Filed with the Securities and Exchange Commission on April 26, 2000
Registration No. 33-89676
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Post-effective Amendment No. 5
On Form S-2
Registration Statement Under The Securities Act of 1933*
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(Exact name of registrant as specified in its charter)
CONNECTICUT
(State or other jurisdiction of incorporation or organization)
63
(Primary Standard Industrial Classification Code Number)
06-1241288
(I.R.S. Employer Identification No.)
ONE CORPORATE DRIVE, SHELTON, CONNECTICUT 06484 (203) 926-1888
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
M. PRISCILLA PANNELL, CORPORATE SECRETARY
ONE CORPORATE DRIVE, SHELTON, CONNECTICUT 06484 (203) 926-1888
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copy To:
T. RICHARD KENNEDY, ESQ.
GENERAL COUNSEL
One Corporate Drive, Shelton, CT 06484 (203) 925-6922
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Approximate date of commencement of proposed sale to the public: May 1,
2000 or as soon as practical after the effective date of this Registration
Statement
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following: X . --
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of the Form, check the following: ___.
Calculation of Registration Fee
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Title of each Proposed Proposed
class of maximum maximum
securities Amount offering aggregate Amount of
to be to be price offering registration
registered registered per unit price** fee
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Annuity Contracts $0 $0
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*Pursuant to Rule 429 under the Securities Act of 1934, the prospectus contained
in this Registration Statement also relates to annuity contracts which are
covered by earlier registration statements, including Registration File Numbers
33-26122, 33-58536 and 33-84306.
**The proposed aggregate offering price is estimated solely for determining the
registration fee. The amount to be registered and the proposed maximum offering
price per unit are not applicable since these securities are not issued in
predetermined amounts or units.
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Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with the provisions of Section
8(a) of the Securities Act of 1933 or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
GMA
GMA S2
Cross reference sheet pursuant to Regulation S-K, Item 501(b)
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Form S-2 Item No. and Caption Prospectus Heading
1. Forepart of the Registration Outside Front Cover
Statement and Outside
Front Cover Page of
Prospectus
2. Inside Front and Outside Inside Front Cover
Back Cover Pages of
Prospectus
3. Summary Information, Risk Summary; Interest
Factors and Ratio of Crediting; Surrenders
Earnings to Fixed Charges
4. Use of Proceeds Investments
5. Determination of Offering Price Not applicable
6. Dilution Not applicable
7. Selling Security Holders Not applicable
8. Plan of Distribution Distribution
9. Description of Securities Annuity Features
to be Registered
10. Interests of Named Experts Not applicable
and Counsel
11. Information with Respect The Company
to the Registrant
12. Incorporation of Certain Documents by Reference Incorporation of Certain Documents by Reference
13. Disclosure of Commission
Position on Indemnification for
Securities Act Liabilities Indemnification
Part II Heading
14. Other Expenses of Issuance Other Expenses of Issuance
and Distribution and Distribution
15. Indemnification of Directors Indemnification of
and Officers Directors and Officers
16. Exhibits Exhibits
17. Undertakings Undertakings
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AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
One Corporate Drive, Shelton, Connecticut 06484
This Prospectus describes the Guaranteed Maturity Annuity (the "Annuity") issued
by American Skandia Life Assurance Corporation ("American Skandia"). We may
simultaneously offer several types of contracts. You may or may not be eligible
for more than one type of contract. Certain features, such as the existence of
or level of certain charges, may differ among various types of contracts. We may
also declare different interest rates for different types of contracts. Various
rights and benefits may differ among jurisdictions to meet applicable laws
and/or regulations.
This Annuity is made available as participating interests in a group contract or
as an individual contract. Participants in a group contract are issued
certificates reflecting their rights and privileges. Eligible individuals who
may participate in a group contract include those who have established accounts
with certain broker-dealers who have entered into a distribution agreement to
offer participating interests in a contract, as well as members of other
eligible groups, such as employees of an employer. Purchasers of individual
contracts are issued a contract (see "Distribution"). Both the certificates and
individual contracts are hereafter referred to as the "Contract." Contracts or
certain types of Contracts may not be available in all jurisdictions.
We offer various interest rate Guarantee Periods (see "Guarantee Periods"). The
minimum premium we will accept from you is $5,000, which may be used to purchase
multiple Contracts with different Guarantee Periods. Our minimum amount per
Contract is $2,000. The minimum premium we will accept from you which may be
used to purchase a contract in conjunction with a qualified plan is $2,000. A
Contract is issued as evidence of the acceptance of each premium or portion of a
premium. We issue an additional Contract for any subsequent premium accepted
(see "Application and Initial Payment").
Values and benefits provided by the Annuity are funded by the general account
assets of American Skandia (see "Investments").
These securities may be subject to substantial charges which could result in
your receipt of less than your premium if you surrender your contract. Whether
such a result actually occurs depends on the timing of any surrender, the amount
of such charges and the interest rates we are crediting to contracts. Such
charges are the market value adjustment, any sales charge we may deduct from
your premium, and any surrender charge. The actual charges will be shown in your
Contract. (see "Market Value Adjustment", "Sales Charge" and "Surrenders").
The interest rate in subsequent guarantee periods may be more or less than the
rate in a previous period. However, the rates may not be lower than a minimum
determined in relation to an index, but may be higher. Such index is not
controlled by American Skandia. A 3.0% minimum rate may be required for
contracts issued in certain jurisdictions, including contracts issued for
delivery in New York, if available (see "Interest Rates").
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Purchase payments under these Annuities are not deposits or obligations of, or
guaranteed or endorsed by, any bank or bank subsidiary, are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other agency and are not insured by the Securities Investor Protection
Corporation ("SIPC") as to the loss of the principal amount invested.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PLEASE
READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE.
FOR FURTHER INFORMATION CALL 1-800-752-6342.
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GMA-PROS-(5/2000)
Issued by: American Skandia Life Assurance Corporation
Prospectus Dated: May 1, 2000
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TABLE OF CONTENTS
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Glossary of Terms.........................................................................................................5
Summary of Annuity Features...............................................................................................7
Guarantee Periods & Interest Rates........................................................................................7
Death Benefits and Annuitization..........................................................................................7
Access to Account Value...................................................................................................8
Charges...................................................................................................................8
Miscellaneous.............................................................................................................8
Purchasing your Annuity...................................................................................................8
APPLICATION AND INITIAL PAYMENT........................................................................................8
RIGHT TO CANCEL........................................................................................................9
Fees and Charges..........................................................................................................9
SALES CHARGE...........................................................................................................9
Surrender Charge......................................................................................................10
Managing Your Annuity....................................................................................................10
PARTICIPANT, ANNUITANT AND BENEFICIARY DESIGNATIONS...................................................................10
ADDITIONAL AMOUNTS ON QUALIFYING PURCHASE PAYMENTS....................................................................11
Managing Your Account Value..............................................................................................12
Guarantee Periods.....................................................................................................12
Alternate Guarantee Periods...........................................................................................12
Interest Rates........................................................................................................13
Market Value Adjustment...............................................................................................14
Access To Account Value..................................................................................................14
SURRENDERS............................................................................................................14
MEDICALLY-RELATED WITHDRAWALS.........................................................................................15
FREE WITHDRAWAL PRIVILEGE.............................................................................................15
QUALIFIED PLAN WITHDRAWAL LIMITATIONS.................................................................................16
DEFERRAL OF PAYMENT...................................................................................................16
ANNUITY DATE..........................................................................................................16
ANNUITY OPTIONS.......................................................................................................16
Death Benefit............................................................................................................17
Tax Considerations.......................................................................................................18
WHAT ARE SOME OF THE FEDERAL TAX CONSIDERATIONS OF THIS ANNUITY?....................................................18
HOW ARE AMERICAN SKANDIA AND THE SEPARATE ACCOUNTS TAXED?...........................................................18
IN GENERAL, HOW ARE ANNUITIES TAXED?................................................................................18
HOW ARE DISTRIBUTIONS TAXED?........................................................................................18
HOW ARE DISTRIBUTIONS FROM QUALIFIED CONTRACTS TAXED?...............................................................21
GENERAL TAX CONSIDERATIONS..........................................................................................22
General Information......................................................................................................23
REPORTS TO YOU........................................................................................................23
WHO IS AMERICAN SKANDIA?..............................................................................................23
Separate Account D....................................................................................................23
ADMINISTRATION OF TRANSACTIONS........................................................................................24
AGE LIMITS............................................................................................................24
ASSIGNMENTS OR PLEDGES................................................................................................24
MISSTATEMENT OF AGE OR SEX............................................................................................24
CONTRACT MODIFICATION.................................................................................................24
INVESTMENT MANAGEMENT.................................................................................................24
CURRENT INVESTMENT GUIDELINES.........................................................................................25
DISTRIBUTION..........................................................................................................25
LEGAL EXPERTS.........................................................................................................25
LEGAL PROCEEDINGS.....................................................................................................25
EXPERTS...............................................................................................................25
INDEMNIFICATION.......................................................................................................25
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................................................................25
HOW TO CONTACT US.....................................................................................................26
EXECUTIVE OFFICERS AND DIRECTORS......................................................................................26
FINANCIAL STATEMENTS..................................................................................................31
APPENDIX A Financial information about American Skandia Life Assurance Corporation........................................1
APPENDIX B - ILLUSTRATION OF MARKET VALUE ADJUSTMENT......................................................................1
APPENDIX C - ILLUSTRATION OF INTEREST CREDITING...........................................................................1
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GLOSSARY OF TERMS
ANNUITANT is the person upon whose life your Contract is issued.
ANNUITY is the Guaranteed Maturity Annuity.
ANNUITY DATE is the date on which annuity payments are to commence.
BENEFICIARY(IES) is (are) the person(s) designated by you, either as of the
Contract Date or at a later date, as the recipient of the death benefit.
CONTINGENT ANNUITANT is the person designated by you to become the Annuitant on
the Annuitant's death prior to the Annuity Date.
CONTRACT, for purposes of this Prospectus, is your individual Annuity, or with
respect to a group Annuity, the certificate evidencing your participation in an
underlying group Annuity. It also represents an account we set up and maintain
to track our obligations to you.
CONTRACT DATE is the effective date of your Contract (shown as your "Certificate
Date" with respect to a group Annuity).
CONTRACT YEARS are continuous 12-month periods commencing on the Contract Date
and each anniversary of the Contract Date.
CURRENT RATE is the applicable interest rate we offer for a Guarantee Period for
your type of Contract. Current Rates are contained in a schedule of rates
established by us from time to time for the Guarantee Periods then being
offered. We may establish different schedules for different types of Contracts.
GROSS SURRENDER VALUE is, as of any date, that portion of the Interim Value you
specify for a full or partial surrender.
GUARANTEE PERIOD is the period during which the rate at which interest is
credited to your Contract is guaranteed.
IN WRITING is in a written form satisfactory to us and filed at the Office.
INITIAL GUARANTEE RATE is the rate of interest credited during the initial
Guarantee Period for a Contract.
INTERIM VALUE is, as of any date, the Net Premium credited to a Contract plus
all interest credited on such Net Premium, less the sum of all previous Gross
Surrender Values and interest thereon from the date of each surrender, plus or
minus any market value adjustment made when choosing an alternate Guarantee
Period and interest thereon from the date such alternate Guarantee Period
begins.
NET PREMIUM is a premium less any applicable sales charge applied to premium
when received and any applicable premium tax deducted upon receipt of premium.
NET SURRENDER VALUE is the amount payable on a full or partial surrender after
the application of any charges and market value adjustment.
OFFICE is our business office, American Skandia Life Assurance Corporation, One
Corporate Drive, P.O. Box 883, Shelton, Connecticut 06484.
PARTICIPANT is either an eligible entity or person who participates in a group
Contract or is named as having ownership rights in relation to an Annuity issued
as an individual contract. Eligibility depends on the specific Contract.
SUBSEQUENT GUARANTEE RATE is the rate of interest established by us for
crediting to your Contract during a subsequent Guarantee Period.
SURRENDER DATE is the date we receive a completed request In Writing for a
surrender.
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"We", "us", "our" or "the Company" means American Skandia Life Assurance
Corporation.
"You" or "your" means the Participant.
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SUMMARY OF ANNUITY FEATURES
The Guaranteed Maturity Annuity is designed to allow you to accumulate funds for
long term goals, such as retirement, on a tax-deferred basis. You may apply the
accumulated funds on the Annuity Date to receive a stream of income payments.
GUARANTEE PERIODS & INTEREST RATES
Initial Guarantee Periods: You select an initial Guarantee Period among those we
currently offer. If we accept the premium, we then issue a Contract. The initial
Guarantee Period begins on the Contract Date (see "Application and Initial
Payment" and "Guarantee Periods").
Subsequent Guarantee Periods: At the end of a Guarantee Period, a subsequent
Guarantee Period begins, unless you have chosen such date as the Annuity Date.
We reserve the right to make available different Guarantee Periods than those
which were available when your Contract was issued. The subsequent Guarantee
Period will be the same as the previous one (or the next shortest one if that
duration is no longer available) unless we receive instructions from you In
Writing at least two business days before the close of the Guarantee Period then
ending. However, the subsequent Guarantee Period may not end beyond the Annuity
Date (see "Guarantee Periods").
Alternate Guarantee Periods: You may choose, subject to certain limitations, to
switch to an alternate Guarantee Period that would begin before your current
Guarantee Period would normally end. Exercising this privilege will subject your
Interim Value to a market value adjustment, but not to a surrender charge. You
may also need to change your Annuity Date in order to exercise this privilege
(see "Alternate Guarantee Periods").
Interest Rates: We declare interest rates for the available Guarantee Periods
from time to time. The rate applicable throughout any Guarantee Period is the
one in effect when such Guarantee Period begins. The rates we declare are
subject to a minimum, but we may declare higher rates. The minimum is determined
in relation to an index we do not control. For Contracts issued for delivery in
certain jurisdictions, including New York, if available, rates may not be lower
than 3%, irrespective of the index.
We reserve the right to simultaneously declare Subsequent Guarantee Rates for
existing Contracts that are higher than Current Rates for the Guarantee Periods
of the same duration applicable to newly issued Contracts of the same type,
where allowed by law and regulation (see "Interest Rates").
Market Value Adjustment: The market value adjustment may increase or decrease
the amount payable to you on a full or partial surrender. Such a surrender at
the end of a Guarantee Period, and, where required by law, the 30 days prior to
the end of a Guarantee Period, is not affected by this adjustment. In addition,
the market value adjustment will be applied to the Interim Value when choosing
an alternate Guarantee Period.
The adjustment reflects the relationship as of the time of its calculation
between: (a) the rate then being credited to your Contract; and (b) the Current
Rate for your type of Contract with a Guarantee Period equal to the time
remaining to the end of your current Guarantee Period. Our Current Rates are
expected to be sensitive to interest rate fluctuations, thereby making this
adjustment equally sensitive to such changes. There would be a downward
adjustment when the applicable Current Rate plus an adjustment rate exceeds the
rate currently being credited to your Contract. There would be an upward
adjustment when the applicable Current Rate plus the adjustment rate is lower
than the rate currently being credited to your Contract. The adjustment rate is
the same for all contracts of the same type, and cannot exceed 0.25% of interest
for any type of Contract. (see "Market Value Adjustment").
DEATH BENEFITS AND ANNUITIZATION
Death Benefits: A death benefit of the greater of your Contract's Interim Value
or 100% of premium less the sum of all prior Gross Surrender Values, is provided
in the event of your death or the Annuitant's death (if there is no Contingent
Annuitant) if occurring both (a) prior to the Annuity Date, and (b) before the
beginning of the Contract Year which starts following the earlier of your or the
Annuitant's 85th birthday (see "Death Benefit").
Annuity Date and Annuity Options: You may choose the Annuity Date. However, it
must be the first day of the first month on or after the end of a Guarantee
Period, and after the third Contract Year. You may choose among a number of
annuity options (see "Annuity Date" and "Annuity Options").
