,507,283
and expenses =========== =========== =========== =========== =========== =========== ===========
Income tax $4,259,851 $ 1,768,507 $(4,038,357) $ 397,360 $ 247,429 $ 182,965 $ 0
(benefit) expense =========== =========== =========== ============ =========== =========== ===========
Net income (loss) $8,995,975 $ 2,658,941 $26,623,024 $(2,568,020) $ (140,508)$ 2,054,841 $(6,128,321)
=========== =========== =========== ============ =========== =========== ===========
Balance Sheet Data:
Total Assets $8,992,112,703 $5,647,225,576 $8,334,662,876 $5,021,012,890 $2,864,416,329 $1,558,548,537 $552,345,206
============= ============== ============= ============== ============== ============== ============
Future fees payable
to parent $ 44,842,187 $ 0 $ 47,111,936 $ 0 $ 0 $ 0 $ 0
========== ============== ============= ============== ============== ============== ============
Surplus Notes $ 213,000,000 $ 103,000,000 $ 213,000,000 $ 103,000,000 $ 69,000,000 $ 20,000,000 $ 0
=========== ============= ============= ============== ============== ============== ============
Shareholder's Equity $ 134,047,885 $ 62,425,646 $ 126,345,031 $ 59,713,000 $ 52,205,524 $ 52,387,687 $ 46,332,846
=========== ============= ============= ============== ============== ============== ============
</TABLE>
<PAGE>
*On annuity sales of $866,040,450, $561,231,342, $2,795,114,000, $1,628,486,000,
$1,372,874,000, $890,640,000 and $287,596,000 with contractowner assets under
management of $8,337,941,255, $5,319,372,324, $7,764,891,000, $4,704,044,000,
$2,661,161,000, $1,437,554,000 and $495,176,000 as of March 31, 1997 and 1996,
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 Operation: The Company's long term business plan was developed
reflecting the current sales and marketing approach. The sales volume for the
three month period ended March 31, 1997 and 1996 was $866 million and $561
million, respectively. This represents an increase of 54% compared to the same
period last year. This increase is a direct result of the marketing efforts by
the Company coupled with an overall increase in the variable annuity
marketplace.
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.
Assets grew $657 million or 8% since December 31, 1996. This increase is a
direct result of the sales volume increasing separate account assets and
deferred acquisition costs. Liabilities grew $650 million or 8% since December
31, 1996 as a result of the reserves required for the increased sales activity
as well as an increase in the amounts payable to affiliates and reinsurance to
support the acquisition costs of the Company's variable annuity business.
The Company experienced a net gain of $9.0 million after tax for the current
period which was $6.3 million greater than the same period last year, and in
excess of plan. This gain is a result of the strong sales activity for the three
months ended March 31, 1997, favorable expense levels relative to sales activity
and an increased asset base, which generates additional fee revenue.
Increasing annuity sales volume results in greater assets under management.
Growth in assets under management has resulted in an 81% increase in annuity
charges and fees for the three month period ended March 31, 1997. This is
compared to an increase of 72% for the three month period ended March 31, 1996.
Net investment income increased 201% for the three month period ended March 31,
1997. This is compared to a decrease of 18% for the three month period ended
March 31, 1996. The current period increase is the result of increased
investment holdings for the quarter. The prior period decrease is a result of
the need to liquidate short term investments to support cash needs.
Fee income includes income earned for transfer agency type activities. This
income increased 75% for the three month period ended March 31, 1997 compared to
an increase of 202% for the three month period ended March 31, 1996. These
increases are driven by the continued increase in assets under management.
Annuity premium income represents sales of immediate annuities with life
contingencies.
Annuity benefits represent payments on annuity contracts with mortality risks:
immediate annuities with life contingencies and supplementary contracts with
life contingencies.
Increase in annuity policy reserves represents change in reserves for immediate
annuities with life contingencies, supplementary contracts with life
contingencies and the guaranteed minimum death benefit on variable annuities. In
September 1995, the Company entered into an agreement to reinsure the guaranteed
minimum death benefit exposure on most of its variable annuity contracts. The
change in the minimum death benefit reserve exceeded the costs associated with
reinsuring the minimum death benefit by $0.6 million for the period ended March
31, 1997. For the same period last year, the costs associated with reinsuring
the minimum death benefit reserve exceeded the change in the minimum death
benefit reserve by approximately $0.5 million.
Return credited to contractowners represents revenues on variable and market
value adjusted annuities offset by benefit payments and change in reserves
required on this business. Also included are benefit payments and change in
reserves on immediate annuities and supplemental contracts without significant
mortality risks. The result for the current period reflects a higher than
expected separate account investment return on the market value adjusted
contracts in support of the benefits and required reserves combined with the
reversal of the effect of December 31, 1996 bond market fluctuations which had
adversely impacted 1996 results by $1.8 million. While the assets relating to
the market value adjusted contracts reflected the market interest rate
fluctuations which occurred on December 31, 1996, the liabilities were based on
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.
Underwriting, acquisition and other insurance expenses consists of $42.9 million
of commissions and $21.2 million of general expenses offset by the net
capitalization of deferred acquisition costs totaling $46.4 million for the
three month period ended March 31, 1997. This compares to $25.7 million of
commissions and $11.9 million of general expenses offset by the net
capitalization of deferred acquisition costs totaling $29.1 million for the
three month periods ended March 31, 1996.
Interest expense increased 148% over the same period last year as a result of
the 1996 increase in surplus notes of $110 million.
Income tax expense was $4.3 million for the quarter ended March 31, 1997,
compared with $1.8 million for the same period last year. The effective Federal
income tax rates for the periods were 32% and 40% respectively. The 1997
effective rate was lower than the Federal statutory income tax rate (35%)
primarily due to permanent differences. The 1996 effective rate was higher than
the Federal statutory income tax rate due to an increase in the deferred tax
valuation allowance. Such allowance was released at December 31, 1996.
Management believes that based on the taxable income produced in 1996 and the
first quarter of 1997 as well as the continued growth in annuity products, the
Company will produce sufficient taxable income in the future to realize its
deferred tax assets.
Liquidity and Capital Resources: The liquidity requirement of
ASLAC was met by cash from insurance operations, investment activities and
borrowings from its parent.
The Company had significant growth during the three month period in 1997. The
sales volume of $866 million was made up of approximately 94% 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. To this end, the Company extended its reinsurance agreements (initiated
in 1993, 1994 and 1995) and was advanced $52 million by the parent. It is
anticipated that during 1997 this advance will be repaid with the proceeds from
additional sales of future fee revenues, similar to the transaction which closed
on December 17, 1996. 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 March 31, 1997 and 1996, shareholder's equity was $134.0 million and $62.4
million, respectively, which includes the carrying value of the state insurance
licenses in the amount of $4.7 million.
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 March 31, 1997 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 accrued at March 31, 1997 amounted to $5,857,175, of which
$774,107 has been approved for payment. The remaining $5,083,068 has not been
approved for payment.
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 March 31, 1997, we had 347 direct salaried
employees. An affiliate, American Skandia Information Services and Technology
Corporation, which provides services almost exclusively to us, had 55 direct
salaried employees.
Regulation: We are organized as a Connecticut stock life
insurance company, and are subject to Connecticut law governing insurance
companies. We are regulated and supervised by the Connecticut Commissioner of
Insurance. By March 1 of every year, we must prepare and file an annual
statement, in a form prescribed by the Connecticut Insurance Department, which
covers our operations for the preceding calendar year, and must prepare and file
our statement of financial condition as of December 31 of such year. The
Commissioner and his or her agents have the right at all times to review or
examine our books and assets. A full examination of our operations will be
conducted periodically according to the rules and practices of the National
Association of Insurance Commissioners ("NAIC"). We are subject to the insurance
laws and various federal and state securities laws and regulations and to
regulatory agencies, such as the Securities and Exchange Commission (the "SEC")
and the Connecticut Banking Department, which administer those laws and
regulations.
We can be assessed up to prescribed limits for policyholder losses incurred by
insolvent insurers under the insurance guaranty fund laws of most states. We
cannot predict or estimate the amount any such future assessments we may have to
pay. However, the insurance guaranty laws of most states provide for deferring
payment or exempting a company from paying such an assessment if it would
threaten such insurer's financial strength.
Several states, including Connecticut, regulate insurers and their affiliates
under insurance holding company laws and regulations. This applies to us and our
affiliates. Under such laws, inter-company transactions, such as dividend
payments to parent companies and transfers of assets, may be subject to prior
notice and approval, depending on factors such as the size of the transaction in
relation to the financial position of the companies.
Currently, the federal government does not directly regulate the business of
insurance. However, federal legislative, regulatory and judicial decisions and
initiatives often have significant effects on our business. Types of changes
that are most likely to affect our business include changes to: (a) the taxation
of life insurance companies; (b) the tax treatment of insurance products; (c)
the securities laws, particularly as they relate to insurance and annuity
products; (d) the "business of insurance" exemption from many of the provisions
of the anti-trust laws; (e) the barriers preventing most banks from selling or
underwriting insurance: and (f) any initiatives directed toward improving the
solvency of insurance companies. We would also be affected by federal
initiatives that have impact on the ownership of or investment in United States
companies by foreign companies or investors.
Executive Officers and Directors:
Our executive officers, directors and certain significant employees, their ages,
positions with us and principal occupations are indicated below. The immediately
preceding work experience is provided for officers that have not been employed
by us or an affiliate for at least five years as of the date of this Prospectus.
<PAGE>
<TABLE>
<CAPTION>
Name/ Position with American Skandia
Age Life Assurance Corporation Principal Occupation
<S> <C> <C> <C> <C>
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.
<PAGE>
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
<PAGE>
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
</TABLE>
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.
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION: The following are the
contents of the Statement of Additional Information:
(1) General Information Regarding American Skandia Life Assurance Corporation
(2) Principal Underwriter
(3) Calculation of Performance Data
(4) Unit Price Determinations
(5) Calculating the Market Value Adjustment
(6) Independent Auditors
(7) Legal Experts
(8) Appendix A - Financial Statements for Separate Account B (Class 1
Sub-accounts)
FINANCIAL STATEMENTS: The consolidated financial statements which follow in
Appendix A are those of American Skandia Life Assurance Corporation as of
December 31, 1996, and 1995, and for the three years in the period ended
December 31, 1996. Also included are the unaudited financial statements for the
quarterly period ending March 31, 1997. Financial statements for the Class 1
Sub-accounts of Separate Account B are found in the Statement of Additional
Information.
<PAGE>
APPENDIXES
APPENDIX A FINANCIAL STATEMENTS FOR AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
APPENDIX B SHORT DESCRIPTIONS OF THE UNDERLYING MUTUAL FUNDS'
PORTFOLIO INVESTMENT OBJECTIVES AND POLICIES
<PAGE>
APPENDIX A FINANCIAL STATEMENTS FOR AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1997
Commission file numbers: 33-62791, 33-62953, 33-88360, 33-89566,
33-89676, 33-89678, 33-91400,
333-00941, 333-00995, 333-01021, 333-02867 and 333-08743
American Skandia Life Assurance Corporation
Incorporated in the State of Connecticut 06-1241288
(IRS Employer Identification No.)
One Corporate Drive
Shelton, Connecticut 06484
Telephone Number (203) 926-1888
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days.
Yes x No __
As of April 30, 1997, there were 25,000 shares of outstanding common stock, par
value $80 per share, of the registrant, consisting of 100 shares of voting and
24,900 shares of non-voting common stock, all of which were owned by American
Skandia Investment Holding Corporation, a wholly-owned subsidiary of Skandia
Insurance Company Ltd., a Swedish corporation.
<PAGE>
<TABLE>
American Skandia Life Assurance Corporation
Table of Contents
<CAPTION>
Page
PART I. FINANCIAL INFORMATION:
<S> <C> <C>
Item 1. Financial Statements:
Consolidated Statements of Financial Condition -
March 31, 1997 (unaudited)
and December 31, 1996 4
Consolidated Statements of Operations (unaudited) -
Three months ended March 31, 1997
and March 31, 1996 5
Consolidated Statements of Cash Flows (unaudited) -
Three months ended March 31, 1997
and March 31, 1996 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of
Operations - Three months ended
March 31, 1997 11
PART II. OTHER INFORMATION:
Item 4. Action Taken by Shareholder 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
Exhibit Index 17
</TABLE>
(2)
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1.
FINANCIAL STATEMENTS
(3)
<PAGE>
<TABLE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------------------- -----------------------
(unaudited)
ASSETS
<S> <C> <C> <C> <C>
Investments:
Fixed maturities - at amortized cost $ 9,582,613 $ 10,090,369
Fixed maturities - at market value 85,520,736 87,369,724
Investment in mutual funds - at market value 3,859,138 2,637,731
Short-term investments - at amortized cost 22,986,075 18,100,000
--------------------- -----------------------
Total investments 121,948,562 118,197,824
Cash and cash equivalents 14,385,617 14,199,412
Accrued investment income 1,682,759 1,958,546
Fixed assets 241,635 229,780
Deferred acquisition costs 488,155,985 438,640,918
Reinsurance receivable 3,637,067 2,167,818
Receivable from affiliates 975,373 691,532
Deferred income taxes 18,190,845 17,217,582
State insurance licenses 4,675,000 4,712,500
Other assets 2,518,421 2,207,171
Separate account assets 8,335,701,439 7,734,439,793
--------------------- -----------------------
Total Assets $ 8,992,112,703 $ 8,334,662,876
===================== =======================
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES:
Reserve for future contractowner benefits $ 34,571,374 $ 36,245,936
Annuity policy reserves 23,707,939 21,238,749
Income taxes payable 4,638,536 1,124,151
Accounts payable and accrued expenses 55,965,044 65,198,965
Payable to affiliates 53,025,080 685,724
Future fees payable to parent 44,842,187 47,111,936
Payable to reinsurer 82,340,890 79,000,262
Short-term borrowing 10,000,000 10,000,000
Surplus notes 213,000,000 213,000,000
Deferred contract charges 272,329 272,329
Separate account liabilities 8,335,701,439 7,734,439,793
--------------------- -----------------------
Total Liabilities 8,858,064,818 8,208,317,845
--------------------- -----------------------
SHAREHOLDER'S EQUITY:
Common stock, $80 par, 25,000 shares
authorized, issued and outstanding 2,000,000 2,000,000
Additional paid-in capital 122,380,117 122,250,117
Unrealized investment gains and losses, net (1,767,713) (319,631)
Foreign currency translation, net (238,745) (263,706)
Retained earnings 11,674,226 2,678,251
--------------------- -----------------------
Total Shareholder's Equity 134,047,885 126,345,031
--------------------- -----------------------
Total Liabilities and Shareholder's Equity $ 8,992,112,703 $ 8,334,662,876
===================== =======================
</TABLE>
See notes to unaudited consolidated financial statements.
(4)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1996
-------------------------- --------------------------
REVENUES:
<S> <C> <C> <C> <C>
Annuity charges & fees $ 24,368,624 $ 13,429,275
Fee income 5,524,257 3,162,040
Net investment income 1,368,683 455,022
Net realized capital gains 20,604 92,072
Annuity premium income 275,000 0
Other 17,939 14,450
-------------------------- --------------------------
Total Revenues 31,575,107 17,152,859
-------------------------- --------------------------
BENEFITS AND EXPENSES:
Benefits:
Annuity benefits 144,687 117,986
Increase in annuity policy reserves 783,550 173,873
Cost of minimum death benefit reinsurance 876,078 643,610
Return credited to contractowners (6,745,574) 1,004,430
-------------------------- --------------------------
(4,941,259) 1,939,899
-------------------------- --------------------------
Expenses:
Underwriting, acquisition and other insurance expenses 17,683,466 8,516,327
Amortization of state insurance licenses 37,500 37,500
Interest expense 5,539,574 2,231,685
-------------------------- --------------------------
23,260,540 10,785,512
-------------------------- --------------------------
Total Benefits and Expenses 18,319,281 12,725,411
-------------------------- --------------------------
Income from operation
before income taxes 13,255,826 4,427,448
Income taxes 4,259,851 1,768,507
-------------------------- --------------------------
Net income $ 8,995,975 $ 2,658,941
========================== ==========================
</TABLE>
See notes to unaudited consolidated financial statements.
(5)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(wholly-owned subsidiary of Skandia Insurance Company Ltd.)
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1996
----------------------- -----------------------
CASH FLOW FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net income $ 8,995,975 $ 2,658,941
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Increase in annuity policy reserves 2,469,190 480,579
Amortization of bond discount 18,153 4,769
Amortization of insurance licenses 37,500 37,500
Change in due to/due from affiliates 52,055,515 (369,261)
Change in income tax payable/receivable 3,514,385 1,756,351
Increase in other assets (323,105) (2,888)
Change in accrued investment income 275,787 (46,063)
Increase in reinsurance receivable (1,469,249) (120,547)
Decrease in accounts payable and accrued expenses (9,233,922) (287,155)
Increase in deferred acquisition cost (49,515,067) (33,500,335)
Decrease in deferred contract charges 0 (20,047)
Decrease in foreign currency translation, net 26,822 19,514
Deferred income taxes (228,711) 0
Realized gain on sale of investments (20,604) (92,072)
----------------------- -----------------------
Net cash provided by (used in) operating activities 6,602,669 (29,480,714)
----------------------- -----------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from maturity of fixed maturity investments 200,000 0
Purchase of shares in mutual funds (1,434,810) (937,792)
Proceeds from sale of mutual funds 178,104 834,949
Purchase of short-term investments (4,886,075) (78,000,000)
Proceeds from sale of short-term investments 0 93,700,000
Change in investments of separate account assets (867,715,012) (562,205,959)
----------------------- -----------------------
Net cash used in investing activities (873,657,793) (546,608,802)
----------------------- -----------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Capital contributions from parent 130,000 74,212
Decrease in future payable fees to parent (2,269,749) 0
Increase in payable to reinsurer 3,340,628 4,753,077
Proceeds from annuity sales 866,040,450 561,231,341
----------------------- -----------------------
Net cash provided by financing activities 867,241,329 566,058,630
----------------------- -----------------------
Net decrease in cash and cash equivalents 186,205 (10,030,886)
----------------------- -----------------------
Cash and cash equivalents at beginning of period 14,199,412 13,146,384
----------------------- -----------------------
Cash and cash equivalents at end of period $ 14,385,617 $ 3,115,498
======================= =======================
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Income taxes paid $ 43,000 $ 12,156
======================= =======================
Interest paid $ 3,180,309 $ 341,250
======================= =======================
</TABLE>
See notes to unaudited consolidated financial statements.
(6)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Unaudited Consolidated Financial Statements
March 31, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
American Skandia Life Assurance Corporation (the Company) have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended March 31,
1997 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1997. For further information, refer
to the consolidated financial statements and footnotes thereto in the
Company's audited consolidated financial statements for the year ended
December 31, 1996.
2. FOREIGN ENTITY
As of July 1995, Skandia Vida, S.A. de C.V. was formed by the ultimate
parent, Skandia Insurance Company, Ltd., a Swedish corporation. The
Company has a 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. Total shareholder's equity of Skandia Vida,
S.A. de C.V. is $1,358,906 as of March 31, 1997.
(7)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Unaudited Consolidated Financial Statements
March 31, 1997
3. SURPLUS NOTES
The Company has issued surplus notes to American Skandia Investment
Holding Corporation (the "Parent") in exchange for cash. Surplus notes
outstanding as of March 31, 1997 were as follows.
Issue Date Amount Interest 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 accrued at March 31, 1997 amounted to $5,857,175, of which
$774,107 has been approved for payment. The remaining $5,083,068 has
not been approved for payment.
4. 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.
(8)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Unaudited Consolidated Financial Statements
March 31, 1997
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 ended
March 31, 1997 in the aggregate amount of $2,269,749, were made by the
Company to the Parent. Interest expense of $1,087,232 has been included
in the statement of operations.
Expected payments of future fees payable to Parent are as follows:
Period Ending
December 31, Amount
1997 $ 7,038,778
1998 9,782,558
1999 10,002,274
2000 10,061,058
2001 6,412,114
2002 1,392,003
2003 153,402
Total $44,842,187
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.
(9)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Unaudited Consolidated Financial Statements
March 31, 1997
5. REINSURANCE
The Company cedes reinsurance under modified co-insurance arrangements.
The reinsurance arrangements provide additional capacity for growth in
supporting the cash flow strain from the Company's variable annuity
business. The reinsurance is effected under quota share contracts.
The Company reinsures certain mortality risks pertaining to 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 reserve exposure. The effect of reinsurance is summarized as
follows:
<TABLE>
<CAPTION>
Annuity Increase in Annuity Return Credited
Charges & Fees Policy Reserves to Contractowners
Period Ended March 31, 1997
<S> <C> <C> <C>
Gross $29,686,298 $2,252,799 ($6,724,793)
Ceded 5,317,674 1,469,249 20,781
Net $24,368,624 $ 783,550 ($6,745,574)
Period Ended March 31, 1996
</TABLE>
<TABLE>
<CAPTION>
Annuity Increase in Annuity Return Credited
Charges & Fees Policy Reserves to Contractowners
<S> <C> <C> <C>
Gross $17,420,169 $294,420 $1,021,285
Ceded 3,990,894 120,547 16,855
Net $13,429,275 $173,873 $1,004,430
</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
agreement.
(10)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three months ended March 31, 1997
American Skandia Life Assurance Corporation (the Company) is a stock insurance
company domiciled in Connecticut with licenses in all 50 states. It is a
wholly-owned subsidiary of American Skandia Investment Holding Corporation,
whose ultimate parent is Skandia Insurance Company Ltd., a Swedish company.
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.
The Company markets its products through an internal field marketing staff to
broker-dealers, financial planners and in conjunction with financial
institutions such as banks that are permitted directly, or through affiliates,
to sell annuities.
