Filed with the Securities and Exchange Commission on April 28, 1998
Registration No. 33-89678
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Post-effective Amendment No. 3
On Form S-2
Registration Statement Under The Securities Act of 1933*
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(Exact name of registrant as specified in its charter)
CONNECTICUT
(State or other jurisdiction of incorporation or organization)
63
(Primary Standard Industrial Classification Code Number)
06-1241288
(I.R.S. Employer Identification No.)
ONE CORPORATE DRIVE, SHELTON, CONNECTICUT 06484 (203) 926-1888
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
M. PRISCILLA PANNELL, CORPORATE SECRETARY
ONE CORPORATE DRIVE, SHELTON, CONNECTICUT 06484
(203) 926-1888 (Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copy To:
JOHN T. BUCKLEY, ESQ.
WERNER & KENNEDY
1633 Broadway, New York, New York 10019 (212) 408-6900
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Approximate date of commencement of proposed sale to the public:
May 1, 1998 or as soon as practical after
the effective date of this Registration Statement
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following: X . --
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of the Form, check the following: ___.
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 $0 $0
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*Pursuant to Rule 429 under the Securities Act of 1934, the prospectus contained
in this Registration Statement also relates to annuity contracts which are
covered by our earlier registration statement, including Registration File
Number 33-47754.
**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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ACN
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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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THE ALLIANCE CAPITAL NAVIGATOR ANNUITY
This Prospectus describes the Alliance Capital Navigator 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 47. 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 initial purchase payments
you direct to any Sub-account are temporarily allocated to the AVP 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 Charges"). A death benefit may be payable during
the accumulation phase (see "Death Benefit").
Account Value in the variable investment options increases or decreases daily to
reflect investment performance and the deduction of charges. No minimum amount
is guaranteed (see "Account Value in the Sub-accounts"). The variable investment
options are Class 1 Sub-accounts of American Skandia Life Assurance Corporation
Variable Account B ("Separate Account B") (see "Separate Accounts" and "Separate
Account B"). Each Sub-account invests exclusively in one portfolio of the
Alliance Variable Products Series Fund, Inc. As of the date of this Prospectus,
the portfolios of the Alliance Variable Products Series Fund, Inc. in which the
Sub-accounts invest are: (a) U.S. Government/High Grade, (b) Total Return, (c)
International, (d) Short-Term Multi-Market, (e) Growth and Income, (f) Premier
Growth, (g) Money Market, (h) North American Government Income, (i) Global
Dollar Government (j) Utility Income, (k) Global Bond, (l) Conservative
Investors, (m) Growth Investors, (n) Growth, and (o) Worldwide Privatization.
We are currently requesting the necessary regulatory approvals to substitute
certain portfolios of American Skandia Trust for certain portfolios of the
Alliance Variable Products Series Funds, Inc. Upon approval of the proposed
substitution, certain portfolios of the Alliance Variable Products Series Funds,
Inc. will no longer be offered as underlying mutual fund portfolios under the
Annuity. (See "Investment Options - Variable Investment Options") You should
take this into consideration when selecting any variable investment options
under the Annuity.
(continued on page 2)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE.
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ACN-PROS (5/98)
FOR FURTHER INFORMATION CALL 1-800-752-6342
Prospectus Dated: May 1, 1998
Statement of Additional Information Dated: May 1, 1998
We guarantee fixed annuity payments. We also guaranty any adjustable annuity
payments we may make available (see "Annuity Payments").
In most jurisdictions, Account Value may be allocated to a fixed investment
option during the accumulation phase. Account Value so allocated earns a fixed
rate of interest for a specified period of time referred to as a Guarantee
Period. Guarantee Periods of different durations may be offered (see "Fixed
Investment Options"). Such an allocation and the interest earned is guaranteed
by us only if held to its Maturity Date, and, where required by law, the 30 days
prior to the Maturity Date. You are cautioned that with respect to the Fixed
Investment Options during the accumulation phase, we do not guarantee any
minimum amount, because the value may be increased or decreased by a market
value adjustment (see "Account Value of the Fixed Allocations"). Assets
supporting such allocations in the accumulation phase are held in American
Skandia Life Assurance Corporation Separate Account D (see "Separate Accounts"
and "Separate Account D").
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 Sections
401, 403 or 408 of the Code (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 allocated to the investment options are subject to investment risks,
including possible loss of principal.
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TABLE OF CONTENTS
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DEFINITIONS...............................................................................................................6
HIGHLIGHTS................................................................................................................8
AVAILABLE INFORMATION....................................................................................................10
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..........................................................................10
CONTRACT EXPENSE SUMMARY.................................................................................................10
EXPENSE EXAMPLES.........................................................................................................11
CONDENSED FINANCIAL INFORMATION..........................................................................................12
Unit Prices and Numbers of Units......................................................................................13
Yields on Money Market Sub-account....................................................................................14
INVESTMENT OPTIONS.......................................................................................................14
Variable Investment Options...........................................................................................14
Fixed Investment Options..............................................................................................16
OPERATIONS OF THE SEPARATE ACCOUNTS......................................................................................17
Separate Accounts.....................................................................................................17
Separate Account B....................................................................................................17
Separate Account D....................................................................................................18
INSURANCE ASPECTS OF THE ANNUITY.........................................................................................19
CHARGES ASSESSED OR ASSESSABLE AGAINST THE ANNUITY.......................................................................19
Contingent Deferred Sales Charge......................................................................................19
Maintenance Fee.......................................................................................................20
Tax Charges...........................................................................................................20
Transfer Fee..........................................................................................................20
Allocation Of Annuity Charges.........................................................................................20
CHARGES ASSESSED AGAINST THE ASSETS......................................................................................20
Administration Charge.................................................................................................20
Mortality and Expense Risk Charges....................................................................................21
CHARGES OF THE UNDERLYING MUTUAL FUND....................................................................................21
PURCHASING ANNUITIES.....................................................................................................21
Uses Of The Annuity...................................................................................................21
Application And Initial Payment.......................................................................................21
Breakpoints...........................................................................................................22
Bank Drafting.........................................................................................................22
Periodic Purchase Payments............................................................................................23
Right to Return the Annuity...........................................................................................23
Allocation of Net Purchase Payments...................................................................................23
Balanced Investment Program...........................................................................................23
Ownership, Annuitant and Beneficiary Designations.....................................................................23
ACCOUNT VALUE AND SURRENDER VALUE........................................................................................24
Account Value in the Sub-accounts.....................................................................................24
Account Value of the Fixed Allocations................................................................................24
RIGHTS, BENEFITS AND SERVICES............................................................................................25
Additional Purchase Payments..........................................................................................25
Changing Revocable Designations.......................................................................................25
Allocation Rules......................................................................................................26
Transfers.............................................................................................................26
Renewals............................................................................................................27
Dollar Cost Averaging...............................................................................................27
Rebalancing...........................................................................................................28
Distributions.........................................................................................................28
Surrender...........................................................................................................28
Medically-Related Surrender.........................................................................................28
Free Withdrawals....................................................................................................29
Partial Withdrawals.................................................................................................29
Systematic Withdrawals..............................................................................................29
Minimum Distributions...............................................................................................30
Death Benefit.......................................................................................................31
Annuity Payments....................................................................................................31
Qualified Plan Withdrawal Limitations...............................................................................33
Pricing of Transfers and Distributions................................................................................33
Voting Rights.........................................................................................................34
Transfers, Assignments or Pledges.....................................................................................34
Reports to You........................................................................................................34
SALE OF THE ANNUITIES....................................................................................................35
Distribution..........................................................................................................35
Advertising...........................................................................................................35
CERTAIN TAX CONSIDERATIONS...............................................................................................36
Our Tax Considerations................................................................................................36
Tax Considerations Relating to Your Annuity...........................................................................36
Non-natural Persons...................................................................................................36
Natural Persons.......................................................................................................36
Distributions.........................................................................................................36
Loans, Assignments and Pledges........................................................................................37
Gifts.................................................................................................................37
Penalty on Distributions..............................................................................................37
Annuity Payments......................................................................................................37
Tax Free Exchanges....................................................................................................37
Transfers Between Investment Options..................................................................................37
Estate and Gift Tax Considerations....................................................................................38
Generation-Skipping Transfers.........................................................................................38
Diversification.......................................................................................................38
Federal Income Tax Withholding........................................................................................38
Tax Considerations When Using Annuities in Conjunction with Qualified Plans...........................................38
Individual Retirement Programs........................................................................................38
Tax Sheltered Annuities...............................................................................................39
Corporate Pension and Profit-sharing Plans............................................................................39
H.R. 10 Plans.........................................................................................................39
Tax Treatment of Distributions from Qualified Annuities...............................................................39
Section 457 Plans.....................................................................................................39
OTHER MATTERS............................................................................................................39
Deferral of Transactions..............................................................................................39
Resolving Material Conflicts..........................................................................................39
Modification..........................................................................................................40
Misstatement of Age or Sex............................................................................................40
Ending the Offer......................................................................................................40
Indemnification.......................................................................................................40
Legal Proceedings.....................................................................................................40
THE COMPANY..............................................................................................................40
Lines of Business.....................................................................................................41
Selected Financial Data...............................................................................................41
Management's Discussion and Analysis of Financial Condition and Results of Operations.................................42
Reserves..............................................................................................................45
Competition...........................................................................................................45
Employees.............................................................................................................45
Regulation............................................................................................................45
Executive Officers and Directors......................................................................................46
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION......................................................................47
FINANCIAL STATEMENTS.....................................................................................................48
APPENDIX A FINANCIAL STATEMENTS FOR AMERICAN SKANDIA LIFE ASSURANCE CORPORATION.........................................49
APPENDIX B SHORT DESCRIPTIONS OF THE UNDERLYING MUTUAL FUNDS' PORTFOLIO INVESTMENT OBJECTIVES AND POLICIES.............49
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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.
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, 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 for 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 a portfolio of an
underlying mutual fund. A short description of the investment objectives and
policies is found in Appendix A. Certain of the variable investment options may
not be available in all jurisdictions. As of the date of this Prospectus, we
offer fifteen Sub-accounts. The underlying mutual fund portfolios are managed by
Alliance Capital Management L.P. The available portfolios of the Alliance
Variable Products Series Fund, Inc. in which the Sub-accounts invest are as
follows: (a) U.S. Government/High Grade Securities Portfolio; (b) Total Return
Portfolio; (c) International Portfolio; (d) Short-Term Multi-Market Portfolio;
(e) Growth and Income Portfolio; (f) Premier Growth Portfolio; (g) Money Market
Portfolio; (h) North American Government Income Portfolio; (i) Global Dollar
Government Portfolio; (j) Utility Income Portfolio; (k) Global Bond Portfolio;
(l) Conservative Investors Portfolio; (m) Growth Investors Portfolio; (n) Growth
Portfolio; and (o) Worldwide Privatization Portfolio. For more information, see
the section entitled "Variable Investment Options".
We are currently requesting the necessary regulatory approvals to substitute
certain portfolios of American Skandia Trust for certain portfolios of the
Alliance Variable Products Series Funds, Inc. Upon approval of the proposed
substitution, certain portfolios of the Alliance Variable Products Series Funds,
Inc. will no longer be offered as underlying mutual fund portfolios under the
Annuity. (See "Investment Options - Variable Investment Options") You should
take this into consideration when selecting any variable investment options
under the Annuity.
In most jurisdictions, we also offer the option during the accumulation phase of
earning one or more fixed rates of interest on all or a portion of your Account
Value. As of the date of this Prospectus, we offered the option to make
allocations at interest rates that could be guaranteed for 1, 2, 3, 5, 7 and 10
years. Each such Fixed Allocation earns the fixed interest rate applicable as of
the date of such allocation. The interest rate credited to a Fixed Allocation
does not change during its Guarantee Period. You may maintain multiple Fixed
Allocations. From time-to-time we declare Current Rates for Fixed Allocations
beginning a new Guarantee Period. The rates we declare are subject to a minimum,
but we may declare higher rates. The minimum is determined in relation to an
index that we do not control.
The end of a Guarantee Period for a specific Fixed Allocation is called its
Maturity Date. At that time, the Guarantee Period normally "renews" and we begin
crediting interest for a new Guarantee Period lasting the same amount of time as
the one just ended. That Fixed Allocation then earns interest during the new
Guarantee Period at a rate that is not less than the one then being earned by
Fixed Allocations for that Guarantee Period by new Annuity purchasers in the
same class. You also may choose a different Guarantee Period from among those we
are then currently making available or you may transfer that Account Value to a
variable Sub-account.
In the payout phase, you may elect fixed annuity payments based on our then
current annuity rates. We may also make available adjustable annuity rates.
For more information, see the section entitled Investment Options, including the
following subsections: (a) Variable Investment Options; and (b) Fixed Investment
Options.
(2) Operations of the Separate Accounts: In the accumulation phase, the
assets supporting guarantees we make in relation to Fixed Allocations are held
in our Separate Account D. This is a "non-unitized" separate account. However,
values and benefits calculated on the basis of Fixed Allocations are guaranteed
by our general account. In the payout phase, fixed annuity payments and any
adjustable annuity payments we may make available are also guaranteed by our
general account, but the assets supporting such payments are not held in
Separate Account D.
In the accumulation phase, the assets supporting the Account Values maintained
in the Sub-accounts are held in our Separate Account B. These are all 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 fund portfolios.
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) Charges Assessed Against the Assets: The charges assessed against
assets in the Sub-accounts are the administration charge and the mortality and
expense risk charges. There are no charges deducted from the assets supporting
Fixed Allocations. For more information, see the section entitled Charges
Assessed Against the Assets, including the following subsections: (a)
Administration Charge; and (b) Mortality and Expense Risk Charges.
(6) Charges of the Underlying Mutual Fund: Each underlying mutual fund
portfolio assesses various charges, including charges for investment management
and investment advisory fees. These charges generally differ between portfolios
within the underlying mutual fund. You will find additional details in the fund
prospectus and its statement of additional information.
(7) Purchasing Annuities: Annuities are available for multiple uses,
including as a funding vehicle for various retirement programs which qualify for
special treatment under the Code. We may require a properly completed
Application, an acceptable Purchase Payment, and any other materials we require
under our underwriting rules before we agree to issue an Annuity. We may offer
special programs in relation to Annuities on which we receive large Purchase
Payments. 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 AVP Money Market Sub-account.
Where permitted by law in such jurisdictions, we will allocate such Purchase
Payments according to your instructions, without any temporary allocation to the
AVP Money Market Sub-account, if you execute a return waiver. We offer a
balanced investment program in relation to your initial Purchase Payment.
Certain designations must be made, including an Owner and an Annuitant. You may
also make certain other designations that apply to the Annuity if issued. These
designations include a contingent Owner, a Contingent Annuitant (Contingent
Annuitants may be required in conjunction with certain uses of the Annuity), a
Beneficiary, and a contingent Beneficiary. See the section entitled Purchasing
Annuities, including the following subsections: (a) Uses of the Annuity; (b)
Application and Initial Payment; (c) Breakpoints; (d) Bank Drafting; (e)
Periodic Purchase Payments; (f) Right to Return the Annuity; (g) Allocation of
Net Purchase Payments; (h) Balanced Investment Program; and (i) 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. For more information, see the section entitled
Account Value and Surrender Value, including the following subsections: (a)
Account Value in the Sub-accounts; and (b) Account Value of Fixed Allocations.
(9) Rights, Benefits and Services: You have a number of rights and
benefits under an Annuity once issued. We also currently provide a number of
services to 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 may offer
rebalancing during the accumulation phase (see "Dollar Cost Averaging" and
"Rebalancing"). 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. In
most jurisdictions, this death benefit will not be less than an increasing
minimum amount, subject to certain limitations. 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) Bank Drafting; (c) Changing Revocable Designations; (d) Allocation Rules;
(e) Transfers; (f) Renewals; (g) Dollar Cost Averaging; (h) Rebalancing; (i)
Distributions (including: (i) Surrender; (ii) Medically-Related Surrender; (iii)
Free Withdrawals; (iv) Partial Withdrawals; (v) Systematic Withdrawals; (vi)
Minimum Distributions; (vii) Death Benefit; (viii) Annuity Payments; and (ix)
Qualified Plan Withdrawal Limitations); (j) Pricing of Transfers and
Distributions; (k) Voting Rights; (l) Transfers, Assignments and Pledges; and
(m) Reports to You.
(10) The Company: American Skandia Life Assurance Corporation is a
wholly owned subsidiary of American Skandia Investment Holding Corporation,
whose indirect parent is Skandia Insurance Company Ltd. Skandia Insurance
Company Ltd. is a Swedish company that holds a number of insurance companies in
many countries. The predecessor to Skandia Insurance Company Ltd. commenced
operations in 1855. For more information, see the section entitled The Company
and the following subsections: (a) Lines of Business; (b) Selected Financial
Data; (c) Management's Discussion and Analysis of Financial Condition and
Results of Operations (including: (i) Results of Operations; (ii) Liquidity and
Capital Resources; and (iii) Segment Information); (d) Reinsurance; (e)
Reserves; (f) Competition; (g) Employees; (h) Regulation; and (i) Executive
Officers and Directors.
AVAILABLE INFORMATION: A Statement of Additional Information is available from
us without charge upon request by filling in the coupon at the end of this
Prospectus and sending it (or a written request) to American Skandia Life
Assurance Corporation, 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 the exhibits thereto at the SEC's public reference
facilities at the above address, Rm. 1024, and at the SEC's Regional Offices, 7
World Trade Center, New York, NY, and the Everett McKinley Dirksen Building, 219
South Dearborn Street, Chicago, IL. These documents, as well as documents
incorporated by reference, may also be obtained through the SEC's Internet
Website (http://www.sec.gov) for this registration statement as well as for
other registrants that file electronically with the SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE: 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, 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].
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 fund portfolios may
be found in either the prospectus for such mutual fund or the annual report of
the mutual fund. The expenses of our Sub-accounts (not those of the underlying
mutual fund portfolios in which our Sub-accounts invest) are the same no matter
which Sub-account you choose. Therefore, these expenses are only shown once
below. In certain states, premium taxes may be applicable.
<PAGE>
<TABLE>
<CAPTION>
Your Transaction Expenses
<S> <C> <C> <C> <C>
Contingent Deferred Sales Charge, 7.5% of each Purchase Payment,
as a percentage of Purchase Payments liquidated, decreasing 1% per year,
with none applicable as to a Purchase Payment
starting in the eighth year after
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
</TABLE>
Annual Expenses of the Sub-accounts (as a percentage of average daily net
assets)
Mortality and Expense Risk Charges 1.25%
Administration Charges 0.15%
-----
Total Annual Expenses of the Sub-accounts 1.40%
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, 1997. "N/A" indicates that no entity has agreed to reimburse the
particular expense indicated. The expenses of the portfolios either are
currently being partially reimbursed or may be partially reimbursed in the
future. Management Fees, Other Expenses and Total Annual Expenses are provided
on both a reimbursed and not reimbursed basis, if applicable. See the prospectus
or statement of additional information of the underlying mutual fund for
details.
<TABLE>
<CAPTION>
Total Total
Annual Annual
Management Management Other Other Expenses Expenses
Fee Fee Expenses Expenses after any without any
after any without any after without any applicable applicable
Portfolio: voluntary voluntary any applicable applicable waiver or waiver or
waiver waiver reimbursement reimbursement reimbursement reimbursement
- ------------------------------------------------------------------------------------------------------------------------------------
Alliance Variable Product Series Fund
<S> <C> <C> <C> <C> <C> <C>
Premier Growth1 N/A 1.00% N/A 0.08% 1.08% 1.08%
Global Bond 0.56% 0.65% N/A 0.38% 0.94% 1.03%
Growth & Income N/A 0.63% N/A 0.09% 0.72% 0.72%
Short-Term Multi-Market 0.07% 0.55% N/A 0.87% 0.94% 1.42%
U.S. Government/High Grade Securities N/A 0.60% N/A 0.24% 0.84% 0.84%
Total Return N/A 0.63% N/A 0.25% 0.88% 0.88%
International 0.53% 1.00% N/A 0.42% 0.95% 1.42%
Money Market N/A 0.50% N/A 0.14% 0.64% 0.64%
Global Dollar 0.41% 0.75% N/A 0.54% 0.95% 1.29%
North American Government Income 0.56% 0.65% N/A 0.39% 0.95% 1.04%
Utility Income 0.62% 0.75% N/A 0.33% 0.95% 1.08%
Growth N/A 0.75% N/A 0.09% 0.84% 0.84%
Worldwide Privatization 0.40% 1.00% N/A 0.55% 0.95% 1.55%
Conservative Investors 0.37% 0.75% N/A 0.58% 0.95% 1.33%
Growth Investors 0.00% 0.75% N/A 0.95% 0.95% 1.70%
</TABLE>
(1) Effective May 1, 1998, the Investment Manager is no longer waiving a portion
of the Management Fee. Other Expenses shown above are as of May 1, 1998.