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ACCESS TO ACCOUNT VALUE
Surrenders: Total and partial surrenders of your Contract are permitted prior to
the Annuity Date. Such total or partial surrenders may be assessed a surrender
charge and/or a market value adjustment (see "Surrenders"). A full or partial
surrender may result in a taxable event, and in certain situations, a tax
penalty (see "Certain Tax Considerations").
Free Withdrawal Privilege: Once each Contract Year after the first you may
withdraw an amount without any applicable surrender charge being assessed. This
amount equals the "growth" in the Contract. "Growth" is defined as: (a) the
interest credited to your Contract in the prior Contract Year, plus (b) the
interest credited to your Contract in Contract Years previous to the last,
subject to a market value adjustment, provided that immediately after the
withdrawal (including any market value adjustment) the remaining Interim Value
times the market value adjustment is at least equal to the unliquidated premium
plus the value at the time credited of any amounts added due to premium size
(see "Free Withdrawal Privilege").
Medically-Related Withdrawals: Where permitted by law, any applicable surrender
charge or market value adjustment is waived on a full surrender if we receive
satisfactory evidence of certain medically-related events or conditions (see
"Medically-Related Withdrawals").
CHARGES
Sales Charge: This Contract does not feature a sales charge. However, we also
offer a version of this Contract that does feature a sales charge. If you
purchase a version of this Contract that features a sales charge, the amount and
schedule of the sales charge will be shown on a Supplement to this Prospectus as
well as in your Contract. Any such sales charge percentages may be level or
decrease according to a specified schedule (see "Sales Charge").
Surrender Charge: This Contract imposes a surrender charge upon any full or
partial surrender taken within six (6) years of a premium payment. However, we
also offer a version of this Contract that does not feature a surrender charge.
If you purchase a version of this Contract that does not feature a surrender
charge, the Contract will have a sales charge as discussed above and as shown on
a Supplement to this Prospectus as well as in your Contract. For those Contracts
that feature a surrender charge, the amount of the charge is calculated at 6.0%
of the Gross Surrender Value deemed to be a liquidation of premium.
Premium Taxes: In several states, a premium tax is payable, either when premiums
are received or, when the Interim Value is applied under an annuity option. We
will deduct the amount of the premium tax payable, if any, from your premiums or
Interim Value. The amount of the premium tax varies from jurisdiction to
jurisdiction, which any state legislature may change. Also, any state
legislature may decide to impose the tax when premium payments are made. In
those jurisdictions imposing such a tax, the tax rates currently in effect range
up to 3 1/2%. However, local taxes may be higher.
MISCELLANEOUS
Additional Amounts on Qualifying Purchase Payments: We reserve the right to make
additions to the Interim Values of Contracts of Owners submitting large amounts
of premium, wherever allowed by law. As of the date of this Prospectus, the
breakpoints for such treatment are premiums of $500,000, $1,000,000 and
$5,000,000. We reserve the right to change these breakpoints (see "Additional
Amounts on Qualifying Purchase Payments").
Multiple Contracts: We issue a Contract for each acceptable premium or portion
thereof, subject to our rules for minimum amounts per Contract. Subsequent
discussion in this Prospectus will be in terms of a single Contract.
PURCHASING YOUR ANNUITY
APPLICATION AND INITIAL PAYMENT
We may require a properly completed application or enrollment form, a premium,
and any other materials under our underwriting rules before we agree to issue an
Annuity. We may issue an Annuity without completion of an application or
enrollment form for certain classes of Annuities, where permitted by law.
We offer various initial Guarantee Periods. Subject to our rules, you may choose
to have your Net Premium or portions thereof accumulate interest for one or more
of the Guarantee Periods then available. While we may issue multiple Contracts,
such multiple Contracts may be treated for tax purposes as if they were a single
Contract (see "Certain Tax Considerations"). No Guarantee Period may end later
than the Annuity Date.
Once we accept your premium and all our requirements are met, we issue a
Contract for each initial Guarantee Period you choose. The minimum premium we
will accept from you is $5,000. Our minimum amount per Contract is $2,000.
Therefore, you could choose one but not more than two Guarantee Periods if you
sent the minimum premium amount. The minimum premium we will accept from you
which may be used to purchase a Contract in conjunction with a qualified plan is
$2,000. Our prior approval is required before we will accept a premium of any
amount that would cause the combined Interim Value of all your Contracts to
exceed $500,000.
We confirm each premium payment in writing.
RIGHT TO CANCEL
You may return your Contract for a refund within a specified period. Depending
on the applicable legal and regulatory requirements, this period may be within
ten days of receipt, twenty-one days of receipt or longer. Unless we are
required by law to return the premium amount, the amount of the refund will
equal the Interim Value times the market value adjustment as of the date we
receive the cancellation request plus any amount deducted for premium tax and/or
any sales charge, less the accumulated value of any additions we make because of
the amount of premium paid. When your Contract is issued, you will be informed
of the amount due if you exercise this right. Exercising the right requires
return of the Contract to us or to the representative who solicited your
purchase.
FEES AND CHARGES
SALES CHARGE
This Contract does not feature a sales charge.
However, we also offer a version of this Contract that does feature a sales
charge. If you purchase a version of this Contract that features a sales charge,
the amount and schedule of the sales charge will be shown on a Supplement to
this Prospectus as well as in your Contract. Any such sales charge percentages
may be level or decrease according to a specified schedule (see "Sales Charge").
As of the date of this Prospectus, we were not offering Contracts with sales
charges in excess of 6% of premium upon receipt. However, we reserve the right
to offer new types of Contracts with sales charges of not more than 8.5% of
premium upon receipt. Sales charge percentages may be level or may decrease
according to a specified schedule. For example, a Contract could have a schedule
of sales charges such that 5% is assessed against the first $10,000 of the
cumulative premiums paid by a Participant, 4% is assessed against the next
$10,000 of cumulative premiums paid by that Participant, and 3% assessed against
cumulative premiums paid by a Participant in excess of $20,000. This example is
hypothetical. The actual amount and schedule for such a charge, if any, will be
shown on a Supplement to the Prospectus as well as in your Contract.
From time to time we may structure sales charges for a group Contract, or we may
reduce or waive sales charges for individual Contracts, when either are sold in
a manner that reduces sales expenses or spreads them out over time. We would
consider various factors, including (1) the size and type of group, (2) the
amount of premiums, (3) additional premiums from existing Participants, and/or
(4) other transactions where our sales expenses are likely to be reduced,
eliminated or spread out over time.
No sales charge is imposed when any group Contract or any individual Contract
issued pursuant to this Prospectus is owned on its Contract Date by: (a) any
parent company, affiliate or subsidiary of ours; (b) an officer, director,
employee, retiree, sales representative, or in the case of an affiliated
broker-dealer, registered representative of such company; (c) a director,
officer or trustee of any underlying mutual fund; (d) a director, officer or
employee of any investment manager, sub-advisor, transfer agent, custodian,
auditing, legal or administrative services provider that is providing investment
management, advisory, transfer agency, custodianship, auditing, legal and/or
administrative services to an underlying mutual fund or any affiliate of such
firm; (e) a director, officer, employee or registered representative of a
broker-dealer or insurance agency that has a then current selling agreement with
us and/or with American Skandia Marketing, Incorporated; (f) a director,
officer, employee or authorized representative of any firm providing us or our
affiliates with regular legal, actuarial, auditing, underwriting, claims,
administrative, computer support, marketing, office or other services; (g) the
then current spouse of any such person noted in (b) through (f), above; (h) the
parents of any such person noted in (b) through (g), above; (i) such person's
child(ren) or other legal dependent under the age of 21; and (j) the siblings of
any such persons noted in (b) through (h) above. No such group Contract or
individual Contract is eligible for any Additional Amount due to the size of
premiums (see "Additional Amounts on Qualifying Purchase Payments").
Any elimination of any sales charge or any reduction to the amount of such
charges will not discriminate unfairly between Contract purchasers. We will not
make any such changes to this charge where prohibited by law.
Depending on the Guarantee Period you choose and the Interest Rate Credited to
your Contract, assessment of a substantial Sales Charge could result in your
receipt of less than your premium even if you surrender your Contract at the end
of a Guarantee Period. For example, if you chose a one-year Guarantee Period, we
were crediting 4% interest per year when your Guarantee Period began, and the
sales charge was 5% of your premium, you would receive less than your premium if
you surrendered your Contract at the end of the initial Guarantee Period. You
could also receive less than your premium due to any applicable surrender charge
and the market value adjustment (see "Surrenders").
Surrender Charge
This Contract imposes a surrender charge upon any full or partial surrender
taken within six (6) years of a premium payment. The amount of the charge is
calculated at 6.0% of the Gross Surrender Value deemed to be a liquidation of
premium.
However, we also offer a version of this Contract that does not feature a
surrender charge. If you purchase a version of this Contract that does not
feature a surrender charge, the Contract will have a sales charge as discussed
above and as shown on a Supplement to this Prospectus as well as in your
Contract.
For those Contracts that feature a surrender charge, the type and level of
charges will be shown in your Contract. The charge may be level for a specified
number of years or it may start at a particular level and then grade down to
zero over a specified number of years. The charge may also depend on the
duration of the Initial Guarantee Period you select. As of the date of this
Prospectus, we were not offering Contracts with surrender charges in excess of
6% of premium. However, we reserve the right to offer new types of Contracts
with sales charges of not more than 8.5% of premium. In addition, if both a
Sales Charge and a Surrender Charge exist in the same Contract, the total of
both charges will not exceed 8.5% of premium.
When the surrender charge is assessable against the amount of premium being
liquidated, then surrenders or partial surrenders, except for those amounts
taken under the free withdrawal provision, are deemed for the purpose of this
charge to be first a liquidation of premium. Amounts taken under the free
withdrawal privilege are not considered a liquidation of premium. On a partial
surrender, Gross Surrender Value is deemed to come first from: (a) any interest
then available under the free withdrawal provision; then from (b) any premium
not yet liquidated, and then from (c) any remaining interest and any amounts
credited due to premium size (see "Additional Amounts on Qualifying Purchase
Payments"). This does not coincide with the treatment of such surrenders for tax
purposes (see "Certain Tax Considerations).
From time to time we may structure surrender charges for a group Contract, or we
may reduce or waive surrender charges for individual Contracts, when either are
sold in a manner that reduces sales expenses or spreads them out over time. We
would consider various factors including (1) the size and type of group, (2) the
amount of premiums, (3) additional premiums from existing Participants, and/or
(4) other transactions where our sales expenses are likely to be reduced,
eliminated or spread out over time.
No surrender charge is imposed when any group Contract or any individual
Contract issued pursuant to this Prospectus is owned on its Contract Date by:
(a) any parent company, affiliate or subsidiary of ours; (b) an officer,
director, employee, retiree, sales representative, or in the case of an
affiliated broker-dealer, registered representative of such company; (c) a
director, officer or trustee of any underlying mutual fund; (d) a director,
officer or employee of any investment manager, sub-advisor, transfer agent,
custodian, auditing, legal or administrative services provider that is providing
investment management, advisory, transfer agency, custodianship, auditing, legal
and/or administrative services to an underlying mutual fund or any affiliate of
such firm; (e) a director, officer, employee or registered representative of a
broker-dealer or insurance agency that has a then current selling agreement with
us and/or with American Skandia Marketing, Incorporated; (f) a director,
officer, employee or authorized representative of any firm providing us or our
affiliates with regular legal, actuarial, auditing, underwriting, claims,
administrative, computer support, marketing, office or other services; (g) the
then current spouse of any such person noted in (b) through (f), above; (h) the
parents of any such person noted in (b) through (g), above; (i) such person's
child(ren) or other legal dependent under the age of 21; and (j) the siblings of
any such persons noted in (b) through (h) above. No such group Contract or
individual Contract is eligible for any Additional Amount due to the size of
premiums (see "Additional Amounts on Qualifying Purchase Payments").
Any elimination of any surrender charge or any reduction to the amount of such
charges will not discriminate unfairly between Contract purchasers. We will not
make any such changes to this charge where prohibited by law.
MANAGING YOUR ANNUITY
PARTICIPANT, ANNUITANT AND BENEFICIARY DESIGNATIONS
When you purchase an Annuity, you must make certain designations, including a
Participant and an Annuitant. You may also make certain other designations.
These designations include a contingent Participant, a Contingent Annuitant, a
Beneficiary, and a contingent Beneficiary. Certain designations are required, as
indicated below. Such designations will be revocable unless you indicate
otherwise or we endorse your Annuity to indicate that such designation is
irrevocable to meet certain regulatory or statutory requirements.
Some of the tax implications of the various designations are discussed in the
section entitled "Certain Tax Considerations". However, there are other tax
issues than those addressed in that section, including, but not limited to,
estate and inheritance tax issues. You should consult with a competent tax
counselor regarding the tax implications of various designations. You should
also consult with a competent legal advisor as to the implications of certain
designations in relation to an estate, bankruptcy, community property where
applicable and other matters.
A Participant must be designated. You may designate more than one Participant.
If you do, all rights reserved to Participants are then held jointly. We require
consent In Writing of all joint Participants for any transaction for which we
require the written consent of Participants. Where required by law, we require
the consent of the spouse of any person with a vested interest in an Annuity.
Naming someone other than the payor of a premium as the Participant may have
gift, estate or other tax implications.
You may designate more than one primary or contingent Beneficiary and if you do,
the proceeds will be paid in equal shares to the survivors in the appropriate
beneficiary class, unless you have requested otherwise In Writing. The
Beneficiary is the person or persons entitled to receive the death benefit or
remaining certain payments under an annuity option with certain payments. Unless
you indicated that a prior choice was irrevocable, you may change these
designations at any time during the Annuitant's lifetime by sending a request In
Writing.
If a Participant's spouse is designated as the sole primary Beneficiary of the
Annuity and the Participant dies prior to the Annuity Date, the Participant's
Spouse, as Beneficiary, may elect to be treated as Participant and continue the
Annuity at its current Account Value, subject to its terms and conditions. If
the Annuity is owned jointly by both spouses, and the primary Beneficiary is
designated as "surviving spouse", each spouse named individually, or a
designation of similar intent, then upon the death of either Participant, the
surviving spouse may elect to be treated as Participant.
If the primary Beneficiary dies before death proceeds become payable, the
proceeds will become payable to the contingent Beneficiary. If no Beneficiary is
alive at the time of the death upon which death proceeds become payable or in
the absence of any Beneficiary designation, the proceeds will vest in you or
your estate.
You may name one or more Contingent Annuitants. There may be adverse tax
consequences if a Contingent Annuitant succeeds an Annuitant and the Contract is
owned by a trust that is neither tax exempt nor does not qualify for preferred
treatment under certain sections of the Code, such as Section 401 (a
"non-qualified" trust). In general, the Code is designed to prevent the benefit
of tax deferral from continuing for long periods of time on an indefinite basis.
Continuing the benefit of tax deferral by naming one or more Contingent
Annuitants when the Contract 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 a Contract in such a fashion. You must name Contingent Annuitants
according to our rules when a Contract is used as a funding vehicle for certain
retirement plans designed to meet the requirements of Section 401 of the
Internal Revenue Code.
ADDITIONAL AMOUNTS ON QUALIFYING PURCHASE PAYMENTS
Wherever allowed by law, we reserve the right to make additions to the Interim
Values of Contracts of Participants submitting large amounts of premium.
The current breakpoints for qualifying for such additional amounts and the
amount we credit are as follows:
----------------------------------------------- -----------------------
Purchase Payment Additional Amount*
----------------------------------------------- -----------------------
At least $500,000 but less than $1,000,000 1.25%
----------------------------------------------- -----------------------
Between $1,000,000 and $4,999,999 3.00%
----------------------------------------------- -----------------------
$5,000,000 or greater 3.75%
----------------------------------------------- -----------------------
* as a percentage of the Purchase Payment.
- --------------------------------------------------------------------------------
As of the date of the Prospectus we make such a program available for Contracts
that do not otherwise differentiate sales charges or surrender charges on the
amount of premium received. However, we reserve the right to modify, suspend or
terminate it at any time, or from time to time, without notice.