Results of Operations
The Company's long term business plan was developed reflecting the current sales
and marketing approach. The sales volume for the three month period ended March
31, 1997 and 1996 was $866 million and $561 million, respectively. This
represents an increase of 54% compared to the same period last year. This
increase is a direct result of the marketing efforts by the Company coupled with
an overall increase in the variable annuity marketplace. Assets grew $657
million or 8% since December 31, 1996. This increase is a direct result of the
sales volume increasing separate account assets and deferred acquisition costs.
Liabilities grew $650 million or 8% since December 31, 1996 as a result of the
reserves required for the increased sales activity as well as an increase in the
amounts payable to affiliates and reinsurance to support the acquisition costs
of the Company's variable annuity business.
(11)
<PAGE>
The Company experienced a net gain of $9.0 million after tax for the current
period which was $6.3 million greater than the same period last year, and in
excess of plan. This gain is a result of the strong sales activity for the three
months ended March 31, 1997, favorable expense levels relative to sales activity
and an increased asset base, which generates additional fee revenue.
Revenues:
Increasing annuity sales volume results in greater assets under management.
Growth in assets under management has resulted in an 81% increase in annuity
charges & fees for the three month period ended March 31, 1997. This is compared
to an increase of 72% for the three month period ended March 31, 1996.
Fee income includes income earned for transfer agency type activities. This
income increased 75% for the three month period ended March 31, 1997 compared to
an increase of 202% for the three month period ended March 31, 1996. These
increases are driven by the continued increase in assets under management.
Net investment income increased 201% for the three month period ended March 31,
1997. This is compared to a decrease of 18% for the three month period ended
March 31, 1996. The current period increase is the result of increased
investment holdings for the quarter. The prior period decrease is a result of
the need to liquidate short term investments to support cash needs.
Annuity premium income represents sales of immediate annuities with life
contingencies.
Benefits:
Annuity benefits represent payments on annuity contracts with mortality risks:
immediate annuities with life contingencies and supplementary contracts with
life contingencies.
Increase in annuity policy reserves represents the change in reserves for
immediate annuities with life contingencies, supplementary contracts with life
contingencies and the guaranteed minimum death benefit on variable annuities. In
September 1995, the Company entered into an agreement to reinsure the guaranteed
minimum death benefit exposure on most of its variable annuity contracts. The
change in the minimum death benefit reserve exceeded the costs associated with
reinsuring the minimum death benefit by $0.6 million for the period ended March
31, 1997. For the same period last year, the costs associated with reinsuring
the minimum death benefit reserve exceeded the change in the minimum death
benefit reserve by approximately $0.5 million.
(12)
<PAGE>
Return credited to contractowners represents revenues on variable and market
value adjusted annuities offset by benefit payments and change in reserves
required on this business. Also included are benefit payments and change in
reserves on immediate annuities and supplemental contracts without significant
mortality risks. The result for the current period reflects a higher than
expected separate account investment return on the market value adjusted
contracts in support of the benefits and required reserves combined with the
reversal of the effect of December 31, 1996 bond market fluctuations which had
adversely impacted 1996 results by $1.8 million. While the assets relating to
the market value adjusted contracts reflected the market interest rate
fluctuations which occurred on December 31, 1996, the liabilities were based on
interest rates set for new contracts which are generally based on the prior
day's interest rates. During the first week of 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.
Expenses:
Underwriting, acquisition and other insurance expenses consists of $42.9 million
of commissions and $21.2 million of general expenses offset by the net
capitalization of deferred acquisition costs totaling $46.4 million. This
compares to $25.7 million of commissions and $11.9 million of general expenses
offset by the net capitalization of deferred acquisition costs totaling $29.1
million for the same period last year.
Interest expense increased 148% over the same period last year as a result of
the 1996 increase in surplus notes of $110 million.
Income tax expense was $4.3 million for the quarter ended March 31, 1997,
compared with $1.8 million for the same period last year. The effective Federal
income tax rates for the periods were 32% and 40% respectively. The 1997
effective rate was lower than the Federal statutory income tax rate (35%)
primarily due to permanent differences. The 1996 effective rate was higher than
the Federal statutory income tax rate due to an increase in the deferred tax
valuation allowance. Such allowance was released at December 31, 1996.
Management believes that based on the taxable income produced in 1996 and the
first quarter of 1997 as well as the continued growth in annuity products, the
Company will produce sufficient taxable income in the future to realize its
deferred tax assets.
Liquidity and Capital Resources
The liquidity requirement of the Company was met by cash from insurance
operations, investment activities and advances from the parent.
(13)
<PAGE>
The Company had significant growth during the three month period in 1997. The
sales volume of $866 million was made up of approximately 94% 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 costs for the new business. This cash strain required
the Company to look beyond the insurance operations and investments of the
Company. To this end, the Company extended its reinsurance agreements (initiated
in 1993, 1994 and 1995) and was advanced $52 million by the parent. It is
anticipated that during 1997 this advance will be repaid with the proceeds from
additional sales of future fee revenues, similar to the transaction which closed
on December 17, 1996 (as described in footnote 4). The reinsurance agreements
are modified coinsurance arrangements where the reinsurer shares in the
experience of a specific book of business. The income and expense items
presented above are net of reinsurance.
The Company expects to use borrowing, reinsurance and the sale of future fee
revenues to fund the cash strain anticipated from the acquisition costs on
expected future sales volume.
The tremendous growth of this young organization has depended on capital support
from its parent.
As of March 31, 1997 and 1996, shareholder's equity was $134.0 million and
$62.4 million, respectively, which includes the carrying value of the state
insurance licenses in the amount of $4.7 million.
The Company has long term surplus notes and short term borrowing with its
parent. No dividends have been paid to its parent company.
(14)
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. ACTION TAKEN BY SHAREHOLDER
Not applicable for this quarter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index
(b) American Skandia Life Assurance Corporation did not
file any Report on Form 8-K during the quarter
covered by this report.
(15)
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
American Skandia Life
Assurance Corporation
(Registrant)
by s/Thomas M. Mazzaferro
Thomas M. Mazzaferro
Executive Vice President and
Chief Financial Officer
May 14, 1997
(16)
<PAGE>
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit
Number Description Location
<S> <C> <C>
(2) Plan of acquisition, reorganization,
arrangement, liquidation or succession None
(4) Instruments defining the rights of
security holders, including indentures None
(10) Material Contracts None
(11) Statement re computation of per share
earnings None
(15) Letter re unaudited interim financial
information None
(18) Letter re change in accounting
principles None
(19) Report furnished to security holders None
(22) Published report regarding matters
submitted to vote of security holders None
(23) Consents of experts and counsel None
(24) Power of attorney None
(99) Additional exhibits None
</TABLE>
(17)
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
American Skandia Life Assurance Corporation
Shelton, Connecticut
We have audited the accompanying consolidated statements of financial condition
of American Skandia Life Assurance Corporation and subsidiary (a wholly-owned
subsidiary of Skandia Insurance Company Ltd.) as of December 31, 1996 and 1995,
and the related consolidated statements of operations, shareholder's equity, and
cash flows for each of the three years in the period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of American Skandia Life
Assurance Corporation and subsidiary as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche, LLP
New York, New York
March 10, 1997
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
<S> <C> <C>
1996 1995
ASSETS
Investments:
Fixed maturities - at amortized cost $ 10,090,369 $ 10,112,705
Fixed maturities - at market value 87,369,724 0
Investment in mutual funds - at market value 2,637,731 1,728,875
Short-term investments - at amortized cost 18,100,000 15,700,000
Total investments 118,197,824 27,541,580
Cash and cash equivalents 14,199,412 13,146,384
Accrued investment income 1,958,546 194,074
Fixed assets 229,780 82,434
Deferred acquisition costs 438,640,918 270,222,383
Reinsurance receivable 2,167,818 1,988,042
Receivable from affiliates 691,532 860,991
Income tax receivable - current 0 563,850
Income tax receivable - deferred 17,217,582 0
State insurance licenses 4,712,500 4,862,500
Other assets 2,207,171 1,589,006
Separate account assets 7,734,439,793 4,699,961,646
Total Assets $ 8,334,662,876 $ 5,021,012,890
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES:
Reserve for future contractowner benefits $ 36,245,936 $ 30,493,018
Annuity policy reserves 21,238,749 19,386,490
Income tax payable 1,124,151 0
Accounts payable and accrued expenses 65,198,965 32,816,517
Payable to affiliates 685,724 314,699
Future fees payable to parent 47,111,936 0
Payable to reinsurer 79,000,262 64,995,470
Short-term borrowing-affiliate 10,000,000 10,000,000
Surplus notes 213,000,000 103,000,000
Deferred contract charges 272,329 332,050
Separate account liabilities 7,734,439,793 4,699,961,646
Total Liabilities 8,208,317,845 4,961,299,890
SHAREHOLDER'S EQUITY:
Common stock, $80 par, 25,000 shares
authorized, issued and outstanding 2,000,000 2,000,000
Additional paid-in capital 122,250,117 81,874,666
Unrealized investment gains and losses, net (319,631) 111,359
Foreign currency translation, net (263,706) (328,252)
Retained earnings (deficit) 2,678,251 (23,944,773)
Total Shareholder's Equity 126,345,031 59,713,000
Total Liabilities and Shareholder's Equity $ 8,334,662,876 $ 5,021,012,890
</TABLE>
See notes to consolidated financial statements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1996 1995 1994
------------ ------------ ------------
REVENUES:
Annuity charges and fees $ 69,779,522 $ 38,837,358 $ 24,779,785
Fee income 16,419,690 6,205,719 2,111,801
Net investment income 1,585,819 1,600,674 1,300,217
Annuity premium income 125,000 0 70,000
Net realized capital gains/(losses) 134,463 36,774 (1,942)
Other 34,154 64,882 24,550
------------ ------------ ------------
Total Revenues 88,078,648 46,745,407 28,284,411
------------ ------------ ------------
BENEFITS AND EXPENSES:
Benefits:
Annuity benefits 613,594 555,421 369,652
Increase/(decrease) in annuity policy reserves 634,540 (6,778,756) 5,766,003
Cost of minimum death benefit reinsurance 2,866,835 2,056,606 0
Return credited to contractowners 672,635 10,612,858 (516,730)
------------ ------------ ------------
4,787,604 6,446,129 5,618,925
------------ ------------ ------------
Expenses:
Underwriting, acquisition and other insurance expenses 49,765,661 35,820,524 18,792,720
Amortization of state insurance licenses 150,000 150,000 150,000
Interest expense 10,790,716 6,499,414 3,615,845
------------ ------------ ------------
60,706,377 42,469,938 22,558,565
------------ ------------ ------------
Total Benefits and Expenses 65,493,981 48,916,067 28,177,490
------------ ------------ ------------
Income (loss) from operations before federal income taxes 22,584,667 (2,170,660) 106,921
Income tax (benefit) expense (4,038,357) 397,360 247,429
------------ ------------ ------------
Net income (loss) $ 26,623,024 $ (2,568,020) $ (140,508)
============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1996 1995 1994
Common stock, balance at beginning and end of year $ 2,000,000 $ 2,000,000 $ 2,000,000
----------- ----------- -----------
Additional paid-in capital:
Balance at beginning of year 81,874,666 71,623,932 71,623,932
Additional contributions 40,375,451 10,250,734 0
----------- ----------- -----------
Balance at end of year 122,250,117 81,874,666 71,623,932
----------- ----------- -----------
Unrealized investment gains and losses:
Balance at beginning of year 111,359 (41,655) 0
Change in unrealized investment gains and losses, net (430,990) 153,014 (41,655)
----------- ----------- -----------
Balance at end of year (319,631) 111,359 (41,655)
Foreign currency translation:
Balance at beginning of year (328,252) 0 0
Change in foreign currency translation, net 64,546 (328,252) 0
----------- ----------- -----------
Balance at end of year (263,706) (328,252) 0
----------- ----------- -----------
Retained earnings (deficit):
Balance at beginning of year (23,944,773) (21,376,753) (21,236,245)
Net income (loss) 26,623,024 (2,568,020) (140,508)
----------- ----------- -----------
Balance at end of year 2,678,251 (23,944,773) (21,376,753)
----------- ----------- -----------
TOTAL SHAREHOLDER'S EQUITY $ 126,345,031 $ 59,713,000 $ 52,205,524
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1996 1995 1994
--------------- --------------- ---------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 26,623,024 $ (2,568,020) $ (140,508)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Increase/decrease) in annuity policy reserves 1,852,259 (4,667,765) 6,004,603
Increase/(decrease) in policy contract claims
Amortization of bond discount 27,340 23,449 21,964
Amortization of state insurance licenses 150,000 150,000 150,000
Change in due to/from affiliates 540,484 (347,884) 256,779
Change in income tax payable/receivable 1,688,001 (600,849) 36,999
Increase in other assets (765,511) (409,927) (742,041)
Increase in accrued investment income (1,764,472) (20,420) (44,847)
Increase in reinsurance receivable (179,776) (1,988,042) 0
Increase in accounts payables and accrued expenses 32,382,448 1,063,137 13,396,502
Increase in deferred acquisition costs (168,418,535) (96,212,774) (83,986,073)
Decrease in deferred contract charges (59,721) (117,654) (71,117)
Increase in foreign currency translation, net (77,450) (328,252) 0
Deferred income taxes (16,903,477) 0 0
Realized (gain)/loss on sale of investments (134,463) (36,774) 1,942
------------- -------------- -------------
Net cash used in operating activities (125,039,849) (106,061,775) (65,115,797)
------------- ------------- -------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of fixed maturities (96,812,903) (614,289) (1,989,120)
Proceeds from sales and maturities of available-for-sale fixed maturities 8,732,390 0 0
Proceeds from maturities of held-to-maturity fixed maturities 215,000 100,000 2,010,000
Purchase of shares in mutual funds (2,160,347) (1,566,194) (922,822)
Proceeds from sale of shares in mutual funds 1,273,640 867,744 38,588
Net sale (purchase) of short-term investments (2,400,000) 8,300,000 (4,600,000)
Investments in separate accounts (2,789,361,685) (1,609,415,439) (1,365,775,177)
------------- ------------- -------------
Net cash used in investing activities (2,880,513,905) (1,602,328,178) (1,371,238,531)
------------- ------------- -------------
CASH FLOW FROM FINANCING ACTIVITIES:
Capital contributions from parent 40,375,451 10,250,734 0
Surplus notes 110,000,000 34,000,000 49,000,000
Increase in future fees payable to parent 47,111,936 0 0
Short-term borrowing
Increase in payable to reinsurer 14,004,792 24,890,064 28,555,190
Proceeds from annuity sales 2,795,114,603 1,628,486,076 1,372,873,747
------------- ------------- -------------
Net cash provided by financing activities 3,006,606,782 1,697,626,874 1,450,428,937
------------- ------------- -------------
Net increase/(decrease) in cash and cash equivalents 1,053,028 (10,763,079) 14,074,609
Cash and cash equivalents at beginning of year 13,146,384 23,909,463 9,834,854
------------- ------------- -------------
Cash and cash equivalents at end of year $ 14,199,412 $ 13,146,384 $ 23,909,463
============= ============= =============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Income taxes paid $ 11,177,120 $ 995,496 $ 161,398
============= ============= =============
Interest paid $ 7,094,767 $ 540,319 $ 557,639
============= ============= =============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements
1. BUSINESS OPERATIONS
American Skandia Life Assurance Corporation (the "Company") is a
wholly-owned subsidiary of American Skandia Investment Holding
Corporation (the "Parent"), which in turn is a wholly-owned subsidiary
of Skandia Insurance Company Ltd., a Swedish corporation.
The Company develops annuity products and issues its products through
its affiliated broker/dealer company, American Skandia Marketing,
Incorporated. The Company currently issues variable, fixed, market
value adjusted and immediate annuities.
The Company's consolidated financial statements include the accounts of
Skandia Vida, S.A. de C.V. ("Skandia Vida"), a life insurance company
domiciled in Mexico, which was formed in 1995 by the ultimate parent
Skandia Insurance Company Ltd. The Company has a 99.9% ownership
interest in Skandia Vida, which is a start up company with expectations
of selling long term savings products within Mexico.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Reporting
The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting
principles. Intercompany transactions and balances have been
eliminated in consolidation.
B. Investments
The Company has classified its fixed maturity investments as
either held-to-maturity or available-for-sale. Investments
classified as held-to-maturity are investments that the
Company has the ability and intent to hold to maturity. Such
investments are carried at amortized cost. Those investments
which are classified as available-for-sale are carried at
market value and changes in unrealized gains and losses are
reported as a component of shareholder's equity.
The Company has classified its mutual fund investments as
available-for-sale. Such investments are carried at market
value and changes in unrealized gains and losses are reported
as a component of shareholder's equity.
Short-term investments are reported at cost which approximates
market value.
Realized gains and losses on disposal of investments are
determined by the specific identification method and are
included in revenues.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
C. Cash Equivalents
The Company considers all highly liquid time deposits
purchased with a maturity of three months or less to be cash
equivalents.
D. State Insurance Licenses
Licenses to do business in all states have been capitalized
and reflected at the purchase price of $6 million less
accumulated amortization. The cost of the licenses is being
amortized over 40 years.
E. Fixed Assets
Fixed Assets consisting of furniture, equipment and leasehold
improvements are carried at cost and depreciated on a straight
line basis over a period of three to five years. Accumulated
depreciation amounted to $32,641 and $3,749 at December 31,
1996 and 1995, respectively. Depreciation expense for the
years ended December 31, 1996 and 1995 was $28,892 and $3,749
respectively.
F. Recognition of Revenue and Contract Benefits
Annuity contracts without significant mortality risk, as
defined by Financial Accounting Standard No. 97, are
classified as investment contracts (variable, market value
adjusted and certain immediate annuities) and those with
mortality risk (immediate annuities) as insurance products.
The policy of revenue and contract benefit recognition is
described below.
Revenues for variable annuity contracts consist of charges
against contractowner account values for mortality and expense
risks and administration fees and an annual maintenance fee
per contract. Benefit reserves for variable annuity contracts
represent the account value of the contracts and are included
in the separate account liabilities.
Revenues for market value adjusted annuity contracts consist
of separate account investment income reduced by benefit
payments and change in reserves in support of contractowner
obligations, all of which is included in return credited to
contractowners. Benefit reserves for these contracts represent
the account value of the contracts, and are included in the
general account liability for future contractowner benefits to
the extent in excess of the separate account liabilities.
Revenues for immediate annuity contracts without life
contingencies consist of net investment income. Revenues for
immediate annuity contracts with life contingencies consist of
single premium payments recognized as annuity considerations
when received. Benefit reserves for these contracts are based
on the Society of Actuaries 1983 Table-a with assumed interest
rates that vary by issue year. Assumed interest rates ranged
from 6.5% to 8.25% at both December 31, 1996 and 1995.
Annuity sales were $2,795,114,000, $1,628,486,000 and
$1,372,874,000 for the years ended December 31, 1996, 1995 and
1994, respectively. Annuity contract assets under management
were $7,764,891,000, $4,704,044,000 and $2,661,161,000 at
December 31, 1996, 1995 and 1994, respectively.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
G. Deferred Acquisition Costs
The costs of acquiring new business, which vary with and are
primarily related to the production of new business, are being
deferred and amortized in relation to the present value of
estimated gross profits. These costs include commissions, cost
of contract issuance, and certain selling expenses that vary
with production. Details of the deferred acquisition costs for
the years ended December 31 follow:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Balance at beginning of year $270,222,383 $174,009,609 $ 90,023,536
Acquisition costs deferred
during the year 190,995,588 106,063,698 85,801,180
Acquisition costs amortized
during the year 22,577,053 9,850,924 1,815,107
------------ ------------ ------------
Balance at end of year $438,640,918 $270,222,383 $174,009,609
============ ============ ============
</TABLE>
H. Deferred Contract Charges
Certain contracts are assessed a front-end fee at the time of
issue. These fees are deferred and recognized in income in
relation to the present value of estimated gross profits of
the related contracts. Details of the deferred contract
charges for the years ended December 31 follow:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Balance at beginning of year $332,050 $449,704 $520,821
Contract charges deferred
during the year 42,740 21,513 87,114
Contract charges amortized
during the year 102,461 139,167 158,231
-------- -------- --------
Balance at end of year $272,329 $332,050 $449,704
======== ======== ========
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
I. Separate Accounts
Assets and liabilities in Separate Account are shown as
separate captions in the consolidated statement of financial
condition. Separate Account assets consist of long-term bonds,
investments in mutual funds and short-term securities, all of
which are carried at market value.
Included in Separate Account liabilities is $644,233,883 and
$586,233,752 at December 31, 1996 and 1995, respectively,
relating to annuity contracts for which the contractholder is
guaranteed a fixed rate of return. Separate Account assets of
$644,233,883 and $588,835,051 at December 31, 1996 and 1995,
respectively, consisting of long term bonds, short term
securities, transfers due from general account and cash are in
support of these annuity contracts, as pursuant to state
regulation.
J. Income taxes
The Company is included in the consolidated federal income tax
return with all Skandia Insurance Company Ltd. subsidiaries in
the U.S. The federal and state income tax provision is
computed on a separate return basis as adjusted for
consolidated items such as net operating losses which are
utilized in the consolidated federal income tax return in
accordance with the provisions of the Internal Revenue Code,
as amended. Prior to 1995, the Company filed a separate income
tax return.
K. Translation of Foreign Currency
The financial position and results of operations of the
Company's foreign operations are measured using local currency
as the functional currency. Assets and liabilities of the
operations are translated at the exchange rate in effect at
each year-end. Statements of operations and shareholder's
equity accounts are translated at the average rate prevailing
during the year. Translation adjustments arising from the use
of differing exchange rates from period to period are included
in shareholder's equity.
L. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires that
management make estimates and assumptions that affect the
reported amount of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. The more significant
estimates and assumptions are related to deferred acquisition
costs and involve policy lapses, investment return and
maintenance expenses. Actual results could differ from those
estimates.
M. Reinsurance
The Company cedes reinsurance under modified co-insurance
arrangements. The reinsurance arrangements provides additional
capacity for growth in supporting the cash flow strain from
the Company's variable annuity business. The reinsurance is
effected under quota share contracts.
