Filed with the Securities and Exchange Commission on July 25, 1996
Registration No. 333-[ ] Investment Company Act No. 811-8248
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
Registration Statement under The Securities Act of 1933
and/or
Registration Statement under The Investment Company Act of 1940
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B
(CLASS 2 SUB-ACCOUNTS)
(Exact Name of Registrant)
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(Name of Depositor)
ONE CORPORATE DRIVE, SHELTON, CONNECTICUT 06484
(Address of Depositor's Principal Executive Offices)
(203) 926-1888
(Depositor's Telephone Number)
M. PATRICIA PAEZ, CORPORATE SECRETARY
One Corporate Drive, Shelton, Connecticut 06484
(Name and Address of Agent for Service of Process)
Copy To:
JOHN T. BUCKLEY, ESQ.
WERNER & KENNEDY
1633 Broadway, New York, New York 10019 (212) 408-6900
Approximate Date of Proposed Sale to the Public: October 14, 1996 OR AS
SOON AS PRACTICABLE FOLLOWING THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
It is proposed that this filing become effective: (check appropriate space)
immediately upon filing pursuant to paragraph (b) of Rule 485
on __________ pursuant to paragraph (b) of Rule 485
60 days after filing pursuant to paragraph (a) (i) of Rule 485
on __________ pursuant to paragraph (a) (i) of Rule 485
75 days after filing pursuant to paragraph (a) (ii) of Rule 485
on ______________pursuant to paragraph (a) (ii) of Rule 485
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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Proposed Proposed
Maximum Maximum
Amount Offering Aggregate Amount of
Title of Securities to be Price Offering Registration
to be Registered Registered Per Unit Price Fee
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American Skandia Life Assurance
Corporation Annuity Contracts Indefinite* Indefinite* $500.00
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*Pursuant to Rule 24f-2 of the Investment Company Act of 1940
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Registrant has registered an indefinite number or amount of securities under the
Securities Act of 1933 pursuant to Rule 24f-2 of the Investment Company Act of
1940. The Rule 24f-2 Notice for Registrant's fiscal year 1996 was filed within
60 days of the close of the fiscal year.
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 becomes 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.
CHC2
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CROSS REFERENCE SHEET PURSUANT TO RULE 495(a)
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N-4 Item No. Prospectus Heading
1. Cover Page Cover Page
2. Definitions Definitions
3. Synopsis or Highlights Highlights
4. Condensed Financial Information Condensed Financial Information, Advertising
5. General Description of Registrant, Depositor Investment Options, Operations of the
and Portfolio Companies Separate Accounts, The Company
6. Deductions Charges Assessed or Assessable Against the Annuity, Charges Assessed
Against Assets, Charges of the Underlying Mutual Funds
7. General Description of Variable Annuity Contracts Purchasing Annuities, Rights, Benefits and
Services, Modification
8. Annuity Period Annuity Payments
9. Death Benefit Death Benefit
10. Purchases and Contract Value Purchasing Annuities, Account Value
11. Redemptions Distributions, Pricing of Transfers and Distributions, Deferral of Transactions
12. Taxes Certain Tax Considerations
13. Legal Proceedings Legal Proceedings
14. Table of Contents of the Statement of Additional Information Contents of the Statement of
Additional Information
SAI Heading
15. Cover Page Statement of Additional Information
16. Table of Contents Table of Contents
17. General Information and History General Information Regarding American
Skandia Life Assurance Corporation
18. Services Independent Auditors
19. Purchase of Securities Being Offered Noted in Prospectus under
Sale of the Annuities
20. Underwriters Principal Underwriter
(Continued)
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CROSS REFERENCE SHEET PURSUANT TO RULE 495(a)
N-4 Item No. SAI Headings
21. Calculation of Performance Data Calculation of Performance Data
22. Annuity Payments Noted in Prospectus under Annuity Payments
23. Financial Statements Financial Statements for Separate
Account B (Class 2 Sub-accounts)
Part C Heading
24. Financial Statements and Exhibits Financial Statements
and Exhibits
25. Directors and Officers of the Depositor Noted in Prospectus under Executive
Officers and Directors
26. Persons Controlled by or Under Persons Controlled By or
Common Control with the Under Common Control with the
Depositor or Registrant Depositor or Registrant
27. Number of Contractowners Number of Contractowners
28. Indemnification Indemnification
29. Principal Underwriters Principal Underwriters
30. Location of Accounts and Records Location of Accounts
and Records
31. Management Services Management Services
32. Undertakings Undertakings
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This Prospectus describes a type of annuity (the "Annuity") being offered by
American Skandia Life Assurance Corporation ("we", "our" or "us"), One Corporate
Drive, Shelton, Connecticut, 06484. This flexible premium Annuity may be offered
as individual annuity contracts or as interests in a group annuity. The Table of
Contents is on Page 4. Definitions applicable to this Prospectus are on page 6.
The highlights of this offering are described beginning on Page 8. This
Prospectus contains a detailed discussion of matters you should consider before
purchasing this Annuity. A Statement of Additional Information has been filed
with the Securities and Exchange Commission and is available from us without
charge upon request. The contents of the Statement of Additional Information are
described on page [ ]. The Annuity or certain of its investment options may not
be available in all jurisdictions. Various rights and benefits may differ
between jurisdictions to meet applicable laws and/or regulations.
A Purchase Payment for this Annuity is assessed any applicable tax charge (see
"Tax Charges"). It is then allocated to the investment options you select,
except in certain jurisdictions, where allocations of Purchase Payments we
receive during the "free-look" period that you direct to any Sub-accounts are
temporarily allocated to a money-market type Sub-account (see "Allocation of Net
Purchase Payments"). You may transfer Account Value between investment options
(see "Investment Options" and "Transfers"). Account Value may be distributed as
periodic annuity payments in a "payout phase". Such annuity payments can be
guaranteed for life (see "Annuity Payments"). During the "accumulation phase"
(the period before any payout phase), you may surrender the Annuity for its
Account Value or make withdrawals (see "Distributions"). Such distributions may
be subject to tax, including a tax penalty (see "Certain Tax Considerations").
Account Value in the variable investment options increases or decreases daily to
reflect investment performance and the deduction of charges. No minimum amount
is guaranteed (see "Account Value in the Sub-accounts"). The variable investment
options are Class 2 Sub-accounts of American Skandia Life Assurance Corporation
Variable Account B ("Separate Account B")(see "Separate Accounts" and "Separate
Account B"). Each Sub-account invests exclusively in one portfolio of an
underlying mutual fund or in an underlying mutual fund. As of the date of this
Prospectus, the underlying mutual funds (and the portfolios of such underlying
mutual funds in which Sub-accounts offered pursuant to this Prospectus invest)
are: (a) American Skandia Trust (portfolios - JanCap Growth, Janus Overseas
Growth, Lord Abbett Growth and Income, Seligman Henderson International Equity,
Seligman Henderson International Small Cap, Federated Utility Income, Federated
High Yield, AST Phoenix Balanced Asset, AST Money Market, T. Rowe Price Asset
Allocation, T. Rowe Price International Equity, T. Rowe Price Natural Resources,
T. Rowe Price International Bond, Founders Capital Appreciation, Founders
Passport, INVESCO Equity Income, PIMCO Total Return Bond, PIMCO Limited Maturity
Bond, Berger Capital Growth, Robertson Stephens Value + Growth, Putnam Growth
and Income, Putnam Overseas Equity, Twentieth Century Balanced, Twentieth
Century International Equity); (b) The Alger American Fund (portfolios - Growth,
Small Capitalization, MidCap Growth); (c) Neuberger & Berman Advisers Management
Trust (portfolio - Partners); and (d) Montgomery Variable Series (portfolio -
Emerging Markets).
In most jurisdictions, Account Value may be allocated to a fixed investment
option during the accumulation phase. Account Value so allocated earns a fixed
rate of interest for a specified period of time referred to as a Guarantee
Period. Guarantee Periods of different durations may be offered (see "Fixed
Investment Options"). Such an allocation and the interest earned is guaranteed
by us only if held to its Maturity Date. You are cautioned that with respect to
the fixed investment options during the accumulation phase, we do not guarantee
any minimum amount, because the value may be increased or decreased by a market
value adjustment (see "Account Value of the Fixed Allocations"). Assets
supporting such allocations in the accumulation phase are held in American
Skandia Life Assurance Corporation Separate Account D ("Separate Account D")
(see "Separate Accounts" and "Separate Account D").
We guarantee fixed annuity payments. We also guarantee any adjustable annuity
payments we may make available (see "Annuity Payments").
This Annuity is designed for use in connection with investment allocation
services provided by an Advisor. Before we issue an Annuity, we may require
evidence satisfactory to us that you have engaged the services of an Advisor.
(continued on Page 2)
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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.
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FOR FURTHER INFORMATION CALL 1-800-752-6342.
Prospectus Dated: October 14, 1996
Statement of Additional Information Dated: October 14, 1996
CHC2 PROS(10/96)
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Taxes on gains during the accumulation phase may be deferred until you begin to
take distributions from your Annuity. Distributions before age 59 1/2 may be
subject to a tax penalty. In the payout phase, a portion of each annuity payment
may be treated as a return of your "investment in the contract" until it is
completely recovered. Transfers between investment options are not subject to
taxation. The Annuity may also qualify for special tax treatment under certain
sections of the Code, including, but not limited to, Sections 401, 403 or 408
(see "Certain Tax Considerations").
Purchase Payments under these Annuities are not deposits or obligations of, or
guaranteed or endorsed by, any bank or bank subsidiary, are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other agency and are not insured by the Securities Investor Protection
Corporation ("SIPC") as to the loss of the principal amount invested. Purchase
payments allocated to the variable investment options are subject to investment
risks, including possible loss of principal.
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(This page has been purposely left blank.)
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TABLE OF CONTENTS
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DEFINITIONS.....................................................................................................................6
HIGHLIGHTS......................................................................................................................8
AVAILABLE
INFORMATION........................................................................................................... 10
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.................................................................................10
CONTRACT EXPENSE SUMMARY........................................................................................................10
EXPENSE EXAMPLES................................................................................................................12
CONDENSED FINANCIAL INFORMATION.................................................................................................13
Unit Prices And Numbers of Units.......................................................................................13
INVESTMENT OPTIONS..............................................................................................................15
Variable Investment Options............................................................................................15
Fixed Investment Options...............................................................................................17
OPERATIONS OF THE SEPARATE ACCOUNTS.............................................................................................18
Separate Accounts......................................................................................................18
SeparateAccount B..................................................................................................... 18
Separate Account D.....................................................................................................19
INSURANCE ASPECTS OF THE ANNUITY................................................................................................20
CHARGES ASSESSED OR ASSESSABLE AGAINST THE ANNUITY..............................................................................20
Maintenance Fee........................................................................................................20
Tax Charges............................................................................................................20
Transfer Fee...........................................................................................................20
Allocation Of Annuity Charges..........................................................................................20
CHARGES ASSESSED AGAINST THE ASSETS.............................................................................................20
Administration Charge..................................................................................................20
Mortality and Expense Risk Charges.....................................................................................21
CHARGES OF THE UNDERLYING MUTUAL FUNDS..........................................................................................21
PURCHASING ANNUITIES............................................................................................................21
Uses Of The Annuity....................................................................................................21
Application And Initial Payment........................................................................................21
Periodic Purchase Payments.............................................................................................22
Right to Return the Annuity............................................................................................22
Allocation of Net Purchase Payments....................................................................................22
Balanced Investment Program............................................................................................22
Ownership, Annuitant and Beneficiary Designations......................................................................22
ACCOUNT VALUE AND SURRENDER VALUE...............................................................................................23
Account Value in the Sub-accounts......................................................................................23
Account Value of the Fixed Allocations.................................................................................23
RIGHTS, BENEFITS AND SERVICES...................................................................................................24
Additional Purchase Payments...........................................................................................24
Changing Revocable Designations........................................................................................24
Allocation Rules.......................................................................................................25
Transfers..............................................................................................................25
Renewals......................................................................................................26
Dollar Cost Averaging.........................................................................................26
Rebalancing...................................................................................................26
Distributions..........................................................................................................27
Surrender.....................................................................................................27
Partial Withdrawals...........................................................................................27
Systematic Withdrawals........................................................................................27
Minimum Distributions.........................................................................................28
Death Benefit.................................................................................................28
Annuity Payments..............................................................................................29
Qualified Plan Withdrawal Limitations.........................................................................30
Pricing of Transfers and Distributions.................................................................................31
Voting Rights..........................................................................................................31
Transfers, Assignments or Pledges......................................................................................32
Reports to You.........................................................................................................32
SALE OF THE ANNUITIES...........................................................................................................32
Distribution...........................................................................................................32
Advertising............................................................................................................32
CERTAIN TAX CONSIDERATIONS......................................................................................................33
Our Tax Considerations.................................................................................................33
Tax Considerations Relating to Your Annuity............................................................................33
Non-natural Persons...........................................................................................33
Natural Persons...............................................................................................33
Distributions.................................................................................................33
Assignments and Pledges.......................................................................................34
Penalty on Distributions......................................................................................34
Annuity Payments..............................................................................................35
Gifts.........................................................................................................35
Tax Free Exchanges............................................................................................35
Transfers Between Investment Options..........................................................................35
Generation-Skipping Transfers.................................................................................35
Diversification...............................................................................................35
Federal Income Tax Withholding................................................................................35
Tax Considerations When Using Annuities in Conjunction with Qualified Plans............................................35
Individual Retirement Programs................................................................................36
Tax Sheltered Annuities.......................................................................................36
Corporate Pension and Profit-sharing Plans....................................................................36
H.R. 10 Plans.................................................................................................36
Tax Treatment of Distributions from Qualified Annuities.......................................................36
Section 457 Plans.............................................................................................36
OTHER MATTERS...................................................................................................................36
Deferral of Transactions...............................................................................................36
Resolving Material Conflicts...........................................................................................37
Modification...........................................................................................................37
Misstatement of Age or Sex.............................................................................................37
Ending the Offer.......................................................................................................37
Indemnification........................................................................................................38
Legal Proceedings......................................................................................................38
THE COMPANY.....................................................................................................................38
Lines of Business.....................................................................................................38
Selected Financial Data................................................................................................38
Management's Discussion and Analysis of Financial Condition and Results of Operations..................................38
Results of Operation...................................................................................................38
Liquity and Capital Resources..........................................................................................39
Segment Information...........................................................................................40
Reinsurance............................................................................................................40
Surplus Notes..........................................................................................................40
Reserves...............................................................................................................40
Competition............................................................................................................40
Employees..............................................................................................................40
Regulation.............................................................................................................41
Executive Officers and Directors.......................................................................................41
Executive Compensation.................................................................................................43
Summary Compensation Table....................................................................................43
Long-Term Incentive Plans - Awards in the Last Fiscal Year....................................................44
Compensation of Directors.....................................................................................44
Compensation Committee Interlocks and Insider Participation...................................................45
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION.............................................................................45
FINANCIAL STATEMENTS............................................................................................................45
APPENDIX A FINANCIAL STATEMENTS FOR AMERICAN SKANDIA LIFE ASSURANCE CORPORATION................................................46
APPENDIX B SHORT DESCRIPTIONS OF THE UNDERLYING MUTUAL FUNDS' PORTFOLIO INVESTMENT OBJECTIVES AND POLICIES.....................46
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<PAGE>
DEFINITIONS: The following are key terms used in this Prospectus. Other
terms are defined in this Prospectus as they appear.
ACCOUNT VALUE is the value of each allocation to a Sub-account or a Fixed
Allocation prior to the Annuity Date, plus any earnings, and/or less any losses,
distributions and charges thereon, before assessment of any applicable
maintenance fee. Account Value is determined separately for each Sub-account and
for each Fixed Allocation, and then totaled to determine Account Value for your
entire Annuity. Account Value of each Fixed Allocation on other than such Fixed
Allocation's Maturity Date may be calculated using a market value adjustment.
ADVISOR is a person or entity: (a) registered under the Investment Advisers Act
of 1940, as amended, and, where applicable, under equivalent state law or
regulation regarding the registration of investment advisors; or (b) that may
provide investment advisory services but is exempt from such registration.
ANNUITANT is the person upon whose life your Annuity is written.
ANNUITY is the type of annuity being offered pursuant to this Prospectus. It is
also, if issued, your individual Annuity, or with respect to a group Annuity,
the certificate evidencing your participation in a group Annuity. It also
represents an account we set up and maintain to track our obligations to you.
ANNUITY DATE is the date annuity payments are to commence.
ANNUITY YEARS are continuous 12-month periods commencing on the Issue Date and
each anniversary of the Issue Date.
APPLICATION is the enrollment form or application form we may require you to
submit for an Annuity.
BENEFICIARY is a person designated as the recipient of the death benefit.
CODE is the Internal Revenue Code of 1986, as amended from time to time.
CONTINGENT ANNUITANT is the person named to become the Annuitant on the
Annuitant's death prior to the Annuity Date.