If you submit premium to purchase multiple Contracts, we divide the additions to
the Contracts then being purchased in the same proportion as the premium is
being divided among such Contracts.
Should you have a right to cancel your Contract (see "Right to Cancel") and
exercise such a right, the accumulated value of the additional amount credited
will not be included in the amount returned to you.
We do not consider additional amounts credited due to premium size to be an
increase in your "investment in the contract" (see "Certain Tax Considerations).
Additional amounts credited are not included in any amounts you may withdraw
without assessment of any applicable surrender charge (see "Free Withdrawal
Privilege").
MANAGING YOUR ACCOUNT VALUE
Guarantee Periods
As of the date of this Prospectus, we offer Guarantee Periods with annual
durations of one to ten years. We may change the Guarantee Periods we offer at
some future date; however, any such change will not have an impact on any
Guarantee Period then in effect. See Appendix C for an illustration of how
interest is credited during a Guarantee Period.
At the end of a Guarantee Period that occurs prior to the Annuity Date, a
subsequent Guarantee Period begins. At least 30 days prior to the end of any
Guarantee Period of at least a year's duration, or earlier where required by law
or regulation, we inform you of the Guarantee Periods available as of the date
of such notice. We do not provide a similar notice if the Guarantee Period that
is ending is of less than a year's duration. Subject to our rules, a subsequent
Guarantee Period will begin according to your instructions, if received at our
Office not less than two business days prior to the last day of the Guarantee
Period then coming to an end. If you don't send us instructions or instructions
are not received in a timely fashion, the subsequent Guarantee Period will be
equal in duration to the one just ended.
We may change the guarantee periods available at any time, including the period
between the date we mail you notice and the date your subsequent guarantee
period begins. If you choose a duration that is no longer available on the date
your subsequent Guarantee Period begins and we cannot reach you to choose a
different duration, the next shortest duration will apply. Similarly, if you
have made no choice but we no longer are making available Guarantee Periods
equaling the one then ending for your Contract, the next shortest duration will
apply. However, in no event will the Guarantee Period end after the Annuity
Date.
Alternate Guarantee Periods
You may choose to switch to an alternate Guarantee Period that would begin
before your current Guarantee Period would normally end, subject to the
following rules:
1. We must receive your request In Writing at our Office.
2. The beginning of the new Guarantee Period is the first business day
after the date we receive all the information we need to process your
request.
3. The Guarantee Period you choose must be one we are making available on
the date the new Guarantee Period is to begin.
4. Your Annuity Date must be the first day of the month on or immediately
after an anniversary of the date on which the new Guarantee Period
begins. If necessary to meet this requirement, you must choose a new
Annuity Date before we will process your request.
5. The new Guarantee Period may not extend beyond the Annuity Date.
6. We will process only one such request per Contract per Contract Year.
7. In certain Contracts, you may not choose a shorter Guarantee Period
than the Initial Guarantee Period until after the date the Initial
Guaranteed Period was scheduled to end.
Any applicable market value adjustment formula will be applied to your
Contract's Interim Value immediately prior to the beginning of the new Guarantee
Period. No surrender charge will be assessed. The resulting Interim Value will
be credited interest at the Subsequent Guarantee Rate for the new Guarantee
Period.
Exercising this privilege may or may not increase your interim value over time.
That will depend on such factors as any market value adjustment applicable at
the time the privilege is exercised, the Guarantee Period you choose and
Subsequent Guarantee Rate we are then crediting for that Guarantee Period, the
length of time you subsequently hold your Contract, and any subsequent partial
surrenders or withdrawals under the Free Withdrawal Privilege.
Interest Rates
Declared rates are effective annual rates of interest. The rate is guaranteed
throughout the Guarantee Period. The Initial Guarantee Rate applies to the Net
Premium less all Gross Surrender Values during the initial Guarantee Period. The
Subsequent Guarantee Rate for any subsequent Guarantee Period applies to the
Interim Value on the date such subsequent Guarantee Period begins less all Gross
Surrender Values after that date.
We inform you of the Initial Guarantee Rate when we confirm acceptance of your
premium and issuance of your Contract. You will be informed of the Subsequent
Guarantee Rate applicable to any subsequent Guarantee Period as part of the
annual report we send you.
At any time we may change interest rates. Any such change does not have an
impact on the rates applicable to Guarantee Periods already in effect. However,
such a change will affect the Market Value Adjustment (see "Market Value
Adjustment).
When a subsequent Guarantee Period begins, the rate applied to your Contract
will not be less than the rate then applicable to new Contracts of the same type
with the same Guarantee Period.
Interest rates are subject to a minimum. We may declare higher rates. The
minimum for each Guarantee Period is based on both an index and a reduction to
the interest rate determined according to the index.
Each index is based on the published rate for certificates of indebtedness
(bills, notes or bonds, depending on the term of indebtedness) of the United
States Treasury at the most recent Treasury auction held at least 30 days prior
to the beginning of the Guarantee Period to which the minimum is to apply. The
term (length of time from issuance to maturity) of the certificates of
indebtedness upon which the index used for any Guarantee Period is the same as
the Guarantee Period. If no certificates of indebtedness are available for such
term, the next shortest term is used. If the United States Treasury's auction
program is discontinued, we will substitute indexes which in our opinion are
comparable. If required, implementation of such substitute indexes will be
subject to approval by the Securities and Exchange Commission and the Insurance
Department of the jurisdiction in which the Contract was delivered. (For group
Contracts, it is our expectation that approval of only the jurisdiction in which
the underlying group contract was delivered would apply.)
The reduction used in determining the minimum is an amount not to exceed 2%
percent of interest. We may reduce this amount for a particular type of Contract
if we can expect reduced sales expenses or other expenses in relation to sales
of that Contract.
In certain jurisdictions, including New York, if available, in no event will the
minimum be less than 3% per year, compounded yearly.
Your Contract may include a provision committing us to declare Subsequent
Guarantee Rates applicable to certain Subsequent Guarantee Periods at higher
rates than the Current Rates for that type of Contract. The manner in which
Subsequent Guarantee Rates are increased will be uniform for all Participants in
any one particular group Contract. The manner in which such Subsequent Guarantee
Rates are increased will be uniform for all owners of any one particular type of
individual Contract, wherever such an increase in rates is allowed by law and/or
regulation. For any particular Contract, the number of Contract Years required
before such an increase in rates applies or the size of such increase will
depend on our expectations as to sales expenses and other expenses in relation
to sales of that type of Contract.
We have no specific formula for determining the interest rates we declare. Rates
may differ, between types of Contracts, even for Guarantee Periods of the same
duration starting at the same time. We expect such rates to reflect the returns
available on the type of investments we make to support these types of
Contracts. However, we may also take into consideration in determining rates
such factors including, but not limited to, the duration of the Guarantee
Period, regulatory and tax requirements, the liquidity of the secondary markets
for the type of investments we make, commissions, administrative expenses,
investment expenses, general economic trends and competition. Our management
makes the final determination as to interest rates to be credited. We cannot
predict the rates we will declare in the future.
You may obtain our current rates by writing us or calling us at 1-800-766-4530.
<PAGE>
Market Value Adjustment
The market value adjustment ("MVA") may increase or decrease the amount payable
to you on a full or partial surrender. Such a surrender at the end of a
Guarantee Period, and, where required by law, the 30 days prior to the end of a
Guarantee Period, or which qualifies under our rules as a medically-related
withdrawal is not affected by the MVA.
In addition, the market value adjustment will be applied to the Interim Value
when choosing an alternate Guarantee Period, except where required by law, if
the change to an alternate Guarantee Period occurs not more than 30 days before
the end of the Guarantee Period.
The MVA reflects the relationship as of the time it is calculated between: (a)
the rate then being credited to your Contract; and (b) our Current Rate for your
type of Contract with a Guarantee Period equal to the time remaining to the end
of your current Guarantee Period. Our Current Rates are expected to be sensitive
to interest rate fluctuations, thereby making this adjustment sensitive to such
fluctuations. There would be a downward adjustment when the applicable Current
Rate plus an adjustment rate exceeds the rate currently being credited to your
Contract. There would be an upward adjustment when the applicable Current Rate
plus the adjustment rate is lower than the rate currently being credited to your
Contract. The adjustment rate is the same for all Contracts of the same type,
and cannot exceed 0.25% for any type of Contract.
We reserve the right, from time to time, to determine the MVA using an interest
rate lower than the Current Rate for all transactions applicable to a class of
Contracts. This would benefit all such Contracts if transactions to which the
MVA applies occur while we use such lower interest rate.
The formula we use to determine the MVA is:
[(1+I)/(1+J+the adjustment amount)] N/12
where:
I is the Guarantee Rate applicable to the Guarantee Period for your
Contract;
J is the Current Rate for your type of Contract for the Guarantee
Period equal to the number of years (rounded to the next higher number
when occurring on other than an anniversary of the beginning of the
current Guarantee Period) remaining in your current Guarantee Period;
and
N is the number of months (rounded to the next higher number when
occurring on other than a monthly anniversary of the beginning of the
current Guarantee Period) remaining to the end of your Guarantee
Period.
The formula that applies if amounts are surrendered pursuant to the
right to return the Annuity is [(1+I)/(1+J)]N/12.
Nonetheless, a full or partial surrender at the end of a Guarantee
Period is not affected by the MVA.
See Appendix B for illustrations of how the MVA works.
ACCESS TO ACCOUNT VALUE
SURRENDERS
You may request a full or partial surrender. Your Annuity must accompany your
surrender request. Partial surrenders may only be made if:
(a) the Gross Surrender Value is at least $1,000; and
(b) the Gross Surrender Value plus $1,000 does not exceed the
amount payable if you completely surrender your Contract on
that date.
The amount payable to you is the Net Surrender Value. The method for determining
the Net Surrender Value is shown in your Contract, and is either expressed as a
percentage of the Gross Surrender Value or as a percentage of the premium being
liquidated. Assuming that:
A = the Gross Surrender Value;
B = the surrender charge, if any, as of the date we receive
the surrender request In Writing; and
C = the market value adjustment described below as of the date
we receive the surrender request In Writing;
i. if the surrender charge is expressed as a percentage of the Gross
Surrender Value, then the Net Surrender Value equals (A - B) X C;
ii. if the surrender charge is expressed as a percentage of the premium
being liquidated, then the Net Surrender Value equals (A X C) - B; and
iii. if there is no surrender charge, then the Net Surrender Value equals A
X C.
These securities may be subject to a substantial surrender charge and/or market
value adjustment if not held to the end of a guarantee period, which could
result in your receipt of less than your premium. You may avoid any applicable
surrender charge by holding your Contract until the time surrender charges no
longer apply, which will be shown in your Contract. No market value adjustment
applies to any surrender occurring at the end of a Guarantee Period, and, where
required by law, the 30 days prior to the end of the Guarantee Period. However,
any sales charges, if applicable, could also result in your receipt of less than
your premium under certain circumstances (see "Sales Charge").
Where permitted by law, any applicable surrender charge is waived if a full
surrender qualifies under our rules as a medically-related withdrawal (see
"Medically-Related Withdrawals").
Under certain circumstances, some or all of the monies surrendered may be
considered as taxable income and may also be subject to certain penalty
provisions of the Internal Revenue Code (see "Certain Tax Considerations").
MEDICALLY-RELATED WITHDRAWALS
Where permitted by law, you may apply to surrender your rights under your
Contract for its Interim Value prior to the Annuity Date upon occurrence of a
"Contingency Event". The Annuitant must be alive as of the date we pay the
proceeds of such surrender request. If the Owner is one or more natural persons,
all such Owners must be alive at such time. This waiver of any applicable
surrender charge and market value adjustment is subject to our rules. For
contracts issued before May 1, 1996, a "Contingency Event" occurs if the
Annuitant is:
1. First confined in a "Medical Care Facility" while your Contract is in
force and remains confined for at least 90 days in a row; or
2. First diagnosed as having a Fatal Illness while your Contract is in
force.
"Medical Care Facility" means any state licensed facility providing medically
necessary in-patient care which is prescribed by a licensed "Physician" in
writing and based on physical limitations which prohibit daily living in a
non-institutional setting. "Fatal Illness" means a condition diagnosed by a
licensed Physician which is expected to result in death within 2 years for 80%
of the diagnosed cases. "Physician" means a person other than you, the Annuitant
or a member of either your or the Annuitant's families who is state licensed to
give medical care or treatment and is acting within the scope of that license.
We must receive satisfactory proof of the Annuitant's confinement or Fatal
Illness In Writing.
Specific details and definitions of terms in relation to this benefit may differ
in certain jurisdictions.
FREE WITHDRAWAL PRIVILEGE
Once each Contract Year after the first you may withdraw an amount without any
applicable surrender charge being assessed. This amount equals the "growth" in
the Contract. "Growth" is defined as: (a) the interest credited to your Contract
in the prior Contract Year, plus (b) the interest credited to your Contract in
Contract Years previous to the last, subject to a market value adjustment,
provided that immediately after the withdrawal (including any market value
adjustment) the remaining Interim Value times the market value adjustment is at
least equal to the unliquidated premium plus the value at the time credited of
any amounts or due to premium size. Amounts credited due to premium size are not
considered to be interest only for purposes of this free withdrawal privilege
(see "Additional Amounts on Qualifying Purchase Payments"). Withdrawals of any
type made prior to age 59 1/2 may be subject to 10% tax penalty (see "Penalty on
Distributions").
<PAGE>
QUALIFIED PLAN WITHDRAWAL LIMITATIONS
There are surrender or withdrawal limitations in relation to certain retirement
plans for employees which qualify under various sections of the Internal Revenue
Code of 1986, as amended (the "Code"). These limitations do not affect certain
roll-overs or exchanges between qualified plans. Generally, distribution of
amounts attributable to contributions made pursuant to a salary reduction
agreement (as defined in Code section 402(g)(3)(A)), or attributable to
transfers from a custodial account (as defined in Code section 403(b)(7)), is
restricted to the employee's: (a) separation from service; (b) death; (c)
disability (as defined in Section 72(m)(7) of the Code); (d) reaching age 59
1/2; or (e) hardship (as defined for purposes of Code Section 401(k)). Hardship
withdrawals are restricted to amounts attributable to salary reduction
contributions, and do not include investment results. In the case of tax
sheltered annuities, these limitations do not apply to certain salary reduction
contributions made and investment results earned prior to dates specified in the
Code. In addition, the limitation on hardship withdrawals does not apply to
salary reduction contributions made and investment results earned prior to dates
specified in the Code which have been transferred from custodial accounts.
Rollovers from the types of plans noted to an individual retirement account or
individual retirement annuity are not subject to the limitations noted. Certain
distributions, including rollovers, that are not transferred directly to the
trustee of another qualified plan, the custodian of an individual retirement
account or the issuer of an individual retirement annuity may be subject to
automatic 20% withholding for Federal income tax. This may also trigger
withholding for state income taxes.
DEFERRAL OF PAYMENT
We may defer payment of any partial or total surrender for the period permitted
by law. In no event may this deferral of payment exceed 6 months from the date
we receive the request In Writing. If we defer payment for more than 30 days, we
pay interest on the amount deferred in accordance with your Contract.
ANNUITY DATE
You may choose an Annuity Date when you purchase an Annuity or at a later date.
It must be the first day of the first month on or after the end of a Guarantee
Period. It must also be after the third Contract Year unless the Annuitant has a
medically-related condition that would permit a medically-related withdrawal
(see "Medically-Related Withdrawals"). It can be changed at any time but such
requests must be received In Writing at our Office at least 30 days before the
current Annuity Date. In the absence of an election In Writing and where
permitted by law: (a) the Annuity Date is the start of the Contract Year first
following the later of the Annuitant's 85th birthday or the fifth anniversary of
our receipt at our Office of your request to purchase an Annuity. Your choice of
Annuity Date may be limited in certain jurisdictions.
ANNUITY OPTIONS
You may select an annuity option when you purchase an Annuity, or at a later
date. You may change this at any time up to 30 days before the Annuity Date by
sending us a request In Writing. In the absence of an election from you,
payments will automatically commence on the Annuity Date under option 2, with
120 payments certain. The amount to be applied is the value of your Contract on
the Annuity Date. Annuity options in addition to those shown are available with
our consent.