The Company reinsures certain mortality risks. These risks
result from the guaranteed minimum death benefit feature in
the variable annuity products.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
3. INVESTMENTS
The amortized cost, gross unrealized gains (losses) and estimated
market value of available-for-sale and held-to-maturity fixed
maturities and equity securities by category as of December 31, 1996
and 1995 are shown below. All securities held at December 31, 1996 are
publicly traded.
Investments in fixed maturities as of December 31, 1996 consist of the
following:
Held-to-Maturity
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Government
Obligations $ 4,299,803 $88,268 $22,937 $ 4,365,134
Obligations of
State and Political
Subdivisions 250,119 229 0 250,348
Corporate
Securities 5,540,447 0 62,660 5,477,787
----------- ------- ------- -----------
Totals $10,090,369 $88,497 $85,597 $10,093,269
=========== ======= ======= ===========
</TABLE>
<TABLE>
<CAPTION>
Available-for-Sale
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Government
Obligations $14,508,780 0 $ 79,745 $14,429,035
Obligations of
State and Political
Subdivisions 202,516 26 0 202,542
Other Government
Obligations 5,047,790 0 7,440 5,040,350
Corporate
Securities 68,101,413 83,312 486,928 67,697,797
----------- ------- -------- -----------
Totals $87,860,499 $83,338 $574,113 $87,369,724
=========== ======= ======== ===========
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
The amortized cost and market value of fixed maturities, by contractual
maturity, at December 31, 1996 are shown below.
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
<S> <C> <C> <C> <C>
Amortized Market Amortized Market
Cost Value Cost Value
Due in one year or less $ 697,626 $ 699,861 $ 5,047,790 $ 5,040,350
Due after one through five years 9,138,036 9,143,290 29,864,609 29,756,002
Due after five through ten years 254,707 250,118 52,948,100 52,573,372
----------- ----------- ----------- -----------
Total $10,090,369 $10,093,269 $87,860,499 $87,369,724
=========== =========== =========== ===========
</TABLE>
Investments in fixed maturities as of December 31, 1995 consist of the
following:
<TABLE>
<CAPTION>
Held-to-Maturity
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Government
Obligations $ 4,304,731 $183,201 $1,778 $ 4,486,154
Obligations of
State and Political
Subdivisions 256,095 0 3,165 252,930
Corporate
Securities 5,551,879 13,252 346 5,564,785
----------- -------- ------ -----------
Totals $10,112,705 $196,453 $5,289 $10,303,869
=========== ======== ====== ===========
</TABLE>
Proceeds from sales and maturities of fixed maturity investments during
1996, 1995 and 1994, were $8,947,390, $100,000 and $2,010,000,
respectively.
There were no gross gains and losses realized during the years ended
December 31, 1996, 1995 and 1994.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
The cost, gross unrealized gains (losses) and market value of
investments in mutual funds at December 31, 1996 and 1995 are shown
below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Gross Gross
Unrealized Unrealized Market
Cost Gains Losses Value
1996 $2,638,695 $ 59,278 $60,242 $2,637,731
========== ======== ======= ==========
1995 $1,617,516 $111,686 $ 327 $1,728,875
========== ======== ======= ==========
</TABLE>
Proceeds from sales of investments in mutual funds during 1996, 1995
and 1994 were $1,273,640, $867,744 and $38,588, respectively.
Mutual fund gross realized gains and losses were as follows:
Gross Gross
Gains Losses
1996 $139,814 $ 5,351
======== =======
1995 $ 65,236 $28,462
======== =======
1994 $ 510 $ 2,452
======== =======
4. NET INVESTMENT INCOME
Additional information with respect to net investment income for the
years ended December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Fixed maturities $ 836,591 $ 629,743 $ 616,987
Mutual funds 143,737 59,895 12,049
Short-term investments 92,987 256,351 142,421
Cash and cash equivalents 591,666 730,581 633,298
Interest on policy loans 5,274 4,025 1,275
---------- ---------- ----------
Total investment income 1,670,255 1,680,595 1,406,030
Investment expenses 84,436 79,921 105,813
---------- ---------- ----------
Net investment income $1,585,819 $1,600,674 $1,300,217
========== ========== ==========
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES
The significant components of income tax expense are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Current tax expense $12,865,120 $397,360 $247,429
Deferred tax (benefit) expense (16,903,477) 0 0
------------- -------- --------
Total income tax (benefit) expense ($ 4,038,357) $397,360 $247,429
============= ======== ========
</TABLE>
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes, and (b) operating loss and tax credit carryforwards. The tax
effects of significant items comprising the Company's deferred tax
balance as of December 31, 1996 and 1995, are as follows:
<TABLE>
<S> <C> <C>
1996 1995
---- ----
Deferred Tax (Liabilities):
Deferred acquisition costs ($103,072,477) ($57,399,960)
Payable to reinsurer (23,025,326) (19,802,861)
Policy Fees (491,640) (308,304)
Unrealized investment gains 0 (38,976)
------------ -----------
Total (126,589,443) (77,550,101)
------------ -----------
Deferred Tax Assets:
Net separate account liabilities 121,092,798 72,024,094
Reserve for future contractowner benefits 12,686,078 10,672,556
Other reserve differences 4,527,886 1,492,044
Deferred compensation 4,392,526 2,169,060
Surplus notes blocked interest 548,730 0
Unrealized investment losses 172,109 0
Foreign exchange translation 141,996 114,888
Deferred contract charge 95,315 116,218
AMT credit carryforward 0 286,094
Other 149,587 0
------------ -----------
Total 143,807,025 86,874,954
------------ -----------
Net before valuation allowance 17,217,582 9,324,853
Valuation allowance 0 (9,324,853)
------------ -----------
Net deferred tax balance $ 17,217,582 $ 0
============ ===========
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
Management believes that based on the taxable income produced in the
current year and the continued growth in annuity products, the Company
will produce sufficient taxable income in the furture to realize its
deferred tax assets. As such, the Company released the deferred tax
valuation allowance of $9,324,853 established as of December 31, 1995.
The income tax expense was different from the amount computed by
applying the federal statutory tax rate of 35% to pre-tax income from
continuing operations as follows:
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Income (loss) before taxes $22,584,667 ($2,170,660) $106,921
Income tax rate 35% 35% 35%
----------- ----------- ---------
Tax expense at federal
statutory income tax rate 7,904,633 (759,731) 37,422
Tax effect of:
Change in valuation allowance (9,324,853) 1,680,339 365,288
Dividend received deduction (2,266,051) (477,139) 0
Other (352,086) (46,109) (155,281)
----------- ---------- --------
Income tax (benefit) expense ($ 4,038,357) $ 397,360 $247,429
============ ========== ========
</TABLE>
6. RELATED PARTY TRANSACTIONS
Certain operating costs (including personnel, rental of office space,
furniture, and equipment) have been charged to the Company at cost by
American Skandia Information Services and Technology Corporation, an
affiliated company; and likewise, the Company has charged operating
costs to American Skandia Investment Services, Incorporated, an
affiliated company. Operating costs for these items was $11,581,114,
$12,687,337 and $8,524,840 for the years ended December 31, 1996, 1995
and 1994, respectively. Income received for these items was $1,148,364,
$396,573 and $248,799 for the years ended December 31, 1996, 1995 and
1994, respectively. Amounts receivable from affiliates under this
arrangement were $548,792 and $857,156 as of December 31, 1996 and
1995, respectively. Amounts payable to affiliates under this
arrangement were $619,089 and $304,525 as of December 31, 1996 and
1995, respectively.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
7. FUTURE FEES PAYABLE TO PARENT
On December 17, 1996 the Company sold to its Parent, effective
September 1, 1996, certain rights to receive future fees and charges
expected to be realized on the variable portion of a designated block
of deferred annuity contracts issued during the period January 1, 1994
through June 30, 1996. In connection with this transaction, the Parent
issued collateralized notes in a private placement which are secured by
the rights to receive future fees and charges purchased from the
Company.
Under the terms of the Purchase Agreement, the rights sold provide for
the Parent to receive 80% of future mortality and expense charges and
contingent deferred sales charges, after reinsurance, expected to be
realized over the remaining surrender charge period of the designated
contracts (generally, 6.5 years). The Company did not sell the right to
receive future fees and charges after the expiration of the surrender
charge period.
The proceeds from the sale have been recorded as a liability and are
being amortized over the remaining surrender charge period of the
designated contracts using the interest method. The present value at
September 1, 1996 (discounted at 7.5%), of future fees and charges
expected to be realized on the designated contracts was $50,221,438.
Payments representing fees and charges realized during the period
September 1, 1996 through December 31, 1996 in the aggregate amount of
$3,109,502, were made by the Company to the Parent. Interest expense of
$42,260 has been included in the statement of operations.
Expected payments of future fees payable to Parent are as follows:
Year Ending
December 31, Amount
1997 $ 9,308,527
1998 9,782,558
1999 10,002,274
2000 10,061,058
2001 6,412,114
2002 1,392,003
2003 153,402
-----------
Total $47,111,936
The Commissioner of the State of Connecticut has approved the sale of
future fees and charges; however, in the event that the Company becomes
subject to an order of liquidation or rehabilitation, the Commissioner
has the ability to stop the payments due to the Parent under the
Purchase Agreement, subject to certain terms and conditions.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
8. LEASES
The Company leases office space under a lease agreement established in
1989 with American Skandia Information Services and Technology
Corporation. The lease expense for 1996, 1995 and 1994 was $1,583,391,
$1,218,806 and $961,080, respectively. Future minimum lease payments
per year and in aggregate as of December 31, 1996 are as follows:
1997 1,413,180
1998 1,571,400
1999 1,571,400
2000 1,740,750
2001 and thereafter 6,527,813
-----------
Total $12,824,543
9. RESTRICTED ASSETS
In order to comply with certain state insurance departments'
requirements, the Company maintains cash, bonds and notes on deposit
with various states. The carrying value of these deposits amounted to
$3,766,564 and $3,267,357 as of December 31, 1996, and 1995,
respectively. These deposits are required to be maintained for the
protection of contractowners within the individual states.
10. RETAINED EARNINGS AND DIVIDEND RESTRICTIONS
Statutory basis shareholder's equity was $275,835,076, $132,493,899 and
$95,001,971 at December 31, 1996, 1995 and 1994, respectively.
The statutory basis net loss was $5,405,179, $7,183,003 and $9,789,297
for the years ended December 31, 1996, 1995 and 1994, respectively.
Under state insurance laws, the maximum amount of dividends that can be
paid shareholders without prior approval of the state insurance
departments is subject to restrictions relating to statutory surplus
and net gain from operations. At December 31, 1996, no amounts may be
distributed without prior approval.
11. EMPLOYEE BENEFITS
In 1989, the Company established a 401(k) plan for which substantially
all employees are eligible. Company contributions to this plan on
behalf of the participants were $850,111, $627,161 and $431,559 for the
years ended December 31, 1996, 1995 and 1994, respectively.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
The Company and it's affiliate cooperatively have a long-term incentive
plan where units are awarded to executive officers and other personnel.
The program consists of multiple plans. A new plan is instituted each
year. Generally, participants must remain employed by the Company or
its affiliates at the time such units are payable in order to receive
any payments under the plan. The accrued liability representing the
value of these units is $9,212,369 and $4,600,831 as of December 31,
1996 and 1995, respectively. Payments under this plan were $601,603 for
the year ended December 31, 1996.
In 1994, the Company established a deferred compensation plan which is
available to the internal field marketing staff and certain officers.
Company contributions to this plan on behalf of the participants were
$244,601 in 1996 and $139,209 in 1995.
12. REINSURANCE
The effect of the reinsurance agreements on the Company's operations
was to reduce annuity charges and fee income, death benefit expense and
policy reserves. The effect of reinsurance for the years ended December
31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996
------------------------------------------------------------------
<S> <C> <C> <C>
Annuity Change in Annuity Return Credited
Charges and Fees Policy Reserves to Contractowners
Gross $87,369,693 $814,306 $779,070
Ceded 17,590,171 179,766 106,435
----------- -------- --------
Net $69,779,522 $634,540 $672,635
=========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1995 1994
------------------------------------------------------------------ ----------------
<S> <C> <C> <C> <C>
Annuity Change in Annuity Return Credited Annuity
Charges and Fees Policy Reserves to Contractowners Charges and Fees
Gross $50,334,280 ($4,790,714) $10,945,831 $30,116,166
Ceded 11,496,922 1,988,042 332,973 5,336,381
----------- ---------- ----------- -----------
Net $38,837,358 ($6,778,756) $10,612,858 $24,779,785
=========== =========== =========== ===========
</TABLE>
Such ceded reinsurance does not relieve the Company from its
obligations to policyholders. The Company remains liable to its
policyholders for the portion reinsured to the extent that any
reinsurer does not meet the obligations assumed under the reinsurance
agreements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
13. SURPLUS NOTES
The Company has issued surplus notes to its Parent in exchange for
cash. Surplus notes outstanding as of December 31, 1996 were as
follows:
Issue Interest
Date Amount Rate
December 29, 1993 $ 20,000,000 6.84%
February 18, 1994 10,000,000 7.28%
March 28, 1994 10,000,000 7.90%
September 30, 1994 15,000,000 9.13%
December 28, 1994 14,000,000 9.78%
December 19, 1995 10,000,000 7.52%
December 20, 1995 15,000,000 7.49%
December 22, 1995 9,000,000 7.47%
June 28, 1996 40,000,000 8.41%
December 30, 1996 70,000,000 8.03%
------------
Total $213,000,000
Payment of interest and repayment of principal for these notes is
subject to certain conditions and requires approval by the Insurance
Commissioner of the State of Connecticut.
Interest expense on surplus notes was $10,087,347, $5,789,893 and
$3,016,905 for the years ended December 31, 1996, 1995 and 1994,
respectively. Interest approved and paid during 1996 was $6,438,867.
Interest accrued at December 31, 1996 amounted to $3,648,480, of which
$2,080,680 has been approved and paid in 1997. The remaining $1,567,800
was not approved for payment. The 1995 and 1994 amounts were approved
at December 31, 1995 with stipulation that they be funded through a
capital contribution from the parent.
14. SHORT-TERM BORROWING
During 1993, the Company received a $10 million loan from Skandia AB, a
Swedish affiliate. Upon renewal during 1995 the loan became payable to
the Parent rather than Skandia AB. The loan matures on March 10, 1997
and bears interest at 6.46%. The total interest expense to the Company
was $642,886, $709,521 and $569,618 and for the years ended December
31, 1996, 1995 and 1994, respectively, of which $206,361 and $219,375
was payable as of December 31, 1996 and 1995, respectively.
15. CONTRACT WITHDRAWAL PROVISIONS
Approximately 98% of the Company's separate account liabilities
are subject to discretionary withdrawal with market value
adjustment by contractholders. Separate account assets which are
carried at market value are adequate to pay such withdrawals
which are generally subject to surrender charges ranging from
8.5% to 1% for contracts held less than 8 years.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes information with respect to the
operations of the Company on a quarterly basis:
<TABLE>
<CAPTION>
Three Months Ended
<S> <C> <C> <C> <C>
1996 March 31 June 30 September 30 December 31
---- ----------- ----------- ------------ -----------
Premiums and other insurance
revenues $16,605,765 $20,452,733 $22,366,166 $26,933,702
Net investment income 455,022 282,926 270,092 577,779
Net realized capital gains 92,072 13,106 5,606 23,679
----------- ----------- ----------- -----------
Total revenues $17,152,859 $20,748,765 $22,641,864 $27,535,160
=========== =========== =========== ===========
Benefits and expenses $12,725,411 $ 9,429,735 $17,007,137 $25,191,857
=========== =========== =========== ===========
Net income $ 2,658,941 $ 7,695,490 $ 2,538,513 $14,470,976
=========== =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
<S> <C> <C> <C> <C>
1995 March 31 June 30 September 30 December 31
---- ----------- ----------- ------------ -----------
Premiums and other insurance
revenues $ 8,891,903 $10,066,478 $11,960,530 $14,189,048
Net investment income 551,690 434,273 293,335 321,376
Net realized capital gains (losses) (16,082) (370) 44,644 8,582
----------- ----------- ----------- -----------
Total revenues $ 9,427,511 $10,500,381 $12,298,509 $14,519,006
=========== =========== =========== ===========
Benefits and expenses $11,438,798 $ 9,968,595 $11,600,587 $15,908,087
=========== =========== =========== ===========
Net income (loss) ($ 2,026,688) $ 531,486 $ 678,312 ($ 1,751,130)
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
<S> <C> <C> <C> <C>
1994 March 31 June 30 September 30 December 31
---- ----------- ----------- ------------ -----------
Premiums and other insurance
revenues $ 5,594,065 $ 6,348,777 $ 7,411,686 $ 7,631,608
Net investment income 252,914 336,149 264,605 446,549
Net realized capital gains (losses) 0 (30,829) 25,914 2,973
----------- ----------- ----------- -----------
Total revenues $ 5,846,979 $ 6,654,097 $ 7,702,205 $ 8,081,130
=========== =========== =========== ===========
Benefits and expenses $ 5,701,460 $ 7,883,829 $ 8,157,535 $ 6,434,666
=========== =========== =========== ===========
Net income (loss) $ 104,636 ($ 1,257,768) ($ 503,793) $ 1,516,417
=========== =========== =========== ===========
</TABLE>
As described in Note 5, the valuation allowance relating to deferred
income taxes was released during the three months ended December 31,
1996.
APPENDIX B
SHORT DESCRIPTIONS OF THE
UNDERLYING MUTUAL FUNDS' PORTFOLIO INVESTMENT OBJECTIVES AND POLICIES
The investment objectives for each underlying mutual fund are in bold face.
Please refer to the prospectuses of each underlying mutual fund for more
complete details and risk factors applicable to certain portfolios.
American Skandia Trust
JanCap Growth Portfolio: The investment objective of the JanCap Growth Portfolio
is growth of capital in a manner consistent with the preservation of capital.
Realization of income is not a significant investment consideration and any
income realized on investments, therefore, will be incidental to this objective.
The objective will be pursued by emphasizing investments in common stocks.
Common stock investments will be in industries and companies that the
Portfolio's sub-advisor believes are experiencing favorable demand for their
products and services, and which operate in a favorable competitive and
regulatory environment. Investments may be made to a lesser degree in preferred
stocks, convertible securities, warrants, and debt securities of U.S. issuers,
when the Portfolio's sub-advisor perceives an opportunity for capital growth
from such securities or so that a return may be received on the Portfolio's idle
cash. Debt securities which the Portfolio may purchase include corporate bonds
and debentures (not to exceed 5% of net assets in bonds rated below investment
grade), mortgage-backed and asset-backed securities, zero-coupon bonds,
indexed/structured notes, high-grade commercial paper, certificates of deposit
and repurchase agreements. Securities of foreign issuers, including securities
of foreign governments and Euromarket securities, also may be purchased.
Although it is the general policy of the JanCap Growth Portfolio to purchase and
hold securities for capital growth, changes will be made whenever the
Portfolio's sub-advisor believes they are advisable. Because investment changes
usually will be made without reference to the length of time a security has been
held, a significant number of short-term transactions may result.
Investments also may be made in "special situations" from time to time. A
"special situation" arises when, in the opinion of the Portfolio's sub-advisor,
the securities of a particular company will be recognized and appreciate in
value due to a specific development, such as a technological breakthrough,
management change or a new product at that company. Subject to certain
limitations, the JanCap Growth Portfolio may purchase and write options on
securities (including index options) and options on foreign currencies, and may
invest in futures contracts on securities, financial indices and foreign
currencies, ("futures contracts"), options on futures contracts, forward
contracts and swaps and swap-related products. These instruments will be used
primarily for hedging purposes. Investment of up to 15% of the JanCap Growth
Portfolio's total assets may be made in securities that are considered illiquid
because of the absence of a readily available market or due to legal or
contractual restrictions.
AST Janus Overseas Growth Portfolio: The investment objective of the AST Janus
Overseas Growth Portfolio is to seek long-term growth of capital. The Portfolio
pursues its objective primarily through investments in common stocks of issuers
located outside the United States. The Portfolio normally invests at least 65%
of its total assets in securities of issuers from at least five different
countries, excluding the United States; however, it may at times invest in U.S.
issuers and it may at times invest all of its assets in fewer than five
countries or even a single country. The Portfolio invests primarily in common
stocks of foreign issuers selected for their growth potential. The Portfolio may
invest to a lesser degree in other types of securities, including preferred
stocks, warrants, convertible securities and debt securities. The Portfolio may
also invest in short-term debt securities, including money market funds managed
by the Sub-advisor, as a means of receiving a return on idle cash.
When the Sub-advisor believes that market conditions are not favorable for
profitable investing or when the Sub-advisor is otherwise unable to locate
favorable investment opportunities, the Portfolio's investments may be hedged to
a greater degree and/or its cash or similar investments may increase; therefore,
it does not always stay fully invested in stocks and bonds. The Portfolio may
invest in "special situations" from time to time. A special situation arises
when, in the opinion of the Sub-advisor, the securities of a particular issuer
will be recognized and appreciate in value due to a specific development with
respect to that issuer. Investment in special situations may carry an additional
risk of loss in the event that the anticipated development does not occur or
does not attract the expected attention.
The Sub-advisor generally takes a "bottom up" approach to building the
Portfolio. In other words, the Sub-advisor seeks to identify individual
companies with earnings growth potential that may not be recognized by the
market at large regardless of country of organization or place of principal
business activity.
The Portfolio may use options, futures and other types of derivatives as well as
forward foreign currency contracts for hedging purposes or as a means of
enhancing return. The Portfolio intends to use most derivative instruments
primarily to hedge the value of its portfolio against potential adverse
movements in securities prices, foreign currency markets or interest rates.
Although the Sub-advisor believes the use of derivative instruments will benefit
the Portfolio, the Portfolio's performance could be worse than if the Portfolio
had not used such instruments if the Sub-advisor's judgment proves incorrect.