The purpose of the above table is to assist you in understanding the various
costs and expenses that you would bear directly or indirectly as an investor in
the Portfolio(s).
The underlying mutual fund portfolio information was provided by the underlying
mutual funds. The Company has not independently verified such information.
EXPENSE EXAMPLES: The examples which follow are designed to assist you in
understanding the various costs and expenses you will bear directly or
indirectly if you maintain Account Value in the Sub-accounts. The examples
reflect expenses of our Sub-accounts, as well as those for the underlying mutual
fund portfolios.
The examples shown assume that: (a) all your Account Value is maintained only in
Sub-accounts; (b) fees and expenses remain constant; (c) there are no
withdrawals of Account Value during the period shown; (d) there are no transfers
or other transactions subject to a fee during the period shown; (e) no tax
charge applies; and (f) the expenses throughout the period for the underlying
mutual fund portfolios will be the lower of the expenses without any applicable
reimbursement or expenses after any applicable reimbursement, as shown above in
the section entitled "Contract Expense Summary."
THE EXAMPLES ARE ILLUSTRATIVE ONLY - THEY SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE UNDERLYING MUTUAL FUND
PORTFOLIOS - ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The
Sub-accounts are referred to below by their specific names.
<TABLE>
<CAPTION>
Examples (amounts shown are rounded to the nearest dollar)
If you surrender your Annuity at the end of the applicable time period, you
would pay the following expenses on a $1,000 investment, assuming 5% annual
return on assets:
Sub-accounts After:
1 yr. 3 yrs. 5 yrs. 10 yrs.
<S> <C> <C> <C> <C>
AVP U.S. Government/High Grade 99 128 159 265
AVP Total Return 99 129 162 270
AVP International 100 131 165 277
AVP Short-Term Multi-Market 100 131 165 276
AVP Growth and Income 97 124 153 253
AVP Premier Growth 101 135 172 290
AVP Money Market 97 122 149 244
AVP North American Government Income 100 131 165 277
AVP Global Dollar Government 100 131 165 277
AVP Utility Income 100 131 165 277
AVP Global Bond 100 131 165 276
AVP Conservative Investors 100 131 165 277
AVP Growth Investors 100 131 165 277
AVP Growth 99 128 159 265
AVP Worldwide Privatization 100 131 165 277
</TABLE>
<TABLE>
<CAPTION>
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:
Sub-accounts After:
1 yr. 3 yrs. 5 yrs. 10 yrs.
<S> <C> <C> <C> <C>
AVP U.S. Government/High Grade 24 73 124 265
AVP Total Return 24 74 127 270
AVP International 25 76 130 277
AVP Short-Term Multi-Market 25 76 130 276
AVP Growth and Income 22 69 118 253
AVP Premier Growth 26 80 137 290
AVP Money Market 22 67 114 244
AVP North American Government Income 25 76 130 277
AVP Global Dollar Government 25 76 130 277
AVP Utility Income 25 76 130 277
AVP Global Bond 25 76 130 276
AVP Conservative Investors 25 76 130 277
AVP Growth Investors 25 76 130 277
AVP Growth 24 73 124 265
AVP Worldwide Privatization 25 76 130 277
</TABLE>
CONDENSED FINANCIAL INFORMATION: The Unit Prices and number of Units in the
Sub-accounts that commenced operations prior to January 1, 1998 are shown below,
as is yield information on the AVP 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 the Sub-accounts
under the Annuity offered pursuant to this Prospectus. No information is
provided for Sub-accounts that were not operational prior to the date of 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, 1998 and are
being offered pursuant to this Prospectus; and (b) the number of units
outstanding in each Sub-account as of the dates shown. 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.
<TABLE>
<CAPTION>
Sub-Account and the Year Sub-account Operations Commenced
AVP U.S. AVP AVP
Government AVP AVP Short-Term Growth
High Total Inter- Multi- and
Grade Return national Market Income
(1992) (1992) (1992) (1992) (1992)
------ ------ ------ ------ ------
No. of Units
<S> <C> <C> <C> <C> <C>
as of 12/31/97 192,058 307,432 235,027 15,900 333,337
as of 12/31/96 185,268 300,093 258,640 21,778 333,181
as of 12/31/95 196,478 236,194 159,749 27,220 256,492
as of 12/31/94 53,792 20,623 59,089 1,839,569 2,652,224
as of 12/31/93 81,644 33,503 19,040 1,963,502 1,632,107
as of 12/31/92 79,941 9,573 7,995 1,021,786 491,506
Unit Price
as of 12/31/97 $12.75 $16.85 $14.62 $11.26 $23.46
as of 12/31/96 11.90 14.11 14.35 10.92 18.47
as of 12/31/95 11.77 12.43 13.57 10.11 15.10
as of 12/31/94 10.01 10.19 12.53 9.60 11.28
as of 12/31/93 10.58 10.74 11.91 10.42 11.48
as of 12/31/92 9.82 9.94 9.93 9.91 10.42
</TABLE>
<TABLE>
<CAPTION>
Sub-Account and the Year Sub-account Operations Commenced
AVP North AVP Global
AVP AVP American Dollar AVP
Premier Money Government Government Utility
Growth* Market Income Income Income
(1992) (1992) (1994) (1994) (1994)
------ ------ ------ ------ ------
No. of Units
<S> <C> <C> <C> <C> <C>
as of 12/31/97 282,732 115,139 27,787 51,199 57,174
as of 12/31/96 324,710 169,930 27,786 61,473 67,898
as of 12/31/95 242,960 233,258 64,465 65,026 64,410
as of 12/31/94 2,802,431 34,276 11,541 42,277 1,963
as of 12/31/93 1,042,445 0 0 0 0
as of 12/31/92 332,442 3,011 0 0 0
Unit Price
as of 12/31/97 $27.26 $11.30 $13.33 $16.25 $15.58
as of 12/31/96 20.66 10.90 12.33 14.56 12.57
as of 12/31/95 17.07 10.56 10.54 11.82 11.82
as of 12/31/94 11.95 10.20 8.71 9.75 9.87
as of 12/31/93 12.49 10.01 0 0 0
as of 12/31/92 11.25 9.93 0 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sub-Account and the Year Sub-account Operations Commenced
AVP AVP AVP AVP
Global Conservative Growth AVP Worldwide
Bond Investors Investors Growth Privatization
(1994) (1994) (1994) (1994) (1994)
------ ------ ------ ------ ------
No. of Units
<S> <C> <C> <C> <C> <C>
as of 12/31/97 28,395 89,301 81,758 293,327 89,962
as of 12/31/96 30,644 87,961 80,640 330,184 105,845
as of 12/31/95 18,122 70,909 70,250 244,481 83,741
as of 12/31/94 0 0 0 0 0
as of 12/31/93 0 0 0 0 0
as of 12/31/92 0 0 0 0 0
Unit Price
as of 12/31/97 $12.74 $13.03 $14.56 $22.17 $13.99
as of 12/31/96 12.84 11.88 12.69 17.30 12.81
as of 12/31/95 12.26 11.61 11.90 13.65 10.96
as of 12/31/94 0 0 0 0 0
as of 12/31/93 0 0 0 0 0
as of 12/31/92 0 0 0 0 0
</TABLE>
* Formerly known as the AVP Growth Sub-account.
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 is the current and
effective yields for a hypothetical contract. The yield is based on the
performance of the AVP Money Market Sub-account during the last seven days of
the calendar year ending prior to the date of this Prospectus. At the beginning
of the seven-day period, the hypothetical contract had a balance of one Unit.
The current and effective yields reflect the recurring charges against the
Sub-account. Please note that the 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
Money Market 3.88% 3.95%
INVESTMENT OPTIONS: We offer a range of variable and fixed options as ways to
invest your Account Value.
Variable Investment Options: During the accumulation phase, we offer a
number of Sub-accounts as variable investment options. These are all Class 1
Sub-accounts of American Skandia Life Assurance Corporation Variable Account B
("Separate Account B"). Each of these Sub-accounts invests exclusively in one
underlying mutual fund portfolio of the Alliance Variable Products Series Fund,
Inc. As of the date of this Prospectus, the Sub-accounts and the portfolios in
which they invest are as follows:
<PAGE>
<TABLE>
<CAPTION>
Sub-account Underlying Mutual Fund Portfolio
<S> <C> <C> <C> <C>
AVP U.S. Government/High Grade U.S. Government/High Grade Securities Portfolio
AVP Total Return Total Return Portfolio
AVP International International Portfolio
AVP Short-Term Multi-Market Short-Term Multi-Market Portfolio
AVP Growth and Income Growth and Income Portfolio
AVP Premier Growth* Premier Growth Portfolio*
AVP Money Market Money Market Portfolio
AVP North American Government Income North American Government Income Portfolio
AVP Global Dollar Government Global Dollar Government Portfolio
AVP Utility Income Utility Income Portfolio
AVP Global Bond Global Bond Portfolio
AVP Conservative Investors Conservative Investors Portfolio
AVP Growth Investors Growth Investors Portfolio
AVP Growth Growth Portfolio
AVP Worldwide Privatization Worldwide Privatization Portfolio
</TABLE>
* Formerly AVP Growth Sub-account and Growth Portfolio.
We have filed an application with the Securities and Exchange Commission to
substitute certain portfolios of American Skandia Trust ("Substitute
Portfolios") for certain portfolios of the Alliance Variable Products Series
Funds, Inc. ("Replaced Portfolios"). Upon approval of the proposed substitution,
the Replaced Portfolios will no longer be offered as underlying mutual fund
portfolios under the Annuity. You will be notified regarding the details of such
substitution. The Substitute Portfolios and Replaced Portfolios are as follows:
<TABLE>
<CAPTION>
Replaced Portfolios of Substitute Portfolio of
Alliance Variable Products Series American Skandia Trust
<S> <C>
AVP U.S. Government/High Grade PIMCO Limited Maturity Bond
AVP Total Return T. Rowe Price Asset Allocation
AVP International T. Rowe Price International Equity
AVP Short-Term Multi-Market PIMCO Limited Maturity Bond
AVP Money Market AST Money Market
AVP North American Government Income T. Rowe Price International Bond
AVP Global Dollar Government T. Rowe Price International Bond
AVP Utility Income Lord Abbett Growth and Income
AVP Global Bond T. Rowe Price International Bond
AVP Conservative Investors T. Rowe Price Asset Allocation
AVP Growth Investors T. Rowe Price Asset Allocation
AVP Worldwide Privatization AST Putnam International Equity
</TABLE>
Under the proposed substitution, for a period of 30 days prior to the
substitution, Contract Owners will be allowed to transfer Account Value out of
the Replaced Portfolio Sub-account to any other investment option available
under the Annuity without being charged any applicable transfer fee. Any such
transfer will not be counted when determining if the number of free transfers
has been exceeded. On the date the substitution is completed and Account Value
is automatically transferred to the Substitute Portfolio Sub-account, Contract
Owners will not be charged a transfer fee, nor will the transfer be included
when determining whether the number of free transfers has been exceeded. The
proposed substitution will not affect your rights or our obligations under the
Annuity.
The terms and conditions of our application are subject to change and any SEC
exemptive order, if and when granted, may differ from the proposed substitution.
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 will be disclosed in its prospectus. However, addition of
a portfolio does not require us to create a new Sub-account to invest in that
portfolio. We may take other actions in relation to the Sub-accounts and/or
Separate Account B (see "Modification").
Alliance Variable Products Series Fund, Inc. is an open-end management
investment company. It was organized on November 17, 1987 under the laws of the
State of Maryland. As of the date of this prospectus, the fund's portfolios in
which Sub-accounts offered pursuant to this prospectus invest are those shown
above. The authorized capital stock of the fund consists solely of 900,000,000
shares of Common Stock having a par value of $.001 per share, which may, without
shareholder approval, be divided into an unlimited number of series. A summary
of the investment objectives and policies of such underlying mutual fund
portfolios is found in Appendix A. The directors of the fund may add, eliminate
or substitute portfolios from time to time. Generally, each portfolio issues a
separate class of shares. As of the date of this Prospectus, shares of the fund
portfolios are available only to separate accounts of life insurance companies
offering variable annuity and variable life insurance products.
The investment objectives, policies, charges, operations, the attendant risks
and other details pertaining to each underlying mutual fund portfolio are
described in the prospectus of the underlying mutual fund and the statement of
additional information for such underlying mutual fund. Certain underlying
mutual fund portfolios may not be available in all jurisdictions. Also included
in such information is the investment policy of each mutual fund portfolio
regarding the acceptable ratings by recognized rating services for bonds and
other debt obligations. You should carefully read the Prospectus of the
underlying mutual fund prior to investing in order to determine whether the
applicable portfolio is suitable for your investment needs. There can be no
guarantee that any underlying mutual fund portfolio will meet its investment
objectives.
Shares of the underlying mutual fund portfolios are or 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 the Fund should be read in conjunction herewith. A copy of
each prospectus may be obtained without charge from us by calling 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 will take those steps needed to make such Fixed Allocations
available to purchasers to whom Annuities were issued prior to the date of such
approval.
To the extent permitted by law, we reserve the right at any time to offer
Guarantee Periods with durations that differ from those which were available
when your Annuity was issued. We also reserve the right at any time to stop
accepting new allocations, transfers or renewals for a particular Guarantee
Period. Such an action may have an impact on the MVA (see "Account Value of the
Fixed Allocations").
A Guarantee Period for a Fixed Allocation begins: (a) when all or part of a Net
Purchase Payment is allocated for that particular Guarantee Period; (b) upon
transfer of any of your Account Value to a Fixed Allocation for that particular
Guarantee Period; or (c) when a Guarantee Period attributable to a Fixed
Allocation "renews" after its Maturity Date.
We declare the rates of interest applicable during the various Guarantee Periods
offered. Declared rates are effective annual rates of interest. The rate of
interest applicable to a Fixed Allocation is the one in effect when its
Guarantee Period begins. The rate is guaranteed throughout the Guarantee Period.
We inform you of the interest rate applicable to a Fixed Allocation, as well as
its Maturity Date, when we confirm the allocation. We declare interest rates
applicable to new Fixed Allocations from time-to-time. Any new Fixed Allocation
in an existing Annuity is credited interest at a rate not less than the rate we
are then crediting to Fixed Allocations for the same Guarantee Period selected
by new Annuity purchasers in the same class.
The interest rates we credit are subject to a minimum. We may declare a higher
rate. The minimum is based on both an index and a reduction to the interest rate
determined according to the index.
The index is based on the published rate for certificates of indebtedness
(bills, notes or bonds, depending on the term of indebtedness) of the United
States Treasury at the most recent Treasury auction held at least 30 days prior
to the beginning of the applicable Fixed Allocation's Guarantee Period. The term
(length of time from issuance to maturity) of the certificates of indebtedness
upon which the index is based is the same as the duration of the Guarantee
Period. If no certificates of indebtedness are available for such term, the next
shortest term is used. If the United States Treasury's auction program is
discontinued, we will substitute indexes which in our opinion are comparable. If
required, implementation of such substitute indexes will be subject to approval
by the Securities and Exchange Commission and the Insurance Department of the
jurisdiction in which your Annuity was delivered. (For Annuities issued as
certificates of participation in a group contract, it is our expectation that
approval of only the jurisdiction in which such group contract was delivered
applies.)
The reduction used in determining the minimum interest rate is two and one
quarter percent of interest (2.25%).
Where required by the laws of a particular jurisdiction, a specific minimum
interest rate, compounded yearly, will apply should the index less the reduction
be less than the specific minimum interest rate applicable to that jurisdiction.
WE MAY CHANGE THE INTEREST RATES WE CREDIT NEW FIXED ALLOCATIONS AT ANY TIME.
Any such change does not have an impact on the rates applicable to Fixed
Allocations with Guarantee Periods that began prior to such change. However,
such a change will affect the MVA (see "Account Value of the Fixed
Allocations").
We have no specific formula for determining the interest rates we declare. Rates
may differ between classes and between types of annuities we offer, even for
guarantees of the same duration starting at the same time. We expect our
interest rate declarations for Fixed Allocations to reflect the returns
available on the type of investments we make to support the various classes of
annuities supported by the assets in Separate Account D. However, we may also
take into consideration in determining rates such factors including, but not
limited to, the durations offered by the annuities supported by the assets in
Separate Account D, regulatory and tax requirements, the liquidity of the
secondary markets for the type of investments we make, commissions,
administrative expenses, investment expenses, our mortality and expense risks in
relation to Fixed Allocations, general economic trends and competition. OUR
MANAGEMENT MAKES THE FINAL DETERMINATION AS TO INTEREST RATES TO BE CREDITED. WE
CANNOT PREDICT THE RATES WE WILL DECLARE IN THE FUTURE.
OPERATIONS OF THE SEPARATE ACCOUNTS: The assets supporting our obligations under
the Annuities may be held in various accounts, depending on the obligation being
supported. In the accumulation phase, assets supporting Account Values are held
in separate accounts established under the laws of the State of Connecticut. In
the payout phase, assets supporting fixed annuity and any adjustable annuity
payments we make available are held in our general account.
Separate Accounts: We are the legal owner of assets in the separate
accounts. Income, gains and losses, whether or not realized, from assets
allocated to these separate accounts, are credited to or charged against each
such separate account in accordance with the terms of the annuities supported by
such assets without regard to our other income, gains or losses or to the
income, gain or losses in any other of our separate accounts. We will maintain
assets in each separate account with a total market value at least equal to the
reserve and other liabilities we must maintain in relation to the annuity
obligations supported by such assets. These assets may only be charged with
liabilities which arise from such annuities, which 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 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.
The amount of our obligations in relation to allocations to the Sub-accounts is
based on the investment performance of such Sub-accounts. However, the
obligations themselves are our general corporate obligations.
Separate Account B is registered with the SEC under the Investment Company Act
of 1940 (the "1940 Act") as a unit investment trust, which is a type of
investment company. This does not involve any supervision by the SEC of the
investment policies, management or practices of Separate Account B. As of the
date of this Prospectus, we offer fifteen of the Sub-accounts in Separate
Account B pursuant to this Prospectus. Each of these fifteen Sub-accounts
invests only in a single corresponding portfolio of Alliance Variable Products
Series Fund, Inc. Persons interested in our other annuities may be offered the
same or different Sub-accounts of Separate Account B or any other of our
separate accounts. Such Sub-accounts may invest in some or all of the same
portfolios of the fund 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 fund
portfolios in the prospectus for the Fund. Portfolios added to the underlying
mutual fund may or may not be offered through added Sub-accounts.
Sub-accounts are permitted to invest in underlying mutual funds or portfolios
that we consider suitable. We also reserve the right to add Sub-accounts,
eliminate Sub-accounts, to combine Sub-accounts, or to substitute underlying
mutual funds or portfolios of underlying mutual funds.
Values and benefits based on allocations to the Sub-accounts will vary with the
investment performance of the underlying mutual fund portfolios. We do not
guarantee the investment results of any Sub-account, nor is there any assurance
that the Account Value allocated to the Sub-accounts will equal the amounts
allocated to the Sub-accounts as of any time other than the Valuation Period of
such allocation. You bear the entire investment risk.
Separate Account D: In the accumulation phase, assets supporting our
obligations based on Fixed Allocations are held in Separate Account D, which is
a "non-unitized" separate account. Such obligations are based on the interest
rates we credit to Fixed Allocations and the terms of the Annuities. These
obligations do not depend on the investment performance of the assets in
Separate Account D. Separate Account D was established by us pursuant to
Connecticut law.
There are no discrete units in Separate Account D. No party with rights under
any annuity nor any group contract owner participates in the investment gain or
loss from assets belonging to Separate Account D. Such gain or loss accrues
solely to us. We retain the risk that the value of the assets in Separate
Account D may drop below the reserves and other liabilities we must maintain.
Should the value of the assets in Separate Account D drop below the reserve and
other liabilities we must maintain in relation to the annuities supported by
such assets, we will transfer assets from our general account to Separate
Account D to make up the difference. We have the right to transfer to our
general account any assets of Separate Account D in excess of such reserves and
other liabilities. We maintain assets in Separate Account D supporting a number
of annuities we offer.
If you surrender, withdraw or transfer Account Value from a Fixed Allocation
before the end of its Guarantee Period, you bear the risk inherent in the MVA
(see "Account Value of the Fixed Allocations"). The Account Value of a Fixed
Allocation is guaranteed on its Maturity Date (and, where required by law, 30
days prior to the Maturity Date) to be its then current Interim Value.