You may elect to have any amount of the proceeds due to the Beneficiary applied
under any of the options described below. Except where a lower amount is
required by law, the minimum monthly annuity payment is $50.
If you have not made an election prior to proceeds becoming due, the Beneficiary
may elect to receive the death benefit under one of the annuity options.
However, if you made an election, the Beneficiary may not alter such election.
Option 1
Life Annuity: This annuity is payable monthly during the lifetime of the payee,
terminating with the last payment due prior to the death of the payee. Since no
minimum number of payments is guaranteed, this option offers the maximum level
of monthly payments of the annuity options. It is possible that the payee could
receive only one payment if he or she died before the date the second payment
was due, and no others payments nor death benefits would be payable.
Option 2
Life Annuity with 120, 180, or 240 Monthly Payments Certain:
This annuity provides monthly income to the payee for a fixed period of 120,
180, or 240 months, as selected, and for as long thereafter as the payee lives.
Should the payee die before the end of the fixed period, the remaining payments
are paid to the Beneficiary to the end of such period.
Option 3
Payments Based on Joint Lives:
Under this option, income is payable monthly 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 key lives occurs before the date the second
payment was due, and no other payments nor death benefits would be payable.
Option 4
Payments for a Designated Period:
This annuity provides an amount payable for a specified number of years. The
number of years is subject to our then current rules.
Should the payee die before the end of the specified number of years, the
remaining payments are paid to the Beneficiary to the end of such period. Note
that under this option, payments are not based on how long we expect Annuitants
to live.
The monthly payment varies according to the annuity option you select. The
monthly payment is determined by multiplying the value of your Contract on the
Annuity Date (expressed in thousands of dollars) less any amount then assessed
for premium tax, by the amount of the first monthly payment per $1,000 obtained
from our annuity rates. These rates will not be less than those provided in the
tables included in the Contract. These tables are derived from the 1983a
Individual Annuity Mortality Table with ages set back one year for males and two
years for females and with an assumed interest rate of 4% per annum. Where
required by law or regulation, such annuity tables 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.
Annuity payments will be made on the first day of each month once payments
begin.
DEATH BENEFIT
On the Contracts we offer as of the date of this Prospectus, "death" means
either your death, or the Annuitant's death if there is no Contingent Annuitant.
The amount payable on death prior to the Annuity Date and before the Contract
anniversary following the earlier of your or the Annuitant's 85th birthday is
the greater of (1) the Interim Value of your Contract as of the date we receive
due proof of death, or (2) the premium allocated to your Contract less the sum
of all prior Gross Surrender Values. The amount of the death benefit at any
later date prior to the Annuity Date is the Interim Value as of the date we
receive "due proof of death". The following constitutes "due proof of death":
(a)(i) a certified copy of a death certificate, (ii) a certified copy of a
decree of a court of competent jurisdiction as to the finding of death, or (iii)
any other proof satisfactory to us; (b) all representations we require or which
are mandated by applicable law or regulation in relation to the death claim and
the payment of death proceeds; and (c) any applicable election of the mode of
payment of the death benefit, if not previously elected by the Participant. The
amount of the death benefit is reduced by any annuity payments made prior to the
date we receive In Writing due "proof of death".
We may offer contracts that pay the death benefit upon the death of: (a) the
Participant when the Participant is a natural person; and (b) the Annuitant
(unless a Contingent Annuitant was previously designated) when the Participant
is not a natural person (such as a trustee). In such Contracts the death benefit
would be payable if the death occurred before the 85th birthday of the
applicable decedent.
In the absence of your election In Writing prior to proceeds becoming due, the
Beneficiary may elect to receive the death benefit under one of the annuity
options. However, if you made an election, the Beneficiary may not modify such
election. In the event of your death, the benefit must be distributed within:
(a) five years of the date of death; or (b) over a period not extending beyond
the life expectancy of the Beneficiary or over the life of the Beneficiary.
Distribution after your death to be paid under (b) above must commence within
one year of the date of death.
If the Annuitant dies before the Annuity Date, the Contingent Annuitant will
become the Annuitant. However, if the Contingent Annuitant predeceased the
Annuitant or there is no Contingent Annuitant designation, the death benefit
becomes payable to the Beneficiary.
The death of the first of any joint Participant is deemed the death of the
Participant for determining payment of the death benefit.
If the Beneficiary is your spouse and your death occurs prior to the Annuity
Date and the Annuitant or Contingent Annuitant is living, then in lieu of
receiving the death benefit, your spouse may elect to be treated as the
Participant and continue the Annuity at its current Account Value, subject to
its terms and conditions. A Participant's spouse may only assume ownership of
the Annuity if such spouse is designated as the sole primary Beneficiary.
<PAGE>
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, endowment, 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 by the beneficiary 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 591/2;
|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)" or "72(q)" 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 five
(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 annuity starting date 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.
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 amount of any "investment in the contract" made after
August 13, 1982.
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.
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 an annuity contract and direct
transfer of the resulting proceeds for the purchase of a new 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, we continue to report partial
surrenders of non-qualified annuities as subject to current taxation to the
extent of any gain. However, we may change our reporting procedures to treat
certain of these transactions as partial 1035 exchanges. Should we do so, we
reserve the right to report transactions that may have been designed to receive
partial 1035 exchange treatment as partial surrenders subject to current
taxation if we, as a reporting and withholding agent, believe that we would be
expected to deem a transaction to be abusive.
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. 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.
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 Section 401(a) of the Code including
401(k) plans. 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.
- --------------------------------------------------------------------------------
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:
- --------------------------------------------------------------------------------
|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 established with
"roll-over" distributions from certain tax-qualified retirement plans and
maintain the tax-deferred status of these amounts.
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 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*;
|X| is made to an alternate payee pursuant to a qualified domestic relations
order*; and
|X| is made pursuant to an IRS levy.
The exceptions above which are followed by an asterisk (*) do not apply to IRAs.
Certain other exceptions may be available.
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 or 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 or pursuant to an annuity
payout. If the account balance is used, it generally is based upon the Account
Value as of the close of business on the last day of the previous calendar year.
If the participant dies before reaching his or her "required beginning date",
his or her entire interest must generally be distributed within five (5) 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
REPORTS TO YOU
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.
<PAGE>
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, Inc. formerly known as American Skandia Investment Holding
Corporation, 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.
Separate Account D
Our investments are subject to the requirements of applicable state laws. Such
laws address the nature and quality of investments, as well as the percentage of
our assets which we may commit to a particular type of investment. Subject to
certain limitations and qualifications, such laws generally permit investment in
federal, state and municipal obligations, corporate bonds, preferred and common
stock, real estate mortgages, real estate and certain other investments.
Assets supporting the Annuities are accounted for in one or more non-unitized
separate accounts established by us under the laws of the State of Connecticut.
Such separate accounts may contain assets from various types of annuities we
offer, the assets of which are permitted to be held in such accounts under
applicable law and regulation. Neither you nor the owner of any underlying group
Annuity participate in the performance of the assets through any unit values in
such a non-unitized separate account. There are no discrete units for such a
separate account. Contracts do not represent units of ownership of assets
belonging to this separate account.
We own the assets in each separate account. The assets accrue solely to our
benefit. Neither you nor any group Contract owner participate in the investment
gain or loss from assets belonging to such separate account(s). Such gain or
loss accrues solely to us.
We believe that the assets equal to the reserve and other liabilities of such
separate accounts are not chargeable with liabilities arising from our other
business if so stated in our annuity contract and certificate forms. We have
obtained approval in each jurisdiction in which our annuities are available for
sale of language stating that:
(A) Income, gains and losses, whether or not realized,
from assets allocated to any such separate account
are credited to or charged against such separate
account without regard to our other income, gains or
losses;
(B) Assets equal to the reserves and other liabilities of
such separate accounts are not chargeable with
liabilities that arise from any business we conduct
other than from the operation of the Annuities or
other annuities which are supported by such separate
accounts; and
(C) We have the right to transfer to our general account
any assets of such separate account which are in
excess of such reserves and other liabilities.
All benefits attributable to Contracts and interests purchased in the group
contracts are contract guarantees we make and are accounted for in the separate
account(s). However, all of our general account assets are available to meet our
obligations under the Contracts.
ADMINISTRATION OF TRANSACTIONS
In administering transactions, we may require presentation of proper
identification prior to processing, including the use of a personal
identification number ("PIN") issued by us, prior to accepting any instruction
by telephone or other electronic means. We forward your PIN to you shortly after
your Annuity is issued. To the extent permitted by law or regulation, neither we
or any person authorized by us will be responsible for any claim, loss,
liability or expense in connection with a switch to an alternate Guarantee
Period or any other transaction for which we accept instructions by telephone if
we or such other person acted on telephone instructions in good faith in
reliance on your telephone instruction authorization and on reasonable
procedures to identify persons so authorized through verification methods which
may include a request for your Social Security or tax I.D. number or a personal
identification number (PIN) as issued by us. We may be liable for losses due to
unauthorized or fraudulent instructions should we not follow such reasonable
procedures.
AGE LIMITS
Both you and the Annuitant, if you are not the Annuitant, must be less than 85
years of age on the Contract Date.
ASSIGNMENTS OR PLEDGES
Generally, your rights in a Contract may be assigned or pledged for loans at any
time. However, these rights may be limited depending on your use of the Annuity.
The assignment and/or loan proceeds may be subject to income taxes and certain
penalty taxes (see "Certain Tax Considerations"). You may assign your rights to
another person at any time, during the Annuitant's lifetime. You must give us a
copy of the assignment In Writing. An assignment is subject to our acceptance.
Prior to receipt of this notice, we will not be deemed to know of or be
obligated under the assignment prior to our receipt and acceptance thereof. We
assume no responsibility for the validity or sufficiency of any assignment.
MISSTATEMENT OF AGE OR SEX
If the age and/or sex of the Annuitant has been misstated, we make adjustments
to conform to the facts. Any underpayments by us will be remedied on the next
payment following correction. Any overpayments by us will be charged against
future amounts payable by us under your annuity.
CONTRACT MODIFICATION
We reserve the right to make changes that are necessary to maintain the tax
status of the Annuity under the Internal Revenue Code and/or make changes
required by any change in other Federal or state laws relating to retirement
annuities or annuity contracts. Where required by law or regulation, approval of
the contract owner will be obtained prior to any such change.
INVESTMENT MANAGEMENT
We have the sole discretion to employ investment managers that we believe are
qualified, experienced and reputable to manage the assets supporting the
Guaranteed Maturity Annuity including, but not limited to, J. P. Morgan
Investment Management Inc. Each manager is responsible for investment management
of different portions of a separate account supporting one or more Contracts. We
are under no obligation to employ or continue to employ any investment
manager(s).
CURRENT INVESTMENT GUIDELINES
Some of the guidelines of our current investment strategy are outlined below.
However, we are not obligated to invest according to this or any other strategy
except as may be required by Connecticut and other state insurance laws.
Our current guidelines for the portfolio of investments in any non-unitized
separate account include, but are not limited to the following:
1. Investments may be made in cash; debt securities issued by the United States
Government or its agencies and instrumentalities; money market instruments;
short, intermediate and long-term corporate obligations; private placements;
asset-backed obligations; and municipal bonds.
2. At the time of purchase, fixed income securities will be in one of the top
four generic lettered rating classifications as established by a nationally
recognized statistical rating Organization ("NRSRO") such as Standard & Poor's
or Moody's Investor Services, Inc. or any Should a fixed income security fall
below one of these top four generic lettered rating classifications subsequent
to purchase, we may or may not sell such security. We may change these
guidelines at any time.
DISTRIBUTION
American Skandia Marketing, Incorporated, a wholly-owned subsidiary of American
Skandia, Inc., acts as the principal underwriter of the Annuities. ASM, Inc.'s
principal business address is One Corporate Drive, Shelton, Connecticut 06484.
ASM, Inc. is a member of the National Association of Securities Dealers, Inc.
("NASD").
ASM, Inc. will enter into distribution agreements with certain broker-dealers
registered under the Securities and Exchange Act of 1934 or with entities which
may otherwise offer the Annuities that are exempt from such registration. Under
such distribution agreements such broker-dealers or entities may offer Annuities
to persons who have established an account with the broker-dealer or the entity.
In addition, ASM, Inc. may solicit other eligible groups and certain
individuals. The maximum concession to be paid on premiums received is 6.0%. We
reserve the right to provide higher levels of compensation for the sale of
Contracts when Participants select initial Guarantee Periods with longer
durations than we pay in relation to shorter initial Guarantee Periods.
As of the date of this Prospectus, we were promoting the sale of our products
and solicitation of additional purchase payments, where applicable, for our
products, including contracts offered pursuant to this Prospectus, through a
program of non-cash rewards to registered representatives of participating
broker-dealers. We may withdraw or alter this promotion at any time.
LEGAL EXPERTS
The General Counsel of American Skandia Life Assurance Corporation has passed on
on the legal matters with respect to Federal laws and regulations applicable to
the issue and sale of the Annuities and with respect to Connecticut law.
LEGAL PROCEEDINGS
As of the date of this Prospectus, neither we nor ASM, Inc. were involved in any
litigation outside of the ordinary course of business, and know of no material
claims.
EXPERTS
The consolidated financial statements of American Skandia Life Assurance
Corporation at December 31, 1999 and 1998, and for the years then ended,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, which is included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
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, 1999 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 Customer Service Team at 1-800-752-6342 or our automated
telephone access and response system (STARS) at 1-800-766-4530
|X| writing to us at American Skandia Life Assurance Corporation, Attention:
Customer Service, P.O. Box 7038, Bridgeport, Connecticut 06601-7038
|X| sending an email to [email protected] or visiting our
Internet Website at www.americanskandia.com
|X| accessing information about your Annuity through our Internet Website at
www.americanskandia.com
You can obtain account information through our automated telephone access and
response system (STARS) and at www.americanskandia.com, our Internet Website.
Our Customer Service representatives are also available during business hours to
provide you with information about your account. You can request certain
transactions through our telephone voice response system, our Internet Website
or through a customer service representative. You can provide authorization for
a third party, including your attorney-in-fact acting pursuant to a power of
attorney or a financial professional, to access your account information and
perform certain transactions on your account. You will need to complete a form
provided by us which identifies those transactions that you wish to authorize
via telephonic and electronic means and whether you wish to authorize a third
party to perform any such transactions. We require that you or your
representative provide proper identification before performing transactions over
the telephone or through our Internet Website. This may include a Personal
Identification Number (PIN) that will be provided to you upon issue of your
Annuity or you may establish or change your PIN through our automated telephone
access and response system (STARS) and at www.americanskandia.com, our Internet
Website. Any third party that you authorize to perform financial transactions on
your account will be assigned a PIN for your account.
Transactions requested via telephone are recorded. 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.
American Skandia does not guarantee access to telephonic and electronic
information or that we will be able to accept transaction instructions via the
telephone or electronic means at all times. American Skandia reserves the right
to limit, restrict or terminate telephonic and electronic transaction privileges
at any time.
<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.
Name/ Position with American Skandia
<S> <C> <C> <C> <C>
Age Life Assurance Corporation Principal Occupation
- --- -------------------------- --------------------
Patricia J. Abram Senior Vice President Senior Vice President
48 and National Sales Manager,
Variable Life:
American Skandia
Marketing, Incorporated
Ms. Abram joined us in 1998. She previously held the position of Senior Vice
President, Chief Marketing Officer with Mutual Service Corporation. Ms. Abram
was employed there since 1982.
Lori Allen Vice President Vice President:
30 American Skandia Life
Assurance Corporation
Kimberly Anderson Vice President Vice President,
33 National Sales Manager/
Qualified Plans:
American Skandia Marketing, Incorporated
Robert M. Arena Vice President Vice President:
31 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
47 Deputy Chief Executive Officer Deputy Chief Executive Officer:
Director (since July, 1991) American Skandia Life
Assurance Corporation
Robert W. Brinkman Senior Vice President Senior Vice President,
35 National Sales Manager:
American Skandia
Marketing, Incorporated
Malcolm M. Campbell Director (since July, 1991) Director of Operations and
44 Chief Actuary, Assurance and
Financial Services Division:
Skandia Insurance Company Ltd.