The Portfolio may invest up to 15% of its net assets in illiquid investments,
including restricted securities or private placements that are not deemed to be
liquid by the Sub-advisor. The Portfolio may invest up to 35% of its net assets
in corporate debt securities that are rated below investment grade (securities
rated BB or lower by Standard & Poor's Ratings Services ("Standard & Poor's") or
Ba or lower by Moody's Investors Services, Inc. ("Moody's") (commonly referred
to as "junk bonds")). The Portfolio may also invest in unrated debt securities
of foreign and domestic issuers. The Portfolio generally intends to purchase
securities for long-term investment rather than short-term gains.
Lord Abbett Growth and Income Portfolio: The investment objective of the Lord
Abbett Growth and Income Portfolio is long-term growth of capital and income
while attempting to avoid excessive fluctuations in market value. This objective
will be pursued by investing in securities which are selling at reasonable
prices in relation to value. Normally, investments will be made in common stocks
of seasoned companies which are expected to show above-average growth and which
the Sub-advisor believes to be in sound financial condition.
Federated Utility Income Portfolio: The investment objective of the Federated
Utility Income Portfolio is to achieve high current income and moderate capital
appreciation by investing primarily in a professionally managed and diversified
portfolio of equity and debt securities of utility companies. The Portfolio
intends to achieve its investment objective by investing in equity and debt
securities of utility companies that produce, transmit or distribute gas and
electric energy as well as those companies that provide communications
facilities, such as telephone and telegraph companies. The Portfolio will invest
at least 65% of its total assets in securities of utility companies.
Federated High Yield Portfolio: The investment objective of the Federated High
Yield Portfolio is to seek high current income by investing primarily in a
diversified portfolio of fixed income securities. The Portfolio will invest at
least 65% of its assets in lower-rated (BBB or lower) fixed rate corporate debt
obligations. Investments of this type are subject to a greater risk of loss of
principal and interest than investments in higher rated securities and are
generally considered to be high risk. The fixed rate corporate debt obligations
in which the Portfolio intends to invest are usually not in the three highest
rating categories of a nationally recognized rating organization (AAA, AA, or A
for Standard & Poor's and Aaa, Aa or A for Moody's) but are in the lower rating
categories or are unrated but are of comparable quality and are regarded as
predominantly speculative. Lower-rated or unrated bonds are commonly referred to
as "junk bonds". There is no minimal acceptable rating for a security to be
purchased or held in the Portfolio, and the Portfolio may, from time to time,
purchase or hold securities rated in the lowest rating category or securities
that may be in default. Under normal circumstances, the Portfolio will not
invest more than 10% of the value of its total assets in equity securities. The
fixed income securities in which the Portfolio may invest include, but are not
limited to: preferred stocks, bonds, debentures, notes, equipment lease
certificates and equipment trust certificates.
AST Money Market Portfolio: The investment objective of the AST Money Market
Portfolio are to maximize current income and maintain high levels of liquidity.
The Portfolio attempts to accomplish its objectives by maintaining a
dollar-weighted average maturity of not more than 90 days and by investing in
the types of securities described below which have effective maturities of not
more than 397 days. Investments may include obligations of the United States
government, its agencies or instrumentalities; certificates of deposit, time
deposits and bankers' acceptances of certain financial institutions which have
more than $2 billion in total assets; commercial paper and corporate bonds;
asset-backed securities; and repurchase and reverse repurchase agreements.
Securities may be purchased on a when-issued or delayed delivery basis. Subject
to applicable investment restrictions, the AST Money Market Portfolio also may
lend its securities.
T. Rowe Price Asset Allocation Portfolio: The investment objective of the T.
Rowe Price Asset Allocation Portfolio is to seek a high level of total return by
investing primarily in a diversified group of fixed income and equity
securities. The Portfolio is designed to balance the potential appreciation of
common stocks with the income and principal stability of bonds over the long
term. Under normal market conditions over the long-term, the Portfolio expects
to allocate its assets so that approximately 40% of such assets will be in fixed
income securities and approximately 60% in equity securities.
The Portfolio's fixed income securities will be allocated among investment
grade, high yield and non-dollar debt securities. The weighted average maturity
for this portion of the Portfolio is generally expected to be intermediate,
although it may vary significantly. High-yielding, income-producing debt
securities (commonly referred to as "junk bonds") and preferred stocks including
convertible securities may be purchased without regard to maturity, however, the
average maturity of the bonds is expected to be approximately 10 years, although
it may vary if market conditions warrant. Quality will generally range from
lower-medium to low and the Portfolio may also purchase bonds in default if, in
the opinion of the Sub-advisor, there is significant potential for capital
appreciation.
The Portfolio's equity securities will be allocated among large and small-cap
U.S. and non-dollar equity securities. Large-cap will generally be stocks of
well-established companies with capitalization over $1 billion which can produce
increasing dividend income. Small-cap will be common stocks of small companies
or companies which offer the possibility of accelerated earnings growth because
of rejuvenated management, new products or structural changes in the economy.
Current income is not a factor in the selection of these stocks.
T. Rowe Price International Equity Portfolio: The investment objective of the T.
Rowe Price International Equity Portfolio is to seek a total return on its
assets from long-term growth of capital and income, principally through
investments in common stocks of established, non-U.S. companies. Investments may
be made solely for capital appreciation or solely for income or any combination
of both for the purpose of achieving a higher overall return. Total return
consists of capital appreciation or depreciation, dividend income, and currency
gains or losses. The Portfolio intends to diversify investments broadly among
countries and to normally have at least three different countries represented in
the Portfolio. The Portfolio may invest in countries of the Far East and Western
Europe as well as South Africa, Australia, Canada and other areas (including
developing countries). Under unusual circumstances, the Portfolio may invest
substantially all of its assets in one or two countries. The Portfolio may also
invest in a variety of other equity-related securities, such as preferred
stocks, warrants, and convertible securities, as well as corporate and
governmental debt securities, when considered consistent with the Portfolio's
investment objective and program.
T. Rowe Price Natural Resources: The investment objective of the T. Rowe Price
Natural Resources Portfolio is to seek long-term growth of capital through
investment primarily in common stocks of companies which own or develop natural
resources and other basic commodities. Current income is not a factor in the
selection of stocks for investment by the Portfolio. Total return will consist
primarily of capital appreciation (or depreciation). The Portfolio will invest
primarily (at least 65% of its total assets) in common stocks of companies which
own or develop natural resources and other basic commodities. However, it may
also purchase other types of securities, such as selected, non-resource growth
companies, foreign securities, convertible securities and warrants, when
considered consistent with the Portfolio's investment objective and policies.
The Portfolio may also engage in a variety of investment management practices,
such as buying and selling futures and options.
Some of the most important factors evaluated by the Sub-advisor in selecting
natural resource companies are the capability for expanded production, superior
exploration programs and production facilities, and the potential to accumulate
new resources. The Portfolio expects to invest in those natural resource
companies which own or develop energy sources (such as oil, gas, coal and
uranium), precious metals, forest products, real estate, nonferrous metals,
diversified resources, and other basic commodities which, in the opinion of the
Sub-advisor, can be produced and marketed profitably during periods of rising
labor costs and prices. However, the percentage of the Portfolio's assets
invested in natural resource and related businesses versus the percentage
invested in non-resource companies may vary greatly depending upon economic
monetary conditions and the outlook for inflation. The earnings of natural
resource companies may be expected to follow irregular patterns, because these
companies are particularly influenced by the forces of nature and international
politics. Companies which own or develop real estate might also be subject to
irregular fluctuations of earnings, because these companies are affected by
changes in the availability of money, interest rates, and other factors.
The Portfolio may invest up to 50% of its total assets in foreign securities.
These include non-dollar denominated securities traded outside of the U.S. and
dollar denominated securities traded in the U.S. (such as ADRs). Some of the
countries in which the Portfolio may invest may be considered to be developing
and may involve special risks. The Portfolio will not purchase a non-investment
grade debt security (or junk bond) if immediately after such purchase the
Portfolio would have more than 10% of its total assets invested in such
securities. Junk bonds are regarded as predominantly speculative and high risk.
The Portfolio may invest up to 10% of its total assets in hybrid instruments.
Such instruments may take a variety of forms, such as debt instruments with
interest or principal payments determined by reference to the value of a
currency, security index or commodity at a future point in time.
T. Rowe Price International Bond Portfolio: The investment objective of the T.
Rowe Price International Bond Portfolio is to provide high current income and
capital appreciation by investing in high-quality, non dollar-denominated
government and corporate bonds outside the United States. The Portfolio is
intended for long-term investors who can accept the risks associated with
investing in international bonds. Total return consists of income after
expenses, bond price gains (or losses) in terms of the local currency and
currency gains (or losses). The value of the Portfolio will fluctuate in
response to various economic factors, the most important of which are
fluctuations in foreign currency exchange rates and interest rates. Because the
Portfolio's investments are primarily denominated in foreign currencies,
exchange rates are likely to have a significant impact on total Portfolio
performance. Investors should be aware that exchange rate movements can be
significant and endure for long periods of time.
The Portfolio will invest at least 65% of its assets in high-quality, non
dollar-denominated government and corporate bonds outside the United States. The
Portfolio may also invest up to 20% of its assets in below investment-grade,
high-risk bonds, including bonds in default or those with the lowest rating.
Defaulted bonds are acquired only if the Sub-advisor foresees the potential for
significant capital appreciation. Securities rated below investment-grade are
commonly referred to as "junk bonds" and involve greater price volatility and
higher degrees of speculation with respect to the payment of principal and
interest than higher quality fixed-income securities.
The Portfolio may also invest more than 5% of its assets in the fixed-income
securities of individual foreign governments. The Portfolio generally will not
invest more than 5% of its assets in any individual corporate issuer. Since, as
a nondiversified investment company, the Portfolio is permitted to invest a
greater proportion of its assets in the securities of a smaller number of
issuers, the Portfolio may be subject to greater credit risk with respect to its
portfolio securities than an investment company that is more broadly
diversified.
Because of the Portfolio's long-term investment objective, investors should not
rely on an investment in the Portfolio for their short-term financial needs and
should not view the Portfolio as a vehicle for playing short-term swings in the
international bond and foreign exchange markets. Shares of the Portfolio alone
should not be regarded as a complete investment program. Also, investors should
be aware that investing in international bonds may involve a higher degree of
risk than investing in U.S. bonds.
T. Rowe Price Small Company Value Portfolio: The investment objective of the T.
Rowe Price Small Company Value Portfolio is to provide long-term capital
appreciation by investing primarily in small-capitalization stocks that appear
to be undervalued. Reflecting a value approach to investing, the Portfolio will
seek the stocks of companies whose current stock prices do not appear to
adequately reflect their underlying value as measured by assets, earnings, cash
flow, or business franchises. The Portfolio will invest at least 65% of its
total assets in companies with a market capitalization of $1 billion or less
that appear undervalued by various measures, such as price/earnings or
price/book value ratios. Although the Portfolio will invest primarily in U.S.
common stocks, it may also purchase other types of securities, for example,
foreign securities, convertible stocks and bonds, and warrants when considered
consistent with the Portfolio's investment objective and policies. Small
companies--those with a capitalization (market value) of $1 billion or less--may
offer greater potential for capital appreciation since they are often overlooked
or undervalued by investors. Investing in small companies involves greater risk,
as well as greater opportunity, than is customarily associated with more
established companies.
The Portfolio may invest in debt or preferred equity securities convertible into
or exchangeable for equity securities. The Portfolio may invest up to 20% of its
total assets (excluding reserves) in foreign securities. These include
nondollar-denominated securities traded outside of the U.S. and
dollar-denominated securities of foreign issuers traded in the U.S. (such as
ADRs). Some of the countries in which the Portfolio may invest may be considered
to be developing and may involve special risks. The Portfolio may invest in debt
securities of any type without regard to quality or rating. The Portfolio will
not purchase a noninvestment-grade debt security (or junk bond) if immediately
after such purchase the Portfolio would have more than 5% of its total assets
invested in such securities.
The Portfolio may invest up to 10% of its total assets in hybrid instruments.
Hybrids can have volatile prices and limited liquidity and their use by the
Portfolio may not be successful. These instruments (a type of potentially
high-risk derivative) can combine the characteristics of securities, futures,
and options. The Portfolio may acquire illiquid securities; however, the
Portfolio will not invest more than 15% of its net assets in illiquid
securities, and not more than 10% of its total assets in restricted securities
(other than Rule 144A securities). The Portfolio will hold a certain portion of
its assets in U.S. and foreign dollar-denominated money market securities,
including repurchase agreements, in the two highest rating categories, maturing
in one year or less.
The Portfolio may enter into futures contracts (or options thereon) to hedge all
or a portion of its portfolio against changes in prevailing levels of interest
rates or currency exchange rates, or as an efficient means of adjusting its
exposure to the bond, stock, and currency markets. The Portfolio may also write
call and put options and purchase put and call options on securities, financial
indices, and currencies. The aggregate market value of the Portfolio's
securities or currencies covering call or put options will not exceed 25% of the
Portfolio's net assets.
Founders Capital Appreciation Portfolio: The investment objective of Founders
Capital Appreciation Portfolio is capital appreciation. The Portfolio will
normally invest at least 65% of its total assets in common stocks of U.S.
companies with market capitalizations of $1.5 billion or less. These stocks
normally will be traded in the over-the-counter market. The Portfolio may engage
in short-term trading and therefore normally will have annual portfolio turnover
rates which are considered to be high. Investment in such companies may involve
greater risk than is associated with more established companies. The Portfolio
may invest in convertible securities, preferred stocks, bonds, debentures, and
other corporate obligations, when these investments offer opportunities for
capital appreciation.
Founders Passport Portfolio: The investment objective of the Founders Passport
Portfolio is to seek capital appreciation. To achieve its objective, the
Portfolio invests primarily in securities issued by foreign companies which have
market capitalizations or annual revenues of $1 billion or less. These
securities may represent companies in both established and emerging economies
throughout the world. At least 65% of the Portfolio's total assets will normally
be invested in foreign securities representing a minimum of three countries. The
Portfolio may invest in larger foreign companies or in U.S.-based companies if,
in the Sub-advisor's opinion, they represent better prospects for capital
appreciation. The Portfolio normally will invest a significant proportion of its
assets in the securities of small and medium-sized companies. As used with
respect to this Portfolio, small and medium-sized companies are those which are
still in the developing stages of their life cycles and are attempting to
achieve rapid growth in both sales and earnings. Investments in small and
medium-sized companies involve greater risk than is customarily associated with
more established companies.
The Portfolio may invest in convertible securities, preferred stocks, bonds,
debentures, and other corporate obligations when the Sub-advisor believes that
these investments offer opportunities for capital appreciation. Current income
will not be a substantial factor in the selection of these securities. The
Portfolio will only invest in bonds, debentures, and corporate obligations
(other than convertible securities and preferred stock) rated investment grade
(BBB or higher) at the time of purchase. Bonds in the lowest investment grade
category (BBB) have speculative characteristics. Convertible securities and
preferred stocks purchased by the Portfolio may be rated in medium and lower
categories by Moody's or S&P (Ba or lower by Moody's and BB or lower by S&P),
but will not be rated lower than B. The Portfolio may also invest in unrated
convertible securities and preferred stocks in instances in which the
Sub-advisor believes that the financial condition of the issuer or the
protection afforded by the terms of the securities limits risk to a level
similar to that of securities eligible for purchase by the Portfolio rated in
categories no lower than B. The Portfolio may invest without limit in American
Depository Receipts and may invest in foreign securities. Foreign investments of
the Portfolio may include securities issued by companies located in countries
not considered to be major industrialized nations, which involve certain risks.
The Portfolio may use futures contracts and options for hedging purposes. The
Portfolio may engage in short-term trading and therefore normally will have
annual portfolio turnover rates which are considered to be high.
INVESCO Equity Income Portfolio: The investment objective of the INVESCO Equity
Income Portfolio is to seek high current income while following sound investment
practices. Capital growth potential is an additional, but secondary,
consideration in the selection of portfolio securities. The Portfolio seeks to
achieve its objective by investing in securities which will provide a relatively
high-yield and stable return and which, over a period of years, may also provide
capital appreciation. The Portfolio normally will invest at least 65% of its
assets in dividend-paying, marketable common stocks of domestic and foreign
industrial issuers. The Portfolio also will invest in convertible bonds,
preferred stocks and debt securities. The Portfolio may depart from the basic
investment objective and assume a defensive position with a large portion of its
assets temporarily invested in high quality corporate bonds, or notes and
government issues, or held in cash. The Portfolio's investments in common stocks
may decline in value. To minimize the risk this presents, the Portfolio only
invests in dividend-paying common stocks of domestic and foreign industrial
issuers which are marketable, and will not invest more than 5% of the
Portfolio's assets in the securities of any one company or more than 25% of the
Portfolio's assets in any one industry. There are no fixed-limitations regarding
portfolio turnover. The rate of portfolio turnover may fluctuate as a result of
constantly changing economic conditions and market circumstances. Securities
initially satisfying the Portfolio's basic objectives and policies may be
disposed of when they are no longer suitable. As a result, it is anticipated
that the Portfolio's annual portfolio turnover rate may be higher than that of
other investment companies seeking current income with capital growth as a
secondary consideration.
PIMCO Total Return Bond Portfolio: The investment objective of the PIMCO Total
Return Bond Portfolio is to seek to maximize total return, consistent with
preservation of capital. The Sub-advisor will seek to employ prudent investment
management techniques, especially in light of the broad range of investment
instruments in which the Portfolio may invest. The proportion of the Portfolio's
assets committed to investment in securities with particular characteristics
(such as maturity, type and coupon rate) will vary based on the outlook for the
U.S. and foreign economies, the financial markets and other factors. The
Portfolio will invest at least 65% of its assets in the following types of
securities which may be issued by domestic or foreign entities and denominated
in U.S. dollars or foreign currencies: securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities; corporate debt securities;
corporate commercial paper; mortgage and other asset-backed securities; variable
and floating rate debt securities; bank certificates of deposit; fixed time
deposits and bankers' acceptances; repurchase agreements and reverse repurchase
agreements; obligations of foreign governments or their subdivisions, agencies
and instrumentalities, international agencies or supranational entities; and
foreign currency exchange-related securities, including foreign currency
warrants. The Portfolio will invest in a diversified portfolio of fixed-income
securities of varying maturities with a portfolio duration from three to six
years. The Portfolio may invest up to 10% of its assets in fixed income
securities that are rated below investment grade (i.e., rated below Baa by
Moody's or BBB by S&P or, if unrated, determined by the Sub-advisor to be of
comparable quality). These securities are regarded as high risk and
predominantly speculative with respect to the issuer's continuing ability to
meet principal and interest payments. The Portfolio may also invest up to 20% of
its assets in securities denominated in foreign currencies. The "total return"
sought by the Portfolio will consist of interest and dividends from underlying
securities, capital appreciation reflected in unrealized increases in value of
portfolio securities (realized by the shareholder only upon selling shares) or
realized from the purchase and sale of securities, and use of futures and
options, or gains from favorable changes in foreign currency exchange rates. The
Portfolio may invest directly in U.S. dollar- or foreign currency-denominated
fixed income securities of non-U.S. issuers. The Portfolio will limit its
foreign investments to securities of issuers based in developed countries
(including newly industrialized countries, such as Taiwan, South Korea and
Mexico). Investing in the securities of issuers in any foreign country involves
special risks. The Portfolio will limit its investments in newly industrialized
countries to 10% of its assets.
PIMCO Limited Maturity Bond Portfolio: The investment objective of the PIMCO
Limited Maturity Bond Portfolio is to seek to maximize total return, consistent
with preservation of capital and prudent investment management. The Portfolio
will invest at least 65% of its total assets in the following types of
securities, which may be issued by domestic or foreign entities and denominated
in U.S. dollars or foreign currencies: securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities; corporate debt securities;
corporate commercial paper; mortgage and other asset-backed securities; variable
and floating rate debt securities; bank certificates of deposit, fixed time
deposits and bankers' acceptances; repurchase agreements and reverse repurchase
agreements; obligations of foreign governments or their subdivisions, agencies
and instrumentalities, international agencies or supranational entities; and
foreign currency exchange-related securities, including foreign currency
warrants. The Portfolio may hold different percentages of its assets in these
various types of securities, and may invest all of its assets in derivative
instruments or in mortgage- or asset-backed securities. There are special risks
involved in these instruments. The Portfolio will invest in a diversified
portfolio of fixed income securities of varying maturities with a portfolio
duration from one to three years. The Portfolio may invest up to 10% of its
assets in corporate debt securities that are rated below investment grade but
rated B or higher by Moody's or S&P (or, if unrated, determined by the
Sub-advisor to be of comparable quality). The Portfolio may also invest up to
20% of its assets in securities denominated in foreign currencies. The "total
return" sought by the Portfolio will consist of interest and dividends from
underlying securities, capital appreciation reflected in unrealized increases in
value of portfolio securities (realized by the shareholder only upon selling
shares) or realized from the purchase and sale of securities, and use of futures
and options, or gains from favorable changes in foreign currency exchange rates.
The Portfolio may invest directly in U.S. dollar- or foreign
currency-denominated fixed income securities of non-U.S. issuers. The Portfolio
will limit its foreign investments to securities of issuers based in developed
countries (including newly industrialized countries, such as Taiwan, South Korea
and Mexico). Investing in the securities of issuers in any foreign country
involves special risks. The Portfolio will limit its investments in newly
industrialized countries to 5% of its assets.
Berger Capital Growth Portfolio: The investment objective of the Berger Capital
Growth Portfolio is long-term capital appreciation. The Portfolio seeks to
achieve this objective by investing primarily in common stocks of established
companies which the Sub-advisor believes offer favorable growth prospects.
Current income is not an investment objective of the Portfolio, and any income
produced will be a by-product of the effort to achieve the Portfolio's
objective.
