AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
One Corporate Drive, Shelton, Connecticut 06484
This Prospectus describes a flexible premium deferred annuity (the "Annuity")
offered by American Skandia Life Assurance Corporation ("we", "our" or "us").
The Annuity may be offered as an individual annuity contract or as an interest
in a group annuity. This Prospectus describes the important features of the
Annuity and what you should consider before purchasing the Annuity. We have also
filed a Statement of Additional Information that is available from us, without
charge, upon your request. The contents of the Statement of Additional
Information are described on page 50. The Annuity or certain of its investment
options may not be available in all states. Various rights and benefits may
differ between states to meet applicable laws and/or regulations. Certain terms
are capitalized in this prospectus. Those terms are either defined in the
Glossary of Terms or in the context of the particular section.
WHY WOULD I CHOOSE TO PURCHASE THIS ANNUITY?
This Annuity is frequently used for retirement planning. It may be used as an
investment vehicle for an IRA, SEP-IRA, Roth IRA or Tax Sheltered Annuity (or
403(b)). It may also be used for other purposes that are not "qualified"
investments. The Annuity allows you to invest your money in a number of variable
investment options as well as in one or more fixed investment options. You are
not taxed on any investment gains the Annuity earns until you make a withdrawal
from the Annuity or begin to receive annuity payments. This feature, referred to
as "tax-deferral", can be beneficial to the growth of your Account Value because
money that would otherwise be needed to pay taxes on investment gains each year
remains invested and can earn additional money. However, because the Annuity is
designed for long-term retirement savings, a 10% penalty tax may be applied on
withdrawals you make before you reach age 59 1/2.
WHAT ARE SOME OF THE KEY FEATURES OF THE ANNUITY?
|X| The Annuity is a "flexible premium deferred annuity." It is called
"flexible premium" because you have considerable flexibility in the
timing and amount of premium payments. Generally, investors "defer"
receiving annuity payments until after an accumulation period.
|X| This Annuity offers both variable and fixed investment options. If you
allocate your Account Value to variable investment options, the value of
your Annuity will vary daily to reflect the investment performance of the
underlying investment options. Fixed investment options of different
durations are offered that are guaranteed by us, but may have a Market
Value Adjustment.
|X| The Annuity features two distinct phases - the accumulation period and
the payout period. During the accumulation period your Account Value is
allocated to one or more underlying investment options. The variable
investment options, each a Class 1 Sub-account of American Skandia Life
Assurance Corporation Variable Account B, invest in an underlying mutual
fund portfolio. Currently, portfolios of the following underlying mutual
funds are being offered: American Skandia Trust, The Alger American Fund,
Montgomery Variable Series, Wells Fargo LAT Trust and Rydex Variable
Trust.
|X| During the payout period, commonly called "annuitization," you can elect
to receive fixed annuity payments (1) for life; (2) for life with a
guaranteed minimum number of payments; (3) based on joint lives; or (4)
for a guaranteed number of payments.
|X| This Annuity offers two different types of Credits. We add a Credit to
your Annuity with each purchase payment we receive. We also provide an
additional 1% credit on Purchase Payments made within the first year and
may provide certain additional benefits if your Account Value has not
reached a Target Value on its 10th anniversary.
|X| This Annuity offers a basic Death Benefit. It also offers two Optional
Death Benefits that provide an enhanced level of protection for your
beneficiary(ies) for an additional charge.
|X| You are allowed to withdraw a certain amount of money from your Annuity
on an annual basis free of any charges. Other product features allow you
to access your Account Value as necessary, although a charge may apply.
|X| Transfers between investment options are tax-free. You may make twelve
transfers each year free of charge. We also offer several programs that
enable you to manage your Account Value as your financial needs and
investment performance change.
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These annuities are NOT deposits or obligations of, or issued, guaranteed or
endorsed by, any bank are NOT insured or guaranteed by the U.S. government, the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board or any
other agency. An investment in this annuity involves certain investment risks,
including possible loss of principal.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PLEASE
READ THIS PROSPECTUS AND THE CURRENT PROSPECTUS FOR THE UNDERLYING MUTUAL FUNDS.
KEEP THEM FOR FUTURE REFERENCE.
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FOR FURTHER INFORMATION CALL 1-800-752-6342.
<S> <C>
Prospectus Dated: May 3, 1999 Statement of Additional Information Dated: May 3, 1999
ASXT-PROS- (05/99) ASXTPROS
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HOW DO I PURCHASE THIS ANNUITY?
We sell the Annuity through licensed, registered financial professionals. You
must complete an application and submit a minimum initial purchase payment of
$1,000. We may allow you to make a lower initial purchase payment provided that
the purchase payments received in the first Annuity Year total at least $1,000.
If the Annuity is owned by an individual or individuals, the oldest of those
persons must be age 80 or under. If the Annuity is owned by an entity, the
annuitant must be age 80 or under.
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TABLE OF CONTENTS
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GLOSSARY OF TERMS..................................................................................................................5
SUMMARY OF CONTRACT FEES AND CHARGES...............................................................................................6
EXPENSE EXAMPLES...................................................................................................................8
INVESTMENT OPTIONS................................................................................................................10
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?.............................................................10
WHAT ARE THE FIXED INVESTMENT OPTIONS?.........................................................................................15
FEES AND CHARGES..................................................................................................................15
WHAT ARE THE CONTRACT FEES AND CHARGES?........................................................................................15
WHAT CHARGES APPLY SOLELY TO THE VARIABLE INVESTMENT OPTIONS?..................................................................16
WHAT CHARGES APPLY TO THE FIXED ALLOCATIONS?...................................................................................17
WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYOUT?..............................................................................17
PURCHASING YOUR ANNUITY...........................................................................................................17
WHAT ARE OUR REQUIREMENTS FOR PURCHASING THE ANNUITY?..........................................................................17
MANAGING YOUR ANNUITY.............................................................................................................17
MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS?................................................................17
MAY I RETURN THE ANNUITY IF I CHANGE MY MIND?..................................................................................18
MAY I MAKE ADDITIONAL PURCHASE PAYMENTS?.......................................................................................18
MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT?...................................................................18
MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM?...............................................................18
MANAGING YOUR ACCOUNT VALUE.......................................................................................................18
HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED?...................................................................................18
HOW DO I RECEIVE CREDITS?......................................................................................................19
HOW ARE CREDITS APPLIED TO MY ACCOUNT VALUE?...................................................................................19
ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?.....................................................20
DO YOU OFFER DOLLAR COST AVERAGING?............................................................................................21
DO YOU OFFER ANY AUTOMATIC REBALANCING PROGRAMS?...............................................................................21
DO YOU OFFER A PROGRAM TO BALANCE FIXED AND VARIABLE INVESTMENTS?..............................................................21
MAY I AUTHORIZE MY FINANCIAL REPRESENTATIVE TO MANAGE MY ACCOUNT?..............................................................22
HOW DO THE FIXED INVESTMENT OPTIONS WORK?......................................................................................22
HOW DO YOU DETERMINE RATES FOR FIXED ALLOCATIONS?..............................................................................22
HOW DOES THE MARKET VALUE ADJUSTMENT WORK?.....................................................................................23
WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES?.................................................................................23
ADDITIONAL AMOUNTS IN THE FIXED ALLOCATIONS....................................................................................24
AMERICAN SKANDIA'S PERFORMANCE ADVANTAGE..........................................................................................24
ACCESS TO ACCOUNT VALUE...........................................................................................................26
WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME?...............................................................................26
ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS?..................................................................................26
CAN I WITHDRAW A PORTION OF MY ANNUITY?........................................................................................26
IS THERE A CHARGE FOR A PARTIAL WITHDRAWAL?....................................................................................26
CAN I MAKE WITHDRAWALS FROM MY ANNUITY WITHOUT A CDSC?.........................................................................26
HOW MUCH CAN I WITHDRAW AS A FREE WITHDRAWAL?..................................................................................27
CAN I MAKE PERIODIC WITHDRAWALS FROM THE ANNUITY DURING THE ACCUMULATION PERIOD?...............................................27
DO YOU OFFER A PROGRAM FOR WITHDRAWALS UNDER SECTION 72(T) OF THE INTERNAL REVENUE CODE?.......................................27
WHAT ARE MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM?.............................................................28
CAN I SURRENDER MY ANNUITY FOR ITS VALUE?......................................................................................28
WHAT IS A MEDICALLY-RELATED SURRENDER AND HOW DO I QUALIFY?....................................................................28
WHAT TYPES OF ANNUITY PAYMENT OPTIONS ARE AVAILABLE UPON ANNUITIZATION?........................................................28
HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION?...........................................................................29
HOW ARE ANNUITY PAYMENTS CALCULATED?...........................................................................................29
DEATH BENEFIT.....................................................................................................................30
WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT?..................................................................................30
DEATH BENEFIT OPTIONS..........................................................................................................30
VALUING YOUR INVESTMENT...........................................................................................................33
HOW IS MY ACCOUNT VALUE DETERMINED?............................................................................................33
WHAT IS THE SURRENDER VALUE OF MY ANNUITY?.....................................................................................33
HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS?....................................................................................33
HOW DO YOU VALUE FIXED ALLOCATIONS?............................................................................................33
WHEN DO YOU PROCESS AND VALUE TRANSACTIONS?....................................................................................33
TAX CONSIDERATIONS................................................................................................................34
WHAT ARE SOME OF THE FEDERAL TAX CONSIDERATIONS OF THIS ANNUITY?...............................................................34
HOW ARE AMERICAN SKANDIA AND THE SEPARATE ACCOUNTS TAXED?......................................................................34
IN GENERAL, HOW ARE ANNUITIES TAXED?...........................................................................................34
HOW ARE DISTRIBUTIONS TAXED?...................................................................................................34
WHAT TAX CONSIDERATIONS ARE THERE FOR TAX-QUALIFIED RETIREMENT PLANS OR QUALIFIED CONTRACTS?...................................36
HOW ARE DISTRIBUTIONS FROM QUALIFIED CONTRACTS TAXED?..........................................................................37
GENERAL TAX CONSIDERATIONS.....................................................................................................37
GENERAL INFORMATION...............................................................................................................38
HOW WILL I RECEIVE STATEMENTS AND REPORTS?.....................................................................................38
WHO IS AMERICAN SKANDIA?.......................................................................................................39
WHAT ARE SEPARATE ACCOUNTS?....................................................................................................39
WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS?...........................................................................40
WHO DISTRIBUTES ANNUITIES OFFERED BY AMERICAN SKANDIA?.........................................................................40
AVAILABLE INFORMATION..........................................................................................................42
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................................................................42
HOW TO CONTACT US..............................................................................................................42
INDEMNIFICATION................................................................................................................42
LEGAL PROCEEDINGS..............................................................................................................42
EXECUTIVE OFFICERS AND DIRECTORS...............................................................................................43
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION............................................................................45
APPENDIX A -FINANCIAL INFORMATION ABOUT AMERICAN SKANDIA...........................................................................1
SELECTED FINANCIAL DATA ...........................................................................................................2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..............................................3
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OFAMERICAN SKANDIA LIFE ASSURANCE
CORPORATION........................................................................................................................1
APPENDIX B -CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B...............................................................1
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GLOSSARY OF TERMS
Many terms used within this Prospectus are described within the text where they
appear. The description of those terms are not repeated in this Glossary of
Terms.
Account Value: The value of each allocation to a Sub-account or a Fixed
Allocation prior to the Annuity Date, plus any earnings, and/or less any losses,
distributions and charges. The Account Value is calculated before we assess any
applicable Contingent Deferred Sales Charge and/or any Annual Maintenance Fee.
The Account Value includes any additional amounts we applied to your Purchase
Payments that we are entitled to recover upon surrender of your Annuity. The
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.
The Account Value of each Fixed Allocation on other than its Maturity Date may
be calculated using a market value adjustment.
Annuity Date: The date you choose for annuity payments to commence. There may be
a maximum Annuity Date in certain states.
Annuity Year: A 12-month period commencing on the Issue Date of the Annuity and
each successive 12-month period thereafter.
Code: The Internal Revenue Code of 1986, as amended from time to time.
Fixed Allocation: An allocation of Account Value that is to be credited a fixed
rate of interest for a specified Guarantee Period during the accumulation
period.
Guarantee Period: A period of time during the accumulation period where we
credit a fixed rate of interest on a Fixed Allocation.
Interim Value: As of any particular date, the initial value allocated to the
Fixed Allocation plus all interest credited to the Fixed Allocation as of the
date calculated, less any transfers or withdrawals from the Fixed Allocation.
Issue Date: The effective date of your Annuity.
MVA: A market value adjustment used in the determination of Account Value of
each Fixed Allocation on a day other than such Fixed Allocation's Maturity Date.
Owner: With an Annuity issued as an individual annuity contract, the Owner is
either an eligible entity or person named as having ownership rights in relation
to the Annuity. With an Annuity issued as a certificate under a group annuity
contract, the "Owner" refers to the person or entity who has the rights and
benefits designated as to the "Participant" in the certificate.
Surrender Value: The value of your Annuity available upon surrender prior to the
Annuity Date. It equals the Account Value as of the date we price the surrender
minus any applicable CDSC and Annual Maintenance Fee and any additional amounts
we applied to your Purchase Payments that we are entitled to recover upon
surrender of your Annuity.
Unit: A measure used to calculate your Account Value in a Sub-account during the
accumulation period.
Valuation Day: Every day the New York Stock Exchange is open for trading or any
other day the Securities and Exchange Commission requires mutual funds or unit
investment trusts to be valued.
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SUMMARY OF CONTRACT FEES AND CHARGES
Below is a summary of the fees and expenses we charge for the Annuity. Some
charges are assessed against your Annuity while others are assessed against
assets allocated to the variable investment options. The charges that are
assessed against the Annuity include the Contingent Deferred Sales Charge,
Annual Maintenance Fee, Transfer Fee and the Tax Charge. The charge that is
assessed against the variable investment options is the Insurance Charge, which
is the combination of a mortality and expense risk charge and a charge for
administration of the Annuity. Each underlying mutual fund portfolio assesses a
charge for investment management and for other expenses. The prospectus for each
underlying mutual fund provides more detailed information about the expenses for
the underlying funds. In certain states, a premium tax charge may be applicable.
All of these fees and expenses are described in more detail within this
Prospectus.
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Your Transaction Expenses
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Amount Deducted/
Fee/Expense Description Of Charge When Deducted
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Contingent Deferred Sales Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr. 5 Yr. 6 Yr. 7 Yr. 8 Yr. Upon Surrender or
Charge 9+ Partial Withdrawal
The charge is a percentage of Applicable period measured from the
each applicable purchase date each purchase payment is
payment allocated
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8.5% 8.5% 8.5% 8.5% 7.5% 5.5% 3.5% 1.5% 0.0%
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Annual Maintenance Fee Smaller of $30 or 2% of Account Value Annually on the contract's
anniversary date or upon surrender
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Transfer Fee $10.00 After the 12th transfer each annuity
year
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Tax Charge Depends on the requirements of the applicable jurisdiction Various
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Annual Expenses of the Sub-Accounts
(as a percentage of the average daily net assets of the Sub-accounts)
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Mortality & Expense Risk
Charge 1.25%
Daily
Administration Charge 0.15%
Total Annual Expenses of the 1.40% per year of the value of each Sub-account Applies to Variable Investment
Sub-accounts* Options only
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* The combination of the Mortality and Expense Risk Charges and Administration
Charge is referred to as the "Insurance Charge" elsewhere in this prospectus.
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Optional Benefits
We offer two different Optional Death Benefits that provide an enhanced level of
protection for your beneficiary(ies). Please refer to the section entitled
"Death Benefit" for a complete discussion of the Optional Death Benefits we
offer.
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Death Benefit Option Death Benefit equal to the greater of: Additional Charge (annually)
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1. Account Value (no MVA)
2. Sum of Purchase Payments minus
OPTION 1 the proportional impact of 0.30% of the current Death Benefit
withdrawals increasing at 5.0%
annually
3. Highest Anniversary Value
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1. Account Value (no MVA)
2. Sum of Purchase Payments minus
OPTION 2 the proportional impact of 0.50% of the current Death Benefit
withdrawals increasing at 7.2%
annually
3. Highest Anniversary Value
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Underlying Mutual Fund Portfolio Annual Expenses
(as a percentage of the average net assets of the underlying Portfolios)
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Below are the investment management fee, other expenses, and the total annual
expenses for each underlying Portfolio as of December 31, 1998. The total annual
expenses are the sum of the investment management fee and other expenses. Each
figure is stated as a percentage of the underlying Portfolio's average daily net
assets. For certain of the underlying Portfolios, a portion of the management
fee is being waived and/or other expenses are being partially reimbursed. "N/A"
indicates that no portion of the management fee and/or other expenses is being
waived and/or reimbursed. Any footnotes about expenses appear after the list of
all the portfolios. Those portfolios whose name includes the prefix "AST" are
portfolios of American Skandia Trust. The underlying mutual fund portfolio
information was provided by the underlying mutual funds and has not been
independently verified by us. See the prospectuses or statements of additional
information of the underlying Portfolios for further details.
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Management Other Total Annual Fee Waivers Net Annual
UNDERLYING PORTFOLIO Fees Expenses Portfolio and Expense Fund
Operating Reimbursement Operating
Expenses Expenses
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AST Founders Passport 1.00% 0.30% 1.30% N/A 1.30%
AST T. Rowe Price International Equity 1.00% 0.25% 1.25% N/A 1.25%
AST AIM International Equity(1) 0.87% 0.26% 1.13% N/A 1.13%
AST Janus Overseas Growth 1.00% 0.27% 1.27% N/A 1.27%
AST American Century International Growth 1.00% 0.65% 1.65% N/A 1.65%
AST Janus Small-Cap Growth(2) 0.90% 0.22% 1.12% N/A 1.12%
AST Kemper Small-Cap Growth(3) 0.95% 0.60% 1.55% 0.20% 1.35%
AST Lord Abbett Small Cap Value 0.95% 0.36% 1.31% N/A 1.31%
AST T. Rowe Price Small Company Value 0.90% 0.21% 1.11% N/A 1.11%
AST Neuberger Berman Mid-Cap Growth(4) 0.90% 0.17% 1.07% N/A 1.07%
AST Neuberger Berman Mid-Cap Value(5) 0.90% 0.15% 1.05% N/A 1.05%
AST T. Rowe Price Natural Resources 0.90% 0.26% 1.16% N/A 1.16%
AST Oppenheimer Large-Cap Growth(6) 0.90% 0.22% 1.12% N/A 1.12%
AST Marsico Capital Growth 0.90% 0.21% 1.11% N/A 1.11%
AST JanCap Growth 0.90% 0.14% 1.04% 0.02% 1.02%
AST Bankers Trust Enhanced 500 0.60% 0.26% 0.86% 0.06% 0.80%
AST Cohen & Steers Realty 1.00% 0.30% 1.30% N/A 1.30%
AST American Century Income & Growth(7) 0.75% 0.25% 1.00% N/A 1.00%
AST Lord Abbett Growth and Income 0.75% 0.16% 0.91% N/A 0.91%
AST INVESCO Equity Income 0.75% 0.18% 0.93% N/A 0.93%
AST AIM Balanced(8) 0.74% 0.26% 1.00% N/A 1.00%
AST American Century Strategic Balanced 0.85% 0.28% 1.13% N/A 1.13%
AST T. Rowe Price Asset Allocation 0.85% 0.24% 1.09% N/A 1.09%
AST T. Rowe Price International Bond 0.80% 0.31% 1.11% N/A 1.11%
AST Federated High Yield 0.75% 0.20% 0.95% N/A 0.95%
AST PIMCO Total Return Bond 0.65% 0.18% 0.83% N/A 0.83%
AST PIMCO Limited Maturity Bond 0.65% 0.21% 0.86% N/A 0.86%
AST Money Market 0.50% 0.16% 0.66% 0.06% 0.60%
The Alger American Fund - Growth 0.75% 0.04% 0.79% N/A 0.79%
portfolio
The Alger American Fund - MidCap Growth 0.80% 0.04% 0.84% N/A 0.84%
portfolio
Montgomery Variable Series - Emerging 1.25% 0.56% 1.81% 0.06% 1.75%
Markets portfolio
Wells Fargo LAT Trust - Equity Value 0.59% 1.93% 2.52% 1.43% 1.09%
portfolio
Rydex Variable Trust - Nova portfolio 0.74% 1.47% 2.21% 0.03% 2.18%
Rydex Variable Trust - Ursa portfolio 0.90% 1.57% 2.47% 0.17% 2.30%
Rydex Variable Trust - OTC portfolio 0.72% 1.24% 1.96% N/A 1.96%
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1 Prior to May 3, 1999, the Investment Manager had engaged Putnam Investment
Management, Inc. as Sub-Advisor for the Portfolio (formerly the AST Putnam
Value Growth & Income portfolio).
2 Prior to January 1, 1999, the Investment Manager had engaged Founders Asset
Management, LLC as Sub-advisor for the Portfolio (formerly the Founders
Capital Appreciation portfolio).
3 This portfolio commenced operations in January 1999.
4 Prior to May 1, 1998, the Investment Manager had engaged Berger Associates,
Inc. as Sub-advisor for the Portfolio (formerly, the Berger Capital Growth
portfolio), for a total Investment Management fee payable at the annual
rate of .75% of the average daily nets assets of the Portfolio. As of May
1, 1998, the Investment Manager engaged Neuberger Berman Management
Incorporated as Sub-advisor for the Portfolio, for a total Investment
Management fee payable at the annual rate of 0.90% of the first $1 billion
of the average daily net assets of the Portfolio plus .85% of the
Portfolio's average daily net assets in excess of $1 billion. The
Management Fee in the above chart reflects the current Investment
Management fee payable to the Investment Manager.
5 Prior to May 1, 1998, the Investment Manager had engaged Federated
Investment Counseling as Sub-advisor for the Portfolio (formerly, the
Federated Utility Income portfolio), for a total Investment Management fee
payable at the annual rate of .75% of the first $50 million of the average
daily net assets of the Portfolio, plus .60% of the Portfolio's average
daily net assets in excess of $50 million. As of May 1, 1998, the
Investment Manager engaged Neuberger Berman Management Incorporated as
Sub-advisor for the Portfolio, for a total Investment Management fee
payable at the annual rate of 0.90% of the first $1 billion of the average
daily net assets of the Portfolio plus .85% of the Portfolio's average
daily net assets in excess of $1 billion. The Management Fee in the above
chart reflects the current Investment Management fee payable to the
Investment Manager.
6 Prior to January 1, 1999, the Investment Manager had engaged Robertson,
Stephens & Company Investment Management, L.P. as Sub-advisor for the
Portfolio (formerly the Robertson Stephens Value + Growth portfolio), and
the total Investment Management fee was at the annual rate of 1.00% of the
average daily net assets of the Portfolio. As of January 1, 1998, the
Investment Manager engaged OppenheimerFunds, Inc. as Sub-advisor for the
Portfolio, and the Investment Management fee is payable at the annual rate
of 0.90% of the first $1 billion of the average daily net assets of the
Portfolio, plus .85% of the Portfolio's average daily net assets in excess
of $1 billion. The Management Fee in the above chart reflects the current
Investment Management fee payable to the Investment Manager.
7 Prior to May 3, 1999, the Investment Manager had engaged Putnam Investment
Management, Inc. as Sub-Advisor for the Portfolio (formerly the AST Putnam
International Equity portfolio).
8 Prior to May 3, 1999, the Investment Manager had engaged Putnam Investment
Management, Inc. as Sub-Advisor for the Portfolio (formerly the AST Putnam
Balanced portfolio).
EXPENSE EXAMPLES
These examples are designed to assist you in understanding the various costs and
expenses you will incur with the Annuity over certain periods of time based on
specific assumptions. The examples reflect expenses of our Sub-accounts, as well
as those of the underlying mutual fund portfolios. The Securities and Exchange
Commission ("SEC") requires these examples.
The examples shown assume that: (a) you only allocate Account Value in the
Sub-accounts; (b) fees and expenses remain constant; (c) you make no withdrawals
of Account Value during the period shown; (d) you make no transfers,
withdrawals, surrender or other transaction that we charge a fee during the
period shown; (e) no tax charge applies; (f) the expenses throughout the period
for the underlying mutual fund portfolios will be the "Net Annual Fund Operating
Expenses," as shown above in the section entitled "Underlying Mutual Fund
Portfolio Annual Expenses"; and (g) the Credit applicable to your Annuity is 3%
of Purchase Payments. The Credit may be less when total Purchase Payments are
less then $10,000 and may be more when total Purchase Payments are at least
$1,000,000 (see "What are Credits and how do I receive them?"). The examples do
not reflect the charge for any optional benefits that may be offered under the
Annuity. The examples also do not reflect the impact of any Target Value Credits
that may be applied to Purchase Payments within the first Annuity Year.
THE EXAMPLES ARE ILLUSTRATIVE ONLY - THEY SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE UNDERLYING MUTUAL FUNDS OR
THEIR PORTFOLIOS - ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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Expense Examples
(amounts shown are rounded to the nearest dollar)
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If you surrender your Annuity at the If you do not surrender your Annuity at the
end of the applicable time period, you end of the applicable time period or begin
would pay the following expenses on a taking annuity payments at such time, you would
$1,000 investment, asuming 5% annual pay the following expenses on a $1,000
return on assets: investment, assuming 5% annual return on assets:
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After: After:
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Sub-Account: 1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
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AST Founders Passport 114 174 227 320 29 89 152 320
AST T. Rowe Price International Equity 114 173 224 314 29 88 149 314
AST AIM International Equity 112 169 218 303 27 84 143 303
AST Janus Overseas Growth 114 173 225 317 29 88 150 317
AST American Century International Growth 118 185 245 355 33 100 170 355
AST Janus Small-Cap Growth 112 168 217 301 27 83 142 301
AST Kemper Small-Cap Growth 115 176 229 325 30 91 154 325
AST Lord Abbett Small Cap Value 114 174 227 320 29 89 152 320
AST T. Rowe Price Small Company Value 112 168 217 300 27 83 142 300
AST Neuberger Berman Mid-Cap Growth 112 167 215 297 27 82 140 297
AST Neuberger Berman Mid-Cap Value 111 166 213 294 26 81 138 294
AST T. Rowe Price Natural Resources 113 170 219 305 28 85 144 305
AST Oppenheimer Large-Cap Growth 112 168 217 301 27 83 142 301
AST Marsico Capital Growth 112 168 217 300 27 83 142 300
AST JanCap Growth 111 165 212 290 26 80 137 290
AST Bankers Trust Enhanced 500 109 158 200 267 24 73 125 267
AST Cohen & Steers Realty 114 174 227 320 29 89 152 320
AST American Century Income & Growth 111 165 211 289 26 80 136 289
AST Lord Abbett Growth and Income 110 162 207 280 25 77 132 280
AST INVESCO Equity Income 110 162 207 281 25 77 132 281
AST AIM Balanced 111 165 211 289 26 80 136 289
AST American Century Strategic Balanced 112 169 218 303 27 84 143 303
AST T. Rowe Price Asset Allocation 112 167 215 297 27 82 140 297
AST T. Rowe Price International Bond 112 168 217 300 27 83 142 300
AST Federated High Yield 110 163 208 283 25 78 133 283
AST PIMCO Total Return Bond 109 159 202 271 24 74 127 271
AST PIMCO Limited Maturity Bond 109 160 203 274 24 75 128 274
AST Money Market 107 152 190 247 22 67 115 247
AA Growth 109 158 200 267 24 73 125 267
AA MidCap Growth 109 159 202 271 24 74 127 271
MV Emerging Markets 119 188 249 363 34 103 174 363
WF LAT Trust Equity Value 112 167 215 297 27 82 140 297
Rydex Nova 123 201 271 405 38 116 196 405
Rydex Ursa 125 205 277 416 40 120 202 416
Rydex OTC 121 195 261 385 36 110 186 385
- --------------------------------------- --------- ---------- --------- ---------- ------- ---------- --------- ---------- ----------
</TABLE>
<PAGE>
INVESTMENT OPTIONS
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?