CURRENT RATES are the interest rates we offer to credit to Fixed Allocations for
the duration of newly beginning Guarantee Periods under this Annuity. Current
Rates are contained in a schedule of rates established by us from time to time
for the Guarantee Periods then being offered. We may establish different
schedules for different classes and for different annuities.
FIXED ALLOCATION is an allocation of Account Value that is to be credited a
fixed rate of interest for a specified Guarantee Period during the accumulation
phase and is to be supported by assets in Separate Account D.
GUARANTEE PERIOD is a period of time during the accumulation phase during which
we credit a fixed rate of interest on a Fixed Allocation.
IN WRITING is in a written form satisfactory to us and filed at the Office.
INTERIM VALUE is, as of any particular date, the initial value of a Fixed
Allocation plus all interest credited thereon, less the sum of all previous
transfers and withdrawals of any type from such Fixed Allocation of such Interim
Value and interest thereon from the date of each withdrawal or transfer.
ISSUE DATE is the effective date of your Annuity.
MVA is a market value adjustment used in the determination of Account Value of
each Fixed Allocation as of a date other than such Fixed Allocation's Maturity
Date, and, where required by law, the 30 days prior to the Maturity Date.
MATURITY DATE is the last day in a Guarantee Period.
MINIMUM DISTRIBUTIONS are minimum amounts that must be distributed each year
from an Annuity if used in relation to certain qualified plans under the Code.
NET PURCHASE PAYMENT is a Purchase Payment less any applicable charge for taxes.
OFFICE is our business office, American Skandia Life Assurance Corporation,
One Corporate Drive, P.O. Box 883, Shelton, Connecticut 06484.
OWNER is either an eligible entity or person named as having ownership rights in
relation to an Annuity issued as an individual contract. An Annuity may be
issued as a certificate evidencing interest in a group annuity contract. If so,
the rights, benefits and requirements of and the events relating to an Owner, as
described in this Prospectus, will be the rights, benefits and requirements of
and events relating to the person or entity designated as the participant in
such certificate.
PURCHASE PAYMENT is a cash consideration you give to us for certain rights,
privileges and benefits provided under an Annuity according to its terms.
STRIP (Separate Trading of Registered Interest and Principal) is a direct
obligation of the U.S. Treasury. It consists of a Treasury coupon security
broken into individual payments of either the right to receive the applicable
principal payment or the right to the applicable interest payment.
STRIP YIELD, for purposes of this Annuity, is the ask yield for Strips based
solely on the right to redeem coupons for interest payments.
SUB-ACCOUNT is a division of Separate Account B. We use Sub-accounts to
calculate variable benefits under this Annuity.
SYSTEMATIC WITHDRAWAL is one of a plan of periodic withdrawals of Account Value
during the accumulation phase. Such a plan is subject to our rules.
UNIT is a measure used to calculate your Account Value in a Sub-account prior to
the Annuity Date.
UNIT PRICE is used for calculating: (a) the number of Units allocated to a
Sub-account; and (b) the value of transactions into or out of a Sub-account or
benefits based on Account Value in a Sub-account prior to the Annuity Date. Each
Sub-account has its own Unit Price which will vary each Valuation Period to
reflect the investment experience of that Sub-account.
VALUATION DAY is every day the New York Stock Exchange is open for trading or
any other day that the Securities and Exchange Commission requires mutual funds
or unit investment trusts to be valued.
VALUATION PERIOD is the period of time between the close of business of the New
York Stock Exchange on successive Valuation Days.
"We", "us", "our" or "the Company" means American Skandia Life Assurance
Corporation.
"You" or "your" means the Owner.
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HIGHLIGHTS: The following are only the highlights of the Annuity being
offered pursuant to this Prospectus. A more detailed description follows these
highlights.
(1) Investment Options: We currently offer multiple variable and, in most
jurisdictions, fixed investment options.
During the accumulation phase, we currently offer a number of variable
investment options. Each of these investment options is a Class 2 Sub-account of
Separate Account B. Each Sub-account invests exclusively in one underlying
mutual fund, or a portfolio of an underlying mutual fund. The underlying mutual
fund portfolios are managed by various investment advisors, and in certain
cases, various sub-advisors. A short description of the investment objectives
and policies is found in Appendix B. Certain variable investment options may not
be available in all jurisdictions.
As of the date of this Prospectus, the underlying mutual funds (and the
portfolios of such underlying mutual funds in which Sub-accounts offered
pursuant to this Prospectus invest) are: (a) American Skandia Trust (portfolios
- - JanCap Growth, Janus Overseas Growth, Lord Abbett Growth and Income, Seligman
Henderson International Equity, Seligman Henderson International Small Cap,
Federated Utility Income, Federated High Yield, AST Phoenix Balanced Asset, AST
Money Market, T. Rowe Price Asset Allocation, T. Rowe Price International
Equity, T. Rowe Price Natural Resources, T. Rowe Price International Bond,
Founders Capital Appreciation, Founders Passport, INVESCO Equity Income, PIMCO
Total Return Bond, PIMCO Limited Maturity Bond, Berger Capital Growth, Robertson
Stephens Value + Growth, Putnam Growth and Income, Putnam Overseas Equity,
Twentieth Century Balanced, Twentieth Century International Growth); (b) The
Alger American Fund (portfolios - Growth, Small Capitalization, MidCap Growth);
(c) Neuberger & Berman Advisers Management Trust (portfolio - Partners); and (d)
Montgomery Variable Series (portfolio - Emerging Markets).
In most jurisdictions, we also offer the option during the accumulation phase of
earning one or more fixed rates of interest on all or a portion of your Account
Value. As of the date of this Prospectus, we offered the option to make
allocations at interest rates that could be guaranteed for 1, 2, 3, 5, 7 and 10
years. Each such Fixed Allocation earns the fixed interest rate applicable as of
the date of such allocation. The interest rate credited to a Fixed Allocation
does not change during its Guarantee Period. You may maintain multiple Fixed
Allocations. From time-to-time we declare Current Rates for Fixed Allocations
beginning a new Guarantee Period. The rates we declare are subject to a minimum,
but we may declare higher rates. The minimum is determined in relation to an
index that we do not control.
The end of a Guarantee Period for a specific Fixed Allocation is called its
Maturity Date. At that time, the Guarantee Period normally "renews" and we begin
crediting interest for a new Guarantee Period lasting the same amount of time as
the one just ended. That Fixed Allocation then earns interest during the new
Guarantee Period at a rate that is not less than the one then being earned by
Fixed Allocations for that Guarantee Period by new Annuity purchasers in the
same class. You also may choose a different Guarantee Period from among those we
are then currently making available or you may transfer that Account Value to a
variable Sub-account.
In the payout phase, you may elect fixed annuity payments based on our then
current annuity rates. We also may make available adjustable annuity rates.
For more information, see the section entitled "Investment Options",
including the following subsections: (a) Variable Investment Options; and (b)
Fixed Investment Options.
(2) Operations of the Separate Accounts: In the accumulation phase, the
assets supporting guarantees we make in relation to Fixed Allocations are held
in our Separate Account D. This is a "non-unitized" separate account. However,
values and benefits calculated on the basis of Fixed Allocations are guaranteed
by our general account. In the payout phase, fixed annuity payments and any
adjustable annuity payments we may make available are also guaranteed by our
general account, but the assets supporting such payments are not held in
Separate Account D.
In the accumulation phase, the assets supporting the Account Values maintained
in the Sub-accounts are held in our Separate Account B. These are Class 2
Sub-accounts of Separate Account B. Values and benefits based on these
Sub-accounts are not guaranteed and will vary with the investment performance of
the underlying mutual funds or fund portfolios, as applicable.
For more information, see the section entitled "Operations of the Separate
Accounts", including the following subsections: (a) Separate Accounts; (b)
Separate Account B; and (c) Separate Account D.
(3) Insurance Aspects of the Annuity: There are insurance risks which we
bear in relation to the Annuity. For more information, see the section entitled
"Insurance Aspects of the Annuity".
(4) Charges Assessed or Assessable Against the Annuity: The Annuity
charges which are assessed or may be assessable under certain circumstances are
the maintenance fee, a charge for taxes and a transfer fee. These charges are
allocated according to our rules. We may also charge for certain special
services. For more information, see the section entitled "Charges Assessed or
Assessable Against the Annuity", including the following subsections: (a)
Maintenance Fee; (b) Tax Charges; (c) Transfer Fee; and (d) Allocation of
Annuity Charges.
(5) Charges Assessed Against the Assets: The charges assessed against
assets in the Sub-accounts are the administration charge and the mortality and
expense risk charges. There are no charges deducted from the assets supporting
Fixed Allocations. For more information, see the section entitled "Charges
Assessed Against the Assets", including the following subsections: (a)
Administration Charge; and (b) Mortality and Expense Risk Charges.
(6) Charges Of The Underlying Mutual Funds: Each underlying mutual fund
assesses various charges, including charges for investment management and
investment advisory fees. These charges generally differ between portfolios
within the same underlying mutual fund. You will find additional details in each
fund prospectus and its statement of additional information.
(7) Purchasing Annuities: Annuities are available for multiple uses,
including as a funding vehicle for various retirement programs which qualify for
special treatment under the Code. We may require a properly completed
Application, an acceptable Purchase Payment, evidence that you have engaged the
services of an Advisor (e.g. a properly registered investment advisory firm or
bank) and any other materials under our underwriting rules before we agree to
issue an Annuity. You have the right to return an Annuity within a "free-look"
period if you are not satisfied with it. In most jurisdictions, the initial
Purchase Payment and any Purchase Payments received during the "free-look"
period are allocated according to your instructions. In jurisdictions that
require a "free-look" provision such that, if the Annuity is returned under that
provision, we must return at least your Purchase Payments less any withdrawals,
we temporarily allocate such Purchase Payments to the AST Money Market
Sub-account. Where permitted by law in such jurisdictions, we will allocate such
Purchase Payments according to your instructions, without any temporary
allocation to the AST Money Market Sub-account, if you execute a return waiver.
We offer a balanced investment program in relation to your initial Purchase
Payment. Certain designations must be made, including an Owner and an Annuitant.
You may also make certain other designations that apply to the Annuity if
issued. These designations include a contingent Owner, a Contingent Annuitant
(Contingent Annuitants may be required in conjunction with certain uses of the
Annuity), a Beneficiary, and a contingent Beneficiary. See the section entitled
"Purchasing Annuities", including the following subsections: (a) Uses of the
Annuity; (b) Application and Initial Payment; (c) Periodic Purchase Payments;
(d) Right to Return the Annuity; (e) Allocation of Net Purchase Payments; (f)
Balanced Investment Program; and (g) Ownership, Annuitant and Beneficiary
Designations.
(8) Account Value: In the accumulation phase your Annuity has an
Account Value. Your total Account Value as of a particular date is the sum of
your Account Value in each Sub-account and in each Fixed Allocation. To
determine your Account Value in each Sub-account we multiply the Unit Price as
of the Valuation Period for which the calculation is being made times the number
of Units attributable to you in that Sub-account as of that Valuation Period. We
also determine your Account Value separately for each Fixed Allocation. A Fixed
Allocation's Account Value as of a particular date is determined by multiplying
its then current Interim Value times the MVA. No MVA applies to a Fixed
Allocation as of its Maturity Date. Upon surrender, the Account Value payable
from any Sub-accounts is reduced by the maintenance fee. For more information,
see the section entitled "Account Value", including the following subsections:
(a) Account Value in the Sub-accounts; and (b) Account Value of Fixed
Allocations.
(9) Rights, Benefits and Services: You have a number of rights and
benefits under an Annuity once issued. We also currently provide a number of
services to Owners. These rights, benefits and services are subject to a number
of rules and conditions. These rights, benefits and services include, but are
not limited to, those described in this Prospectus. We accept additional
Purchase Payments during the accumulation phase. We support certain periodic
Purchase Payments, subject to our rules. You may change revocable designations.
You may transfer Account Values between investment options. Transfers in excess
of 12 per year are subject to a fee. We offer dollar cost averaging and
rebalancing during the accumulation phase. During the accumulation phase,
surrender and partial withdrawals are available. In the accumulation phase we
offer Systematic Withdrawals and, for Annuities used in qualified plans, Minimum
Distributions. We offer fixed annuity options, and may offer adjustable annuity
options, that can guarantee payments for life. In the accumulation phase, a
death benefit may be payable. You may transfer or assign your Annuity unless
such rights are limited in conjunction with certain uses of the Annuity. You may
exercise certain voting rights in relation to the underlying mutual fund
portfolios in which the Sub-accounts invest. You have the right to receive
certain reports periodically.
For additional information, see the section entitled "Rights, Benefits and
Services" including the following subsections: (a) Additional Purchase Payments;
(b) Changing Revocable Designations; (c) Allocation Rules; (d) Transfers; (e)
Renewals; (f) Dollar Cost Averaging; (g) Rebalancing; (h) Distributions
(including: (i) Surrender; (ii) Partial Withdrawals; (iii) Systematic
Withdrawals; (iv) Minimum Distributions; (v) Death Benefit; (vi) Annuity
Payments; and (vii) Qualified Plan Withdrawal Limitations); (i) Pricing of
Transfers and Distributions; (j) Voting Rights; (k) Transfers, Assignments and
Pledges; and (l) Reports to You.
(10) The Company: American Skandia Life Assurance Corporation is a wholly
owned subsidiary of American Skandia Investment Holding Corporation, whose
indirect parent is Skandia Insurance Company Ltd. Skandia Insurance Company Ltd.
is a Swedish company that holds a number of insurance companies in many
countries. The predecessor to Skandia Insurance Company Ltd. commenced
operations in 1855. For more information, see the section entitled The Company
and the following subsections: (a) Lines of Business; (b) Selected Financial
Data; (c) Management's Discussion and Analysis of Financial Condition and
Results of Operations (including: (i) Results of Operations; (ii) Liquidity and
Capital Resources; and (iii) Segment Information); (d) Reinsurance; (e)
Reserves; (f) Competition; (g) Employees; (h) Regulation; (i) Executive Officer
and Directors; and (j) Executive Compensation (including: (i) Summary
Compensation Table; (ii) Long Term Incentive Plans-Awards in the Last Fiscal
Year; (iii) Compensation of Directors; and (iv) Compensation Committee
Interlocks and Insider Participation).
AVAILABLE INFORMATION: A Statement of Additional Information is available
from us without charge upon request by filling in the coupon at the end of the
Prospectus and sending it (or a written request) to American Skandia Life
Assurance Corporation, Concierge Desk, P.O. Box 883, Shelton, CT 06484. It
includes further information, as described in the section of this Prospectus
entitled "Contents of the Statement of Additional Information". This Prospectus
is part of the registration statements we filed with the Securities and Exchange
Commission ("SEC") regarding this offering. Additional information on us and
this offering is available in those registration statements and the exhibits
thereto. You may obtain copies of these materials at the prescribed rates from
the SEC's Public Reference Section, 450 Fifth Street N.W., Washington, D.C.,
20549. You may inspect and copy those registration statements and the exhibits
thereto at the SEC's public reference facilities at the above address, Rm. 1024,
and at the SEC's Regional Offices, 7 World Trade Center, New York, NY, and the
Everett McKinley Dirksen Building, 219 South Dearborn Street, Chicago, IL.
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.
We furnish you without charge a copy of any or all of the documents incorporated
by reference in this Prospectus, including any exhibits to such documents which
have been specifically incorporated by reference. We do so upon receipt of your
written or oral request. Please address your request to American Skandia Life
Assurance Corporation, Attention: Concierge Desk, P.O. Box 883, Shelton,
Connecticut, 06484. Our phone number is 1-(800) 752-6342.
CONTRACT EXPENSE SUMMARY: The summary provided below includes information
regarding the expenses for your Annuity, for the Sub-accounts and for the
underlying mutual fund portfolios. More detail regarding the expenses of the
underlying mutual funds and their portfolios may be found either in the
prospectuses for such mutual funds or in the annual reports of such mutual
funds. The expenses of our Sub-accounts (not those of the underlying mutual fund
portfolios in which our Sub-accounts invest) are the same no matter which
Sub-account you choose. Therefore, these expenses are only shown once below. In
certain states, premium taxes may be applicable.
Your Transaction Expenses
<TABLE>
<CAPTION>
<S> <C>
Sales Charge None
Annual Maintenance Fee Smaller of $35.00 or 2% of Account Value
Tax Charges Dependent on the requirements of the applicable jurisdiction
Transfer Fee $10.00 for each transfer after the twelfth in any Annuity Year
Annual Expenses of the Sub-accounts (as a percentage of average daily net assets)
Mortality and Expense Risk Charges 0.50%
Administration Charge 0.15%
-----
Total Annual Expenses of the Sub-accounts 0.65%
</TABLE>
<PAGE>
Underlying Mutual Fund Portfolio Annual Expenses (as a percentage of
average net assets)
Unless otherwise shown, the expenses shown below are for the year ending
December 31, 1995. "N/A" shown below indicates that no entity has agreed to
reimburse the particular expense indicated. "+" indicates that no reimbursement
was provided in 1995, but that the underlying mutual fund has indicated to us
that current arrangements (which may change) provide for reimbursement.