We operate Separate Account D in a fashion designed to meet the obligations
created by Fixed Allocations. Factors affecting these operations include the
following:
(1) The State of New York, which is one of the jurisdictions in which
we are licensed to do business, requires that we meet certain "matching"
requirements. These requirements address the matching of the durations of the
assets with the durations of obligations supported by such assets. We believe
these matching requirements are designed to control an insurer's ability to risk
investing in long-term assets to support short term interest rate guarantees. We
also believe this limitation controls an insurer's ability to offer unrealistic
rate guarantees.
(2) We employ an investment strategy designed to limit the risk of
default. Some of the guidelines of our current investment strategy for Separate
Account D include, but are not limited to the following:
(a) Investments may include cash; debt securities issued by
the United States Government or its agencies and instrumentalities; money market
instruments; short, intermediate and long-term corporate obligations; private
placements; asset-backed obligations; and municipal bonds.
(b) At the time of purchase, fixed income securities will be
in one of the top four generic lettered rating classifications as established by
a nationally recognized statistical rating organization ("NRSRO") such as
Standard & Poor's or Moody's Investor Services, Inc.
We are not obligated to invest according to the aforementioned guidelines or any
other strategy except as may be required by Connecticut and other state
insurance laws.
(3) We have the sole discretion to employ investment managers that we
believe are qualified, experienced and reputable to manage Separate Account D.
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 fund portfolios. We also may charge you for special services,
such as dollar cost averaging, Systematic Withdrawals, Minimum Distributions,
and additional reports.
As of the date of this Prospectus, we do not charge you for any special
services.
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. The
charge decreases as the Purchase Payment ages. The aging of a Purchase Payment
is measured from the date it is applied to your Account Value. The charge is:
year 1 -7.5%; year 2 - 6.5%; year 3 - 5.5%; year 4 - 4.5%; year 5 - 3.5%; year 6
- - 2.5%; year 7 - 1.5%; 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 if all Purchase Payments were received at least seven
years prior to the date of either a full surrender or partial withdrawal. Where
permitted by law, any contingent deferred sales charge applicable to a full
surrender is waived if such full surrender qualifies under our rules as a
medically-related withdrawal (see "Medically-Related Surrenders").
From time to time we may reduce the amount of the contingent deferred sales
charge, the period during which it applies, or both, when Annuities are sold to
individuals or a group of individuals in a manner that reduces sales expenses.
We would consider such factors as: (a) the size and type of group; (b) the
amount of Purchase Payments; (c) present Owners making additional Purchase
Payments; and/or (d) other transactions where sales expenses are likely to be
reduced.
No contingent deferred sales charge is imposed when any group annuity contract
or any Annuity issued pursuant to this Prospectus is owned on its Issue Date by:
(a) any parent company, affiliate or subsidiary of ours; (b) an officer,
director, employee, retiree, sales representative, or in the case of an
affiliated broker-dealer, registered representative of such company; (c) a
director, officer or trustee of any underlying mutual fund; (d) a director,
officer or employee of any investment manager, sub-advisor, transfer agent,
custodian, auditing, legal or administrative services provider that is providing
investment management, advisory, transfer agency, custodianship, auditing, legal
and/or administrative services to an underlying mutual fund or any affiliate of
such firm; (e) a director, officer, employee or registered representative of a
broker-dealer or insurance agency that has a then current selling agreement with
us and/or with American Skandia Marketing, Incorporated; (f) a director,
officer, employee or authorized representative of any firm providing us or our
affiliates with regular legal, actuarial, auditing, underwriting, claims,
administrative, computer support, marketing, office or other services; (g) the
then current spouse of any such person noted in (b) through (f), above; (h) the
parents of any such person noted in (b) through (g), above; (i) such person's
child(ren) or other legal dependent under the age of 21; and (j) the siblings of
any such persons noted in (b) through (h) above.
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, if any, from your Purchase Payments if the tax is then
incurred or from your Account Value when applied under an annuity option if the
tax is incurred at that time. The amount of the tax varies from jurisdiction to
jurisdiction. It may also vary depending on whether the Annuity qualifies for
certain treatment under the Code. In each jurisdiction, the state legislature
may change the amount of any current tax, may decide to impose the tax,
eliminate it, or change the time it becomes payable. In those jurisdictions
imposing such a tax, the tax rates currently in effect range up to 3 1/2% and
are subject to change. In addition to state taxes, local taxes may also apply.
The amounts of these taxes may exceed those for state taxes.
Transfer Fee: We charge $10.00 for each transfer after the twelfth in
any Annuity Year. However, the fee is only charged if there is Account Value in
at least one Sub-account immediately subsequent to such transfer.
Allocation Of Annuity Charges: 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.
CHARGES ASSESSED AGAINST THE ASSETS: There are charges assessed against assets
in the Sub-accounts. These charges are described below. There are no charges
deducted from the Fixed Allocations. The factors we use in determining the
interest rates we credit Fixed Allocations are described above in the subsection
entitled Fixed Investment Options. No charges are deducted from assets
supporting fixed or adjustable annuity payments. The factors we use in
determining fixed or adjustable annuity payments include, but are not limited
to, our expected investment returns, costs, risks and profit targets. We reserve
the right to assess a charge against the Sub-accounts and the Fixed Allocations
equal to any taxes which may be imposed upon the separate accounts.
Administration Charge: We assess each Class 1 Sub-account, on a daily
basis, an administration charge. The charge is 0.15% per year of the average
daily total value of such Sub-account. The administration charge and maintenance
fee can be increased only for Annuities issued subsequent to the effective date
of any such change.
From time to time we may reduce the amount of the maintenance fee and/or the
administration charge 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 elimination of the maintenance fee and/or the administration charge or any
reduction of such charges will not discriminate unfairly between Annuity
purchasers. We will not make any changes to these charges where prohibited by
law.
Mortality and Expense Risk Charges: For Class 1 Sub-accounts, the
mortality risk charge is 0.90% per year and the expense risk charge is 0.35% per
year. These charges are assessed in combination each day against each
Sub-account at the rate of 1.25% per year of the average daily total value of
each Sub-account.
With respect to the mortality risk charge, we assume the risk that the mortality
experience under the Annuities may be less favorable than our assumptions. This
could arise for a number of reasons, such as when persons upon whose lives
annuity payments are based live longer than we anticipated, or when the
Sub-accounts decline in value resulting in losses in paying death benefits. If
our mortality assumptions prove to be inadequate, we will absorb any resulting
loss. Conversely, if the actual experience is more favorable than our
assumptions, then we will benefit from the gain. We also assume the risk that
the administration charge may be insufficient to cover our administration costs.
CHARGES OF THE UNDERLYING MUTUAL FUND: The underlying mutual fund assesses
various charges for investment management and investment advisory fees. These
charges generally differ between portfolios within the underlying mutual fund.
You will find additional details in the fund prospectus and its statement of
additional information.
PURCHASING ANNUITIES: You may purchase an Annuity for various purposes. You must
meet our requirements before we issue an annuity and it takes effect. Certain
benefits may be available to certain classes of purchasers, including, but not
limited to, those who submit Purchase Payments above specified breakpoint
levels. 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) Section 403(b) (tax-sheltered annuities available to employees of
certain qualifying employers); (b) Section 408 (individual retirement accounts
and individual retirement annuities - "IRAs"; and Simplified Employee Pensions -
"SEPs"); and (c) Section 408A (Roth IRAs). We may require additional information
regarding the applicable retirement plans before we issue an Annuity to be used
in connection with such retirement plans. We may also restrict or change certain
rights and benefits if, in our opinion, such restrictions or changes are
necessary for your Annuity to be used in connection with such retirement plans.
The Annuity may also be used in connection with plans that do not qualify under
the sections of the Code noted above. The Annuity may not be issued in
connection with or purchased as a funding vehicle for certain retirement plans
designed to meet the requirements of Section 401(a) of the Code, including
defined benefit plans and defined contribution plans such as 401(k), profit
sharing and money purchase plans. 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. We may issue an
Annuity without completion of an Application for certain classes of Annuities,
where permitted by law. The minimum initial Purchase Payment we accept is
$10,000 if the Annuity is not to be used in connection with a plan designed to
qualify for special treatment under the Code (see "Certain Tax Considerations")
or unless you authorize the use of bank drafting to make Purchase Payments (see
"Bank Drafting"). The minimum is $2,000 if the Annuity is purchased in
connection with a plan which is designed to so qualify unless you authorize the
use of bank drafting to make Purchase Payments. If you choose bank drafting, we
will accept a lower 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.
Breakpoints: Wherever allowed by law, we reserve the right to credit
certain additional amounts ("Additional Amounts") to your Annuity if you submit
large initial or subsequent Purchase Payments. Such Additional Amounts are
credited by us on your behalf with funds from our general account. As of the
date of this Prospectus, we were making such a program available. However, we
reserve the right to modify, suspend or terminate it at any time, or from time
to time, without notice.
The current breakpoints for qualifying for Additional Amounts are shown below.
Also shown is the value of such Additional Amounts as a percentage of your
Purchase Payment.
<TABLE>
<CAPTION>
Additional Amount as a
Purchase Payment Percentage of the Purchase Payment
<S> <C>
At least $1,000,000.00 but less than $5,000,000.00 3.00%
At least $5,000,000.00 or more 3.75%
</TABLE>
Additional Amounts are added at the same time the qualifying Net Purchase
Payment is allocated to the investment options, and are allocated to the
investment options in the same manner as such qualifying Net Purchase Payment.
Should you exercise your right to return the Annuity, the then current value of
any Additional Amount as of the date your Annuity is canceled will be deducted
from your Account Value prior to determining the amount to be returned to you.
We do not consider Additional Amounts to be "investment in the contract" for
income tax purposes (see "Certain Tax Considerations"). Additional Amounts
credited are not included in any amounts you may withdraw without assessment of
the contingent deferred sales charge (see "Contingent Deferred Sales Charge").
Generally, the breakpoints apply separately to each Purchase Payment. However,
we will apply the breakpoints cumulatively if you provide us In Writing evidence
satisfactory to us that you will submit additional Purchase Payments within a 13
month period. We may require an initial Purchase Payment of at least $500,000.00
before we agree to such a program if it is designed to provide a total of at
least $1,000,000.00 of Purchase Payments over 13 months. We may require an
initial Purchase Payment of at least $2,500,000.00 before we agree to such a
program if it is designed to provide a total of at least $5,000,000.00 over 13
months. We retain the right to recover an amount from your Annuity if such
additional Purchase Payments are not received. The amount we may recover is the
greater of the value of the Additional Amounts when applied or a percentage of
your Account Value as of the date of such recovery. The percentage equals the
ratio between the Additional Amounts and the Purchase Payment that was received.
Amounts recovered will be taken pro-rata from the investment options based on
the Account Values in the investment options as of the date of the recovery. If
the amount of the recovery exceeds your then current Surrender Value, we will
recover all remaining Account Value and terminate your Annuity.
Failure to inform us In Writing at or prior to the time of the initial Purchase
Payment that you intend to submit a pair or series of large Purchase Payments
within a 13 month period may result in your Annuity being credited no Additional
Amounts or fewer Additional Amounts that would otherwise be credited to you.
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 $10,000 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. For Annuities designed to qualify for
special tax treatment under the Code, we will accept an initial Purchase Payment
lower than our standard minimum Purchase Payment requirement of $2,000 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. We reserve the right to suspend or cancel bank
drafting privileges if sufficient funds are not available from the applicable
financial institution on any date that a transaction is scheduled to occur.
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 and less any Additional Amounts added due to premium size (see
"Breakpoints"). This is the "standard refund". If necessary to meet Federal
requirements for IRAs or certain state law requirements, we return the greater
of the "standard refund" or the Purchase Payments received less any withdrawals
(see "Allocation of Net Purchase Payments"). 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"). We require that your initial Purchase Payments, as well as other
Purchase Payments will be allocated in accordance with the then current
requirements of any rebalancing, asset allocation or market timing type of
program which you have authorized or have authorized an independent third party
to use in connection with your Annuity (see "Allocation Rules").
Allocation of Net Purchase Payments: All allocations of Net Purchase
Payments are subject to our allocation rules (see "Allocation Rules").
Allocation of the portion of the initial Purchase Payment and any Net Purchase
Payments received during the free-look period that you wish to allocate to any
Sub-accounts are subject to an additional allocation rule if state law requires
return of at least your Purchase Payments should you return the Annuity under
such free-look provision. If such state law applies to your Annuity: (a) we
allocate any portion of any such Net Purchase Payments that you indicate you
wish to go into the Sub-accounts to the AVP 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 AVP 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 Annuity").
Your initial Purchase Payment, as well as other Purchase Payments will be
allocated in accordance with the then current requirements of any rebalancing,
asset allocation or market timing program which you have authorized or have
authorized an independent third party to use in connection with your Annuity
(see "Allocation Rules"). You must provide us with allocation instructions In
Writing if you wish to change your current allocations when making subsequent
Purchase Payments.
Balanced Investment Program: We offer a balanced investment program in
relation to your initial Purchase Payment if Fixed Allocations are available
under your Annuity. If you choose this program, we commit a portion of your
initial Net Purchase Payment as a Fixed Allocation for the Guarantee Period you
select. This Fixed Allocation will have grown pre-tax to equal the exact amount
of your entire initial Purchase Payment at the end of its initial Guarantee
Period, if no amounts are transferred or withdrawn from such Fixed Allocation.
The rest of your initial Net Purchase Payment is invested in the other
investment options you select.
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.
Some of the tax implications of various designations are discussed in the
section entitled Certain Tax Considerations. However, there are other tax issues
than those addressed in that section, including, but not limited to, estate and
inheritance tax issues. You should consult with a competent tax counselor
regarding the tax implications of various designations. You should also consult
with a competent legal advisor as to the implications of certain designations in
relation to an estate, bankruptcy, community property where applicable and other
matters.
An Owner must be named. You may name more than one Owner. If you do, all rights
reserved to Owners are then held jointly. We require the consent In Writing of
all joint Owners for any transaction for which we require the written consent of
Owners. Where required by law, we require the consent In Writing of the spouse
of any person with a vested interest in an Annuity. Naming someone other than
the payor of any Purchase Payment as Owner may have gift, estate or other tax
implications.
Where allowed by law, you may name a contingent Owner. However, this designation
takes effect only on or after the Annuity Date.
You must name an Annuitant. We do not accept a designation of joint Annuitants.
You may name one or more Contingent Annuitants. There may be adverse tax
consequences if a Contingent Annuitant succeeds an Annuitant and the Annuity is
owned by a trust that is neither tax exempt nor qualifies for preferred
treatment under certain sections of the Code, such as Section 401 (a
"non-qualified" trust). In general, the Code is designed to prevent the benefit
of tax deferral from continuing for long periods of time on an indefinite basis.
Continuing the benefit of tax deferral by naming one or more Contingent
Annuitants when the Annuity is owned by a non-qualified trust might be deemed an
attempt to extend the tax-deferral for an indefinite period. Therefore, adverse
tax treatment may depend on the terms of the trust, who is named as Contingent
Annuitant, as well as the particular facts and circumstances. You should consult
your tax advisor before naming a Contingent Annuitant. if you expect to use an
Annuity in such a fashion. Where allowed by law, you must name Contingent
Annuitants according to our rules when an Annuity is used as a funding vehicle
for certain retirements plans designed to meet the requirements of Section 401
of the Code.
You may name more than one primary and more than one contingent Beneficiary, and
if you do, the proceeds will be paid in equal shares to the survivors in the
appropriate beneficiary class, unless you have requested otherwise In Writing.
If the primary Beneficiary dies before death proceeds become payable, the
proceeds will become payable to the contingent Beneficiary. If no Beneficiary is
alive at the time of the death upon which death proceeds become payable or in
the absence of any Beneficiary designation, the proceeds will vest in you or
your estate.
If an Owner's spouse is designated as the sole primary Beneficiary of the
Annuity and the Owner dies prior to the Annuity Date, the Owner's Spouse, as
Beneficiary, may elect to be treated as Owner and continue the Annuity at its
current Account Value, subject to its terms and conditions. If the Annuity is
owned jointly by both spouses, and the primary Beneficiary is designated as
"surviving spouse", each spouse named individually, or a designation of similar
intent, then upon the death of either Owner, the surviving spouse may elect to
be treated as Owner.
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.
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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)] 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.
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. Account Value is
reduced when the applicable Current Rate exceeds the rate being credited to a
Fixed Allocation. Account Value is increased when the applicable Current Rate is
less than the rate being credited to a Fixed Allocation. See the Statement of
Additional Information for an illustration of how the MVA works.
RIGHTS, BENEFITS AND SERVICES: The Annuity provides various rights, benefits and
services subsequent to its issuance and your decision to keep it beyond the
free-look period. A number of these rights, benefits and services, as well as
some of the rules and conditions to which they are subject, are described below.
These rights, benefits and services include, but are not limited to: (a) making
additional Purchase Payments; (b) changing revocable designations; (c)
transferring Account Values between investment options; (d) receiving lump sum
payments, Systematic Withdrawals or Minimum Distributions, annuity payments and
death benefits; (e) transferring or assigning your Annuity; (f) exercising
certain voting rights in relation to the underlying mutual fund portfolios 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 instructions by telephone or other electronic means. We
forward your PIN to you shortly after your Annuity is issued. To the extent
permitted by law or regulation, neither we or any person authorized by us will
be responsible for any claim, loss, liability or expense in connection with a
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 $1000 except as part of a bank drafting program (see "Bank Drafting")
or unless we authorize lower payments pursuant to a Periodic Purchase Payment
program (see "Periodic Purchase Payments"), or less where required by law.
Additional Purchase Payments may be paid at any time before the Annuity Date.
Subject to our allocation rules, we allocate additional Net Purchase Payments
according to your written allocation instructions. Should no written
instructions be received with an additional Purchase Payment, we shall return
your additional Purchase Payment.
Changing Revocable Designations: Unless you indicated that a prior
choice was irrevocable or your Annuity has been endorsed to limit certain
changes, you may request to change Owner, Annuitant and Beneficiary designations
by sending a request In Writing. 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 Owner or Annuitant who does not meet our then current
underwriting guidelines; (c) a new Annuitant subsequent to the Annuity Date if
the annuity option selected includes a life contingency; and (d) a new Annuitant
prior to the Annuity Date if the Annuity is owned by an entity.
Allocation Rules: As of the date of this Prospectus, during the
accumulation phase, you may maintain Account Value in multiple Sub-accounts and
an unlimited number of Fixed Allocations. We reserve the right, to the extent
permitted by law, to limit the number of Sub-accounts or the amount you may
allocate to any Fixed Allocation. As of the date of this Prospectus, we limited
the number of Sub-accounts available at any one time to ten. Should you request
a transaction that would leave less than any minimum amount we then require in
an investment option, we reserve the right, to the extent permitted by law, to
add the balance of your Account Value in the applicable Sub-account or Fixed
Allocation to the transaction and close out your balance in that investment
option.
Should you either: (a) request any rebalancing services we may offer (see
"Rebalancing"); or (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 we require that all Purchase Payments,
including the initial Purchase Payment, received while your Annuity is subject
to such an arrangement are allocated to the same investment options and in the
same proportions as then required pursuant to the applicable rebalancing, asset
allocation or market timing program, unless we have received alternate
instructions. Such allocation requirements terminate simultaneous to the
termination of an authorization for rebalancing or any authorization to a third
party to transact transfers on your behalf. Upon termination of any of the above
arrangements, you must provide us with allocation instructions In Writing for
all subsequent Purchase Payments.
Withdrawals of any type are taken pro-rata from the investment options based on
the then current Account Values in such investment options unless we receive
instructions from you prior to such withdrawal. For this purpose only, the
Account Value in all your then current Fixed Allocations is deemed to be in one
investment option. If you transfer or withdraw Account Value from multiple Fixed
Allocations and do not provide instructions indicating the Fixed Allocations
from which Account Value should be taken: (a) we transfer Account Value first
from the Fixed Allocation with the shortest amount of time remaining to the end
its Guarantee Period, and then from the Fixed Allocation with the next shortest
amount of time remaining to the end of its Guarantee Period, etc.; and (b) if
there are multiple Fixed Allocations with the same amount of time left in each
Guarantee Period, as between such Fixed Allocations we first take Account Value
from the Fixed Allocation that had the shorter Guarantee Period.