Each variable investment option is a Class 1 Sub-account of American Skandia
Life Assurance Corporation Variable Account B (see "What are Separate Accounts"
for more detailed information.) Each Sub-account invests exclusively in one
Portfolio. You should carefully read the prospectus for any Portfolio in which
you are interested. The following chart classifies each of the Portfolios based
on our assessment of their investment style (as of the date of this Prospectus).
The chart also provides a short description of each Portfolio's investment
objective (in italics) and a short, summary description of their key policies to
assist you in determining which Portfolios may be of interest to you. The name
of the advisor/sub-advisor for each Portfolio appears next to the description.
Those portfolios whose name includes the prefix "AST" are portfolios of American
Skandia Trust. The investment manager for AST is American Skandia Investment
Services, Inc. ("ASISI"), an affiliated company. However, a sub-advisor, as
noted below, is engaged to conduct day-to-day investment decisions. Details
about the investment objectives, policies, risks, costs and management of the
Portfolios are found in the prospectuses for the underlying mutual funds. There
is no guarantee that any underlying mutual fund portfolio will meet its
investment objective.
Please refer to Appendix B for certain required financial information related to
the historical performance of the Sub-accounts.
<TABLE>
<CAPTION>
- ------------------- ------------------------------------------------------------------------------------------------ ---------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
- ------------------- ------------------------------------------------------------------------------------------------ ---------------
<S> <C> <C>
AST Money Market: seeks to maximize current income and
CAPITAL maintain high levels of liquidity. The Portfolio attempts to J.P. Morgan
PRESERVATION accomplish its objective by maintaining a dollar-weighted Investment
average maturity of not more than 90 days and by investing Management Inc.
in securities which have effective maturities of not more
than 397 days.
- ------------------- ------------------------------------------------------------------------------------------------ ---------------
AST PIMCO Limited Maturity Bond: seeks to maximize total
return, consistent with preservation of capital and prudent
SHORT-TERM investment management. The Portfolio will invest in a Pacific Investment
BOND diversified portfolio of fixed-income securities of varying Management
maturities. The average portfolio duration of the Portfolio Company
generally will vary within a one- to three-year time frame
based on the Sub-advisor's forecast for interest rates.
- ------------------- ------------------------------------------------------------------------------------------------ ---------------
AST PIMCO Total Return Bond: seeks to maximize total return
consistent with preservation of capital and prudent
investment management. The Portfolio will invest in a Pacific Investment
LONG-TERM diversified portfolio of fixed-income securities of varying Management
BOND maturities. The average portfolio duration of the Portfolio Company
generally will vary within a three- to six-year time frame
based on the Sub-advisor's forecast for interest rates.
- ------------------- ------------------------------------------------------------------------------------------------ ---------------
AST Federated High Yield: seeks high current income by
investing primarily in a diversified portfolio of fixed
income securities. The Portfolio will invest at least 65% of
its assets in lower-rated corporate fixed income securities Federated Investment
HIGH YIELD ("junk bonds"). These fixed income securities may include Counseling
BOND preferred stocks, convertible securities, bonds, debentures,
notes, equipment lease certificates and equipment trust
certificates. A fund that invests primarily in lower-rated
fixed income securities will be subject to greater risk and
share price fluctuation than a typical fixed income fund,
and may be subject to an amount of risk that is comparable
to or greater than many equity funds.
- ------------------- ------------------------------------------------------------------------------------------------ ---------------
AST T. Rowe Price International Bond: seeks to provide high
current income and capital growth by investing in
high-quality, non dollar-denominated government and
corporate bonds outside the United States. The Portfolio
will invest at least 65% of its assets in high-quality,
INTER- non-U.S. dollar denominated government and corporate bonds Rowe Price-Fleming
NATIONA outside the United States. The Sub-advisor bases its International, Inc.
BOND investment decisions on fundamental market factors, currency
trends, and credit quality. The Portfolio generally invests
in countries where the combination of fixed-income returns
and currency exchange rates appears attractive, or, if the
currency trend is unfavorable, where the Sub-advisor
believes that the currency risk can be minimized through
hedging. The Portfolio may also invest up to 20% of its
assets in below investment-grade, high-risk bonds ("junk
bonds"), including bonds in default or those with the lowest
rating.
- ------------------- ------------------------------------------------------------------------------------------------ ---------------
AST T. Rowe Price Asset Allocation: seeks a high level of
total return by investing primarily in a diversified
portfolio of fixed income and equity securities. The
Portfolio normally invests approximately 60% of its total
ASSET assets in equity securities and 40% in fixed income T. Rowe Price
ALLOCATION securities. The Sub-advisor concentrates common stock Associates, Inc.
investments in larger, more established companies, but the
Portfolio may include small and medium-sized companies with
good growth prospects. The fixed income portion of the
Portfolio will be allocated among investment grade
securities, high yield or "junk" bonds, foreign high quality
debt securities and cash reserves.
- ------------------- ------------------------------------------------------------------------------------------------ ---------------
AST American Century Strategic Balanced: seeks capital
growth and current income. The Sub-advisor intends to
maintain approximately 60% of the Portfolio's assets in
equity securities and the remainder in bonds and other fixed
BALANCED income securities. Both the Portfolio's equity and fixed American Century
income investments will fluctuate in value. The equity Investment
securities will fluctuate depending on the performance of Management, Inc.
the companies that issued them, general market and economic
conditions, and investor confidence. The fixed income
investments will be affected primarily by rising or falling
interest rates and the credit quality of the issuers.
------------------------------------------------------------------------------------------------ ---------------
AST AIM Balanced: seeks to provide a well-diversified
portfolio of stocks and bonds that will produce both capital
growth and current income. The Portfolio attempts to meet
its objective by investing, normally, a minimum of 30% and a A I M Capital
maximum of 70% of its total assets in equity securities and Management, Inc.
a minimum of 30% and a maximum of 70% of its total assets in
non-convertible debt securities. The Sub-Advisor will
primarily purchase equity securities for growth of capital
and debt securities for income purposes.
- ------------------- ------------------------------------------------------------------------------------------------ ---------------
AST Cohen & Steers Realty: seeks to maximize total return
through investment in real estate securities. The Portfolio
pursues its investment objective by seeking, with
approximately equal emphasis, capital growth and current Cohen & Steers
REAL ESTATE income. Under normal circumstances, the Portfolio will Capital Management, Inc.
(REIT) invest substantially all of its assets in the equity
securities of real estate companies, i.e., a company that
derives at least 50% of its revenues from the ownership,
construction, financing, management or sale of real estate
or that has at least 50% of its assets in real estate. Real
estate companies may include real estate investment trusts
or REITs.
- ------------------- ------------------------------------------------------------------------------------------------ ---------------
AST INVESCO Equity Income: seeks high current income while
following sound investment practices. Capital growth
potential is an additional, but secondary, consideration in
EQUITY the selection of portfolio securities. The Portfolio seeks INVESCO Funds
INCOME to achieve its objective by investing in securities that Group, Inc.
will provide a relatively high yield and stable return and
that, over a period of years, may also provide capital
appreciation. The Portfolio normally will invest at least
65% of its assets in dividend-paying common stocks of
domestic and foreign issuers.
- ------------------ ------------------------------------------------------------------------------------------------ ----------------
AST Bankers Trust Enhanced 500: seeks to outperform the
Standard & Poor's 500 Composite Stock Price Index (the "S&P
500(R)") through stock selection resulting in different
ENHANCED weightings of common stocks relative to the index. The
INDEX Portfolio will invest in the common stocks of companies Bankers Trust Company
included in the S&P 500(R). The majority of the issues held
by the Portfolio will have neutral weightings to the S&P
500, but approximately 100 will be over- or under-weighted
relative to the index.
- ------------------- ------------------------------------------------------------------------------------------------ ---------------
AST American Century Income & Growth: seeks capital growth
with current income as a secondary objective. The Portfolio
invests primarily in common stocks that offer potential for American Century
capital growth, and may, consistent with its investment Investment Management, Inc.
objectives, invest in stocks that offer potential for
current income. The Sub-adviser utilizes a quantitative
management technique with a goal of building an equity
portfolio that provides better returns than the S&P 500
Index without taking on significant additional risk and
while attempting to create a dividend yield that will be
greater than the S&P 500 Index.
------------------------------------------------------------------------------------------------ ---------------
GROWTH AST Lord Abbett Growth and Income: seeks long-term growth of
& capital and income while attempting to avoid excessive
INCOME fluctuations in market value. The Portfolio normally will
invest in common stocks (and securities convertible into
common stocks). The Sub-advisor will take a value-oriented
approach, in that it will try to keep the Portfolio's assets Lord, Abbett & Co.
invested in securities that are selling at reasonable
prices in relation to their value. The stocks that the
Portfolio will normally invest in are those of
seasoned companies that are expected to show above-average
growth and that the Sub-advisor believes are in sound
financial condition.
- ------------------- ------------------------------------------------------------------------------------------------ ---------------
AST T. Rowe Price Natural Resources: seeks long-term capital
growth primarily through the common stocks of companies that
own or develop natural resources (such as energy products,
precious metals, and forest products) and other basic
NATURAL commodities. The Portfolio normally invests primarily (at T. Rowe Price
RESOURCES least 65% of its total assets) in the common stocks of Associates, Inc.
natural resource companies whose earnings and tangible
assets could benefit from accelerating inflation. The
Portfolio looks for companies that have the ability to
expand production, to maintain superior exploration programs
and production facilities, and the potential to accumulate
new resources.
- ------------------- ------------------------------------------------------------------------------------------------ ---------------
AST JanCap Growth: seeks 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 the Portfolio's investments, therefore,
will be incidental to the Portfolio's objective. The
Portfolio will pursue its objective by investing primarily
in common stocks of companies that the Sub-advisor believes Janus Capital
are experiencing favorable demand for their products and Corporation
services, and which operate in a favorable competitive and
regulatory environment. The Sub-advisor generally takes a
"bottom up" approach to choosing investments for the
Portfolio. In other words, the Sub-advisor seeks to identify
individual companies with earnings growth potential that may
not be recognized by the market at large.
------------------------------------------------------------------------------------------------ ---------------
AST Marsico Capital Growth: seeks capital growth. Income
realization is not an investment objective and any income
realized on the Portfolio's investments, therefore, will be
incidental to the Portfolio's objective. The Portfolio will
pursue its objective by investing primarily in common stocks
of larger, more established companies. In selecting Marsico Capital
investments for the Portfolio, the Sub-advisor uses an Management, LLC
approach that combines "top down" economic analysis with
"bottom up" stock selection. The "top down" approach
identifies sectors, industries and companies that should
benefit from the trends the Sub-advisor has observed. The
Sub-advisor then looks for individual companies with
earnings growth potential that may not be recognized by the
market at large. This is called "bottom up" stock selection.
------------------------------------------------------------------------------------------------ ---------------
AST Neuberger Berman Mid-Cap Growth: seeks capital growth.
The Portfolio primarily invests in the common stocks of
mid-cap companies, i.e., companies with equity market Neuberger Berman
capitalizations from $300 million to $10 billion at the time Management Incorporated
of investment. The Portfolio is normally managed using a
growth-oriented investment approach. The Sub-advisor looks
for fast-growing companies that are in new or rapidly
evolving industries.
------------------------------------------------------------------------------------------------ ---------------
AST Neuberger Berman Mid-Cap Value: seeks capital growth.
The Portfolio primarily invests in the common stocks of
mid-cap companies. Under the Portfolio's value-oriented
investment approach, the Sub-advisor looks for well-managed Neuberger Berman
GROWTH companies whose stock prices are undervalued and that may Management Incorporated
rise in price before other investors realize their worth.
Factors that the Sub-advisor may use to identify these
companies include strong fundamentals, including a low
price-to-earnings ratio, consistent cash flow, and a sound
track record through all phases of the market cycle.
------------------------------------------------------------------------------------------------ ---------------
AST Oppenheimer Large-Cap Growth: seeks capital growth. The
Portfolio seeks its investment objective by emphasizing
investment in common stocks issued by established
large-capitalization "growth companies" that, in the opinion
of the Sub-advisor, have above average earnings prospects OppenheimerFunds, Inc.
but are selling at below normal prices. At least 65% of the
Portfolio's assets normally will be invested in companies
that have market capitalizations greater than $3 billion,
and the Portfolio will normally maintain a median market
capitalization greater than $5 billion.
------------------------------------------------------------------------------------------------ ---------------
The Alger American Fund - Growth: seeks long-term capital
appreciation. Except during temporary defensive periods, the
Portfolio invests at least 65% of its total assets in equity Fred Alger
securities of companies that, at the time of purchase, have Management, Inc.
total market capitalization of $1 billion or greater.
------------------------------------------------------------------------------------------------ ---------------
Wells Fargo LAT Trust - Equity Value: seeks to provide
investors with long-term capital appreciation by investing
primarily in equity securities, including common stocks, and
may invest in debt instruments that are convertible into Wells Fargo Bank, N.A.
common stocks of both domestic and foreign companies. Income
generation is a secondary consideration. The Portfolio may
invest in large, well-established companies and smaller
companies with market capitalization exceeding $50 million.
- ------------------- ------------------------------------------------------------------------------------------------ ---------------
<PAGE>
- ------------------- ------------------------------------------------------------------------------------------------ ---------------
The Alger American Fund - MidCap Growth: seeks long-term
capital appreciation. Except during temporary defensive
AGGRESSIVE periods, the Portfolio invests at least 65% of its total Fred Alger
GROWTH assets in equity securities of companies that, at the time Management, Inc.
of purchase of the securities, have total market
capitalization within the range of companies included in the
S&P MidCap 400 Index, updated quarterly.
- ------------------- ------------------------------------------------------------------------------------------------ ---------------
AST Janus Small-Cap Growth: seeks capital growth. The
Portfolio pursues its objective by normally investing at
least 65% of its total assets in the common stocks of
small-sized companies, i.e., those that have market
capitalizations of less than $1.5 billion or annual gross Janus Capital Corporation
revenues of less than $500 million. As a Portfolio that
invests primarily in smaller or newer issuers, the Portfolio
may be subject to greater risk of loss and share price
fluctuation than funds investing primarily in larger or more
established issuers.
------------------------------------------------------------------------------------------------ ---------------
AST Kemper Small-Cap Growth: seeks maximum growth of
investors' capital from a portfolio primarily of growth
stocks of smaller companies. At least 65% of the Portfolio's
total assets normally will be invested in the equity
securities of smaller companies, i.e., those having a market Scudder Kemper
capitalization of $1.5 billion or less at the time of Investments, Inc.
investment, many of which would be in the early stages of
their life cycle. The Portfolio seeks attractive areas for
investment that arise from factors such as technological
advances, new marketing methods, and changes in the economy
and population. Because of the Portfolio's focus on the
SMALL stocks of smaller growth companies, investment in the
CAPITALIZATION Portfolio may involve substantially greater than average
share price fluctuation and investment risk.
------------------------------------------------------------------------------------------------ ---------------
AST Lord Abbett Small Cap Value: seeks long-term capital
growth. The Portfolio will seek its objective through
investments primarily in equity securities that are believed
to be undervalued in the marketplace. The Portfolio
primarily seeks companies that are small-sized, based on the
value of their outstanding stock. Specifically, under normal Lord, Abbett & Co.
circumstances, at least 65% of the Portfolio's total assets
will be invested in common stocks issued by smaller, less
well-known companies (with market capitalizations of less
than $1 billion) selected on the basis of fundamental
investment analysis. The small capitalization companies in
which the Portfolio primarily invests may offer significant
appreciation potential. However, smaller companies may carry
more risk than larger companies.
------------------------------------------------------------------------------------------------ ---------------
AST T. Rowe Price Small Company Value: seeks to provide
long-term capital growth by investing primarily in
small-capitalization stocks that appear to be undervalued.
The Portfolio will normally invest at least 65% of its total
assets in stocks and equity-related securities of small T. Rowe Price
companies ($1 billion or less in market capitalization). Associates, Inc.
Reflecting a value approach to investing, the Portfolio will
seek the stocks of companies whose current stock prices do
not appear to adequately reflect their underlying value as
measured by assets, earnings, cash flow or business
franchises. Investing in small companies involves greater
risk of loss than is customarily associated with more
established companies.
- ------------------- ------------------------------------------------------------------------------------------------ ---------------
AST American Century International Growth: seeks capital
growth. The Portfolio will seek to achieve its investment
objective by investing primarily in equity securities of
international companies that the Sub-advisor believes will
increase in value over time. Under normal conditions, the
Portfolio will invest at least 65% of its assets in equity American Century
securities of issuers from at least three countries outside Investment
of the United States. The Sub-advisor uses a growth Management, Inc.
investment strategy it developed that looks for companies
with earnings and revenue growth. The Sub-advisor will
consider a number of other factors in making investment
selections, including the prospects for relative economic
growth among countries or regions, economic and political
conditions, expected inflation rates, currency exchange
fluctuations and tax considerations.
------------------------------------------------------------------------------------------------ ---------------
AST Founders Passport: seeks capital growth. The Portfolio
INTER-NATIONAL normally invests primarily in securities issued by foreign
EQUITY companies that have market capitalizations or annual
revenues of $1 billion or less. These securities may
represent companies in both established and emerging Founders Asset
economies throughout the world. At least 65% of the Management LLC
Portfolio's total assets normally will be invested in
foreign securities representing a minimum of three
countries. Foreign securities are generally considered to
involve more risk than those of U.S. companies, and
securities of smaller companies are generally considered to
be riskier than those of larger companies.
------------------------------------------------------------------------------------------------ ---------------
AST Janus Overseas Growth: seeks long-term growth of
capital. The Portfolio pursues its objective primarily
through investments in common stocks of issuers from at Janus Capital Corporation
least five different countries, excluding the United States.
Securities are generally selected without regard to any
defined allocation among countries, geographic regions or
industry sectors, or other similar selection procedure.
------------------------------------------------------------------------------------------------ ---------------
AST AIM International Equity: seeks capital growth. The
Portfolio seeks to meet its objective by investing,
normally, at least 70% of its assets in marketable equity
securities of foreign companies that are listed on a A I M Capital
recognized foreign securities exchange or traded in a Management, Inc.
foreign over-the-counter market. The Portfolio will normally
invest in a diversified portfolio that includes companies
from at least four countries outside the United States,
emphasizing counties of Western Europe and the Pacific
Basin.
------------------------------------------------------------------------------------------------ ---------------
AST T. Rowe Price International Equity: seeks total return
from long-term growth of capital and income, principally
through investments in common stocks of established,
non-U.S. companies. Investments may be made solely for
capital appreciation or solely for income or any combination Rowe Price-Fleming
of both for the purpose of achieving a higher overall International, Inc.
return. The Sub-advisor expects to invest substantially all
of the Portfolio's assets (with a minimum of 65%) in .
established foreign companies. Geographic diversification
will be wide, including both developed and developing
countries, and there will normally be at least three
different countries represented in the Portfolio.
- ------------------- ------------------------------------------------------------------------------------------------ ---------------
Montgomery Variable Series - Emerging Markets: seeks capital
appreciation, which under normal conditions it seeks by
EMERGING investing at least 65% of its total assets in equity Montgomery Asset
MARKETS securities of companies in countries having emerging Management, L.P.
markets. Under normal conditions, investments are maintained
in at least six emerging market countries at all times
and no more than 35% of to assets are invested in any one
emerging market country.
- ------------------- ------------------------------------------------------------------------------------------------ ---------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
- ------------------- ------------------------------------------------------------------------------------------------ ---------------
- ------------------------------------------------------------------------------------------------------------------------------------
The Nova, Ursa and OTC portfolios of the Rydex Variable Trust are available to
all Owners. However, the fund's advisor strongly recommends that only Owners who
engage a financial advisor to allocate their funds in strategic or tactical
asset allocation strategies invest in these portfolios. There can be no
assurance that any financial advisor will successfully predict market
fluctuations. Each of the Rydex portfolios invests in the securities of a
relatively few number of issuers. Since the assets of each portfolio are
invested in a limited number of issuers, the net asset value of the portfolio
may be more susceptible to a single adverse economic, political or regulatory
occurrence.
- ------------------- ------------------------------------------------------------------------------------------------ ---------------
Rydex Variable Trust - Nova: seeks to provide investment
returns that are 150% of the S&P 500 Composite Stock Price
Index by investing to a significant extent in futures
contracts and options on securities, futures contracts and PADCO Advisors II,
stock indexes. If the Portfolio meets its objective the Inc.
value of its shares will tend to increase by 150% of the
value of any increase in the S&P 500 Index. However, when
the value of the S&P 500 Index declines, the value of its
shares should also decrease by 150% of the value of any
decrease in the S&P 500 Index.
------------------------------------------------------------------------------------------------ ---------------
Rydex Variable Trust - Ursa: seeks to provide investment
results that will inversely correlate (e.g. be the opposite)
to the performance of the S&P 500 Composite Stock Price
STRATEGIC OR Index by investing to a significant extent in futures
TACTICAL contracts and options on securities, futures contracts and PADCO Advisors II,
ALLOCATION stock indexes. The Portfolio will generally not invest in Inc.
the securities included in the S&P 500 Index. If the
Portfolio meets its objective the value of its shares will
tend to increase when the value of the S&P 500 Index is
decreasing. However, when the value of the S&P 500 Index is
increasing, the value of its shares should decrease by an
inversely proportional amount.
------------------------------------------------------------------------------------------------ ---------------
Rydex Variable Trust - OTC: seeks to provide investment
results that correspond to a benchmark for over-the-counter
securities, currently the NASDAQ 100 Index(TM), by investing
principally in the securities of companies included in that PADCO Advisors II,
Index. The Portfolio may also invest in other instruments Inc.
whose performance is expected to correspond to that of the
Index, and may engage in futures and options transactions.
If the Portfolio meets its objective the value of its shares
will tend to increase by the amount of the increase in the
NASDAQ 100 Index(TM). However, when the value of the NASDAQ
100 Index(TM)declines, the value of its shares should also
decrease by the amount of the decrease in the value of the
Index(TM).
- ------------------- ------------------------------------------------------------------------------------------------ ---------------
</TABLE>
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of the McGraw-Hill Companies, Inc. and have been licensed
for use by American Skandia Investment Services, Incorporated and Bankers Trust.
The Portfolio is not sponsored, endorsed, sold or promoted by Standard & Poor's
and Standard & Poor's makes no representation regarding the advisability of
investing in the Portfolio.
WHAT ARE THE FIXED INVESTMENT OPTIONS?
We offer fixed investment options of different durations during the accumulation
phase. These "Fixed Allocations" earn a guaranteed fixed rate of interest for a
specified period of time, called the "Guarantee Period." In most states, we
offer Fixed Allocations with Guarantee Periods of 1, 2, 3, 5, 7 and 10 years. We
guarantee the fixed rate for the entire Guarantee Period. However, if you
withdraw or transfer Account Value before the end of the Guarantee Period, we
will adjust the value of your withdrawal or transfer based on a formula, called
a "Market Value Adjustment." The Market Value Adjustment can either be positive
or negative, depending on the rates that are currently being credited on Fixed
Allocations. Please refer to the section entitled "How does the Market Value
Adjustment Work?" for a description of the formula along with examples of how it
is calculated. You may allocate Account Value to more than one Fixed Allocation
at a time.
Fixed Allocations are currently not available in the state of Maryland, Nevada,
Oregon, Utah and Washington.
FEES AND CHARGES
WHAT ARE THE CONTRACT FEES AND CHARGES?
(The Contingent Deferred Sales Charge is often referred to as a "Surrender
Charge" or "CDSC".)
Contingent Deferred Sales Charge: We may assess a Contingent Deferred Sales
Charge or CDSC if you surrender your Annuity or when you make a partial
withdrawal. The CDSC is calculated as a percentage of your Purchase Payment
being surrendered or withdrawn during the applicable Annuity Year. The amount of
the CDSC decreases over time, measured from the date the Purchase Payment is
applied. The CDSC percentages are shown below.
------------------ ----- ------ ----- ----- ----- ----- ----- ----- -----
YEARS 1 2 3 4 5 6 7 8 9+
------------------ ----- ------ ----- ----- ----- ----- ----- ----- -----
------------------ ----- ------ ----- ----- ----- ----- ----- ----- -----
CHARGE (%) 8.5 8.5 8.5 8.5 7.5 5.5 3.5 1.5 0.0
------------------ ----- ------ ----- ----- ----- ----- ----- ----- -----
Each Purchase Payment has its own CDSC period. When you make a withdrawal, we
assume that the oldest Purchase Payment is being withdrawn first so that the
lowest CDSC is deducted from the amount withdrawn. After eight (8) complete
years from the date you make a Purchase Payment, no CDSC will be assessed if you
withdraw or surrender that Purchase Payment.
Under certain circumstances you can withdraw a limited amount of Account Value
without paying a CDSC. This is referred to as a "Free Withdrawal." We may waive
the CDSC under certain medically-related circumstances or when taking a Minimum
Distribution under an Annuity issued in connection with a qualified contract.
Free Withdrawals, Medically-Related Waivers and Minimum Distributions are each
explained more fully in the section entitled "Access to Your Account Value".
Reductions to the Contingent Deferred Sales Charge
We may reduce the amount of the CDSC or the length of time it applies if we
determine that our sales expenses for a particular individual or group are lower
than expected. Some of the factors we might consider in making such a decision
are: (a) the size and type of group; (b) the amounts of Purchase Payments; (c)
present Owners making additional Purchase Payments; and/or (d) other
transactions where sales expenses are likely to be reduced. We will not
discriminate unfairly between Annuity purchasers if and when we reduce the
length or amount of the CDSC.