In general, investment decisions for the Portfolio are based on an approach
which seeks out successful companies because they are believed to be more apt to
become profitable investments. To evaluate a prospective investment, the
Sub-advisor analyzes information from various sources, including industry
economic trends, earnings expectations and fundamental securities valuation
factors to identify companies which in the Sub-advisor's opinion are more likely
to have predictable, above average earnings growth, regardless of the company's
size and geographic location. The Sub-advisor also takes into account a
company's management and its innovations in products and services in evaluating
its prospects for continued or future earnings growth.
In selecting its portfolio securities, the Portfolio places primary emphasis on
established companies which it believes to have favorable growth prospects.
Common stocks usually constitute all or most of the Portfolio's investment
holdings, but the Portfolio remains free to invest in securities other than
common stocks, and may do so when deemed appropriate by the Sub-advisor to
achieve the objective of the Portfolio. The Portfolio may, from time to time,
take substantial positions in securities convertible into common stocks, and it
may also purchase government securities, preferred stocks and other senior
securities if its Sub-advisor believes these are likely to be the best suited at
that time to achieve the Portfolio's objective. The Portfolio's policy of
investing in securities believed to have a potential for capital growth means
that a Portfolio share may be subject to greater fluctuations in value than if
the Portfolio invested in other securities.
Robertson Stephens Value + Growth Portfolio: The investment objective of the
Robertson Stephens Value + Growth Portfolio is to seek capital appreciation. The
Portfolio will invest primarily in growth companies believed by the Sub-advisor
to have favorable relationships between price/earnings ratios and growth rates
in sectors offering the potential for above-average returns.
In selecting investments for the Portfolio, the Sub-advisor's primary emphasis
is typically on evaluating a company's management, growth prospects, business
operations, revenues, earnings, cash flows, and balance sheet in relationship to
its share price. The Sub-advisor may select stocks which it believes are
undervalued relative to the current stock price. When the Sub-advisor
anticipates that the price of a security will decline, it may sell the security
short and borrow the same security from a broker or other institution to
complete the sale.
The Portfolio may invest a substantial portion of its assets in securities
issued by small companies. Such companies may offer greater opportunities for
capital appreciation than larger companies, but investments in such companies
may involve certain special risks such as limited product lines, markets and
financial or managerial resources. These securities may be less frequently
traded and the values may fluctuate more sharply than other securities.
The Portfolio may invest up to 35% of its net assets in securities principally
traded in foreign markets. The Portfolio may buy or sell foreign currencies and
options and futures contracts on foreign currencies for hedging purposes in
connection with its foreign investments. The Portfolio may also at times invest
a substantial portion of their assets in securities of issuers in developing
countries. Although many of the securities in which the Portfolio may invest are
traded on securities exchanges, the Portfolio may trade in limited volume, and
the exchanges may not provide all of the conveniences or protections provided by
securities exchanges in more developed markets.
At times, the Portfolio may invest more than 25% of its assets in securities of
issuers in one or more market sectors such as, for example, the technology
sector. A market sector may be made up of companies in a number of related
industries. The Portfolio would only concentrate its investments in a particular
market sector if the Sub-advisor were to believe the investment return available
from concentration in that sector justifies any additional risk associated with
concentration in that sector.
AST Putnam Value Growth & Income Portfolio: The primary investment objective of
the AST Putnam Value Growth & Income Portfolio is to seek capital growth.
Current income is a secondary investment objective. The Portfolio invests
primarily in common stocks that offer potential for capital growth, and may,
consistent with its investment objectives, invest in stocks that offer potential
for current income. The Portfolio may also purchase corporate bonds, notes and
debentures, preferred stocks, or convertible securities (both debt securities
and preferred stocks) or U.S. government securities, if the Sub-advisor
determines that their purchase would help further the Portfolio's investment
objectives. The Portfolio may invest up to 20% of its assets in securities
traded in foreign markets. The Portfolio may also purchase ADRs and Eurodollar
certificates of deposit, without regard to the 20% limit. The Portfolio may
invest in securities principally traded in, or issued by issuers located in,
underdeveloped and developing nations, which are sometimes referred to as
"emerging markets." The Portfolio may buy or sell foreign currencies, foreign
currency futures contracts and foreign currency forward contracts for hedging
purposes in connection with its foreign investments.
The Portfolio may invest a portion of its assets in fixed-income securities,
including lower-rated fixed-income securities, which are commonly known as "junk
bonds," without limitation as to credit rating. The Portfolio may invest in zero
coupon bonds and payment-in-kind bonds. The Portfolio may buy and sell stock
index futures contracts. The Portfolio may buy and sell call and put options on
index futures or on stock indices in addition to or as an alternative to
purchasing or selling index futures or, to the extent permitted by applicable
law, to earn additional income. The Portfolio may seek to increase its current
return by writing covered call and put options on securities it owns or in which
it may invest. The Portfolio may also buy and sell put and call options for
hedging purposes. The aggregate value of the securities underlying the options
may not exceed 25% of Portfolio assets. The Portfolio may enter into repurchase
agreements. The Portfolio may purchase securities for future delivery, which may
increase its overall investment exposure and involves a risk of loss if the
value of the securities declines prior to the settlement date.
AST Putnam International Equity Portfolio: The investment objective of the AST
Putnam International Equity Portfolio is to seek capital appreciation. The
Portfolio seeks its objective by investing primarily in equity securities of
companies located in a country other than the United States. The Portfolio's
investments will normally include common stocks, preferred stocks, securities
convertible into common or preferred stocks, and warrants to purchase common or
preferred stocks. The Portfolio may also invest to a lesser extent in debt
securities and other types of investments if the Sub-advisor believes purchasing
them would help achieve the Portfolio's objective. The Portfolio will, under
normal circumstances, invest at least 65% of its total assets in issuers located
in at least three different countries other than the United States.
The Portfolio may invest in securities of issuers in emerging markets, as well
as more developed markets. Investing in emerging markets generally involves more
risks then in investing in developed markets. The Portfolio may invest in
companies, large or small, whose earnings are believed to be in a relatively
strong growth trend, or in companies in which significant further growth is not
anticipated but whose market value per share is thought to be undervalued.
Smaller companies may present greater opportunities for capital appreciation,
but may also involve greater risks. The Portfolio may engage in a variety of
transactions involving the use of options and futures contracts and in foreign
currency exchange transactions for purposes of increasing its investment return
or hedging against market changes. Options and futures transactions involve
certain special risks. The Portfolio may engage in foreign currency exchange
transactions to protect against uncertainty in the level of future exchange
rates. The Sub-advisor may engage in foreign currency exchange transactions in
connection with the purchase and sale of portfolio securities and to protect
against changes in the value of specific portfolio positions.
AST Putnam Balanced Portfolio: The investment objective of the AST Putnam
Balanced Portfolio is to provide a balanced investment composed of a
well-diversified portfolio of stocks and bonds which will produce both capital
growth and current income. In seeking its objective, the Portfolio may invest in
almost any type of security or negotiable instrument, including cash or money
market instruments. The Portfolio's portfolio will include some securities
selected primarily to provide for capital protection, others selected for
dependable income and still others for growth in value. The portion of the
Portfolio's assets invested in equity securities and fixed income securities
will vary from time to time in light of the Portfolio's investment objective,
changes in interest rates and economic and other factors. However, under normal
market conditions, it is expected that at least 25% of the Portfolio's total
assets will be invested in fixed income securities, which for this purpose
includes debt securities, preferred stocks and that portion of the value of
convertible securities attributable to the fixed income characteristics of those
securities. The Portfolio may invest up to 20% of its assets in equity
securities principally traded in foreign markets or in fixed income securities
denominated in foreign currencies. The Portfolio may also purchase ADRs and
Eurodollar certificates of deposit without regard to the 20% limit. The
Portfolio may invest in securities principally traded in, or issued by issuers
located in, underdeveloped and developing nations, which are sometimes referred
to as "emerging markets" which may entail special risks.
The Portfolio may buy or sell foreign currencies and foreign currency forward
contracts for hedging purposes in connection with its foreign investments. The
Portfolio may invest in both higher-rated and lower-rated fixed-income
securities. The Portfolio will not invest in securities rated at the time of
purchase lower than B by Moody's or S&P, or in unrated securities which the
Sub-advisor determines are of comparable quality. Securities rated B are
predominantly speculative and have large uncertainties or major risk exposures
to adverse conditions. The Portfolio may invest in so-called zero coupon bonds
whose values are subject to greater fluctuation in response to changes in market
interest rates than bonds that pay interest currently. The Portfolio may buy and
sell futures contracts. The Portfolio may seek to increase its current return by
writing covered call and put options on securities it owns or in which it may
invest.
Twentieth Century Strategic Balanced Portfolio: The investment objective of the
Twentieth Century Strategic Balanced Portfolio is to seek capital growth and
current income. It is the Sub-advisor's intention to maintain approximately 60%
of the Portfolio's assets in common stocks that are considered by the
Sub-advisor to have better-than-average prospects for appreciation and the
remainder in bonds and other fixed income securities. With the equity portion of
the Portfolio, the Sub-advisor seeks capital growth by investing in securities,
primarily common stocks, that meet certain fundamental and technical standards
of selection (relating primarily to earnings and revenue acceleration) and have,
in the opinion of the Sub-advisor, better-than-average potential for
appreciation. So long as a sufficient number of such securities are available,
the Sub-advisor intends to keep the equity portion of the Portfolio fully
invested in these securities regardless of the movement of stock prices
generally. The Portfolio may purchase securities only of companies that have a
record of at least three years continuous operation.
The Sub-advisor intends to maintain approximately 40% of the Portfolio's assets
in fixed income securities, approximately 80% of which will be invested in
domestic fixed income securities and approximately 20% of which will be invested
in foreign fixed income securities. This percentage will fluctuate from time to
time. The fixed income portion of the Portfolio will include U.S. Treasury
securities, securities issued or guaranteed by the U.S. government or a foreign
government, or an agency or instrumentality of the U.S. or a foreign government,
and non-convertible debt obligations issued by U.S. or foreign corporations. The
Portfolio may also invest in mortgage-related and other asset-backed securities.
Debt securities that comprise part of the Portfolio's fixed income portfolio
will primarily be limited to "investment grade" obligations. However, the
Portfolio may invest up to 10% of its fixed income assets in "high yield"
securities. Under normal market conditions, the maturities of fixed-income
securities in which the Portfolio invests will range from 2 to 30 years.
The Portfolio may invest up to 25% of its total assets in the securities of
foreign issuers, including debt securities of foreign governments and their
agencies primarily from developed markets, when these securities meet its
standards of selection. Some of the foreign securities held by the Portfolio may
be denominated in foreign currencies. To protect against adverse movements in
exchange rates between currencies, the Portfolio may, for hedging purposes only,
enter into forward currency exchange contracts and buy put and call options
relating to currency futures contracts.
The Portfolio may purchase mortgage-related and other asset-backed securities.
The Portfolio may also invest in collateralized mortgage obligations. The
Portfolio may invest in repurchase agreements when such transactions present an
attractive short-term return on cash that is not otherwise committed to the
purchase of securities pursuant to the investment policies of the Portfolio. To
the extent permitted by its investment objectives and policies, the Portfolio
may invest in securities that are commonly referred to as "derivative"
securities. Some "derivatives" such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. The
Portfolio may not invest in a derivative security unless the reference index or
the instrument to which it relates is an eligible investment for the Portfolio.
There are a range of risks associated with derivative investments. The Portfolio
may, from time to time, purchase Rule 144A securities when they present
attractive investment opportunities that otherwise meet the Portfolio's criteria
for selection. The portfolio turnover of the Portfolio may be higher than other
mutual funds with similar investment objectives.
Twentieth Century International Growth Portfolio: The investment objective of
the Twentieth Century International Growth Portfolio is to seek capital growth.
The Portfolio will seek to achieve its investment objective by investing
primarily in securities of foreign issuers that meet certain fundamental and
technical standards of selection (relating primarily to acceleration of earnings
and revenues) and have, in the opinion of the Sub-advisor, potential for
appreciation. The Portfolio will invest primarily in issuers in developed
markets. The Portfolio will invest primarily in equity securities (defined to
include equity equivalents) of such issuers. The Portfolio will attempt to stay
fully invested in such securities, regardless of the movement of stock prices
generally. The Portfolio may also invest in other types of securities consistent
with the accomplishment of the Portfolio's objectives. When the Sub-advisor
believes that the total return potential of other securities equals or exceeds
the potential return of equity securities, the Portfolio may invest up to 35% in
such other securities. The other securities the Portfolio may invest in are
bonds, notes and debt securities of companies and obligations of domestic or
foreign governments and their agencies. The Portfolio will limit its purchases
of debt securities to investment grade obligations.
The Portfolio may also invest in other equity securities and equity equivalents.
Examples of other equity securities and equity equivalents are preferred stock,
convertible preferred stock and convertible debt securities. Equity equivalents
may also include securities whose value or return is derived from the value or
return of a different security. Under normal conditions, the Portfolio will
invest at least 65% of its assets in equity and equity equivalent securities of
issuers from at least three countries outside of the United States. While
securities of U.S. issuers may be included in the Portfolio from time to time,
it is the primary intent of the Sub-advisor to diversify investments across a
broad range of foreign issuers.
In order to achieve maximum investment flexibility, the Portfolio has not
established geographic limits on asset distribution, on either a
country-by-country or region-by-region basis. The Sub-advisor expects to invest
both in issuers in developed markets (such as Germany, the United Kingdom and
Japan) and in issuers in emerging market countries. Subject to certain
restrictions contained in the Investment Company Act, the Portfolio may invest
up to 10% of its assets in certain foreign countries indirectly through
investment funds and registered investment companies authorized to invest in
those countries. Some of the securities held by the Portfolio will be
denominated in foreign currencies. To protect against adverse movements in
exchange rates between currencies, the Portfolio may, for hedging purposes only,
enter into forward currency exchange contracts.
Notwithstanding the Portfolio's investment objective of capital growth, under
exceptional market or economic conditions, the Portfolio may temporarily invest
all or a substantial portion of its assets in cash or investment-grade
short-term securities (denominated in U.S. dollars or foreign currencies). The
Portfolio may invest in repurchase agreements when such transactions present an
attractive short-term return on cash that is not otherwise committed to the
purchase of securities pursuant to the investment policies of the Portfolio. The
Portfolio will not invest more than 15% of its assets in repurchase agreements
maturing in more than seven days. The Portfolio may, from time to time, purchase
Rule 144A securities when they present attractive investment opportunities that
otherwise meet the Portfolio's criteria for selection.
The portfolio turnover may be higher than other mutual funds with similar
investment objectives. Investments in the Portfolio should not be considered a
complete investment program and may not be appropriate for an individual with
limited investment resources or who is unable to tolerate fluctuations in the
value of the investment.
The Alger American Fund
Alger American Growth Portfolio: The investment objective of the Alger American
Growth Portfolio is long-term capital appreciation. Income is a consideration in
the selection of investments but is not an investment objective of the
portfolio. It seeks to achieve its objective by investing in equity securities,
such as common or preferred stocks that are listed on a national securities
exchange, or securities convertible into or exchangeable for equity securities,
including warrants and rights, often selected by the investment manager on the
basis of original research produced by its research analysts. Except during
temporary defensive periods, the portfolio invests at least 65 percent of its
total assets in equity securities of companies that, at the time of purchase,
have total market capitalization of $1 billion or greater.
Alger American Small Capitalization Portfolio: The investment objective of the
Alger American Small Capitalization Portfolio is long-term capital appreciation.
Except during temporary defensive periods, the Portfolio invests at least 65% of
its total assets in equity securities of companies that, at the time of purchase
of the securities, have total market capitalization within the range of
companies included within the Russell 2000 Growth Index or the S&P SmallCap 600
Index, updated quarterly. Both indexes are broad indexes of small capitalization
stocks. The Portfolio may invest up to 35% of its total assets in equity
securities of companies that, at the time of purchase, have total market
capitalization outside this combined range, and in excess of that amount (up to
100% of its assets) during temporary defensive periods.
Alger American MidCap Growth Portfolio: The investment objective of the
Portfolio is long-term capital appreciation. Except during temporary defensive
periods, the Portfolio invests at least 65% of its total assets in equity
securities of companies that, at the time of purchase of the securities, have
total market capitalization within the range of companies included in the S&P
MidCap 400 Index, updated quarterly. The S&P MidCap 400 Index is designed to
track the performance of medium capitalization companies. The Portfolio may
invest up to 35% of its total assets in equity securities of companies that, at
the time of purchase, have total market capitalization outside the range of
companies included in the S&P MidCap 400 Index and in excess of that amount (up
to 100% of its assets) during temporary defensive periods.
Neuberger & Berman Advisers Management Trust
(Each portfolio of Neuberger & Berman Advisers Management Trust invests
exclusively in a corresponding series of Advisers Managers Trust in what is
sometimes known as a "master/feeder" fund structure. Therefore, the investment
objective of each portfolio matches that of the series of Advisers Managers
Trust in which the portfolio invests. Therefore, the following information is
presented in terms of the applicable series of Neuberger & Berman Advisers
Management Trust).
AMT Partners Portfolio: The investment objective of the AMT Partners
Portfolio is to seek capital growth. This investment objective is
non-fundamental.
AMT Partners Portfolio invests primarily in common stocks of medium to large
capitalization established companies, using the value-oriented investment
approach. The Portfolio seeks capital growth through an investment approach that
is designed to increase capital with reasonable risk. Its investment program
seeks securities believed to be undervalued based on strong fundamentals
including a low price-to-earnings ratios, consistent cash flow, and the
company's track record through all parts of the market cycle.
AMT Partners Portfolio may invest up to 15% of its net assets, measured at the
time of investment, in corporate debt securities rated below investment grade or
in comparable unrated securities. Securities rated below investment grade as
well as unrated securities are often considered to be speculative and usually
entail greater risk.
Montgomery Variable Series
Emerging Markets Fund: The investment objective of the Emerging Markets Fund is
capital appreciation which, under normal conditions, it seeks by investing at
least 65% of its total assets in equity securities of emerging markets
companies. Under normal conditions, the Emerging Markets Fund maintains
investments in at least six emerging market countries at all times and invests
no more than 35% of its total assets in any one emerging market country. The
Manager currently regards the following to be emerging market countries: Latin
American (Argentina, Brazil, Chile, Colombia, Costa Rica, Jamaica, Mexico, Peru,
Trinidad and Tobago, Uruguay, Venezuela); Asia (Bangladesh, China, India,
Indonesia, Korea, Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka,
Taiwan, Thailand, Vietnam); southern and eastern Europe (Czech Republic, Greece,
Hungary, Poland, Portugal, Russia, Turkey); the Middle East (Israel, Jordan);
and Africa (Egypt, Ghana, Ivory Coast, Kenya, Morocco, Nigeria, South Africa,
Tunisia, Zimbabwe). In the future, the Fund may invest in other emerging market
countries.
This Fund uses a proprietary, quantitative asset allocation model created by the
Manager. This model employs mean-variance optimization, a process used in
developed markets based on modern portfolio theory and statistics. Mean-variance
optimization helps determine the percent of assets to invest in each country to
maximize expected returns for a given risk level. The Fund's aims are to invest
in those countries that are expected to have the highest risk/reward trade-off
when incorporated into a total portfolio context. This "top-down" country
selection is combined with "bottom-up" fundamental industry analysis and stock
selection based on original research, publicly available information and company
visits.
This Fund invests primarily in common stock, but also may invest in other types
of equity and equity derivative securities. It may invest up to 35% of its total
assets in debt securities, including up to 5% in debt securities rated below
investment grade.
This Fund may invest in certain debt securities issued by the governments of
emerging market countries that are, or may be eligible for, conversion into
investments in emerging market companies under debt conversion programs
sponsored by such governments. If such securities are convertible to equity
investments, the Fund deems them to be equity derivative securities.
<PAGE>
American Skandia Life Assurance Corporation
Attention: Concierge Desk
For Written Requests:
P.O. Box 883
Shelton, Connecticut 06484
For Electronic Requests:
[email protected]
For Requests by Phone:
1-(800)-752-6342
- --------------------------------------------------------------------------------
PLEASE SEND ME A STATEMENT OF ADDITIONAL INFORMATION THAT
CONTAINS FURTHER DETAILS ABOUT THE AMERICAN SKANDIA ANNUITY
DESCRIBED IN PROSPECTUS EDB-PROS (07/97).
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(print your name)
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(address)
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<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 at:
AMERICAN SKANDIA LIFE AMERICAN SKANDIA LIFE
ASSURANCE CORPORATION ASSURANCE CORPORATION
One Corporate Drive P.O. Box 883
Shelton, Connecticut 06484 Shelton, Connecticut 06484
Telephone: 1-800-752-6342 Telephone: 1-800-752-6342
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
EDB
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution: Not Applicable.
Item 14. Indemnification of Directors and Officers: Under Section 33-320a of the
Connecticut General Statutes, the Registrant must indemnify a director or
officer against judgments, fines, penalties, amounts paid in settlement and
reasonable expenses including attorneys' fees, for actions brought or threatened
to be brought against him in his capacity as a director or officer when certain
disinterested parties determine that he acted in good faith and in a manner he
reasonably believed to be in the best interests of the Registrant. In any
criminal action or proceeding, it also must be determined that the director or
officer had no reason to believe his conduct was unlawful. The director or
officer must also be indemnified when he is successful on the merits in the
defense of a proceeding or in circumstances where a court determines that he is
fairly and reasonable entitled to be indemnified, and the court approves the
amount. In shareholder derivative suits, the director or officer must be finally
adjudged not to have breached this duty to the Registrant or a court must
determine that he is fairly and reasonably entitled to be indemnified and must
approve the amount. In a claim based upon the director's or officer's purchase
or sale of the Registrants' securities, the director or officer may obtain
indemnification only if a court determines that, in view of all the
circumstances, he is fairly and reasonably entitled to be indemnified and then
for such amount as the court shall determine. The By-Laws of American Skandia
Life Assurance Corporation ("ASLAC") also provide directors and officers with
rights of indemnification, consistent with Connecticut Law.
The foregoing statements are subject to the provisions of Section 33-320a.