<TABLE>
<CAPTION>
Manage- Manage- Total Total
ment ment Other Other Annual Annual
Fee Fee Expenses Expenses Expenses Expenses
after without after without after without
any any any any any any
applicable applicable applicable applicable applicable applicable
reimburse- reimburse- reimburse- reimburse- reimburse- reimburse-
ment ment ment ment ment ment
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
American Skandia Trust
JanCap Growth N/A 0.90% + 0.22% + 1.12%
Janus Overseas Growth(4) tbd tbd tbd tbd tbd tbd
Lord Abbett Growth
and Income N/A 0.75% + 0.24% + 0.99%
Seligman Henderson
International Equity 0.90% 1.00% + 0.27% 1.17% 1.27%
Seligman Henderson
International Small Cap(1) N/A 1.00% + 0.46% + 1.46%
Federated Utility
Income N/A 0.75% + 0.18% + 0.93%
Federated High Yield N/A 0.75% + 0.36% + 1.11%
T. Rowe Price
Asset Allocation N/A 0.85% 0.40% 0.44% 1.25% 1.29%
T. Rowe Price
International Equity N/A 1.00% + 0.33% + 1.33%
T. Rowe Price
Natural Resources(1) N/A 0.90% 0.45% 0.90% 1.35% 1.80%
T. Rowe Price
International Bond(2) N/A 0.80% + 0.53% + 1.33%
Founders Capital Appreciation N/A 0.90% + 0.32% + 1.22%
Founders Passport(4) tbd tbd tbd tbd tbd tbd
INVESCO Equity Income N/A 0.75% + 0.23% + 0.98%
PIMCO Total Return Bond N/A 0.65% + 0.24% + 0.89%
PIMCO Limited Maturity Bond(1) N/A 0.65% + 0.24% + 0.89%
AST Phoenix Balanced Asset N/A 0.75% + 0.19% + 0.94%
AST Money Market 0.45% 0.50% 0.15% 0.22% 0.60% 0.72%
Berger Capital Growth N/A 0.75% + 0.42% + 1.17%
Robertson Stephens Value + Growth(3) N/A 1.00% 0.45% 0.61% 1.45% 1.61%
Putnam Growth and Income (4) tbd tbd tbd tbd tbd tbd
Putnam Overseas Equity(4) tbd tbd tbd tbd tbd tbd
Twentieth Century Balanced(4) tbd tbd tbd tbd tbd tbd
Twentieth Century International Growth(4)tbd tbd tbd tbd tbd tbd
The Alger American Fund
Growth N/A 0.75% + 0.10% + 0.85%
Small Capitalization N/A 0.85% + 0.07% + 0.92%
MidCap Growth N/A 0.80% + 0.10% + 0.90%
(continued on the next page)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Manage- Manage- Total Total
ment ment Other Other Annual Annual
Fee Fee Expenses Expenses Expenses Expenses
after without after without after without
any any any any any any
applicable applicable applicable applicable applicable applicable
reimburse- reimburse- reimburse- reimburse- reimburse- reimburse-
ment ment ment ment ment ment
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Neuberger & Berman Advisers
Management Trust
Partners(5) N/A 0.85% + 0.30% + 1.15%
Montgomery Variable Series
Emerging Markets(6) N/A 1.25% + .50% + 1.75%
</TABLE>
(1) These portfolios commenced operation on May 1, 1995, therefore expenses
shown are annualized and should not be considered representative of future
expenses; actual expenses may be greater than shown.
(2) The Portfolio was formerly known as the "AST Scudder International Bond
Portfolio" and was managed by American Skandia Investment Services, Incorporated
("ASISI"), as investment manager, and was sub-advised by Scudder, Steven &
Clark, as sub-advisor, for a total fee payable at the annual rate of 1.0% of the
Portfolio's average daily net assets. As of May 1, 1996, the Portfolio is
managed by ASISI, as investment manager, and sub-advised by Rowe Price-Fleming
International, Inc., as sub-advisor, for a total fee payable at the annual rate
of .80 of 1.0% of the Portfolio's average daily net assets. The Management Fee
has been restated to reflect the current Management Fee. As of May 1, 1996
various changes have been made to the Portfolio's investment objective and
fundamental and non-fundamental investment restrictions.
(3) This portfolio commenced operation on May 1, 1996, therefore expenses shown
are estimated and annualized and should not be considered representative of
future expenses; actual expenses may be greater than shown.
(4) These portfolios were first offered for sale as of the date of this
Prospectus, therefore expenses shown are estimated and annualized and should not
be considered representative of future expenses; actual expenses may be greater
than those shown.
(5 The "Management Fee" includes the aggregate of administration fees paid by
the Partners Portfolio of the Neuberger & Berman Advisers Management Trust
("AMT") and the management fees paid by the Series of AMT in which that
Portfolio invests, and "Other Expenses" include all other expenses of the
Portfolio and the corresponding Series. (See "Expenses" in the AMT prospectus).
The Management Fee has been restated to reflect current expenses.
(6) This portfolio commenced operation on February 2, 1996, therefore expenses
shown are estimated and annualized and should not be considered representative
of future expenses; actual expenses may be greater than shown.
The underlying mutual fund portfolio information was provided by the underlying
mutual funds. The Company has not independently verified such information.
The expenses of the underlying mutual fund portfolios either are currently being
partially reimbursed or may be partially reimbursed in the future. Management
Fees, Other Expenses and Total Annual Expenses are provided above on both a
reimbursed and not reimbursed basis, if applicable. See the prospectuses or
statements of additional information of the underlying mutual funds for details.
EXPENSE EXAMPLES: The examples which follow are designed to assist you in
understanding the various costs and expenses you will bear directly or
indirectly if you maintain Account Value in the Sub-accounts. The examples
reflect expenses of our Sub-accounts, as well as those for the underlying mutual
fund portfolios.
The examples shown assume that: (a) all your Account Value is maintained only in
Sub-accounts; (b) fees and expenses remain constant; (c) there are no
withdrawals of Account Value during the period shown; (d) there are no transfers
or other transactions subject to a fee during the period shown; (e) no tax
charge applies; and (f) the expenses throughout the period for the underlying
mutual fund portfolios will be the lower of the expenses without any applicable
reimbursement or expenses after any applicable reimbursement, as shown above in
the section entitled Contract Expense Summary.
THE EXAMPLES ARE ILLUSTRATIVE ONLY - THEY SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE UNDERLYING MUTUAL FUNDS OR
THEIR PORTFOLIOS - ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The
Sub-accounts are referred to below by their specific names.
Examples (amounts shown are rounded to the nearest dollar)
Whether or not you surrender your Annuity at the end of the applicable time
period or begin taking annuity payments at such time, you would pay the
following expenses on a $1,000.00 investment, assuming 5% annual return on
assets:
After:
<TABLE>
<CAPTION>
Sub-accounts
1 yr. 3 yrs.
<S> <C>
Seligman Henderson International Equity 2 [to be provided upon amendment]
Seligman Henderson International Small Cap 2
LA Growth and Income
JanCap Growth 2
Janus Overseas Growth 2
Fed Utility Inc 2
Fed High Yield 2
AST Phoenix Balanced Asset 2
AST Money Market 2
T. Rowe Price Asset Allocation 2
T. Rowe Price International Equity 2
T. Rowe Price Natural Resources 2
T. Rowe Price International Bond 2
Founders Capital Appreciation 2
Founders Passport 2
INVESCO Equity Income 2
PIMCO Total Return Bond 2
PIMCO Limited Maturity Bond 2
Berger Capital Growth 2
RS Value + Growth 2
Putnam Growth and Income 2
Putnam Overseas Equity 2
Twentieth Century Balanced 2
Twentieth Century International Growth 2
AA Small Capitalization 2
AA Growth 2
AA MidCap Growth 2
NB Partners 2
MV Emerging Markets 2
</TABLE>
CONDENSED FINANCIAL INFORMATION: The Unit Prices and number of Units in a number
of the Sub-accounts are shown below, as is yield information on the AST Money
Market 2 Sub-account.
Unit Prices And Numbers of Units: The following table shows: (a) the Unit Price
as of the dates shown for Units in each of the Class 2 Sub-accounts of Separate
Account B available as investment options on or before 12/31/1995 in other
annuities we offer; and (b) the number of Units outstanding in each Sub-account
as of the dates shown. The year in which operations commenced in each such
Sub-account is noted in parentheses. The portfolios in which a particular
Sub-account invests may or may not have commenced operations prior to the date
such Sub-account commenced operations. The initial offering price for each
Sub-account was $10.00.
The total annual expenses of the Class 2 Sub-accounts from 7/1/1994 until
the Valuation Date immediately prior to the date of this Prospectus were 0.90%.
Prior to 7/1/1994, the total annual expenses included an investment allocation
services charge of 1.00%, so the total annual expenses were 1.90%. As of the
date of this Prospectus, such total annual expenses were reduced to 0.65%.
Therefore, Unit Prices as of the dates shown reflect the actual total annual
expenses assessed against the Class 2 Sub-accounts.
[Values are shown for Class 2 Sub-accounts. The document to which this is
compares shows Class 1 Sub-account values.]
Sub-Account and the Year Sub-Account Operations Commenced
<TABLE>
<CAPTION>
LA Seligman Seligman
Growth Henderson Henderson AST Fed
JanCap and International International Money Utility
Growth 2 Income 2 Equity 2 Small Cap 2 Market 2 Income 2
(1993) (1993) (1993) (1995) (1993) (1993)
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
No. of Units
as of 12/31/95 384,701 498,080 452,589 137,991 968,666 164,976
as of 12/31/94 187,924 238,128 199,313 0 880,903 86,555
as of 12/31/93 17,956 9,793 12,521 0 36,093 467
Unit Price
as of 12/31/95 $13.04 $13.04 $11.29 $10.27 $10.70 $11.59
as of 12/31/94 9.54 10.21 10.36 0 10.23 9.27
as of 12/31/93 10.13 10.13 10.23 0 10.00 10.10
</TABLE>
<TABLE>
<CAPTION>
Sub-Account and the Year Sub-Account Operations Commenced
AST T. Rowe T. Rowe T. Rowe T. Rowe
Fed Phoenix Price Price Price Price
High Balanced Asset International Natural International
Yield 2 Asset 2 Allocation 2 Equity 2 Resources 2 Bond 2
(1993) (1993) (1993) (1993) (1995) (1993)
------ ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
No. of Units
as of 12/31/95 300,107 239,737 89,787 610,851 27,379 127,373
as of 12/31/94 122,508 114,927 74,058 301,423 0 25,171
as of 12/31/93 0 6,185 0 0 0 0
Unit Price
as of 12/31/95 $11.32 $12.04 $11.98 $10.44 $11.04 $10.58
as of 12/31/94 9.56 9.91 9.80 9.49 0 9.61
as of 12/31/93 0 10.04 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
Sub-Account and the Year Sub-Account Operations Commenced
PIMCO PIMCO
Founders INVESCO Total Limited Berger
Capital Equity Return Maturity Capital AA
Appreciation 2 Income 2 Bond 2 Bond 2 Growth 2 Growth 2
(1993) (1993) (1993) (1995) (1993) (1993)
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
No. of Units
as of 12/31/95 221,840 293,340 846,356 399,158 89,474 506,542
as of 12/31/94 96,278 150,719 256,950 0 3,419 177,825
as of 12/31/93 0 0 0 0 0 4,589
Unit Price
as of 12/31/95 $14.04 $12.39 $11.32 $10.41 $12.27 $13.86
as of 12/31/94 10.69 9.62 9.62 0 9.95 10.26
as of 12/31/93 0 0 0 0 0 10.25
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sub-Account and the Year Sub-Account Operations Commenced
AA AA
Small MidCap NB
Cap 2 Growth 2 Partners 2
(1993) (1993) (1995)
----- ------ ------
<S> <C> <C> <C>
No. of Units
as of 12/31/95 321,334 204,227 230,034
as of 12/31/94 187,387 61,104 0
as of 12/31/93 17,264 3,255 0
Unit Price
as of 12/31/95 $14.22 $14.82 $12.09
as of 12/31/94 9.94 10.36 0
as of 12/31/93 10.55 10.67 0
</TABLE>
The financial statements of the Class 2 Sub-accounts being offered to you that
were available as investment options in 1995 are found in the Statement of
Additional Information.
Yields on Money Market Sub-account: Shown below are the current and
hypothetical yields for a hypothetical contract. The yield is calculated based
on the hypothetical performance of the AST Money Market 2 Sub-account, assuming
total annual expenses of 0.65%, during the last seven days of the calendar year
ending prior to the date of this Prospectus. At the beginning of the seven day
period, the hypothetical contract had a balance of one Unit. The current and
effective yields reflect the recurring charges against the Sub-account. Please
note that current and effective yield information will fluctuate. This
information may not provide a basis for comparisons with deposits in banks and
other institutions which pay a fixed yield over a stated period of time, or with
investment companies which do not serve as underlying funds for variable
annuities.
Sub-account Current Yield Effective Yield
AST Money Market 2 [ ] [ ]
INVESTMENT OPTIONS: We offer a range of variable and fixed options as ways
to invest your Account Value.
Variable Investment Options: During the accumulation phase, we offer a
number of Sub-accounts as variable investment options. These are all Class 2
Sub-accounts of American Skandia Life Assurance Corporation Variable Account B
("Separate Account B"). Each of these Sub-accounts invests exclusively in one
underlying mutual fund, or a portfolio of an underlying mutual fund. As of the
date of this Prospectus, our Sub-accounts and the underlying mutual funds or
portfolios in which they invest are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Underlying Mutual Fund: The Alger American Fund
Sub-account Underlying Mutual Fund Portfolio
AA Small Capitalization 2 Small Capitalization
AA Growth 2 Growth
AA MidCap Growth 2 MidCap Growth
Underlying Mutual Fund: Neuberger & Berman Advisers
Management Trust
Sub-account Underlying Mutual Fund Portfolio
NB Partners 2 Partners
<PAGE>
Underlying Mutual Fund: American Skandia Trust
Sub-account Underlying Mutual Fund Portfolio
Seligman Henderson International Equity 2 Seligman Henderson International Equity
Seligman Henderson International Seligman Henderson International
Small Cap 2 Small Cap
LA Growth and Income 2 Lord Abbett Growth and Income
JanCap Growth 2 JanCap Growth
Janus Overseas Growth 2 Janus Overseas Growth
Fed Utility Inc 2 Federated Utility Income
Fed High Yield 2 Federated High Yield
AST Phoenix Balanced Asset 2 AST Phoenix Balanced Asset
AST Money Market 2 AST Money Market
T. Rowe Price Asset Allocation 2 T. Rowe Price Asset Allocation
T. Rowe Price International Equity 2 T. Rowe Price International Equity
T. Rowe Price Natural Resources 2 T. Rowe Price Natural Resources
T. Rowe Price International Bond 2 T. Rowe Price International Bond
Founders Capital Appreciation 2 Founders Capital Appreciation
Founders Passport 2 Founders Passport
INVESCO Equity Income 2 INVESCO Equity Income
PIMCO Total Return Bond 2 PIMCO Total Return Bond
PIMCO Limited Maturity Bond 2 PIMCO Limited Maturity Bond
Berger Capital Growth 2 Berger Capital Growth
RS Value + Growth 2 Robertson Stephens Value + Growth
Putnam Growth and Income 2 Putnam Growth and Income
Putnam Overseas Equity 2 Putnam Overseas Equity
Twentieth Century Balanced 2 Twentieth Century Balanced
Twentieth Century International Growth 2 Twentieth Century International Growth
Underlying Mutual Fund: Montgomery Variable Series
Sub-account Underlying Mutual Fund Portfolio
MV Emerging Markets 2 Montgomery Variable Series: Emerging Markets
</TABLE>
Certain Sub-accounts may not be available in all jurisdictions.
We may make other underlying mutual funds available by creating new
Sub-accounts. Additionally, new portfolios may be made available by the creation
of new Sub-accounts from time to time. Such a new portfolio of an underlying
mutual fund may be disclosed in its prospectus. However, addition of a portfolio
does not require us to create a new Sub-account to invest in that portfolio. We
may take other actions in relation to the Sub-accounts and/or Separate Account B
(see "Modifications").
Each underlying mutual fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act") as an open-end management investment company.
Each underlying mutual fund or portfolio thereof may or may not be diversified
as defined in the 1940 Act. As of the date of this Prospectus, the portfolios in
which Sub-accounts offered pursuant to this Prospectus invest are those shown
above. A summary of the investment objectives and policies of such underlying
mutual fund portfolios is found in Appendix B. The trustees or directors, as
applicable, of an underlying mutual fund may add, eliminate or substitute
portfolios from time to time. Generally, each portfolio issues a separate class
of shares. Shares of the underlying mutual fund portfolios are available to
separate accounts of life insurance companies offering variable annuity and
variable life insurance products. The shares may also be made available, subject
to obtaining all required regulatory approvals, for direct purchase by various
pension and retirement savings plans that qualify for preferential tax treatment
under the Code.