Annual Maintenance Fee: During the accumulation period we deduct an Annual
Maintenance Fee. The Annual Maintenance Fee is $30.00 or 2% of your Account
Value invested in the variable investment options, whichever is less. This fee
will be deducted annually on the anniversary of the Issue Date of your Annuity
or, if you surrender your Annuity during the Annuity Year, the fee is deducted
at the time of surrender. We may increase the Annual Maintenance Fee. However,
any increase will only apply to Annuities issued after the date of the increase.
We may reduce or eliminate the amount of the Annual Maintenance Fee when
Annuities are sold to individuals or a group of individuals in a manner that
reduces our maintenance 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
expenses are likely to be reduced. We will not discriminate unfairly between
Annuity purchasers if and when we eliminate or reduce the Annual Maintenance
Fee.
Optional Death Benefits: If you elect to purchase one of the Optional Death
Benefits, we will deduct a charge from your Account Value on the anniversary of
your Annuity's Issue Date or, under certain circumstances on a date other than
the anniversary date. Please refer to the section entitled "Death Benefit" for a
description of the charge for each Optional Death Benefit.
Transfer Fee: You may make twelve (12) free transfers between investment options
each Annuity Year. We will charge $10.00 for each transfer after the twelfth in
each Annuity Year. We do not consider transfers made as part of a dollar cost
averaging program when we count the twelve free transfers. Transfers made as
part of a rebalancing, market timing or third party investment advisory service
will be subject to the twelve-transfer limit. However, all transfers made on the
same day will be treated as one (1) transfer. Renewals or transfers of Account
Value from a Fixed Allocation at the end of its Guarantee Period are not subject
to the Transfer Fee and are not counted toward the twelve free transfers.
Tax Charges: Several states and some municipalities charge premium taxes or
similar taxes. The amount of tax will vary from jurisdiction to jurisdiction and
is subject to change. The tax charge currently ranges up to 3 1/2%. We generally
will deduct the amount of tax payable at the time the tax is imposed, but may
also decide to deduct tax charges from each Purchase Payment at the time of a
withdrawal or surrender of your Annuity or at the time you elect to begin
receiving annuity payments. We may assess a charge against the Sub-accounts and
the Fixed Allocations equal to any taxes which may be imposed upon the separate
accounts.
WHAT CHARGES APPLY SOLELY TO THE VARIABLE INVESTMENT OPTIONS?
Insurance Charge: We deduct an Insurance Charge daily against the average daily
assets allocated to the Sub-accounts. The charge is equal to 1.40% on an annual
basis. This charge is for insurance benefits, including the Annuity's basic
death benefit that provides guaranteed benefits to your beneficiary even if the
market declines and the risk that persons we guarantee annuity payments to will
live longer than our assumptions. The charge also covers administrative costs
associated with providing the Annuity benefits, including preparation of the
contract, confirmation statements, annual account statements and annual reports,
legal and accounting fees as well as various related expenses. Finally, the
charge covers the risk that our assumptions about the administrative and
non-mortality expenses under this Annuity are incorrect. The Insurance Charge is
not deducted against assets allocated to a fixed investment option. We may
increase the portion of the Insurance Charge for administrative costs. However,
any increase will only apply to Annuities issued after the date of the increase.
We may reduce the portion of the Insurance Charge for administrative costs when
Annuities are sold to individuals or a group of individuals in a manner that
reduces our administrative expenses. We would consider such factors as: (a) the
size and type of group; (b) the number of Annuities purchased by an Owner; (c)
the amount of Purchase Payments; and/or (d) other transactions where
administration expenses are likely to be reduced. We will not discriminate
unfairly between Annuity purchasers if and when we reduce the portion of the
Insurance Charge attributed to the charge covering administrative costs.
WHAT CHARGES APPLY TO THE FIXED ALLOCATIONS?
We take into consideration mortality, expense, administration, profit and other
factors in determining the interest rates we credit to Fixed Allocations. No
specific fee or expenses are deducted when determining the rate we credit. Any
CDSC or Tax Charge applies to amounts that are taken from the variable
investment options or the Fixed Allocations. A Market Value Adjustment may also
apply to transfers, certain withdrawals or surrender from a Fixed Allocation.
WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYOUT?
In certain states a tax is due if and when you exercise your right to receive
periodic annuity payments. We do not deduct any specific charges during the
payout period. However, the amount payable will depend on the applicable
jurisdiction and on the annuity payment option you select. If you select an
option that guarantees payment for life, then the payment amount also will
depend on your age and, where permitted by law, your gender. In all cases, the
amount of each payment will depend on the Account Value of your Annuity when you
elect to begin annuity payments.
PURCHASING YOUR ANNUITY
WHAT ARE OUR REQUIREMENTS FOR PURCHASING THE ANNUITY?
Minimum Initial Purchase Payment: You must make a minimum initial Purchase
Payment of $1,000. However, if you decide to make payments under a systematic
investment or "bank drafting" program, we will accept a lower initial Purchase
Payment provided that, within the first Annuity Year, you make at least $1,000
in total Purchase Payments.
Age Restrictions: The Owner must be age 80 or under as of the Issue Date of the
Annuity. If the Annuity is owned jointly, the oldest of the Owners must be age
80 or under on the Issue Date. If the Annuity is owned by an entity, the
Annuitant must be age 80 or under as of the Issue Date.
Owner, Annuitant and Beneficiary Designations: On your Application, we will ask
you to name the Owner(s), Annuitant and one or more Beneficiaries for your
Annuity.
|X| Owner: The Owner(s) holds all rights under the Annuity. You may name more
than one Owner in which case all ownership rights are held jointly.
However, this Annuity does not provide a right of survivorship. Refer to
the Glossary of Terms for a complete description of the term "Owner."
|X| Annuitant: The Annuitant is the person we agree to make annuity payments to
and upon whose life we continue to make such payments. You must name an
Annuitant who is a natural person. We do not accept a designation of joint
Annuitants. Where allowed by law, you may name one or more Contingent
Annuitants. A Contingent Annuitant will become the Annuitant if the
Annuitant dies before the Annuity Date.
|X| Beneficiary: The Beneficiary is the person(s) or entity you name to receive
the death benefit. If no beneficiary is named the death benefit will be
paid to you or your estate.
You should seek competent tax advice on the income, estate and gift tax
implications of your designations.
MANAGING YOUR ANNUITY
MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS?
You may change the Owner, Annuitant and Beneficiary designations by sending us a
request in writing. Where allowed by law, such changes will be subject to our
acceptance. Some of the changes we will not accept include, but are not limited
to:
|X| 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;
|X| a new Annuitant subsequent to the Annuity Date if the annuity option
selected includes a life contingency;
|X| a new Annuitant prior to the Annuity Date if the Annuity is owned by an
entity; and
|X| a change in Beneficiary if the Owner had previously made the designation
irrevocable.
Spousal Owners/Spousal Beneficiaries
If an Annuity is owned jointly by spouses, the death benefit will be payable
upon the death of the first spouse. However, if the sole primary Beneficiary is
designated as one of the following:
[X] "surviving spouse";
|X| each spouse named individually upon the death of the other; or
|X| a designation which we, in our sole discretion, determine to be of similar
intent; then
upon the death of either Owner, the surviving spouse may elect to be treated as
the Owner and continue the Annuity, subject to its existing terms and
conditions, instead of taking the Death Benefit.
MAY I RETURN THE ANNUITY IF I CHANGE MY MIND?
(The right to return the Annuity is referred to as the "free-look" right or
"right to cancel.")
If after purchasing your Annuity you change your mind and decide that you do not
want it, you may return it to us within a certain period of time known as a
free-look period. Depending on the state in which you purchased your Annuity,
the free-look period may be ten (10) days, twenty-one (21) days or longer,
measured from the time that you received your Annuity. If you free-look your
Annuity, we will refund your current Account Value plus any tax charge deducted.
This amount may be higher or lower than your original Purchase Payment. Certain
states require that we return your current Account Value or the amount of your
initial Purchase Payment, whichever is greater. The same rule applies to an
Annuity that is purchased as an IRA. In those states where we are required to
return the greater of your Purchase Payment or Account Value, we will allocate
your Account Value to the AST Money Market Sub-account during the free-look
period and for a reasonable additional amount of time to allow for delivery of
your Annuity. If you free-look your Annuity, we will not return any additional
amounts we applied to your Annuity based on your Purchase Payments.
MAY I MAKE ADDITIONAL PURCHASE PAYMENTS?
The minimum amount that we accept as an additional Purchase Payment is $100
unless you participate in American Skandia's Systematic Investment Plan or a
periodic purchase payment program. An additional Purchase Payment will be
returned if we have not received written allocation instructions. Additional
Purchase Payments may be paid at any time before the Annuity Date as long as the
oldest Owner or Annuitant (if the Annuity is entity owned) is not over age 80.
MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT?
You can make additional Purchase Payments to your Annuity by authorizing us to
deduct money directly from your bank account and applying it to your Annuity.
This type of program is often called "bank drafting". We call our bank drafting
program "American Skandia's Systematic Investment Plan." Purchase Payments made
through bank drafting may only be allocated to the variable investment options.
Bank drafting allows you to invest in an Annuity with a lower initial Purchase
Payment, as long as you authorize payments that will equal at least $1,000
during the first 12 months of your Annuity. We may 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.
MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM?
These types of programs are only available with certain types of plans. If your
employer sponsors such a program, we may agree to accept periodic Purchase
Payments through a salary reduction program as long as the allocations are made
only to variable investment options and the periodic Purchase Payments received
in the first year total at least $1,000.
MANAGING YOUR ACCOUNT VALUE
HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED?
(See "Valuing Your Investment" for a description of our procedure for pricing
initial and subsequent Purchase Payments.)
Initial Purchase Payment: Once we accept your application, we invest your net
Purchase Payment in the Annuity. The net Purchase Payment is your initial
Purchase Payment minus any tax charges that may apply. On your application we
ask you to provide us with instructions for allocating your Account Value. You
can allocate Account Value to one or more variable investment options or Fixed
Allocations. In those states where we are required to return your Purchase
Payment if you elect to "free-look" your Annuity, we initially allocate all
amounts that you choose to allocate to the variable investment options to the
AST Money Market Sub-account. At the end of the "free-look" period we will
reallocate your Account Value according to your most recent allocation
instructions. Where permitted by law, we will allocate your Purchase Payments
according to your initial instructions, without temporarily allocating to the
AST Money Market Sub-account. To do this, we will ask that you execute our form
called a "return waiver" that authorizes us to allocate your Purchase Payment to
your chosen Sub-accounts immediately. If you submit the "return waiver" and then
decide to return your Annuity during the free-look period, you will receive your
current Account Value which may be more or less than your initial Purchase
Payment (see "May I Return the Annuity if I Change my Mind?").
Subsequent Purchase Payments: We will allocate any additional Purchase Payments
you make according to your most recent allocation instructions. If any
rebalancing, asset allocation or market timing programs are in effect, the
allocation must conform with such a program. We assume that your current
allocation instructions are valid for subsequent Purchase Payments until you
make a change to those allocations or request new allocations when you submit a
new Purchase Payment.
HOW DO I RECEIVE CREDITS?
We apply a "Credit" to your Annuity's Account Value each time you make a
Purchase Payment. The amount of the Credit is payable from our general account.
The amount of the Credit depends on the cumulative amount of Purchase Payments
you have made to your Annuity, payable as a percentage of each specific Purchase
Payment, according to the table below:
-------------------------------------------------------- -------------------
Cumulative Purchase Payments Credit
-------------------------------------------------------- -------------------
-------------------------------------------------------- -------------------
Between $1,000 and $9,999.99 1.5%
Between $10,000 and $999,999.99 3.0%
Between $1,000,000 and $4,999,999.99 4.0%
Greater than $5,000,000 5.0%
-------------------------------------------------------- -------------------
HOW ARE CREDITS APPLIED TO MY ACCOUNT VALUE?
Each Credit is allocated to your Account Value at the time the Purchase Payment
is applied to your Account Value. The amount of the Credit is allocated to the
investment options in the same ratio as the applicable Purchase Payment is
applied.
Examples of Applying Credits
Initial Purchase Payment
Assume you make an initial Purchase Payment of $250,000. We would apply a 3.0%
Credit to your Purchase Payment and allocate the amount of the Credit ($7,500 =
$250,000 X .03) to your Account Value in the proportion that your Account Value
is allocated.
Additional Purchase Payment (at same breakpoint)
Assume that you make an additional Purchase Payment of $500,000. Because your
cumulative Purchase Payments are less than the next breakpoint ($1,000,000), we
would apply a 3.0% Credit to your Purchase Payment and allocate the amount of
the Credit ($15,000 = $500,000 X .03) to your Account Value.
Additional Purchase Payment (at higher breakpoint)
Assume that you make an additional Purchase Payment of $400,000. Because your
cumulative Purchase Payments are now $1,150,000 (greater than the next
breakpoint), we would apply a 4.0% Credit to your Purchase Payment and allocate
the amount of the Credit ($16,000 = $400,000 X .04) to your Account Value.
- --------------------------------------------------------------------------------
The amount of any Credits applied to your Account Value can be recovered by
American Skandia under the following circumstances:
- --------------------------------------------------------------------------------
|X| any Credits payable on Purchase Payments made within the 12 months before
the date of death will be recovered.
|X| the amount available under the medically-related surrender portion of the
Annuity will not include the amount of any Credits payable on Purchase
Payments made within 12 months of the date the Annuitant first became
eligible for the medically-related surrender.
|X| if you elect to "free-look" your Annuity, the amount returned to you will
not include the amount of any Credits.
Examples of Recovering Credits
The following are hypothetical examples of how Credits could be recovered by
American Skandia. These examples do not cover every potential situation.
Recovery from payment of Death Benefits
1. Assume you purchase your Annuity with an initial Purchase Payment of
$50,000. You make an additional Purchase of $10,000 in the 6th month after
the Issue Date. Both of the Purchase Payments received a 3.0% Credit, for a
total of $1,800. If the Death Benefit becomes payable in the 9th month
after the Issue Date, the amount of the Death Benefit would be reduced by
the entire amount of the prior Credits ($1,800).
2. Assume you purchase your Annuity with an initial Purchase Payment of
$50,000. You make an additional Purchase of $10,000 in the 6th month after
the Issue Date. Both of the Purchase Payments received a 3.0% Credit, for a
total of $1,800. If death occurs in the 16th month after the Issue Date,
the amount of the Death Benefit would be reduced but only in the amount of
those Credits applied within the previous 12-months. Since the initial
Purchase Payment (and the Credits that were applied) occurred more than
12-months before the date of death, the Death Benefit would not be reduced
by the amount of the Credits applied to the initial Purchase Payment.
However, the $10,000 additional Purchase Payment was made within 12-months
of the date of death. Therefore, the amount of the Death Benefit would be
reduced by the amount of the Credits payable on the additional Purchase
Payment ($300).
3. NOTE: If the Death Benefit would otherwise have been equal to the Purchase
Payments minus any withdrawals due to poor investment performance, we will
not reduce the amount of the Death Benefit by the amount of the Credits as
shown in Example 2 above.
Recovery from Medically-Related Surrenders
1. Assume you purchase your Annuity with an initial Purchase Payment of
$50,000. You receive a Credit of $1,500 ($50,000 X .03). The Annuitant is
diagnosed as terminally ill in the 6th month after the Issue Date and we
grant your request to surrender your Annuity under the medically-related
surrender provision. Assuming the Credits were applied within 12-months of
the date of diagnosis of the terminal illness, the amount that would be
payable under the medically-related surrender provision would be reduced by
the entire amount of the Credits ($1,500).
2. Assume you purchase your Annuity with an initial Purchase Payment of
$50,000. You make an additional Purchase of $10,000 in the 6th month after
the Issue Date. Both of the Purchase Payments received a 3.0% Credit, for a
total of $1,800. The Annuitant is diagnosed as terminally ill in the 16th
month after the Issue Date and we grant your request to surrender your
Annuity under the medically-related surrender provision. Since the initial
Purchase Payment (and the Credits that were applied) occurred more than
12-months before the diagnosis, the amount that would be payable upon the
medically-related surrender provision would not be reduced by the amount of
the Credits applied to the initial Purchase Payment. However, the $10,000
additional Purchase Payment was made within 12-months of the date of
diagnosis. Therefore, the amount of the Death Benefit would be reduced by
the amount of the Credits payable on the additional Purchase Payment
($300).
Credits applied to estimated Purchase Payments
Under certain circumstances, we may determine the amount of Credits payable on
two or more separate Purchase Payments based on the Credit percentage that would
have applied had all such Purchase Payments been made at the same time. To make
use of this procedure, often referred to as a "letter of intent", you must
provide evidence of your intention to submit the cumulative additional Purchase
Payments within a 13-month period. A letter of intent must be provided to us
prior to the Issue Date to be effective. Acceptance of a letter of intent is at
our sole discretion and may be subject to restrictions as to the minimum initial
Purchase Payment that must be submitted to receive the next higher breakpoint.
Failure to inform us that you intend to submit two or more Purchase Payments
within a 13-month period may result in your Annuity receiving fewer Credits than
would otherwise be added to your Annuity.
If you submit a letter of intent and receive Credits on Purchase Payments at a
higher Credit percentage than would have applied BUT do not submit the required
Purchase Payments during the 13-month period as required by your letter of
intent, we may recover the "excess" Credits. "Excess" Credits are Credits in
excess of the Credits that would have been payable without the letter of intent.
If we determine that you have received "excess" Credits, any such amounts will
be taken pro-rata from the investment options based on your Account Values as of
the date we act to recover the excess. If the amount of the recovery exceeds
your then current Surrender Value, we will recover all remaining Account Value
and terminate your Annuity.
General Information about Credits
|X| We do not consider Credits to be "investment in the contract" for income
tax purposes.
|X| You may not withdraw the amount of any Credits under the Free Withdrawal
provision without assessment of the contingent deferred sales charge (see
"Can I make withdrawal from my Annuity without a CDSC?").
|X| These Credits are separate and distinct from the Target Value Credits
discussed below in the section entitled "American Skandia's Performance
Advantage."
ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?
During the accumulation period you may transfer Account Value between investment
options. Transfers are not subject to taxation. We currently limit the number of
Sub-accounts you can invest in at any one time to ten (10). However, you can
invest in an unlimited number of Fixed Allocations. We may require a minimum of
$500 in each Sub-account you allocate Account Value to at the time of any
allocation or transfer. If you request a transfer and, as a result of the
transfer, there would be less than $500 in the Sub-account, we may transfer the
remaining Account Value in the Sub-account pro rata to the other investment
options to which you transferred.
We will charge $10.00 for each transfer after the twelfth (12th) in each Annuity
Year, including transfers made as part of any rebalancing, market timing, asset
allocation or similar program which you have authorized. Transfers made as part
of a dollar cost averaging program do not count toward the twelve free transfer
limit. Renewals or transfers of Account Value from a Fixed Allocation at the end
of its Guarantee Period are not subject to the transfer charge.
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: (a) we believe that excessive trading or a specific transfer
request or group of transfer requests may have a detrimental effect on Unit
Values or the share prices of the Portfolios; or (b) we are informed by one or
more of the Portfolios that the purchase or redemption of shares must be
restricted because of excessive trading or a specific transfer or group of
transfers is deemed to have a detrimental effect on the share prices of affected
Portfolios. Without limiting the above, the most likely scenario where either of
the above could occur would be if the aggregate amount of a trade or trades
represented a relatively large proportion of the total assets of a particular
Portfolio. Under such a circumstance, we will process transfers according to our
rules then in effect and provide notice if the transfer request was denied. If a
transfer request is denied, a new transfer request may be required.
DO YOU OFFER DOLLAR COST AVERAGING?
Yes. We offer Dollar Cost Averaging during the accumulation period. Dollar Cost
Averaging allows you to systematically transfer an amount each month from one
investment option to one or more other investment options. You can choose to
transfer earnings only, principal plus earnings or a flat dollar amount. Dollar
Cost Averaging allows you to invest regularly each month, regardless of the
current unit value (or price) of the Sub-account(s) you invest in. This enables
you to purchase more units when the market price is low and fewer units when the
market price is high. This may result in a lower average cost of units over
time. However, there is no guarantee that Dollar Cost Averaging will result in a
profit or protect against a loss in a declining market.
You must have a minimum Account Value of at least $10,000 to enroll in a Dollar
Cost Averaging program.
You can Dollar Cost Average from variable investment options or Fixed
Allocations. Dollar Cost Averaging from Fixed Allocations is subject to a number
of rules that include, but are not limited to the following:
|X| You may only use Fixed Allocations with Guarantee Periods of 1, 2 or 3
years.
|X| You may only Dollar Cost Average earnings or principal plus earnings. If
transferring principal plus earnings, the program must be designed to last
the entire Guarantee Period for the Fixed Allocation.
|X| Dollar Cost Averaging transfers from Fixed Allocations are not subject to a
Market Value Adjustment.
We may credit additional amounts to your Account Value if you allocate Purchase
Payments to Fixed Allocations as part of a dollar cost averaging program. Any
such offer is at our sole discretion and may be cancelled at any point. Specific
rules may also apply including a change to the MVA formula. For more information
see "Additional Amounts in the Fixed Allocation."
DO YOU OFFER ANY AUTOMATIC REBALANCING PROGRAMS?
Yes. During the accumulation period, we offer automatic rebalancing among the
variable investment options you choose. You can choose to have your Account
Value rebalanced quarterly, semi-annually, or annually. On the appropriate date,
your variable investment options are rebalanced to the allocation percentages
you request. For example, over time the performance of the variable investment
options will differ, causing your percentage allocations to shift. With
automatic rebalancing, we transfer the appropriate amount from the
"overweighted" Sub-accounts to the "underweighted" Sub-accounts to return your
allocations to the percentages you request. If you request a transfer from or
into any variable investment option participating in the automatic rebalancing
program, we will assume that you wish to change your rebalancing percentages as
well, and will automatically adjust the rebalancing percentages in accordance
with the transfer unless we receive alternate instructions from you.
You must have a minimum Account Value of at least $10,000 to enroll in automatic
rebalancing. All rebalancing transfers made on the same day as part of an
automatic rebalancing program are considered as one transfer when counting the
number of transfers each year toward the maximum of 12 free transfers.
DO YOU OFFER A PROGRAM TO BALANCE FIXED AND VARIABLE INVESTMENTS?
Some investors wish to invest in the variable investment options but also wish
to protect a portion of their investment from market fluctuations. We offer a
balanced investment program where a portion of your Purchase Payment is
allocated to a Fixed Allocation for a Guarantee Period that you select and the
remaining Account Value is allocated to the variable investment options that you
select. The amount that we allocate to the Fixed Allocation is the amount (not
including any additional amounts we applied to your Annuity based on your
Purchase Payments) that will grow to a specific "principal amount" such as your
initial Purchase Payment. We determine the amount based on the rates then in
effect for the Guarantee Period you choose. If no amounts are transferred or
withdrawn from the Fixed Allocation, at the end of the Guarantee Period, it will
have grown to equal the "principal amount". The remaining Account Value that was
not allocated to the Fixed Allocation can be allocated to any of the
Sub-accounts that you choose. Account Value allocated to the variable investment
options is subject to market fluctuations and may increase or decrease in value.
Example
Assume you have $100,000 to invest. You choose to allocate a portion of your
Account Value to a Fixed Allocation with a 10-year Guarantee Period. The rate
for the 10-year Guarantee Period is 4.24%*. Based on the chosen Guarantee Period
and interest rate, the factor for determining how much of your Account Value can
be allocated to the Fixed Allocation is 0.660170. That means that $66,017 will
be allocated to the Fixed Allocation and the remaining Account Value ($33,983)
will be allocated to the variable investment options. Assuming that you do not
make any withdrawals from the Fixed Allocation, it will grow to $100,000 at the
end of the Guarantee Period. Of course we cannot predict the value of the
remaining Account Value that was allocated to the variable investment options.
* The rate in this example is hypothetical and may not reflect the current rate
for Guarantee Periods of this duration. The hypothetical values in this example
do not include the amount of any Credits or Target Value Credits that may apply.
We may credit additional amounts to Fixed Allocations if you allocate Purchase
Payments in accordance with the balanced investment program we offer. Any such
offer is at our sole discretion and may be cancelled at any point. Specific
rules may also apply, including a change to the MVA formula. For more
information see "Additional Amounts in the Fixed Allocations."
MAY I AUTHORIZE MY FINANCIAL REPRESENTATIVE TO MANAGE MY ACCOUNT?
You may authorize your financial representative to decide on the allocation of
your Account Value and to make financial transactions between investment
options, subject to our rules. However, we can suspend or cancel these
privileges at any time. We will notify you if we do. We may restrict the
available investment options if you authorize a financial representative to make
transfers for you. We do this so that no financial representative is in a
position to control transfers of large amounts of money for multiple clients
into or out of any of the underlying portfolios that have expressed concern
about movement of a large proportion of a portfolio's assets.
We may also establish different "cut-off times" by which we must receive all
financial transactions for certain underlying portfolios. Currently, only the
three portfolios of the Rydex Variable Trust are subject to this restriction.
Financial transactions involving a Rydex Sub-account must be received by us no
later than 3:00 p.m. Eastern time to be processed on the current Valuation Day.
If you request a transaction involving the purchase or redemption of Units in
one of the Rydex Sub-accounts after 3:00 p.m. Eastern time, we will deem your
request as received by us on the next Valuation Day.
We or an affiliate of ours may provide administrative support to financial
representatives who make transfers on your behalf. These financial
representatives may be firms or persons who also are appointed by us as
authorized sellers of the Annuity. However, we do not offer you advice about how
to allocate your Account Value under any circumstance. Any financial firm or
representative you engage to provide advice and/or make transfers for you is not
acting on our behalf. We are not responsible for any recommendations such
financial representatives make, any market timing or asset allocation programs
they choose to follow or any specific transfers they make on your behalf.
HOW DO THE FIXED INVESTMENT OPTIONS WORK?
(Fixed Allocations may not be available in all states and may not be available
in certain durations.)
Fixed Allocations currently are offered with Guarantee Periods of 1, 2, 3, 5, 7
and 10 years. We credit the fixed interest rate to the Fixed Allocation
throughout a set period of time called a "Guarantee Period." The interest rate
credited to a Fixed Allocation is the rate in effect when the Guarantee Period
begins and does not change during the Guarantee Period. The rates are an
effective annual rate of interest. We determine the interest rates for the
various Guarantee Periods. At the time that we confirm your Fixed Allocation, we
will advise you of the interest rate in effect and the date your Fixed
Allocation matures. We may change the rates we credit new Fixed Allocations at
any time. To inquire as to the current rates for Fixed Allocations, please call
1-800-766-4530.