Directors and officers of ASLAC and American Skandia Marketing, Incorporated,
("ASM, Inc."), can also be indemnified pursuant to Indemnity Agreements between
each director and officer and American Skandia Investment Holding Corporation, a
corporation organized under the laws of the state of Delaware. The provisions of
the Indemnity Agreement are governed by Section 45 of the General Corporation
Law of the State of Delaware.
The directors and officers of ASLAC and ASM, Inc. are covered under a directors
and officers liability insurance policy issued by an unaffiliated insurance
company and an insurance policy issued to Skandia Insurance Company Ltd., their
ultimate parent. Such policy will reimburse ASLAC or ASM, Inc., as applicable,
for any payments that it shall make to directors and officers pursuant to law
and, subject to certain exclusions contained in the policy, will pay any other
costs, charges and expenses, settlements and judgments arising from any
proceeding involving any director or officer of ASLAC or ASM, Inc., as
applicable, in his or her past or present capacity as such.
Item 15. Recent Sales of Unregistered Securities: ASLAC has not offered or sold
any unregistered securities.
Item 16. Exhibits and Financial Statement Schedules:
<TABLE>
<CAPTION>
Exhibits Page
<S> <C> <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
Pre-Effective Amendment No. 1 to Registration Statement No. 333-26685, filed simultaneously with this
Registration Statement.
5 Opinion re legality Included as Exhibit 23(b)
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 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 Registration Statement No. 333-00941, filed February 25,
1997
11 - 22 Not applicable
23a Consent of Deloitte & Touche LLP Exhibit No. 23a
23b Opinion & Consent of Werner & Kennedy Exhibit No. 23b
24 Power of Attorney
Directors Boronow, Campbell, Carendi, Danckwardt, Dokken, Sutyak, Mazzaferro, Moberg,
Soderstrom, Tracy, Svensson, Brunetti, and Collins filed via EDGAR with Initial Registration to
Registration Statement No. 333-025733, filed April 24, 1997
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;
and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(5) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
- --------------------------------------------------------------------------------
LEGAL EXPERTS: Counsel with respect to Federal laws and regulations applicable
to the issue and sale of the Annuities and with respect to Connecticut law is
Werner & Kennedy, 1633 Broadway, New York, New York 10019.
<PAGE>
Exhibits
<PAGE>
Exhibit 4 Instruments defining the rights of security
holders, including indentures
Exhibit 23a Consent of Deloitte & Touche LLP
Exhibit 23b Opinion and Consent of Werner & Kennedy
<PAGE>
EDB/CRT(4/97)-01
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
SHELTON, CONNECTICUT
(A Stock Company)
This certificate (the "Annuity") is a summary of the provisions of a group
annuity contract. The contract owner and contract are as shown in the Schedule
made part of this Annuity.
RIGHT TO CANCEL
You may return this Annuity to our Office or to the representative who solicited
its purchase for a refund within twenty-one days after you receive it. The
amount of the refund will equal the then current Account Value plus any tax
charge deducted as of the date we receive the cancellation request. A market
value adjustment does not apply in determining a Fixed Allocation's account
value during the Right to Cancel period. You bear the investment risk during
this period. If this Annuity is issued as an individual retirement annuity
("IRA"), we will refund the greater of (1) the Purchase Payment and (2) the
current Account Value plus any tax charge deducted as of the date we receive the
cancellation request, if you exercise the Right to Cancel provision and we
receive your request for refund In Writing at our Office within ten days after
you receive the Annuity.
Signed for American Skandia Life Assurance Corporation:
President
GROUP DEFERRED ANNUITY
NON-PARTICIPATING
VARIABLE AND FIXED INVESTMENT OPTIONS IN THE ACCUMULATION PERIOD
FIXED ANNUITY PAYMENTS IN THE PAYOUT PERIOD
IN THE ACCUMULATION PERIOD ANY PAYMENTS AND VALUES PROVIDED UNDER THE VARIABLE
INVESTMENT OPTIONS ARE BASED ON THEIR INVESTMENT PERFORMANCE AND ARE, THEREFORE,
NOT GUARANTEED. PLEASE REFER TO THE SECTION ENTITLED "ACCOUNT VALUE IN THE
SUB-ACCOUNTS" FOR A MORE COMPLETE EXPLANATION.
IN THE ACCUMULATION PERIOD ANY PAYMENTS AND VALUES PROVIDED UNDER THE FIXED
INVESTMENT OPTIONS MAY BE SUBJECT TO A MARKET VALUE ADJUSTMENT. SUCH A MARKET
VALUE ADJUSTMENT MAY INCREASE OR DECREASE ANY SUCH PAYMENTS OR VALUES. PLEASE
REFER TO THE SECTION ENTITLED "ACCOUNT VALUE OF THE FIXED ALLOCATIONS" FOR A
MORE COMPLETE EXPLANATION.
<PAGE>
2
EDB/CRT(4/97)-02
TABLE OF CONTENTS
DEFINITIONS...................................................................5
INVESTMENT OF ACCOUNT VALUE...................................................7
OPERATIONS OF THE SEPARATE ACCOUNTS...........................................8
CHARGES.......................................................................9
PARTICIPATION RIGHTS AND DESIGNATIONS........................................10
PURCHASE PAYMENTS............................................................11
ACCOUNT VALUE AND SURRENDER VALUE............................................11
ALLOCATION RULES.............................................................13
TRANSFERS....................................................................13
DISTRIBUTIONS................................................................14
GENERAL PROVISIONS...........................................................19
ANNUITY TABLES...............................................................21
A copy of any enrollment form and any riders and endorsements are attached.
<PAGE>
3
EDB/CRT(4/97)-03
SCHEDULE
ANNUITY NUMBER: [001-00001] ISSUE DATE: [JUNE 1, 1990]
TYPE OF BUSINESS: [NON-QUALIFIED]
PARTICIPANT: [JOHN DOE]
DATE OF BIRTH: [OCTOBER 21, 1940] SEX: [MALE]
[PARTICIPANT: [MARY DOE]
DATE OF BIRTH: [OCTOBER 15, 1940] SEX: [FEMALE]]
ANNUITANT: [JOHN DOE]
ANNUITANT'S DATE OF BIRTH: [APRIL 01,1934] ANNUITANT'S SEX: [MALE]
ANNUITY DATE: [MAY 01, 2019]
CONTINGENT ANNUITANT: AS NAMED IN ANY ENROLLMENT FORM OR LATER CHANGED
BENEFICIARY: AS NAMED IN ANY ENROLLMENT FORM OR LATER CHANGED
PURCHASE PAYMENT: $[1,000] NET PURCHASE PAYMENT: $[1,000]
MINIMUM ADDITIONAL PURCHASE PAYMENT $[100]
MINIMUM WITHDRAWAL AMOUNT: $[100]
MINIMUM ACCOUNT VALUE AFTER WITHDRAWAL: $[1,000]
MINIMUM ANNUITY PAYMENT: $[100 PER MONTH]
DEATH BENEFIT TARGET DATE:
IF THERE IS ONE PARTICIPANT: [THE ANNIVERSARY OF THE ISSUE DATE
FOLLOWING THE CURRENT PARTICIPANT'S 80TH BIRTHDAY]
IF THERE ARE JOINT PARTICIPANTS: [THE ANNIVERSARY OF THE ISSUE DATE ON
OR IMMEDIATELY FOLLOWING THE 80TH BIRTHDAY OF THE OLDER OF THE CURRENT
PARTICIPANTS]
IF THE PARTICIPANT IS NOT A NATURAL PERSON: [THE ANNIVERSARY OF THE
ISSUE DATE ON OR IMMEDIATELY FOLLOWING THE CURRENT ANNUITANT'S 80TH
BIRTHDAY]
<PAGE>
4
EDB/CRT(4/97)-04
SCHEDULE (CONTINUED)
CONTINGENT DEFERRED SALES CHARGE:
LENGTH OF TIME PERCENTAGE OF PURCHASE
SINCE PURCHASE PAYMENT PAYMENTS BEING LIQUIDATED
[0-1 year 7.5%
1-2 years 7.0%
2-3 years 6.0%
3-4 years 5.0%
4-5 years 4.0%
5-6 years 3.0%
6-7 years 2.0%
7+ years 0%]
TRANSFER FEE: $[10 PER TRANSFER AFTER THE TWELFTH IN AN ANNUITY YEAR]
MAINTENANCE FEE [LESSER OF $30 OR 2% OF ACCOUNT VALUE]
Insurance Charge: [1.40%]
INTEREST RATE MINIMUM: [2.25 PER CENT (.0225) LESS THAN THE AMOUNT DETERMINED BY
THE INDEX. IN NO EVENT WILL THE MINIMUM BE LESS THAN ZERO.]
VARIABLE SEPARATE ACCOUNT: [AMERICAN SKANDIA LIFE ASSURANCE CORPORATION VARIABLE
ACCOUNT B - CLASS 1 SUB-ACCOUNTS]
FIXED SEPARATE ACCOUNT: [AMERICAN SKANDIA LIFE ASSURANCE CORPORATION SEPARATE
ACCOUNT D]
OWNER: [AMERICAN SKANDIA INSURANCE TRUST]
CONTRACT: [026]
OFFICE: AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
ONE CORPORATE DRIVE
P.O. BOX 883
SHELTON. CONNECTICUT 06484
Telephone: 1-800-752-6342
Electronic mail: [email protected]
<PAGE>
5
EDB/CRT(4/97)-05
DEFINITIONS
Account Value: The value of each allocation to a Sub-account or a Fixed
Allocation prior to the Annuity Date, plus any earnings and/or less any losses,
distributions, and charges thereon, before assessment of any applicable
contingent deferred sales charge and/or any applicable maintenance fee. Account
Value is determined separately for each Sub-account and for each Fixed
Allocation, and then totaled to determine Account Value for your entire Annuity.
Account Value of each Fixed Allocation on other than such Fixed Allocation's
Maturity Date is calculated using a market value adjustment.
Accumulation Period: The period of time from the Issue Date through and
including the 15th day prior to the Annuity Date.
Anniversary Value: The Account Value in the Sub-accounts plus the Interim Value
in the Fixed Allocations on each anniversary of the Issue Date plus the sum of
all Purchase Payments since such anniversaries less the sum of all withdrawals
since such anniversary.
Annuitant: The person upon whose life this Annuity is issued.
Annuity: A summary of your rights and benefits under the contract shown in the
Schedule.
Annuity Date: The date on which annuity payments are to commence.
Annuity Years: Continuous 12 month periods commencing on the Issue Date and each
anniversary of the Issue Date.
Beneficiary: The person designated as the recipient of the death benefit.
Contingent Annuitant: The person named to become the Annuitant on the
Annuitant's death prior to the Annuity Date.
Current Rates: The interest rates we offer to credit to Fixed Allocations for
the duration of newly beginning Guarantee Periods under this Annuity. Current
Rates are contained in a schedule of rates established by us from time to time
for the Guarantee Periods then being offered. We may establish different
schedules for different classes and for different annuities.
Fixed Allocation: An allocation of Account Value that is to be credited a fixed
rate of interest for a specified Guarantee Period during the Accumulation Period
and is to be supported by assets in the Fixed Separate Account.
Fixed Separate Account: The separate account shown in the Schedule used in
relation to Fixed Allocations.
Guarantee Period: A period of time during the Accumulation Period during which
we credit a fixed rate of interest on a Fixed Allocation.
In Writing: In a written form satisfactory to us and filed at the Office.
Interim Value: As of any particular date, the initial value of a Fixed
Allocation plus all interest credited thereon, less the sum of all previous
transfers and withdrawals of any type from such Fixed Allocation and interest
thereon from the date of each withdrawal or transfer.
Issue Date: The effective date of your participation under the contract shown in
the Schedule in relation to the rights and benefits evidenced by this Annuity.
<PAGE>
6
EDB/CRT(4/97)-06
MVA: A market value adjustment used in the determination of Account Value of
each Fixed Allocation as of a date other than such Fixed Allocation's Maturity
Date.
Maturity Date: The last day in a Guarantee Period.
Minimum Distributions: A specific type of withdrawal such that the amounts
payable are not less than the minimum amounts that must be distributed each year
from an Annuity if used in relation to certain qualified plans under the
Internal Revenue Code.
Net Purchase Payment: A Purchase Payment less any applicable charge for taxes.
Office: The location shown in the Schedule where all requests regarding this
Annuity are to be sent.
Owner: The person or entity shown in the Schedule unless later changed, that
owns the master group contract under which an Annuity is issued.
Payout Period: The period starting on the Annuity Date during which the annuity
is paid.
Purchase Payment: A cash consideration you give to us for the rights, privileges
and benefits outlined in this Annuity.
Sub-account: A division of the Variable Separate Account shown in the Schedule.
We use Sub-accounts to calculate variable benefits under this Annuity.
Surrender Value: The value of your Annuity available upon surrender prior to the
Annuity Date. It equals the Account Value as of the date we price the surrender
less any applicable contingent deferred sales charge and any applicable
maintenance fee.
Unit: A measure used to calculate your Account Value in a Sub-account prior to
the Annuity Date.
Unit Price: Unit Price is used for calculating (a) the number of Units allocated
to a Sub-account, and (b) the value of transactions into or out of a Sub-account
or benefits based on Account Value in a Sub-account prior to the Annuity Date.
Each Sub-account has its own Unit Price which will vary each Valuation Period to
reflect the investment experience of that Sub-account.
Valuation Day: Every day the New York Stock Exchange is open for trading or any
other day that the Securities and Exchange Commission requires mutual funds or
unit investment trusts to be valued.
Valuation Period: The period of time between the close of business of the New
York Stock Exchange on successive Valuation Days.
Variable Separate Account: The variable separate account shown in the Schedule
used in relation to Sub-accounts.
We, us, our: American Skandia Life Assurance Corporation.
You, your: The participant shown in the Schedule.
<PAGE>
7
EDB/CRT(4/97)-07
INVESTMENT OF ACCOUNT VALUE
General: In the Accumulation Period we offer a range of variable and fixed
investment options as ways to invest your Account Value. You may maintain
Account Value in multiple investment options, subject to the limits set out in
the Allocation Rules section of this Annuity. You may transfer Account Value
between investment options, subject to the requirements set out in the Transfers
section of this Annuity. Transfers may be subject to a fee.
Variable Investment Options: During the Accumulation Period we offer a number of
Sub-accounts as variable investment options. These are all Sub-accounts of the
Variable Separate Account shown in the Schedule.
Fixed Investment Options: We may offer Fixed Allocations with Guarantee Periods
of different durations. Each such Fixed Allocation is accounted for separately.
Each Fixed Allocation earns a fixed rate of interest throughout its Guarantee
Period. Multiple Fixed Allocations are permitted, subject to our allocation
rules. The duration of a Guarantee Period may be the same or different from the
duration of the Guarantee Periods of any of your prior Fixed Allocations.
To the extent permitted by law, we reserve the right at any time to offer
Guarantee Periods with durations that differ from those which were available
when your Annuity was issued. We also reserve the right at any time to stop
accepting new allocations, transfers or renewals for a particular Guarantee
Period.
A Guarantee Period for a Fixed Allocation begins: (a) when all or part of a Net
Purchase Payment is allocated to that particular Guarantee Period; (b) upon
transfer of any of your Account Value to a Fixed Allocation for that particular
Guarantee Period; or (c) when a Guarantee Period attributable to a Fixed
Allocation "renews" after its Maturity Date.
We declare the rates of interest applicable during the various Guarantee Periods
offered. Declared rates are effective annual rates of interest. The rate of
interest applicable to a Fixed Allocation, for the class of contracts to which
this Annuity belongs, is the one in effect when its Guarantee Period begins. The
rate is guaranteed throughout the Guarantee Period. We inform you of the
interest rate applicable to a Fixed Allocation, as well as its Maturity Date,
when we confirm the allocation. We declare interest rates applicable to new
Fixed Allocations from time to time. Any new Fixed Allocation in an existing
Annuity is credited interest at a rate not less than the rate we are then
crediting to Fixed Allocations for the same Guarantee Period selected by new
Annuity purchasers in the same class.
Interest Rate Minimum
Interest rates are determined by us. However, rates are subject to a minimum. We
may declare a higher rate. The minimum for a Fixed Allocation is based on both
an index and a reduction to the interest rate determined according to the index.
The index is based on the published rate for certificates of indebtedness
(bills, notes, or bonds, depending on the term of indebtedness) of the United
States Treasury at the most recent Treasury auction held at least 30 days prior
to the beginning of the applicable Fixed Allocation's Guarantee Period. The term
(length of time from issuance to maturity) of the certificates of indebtedness
upon which the index is based is the same as the duration of the Guarantee
Period. If no certificates of indebtedness are available for such term, the next
shortest term is used. If the United States Treasury's auction program is
discontinued, we will substitute indexes which in our opinion are comparable. If
required, implementation of such substitute indexes will be subject to approval
by the Securities and Exchange Commission and the insurance department of the
jurisdiction in which the Annuity is delivered. The reduction used in
determining the minimum is as shown in the Schedule.
<PAGE>
8
EDB/CRT(4/97)-08
OPERATIONS OF THE SEPARATE ACCOUNTS
General: The assets supporting our obligations under the Annuities may be held
in various accounts, depending on the obligation being supported. In the
Accumulation Period, assets supporting Account Values are held in separate
accounts established under the laws of the State of Connecticut. In the Payout
Period, assets supporting fixed annuity payments are held in our general
account.
Separate Accounts: We are the legal owner of assets in the separate accounts.
Income, gains and losses, whether or not realized, from assets allocated to
these separate accounts, are credited to or charged against each such separate
account in accordance with the terms of the annuities supported by such assets
without regard to our other income, gains or losses or to the income, gains or
losses in any other of our separate accounts. We will maintain assets in each
separate account with a total market value at least equal to the reserve and
other liabilities we must maintain in relation to the annuity obligations
supported by such assets. These assets may only be charged with liabilities
which arise from such annuities, which may include Annuities issued under the
contract shown in the Schedule.
Variable Separate Account: In both the Accumulation Period and in the Payout
Period, should we offer any variable settlement options, the assets supporting
obligations based on allocations to the variable investment options are held in
the Variable Separate Account shown in the Schedule. This separate account
consists of multiple Sub-accounts. This separate account was established by us
pursuant to Connecticut law. This separate account also holds assets of other
annuities issued by us with values and benefits that vary according to the
investment performance of this Variable Separate Account.
The amount of our obligations in relation to allocations to the Sub-accounts are
based on the investment performance of such Sub-accounts. However, the
obligations themselves are our general corporate obligations.
The Variable Separate Account is registered with the Securities and Exchange
Commission ("SEC") under the Investment Company Act of 1940 (the "1940 Act") as
a unit investment trust, which is a type of investment company. This does not
involve any supervision by the SEC of the investment policies, management or
practices of the Variable Separate Account.
Sub-accounts are permitted to invest in underlying mutual funds or portfolios
that we consider suitable. We also reserve the right to change the investment
policy of any or all Sub-accounts, add Sub-accounts, eliminate Sub-accounts,
combine Sub-accounts, or to substitute underlying mutual funds or portfolios of
underlying mutual funds, subject to any required regulatory approvals.
Values and benefits based on allocations to the Sub-accounts will vary with the
investment performance of the underlying mutual funds or fund portfolios, as
applicable. We do not guarantee the investment results of any Sub-account, nor
is there any assurance that the Account Value allocated to the Sub-accounts will
equal the amounts allocated to the Sub-accounts as of any time other than the
Valuation Period of such allocation. You bear the entire investment risk.
We reserve the right to transfer assets of the Variable Separate Account, which
we determine to be associated with the class of contracts to which this Annuity
belongs, to another Variable Separate Account. If this type of transfer is made,
the term "Variable Separate Account" as used in this Annuity, shall mean the
Variable Separate Account to which the assets were transferred.
<PAGE>
9
EDB/CRT(4/97)-09
Fixed Separate Account: In the Accumulation Period, assets supporting our
obligations based on Fixed Allocations are held in the Fixed Separate Account
shown in the Schedule, which is a "non-unitized" separate account. Such
obligations are based on the interest rates we credit to Fixed Allocations and
the terms of the Annuities. These obligations do not depend on the investment
performance of the assets in the Fixed Separate Account. This separate account
was established by us pursuant to Connecticut law.
There are no discrete units in the Fixed Separate Account. No party with rights
under any annuity nor any group contract owner participates in the investment
gain or loss from assets held in the Fixed Separate Account. Such gain or loss
accrues solely to us. We retain the risk that the value of the assets in the
Fixed Separate Account may drop below the reserves and other liabilities we must
maintain. Should the value of the assets in the Fixed Separate Account drop
below the reserve and other liabilities we must maintain in relation to the
annuities supported by such assets, we will transfer assets from our general
account to the Fixed Separate Account to make up the difference. We have the
right to transfer to our general account any assets of the Fixed Separate
Account in excess of such reserves and other liabilities. We maintain assets in
the Fixed Separate Account supporting a number of annuities we offer.
If you surrender, withdraw or transfer Account Value from a Fixed Allocation
before the end of its Guarantee Period, you bear the risk inherent in the MVA.
The Account Value of a Fixed Allocation is guaranteed to be its then current
Interim Value on its Maturity Date.
CHARGES
General: The charges which are or may be assessed against your Annuity are the
contingent deferred sales charge, the maintenance fee, tax charges and a
transfer fee. The charge assessed against the Sub-accounts of the Variable
Separate Account is the insurance charge. In addition, each underlying mutual
fund may assess various charges, including charges for investment advisory fees.
A charge for taxes may also be assessed against the Sub-accounts.
Contingent Deferred Sales Charge: The contingent deferred sales charge for each
Purchase Payment is a percentage of the Purchase Payment being liquidated. The
charge decreases as the Purchase Payment ages. The aging of a Purchase Payment
is measured from the date it is applied to your Annuity. The charge is shown in
the Schedule.
Maintenance Fee: This is an annual fee deducted at the end of each Annuity Year
or on surrender, if earlier. The amount of this charge is shown in the Schedule.