The investment objectives, policies, charges, operations, the attendant risks
and other details pertaining to each underlying mutual fund portfolio are
described in the prospectus of each underlying mutual fund and the statements of
additional information for such underlying mutual fund. Also included in such
information is the investment policy of each mutual fund or portfolio regarding
the acceptable ratings by recognized rating services for bonds and other debt
obligations. There can be no guarantee that any underlying mutual fund or
portfolio will meet its investment objectives.
Shares of the underlying mutual funds may be available to variable life
insurance and variable annuity separate accounts of other insurance companies.
Possible consequences of this multiple availability are discussed in the
subsection entitled Resolving Material Conflicts.
The prospectus for any underlying mutual fund or funds being considered by you
should be read in conjunction herewith. A copy of each prospectus may be
obtained without charge from us by calling our Concierge Desk, 1-800-752-6342 or
writing to us, Attention:
Concierge Desk, at P.O. Box 883, Shelton, Connecticut, 06484-0883.
Fixed Investment Options: For the payout phase you may elect fixed annuity
payments based on our then current annuity rates. The discussion below describes
the fixed investment options in the accumulation phase.
As of the date of this Prospectus we offer in most jurisdictions in which the
Annuity is available Fixed Allocations with Guarantee Periods of 1, 2, 3, 5, 7
and 10 years. Each such Fixed Allocation is accounted for separately. Each Fixed
Allocation earns a fixed rate of interest throughout a set period of time called
a Guarantee Period. Multiple Fixed Allocations are permitted, subject to our
allocation rules. The duration of a Guarantee Period may be the same or
different from the duration of the Guarantee Periods of any of your prior Fixed
Allocations.
We may or may not be able to obtain approval in the future in certain
jurisdictions of endorsements to individual or group annuities that include the
type of Fixed Allocations offered pursuant to this Prospectus. If such approval
is obtained, we may take those steps needed to make such Fixed Allocations
available to purchasers to whom Annuities were issued prior to the date of such
approval.
To the extent permitted by law, we reserve the right at any time to offer
Guarantee Periods with durations that differ from those which were available
when your Annuity was issued. We also reserve the right at any time to stop
accepting new allocations, transfers or renewals for a particular Guarantee
Period.
A Guarantee Period for a Fixed Allocation begins: (a) when all or part of a Net
Purchase Payment is allocated for that particular Guarantee Period; (b) upon
transfer of any of your Account Value to a Fixed Allocation for that particular
Guarantee Period; or (c) when a Guarantee Period attributable to a Fixed
Allocation "renews" after its Maturity Date.
We declare the rates of interest applicable during the various Guarantee Periods
offered. Declared rates are effective annual rates of interest. The rate of
interest applicable to a Fixed Allocation is the one in effect when its
Guarantee Period begins. The rate is guaranteed throughout the Guarantee Period.
We inform you of the interest rate applicable to a Fixed Allocation, as well as
its Maturity Date, when we confirm the allocation. We declare interest rates
applicable to new Fixed Allocations from time-to-time. Any new Fixed Allocation
in an existing Annuity is credited interest at a rate not less than the rate we
are then crediting to Fixed Allocations for the same Guarantee Period selected
by new Annuity purchasers in the same class.
The interest rates we credit are subject to a minimum. We may declare a higher
rate. The minimum is based on both an index and a reduction to the interest rate
determined according to the index.
The index is based on the Strip Yields as provided to us by an independent
pricing service of our choosing as of the date we declare a rate of interest.
The applicable maturity of the Strips is the same as the maturity of the
Guarantee Period. If no Strips are available for such term, the next shortest
term is used. If the United States Treasury discontinues offering or if there is
any disruption in the market for Strips that would have an impact on our ability
to obtain market valuations for such instruments, we will substitute indexes
which in our opinion are comparable. If required, implementation of such
substitute indexes will be subject to approval by the Securities and Exchange
Commission and the Insurance Department of the jurisdiction in which your
Annuity was delivered. (For Annuities issued as certificates of participation in
a group contract, it is our expectation that approval of only the jurisdiction
in which such group contract was delivered applies.)
The reduction used in determining the minimum interest rate is one and one half
percent of interest (1.50%).
Where required by the laws of a particular jurisdiction, a specific minimum
interest rate, compounded yearly, will apply should the index less the reduction
be less than the specific minimum interest rate applicable to that jurisdiction.
WE MAY CHANGE THE INTEREST RATES WE CREDIT NEW FIXED ALLOCATIONS AT ANY TIME.
Any such change does not have an impact on the rates applicable to Fixed
Allocations with Guarantee Periods that began prior to such change.
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We have no specific formula for determining the interest rates we declare. Rates
may differ between classes and between types of annuities we offer, even for
guarantees of the same duration starting at the same time. We expect our
interest rate declarations for Fixed Allocations to reflect the returns
available on the type of investments we make to support the various classes of
annuities supported by the assets in Separate Account D. However, we may also
take into consideration in determining rates such factors including, but not
limited to, the durations offered by the annuities supported by the assets in
Separate Account D, regulatory and tax requirements, the liquidity of the
secondary markets for the type of investments we make, commissions,
administrative expenses, investment expenses, our mortality and expense risks in
relation to Fixed Allocations, general economic trends and competition. OUR
MANAGEMENT MAKES THE FINAL DETERMINATION AS TO INTEREST RATES TO BE CREDITED. WE
CANNOT PREDICT THE RATES WE WILL DECLARE IN THE FUTURE.
OPERATIONS OF THE SEPARATE ACCOUNTS: The assets supporting our obligations
under the Annuities may be held in various accounts, depending on the obligation
being supported. In the accumulation phase, assets supporting Account Values are
held in separate accounts established under the laws of the State of
Connecticut. In the payout phase, assets supporting fixed annuity payments and
any adjustable annuity payments we make available are held in our general
account.
Separate Accounts: We are the legal owner of assets in the separate
accounts. Income, gains and losses, whether or not realized, from assets
allocated to these separate accounts, are credited to or charged against each
such separate account in accordance with the terms of the annuities supported by
such assets without regard to our other income, gains or losses or to the
income, gains or losses in any other of our separate accounts. We will maintain
assets in each separate account with a total market value at least equal to the
reserve and other liabilities we must maintain in relation to the annuity
obligations supported by such assets. These assets may only be charged with
liabilities which arise from such annuities. This may include Annuities offered
pursuant to this Prospectus or certain other annuities we may offer. The
investments made by separate accounts are subject to the requirements of
applicable state laws. These investment requirements may differ between those
for separate accounts supporting variable obligations and those for separate
accounts supporting fixed obligations.
Separate Account B: In the accumulation phase, the assets supporting
obligations based on allocations to the variable investment options are held in
our Separate Account B. Separate Account B consists of multiple Sub-accounts.
Separate Account B was established by us pursuant to Connecticut law. Separate
Account B also holds assets of other annuities issued by us with values and
benefits that vary according to the investment performance of Separate Account
B.
The Sub-accounts offered pursuant to this Prospectus are all Class 2
Sub-accounts of Separate Account B. Each class of Sub-accounts in Separate
Account B have a different level of charges assessed against such Sub-accounts.
From the date Class 2 operations commenced, November 16, 1993, until June 30,
1994, the annualized expenses charged against the Class 2 Sub-accounts totaled
1.90%. This included 1.00% as an investment allocation services charge and 0.90%
for the combination of mortality and expense risk, as well as administration
charges. Starting on July 1, 1994, we waived the investment allocation services
charge, so that the total annualized charges were 0.90%. As of the date of this
Prospectus, the total annualized charges were reduced to 0.65%.
The amount of our obligations in relation to allocations to the Sub-accounts is
based on the investment performance of such Sub-accounts. However, the
obligations themselves are our general corporate obligations.
Separate Account B is registered with the SEC under the 1940 Act as a unit
investment trust, which is a type of investment company. This does not involve
any supervision by the SEC of the investment policies, management or practices
of Separate Account B. Each Sub-account invests only in a single mutual fund or
mutual fund portfolio.
The only Sub-accounts available for allocation of your Account Value are those
offered pursuant to this Prospectus. Persons interested in our other annuities
may be offered the same or different Sub-accounts of Separate Account B or any
of our other separate accounts. Such sub-accounts may invest in some or all of
the same underlying mutual funds or portfolios of such underlying mutual funds
as the Sub-accounts offered pursuant to this Prospectus. As of the date of this
Prospectus, the Annuities offered pursuant to this Prospectus and annuities
offered pursuant to a number of other prospectuses maintained assets in Class 2
Sub-accounts. We may offer additional annuities that maintain assets in Class 2
Sub-accounts. In addition, some of the Class 2 Sub-accounts may invest in
underlying mutual funds or underlying mutual fund portfolios in which
Sub-accounts in other classes of Separate Account B invest.
You will find additional information about these underlying mutual funds and
portfolios in the prospectuses for such funds. Portfolios added to the
underlying mutual funds may or may not be offered through added Sub-accounts.
Sub-accounts are permitted to invest in underlying mutual funds or portfolios
that we consider suitable. We also reserve the right to add Sub-accounts,
eliminate Sub-accounts, to combine Sub-accounts, or to substitute underlying
mutual funds or portfolios of underlying mutual funds.
Values and benefits based on allocations to the Sub-accounts will vary with the
investment performance of the underlying mutual funds or fund portfolios, as
applicable. We do not guarantee the investment results of any Sub-account, nor
is there any assurance that the Account Value allocated to the Sub-accounts will
equal the amounts allocated to the Sub-accounts as of any time other than the
Valuation Period of such allocation. You bear the entire investment risk.
Separate Account D: In the accumulation phase, assets supporting our
obligations based on Fixed Allocations are held in Separate Account D, which is
a "non-unitized" separate account. Such obligations are based on the interest
rates we credit to Fixed Allocations and the terms of the Annuities. These
obligations do not depend on the investment performance of the assets in
Separate Account D. Separate Account D was established by us pursuant to
Connecticut law.
There are no discrete units in Separate Account D. No party with rights under
any annuity nor any group contract owner participates in the investment gain or
loss from assets belonging to Separate Account D. Such gain or loss accrues
solely to us. We retain the risk that the value of the assets in Separate
Account D may drop below the reserves and other liabilities we must maintain.
Should the value of the assets in Separate Account D drop below the reserve and
other liabilities we must maintain in relation to the annuities supported by
such assets, we will transfer assets from our general account to Separate
Account D to make up the difference. We have the right to transfer to our
general account any assets of Separate Account D in excess of such reserves and
other liabilities. We maintain assets in Separate Account D supporting a number
of annuities we offer.
If you surrender, withdraw or transfer Account Value from a Fixed Allocation
before the end of its Guarantee Period, you bear the risk inherent in the MVA
(see "Account Value of the Fixed Allocations"). The Account Value of a Fixed
Allocation is guaranteed on its Maturity Date to be its then current Interim
Value.
We operate Separate Account D in a fashion designed to meet the obligations
created by Fixed Allocations. Factors affecting these operations include the
following:
(1) The State of New York, which is one of the jurisdictions in which
we are licensed to do business, requires that we meet certain "matching"
requirements. These requirements address the matching of the durations of the
assets with the durations of obligations supported by such assets. We believe
these matching requirements are designed to control an insurer's ability to risk
investing in long-term assets to support short term interest rate guarantees. We
also believe this limitation controls an insurer's ability to offer unrealistic
rate guarantees.
(2) We employ an investment strategy designed to limit the risk of
default. Some of the guidelines of our current investment strategy for Separate
Account D include, but are not limited to, the following:
(a) Investments may include cash; debt securities issued by
the United States Government or its agencies and instrumentalities; money market
instruments; short, intermediate and long-term corporate obligations;
asset-backed obligations; and municipal bonds.
(b) At the time of purchase, fixed income securities will be
in one of the top four generic lettered rating classifications as established by
a nationally recognized statistical rating organization (`NRSRO") such as
Standard & Poor's or Moody's Investor Services, Inc.
We are not obligated to invest according to the aforementioned guidelines or any
other strategy except as may be required by Connecticut and other state
insurance laws.
(3) We have the sole discretion to employ investment managers that we
believe are qualified, experienced and reputable to manage Separate Account D.
We currently employ investment managers for Separate Account D including, but
not limited to, J.P. Morgan Investment Management Inc. Each manager is
responsible for investment management of different portions of Separate Account
D. From time to time additional investment managers may be employed or
investment managers may cease being employed. We are under no obligation to
employ or continue to employ any investment manager(s).
(4) The assets in Separate Account D are accounted for at their market
value, rather than at book value.
(5) We are obligated by law to maintain our capital and surplus, as
well as our reserves, at the levels required by applicable state insurance law
and regulation.
INSURANCE ASPECTS OF THE ANNUITY: As an insurance company we bear the
insurance risk inherent in the Annuity. This includes the risks that mortality
and expenses exceed our expectations, and the investment and re-investment risks
in relation to the assets supporting obligations not based on the investment
performance of a separate account. We are subject to regulation that requires
reserving and other practices in a manner that minimizes the insurance risk (see
"Regulation").
CHARGES ASSESSED OR ASSESSABLE AGAINST THE ANNUITY: The Annuity charges
which are assessed or may be assessable under certain circumstances are the
maintenance fee, a charge for taxes and a transfer fee. These charges are
allocated according to our rules. The maintenance fee and transfer charge are
not assessed if no Account Value is maintained in the Sub-accounts at the time
such fee or charge is payable. However, we make certain assumptions regarding
maintenance and transfer expenses as part of the overall expense assumptions
used in determining the interest rates we credit to Fixed Allocations. Charges
are also assessed against the Sub-accounts and the underlying mutual funds. We
also may charge you for special services, such as dollar cost averaging,
rebalancing, Systematic Withdrawals, Minimum Distributions, and additional
reports. As of the date of this Prospectus, we do not charge you for any special
services.
Maintenance Fee: A maintenance fee equaling the smaller of $35.00 or 2% of
your then current Account Value is deductible from the Account Values in the
Sub-accounts annually and upon surrender. The fee is limited to the Account
Values in the Sub-accounts as of the Valuation Period such fee is due. Certain
representations regarding the maintenance fee are found in the section entitled
Administration Charge.
Tax Charges: In several states a tax is payable. We will deduct the amount
of tax payable, if any, from your Purchase Payments if the tax is then incurred
or from your Account Value when applied under an annuity option if the tax is
incurred at that time. The amount of the tax varies from jurisdiction to
jurisdiction. It may also vary depending on whether the Annuity qualifies for
certain treatment under the Code. In each jurisdiction, the state legislature
may change the amount of any current tax, may decide to impose the tax,
eliminate it, or change the time it becomes payable. In those jurisdictions
imposing such a tax, the tax rates currently in effect range up to 31/2%, and
are subject to change. In addition to state taxes, local taxes may also apply.
The amounts of these taxes may exceed those for state taxes.
Transfer Fee: We charge $10.00 for each transfer after the twelfth in each
Annuity Year. However, the fee is only charged if there is Account Value in at
least one Sub-account immediately subsequent to such transfer.
Allocation Of Annuity Charges: The transfer fee is assessed against the
Sub-accounts in which you maintain Account Value immediately subsequent to such
transfer. The transfer fee is allocated on a pro-rata basis in relation to the
Account Values in such Sub-accounts as of the Valuation Period for which we
price the applicable transfer. No fee is assessed if there is no Account Value
in any Sub-account at such time. Tax charges are assessed against the entire
Purchase Payment or Account Value as applicable. The maintenance fee is assessed
against the Sub-accounts on a pro-rata basis in relation to the Account Values
in each Sub-account as of the Valuation Period for which we price the fee.
CHARGES ASSESSED AGAINST THE ASSETS: There are charges assessed against
assets in the Sub-accounts. These charges are described below. There are no
charges deducted from the Fixed Allocations. The factors we use in determining
the interest rates we credit Fixed Allocations are described above in the
subsection entitled Fixed Investment Options. No charges are deducted from
assets supporting fixed or adjustable annuity payments. The factors we use in
determining fixed or adjustable annuity payments include, but are not limited
to, our expected investment returns, costs, risks and profit targets. We reserve
the right to assess a charge against the Sub-accounts and the Fixed Allocations
equal to any taxes which may be imposed upon the separate accounts.
Administration Charge: We assess each Class 2 Sub-account, on a daily
basis, an administration charge. The charge is 0.15% per year of the average
daily total value of such Sub-account.
We assess the administration charge and the maintenance fee, described in the
subsection entitled Maintenance Fee, at amounts we believe necessary to recover
the actual costs of maintaining and administering the Account Values allocated
to the Class 2 Sub-accounts and Separate Account B itself. The administration
charge and maintenance fee can be increased only for Annuities issued subsequent
to the effective date of any such change.
A relationship does not necessarily exist between the portion of the
administration charge and the maintenance fee attributable to a particular
Annuity and the expenses attributable to that Annuity. However, we believe the
total administration charges made against the Class 2 Sub-accounts will not be
greater than the total anticipated costs. We allocate costs pro-rata between
classes in Separate Account B in proportion to the assets in various classes.