A Guarantee Period for a Fixed Allocation begins:
|X| when all or part of a net Purchase Payment is allocated to that particular
Guarantee Period;
|X| upon transfer of any of your Account Value to a Fixed Allocation for that
particular Guarantee Period; or
|X| when a Guarantee Period attributable to a Fixed Allocation "renews" after
its Maturity Date.
To the extent permitted by law, we may increase interest rates offered to a
class of Owners who choose to participate in various services we make available.
This may include, but is not limited to, Owners who elect to use dollar cost
averaging from Fixed Allocations (see "Do You Offer Dollar Cost Averaging?") or
the balanced investment program (see "Do You Offer a Program to Balance Fixed
and Variable Investments?"). Any such program is at our sole discretion.
HOW DO YOU DETERMINE RATES FOR FIXED ALLOCATIONS?
We do not have a specific formula for determining the fixed interest rates for
Fixed Allocations. Generally the interest rates we offer for Fixed Allocations
will reflect the investment returns available on the types of investments we
make to support our fixed rate guarantees. These investment types may include
cash, debt securities guaranteed by the United States government and its
agencies and instrumentalities, money market instruments, corporate debt
obligations of different durations, private placements, asset-backed obligations
and municipal bonds. In determining rates we also consider factors such as the
length of the Guarantee Period for the Fixed Allocation, regulatory and tax
requirements, liquidity of the markets for the type of investments we make,
commissions, administrative and investment expenses, our insurance risks in
relation to the Fixed Allocations, general economic trends and competition.
We will credit interest on a new Fixed Allocation in an existing Annuity 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.
HOW DOES THE MARKET VALUE ADJUSTMENT WORK?
If you transfer or withdraw Account Value from a Fixed Allocation before the end
of its Guarantee Period, we will adjust the value of your investment based on a
formula, called a "Market Value Adjustment" or "MVA". The Market Value
Adjustment formula compares the interest rates credited for Fixed Allocations at
the time you invested, to interest rates being credited when you make a transfer
or withdrawal. The amount of any Market Value Adjustment can be either positive
or negative, depending on the rates that are currently being credited on Fixed
Allocations.
MVA Formula
The MVA formula is applied separately to each Fixed Allocation. The formula is
as follows:
[(1+I) / (1+J+0.0010)]N/12
where:
I is the fixed interest rate we guaranteed to credit to the
Fixed Allocation as of its starting date;
J is the fixed interest rate for your class of annuities at
the time of the withdrawal for a new Fixed Allocation with a
Guarantee Period equal to the remaining number of years in
your original Guarantee Period;
N is the number of months remaining in the original Guarantee
Period.
If you surrender your Annuity under the "free-look" provision, the MVA formula
is [(1 + I)/(1 + J)]N/12.
If the transfer or withdrawal does not occur on the yearly or monthly
anniversary of the beginning of the Fixed Allocation, the numbers used in `J'
and `N' will be rounded to the next highest integer.
MVA Examples
The following hypothetical examples show the effect of the MVA in determining
Account Value. Assume the following:
|X| You allocate $50,000 into a Fixed Allocation with a Guarantee Period of 5
years.
|X| The interest rate for your Fixed Allocation is 5.0% (I = 5.0%).
|X| You make no withdrawals or transfers until you decided to withdraw the
entire Fixed Allocation after exactly three (3) years, therefore 24 months
remain before the Maturity Date (N = 24).
Example of Positive MVA
Assume that at the time you request the withdrawal, the fixed interest rate for
a new Fixed Allocation with a Guarantee Period of 24 months is 3.5% (J = 3.5%).
Based on these assumptions, the MVA would be calculated as follows:
MVA Factor = [(1+I)/(I+J+0.0010)]N/12 = [1.05/1.036]2 = 1.027210
Interim Value = $57881.25
Account Value after MVA = Interim Value X MVA Factor = $59,456.20.
Example of Negative MVA
Assume that at the time you request the withdrawal, the fixed interest rate for
a new Fixed Allocation with a Guarantee Period of 24 months is 6.0% (J = 6.0%).
Based on these assumptions, the MVA would be calculated as follows:
MVA Factor = [(1+I)/(1+J+0.0010)]N/12 = [1.05/1.061)]2 = 0.979372
Interim Value = $57881.25
Account Value after MVA = Interim Value X MVA Factor = $56,687.28.
WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES?
The "Maturity Date" for a Fixed Allocation is the last day of the Guarantee
Period. On the Maturity Date, you may choose to renew the Fixed Allocation for a
new Guarantee Period of the same or different length or you may transfer all or
part of that Fixed Allocation's Account Value to another Fixed Allocation or to
one or more Sub-accounts. If you do not specify how you want a Fixed Allocation
to be allocated on its Maturity Date, it will be renewed for a Fixed Allocation
of the same duration if then available. We will notify you 60 days before the
end of the Guarantee Period about the fixed interest rates that we are currently
crediting to all Fixed Allocations that are being offered. The rates being
credited to Fixed Allocations may change before the Maturity Date. We will not
charge a MVA if you choose to renew a Fixed Allocation on its Maturity Date or
transfer the Account Value to one or more variable investment options.
ADDITIONAL AMOUNTS IN THE FIXED ALLOCATIONS
If you allocate Account Value to the Fixed Allocations and participate in
certain programs we offer to help you to manage your Annuity's Account Value,
under certain circumstances we may apply Additional Amounts to your Account
Value allocated to the Fixed Allocation. Additional Amounts may be offered at
any time at our sole discretion. When offered, Additional Amounts are provided
from our general account.
Any program to provide Additional Amounts to Fixed Allocations are subject to
the following rules:
|X| Additional Amounts are only offered if you participate in a balanced
investment program (see "Do you offer a program to balance fixed and
variable investment options?") or dollar cost averaging (see " Do you offer
Dollar Cost Averaging?").
|X| Additional Amounts are only available on initial or additional Purchase
Payments. Account Value transferred to a Fixed Allocation for use in the
applicable programs will not receive the Additional Amounts. Additional
Amounts are not available on an Annuity that is issued following an
exchange of another annuity issued by us.
|X| You may not withdraw any Additional Amounts under the Free Withdrawal
provision without assessment of the contingent deferred sales charge (see
"Can I make withdrawals from my Annuity without a CDSC?).
|X| If Additional Amounts are applied to a Fixed Allocation, the MVA formula is
revised as follows:
[(1+I) / (1+J+0.0020)]N/12
Please refer to the section of the Prospectus entitled "How does the
Market Value Adjustment Work?" for a discussion of the MVA formula.
|X| We do not consider Additional Amounts as "investment in the contract" for
income tax purposes.
|X| We may require that you allocate Account Value to a Fixed Allocation with a
Guarantee Period of certain duration (i.e. 10 years).
|X| Specific rules apply in relation to the duration of the Guarantee Period
you must choose to be eligible to receive any Additional Amounts, and the
date on which we allocate any Additional Amounts to the Fixed Allocation
and begin crediting interest on the Additional Amount.
AMERICAN SKANDIA'S PERFORMANCE ADVANTAGE
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This benefit is being offered as of May 15, 1999 in those jurisdictions where we
have received regulatory approvals. Certain terms and conditions may differ
between jurisdictions once approved.
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Do you provide any guarantees on my investment?
The Annuity provides variable investment options and fixed investment options.
Only the fixed investment options provide a guaranteed return on your
investment, subject to certain terms and conditions. However, your Annuity
includes a feature at no additional cost that provides certain benefits if your
Account Value has not reached or exceeded a "target value" on its 10th
anniversary. If, on the 10th anniversary of your Annuity's Issue Date, your
Account Value has not reached the target value (as defined below) you can choose
either of the following benefits:
|X| You may continue your Annuity without electing to receive Annuity payments
and receive an annual credit to your Account Value payable until you begin
receiving Annuity payments. The credit is equal to 0.25% of the average of
your Annuity's Account Value for the preceding four complete calendar
quarters. This credit is applied to your investment options pro-rata based
on the allocation of your then current Account Value.
|X| You may begin receiving Annuity payments within one year and accept a
one-time credit to your Annuity equal to 10% of the net of the Account
Value on the 10th anniversary of its Issue Date minus the sum of all
Purchase Payments allocated in the prior five years. The annuity option you
select must initially guarantee payments for not less than seven years.
Following the 10th anniversary of your Annuity's Issue Date, we will inform you
if your Account Value did not meet or exceed the Target Value. We will assume
that you have elected to receive the annual credit to your Account Value unless,
not less than 30 days prior to the next anniversary of the Annuity, we receive
at our home office your election to begin receiving Annuity payments.
Certain provisions of this benefit and of the Target Value Credits described
below may differ if you purchase your Annuity as part of an exchange,
replacement or transfer, in whole or in part, from any other Annuity we issue.
What is the "Target Value" and how is it calculated?
The Target Value is a tool used to determine whether you are eligible to elect
either of the benefits described above. The Target Value does not impact the
Account Value available if you surrender your Annuity or make a partial
withdrawal and does not impact the Death Benefit available to your
Beneficiary(ies). The Target Value assumes a rate of return over ten (10)
Annuity Years that will allow your initial investment to double in value,
adjusted for any withdrawals and/or additional Purchase Payments you make during
the 10 year period. We calculate the "Target Value" as follows:
1. Accumulate the initial Purchase Payment at an annual interest rate of 7.2%
until the 10th anniversary of the Annuity's Issue Date; plus
2. Accumulate any additional Purchase Payments at an annual interest rate of
7.2% from the date applied until the 10th anniversary of the Annuity's
Issue Date; minus
3. Each "proportional reduction" resulting from any withdrawal, accumulating
at an annual interest rate of 7.2% from the date the withdrawal is
processed until the 10th anniversary of the Annuity's Issue Date. We
determine each "proportional reduction" by determining the percentage of
your Account Value then withdrawn and reducing the Target Value by that
same percentage. We include any withdrawals under your Annuity in this
calculation, as well as the charge we deduct for any optional benefits you
elect under the Annuity, but not the charge we deduct for the Annual
Maintenance Fee or the Transfer Fee.
Examples
1. Assume you make an initial Purchase Payment of $10,000 and make no further
Purchase Payments. The Target Value on the 10th anniversary of your
Annuity's Issue Date would be $20,042, assuming no withdrawals are made.
This is equal to $10,000 accumulating at an annual rate of 7.2% for the
10-year period.
2. Assume you make an initial Purchase Payment of $10,000 and make no further
Purchase Payments. Assume at the end of Year 6, your Account Value has
increased to $15,000 and you make a withdrawal of 10% or $1,500. The Target
Value on the 10th anniversary would be $18,722. This is equal to $10,000
accumulating at an annual rate of 7.2% for the 10-year period, minus the
proportional reduction accumulating at an annual interest rate of 7.2%.
Can I restart the 10-year Target Value calculation?
Yes, you can elect to lock in the growth in your Annuity by "restarting" the
10-year period on any anniversary of the Issue Date. If you elect to restart the
calculation period, we will treat your Account Value on the restart date as if
it was your Purchase Payment when determining if your Annuity's Account Value
meets or exceeds the Target Value on the appropriate tenth (10th) anniversary.
You may elect to restart the calculation more than once, in which case, the
10-year calculation period will begin on the date of the last restart date. We
must receive your election to restart the calculation at our home office not
later than 30 days after each anniversary of the Issue Date.
What are Target Value Credits?
Target Value Credits are additional amounts that we apply to your Account Value
to increase the likelihood that your Account Value will meet or exceed the
Target Value. Target Value Credits are payable on all Purchase Payments applied
before the first anniversary of the Issue Date of your Annuity. Target Value
Credits are separate and distinct from other Credits we apply to all Purchase
Payments.
The amount of the Target Value Credit is equal to 1.0% of each qualifying
Purchase Payment. Target Value Credits are only payable on qualifying Purchase
Payments if the Owner(s) of the Annuity is(are) less than age 81 on its Issue
Date. If the Annuity is owned by an entity, the age restriction applies to the
age of the Annuitant on the Issue Date. The Target Value Credit is payable from
our general account and is allocated to the investment options in the same ratio
that the qualifying Purchase Payment is allocated.
Target Value Credits will not be available if you purchase your Annuity as part
of an exchange, replacement or transfer, in whole or in part, of an Annuity we
issued that has the same or a similar benefit.
Recovery of Target Value Credits
We can recover the amount of any Target Value Credit under the following
circumstances:
1. If you surrender your Annuity before the 10th anniversary of the Issue Date
of the Annuity.
2. If you elect to begin receiving Annuity payments before the first
anniversary of the Issue Date.
3. If a person on whose life we pay the Death Benefit dies, or if a
"contingency event" occurs which triggers a medically-related surrender
(a) within 12 months after the date a Target Value Credit was allocated
to your Account Value; or
(b) within 10 years after the date a Target Value Credit was allocated
to your Account Value if any owner was over age 70 on the Issue Date,
or, if the Annuity was then owned by an entity, the Annuitant was over
age 70 on the Issue Date.
ACCESS TO ACCOUNT VALUE
WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME?
During the accumulation phase you can access your Account Value through Partial
Withdrawals, Systematic Withdrawals, and where required for tax purposes,
Minimum Distributions. You can also surrender your Annuity at any time. We may
deduct a portion of the Account Value being withdrawn or surrendered as a CDSC
and we may also apply a Market Value Adjustment to any Fixed Allocations.
Certain amounts may be available to you each Annuity Year that are not subject
to a CDSC. These are called "Free Withdrawals." In addition, under certain
circumstances, we may waive the CDSC for surrenders made for qualified medical
reasons or for withdrawals made to satisfy Minimum Distribution requirements.
Unless you notify us differently, withdrawals are taken pro-rata based on the
Account Value in the investment options at the time we receive your withdrawal
request. Each of these types of distributions is described more fully below.
ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS?
(For more information, see "Tax Considerations")
During the Accumulation Period
A distribution during the accumulation period is deemed to come first from any
"gain" in your Annuity and second as a return of your "tax basis", if any.
Distributions from your Annuity are generally subject to ordinary income
taxation on the amount of any investment gain. If you take a distribution prior
to the taxpayer's age 59 1/2, you may be subject to a 10% penalty in addition to
ordinary income taxes on any gain. You may wish to consult a professional tax
advisor for advice before requesting a distribution.
During the Annuitization Period
During the annuitization period, a portion of each annuity payment is taxed as
ordinary income at the tax rate you are subject to at the time you receive the
payment. The Code and regulations have "exclusionary rules" that we use to
determine what portion of each annuity payment should be treated as a return of
any tax basis you have in the Annuity. Once the tax basis in the Annuity has
been distributed, the remaining annuity payments are taxable as ordinary income.
The tax basis in the Annuity may be based on the tax-basis from a prior contract
in the case of a 1035 exchange or other qualifying transfer.
CAN I WITHDRAW A PORTION OF MY ANNUITY?
Yes, you can make a withdrawal during the accumulation phase. We call this a
"Partial Withdrawal." The amount that you may withdraw will depend on the
Annuity's Surrender Value. After any Partial Withdrawal, your Annuity must have
a Surrender Value of at least $1,000, or we may treat the Partial Withdrawal
request as a request to fully surrender your Annuity. The minimum Partial
Withdrawal you may request is $100.
IS THERE A CHARGE FOR A PARTIAL WITHDRAWAL?
A CDSC may be assessed against a Partial Withdrawal. Whether a CDSC applies and
the amount to be charged depends on whether the Partial Withdrawal exceeds any
Free Withdrawal amount and, if so, the length of time that the Purchase Payment
being withdrawn has been invested in the Annuity.
If you request a Partial Withdrawal:
1. we determine if the amount you requested is available as a Free Withdrawal
(in which case it would not be subject to a CDSC);
Then if the amount requested exceeds the available Free Withdrawal amount:
2. we withdraw the amount from Purchase Payments that have been invested for
longer than the CDSC period (with your Annuity, eight (8) years), if any;
Then if the amount requested exceeds that amount:
3. we withdraw the remaining amount from the Purchase Payments that are still
subject to a CDSC. We withdraw the amount from the "oldest" of your
Purchase Payments, which will result in the lowest CDSC being applied to
the amount withdrawn.
Then if the amount requested exceeds Purchase Payments still subject to a CDSC:
4. we withdraw the remaining amount from other surrender value due to Credits,
Target Value Credits and any Additional Amounts in the Fixed Allocations.
CAN I MAKE WITHDRAWALS FROM MY ANNUITY WITHOUT A CDSC?
Yes. During the accumulation phase you may withdraw a limited amount of Account
Value each Annuity Year from which we do not deduct a CDSC. This amount is
called the "Free Withdrawal" amount. Free Withdrawals are available to meet
liquidity needs. The amount of any Free Withdrawal is not available at the time
an Annuity is surrendered. NOTE: Withdrawals of any type made prior to age 59
1/2 may be subject to a 10% tax penalty.
HOW MUCH CAN I WITHDRAW AS A FREE WITHDRAWAL?
The maximum Free Withdrawal amount during any Annuity Year is the greater of:
|X| the "Growth" in the Annuity; or
|X| 10% of Purchase Payments that, as of the date of the withdrawal, have been
invested for less than the CDSC period (with your Annuity, eight (8)
years). The 10% amount is not cumulative.
"Growth" equals the current Account Value less all Purchase Payments that have
been invested for less than the CDSC period and have not been previously
withdrawn. "Growth" does not include any additional amounts we applied to your
Annuity based on your Purchase Payments (see "How Do I Receive Credits",
"Additional Amounts in the Fixed Allocations" and "What Are Target Value
Credits").
NOTE: Free withdrawals do not reduce the amount of any CDSC that would apply
upon a partial withdrawal or subsequent surrender. The minimum Free Withdrawal
you may request is $100.
We may reduce or eliminate the amount available as a Free Withdrawal if your
Annuity is used in connection with certain plans that receive special tax
treatment under the Code. As of the date of this Prospectus, the Free Withdrawal
privilege has been eliminated for Annuities purchased as funding vehicles for
retirement plans under Section 401 or 403(b) of the Code.
Examples
Assume you make an initial Purchase Payment of $10,000 and make no additional
Purchase Payments. Assume that in Annuity Year 2, due to positive investment
performance, your Account Value is $12,500. The maximum Free Withdrawal amount
would be the greater of Growth (Account Value minus Purchase Payments = $2,500)
or 10% of Purchase Payments ($1,000). Your maximum Free Withdrawal amount would
therefore be $2,500.
Further assume that in your third Annuity Year, you choose to surrender your
Annuity. Assume that after taking your $2,500 Free Withdrawal in Year 2, your
Account Value has increased to $11,000 due to positive investment performance.
Upon surrender, we will deduct a CDSC of 8.5% based on the number of years that
your Purchase Payment has been invested times the amount of your Purchase
Payment that has not been previously withdrawn (8.5% of $10,000 = $850). The
amount of the previous Free Withdrawal was not subject to a CDSC when withdrawn.
Therefore, upon surrender, the amount of the entire Purchase Payment is subject
to the CDSC.
You would receive $10,150 minus the Annual Maintenance Fee and any Target Value
Credits.
These examples do not reflect the effect of any Credits or Target Value Credits.
These amounts are not available as a free withdrawal.
When we determine if a CDSC applies to Partial Withdrawals and Systematic
Withdrawals, we will first determine what, if any, amounts qualify as a Free
Withdrawal. Those amounts are not subject to the CDSC. Partial Withdrawal or
Systematic Withdrawal of amounts greater than the maximum Free Withdrawal amount
will be subject to a CDSC.
CAN I MAKE PERIODIC WITHDRAWALS FROM THE ANNUITY DURING THE ACCUMULATION PERIOD?
Yes. We call these "Systematic Withdrawals." You can receive Systematic
Withdrawals of earnings only, principal plus earnings or a flat dollar amount.
Systematic Withdrawals may be subject to a CDSC. We will determine whether a
CDSC applies and the amount in the same way as we would for a Partial
Withdrawal.
Systematic Withdrawals can be made from Account Value allocated to the variable
investment options or Fixed Allocations. 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. Systematic Withdrawals are available on a monthly,
quarterly, semi-annual or annual basis. The Surrender Value of your Annuity must
be at least $20,000 before we will allow you to begin a program of Systematic
Withdrawals.
The minimum amount for each Systematic Withdrawal is $100. If any scheduled
Systematic Withdrawal is for less than $100, we may postpone the withdrawal and
add the expected amount to the amount that is to be withdrawn on the next
scheduled Systematic Withdrawal.
DO YOU OFFER A PROGRAM FOR WITHDRAWALS UNDER SECTION 72(t) OF THE INTERNAL
REVENUE CODE?
Yes. If your Annuity is used as a funding vehicle for certain retirement plans
that receive special tax treatment under Sections 401, 403(b) or 408 of the
Code, Section 72(t) of the Code may provide an exception to the 10% penalty tax
on distributions made prior to age 59 1/2 if you elect to receive distributions
as a series of "substantially equal periodic payments". Distributions received
under this provision in any Annuity Year that exceed the maximum amount
available as a free withdrawal will be subject to a CDSC. To request a program
that complies with Section 72(t), you must provide us with certain required
information in writing on a form acceptable to us. We may require advance notice
to allow us to calculate the amount of 72(t) withdrawals. The Surrender Value of
your Annuity must be at least $20,000 before we will allow you to begin a
program for withdrawals under Section 72(t).
The minimum amount for any such withdrawal is $100.
WHAT ARE MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM? (See "Tax
Considerations" for a further discussion of Minimum Distributions.)
Minimum Distributions are a type of Systematic Withdrawal we allow to meet
distribution requirements under Sections 401, 403(b) or 408 of the Code. Under
the Code, you may be required to begin receiving periodic amounts from your
Annuity. In such case, we will allow you to make Systematic Withdrawals in
amounts that satisfy the minimum distribution rules under the Code. We do not
assess a CDSC on Minimum Distributions from your Annuity if you are required by
law to take such Minimum Distributions from your Annuity at the time it is
taken. However, a CDSC may be assessed on that portion of a Systematic
Withdrawal that is taken to satisfy the minimum distribution requirements in
relation to other savings or investment plans under other qualified retirement
plans not maintained with American Skandia.
If you request, we will calculate the annual required Minimum Distribution under
your Annuity. The amount of the required Minimum Distribution for your
particular situation may depend on other annuities, savings or investments. We
will only calculate the amount of your required Minimum Distribution based on
the value of your Annuity. We require three (3) days advance written notice to
calculate and process the amount of your payments. We may charge you for
calculating required Minimum Distributions. You may elect to have Minimum
Distributions paid out monthly, quarterly, semi-annually or annually. The $100
minimum that applies to Systematic Withdrawals does not apply to Minimum
Distributions.
CAN I SURRENDER MY ANNUITY FOR ITS VALUE?
Yes. During the accumulation phase you can surrender your Annuity at any time.
Upon surrender, you will receive the Surrender Value. Upon surrender of your
Annuity, you will no longer have any rights under the Annuity.
WHAT IS A MEDICALLY-RELATED SURRENDER AND HOW DO I QUALIFY?
Where permitted by law, you may request to surrender your Annuity prior to the
Annuity Date without application of any CDSC upon occurrence of a
medically-related "Contingency Event". The amount payable will be your Account
Value minus: (a) the amount of any Credits applied within 12 months of the
applicable "Contingency Event" as defined below; (b) the amount of any Credits
added in conjunction with any Purchase Payments received after our receipt of
your request for a medically-related surrender (i.e. Purchase Payments received
at such time pursuant to a salary reduction program; and (c) the amount of any
Target Value Credits under certain circumstances.
This waiver of any applicable CDSC is subject to our rules, including but not
limited to the following:
|X| the Annuitant must be named or any change of Annuitant must be accepted by
us, prior to the "Contingency Event" described below;
|X| the Annuitant must be alive as of the date we pay the proceeds of such
surrender request;
|X| if the Owner is one or more natural persons, all such Owners must also be
alive at such time;
|X| we must receive satisfactory proof of the Annuitant's confinement in a
Medical Care Facility or Fatal Illness in writing on a form satisfactory to
us; and |X| this benefit is not available if the total Purchase Payments
received exceed $500,000 for all annuities issued by us with this benefit
where the same person is named as Annuitant.
A "Contingency Event" occurs if the Annuitant is:
|X| 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
|X| first diagnosed as having a "Fatal Illness" while your Annuity is in force.
The definitions of "Medical Care Facility" and "Fatal Illness," as well as
additional terms and conditions, are provided in your Annuity. Specific details
and definitions in relation to this benefit may differ in certain jurisdictions.
WHAT TYPES OF ANNUITY PAYMENT OPTIONS ARE AVAILABLE UPON ANNUITIZATION?
Annuity payments can be guaranteed for the life of the Annuitant, for the life
of the Annuitant with a certain period guaranteed, or for a certain fixed period
of time with no life contingency. We currently make available fixed payments and
adjustable payments. However, adjustable annuity payments may not be available
on your Annuity Date.
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. You may change your
choices up to 30 days before the Annuity Date. Any change to these options must
be in writing. The Annuity Date must be the first or the fifteenth day of a
calendar month. A maximum Annuity Date may be required by law.
We currently offer the following Annuity Payment Options. Additional Annuity
Payment Options may be offered in the future.
Key Life: is the person or persons upon whose life annuity payments with a life
contingency are based.
Option 1
Payments for Life: Under this option, income is payable periodically until the
death of the "key life". No additional annuity payments are made after the death
of the key life. Since no minimum number of payments is guaranteed, this option
offers the largest amount of periodic payments of the life contingent annuity
options. It is possible that only one payment will be payable if the death of
the key life occurs before the date the second payment was due, and no other
payments nor death benefits would be payable.
Option 2
Payments for Life with 10, 15, or 20 Years Certain: Under this option, income is
payable until the death of the key life. However, if the key life dies before
the end of the period selected (10, 15, or 20 years), the remaining payments are
paid to the Beneficiary until the end of such period.
Option 3
Payments Based on Joint Lives: Under this option, income is payable periodically
during the joint lifetime of two key lives, and thereafter during the remaining
lifetime of the survivor, ceasing with the last payment prior to the survivor's
death. No minimum number of payments is guaranteed under this option. It is
possible that only one payment will be payable if the death of all the key lives
occurs before the date the second payment was due, and no other payments or
death benefits would be payable.
Option 4
Payments for a Certain Period: Under this option, income is payable periodically
for a specified number of years. If the payee dies 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
any assumptions of life expectancy. Therefore, that portion of the Insurance
Charge assessed to cover the risk that key lives outlive our expectations
provides no benefit to an Owner selecting this option.
HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION?
Unless prohibited by law, we require that you elect either a life annuity or an
annuity with a certain period of at least 5 years if any CDSC would apply were
you to surrender your Annuity on the Annuity Date. Therefore, making a purchase
payment within seven years of the Annuity Date limits your annuity payment
options.