Jan R. Carendi Chief Executive Senior Executive Vice President and
55 Officer and Member of Executive Management Group:
Chairman of the Skandia Insurance Company Ltd.
Board of Directors
Director (since May, 1988)
Carl Cavaliere Vice President Vice President:
37 American Skandia Life
Assurance Corporation
Mr. Cavaliere joined us in 1998. He previously held the position of Director of
Operations with Aetna, Inc. since 1989.
Y.K. Chan Senior Vice President Senior Vice President
42 and Chief Information Officer:
American Skandia Information
Services and Technology 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 with Scudder,
Stevens and Clark from January 1991 until January 1995.
Lucinda C. Ciccarello Vice President Vice President, Mutual Funds:
41 American Skandia
Marketing, Incorporated
Ms. Ciccarello joined us in 1997. She previously held the position of Assistant
Vice President with Phoenix Duff & Phelps since 1984.
Lincoln R. Collins Senior Vice President Senior Vice President:
39 Director (since February, 1996) American Skandia Life
Assurance Corporation
Tim Cronin Vice President Vice President:
34 American Skandia Life
Assurance Corporation
Mr. Cronin joined us in 1998. He previously held the position of Manager/Client
Investor with Columbia Circle Investors since 1995.
Henrik Danckwardt Director (since July, 1991) Director of Finance
46 and Administration,
Assurance and Financial
Services Division:
Skandia Insurance Company Ltd.
Harold Darak Vice President Vice President:
39 American Skandia Life
Assurance Corporation
Mr. Darak joined us in 1999. He previously held the position of
Consultant/Senior Manager with Deloitte & Touche since 1998 and the positions of
Second Vice President with The Guardian since 1996 and The Travelers from
October, 1982 until December, 1995.
Wade A. Dokken Deputy Chief Executive Officer DCEO and COO:
40 and Chief Operating Officer American Skandia Life
Director (since July, 1991) Assurance Corporation
Elaine C. Forsyth Vice President Vice President:
38 American Skandia Life
Assurance Corporation
Larisa Gromyko Director, Insurance Compliance Director, Insurance Compliance:
53 American Skandia Life
Assurance Corporation
Maureen Gulick Director, Business Operations Director, Business Operations:
37 American Skandia Life
Assurance Corporation
Berthann Jones Vice President Vice President:
45 American Skandia Life
Assurance Corporation
Ms. Jones joined us in 1997. She previously held the position of Vice
President/Trust Officer with Ridgefield Bank since 1996 and Manager with Wright
Investors Service since 1993.
Ian Kennedy Senior Vice President Senior Vice President,
52 Customer Service:
American Skandia
Marketing, Incorporated
Mr. Ian Kennedy joined us in 1998. He previously was self-employed since 1996
and held the position of Vice President, Customer Service with SunLife of Canada
from September, 1968 to August, 1995.
T. Richard Kennedy General Counsel and General Counsel:
65 Director (since March, 2000) American Skandia Life
Assurance Corporation
Mr. T. Richard Kennedy joined us in 1999. He previously was Managing Partner
with the law firm of Werner & Kennedy.
N. David Kuperstock Vice President Vice President:
48 American Skandia Life
Assurance Corporation
Thomas M. Mazzaferro Executive Vice President and Executive Vice President and
47 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,
45 Assurances and Financial
Services Division:
Skandia Insurance Company Ltd.
David R. Monroe Senior Vice President, Senior Vice President,
38 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 at Allmerica Financial since 1994.
Michael A. Murray Senior Vice President Vice President,
31 National Sales Manager:
American Skandia
Marketing, Incorporated
Brian O'Connor Vice President Vice President,
35 National Sales Manager,
Internal Wholesaling:
American Skandia
Marketing, Incorporated
M. Patricia Paez Vice President Chief of Staff:
39 American Skandia, Inc.
Polly Rae Vice President Vice President:
37 American Skandia Life
Assurance Corporation
Rebecca Ray Vice President Vice President:
44 American Skandia Life
Assurance Corporation
Ms. Ray joined us in 1999. She previously held the position of First Vice
President with Prudential Securities since 1997 and Vice President with Merrill
Lynch since 1995.
Rodney D. Runestad Vice President Vice President:
50 American Skandia Life
Assurance Corporation
Hayward L. Sawyer Senior Vice President Executive Vice President
55 National Sales Manager:
American Skandia
Marketing, Incorporated
Lisa Shambelan Vice President Vice President:
34 American Skandia Life
Assurance Corporation
Karen Stockla Vice President Vice President,
33 Intellectual Resources Department:
American Skandia Life
Assurance Corporation
Ms. Stockla joined us in 1998. She previously held the position of Manager,
Application Development with Citizens Utilities Company since 1996 and HRIS Tech
Support Representative with Yale New Haven Hospital since 1993.
William H. Strong Vice President Vice President:
56 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.
Leslie S. Sutherland Vice President Vice President,
46 National Key Accounts Manager:
American Skandia
Marketing, Incorporated
Amanda C. Sutyak Vice President Vice President:
42 Director (since July, 1991) American Skandia Life
Assurance Corporation
Christian A. Thwaites Senior Vice President Senior Vice President,
42 National Marketing Director:
American Skandia
Marketing, Incorporated
Mr. Thwaites joined us in 1996. He previously held the position of consultant
with Monitor Company since October 1995 and Vice President with Aetna, Inc.
since 1995.
Mary Toumpas Vice President Vice President and
48 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 since 1973.
Bayard F. Tracy Senior Vice President and Senior Vice President,
52 Director (since September, 1994) National Sales Manager:
American Skandia
Marketing, Incorporated
Deborah G. Ullman Senior Vice President Senior Vice President and
45 Chief Operating Officer:
American Skandia
Marketing, Incorporated
Ms. Ullman joined us in 1998. She previously held the position of Vice President
with Aetna, Inc. since 1977.
Jeffrey M. Ulness Vice President Vice President:
39 American Skandia Life
Assurance Corporation
Derek Winegard Vice President Vice President:
41 American Skandia Life
Assurance Corporation
Mr. Winegard joined us in 1999. He previously held the position of Senior Vice
President with Trust Consultants, Inc. since 1991.
Brett M. Winson Senior Vice President and Senior Vice President,
44 Director (since March 2000) Intellectual Resource Development
American Skandia, Inc.
Mr. Winson joined us in 1998. He previously held the position of Senior Vice
President with Sakura Bank, Ltd. since 1990.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
The consolidated financial statements which follow in Appendix A are those of
American Skandia Life Assurance Corporation as of December 31, 1999 and 1998,
and for each of the three years in the period ended December 31, 1999.
<PAGE>
APPENDIXES
APPENDIX A Financial Statements about American Skandia Life Assurance
Corporation
APPENDIX B ILLUSTRATION OF MARKET VALUE ADJUSTMENT
APPENDIX C ILLUSTRATION OF INTEREST CREDITING
<PAGE>
APPENDIX A FINANCIAL INFORMATION ABOUT
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
<PAGE>
SELECTED FINANCIAL DATA
The following table summarizes information with respect to the operations of the
Company:
<TABLE>
<CAPTION>
(in thousands) For the Year Ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA
Revenues:
Annuity and life insurance
<S> <C> <C> <C> <C> <C>
charges and fees* $ 289,989 $ 186,211 $ 121,158 $ 69,780 $ 38,837
Fee income 83,243 50,839 27,593 16,420 6,206
Net investment income 10,441 11,130 8,181 1,586 1,601
Premium income and
other revenues 3,688 1,360 1,082 265 45
------------- ------------- ------------ ----------- -----------
Total revenues $ 387,361 $ 249,540 $ 158,014 $ 88,051 $ 46,689
============= ============= ============ =========== ===========
Benefits and Expenses:
Annuity and life insurance benefits $ 612 $ 558 $ 2,033 $ 613 $ 555
Change in annuity policy reserves 3,078 1,053 37 635 (6,779)
Cost of minimum death benefit
reinsurance 2,945 5,144 4,545 2,867 2,057
Return credited to contractowners (1,639) (8,930) (2,018) 673 10,613
Underwriting, acquisition and
other insurance expenses 206,350 167,790 90,496 49,887 35,914
Interest expense 69,502 41,004 24,895 10,791 6,500
------------- ------------- ------------- ------------ ------------
Total benefits and expenses $ 280,848 $ 206,619 $ 119,988 $ 65,466 $ 48,860
============= ============= ============= ============ ============
Income tax expense (benefit) $ 30,344 $ 8,154 $ 10,478 $ (4,038) $ 397
============= ============= ============= ============ ============
Net income (loss) $ 76,169 $ 34,767 $ 27,548 $ 26,623 $ (2,568)
============= ============= ============= ============ =============
STATEMENT OF FINANCIAL CONDITION
Total Assets $ 30,849,414 $ 18,848,273 $ 12,894,290 $ 8,268,696 $ 4,956,018
============= ============= ============= ============ ============
Future fees payable to parent $ 576,034 $ 368,978 $ 233,034 $ 47,112 $ -
============= ============= ============= ============ ============
Surplus Notes $ 179,000 $ 193,000 $ 213,000 $ 213,000 $ 103,000
============= ============= ============= ============ ============
Shareholder's Equity $ 359,434 $ 250,417 $ 184,421 $ 126,345 $ 59,713
============= ============= ============= =========== ============
</TABLE>
* On annuity and life insurance sales of $6,862,968, $4,159,662, $3,697,990,
$2,795,114, and $1,628,486 during the years ended December 31, 1999, 1998, 1997,
1996, and 1995, respectively, with contractowner assets under management of
$29,396,693, $17,854,761, $12,119,191, $7,764,891, and $4,704,044 as of December
31, 1999, 1998, 1997, 1996 and 1995, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the financial statements and the
notes thereto and Item 6, Selected Financial Data.
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains certain forward-looking statements pursuant to the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
based on estimates and assumptions that involve certain risks and uncertainties,
therefore actual results could differ materially due to factors not currently
known. These factors include significant changes in financial markets and other
economic and business conditions, state and federal legislation and regulation,
ownership and competition.
Results of Operations
Annuity and life insurance sales increased 65%, 12%, and 32% in 1999, 1998 and
1997, respectively. The Company continues to show significant growth in sales
volume as 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 sales growth was also attributable to the strong performance
of the underlying mutual funds, which support the Separate Account assets. All
three major distribution channels achieved significant sales growth in 1999.
As a result of the significant growth in sales and assets under management,
contractowner fees and charges and fees generated from transfer agency-type and
investment support activities increased considerably over the past three years:
(annual percentage growth) 1999 1998 1997
Annuity and life insurance
charges and fees 56% 54% 74%
Fee income 64% 84% 68%
Net investment income decreased 6% in 1999, increased 36% and 416% in 1998 and
1997, respectively. The decrease in 1999 was the result of $1,036,000 of
amortization of the premium paid on a derivative instrument purchased during
1999. As noted in Note 2C of Notes to Consolidated Financial Statements, the
derivative instrument, an equity put option, was purchased as a hedge against
potential GMDB reserves increases. Excluding the derivative amortization, 1999
net investment income increased 3% as a result of increased bond holdings in
support of the Company's risk-based capital initiatives. The increases in 1998
and 1997 were 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 sale of ancillary contracts;
immediate annuities with life contingencies, supplementary contracts with life
contingencies and certain life insurance products. Sales of supplementary
contracts increased in 1999 and decreased in slightly in 1998 and 1997. There
were no immediate annuities sold in 1999 and sales in 1998 and 1997 were modest.
Annuity benefits, which represent immediate annuities, supplementary contracts
and death benefits paid on annuity contracts with mortality risks were not
significant in each of the past three years due primarily to the age of the
policies in force.
The change in annuity policy reserves includes changes in reserves related to
annuity contracts with mortality risks as well as the Company's guaranteed
minimum death benefit ("GMDB") liability. During the second quarter of 1999, the
Company's agreement to reinsure substantially all of its exposure on the GMDB
was terminated and the business was recaptured, as the reinsurer had announced
its intention to exit this market. The increase in reserves resulting from this
change was offset by a decrease in reserves associated with the change to
reserve methodology on the GMDB. The new reserve methodology complies with the
National Association of Insurance Commissioners Actuarial Guideline XXXIV. In
the later half of 1999, the Company instituted a hedge program to manage the
market risk and reserve fluctuations associated with the GMDB policies through
the use of equity put options. The Company is currently continuing this program
while evaluating alternative hedging strategies.
<PAGE>
The reinsurance premium associated with the GMDB exposure is based on levels of
assets under management. Due to increased sales and account growth, this cost
had increased in 1997 and 1998 and through May 1999. The termination of the
reinsurance treaty as of May 31, 1999 resulted in the year to year decrease in
this benefit for the twelve months ended December 31, 1999.
Return credited to contractowners consists of 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. Market value
adjusted annuity activity has the largest impact on this benefit. In 1999, the
Separate Account investment returns on these contracts did not meet the expected
returns calculated in the reserves. In 1998, the actual returns significantly
outperformed the expected returns and in 1997, these expectations were met.
Underwriting, acquisition and other insurance expenses for 1999, 1998 and 1997
were as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Commissions and general expenses $ 576,649 $ 342,594 $ 281,560
Net capitalization of deferred
acquisition costs (370,299) (174,804) (191,064)
--------- --------- ---------
Underwriting, acquisition and other
insurance expenses $ 206,350 $167,790 $90,496
========= ======== =======
</TABLE>
Commissions, general operating expenses and the net deferral of acquisition
costs have all increased in 1999, due largely to record sales. Current sales
trends have resulted in a shift to asset based commission agreements. This
coupled with increased asset levels from increased sales and equity market
appreciation have led to the increase in commissions and general expenses. In
1998, commissions and general expenses increased as a result of strong sales and
start up costs associated with the Company's entry into variable life insurance
and qualified plans. The net capitalization of acquisition costs decreased in
1998 as a result of increased amortization. In 1997, expense increases were
driven primarily from strong sales.
Interest expense increased $28,498,000, $16,109,000 and $14,104,000 in 1999,
1998 and 1997, 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 retired surplus notes on December 10,
1999 and December 31, 1998 of $14,000,000 and $20,000,000 respectively. Surplus
notes outstanding as of December 31, 1999 and 1998 totaled $179,000,000 and
$193,000,000, respectively.
The effective income tax rates for the years ended December 31, 1999, 1998 and
1997 were 28%, 19% and 28%, 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. Management believes that based on
the taxable income produced in the past two years, as well as the continued
growth in annuity sales, the Company will produce sufficient taxable income in
future years to realize its deferred tax assets.
The Company generated net income after tax of $76,169,000, $34,767,000 and
$27,548,000 in 1999, 1998 and 1997, respectively. The Company benefited in each
of the past three years from strong sales growth and favorable market
conditions. The Company considers Mexico an emerging market and has invested in
the Skandia Vida operations with the expectation of generating profits from
long-term savings products in future years. As such, Skandia Vida has generated
net losses of $2,523,000, $2,514,000 and $1,438,000 for the years ended December
31, 1999, 1998 and 1997, respectively.
Total assets grew 64%, 46%, and 56% in 1999, 1998 and 1997, 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 held in
support of the Company's risk based capital requirements. Liabilities grew 64%,
46%, and 56% in 1999, 1998 and 1997, 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.
Liquidity and Capital Resources
The Company's liquidity requirement was met by cash from insurance operations,
investment activities, borrowings from its Parent and the sale of rights to
future fees and charges to its Parent.