Types of expenses which might be incurred include, but are not necessarily
limited to, the expenses of: developing and maintaining a computer support
system for administering the Account Values in the Sub-accounts and Separate
Account B itself, preparing and delivering confirmations and quarterly
statements, processing transfers, withdrawal and surrender requests, responding
to Owner inquiries, reconciling and depositing cash receipts, calculating and
monitoring daily values of each Sub-account, reporting for the Sub-accounts,
including quarterly, semi-annual and annual reports, and mailing and tabulation
of shareholder proxy solicitations.
From time to time we may reduce the amount of the maintenance fee and/or the
administration charge. We may do so when Annuities are sold to individuals or a
group of individuals in a manner that reduces maintenance and/or administrative
expenses. We would consider such factors as: (a) the size and type of group; (b)
the number of Annuities purchased by an Owner; (c) the amount of Purchase
Payments; and/or (d) other transactions where maintenance and/or administration
expenses are likely to be reduced.
Any elimination of the maintenance fee and/or the administration charge or any
reduction of such charges will not discriminate unfairly between Annuity
purchasers. We will not make any changes to these charges where prohibited by
law.
Mortality and Expense Risk Charges: For Class 2 Sub-accounts, the mortality
risk charge is 0.25% per year and the expense risk charge is 0.25% per year.
These charges are assessed in combination each day against each Sub-account at
the rate of 0.50% per year of the average daily total value of each Sub-account.
With respect to the mortality risk charge, we assume the risk that the mortality
experience under the Annuities may be less favorable than our assumptions. This
could arise for a number of reasons, such as when persons upon whose lives
annuity payments are based live longer than we anticipated, or when the
Sub-accounts decline in value resulting in losses in paying death benefits. If
our mortality assumptions prove to be inadequate, we will absorb any resulting
loss. Conversely, if the actual experience is more favorable than our
assumptions, then we will benefit from the gain. We also assume the risk that
the administration charge may be insufficient to cover our actual administration
costs. If we realize a profit from the mortality and expense risk charges, such
profit may be used to recover sales expenses incurred.
CHARGES OF THE UNDERLYING MUTUAL FUNDS: Each underlying mutual fund
assesses various charges for investment management and investment advisory fees.
These charges generally differ between portfolios within the same underlying
mutual fund. You will find additional details in the fund prospectuses and the
statements of additional information.
PURCHASING ANNUITIES: You may purchase an Annuity for various purposes. You
must meet our requirements before we issue an Annuity and it takes effect.
Certain benefits may be available to certain classes of purchasers. You have a
"free-look" period during which you may return your Annuity for a refund amount
which may be less or more than your Purchase Payment, except in specific
circumstances.
Uses Of The Annuity: The Annuity may be issued in connection with or
purchased as a funding vehicle for certain retirement plans designed to meet the
requirements of various sections of the Code. These include, but are not limited
to: (a) Sections 401 (corporate, association, or self-employed individuals'
retirement plans); (b) Section 403(b) (tax-sheltered annuities available to
employees of certain qualifying employers); and (c) Section 408 (individual
retirement accounts and individual retirement annuities - "IRAs"; Simplified
Employee Pensions).
We may require additional information regarding such plans before we issue an
Annuity to be used in connection with such retirement plans. We may also
restrict or change certain rights and benefits if, in our opinion, such
restrictions or changes are necessary for your Annuity to be used in connection
with such retirement plans. The Annuity may also be used in connection with
plans that do not qualify under the sections of the Code noted above. Some of
the potential tax consequences resulting from various uses of the Annuities are
discussed in the section entitled "Certain Tax Consequences".
Application And Initial Payment: You must meet our underwriting
requirements and forward a Purchase Payment if you seek to purchase an Annuity.
These requirements may include a properly completed Application. Where permitted
by law, we may issue an Annuity without completion of an Application for certain
classes of Annuities.
This Annuity is designed for use in connection with services, such as investment
allocation services, provided by an Advisor. Before we issue an Annuity, we may
require evidence satisfactory to us that you have engaged the services of an
Advisor.
The minimum initial Purchase Payment we accept is $10,000.00 unless you are
participating in a program of periodic Purchase Payments that we accept (see "
Periodic Purchase Payments"). The minimum initial Purchase Payment allowable
under such a program is lower if the total Purchase Payments in the first
Annuity Year are scheduled to equal at least $10,000.00. We may require that the
initial Purchase Payment be a check or a wire transfer. Our Office must give you
prior approval before we accept a Purchase Payment that would result in the
Account Value of all annuities you maintain with us exceeding $1,000,000.00.
Multiple annuities purchased from us within the same calendar year may be
treated for tax purposes as if they were a single annuity (see "Certain Tax
Considerations").
We reserve the right to allocate your initial Net Purchase Payment to the
investment options up to two business days after we receive, at our Office, all
of our requirements for issuing the Annuity as applied for. We may retain the
Purchase Payment and not allocate the initial Net Purchase Payment to the
investment options for up to five business days while we attempt to obtain all
such requirements. We will try to reach you or any other party from whom we need
any information or materials. If the requirements cannot be fulfilled within
that time, we will: (a) attempt to inform you of the delay; and (b) return the
amount of the Purchase Payment, unless you specifically consent to our retaining
it until all our requirements are met. Once our requirements are met, the
initial Net Purchase Payment is applied to the investment options within two
business days. Once we accept your Purchase Payment and our requirements are
met, we issue an Annuity.
Periodic Purchase Payments: We may, from time-to-time, offer opportunities
to make Purchase Payments automatically on a periodic basis, subject to our
rules. These opportunities may include, but are not limited to, certain salary
reduction programs agreed to by an employer or automatic periodic transfers to
us from a bank account ("bank drafting"). As of the date of this Prospectus, we
only agree to accept Purchase Payments on such a basis if: (a) we receive your
request In Writing for a salary reduction program or bank drafting program and
we agree to accept Purchase Payments on this basis; (b) the allocations are only
to variable investment options or the frequency and number of allocations to
fixed investment options is limited in accordance with our rules; and (c) the
total amount of Purchase Payments in the first Annuity Year is scheduled to
equal at least our then current minimum requirements. We may also require an
initial Purchase Payment to be submitted by check or wire before agreeing to
such a program. Our minimum requirements may differ based on the usage of the
Annuity, such as whether it is being used in conjunction with certain retirement
plans.
Right to Return the Annuity: You have the right to return the Annuity
within a certain period of time known as a "free-look" period. Depending on the
applicable legal and regulatory requirements, this period may be within ten days
of receipt, twenty-one days of receipt or longer. To exercise your right to
return the Annuity during the "free-look" period, you must return the Annuity.
The amount to be refunded is the then current Account Value plus any tax charge
deducted. This is the "standard refund". If necessary to meet Federal
requirements for IRAs or certain state law requirements, we return the greater
of the "standard refund" or the Purchase Payments received less any withdrawals
(see "Allocation of Net Purchase Payments"). We tell you how we determine the
amount payable under any such right at the time we issue your Annuity. Upon the
termination of the "free-look" period, if you surrender your Annuity, you may be
assessed the maintenance fee (see "Maintenance Fee").
Allocation of Net Purchase Payments: All allocations of Net Purchase
Payments are subject to our allocation rules (see "Allocation Rules").
Allocation of the portion of the initial Net Purchase Payment and any Net
Purchase Payments received during the free-look period that you wish to allocate
to any Sub-accounts are subject to an additional allocation rule if state law
requires return of at least your Purchase Payments should you return the Annuity
under such free-look provision. If such state law applies to your Annuity: (a)
we allocate any portion of any such Net Purchase Payments that you indicate you
wish to go into the Sub-accounts to the AST Money Market Sub-account; and (b) at
the end of such free-look period we reallocate Account Value according to your
then most recent allocation instructions to us, subject to our allocation rules.
However, where permitted by law in such jurisdictions, we will allocate such Net
Purchase Payments according to your instructions, without any temporary
allocation to the AST Money Market Sub-account, if you execute a return waiver
("Return Waiver"). Under the Return Waiver, you waive your right to the return
of the greater of the "standard refund" or the Purchase Payments received less
any withdrawals. Instead, you only are entitled to the return of the "standard
refund" (see "Right to Return the Annuity").
Your initial Purchase Payments, as well as other Purchase Payments will be
allocated in accordance with the then current requirements of any rebalancing,
asset allocation or market timing program which you have authorized or have
authorized an independent third party to use in connection with your Annuity
(see "Allocation Rules"). To the extent permitted by law, Net Purchase Payments
paid by check may be delayed until such time as the check has cleared the
applicable bank upon which such check was drawn.
Balanced Investment Program: We offer a balanced investment program in
relation to your Purchase Payments, if Fixed Allocations are available under
your Annuity. If you choose this program, we commit a portion of your Net
Purchase Payments as a Fixed Allocation for the Guarantee Period you select.
This Fixed Allocation will have grown pre-tax to equal the exact amount of your
entire Purchase Payments at the end of its initial Guarantee Period if no
amounts are transferred or withdrawn from such Fixed Allocation. The rest of
your Net Purchase Payments are invested in the variable investment options you
select.
Ownership, Annuitant and Beneficiary Designations: You make certain
designations that apply to the Annuity if issued. These designations are subject
to our rules and to various regulatory or statutory requirements depending on
the use of the Annuity. These designations include an Owner, a contingent Owner,
an Annuitant, a Contingent Annuitant, a Beneficiary, and a contingent
Beneficiary. Certain designations are required, as indicated below. Such
designations will be revocable unless you indicate otherwise or we endorse your
Annuity to indicate that such designation is irrevocable to meet certain
regulatory or statutory requirements. Changing the Owner or Annuitant
designations may affect the minimum death benefit (see " Death Benefits").
Some of the tax implications of various designations are discussed in the
section entitled "Certain Tax Considerations". However, there are other tax
issues than those addressed in that section, including, but not limited to,
estate and inheritance tax issues. You should consult with a competent tax
counselor regarding the tax implications of various designations. You should
also consult with a competent legal advisor as to the implications of certain
designations in relation to an estate, bankruptcy, community property, where
applicable, and other matters.
An Owner must be named. You may name more than one Owner. If you do, all rights
reserved to Owners are then held jointly. We require the consent In Writing of
all joint Owners for any transaction for which we require the written consent of
Owners. Where required by law, we require the consent In Writing of the spouse
of any person with a vested interest in an Annuity. Naming someone other than
the payor of any Purchase Payment as Owner may have gift, estate or other tax
implications.
Where allowed by law, you may name a contingent Owner. However, this designation
takes effect only on or after the Annuity Date.
You must name an Annuitant. We do not accept a designation of joint Annuitants
during the accumulation phase. Where allowed by law, you may name one or more
Contingent Annuitants.
There may be adverse tax consequences if a Contingent Annuitant succeeds an
Annuitant and the Annuity is owned by a trust that is neither tax exempt nor
qualifies for preferred treatment under certain sections of the Code, such as
Section 401 (a "non-qualified" trust). In general, the Code is designed to
prevent the benefit of tax deferral from continuing for long periods of time on
an indefinite basis. Continuing the benefit of tax deferral by naming one or
more Contingent Annuitants when the Annuity is owned by a non-qualified trust
might be deemed an attempt to extend the tax deferral for an indefinite period.
Therefore, adverse tax treatment may depend on the terms of the trust, who is
named as Contingent Annuitant, as well as the particular facts and
circumstances. You should consult your tax advisor before naming a Contingent
Annuitant if you expect to use an Annuity in such a fashion.
Where allowed by law, you must name Contingent Annuitants according to our rules
when an Annuity is used as a funding vehicle for certain retirement plans
designed to meet the requirements of Section 401 of the Code.
You may name more than one primary and more than one contingent Beneficiary, and
if you do, the proceeds will be paid in equal shares to the survivors in the
appropriate beneficiary class, unless you have requested otherwise In Writing.
If the primary Beneficiary dies before death proceeds become payable, the
proceeds will become payable to the contingent Beneficiary. If no Beneficiary is
alive when death proceeds become payable or in the absence of any Beneficiary
designation, the proceeds will vest in you or your estate.
ACCOUNT VALUE AND SURRENDER VALUE: In the accumulation phase your Annuity
has an Account Value. Your total Account Value is the sum of your Account Value
in each investment option. However, upon surrender, the amount payable is the
Account Value less any applicable maintenance fee.
Account Value in the Sub-accounts: We determine your Account Value
separately for each Sub-account. To determine the Account Value in each
Sub-account we multiply the Unit Price as of the Valuation Period for which the
calculation is being made times the number of Units attributable to you in that
Sub-account as of that Valuation Period. The method we use to determine Unit
Prices is shown in the Statement of Additional Information.
The number of Units attributable to you in a Sub-account is the number of Units
you purchased less the number transferred or withdrawn. We determine the number
of Units involved in any transaction specified in dollars by dividing the dollar
value of the transaction by the Unit Price of the effected Sub-account as of the
Valuation Period applicable to such transaction.
Account Value of the Fixed Allocations: We determine the Account Value of
each Fixed Allocation separately. A Fixed Allocation's Account Value as of a
particular date is determined by multiplying its then current Interim Value
times the MVA.
A formula is used to determine the MVA. The formula is applied separately to
each Fixed Allocation. Values and time durations used in the formula are as of
the date for which the Account Value is being determined. The formula is:
<PAGE>
[(1+I) / (1+J+0.0010)]N/365
where:
I is the Strip Yield as of the date the Guarantee Period began
(or if no Strip Yields are available on such date, the most
recent applicable Strip Yield available to us prior to such
date) for Strips maturing at the end of the applicable Fixed
Allocation's Guarantee Period. If there are no Strips maturing
at that time, we use the Strip Yield for the Strips maturing
as soon as possible after the Guarantee Period ends.
J is the Strip Yield as of the date the MVA formula is to be
applied (or if no Strip Yields are available on such date, the
most recent applicable Strip Yield available to us prior to
such date) for Strips maturing at the end of the applicable
Fixed Allocation's Guarantee Period. If there are no Strips
maturing at that time, we use the Strip Yield for the Strips
maturing as soon as possible after the Guarantee Period ends.
N is the number of days remaining in such Guarantee Period.
No MVA applies in determining a Fixed Allocation's Account Value on its Maturity
Date.
The MVA results in the Account Value of a Fixed Allocation being lower than the
Interim Value when "J" plus 0.10 percent of interest exceeds "I". The MVA
results in the Account Value of a Fixed Allocation being greater than the
Interim Value when "J" plus 0.10 percent of interest is less than "I". See the
Statement of Additional Information for an illustration of how the MVA works.
The formula that applies if amounts are surrendered pursuant to the right to
return the Annuity is [(1+I)/(1+J]N/365 In this case, the MVA results in the
Account Value of a Fixed Allocation being lower than the Interim Value when "J"
exceeds "I", and in the Account Value being greater than the Interim Value when
"J" is less than "I".
RIGHTS, BENEFITS AND SERVICES: The Annuity provides various rights,
benefits and services subsequent to its issuance and your decision to keep it
beyond the free-look period. A number of these rights, benefits and services, as
well as some of the rules and conditions to which they are subject, are
described below. These rights, benefits and services include, but are not
limited to: (a) making additional Purchase Payments; (b) changing revocable
designations; (c) transferring Account Values between investment options; (d)
receiving lump sum payments, Systematic Withdrawals or Minimum Distributions,
annuity payments and death benefits; (e) transferring or assigning your Annuity;
(f) exercising certain voting rights in relation to the underlying mutual funds
in which the Sub-accounts invest; and (g) receiving reports. These rights,
benefits and services may be limited, eliminated or altered when an Annuity is
purchased in conjunction with a qualified plan. We may require presentation of
proper identification, including a personal identification number ("PIN") issued
by us, prior to accepting any instruction by voice or data transmission over the
telephone. We forward your PIN to you shortly after your Annuity is issued. To
the extent permitted by law or regulation, neither we nor any person authorized
by us will be responsible for any claim, loss, liability or expense in
connection with a transfer over the telephone if we or such other person acted
on such transfer instructions in good faith in reliance on your telephone
transfer authorization and on reasonable procedures to identify persons so
authorized through verification methods which may include a request for your
Social Security number or a personal identification number (PIN) as issued by
us. We may be liable for losses due to unauthorized or fraudulent instructions
should we not follow such reasonable procedures.
Additional Purchase Payments: The minimum for any additional Purchase
Payment is $100.00 unless we authorize lower payments pursuant to a periodic
Purchase Payment program (see "Periodic Purchase Payments"), or less where
required by law. Additional Purchase Payments may be paid at any time before the
Annuity Date. Subject to our allocation rules, we allocate additional Net
Purchase Payments according to your instructions. Should no instructions be
received, we shall return your additional Purchase Payment.
Changing Revocable Designations: Unless you indicated that a prior choice
was irrevocable or your Annuity has been endorsed to limit certain changes, you
may request to change Owner, Annuitant and Beneficiary designations by sending a
request In Writing. Where allowed by law, such changes will be subject to our
acceptance. Some of the changes we will not accept include, but are not limited
to: (a) a new Owner subsequent to the death of the Owner or the first of any
joint Owners to die, except where a spouse-Beneficiary has become the Owner as a
result of an Owner's death; (b) a new Annuitant subsequent to the Annuity Date
if the annuity option selected includes a life contingency; and (c) a new
Annuitant prior to the Annuity Date if the Annuity is owned by an entity.