If you have not provided us with your Annuity Date or Annuity Payment Option in
writing, then:
|X| the Annuity Date will be the first day of the calendar month following the
later of the Annuitant's 85th birthday or the fifth anniversary of our
receipt of your request to purchase an Annuity; and
|X| the Annuity Payments, where allowed by law, will be fixed monthly payments
for life with 10 years certain (See Option 2).
If you have not made an election prior to death benefit proceeds becoming due,
the Beneficiary may elect to receive the death benefit under one of the annuity
payment options. However, if you made an election, the Beneficiary may not alter
such election.
HOW ARE ANNUITY PAYMENTS CALCULATED?
The first annuity payment varies according to the annuity payment option and
payment frequency selected. The first payment is determined by multiplying the
Account Value plus any additional amounts applied by us under the Performance
Advantage benefit by the factor determined from our table of annuity rates. Your
Account Value will be determined as of the close of business on the fifteenth
day preceding the Annuity Date, plus interest at not less that 3% per year from
such date to the Annuity Date. The table of annuity rates differ based on the
type of annuity chosen and the frequency of payment selected. Our rates will not
be less than our guaranteed minimum rates. These guaranteed minimum rates are
derived from the 1983a Individual Annuity Mortality Table with ages set back one
year for males and two years for females and with an assumed interest rate of 3%
per annum. Where required by law or regulation, such annuity table will have
rates that do not differ according to the gender of the key life.
Otherwise, the rates will differ according to the gender of the key life.
<PAGE>
DEATH BENEFIT
WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT?
The Annuity provides a Death Benefit during its accumulation phase. If the
Annuity is owned by one or more natural persons, the Death Benefit is payable
upon the first death of an Owner. If the Annuity is owned by an entity, the
Death Benefit is payable upon the Annuitant's death, if there is no Contingent
Annuitant. If a Contingent Annuitant was designated before the Annuitant's death
and the Annuitant dies, then the Contingent Annuitant becomes the Annuitant and
a Death Benefit will not be paid at that time. The person upon whose death the
Death Benefit is paid is referred to below as the "decedent."
DEATH BENEFIT OPTIONS
Your Annuity provides a "basic" Death Benefit at no additional charge and also
offers two different optional Death Benefits that can be purchased for an
additional charge. Under certain circumstances, your Death Benefit may be
reduced by the amount of any Credits or Target Value Credits we applied to your
Purchase Payments. (see "How are Credits Applied to My Account Value" and
"Recovery of Target Value Credits")
Basic Death Benefit
The basic Death Benefit depends on the decedent's age on the date of death:
If death occurs during the first ten (10) Annuity Years: The Death
Benefit is the greater of:
|X| The sum of all Purchase Payments less the sum of all withdrawals; and
|X| The sum of your Account Value in the variable investment options and your
Interim Value in the Fixed Allocations.
If death occurs after the tenth (10th) Annuity Year: The Death Benefit
is your Account Value.
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The Optional Death Benefits are being offered as of May 15, 1999 in those
jurisdictions where we have received regulatory approval. Certain terms and
conditions may differ between jurisdictions once approved.
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Optional Death Benefits
We offer two optional Death Benefits to provide an enhanced level of protection
for your beneficiaries. Currently, these benefits are only offered and must be
elected at the time that you purchase your Annuity. We may, at a later date,
allow existing Annuity Owners to purchase either of the optional Death Benefits
subject to our rules.
If the Annuity has one Owner, the Owner must be age 80 or less at the time
either optional Death Benefit is purchased. If the Annuity has joint Owners, the
oldest Owner must be age 80 or less. If the Annuity is owned by an entity, the
Annuitant must be age 80 or less.
Key Terms Used with the Optional Death Benefits
|X| The Death Benefit Target Date is the contract anniversary on or after the
80th birthday of the current Owner, the oldest of either joint Owner or the
Annuitant, if entity owned.
|X| The Highest Anniversary Value equals the highest of all previous
"Anniversary Values" on or before the earlier of the Owner's date of death
and the "Death Benefit Target Date".
|X| The Anniversary Value is the Account Value as of each anniversary of the
Issue Date plus the sum of all Purchase Payments on or after such
anniversary less the sum of all "Proportional Reductions" since such
anniversary.
|X| A Proportional Reduction is a reduction to the value being measured caused
by a withdrawal, equaling the percentage of the withdrawal as compared to
the Account Value as of the date of the withdrawal. For example, if your
Account Value is $10,000 and you withdraw $2,000 (a 20% reduction), we will
reduce both your Anniversary Value and the amount determined by Purchase
Payments increasing at the appropriate interest rate by 20%.
|X| The Assumed Accumulation Rate is the rate of interest that we will apply to
your Purchase Payments only for purposes of calculating this benefit The
Assumed Accumulation Rate is different depending on which Optional Death
Benefit you select as shown below:
--------------------------- ------------------------
Option 1 Option 2
5.0% per year 7.2% per year
--------------------------- ------------------------
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Certain terms and conditions may differ if you purchase your Annuity as part of
an exchange, replacement or transfer, in whole or in part, from any other
Annuity we issue.
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Calculation of Optional Death Benefits
The optional Death Benefit calculations depend on whether death occurs before or
after the Death Benefit Target Date.
Annuities with one Owner
The optional Death Benefits are calculated as follows:
If the Owner dies before the Death Benefit Target Date, the Death
Benefit equals the greatest of:
1. the Account Value in the Sub-accounts plus the Interim Value of any Fixed
Allocations (no MVA) as of the date we receive in writing "due proof of
death"; and
2. the sum of all Purchase Payments minus the sum of all
Proportional Reductions, each increasing daily until the Owner's date of
death at the applicable Assumed Accumulation Rate for the option you elect,
subject to a limit of 200% of the difference between the sum of all
Purchase Payments and the sum of all withdrawals as of the Owner's date of
death; and
3. the "Highest Anniversary Value" on or immediately preceding the Owner's
date of death.
The amount determined by this calculation is increased by any Purchase
Payments received after the Owner's date of death and decreased by any
Proportional Reductions since such date. The amount calculated in Item
1 & 3 above may be reduced by any Credits or Target Value Credits under
certain circumstances.
If the Owner dies on or after the Death Benefit Target Date, the Death
Benefit equals the greater of:
1. the Account Value as of the date we receive in writing "due proof of death"
(an MVA may be applicable to amounts in any Fixed Allocations); and
2. the greater of Item 2 & 3 above on the Death Benefit Target Date plus the
sum of all Purchase Payments less the sum of all Proportional Reductions
since the Death Benefit Target Date.
The amount calculated in Item 1 above may be reduced by any Credits or
Target Value Credits under certain circumstances.
Annuities with joint Owners
For Annuities with Joint Owners, the Death Benefit is calculated as shown above
except that the age of the oldest of the Joint Owners is used to determine the
Death Benefit Target Date. NOTE: If you and your spouse own the Annuity jointly,
we will pay the Death Benefit to the Beneficiary. If the sole primary
Beneficiary is the surviving spouse, then the surviving spouse can elect to
assume ownership of the Annuity.
Annuities owned by entities
For Annuities owned by an entity, the Death Benefit is calculated as shown above
except that the age of the Annuitant is used to determine the Death Benefit
Target Date. Payment of the Death Benefit is based on the death of the Annuitant
(or Contingent Annuitant, if applicable).
Examples of Optional Death Benefit Calculation
The following are examples of how the Optional Death Benefits are calculated.
Each example assumes that a $50,000 initial Purchase Payment is made and that no
withdrawals are made prior to the Owner's death. Each example assumes that there
is one Owner who is age 50 on the Issue Date and that all Account Value is
maintained in the variable investment options.
Example of market increase greater than Assumed Accumulation Rate
Assume that the Owner's Account Value has generally been increasing. On the date
we receive due proof of death (the Owner's 58th birthday), the Account Value is
$90,000. The Highest Anniversary Value at the end of any previous period is
$72,000. The Death Benefit would be the Account Value ($90,000) because it is
greater than the Highest Anniversary Value ($72,000) or the sum of prior
Purchase Payments increased by 5.0% annually ($73,872.77 - Option 1) or 7.2%
annually for ($87,202.36 - Option 2).
Example of market decrease
Assume that the Owner's Account Value generally increased until the fifth
anniversary but generally has been decreasing since the fifth contract
anniversary. On the date we receive due proof of death (the Owner's 58th
birthday), the Account Value is $48,000. The Highest Anniversary Value at the
end of any previous period is $54,000. The Death Benefit would be the sum of
prior Purchase Payments increased by 5.0% annually ($73872.77 - Option 1) or
7.2% annually for ($87202.36 - Option 2) because it is greater than the Highest
Anniversary Value ($54,000) or the Account Value ($48,000).
Example of Highest Anniversary Value
Assume that the Owner's Account Value increased significantly during the first
six years following the Issue Date. On the sixth anniversary date the Account
Value was $90,000. During the seventh Annuity Year, the Account Value increases
to as high as $100,000 but then subsequently falls to $80,000 on the date we
receive due proof of death (the Owner's 58th birthday). The Death Benefit would
be the Highest Anniversary Value at the end of any previous period ($90,000),
which occurred on the sixth anniversary, although the Account Value was higher
during the subsequent period. The Account Value on the date we receive due proof
of death ($80,000) is lower, as is the sum of all prior Purchase Payments
increased by 5.0% annually ($73,872.77 - Option 1)
or 7.2% annually for ($87,202.36 - Option 2).
How much do you charge for the optional death benefits?
We deduct a charge from your Account Value if you elect to purchase either
Optional Death Benefit. For Option 1, each deduction is 0.30% of the then
current Death Benefit when the deduction is taken. For Option 2, each deduction
is 0.50% of the then current Death Benefit when the deduction is taken. No
charge applies after the Annuity Date.
We deduct the charge:
1. on each anniversary of the Issue Date;
2. when Account Value is transferred to our general account prior to the
Annuity Date;
3. if you surrender your Annuity; and
4. if you choose to terminate the benefit.
If you surrender the Annuity, elect to begin receiving Annuity payments or
terminate the benefit on a date other than an anniversary of the Issue Date, the
charge will be prorated. During the first year after the Issue Date, the charge
would be prorated from the Issue Date. In all subsequent years, it would be
prorated from the last anniversary of the Issue Date.
We first deduct the amount of the charge pro-rata from the Account Value in the
variable investment options. We only deduct the charge pro-rata from the Fixed
Allocations to the extent there is insufficient Account Value in the variable
investment options to pay the charge. If your Annuity's Account Value is
insufficient to pay the charge, we may deduct your remaining Account Value and
terminate your Annuity. We will notify you if your Account Value is insufficient
to pay the charge and allow you to submit an additional Purchase Payment to
continue your Annuity.
Are there any exceptions to these rules for paying the Death Benefit?
Yes, there are exceptions that apply no matter how your Death Benefit is
calculated. There are exceptions to the Death Benefit if the decedent was not
the Owner or Annuitant as of the Issue Date and did not become the Owner or
Annuitant due to the prior Owner's or Annuitant's death. Any minimum Death
Benefit that applies will be suspended for a two-year period from the date he or
she first became Owner or Annuitant. After the two-year suspension period is
completed, the Death Benefit is the same as if this person had been an Owner or
Annuitant on the Issue Date.
What options are available to my Beneficiary upon my death?
|X| During the accumulation period, if you die and the sole Beneficiary is
your spouse, then your spouse may elect to be treated as the current
Owner. The Annuity can be continued, subject to its terms and conditions,
in lieu of receiving the death benefit. Your spouse may only assume
ownership of the Annuity if he or she is designated as the sole primary
Beneficiary.
|X| In the event of your death, the death 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. Payments under this
option must begin within one year of the date of death.
When do you determine the Death Benefit?
We determine the amount of the death benefit as of the date we receive "due
proof of death" and any other written representations we require to determine
the proper payment of the Death Benefit to all Beneficiaries. "Due proof of
death" may include a certified copy of a death certificate, a certified copy of
a decree of a court of competent jurisdiction as to the finding of death or
other satisfactory proof of death.
We will require written acknowledgment of all named Beneficiaries before we can
determine the Death Benefit. During the period from the date of death until we
receive all required paper work, the amount of the Death Benefit may be subject
to market fluctuations.
<PAGE>
VALUING YOUR INVESTMENT
HOW IS MY ACCOUNT VALUE DETERMINED?
During the accumulation period, the Annuity has an Account Value. The Account
Value is determined separately for each Sub-account allocation and for each
Fixed Allocation. The Account Value is the sum of the values of each Sub-account
allocation and the value of each Fixed Allocation. The Account Value does not
reflect any CDSC that may apply to a withdrawal or surrender. The Account Value
includes any additional amounts we applied to your Purchase Payments that we are
entitled to recover upon surrender of your Annuity. When determining the Account
Value on a day other than a Fixed Allocation's Maturity Date, the Account Value
may include any Market Value Adjustment that would apply to a Fixed Allocation
(if withdrawn or transferred) on that day.
WHAT IS THE SURRENDER VALUE OF MY ANNUITY?
The Surrender Value of your Annuity is the value available to you on any day
during the accumulation period. The Surrender Value is equal to your Account
Value minus any CDSC, the Annual Maintenance Fee and any additional amounts we
applied to your Purchase Payments that we are entitled to recover upon surrender
of your Annuity. The Surrender Value will also include any Market Value
Adjustment that may apply.
HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS?
When you allocate Account Value to a Sub-Account, you are purchasing units of
the Sub-account. Each Sub-account invests exclusively in shares of an underlying
Portfolio. The value of the Units fluctuate with the market fluctuations of the
Portfolios. The value of the Units also reflect the daily accrual for the
Insurance Charge.
Each Valuation Day, we determine the price for a Unit of each Sub-account,
called the "Unit Price." The Unit Price is used for determining the value of
transactions involving Units of the Sub-accounts. We determine the number of
Units involved in any transaction by dividing the dollar value of the
transaction by the Unit Price of the Sub-account as of the Valuation Day.
Example
Assume you allocate $5,000 to a Sub-account. On the Valuation Day you make the
allocation, the Unit Price is $14.83. Your $5,000 buys 337.154 Units of the
Sub-account. Assume that later, you wish to transfer $3,000 of your Account
Value out of that Sub-account and into another Sub-account. On the Valuation Day
you request the transfer, the Unit Price of the original Sub-account has
increased to $16.79. To transfer $3,000, we sell 178.677 Units at the current
Unit Price, leaving you 158.477 Units. We then buy $3,000 of Units of the new
Sub-account at the Unit Price of $17.83. You would then have 168.255 Units of
the new Sub-account.
HOW DO YOU VALUE FIXED ALLOCATIONS?
During the Guarantee Period, we use the concept of an Interim Value. The Interim
Value can be calculated on any day and is equal to the initial value allocated
to a Fixed Allocation plus all interest credited to a Fixed Allocation as of the
date calculated. The Interim Value does not include the impact of any Market
Value Adjustment. If you made any transfers or withdrawals from a Fixed
Allocation, the Interim Value will reflect the withdrawal of those amounts and
any interest credited to those amounts before they were withdrawn. To determine
the Account Value of a Fixed Allocation on any day other than its Maturity Date,
we multiply the Account Value of the Fixed Allocation times the Market Value
Adjustment factor.
WHEN DO YOU PROCESS AND VALUE TRANSACTIONS?
Initial Purchase Payments: We are required to allocate your initial Purchase
Payment to the Sub-accounts within two (2) days after we receive all of our
requirements to issue the Annuity. If we do not have all the required
information to allow us to issue your Annuity, we may retain the Purchase
Payment while we try to reach you or your representative to obtain all of our
requirements. If we are unable to obtain all of our required information within
five (5) days, we are required to return the Purchase Payment to you at that
time, unless you specifically consent to our retaining the Purchase Payment
while we gather the required information. Once we obtain the required
information, we will invest the Purchase Payment and issue the Annuity within
two (2) days. During any period that we are trying to obtain the required
information, your money is not invested.
Additional Purchase Payments: We will apply any additional Purchase Payments on
the Valuation Day that we receive the Purchase Payment with satisfactory
instructions.
Scheduled Transactions: "Scheduled" transactions include transfers under a
Dollar Cost Averaging, rebalancing, or asset allocation program, Systematic
Withdrawals, Minimum Distributions or Annuity payments. Scheduled transactions
are processed and valued as of the date they are scheduled, unless the scheduled
day is not a Valuation Day. In that case, the transaction will be processed and
valued on Valuation Day prior to the scheduled transaction date.
Unscheduled Transactions: "Unscheduled" transactions include any other
non-scheduled transfers and requests for Partial Withdrawals or Free Withdrawals
or Surrenders. Unscheduled transactions are processed and valued as of the
Valuation Day we receive the request at our Office in good order.
Medically-related Surrenders & Death Benefits: Medically-related surrender
requests and Death Benefit claims require our review and evaluation before
processing. We price such transactions as of the date we receive at our Office
all materials we require for such transaction and that are satisfactory to us.
Transactions in Rydex Sub-accounts: Any financial transactions involving the
Rydex Sub-accounts must be received by us no later than 3:00 p.m. Eastern time
to be processed on the current Valuation Day. If you request a transaction
involving the purchase or redemption of Units in one of the Rydex Sub-accounts
after 3:00 p.m. Eastern time, we will deem your request as received by us on the
next Valuation Day.
TAX CONSIDERATIONS
WHAT ARE SOME OF THE FEDERAL TAX CONSIDERATIONS OF THIS ANNUITY?
Following is a brief summary of some of the Federal tax considerations relating
to this Annuity. However, since the tax laws are complex and tax consequences
are affected by your individual circumstances, this summary of our
interpretation of the relevant tax laws is not intended to be fully
comprehensive nor is it intended as tax advice. Therefore, you may wish to
consult a professional tax advisor for tax advice as to your particular
situation.
HOW ARE AMERICAN SKANDIA AND THE SEPARATE ACCOUNTS TAXED?
The Separate Accounts are taxed as part of American Skandia. American Skandia is
taxed as a life insurance company under Part I, subchapter L of the Code. No
taxes are due on interest, dividends and short-term or long-term capital gains
earned by the Separate Accounts with respect to the Annuities.
IN GENERAL, HOW ARE ANNUITIES TAXED?
Section 72 of the Code governs the taxation of annuities in general. Taxation of
the Annuity will depend in large part on:
1. whether the Annuity is used by:
|X| a qualified pension plan, profit sharing plan or other retirement
arrangement that is eligible for special treatment under the Code (for
purposes of this discussion, a "Qualified Contract"); OR
|X| an individual or a corporation, trust or partnership (a "Non-qualified
Contract"); and
2. whether the Owner is:
|X| an individual person or persons; or
|X| an entity including a corporation, trust or partnership.
Individual Ownership: If one or more individuals own an Annuity, the Owner of
the Annuity is generally not taxed on any increase in the value of the Annuity
until an amount is received (a "distribution"). This is commonly referred to as
"tax deferral". A distribution can be in the form of a lump sum payment
including payment of a Death Benefit, or in annuity payments under one of the
annuity payment options. Certain other transactions may qualify as a
distribution and be subject to taxation.
Entity Ownership: If the Annuity is owned by an entity and is not a Qualified
Contract, generally the Owner of the Annuity must currently include any increase
in the value of the Annuity during a tax year in its gross income. An exception
from current taxation applies for annuities held by a structured settlement
company, by an employer with respect to a terminated tax-qualified retirement
plan, a trust holding an annuity as an agent for a natural person, or by a
decedent's estate by reason of the death of the decedent. A tax-exempt entity
for Federal tax purposes will not be subject to income tax as a result of this
provision.
HOW ARE DISTRIBUTIONS TAXED?
Distributions from an Annuity are taxed as ordinary income and not as capital
gains.
Distributions Before Annuitization: Distributions received before annuity
payments begin are generally treated as coming first from "income on the
contract" and then as a return of the "investment in the contract". The amount
of any distribution that is treated as receipt of "income on the contract" is
includible in the taxpayer's gross income and taxable in the year it is
received. The amount of any distribution treated as a return of the "investment
in the contract" is not includible in gross income.
|X| "Income on the contract" is calculated by subtracting the taxpayer's
"investment in the contract" from the aggregate value of all "related
contracts" (discussed below).
|X| "Investment in the contract" is equal to total purchase payments for all
"related contracts" minus any previous distributions or portions of such
distributions from such "related contracts" that were 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. Unless "after-tax" or non-deductible contributions have been made to
a Qualified Contract, the "investment in the contract" for a Qualified
Contract will be considered zero for tax reporting purposes.
Distributions After Annuitization: A portion of each annuity payment received on
or after the Annuity Date will generally be taxable. The taxable portion of each
annuity payment is determined by a formula which establishes the ratio that the
"investment in the contract" bears to the total value of annuity payments to be
made. This is called the "exclusion ratio." The investment in the contract is
excluded from gross income. Any additional payments received that exceed the
exclusion ratio will be entirely includible in gross income. The formula for
determining the exclusion ratio differs between fixed and variable annuity
payments. When 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.
Penalty Tax on Distributions: Generally, any distribution from an annuity not
used in conjunction with a Qualified Contract (Qualified Contracts are discussed
below) is subject to a penalty equal to 10% of the amount includible in gross
income. This penalty does not apply to certain distributions, including:
|X| Distributions made on or after the taxpayer has attained age 59 1/2;
|X| Distributions made on or after the death of the contract owner, or, if the
owner is an entity, the death of the annuitant,;
|X| Distributions attributable to the taxpayer's becoming disabled;
|X| Distributions which are part of a 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);
|X| Distributions of amounts which are treated as "investments in the contract"
made prior to August 14, 1982;
|X| Payments under an immediate annuity as defined in the Code;
|X| Distributions under a qualified funding asset under Code Section 130(d); or
|X| 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.
Special rules applicable to "related contracts": Contracts issued by the same
insurer to the same contract owner within the same calendar year (other than
certain contracts owned in connection with a tax-qualified retirement
arrangement) are to be treated as one annuity contract when determining the
taxation of distributions before annuitization. We refer to these contracts as
"related contracts." In situations involving related contracts we believe that
the values under such contracts and the investment in the contracts will be
added together to determine the proper taxation of a distribution from any one
contract described under the section "Distributions before Annuitization."
Distributions will be treated as coming first from income on the contract until
all of the income on all such related contracts is withdrawn, and then as a
return of the investment in the contract. There is some uncertainty regarding
the manner in which the Internal Revenue Service would view related contracts
when one or more contracts are immediate annuities or are contracts that have
been annuitized. The Internal Revenue Service has not issued guidance clarifying
this issue as of the date of this Prospectus. You are particularly cautioned to
seek advice from your own tax advisor on this matter.
Special concerns regarding "substantially equal periodic payments": (also known
as "72(t) distributions") Any modification to a program of distributions which
are part of a series of substantially equal periodic payments that occur before
the later of the taxpayer reaching age 59 1/2 or 5 years from the first of such
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. This does not apply when the modification is due by reason of death or
disability. It is our understanding that the Internal Revenue Service may not
consider a scheduled series of distributions to qualify under Sections 72(q) or
72(t) 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, depending on how payments are structured.
Special concerns regarding immediate annuities: 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 a contract 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. It is unclear whether
the exception to the 10% penalty applies to annuity payments where the purchase
payment originates from a deferred annuity contract established as a result of
an exchange if: (a) purchase payments for the exchanged contract were
contributed or are 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.
Special rules in relation to tax-free exchanges under Section 1035: 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 purchased through a tax-free
exchange of a life insurance, annuity or endowment contract that was purchased
prior to August 14, 1982, then any distributions other than as annuity payments
will be considered to come:
|X| First, from the amount of "investment in the contract" made prior to August
14, 1982 and exchanged into the annuity;
|X| Then, from any "income on the contract" that is attributable to the
purchase payments made prior to August 14, 1982 (including income on such
original purchase payments after the exchange);
|X| Then, from any remaining "income on the contract"; and
|X| Lastly, from the remaining "investment in the contract."
Therefore, to the extent a distribution is equal to or less than the investment
in the contract made prior to August 14, 1982, such amounts are not included in
taxable income. Further, distributions received that are considered to be a
return of investment on the contract from purchase payments made prior to August
14, 1982, such distributions are not subject to the 10% tax penalty. In all
other respects, the general provisions of the Code apply to distributions from
annuities obtained as part of such an exchange.
WHAT TAX CONSIDERATIONS ARE THERE FOR TAX-QUALIFIED RETIREMENT PLANS OR
QUALIFIED CONTRACTS?
An annuity may be suitable as a funding vehicle for various types of
tax-qualified retirement plans. We have provided summaries of the types of
tax-qualified retirement plans with which we may issue an Annuity. These
summaries provide general information about the tax rules and are not intended
to be complete discussions. The tax rules regarding qualified plans are complex.
These rules may include limitations on contributions and restrictions on
distributions, including additional taxation of distributions and additional
penalties. The terms and conditions of the tax-qualified retirement plan may
impose other limitations and restrictions that are in addition to the terms of
the Annuity. The application of these rules depends on individual facts and
circumstances. Before purchasing an Annuity for use in a qualified plan, you
should obtain competent tax advice, both as to the tax treatment and suitability
of such an investment. American Skandia does not offer all of its annuities to
all of these types of tax-qualified retirement plans.
Corporate Pension and Profit-sharing Plans: Annuities may be used to fund
employee benefits of various corporate pension and profit-sharing plans
established by corporate employers under Sections 401(a) and 401(k) of the Code.
Contributions to such plans are not taxable to the employee until distributions
are made from the retirement plan. The Code imposes limitations on the amount
that may be contributed and the timing of 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 Sheltered Annuities: Under Section 403(b) of the Code a tax sheltered
annuity ("TSA") is a contract into which contributions may be made by certain
qualifying employers such as public schools and certain charitable, educational
and scientific organizations specified in Section 501(c)(3) for the benefit of
their employees. 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 also apply.
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Under a TSA, you may be prohibited from taking distributions from the contract
attributable to contributions made pursuant to a salary reduction agreement
unless the distribution is made:
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|X| After the participating employee attains age 59 1/2;
|X| Upon separation from service, death or disability; or
|X| In the case of financial hardship (subject to restrictions).
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.
Individual Retirement Programs or "IRAs": Section 408 of the Code allows
eligible individuals to maintain an individual retirement account or individual
retirement annuity ("IRA"). IRAs are subject to limitations on the amount that
may be contributed, the contributions that may be deducted from taxable income,
the persons who may be eligible to establish an IRA and the time when
distributions must commence. Further, an Annuity may be used to "roll-over"
distributions from certain tax-qualified retirement plans and maintain their
tax-deferral.
Roth IRAs: A form of IRA is also available called a "Roth IRA". Contributions to
a Roth IRA are not tax deductible. However, distributions from a Roth IRA are
free from Federal income taxes and are not subject to 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 Federal income and penalty taxes.
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.
SEP IRAs: Eligible employers that meet specified criteria may establish
Simplified Employee Pensions or SEP IRAs. Employer contributions that may be
made to employee SEP IRAs are larger than the amounts that may be contributed to
other IRAs, and may be deductible to the employer.