The majority of the operating cash outflow resulted from the sale of variable
annuity and variable life products 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 charges as well as modified coinsurance reinsurance arrangements:
o During 1999 and 1998, the Company received $34,800,000 and $22,600,000,
respectively, from ASI to support the capital needs of its U.S. operations
during the current year along with the following year's anticipated growth
in business. In addition, the Company received $1,690,000 and $5,762,000
from ASI in 1999 and 1998 to support its investment in Skandia Vida.
o Funds received from new securitization transactions amounted to
$265,710,000, $169,881,000, and $194,512,000 for 1999, 1998 and 1997,
respectively (see Note 8 of the Notes to Audited Consolidated Financial
Statements). In addition, $71,000,000 was received from ASI in the fourth
quarter of 1999 in advance of a securitization transaction completed in the
first quarter of 2000.
o During 1999, 1998 and 1997, the Company extended its reinsurance
agreements. 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, 1999 and 1998, shareholder's equity was $359,434,000 and
$250,417,000, respectively. The increases were driven by the previously
mentioned capital contributions received from ASI and net income from
operations.
The Company has long-term surplus notes and short-term borrowings with ASI. No
dividends have been paid to ASI.
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.
Effects of Inflation
The rate of inflation has not had a significant effect on the Company's
financial statements.
<PAGE>
Year 2000 Compliance
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".
The Company experienced no significant errors or disruptions in computer
service, interfaces with computer systems of investment managers, sub-advisors,
third party administrators, vendors and other business partners on or after
January 1, 2000.
American Skandia engaged external information technology specialists to review
its operating systems and internally developed software. The costs associated
with these assessments and Year 2000 related remediation was $1,400,000 in 1999
and $750,000 in 1998 and prior. The Company was allocated the majority of these
costs.
American Skandia continues to review new and existing systems and has
contingency plans in place as part of its Business Continuity Plan. This plan
involves virtually all aspects of the business and will continue to be a focus
of management beyond the Year 2000 event.
Outlook
The Company believes that it is well positioned to retain and enhance its
position as a leading provider of financial products for long-term savings and
retirement purposes as well as to address the economic impact of premature
death, estate and business planning concerns and supplemental retirement needs.
Strength in the areas of investment options offered, innovative and leading edge
product offerings and superior customer service are expected to allow the
Company to continue to grow market share in a marketplace which continues to
grow.
Certain regulatory and legislative initiatives or proposed accounting standards,
if adopted, could adversely impact the Company, despite it's strong market
position. Of particular importance is President Clinton's proposed budget for
2001, which includes proposed revenue-raising tax changes such as the "DAC tax"
on annuity and life products that could further increase the Company's cash
strain. In addition, the recently enacted Financial Services Modernization Act,
which allows banks and insurance companies to affiliate under a common holding
company, may create previously unseen competitive pressures that could impact
the Company's ability to do business in the same manner it has previously.
Additionally, discussions on regulation of the Internet may impact on the way
the Company does business in the future.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to potential fluctuations in earnings and the fair value
of certain of its assets and liabilities, as well as variations in expected cash
flows due to changes in market interest rates and equity prices. The following
discussion focuses on specific exposures the Company has to interest rate and
equity price risk and describes strategies used to manage these risks. The
discussion is limited to financial instruments subject to market risks and is
not intended to be a complete discussion of all of the risks the Company is
exposed to.
Interest Rate Risk
Fluctuations in interest rates can potentially impact the Company's
profitability and cash flows. The Company has 97% of assets held under
management that are in non-guaranteed Separate Accounts for which the Company's
exposure is not significant as the contractowner assumes substantially all the
investment risk. On the remaining 3% of assets the interest rate risk from
contracts that carry interest rate exposure, is managed through an
asset/liability matching program which takes into account the risk variables of
the insurance liabilities supported by the assets.
At December 31, 1999, the Company held in its general account $201,509,000 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 ($29,912,000 in reserves at December 31, 1999) and
in support of the Company's target solvency capital. The Company has a
conservative investment philosophy with regard to these investments. All
investments are investment grade corporate securities, government agency or U.S.
government securities.
The Company's deferred annuity products offer a fixed option which subjects the
Company to interest rate risk. The fixed option guarantees a fixed rate of
interest for a period of time selected by the contractowner. Guarantee period
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 MVA could be
negative. In the event of declining interest rates, which make the fixed
maturity securities underlying the guarantee more valuable, the MVA could be
positive. The resulting increase or decrease in the value of the fixed option,
from calculation of the MVA, should substantially offset the increase or
decrease in the market value of the securities underlying the guarantee. The
Company maintains strict asset/liability matching to enable this offset.
However, the Company still takes on the default risk for the underlying
securities, the interest rate risk of reinvestment of interest payments and the
risk of failing to maintain the asset/liability matching program with respect to
duration and convexity. At December 31, 1999 the Company had $939,585,000 in
fixed investment options subject to these risks.
Equity Market Exposure
The primary equity market risk to the Company comes from the nature of the
variable annuity and variable life products sold by the Company. Various fees
and charges earned 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, 1999, sustained throughout 2000, would result in an
approximate drop in related annual fee income of $48,178,000.
As discussed in Note 2 of the Consolidated Financial Statements, in 1999 the
Company utilized derivative instruments to hedge against the risk of significant
decreases in equity markets which would expose the Company to increases in
guaranteed minimum death benefits liabilities. Prior to the implementation of
this program the Company utilized reinsurance to transfer this risk.
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.
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
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, 1999 and 1998,
and the related consolidated statements of income, shareholder's equity, and
cash flows for each of the three years in the period ended December 31, 1999.
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 auditing standards generally accepted
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American Skandia
Life Assurance Corporation at December 31, 1999 and 1998, and the consolidated
results of their operations and cash flows for each of the three years in the
period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States.
/s/Ernst & Young LLP
Hartford, Connecticut
February 11, 2000,
except for Note 18 as to which the date is March 22, 2000
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Financial Condition
(in thousands)
<TABLE>
<CAPTION>
As of December 31,
1999 1998
--------------- ----------------
ASSETS
Investments:
<S> <C> <C>
Fixed maturities - at amortized cost $ 3,360 $ 8,289
Fixed maturities - at fair value 198,165 141,195
Investment in mutual funds - at fair value 16,404 8,210
Derivative instruments 189 -
Policy loans 1,270 569
-------------- --------------
Total investments 219,388 158,263
Cash and cash equivalents 89,212 77,525
Accrued investment income 4,054 2,880
Deferred acquisition costs 1,087,705 721,507
Reinsurance receivable 4,062 4,191
Receivable from affiliates - 1,161
Income tax receivable - deferred 51,726 38,861
State insurance licenses 4,263 4,413
Fixed assets 3,305 328
Other assets 4,533 3,744
Separate account assets 29,381,166 17,835,400
--------------- ----------------
Total assets $ 30,849,414 $ 18,848,273
=============== ================
</TABLE>
LIABILITIES AND SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Liabilities:
Reserve for future contractowner benefits $ 11,215 $ 37,508
Policy reserves 29,912 25,545
Drafts outstanding 51,059 28,941
Accounts payable and accrued expenses 158,590 91,827
Income tax payable 24,268 6,657
Payable to affiliates 68,736 -
Future fees payable to parent 576,034 368,978
Short-term borrowing 10,000 10,000
Surplus notes 179,000 193,000
Separate account liabilities 29,381,166 17,835,400
--------------- ----------------
Total Liabilities 30,489,980 18,597,856
--------------- ----------------
Shareholder's equity:
Common stock, $100 and $80 par value, 25,000 shares authorized,
issued and outstanding 2,500 2,000
Additional paid-in capital 215,879 179,889
Retained earnings 141,162 64,993
Accumulated other comprehensive income (107) 3,535
--------------- ----------------
Total Shareholder's equity 359,434 250,417
--------------- ----------------
Total liabilities and shareholder's equity $ 30,849,414 $ 18,848,273
=============== ================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Operations
(in thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31,
1999 1998 1997
-------------- ------------- -------------
REVENUES
<S> <C> <C> <C>
Annuity and life insurance charges and fees $ 289,989 $ 186,211 $ 121,158
Fee income 83,243 50,839 27,593
Net investment income 10,441 11,130 8,181
Premium income 1,278 874 920
Net realized capital gains 578 99 87
Other 1,832 387 75
-------------- ------------- -------------
Total revenues 387,361 249,540 158,014
-------------- ------------- -------------
EXPENSES
Benefits:
Annuity and life insurance benefits 612 558 2,033
Change in annuity and life insurance policy reserves 3,078 1,053 37
Cost of minimum death benefit reinsurance 2,945 5,144 4,545
Return credited to contractowners (1,639) (8,930) (2,018)
-------------- ------------- -------------
4,996 (2,175) 4,597
Expenses:
Underwriting, acquisition and other insurance
expenses 206,350 167,790 90,496
Interest expense 69,502 41,004 24,895
-------------- ------------- -------------
275,852 208,794 115,391
-------------- ------------- -------------
Total benefits and expenses 280,848 206,619 119,988
-------------- ------------- -------------
Income from operations before income tax 106,513 42,921 38,026
Income tax expense 30,344 8,154 10,478
-------------- ------------- -------------
Net income $ 76,169 $ 34,767 $ 27,548
============== ============= =============
</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,
1999 1998 1997
-------------- -------------- --------------
Common stock:
<S> <C> <C> <C>
Beginning balance $ 2,000 $ 2,000 $ 2,000
Increase in par value 500 - -
-------------- -------------- --------------
Ending balance 2,500 2,000 2,000
-------------- -------------- --------------
Additional paid in capital:
Beginning balance 179,889 151,527 122,250
Transferred to common stock (500) - -
Additional contributions 36,490 28,362 29,277
-------------- -------------- --------------
Ending balance 215,879 179,889 151,527
-------------- -------------- --------------
Retained earnings:
Beginning balance 64,993 30,226 2,678
Net income 76,169 34,767 27,548
-------------- -------------- --------------
Ending balance 141,162 64,993 30,226
-------------- -------------- --------------
Accumulated other comprehensive income:
Beginning balance 3,535 668 (584)
Other comprehensive income (3,642) 2,867 1,252
-------------- -------------- --------------
Ending Balance (107) 3,535 668
-------------- -------------- --------------
Total shareholder's equity $ 359,434 $ 250,417 $ 184,421
============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31,
1999 1998 1997
-------------- ------------- --------------
Cash flow from operating activities:
<S> <C> <C> <C>
Net income $ 76,169 34,767 $ 27,548
Adjustments to reconcile net income to net
cash used in operating activities:
Amortization and depreciation 1,495 251 223
Deferred tax expense (10,903) (14,242) (9,631)
Change in unrealized losses on derivatives 3,749 - -
Increase in policy reserves 4,367 1,130 3,176
Change in receivable from/payable to affiliates 69,897 166 (1,321)
Change in income tax payable 17,611 7,704 (2,172)
Increase in other assets (789) (1,173) (415)
Increase in accrued investment income (1,174) (438) (483)
Decrease/(increase) in reinsurance receivable 129 2,152 (268)
Increase in deferred acquisition costs (366,198) (174,804) (190,969)
Increase in accounts payable and accrued expenses 66,763 20,637 5,719
Increase in drafts outstanding 22,118 9,663 6,245
Change in foreign currency translation, net 701 (22) (34)
Realized capital gain (578) (99) (87)
-------------- ------------- --------------
Net cash used in operating activities (116,643) (114,308) (162,469)
-------------- ------------- --------------
Cash flow from investing activites:
Purchase of fixed maturity investments (99,250) (31,828) (28,905)
Proceeds from sale and maturity of fixed
maturity investments 36,226 4,049 10,755
Purchase of derivatives (4,974) - -
Purchase of shares in mutual funds (17,703) (7,158) (5,595)
Proceeds from sale of shares in mutual funds 14,657 6,086 1,415
Purchase of fixed assets (3,178) (18) (189)
Increase in policy loans (701) 118 (528)
-------------- ------------- --------------
Net cash used in investing activities (74,923) (28,751) (23,047)
-------------- ------------- --------------
Cash flow from financing activities:
Capital contribution from parent 22,490 8,362 29,277
Increase in future fees payable to parent 207,056 135,944 185,922
Net withdrawals from contractowner accounts (26,293) (5,696) 6,959
-------------- ------------- --------------
Net cash provided by financing activities 203,253 138,610 222,158
-------------- ------------- --------------
Net increase/(decrease) in cash and cash
equivalents 11,687 (4,449) 36,642
Cash and cash equivalents at beginning of year 77,525 81,974 45,332
-------------- ------------- --------------
Cash and cash equivalent at end of year $ 89,212 77,525 $ 81,974
============== ============= ==============
Income taxes paid $ 23,637 14,651 $ 22,308
============== ============= ==============
Interest paid $ 69,697 35,588 $ 16,916
============== ============= ==============
</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, 1999
1. ORGANIZATION AND OPERATION
American Skandia Life Assurance Corporation (the "Company") is a
wholly-owned subsidiary of American Skandia, Inc. ("ASI", formerly known as
American Skandia Investment Holding Corporation) 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. ("Skandia
Vida") which is a life insurance company domiciled in Mexico. Skandia Vida
had total shareholder's equity of $4,592,000 and $4,724,000 as of December
31, 1999, and 1998, respectively. The Company considers Mexico an emerging
market and has invested in the Skandia Vida operations with the expectation
of generating profits from long-term savings products in future years. As
such, Skandia Vida has generated net losses of $2,523,000, $2,514,000 and
$1,438,000 for the years ended December 31, 1999, 1998 and 1997,
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 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. The SOP, which has been
adopted prospectively as of January 1, 1999, requires the capitalization
of certain costs incurred in connection with developing or obtaining
internal use software. Prior to the adoption of SOP 98-1, the Company
expensed all internal use software related costs as incurred. The
Company has identified and capitalized $3,035,000 of costs associated
with internal use software during 1999 and is amortizing the applicable
costs on a straight-line basis over a three year period. At December 31,
1999, the unamortized balance was $2,920,000 and is included in fixed
assets.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards 133, "Accounting for
Derivative Instruments and Hedging Activities" (FAS 133). Subsequently,
in July 1999, FASB issued FAS 137 "Deferral of the Effective Date of
FASB Statement 133". The adoption date was delayed to fiscal years
beginning after June 15, 2000. The Company is currently evaluating the
potential impact on its financial position.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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 held in support
of a deferred compensation plan are 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.
Derivative instruments are recorded consistent with hedged items. The
Company hedges the market value fluctuations of the guaranteed minimum
death benefit ("GMDB") exposure embedded in its policy reserves and as
such, the portion of the derivative instrument which constitutes an
effective hedge is carried at market value. The cost associated with the
portion of the instrument which is not considered an effective hedge is
amortized to investment income over the life of the instrument.
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. Derivative Instruments
During the second quarter of 1999, the Company's agreement to reinsure
substantially all of its exposure on its GMDB liability was terminated
and the business was recaptured, as the reinsurer had recently announced
its intention to exit this market. In response, the Company instituted a
hedge program to effectively manage the market risk associated with GMDB
reserve fluctuations using put options. The cash invested in the put
options is at risk to the extent that the value of the underlying index
is less than the strike price at the exercise date. This would be offset
by a corresponding decrease in the hedged GMDB exposure.
E. 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.
F. 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.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
F. Fair Values of Financial Instruments (continued)
Fair values of investments in mutual funds are based on quoted market
prices.
The fair value of the portion of the derivative instrument which
constitutes an effective hedge is determined based on current value of
the underlying index.
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.
G. 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 on a straight
line basis over 40 years.
H. Income Taxes
The Company is included in the consolidated federal income tax return
and combined state income tax return of an upstream company, Skandia AFS
Development Holding Corporation and certain of its subsidiaries. In
accordance with the tax sharing agreement, the federal and state income
tax provisions are computed on a separate return basis as adjusted for
consolidated items such as net operating loss carryforwards.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes.
I. 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.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
I. Recognition of Revenue and Contract Benefits (continued)
Revenues for market value adjusted fixed 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 reserve 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% at December 31, 1999 and 1998.
Revenues for variable life insurance contracts consist of charges
against contractowner account values for mortality and expense risk
fees, cost of insurance fees, taxes and surrender charges. Certain
contracts also include charges against premium to pay state premium
taxes. Benefit reserves for variable life insurance contracts represent
the account value of the contracts and are included in the separate
account liabilities.
