Supplement to Prospectus Dated May 1, 2000
Supplement dated October 23, 2000
This Supplement should be retained with the current Prospectus for your variable
annuity contract issued by American Skandia Life Assurance Corporation
("American Skandia"). If you do not have a current prospectus, please contact
American Skandia at 1-800-SKANDIA.
A. NOTICE OF SUBSTITUTION
American Skandia has filed an exemptive application with the Securities and
Exchange Commission ("SEC") to substitute the following "Replaced
Portfolio/Sub-Account" with the "Substitute Portfolio/Sub-account". The Replaced
Portfolio/Sub-account described below is only available until the effective date
of the Substitution, at which time it will cease to be offered as an investment
options. The Substitute Portfolio/Sub-account is only available as of the date
of the Fund Substitution and is only available to those Contract Owners affected
by the Fund Substitution.
<TABLE>
<CAPTION>
--------------------------------------------------------- ---------- ---------------------------------------------------------------
REPLACED PORTFOLIO/SUB-ACCOUNT SUBSTITUTE PORTFOLIO/SUB-ACCOUNT
--------------------------------------------------------- ---------- ---------------------------------------------------------------
--------------------------------------------------------------- -------- -----------------------------------------------------------
<S> <C>
Alger American MidCap Growth portfolio of The Alger American AST Alger Mid-Cap Growth portfolio of American Skandia
Fund/AA MidCap Growth Sub-account Trust/AST Alger Mid-Cap Growth Sub-account
--------------------------------------------------------------- -------- -----------------------------------------------------------
--------------------------------------------------------------- --- ---- -----------------------------------------------------------
The Alger American Fund - MidCap Growth: seeks long-term AST Alger Mid-Cap Growth: seeks long-term capital growth.
capital appreciation. The Portfolio focuses on midsize The Portfolio invests primarily in equity securities, such
companies with promising growth potential. Under normal as common or preferred stocks, that are listed on U.S.
circumstances, the Portfolio invests primarily in the equity exchanges or in the over-the-counter market. Under normal
securities of companies having a market capitalization within circumstances, the Portfolio invests primarily in the
the range of companies in the S&P MidCap 400 Index equity securities of companies having a market
capitalization within the range of companies in the S&P
MidCap 400 Index.
--------------------------------------------------------------- --- ---- -----------------------------------------------------------
</TABLE>
We expect to receive the SEC Exemptive Order and complete the Substitution by
the end of November 2000. Those Contract Owners effected by the Substitution
will receive additional information from American Skandia notifying them of
their rights under the SEC Exemptive Order.
For a 30 day period following the Substitution, Contract Owners will be allowed
to transfer Account Value out of the Replaced Portfolio/Sub-account to any other
investment options available under the Annuity. Any such transfers during this
period will not count in determining whether the maximum number of free
transfers has been exceeded. Additionally, the transfer of Account Value from
the Replaced Portfolio/Sub-account to the Substitute Portfolio/Sub-account would
also not be subject to a transfer fee nor count in determining whether the
maximum number of free transfers have been exceeded. The Substitution will not
affect your rights or our obligations under the Annuity and American Skandia
will bear any expenses in connection with the Substitution.
<PAGE>
B. ADDITIONAL VARIABLE INVESTMENT OPTION
The underlying Portfolio shown below is being offered as a Sub-account under
your Annuity.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Underlying Mutual Fund Portfolio Annual Expenses
(as a percentage of the average net assets of the underlying Portfolios)
------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------- --------------- ------------- --------------- -------------- -------------- ----------
Management Other 12b-1 Fees Total Annual Fee Net
Fees Expenses Portfolio Waivers and Annual
UNDERLYING PORTFOLIO Operating Expense Fund
Expenses Reimbursement 1 Operating
Expenses
--------------------------------------------- --------------- ------------- --------------- -------------- -------------- ----------
American Skandia Trust: 2
<S> <C> <C> <C> <C> <C> <C>
AST Alger Mid-Cap Growth 3 0.80% 0.23% 0.00% 1.03% 0.18% 0.85%
--------------------------------------------- --------------- ------------- --------------- -------------- -------------- ----------
</TABLE>
1 The Investment Manager of American Skandia Trust has agreed to reimburse
and/or waive fees for certain Portfolios until at least April 30, 2001. The
caption "Total Annual Fund Operating Expenses" reflects the Portfolios'
fees and expenses before such waivers and reimbursements, while the caption
"Net Annual Fund Operating Expenses" reflects the effect of such waivers
and reimbursements.
2 American Skandia Trust (the "Trust") adopted a Distribution Plan (the
"Distribution Plan") under Rule 12b-1 of the Investment Company Act of 1940
to permit an affiliate of the Trust's Investment Manager to receive
brokerage commissions in connection with purchases and sales of securities
held by Portfolios of the Trust, and to use these commissions to promote
the sale of shares of such Portfolios. The staff of the Securities and
Exchange Commission takes the position that commission amounts received
under the Distribution Plan should be reflected as distribution expenses of
the Portfolios. The Portfolios would pay the same or comparable commission
amounts irrespective of the Distribution Plan; accordingly, total returns
for the Portfolios are not expected to be adversely affected. The
Distribution Fee estimates are derived from data regarding each Portfolio's
brokerage transactions, and the proportions of such transactions directed
to selling dealers, for the period ended December 31, 1999. However, it is
not possible to determine with accuracy actual amounts that will be
received under the Distribution Plan. Such amounts will vary based upon the
level of a Portfolio's brokerage activity, the proportion of such activity
directed under the Distribution Plan, and other factors.
