Galaxy 3 (3/98)
Supplement to Prospectus Dated May 1, 1997
Supplement dated March 2, 1998
A. NEW VARIABLE INVESTMENT OPTIONS
The following additional portfolios are now available as variable investment
options under your Annuity: (a) Galaxy VIP Fund (portfolios - Growth and Income,
Small Company Growth, Columbia Real Estate Equity II, Columbia High Yield II);
(b) American Skandia Trust (portfolio - JanCap Growth); (c) The Alger American
Fund (portfolio - MidCap Growth); and (d) Montgomery Variable Series (portfolio
- - Emerging Markets).
The following information is added to the table entitled "Underlying Mutual Fund
Portfolio Annual Expenses (as a percentage of average net assets)":
Unless otherwise shown, the expenses shown below are for the year ending
December 31, 1996. "N/A" shown below indicates that no entity has agreed to
reimburse the particular expense indicated.
<TABLE>
<CAPTION>
Management Management Other Other Total Annual Total Annual
Fee Fee Expenses Expenses Expenses Expenses
after any without any after any without any after any without any
applicable applicable applicable applicable applicable applicable
reimbursement reimbursement reimbursement reimbursement reimbursement reimbursement
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Galaxy VIP Fund
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Growth and Income 3(2) N/A 0.75% 0.75% 0.89% 1.50% 1.64%
Small Company Growth 3(2) N/A 0.75% 0.85% 0.97% 1.60% 1.72%
Columbia Real Estate Equity II 3(2) N/A 0.75% 0.95% 1.08% 1.70% 1.83%
Columbia High Yield II 3(2) N/A 0.60% 1.00% 1.08% 1.60% 1.68%
American Skandia Trust
JanCap Growth 3 N/A 0.90% N/A 0.20% N/A 1.10%
The Alger American Fund
MidCap Growth 3 N/A 0.80% N/A 0.04% N/A 0.84%
Montgomery Variable Series
Emerging Markets 3(3) 0.23% 1.25% 1.22% 1.22% 1.45% 2.47%
</TABLE>
(2) These Portfolios are first being offered as of the date of this Supplement.
Expenses shown are estimated and annualized.
(3) This portfolio commenced operation on February 2, 1996, therefore expenses
shown are estimated and annualized and should not be considered representative
of future expenses; actual expenses may be greater than shown.
The following information is added to the table entitled "Expense Examples":
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<TABLE>
<CAPTION>
Examples (amounts shown are rounded to the nearest dollar)
If you surrender your Annuity at the end of the applicable time period, If you do not surrender your Annuity at the end of
and your Account Value is $50,000 or higher, so that the maintenance fee does the applicable time period or begin taking annuity
not apply, you would pay the following expenses on a $1,000 investment assuming payments at such time, and your Account Value is
5% annual return on assets: $50,000 or higher, so that the maintenance fee does
not apply, you would pay the following expenses on
a $1,000 investment, assuming 5% annual return on
assets:
Sub-accounts After After
1 yr. 3 yrs. 5 yrs. 10 yrs. 1 yr. 3 yrs. 5 yrs. 10 yrs.
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GAL Growth and Income 3 66 99 134 285 26 79 134 285
GAL Small Company Growth 67 102 140 296 27 82 140 296
Columbia Real Estate Equity II 3 68 105 145 306 28 85 145 306
Columbia High Yield II 3 67 102 140 296 27 82 140 296
JanCap Growth 3 62 87 114 245 22 67 114 245
AA MidCap Growth 3 59 78 100 217 19 58 100 217
MV Emerging Markets 3 65 97 132 280 25 77 132 280
</TABLE>
<TABLE>
<CAPTION>
If you surrender your Annuity at the end of the applicable time period, If you do not surrender your Annuity at the end of
and your Account Value is lower than $50,000, so that the maintenance fee the applicable time period or begin taking annuity
applies, you would pay the following expenses on a $1,000 investment assuming payments at such time, and your Account Value is
5% annual return on assets: lower than $50,000, so that the maintenance fee
applies, you would pay the following expenses on
a $1,000 investment, assuming 5% annual return on
assets:
Sub-accounts After After
1 yr. 3 yrs. 5 yrs. 10 yrs. 1 yr. 3 yrs. 5 yrs. 10 yrs.