HOW ARE DISTRIBUTIONS FROM QUALIFIED CONTRACTS TAXED?
Distributions from Qualified Contracts are generally taxed under Section 72 of
the Code. Under these rules, a portion of each distribution may be excludable
from income. The excludable amount is the proportion of a distribution
representing any investment gain on the after-tax contributions. Generally, a
10% penalty tax applies to the taxable portion of a distribution from a
Qualified Contract made prior to age 59 1/2. However, the 10% penalty tax does
not apply when the distribution:
|X| is part of a properly executed transfer to another IRA or another eligible
qualified account;
|X| 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);
|X| is part of a series 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;
|X| is subsequent to a separation from service after the taxpayer attains age
55*;
|X| does not exceed the employee's allowable deduction in that tax year for
medical care*; and
|X| is made to an alternate payee pursuant to a qualified domestic relations
order*.
The exceptions above which are followed by an asterisk (*) do not apply to IRAs.
Minimum Distributions after age 70 1/2: A participant's interest in a Qualified
Contract must generally be distributed, or begin to be distributed, by the
"required beginning date". This is April 1st of the calendar year following the
later of:
|X| the calendar year in which the individual attains age 70 1/2; or
|X| the calendar year in which the individual retires from service with the
employer sponsoring the plan. The retirement option is not available to
IRAs.
The participant's entire interest must be distributed beginning no later than
the required beginning date over a period which may not extend beyond a maximum
of the life expectancy of the participant or the life expectancies of the owner
and a designated Beneficiary. Each annual distribution must equal or exceed a
"minimum distribution amount" which is determined by dividing the account value
by the applicable life expectancy. The account balance is generally based upon
the Account Value as of the close of business on the last day of the previous
calendar year. A larger annual distribution may be required under certain
circumstances.
If the participant dies before reaching his or her "required beginning date",
his or her entire interest must generally be distributed within five years of
death. However, this rule will be deemed satisfied if distributions begin before
the close of the calendar year following death to a designated Beneficiary (or
over a period not extending beyond the life expectancy of the beneficiary). If
the Beneficiary is the individual's surviving spouse, distributions may be
delayed until the deceased owner would have attained age 70 1/2. A surviving
spouse would also have the option to assume the IRA as his or her own if he or
she is the sole designated beneficiary. If a participant dies after reaching his
or her required beginning date or after distributions have commenced, the
individual's interest must generally be distributed at least as rapidly as under
the method of distribution in effect at the time of the individual's death.
If the amount distributed is less than the minimum required distribution for the
year, the participant is subject to a 50% tax on the amount that was not
properly distributed.
GENERAL TAX CONSIDERATIONS
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). If the diversification
requirements under the Code are not met and the annuity is not treated as an
annuity, the taxpayer will be subject to income tax on the annual gain in the
contract. 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.
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.
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 Qualified Contracts, may
be subject to automatic 20% withholding for Federal income taxes. This will not
apply to:
|X| any portion of a distribution paid as Minimum Distributions;
|X| direct transfers to the trustee of another retirement plan;
|X| distributions from an individual retirement account or individual
retirement annuity;
|X| 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
|X| certain other distributions where automatic 20% withholding may not apply.
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
on or after the assignment or pledge of an entire annuity and 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 as Qualified
Contracts, 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 someone other than the spouse of the owner (or
former spouse incident to a divorce) is treated, for income tax purposes, as a
distribution.
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.
Considerations for Contingent Annuitants: There may be adverse tax consequences
if a contingent annuitant succeeds an annuitant when the Annuity is owned by a
trust that is neither tax exempt nor qualifies for preferred treatment under
certain sections of the Code. In general, the Code is designed to prevent
indefinite deferral of tax. 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.
GENERAL INFORMATION
HOW WILL I RECEIVE STATEMENTS AND REPORTS?
We send any statements and reports required by applicable law or regulation to
you at your last known address of record. You 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 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 applicable
financial statements, as of December 31 and June 30, respectively, to Owners or,
with your prior consent, make such documents available electronically through
our Internet Website or other electronic means.
WHO IS AMERICAN SKANDIA?
American Skandia Life Assurance Corporation ("American Skandia") is a stock life
insurance company domiciled in Connecticut with licenses in all 50 states and
the District of Columbia. American Skandia is a wholly-owned subsidiary of
American Skandia Investment Holding Corporation (the "Parent"), whose ultimate
parent is Skandia Insurance Company Ltd., a Swedish company. American Skandia
markets its products to broker-dealers and financial planners through an
internal field marketing staff. In addition, American Skandia markets through
and in conjunction with financial institutions such as banks that are permitted
directly, or through affiliates, to sell annuities.
American Skandia is in the business of issuing variable annuity and variable
life insurance contracts. American Skandia currently offers the following
products: (a) flexible premium deferred annuities and single premium fixed
deferred annuities that are registered with the SEC, (b) certain other fixed
deferred annuities that are not registered with the SEC; (c) certain group
variable annuities that are exempt from registration with the SEC that serve as
funding vehicles for various types of qualified pension and profit sharing
plans; (d) a single premium variable life insurance policy that is registered
with the SEC; and (e) a flexible premium life insurance policy that is
registered with the SEC.
WHAT ARE 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. We are the legal owner
of assets in the separate accounts. In the payout phase, assets supporting fixed
annuity payments and any adjustable annuity payments we make available are held
in our general account. Income, gains and losses from assets allocated to these
separate accounts are credited to or charged against each such separate account
without regard to other income, gains or losses of American Skandia or of any
other of our separate accounts. These assets may only be charged with
liabilities which arise from the annuity contracts issued by American Skandia
Life Assurance Corporation. The amount of our obligation 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
During the accumulation phase, the assets supporting obligations based on
allocations to the variable investment options are held in Class 1 Sub-accounts
of American Skandia Life Assurance Corporation Variable Account B, also referred
to as "Separate Account B". Separate Account B consists of multiple
Sub-accounts. The name of each Sub-account generally corresponds to the name of
the underlying Portfolio. The names of each Sub-account are shown in the
Statement of Additional Information. 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. You will find additional information about
these underlying mutual funds and portfolios in the prospectuses for such funds.
Separate Account B is registered with the SEC under the Investment Company Act
of 1940 ("Investment Company Act") as a unit investment trust, which is a type
of investment company. This does not involve any supervision by the SEC of the
investment policies, management or practices of Separate Account B. Each
Sub-account invests only in a single mutual fund or mutual fund portfolio. We
reserve the right to add Sub-accounts, eliminate Sub-accounts, to combine
Sub-accounts, or to substitute underlying mutual funds or portfolios of
underlying mutual funds.
Values and benefits based on allocations to the Sub-accounts will vary with the
investment performance of the underlying mutual funds or fund portfolios, as
applicable. We do not guarantee the investment results of any Sub-account. Your
Account Value allocated to the Sub-accounts may increase or decrease. You bear
the entire investment risk.
Separate Account D
During the accumulation phase, assets supporting our obligations based on Fixed
Allocations are held in American Skandia Life Assurance Corporation Separate
Account D, also referred to as Separate Account D. Such obligations are based on
the fixed 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 units in Separate Account D. The Fixed Allocations are guaranteed
by our general account. An Annuity Owner who allocates a portion of their
Account Value to Separate Account D does not participate in the investment gain
or loss on assets maintained in 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.
We have sole discretion over the investment managers retained to manage the
assets maintained in 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 we employ is responsible for investment management
of a different portion 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).
We are not obligated to invest according to specific guidelines or strategies
except as may be required by Connecticut and other state insurance laws.
WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS?
Each underlying mutual fund is registered as an open-end management investment
company under the Investment Company Act. Shares of the underlying mutual fund
portfolios are sold to separate accounts of life insurance companies offering
variable annuity and variable life insurance products. The shares may also be
sold directly to qualified pension and retirement plans.
Voting Rights
We are the legal owner of the shares of the underlying mutual funds in which the
Sub-accounts invest. However, under SEC rules, you have voting rights in
relation to Account Value maintained in the Sub-accounts. If an underlying
mutual fund portfolio requests a vote of shareholders, we will vote our shares
in the manner directed by Owners with Account Value allocated to that
Sub-account. Owners have the right to vote an amount equal to the number of
shares attributable to their contracts. If we do not receive voting instructions
in relation to certain shares, we will vote those shares in the same manner and
proportion as the shares for which we have received instructions. We will
furnish those Owners who have Account Value allocated to a Sub-account whose
underlying mutual fund portfolio has requested a "proxy" vote with the necessary
forms to provide us with their instructions. Generally, you will be asked to
provide instructions for us to vote on matters such as changes in a fundamental
investment strategy, adoption of a new investment advisory agreement, or matters
relating to the structure of the underlying mutual fund that require a vote of
shareholders.
Material Conflicts
It is possible that differences may occur between companies that offer shares of
an underlying mutual fund portfolio to their respective separate accounts
issuing variable annuities and/or variable life insurance products. Differences
may also occur surrounding the offering of an underlying mutual fund portfolio
to variable life insurance policies and variable annuity contracts that we
offer. Under certain circumstances, these differences could be considered
"material conflicts," in which case we would take necessary action to protect
persons with voting rights under our variable annuity contracts and variable
life insurance policies against persons with voting rights under other insurance
companies' variable insurance products. If a "material conflict" were to arise
between owners of variable annuity contracts and variable life insurance
policies issued by us we would take necessary action to treat such persons
equitably in resolving the conflict. "Material conflicts" could arise due to
differences in voting instructions between owners of variable life insurance and
variable annuity contracts of the same or different companies. We monitor any
potential conflicts that may exist.
WHO DISTRIBUTES ANNUITIES OFFERED BY AMERICAN SKANDIA?
American Skandia Marketing, Incorporated ("ASM"), a wholly-owned subsidiary of
American Skandia Investment Holding Corporation, is the distributor and
principal underwriter of the securities offered through this prospectus. ASM
acts as the distributor of a number of annuity and life insurance products we
offer and both American Skandia Trust and American Skandia Advisor Funds, Inc.,
a family of retail mutual funds. ASM's principal business address is One
Corporate Drive, Shelton, Connecticut 06484. ASM is registered as broker-dealer
under the Securities Exchange Act of 1934 ("Exchange Act") and is a member of
the National Association of Securities Dealers, Inc. ("NASD").
The Annuity is offered on a continuous basis. ASM enters into distribution
agreements with independent broker-dealers who are registered under the Exchange
Act and with entities that may offer the Annuity but are exempt from
registration. Applications for the Annuity are solicited by registered
representatives of those firms. Such representatives will also be our appointed
insurance agents under state insurance law. In addition, ASM may offer the
Annuity directly to potential purchasers.
Compensation is paid to firms on sales of the Annuity according to one or more
schedules. The individual representative will receive a portion of the
compensation, depending on the practice of the firm. Compensation is generally
based on a percentage of Purchase Payments made, up to a maximum of 7.0%.
Alternative compensation schedules are available that provide a lower initial
commission plus ongoing annual compensation based on all or a portion of Account
Value. We may also provide compensation for providing ongoing service to you in
relation to the Annuity. Commissions and other compensation paid in relation to
the Annuity do not result in any additional charge to you or to the Separate
Account.
In addition, firms may receive separate compensation or reimbursement for, among
other things, training of sales personnel, marketing or other services they
provide to us or our affiliates. We or ASM may enter into compensation
arrangements with certain firms. These arrangements will not be offered to all
firms and the terms of such arrangements may differ between firms. Any such
compensation will be paid by us or ASM and will not result in any additional
charge to you. To the extent permitted by NASD rules and other applicable laws
and regulations, ASM may pay or allow other promotional incentives or payments
in the form of cash or other compensation.
Advertising: We may advertise certain information regarding the performance of
the investment options. Details on how we calculate performance for the
Sub-accounts are found in the Statement of Additional Information, including how
we account for Credits in these performance measures. This information may help
you review the performance of the investment options and provide a basis for
comparison with other annuities. This information's usefulness may be limited
because of the Credits, since, as of the date of this Prospectus, we were not
aware of many annuities with variable and/or market value adjusted fixed
investment options that included this type of feature. This information also 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 receive the beneficial tax treatment given to annuities under the Code.
Performance information on the Sub-accounts is based on past performance only
and is not an indication or representation of future performance. Performance of
the Sub-accounts is not fixed. Actual performance will depend on the type,
quality and, for some of the Sub-accounts, the maturities of the investments
held by the underlying mutual funds or portfolios and upon prevailing market
conditions and the response of the underlying mutual funds to such conditions.
Actual performance will also depend on changes in the expenses of the underlying
mutual funds or portfolios. Such changes are reflected, in turn, in the
Sub-accounts which invest in such underlying mutual fund or portfolio. In
addition, the amount of 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.
We may advertise the performance of the underlying mutual fund portfolios in the
form of "Standard" and "Non-Standard" Total Returns. "Standard Total Return"
figures assume that all charges and fees are applicable, including any
contingent deferred sales charge that may apply for the period shown but it does
not take into consideration any Credits. "Non-standard Total Return" figures may
also be used that do not reflect all fees and charges and may assume Credits of
1.5%, 3.0%, 4.0% or 5.0%, respectively, depending on the cumulative amount of
Purchase Payments being illustrated. The amount of credits illustrated may be
more or less than the Credits applicable to your Annuity (see "What are Credits
and how do I Receive Them?"). Non-standard Total Returns are calculated in the
same manner as standardized returns except that the calculations may assume no
redemption at the end of the applicable periods, thus these figures may not take
into consideration the Annuity's contingent deferred sales charge. Any
performance advertisements will not reflect the impact of any Target Value
Credits.
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.
Advertisements we distribute may also compare the performance of our
Sub-accounts with: (a) certain unmanaged market indices, including but not
limited to the Dow Jones Industrial Average, the Standard & Poor's 500, the
Shearson Lehman Bond Index, the Frank Russell non-U.S. Universal Mean, the
Morgan Stanley Capital International Index of Europe, Asia and Far East Funds,
and the Morgan Stanley Capital International World Index; and/or (b) other
management investment companies with investment objectives similar to the mutual
fund or portfolio underlying the Sub-accounts being compared. This may include
the performance ranking assigned by various publications, including but not
limited to the Wall Street Journal, Forbes, Fortune, Money, Barron's, Business
Week, USA Today and statistical services, including but not limited to Lipper
Analytical Services Mutual Funds Survey, Lipper Annuity and Closed End Survey,
the Variable Annuity Research Data Survey, SEI, the Morningstar Mutual Fund
Sourcebook and the Morningstar Variable Annuity/Life Sourcebook.
American Skandia Life Assurance Corporation may advertise its rankings and/or
ratings by independent financial ratings services. Such rankings may help you in
evaluating our ability to meet our obligations in relation to Fixed Allocations,
pay minimum death benefits, pay annuity payments or administer Annuities. Such
rankings and ratings do not reflect or relate to the performance of Separate
Account B.
AVAILABLE INFORMATION
A Statement of Additional Information is available from us without charge upon
your request. This Prospectus is part of the registration statement we filed
with the SEC regarding this offering. Additional information on us and this
offering is available in those registration statements and the exhibits thereto.
You may obtain copies of these materials at the prescribed rates from the SEC's
Public Reference Section, 450 Fifth Street N.W., Washington, D.C., 20549. You
may inspect and copy those registration statements and exhibits thereto at the
SEC's public reference facilities at the above address, Room 1024, and at the
SEC's Regional Offices, 7 World Trade Center, New York, NY, and the Everett
McKinley Dirksen Building, 219 South Dearborn Street, Chicago, IL. These
documents, as well as documents incorporated by reference, may also be obtained
through the SEC's Internet Website (http://www.sec.gov) for this registration
statement as well as for other registrants that file electronically with the
SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
To the extent and only to the extent that any statement in a document
incorporated by reference into this Prospectus is modified or superseded by a
statement in this Prospectus or in a later-filed document, such statement is
hereby deemed so modified or superseded and not part of this Prospectus. The
Annual Report on Form 10-K for the year ended December 31, 1998 previously filed
by the Company with the SEC under the Exchange Act is incorporated by reference
in this Prospectus.
We will 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 will do so
upon receipt of your written or oral request.
HOW TO CONTACT US You can contact us by:
|X| calling our Concierge Desk at 1-800-752-6342; or
|X| writing to us at American Skandia Life Assurance Corporation, P.O. Box 883,
Shelton, Connecticut 06484-0883, Attention: Concierge Desk; or
|X| sending us an email to our electronic mail address at
[email protected]; or
|X| accessing information about your Annuity through our Internet Website at
americanskandia.com.
We may require that you present proper identification before performing
transactions over the telephone, email or through our Internet website. This may
include a Personal Identification Number or PIN that will be provided to you on
or about the time that your Annuity is issued. To the extent permitted by law,
we will not be responsible for any claims, loss, liability or expense in
connection with a transaction requested by telephone or other electronic means
if we acted on such transaction instructions after following reasonable
procedures to identify those persons authorized to perform transactions on your
Annuity using verification methods which may include a request for your Social
Security number, PIN or other form of electronic identification. We may be
liable for losses due to unauthorized or fraudulent instructions if we did not
follow such procedures.
INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Securities Act") 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 SEC such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
LEGAL PROCEEDINGS
As of the date of this Prospectus, neither we nor ASM were involved in any
litigation outside of the ordinary course of business, and know of no material
claims.
<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
Robert M. Arena Vice President, Vice President,
30 Director of Product Director of Product Management:
Management American Skandia Life
Assurance Corporation
Mr. Arena joined us in 1995. He previously held an internship position with KPMG
Peat Marwick in 1994 and the position of Group Sales Representative with Paul
Revere Insurance from October, 1990 to August, 1993.
Gordon C. Boronow* President and President and
45 Deputy Chief Executive Officer Deputy Chief Executive Officer:
Director (since July, 1991) American Skandia Life
Assurance Corporation
Nancy F. Brunetti Executive Vice President Executive Vice President,
36 Director (since February, 1996) Chief Logistics Officer:
American Skandia Life
Assurance 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)
Y.K. Chan Senior Vice President and Senior Vice President and
41 Chief Information Officer Chief Information Officer:
American Skandia Life
Assurance Corporation
Mr. Chan joined us in 1999. He previously held the position of Chief Information
Officer with E.M. Warburg Pincus from January 1995 until April 1999 and the
position of Vice President, Client Server Application Development from January
1991 until January 1995.
Lincoln R. Collins Executive Vice President Executive Vice President,
37 Director (since February, 1996) Chief Operating Officer
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
Larisa Gromyko Director of Compliance Director of Compliance:
52 American Skandia Life
Assurance Corporation
Teresa Grove Vice President, Vice President,
44 Service Operations Service Operations:
American Skandia Information
Services and Technology Corporation
Ms. Grove joined us in 1996. She previously held the position of Account
Services Manager with Twentieth Century from January, 1992 until September,
1996.
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 Senior Vice President, Senior Vice President,
36 Treasurer and Treasurer and
Corporate Controller Corporate Controller:
American Skandia Life
Assurance Corporation
Mr. Monroe joined us in 1996. He previously held positions of Assistant Vice
President and Director at Allmerica Financial from August, 1994 to July, 1996
and Senior Manager at KPMG Peat Marwick from July, 1983 to July, 1994.
Polly Rae Vice President Vice President,
36 Key Account Operations Key Account Operations:
American Skandia Life
Assurance Corporation
Rodney D. Runestad Vice President Vice President:
48 American Skandia Life
Assurance Corporation
Anders O. Soderstrom Executive Vice President Executive Vice President:
38 Director (since September, 1994) American Skandia Life
Assurance Corporation
William H. Strong Vice President, Vice President,
55 Product Innovation Product Innovation
American Skandia Life
Assurance Corporation
Mr. Strong joined us in 1997. He previously held the position of Vice President
with American Financial Systems from June 1994 to October 1997 and the position
of Actuary with Connecticut Mutual Life from June 1965 to June 1994.
Amanda C. Sutyak Executive Vice President Vice President:
40 Director (since July, 1991) American Skandia
Marketing, Incorporated
C. Ake Svensson Director (since December, 1994) Vice President,
47 Business Development:
American Skandia Investment
Holding Corporation
Mr. Svensson joined us in 1994. He previously held the position of Senior Vice
President with Nordenbanken.
Mary Toumpas Director of Advertising Compliance Vice President and
47 Compliance Director:
American Skandia
Marketing, Incorporated
Ms. Toumpas joined us in 1997. She previously held the position of Assistant
Vice President with Chubb Life/Chubb Securities.
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>
<PAGE>
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
The following are the contents of the Statement of Additional Information:
General Information about American Skandia
|X| American Skandia Life Assurance Corporation
|X| American Skandia Life Assurance Corporation Variable Account B (Class 1
Sub-accounts)
|X| American Skandia Life Assurance Corporation Separate Account D
Principal Underwriter/Distributor - American Skandia Marketing, Incorporated
How Performance Data is Calculated
|X| Current and Effective Yield
|X| Total Return
How the Unit Price is Determined
Additional Information on Fixed Allocations
|X| How We Calculate the Market Value Adjustment
General Information
|X| Voting Rights
|X| Modification
|X| Deferral of Transactions
|X| Misstatement of Age or Sex
|X| Ending the Offer
Independent Auditors
Legal Experts
Financial Statements
|X| Appendix A - American Skandia Life Assurance Corporation Variable Account B
(Class 1 Sub-accounts)
<PAGE>
APPENDIX A - FINANCIAL INFORMATION ABOUT AMERICAN SKANDIA
Selected Financial Data
The following table summarizes information with respect to the
operations of the Company. The selected financial data should be
read in conjunction with the financial statements and the notes
thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations.
<TABLE>
<CAPTION>
(in thousands) FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Income Statement Data:
Revenues:
Annuity and life insurance
charges and fees* $ 186,211 $ 121,158 $ 69,780 $ 38,837 $ 24,780
Fee income 50,839 27,593 16,420 6,206 2,112
Net investment income 11,130 8,181 1,586 1,601 1,300
Premium income and
other revenues 1,360 1,082 265 45 92
------------- ------------- ------------ ----------- -----------
Total revenues $ 249,540 $ 158,014 $ 88,051 $ 46,689 $ 28,284
============= ============= ============ =========== ===========
Benefits and Expenses:
Annuity benefits $ 558 $ 2,033 $ 613 $ 555 $ 370
Change in annuity policy reserves 1,053 37 635 (6,779) 5,766
Cost of minimum death benefit
reinsurance 5,144 4,545 2,867 2,057 -
Return credited to contractowners (8,930) (2,018) 673 10,613 (517)
Underwriting, acquisition and
other insurance expenses 167,790 90,496 49,887 35,914 18,943
Interest expense 41,004 24,895 10,791 6,500 3,616
------------- ------------- ------------ ------------ ------------
Total benefits and expenses $ 206,619 $ 119,988 $ 65,466 $ 48,860 $ 28,178
============= ============= ============ ============ ============
Income tax expense (benefit)$ 8,154 $ 10,478 $ (4,038) $ 397 $ 247
============= ============= ============ ============ ============
Net income (loss) $ 34,767 $ 27,548 $ 26,623 $ (2,568) $ (141)
============= ============= ============ ============ ============
Balance Sheet Data:
Total Assets $ 18,848,273 $ 12,894,290 $ 8,268,696 $ 4,956,018 $ 2,824,311
============= ============= ============ ============ ============
Future fees payable
to parent $ 368,978 $ 233,034 $ 47,112 $ - $ -
============= ============= ============ ============ ============
Surplus Notes $ 193,000 $ 213,000 $ 213,000 $ 103,000 $ 69,000
============= ============= ============ ============ ============
Shareholder's Equity $ 250,417 $ 184,421 $ 126,345 $ 59,713 $ 52,206
============= ============= ============ ============ ============
</TABLE>
* On annuity and life insurance sales of $4,159,662, $3,697,990,
$2,795,114, $1,628,486, and $1,372,874, during the years ended
December 31, 1998, 1997, 1996, 1995, and 1994, respectively,
with contractowner assets under management of $17,854,761,
$12,119,191, $7,764,891, $4,704,044, and $2,661,161 as of
December 31, 1998, 1997, 1996, 1995 and 1994, respectively.
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations
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 is primarily in the business of issuing long-term
savings and retirement products to individuals, groups and
qualified pension plans. Since its business inception in 1988,
the Company has offered a wide array of annuities, including: 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) non-registered group variable annuities designed
as funding vehicles for various types of qualified retirement
plans; and d) fixed and adjustable immediate annuities.
In April 1998, the Company began offering a term life insurance
product in support of an affiliate's mutual fund products. In May
1998, the Company launched a single premium variable life
insurance product. In January 1999, the Company launched its
second variable life product, which was designed as a flexible
premium product.
The Company markets its products to independent financial
planners and broker-dealers 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 and
life insurance.
The Company has a 99.9% ownership in Skandia Vida, S.A. de C.V.
which is a life insurance company domiciled in Mexico. This
Mexican life insurer is a start up company with expectations of
selling long-term savings products within Mexico. Skandia Vida,
S.A. de C.V had total shareholder's equity of $4,724,000 and
$1,509,000 as of December 31, 1998, and 1997, respectively and
has generated net losses of $2,514,000, $1,438,000 and $781,000
for the years ended December 31, 1998, 1997 and 1996,
respectively.
RESULTS OF OPERATIONS
Annuity and life insurance sales increased 12%, 32% and 72% in
1998, 1997 and 1996, respectively. The Company continues to show
significant growth in sales volume and ranked 6th highest in
variable annuity sales during 1998, according to the Variable
Annuity Research and Data Service. The Company's growth is a
result of innovative product development activities, the
recruitment and retention of top producers, and the success of
its highly rated customer service teams.
The Company offers and sells a wide range of deferred annuities
and variable life insurance 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. 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 46%, 56% and 66% in 1998, 1997 and 1996,
respectively. These increases were a direct result of the
substantial sales volume and market growth of the separate
account assets. The sales and market growth also drove increases
in deferred acquisition costs, as well as, fixed maturity
investments, in support of the Company's risk based capital
requirements. Liabilities grew 46%, 56%, and 65% in 1998, 1997
and 1996, respectively, as a result of the reserves required for
the increased sales activity along with the sale of future fees
and charges during these periods. These sales of future fees and
charges to the Parent are needed to fund the acquisition costs of
the Company's variable annuity and life insurance business.
The Company generated net income after tax of $34,767,000
$27,548,000 and $26,623,000 in 1998, 1997 and 1996, respectively.
The Company benefited in each of the past three years from strong
sales growth and favorable market conditions. In 1996, the
Company also benefited from the recognition of the reversal of
the deferred tax valuation allowance. Assets under management,
from which the Company derives a significant portion of its
revenues grew 47%, 56% and 65% in 1998, 1997 and 1996,
respectively.