Transfers: In the accumulation phase you may transfer Account Value
between investment options, subject to our allocation rules (see "Allocation
Rules"). Transfers are not subject to taxation (see "Transfers Between
Investment Options"). We charge $10.00 for each transfer after the twelfth in
any Annuity Year, including transfers transacted as part of any rebalancing,
market timing, asset allocation or similar program which you authorize to be
employed on your behalf. Transfers transacted as part of a dollar cost averaging
program are not counted in determining the applicability of the transfer fee.
Renewals or transfers of Account Value from a Fixed Allocation at the end of its
Guarantee Period are not subject to the transfer charge and are not counted in
determining whether other transfers may be subject to the transfer charge (see
"Renewals"). Your transfer request must be In Writing or meet our requirements
for accepting instructions we receive over the phone or through means such as
electronic mail with appropriate authorization.
We reserve the right to limit the number of transfers in any Annuity Year for
all existing or new Owners. We also reserve the right to limit the number of
transfers in any Annuity Year or to refuse any transfer request for an Owner or
certain Owners if we believe that: (a) excessive trading by such Owner or Owners
or a specific transfer request or group of transfer requests may have a
detrimental effect on Unit Values or the share prices of the underlying mutual
fund portfolios; or (b) we are informed by the underlying mutual fund that the
purchase or redemption of shares is to be restricted because of excessive
trading or a specific transfer or group of transfers is deemed to have a
detrimental effect on share prices of an affected underlying mutual fund
portfolio or portfolios.
To the extent permitted by law, we may require up to 2 business days' notice of
any transfer into or out of a Fixed Allocation if the market value of such
transfer is at least $1,000,000.00.
In order to help you determine whether you wish to transfer Account Values to a
Fixed Allocation, you may obtain our Current Rates by writing us or calling us
at 1-800-766-4530 or contact our customer service department electronically at
[email protected]. When calling us by phone, please have readily
available your Annuity number and your PIN number. When contacting us
electronically, please provide your PIN number, social security or tax I.D.
number and the Annuity contract number.
Where permitted by law, we may accept your authorization of a third party to
transfer Account Values on your behalf, subject to our rules. We may suspend or
cancel such acceptance at any time. We notify you of any such suspension or
cancellation. We may restrict the investment options that will be available to
you for transfers or allocations of Net Purchase Payments during any period in
which you authorize such third party to act on your behalf. We give you, and/or
the third party you authorize prior notification of any such restrictions.
However, we will not enforce such a restriction if we are provided evidence
satisfactory to us that: (a) such third party has been appointed by a court of
competent jurisdiction to act on your behalf; or (b) such third party has been
appointed by you to act on your behalf for all your financial affairs.
We or an affiliate of ours may provide administrative or other support services
to independent 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 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 sales of Annuities.
However, we do not engage any third parties to offer investment allocation
services of any type, so that persons or firms offering such services do so
independent from any agency relationship they may have with us for the sale of
Annuities. We therefore take no responsibility for the investment allocations
and transfers transacted on your behalf by such third parties or any investment
allocation recommendations made by such parties. We do not currently charge you
extra for providing these support services.
Renewals: A renewal is a transaction that occurs automatically as of
the last day of a Fixed Allocation's Guarantee Period unless we receive
alternative instructions. This day as to each Fixed Allocation is called its
Maturity Date. As of the end of a Maturity Date, the Fixed Allocation's
Guarantee Period "renews" and a new Guarantee Period of the same duration as the
one just completed begins. However, the renewal will not occur if the Maturity
Date, and where required by law, the 30 days prior to the Maturity Date, is on
the date we apply your Account Value to determine the annuity payments that
begin on the Annuity Date (see "Annuity Payments").
As an alternative to a renewal, you may transfer all or part of that Fixed
Allocation's Account Value to make a different Fixed Allocation or you may
transfer such Account Value to one or more Sub-accounts, subject to our
allocation rules. To accomplish this, we must receive instructions from you In
Writing at least two business days before the Maturity Date. No MVA applies to
transfers of a Fixed Allocation's Account Value occurring as of its Maturity
Date, and where required by law, the 30 days prior to the Maturity Date. An MVA
will apply in determining the Account Value of a Fixed Allocation at the time
annuity payments are determined, unless the Maturity Date of such Fixed
Allocation is the 15th day before the Annuity Date (see "Annuity Payments").
At least 30 days prior to a Maturity Date, or earlier if required by law or
regulation, we inform you of the Guarantee Periods available as of the date of
such notice. We do not provide a similar notice if the Fixed Allocation's
Guarantee Period is of less than a year's duration. Such notice may include an
example of the rates we are then crediting new Fixed Allocations as of the date
such notice is prepared. The rates actually credited to a Fixed Allocation as of
the date of any renewal or transfer immediately subsequent to the Maturity Date
may be more or less than any rates quoted in such notice.
If your Fixed Allocation's then ending Guarantee Period is no longer available
for new allocations and renewals or you choose a different Guarantee Period that
is no longer available on the date following the Maturity Date, we will try to
reach you so you may make another choice. If we cannot reach you, we will assign
the next shortest Guarantee Period then currently available for new allocations
and renewals to that Fixed Allocation.
Dollar Cost Averaging: We offer dollar cost averaging in the
accumulation phase. Dollar cost averaging is a program designed to provide for
regular, approximately level investments over time. You may choose to transfer
earnings only, principal plus earnings or a flat dollar amount. We make no
guarantee that a dollar cost averaging program will result in a profit or
protect against a loss in a declining market. You may select this program by
submitting to us a request In Writing. You may cancel your participation in this
program In Writing or by phone if you have previously authorized our acceptance
of such instructions.
Dollar cost averaging is available from any of the investment options we choose
to make available for such a program. Your annuity must have an Account Value of
not less than $10,000 at the time of the first transfer under a dollar cost
averaging program. Transfers under a dollar cost averaging program are not
counted in determining the applicability of the transfer fee (see "Transfers").
We reserve the right to limit the investment options into which Account Value
may be transferred as part of a dollar cost averaging program. We currently do
not permit dollar cost averaging programs where Account Value is transferred to
fixed allocations. We also reserve the right to charge a processing fee for this
service. Should we suspend or cancel the offering of this service, such
suspension or cancellation will not affect any dollar cost averaging programs
then in effect. Dollar cost averaging is not available while a 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; and (f) you may
not simultaneously use Account Value in any Fixed Allocation to participate in
dollar cost averaging and receive Systematic Withdrawals or Minimum
Distributions from such Fixed Allocation (see "Systematic Withdrawals" and
"Minimum Distributions").
Rebalancing: We may 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 anniversary. If a transfer is requested prior to the date
Account Values are to be rebalanced while an automatic rebalancing program is in
effect, 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 calendar
quarter if Account Value is being maintained in the AVP 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. 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 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
living as of the date we pay the proceeds of such surrender request; (b) if the
Owner is one or more natural persons, all such Owners must also be living at
such time; (c) we must receive satisfactory proof of the Annuitant's confinement
or Fatal Illness In Writing; and (d) this benefit is not available if the total
Purchase Payments received exceed $500,000.00 for all annuities issued by us
with this benefit for which the same person is named as Annuitant. For contracts
issued before May 1, 1996 a "Contingency Event" occurs if the Annuitant is:
(1) First confined in a "Medical Care Facility" 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.
For contracts issued on or after May 1, 1996, and where allowed by law, the
Annuitant must have been named or any changes of Annuitant must have been
accepted by us, prior to the "Contingent Event" described above, in order to
qualify for a medically-related surrender.
"Medical Care Facility" means any state licensed facility providing medically
necessary in-patient care which is prescribed by a licensed "Physician" in
writing and based on physical limitations which prohibit daily living in a
non-institutional setting. "Fatal Illness" means a condition diagnosed by a
licensed "Physician" which is expected to result in death within 2 years for 80%
of the diagnosed cases. "Physician" means a person other than you, the Annuitant
or a member of either your or the Annuitant's families who is state licensed to
give medical care or treatment and is acting within the scope of that license.
Specific details and definitions of terms in relation to this benefit may differ
in certain jurisdictions.
Free Withdrawals: Each Annuity Year in the accumulation phase
you may withdraw a limited amount of Account Value without application of any
applicable contingent deferred sales charge. Such free withdrawals are available
to meet liquidity needs. Free withdrawals are not available at the time of a
surrender of an Annuity. Withdrawals of any type made prior to age 59 1/2 may be
subject to a 10% tax penalty (see "Penalty on Distributions").
Your free withdrawal request must be at least $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 an Annuity Year is the
greater of your Annuity's "growth" or 10% of "new" Purchase Payments. "Growth"
equals the then current Account Value less all "unliquidated" Purchase Payments
and less the value at the time credited of any Additional Amounts (see
"Breakpoints"). "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 of new
Purchase Payments will not reduce the amount of any applicable contingent
deferred sales charge upon 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 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 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); then from
(4) Other Surrender Value.
Systematic Withdrawals: We offer Systematic Withdrawals of
earnings only, principal plus earnings or a flat dollar amount. Generally,
Systematic Withdrawals from Fixed Allocations are limited to earnings accrued
after the program of Systematic Withdrawals begins, or payments of fixed dollar
amounts that do not exceed such earnings. 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 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.
We offer Systematic Withdrawals on a monthly, quarterly, semi-annual or annual
basis. You may not simultaneously receive Systematic Withdrawals from a Fixed
Allocation and participate in a dollar cost averaging program under which
Account Value is transferred from the same Fixed Allocation (see "Dollar Cost
Averaging"). Systematic Withdrawals are not concurrently available while you are
taking any Minimum Distributions (see "Minimum Distributions"). Systematic
Withdrawals of earnings or earnings plus principal are not available while any
rebalancing or asset allocation program is in effect in relation to your
Annuity.
The Surrender Value of your Annuity must be at least $20,000 when you begin 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, 408, or 403(b) 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 are 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 tax 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 specific
type of Systematic Withdrawal program. Minimum Distributions are subject to all
the rules applicable to Systematic Withdrawals unless we specifically indicate
that one or more of such rules do not apply. In addition, certain rules apply
only to Minimum Distributions.
You may elect to have us calculate Minimum Distributions annually if your
Annuity is being used for certain qualified purposes under the Code. Requests to
calculate a Minimum Distribution amount must be made three (3) days prior to the
date that your Minimum Distribution payment is processed to allow for
calculation and processing of the required amount. We calculate such amounts
assuming the Minimum Distribution amount is based solely on the value of your
Annuity. The required Minimum Distribution amounts applicable to your particular
situation may depend on other annuities, savings or investments of which we are
unaware, so that the required amount may be greater than the Minimum
Distribution amount we calculate based on the value of your Annuity. We reserve
the right to charge a fee for each annual calculation. Minimum Distributions are
not concurrently available with any other programs of Systematic Withdrawals.
You may elect to have the 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.
Death Benefit: In the accumulation phase, a death benefit is
payable. If the Annuity is owned by one or more natural persons, it is payable
upon the first death of such Owners. If the Annuity is owned by an entity, the
death benefit is payable upon the Annuitant's death (if there is no Contingent
Annuitant). For applicable deaths occurring prior to age 85 of the deceased, the
death benefit is the greater of (a) or (b), less any remaining contingent
deferred sales charge if the deceased was age 75 or greater at the time of
death, where: (a) is your Account Value in any Sub-accounts plus the Interim
Value of your Fixed Allocations; and (b) is the minimum death benefit. The
minimum death benefit is the total of each Purchase Payment growing daily at the
equivalent of 5% per year starting as to each Purchase Payment on the date it is
allocated to the Account Value, less the total of each withdrawal, of any type,
growing daily at the equivalent of 5% per year, starting as of the date of each
such withdrawal. However, this minimum death benefit may not exceed 200% of (A)
minus (B), where: (A) is the total of all Purchase Payments received; and (B) is
the total of all withdrawals of any type. Where allowed by law, for applicable
deaths occurring on or after age 85 of the deceased, the death benefit is the
Surrender Value.
The amount of the death benefit is determined as of the date we receive In
Writing: "due proof of death". The following constitutes "due proof of death":
(a)(i) a certified copy of a death certificate, (ii) a certified copy of a
decree of a court of competent jurisdiction as to the finding of death, or (iii)
any other proof satisfactory to us; (b) all representations we require or which
are mandated by applicable law or regulation in relation to the death claim and
the payment of death proceeds; and (c) any applicable election of the mode of
payment of the death benefit, if not previously elected by the Owner. The death
benefit is reduced by any annuity payments made prior to the date we receive In
Writing such due proof of death.
If the death benefit becomes payable prior to the Annuity Date due to the death
of the Owner and the Beneficiary is the Owner's spouse, then in lieu of
receiving the death benefit, such Owner's spouse may elect to be treated as an
Owner and continue the Annuity at its current Account Value, subject to its
terms and conditions. An Owner's spouse may only assume ownership of the Annuity
if such spouse is designated as the sole primary Beneficiary.
In the event of your death, the benefit must be distributed within: (a) five
years of the date of death; or (b) over a period not extending beyond the life
expectancy of the Beneficiary or over the life of the Beneficiary. Distribution
after your death to be paid under (b) above must commence within one year of the
date of death.
If the Annuitant dies before the Annuity Date, the Contingent Annuitant will
become the Annuitant. If the Annuity is owned by one or more natural persons,
the oldest of any such Owners not named as the Annuitant immediately becomes the
Contingent Annuitant if: (a) the Contingent Annuitant predeceases the Annuitant;
or (b) if you do not designate a Contingent Annuitant.
In the payout phase, we continue to pay any "certain" payments (payments not
contingent on the continuance of any life) to the Beneficiary subsequent to the
death of the Annuitant. For Annuities issued subsequent to our implementation of
the change, we do not guarantee any commutation rights unless required by law.
For Annuities issued prior to implementation of such change, we will commute any
remaining "certain" payments and pay a lump sum if elected by you or, in the
absence of specific instructions by you, by the Beneficiary. To the extent
permitted by law, we will commute any "certain" payments pursuant to such
Annuities using the same interest rate assumed in determining the annuity
payments then due.
In the payout phase, we distribute any payments due subsequent to the death of
any Owner at least as rapidly as under the method of distribution in effect as
of the date of such Owner's death.
Annuity Payments: Annuity payments can be guaranteed for life,
for a certain period, or for a certain period and life. We make available fixed
payments, and as of the date of this Prospectus, adjustable payments (payments
which may or may not be changed on specified adjustment dates based on annuity
purchase rates we are then making available to annuities of the same class). We
may or may not be making adjustable annuities available on the Annuity Date. To
the extent there is any tax basis in the annuity, a portion of each annuity
payment is treated for tax purposes as a return of such basis until such tax
basis is exhausted. The amount deemed such a return of basis is determined in
accordance with the requirements of the Code (see "Certain Tax Considerations").
You may choose an Annuity Date, an annuity option and the frequency of annuity
payments when you purchase an Annuity, or at a later date. Your choice of
Annuity Date and annuity option may be limited depending on your use of the
Annuity and the applicable jurisdiction. Subject to our rules, you may choose an
Annuity Date, option and frequency of payments suitable to your needs and
circumstances. You should consult with competent tax and financial advisors as
to the appropriateness of any such choice. For Annuities subject to Pennsylvania
law, the Annuity Date may not exceed the first day of the calendar month
following the Annuitant's 85th birthday.
You may change your choices at any time up to 30 days before the earlier of: (a)
the date we would have applied your Account Value to an annuity option had you
not made the change; or (b) the date we will apply your Account Value to an
annuity option in relation to the new Annuity Date you are then selecting. You
must request this change In Writing. The Annuity Date must be the first or the
fifteenth day of a calendar month.
In the absence of an election In Writing: (a) the Annuity Date is the first day
of the calendar month first following the later of the Annuitant's 85th birthday
or the fifth anniversary of our receipt at our Office of your request to
purchase an Annuity; and (b) fixed monthly payments will commence under option
2, described below, with 10 years certain. For Annuities subject to Pennsylvania
law, in the absence of an election In Writing: (a) the Annuity Date is the first
day of the calendar month following the Annuitant's 85th birthday; and (b) fixed
monthly payments will commence under Option 2, described below with 10 years
certain. The amount to be applied is your Annuity's Account Value 15 business
days prior to the Annuity Date. In determining your annuity payments, we credit
interest using our then current crediting rate for this purpose, which is not
less than 3% of interest per year, between the date Account Value is applied to
an annuity option and the Annuity Date. If there is any remaining contingent
deferred sales charge applicable as of the Annuity Date, then the annuity option
you select must include a certain period of not less than 5 years' duration. As
a result of this rule, making additional Purchase Payments within seven years of
the Annuity Date will prevent you from choosing an annuity option with a certain
period of less than 5 years' duration. Annuity options in addition to those
shown are available with our consent. The minimum initial amount payable under
the adjustable or the fixed annuity option is the minimum initial annuity amount
we allow under our then current rules. Should you wish to receive a lump sum
payment, you must request to surrender your Annuity prior to the Annuity Date
(see "Surrender"). The 3% interest rate noted above is 4% for Annuities issued
prior to the date we implemented this change.
You may elect to have any amount of the proceeds due to the Beneficiary applied
under any of the options described below. Except where a lower amount is
required by law, the minimum monthly annuity payment is $50.
If you have not made an election prior to proceeds becoming due, the Beneficiary
may elect to receive the death benefit under one of the annuity options.
However, if you made an election, the Beneficiary may not alter such election.
For purposes of the annuity options described below, the term "key life" means
the person or persons upon whose life any payments dependent upon the
continuation of life are based.
(1) Option 1 - Payments for Life: Under this option, income is payable
periodically prior to the death of the key life, terminating with the last
payment due prior to such death. Since no minimum number of payments is
guaranteed, this option offers the maximum level of periodic payments of the
annuity options. It is possible that the 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.
(4) Option 4 - Payments for a Certain Period: Under this option, income
is payable periodically for a specified number of years. The number of years is
subject to our then current rules. Should the payee die before the end of the
specified number of years, the remaining payments are paid to the Beneficiary to
the end of such period. Note that under this option, payments are not based on
how long we expect any key life to live. Therefore, that portion of the
mortality risk charge assessed to cover the risk that key lives outlive our
expectations provides no benefit to an Owner selecting this option.
The first payment varies according to the annuity options and payment frequency
selected. The first periodic payment is determined by multiplying the Account
Value (expressed in thousands of dollars) as of the close of business on the
fifteenth day preceding the Annuity Date, plus interest at not less than 3% per
year from such date to the Annuity Date, by the amount of the first periodic
payment per $1,000 of value obtained from our annuity rates for that type of
annuity and for the frequency of payment selected. Our rates will not be less
than our guaranteed minimum rates. These guaranteed minimum rates are derived
from the 1983a Individual Annuity Mortality Table with ages set back one year
for males and two years for females and with an assumed interest rate of 4% per
annum. Where required by law or regulation, such annuity table will have rates
that do not differ according to the gender of the key life. Otherwise, the rates
will differ according to the gender of the key life. The 3% interest rates noted
above are 4% for Annuities issued prior to the date we implemented this change.
Qualified Plan Withdrawal Limitations: The Annuities are
endorsed such that there are surrender or withdrawal limitations when used in
relation to certain retirement plans for employees which are designed to qualify
under various sections of the Code. These limitations do not affect certain
roll-overs or exchanges between qualified plans. Distribution of amounts
attributable to contributions made pursuant to a salary reduction agreement (as
defined in Code section 403(b)), or attributable to transfers to a tax sheltered
annuity from a custodial account (as defined in Code section 403(b)(7)), is
restricted to the employee's: (a) separation from service; (b) death; (c)
disability (as defined in Section 72(m)(7) of the Code); (d) reaching age 59
1/2; or (e) hardship. Hardship withdrawals are restricted to amounts
attributable to salary reduction contributions, and do not include investment
results. In the case of tax sheltered annuities, these limitations do not apply
to certain salary reduction contributions made and investment results earned
prior to dates specified in the Code. In addition, the limitation on hardship
withdrawals does not apply to salary reduction contributions made and investment
results earned prior to dates specified in the Code which have been transferred
from custodial accounts. Rollovers from the types of plans noted to another
qualified plan or to an individual retirement account or individual retirement
annuity are not subject to the limitations noted. Certain distributions,
including rollovers, that are not transferred directly to the trustee of another
qualified plan, the custodian of an individual retirement account or the issuer
of an individual retirement annuity may be subject to automatic 20% withholding
for Federal income tax. This may also trigger withholding for state income taxes
(see "Certain Tax Considerations").
We may make annuities available through the Texas Optional Retirement Program
subsequent to receipt of the required regulatory approvals and implementation.