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GAL Growth and Income 3 68 105 144 303 28 85 144 303
GAL Small Company Growth 69 108 149 313 29 88 149 313
Columbia Real Estate Equity II 3 70 111 154 323 30 91 154 323
Columbia High Yield II 3 69 108 149 313 29 88 149 313
JanCap Growth 3 64 93 124 262 24 73 124 262
AA MidCap Growth 3 61 84 110 235 21 64 110 235
MV Emerging Markets 3 67 103 141 298 27 83 141 298
</TABLE>
The following is added to the section entitled "INVESTMENT OPTIONS - Underlying
Mutual Fund: Galaxy VIP Fund":
Sub-account Underlying Mutual Fund Portfolio
- ----------- --------------------------------
GAL Growth and Income 3 Growth and Income
GAL Small Company Growth 3 Small Company Growth
GAL Columbia Real Estate Equity II 3 Columbia Real Estate Equity II
GAL Columbia High Yield II 3 Columbia High Yield II
The following is added to the section entitled "INVESTMENT OPTIONS - Underlying
Mutual Fund: American Skandia Trust":
Sub-account Underlying Mutual Fund Portfolio
JanCap Growth 3 JanCap Growth
The following is added to the section entitled "INVESTMENT OPTIONS - Underlying
Mutual Fund: The Alger American Fund":
Sub-account Underlying Mutual Fund Portfolio
AA MidCap Growth 3 MidCap Growth
The following is added to the section entitled "INVESTMENT OPTIONS - Underlying
Mutual Fund: Montgomery Variable Series":
Sub-account Underlying Mutual Fund Portfolio
MV Emerging Markets 3 Montgomery Variable Series - Emerging Markets
B. SHORT DESCRIPTIONS - APPENDIX B
The following short descriptions of the GAL Growth and Income Fund, GAL Small
Company Growth Fund, GAL Columbia Real Estate Equity II Fund and GAL High Yield
II Fund of the Galaxy VIP Fund are to be added:
GAL Growth and Income Fund: The Growth and Income Fund's investment objective is
to seek a relatively high total return through long-term capital appreciation
and current income by investing primarily in common stocks of companies believed
to have prospects for above-average growth and dividends or of companies where
significant fundamental changes are taking place. Under normal market and
economic conditions, the Fund will invest at least 65% of its total assets in
common stock, preferred stock, common stock warrants and securities convertible
into common stock.
Stocks acquired by the Fund may include those of issuers with smaller
capitalizations. Investors should expect that the Fund will be more volatile
than, and may fluctuate independently of, broad stock market indexes such as the
S&P 500.
The Fund may purchase convertible securities, including convertible preferred
stock, convertible bonds or debentures, units consisting of bonds and warrants
or a combination of the features of several of these securities. The Fund may
also buy and sell options and futures contracts and utilize stock index futures
contracts, options, swap agreements, indexed securities and options on futures
contracts.
GAL Small Company Growth Fund: The Small Company Growth Fund's investment
objective is to seek capital appreciation. The Fund attempts to achieve this
objective by investing primarily in the securities of companies with market
capitalizations of $750 million or less ("Small Capitalization Securities")
which Fleet Investment Advisers, Inc. ("Fleet") believes have the potential for
significant capital appreciation.
The Fund may invest in common stocks, preferred stocks, securities convertible
into common stocks, rights and warrants. Under normal market and economic
conditions, at least 65% of the Fund's total assets will be invested in the
equity securities of companies with market capitalizations of $750 million or
less. For temporary defensive purposes, the Fund may also invest in corporate
debt obligations. All debt obligations purchased by the Fund will be rated at
the time of purchase in one of the four highest rating categories assigned by
S&P (AAA, AA, A and BBB) or Moody's (Aaa, Aa, A and Baa) or, if not rated, will
be determined to be of an equivalent quality by Fleet.
The issuers of Small Capitalization Securities tend to be companies which are
smaller or newer than those listed on the New York or American Stock Exchanges.
Because the issuers of Small Capitalization Securities tend to be smaller or
less well-established companies, they may have limited product lines, markets or
financial resources. As a result, Small Capitalization Securities are often less
marketable and may experience a higher level of price volatility than the
securities of larger or more well-established companies.
GAL Columbia Real Estate Equity Fund II: The Columbia Real Estate Equity Fund
II's investment objective is to seek, with equal emphasis, capital appreciation
and above-average current income by investing primarily in the equity securities
of companies in the real estate industry. With respect to current income, the
Fund seeks to provide a yield that exceeds the composite yield of the securities
in the S&P 500.