The fee is limited to the Account Values in the Sub-accounts as of the Valuation
Period such fee is due. The maintenance fee is not assessed if there is no
Account Value in any Sub-account as of the Valuation Period such fee is due.
Tax Charges: In several states a tax is payable. We will deduct the amount of
tax payable, if any, from your Purchase Payments if the tax is then incurred or
from your Account Value at the time of a withdrawal or surrender of any type or
when applied under an annuity option if the tax is incurred at that time. In
each jurisdiction, the state legislature may change the amount of any current
tax, may decide to impose the tax, eliminate it, or change the time it becomes
payable. In addition to state taxes, local taxes may also apply. The amounts of
these taxes may exceed those for state taxes.
Transfer Fee: The transfer fee is as shown in the Schedule. However, the fee is
only charged if there is Account Value in at least one Sub-account immediately
subsequent to such transfer. Renewals or transfers of Account Value from a Fixed
Allocation at the end of its Guarantee Period are not subject to the transfer
charge and are not counted in determining whether other transfers may be subject
to the transfer charge.
<PAGE>
10
EDB/CRT(4/97)-10
Allocation Of Annuity Charges: Charges applicable to any type of withdrawal are
taken from the investment options in the same ratio as such a withdrawal is
taken from the investment options. The transfer fee is assessed against the
Sub-accounts in which you maintain Account Value immediately subsequent to such
transfer. The transfer fee is allocated on a pro-rata basis in relation to the
Account Values in such Sub-accounts as of the Valuation Period for which we
price the applicable transfer. No fee is assessed if there is no Account Value
in any Sub-account at such time. Tax charges are assessed against the entire
Purchase Payment or Surrender Value as applicable. The maintenance fee is
assessed against the Sub-accounts on a pro-rata basis in relation to the Account
Values in each Sub-account as of the Valuation Period for which we price the
fee.
Insurance Charge: We assess the assets of each Sub-account an insurance charge.
The charge is assessed daily against each Sub-account at the rate shown in the
Schedule of the average daily total value of such Sub-account. No insurance
charge is deducted from the Fixed Allocations. No charge is deducted from assets
supporting any fixed or adjustable annuity payments.
PARTICIPATION RIGHTS AND DESIGNATIONS
Participation Rights, Annuitant and Beneficiary Designations: You may exercise
the rights, options and privileges granted participants by the contract as shown
in the Schedule or permitted by us. Your rights are subject to the rights of any
assignee recorded by us and of any irrevocably designated Beneficiary.
You make certain designations that apply to the Annuity. These designations are
subject to our rules and to various regulatory or statutory requirements
depending on the use of the Annuity. These designations include a participant, a
contingent participant, an Annuitant, a Contingent Annuitant, a Beneficiary, and
a contingent Beneficiary. Certain designations are required, as indicated below.
Such designations will be revocable unless you indicate otherwise or we endorse
your Annuity to indicate that such designation is irrevocable to meet certain
regulatory or statutory requirements.
A participant must be named. If more than one participant is named, all rights
reserved to a participant are then held jointly. We require the consent In
Writing of all joint participants for any transaction for which we require the
written consent of a participant. You may name a contingent participant.
However, this designation takes effect only on or after the Annuity Date. Where
required by law, we require the consent In Writing of the spouse of any person
with a vested interest in an Annuity.
You must name an Annuitant. We do not accept a designation of joint Annuitants.
Where allowed by law, you may name one or more Contingent Annuitants. If the
Annuitant dies before the Annuity Date, the Contingent Annuitant will become the
Annuitant. If there is more than one participant, all of whom are natural
persons, the oldest of any such participants not named as the Annuitant
immediately becomes the Contingent Annuitant if the Contingent Annuitant
predeceases the Annuitant or if a Contingent Annuitant is not designated.
Death benefits are payable to the Beneficiary. You may designate more than one
primary or contingent Beneficiary. If you make such a designation, the proceeds
are payable in equal shares to the survivors in the appropriate Beneficiary
class, unless you request otherwise In Writing.
If the primary Beneficiary dies before death proceeds become payable, the
proceeds will become payable to the contingent Beneficiary. If no Beneficiary is
alive when death proceeds become payable or in the absence of any Beneficiary
designation, the proceeds will vest in you or your estate.
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EDB/CRT(4/97)-11 11
Changing Revocable Designations: Unless you indicated that a prior choice was
irrevocable or your Annuity has been endorsed to limit certain changes, you may
request to change participant, contingent participant, Annuitant, Contingent
Annuitant and Beneficiary designations by sending a request In Writing. Such
changes will be subject to our acceptance. Some of the changes we will not
accept include, but are not limited to: (a) a new participant subsequent to the
death of the participant or the first of any joint participants to die, except
where a spouse-Beneficiary has become the participant as a result of a
participant's death; (b) a new Annuitant subsequent to the Annuity Date if the
annuity option selected includes a life contingency; and (c) a new Annuitant
prior to the Annuity Date if the Annuity is owned by an entity.
Common Disaster: If a participant is a natural person and if any Beneficiary
dies with the participant in a common disaster, it must be proved to our
satisfaction that the participant died first. Unless information provided
indicates otherwise, the Annuity is treated as though the Beneficiary died
first. If: (a) the participant is not a natural person; (b) no Contingent
Annuitant has been designated; and (c) the Annuitant and the Beneficiary die in
a common disaster, then it must be proved to our satisfaction that the Annuitant
died first. Unless provided otherwise, the proceeds are payable as if the
Beneficiary died before the Annuitant.
PURCHASE PAYMENTS
Initial Purchase Payment: Issuance of an Annuity represents both our acceptance
of an initial Purchase Payment and enrollment of a participant. The amount of
your initial Net Purchase Payment evidenced by this Annuity is shown in the
Schedule. Your initial Purchase Payment is subject to our allocation rules (see
"Allocation Rules").
Additional Purchase Payments: The minimum for any additional Purchase Payment is
as shown in the Schedule. Additional Purchase Payments may be paid at any time
before the Annuity Date. Subject to the allocation rules herein, we allocate
additional Net Purchase Payments according to the instructions you provide.
Should no instructions be received, we return your additional Purchase Payment
unless we receive at our Office, your consent to our retaining it until all of
our requirements are met. The consent must be in a form satisfactory to us.
ACCOUNT VALUE AND SURRENDER VALUE
General: In the Accumulation Period your Annuity has an Account Value and a
Surrender Value. Your total Account Value is the sum of your Account Value in
each Sub-account and each Fixed Allocation. Surrender Value is the Account Value
less any applicable contingent deferred sales charge and any applicable
maintenance fee.
Account Value in the Sub-accounts: We determine your Account Value separately
for each Sub-account. To determine the Account Value in each Sub-account we
multiply the Unit Price as of the Valuation Period for which the calculation is
being made times the number of Units attributable to your Annuity in that
Sub-account as of that Valuation Period.
Units: The number of Units attributable to this Annuity in a Sub-account is the
number of Units you purchased less the number transferred or withdrawn. We
determine the number of Units involved in any transaction specified in dollars
by dividing the dollar value of the transaction by the Unit Price of the
affected Sub-account as of the Valuation Period applicable to such transaction.
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EDB/CRT(4/97)-12 12
Unit Price: For each Sub-account the initial Unit Price was $10.00. The Unit
Price for each subsequent period is the net investment factor for that period,
multiplied by the Unit Price for the immediately preceding Valuation Period. The
Unit Price for a Valuation Period applies to each day in the period.
Net Investment Factor: Each Sub-account has a net investment factor. The net
investment factor is an index that measures the investment performance of and
charges assessed against a Sub-account from one Valuation Period to the next.
The net investment factor for a Valuation Period is (a) divided by (b), less
(c); where:
(a) is the net result of :
(1) the net asset value per share of the underlying
mutual fund shares held in the Sub-account at the end
of the current Valuation Period plus the per share
amount of any dividend or capital gain distribution
declared by the underlying mutual fund during that
Valuation Period; plus or minus
(2) any per share charge or credit during the Valuation
Period as a provision for taxes attributable to the
operation or maintenance of the Sub-account.
(a) is the net result of :
(1) the net asset value per share of the underlying
mutual fund shares held in the Sub-account at the end
of the preceding Valuation Period; plus or minus
(2) any per share charge or credit during the preceding
Valuation Period as a provision for taxes
attributable to the operation or maintenance of the
Sub-account.
(a) is the insurance charge.
We value the assets in the Sub-accounts at their fair market value in accordance
with accepted accounting practices and applicable laws and regulations. The net
investment factor may be greater than, equal to, or less than one.
Account Value of the Fixed Allocations: We determine the Account Value of each
Fixed Allocation separately. A Fixed Allocation's Account Value as of a
particular date is determined by multiplying its then current Interim Value
times the MVA.
A formula is used to determine the MVA. The formula is applied separately to
each Fixed Allocation. Values and time durations used in the formula are as of
the date for which the Account Value is being determined. The formula is: [
(1+I) /(1+J+0.0010)] N/12; where:
I is the interest rate being credited to the Fixed Allocation;
J is the interest rate for your class of annuities for a new Fixed
Allocation with a Guarantee Period duration equal to the number of
years (rounded to the next higher integer when occurring on other than
an anniversary of the beginning of the Guarantee Period) remaining in
the Fixed Allocation's Guarantee Period;
N is the number of months (rounded to the next higher integer when
occurring on other than a monthly anniversary of the beginning of the
Guarantee Period) remaining in the Fixed Allocation's Guarantee Period.
No MVA applies in determining a Fixed Allocation's Account Value on its Maturity
Date or during the Right to Cancel.
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EDB/CRT(4/97)-13 13
ALLOCATION RULES
You may allocate your Account Value among the investment options we make
available. The variable investment options are Sub-accounts of the Variable
Separate Account. The fixed investment options are the Guarantee Periods we make
available for Fixed Allocations. In the Accumulation Period, you may maintain
Account Value in up to ten Sub-accounts. You may also maintain an unlimited
number of Fixed Allocations; however, we reserve the right to limit the amount
you may allocate to any Fixed Allocation. Should you request a transaction that
would leave less than any minimum amount we then require in an investment
option, we reserve the right, to the extent permitted by law, to add the balance
of your Account Value in the applicable Sub-account or Fixed Allocation to the
transaction and close out your balance in that investment option.
If you request automatic transfer programs, including, but not limited to any
market timing or asset allocation strategies provided by any independent third
party, all Purchase Payments, including the initial Purchase Payment, received
while your Annuity is subject to such an arrangement, must be allocated to the
same investment options and in the same proportions as then required pursuant to
the applicable program, but only to the extent we have received instructions to
that effect. Such allocation requirements terminate simultaneously to the
termination of such a program.
Withdrawals of any type are taken pro-rata from the investment options based on
the then current Account Values in such investment options unless we receive
other instructions from you prior to such withdrawal. If no instructions are
provided for determining the amounts to be taken from each investment option,
then the Account Value in all your then current Fixed Allocations is deemed to
be in one investment option. If you transfer or withdraw Account Value from
multiple Fixed Allocations and do not provide instructions indicating the Fixed
Allocations from which Account Value should be taken: (a) we transfer Account
Value first from the Fixed Allocation with the shortest amount of time remaining
to the end of its Guarantee Period, and then from the Fixed Allocation with the
next shortest amount of time remaining to the end of its Guarantee Period, etc.;
and (b) if there are multiple Fixed Allocations with the same amount of time
left in each Guarantee Period, as between such Fixed Allocations we first take
Account Value from the Fixed Allocation that has the shorter Guarantee Period.
TRANSFERS
General: In the Accumulation Period you may transfer Account Value between
investment options, subject to the allocation rules herein. The amount we charge
is shown in the Schedule. Renewals or transfers of Account Value from a Fixed
Allocation at the end of its Guarantee Period are not subject to the transfer
charge and are not counted in determining whether other transfers may be subject
to the transfer charge. Your transfer request must be In Writing unless we
receive a prior written authorization from you permitting transfers based on
instructions we receive over the phone.
We may accept your authorization of a third party to transfer Account Values on
your behalf. We may suspend or cancel such acceptance at any time. We give you
prior notification of any such suspension or cancellation. We may restrict the
investment options that will be available to you for transfers or allocations of
Net Purchase Payments during any period in which you authorize such third party
to act on your behalf. We give the third party you authorize prior notification
of any such restrictions. However, we will not enforce such a restriction if we
are provided evidence satisfactory to us that: (a) such third party has been
appointed by a court of competent jurisdiction to act on your behalf; or (b)
such third party has been appointed by you to act on your behalf for all your
financial affairs.
We reserve the right to limit the number of transfers in any Annuity Year for
all existing or new participants. We also reserve the right to limit the number
of transfers in any Annuity Year or to refuse any transfer request for a
participant or certain participants if we believe that: (a) excessive trading by
such participant or participants or a specific transfer request or group of
transfer requests may have a detrimental effect on Unit Values or the share
prices of the underlying mutual funds; or (b) we are informed by one or more of
the underlying mutual funds that the purchase or redemption of shares is to be
restricted because of excessive trading or a specific transfer or group of
transfers is deemed to have a detrimental effect on share prices of affected
underlying mutual funds.
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EDB/CRT(4/97)-14 14
Renewals: A renewal is a transaction that occurs automatically as of the last
day of a Fixed Allocation's Guarantee Period unless we receive other
instructions. As of the end of a Maturity Date, the Fixed Allocation's Guarantee
Period "renews" and a new Guarantee Period of the same duration as the one just
completed begins. However, the renewal will not occur if the Maturity Date is on
the date we apply your Account Value to determine the annuity payments that
begin on the Annuity Date.
If your Fixed Allocation's then ending Guarantee Period is no longer available
for new allocations and renewals or you choose a different Guarantee Period that
is no longer available on the date following the Maturity Date, we will try to
reach you so you may make another choice. If we cannot reach you, we will assign
the next shortest Guarantee Period then currently available for new allocations
and renewals to that Fixed Allocation.
As an alternative to a renewal, you may transfer all or part of that Fixed
Allocation's Account Value to make a different Fixed Allocation or you may
transfer such Account Value to one or more Sub-accounts, subject to our
allocation rules. To accomplish this, we must receive instructions from you In
Writing at least two business days before the Maturity Date. No MVA applies to
transfers of a Fixed Allocation's Account Value occurring as of its Maturity
Date.
DISTRIBUTIONS
Surrender: Surrender of your Annuity for its Surrender Value is permitted during
the Accumulation Period. A contingent deferred sales charge and the maintenance
fee may apply to such surrender. You must send your Annuity and surrender
request In Writing to our Office.
Medically-Related Surrender: You may apply to surrender your Annuity for its
Account Value prior to the Annuity Date without application of any contingent
deferred sales charge upon occurrence of a "Contingency Event". This waiver of
any applicable contingent deferred sales charge is subject to our rules,
including but not limited to the following: (a) the Annuitant must be named or
any change of Annuitant must be accepted by us, prior to the "Contingent Event"
described below; (b) the Annuitant must be alive as of the date we pay the
proceeds of such surrender request; (c) if the participant is one or more
natural persons, all such participants must also be alive at such time; (d) we
must receive satisfactory proof of the Annuitant's confinement or Fatal Illness
In Writing; and (e) this benefit is not available if the total Purchase Payments
received exceed $500,000.00 for all annuities issued by us with this benefit for
which the same person is named as Annuitant.
A "Contingency Event" occurs if the Annuitant is:
(1) First confined in a "Medical Care Facility" while your Annuity
is in force and remains confined for at least 90 days in a
row; or
(2) First diagnosed as having a "Fatal Illness" while your Annuity
is in force.
"Medical Care Facility" means a facility operated pursuant to law or any state
licensed facility providing medically necessary in-patient care which is: (a)
prescribed by a licensed Physician In Writing; and (b) 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.
Free Withdrawals: In each Annuity Year in the Accumulation Period that you are
subject to a contingent deferred sales charge, you may withdraw a limited amount
of Account Value without application of any applicable contingent deferred sales
charge.
The minimum withdrawal amount is as shown in the Schedule. Under any program of
automatic withdrawals such as Minimum Distributions, amounts are deemed to come
first from the amount available under this Free Withdrawal provision. You may
also request to receive as a lump sum any free withdrawal amount not already
received that Annuity Year under an automatic withdrawal program such as Minimum
Distributions.
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EDB/CRT(4/97)-15 15
The maximum amount available as a free withdrawal during any Annuity Year, where
permitted by law, is the greater of (a) or (b), where:
(a) is the Annuity's "growth" (defined below); and
(b) is 10% of "new" Purchase Payments ("new" Purchase
Payments are defined below).
"Growth" equals the then current Account Value less all "unliquidated" Purchase
Payments and any additions credited under any special program we offer.
"Unliquidated" means not previously surrendered or withdrawn. "New" Purchase
Payments are those received in the seven (7) years prior to the date as of which
a free withdrawal occurs. For purposes of the contingent deferred sales charge,
amounts withdrawn as a free withdrawal are not considered a liquidation of
Purchase Payments. Therefore, any free withdrawal will not reduce the amount of
any applicable contingent deferred sales charge upon any partial withdrawal or
subsequent surrender.
Partial Withdrawals: You may withdraw part of your Surrender Value. The minimum
partial withdrawal is as shown in the Schedule. The Surrender Value that must
remain in the Annuity as of the date of this transaction is as shown in the
Schedule. If the amount of the partial withdrawal request exceeds the maximum
amount available, we reserve the right to treat your request as one for a full
surrender.
On a partial withdrawal, the contingent deferred sales charge is assessed
against any "unliquidated" "new" Purchase Payments withdrawn. "Unliquidated"
means not previously withdrawn. For these purposes, amounts are deemed to be
withdrawn from your Annuity in the following order:
(a) From any amount then available as a free withdrawal; then from
(b) "Old" Purchase Payments (Purchase Payments allocated to
Account Value more than seven years prior to the withdrawal);
then from
(c) "New" Purchase Payments (If there are multiple "new" Purchase
Payments, the one received earliest is liquidated first, then
the one received next earliest, and so forth); then from
(d) Other Surrender Value.
Minimum Distributions: You may elect to have us calculate Minimum Distributions
annually if your Annuity is being used for certain qualified purposes under the
Internal Revenue Code. We calculate such amounts assuming the Minimum
Distribution amount is based solely on the value of your Annuity. The required
Minimum Distribution amounts applicable to your particular situation may depend
on other annuities, savings or investments of which we are unaware, so that the
required amount may be greater than the Minimum Distribution amount we calculate
based on the value of your Annuity. Minimum Distributions are not concurrently
available with any other automatic withdrawal program we make available. You may
elect to have Minimum Distributions paid out monthly, quarterly, semi-annually
or annually. The Minimum Withdrawal Amount shown in the Schedule does not apply
to Minimum Distributions.
Each Minimum Distribution will be taken from the investment options you select.
However, the portion of any Minimum Distribution that can be taken from any
Fixed Allocations may not exceed the then current ratio between your Account
Value in all Fixed Allocations you maintain and your total Account Value. No MVA
applies to any portion of Minimum Distributions taken from Fixed Allocations.
Minimum Distributions are not available from any Fixed Allocations if such Fixed
Allocation is being used in an automatic transfer program.
No contingent deferred sales charge is assessed against amounts withdrawn as a
Minimum Distribution, but only to the extent of the Minimum Distribution
required from your Annuity at the time it is taken. The contingent deferred
sales charge may apply to additional amounts withdrawn to meet minimum
distribution requirements in relation to other retirement programs you may
maintain.
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EDB/CRT(4/97)-16 16
Amounts withdrawn as Minimum Distributions are considered to come first from the
amounts available as a free withdrawal as of the date of the yearly calculation
of the Minimum Distribution amount. Minimum Distributions over that amount are
not deemed to be a liquidation of Purchase Payments.
Death Benefit: In the Accumulation Period, a death benefit is payable. If there
is more than one participant, such participants being natural persons, the death
benefit is payable upon the first death of such participants. If the participant
is an entity, the death benefit is payable upon the Annuitant's death, if there
is no Contingent Annuitant. If a Contingent Annuitant was designated before the
Annuitant's death and the Annuitant dies, the Contingent Annuitant then becomes
the Annuitant and a death benefit is not currently payable.
The death benefit is calculated according to the following rules:
For Annuities with One Participant Who is a Natural Person, if the current
participant dies before the Death Benefit Target Date as shown in the Schedule,
the death benefit equals the greater of A, B and C where:
A is the Account Value in the Sub-accounts plus the Interim
Value in the Fixed Allocations as of the date we receive In Writing
"due proof of death" and our requirements as described below;
B is the sum of all Purchase Payments, each increasing daily
at an interest rate of 5% per year minus the sum of all withdrawals,
each increasing daily at an interest rate of 5% per year to the
participant's date of death, but not to exceed 200% of the difference
between the sum of all Purchase Payments and the sum of all
withdrawals; and
C is the "Highest Anniversary Value" on or immediately
preceding the participant's date of death.
The Highest Anniversary Value is determined as of the date of the participant's
death and equals the greatest of all previous Anniversary Values before the
Death Benefit Target Date. The "Death Benefit Target Date" is as shown in the
Schedule for Annuities with one participant.
If the current participant dies on or after the Death Benefit Target Date, the
death benefit equals the greater of A, B and C where:
A is the Account Value as of the date we receive "due proof of
death" and our requirements as described below (an MVA may be
applicable to amounts in any Fixed Allocations); and
B is the sum of all Purchase Payments received prior to the
Death Benefit Target Date, each increasing daily at an interest rate of
5% per year minus the sum of all withdrawals received prior to the
Death Benefit Target Date, each increasing daily at an interest rate of
5% per year, but not to exceed 200% of the difference between the sum
of all Purchase Payments and the sum of all withdrawals as of the Death
Benefit Target Date plus the sum of all Purchase Payments less the sum
of all withdrawals since the Death Benefit Target Date; and
C is the Highest Anniversary Value calculated as of Death
Benefit Target Date plus the sum of all Purchase Payments since such
date less the sum of all withdrawals since such date.