REVENUES
As a result of the significant growth in sales and assets under
management, contractowner fees and charges and fees generated
from transfer agency-type activities increased dramatically over
the past three years:
(annual percentage growth) 1998 1997 1996
---- ---- ----
Annuity and life insurance
fees and charges 54% 74% 80%
==== ==== ====
Transfer agency fee income 84% 68% 165%
==== ==== ====
Net investment income increased 36% and 416% in 1998 and 1997,
respectively, and decreased slightly in 1996. The majority of the
income was generated from the bond holdings, which were increased
in 1998 and 1997 to meet risk based capital goals, which in turn,
have increased as a result of the growth in business.
Premium income represents premiums earned on sales of immediate
annuities with life contingencies, supplementary contracts with
life contingencies and certain life insurance products. Sales of
these ancillary products decreased slightly in 1998 and 1996 and
increased in 1997.
BENEFITS
Annuity benefits and the change in annuity policy reserves relate
to annuity contracts with mortality risks, these being immediate
annuity contracts with life contingencies and supplementary
contracts with life contingencies. Due to the age of these
policies in force and the relative insignificance of these
products to the Company's overall portfolio of products,
fluctuations in these benefits were of marginal importance to the
Company's total operations.
The Company reinsures the guaranteed minimum death benefit
exposure on most of the variable annuity contracts. The costs
(minimum guaranteed premium per reinsurance contracts) associated
with reinsuring the guaranteed minimum death benefit reserve
exceeded the change in the guaranteed minimum death benefit
reserve during 1998, 1997 and 1996. This cost increased in each
of the past three years by 13%, 59% and 39%, respectively.
Return credited to contractowners includes primarily revenues on
the variable and market value adjusted annuities and variable
life insurance, offset by the benefit payments and change in
reserves required on this business. The 1998 return credited to
contractowners in the amount of ($8,930,000) represented higher
than expected Separate Account investment returns on the market
value adjusted contracts in support of the benefits and required
reserves.
<PAGE>
The 1997 return credited to contractowners in the amount of
($2,018,000) represents a break-even year for the Company's
market value adjusted product line. The 1996 return credited to
contractowners in the amount of $673,000 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
$1,800,000. 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.
EXPENSES
Underwriting, acquisition and other insurance expenses for 1998,
1997 and 1996 were as follows:
(in thousands) 1998 1997 1996
---- ---- ----
Commissions $ 224,916 $ 186,920 $ 140,459
General expenses 117,678 94,640 63,375
Net capitalization of
deferred acquisition costs (174,804) (191,064) (153,947)
--------- --------- ---------
Underwriting, acquisition and
other insurance expenses $ 167,790 $ 90,496 $ 49,887
========= ========= =========
Commissions increased with the growth in sales. General expenses
increased with the growth in sales, along with start up costs
associated with the Company's entry into variable life insurance
and qualified plans. The net capitalization of deferred
acquisition costs decreased in 1998 as a result of increased
amortization.
Interest expense increased $16,109,000, $14,104,000 and
$4,291,000 in 1998, 1997 and 1996, respectively, as a result of
additional financing transactions, which consisted of the sale of
future fees to the Parent ("securitization transactions"). In
addition, the Company had outstanding surplus notes totaling
$213,000,000 throughout 1998 ($20,000,000 was retired on December
31, 1998). Surplus notes as of December 31, 1998 and 1997 totaled
$193,000,000 and $213,000,000, respectively.
The effective income tax rates for the years ended December 31,
1998, 1997 and 1996 were 19%, 28% and (18%), respectively. The
effective rate is lower than the corporate rate of 35% due to
permanent differences, with the most significant item being the
dividend received deduction. Additionally, the Company released
a deferred tax valuation allowance of $9,325,000 in 1996.
LIQUIDITY AND CAPITAL RESOURCES
ASLAC's liquidity requirement 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.
Approximately 97% of 1998 sales (94% in 1997 and 1996) were
variable annuity and life insurance products, 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 to financing in the form of surplus notes, capital
contributions, the sale of certain rights to future fees and
modified coinsurance arrangements.
<PAGE>
- During 1996, the Company issued $110,000,000 of surplus notes to
its Parent.
- During December 1998 and 1997, the Company received
$2,600,000 and $27,700,000, respectively, from its Parent to
support the capital needs of its U.S. operations during the
current year along with the following year's anticipated
growth in business.
- Funds received from new securitization transactions amounted to
$169,881,000, $194,512,000 and $50,221,000 for 1998, 1997
and 1996, respectively.
- During 1998, 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 Company expects the continued use of reinsurance and
securitization transactions to fund the cash strain anticipated
from the acquisition costs on the coming years' sales volume.
As of December 31, 1998 and 1997, shareholder's equity was
$250,417,000 and $184,421,000, respectively. The increases were
driven by the previously mentioned capital contributions received
from the Parent and net income from operations.
ASLAC has long-term surplus notes and a short-term borrowings
with its Parent. No dividends have been paid to its Parent.
The National Association of Insurance Commissioners ("NAIC")
requires insurance companies to report information regarding
minimum Risk Based Capital ("RBC") requirements. These
requirements are intended to allow insurance regulators to
identify companies which may need regulatory attention. The RBC
model law requires that insurance companies apply various factors
to asset, premium and reserve items, all of which have inherent
risks. The formula includes components for asset risk, insurance
risk, interest risk and business risk. The Company has complied
with the NAIC's RBC reporting requirements and has total adjusted
capital well above required capital.
YEAR 2000 COMPLIANCE
The Company is continuing its ongoing assessment of the potential
impact of the Year 2000 issue on various aspects of its business.
The Company's computer support is provided by its affiliate,
American Skandia Information Services and Technology Corporation,
which also provides such support for the Company's affiliated
broker-dealer, American Skandia Marketing, Incorporated and the
Company's affiliated investment advisory firm, American Skandia
Investment Services, Incorporated. Because of the nature of the
Company's business, any assessment of the potential impact of the
Year 2000 issues on the Company must be an assessment of the
potential impact of these issues on all these companies, which
are referred to below as "American Skandia".
Business Partners
Management believes the area where the Company is most vulnerable
to Year 2000 issues is in its interfaces with computer systems of
investment managers, sub-advisors, third party administrators,
vendors and other business partners. The inability to properly
recognize date sensitive electronic information and transfer data
between systems could cause errors or even a complete systems failure
which would result in a temporary inability to process
transactions correctly or engage in normal business activities.
The American Skandia deferred annuity operational business
partners report that all critical interfaces are Year 2000
compliant. All investment managers and sub-advisors are required
by the Securities and Exchange Commission to publicly disclose
their Year 2000 status in December 1998 and June 1999.
<PAGE>
American Skandia has initiated formal communications with parties
that provide third party administration, record keeping and trust
services in connection with its life insurance and qualified
retirement plan annuities business. Management has already
received several written assurances that these firms will be Year
2000 compliant. The Company expects to have certifications from
all remaining parties by July 1999. American Skandia is currently
developing contingency plans in the event that these targets are
not met.
Information Technology Systems
American Skandia is a relatively young company whose internally
developed systems were designed from the start with four digit
year codes. The Company engaged an external information
technology specialist to review American Skandia's operating
systems and internally developed software. The assessment was
completed in December 1997 and the results were favorable.
Specific modifications were suggested, evaluated and implemented
for the annuity administration system. This project was completed
during 1998 and a certificate of compliance has been received.
Other non-critical internally developed applications in the
client/server area have already been or will be remediated during
1999. The costs associated with this aspect of Year 2000
compliance have not had, and are not expected to have, a
significant impact on the Company's results from operations.
Suppliers and Non-Information Technology Systems
Like most companies, American Skandia is reliant on network, and
desktop operating systems and software providers to release
compliant versions of their respective systems. American
Skandia's network is currently at the most compliant level
available. The standard desktop software will be replaced, as
fully compliant versions become available. In addition, the
Company is in the process of contacting the non-information
systems vendors and suppliers regarding their Year 2000
compliance status and will factor the results of these
assessments into its contingency plans.
Management believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. However, should
errors or disruptions in computer service occur, the Company
could realize losses. Given the nature and uncertainty of such
losses, the amounts cannot be reasonably determined.
<PAGE>
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Sensitivity
At December 31, 1998, the Company held in its general account
$149,484,000 of fixed maturity investments that are sensitive to
changes in interest rates. These securities are held in support
of the Company's fixed immediate annuities and supplementary
contracts ($23,699,000 in reserves at December 31, 1998) and in
support of the Company's target solvency capital. With respect to
the insurance contracts, interest rate risk is managed through an
asset/liability matching program which takes into account the
risk variables of the insurance liabilities supported by the
assets. In addition, the Company has a conservative investment
philosophy, with all investments being investment grade corporate
securities, government agency or U.S. government securities.
In addition, the Company's deferred annuity products offer a
fixed option that subjects the Company to interest rate risk. The
fixed option guarantees a fixed rate of interest for a period of
time selected by the contract holder (options available range
from 1 to 10 years). Withdrawal of funds before the end of the
guarantee period subjects the contract holder to a market value
adjustment ("MVA"). In the event of rising interest rates, which
make the fixed maturity securities underlying the guarantee less
valuable, the market value adjustment could be negative. In the
event of falling interest rates, which make the fixed maturity
securities underlying the guarantee more valuable, the market
value adjustment could be positive. Should these contracts be
surrendered early, this increase or decrease in fair value would
be substantially offset through the application of the MVA and
its effect on contractholders choosing to withdraw. The risk to
the Company on these contracts relates to the ability to reinvest
proceeds from interest payments and other activity over the
guarantee term at interest rates required to meet interest rate
guarantees and the risk of default. This risk is managed through
an asset/liability matching program. At December 31, 1998, the
Company had $613,057,000 of contracts subject to MVA.
Equity Market Exposure
The Company has a small portfolio of equity investments; mutual
funds which are held in support of a deferred compensation
program. In the event of a decline in market values of underlying
securities, the value of the portfolio would decline, however the
accrued benefits payable under the related deferred compensation
program would decline by a corresponding amount.
The primary equity market risk to the Company comes from the
nature of the variable annuity and variable life products sold by
ASLAC. Various fees and charges earned by ASLAC are substantially
derived as a percentage of the market value of assets under
management. In a market decline, this income would be reduced.
This could be further compounded by customer withdrawals, net of
applicable surrender charge revenues, partially offset by
transfers to the fixed option discussed above. A 10% decline in
the market value of the assets under management at December 31,
1998, sustained throughout 1999, would result in a $28,000,000
drop in related fee income.
In addition, it is not clear what the impact of a prolonged
downturn in the equity markets would have on ongoing sales.
Customer's perceptions of a downturn in equity markets coupled
with rising interest rates could move them into financial
products other than variable annuities or variable life; however,
the Company's products might remain attractive to purchasers in
relation to other long-term savings vehicles even after such a
decline.
<PAGE>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholder of
American Skandia Life Assurance Corporation
Shelton, Connecticut
We have audited the consolidated statements 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, 1998 and 1997,
and the related consolidated statements of income, shareholder's equity, and
cash flows for the years 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 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, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Skandia Life Assurance Corporation at December 31, 1998 and 1997, and
the consolidated results of its operations and cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young, LLP
- ----------------------
Hartford, Connecticut
February 20, 1999
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
American Skandia Life Assurance Corporation
Shelton, Connecticut
We have audited the accompanying consolidated statements of operations,
shareholder's equity, and cash flows of American Skandia Life Assurance
Corporation and subsidiary (a wholly-owned subsidiary of Skandia Insurance
Company Ltd.) for the year 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 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, such consolidated financial statements present fairly, in all
material respects, the consolidated results of operations and cash flows of
American Skandia Life Assurance Corporation and subsidiary for the year 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
(in thousands)
AS OF DECEMBER 31,
1998 1997
---------- ----------
ASSETS
Investments:
Fixed maturities - at amortized cost $ 8,289 $ 9,367
Fixed maturities - at fair value 141,195 108,323
Investment in mutual funds - at fair value 8,210 6,711
Policy loans 569 687
---------- -----------
Total investments 158,263 125,088
Cash and cash equivalents 77,525 81,974
Accrued investment income 2,880 2,442
Fixed assets 328 356
Deferred acquisition costs 721,507 546,703
Reinsurance receivable 4,191 6,343
Receivable from affiliates 1,161 1,911
Income tax receivable - current - 1,048
Income tax receivable - deferred 38,861 26,174
State insurance licenses 4,413 4,563
Other assets 3,744 2,524
Separate account assets 17,835,400 12,095,164
---------- ----------
Total assets $18,848,273 $12,894,290
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Reserve for future contractowner benefits $ 37,508 $ 43,204
Policy reserves 25,545 24,415
Drafts outstanding 28,941 19,278
Accounts payable and accrued expenses 91,827 71,190
Income tax payable 6,657 -
Payable to affiliates - 584
Future fees payable to parent 368,978 233,034
Short-term borrowing 10,000 10,000
Surplus notes 193,000 213,000
Separate account liabilities 17,835,400 12,095,164
---------- ----------
Total liabilities 18,597,856 12,709,869
---------- ----------
Shareholders Equity:
Common stock, $80 par, 25,000 shares
authorized, issued and outstanding 2,000 2,000
Additional paid-in capital 179,889 151,527
Retained earnings 64,993 30,226
Accumulated other comprehensive income 3,535 668
---------- ----------
Total shareholder's equity 250,417 184,421
---------- ----------
Total liabilities and shareholder's equity $18,848,273 $12,894,290
=========== ===========
See notes to consolidated financial statements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1998 1997 1996
------------ ------------- ------------
REVENUES
Annuity and life insurance charges and fees $186,211 $121,158 $69,780
Fee income 50,839 27,593 16,420
Net investment income 11,130 8,181 1,586
Premium income 874 920 125
Net realized capital gains 99 87 134
Other 387 75 6
------------ ------------- ------------
Total revenues 249,540 158,014 88,051
------------ ------------- ------------
BENEFITS AND EXPENSES
Benefits:
Annuity benefits 558 2,033 613
Change in annuity policy reserves 1,053 37 635
Cost of minimum death benefit reinsurance 5,144 4,545 2,867
Return credited to contractowners (8,930) (2,018) 673
------------ ------------- ------------
(2,175) 4,597 4,788
------------ ------------- ------------
Expenses:
Underwriting, acquisition and
other insurance expenses 167,640 90,346 49,737
Amortization of state insurance licenses 150 150 150
Interest expense 41,004 24,895 10,791
------------ ------------- ------------
208,794 115,391 60,678
------------ ------------- ------------
Total benefits and expenses 206,619 119,988 65,466
------------ ------------- ------------
Income from operations before income taxes 42,921 38,026 22,585
Income tax expense (benefit) 8,154 10,478 (4,038)
------------ ------------- ------------
Net income $34,767 $27,548 $26,623
============ ============= ============
</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
(in thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1998 1997 1996
----------- ----------- -----------
Common stock:
Beginning and ending balance $2,000 $ 2,000 $ 2,000
Additional paid in capital:
Beginning balance 151,527 122,250 81,875
Additional contributions 28,362 29,277 40,375
----------- ----------- ----------
Ending balance 179,889 151,527 122,250
Retained earnings (deficit):
Beginning balance 30,226 2,678 (23,945)
Net income 34,767 27,548 26,623
----------- ----------- ----------
Ending balance 64,993 30,226 2,678
Accumulated other comprehensive income:
Beginning balance 668 (584) (217)
Other comprehensive income 2,867 1,252 (367)
----------- ----------- -----------
Ending balance 3,535 668 (584)
----------- ----------- -----------
Total shareholder's equity $250,417 $184,421 $126,345
=========== =========== ===========
</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 FLOW
(in thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1998 1997 1996
------------ ------------ ------------
Cash flow from operating activities:
Net income $ 34,767 $ 27,548 $ 26,623
Adjustments to reconcile net income to net cash
used in operating activities:
Increase in policy reserves 1,130 3,176 1,852
Amortization of bond discount 101 73 27
Amortization of insurance licenses 150 150 150
Change in receivable from/payable to affiliates 166 (1,321) 540
Change in income tax receivable/payable 7,704 (2,172) 1,688
Increase in other assets (1,191) (604) (661)
Increase in accrued investment income (438) (483) (1,764)
Decrease/(increase) in reinsurance receivable 2,152 (268) (676)
Increase in deferred acquisition costs, net (174,804) (190,969) (153,918)
Increase in income tax receivable - deferred (14,242) (9,631) (16,903)
Increase in accounts payable and accrued expenses 20,637 5,719 32,323
Increase in drafts outstanding 9,663 6,245 13,032
Change in foreign currency translation, net (22) (34) (77)
Realized gain on sale of investments (99) (87) (134)
------------ ------------ ------------
Net cash used in operating activities (114,326) (162,658) (97,898)
------------ ------------ ------------
Cash flow from investing activities:
Purchase of fixed maturity investments (31,828) (28,905) (96,813)
Proceeds from sale and maturity of fixed maturity investments 4,049 10,755 8,947
Purchase of shares in mutual funds (7,158) (5,595) (2,160)
Proceeds from sale of shares in mutual funds 6,086 1,415 1,274
Decrease/(increase) in policy loans 118 (528) (104)
------------ ------------ ------------
Net cash used in investing activities (28,733) (22,858) (88,856)
------------ ------------ ------------
Cash flow from financing activities:
Capital contributions from parent 8,362 29,277 40,375
Surplus notes - - 110,000
Increase in future fees payable to Parent 135,944 185,922 47,112
Net (withdrawals from)/deposits to contractowner accounts (5,696) 6,959 5,753
------------ ------------ ------------
Net cash provided by financing activities 138,610 222,158 203,240
------------ ------------ ------------
Net increase/(decrease) in cash and cash equivalents (4,449) 36,642 16,486
------------ ------------ ------------
Cash and cash equivalents at beginning of year 81,974 45,332 28,846
------------ ------------ ------------
Cash and cash equivalents at end of year $ 77,525 $ 81,974 $ 45,332
============ ============ ============
Supplemental cash flow disclosure:
Income taxes paid $ 14,651 $ 22,308 $ 11,177
============ ============ ============
Interest paid $ 35,588 $ 16,916 $ 7,095
============ ============ ============
</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, 1998
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 long-term savings and retirement products which
are distributed through its affiliated broker/dealer company, American
Skandia Marketing, Incorporated ("ASM"). The Company currently issues
variable life insurance and variable, fixed, market value adjusted and
immediate annuities for individuals, groups and qualified pension
plans.
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. Skandia Vida, S.A. de C.V. had total
shareholder's equity of $4,724,000 and $1,509,000 as of December 31,
1998, and 1997, respectively, and has generated net losses of
$2,514,000, $1,438,000 and $781,000 for the years ended December 31,
1998, 1997 and 1996, respectively.
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 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standard
("SFAS") 133, "Accounting for Derivative Instruments and
Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and hedging
activities. The standard requires that all derivatives be
carried on the balance sheets at fair value. The Company is
currently not involved in derivatives or hedging instruments
as part of its investment strategy. The Company is evaluating
the potential impact of a change in accounting for derivative
instruments embedded in certain products it issues. This
standard is effective for years beginning after June 15, 1999.
In March 1998, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Software Developed or Obtained
for Internal Use," which provides guidance for determining
when computer software developed or obtained for internal use
should be capitalized. It also provides guidance on the
amortization of capitalized costs and the recognition of
impairment. The Company is evaluating the potential impact of
adopting this SOP, which is effective for fiscal years
beginning after December 15, 1998.
<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 other comprehensive income.
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 other comprehensive income.
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 $6,000,000 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 $142,000 and $96,000 at
December 31, 1998 and 1997, respectively. Depreciation expense
for the years ended December 31, 1998, 1997 and 1996 was
$46,000 and $63,000 and $29,000, respectively.
G. Income Taxes
The Company is included in the consolidated federal income tax
return of Skandia U.S. Investment 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 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.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
H. Recognition of Revenue and Contract Benefits
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 are 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 6.25% to 8.25% and 6.5% to 8.25% at December 31, 1998 and
December 31, 1997, respectively.
Revenues for variable life insurance contracts consist of
charges against contractowner account values for the
maintenance and expense fees, cost of insurance fees and
surrender charges. Benefit reserves for variable life
insurance contracts represent the account value of the
contracts and are included in the separate account
liabilities.
I. 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 net of reinsurance. These costs include commissions,
costs 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.
Details of the deferred acquisition costs and related
amortization for the years ended December 31, are as follows:
(in thousands) 1998 1997 1996
---- ---- ----
Balance at beginning of year $546,703 $355,734 $201,816
Acquisition costs deferred
during the year 261,432 243,476 171,253
Acquisition costs amortized
during the year (86,628) (52,507) (17,335)
--------- --------- ---------
Balance at end of year $721,507 $546,703 $355,734
======== ======== ========
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
J. 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 and variable life insurance
business. The reinsurance is effected under quota share
contracts.
The company reinsures certain mortality risks relating to the
variable life insurance product, as well as, the guaranteed
minimum death benefit feature in the variable annuity product.
At December 31, 1998 and 1997, in accordance with the
provisions of a modified coinsurance agreement, the Company
accrued $1,976,000 and $0, respectively, for amounts
receivable from favorable reinsurance experience on a block of
variable annuity business.
K. 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 income 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 reported as
a component of other comprehensive income.
L. 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.
The carrying value of short-term borrowing approximates fair
value due to the short-term nature of these liabilities.
Fair values of certain financial instruments, such as future
fees payable to 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)
M. Separate Accounts
Assets and liabilities in Separate Accounts are included as
separate captions in the consolidated statements of financial
condition. Separate Account assets consist principally of long
term bonds, investments in mutual funds, short-term securities
and cash and cash equivalents, all of which are carried at
fair value. The investments are managed predominately through
the Company's investment advisory affiliate, American Skandia
Investment Services, Inc. ("ASISI"), utilizing various fund
managers as sub-advisors. The remaining investments are
managed by independent investment firms. The contractowner has
the option of directing funds to a wide variety of mutual
funds. The investment risk on the variable portion of a
contract is borne by the contractowner. A fixed option with a
minimum guaranteed interest rate is also available. The
Company is responsible for the credit risk associated with
these investments.
Included in Separate Account liabilities are $771,195,000 and
$773,067,000 at December 31, 1998 and 1997, respectively,
relating to annuity contracts for which the contractowner is
guaranteed a fixed rate of return. Separate Account assets of
$771,195,000 and $773,067,000 at December 31, 1998 and 1997,
respectively, consisting of long term bonds, short term
securities, transfers due from general account and cash and
cash equivalents are held in support of these annuity
contracts, pursuant to state regulation.
N. 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.
3. COMPREHENSIVE INCOME
As of January 1, 1998 the Company adopted SFAS 130, "Reporting
Comprehensive Income," which sets standards for the reporting and
display of comprehensive income and its components; however, the
adoption of this Statement had no impact on the Company's financial
position or net income. SFAS 130 requires unrealized gains and losses
on the Company's available-for-sale securities and foreign currency
translation adjustments, which prior to adoption were reported
separately in shareholder's equity, to be included in other
comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of SFAS 130.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
The components of comprehensive income, net of tax, for the years ended
December 31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(in thousands) 1998 1997 1996
---- ---- ----
Net income $34,767 $27,548 $26,623
Other comprehensive income:
Unrealized investment gains/(losses) on
available for sale securities 2,751 1,288 (331)
Reclassification adjustment for realized
losses/(gains) included in investment income 138 (14) (99)
--------- --------- ----------
Net unrealized gains/(losses) on securities 2,889 1,274 (430)
Foreign currency translation (22) (22) 64
---------- ---------- ----------
Other comprehensive income 2,867 1,252 (367)
-------- -------- ----------
Comprehensive income $37,634 $28,800 $26,257
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
The components of accumulated other comprehensive income, net of tax,
as of December 31, 1998 and 1997 were as follows:
<S> <C> <C>
(in thousands) 1998 1997
---- ----
Unrealized investment gains $3,843 $954
Foreign currency translation (308) (286)
-------- -----
Accumulated other comprehensive income $3,535 $668
====== ====
</TABLE>
4. 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, 1998 and 1997 are shown
below. All securities held at December 31, 1998 are publicly traded.
Investments in fixed maturities as of December 31, 1998 consisted of
the following:
<TABLE>
<CAPTION>
(in thousands) Held-to-Maturity
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Government
obligations $3,774 $57 $ - $3,831
Corporate securities 4,515 34 - 4,549
------- ---- ----- -------
Totals $8,289 $91 $ - $8,380
====== === ==== ======
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
(in thousands) Available-for-Sale
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Government
obligations $ 17,399 $ 678 $ - $ 18,077
Obligations of
state and political
subdivisions 253 7 - 260
Corporate securities 117,774 5,160 76 122,858
--------- ------- ---- -----------
Totals $135,426 $5,845 $76 $141,195
======== ====== === ========
</TABLE>
The amortized cost and fair value of fixed maturities, by contractual
maturity, at December 31, 1998 are shown below.
<TABLE>
<CAPTION>
(in thousands) Held-to-Maturity Available-for-Sale
<S> <C> <C> <C> <C>
Amortized Fair Amortized Fair
Cost Value Cost Value
Due in one year or less $4,927 $4,982 $ - $ -
Due after one through five years 3,362 3,398 54,789 56,850
Due after five through ten years - - 80,637 84,345
---------- ---------- ---------- ----------
Total $8,289 $8,380 $135,426 $141,195
====== ====== ======== ========
</TABLE>
Investments in fixed maturities as of December 31, 1997 consisted of
the following:
<TABLE>
<CAPTION>
(in thousands) Held-to-Maturity
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Government
obligations $3,790 $71 $9 $3,852
Obligations of
state and political
subdivisions 50 - - 50
Corporate
securities 5,527 2 19 5,510
------- ----- ---- -------
Totals $9,367 $73 $28 $9,412
====== === === ======
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
(in thousands) Available for Sale
------------------
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
U.S. Government
obligations $ 14,999 $ 202 $ - $ 15,201
Obligations of
state and political
subdivisions 202 - - 202
Corporate
securities 91,470 1,505 55 92,920
---------- ------- ---- ----------
Totals $106,671 $1,707 $55 $108,323
======== ====== === ========
</TABLE>
Proceeds from sales of fixed maturities during 1998, 1997 and 1996 were
$999,000, $5,056,000 and $8,732,000, respectively. Proceeds from
maturities during 1998, 1997 and 1996 were $3,050,000, $5,700,000 and
$215,000, respectively.