In addition to the restrictions required for such Annuities to qualify under
Section 403(b) of the Code, Annuities issued in the Texas Optional Retirement
Program are amended as follows: (a) no benefits are payable unless you die
during, or are retired or terminated from, employment in all Texas institutions
of higher education; and (b) if a second year of participation in such program
is not begun, the total first year State of Texas contribution will be returned,
upon its request, to the appropriate institute of higher education.
With respect to the restrictions on withdrawals set forth above, the Company is
relying upon: (1) a no-action letter dated November 28, 1988 from the staff of
the Securities and Exchange Commission to the American Council of Life Insurance
with respect to annuities issued under section 403(b) of the Code, the
requirements of which have been complied with by the Company; and (2) Rule 6c-7
under the 1940 Act with respect to annuities made available through the Texas
Optional Retirement Program, the requirements of which have been complied with
by the Company.
Pricing of Transfers and Distributions: We "price" transfers and
distributions on the dates indicated below:
(1) We price "scheduled" transfers and distributions as of the date
such transactions are so scheduled. However, if a transaction is "scheduled" to
occur on a day other than a Valuation Day, such transaction will be processed
and priced on the last Valuation Day prior to the scheduled transaction.
"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 authorize to be employed on you behalf. "Unscheduled"
transfers received pursuant to an authorization to accept transfers, using voice
or data transmission over the phone are priced as of the Valuation Period we
receive the request at our Office for such transactions.
(3) We price surrenders, medically-related surrenders and death
benefits as of the date we receive at our Office all materials we require for
such transactions and such materials are satisfactory to us (see "Surrenders",
"Medically-related Surrenders" and "Death Benefits").
The pricing of transfers and distributions involving Sub-accounts includes the
determination of applicable Unit Price for the Units transferred or distributed.
The pricing of transfers and distributions involving Fixed Allocations includes
the determination of any applicable MVA. Any applicable MVA alters the amount
available when all the Account Value in a Fixed Allocation is being transferred
or distributed. Any applicable MVA alters the amount of Interim Value needed
when only a portion of the Account Value is being transferred or distributed.
Unit Prices may change each Valuation Period to reflect the investment
performance of the Sub-accounts. The MVA applicable to each Fixed Allocation
changes once each month and also each time we declare a different rate for new
Fixed Allocations. Payment (but not pricing) is subject to our right to defer
transactions for a limited period (see "Deferral of Transactions").
Voting Rights: You have voting rights in relation to Account Value
maintained in the Sub-accounts. You do not have voting rights in relation to
Account Value maintained in any Fixed Allocations or in relation to fixed or
adjustable annuity payments.
We will vote shares of the underlying mutual fund 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 portfolio will be determined
as of the record date for such underlying mutual fund 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.
Reports to You: We send any statements and reports required by
applicable law or regulation to you at your last known address of record. Owners
should therefore give us prompt notice of any address change. We reserve the
right, to the extent permitted by law and subject to your prior consent, to
provide any prospectus, prospectus supplements, confirmations, statements and
reports required by applicable law or regulation to you through our Internet
Website at http://www.americanskandia.com or any other electronic means,
including diskettes or CD ROMs. We send a confirmation statement to you each
time a transaction is made affecting Account Value, such as making additional
Purchase Payments, transfers, exchanges or withdrawals. We also send quarterly
statements 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 that are confirmed immediately, 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 an annual report and a semi-annual
report containing financial statements for the applicable Sub-accounts, as of
December 31 and June 30, respectively, to Owners or, with your prior consent,
make such documents available electronically through our Internet Website of
other electronic means.
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 7.5% 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.
Advertising: We may advertise certain information regarding the
performance of the investment options. Details on how we calculate performance
measures for the Sub-accounts are found in the Statement of Additional
Information. This performance information may help you review the performance of
the investment options and provide a basis for comparison with other annuities.
This information may be less useful when comparing the performance of the
investment options with other savings or investment vehicles. Such other
investments may not provide some of the benefits of annuities, or may not be
designed for long-term investment purposes. Additionally other savings or
investment vehicles may not be treated like annuities under the Code.
The information we may advertise regarding the Fixed Allocations may include the
then current interest rates we are crediting to new Fixed Allocations.
Information on Current Rates will be as of the date specified in such
advertisement. Rates will be included in advertisements to the extent permitted
by law. Given that the actual rates applicable to any Fixed Allocation are as of
the date of any such Fixed Allocation's Guarantee Period begins, the rate
credited to a Fixed Allocation may be more or less than those quoted in an
advertisement.
Performance information on the Sub-accounts is based on past performance only
and is no indication of future performance. Performance of the Sub-accounts
should not be considered a representation of the performance of such
Sub-accounts in the future. Performance of the Sub-accounts is not fixed. Actual
performance will depend on the type, quality and, for some of the Sub-accounts,
the maturities of the investments held by the underlying mutual fund portfolios
and upon prevailing market conditions and the response of the underlying mutual
fund portfolios to such conditions. Actual performance will also depend on
changes in the expenses of the underlying mutual fund portfolios. Such changes
are reflected, in turn, in the Sub-account which invest in such underlying
mutual fund portfolio. In addition, the amount of charges assessed against each
Sub-account will affect performance.
Some of the underlying mutual fund portfolios existed prior to the inception of
these Sub-accounts. Performance quoted in advertising regarding such
Sub-accounts may indicate periods during which the Sub-accounts have been in
existence but prior to the initial offering of the Annuities, or periods during
which the underlying mutual fund portfolios have been in existence, but the
Sub-accounts have not. Such hypothetical performance is calculated using the
same assumptions employed in calculating actual performance since inception of
the Sub-accounts.
As part of any advertisement of Standard Total Return, we may advertise the
"Non-Standard Total Return" of the Sub-accounts. Non-Standard Total Return does
not take into consideration the Annuity's contingent deferred sales charge
and/or the Annual Maintenance Fee.
Advertisements we distribute may also compare the performance of our
Sub-accounts with: (a) certain unmanaged market indices, including but not
limited to the Dow Jones Industrial Average, the Standard & Poor's 500, the
Shearson Lehman Bond Index, the Frank Russell non-U.S. Universal Mean, the
Morgan Stanley Capital International Index of Europe, Asia and Far East Funds,
and the Morgan Stanley Capital International World Index; and/or (b) other
management investment companies with investment objectives similar to the mutual
fund portfolios underlying the Sub-accounts being prepared. 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. With respect to
Roth IRAs only, distributions are not subject to federal income tax or the 10%
penalty tax if five (5) tax years have passed since the first contribution was
made or any conversion from a traditional IRA was made, and the distribution is
made (a) once the taxpayer is age 59 1/2 or older, (b) upon the death or
disability of the taxpayer, or (c) for qualified first-time home buyer expenses,
subject to certain limitations. Distributions from a Roth IRA that are not
"qualified" as described above may be subject to a penalty tax.
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 estate and 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
generation-skipping transfers generally include those subject to federal estate
or gift tax rules. There is an aggregate $1 million exemption from taxes for all
such transfers. We may be required to determine whether a transaction is a
direct skip as defined in the Code and the amount of the resulting tax. We will
deduct from your Annuity or from any applicable payment treated as a direct skip
any amount of tax we are required to pay.
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 depends 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. Such persons may also maintain a form of IRA called a "Roth IRA".
Contributions to a Roth IRA are not deductible but, under certain circumstances,
distributions from such an account are tax-free. Purchasers of IRAs and Roth
IRAs will 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 qualified plans may be
rolled over or transferred into an IRA on a tax-deferred basis and the
conditions under which distributions from traditional IRAs may be rolled over
to, or the traditional IRA itself may be converted into a Roth IRA. Eligible
employers that meet specified criteria may establish Simplified Employee
Pensions using the employees' IRAs. These arrangements are known as SEP IRAs.
Employer contributions that may be made to SEP IRAs are larger than the amounts
that may be contributed to other IRAs, and may be deductible to the employer.
Tax Sheltered Annuities: A tax sheltered annuity ("TSA") under Section
403(b) of the Code is a contract into which contributions may be made for the
benefit of their employees by certain qualifying employers: public schools and
certain charitable, educational and scientific organizations. Such contributions
are not taxable to the employee until distributions are made from the TSA. The
Code imposes limits on contributions, transfers and distributions.
Nondiscrimination requirements apply as well.
Corporate Pension and Profit-sharing Plans: Annuities may be used to
fund employee benefits of various retirement plans established by corporate
employers. Contributions to such plans are not taxable to the employee until
distributions are made from the retirement plan. The Code imposes limitations on
contributions and distributions. The tax treatment of distributions is subject
to special provisions of the Code, and also depends on the design of the
specific retirement plan. There are also special requirements as to
participation, nondiscrimination, vesting and nonforfeitability of interests.
H.R. 10 Plans: Annuities may also be used to fund benefits of
retirement plans established by self-employed individuals for themselves and
their employees. These are commonly known as "H.R. 10 Plans" or "Keogh Plans".
These plans are subject to most of the same types of limitations and
requirements as retirement plans established by corporations. However, the exact
limitations and requirements may differ from those for corporate plans.
Tax Treatment of Distributions from Qualified Annuities: A 10% penalty
tax applies to the taxable portion of a distribution from a qualified contract
unless one of the following exceptions apply to such distribution: (a) it is
part of a properly executed transfer to another IRA, an individual retirement
account or another eligible qualified plan; (b) it occurs on or after the
taxpayer's age 59 1/2; (c) it is subsequent to the death or disability of the
taxpayer (for this purpose disability is as defined in Section 72(m)(7) of the
Code); (d) it is part of substantially equal periodic payments to be paid not
less frequently than annually for the taxpayer's life or life expectancy or for
the joint lives or life expectancies of the taxpayer and a designated
beneficiary; (e) it is subsequent to a separation from service after the
taxpayer attains age 55; (f) it does not exceed the employee's allowable
deduction in that tax year for medical care; and (g) it is made to an alternate
payee pursuant to a qualified domestic relations order. The exceptions stated
above in (e), (f) and (g) do not apply to IRAs.
Section 457 Plans: Under Section 457 of the Code, deferred compensation
plans established by governmental and certain other tax exempt employers for
their employees may invest in annuity contracts. The Code limits contributions
and distributions, and imposes eligibility requirements as well. Contributions
are not taxable to employees until distributed from the plan. However, plan
assets remain the property of the employer and are subject to the claims of the
employer's general creditors until such assets are made available to
participants or their beneficiaries.
OTHER MATTERS: Outlined below are certain miscellaneous matters you
should know before investing in an Annuity.
Deferral of Transactions: We may defer any distribution or transfer
from a Fixed Allocation or an annuity payout for a period not to exceed the
greater 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 (the "Company") is a
stock life insurance company domiciled in Connecticut with licenses in all 50
states. It is a wholly-owned subsidiary of American Skandia Investment Holding
Corporation (the "Parent"), 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.
In addition, the Company has 99.9% ownership in Skandia Vida, S.A. de C.V.
which is a life insurance company domiciled in Mexico. This Mexican life insurer
is a start up company with expectations of selling long-term savings products
within Mexico. The Company's investment in Skandia Vida, S.A. de C.V. is $1.5
million at December 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; c) certain group
variable annuities that are not registered with the Securities and Exchange
Commission that serve as funding vehicles for various types of qualified pension
and profit sharing plans; and d) fixed and adjustable immediate annuities.
Selected Financial Data: The following selected financial data is
qualified by reference to, and should be read in conjunction with, the financial
statements, including related notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus. The selected financial data as of and for each of the years
ended December 31, 1997, 1996, 1995, 1994 and 1993 has not been audited. The
selected financial data has been derived from the full financial statements for
the years ended December 31, 1997, 1996, 1995, 1994 and 1993 which were
presented in conformity with generally accepted accounting principles and which
were audited by Ernst & Young LLP, independent auditors, with respect to the
year ended December 31, 1997 and Deloitte & Touche LLP, independent auditors,
with respect to the years ended December 31, 1996 and 1995, whose respective
reports on the Company's consolidated financial statements as of December 31,
1997 and 1996, and for the three years in the period ended December 31, 1997,
are included herein.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Income Statement Data:
Revenues:
Annuity charges and fees* $ 121,157,846 $ 69,779,522 $ 38,837,358 $ 24,779,785 $ 11,752,984
Fee income 27,587,231 16,419,690 6,205,719 2,111,801 938,336
Net investment income 8,181,073 1,585,819 1,600,674 1,300,217 692,758
Annuity premium income
and other revenues 1,088,144 265,103 45,524 92,608 432,936
--------------- -------------- -------------- -------------- --------------
Total revenues $ 158,014,294 $ 88,050,134 $ 46,689,275 $ 28,284,411 $ 13,817,014
=============== ============== ============== ============== ==============
Benefits and Expenses:
Annuity benefits 2,033,275 613,594 555,421 369,652 383,515
Increase/(decrease) in annuity
policy reserves 37,270 634,540 (6,778,756) 5,766,003 1,208,454
Cost of minimum death benefit
reinsurance 4,544,697 2,866,835 2,056,606 - -
Return credited
to contractowners (2,018,635) 672,635 10,612,858 (516,730) 252,132
Underwriting, acquisition and
other insurance expenses 90,496,952 49,887,147 35,914,392 18,942,720 9,547,951
Interest expense 24,895,456 10,790,716 6,499,414 3,615,845 187,156
--------------- -------------- -------------- -------------- --------------
Total benefits and expenses $ 119,989,015 $ 65,465,467 $ 48,859,935 $ 28,177,490 $ 11,579,208
=============== ============== ============== ============== ==============
Income tax (benefit) expense $ 10,477,746 $ (4,038,357) $ 397,360 $ 247,429 $ 182,965
=============== ============== ============== ============== ==============
Net income (loss) $ 27,547,533 $ 26,623,024 $ (2,568,020) $ (140,508) $ 2,054,841
=============== ============== ============== ============== ==============
Balance Sheet Data:
Total Assets $12,972,416,108 $8,347,695,595 $5,021,012,890 $2,864,416,329 $1,558,548,537
=============== ============== ============== ============== ==============
Future fees payable
to parent $ 233,033,818 $ 47,111,936 $ 0 $ 0 $ 0
=============== ============== ============== ============== ==============
Surplus Notes $ 213,000,000 $ 213,000,000 $ 103,000,000 $ 69,000,000 $ 20,000,000
=============== ============== ============== ============== ==============
Shareholder's Equity $ 184,421,044 $ 126,345,031 $ 59,713,000 $ 52,205,524 $ 52,387,687
=============== ============== ============== ============== ==============
</TABLE>
* On annuity sales of $3,697,990,000, $2,795,114,000, $1,628,486,000,
$1,372,874,000 and $890,640,000 during the years ended December 31, 1997,
1996, 1995, 1994, and 1993, respectively, with contractowner assets under
management of $12,119,191,000, $7,764,891,000, $4,704,044,000,
$2,661,161,000 and $1,437,554,000 as of December 31, 1997, 1996, 1995,
1994 and 1993, respectively.
The above selected financial data should be read in conjunction with the
financial statements and the notes thereto.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS The Company's long term business plan was developed
reflecting the current sales and marketing approach. Annuity sales increased
32%, 72% and 19% in 1997, 1996 and 1995, respectively. The Company continues to
show significant growth in sales volume and increased market share within the
variable annuity industry. This growth is a result of innovative product
development activities, expansion of distribution channels and a focused effort
on customer orientation.
The Company primarily offers and sells a wide range of deferred
annuities through three focused marketing, sales and service teams.
Each team 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. The Company also offers a number of specialized products
distributed by select, large distributors. In 1995 and 1996, the
Company restructured its internal operations to better 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 representatives/insurance agents of all the selling
firms.
<PAGE>
Total assets grew 55%, 66% and 75% in 1997, 1996 and 1995,
respectively. These increases were a direct result of the
substantial sales volume increasing separate account assets and
deferred acquisition costs as well as 1997 and 1996 growth in
fixed maturity investments in support of the Company's risk based
capital requirements. Liabilities grew 56%, 65%, and 76% in 1997,
1996 and 1995, respectively, as a result of the reserves required
for the increased sales activity along with borrowings during
these periods. The borrowings are needed to fund the acquisition
costs of the Company's variable annuity business.
The Company experienced a net gain after tax in 1997 and 1996 and
a net loss after tax in 1995. The 1997 and 1996 results were
related to the strong sales volume, favorable market climate,
expense savings relative to sales volume and recognition of
certain tax benefits.
The 1995 result was related to higher than anticipated expense
levels and additional reserving requirements on our market value
adjusted annuities. The increase in expenses was primarily
attributable to improving our service infrastructure and
marketing related costs, which was in part responsible for the
strong sales and financial performance in 1996.
Increasing volume of annuity sales results in higher assets under
management. The fees realized on assets under management have
resulted in annuity charges and fees increasing 74%, 80% and 57%
in 1997, 1996 and 1995, respectively.
Fee income has increased 68%, 165% and 194% in 1997, 1996 and
1995, respectively, as a result of income from transfer agency
type activities. These increases are also as a result of
increases in assets under management.
Net investment income increased 416% in 1997, decreased 1% in
1996 and increased 23% in 1995. The increase in 1997 was a direct
result of increased bond holdings in support of the Company's
risk based capital. The level net investment income in 1996 was a
result of the consistent investment holdings throughout most of
the year. The increase in 1995 was a result of a higher average
level of Company bonds and short-term investments.
Annuity premium income represents premiums earned on sales of
immediate annuities with life contingencies and supplementary
contracts with life contingencies.
Annuity benefits represent payments on annuity contracts with
mortality risks, these being immediate annuity contracts with
life contingencies and supplementary contracts with life
contingencies.
Increase/(decrease) in annuity policy reserves represents changes
in reserves for the immediate annuity with life contingencies,
supplementary contracts with life contingencies and guaranteed
minimum death benefits. During 1995, the Company entered into an
agreement to reinsure the guaranteed minimum death benefit
exposure on most of the variable annuity contracts. The costs
associated with reinsuring the guaranteed minimum death benefit
reserve exceeded the change in the guaranteed minimum death
benefit reserve during 1997 and 1996 as a result of minimum
required premiums within the reinsurance contract. The costs
associated with reinsuring the guaranteed minimum death benefit
reserve approximate the change in the guaranteed minimum death
benefit reserve during 1995, thereby having no significant effect
on the statement of operations.
Return credited to contractowners represents revenues on the
variable and market value adjusted annuities offset by the
benefit payments and change in reserves required on this
business. Also included are the benefit payments and change in
reserves on immediate annuity contracts without significant
mortality risks. The 1997 return credited to contractowners in
the amount of ($2.0) millions represents a break-even year for
our market value adjusted product line for the year. The 1996
return credited to contractowners in the amount of $0.7 million
represents a favorable investment return on the market value
adjusted contracts relating to the benefits and required
reserves, offset by the effect of bond market fluctuations on
December 31, 1996 in the amount of $1.8 million. While the
assets relating to the market value adjusted contracts reflect
the market interest rate fluctuations which occurred on December
31, 1996, the liabilities are based on the interest rates set
for new contracts which are generally based on the prior day's
interest rates. During the first week of January 1997, interest
rates were established for new contracts, thereby bringing the
liabilities relating to the market value adjusted contracts in
line with the related assets. Consequently, the gain realized in
1997 was a result of this liability shift.
In 1995, the Company earned a lower than anticipated separate
account investment return on the market value adjusted contracts
in support of the benefits and required reserves. In addition,
the 1995 result includes an increase in the required reserves
associated with this product.
Underwriting, acquisition and other insurance expenses for 1997
were made up of $186.9 million of commissions and $94.5 million
of general expenses offset by the net capitalization of deferred
acquisition costs totaling $191.1 million. This compares to the
same period last year of $140.4 million of commissions and $63.2
million of general expenses offset by the net capitalization of
deferred acquisition costs totaling $153.9 million.
Underwriting, acquisition and other insurance expenses for 1995
is made up of $62.8 million of commissions and $42.2 million of
general expenses offset by the net capitalization of deferred
acquisition costs totaling $69.2 million.
Interest expense increased $14.1 million, $4.3 million and $2.9
million in 1997, 1996 and 1995, respectively, as a result of
Surplus Notes totaling $213 million, $213 million and $103
million, at December 31, 1997, 1996 and 1995, respectively, along
with interest on Securitization (future fees payable to Parent)
transactions for the year 1997.
Income tax reflected an expense of $10.5 million for the year
ended December 31, 1997, a benefit of $4 million for the year
ended December 31, 1996 and an expense of $0.4 million for the
year ended December 31, 1995. The 1997 income tax expense is a
net result of applying the federal income tax rate of 35% to
pre-tax earnings reduced by permanent differences, with the most
significant item being the dividend received deduction. The 1996
benefit is related to management's release of the deferred tax
valuation allowance of $9.3 million, established prior to 1996.