Under normal market and economic conditions, the Fund will invest at least 65%
of its total assets in the equity securities of companies principally engaged in
the real estate industry. A company is "principally engaged" in the real estate
industry if at least 50% of its gross income or net profits are attributable to
the ownership, construction, management, or sale of residential, commercial, or
industrial real estate. Equity securities include common stock, preferred stock
and debt or equity securities that are convertible into common stock. The Fund
may invest without limit in real estate investment trusts ("REITs") and may
invest up to 20% of its total assets in foreign companies that are principally
engaged in the real estate industry. The Fund will not invest directly in real
estate but may be subject to risks similar to those associated with the direct
ownership of real estate because of its policy of concentration in the
securities of companies in the real estate industry.
The Fund may also invest up to 35% of its total assets in the equity securities
of companies that are not principally engaged in the real estate industry.
However, such securities will be primarily from companies some of whose products
and services are related to the real estate industry, including manufacturers
and distributors of building supplies, financial institutions that make or
service mortgages, or companies with substantial real estate assets relative to
their stock market valuations, such as certain retailers and railroads.
The Fund may also invest in non-convertible debt securities including corporate
debt securities (bonds, debentures and notes), asset-backed securities, bank
obligations, collateralized bonds, loan and mortgage obligations, commercial
paper, repurchase agreements, savings and loan obligations and U.S. Government
and agency obligations. The Fund will only invest in debt securities which are
rated at the time of purchase in one of the four highest rating categories
assigned by S&P (AAA, AA, A and BBB) or Moody's (Aaa, Aa, A and Baa) or, if not
rated, are determined to be of an equivalent quality by Columbia Management Co.,
("Columbia"), an affiliate of Fleet.
GAL Columbia High Yield Fund II: The Columbia High Yield Fund II's investment
objective is to seek to provide shareholders with a high level of current income
by investing primarily in lower-rated fixed income securities. Capital
appreciation is a secondary objective when consistent with the objective of high
current income. The Fund may invest in a broad range of fixed income securities,
consisting of corporate debt securities (bonds, debentures and notes),
asset-backed securities, bank obligations, collateralized bonds, loan and
mortgage obligations, commercial paper, preferred stock, repurchase agreements,
savings and loan obligations, and U.S. Government and agency obligations. The
Fund may invest in corporate debt securities or preferred stocks that are
convertible into or exchangeable for common stock. The Fund may invest up to 20%
of its total assets in fixed income securities of foreign issuers, including
foreign governments, denominated in U.S. dollars.
In attempting to achieve its investment objective, the Fund generally will
invest at least 65% of its total assets in high yielding fixed income securities
rated BB or lower by S&P or Ba or lower by Moody's. The Fund intends to invest
primarily in "upper tier" noninvestment grade securities (rated BB/Ba or B) and
no more than 10% of the Fund's total assets will be invested in fixed income
securities rated CCC or lower by S&P or Caa or lower by Moody's. The Fund may
also invest in unrated fixed income securities when Columbia believes the
security is of comparable quality to that of securities eligible for purchase by
the Fund. Securities rated BB or less by S&P or Ba or less by Moody's are
considered to be noninvestment grade. These types of bonds are commonly referred
to as "junk bonds." They are subject to a high degree of risk and are considered
speculative by the major Rating Agencies with respect to the issuer's ability to
meet principal and interest payments. The Fund is designed for investors who are
willing to assume substantial risks of significant fluctuations in principal
value in order to achieve a high level of current income. The Fund should
represent only a portion of a balanced investment program.
The following short description of the JanCap Growth portfolio of American
Skandia Trust is to be added:
JanCap Growth Portfolio: The investment objective of the JanCap Growth Portfolio
is growth of capital in a manner consistent with the preservation of capital.
Realization of income is not a significant investment consideration and any
income realized on investments, therefore, will be incidental to this objective.
The objective will be pursued by emphasizing investments in common stocks.