Allocation Rules: In the accumulation phase, you may maintain Account Value
in up to ten Sub-accounts. Currently, you may also maintain an unlimited number
of Fixed Allocations. We reserve the right, to the extent permitted by law, to
limit the number of Fixed Allocations or the amount you may allocate to any
Fixed Allocation. Should you request a transaction that would leave less than
any minimum amount we then require in an investment option, we reserve the
right, to the extent permitted by law, to add the balance of your Account Value
in the applicable Sub-account or Fixed Allocation to the transaction and close
out your balance in that investment option. We also reserve the right to limit
the amount you may allocate to any Fixed Allocation.
Should you either: (a) request rebalancing services (see "Rebalancing"); (b)
authorize an independent third party to transact transfers on your behalf and
such third party arranges for rebalancing of any portion of your Account Value
in accordance with any asset allocation strategy; or (c) authorize an
independent third party to transact transfers in accordance with a market timing
strategy; then all Purchase Payments, including the initial Purchase Payment,
received while your Annuity is subject to such an arrangement are allocated to
the same investment options and in the same proportions as then required
pursuant to the applicable rebalancing, asset allocation or market timing
program, unless we have received alternate instructions. Such allocation
requirements terminate simultaneous to the termination of an authorization for
rebalancing or any authorization to a third party to transact transfers on your
behalf.
Withdrawals of any type are taken pro-rata from the investment options based on
the then current Account Values in such investment options unless we receive
instructions from you prior to such withdrawal. For this purpose only, the
Account Value in all your then current Fixed Allocations is deemed to be in one
investment option. If you transfer or withdraw Account Value from multiple Fixed
Allocations and do not provide instructions indicating the Fixed Allocations
from which Account Value should be taken: (a) we transfer Account Value first
from the Fixed Allocation with the shortest amount of time remaining to the end
of its Guarantee Period, and then from the Fixed Allocation with the next
shortest amount of time remaining to the end of its Guarantee Period, etc.; and
(b) if there are multiple Fixed Allocations with the same amount of time left in
each Guarantee Period, as between such Fixed Allocations we first take Account
Value from the Fixed Allocation that had the shorter Guarantee Period.
Transfers: In the accumulation phase you may transfer Account Value between
investment options, subject to our allocation rules (see "Allocation Rules").
Transfers are not subject to taxation (see "Transfers Between Investment
Options"). We charge $10.00 for each transfer after the twelfth in each Annuity
Year, including transfers transacted as part of a dollar cost averaging program
(see "Dollar Cost Averaging") or any rebalancing, market timing, asset
allocation or similar program which you employ or you authorize to be employed
on your behalf. Renewals or transfers of Account Value from a Fixed Allocation
at the end of its Guarantee Period are not subject to the transfer charge and
are not counted in determining whether other transfers may be subject to the
transfer charge (see "Renewals"). Your transfer request must be In Writing or
meet our requirements for accepting instructions we receive over the phone.
We reserve the right to limit the number of transfers in any Annuity Year for
all existing or new Owners. We also reserve the right to limit the number of
transfers in any Annuity Year or to refuse any transfer request for an Owner or
certain Owners if we believe that: (a) excessive trading by such Owner or Owners
or a specific transfer request or group of transfer requests may have a
detrimental effect on Unit Values or the share prices of the underlying mutual
funds; or (b) we are informed by one or more of the underlying mutual funds that
the purchase or redemption of shares is to be restricted because of excessive
trading or a specific transfer or group of transfers is deemed to have a
detrimental effect on share prices of affected underlying mutual funds.
To the extent permitted by law, we may request up to 2 business days' notice of
any transfer into or out of a Fixed Allocation if the market value of such
transfer is at least $1,000,000.00.
In order to help you determine whether you wish to transfer Account Values to a
Fixed Allocation, you may obtain our Current Rates by writing us or calling us
at 1-800-766-4530. When doing so, please have readily available your Annuity
number and the personal identification number we provide.
Where permitted by law, we may accept your authorization of a third party to
transfer Account Values on your behalf, subject to our rules. We may suspend or
cancel such acceptance at any time. We notify you of any such suspension or
cancellation. We may restrict the investment options that will be available for
transfers or allocations of Net Purchase Payments during any period in which you
authorize such third party that provides market timing services to act on your
behalf. We give the third party you authorize prior notification of any such
restrictions. However, we will not enforce such a restriction if we are provided
evidence satisfactory to us that: (a) such third party has been appointed by a
court of competent jurisdiction to act on your behalf; or (b) such third party
has been appointed by you to act on your behalf for all your financial affairs.
We or an affiliate of ours may provide administrative or other support services
to an independent Advisor you authorize to conduct transfers on your behalf or
who provide recommendations as to how your Account Values should be allocated.
This includes, but is not limited to, rebalancing your Account Value among
investment options in accordance with various investment allocation strategies
such Advisor may employ, or transferring Account Values between investment
options in accordance with market timing strategies employed by such Advisor.
Such Advisors may or may not be appointed our agents for the sale of Annuities.
However, we do not engage any Advisors to offer investment allocation services
of any type, so that persons or firms offering such services do so independent
from any agency relationship they may have with us for the sale of Annuities. We
therefore take no responsibility for the investment allocations and transfers
transacted on your behalf by such Advisors or any investment allocation
recommendations made by such Advisors. We do not currently charge you or your
Advisor extra for providing these support services.
Renewals: A renewal is a transaction that occurs automatically as of the
last day of a Fixed Allocation's Guarantee Period unless we receive alternative
instructions. This day as to each Fixed Allocation is called its Maturity Date.
As of the end of a Maturity Date, the Fixed Allocation's Guarantee Period
"renews" and a new Guarantee Period of the same duration as the one just
completed begins. However, the renewal will not occur if the Maturity Date is on
the date we apply your Account Value to determine the annuity payments that
begin on the Annuity Date (see "Annuity Payments").
As an alternative to a renewal, you may transfer all or part of that Fixed
Allocation's Account Value to a different Fixed Allocation or you may transfer
such Account Value to one or more Sub-accounts, subject to our allocation rules.
To accomplish this, we must receive instructions from you In Writing at least
two business days before the Maturity Date. No MVA applies to transfers of a
Fixed Allocation's Account Value occurring as of its Maturity Date. An MVA will
apply in determining the Account Value of a Fixed Allocation at the time annuity
payments are determined, unless the Maturity Date of such Fixed Allocation is
the 15th day before the Annuity Date (see "Annuity Payments").
At least 30 days prior to a Maturity Date, or earlier if required by law or
regulation, we inform you of the Guarantee Periods available as of the date of
such notice. We do not provide a similar notice if the Fixed Allocation's
Guarantee Period is of less than a year's duration. Such notice may include an
example of the rates we are then crediting new Fixed Allocations as of the date
such notice is prepared. The rates actually credited to a Fixed Allocation as of
the date of any renewal or transfer immediately subsequent to the Maturity Date
may be more or less than any rates quoted in such notice.
If your Fixed Allocation's then ending Guarantee Period is no longer available
for new allocations and renewals or you choose a different Guarantee Period that
is no longer available on the date following the Maturity Date, we will try to
reach you so you may make another choice. If we cannot reach you, we will assign
the next shortest Guarantee Period then currently available for new allocations
and renewals to that Fixed Allocation.
Dollar Cost Averaging: We offer dollar cost averaging in the accumulation
phase. Dollar cost averaging is a program designed to provide for regular,
approximately level investments over time. You may choose to transfer earnings
only, principal plus earnings or a flat dollar amount. We make no guarantee that
a dollar cost averaging program will result in a profit or protect against a
loss in a declining market. You may select this program by submitting to us a
request In Writing. You may cancel your participation in this program In Writing
or by phone if you have previously authorized our acceptance of such
instructions.
Dollar cost averaging is available from any of the investment options we choose
to make available for such a program. Your Annuity must have an Account Value of
not less than $10,000.00 at the time we accept your request for a dollar cost
averaging program. Transfers under a dollar cost averaging program are counted
in determining the applicability of the transfer fee (see "Transfers"). We
reserve the right to limit the investment options into which Account Value may
be transferred as part of a dollar cost averaging program. We currently do not
permit dollar cost averaging programs where Account Value is transferred to
Fixed Allocations. We also reserve the right to charge a processing fee for this
service. Should we suspend or cancel the offering of this service, such
suspension or cancellation will not affect any dollar cost averaging programs
then in effect. Dollar cost averaging is not available while a rebalancing,
asset allocation or market timing type of program is used in connection with
your Annuity.
Dollar cost averaging from Fixed Allocations is subject to the following rules:
(a) you may only use Fixed Allocations with Guarantee Periods of 1, 2 or 3
years; (b) such a program may only be selected in conjunction with and
simultaneous to a new or renewing Fixed Allocation; (c) only averaging of
earnings only or principal plus earnings is permitted; (d) a program averaging
principal plus earnings from a Fixed Allocation must be designed to last that
Fixed Allocation's entire current Guarantee Period; (e) dollar cost averaging
transfers from a Fixed Allocation are not subject to the MVA; (f) dollar cost
averaging may be done on a monthly basis only; and (g) you may not
simultaneously use Account Value in any Fixed Allocation to participate in
dollar cost averaging and receive Systematic Withdrawals or Minimum
Distributions from such Fixed Allocation (see "Systematic Withdrawals" and
"Minimum Distributions").
Rebalancing: We offer, during the accumulation phase, automatic quarterly,
semi-annual or annual rebalancing among the variable investment options of your
choice. This provides the convenience of automatic rebalancing without having to
provide us instructions on a periodic basis. Failure to choose this option does
not prevent you from providing us with transfer instructions from time-to-time
that have the effect of rebalancing. It also does not prevent other requested
transfers from being transacted.
Under this program, Account Values in variable investment options are rebalanced
quarterly, semi-annually or annually, as applicable, to the percentages you
request. The rebalancing may occur quarterly, semi-annually or annually based
upon the Issue Date. If a transfer is requested involving any investment option
participating in an automatic rebalancing program, we automatically alter the
rebalancing percentages going forward (unless we receive alternate instructions)
to the ratios between Account Values in the variable investment options as of
the effective date of such requested transfer once it has been processed.
Automatic rebalancing is delayed one quarter if Account Value is being
maintained in the AST Money Market Sub-account for the duration of your
Annuity's "free-look" period and rebalancing would otherwise occur during such
period (see "Allocation of Net Purchase Payments").
You may change the percentage allocable to each variable investment option at
any time. However, you may not choose to allocate less than 5% of Account Value
to any variable investment option.
We do not offer automatic rebalancing in connection with Fixed Allocations. The
Account Value of your Annuity must be at least $10,000.00 when we receive your
automatic rebalancing request. We may require that all variable investment
options in which you maintain Account Value must be used in the rebalancing
program. You may maintain Account Value in at least two and not more than ten
variable investment options when using a rebalancing program. You may not
simultaneously participate in rebalancing and dollar cost averaging. Rebalancing
also is not available when a program of Systematic Withdrawals of earnings or
earnings plus principal is in effect.
For purposes of determining the number of transfers made in any Annuity Year,
all rebalancing transfers made on the same day are treated as one transfer. We
reserve the right to charge a processing fee for signing up for this service.
To elect to participate or to terminate participation in automatic rebalancing,
we may require instructions In Writing at our Office in a form satisfactory to
us.
Distributions: Distributions available from your Annuity during the
accumulation phase include surrender, partial withdrawals, Systematic
Withdrawals, Minimum Distributions (in relation to qualified plans) and a death
benefit. In the payout phase we pay annuity payments. Distributions from your
Annuity generally are subject to taxation, and may be subject to a tax penalty
as well (see "Certain Tax Considerations"). You may wish to consult a
professional tax advisor for tax advice prior to exercising any right to an
elective distribution. During the accumulation phase, any distribution other
than a death benefit: (a) must occur prior to any death that would cause a death
benefit to become payable; and (b) will occur subsequent to our receipt of a
completed request In Writing.
Surrender: Surrender of your Annuity is permitted during the accumulation
phase. The amount payable is the then current Account Value less any applicable
maintenance fee. We reserve the right to require that your Annuity accompany
your surrender request.
Partial Withdrawals: You may withdraw part of your Account Value. The
minimum partial withdrawal is $100.00. The Account Value that must remain in the
Annuity as of the date of this transaction is $1,000.00. If the amount of the
partial withdrawal request exceeds the maximum amount available, we reserve the
right to treat your request as one for a full surrender.
We treat partial withdrawals as taxable distributions unless: (a) your Annuity
is being used in conjunction with what is designed to be a "qualified"
retirement plan (plans designed to meet the requirements of Sections 401, 403 or
408 of the Code); and (b) in relation to plans pursuant to Section 403 or 408,
you and your Advisor provide representations In Writing acceptable to us
limiting the source of the Advisor's compensation to the assets of an applicable
qualified retirement plan, and making certain other representations.
Systematic Withdrawals: We offer Systematic Withdrawals of earnings only,
principal plus earnings or a flat dollar amount. Systematic Withdrawals from
Fixed Allocations are limited to earnings accrued after the program of
Systematic Withdrawals begins, or payments of fixed dollar amounts that do not
exceed such earnings. A program of Systematic Withdrawals begins on the date we
accept, at our Office, your request for such a program.
A Systematic Withdrawal from a Fixed Allocation is not subject to the MVA. We
calculate the Fixed Allocation's credited interest since the prior withdrawal as
A minus B, plus C, where:
A is the Interim Value of the applicable Fixed Allocation as of the date of
the Systematic Withdrawal;
B is the Interim Value of the applicable Fixed Allocation as of
the later of the beginning of its then current Guarantee
Period or the beginning of the Systematic Withdrawal program;
and
C is the total of all partial or free withdrawals and any
transfers from such Fixed Allocation since the later of the
beginning of its then current Guarantee Period or the
beginning of the Systematic Withdrawal program.
Systematic Withdrawals are available on a monthly, quarterly, semi-annual or
annual basis. You may not simultaneously receive Systematic Withdrawals from a
Fixed Allocation and participate in a dollar cost averaging program under which
Account Value is transferred from the same Fixed Allocation (see "Dollar Cost
Averaging"). Systematic Withdrawals are not available while you are taking any
Minimum Distributions (see "Minimum Distributions"). Systematic Withdrawals of
earnings or earnings plus principal are not available while any rebalancing or
asset allocation program is in effect in relation to your Annuity.
The Account Value of your Annuity must be at least $20,000.00 when we accept
your request for a program of Systematic Withdrawals. The minimum for each
Systematic Withdrawal is $100.00. For any scheduled Systematic Withdrawal other
than the last that does not meet this minimum, we reserve the right to defer
such a withdrawal and add the amount that would have been withdrawn to the
amount that is to be withdrawn at the next Systematic Withdrawal.
We reserve the right to charge a processing fee for this service. Should we
suspend or cancel offering Systematic Withdrawals, such suspension or
cancellation will not affect any Systematic Withdrawal programs then in effect.
Minimum Distributions: You may elect to have us calculate Minimum
Distributions annually if your Annuity is being used for certain qualified
purposes under the Code. We calculate such amounts assuming the Minimum
Distribution amount is based solely on the value of your Annuity. The required
Minimum Distribution amounts applicable to your particular situation may depend
on other annuities, savings or investments of which we are unaware, so that the
required amount may be greater than the Minimum Distribution amount we calculate
based on the value of your Annuity. We reserve the right to charge a fee for
each annual calculation. Minimum Distributions are not available if you are
taking Systematic Withdrawals (see "Systematic Withdrawals"). You may elect to
have Minimum Distributions paid out monthly, quarterly, semi-annually or
annually.
Each Minimum Distribution will be taken from the investment options you select.
However, the portion of any Minimum Distribution that can be taken from any
Fixed Allocations may not exceed the then current ratio between your Account
Value in all Fixed Allocations you maintain and your total Account Value. No MVA
applies to any portion of Minimum Distributions taken from Fixed Allocations.
Minimum Distributions are not available from any Fixed Allocation if such Fixed
Allocation is being used in a dollar cost averaging program (see "Dollar Cost
Averaging").
Death Benefit: In the accumulation phase, a death benefit is payable. If
the Annuity is owned by one or more natural persons, it is payable upon the
first death of such Owners. If the Annuity is owned by an entity, the death
benefit is payable upon the Annuitant's death, if there is no Contingent
Annuitant. If a Contingent Annuitant was designated before the Annuitant's death
and the Annuitant dies, the Contingent Annuitant then becomes the Annuitant.
There may be adverse tax consequences for certain entity Owners if they name a
Contingent Annuitant (see "Ownership, Annuitant and Beneficiary Designations").