3 This Portfolio commenced operations in October 2000, however, it is only
available as of the date of the Fund Substitution and is only available to
those Contract Owners affected by the Fund Substitution. "Other Expenses"
and "12b-1 Fees" shown are based on estimated amounts for the fiscal year
ending December 31, 2000.
EXPENSE EXAMPLES
The Expense Example shown below is being added with respect to the new Portfolio
that is being offered as a Sub-account under your Annuity.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Expense Examples
(amounts shown are rounded to the nearest dollar)
------------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------- ------- ----------------------------------------
If you surrender your Annuity at the end of If you do not surrender your Annuity
the applicable time period, and your Account at the end of the applicable time
Value is $50,000 or higher, so that the period or begin taking annuity
annual maintenance fee does not apply, you payments at such time, and your
would pay the following expenses on a $1,000 Account Value is $50,000 or higher,
investment, assuming 5% annual return on so that the annual maintenance fee
assets: does not apply, you would pay the
following expenses on a $1,000
investment, assuming 5% annual return
on assets:
---------------------------------------------- ------- ----------------------------------------
After: After:
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------ --------- ---------- --------- ---------- ------ ---------- ---------- --------- --------
Sub-Account: 1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
------------------------------------------ --------- ---------- --------- ---------- ------ ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AST Alger Mid-Cap Growth 3 59 79 101 218 19 59 101 218
------------------------------------------ --------- ---------- --------- ---------- ------ ---------- ---------- --------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Expense Examples
(amounts shown are rounded to the nearest dollar)
------------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------- ------- ----------------------------------------
If you surrender your Annuity at the end If you do not surrender your Annuity
of the applicable time period, and your at the end of the applicable time
Account Value is lower than $50,000, so period or begin taking annuity
that the maintenance fee applies, you payments at such time, and your
would pay the following expenses on a Account Value is lower than $50,000,
$1,000 investment, assuming 5% annual so that the maintenance fee applies,
return on assets: you would pay the following expenses
on a $1,000 investment, assuming 5%
annual return on assets:
-------------------------------------------- ------- ----------------------------------------
After: After:
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------ --------- ---------- --------- ---------- ------ ---------- ---------- --------- --------
Sub-Account: 1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
------------------------------------------ --------- ---------- --------- ---------- ------ ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AST Alger Mid-Cap Growth 3 61 85 111 236 21 65 111 236
------------------------------------------ --------- ---------- --------- ---------- ------ ---------- ---------- --------- --------
</TABLE>
C. PORTFOLIO/SUB-ACCOUNT NAME CHANGES
1. Effective August 8, 2000 T. Rowe Price International, Inc. became the new
portfolio sub-advisor for the AST T. Rowe Price Global Bond portfolio.
D. MAXIMUM NUMBER OF FREE TRANSFERS
The maximum number of transfers you can make between investment options each
Annuity Year without being subject to a Transfer Fee is increased from twelve
(12) to twenty (20).
E. PARTIAL EXCHANGES
TAX CONSIDERATIONS
The following paragraph replaces the corresponding paragraph under the Tax
Considerations section in your Annuity prospectus:
Special rules in relation to tax-free exchanges under Section 1035:
On November 22, 1999, the Internal Revenue Service issued an acquiescence in the
decision of the United States Tax Court in Conway v. Commissioner (111 T.C. 350
(1998)) that a taxpayer's partial surrender of a non-qualified annuity contract
and direct transfer of the resulting proceeds for the purchase of a new
non-qualified annuity contract qualifies as a non-taxable exchange under Section
1035 of the Internal Revenue Code. "Acquiescence" means that the IRS accepts the
holding of the Court in a case and that the IRS will follow it in disposing of
cases with the same controlling facts. Prior to the Conway decision, industry
practice has been to treat a partial surrender of account value as fully taxable
to the extent of any gain in the contract for tax reporting purposes and to
"step-up" the basis in the contract accordingly. However with the IRS'
acquiescence in the Conway decision, partial surrenders may be treated in the
same way as tax-free 1035 exchanges of entire contracts, therefore avoiding
current taxation of any gains in the contract as well as the 10% IRS tax penalty
on pre-age 59 1/2 withdrawals. The IRS reserved the right to treat transactions
it considers abusive as ineligible for this favorable partial 1035 exchange
treatment. We do not know what transactions may be considered abusive. For
example, we do not know how the IRS may view early withdrawals or annuitizations
after a partial exchange. As of the date of this prospectus supplement, we will
treat a partial surrender of this type as a "tax-free" exchange for future tax
reporting purposes, except to the extent that we, as a reporting and withholding
agent, believe that we would be expected to deem the transaction to be abusive.
However, some insurance companies may not recognize these partial surrenders as
tax-free exchanges and may report them as taxable distributions to the extent of
any gain distributed as well as subjecting the taxable portion of the
distribution to the 10% IRS early distribution penalty. We strongly urge you to
discuss any transaction of this type with your tax advisor before proceeding
with the transaction.
While the principles expressed in the Conway decision appear applicable to
partial exchanges from life insurance, there is no guidance from the Internal
Revenue Service as to whether it concurs with non-recognition treatment under
Section 1035 of the Code for such transactions. We will continue to report a
partial surrender of a life insurance policy as subject to current taxation to
the extent of any gain. In addition, please be cautioned that no specific
guidance has been provided as to the impact of such a transaction for the
remaining life insurance policy, particularly as to the subsequent methods to be
used to test for compliance under the Code for both the definition of life
insurance and the definition of a modified endowment contract.
GAL 3-SUPP. (10/23/2000) VAGAL3 10/23/00