J. 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:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $721,507 $546,703 $355,734
-------- -------- --------
Acquisition costs deferred
during the year 450,059 261,432 243,476
Acquisition costs amortized
during the year (83,861) (86,628) (52,507)
--------- -------- --------
366,198 174,804 190,969
------- ------- -------
Balance at end of year $1,087,705 $721,507 $546,703
========== ======== ========
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
K. Reinsurance
The Company cedes reinsurance under modified co-insurance arrangements.
These 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.
As noted in Note 2D, the Company reinsured its exposure to market
fluctuations associated with its GMDB liability in 1999, 1998 and the
beginning of 1997. Under this reinsurance agreement, the Company ceded
premiums of $2,945,000, $5,144,000 and $4,545,000; received claim
reimbursements of $242,000, $9,000 and $46,000; and, recorded
increases/(decreases) in reserves of ($2,763,000), ($323,000) and
$918,000 in each of the three years, respectively.
At December 31, 1999 and 1998, in accordance with the provisions of a
modified coinsurance agreement, the Company accrued $41,000 and
$1,976,000, respectively, for amounts receivable from favorable
reinsurance experience on a block of variable annuity business.
L. Translation of Foreign Currency
The financial position and results of operations of the Company's
Mexican subsidiary are measured using local currency as the functional
currency. Assets and liabilities of the subsidiary are translated at the
exchange rate in effect at each year-end. Statements of 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.
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 $896,205,000 and
$771,195,000 at December 31, 1999 and 1998, respectively, relating to
annuity contracts for which the contractowner is guaranteed a fixed rate
of return. Separate Account assets of $896,205,000 and $771,195,000 at
December 31, 1999 and 1998, respectively, consisting of long term bonds,
short term securities, transfers due from the general account and cash
and cash equivalents which are held in support of these annuity
contracts, pursuant to state regulation.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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
The components of comprehensive income, net of tax, for the years ended
December 31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income $76,169 $34,767 $27,548
Other comprehensive income:
Unrealized investment gains/(losses) on
available for sale securities (3,082) 2,751 1,288
Reclassification adjustment for realized
losses/(gains) included in investment income (1,016) 138 (14)
------- --------- ---------
Net unrealized gains/(losses) on securities (4,098) 2,889 1,274
Foreign currency translation 456 (22) (22)
--------- ---------- ----------
Other comprehensive income (3,642) 2,867 1,252
--------- -------- --------
Comprehensive income $72,527 $37,634 $28,800
======= ======= =======
</TABLE>
The components of accumulated other comprehensive income, net of tax, as of
December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
---- ----
<S> <C> <C>
Unrealized investment gains ($255) $3,843
Foreign currency translation 148 (308)
------ -------
Accumulated other comprehensive income ($107) $3,535
====== ======
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
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, 1999 and 1998 are shown below. All
securities held at December 31, 1999 and 1998 were publicly traded.
Investments in fixed maturities as of December 31, 1999 consisted of the
following:
<TABLE>
<CAPTION>
(in thousands) Held-to-Maturity
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Government
obligations $1,105 $ - $ (1) $1,104
Corporate securities 2,255 - (15) 2,240
----- ---- ----- -------
Totals $3,360 $ - $(16) $3,344
====== ==== ===== ======
(in thousands) Available-for-Sale
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Government
obligations $ 81,183 $ - $ (678) $ 80,505
Obligations of
state and political
subdivisions 253 (3) 250
Corporate securities 121,859 - (4,449) 117,410
--------- ---- ------ ---------
Totals $203,295 $ - $ (5,130) $198,165
======== ==== ========= ========
The amortized cost and fair value of fixed maturities, by contractual
maturity, at December 31, 1999 are shown below.
(in thousands) Held-to-Maturity Available-for-Sale
---------------- ------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
Due in one year or less $3,107 $3,097 $ - $ -
Due after one through five years 253 247 130,284 128,250
Due after five through ten years - - 73,011 69,915
---------- ---------- ---------- ----------
Total $3,360 $3,344 $203,295 $198,165
====== ====== ======== ========
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
4. INVESTMENTS (continued)
Investments in fixed maturities as of December 31, 1998 consisted of the
following:
<TABLE>
<CAPTION>
(in thousands) Held-to-Maturity
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government
obligations $3,774 $57 $- $3,831
Obligations of
state and political
subdivisions - - - -
Corporate
securities 4,515 34 - 4,549
------- ---- --- -------
Totals $8,289 $91 $ - $8,380
====== === === ======
(in thousands) Available for Sale
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
======== ====== ====== ========
Proceeds from sales of fixed maturities during 1999, 1998 and 1997 were
$32,196,000, $999,000, and $5,056,000, respectively. Proceeds from
maturities during 1999, 1998 and 1997 were $4,030,000, $3,050,000, and
$5,700,000, respectively.
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
4. INVESTMENTS (continued)
The cost, gross unrealized gains/losses and fair value of investments in
mutual funds at December 31, 1999 and 1998 are shown below:
<TABLE>
<CAPTION>
(in thousands) Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C> <C>
1999 $11,667 $4,763 $ (26) $16,404
======= ====== ====== =======
1998 $8,068 $416 $ (274) $8,210
====== ==== ======= ======
Net realized investment gains (losses) were as follows for the years ended
December 31:
(in thousands) 1999 1998 1997
------ ---- ----
Fixed maturities:
Gross gains $ 253 $ - $ 10
Gross losses (228) (1) -
Investment in mutual funds:
Gross gains 990 281 116
Gross losses (437) (181) (39)
------- ------ ------
Totals $ 578 $ 99 $ 87
====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
5. NET INVESTMENT INCOME
The sources of net investment income for the years ended December 31, 1999,
1998 and 1997 were as follows:
(in thousands) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Fixed maturities $ 9,461 $ 8,534 $6,617
Cash and cash equivalents 2,159 1,717 1,153
Investment in mutual funds 32 1,013 554
Policy loans 31 45 28
Derivative Instruments (1,036) - -
--------- ---------- ---------
Total investment income 10,647 11,309 8,352
Investment expenses 206 179 171
---------- ---------- --------
Net investment income $10,441 $11,130 $8,181
======= ======= ======
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES
The significant components of income tax expense for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current tax expense $41,248 $22,384 $20,108
Deferred tax benefit (10,904) (14,230) (9,630)
-------- -------- ---------
Total income tax expense $30,344 $ 8,154 $10,478
======= ======== =======
</TABLE>
The tax effects of significant items comprising the Company's deferred
tax balance as of December 31, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
---- ----
Deferred tax liabilities:
<S> <C> <C>
Deferred acquisition costs ($321,873) ($210,731)
Payable to reinsurers (26,733) (25,585)
Policy fees (1,146) (859)
Net unrealized gains (80) (2,069)
------------ -----------
Total (349,832) (239,244)
-------- ---------
Deferred tax assets:
Net separate account liabilities 333,521 225,600
Future contractowner benefits 3,925 13,128
Other reserve differences 39,645 25,335
Deferred compensation 18,844 9,619
Surplus notes interest 5,030 3,375
Foreign exchange translation 137 166
Other 456 882
----------- ------------
Total 401,558 278,105
-------- ---------
Income tax receivable - deferred $ 51,726 $ 38,861
========= =========
</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.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES (continued)
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) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income (loss) before taxes
Domestic $109,036 $45,435 $39,464
Foreign (2,523) (2,514) (1,438)
---------- --------- ---------
Total 106,513 42,921 38,026
Income tax rate 35% 35% 35%
--------- --------- ---------
Tax expense at federal
statutory income tax rate 37,280 15,022 13,309
Tax effect of:
Dividend received deduction (9,572) (9,085) (4,585)
Losses of foreign subsidiary 883 880 503
Meals and entertainment 664 487 340
State income taxes 1,071 673 577
Other 18 177 334
--------- -------- -------
Income tax expense $ 30,344 $ 8,154 $10,478
========= ======== =======
</TABLE>
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 $11,136,000,
$7,722,000, and $5,572,000 for the years ended December 31, 1999, 1998 and
1997, respectively. Income received for these items was $3,919,000,
$1,355,000 and $3,225,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
The Company had a $10 million short-term loan payable to ASI at December 31,
1999 and 1998. The total interest expense thereon to the Company was
$585,000, $622,000 and $642,000 for the years ended December 31, 1999, 1998
and 1997 respectively, of which $182,000 was payable as of December 31, 1999
and 1998.
Beginning in 1999, the Company was reimbursed by ASM for certain
distribution related costs associated with the sales of business through an
investment firm where ASM serves as an introducing broker dealer. Under this
agreement, the expenses reimbursed in 1999 were $1,441,000. As of December
31,1999, amounts receivable under this agreement were $245,000.
As of December 31,1999, the Company had received $71,000,000 from ASI in
advance of the sale of certain rights to receive future fees and contract
charges. This sale is expected to be completed in the first quarter of 2000.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
8. FUTURE FEES PAYABLE TO PARENT
In a series of transactions with ASI, 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:
<TABLE>
<CAPTION>
Closing Effective Contract Issue
Transaction Date Date Period
<S> <C> <C> <C> <C> <C>
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
1999-1 6/23/99 6/1/99 4/1/94 - 4/30/99
1999-2 12/14/99 10/1/99 11/1/98 - 7/31/99
</TABLE>
In connection with these transactions, ASI 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 ASI
to receive a percentage (80% or 100% depending on the underlying commission
option) 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 Company did not sell the right to receive future fees and charges after
the expiration of the surrender charge period.
The proceeds from the sales have been recorded as a liability and are being
amortized over the remaining surrender charge period of the designated
contracts using the interest method. The present values of the transactions
as of the respective effective date were as follows:
<TABLE>
<CAPTION>
Present
(in thousands) Transaction Discount Rate Value
----------- ------------- -----
<S> <C> <C> <C>
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
1999-1 7.5% 120,632
1999-2 7.5% 145,078
</TABLE>
Payments representing fees and charges in the aggregate amount of
$131,420,000, $69,226,000 and $22,250,000 were made by the Company to
the Parent for the years ended December 31, 1999, 1998 and 1997,
respectively. Related interest expense of $52,840,000, $22,978,000 and
$6,842,000 has been included in the statement of income for the years
ended December 31, 1999, 1998 and 1997, respectively.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
8. FUTURE FEES PAYABLE TO PARENT (continued)
Expected payments of future fees payable to ASI as of December 31, 1999 are
as follows:
<TABLE>
<CAPTION>
Year Ended
(in thousands) December 31, Amount
----------- ------
<S> <C> <C>
2000 $103,975
2001 107,262
2002 106,491
2003 97,550
2004 78,512
2005 51,839
2006 25,712
2007 4,693
---------
Total $576,034
</TABLE>
The Commissioner of the State of Connecticut has approved the sale of
future fees and charges; however, in the event that the Company becomes
subject to an order of liquidation or rehabilitation, the Commissioner
has the ability to stop the payments due to the Parent under the
Purchase Agreement subject to certain terms and conditions.
9. LEASES
The Company leases office space under a lease agreement established in
1989 with ASIST. The lease expense for 1999, 1998 and 1997 was
$5,003,000, $3,588,000 and $2,428,000 respectively. Future minimum
lease payments per year and in aggregate as of December 31, 1999 are as
follows:
(in thousands) 2000 $ 7,004
2001 7,004
2002 6,854
2003 6,756
2004 6,929
2005 and thereafter 51,865
--------
Total $86,412
=======
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 $4,868,000 and
$3,747,000 as of December 31, 1999, and 1998, respectively. These
deposits are required to be maintained for the protection of
contractowners within the individual states.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
11. RETAINED EARNINGS AND DIVIDEND RESTRICTIONS
On November 8, 1999, the Board of Directors authorized the Company to
increase the par value of its capital stock from $80 per share to $100
per share in order to comply with minimum capital levels as required by
the California Department of Insurance. This transaction resulted in a
corresponding decrease in paid in and contributed surplus of $500,000
and had no effect on capital and surplus.
Statutory basis shareholder's equity was $286,385,000 and $285,553,000
at December 31, 1999 and 1998, respectively.
The statutory basis net loss was $17,672,000, $13,152,000 and
$8,970,000 for the years ended December 31, 1999, 1998 and 1997,
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, 1999, 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
$3,164,000, $2,115,000 and $1,220,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
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 $193,000,
$342,000 and $270,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
The Company and an affiliate cooperatively have a long-term incentive
program under which units are awarded to executive officers and other
personnel. The Company also has a profit sharing program which benefits
all employees below the officer level. These programs consist of
multiple plans with new plans 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 program. The accrued liability representing the value of these
units was $42,619,000 and $21,372,000 as of December 31, 1999 and 1998,
respectively. Payments under this plan were $4,079,000, $2,407,000 and
$1,119,000 for the years ended December 31, 1999, 1998, and 1997,
respectively.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
13. REINSURANCE
The effect of reinsurance for the years ended December 31, 1999, 1998
and 1997 is as follows:
(in thousands) 1999
----
<TABLE>
<CAPTION>
Annuity and Life Annuity and Life
Insurance Insurance Return Credited
Charges and Fees Policy Reserves to Contractowners
<S> <C> <C> <C>
Gross $326,670 $315 ($1,397)
Ceded (36,681) 2,763 (242)
-------- ------ --------
Net $289,989 $3,078 ($1,639)
======== ====== ========
1998
----
Annuity and Life Annuity and Life
Insurance Insurance Return Credited
Charges and Fees Policy Reserves to Contractowners
Gross $215,425 $ 691 ($8,921)
Ceded (29,214) 362 (9)
-------- ------ --------
Net $186,211 $1,053 ($8,930)
======== ====== ========
1997
----
Annuity and life Annuity and Life
Insurance Insurance 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)
======== ===== ========
</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
its 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, 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
(in thousands)
Interest for the
Interest 1999 1998 Years Ended December 31,
Issue Date Rate Amount Amount 1999 1998 1997
---------- ---- ------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
December 29, 1993 6.84% - - - 1,387 1,387
February 18, 1994 7.28% 10,000 10,000 738 738 738
March 28, 1994 7.90% 10,000 10,000 801 801 801
September 30, 1994 9.13% 15,000 15,000 1,389 1,389 1,389
December 28, 1994 9.78% - 14,000 1,308 1,388 1,388
December 19, 1995 7.52% 10,000 10,000 762 762 762
December 20, 1995 7.49% 15,000 15,000 1,139 1,139 1,139
December 22, 1995 7.47% 9,000 9,000 682 682 682
June 28, 1996 8.41% 40,000 40,000 3,411 3,411 3,411
December 30, 1996 8.03% 70,000 70,000 5,698 5,699 5,699
Total $179,000 $193,000 $15,928 $17,396 $17,396
======== ======== ======= ======= =======
</TABLE>
The surplus note for $14,000,000 dated December 28, 1994 was converted
to additional paid-in capital on December 10, 1999. A 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, 1999 and
1998, $14,372,000 and $9,644,000, 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, 1999 and 1998. The total interest expense to the Company
was $585,000, $622,000 and $642,000 and for the years ended December
31, 1999, 1998 and 1997, respectively, of which $197,000 and $182,000
was payable as of December 31, 1999 and 1998, 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
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.
Assets under management and sales for the products other than variable
annuities have not been significant enough to warrant full segment
disclosures as required by SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information."
18. SUBSEQUENT EVENT
On March 22, 2000, the Company sold certain rights to receive future
fees and contract charges expected to be received on variable portions
of deferred annuity contracts issued between August 1, 1999 and January
31, 2000. This transaction is the latest in a series of agreements with
ASI, as described in Note 8.