Management believes that based on the taxable income produced in
the current year and the continued growth in annuity products,
the Company will produce sufficient taxable income in the future
to realize its deferred tax assets. Income tax expense in 1995
relates principally to an increase in the deferred tax valuation
allowance of $1.7 million, as well as, the Company being in an
Alternative Minimum Tax position for the year.
Liquidity and Capital Resources: The liquidity requirement of the
Company was met by cash from insurance operations, investment
activities, borrowings from its Parent and sale of rights to
future fees and charges to its Parent.
As previously stated, the Company continued to have significant
growth during 1997. The sales volume of $3.698 billion was
primarily (approximately 94%) variable annuities, most of 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 cash made available by insurance operations and
investments of the Company. During 1996, the Company borrowed an
additional $110 million from its Parent in the form of Surplus
Notes. Also, during 1997 and 1996, the Company extended its
reinsurance agreements (which were initiated in 1993, 1994 and
1995). The reinsurance agreements are modified coinsurance
arrangements where the reinsurer shares in the experience of a
specific book of business. The income and expense items presented
above are net of reinsurance.
In addition, on December 17, 1996, the Company sold to its
Parent, effective September 1, 1996, certain rights to receive
future fees and charges expected to be realized on the variable
portion of a designated block of deferred annuity contracts
issued during the period January 1, 1994 through June 30, 1996
(Transaction 1996-1). Also, the Company entered into the
following similar transactions during 1997.
Closing Effective Contract Issue
Transaction Date Date Period
----------- ------- --------- --------------
1997-1 7/23/97 6/1/97 3/1/96 - 4/30/97
1997-2 12/30/97 12/1/97 5/1/95 - 12/31/96
1997-3 12/30/97 12/1/97 5/1/96 - 10/31/97
In connection with these transactions, the Parent, through a
trust, 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 Agreements, the rights sold
provide for the Parent to receive 80% (100% for Transaction
1997-3) of future mortality and expense charges and contingent
deferred sales charges, after reinsurance where applicable,
expected to be realized over the remaining surrender charge
period of the designated contracts (6 to 8 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 sales 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 of the transactions (discounted at 7.5%) of future fees as
of the respective Effective Date was as follows (amounts in
millions):
Present
Transaction Value
----------- -------
1996-1 $50.2
1997-1 58.8
1997-2 77.6
1997-3 58.2
<PAGE>
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. During December 1997, the
Company received $27.7 million from its Parent to support the
capital needs of its increased business during 1997 and the
anticipated 1998 growth in business.
As of December 31, 1997 and 1996, shareholder's equity was $184.4
million and $126.3 million, respectively, which includes the
carrying value of state insurance licenses in the amount of $4.6
million and $4.7 million, respectively.
ASLAC has long term surplus notes with its Parent and a
short-term borrowing with an affiliate. No dividends have been
paid to its parent company.
Year 2000 Compliance: The Company is a relatively young company
whose internally developed systems were designed from the start
with the correct four digit date fields. As a result, the
Company anticipates few technical problems related to the year
2000. However, we take this matter seriously and continue to
take precautions to ensure year 2000 compliance.
Steps taken to date include:
1. Any new, externally developed software is evaluated for year
2000 compliance before purchase. We also evaluate all new
service providers.
2. An external specialist had been engaged to perform a complete
assessment ofthe Company's operating systems and internally
developed software.
3. The Company is working with external business partners and
software providers to request and review their year 2000
compliance status and plans.
We anticipate full internal compliance by September 1998,
followed by continuous evaluation of internal systems, external
business partners and software providers until the year 2000.
Reserves: We are obligated to carry on our statutory books, as
liabilities, actuarial reserves to meet our obligations on outstanding annuity
or life insurance contracts. This is required by the life insurance laws and
regulations in the jurisdictions in which we do business. Such reserves are
based on mortality and/or morbidity tables in general use in the United States.
In general, reserves are computed amounts that, with additions from premiums to
be received, and with interest on such reserves compounded at certain assumed
rates, are expected to be sufficient to meet our policy obligations at their
maturities if death occurs in accordance with the mortality tables employed. In
the accompanying Financial Statements these reserves for policy obligations are
determined in accordance with generally accepted accounting principles and are
included in the liabilities of our separate accounts and the general account
liabilities for future benefits of annuity or life insurance contracts we issue.
Competition: We are engaged in a business that is highly competitive
due to the large number of insurance companies and other entities competing in
the marketing and sale of insurance products. There are approximately 2300
stock, mutual and other types of insurers in the life insurance business in the
United States.
Employees: As of December 31, 1997, we had 456 direct salaried
employees. An affiliate, American Skandia Information Services and Technology
Corporation, which provides services almost exclusively to us, had 79 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.
<PAGE>
<TABLE>
<CAPTION>
Executive Officers and Directors:
Our executive officers, directors and certain significant employees, their ages,
positions with us and principal occupations are indicated below. The immediately
preceding work experience is provided for officers that have not been employed
by us or an affiliate for at least five years as of the date of this Prospectus.
<S> <C> <C> <C>
Name/ Position with American Skandia
Age Life Assurance Corporation Principal Occupation
Gordon C. Boronow* Deputy Chief Executive Deputy Chief Executive
45 Officer and President Officer and President:
Director (since July, 1991) American Skandia Life
Assurance Corporation
Nancy F. Brunetti Director (since February, 1996) Executive Vice President and
36 Chief Operating Officer:
American Skandia Information
Services and Technology Corporation
Malcolm M. Campbell Director (since July, 1991) Director of Operations and
42 Chief Actuary, Assurance and
Financial Services Division:
Skandia Insurance Company Ltd.
Jan R. Carendi* Chief Executive Senior Executive Vice President and
53 Officer and Member of Executive Management Group:
Chairman of the Skandia Insurance Company Ltd.
Board of Directors
Director (since May, 1988)
Lincoln R. Collins Executive Vice President and Executive Vice President
37 Chief Operating Officer and Chief Operating Officer:
Director (since February, 1996) American Skandia Life
Assurance Corporation
Henrik Danckwardt Director (since July, 1991) Director of Finance
44 and Administration,
Assurance and Financial
Services Division:
Skandia Insurance Company Ltd.
Wade A. Dokken Director (since July, 1991) President and Deputy
38 Chief Executive Officer:
American Skandia Marketing, Incorporated
Brian L. Hirst Vice President, Vice President,
50 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,
46 Product Development Product Development:
American Skandia Life
Assurance Corporation
Thomas M. Mazzaferro Executive Vice President and Executive Vice President and
45 Chief Financial Officer, Chief Financial Officer:
Director (since September, 1994) American Skandia Life
Assurance Corporation
Gunnar J. Moberg Director (since October, 1994) Director - Marketing and Sales,
43 Assurances and Financial
Services Division:
Skandia Insurance Company Ltd.
David R. Monroe Vice President, Vice President,
36 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.
Rodney D. Runestad Vice President Vice President:
48 American Skandia Life
Assurance Corporation
Anders O. Soderstrom Executive Vice President and President and
38 Chief Information Officer Chief Information Officer:
Director (since September, 1994) American Skandia Information
Services and Technology Corporation
Amanda C. Sutyak Executive Vice President Vice President
40 Director (since July, 1991) American Skandia
Marketing, Incorporated
C. Ake Svensson Treasurer, Vice President, Corporate
47 Director (since December, 1994) Controller and Treasurer:
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 September, 1994) Senior Vice President,
50 National Sales Manager:
American Skandia
Marketing, Incorporated
Jeffrey M. Ulness Vice President, Vice President,
37 Product Management Product Management:
American Skandia Life
Assurance Corporation
Mr. Ulness joined us in 1994. He previously held the positions of Counsel at
North American Security Life Insurance Company from March, 1991 to July, 1994
and Associate at LeBoeuf, Lamb, Leiby, Green and MacRae from January, 1990 to
March 1991.
- --------
* Trustees of American Skandia Trust, one of the underlying mutual funds in
which the Sub-accounts offered pursuant to this Prospectus invest.
</TABLE>
CONTENTS OF THE STATEMENT OF ADDITIONAL 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 financial statements which follow in Appendix A are
those of American Skandia Life Assurance Corporation for the years ended
December 31, 1997 and 1996, and for each of the three years in the period ended
December 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
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholder of
American Skandia Life Assurance Corporation
Shelton, Connecticut
We have audited the consolidated statement of financial condition of American
Skandia Life Assurance Corporation (the "Company" which is a wholly-owned
subsidiary of Skandia Insurance Company Ltd.) as of December 31, 1997, and the
related consolidated statements of operations, shareholder's equity, and cash
flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1997 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Skandia Life Assurance Corporation at December 31, 1997, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/Ernst & Young LLP
- --------------------
Hartford, Connecticut
February 20, 1998
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
American Skandia Life Assurance Corporation
Shelton, Connecticut
We have audited the accompanying consolidated statement 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 the
related consolidated statements of operations, shareholder's equity, and cash
flows for each of the two 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 the results of
their operations and their cash flows for each of the two 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>
<S> <C> <C>
AS OF DECEMBER 31,
1997 1996
--------------- --------------
ASSETS
Investments:
Fixed maturities - at amortized cost $ 9,366,671 $ 10,090,369
Fixed maturities - at fair value 108,323,668 87,369,724
Investment in mutual funds - at fair value 6,710,851 2,637,731
Policy loans 687,267 159,482
--------------- --------------
Total investments 125,088,457 100,257,306
Cash and cash equivalents 81,974,204 45,332,131
Accrued investment income 2,441,671 1,958,546
Fixed assets 356,153 229,780
Deferred acquisition costs 628,051,995 438,640,918
Reinsurance receivable 3,120,221 2,167,818
Receivable from affiliates 1,910,895 691,532
Income tax receivable - current 1,047,493 -
Income tax receivable - deferred 26,174,369 17,217,582
State insurance licenses 4,562,500 4,712,500
Other assets 2,524,581 2,047,689
Separate account assets 12,095,163,569 7,734,439,793
--------------- --------------
Total Assets $12,972,416,108 $8,347,695,595
=============== ==============
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES:
Reserve for future contractowner benefits $ 43,204,443 $ 36,245,936
Policy reserves 24,414,999 21,238,749
Income tax payable - 1,124,151
Drafts outstanding 19,277,706 13,032,719
Accounts payable and accrued expenses 71,190,019 65,471,294
Payable to affiliates 584,283 685,724
Future fees payable to parent 233,033,818 47,111,936
Payable to reinsurer 78,126,227 79,000,262
Short-term borrowing 10,000,000 10,000,000
Surplus notes 213,000,000 213,000,000
Separate account liabilities 12,095,163,569 7,734,439,793
--------------- --------------
Total Liabilities 12,787,995,064 8,221,350,564
--------------- --------------
SHAREHOLDER'S EQUITY:
Common stock, $80 par, 25,000 shares
authorized, issued and outstanding 2,000,000 2,000,000
Additional paid-in capital 151,527,229 122,250,117
Unrealized investment gains and losses, net 954,069 (319,631)
Foreign currency translation, net (286,038) (263,706)
Retained earnings 30,225,784 2,678,251
--------------- --------------
Total Shareholder's Equity 184,421,044 126,345,031
--------------- --------------
Total Liabilities and Shareholder's Equity $12,972,416,108 $8,347,695,595
=============== ==============
</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>
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31,
1997 1996 1995
------------ ------------ -----------
REVENUES:
Annuity charges and fees $121,157,846 $69,779,522 $38,837,358
Fee income 27,587,231 16,419,690 6,205,719
Net investment income 8,181,073 1,585,819 1,600,674
Annuity premium income 920,042 125,000 -
Net realized capital gains 87,103 134,463 36,774
Other 80,999 5,640 8,750
------------ ----------- -----------
Total Revenues 158,014,294 88,050,134 46,689,275
------------ ----------- -----------
BENEFITS AND EXPENSES:
Benefits:
Annuity benefits 2,033,275 613,594 555,421
Increase/(decrease) in annuity policy reserves 37,270 634,540 (6,778,756)
Cost of minimum death benefit reinsurance 4,544,697 2,866,835 2,056,606
Return credited to contractowners (2,018,635) 672,635 10,612,858
------------ ----------- -----------
4,596,607 4,787,604 6,446,129
------------ ----------- -----------
Expenses:
Underwriting, acquisition and other insurance expenses 90,346,952 49,737,147 35,764,392
Amortization of state insurance licenses 150,000 150,000 150,000
Interest expense 24,895,456 10,790,716 6,499,414
------------ ----------- -----------
115,392,408 60,677,863 42,413,806
------------ ----------- -----------
Total Benefits and Expenses 119,989,015 65,465,467 48,859,935
------------ ----------- -----------
Income (loss) from operations
before income taxes 38,025,279 22,584,667 (2,170,660)
Income tax expense (benefit) 10,477,746 (4,038,357) 397,360
------------ ----------- -----------
Net income (loss) $ 27,547,533 $26,623,024 $(2,568,020)
============ =========== ===========
</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>
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
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 122,250,117 81,874,666 71,623,932
Additional contributions 29,277,112 40,375,451 10,250,734
------------ ------------ ------------
Balance at end of year 151,527,229 122,250,117 81,874,666
------------ ------------ ------------
Unrealized investment gains and losses:
Balance at beginning of year (319,631) 111,359 (41,655)
Change in unrealized investment gains and losses, net 1,273,700 (430,990) 153,014
------------ ------------ ------------
Balance at end of year 954,069 (319,631) 111,359
------------ ------------ ------------
Foreign currency translation:
Balance at beginning of year (263,706) (328,252) -
Change in foreign currency translation, net (22,332) 64,546 (328,252)
------------ ------------ ------------
Balance at end of year (286,038) (263,706) (328,252)
------------ ------------ ------------
Retained earnings (deficit):
Balance at beginning of year 2,678,251 (23,944,773) (21,376,753)
Net income (loss) 27,547,533 26,623,024 (2,568,020)
------------ ------------ ------------
Balance at end of year 30,225,784 2,678,251 (23,944,773)
------------ ------------ ------------
Total Shareholder's Equity $184,421,044 $126,345,031 $ 59,713,000
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31,
1997 1996 1995
--------------- --------------- --------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income/(loss) $ 27,547,533 26,623,024 (2,568,020)
Adjustments to reconcile net income/(loss) to net cash
used in operating activities:
Increase/(decrease) in policy reserves 3,176,250 1,852,259 (4,667,765)
Amortization of bond discount 72,986 27,340 23,449
Amortization of insurance licenses 150,000 150,000 150,000
Change in receivable from/payable to affiliates (1,320,804) 540,484 (347,884)
Change in income tax receivable/payable (2,171,644) 1,688,001 (600,849)
Increase in other assets (603,265) (661,084) (372,120)
Increase in accrued investment income (483,125) (1,764,472) (20,420)
Increase in reinsurance receivable (952,403) (179,776) (1,988,042)
Increase in deferred acquisition costs, net (189,411,077) (168,418,535) (96,212,774)
Increase in income tax receivable - deferred (9,630,603) (16,903,477) -
Increase in accounts payable and accrued expenses 5,718,725 32,322,727 945,483
Increase in drafts outstanding 6,244,987 13,032,719 -
Change in foreign currency translation, net (34,356) (77,450) (328,252)
Realized gain on sale of investments (87,103) (134,463) (36,774)
--------------- --------------- --------------
Net cash used in operating activities (161,783,899) (111,902,703) (106,023,968)
--------------- --------------- --------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of fixed maturity investments (28,905,493) (96,812,903) (614,289)
Proceeds from sale and maturity of fixed maturity investments 10,755,550 8,947,390 100,000
Purchase of shares in mutual funds (5,595,342) (2,160,347) (1,566,194)
Proceeds from sale of shares in mutual funds 1,415,576 1,273,640 867,744
Increase in policy loans (527,785) (104,427) (37,807)
Change in investments of separate account assets (3,691,031,470) (2,789,361,685) (1,609,415,439)
--------------- --------------- ---------------
Net cash used in investing activities (3,713,888,964) (2,878,218,332) (1,610,665,985)
--------------- --------------- ---------------
CASH FLOW FROM FINANCING ACTIVITIES:
Capital contributions from parent 29,277,112 40,375,451 10,250,734
Surplus notes - 110,000,000 34,000,000
Increase in future fees payable to parent 185,921,882 47,111,936 -
Increase/(decrease) in payable to reinsurer (874,035) 14,004,792 24,890,064
Proceeds from annuity sales 3,697,989,977 2,795,114,603 1,628,486,076
--------------- --------------- ---------------
Net cash provided by financing activities 3,912,314,936 3,006,606,782 1,697,626,874
--------------- --------------- ---------------
Net increase/(decrease) in cash and cash equivalents 36,642,073 16,485,747 (19,063,079)
--------------- --------------- ---------------
Cash and cash equivalents at beginning of year 45,332,131 28,846,384 47,909,463
--------------- --------------- ---------------
Cash and cash equivalents at end of year $ 81,974,204 45,332,131 28,846,384
=============== =============== ===============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Income taxes paid $ 22,307,992 11,177,120 995,496
=============== =============== ===============
Interest paid $ 16,915,835 7,094,767 540,319
=============== =============== ===============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements
December 31, 1997
1. ORGANIZATION AND OPERATION
American Skandia Life Assurance Corporation (the "Company") is a
wholly-owned subsidiary of American Skandia Investment Holding
Corporation (the "Parent"); whose ultimate parent is 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 has 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 $1,509,146 as of December 31, 1997.
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.
Certain reclassifications have been made to prior year amounts to
conform with the current year presentation.
B. New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") 130,
"Reporting Comprehensive Income", which is effective for fiscal
years beginning after December 15, 1997. SFAS 130 sets standards
for the reporting and display of comprehensive income and its
components in financial statements. Application of the new rules
will not impact the Company's financial position or net income. The
Company expects to adopt this pronouncement in the first quarter of
1998, which will include the presentation of comprehensive income
for prior periods presented for comparative purposes, as required
by SFAS 130. The primary element of comprehensive income applicable
to the Company is changes in unrealized gains and losses on
securities classified as available for sale.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
C. 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 fair 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 fair value and
changes in unrealized gains and losses are reported as a component
of shareholder's equity.
Policy loans are carried at their unpaid principal balances.
Realized gains and losses on disposal of investments are determined
by the specific identification method and are included in revenues.
D. Cash Equivalents
The Company considers all highly liquid time deposits, commercial
paper and money market mutual funds purchased with a maturity of
three months or less to be cash equivalents.
E. 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.
F. 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 $95,823 and $32,641 at December 31, 1997
and 1996, respectively. Depreciation expense for the years ended
December 31, 1997 and 1996 was $63,182 and $28,892, respectively.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
G. Recognition of Revenue and Contract Benefits
Annuity contracts without significant mortality risk, as defined by
SFAS 97, "Accounting and Reporting by Insurance Enterprises for
Certain Long-Duration Contracts", 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 for 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,
administration fees, surrender charges 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
changes 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, 1997 and 1996.
Annuity sales were $3,697,990,000, $2,795,114,000 and
$1,628,486,000 for the years ended December 31, 1997, 1996 and
1995, respectively. Annuity contract assets under management were
$12,119,191,000, $7,764,891,000 and $4,704,044,000 at December 31,
1997, 1996 and 1995, respectively.
H. 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. These costs include commissions, cost of contract
issuance, and certain selling expenses that vary with production.
These costs are being amortized generally in proportion to expected
gross profits from surrender charges, policy and asset based fees
and mortality and expense margins. This amortization is adjusted
retrospectively and prospectively when estimates of current and
future gross profits to be realized from a group of products are
revised.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
Details of the deferred acquisition costs and related amortization
for the years ended December 31, are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
---- ---- ----
Balance at beginning of year $438,640,918 $270,222,383 $174,009,609
Acquisition costs deferred
during the year 262,257,543 190,995,588 106,063,698
Acquisition costs amortized
during the year 72,846,466 22,577,053 9,850,924
------------ ------------ ------------
Balance at end of year $628,051,995 $438,640,918 $270,222,383
============ ============ ============
</TABLE>
I. Separate Accounts
Assets and liabilities in Separate Accounts are shown as separate
captions in the consolidated statements of financial condition.
Separate Account assets consist principally of long term bonds,
investments in mutual funds and short-term securities, all of
which are carried at fair value.
Included in Separate Account liabilities are $773,066,633 and
$644,233,883 at December 31, 1997 and 1996, respectively, relating
to annuity contracts for which the contractholder is guaranteed a
fixed rate of return. Separate Account assets of $773,066,633 and
$644,233,883 at December 31, 1997 and 1996, respectively,
consisting of long term bonds, short term securities, transfers
due from general account and cash are held in support of these
annuity contracts, pursuant to state regulation.