For Annuities with Joint Participants, the death benefit is calculated according
to the rules set out above except that the "Death Benefit Target Date" is as
shown in the Schedule for joint participants.
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17
EDB/CRT(4/97)-17
For example, if either of two participants dies after either participant has
reached the Death Benefit Target Date, the death benefit would be the greatest
of A, B and C where:
A is the Account Value (an MVA may be applicable to any
amounts in Fixed Allocations) as of the date we receive In Writing "due
proof of death" as described below;
B is the sum of all Purchase Payments received prior to the
Death Benefit Target Date, each increasing daily at an interest rate of
5% per year minus the sum of all withdrawals prior to the Death Benefit
Target Date, each increasing daily at an interest rate of 5% per year,
but not to exceed 200% of the difference between the sum of all
Purchase Payments and the sum of all withdrawals as of the Death
Benefit Target Date plus the sum of all Purchase Payments less the sum
of all withdrawals since the Death Benefit Target Date; and
C is the Highest Anniversary Value as described in the section
entitled "For Annuities with One Participant Who is a Natural Person"
calculated as of Death Benefit Target Date plus the sum of all Purchase
Payments since such date less the sum of all withdrawals since such
date.
For Annuities Where the Participant is not a Natural Person: The decedent must
be the Annuitant, if no Contingent Annuitants were named as of the decedent's
date of death, the death benefit is calculated as described above for Annuities
with one participant, except the term "Annuitant" replaces the term
"participant." The "Death Benefit Target Date" is as shown in the Schedule for
when a participant is not a natural person.
For purposes of this death benefit provision, "withdrawals" means withdrawals of
any type (free withdrawals, partial withdrawals) before assessment of any
applicable contingent deferred sales charge and after any applicable MVA. For
purposes of this provision, persons named as participant or Annuitant within 60
days of the Issue Date are treated as if they were a participant or Annuitant on
the Issue Date.
If a decedent was not named as a participant or Annuitant as of the Issue Date
and did not become such as a result of a prior participant's or Annuitant's
death, the death benefit described above is suspended as to that person for a
two year period from the date he or she first became a participant or Annuitant.
If that person's death occurs during the suspension period and on or before the
applicable Death Benefit Target Date, the death benefit is the Account Value in
the Sub-accounts plus the Interim Value in the Fixed Allocations. If death
occurs during the suspension period and after the applicable Death Benefit
Target Date, the death benefit is the Account Value. After the suspension period
is completed, the death benefit is the same as if such person had been a
participant or Annuitant on the Issue Date.
The amount of the death benefit is determined as of the date we receive In
Writing: (a) due proof of death; (b) all representations we require or which are
mandated by applicable law or regulation in relation to the death claim and the
payment of death proceeds; and (c) any applicable election of the mode of
payment of the death benefit, if not previously elected by the participant. The
death benefit is reduced by any annuity payments made prior to the date we
receive In Writing such due proof of death. The following constitutes "due proof
of death": (a) a certified copy of a death certificate; (b) a certified copy of
a decree of a court of competent jurisdiction as to the finding of death; or (c)
any other proof satisfactory to us.
During the Accumulation Period, if the participant dies and the Beneficiary is
the participant's spouse, then such participant's spouse may elect to be treated
as the current participant and continue the Annuity in lieu of receiving the
death benefit.
During the Accumulation Period, if the participant is an entity and a Contingent
Annuitant replaces an Annuitant, the age of any such Contingent Annuitant on the
date of death will be used to calculate the death benefit.
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.
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18
EDB/CRT(4/97)-18
If the Annuitant dies before the Annuity Date, the Contingent Annuitant will
become the Annuitant. Where allowed by law, if the participants of this Annuity
are one or more natural persons, the oldest of any such participants not named
as the Annuitant immediately becomes the Contingent Annuitant if: (a) the
Contingent Annuitant predeceases the Annuitant; or (b) if you do not designate a
Contingent Annuitant.
In the payout phase, we continue to pay any "certain" payments (payments not
contingent on the continuance of any life) to the Beneficiary since the death of
the Annuitant.
Annuity Payments: Annuity payments can be guaranteed for life, for a certain
period, or for a certain period and life. We make available fixed payments. You
may choose an Annuity Date, an annuity option and the frequency of annuity
payments. Your choice of Annuity Date and annuity option may be limited
depending on your use of the Annuity. You may change your choices at any time up
to 30 days before the earlier of: (a) the date we would have applied your
Account Value to an annuity option had you not made the change; or (b) the date
we will apply your Account Value to an annuity option in relation to the new
Annuity Date you are then selecting. You must request this change In Writing.
The Annuity Date must be the first or the fifteenth day of a calendar month.
In the absence of an election In Writing: (a) the Annuity Date is the first day
of the calendar month first following the later of the Annuitant's 85th birthday
or the fifth anniversary of our receipt at our Office of your request to
purchase an Annuity; and (b) where allowed by law, monthly payments will
commence under option 2, described below, with 10 years certain. The amount to
be applied is your Annuity's Account Value 15 business days prior to the Annuity
Date. In determining your annuity payments, we credit interest using our then
current crediting rate for this purpose, which is not less than 3% of interest
per year, to your Account Value between the date Account Value is applied to an
annuity option and the Annuity Date. If there is any remaining contingent
deferred sales charge applicable as of the Annuity Date, then the annuity option
you select must include a certain period of not less than 5 years' duration.
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 as shown in the
Schedule. In the absence of election prior to proceeds becoming due, the
Beneficiary may make such an election. However, if you made an election, the
Beneficiary may not alter such election. Such election must be made In Writing
within one year after proceeds are payable.
For purposes of the annuity options described below, the term "key life" means
the person or persons upon whose life any payments dependent upon the
continuation of life are based.
(a) Option 1 - Payments for Life: Under this option, income is payable
periodically prior to the death of the key life, terminating with the last
payment due prior to such death.
(b) Option 2 - Payments for Life with 10, 15, or 20 Years Certain:
Under this option, income is payable periodically for 10, 15, or 20 years, as
selected, and thereafter until the death of the key life. Should the death of
the key life occur before the end of the period selected, the remaining payments
are paid to the Beneficiary to the end of such period.
(c) Option 3 - Payments Based on Joint Lives: Under this option, income
is payable periodically during the joint lifetime of two key lives, and
thereafter during the remaining lifetime of the survivor, ceasing with the last
payment prior to the survivor's death.
(d) Option 4 - Payments for a Certain Period: Under this option, income
is payable periodically for a specified number of years. The number of years is
subject to our then current rules. Should the payee die before the end of the
specified number of years, the remaining payments are paid to the Beneficiary to
the end of such period.
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19
EDB/CRT(4/97)-19
The first periodic payment is determined by multiplying the portion of the
Account Value being allocated to purchase annuity payments (expressed in
thousands of dollars) as of the close of business of the fifteenth day preceding
the Annuity Date, plus interest at not less than 3% per year from such date to
the Annuity Date, by the amount of the first periodic payment per $1,000 of
value obtained from our then current annuity rates for that type of annuity and
for the frequency of payment selected. These rates will not be less than those
shown in the Annuity Tables shown herein.
We reserve the right to require submission prior to commencement of any annuity
payments of evidence satisfactory to us of the age of any key life upon whose
life payment amounts are calculated.
Pricing Of Transfers And Distributions: Subject to our right to defer
transactions for a limited period, we "price" transfers and distributions on the
dates indicated below. The pricing of transfers and distributions involving
Sub-accounts includes the determination of the applicable Unit Price, for the
Units transferred or distributed. The pricing of transfers and distributions
involving Fixed Allocations includes the determination of any applicable MVA.
Any applicable MVA alters the amount available when all the Account Value in a
Fixed Allocation is being transferred or distributed. Any applicable MVA alters
the amount of Interim Value needed when only a portion of the Account Value is
being transferred or distributed. Unit Prices may change each Valuation Period
to reflect the investment performance of the Sub-accounts. The MVA applicable to
each Fixed Allocation changes once each month and each time we declare a
different rate for new Fixed Allocations.
(a) We price "scheduled" transfers and distributions as of the date
such transactions are so scheduled. "Scheduled" transactions include transfers
previously scheduled with us under an automatic transfer program, Minimum
Distributions and annuity payments.
(b) We price "unscheduled" transfers, including transfers under an
automatic transfer program that were not scheduled with us, partial withdrawals
and free withdrawals as of the date we receive In Writing at our Office the
request for such transactions.
(c) We price surrenders, medically-related surrenders and death
benefits as of the date we receive at our Office all materials we require for
such transactions and such materials are satisfactory to us.
GENERAL PROVISIONS
Entire Contract: The contract shown in the Schedule, including any attached
riders or endorsements, the attached copy of any enrollment form and any
supplemental applications and endorsements are the entire contract. As to your
Annuity, the contract also includes the copy of any enrollment form attached to
your Annuity. All statements made in any application and/or any enrollment form
are deemed to be representations and not warranties. No statement is used to
void the contract or an Annuity or defend against a claim unless it is contained
in any application or any supplemental application or any enrollment form.
Only our President, a Vice President or Secretary may change or waive any
provisions of the contract or of any Annuity. Any change or waiver must be In
Writing. We are not bound by any promises or representations made by or to any
other person.
Misstatement of Age or Sex: If there has been a misstatement of the age and/or
sex of any person upon whose life annuity payments or the minimum death benefit
are based, we make adjustments to conform to the facts. As to annuity payments:
(a) any underpayments by us will be remedied on the next payment following
correction; and (b) any overpayments by us will be charged against future
amounts payable by us under your Annuity.
Transfers, Assignments or Pledges: Generally, your rights in an Annuity may be
transferred, assigned or pledged for loans at any time. However, these rights
may be limited depending on your use of the Annuity. You may transfer, assign or
pledge your rights to another person at any time, prior to any death upon which
the death benefit is payable. You must request a transfer or provide us a copy
of the assignment In Writing. A transfer or assignment is subject to our
acceptance. Prior to receipt of this notice, we will not be deemed to
<PAGE>
20
EDB/CRT(4/97)-20
know of or be obligated under any assignment prior to our receipt and acceptance
thereof. We assume no responsibility for the validity or sufficiency of any
assignment.
Nonparticipation: The contract does not share in our profits or surplus
earnings.
Deferral of Transactions: We may defer any annuity payment for a period not to
exceed the lesser of 6 months or the period permitted by law. If we defer a
distribution or transfer from any Fixed Allocation or any fixed annuity payout
for more than thirty days, we pay interest of at least 3% per year on the amount
deferred. We may defer any distribution from any Sub-account or any transfer
from a Sub-account for a period not to exceed 7 calendar days from the date the
transaction is effected. Any other deferral period begins on the date such
distribution or transfer would otherwise have been transacted.
All transactions into, out of or based on any Sub-account may be postponed
whenever (1) the New York Stock Exchange is closed (other than customary
holidays or weekends) or trading on the New York Stock Exchange is restricted as
determined by the SEC; (2) the SEC permits postponement and so orders; or (3)
the SEC determines that an emergency exists making valuation or disposal of
securities not reasonably practical.
Elections, Designations, Changes and Requests: All elections, designations,
changes and requests must be In Writing and are effective only after they have
been approved by us, subject to any transactions made by us before receipt of
such notices. We inform you of any changes to the contract shown in the Schedule
that materially affect your rights. We reserve the right to require that this
Annuity be returned to our Office for endorsement of any change to such contract
or any change affecting only this Annuity.
Claims of Creditors: To the extent permitted by law, no payment under the
contract shown in the Schedule or any Annuity thereunder is subject to the
claims of the creditors of the participant, you or any other participant,
Annuitant or Beneficiary.
Proof of Survival: The payment of any annuity is subject to evidence
satisfactory to us that the payee is alive on the date such payment is otherwise
due.
Tax Reporting: We intend to make all required regulatory reports regarding
taxable events in relation to this Annuity. Such events may include, but are not
limited to: (a) annuity payments; (b) payment of death benefits; (c) surrender
of value from an Annuity in excess of the tax basis; and (d) assignments.
Facility of Payment: We reserve the right, in settlement of full liability, to
make payments to a guardian, relative or other person if a payee is legally
incompetent.
Participation and Termination of Certain Programs We May Offer: To elect to
participate or to terminate participation in any program we may offer, we may
require receipt at our Office of a request In Writing on a form satisfactory to
us.
Reports to You: We provide reports to you during the Accumulation Period. We
will provide you with reports at least once each quarter that you maintain
Account Values in the Sub-accounts. We will provide you with reports once a year
if you maintain Account Value only in one or more Fixed Allocations. You may
request additional reports. We reserve the right to charge up to $50 for each
such additional report.
Reserved Rights: In addition to rights specifically reserved elsewhere in this
Annuity, we reserve the right to any or all of the following: (a) combine a
Sub-account with other Sub-accounts; (b) combine the Variable Separate Account
shown in the Schedule with other "unitized" separate accounts; (c) terminate
offering certain Guarantee Periods for new or renewing Fixed Allocations; (d)
combine the Fixed Separate Account shown in the Schedule with other
"non-unitized separate accounts"; (e) deregister the Variable Separate Account
shown in the Schedule under the Investment Company Act of 1940; (f) operate the
Variable Separate Account shown in the Schedule as a management investment
company under the Investment Company Act of 1940 or in any other form permitted
by law; (g) make changes required by any change in the Securities Act of 1933,
the Exchange Act of 1934 or the Investment Company Act of 1940; (h) make changes
that are necessary to
<PAGE>
EDB/CRT(4/97)-21 21
maintain the tax status of your Annuity under the Internal Revenue Code; and (i)
make changes required by any change in other Federal or state laws relating to
retirement annuities or annuity contracts.
We may eliminate Sub-accounts, or substitute one or more new underlying mutual
funds or portfolios for the one in which a Sub-account is invested.
Substitutions may be necessary if we believe an underlying mutual fund or
portfolio no longer suits the purpose of the Annuity. This may happen due to a
change in laws or regulations, or a change in the investment objectives or
restrictions of an underlying mutual fund or portfolio, or because the
underlying mutual fund or portfolio is no longer available for investment, or
for some other reason. We would obtain prior approval from the insurance
department of our state of domicile, if so required by law, before making such a
substitution, deletion or addition. We also would obtain prior approval from the
SEC so long as required by law, and any other required approvals before making
such a substitution, deletion or addition.
ANNUITY TABLES
The attached tables show the minimum dollar amount of each monthly payment for
each $1,000 applied under the options. The amounts payable when annuity payments
commence may be higher, based on our assumptions as to interest, expenses and
mortality, but will not be lower.
Under options one and two, the amount of each payment depends on the age and
sex, if applicable, of the payee at the time the first payment is due. Under
option three, the amount of each payment depends on the age and sex, if
applicable, of both payees at the time the first payment is due. No election can
be changed once payments begin.
The tables shown are based on interest at 3% per year compounded annually and
the 1983a Individual Annuity Mortality Table set back one year for males and two
years for females or the appropriate variation of such Table with genderless
rates when applicable to the Annuity in order to meet Federal requirements in
relation to the usage of such Annuity.
The payee's settlement age is the payee's age, last birthday, on the date of the
first payment, minus the age adjustment. The age adjustments are shown below.
They are based on the date of the first payment. The age adjustment does not
exceed the age of the payee.
Annuitization Attained Age
Year Set Back
2000 - 2009 1
2010 - 2019 2
2020 and later 3
Amount of Monthly Payment For Each $1,000 Applied
(Based on 3% Annual Interest Rate)
First and Second Options - Single Life Annuities with:
<TABLE>
<CAPTION>
Male Payee with Female Payee with
Monthly Payments Guaranteed Monthly Payments Guaranteed
--------------------------- ---------------------------
None 120 180 240 None 120 180 240
Age $ $ $ $ $ $ $ $
---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50 4.19 4.15 4.10 4.03 3.79 3.78 3.76 3.73
55 4.61 4.54 4.45 4.32 4.10 4.08 4.04 3.99
60 5.15 5.03 4.87 4.65 4.52 4.47 4.40 4.30
65 5.91 5.67 5.36 4.97 5.08 4.98 4.85 4.65
70 6.98 6.44 5.87 5.23 5.85 5.65 5.38 5.00
75 8.46 7.32 6.31 5.40 6.98 6.50 5.94 5.28
80 10.57 8.18 6.62 5.48 8.66 7.50 6.41 5.43
</TABLE>
<PAGE>
EDB/CRT(4/97)-22 22
<TABLE>
<CAPTION>
Third Option - Joint and Last Survivor Annuity
Age of Female Payee
Age of 35 40 45 50 55 60 65 70 75 80
Male Payee $ $ $ $ $ $ $ $ $ $
----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 3.15 3.27 3.39 3.53 3.67 3.79 3.91 4.00 4.07 4.12
55 3.17 3.29 3.44 3.60 3.78 3.96 4.13 4.27 4.39 4.47
60 3.18 3.31 3.47 3.66 3.88 4.11 4.35 4.57 4.76 4.91
65 3.19 3.33 3.50 3.70 3.95 4.23 4.55 4.87 5.18 5.44
70 3.19 3.34 3.52 3.74 4.01 4.33 4.72 5.16 5.62 6.05
75 3.20 3.34 3.53 3.76 4.04 4.40 4.85 5.39 6.02 6.68
80 3.20 3.35 3.53 3.77 4.07 4.45 4.94 5.57 6.35 7.26
</TABLE>
<TABLE>
<CAPTION>
Fourth Option - Payments for a Designated Period
Amount of Amount of Amount of Amount of
No. of Monthly No. of Monthly No. of Monthly No. of Monthly
Years Payments Years Payments Years Payments Years Payments
----- -------- ----- -------- ----- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C>
10 9.61 16 6.53 22 5.15 28 4.37
11 8.86 17 6.23 23 4.99 29 4.27
12 8.24 18 5.96 24 4.84 30 4.18
13 7.71 19 5.73 25 4.71
14 7.26 20 5.51 26 4.59
15 6.87 21 5.32 27 4.47
</TABLE>
<PAGE>
EDB/CRT(4/97)-23 23
<PAGE>
EDB/CRT(4/97)-24 24
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
Shelton, Connecticut
(A Stock Company)
GROUP DEFERRED ANNUITY
NON-PARTICIPATING
VARIABLE AND FIXED INVESTMENT OPTIONS IN THE ACCUMULATION PERIOD
FIXED ANNUITY PAYMENTS IN THE PAYOUT PERIOD
IN THE ACCUMULATION PERIOD ANY PAYMENTS AND VALUES PROVIDED UNDER THE VARIABLE
INVESTMENT OPTIONS ARE BASED ON THEIR INVESTMENT PERFORMANCE AND ARE, THEREFORE,
NOT GUARANTEED. PLEASE REFER TO THE SECTION ENTITLED "ACCOUNT VALUE IN THE
SUB-ACCOUNTS" FOR A MORE COMPLETE EXPLANATION.
IN THE ACCUMULATION PERIOD ANY PAYMENTS AND VALUES PROVIDED UNDER THE FIXED
INVESTMENT OPTIONS MAY BE SUBJECT TO A MARKET VALUE ADJUSTMENT. SUCH A MARKET
VALUE ADJUSTMENT MAY INCREASE OR DECREASE ANY SUCH PAYMENTS OR VALUES. PLEASE
REFER TO THE SECTION ENTITLED "ACCOUNT VALUE OF THE FIXED ALLOCATIONS" FOR A
MORE COMPLETE EXPLANATION.
Exhibit 23a
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Pre-effective Amendment No. 1 to Registration
Statement No. 333-26695 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 part of this Registration
Statement. We also consent to the reference to us under the heading "Selected
Financial Data" appearing in such Prospectus.
/s/Deloitte & Touche LLP
New York, New York
July 16, 1997
(212) 408-6900
Letterhead
Werner & Kennedy
1633 Broadway
New York, New York 10019
July 10, 1997
American Skandia Life Assurance Corporation
One Corporate Drive
Shelton, Connecticut 06484
Re: Pre-effective Amendment No. 1 on Form S-2 filed by
American Skandia Life Assurance Corporation, Registrant
Registration No.: 333-26695
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 Variable Annuity Contract (the "Contract") that will be
issued by American Skandia. We understand that the above registration is a
combination registration with Pre-effective Amendment No. 1 to Form N-4 filed by
American Skandia Life Assurance Corporation, Depositor, and American Skandia
Life Assurance Corporation Variable Account B (Class 1 Sub-Accounts),
Registrant, Registration No.: 333-26685, Investment Company No.: 811-5438.
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.
<PAGE>
American Skandia Life
Assurance Corporation
July 10, 1997
Page 2
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.
We hereby consent to the use of this opinion as an exhibit to Pre-effective
Amendment No. 1 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
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 881453
<NAME> ASLAC397
<MULTIPLIER> 1
<CURRENCY> U.S Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Mar-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Mar-31-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 85,520,736
<DEBT-CARRYING-VALUE> 97,732,715
<DEBT-MARKET-VALUE> 95,103,349
<EQUITIES> 3,859,138
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 121,948,562
<CASH> 14,385,617
<RECOVER-REINSURE> 3,637,067
<DEFERRED-ACQUISITION> 488,155,985
<TOTAL-ASSETS> 8,992,112,703 <F1>
<POLICY-LOSSES> 58,279,313
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 213,000,000
<COMMON> 2,000,000
0
0
<OTHER-SE> 132,047,885
<TOTAL-LIABILITY-AND-EQUITY> 8,992,112,703 <F2>
275,000
<INVESTMENT-INCOME> 1,368,683
<INVESTMENT-GAINS> 20,604
<OTHER-INCOME> 29,910,820 <F3>
<BENEFITS> (4,941,259)
<UNDERWRITING-AMORTIZATION> 5,602,764
<UNDERWRITING-OTHER> 12,080,702
<INCOME-PRETAX> 13,255,826
<INCOME-TAX> 4,259,851
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,995,975
<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 $8,335,701,439.
<F2> Included in Total Liabilities and Equity are Liabilities Related to Separate Accounts of $8,335,701,439.
<F3> Other income includes annuity charges and fees of $24,368,624 and fee income of $5,524,257.
</FN>
</TABLE>