Common stock investments will be in industries and companies that the
Portfolio's sub-advisor believes are experiencing favorable demand for their
products and services, and which operate in a favorable competitive and
regulatory environment. Investments may be made to a lesser degree in preferred
stocks, convertible securities, warrants, and debt securities of U.S. issuers,
when the Portfolio's sub-advisor perceives an opportunity for capital growth
from such securities or so that a return may be received on the Portfolio's idle
cash. Debt securities which the Portfolio may purchase include corporate bonds
and debentures (not to exceed 5% of net assets in bonds rated below investment
grade), mortgage-backed and asset-backed securities, zero-coupon bonds,
indexed/structured notes, high-grade commercial paper, certificates of deposit
and repurchase agreements. Securities of foreign issuers, including securities
of foreign governments and Euromarket securities, also may be purchased.
Although it is the general policy of the JanCap Growth Portfolio to purchase and
hold securities for capital growth, changes will be made whenever the
Portfolio's sub-advisor believes they are advisable. Because investment changes
usually will be made without reference to the length of time a security has been
held, a significant number of short-term transactions may result.
Investments also may be made in "special situations" from time to time. A
"special situation" arises when, in the opinion of the Portfolio's sub-advisor,
the securities of a particular company will be recognized and appreciate in
value due to a specific development, such as a technological breakthrough,
management change or a new product at that company. Subject to certain
limitations, the JanCap Growth Portfolio may purchase and write options on
securities (including index options) and options on foreign currencies, and may
invest in futures contracts on securities, financial indices and foreign
currencies, ("futures contracts"), options on futures contracts, forward
contracts and swaps and swap-related products. These instruments will be used
primarily for hedging purposes. Investment of up to 15% of the JanCap Growth
Portfolio's total assets may be made in securities that are considered illiquid
because of the absence of a readily available market or due to legal or
contractual restrictions.
The following short description of the Alger American MidCap Growth portfolio of
The Alger American Fund is to be added:
Alger American MidCap Growth Portfolio: The investment objective of the
Portfolio is long-term capital appreciation. Except during temporary defensive
periods, the Portfolio invests at least 65% of its total assets in equity
securities of companies that, at the time of purchase of the securities, have
total market capitalization within the range of companies included in the S&P
MidCap 400 Index, updated quarterly. The S&P MidCap 400 Index is designed to
track the performance of medium capitalization companies. The Portfolio may
invest up to 35% of its total assets in equity securities of companies that, at
the time of purchase, have total market capitalization outside the range of
companies included in the S&P MidCap 400 Index and in excess of that amount (up
to 100% of its assets) during temporary defensive periods.
The following short description of the Montgomery Emerging Markets portfolio of
the Montgomery Variable Series is to be added:
Montgomery Emerging Markets Fund: The investment objective of the Emerging
Markets Fund is capital appreciation which, under normal conditions, it seeks by
investing at least 65% of its total assets in equity securities of emerging
markets companies. Under normal conditions, the Emerging Markets Fund maintains
investments in at least six emerging market countries at all times and invests
no more than 35% of its total assets in any one emerging market country. The
Manager currently regards the following to be emerging market countries: Latin
American (Argentina, Brazil, Chile, Colombia, Costa Rica, Jamaica, Mexico, Peru,
Trinidad and Tobago, Uruguay, Venezuela); Asia (Bangladesh, China, India,
Indonesia, Korea, Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka,
Taiwan, Thailand, Vietnam); southern and eastern Europe (Czech Republic, Greece,
Hungary, Poland, Portugal, Russia, Turkey); the Middle East (Israel, Jordan);
and Africa (Egypt, Ghana, Ivory Coast, Kenya, Morocco, Nigeria, South Africa,
Tunisia, Zimbabwe). In the future, the Fund may invest in other emerging market
countries.
This Fund uses a proprietary, quantitative asset allocation model created by the
Manager. This model employs mean-variance optimization, a process used in
developed markets based on modern portfolio theory and statistics. Mean-variance
optimization helps determine the percent of assets to invest in each country to
maximize expected returns for a given risk level. The Fund's aims are to invest
in those countries that are expected to have the highest risk/reward trade-off
when incorporated into a total portfolio context. This "top-down" country
selection is combined with "bottom-up" fundamental industry analysis and stock
selection based on original research, publicly available information and company
visits.
This Fund invests primarily in common stock, but also may invest in other types
of equity and equity derivative securities. It may invest up to 35% of its total
assets in debt securities, including up to 5% in debt securities rated below
investment grade.
This Fund may invest in certain debt securities issued by the governments of
emerging market countries that are, or may be eligible for, conversion into
investments in emerging market companies under debt conversion programs
sponsored by such governments. If such securities are convertible to equity
investments, the Fund deems them to be equity derivative securities.