The cost, gross unrealized gains/losses and fair value of investments
in mutual funds at December 31, 1998 and 1997 are shown below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(in thousands) Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
------ ---------- ---------- ------
1998 $8,068 $416 $274 $8,210
====== ==== ==== ======
1997 $6,896 $ 43 $228 $6,711
====== ==== ==== ======
</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>
(in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Fixed maturities:
Gross gains $ - $ 10 $ -
Gross losses (1) - -
Investment in mutual funds:
Gross gains 281 116 140
Gross losses (181) (39) (6)
------- ------ -----
Totals $ 99 $ 87 $134
====== ===== ====
</TABLE>
5. NET INVESTMENT INCOME
The sources of net investment income for the years ended December 31,
1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Fixed maturities $ 8,534 $6,617 $ 836
Cash and cash equivalents 1,717 1,153 685
Investment in mutual funds 1,013 554 144
Policy loans 45 28 5
----------- --------- ----------
Total investment income 11,309 8,352 1,670
Investment expenses 179 171 84
---------- -------- ---------
Net investment income $11,130 $8,181 $1,586
======= ====== ======
</TABLE>
6. INCOME TAXES
The significant components of income tax expense (benefit) for the
years ended December 31, are as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current tax expense $22,384 $20,108 $12,865
Deferred tax benefit (14,230) (9,630) (16,903)
-------- --------- --------
Total income tax expense (benefit) $ 8,154 $10,478 ($ 4,038)
======== ======= =======
</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, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
---- ----
<S> <C> <C>
Deferred tax liabilities:
Deferred acquisition costs ($210,731) ($159,766)
Payable to reinsurers (25,585) (25,369)
Policy fees (859) (656)
Unrealized investment gains and losses (2,069) (514)
----------- -------------
Total (239,244) (186,305)
--------- ---------
Deferred tax assets:
Net separate account liabilities 225,600 175,872
Reserve for future contractowner benefits 13,128 15,121
Other reserve differences 25,335 10,534
Deferred compensation 9,619 7,187
Surplus notes interest 3,375 2,729
Foreign exchange translation 166 154
Other 882 882
------------ ------------
Total 278,105 212,479
--------- ---------
Income tax receivable - deferred $ 38,861 $ 26,174
========= =========
</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 $9,325,000 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>
(in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income (loss) before taxes
Domestic $45,435 $39,464 $23,366
Foreign (2,514) (1,438) (781)
--------- --------- ---------
Total 42,921 38,026 22,585
Income tax rate 35% 35% 35%
--------- --------- ---------
Tax expense at federal
statutory income tax rate 15,022 13,309 7,905
Tax effect of:
Change in valuation allowance - - (9,325)
Dividend received deduction (9,085) (4,585) (2,266)
Losses of foreign subsidiary 880 503 273
Meals and entertainment 487 340 43
State income taxes 673 577 356
Other 177 334 (1,024)
-------- ------- ---------
Income tax expense (benefit) $ 8,154 $10,478 ($ 4,038)
======== ======= =========
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
7. 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
("ASIST"), an affiliated company; and likewise, the Company has charged
operating costs to ASISI. The total cost to the Company for these items
was $7,722,000, $5,572,000 and $11,581,000 for the years ended December
31, 1998, 1997 and 1996, respectively. Income received for these items
was $1,355,000, $3,225,000 and $1,148,000 for the years ended December
31, 1998, 1997 and 1996, respectively. Amounts receivable from
affiliates under these arrangements were $98,000 and $549,000 as of
December 31, 1998 and 1997, respectively. Amounts payable to affiliates
under these arrangements were $551,000 and $264,000 as of December 31,
1998 and 1997, respectively.
8. FUTURE FEES PAYABLE TO PARENT
In a series of transactions with its Parent, the Company sold certain
rights to receive future fees and contract charges expected to be
realized on variable portions of designated blocks of deferred annuity
contracts. The effective dates and issue periods these transactions
cover are as follows:
Closing Effective Contract Issue
Transaction Date Date Period
----------- -------- --------- -----------------
1996-1 12/16/96 9/1/96 1/1/94 - 6/30/96
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
1998-1 6/30/98 6/1/98 1/1/97 - 5/31/98
1998-2 11/10/98 10/1/98 5/1/97 - 8/31/98
1998-3 12/30/98 12/1/98 7/1/96 - 10/31/98
In connection with these transactions, the Parent issued collateralized
notes in a private placement which are secured by the rights to receive
future fees and charges purchased from the Company.
Under the terms of the Purchase Agreements, the rights sold provide for
the Parent to receive a percentage 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 to 8 years). The percentage is 100% on
transactions 1997-3 and 1998-3 and 80% on all other transactions.
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 as of the respective effective date was as follows:
<TABLE>
<CAPTION>
(in thousands)
Present
<S> <C> <C> <C>
Transaction Discount Rate Value
----------- ------------- -------
1996-1 7.5% $50,221
1997-1 7.5% 58,767
1997-2 7.5% 77,552
1997-3 7.5% 58,193
1998-1 7.5% 61,180
1998-2 7.0% 68,573
1998-3 7.0% 40,128
</TABLE>
Payments representing fees and charges in the aggregate amount of
$69,226,000, $22,250,000 and $0, were made by the Company to the Parent
for the years ended December 31, 1998, 1997 and 1996, respectively.
Related interest expense of $22,978,000, $6,842,000 and $42,000 has
been included in the statement of income for the years ended December
31, 1998, 1997 and 1996, respectively.
Expected payments of future fees payable to Parent as of December 31,
1998 are as follows:
Year Ended
(in thousands) December 31, Amount
------------ ----------
1999 $ 64,520
2000 68,403
2001 67,953
2002 64,238
2003 54,382
2004 35,601
2005 12,441
2006 1,440
----------
Total $ 368,978
==========
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)
9. LEASES
The Company leases office space under a lease agreement established in
1989 with ASIST. The lease expense for 1998, 1997 and 1996 was
$3,588,000, $2,428,000 and $1,583,000, respectively. Future minimum
lease payments per year and in aggregate as of December 31, 1998 are as
follows:
(in thousands) 1999 $ 3,619
2000 5,070
2001 5,070
2002 5,070
2003 5,070
2004 and thereafter 40,271
--------
Total $ 64,170
========
10. RESTRICTED ASSETS
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 $3,747,000 and
$3,757,000 as of December 31, 1998, and 1997, respectively. These
deposits are required to be maintained for the protection of
contractowners within the individual states.
11. RETAINED EARNINGS AND DIVIDEND RESTRICTIONS
Statutory basis shareholder's equity was $285,553,000 and $294,586,000
at December 31, 1998 and 1997, respectively.
The statutory basis net loss was $13,152,000, $8,970,000 and $5,405,000
for the years ended December 31, 1998, 1997 and 1996, respectively.
Under various state insurance laws, the maximum amount of dividends
that can be paid to shareholders without prior approval of the state
insurance department is subject to restrictions relating to statutory
surplus and net gain from operations. At December 31, 1998, no amounts
may be distributed without prior approval.
12. EMPLOYEE BENEFITS
The Company has 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
$2,115,000, $1,220,000 and $850,000 for the years ended December 31,
1998, 1997 and 1996, respectively.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
The Company has 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 $342,000,
$270,000 and $245,000 for the years ended December 31, 1998, 1997 and
1996, respectively.
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, with a new plan
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 was $21,372,000 and $15,720,000
as of December 31, 1998 and 1997, respectively. Payments under this
plan were $2,407,000, $1,119,000 and $602,000 for the years ended
December 31, 1998, 1997, and 1996, respectively.
13. REINSURANCE
The effect of reinsurance for the years ended December 31, 1998, 1997
and 1996 is as follows:
<TABLE>
<CAPTION>
(in thousands) 1998
----
Policy Change in Return Credited
Charges and Fees Policy Reserves to Contractowners
---------------- --------------- -----------------
<S> <C> <C> <C>
Gross $215,425 $ 691 ($8,921)
Ceded 29,214 (362) 9
-------- ------- -------
Net $186,211 $ 1,053 ($8,930)
======== ======= =======
1997
----
Policy Change in Return Credited
Charges and Fees Policy Reserves to Contractowners
---------------- --------------- -----------------
Gross $144,417 $955 ($1,972)
Ceded 23,259 918 46
-------- ----- -------
Net $121,158 $ 37 ($2,018)
======== ===== ======
1996
----
Policy Change in Return Credited
Charges and Fees Policy Reserves to Contractowners
---------------- --------------- -----------------
Gross $87,370 $815 $779
Ceded 17,590 180 106
-------- ----- -----
Net $69,780 $635 $673
======= ==== ====
</TABLE>
Such ceded reinsurance does not relieve the Company of 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)
14. SURPLUS NOTES
The Company has issued surplus notes to its Parent in exchange for cash.
Surplus notes outstanding as of December 31, 1998 and 1997 were
as follows:
<TABLE>
<CAPTION>
(in thousands)
Interest for the
Interest 1998 1997 Years Ended December 31,
Issue Date Rate Amount Amount 1998 1997 1996
---------- ---- ------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
December 29, 1993 6.84% $ - $ 20,000 $ 1,387 $ 1,387 $ 1,391
February 18, 1994 7.28% 10,000 10,000 738 738 740
March 28, 1994 7.90% 10,000 10,000 801 801 803
September 30, 1994 9.13% 15,000 15,000 1,389 1,389 1,392
December 28, 1994 9.78% 14,000 14,000 1,388 1,388 1,392
December 19, 1995 7.52% 10,000 10,000 762 762 765
December 20, 1995 7.49% 15,000 15,000 1,139 1,139 1,142
December 22, 1995 7.47% 9,000 9,000 682 682 684
June 28, 1996 8.41% 40,000 40,000 3,411 3,411 1,747
December 30, 1996 8.03% 70,000 70,000 5,699 5,699 31
-------- -------- ------- ------- ------- -
Total $193,000 $213,000 $17,396 $17,396 $10,087
======== ======== ======= ======= =======
</TABLE>
The surplus note for $20,000,000 dated December 29, 1993 was converted
to additional paid-in capital on December 31, 1998.
All surplus notes mature seven 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, 1998 and
1997, $9,644,000 and $7,796,000, respectively, of accrued interest on
surplus notes was not approved for payment under these criteria.
15. SHORT-TERM BORROWING
The Company had a $10 million short-term loan payable to the Parent at
December 31, 1998 and 1997. The total interest expense to the Company
was $622,000, $642,000 and $643,000 and for the years ended December
31, 1998, 1997 and 1996, respectively, of which $182,000 and $201,000
was payable as of December 31, 1998 and 1997, respectively.
16. CONTRACT WITHDRAWAL PROVISIONS
Approximately 99% of the Company's separate account liabilities are
subject to discretionary withdrawal by contractowners at market value
or with market value adjustment. Separate account assets which are
carried at fair value are adequate to pay such withdrawals which are
generally subject to surrender charges ranging from 10% to 1% for
contracts held less than 10 years.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
17. SEGMENT REPORTING
In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS 131 establishes standards
for the way that public enterprises report information about operating
segments in annual financial statements and requires that those
enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes
standards related to disclosures about products and services,
geographic areas and major customers. SFAS 131 is effective for
financial statement periods beginning after December 15, 1997.
During 1998, to complement its annuity products, the Company launched
specific marketing and operational activities towards the release of
variable life insurance and qualified retirement plan annuity products.
As of December 31, 1998, sales were not significant enough to warrant
full segment disclosures. Sales, as measured by premium received, for
the year ended December 31, 1998 and assets under management as of
December 31, 1998, for the respective segments were as follows:
<TABLE>
<CAPTION>
(in thousands) Variable Variable Qualified
Annuity Life Plans Total
------------ -------- --------- -----------
<S> <C> <C> <C> <C>
Sales $ 4,122,272 $1,188 $36,202 $ 4,159,662
=========== ====== ======= ===========
Assets under management $17,809,437 $1,295 $44,029 $17,854,761
=========== ====== ======= ===========
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes information with respect to the
operations of the Company on a quarterly basis:
<TABLE>
<CAPTION>
(in thousands) Three Months Ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
1998
----
<S> <C> <C> <C> <C>
Premiums and other insurance
revenues $ 50,593 $ 57,946 $ 62,445 $ 67,327
Net investment income 3,262 2,410 2,469 2,989
Net realized capital gains (losses) 156 13 (46) (24)
-------- -------- -------- --------
Total revenues 54,011 60,369 64,868 70,292
Benefits and expenses 46,764 42,220 48,471 69,164
-------- -------- -------- --------
Pre-tax net income 7,247 18,149 16,397 1,128
Income taxes 1,175 4,174 2,223 582
-------- -------- -------- --------
Net income $ 6,072 $ 13,975 $ 14,174 $ 546
======== ======== ======== ========
1997
----
Premiums and other insurance
revenues $ 30,186 $ 34,056 $ 41,102 $ 44,402
Net investment income 1,369 2,627 2,031 2,154
Net realized capital gains 20 43 21 3
-------- -------- -------- --------
Total revenues 31,575 36,726 43,154 46,559
Benefits and expenses 18,319 30,465 31,179 40,025
-------- -------- -------- --------
Pre-tax net income 13,256 6,261 11,975 6,534
Income taxes 4,260 2,614 3,354 250
-------- -------- -------- --------
Net income $ 8,996 $ 3,647 $ 8,621 $ 6,284
======== ======== ======== ========
1996
----
Premiums and other insurance
revenues $ 16,606 $ 20,453 $ 22,366 $ 26,906
Net investment income 455 283 270 578
Net realized capital gains 92 13 6 23
-------- -------- -------- --------
Total revenues 17,153 20,749 22,642 27,507
Benefits and expenses 12,725 9,430 17,007 26,304
-------- --------- -------- --------
Pre-tax net income 4,428 11,319 5,635 1,203
Income taxes 1,769 3,624 3,096 (12,527)
-------- --------- -------- --------
Net income $ 2,659 $ 7,695 $ 2,539 $ 13,730
======== ========= ======== ========
</TABLE>
As described in Note 6, the valuation allowance relating to deferred
income taxes was released during the three months ended December 31,
1996.
<PAGE>
APPENDIX B - CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B
The Unit Prices and number of Units in the Sub-accounts that commenced
operations prior to January 1, 1999 are shown below. 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
Insurance Charge assessed against the Sub-accounts under the terms of those
other variable annuities are the same as the charges assessed against such
Sub-accounts under the Annuity offered pursuant to this Prospectus.
Unit Prices And Numbers Of Units: The following table shows: (a) the
Unit Price, as of the dates shown, for Units in each of the Class 1 Sub-accounts
of Separate Account B that commenced operations prior to January 1, 1999 and are
being offered pursuant to this Prospectus or which we offer pursuant to certain
other prospectuses; and (b) the number of Units outstanding in each such
Sub-account as of the dates shown. The year in which operations commenced in
each such Sub-account is noted in parentheses. The portfolios in which a
particular Sub-account invests may or may not have commenced operations prior to
the date such Sub-account commenced operations. The initial offering price for
each Sub-account was $10.00.
<TABLE>
<CAPTION>
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AST Founders
Passport (1)
(1994)
Unit Price $12.54 11.46 11.39 10.23 - - - - - -
Number of Units 9,207,623 9,988,104 9,922,698 2,601,283 - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
AST T. Rowe Price
International Equity
(1994)
Unit Price $13.14 11.69 11.70 10.39 9.49 - - - - -
Number of Units 34,328,425 37,784,426 32,628,595 17,935,251 11,166,758 - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
AST AIM
International Equity (2)
(1989)
Unit Price $27.18 22.95 19.70 18.23 16.80 16.60 12.37 13.69 12.98 13.64
Number of Units 17,748,560 17,534,233 17,220,688 14,393,137 14,043,215 9,063,464 1,948,773 1,092,902 398,709 29,858
- ------------------------------------------------------------------------------------------------------------------------------------
AST Janus Overseas
Growth
(1997)
Unit Price $13.41 11.70 - - - - - - - -
Number of Units 43,711,763 21,405,891 - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
AST American Century
International Growth
(1997)
Unit Price $13.30 11.35 - - - - - - - -
Number of Units 5,670,336 2,857,188 - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
AST Janus Small-Cap
Growth (3)
(1994)
Unit Price $17.64 17.28 16.54 13.97 10.69 - - - - -
Number of Units 15,003,001 14,662,728 12,282,211 6,076,373 2,575,105 - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
AST Lord Abbett Small
Cap Value
(1998)
Unit Price $9.85 - - - - - - - - -
Number of Units 4,081,870 - - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
AST T. Rowe Price
Small Company Value
(1997)
Unit Price $11.20 12.70 - - - - - - - -
Number of Units 24,700,211 14,612,510 - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
AST Neuberger Berman
Mid-Cap Growth (4)
(1994)
Unit Price $19.15 16.10 13.99 12.20 9.94 - - - - -
Number of Units 13,389,289 11,293,799 9,563,858 3,658,836 301,267 - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
AST Neuberger Berman
Mid-Cap Value (5)
(1993)
Unit Price $16.10 16.72 13.41 12.20 9.81 10.69 - - - -
Number of Units 16,410,121 11,745,440 9,062,152 8,642,186 7,177,232 5,390,887 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
AST T. Rowe Price
Natural Resources
(1995)
Unit Price $12.57 14.46 14.19 11.01 - - - - - -
Number of Units 5,697,453 7,550,076 6,061,852 808,605 - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
AST Oppenheimer
Large-Cap Growth (6)
(1996)
Unit Price $15.48 12.33 10.89 - - - - - - -
Number of Units 19,009,242 18,736,994 4,324,161 - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
AST Marsico Capital
Growth
(1997)
Unit Price $14.00 10.03 - - - - - - - -
Number of Units 40,757,449 714,309 - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
AST JanCap Growth
(1992)
Unit Price $39.54 23.83 18.79 14.85 10.91 11.59 10.51 - - -
Number of Units 80,631,598 62,486,302 46,779,164 28,662,737 22,354,170 13,603,637 1,476,139 - - -
- ------------------------------------------------------------------------------------------------------------------------------------
AST Bankers Trust
Enhanced 500
(1998)
Unit Price $12.61 - - - - - - - - -
Number of Units 22,421,754 - - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
AST Cohen & Steers
Realty
(1998)
Unit Price $8.28 - - - - - - - - -
Number of Units 3,771,461 - - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
AST American Century
Income & Growth(7)
(1997)
Unit Price $13.35 12.06 - - - - - - - -
Number of Units 13,845,190 9,523,815 - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
AST Lord Abbett
Growth and Income
(1992)
Unit Price $24.11 21.74 17.79 15.22 11.98 11.88 10.60 - - -
Number of Units 47,979,349 42,197,002 28,937,085 18,411,759 7,479,449 4,058,228 956,949 - - -
- ------------------------------------------------------------------------------------------------------------------------------------
AST INVESCO Equity
Income
(1994)
Unit Price $19.34 17.31 14.23 12.33 9.61 - - - - -
Number of Units 40,994,187 33,420,274 23,592,226 13,883,712 6,633,333 - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
AST AIM Balanced (8)
(1993)
Unit Price $17.78 15.98 13.70 12.49 10.34 10.47 - - - -
Number of Units 22,634,344 22,109,373 20,691,852 20,163,848 13,986,604 8,743,758 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
AST American Century
Strategic Balanced
(1997)
Unit Price $13.37 11.18 - - - - - - - -
Number of Units 6,714,065 2,560,866 - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
AST T. Rowe Price Asset
Allocation
(1994)
Unit Price $18.12 15.53 13.30 11.92 9.80 - - - - -
Number of Units 18,469,315 13,524,781 8,863,840 4,868,956 2,320,063 - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
AST T. Rowe Price
International Bond (9)
(1994)
Unit Price $11.82 10.45 10.98 10.51 9.59 - - - - -
Number of Units 12,007,692 12,089,872 8,667,712 4,186,695 1,562,364 - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
AST Federated High
Yield
(1994)
Unit Price $14.30 14.13 12.62 11.27 9.56 - - - - -
Number of Units 40,170,144 29,663,242 15,460,522 6,915,158 2,106,791 - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
AST PIMCO Total
Return Bond
(1994)
Unit Price $13.43 12.44 11.48 11.26 9.61 - - - - -
Number of Units 64,224,618 44,098,036 29,921,643 19,061,840 4,577,708 - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
AST PIMCO Limited
Maturity Bond
(1995)
Unit Price $11.73 11.26 10.62 10.37 - - - - - -
Number of Units 28,863,932 25,008,310 18,894,375 15,058,644 - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
AST Money Market
(1992)
Unit Price $12.00 11.57 11.16 10.77 10.35 10.12 10.01 - - -
Number of Units 75,855,442 66,869,998 42,435,169 30,564,442 27,491,389 11,422,783 457,872 - - -
The Alger American
Fund - AA Growth
(1988)
Unit Price $63.07 43.20 34.84 31.18 23.18 23.18 19.19 17.32 12.51 12.19
Number of Units 17,168,792 15,854,570 15,666,357 12,092,291 5,614,760 2,997,458 1,482,037 559,779 82,302 6,900
- ------------------------------------------------------------------------------------------------------------------------------------
The Alger American
Fund - AA MidCap
Growth
(1993)
Unit Price $30.53 23.76 20.96 19.00 13.34 13.74 - - - -
Number of Units 17,559,963 14,687,032 14,528,945 8,299,743 4,308,374 1,450,892 - - - -
The Montgomery Variable
Series - MV Emerging
Markets
(1996)
Unit Price $6.19 10.05 10.25 - - - - - - -
Number of Units 10,534,383 10,371,104 2,360,940 - - - - - - -
Wells Fargo LAT Trust -
Equity Value (10)
(1998)
Unit Price $9.53 - - - - - - - - -
Number of Units 1,148,849 - - - - - - - - -
</TABLE>
1 Effective October 15, 1996, Founders Asset Management, Inc. became
Sub-advisor of the Portfolio. Prior to October 15, 1996, Seligman Henderson
Co. served as the Sub-advisor of the Portfolio, then named the "Seligman
Henderson International Small Cap Portfolio." The performance information
provided in the above chart reflects that of the Portfolio as sub-advised
by the prior Sub-advisor from inception until October 15, 1996, and the
current Sub-advisor from October 15, 1996 through the current period.
2 Effective May 3, 1999, A I M Capital Management, Inc. became Sub-Advisor of
the Portfolio. Between October 15, 1996 and May 3, 1999, Putnam Investment
Management, Inc. served as Sub-advisor of the Portfolio, then named "AST
Putnam International Equity." Prior to October 15, 1996, Seligman Henderson
Co. served as the Sub-advisor of the Portfolio, then named the "Seligman
Henderson International Equity Portfolio." The performance information
provided in the above chart reflects that of the Portfolio as sub-advised
by the prior Sub-advisor(s) from inception through the current period.
3 Effective December 31, 1998 Janus Capital Corporation became Sub-advisor of
the Portfolio. Prior to December 31, 1998, Founders Asset Management, LLC
served as the Sub-advisor of the Portfolio. In connection with this change
the portfolio's name is changed to "AST Janus Small-Cap Growth." The
performance information provided in the above chart reflects that of the
Portfolio as sub-advised by the prior Sub-advisor from inception until
December 31, 1998.
4 Effective May 1, 1998, Neuberger Berman Management, Inc. became Sub-Advisor
to the Portfolio. Prior to May 1, 1998, Berger Associates, Inc. served as
Sub-advisor to the Portfolio, then named the "Berger Capital Growth
Portfolio." As of May 1, 1998 various changes have been made to the
Portfolio's investment objective and to its fundamental and non-fundamental
investment restrictions.
5 Effective May 1, 1998, Neuberger Berman Management, Inc. became Sub-Advisor
to the Portfolio. Prior to May 1, 1998, Federated Investment Counseling
served as Sub-advisor of the Portfolio, then named the "Federated Utility
Income Portfolio." As of May 1, 1998 various changes have been made to the
Portfolio's investment objective and to its fundamental and non-fundamental
investment restrictions.
6 Effective December 31, 1998 OppenheimerFunds, Inc. became Sub-advisor of
the Portfolio. Prior to December 31, 1998, Robertson, Stephens & Company
Investment Management, L.P. served as the Sub-advisor of the Portfolio. In
connection with this change the portfolio's name is changed to "AST
Oppenheimer Large Cap Growth." The performance information provided in the
above chart reflects that of the Portfolio as sub-advised by the prior
Sub-advisor from inception until December 31, 1998.
7 Effective May 3, 1999, American Century Investment Management, Inc. became
Sub-Advisor of the Portfolio. Between October 15, 1996 and May 3, 1999,
Putnam Investment Management, Inc. served as Sub-advisor of the Portfolio,
then named "AST Putnam Value Growth & Income." The performance information
provided in the above chart reflects that of the Portfolio as sub-advised
by the prior Sub-advisor from inception through the current period.
8 Effective May 3, 1999, A I M Capital Management, Inc. became Sub-Advisor of
the Portfolio. Between October 15, 1996 and May 3, 1999, Putnam Investment
Management, Inc. served as Sub-advisor of the Portfolio, then named "AST
Putnam International Equity." Prior to October 15, 1996, Phoenix Investment
Counsel, Inc. served as the Sub-advisor of the Portfolio, then named the
"AST Phoenix Balanced Asset Portfolio." The performance information
provided in the above chart reflects that of the Portfolio as sub-advised
by the prior Sub-advisor(s) from inception through the current period.
9 Effective May 1, 1996, Rowe Price-Fleming International, Inc. became
Sub-advisor of the Portfolio. Prior to May 1, 1996, Scudder, Stevens &
Clark, Inc. served as the Sub-advisor of the Portfolio, then named the "AST
Scudder International Bond Portfolio." The performance information provided
in the above chart reflects that of the Portfolio as sub-advised by the
prior Sub-advisor from inception until May 1, 1996, and the current
Sub-advisor from May 1, 1996 through the current period.
10 This Portfolio was first offered as a Sub-account on May 1, 1998.
<PAGE>
American Skandia Life Assurance Corporation
Attention: Concierge Desk
For Written Requests:
P.O. Box 883
Shelton, Connecticut 06484
For Electronic Requests:
[email protected]
For Requests by Phone:
1-800-752-6342
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PLEASE SEND ME A STATEMENT OF ADDITIONAL INFORMATION THAT
CONTAINS FURTHER DETAILS ABOUT THE AMERICAN SKANDIA ANNUITY
DESCRIBED IN PROSPECTUS ASXT-PROS (05/99).
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(print your name)
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<PAGE>
ADDITIONAL INFORMATION: Inquiries will be answered by calling your
representative or by writing to:
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
at
P.O. Box 883
Shelton, Connecticut 06484
or
[email protected]
Issued by: Serviced at:
AMERICAN SKANDIA LIFE AMERICAN SKANDIA LIFE
ASSURANCE CORPORATION ASSURANCE CORPORATION
One Corporate Drive P.O. Box 883
Shelton, Connecticut 06484 Shelton, Connecticut 06484
Telephone: 1-800-752-6342 Telephone: 1-800-752-6342
http://www.AmericanSkandia.com http://www.AmericanSkandia.com
Distributed by:
AMERICAN SKANDIA MARKETING, INCORPORATED
One Corporate Drive
Shelton, Connecticut 06484
Telephone: 203-926-1888
http://www.AmericanSkandia.com