J. Fair Values of Financial Instruments
The methods and assumptions used to determine the fair value of
financial instruments are as follows:
Fair values of fixed maturities with active markets are based on
quoted market prices. For fixed maturities that trade in less
active markets, fair values are obtained from an independent
pricing service.
Fair values of investments in mutual funds are based on quoted
market prices.
The carrying value of cash and cash equivalents approximates fair
value due to the short-term nature of these investments.
Fair values of certain financial instruments, such as future fees
payable to the parent and surplus notes are not readily
determinable and are excluded from fair value disclosure
requirements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
K. Income Taxes
The Company is included in the consolidated federal income tax
return of Skandia U.S. Holding Corporation and its subsidiaries. In
accordance with the tax sharing agreement, the federal and state
income tax provision is computed on a separate return basis, as
adjusted for consolidated items, such as net operating loss
carryforwards.
Income taxes are provided in accordance with the SFAS 109,
"Accounting for Income Taxes", which requires the asset and
liability method of accounting for deferred taxes. The object of
this method is to recognize an asset and liability for the expected
future tax effects due to temporary differences between the
financial reporting and the tax basis of assets and liabilities,
based on enacted tax rates and other provisions of the tax law.
L. Translation of Foreign Currency
The financial position and results of operations of the Company's
Mexican subsidiary are measured using local currency as the
functional currency. Assets and liabilities of the subsidiary 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.
M. 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.
N. 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 also 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 fair
value of available-for-sale and held-to-maturity fixed maturities and
investments in mutual funds as of December 31, 1997 and 1996 are shown
below. All securities held at December 31, 1997 are publicly traded.
Investments in fixed maturities as of December 31, 1997 consisted of
the following:
Held-to-Maturity
----------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
U.S. Government
Obligations $3,789,498 $71,197 $ 8,517 $3,852,178
Obligations of State and
Political Subdivisions 50,000 - - 50,000
Corporate Securities 5,527,173 1,949 19,487 5,509,635
----------- ------- -------- -----------
Totals $9,366,671 $73,146 $28,004 $9,411,813
========== ======= ======= ==========
Available-for-Sale
------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
U.S. Government
Obligations $ 14,999,291 $ 201,664 - $15,200,955
Obligations of
State and Political
Subdivisions 202,224 318 - 202,542
Corporate
Securities 91,469,384 1,505,656 54,869 92,920,171
-------------- ----------- -------- ------------
Totals $106,670,899 $1,707,638 $54,869 $108,323,668
============ ========== ======= ============
</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 fair value of fixed maturities, by contractual
maturity, at December 31, 1997 are shown below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Held-to-Maturity Available-for-Sale
---------------- ------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- -----
Due in one year or less $1,049,977 $1,050,001 $ 2,990,584 $ 2,992,050
Due after one through five years 8,062,630 8,105,822 26,857,218 27,121,041
Due after five through ten years 254,064 255,990 76,823,097 78,210,577
---------- ---------- ------------ ------------
Total $9,366,671 $9,411,813 $106,670,899 $108,323,668
========== ========== ============ ============
</TABLE>
Investments in fixed maturities as of December 31, 1996 consisted of
the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Held-to-Maturity
----------------
Gross Gross
Amortized Unrealized Unrealized Fair
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 - 250,348
Corporate
Securities 5,540,447 - 62,660 5,477,787
----------- ---------- -------- -----------
Totals $10,090,369 $88,497 $85,597 $10,093,269
=========== ======= ======= ===========
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
Available for Sale
------------------
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
U.S. Government
Obligations $14,508,780 - $ 79,745 $14,429,035
Obligations of
State and Political
Subdivisions 202,516 26 - 202,542
Other Government
Obligations 5,047,790 - 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>
Proceeds from sales of fixed maturities during 1997, 1996 and 1995 were
$5,055,550, $8,732,390 and $0, respectively. Proceeds from maturities
during 1997, 1996 and 1995 were $5,700,000, $215,000 and $100,000,
respectively.
The cost, gross unrealized gains (losses) and fair value of investments
in mutual funds at December 31, 1997 and 1996 are shown below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
---- ---------- ---------- -----
1997 $6,895,821 $43,506 $228,476 $6,710,851
========== ======= ======== ==========
1996 $2,638,695 $59,278 $ 60,242 $2,637,731
========== ======= ========= ==========
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
Net realized investment gains (losses) were as follows for the years
ended December 31:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
---- ---- ----
Fixed Maturities:
Gross gains $ 9,800 $ - $ -
Gross losses - - -
Investment in Mutual Funds:
Gross gains 115,824 139,814 65,236
Gross losses (38,521) (5,351) (28,462)
---------- ----------- --------
Totals $ 87,103 $134,463 $36,774
========= ======== =======
</TABLE>
4. NET INVESTMENT INCOME
The sources of net investment income for the years ended December 31,
1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
---- ---- ----
Fixed maturities $6,616,560 $ 836,591 $ 629,743
Cash and cash equivalents 1,153,790 684,653 986,932
Investment in mutual funds 553,864 143,737 59,895
Policy loans 28,243 5,274 4,025
---------- ---------- ----------
Total investment income 8,352,457 1,670,255 1,680,595
Investment expenses 171,384 84,436 79,921
---------- ---------- ----------
Net investment income $8,181,073 $1,585,819 $1,600,674
========== ========== ==========
</TABLE>
5. INCOME TAXES
The significant components of income tax expense (benefit) are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
---- ---- ----
Current tax expense $20,108,348 $12,865,120 $397,360
Deferred tax benefit (9,630,602) (16,903,477) -
----------- ---------- --------
Total income tax expense (benefit) $10,477,746 $(4,038,357) $397,360
=========== ============ ========
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
The tax effects of significant items comprising the Company's deferred
tax balance as of December 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
---- ----
Deferred Tax (Liabilities):
Deferred acquisition costs ($159,765,795) ($103,072,477)
Payable to reinsurer (25,369,078) (23,025,326)
Policy fees (656,311) (491,640)
Unrealized investment gains and losses (513,731) 172,109
------------- --------------
Total (186,304,915) (126,417,334)
------------ ------------
Deferred Tax Assets:
Net separate account liabilities 175,872,109 121,092,798
Reserve for future contractowner benefits 15,121,555 12,686,078
Other reserve differences 10,534,160 4,527,886
Deferred compensation 7,186,789 4,392,526
Surplus notes interest 2,728,676 548,730
Foreign exchange translation 154,020 141,996
Other 881,975 244,902
------------- -------------
Total 212,479,284 143,634,916
------------ ------------
Net deferred tax balance $ 26,174,369 $ 17,217,582
============ ============
</TABLE>
Management believes that based on the taxable income produced in the
current year and the continued growth in annuity products, the Company
will produce sufficient taxable income in the future to realize its
deferred tax asset. As such, the Company released the deferred tax
valuation allowance of $9,324,853 in 1996.
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>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
---- ---- ----
Income (loss) before taxes $38,025,279 $22,584,667 ($2,170,660)
Income tax rate 35% 35% 35%
----------- ----------- -----------
Tax expense at federal
statutory income tax rate 13,308,848 7,904,633 (759,731)
Tax effect of:
Change in valuation allowance - (9,324,853) 1,680,339
Dividend received deduction (4,585,000) (2,266,051) (477,139)
Other 866,973 (707,685) (48,821)
State income taxes 886,925 355,599 2,712
----------- ----------- -----------
Income tax expense (benefit) $10,477,746 ($ 4,038,357) $ 397,360
=========== =========== ===========
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
6. RECEIVABLE FROM/PAYABLE TO AFFILIATES
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. The total cost to the Company for these items was
$5,572,404, $11,581,114 and $12,687,337 for the years ended December
31, 1997, 1996 and 1995, respectively. Income received for these items
was $3,224,645, $1,148,364 and $396,573 for the years ended December
31, 1997, 1996 and 1995, respectively. Amounts receivable from
affiliates under these arrangements were $548,887 and $548,792 as of
December 31, 1997 and 1996, respectively. Amounts payable to affiliates
under these arrangements were $263,742 and $619,089 as of December 31,
1997 and 1996, respectively.
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 from January 1,
1994 through June 30, 1996 (Transaction 1996-1). In addition, the
Company entered into the following similar transactions during 1997:
Closing Effective Contract Issue
Transaction Date Date Period
----------- ------- --------- --------------
1997-1 7/23/97 6/1/97 3/1/96 - 4/30/97
1997-2 12/30/97 12/1/97 5/1/95 - 12/31/96
1997-3 12/30/97 12/1/97 5/1/96 - 10/31/97
In connection with these transactions, the Parent, through a trust,
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 Agreements, the rights sold provide for
the Parent to receive 80% (100% for Transaction 1997-3) 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 (6.0 to 8.0 years). The
Company did not sell the right to receive future fees and charges after
the expiration of the surrender charge period.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
The proceeds from the sales 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 of
the transactions (discounted at 7.5%) as of the respective Effective
Date was as follows:
Present
Transaction Value
----------- -------
1996-1 $ 50,221,438
1997-1 58,766,633
1997-2 77,551,736
1997-3 58,193,264
Payments representing fees and charges realized during the period
January 1, 1997 through December 31, 1997 in the aggregate amount of
$22,250,158, were made by the Company to the Parent. Interest expense
of $6,842,469 has been included in the statement of operations.
Expected payments of future fees payable to Parent are as follows:
Year Ending
December 31, Amount
------------ ------
1998 $ 39,637,610
1999 41,845,736
2000 43,500,530
2001 40,738,800
2002 34,533,624
2003 22,835,020
2004 9,490,399
2005 452,099
--------------
Total $ 233,033,818
==============
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 1997, 1996 and 1995 was $2,427,502,
$1,583,391 and $1,218,806, respectively. Future minimum lease payments
per year and in aggregate as of December 31, 1997 are as follows:
1998 $ 2,371,509
1999 2,595,272
2000 2,753,324
2001 2,753,324
2002 2,753,324
2003 and thereafter 21,465,933
------------
Total $34,692,686
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
$3,756,572 and $3,766,564 as of December 31, 1997, and 1996,
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 $294,585,500, $275,835,076 and
$132,493,899 at December 31, 1997, 1996 and 1995, respectively.
The statutory basis net loss was $8,970,459, $5,405,179 and $7,183,003
for the years ended December 31, 1997, 1996 and 1995, respectively.
Under state insurance laws, the maximum amount of dividends that can be
paid to 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, 1997, 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. Under this plan, the Company contributes 3%
of salary for all participating employees and matches employee
contributions at a 50% level up to an additional 3% Company
contribution. Company contributions to this plan on behalf of the
participants were $1,220,214, $850,111 and $627,161 for the years ended
December 31, 1997, 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)
The Company and an affiliate cooperatively have a long-term incentive
plan under which 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 $15,720,067 and $9,212,369 as
of December 31, 1997 and 1996, respectively. Payments under this plan
were $1,118,803, $601,603 and $0 for the years ended December 31, 1997,
1996, and 1995, respectively.
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
$269,616 in 1997, $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, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997
<S> <C> <C> <C> <C>
Annuity Change in Annuity Return Credited
Charges and Fees Policy Reserves to Contractowners
---------------- ----------------- -----------------
Gross $144,417,045 $955,677 ($1,971,959)
Ceded 23,259,199 918,407 46,676
------------ --------- ----------
Net $121,157,846 $ 37,270 ($2,018,635)
============ ========= ==========
1996
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
=========== ======== ========
1995
Annuity Change in Annuity Return Credited
Charges and Fees Policy Reserves to Contractowners
---------------- ----------------- -----------------
Gross $50,334,280 ($4,790,714) $10,945,831
Ceded 11,496,922 1,988,042 332,973
----------- ---------- -----------
Net $38,837,358 ($6,778,756) $10,612,858
=========== ========== ===========
</TABLE>
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, 1997, 1996 and 1995 were
as follows:
<TABLE>
<CAPTION>
Interest for the
Years Ended December 31,
------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest
Issue Date Amount Rate 1997 1996 1995
---------- ------ ---- ---- ---- ----
December 29, 1993 $ 20,000,000 6.84% $ 1,387,000 $ 1,390,800 $1,387,000
February 18, 1994 10,000,000 7.28% 738,111 740,133 738,111
March 28, 1994 10,000,000 7.90% 800,972 803,167 800,972
September 30, 1994 15,000,000 9.13% 1,388,521 1,392,325 1,388,521
December 28, 1994 14,000,000 9.78% 1,388,217 1,392,020 1,392,008
December 19, 1995 10,000,000 7.52% 762,444 764,533 27,156
December 20, 1995 15,000,000 7.49% 1,139,104 1,142,225 37,450
December 22, 1995 9,000,000 7.47% 681,638 683,505 18,675
June 28, 1996 40,000,000 8.41% 3,410,722 1,747,411 -
December 30, 1996 70,000,000 8.03% 5,699,069 31,228 -
------------ ----------- ------------ ----------
Total $213,000,000 $17,395,798 $10,087,347 $5,789,893
============ =========== =========== ==========
</TABLE>
All surplus notes mature 7 years from the issue date.
Payment of interest and repayment of principal for these notes is
subject to certain conditions and require approval by the Insurance
Commissioner of the State of Connecticut. At December 31, 1997 and
1996, $7,796,218 and $1,567,800, respectively, of accrued interest on
surplus notes was not approved for payment under these criteria.
14. SHORT-TERM BORROWING
The Company has a $10,000,000 loan from the parent which matures on
March 10, 1998 and bears interest at 6.39%. The total interest expense
to the Company was $641,532, $642,886 and $709,521 and for the years
ended December 31, 1997, 1996 and 1995, respectively, of which $200,575
and $206,361 was payable as of December 31, 1997 and 1996,
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> <C>
1997 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
Premiums and other insurance
revenues $30,185,820 $34,055,549 $41,102,381 $44,402,368
Net investment income 1,368,683 2,626,776 2,031,187 2,154,427
Net realized capital gains 20,604 43,460 20,553 2,486
----------- ----------- ----------- -----------
Total revenues $31,575,107 $36,725,785 $43,154,121 $46,559,281
=========== =========== =========== ===========
Benefits and expenses $18,319,281 $30,465,338 $31,179,403 $40,024,993
=========== =========== =========== ===========
Net income $ 8,995,975 $ 3,646,787 $ 8,621,412 $ 6,283,359
============ ============ ============ ============
Three Months Ended
------------------
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
============ ============ ============ ===========
Three Months Ended
------------------
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>
As described in Note 5, the valuation allowance relating to deferred
income taxes was released during the three months ended December 31,
1996.
<PAGE>
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 prospectus of the Alliance Variable Products Series Fund,
Inc. for more complete details and risk factors applicable to certain
portfolios.
U.S. Government/High Grade Securities Portfolio: The investment objective of the
U.S. Government/High Grade Securities Portfolio is high current income
consistent with preservation of capital. In seeking to achieve this objective,
the portfolio will invest principally in a portfolio of: (a) obligations issued
or guaranteed by the U.S. Government and repurchase agreements pertaining to
U.S. Government Securities; and (b) other high grade debt securities rated AAA,
AA or A by Standard & Poor's Corporation or Aaa, Aa or A by Moody's Investors
Service, Inc. or that have not received a rating but are determined to be of
comparable quality by the portfolio's advisor. As a fundamental investment
policy, the portfolio will invest at least 65% of its total assets in these
types of securities, including the securities held subject to repurchase
agreements. The portfolio will utilize certain other investment techniques,
including options and futures contracts, intended to enhance income and reduce
market risk. The portfolio is designed primarily for long-term investors and
investors should not consider it a trading vehicle.
Total Return Portfolio: The investment objective of the Total Return Portfolio
is to achieve a high return through a combination of current income and capital
appreciation. The Total Return Portfolio's assets are invested in U.S.
Government and agency obligations, bonds, fixed-income senior securities
(including short and long-term debt securities and preferred stocks to the
extent their value is attributable to their fixed-income characteristics),
preferred and common stocks in such proportions and of such type as are deemed
best adapted to the current economic and market outlooks. The percentage of the
portfolio's assets invested in each type of security at any time shall be in
accordance with the judgment of the portfolio's advisor.
International Portfolio: The primary investment objective of the International
Portfolio is to seek to obtain a total return on its assets from long-term
growth of capital principally through a broad portfolio of marketable securities
of established non-United States companies (e.g., incorporated outside the
United States), companies participating in foreign economies with prospects for
growth, and foreign government securities. As a secondary objective, the
portfolio will attempt to increase its current income without assuming undue
risk. The portfolio's advisor considers it consistent with these objectives to
acquire securities of companies incorporated in the United States and having
their principal activities and interests outside of the United States. The
International Portfolio intends to be invested primarily in such issuers and
under normal circumstances more than 80% of its assets will be so invested.
In seeking its objective, the International Portfolio expects to invest its
assets primarily in common stocks of established non-United States companies
which in the opinion of the portfolio's advisor have potential for growth of
capital or income or both.
It is the present intention of the portfolio's advisor to invest the portfolio's
assets in companies based in (or governments of or within) the Far East (Japan,
Hong Kong, Singapore and Malaysia), Western Europe (the United Kingdom, Germany,
The Netherlands, France and Switzerland), Australia, Canada, and such other
areas and countries as the portfolio's advisor may determine from time to time.
However, investments may be made from time to time in companies in, or
governments of, developing countries as well as developed countries.
Shareholders should be aware that investing in the equity and fixed-income
markets of developing countries involves exposure to economic structures that
are generally less diverse and mature, and to political systems which can be
expected to have less stability than those of developed countries. The
portfolio's advisor at present does not intend to invest more than 10% of the
International Portfolio's assets in companies in, or governments of, developing
countries.
Short-Term Multi-Market Portfolio: The investment objective of the
Short-Term-Multi-Market Portfolio is to seek the highest level of current
income, consistent with what the portfolio's advisor considers to be prudent
investment risk, that is available from a portfolio of high-quality debt
securities having remaining maturities of not more than three years. The
portfolio seeks high current yields by investing in a portfolio of debt
securities denominated in the U.S. Dollar and a range of foreign currencies.
Accordingly, the portfolio will seek investment opportunities in foreign, as
well as domestic, securities markets. While the portfolio normally will maintain
a substantial portion of its assets in debt securities denominated in foreign
currencies, the portfolio will invest at least 25% of its net assets in U.S.
Dollar denominated securities. The portfolio is designed for the investor who
seeks a higher yield than a money market fund or certificate of deposit and less
fluctuation in net asset value than a longer-term bond fund.
Growth and Income Portfolio: The investment objective of the Growth and Income
Portfolio is to seek reasonable current income and reasonable opportunity for
appreciation through investments primarily in dividend-paying common stocks of
good quality. Whenever the economic outlook is unfavorable for investment in
common stock, investments in other types of securities, such as bonds,
convertible bonds, preferred stock and convertible preferred stocks may be made
by the portfolio. Purchases and sales of portfolio securities are made at such
times and in such amounts as are deemed advisable in light of market, economic
and other conditions.
Premier Growth Portfolio: The investment objective of the Premier Growth
Portfolio is growth of capital by pursuing aggressive investment policies. Since
investments will be made based upon their potential for capital appreciation,
current income will be incidental to the objective of capital growth. Because of
the market risks inherent in any investment, the selection of securities on the
basis of their appreciation possibilities cannot ensure against possible loss in
value, and there is, of course, no assurance that the portfolio's investment
objective will be met. The portfolio is therefore not intended for investors
whose principal objective is assured income and conservation of capital.
The portfolio will invest predominantly in the equity securities (common stocks,
securities convertible into common stocks and rights and warrants to subscribe
for or purchase common stocks) of a limited number of large, carefully selected,
American companies that, in the judgment of the portfolio's advisor, are high
quality and likely to achieve superior earnings growth. The portfolio
investments in the 25 of these companies most highly regarded at any point in
time by the portfolio's advisor will usually constitute approximately 70% of the
portfolio's net assets. Normally, approximately 40 companies will be represented
in the portfolio's investment portfolio. The portfolio thus differs from more
typical equity mutual funds by investing most of its assets in a relatively
small number of intensively researched companies.
The portfolio will, under normal circumstances, invest at least 85% of the value
of its total assets in the equity securities of American companies. The
portfolio defines American companies to be entities (i) that are organized under
the laws of the United States and have their principal office in the United
States, and (ii) the equity securities of which are traded principally in the
United States securities markets.
Money Market Portfolio: The investment objectives of the Money Market Portfolio
are to achieve safety of principal, excellent liquidity and maximum current
income to the extent consistent with the first two objectives. An investment in
the Money Market Portfolio is neither insured nor guaranteed by the U.S.