This transaction has an effective date of March 22, 2000. The present
value as of this date, discounted at 7.5%, was $171,781,000.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
19. 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
-------- ------- ------------ -----------
1999
Premiums and other insurance
<S> <C> <C> <C> <C>
revenues $78,412 $88,435 $97,955 $111,540
Net investment income 2,654 2,842 2,735 2,210
Net realized capital gains 295 25 206 52
---------- ----------- ---------- -----------
Total revenues 81,361 91,302 100,896 113,802
Benefits and expenses 64,107 67,803 71,597 77,341
-------- -------- -------- --------
Pre-tax net income 17,254 23,499 29,299 36,461
Income taxes 3,844 7,142 7,898 11,460
--------- --------- --------- -------
Net income $ 13,410 $ 16,357 $ 21,401 $25,001
======== ======== ======== =======
1998
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
======== ======== ======== ========
</TABLE>
<PAGE>
APPENDIX B - ILLUSTRATION OF MARKET VALUE ADJUSTMENT
The formula used to determine the market value adjustment ("MVA") is
applied as of the date we receive a request In Writing for a full or partial
surrender. When choosing an alternate Guarantee Period, the formula is applied
as of the first business day after the date we receive all the information we
need to process your request. Values and time durations used in the formula are
as of such date. Current Rates and available Guarantee Periods are those for
your type of Contract. The formula is:
[ (1+I) / (1+J+ the adjustment amount) ] N/12
where:
I is the Guarantee Rate applicable to the Guarantee Period for your
Contract;
J is the Current Rate for the Guarantee Period equal to the number of
years (rounded to the next higher number when occurring on other than
an anniversary of the beginning of the current Guarantee Period)
remaining in your current Guarantee Period ("Remaining Period");
N is the number of months (rounded to the next higher number when
occurring on other than a monthly anniversary of the beginning of the
current Guarantee Period) remaining in your Guarantee Period.
Nonetheless, a full or partial surrender at the end of a Guarantee
Period is not affected by the MVA.
If we are no longer offering a Guarantee Period equal to the Remaining
Period but are offering Guarantee Periods that are both shorter and longer than
the Remaining Period, we will interpolate a rate for J between our Current Rates
for the next shortest and next longest Guarantee Periods then being offered. If
we are no longer offering a Guarantee Period equal to the Remaining Period and
also are no longer offering Guarantee Periods that are both longer and shorter
than the Remaining Period, we will determine rates for both I and J based on the
Moody's Corporate Bond Yield Average - Monthly Average Corporates (the
"Average"), as published by Moody's Investor Services, Inc., its successor, or
an equivalent service should such Average no longer be published by Moody's. For
determining I, we will use the Average for the applicable Guarantee Period
published on or immediately prior to the start of your current Guarantee Period.
For determining J, we will use the Average for the Remaining Period published on
or immediately prior to the date the MVA is calculated.
<TABLE>
<CAPTION>
In the special case where I = J, the MVA is set equal to 1.
The following examples show the effect of the MVA on a surrender. The
examples assume surrender charges do not apply and:
<S> <C>
Interim Value at Beginning of Guarantee Period: $50,000
Guarantee Period: 5 years
Guarantee Rate: 5% effective annual rate
Date of Calculation: End of the third year since
the beginning of the
Guarantee Period
(two exact years remaining
to the end of the Guarantee
Period)
Adjustment Amount: 0.25% of interest
</TABLE>
<PAGE>
Example of Upward Adjustment
Assume J = 3.5%(Current Rate for Contracts electing a two year Guarantee Period)
At this point I = 5% (0.05) and N = 24 (number of months remaining in the
Guarantee Period)
Interim Value prior to application of MVA: $57,881.25
MVA = [(1+I)/(1+J+0.0025)] N/12 = [1.05/1.0375] 2 = 1.024242
Net Surrender Value = Interim Value X MVA = $59,284.38.
Example of Downward Adjustment
Assume J = 6% (Current Rate for Contracts electing a two year Guarantee Period)
At this point I = 5% (0.05) and N = 24 (number of months remaining in the
Guarantee Period)
Interim Value prior to application of MVA: $57,881.25.
MVA = [(1+I)/(1+J+0.0025)] N/12 = [1.05/1.0625] 2 = .97661
Net Surrender Value = Interim Value X MVA = $56,527.35.
- -------------------------------------------------------------------------------
<PAGE>
APPENDIX C - ILLUSTRATION OF INTEREST CREDITING
THIS EXAMPLE ASSUMES NO PARTIAL SURRENDERS DURING THE GUARANTEE PERIOD. WHETHER
A SURRENDER CHARGE APPLIES TO ANY INTERIM PARTIAL SURRENDERS OR TO A FULL OR
PARTIAL SURRENDER AT THE END OF THE GUARANTEE PERIOD DEPENDS ON THE STRUCTURE OF
SURRENDER CHARGES AS SHOWN IN YOUR CONTRACT, AND WHETHER THAT GUARANTEE PERIOD
EXTENDS BEYOND THE DATE SURRENDER CHARGES APPLY. THE MARKET VALUE ADJUSTMENT
WOULD APPLY TO ANY INTERIM PARTIAL SURRENDER EXCEPT, WHERE REQUIRED BY LAW, AN
INTERIM PARTIAL SURRENDER OCCURRING NOT MORE THAN 30 DAYS BEFORE THE END OF A
GUARANTEE PERIOD.
THE HYPOTHETICAL INTEREST RATE USED IS ILLUSTRATIVE ONLY AND IS NOT INTENDED TO
PREDICT FUTURE INTEREST RATES TO BE DECLARED FOR ANY CONTRACT. ACTUAL INTEREST
RATES DECLARED FOR ANY GIVEN CONTRACT AT ANY GIVEN TIME MAY BE MORE OR LESS THAN
THOSE SHOWN.
In this example the Guarantee Period begins on the Contract Date. Should an
alternate Guarantee Period be chosen, Guarantee Periods may begin and end on
other than anniversaries of the Contract Date.
Interim Value at beginning of Guarantee Period: $50,000
Guarantee Period: 5 Years
Guaranteed Rate: 5% Effective Annual Rate
Interest Credited Cumulative
During Interest
Year Contract Year Credited
---- ------------- --------
1 $2,500.00 $2,500.00
2 2,625.00 5,125.00
3 2,756.25 7,881.25
4 2,894.06 10,775.31
5 3,038.77 13,814.08
<PAGE>
ADDITIONAL INFORMATION
Inquiries will be answered by calling your
representative or by writing to:
American Skandia Life Assurance Corporation
at
P.O. Box 883
Shelton, Connecticut 06484
or
[email protected]
Issued by: Serviced by:
AMERICAN SKANDIA LIFE AMERICAN SKANDIA LIFE
ASSURANCE CORP. ASSURANCE CORP.
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
gma
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
Not Applicable
Item 15. Indemnification of Directors and Officers
Under Section 33-320a of the Connecticut General Statutes, the
Registrant must indemnify a director or officer against
judgments, fines, penalties, amounts paid in settlement and
reasonable expenses including attorneys' fees, for actions
brought or threatened to be brought against him in his
capacity as a director or officer when certain disinterested
parties determine that he acted in good faith and in a manner
he reasonably believed to be in the best interests of the
Registrant. In any criminal action or proceeding, it also must
be determined that the director or officer had no reason to
believe his conduct was unlawful. The director or officer must
also be indemnified when he is successful on the merits in the
defense of a proceeding or in circumstances where a court
determines that he is fairly and reasonably entitled to be
indemnified, and the court approves the amount. In shareholder
derivative suits, the director or officer must be finally
adjudged not to have breached his duty to the Registrant, or a
court must determine that he is fairly and reasonably entitled
to be indemnified and must approve the amount. In a claim
based upon the director's or officer's purchase or sale of the
Registrant's securities, the director or officer may obtain
indemnification only if a court determines that, in view of
all the circumstances, he is fairly and reasonably entitled to
be indemnified and then for such amount as the court shall
determine. The By-Laws of Skandia Life also provide directors
and officers with rights of indemnification, consistent with
Connecticut law.
The foregoing statements are subject to the provisions of
Section 33-320a.
Directors and officers of Skandia Life and American Skandia
Marketing, Incorporated ("ASM, Inc.") can also be indemnified
pursuant to Indemnity Agreements between each director and
officer and American Skandia Inc., a corporation organized
under the laws of the state of Delaware. The provisions of the
Indemnity Agreements are governed by Section 45 of the General
Corporation Law of the State of Delaware.
The directors and officers of Skandia Life and ASM, Inc. are
covered under a directors and officers liability insurance
policy issued to Skandia Insurance Company Ltd., their
ultimate parent. Such policy will reimburse Skandia Life or
ASM, Inc., as applicable, for any payments that it shall make
to directors, officers and controlling persons of Registrant
pursuant to law and, subject certain exclusions in the policy,
will pay any other costs, charges, expenses, settlements or
judgements arising from any proceeding involving any director
or officer of Skandia Life or ASM, Inc., as applicable in his
or her past present capacity as such.
<TABLE>
<CAPTION>
<S> <C> <C>
Item 16. Exhibits
Exhibits Page
1 Underwriting agreement incorporated by reference to Post-Effective
Amendment No. 1 to Registration Statement No. 333-25733, filed via
EDGAR March 2, 1998.
2 Plan of acquisition, reorganization, arrangement, liquidation or succession Not applicable
3 Articles of incorporation and by-laws Incorporated by reference to
Post-Effective Amendment No. 6 to Registration Statement No. 33-87010,
filed via EDGAR March 2, 1998.
4 Instruments defining the rights of security holders, including
indentures (Incorporated by reference to initial Registration Statement
No. 33-89676, filed February 22, 1995) FILED VIA EDGAR with
Post-Effective Amendment No. 3 to this Registration Statement No.
33-89676, filed April 28, 1998.
5 Opinion re legality (included as Exhibit 23b)
6 - 9 Not applicable
10 Material contracts (Investment Management Agreement)
(a) Agreement with J.P. Morgan Investment Management Inc. incorporated by
reference to Post-Effective Amendment No. 1 to Registration Statement
No. 333-00941, filed via EDGAR February 25, 1997.
(b) Agreement with Fleet Investment Advisors Inc., incorporated by
reference to Post-Effective Amendment No. 1 to Registration Statement
No. 333-00941, filed via EDGAR February 25, 1997
11 - 22 Not applicable
23a Consent of Ernst & Young LLP FILED HEREWITH
23b Opinion & Consent of Counsel FILED HEREWITH
24 Power of Attorney
a) Directors Boronow, Campbell, Carendi, Danckwardt, Dokken, Sutyak,
Mazzaferro, Moberg, Soderstrom, Tracy, Svensson, and Collins
filed via EDGAR in the initial Registration Statement to
Registration Statement No. 333-25733, filed April 24, 1997.
b) Directors Kennedy and Winson filed via EDGAR with Post-Effective
Amendment No. 4 to REgistration Statement No. 333-25733.
25 - 28 Not applicable
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
An index to the financial statement schedules is omitted because it is not
required or is not applicable.
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, post-effective amendments to this registration
statement:
(i) To include any prospectus required by section 10 (a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4) The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
LEGAL EXPERTS: The General Counsel of American Skandia Life
Assurance Corporation has passed on the legal matters with
respect to Federal laws and regulations applicable to the
issue and sale of the Annuities and with respect to
Connecticut law.
Exhibits
Exhibit 23a Consent of Ernst & Young LLP
Exhibit 23b Opinion & consent of Counsel
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Shelton, State of Connecticut, April 26, 2000.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
Registrant
By:/s/ Kathleen A. Chapman Attest:/s/ Scott K. Richardson
Kathleen A. Chapman, Assistant Corporate Secretary Scott K. Richardson
<TABLE>
<CAPTION>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
Signature Title Date
<S> <C> <C>
(Principal Executive Officer)
Jan R. Carendi* Chief Executive Officer, April 26, 2000
Jan R. Carendi Chairman of the Board and Director
(Principal Financial Officer)
/s/ Thomas M. Mazzaferro Executive Vice President and April 26, 2000
Thomas M. Mazzaferro Chief Financial Officer
(Principal Accounting Officer)
/s/ David R. Monroe Vice President and April 26, 2000
David R. Monroe Controller
(Board of Directors)
Jan. R. Carendi* Gordon C. Boronow* Malcolm M. Campbell*
---------------- ------------------ --------------------
Jan. R. Carendi Gordon C. Boronow Malcolm M. Campbell
Henrik Danckwardt* Amanda C. Sutyak* Wade A. Dokken*
------------------ ----------------- ---------------
Henrik Danckwardt Amanda C. Sutyak Wade A. Dokken
Thomas M. Mazzaferro* Gunnar Moberg* Bayard F. Tracy*
--------------------- -------------- ----------------
Thomas M. Mazzaferro Gunnar Moberg Bayard F. Tracy
Anders Soderstrom* C. Ake Svensson* Lincoln R. Collins*
------------------ ---------------- -------------------
Anders Soderstrom C. Ake Svensson Lincoln R. Collins
T. Richard Kennedy** Brett M. Winson**
-------------------- -----------------
T. Richard Kennedy Brett M. Winson
*/**By: /s/Kathleen A. Chapman
---------------------------
Kathleen A. Chapman
<FN>
*Pursuant to Powers of Attorney filed with Initial Registration Statement No. 333-25733
**Pursuant to Power of Attorney filed with Post-Effective Amendment No. 4 to Registration Statement No. 333-25733
</FN>
</TABLE>
GMA
INDEPENDENT AUDITORS' CONSENT
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference in this Registration Statement (Form S-2 No.
33-89676) of our report dated February 11, 2000, included in the Annual Report
on Form 10-K of American Skandia Life Assurance Corporation for the year ended
December 31, 1999 and to the use of our report dated February 11, 2000,
appearing in the Prospectus, which is part of this Registration Statement.
/s/Ernst & Young LLP
Hartford, Connecticut
April 26, 2000
American Skandia Life
Assurance Corporation
One Corporate Drive
P.O. Box 883
Shelton, CT 06484-0883
Telephone (203) 926-1888
Fax (203) 925-6932
April 25, 2000
American Skandia Life Assurance Corporation
One Corporate Drive
Shelton, Connecticut 06484
RE: Post-Effective Amendment No. 5 to Registration Statement on
Form S-2 filed by American Skandia Life Assurance Corporation,
Registrant Securities Act Registration No. 33-89676
Dear Sir/Madam:
I have acted as General Counsel to American Skandia Life Assurance Corporation
(the "Company"), a Connecticut insurance company, in connection with the
registration of certain securities with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, in the form of a market value
adjustable fixed investment option (the "Contracts") issued by the Company.
I have examined or caused to be examined such documents (including the Form S-2
registration statement) and reviewed or caused to be reviewed such questions of
law as I considered necessary and appropriate, and on the basis of such
examination and review, it is my opinion that:
1. The Company is a corporation duly organized and validly existing as a stock
life insurance company under the laws of the State of Connecticut and is
duly authorized by the Insurance Department of the State of Connecticut to
issue the Contacts.
2. The Contracts, when issued as contemplated by the Form S-2 Registration
Statement, will constitute legal, validly issued and binding obligations of
the Company.
I hereby consent to the filing of this opinion as an exhibit to the Form S-2
registration statement for the Contracts and the Account.
Sincerely yours,
/s/ T. Richard Kennedy
T. Richard Kennedy
General Counsel
GMA
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000881453
<NAME> ASLAC1299
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 198,165
<DEBT-CARRYING-VALUE> 201,525
<DEBT-MARKET-VALUE> 201,509
<EQUITIES> 16,404
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 219,388
<CASH> 89,212
<RECOVER-REINSURE> 4,062
<DEFERRED-ACQUISITION> 1,087,705
<TOTAL-ASSETS> 30,849,414 <F1>
<POLICY-LOSSES> 41,127
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 189,000
0
0
<COMMON> 2,500
<OTHER-SE> 356,934
<TOTAL-LIABILITY-AND-EQUITY> 30,849,414 <F2>
1,278
<INVESTMENT-INCOME> 10,441
<INVESTMENT-GAINS> 578
<OTHER-INCOME> 375,064 <F3>
<BENEFITS> 4,996
<UNDERWRITING-AMORTIZATION> 83,861
<UNDERWRITING-OTHER> 191,991
<INCOME-PRETAX> 106,513
<INCOME-TAX> 30,344
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 76,169
<EPS-BASIC> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1> Included in Total Assets are Assets Held in Separate Accounts of
$29,381,166.
<F2> Included in Total Liabilities and Equity are Liabilities Related to
Separate Accounts of $29,381,166.
<F3> Other income includes annuity charges and fees of $289,989 and fee income
of $83,243.
</FN>
</TABLE>