The person upon whose death the death benefit is payable is referred to below as
the "decedent". For purposes of this death benefit provision, "withdrawals"
means withdrawals of any type (partial withdrawals, Systematic Withdrawals,
Minimum Distributions) after any applicable MVA. For purposes of this provision,
persons named Owner or Annuitant within 60 days of the Issue Date are treated as
if they were an Owner or Annuitant on the Issue Date.
The death benefit is as follows, and is subject to the conditions described in
(1),(2) and (3) below:
(1) If death occurs before the decedent's age 85: the death benefit is the
greater of (a) or (b), where:
(a) is your Account Value in Sub-accounts plus the Interim Value of any
Fixed Allocations; or
(b) the minimum death benefit ("Minimum Death Benefit"). The Minimum Death
Benefit is the sum of all Purchase Payments less the sum of all withdrawals.
(2) If death occurs after the decedent's age 85: the death benefit is your
Account Value.
(3) If a decedent was not named an Owner or Annuitant as of the Issue
Date and did not become such as a result of a prior Owner's or Annuitant's
death: the Minimum Death Benefit is suspended as to that person for a two year
period from the date he or she first became an Owner or Annuitant. After the
suspension period is completed, the death benefit is the same as if such person
had been an Owner or Annuitant on the Issue Date. During the suspension period:
(a) If that person's death occurs before the decedent's age
85, the death benefit is your Account Value in the Sub-accounts plus the Interim
Value of any Fixed Allocation.
(b) If that person's death occurs after the decedent's age 85,
the death benefit is your Account Value.
The amount of the death benefit is determined as of the date we receive In
Writing: (a) "due proof of death"; (b) all representations we require or which
are mandated by applicable law or regulation in relation to the death claim and
the payment of death proceeds; and (c) any applicable election of the mode of
payment of the death benefit, if not previously elected by the Owner. The death
benefit is reduced by any annuity payments made prior to the date we receive In
Writing such due proof of death. The following constitutes "due proof of death":
(a) a certified copy of a death certificate; (b) a certified copy of a decree of
a court of competent jurisdiction as to the finding of death; or (c) any other
proof satisfactory to us.
If the death benefit becomes payable prior to the Annuity Date due to the death
of the Owner and the Beneficiary is the Owner's spouse, then in lieu of
receiving the death benefit, such Owner's spouse may elect to be treated as an
Owner and continue the Annuity.
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. Where allowed by law, if the Annuity is owned by one or
more natural persons, the oldest of any such Owners not named as the Annuitant
immediately becomes the Contingent Annuitant if: (a) the Contingent Annuitant
predeceases the Annuitant; or (b) if you do not designate a Contingent
Annuitant.
In the payout phase, we continue to pay any "certain" payments (payments not
contingent on the continuance of any life) to the Beneficiary subsequent to the
death of the Annuitant.
Annuity Payments: Annuity payments can be guaranteed for life, for a
certain period, or for a certain period and life. We make available fixed
payments, and as of the date of this Prospectus, adjustable payments (payments
which may or may not be changed on specified adjustment dates based on annuity
purchase rates we are then making available to annuities of the same class). We
may or may not be making adjustable annuities available on the Annuity Date. To
the extent there is any tax basis in the annuity, a portion of each annuity
payment is treated for tax purposes as a return of such basis until such tax
basis is exhausted. The amount deemed such a return of basis is determined in
accordance with the requirements of the Code (see "Certain Tax Considerations").
You may choose an Annuity Date, an annuity option and the frequency of annuity
payments when you purchase an Annuity, or at a later date. Your choice of
Annuity Date and annuity option may be limited depending on your use of the
Annuity and the applicable jurisdiction. Subject to our rules, you may choose an
Annuity Date, option and frequency of payments suitable to your needs and
circumstances. You should consult with competent tax and financial advisors as
to the appropriateness of any such choice. Should Annuities subject to New York
law be made available, the Annuity Date for such Annuities may not exceed the
first day of the calendar month following the Annuitant's 85th birthday. Other
jurisdictions may impose similar requirements.
You may change your choices at any time up to 30 days before the earlier of: (a)
the date we would have applied your Account Value to an annuity option had you
not made the change; or (b) the date we will apply your Account Value to an
annuity option in relation to the new Annuity Date you are then selecting. You
must request this change In Writing. The Annuity Date must be the first or the
fifteenth day of a calendar month.
In the absence of an election In Writing: (a) the Annuity Date is the first day
of the calendar month first following the later of the Annuitant's 85th birthday
or the fifth anniversary of our receipt at our Office of your request to
purchase an Annuity; and (b) where allowed by law, fixed monthly payments will
commence under option 2, described below, with 10 years certain. Should
Annuities subject to New York law be made available, for such Annuities, in the
absence of an election In Writing: (a) the Annuity Date is the first day of the
calendar month following the Annuitant's 85th birthday; and (b) fixed monthly
payments will commence under Option 2, described below, with 10 years certain.
Other jurisdictions may impose similar requirements. The amount to be applied is
your Annuity's Account Value 15 business days prior to the Annuity Date. In
determining your annuity payments, we credit interest using our then current
crediting rate for this purpose, which is not less than 3% of interest per year,
between the date Account Value is applied to an annuity option and the Annuity
Date. Annuity options in addition to those shown are available with our consent.
The minimum initial amount payable is the minimum initial annuity amount we
allow under our then current rules. Should you wish to receive a lump sum
payment, you must request to surrender your Annuity prior to the Annuity Date
(see "Surrender").
You may elect to have any amount of the proceeds due to the Beneficiary applied
under any of the options described below, but only to the extent selecting such
an option does not alter the tax status of the Annuity. Except where a lower
amount is required by law, the minimum monthly annuity payment is $100.00.
If you have not made an election prior to proceeds becoming due, the Beneficiary
may elect to receive the death benefit under one of the annuity options.
However, if you made an election, the Beneficiary may not alter such election.
For purposes of the annuity options described below, the term "key life" means
the person or persons upon whose life any payments dependent upon the
continuation of life are based.
(1) Option 1 - Payments for Life: Under this option, income is payable
periodically prior to the death of the key life, terminating with the last
payment due prior to such death. Since no minimum number of payments is
guaranteed, this option offers the maximum level of periodic payments of the
life contingent annuity options. It is possible that only one payment will be
payable if the death of the key life occurs before the date the second payment
was due, and no other payments nor death benefits would be payable.
(2) Option 2 - Payments for Life with 10, 15, or 20 Years Certain:
Under this option, income is payable periodically for 10, 15, or 20 years, as
selected, and thereafter until the death of the key life. Should the death of
the key life occur before the end of the period selected, the remaining payments
are paid to the Beneficiary to the end of such period.
(3) Option 3 - Payments Based on Joint Lives: Under this option, income
is payable periodically during the joint lifetime of two key lives, and
thereafter during the remaining lifetime of the survivor, ceasing with the last
payment prior to the survivor's death. No minimum number of payments is
guaranteed under this option. It is possible that only one payment will be
payable if the death of all the key lives occurs before the date the second
payment was due, and no other payments nor death benefits would be payable.
(4) Option 4 - Payments for a Certain Period: Under this option, income
is payable periodically for a specified number of years. The number of years is
subject to our then current rules. Should the payee die before the end of the
specified number of years, the remaining payments are paid to the Beneficiary to
the end of such period. Note that under this option, payments are not based on
how long we expect any key life to live. Therefore, that portion of the
mortality risk charge assessed to cover the risk that key lives outlive our
expectations provides no benefit to an Owner selecting this option.
The first payment varies according to the annuity options and payment frequency
selected. The first periodic payment is determined by multiplying the Account
Value (expressed in thousands of dollars) as of the close of business on the
fifteenth day preceding the Annuity Date, plus interest at not less than 3% per
year from such date to the Annuity Date, by the amount of the first periodic
payment per $1,000.00 of value obtained from our annuity rates for that type of
annuity and for the frequency of payment selected. Our rates will not be less
than our guaranteed minimum rates. These guaranteed minimum rates are derived
from the 1983a Individual Annuity Mortality Table with ages set back one year
for males and two years for females and with an assumed interest rate of 3% per
annum. Where required by law or regulation, such annuity table will have rates
that do not differ according to the gender of the key life. Otherwise, the rates
will differ according to the gender of the key life.
Qualified Plan Withdrawal Limitations: The Annuities are endorsed such that
there are surrender or withdrawal limitations when used in relation to certain
retirement plans for employees which are designed to qualify under various
sections of the Code. These limitations do not affect certain roll-overs or
exchanges between qualified plans. Distribution of amounts attributable to
contributions made pursuant to a salary reduction agreement (as defined in Code
section 403(b)), or attributable to transfers to a tax sheltered annuity from a
custodial account (as defined in Code section 403(b)(7)), is restricted to the
employee's: (a) separation from service; (b) death; (c) disability (as defined
in Section 72(m)(7) of the Code); (d) reaching age 59 1/2; or (e) hardship.
Hardship withdrawals are restricted to amounts attributable to salary reduction
contributions, and do not include investment results. In the case of tax
sheltered annuities, these limitations do not apply to certain salary reduction
contributions made and investment results earned prior to dates specified in the
Code. In addition, the limitation on hardship withdrawals does not apply to
salary reduction contributions made and investment results earned prior to dates
specified in the Code which have been transferred from custodial accounts.
Rollovers from the types of plans noted to another qualified plan or to an
individual retirement account or individual retirement annuity are not subject
to the limitations noted. Certain distributions, including rollovers, that are
not transferred directly to the trustee of another qualified plan, the custodian
of an individual retirement account or the issuer of an individual retirement
annuity may be subject to automatic 20% withholding for Federal income tax. This
may also trigger withholding for state income taxes (see "Certain Tax
Considerations").
We may make annuities available through the Texas Optional Retirement Program
subsequent to receipt of the required regulatory approvals and implementation.
In addition to the restrictions required for such Annuities to qualify under
Section 403(b) of the Code, Annuities issued in the Texas Optional Retirement
Program are amended as follows: (a) no benefits are payable unless you die
during, or are retired or terminated from, employment in all Texas institutions
of higher education; and (b) if a second year of participation in such program
is not begun, the total first year State of Texas' contribution will be
returned, upon its request, to the appropriate institute of higher education.
With respect to the restrictions on withdrawals set forth above, we are relying
upon: 1) a no-action letter dated November 28, 1988 from the staff of the
Securities and Exchange Commission to the American Council of Life Insurance
with respect to annuities issued under Section 403(b) of the Code, the
requirements of which have been complied with by the us; and 2) Rule 6c-7 under
the 1940 Act with respect to annuities made available through the Texas Optional
Retirement Program, the requirements of which have been complied with by the us.
Pricing of Transfers and Distributions: We "price" transfers and
distributions on the dates indicated below.
(1) We price "scheduled" transfers and distributions as of the date
such transactions are so scheduled. "Scheduled" transactions include transfers
under a dollar cost averaging program, Systematic Withdrawals, Minimum
Distributions, transfers previously scheduled with us at our Office pursuant to
any on-going rebalancing, asset allocation or similar program, and annuity
payments.
(2) We price "unscheduled" transfers and partial withdrawals as of the
date we receive at our Office the request for such transactions. "Unscheduled"
transfers include any transfers processed in conjunction with any market timing
program, or transfers not previously scheduled with us at our Office pursuant to
any rebalancing, asset allocation or similar program which you employ or you
authorize to be employed on your behalf. "Unscheduled" transfers received
pursuant to an authorization to accept transfers using voice or data
transmission over the phone are priced as of the Valuation Period we receive the
request at our Office for such transactions.
(3) We price surrenders and death benefits as of the date we receive at
our Office all materials we require for such transactions and such materials are
satisfactory to us (see "Surrenders" and "Death Benefits").
The pricing of transfers and distributions involving Sub-accounts includes the
determination of the applicable Unit Price for the Units transferred or
distributed. The pricing of transfers and distributions involving Fixed
Allocations includes the determination of any applicable MVA. Any applicable MVA
alters the amount available when all the Account Value in a Fixed Allocation is
being transferred or distributed. Any applicable MVA alters the amount of
Interim Value needed when only a portion of the Account Value is being
transferred or distributed. Unit Prices may change each Valuation Period to
reflect the investment performance of the Sub-accounts. The MVA applicable to
each Fixed Allocation changes once each month and also each time we declare a
different rate for new Fixed Allocations. Payment is subject to our right to
defer transactions for a limited period (see "Deferral of Transactions").
Voting Rights: You have voting rights in relation to Account Value
maintained in the Sub-accounts. You do not have voting rights in relation to
Account Value maintained in any Fixed Allocations or in relation to fixed or
adjustable annuity payments.
We will vote shares of the underlying mutual funds or portfolios in which the
Sub-accounts invest in the manner directed by Owners. Owners give instructions
equal to the number of shares represented by the Sub-account Units attributable
to their Annuity. We will vote the shares attributable to assets held in the
Sub-accounts solely for us rather than on behalf of Owners, or any share as to
which we have not received instructions, in the same manner and proportion as
the shares for which we have received instructions. We will do so separately for
each Sub-account from various classes that may invest in the same underlying
mutual fund portfolio.
The number of votes for an underlying mutual fund or portfolio will be
determined as of the record date for such underlying mutual fund or portfolio as
chosen by its board of trustees or board of directors, as applicable. We will
furnish Owners with proper forms and proxies to enable them to instruct us how
to vote.
You may instruct us how to vote on the following matters: (a) changes to the
board of trustees or board of directors, as applicable; (b) changing the
independent accountant; (c) approval of changes to the investment advisory
agreement or adoption of a new investment advisory agreement; (d) any change in
the fundamental investment policy; and (e) any other matter requiring a vote of
the shareholders.
With respect to approval of changes to the investment advisory agreement,
approval of a new investment advisory agreement or any change in fundamental
investment policy, only Owners maintaining Account Value as of the record date
in a Sub-account investing in the applicable underlying mutual fund portfolio
will instruct us how to vote on the matter, pursuant to the requirements of Rule
18f-2 under the 1940 Act.
Transfers, Assignments or Pledges: Generally, your rights in an Annuity may
be transferred, assigned or pledged for loans at any time. However, these rights
may be limited depending on your use of the Annuity. These transactions may be
subject to income taxes and certain penalty taxes (see "Certain Tax
Considerations"). You may transfer, assign or pledge your rights to another
person at any time, prior to any death upon which the death benefit is payable.
You must request a transfer or provide us a copy of the assignment In Writing. A
transfer or assignment is subject to our acceptance. Prior to receipt of this
notice, we will not be deemed to know of or be obligated under any assignment
prior to our receipt and acceptance thereof. We assume no responsibility for the
validity or sufficiency of any assignment. Transfer of all or a portion of
ownership rights may affect the minimum death benefit (see "Death Benefits").
Reports to You: We mail to Owners, at their last known address of record,
any statements and reports required by applicable law or regulation. Owners
should therefore give us prompt notice of any address change. We send a
confirmation statement to Owners each time a transaction is made affecting
Account Value, such as making additional Purchase Payments, transfers, exchanges
or withdrawals. Quarterly statements are also mailed detailing the activity
affecting your Annuity during the calendar quarter. You may request additional
reports. We reserve the right to charge up to $50.00 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 immediately to assure proper crediting to your
Annuity. For transactions for which we immediately send confirmations, we assume
all transactions are accurate unless you notify us otherwise within 30 days
after the date of the transaction. For transactions that are only confirmed on
the quarterly statement, we assume all transactions are accurate unless you
notify us within 30 days of the end of the calendar quarter. We also send to
Owners each year an annual report and a semi-annual report containing financial
statements for the applicable Sub-accounts, as of December 31 and June 30,
respectively.
SALE OF THE ANNUITIES: American Skandia Marketing, Incorporated ("ASM,
Inc."), a wholly-owned subsidiary of American Skandia Investment Holding
Corporation, acts as the principal underwriter of the Annuities. ASM, Inc.'s
principal business address is One Corporate Drive, Shelton, Connecticut 06484.
ASM, Inc. is a member of the National Association of Securities Dealers, Inc.
("NASD").
Distribution: ASM, Inc. will enter into distribution agreements with
certain broker-dealers registered under the Securities and Exchange Act of 1934
or with entities which may otherwise offer the Annuities that are exempt from
such registration. Under such distribution agreements such broker-dealers or
entities may offer Annuities to persons who have established an account with the
broker-dealer or entity. In addition, ASM, Inc. may offer Annuities directly to
potential purchasers. Concessions may be paid based on Account Value. The
maximum concession to be paid in connection with the sale is 0.30% per year of
the Account Value. We reserve the right to base concessions from time-to-time on
the investment options chosen by Annuity Owners, including investment options
that may be deemed our "affiliates" or "affiliates" of ASM, Inc. under the
Investment Company Act of 1940.
Advertising: We may advertise certain information regarding the performance
of the investment options. Details on how we calculate performance measures for
the Sub-accounts are found in the Statement of Additional Information. This
performance information may help you review the performance of the investment
options and provide a basis for comparison with other annuities. This
information may be less useful when comparing the performance of the investment
options with other savings or investment vehicles. Such other investments may
not provide some of the benefits of annuities, or may not be designed for
long-term investment purposes. Additionally other savings or investment vehicles
may not be treated like annuities under the Code.