Government. In seeking to achieve its investment objectives, the Money Market
Portfolio will invest primarily in: (a) marketable obligations of, or guaranteed
by, the United States Government, its agencies or instrumentalities; (b)
certificates of deposit, bankers' acceptances and interest bearing savings
deposits issued or guaranteed by banks or savings and loan associations having
total assets of more than $1 billion and which are members of the FDIC; (c)
commercial paper of prime quality (rated A-1+ or A-1 by Standard and Poor's or
Prime-1 by Moody's Investor Services, Inc., or, if not rated, issued by
companies having outstanding debt securities rated AAA or AA by S&P, or Aaa or
Aa by Moody's and participation loans extended by banks to such companies); and
(d) repurchase agreements that are collateralized in full each day by liquid
securities of the types listed above.
North American Government Income Portfolio: The investment objective of the
North American Government Income Portfolio is to seek the highest level of
current income, consistent with what the adviser considers to be prudent
investment risk, that is available from a portfolio of debt securities issued or
guaranteed by the governments of the United States, Canada, Mexico and
Argentina, their political subdivisions (including Canadian Provinces but
excluding States of the United States), agencies, instrumentalities or
authorities ("Government Securities"). The portfolio seeks high current yields
by investing in Government Securities denominated in the U.S. Dollar, the
Canadian Dollar and the Mexican Peso. Normally, the portfolio expects to
maintain at least 25% of its assets in securities denominated in the U.S.
Dollar. In addition, the portfolio may invest up to 25% of its total assets in
debt securities issued by governmental entities of Argentina. The portfolio will
utilize certain other investment techniques, including options and futures. The
portfolio may invest its assets in Government Securities considered investment
grade or higher (i.e., securities rated at least BBB by S&P or at least Baa by
Moody's or, if not so rated, of equivalent investment quality as determined by
the portfolio's adviser.)
Global Dollar Government Portfolio: The primary investment objective of the
Global Dollar Government Portfolio is to seek a high level of current income.
Its secondary investment objective is capital appreciation. In seeking to
achieve these objectives, the portfolio will invest at least 65% of its total
assets in fixed income securities issued or guaranteed by foreign governments,
including participations in loans between foreign governments and financial
institutions, and interests in entities organized and operated for the purpose
of restructuring the investment characteristics of instruments issued or
guaranteed by foreign governments ("Sovereign Debt Obligations"). The
portfolio's investments in Sovereign Debt Obligations will emphasize obligations
of a type customarily referred to as "Brady Bonds," that are issued as part of
debt restructurings and that are collateralized in full as to principal due at
maturity by zero coupon obligations issued by the U.S. government, its agencies
or instrumentalities. The portfolio may invest up to 30% of its total assets in
the Sovereign Debt Obligations and corporate fixed income securities of issuers
in any one of Argentina, Brazil, Mexico, Morocco, the Philippines or Venezuela,
and the portfolio will limit investments in the Sovereign Debt Obligations of
each such country (or of any other single foreign country) to less than 25% of
its total assets. The portfolio may also invest up to 35% of its total assets in
U.S. corporate fixed income securities and non-U.S. corporate fixed income
securities. The portfolio will limit its investments in Sovereign Debt
Obligations, U.S. and non-U.S. corporate fixed income securities to U.S. dollar
denominated securities.
Utility Income Portfolio: The investment objective of the Utility Income
Portfolio is to seek current income and capital appreciation by investing
primarily in equity and fixed income securities of companies in the utilities
industry. The portfolio may invest in securities of both United States and
foreign issuers, although no more than 15% of the portfolio's total assets will
be invested in issuers in any one foreign country. The utilities industry
consists of companies engaged in (i) the manufacture, production, generation,
provision, transmission, sale and distribution of gas and electric energy, and
communications equipment and services, including telephone, telegraph,
satellite, microwave and other companies providing communication facilities for
the public, or (ii) the provision of other utility or utility-related goods and
services, including, but not limited to, entities engaged in water provision,
cogeneration, waste disposal system provision, solid waste electric generation,
independent power producers and non-utility generators. As a matter of
fundamental policy, the portfolio will, under normal circumstances, invest at
least 65% of the value of its total assets in securities of companies in the
utilities industry. The portfolio's investment objective and policies are
designed to take advantage of the characteristics and historical performance of
securities of companies in the utilities industry. Many of these companies have
established a reputation for paying regular dividends and for increasing their
common stock dividends over time.
Global Bond Portfolio: The investment objective of the Global Bond Portfolio is
to seek a high level of return from a combination of current income and capital
appreciation by investing in a globally diversified portfolio of high quality
debt securities denominated in the U. S. Dollar and a range of foreign
currencies.
The portfolio will invest only in securities of issuers in countries whose
governments are deemed stable by the portfolio's advisor and its sub-advisor.
Their determination that a particular country should be considered stable
depends on their evaluation of political and economic developments affecting the
country as well as recent experience in the markets for foreign government
securities of the country.
The portfolio intends to spread investment risk among the capital markets of a
number of countries and will invest in securities of the governments of, and
companies based in, at least three, and normally considerably more, such
countries. The percentage of the portfolio's assets invested in the debt
securities of the government of, or a company based in, a particular country or
denominated in a particular currency will vary depending on the relative yields
of such securities, the economies of the countries in which the investments are
made and such countries' financial markets, the interest rate climate of such
countries and the relationship of such countries' currencies to the U.S. Dollar.
Currency is judged on the basis of fundamental economic criteria (e.g., relative
inflation levels and trends, growth rate forecasts, balance of payments status,
and economic policies) as well as technical and political data. Under normal
market conditions, it is expected that approximately 25% of the portfolio's net
assets will be invested in debt securities denominated in the U.S. Dollar. There
are certain risks associated with investing in foreign securities. See the fund
prospectus "Other Investment Policies and Techniques - Foreign Securities".
The portfolio seeks to minimize investment risk by limiting its portfolio
investments to high-quality debt securities of U.S. or foreign governments or
supranational organizations, high-quality U.S. or foreign corporate debt
securities, including commercial paper and high-quality debt obligations of
banks and bank holding companies. The portfolio's investments consist of only
the two highest grades assigned by S&P or Moody's or, if unrated, judged by the
portfolio's advisor and Sub-advisor to be of comparable quality.
Growth Investors Portfolio: The investment objective of the Growth Investors
Portfolio is to attempt to achieve the highest total return consistent with the
advisor's determination of reasonable risk. The portfolio attempts to achieve
its investment objective by allocating varying portions of its assets among a
number of asset classes. Equity investments will include publicly traded common
stocks and securities convertible into common stock equity securities issued by
intermediate and small-sized companies with favorable growth prospects,
companies in cyclical industries, companies whose securities are temporarily
undervalued, companies in special situations and less widely known companies.
Fixed-income investments will include investment grade fixed-income securities
(including cash and money market instruments) and may include securities that
are rated in the lower rating categories by recognized ratings agencies (i.e.,
Ba or lower by Moody's or BB or lower by S&P) or that are unrated but determined
by the advisor to be of comparable quality. Lower rated fixed-income securities
generally provide greater current income than higher rated fixed-income
securities, but are subject to greater credit and market risk. The portfolio
will not invest more than 25% of its total assets in securities rated below
investment grade, that is, securities rated Ba or lower by Moody's or BB or
lower by S&P, or unrated securities deemed to be of comparable quality by the
portfolio's advisor.
Conservative Investors Portfolio: The investment objective of the Conservative
Investors Portfolio is to achieve a high total return without, in the view of
the advisor, undue risk of principal. The Conservative Investors Portfolio
attempts to achieve its investment objective by allocating varying portions of
its assets among investment grade, publicly traded fixed-income securities,
money market instruments and publicly traded common stocks and other equity
securities of United States and non-United States issuers.
All fixed-income securities owned by the portfolio will be of investment grade.
This means that they will be in one of the top four rating categories assigned
by S&P or Moody's or will be unrated securities of comparable quality as
determined by the advisor.
Equity securities invested in by the Conservative Investors Portfolio will
consist of common stocks and securities convertible into common stocks, such as
convertible bonds, convertible preferred stocks and warrants, issued by
companies with a favorable outlook for earnings and whose rate of growth is
expected to exceed that of the United States' economy over time.
Growth Portfolio: The investment objective of the Growth Portfolio is to provide
long-term growth of capital. Current income is only an incidental consideration.
The portfolio attempts to achieve its objective by investing primarily in equity
securities of companies with a favorable outlook for earnings and whose rate of
growth is expected to exceed that of the United States economy over time.
The portfolio invests primarily in common stocks and securities convertible into
common stocks such as convertible bonds, convertible preferred stocks and
warrants convertible into common stocks. Because the values of fixed-income
securities are expected to vary inversely with changes in interest rates
generally, when the advisor expects a general decline in interest rates, the
portfolio may also invest for capital growth in fixed-income securities rated at
the time of purchase below investment grade, that is securities rated Ba or
lower by Moody's or BB or lower by S&P, or in unrated fixed income securities
determined by the advisor to be of comparable quality. There are certain risks
involved in investing in lower rated fixed income securities. See the fund
prospectus "Growth Portfolio-Investments in High-Yield Securities".
Worldwide Privatization Portfolio: The investment objective of the Worldwide
Privatization Portfolio is to seek long term capital appreciation. In seeking to
achieve its investment objective, as a fundamental policy, the portfolio will
invest at least 65% of its total assets in equity securities that are issued by
enterprises that are undergoing, or that have undergone, privatization although
normally, significantly more of the portfolio's total assets will be invested in
such securities. The balance of the portfolio's investment portfolio will
include securities of companies that are believed by the portfolio's advisor to
be beneficiaries of the privatization process. Equity securities include common
stock, preferred stock, rights or warrants to subscribe for or purchase common
or preferred stock, securities (including debt securities) convertible into
common or preferred stock and securities that give the holder the right to
acquire common or preferred stock.
The portfolio is designed for investors desiring to take advantage of investment
opportunities, historically inaccessible to U.S. individual investors, that are
created by privatizations of state enterprises in both established and
developing economies, including those in Western Europe and Scandinavia,
Australia, New Zealand, Latin America, Asia and Eastern and Central Europe and,
to a lesser degree, Canada and the United States.
It is the intention of the advisor to invest approximately 70% of the
portfolio's total assets in securities of enterprises located in countries with
established economies and the remainder of the portfolio's assets in securities
of enterprises located in countries with developing economies. The portfolio
intends to spread its portfolio investments among the capital markets of a
number of countries and, under normal market conditions, will invest in the
equity securities of issuers based in at least four, and normally considerable
more, countries. The percentage of the portfolio's assets invested in equity
securities of companies based in a particular country will vary in accordance
with the portfolio advisor's assessment of the appreciation potential of such
securities. There is no restriction, however, on the percentage of the
portfolio's assets that may by invested in countries within any one region of
the world. To the extent that the portfolio's assets are invested within any one
region, the portfolio may be subject to any special risks that may be associated
with that region. Notwithstanding the foregoing, no more than 15% of the
portfolio's total assets will be invested in securities of issuers in any one
foreign country, except that the portfolio may invest up to 30% of its total
assets in securities of issuers in any one of France, Germany, Great Britain,
Italy and Japan.
Shareholders should be aware that investment in the portfolio involves certain
special risk considerations. The governments of certain foreign countries have,
to varying degrees, embarked on privatization programs contemplating the sale of
all or part of their interests in state enterprises. In certain jurisdictions,
the ability of foreign entities, such as the portfolio, to participate in
privatizations may be limited by local law, or the price or terms on which the
portfolio may be able to participate may be less advantageous than for local
investors. Moreover, there can be no assurance that governments that have
embarked on privatization programs will continue to divest their ownership of
state enterprises, that proposed privatizations will be successful or that
government will not re-nationalize enterprises that have been privatized.
Furthermore, in the case of certain of the enterprises in which the portfolio
may invest, large blocks of the stock of those enterprises may be held by a
small group of stockholders, even after the initial equity offerings by those
enterprises. The sale of some portion or all of those blocks could have an
adverse effect on the price of the stock of any such enterprise.
Because substantially all of the portfolio's assets will be invested in
securities denominated in foreign currencies and a corresponding portion of the
portfolio's revenues will be received in such currencies, the dollar equivalent
of the portfolio's net assets and distributions will be adversely affected by
reductions in the value of certain foreign currencies relative to the U.S.
dollar. Such changes will also affect the portfolio's income. The portfolio may,
but is not required to, utilize various investment strategies to hedge its
portfolio against currency and other risks.
<PAGE>
This prospectus contains a short description of the contents
of the Statement of Additional Information. You have the right
to receive from us such Statement of Additional Information.
To do so, please complete the following, detach it and forward
it to us at:
American Skandia Life Assurance Corporation
Attention: 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 ALLIANCE CAPITAL NAVIGATOR
ANNUITY (05/98).
- --------------------------------------------------------------------------------
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(print your name)
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(address)
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(city/state/zip code)
<PAGE>
ADDITIONAL INFORMATION: Inquiries will be answered by calling your
representative or by writing to:
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
at
P.O. Box 883
Shelton, Connecticut 06484
or
[email protected]
Issued by: Serviced by:
AMERICAN SKANDIA LIFE AMERICAN SKANDIA LIFE
ASSURANCE 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
Alliance
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution: Not Applicable.
Item 15. Indemnification of Directors and Officers: Under Section 33-320a of the
Connecticut General Statutes, the Registrant must indemnify a director or
officer against judgments, fines, penalties, amounts paid in settlement and
reasonable expenses including attorneys' fees, for actions brought or threatened
to be brought against him in his capacity as a director or officer when certain
disinterested parties determine that he acted in good faith and in a manner he
reasonably believed to be in the best interests of the Registrant. In any
criminal action or proceeding, it also must be determined that the director or
officer had no reason to believe his conduct was unlawful. The director or
officer must also be indemnified when he is successful on the merits in the
defense of a proceeding or in circumstances where a court determines that he is
fairly and 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 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Item 16. Exhibits:
Exhibits Page
1 Underwriting agreement (Incorporated by reference to Post-Effective Amendment No. 5 to Registration
Statement No. 33-26122, filed March 1, 1990).
Filed via EDGAR with Post-Effective Amendment No. 1 to Registration Statement No. 333-25733, filed March 2, 1998.
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).
Filed via EDGAR with Post-Effective Amendment No. 6 to Registration Statement No. 33-87010. Filed March 2, 1998
4 Instruments defining the rights of security holders, including indentures (Incorporated by
reference to Pre-Effecive Amendment No. 1 to Registration Statement No. 33-44436, filed March 30,
1992).
Filed via EDGAR with Post-effective Amendment No. 13 to Registration Statement No. 33-44436, filed April 29, 1997
5 Opinion re legality. (included as Exhibit 23b)
6 - 9 Not applicable
10 Material contracts (Investment Management Agreement)
(a) Agreement with J.P. Morgan Investment Management Inc. incorporated by reference to Post-Effective
Amendment No. 5 to Registration Statement No. 33-26122, filed April 23, 1991
Filed via EDGAR with Post-Effective Amendment No. 1 to Registration Statement No. 333-00941, filed
February 25, 1997
(b) Agreement with Fleet Investment Advisors Inc., incorporated by reference to the initial filing of
Registration Statement No. 33-86918 filed December 1, 1994
Filed via EDGAR with Post-Effective Amendment No. 1 to Registration Statement No. 333-00941, filed
February 25, 1997
11 - 22 Not applicable
23a (1) Consent of Ernst & Young LLP. FILED HEREWITH
(2) Consent of Deloitte & Touche LLP. FILED HEREWITH
23b Opinion & Consent of Werner & Kennedy. FILED HEREWITH
24 Power of Attorney
Directors Boronow, Campbell, Carendi, Danckwardt, Dokken, Sutyak,
Mazzaferro, Moberg, Soderstrom, Tracy, Svensson, Brunetti, and Collins
filed via EDGAR in the initial Registration Statement to Registration
Statement No. 333-25733, 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
23a (1) Consent of Ernst & Young LLP
(2) Consent of Deloitte & Touche LLP
23b Opinion & consent of Werner & Kennedy
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Shelton, State of Connecticut, April 23, 1998.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
Registrant
By:/s/ Kathleen A. Chapman Attest:/s/ Soctt K. Richardson
Kathleen A. Chapman, Assistant Corporate Secretary Scott K. Richardson
<TABLE>
<CAPTION>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
Signature Title Date
<S> <C> <C>
(Principal Executive Officer)
Jan R. Carendi* Chief Executive Officer, April 23, 1998
Jan R. Carendi Chairman of the Board and Director
(Principal Financial Officer)
/s/ Thomas M. Mazzaferro Executive Vice President and April 23, 1998
Thomas M. Mazzaferro Chief Financial Officer
(Principal Accounting Officer)
/s/ David R. Monroe Vice President and April 23, 1998
David R. Monroe Controller
(Board of Directors)
Jan. R. Carendi* Gordon C. Boronow* Malcolm M. Campbell*
Jan. R. Carendi Gordon C. Boronow Malcolm M. Campbell
Henrik Danckwardt* Amanda C. Sutyak* Wade A. Dokken*
Henrik Danckwardt Amanda C. Sutyak Wade A. Dokken
Thomas M. Mazzaferro* Gunnar Moberg* Bayard F. Tracy*
Thomas M. Mazzaferro Gunnar Moberg Bayard F. Tracy
Anders Soderstrom* C. Ake Svensson* Lincoln R. Collins**
Anders Soderstrom C. Ake Svensson Lincoln R. Collins
Nancy F. Brunetti*
Nancy F. Brunetti
*By: /s/Kathleen A. Chapman
Kathleen A. Chapman
<FN>
*Pursuant to Powers of Attorney filed with Initial Registration Statement No. 333-25733
</FN>
</TABLE>
ACN
INDEPENDENT AUDITORS' CONSENT
We consent to the reference to our firm under the caption "Selected Financial
Data" and to the incorporation by reference in this Registration Statement (Form
S-2 No. 33-89678) of our report dated February 20, 1998, included in the Annual
Report on Form 10-K of American Skandia Life Assurance Corporation for the year
ended December 31, 1997 and to the use of our report dated February 20, 1998,
appearing in the Prospectus, which is part of this Registration Statement.
/s/Ernst & Young LLP
Hartford, Connecticut
April 23, 1998
Alliance
Exhibit 23a
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-effective Amendment No. 3 to Registration
Statement No. 33-89678 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, 1997, 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
April 23, 1998
(212) 408-6900
April 17, 1998
American Skandia Life Assurance Corporation
One Corporate Drive
Shelton, Connecticut 06484
Re: Post-effective Amendment No. 3 on Form S-2 filed by
American Skandia Life Assurance Corporation, Registrant
Registration No.: 33-89678
Our File No. 74877-00-101
Dear Mesdames and Messrs.:
You have requested us, as general counsel to American Skandia Life
Assurance Corporation ("American Skandia"), to furnish you with this opinion in
connection with the above-referenced registration statement by American Skandia,
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 Post-effective Amendment No. 9 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.: 33-47753, 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.
American Skandia Life
Assurance Corporation
April 17, 1998
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 this
Post-effective Amendment 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,
WERNER & KENNEDY
/s/WERNER & KENNEDY
G:Legal/Andrea/FinalS2consentalliance
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 881453
<NAME> ASLAC1296
<MULTIPLIER> 1
<CURRENCY> U.S Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 108,323,668
<DEBT-CARRYING-VALUE> 117,690,339
<DEBT-MARKET-VALUE> 117,735,481
<EQUITIES> 6,710,851
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 125,088,457
<CASH> 81,974,204
<RECOVER-REINSURE> 3,120,221
<DEFERRED-ACQUISITION> 628,051,995
<TOTAL-ASSETS> 12,972,416,108 <F1>
<POLICY-LOSSES> 67,619,442
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 213,000,000
0
0
<COMMON> 2,000,000
<OTHER-SE> 182,421,044
<TOTAL-LIABILITY-AND-EQUITY> 12,972,416,108 <F2>
920,042
<INVESTMENT-INCOME> 8,181,073
<INVESTMENT-GAINS> 87,103
<OTHER-INCOME> 148,826,076 <F3>
<BENEFITS> 4,596,607
<UNDERWRITING-AMORTIZATION> 52,524,520
<UNDERWRITING-OTHER> 37,972,432
<INCOME-PRETAX> 38,025,279
<INCOME-TAX> 10,477,746
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,547,533
<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 $12,095,163.
<F2> Included in Total Liabilities and Equity are Liabilities Related to
Separate Accounts of $12,095,163,569.
<F3> Other income includes annuity charges and fees of $121,157,846 and
fee income of $27,587,231.
</FN>
</TABLE>