The information we may advertise regarding the Fixed Allocations may include the
then current interest rates we are crediting to new Fixed Allocations.
Information on Current Rates will be as of the date specified in such
advertisement. Given that the actual rates applicable to any Fixed Allocation
are as of the date of any such Fixed Allocation's Guarantee Period begins, the
rate credited to a Fixed Allocation may be more or less than those quoted in an
advertisement.
Performance information on the Sub-accounts is based on past performance only
and is no indication of future performance. Performance of the Sub-accounts
should not be considered a representation of the performance of such
Sub-accounts in the future. Performance of the Sub-accounts is not fixed. Actual
performance will depend on the type, quality and, for some of the Sub-accounts,
the maturities of the investments held by the underlying mutual funds or
portfolios and upon prevailing market conditions and the response of the
underlying mutual funds to such conditions. Actual performance will also depend
on changes in the expenses of the underlying mutual funds or portfolios. Such
changes are reflected, in turn, in the Sub-accounts which invests in such
underlying mutual fund or portfolio. In addition, the amount of charges assessed
against each Sub-account will affect performance.
Some of the underlying mutual fund portfolios existed prior to the inception of
these Sub-accounts. Performance quoted in advertising regarding such
Sub-accounts may indicate periods during which the Sub-accounts have been in
existence but prior to the initial offering of the Annuities, or periods during
which the underlying mutual fund portfolios have been in existence, but the
Sub-accounts have not. Such hypothetical performance is calculated using the
same assumptions employed in calculating actual performance since inception of
the Sub-accounts.
Advertisements we distribute may also compare the performance of our
Sub-accounts with: (a) certain unmanaged market indices, including but not
limited to the Dow Jones Industrial Average, the Standard & Poor's 500, the
Shearson Lehman Bond Index, the Frank Russell non-U.S. Universal Mean, the
Morgan Stanley Capital International Index of Europe, Asia and Far East Funds,
and the Morgan Stanley Capital International World Index; and/or (b) other
management investment companies with investment objectives similar to the mutual
fund or portfolio underlying the Sub-accounts being compared. This may include
the performance ranking assigned by various publications, including but not
limited to the Wall Street Journal, Forbes, Fortune, Money, Barron's, Business
Week, USA Today and statistical services, including but not limited to Lipper
Analytical Services Mutual Funds Survey, Lipper Annuity and Closed End Survey,
the Variable Annuity Research Data Survey, SEI, the Morningstar Mutual Fund
Sourcebook and the Morningstar Variable Annuity/Life Sourcebook.
American Skandia Life Assurance Corporation may advertise its rankings and/or
ratings by independent financial ratings services. Such rankings may help you in
evaluating our ability to meet our obligations in relation to Fixed Allocations,
pay minimum death benefits, pay annuity payments or administer Annuities. Such
rankings and ratings do not reflect or relate to the performance of Separate
Account B.
CERTAIN TAX CONSIDERATIONS: The following is a brief summary of certain
Federal income tax laws as they are currently interpreted. No one can be certain
that the laws or interpretations will remain unchanged or that agencies or
courts will always agree as to how the tax law or regulations are to be
interpreted. This discussion is not intended as tax advice. You may wish to
consult a professional tax advisor for tax advice as to your particular
situation.
Our Tax Considerations: We are taxed as a life insurance company under Part
I, subchapter L, of the Code.
Tax Considerations Relating to Your Annuity: Section 72 of the Code governs
the taxation of annuities in general. Taxation of an annuity is largely
dependent upon: (a) whether it is used in a qualified pension or profit sharing
plan or other retirement arrangement eligible for special treatment under the
Code; and (b) the status of the beneficial owner as either a natural or
non-natural person (when the annuity is not used in a retirement plan eligible
for special tax treatment). Non-natural persons include corporations, trusts,
and partnerships, except where these entities own an annuity for the benefit of
a natural person. Natural persons are individuals.
Non-natural Persons: Any increase during a tax year in the value of an
annuity if not used in a retirement plan eligible for special treatment under
the Code is currently includible in the gross income of a non-natural person
that is the contractholder. There are exceptions if an annuity is held by: (a) a
structured settlement company; (b) an employer with respect to a terminated
pension plan; (c) entities other than employers, such as a trust, holding an
annuity as an agent for a natural person; or (d) a decedent's estate by reason
of the death of the decedent.
Natural Persons: Increases in the value of an annuity when the
contractholder is a natural person generally are not taxed until distribution
occurs. Distribution can be in a lump sum payment or in annuity payments under
the annuity option elected. Certain other transactions may be deemed to be a
distribution. The provisions of Section 72 of the Code concerning these
distributions are summarized briefly below.
Distributions: Distributions received before the annuity payments begin are
treated as being derived first from "income on the contract" and includible in
gross income. The amount of the distribution exceeding "income on the contract"
is not included in gross income. "Income on the contract" for an annuity is
computed by subtracting from the value of all "related contracts" (our term,
discussed below) the taxpayer's "investment in the contract": an amount equal to
total purchase payments for all "related contracts" less any previous
distributions or portions of such distributions from such "related contracts"
not includible in gross income. "Investment in the contract" may be affected by
whether an annuity or any "related contract" was purchased as part of a tax-free
exchange of life insurance or annuity contracts under Section 1035 of the Code.
"Related contracts" may mean all annuity contracts or certificates evidencing
participation in a group annuity contract for which the taxpayer is the
beneficial owner and which are issued by the same insurer within the same
calendar year, irrespective of the named annuitants. It is clear that "related
contracts" include contracts prior to when annuity payments begin. However,
there may be circumstances under which "related contracts" may include contracts
recognized as immediate annuities under state insurance law or annuities for
which annuity payments have begun. In a ruling addressing the applicability of a
penalty on distributions, the Internal Revenue Service treated distributions
from a contract recognized as an immediate annuity under state insurance law
like distributions from a deferred annuity. The situation addressed by such
ruling included the fact that: (a) the immediate annuity was obtained pursuant
to an exchange of contracts; and (b) the purchase payments for the exchanged
contract were contributed more than one year prior to the first annuity payment
payable under the immediate annuity. This ruling also may or may not imply that
annuity payments from a deferred annuity on or after its annuity date may be
treated the same as distributions prior to the annuity date if such deferred
annuity was: (a) obtained pursuant to an exchange of contracts; and (b) the
purchase payments for the exchanged contract were made or may be deemed to have
been made more than one year prior to the first annuity payment.
If "related contracts" include immediate annuities or annuities for which
annuity payments have begun, then "related contracts" would have to be taken
into consideration in determining the taxable portion of each annuity payment
(as outlined in the "Annuity Payments" subsection below) as well as in
determining the taxable portion of distributions from an annuity or any "related
contracts" before annuity payments have begun. We cannot guarantee that
immediate annuities or annuities for which annuity payments have begun could not
be deemed to be "related contracts". You are particularly cautioned to seek
advice from your own tax advisor on this matter.
Assignments and Pledges: Any assignment or pledge of any portion of the
value of an annuity before annuity payments have begun are treated as a
distribution subject to taxation under the distribution rules set forth above.
Any gain in an annuity subsequent to the assignment or pledge of an entire
annuity while such assignment or pledge remains in effect is treated as "income
on the contract" in the year in which it is earned. For annuities not issued for
use as qualified plans (see "Tax Considerations When Using Annuities in
Conjunction with Qualified Plans"), the cost basis of the annuity is increased
by the amount of any assignment or pledge includible in gross income. The cost
basis is not affected by any repayment of any loan for which the annuity is
collateral or by payment of any interest thereon.
Penalty on Distributions: Subject to certain exceptions, any distribution
is subject to a penalty equal to 10% of the amount includible in gross income.
This penalty does not apply to certain distributions, including: (a)
distributions made on or after the taxpayer's age 59 1/2; (b) distributions made
on or after the death of the holder of the contract, or, where the holder of the
contract is not a natural person, the death of the annuitant; (c) distributions
attributable to the taxpayer's becoming disabled; (d) distributions which are
part of a scheduled series of substantially equal periodic payments for the life
(or life expectancy) of the taxpayer (or the joint lives of the taxpayer and the
taxpayer's Beneficiary); (e) distributions of amounts which are allocable to
"investments in the contract" made prior to August 14, 1982; (f) payments under
an immediate annuity as defined in the Code; (g) distributions under a qualified
funding asset under Code Section 130(d); or (h) distributions from an annuity
purchased by an employer on the termination of a qualified pension plan that is
held by the employer until the employee separates from service.
Any modification, other than by reason of death or disability, of distributions
which are part of a scheduled series of substantially equal periodic payments as
noted in (d), above, that occur before the taxpayer's age 59 1/2 or within 5
years of the first of such scheduled payments will result in the requirement to
pay the taxes that would have been due had the payments been treated as subject
to tax in the years received, plus interest for the deferral period. It is our
understanding that the Internal Revenue Service does not consider a scheduled
series of distributions to qualify under (d), above, if the holder of the
annuity retains the right to modify such distributions at will, even if such
right is not exercised, or, for a variable annuity, if the distributions are not
based on a substantially equal number of Units, rather than a substantially
equal dollar amount.
The Internal Revenue Service has ruled that the exception to the 10% penalty
described above for "non-qualified" immediate annuities as defined under the
Code may not apply to annuity payments under a contract recognized as an
immediate annuity under state insurance law obtained pursuant to an exchange of
contracts if: (a) purchase payments for the exchanged contract were contributed
or deemed to be contributed more than one year prior to the first annuity
payment payable under the immediate annuity; and (b) the annuity payments under
the immediate annuity do not meet the requirements of any other exception to the
10% penalty. This ruling may or may not imply that the exception to the 10%
penalty may not apply to annuity payments paid pursuant to a deferred annuity
obtained pursuant to an exchange of contract if: (a) purchase payments for the
exchanged contract were contributed or may be deemed to be contributed more than
one year prior to the first annuity payment pursuant to the deferred annuity
contract; or (b) the annuity payments pursuant to the deferred annuity do not
meet the requirements of any other exception to the 10% penalty.
Annuity Payments: The taxable portion of each payment is determined by a
formula which establishes the ratio that "investment in the contract" bears to
the total value of annuity payments to be made. However, the total amount
excluded under this ratio is limited to the "investment in the contract". The
formula differs between fixed and variable annuity payments. Where the annuity
payments cease because of the death of the person upon whose life payments are
based and, as of the date of death, the amount of annuity payments excluded from
taxable income by the exclusion ratio does not exceed the investment in the
contract, then the remaining portion of unrecovered investment is allowed as a
deduction in the tax year of such death.
Gifts: The gift of an annuity to other than the spouse of the contract
holder (or former spouse incident to a divorce) is treated for tax purposes as a
distribution.
Tax Free Exchanges: Section 1035 of the Code permits certain tax-free
exchanges of a life insurance, annuity or endowment contract for an annuity. If
an annuity is obtained by a tax-free exchange of a life insurance, annuity or
endowment contract purchased prior to August 14, 1982, then any distributions
other than as annuity payments which do not exceed the portion of the
"investment in the contract" (purchase payments made into the other contract,
less prior distributions) prior to August 14, 1982, are not included in taxable
income. In all other respects, the general provisions of the Code apply to
distributions from annuities obtained as part of such an exchange.
Transfers Between Investment Options: Transfers between investment options
are not subject to taxation. The Treasury Department may promulgate guidelines
under which a variable annuity will not be treated as an annuity for tax
purposes if persons with ownership rights have excessive control over the
investments underlying such variable annuity. Such guidelines may or may not
address the number of investment options or the number of transfers between
investment options offered under a variable annuity. It is not known whether
such guidelines, if in fact promulgated, would have retroactive effect. It is
also not known what effect, if any, such guidelines may have on transfers
between the investment options of the Annuity offered pursuant to this
Prospectus. We will take any action, including modifications to your Annuity or
the Sub-accounts, required to comply with such guidelines if promulgated.
Transfers 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 taxes tend to apply to transfers of significantly large dollar amounts. We
may be required to determine whether a transaction must be treated as a direct
skip as defined in the Code and the amount of the resulting tax. If so required,
we will deduct from your Annuity or from any applicable payment to be treated as
a direct skip any amount we are required to pay as a result of the transaction.
Diversification: Section 817(h) of the Code provides that a variable
annuity contract, in order to qualify as an annuity, must have an "adequately
diversified" segregated asset account (including investments in a mutual fund by
the segregated asset account of insurance companies). The Treasury Department's
regulations prescribe the diversification requirements for variable annuity
contracts. We believe the underlying mutual fund portfolios should comply with
the terms of these regulations.
Federal Income Tax Withholding: Section 3405 of the Code provides for
Federal income tax withholding on the portion of a distribution which is
includible in the gross income of the recipient. Amounts to be withheld depend
upon the nature of the distribution. However, under most circumstances a
recipient may elect not to have income taxes withheld or have income taxes
withheld at a different rate by filing a completed election form with us.
Certain distributions, including rollovers, from most retirement plans, may be
subject to automatic 20% withholding for Federal income taxes. This will not
apply to: (a) any portion of a distribution paid as Minimum Distributions; (b)
direct transfers to the trustee of another retirement plan; (c) distributions
from an individual retirement account or individual retirement annuity; (d)
distributions made as substantially equal periodic payments for the life or life
expectancy of the participant in the retirement plan or the life or life
expectancy of such participant and his or her designated beneficiary under such
plan; and (e) certain other distributions where automatic 20% withholding may
not apply.
Tax Considerations When Using Annuities in Conjunction with Qualified
Plans: There are various types of qualified plans for which an annuity may be
suitable. Benefits under a qualified plan may be subject to that plan's terms
and conditions irrespective of the terms and conditions of any annuity used to
fund such benefits ("qualified contract"). We have provided below general
descriptions of the types of qualified plans in conjunction with which we may
issue an Annuity. These descriptions are not exhaustive and are for general
informational purposes only. We are not obligated to make or continue to make
new Annuities available for use with all the types of qualified plans shown
below.
The tax rules regarding qualified plans are complex. The application of these
rules depend on individual facts and circumstances. Before purchasing an Annuity
for use in funding a qualified plan, you should obtain competent tax advice,
both as to the tax treatment and suitability of such an investment.
Qualified contracts include special provisions changing or restricting certain
rights and benefits otherwise available to non-qualified annuities. You should
read your Annuity carefully to review any such changes or limitations. The
changes and limitations may include, but may not be limited to, restrictions on
ownership, transferability, assignability, contributions, distributions, as well
as reductions to the minimum allowable purchase payment for an annuity and any
subsequent annuity you may purchase for use as a qualified contract.
Additionally, various penalty and excise taxes may apply to contributions or
distributions made in violation of applicable limitations.
Individual Retirement Programs: Eligible individuals may maintain an
individual retirement account or individual retirement annuity ("IRA"). Subject
to limitations, contributions of certain amounts may be deductible from gross
income. Purchasers of IRAs are to 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 other qualified plans may be rolled over or transferred into an IRA on
a tax-deferred basis. Eligible employers that meet specified criteria may
establish simplified employee pensions for employees using the employees' IRAs.
These arrangements are known as SEP-IRAs. Employer contributions that may be
made to SEP-IRAs are larger than the amounts that may be contributed to other
IRAs, and may be deductible to the employer.
Tax Sheltered Annuities: A tax sheltered annuity ("TSA") under Section
403(b) of the Code is a contract into which contributions may be made for the
benefit of their employees by certain qualifying employers: public schools and
certain charitable, educational and scientific organizations. Such contributions
are not taxable to the employee until distributions are made from the TSA. The
Code imposes limits on contributions, transfers and distributions.
Nondiscrimination requirements apply as well.
Corporate Pension and Profit-sharing Plans: Annuities may be used to fund
employee benefits of various retirement plans established by corporate
employers. Contributions to such plans are not taxable to the employee until
distributions are made from the retirement plan. The Code imposes limitations on
contributions and distributions. The tax treatment of distributions is subject
to special provisions of the Code, and also depends on the design of the
specific retirement plan. There are also special requirements as to
participation, nondiscrimination, vesting and nonforfeitability of interests.
H.R. 10 Plans: Annuities may also be used to fund benefits of retirement
plans established by self-employed individuals for themselves and their
employees. These are commonly known as "H.R. 10 Plans" or "Keogh Plans". These
plans are subject to most of the same types of limitations and requirements as
retirement plans established by corporations. However, the exact limitations and
requirements may differ from those for corporate plans.
Tax Treatment of Distributions from Qualified Annuities: A 10% penalty tax
applies to the taxable portion of a distribution from a qualified contract
unless one of the following exceptions apply to such distribution: (a) it is
part of a properly executed transfer to another IRA, an individual retirement
account or another eligible qualified plan; (b) it occurs on or after the
taxpayer's age 59 1/2; (c) it is subsequent to the death or disability of the
taxpayer (for this purpose disability is as defined in Section 72(m)(7) of the
Code); (d) it is part of substantially equal periodic payments to be paid not
less frequently than annually for the taxpayer's life or life expectancy or for
the joint lives or life expectancies of the taxpayer and a designated
beneficiary; (e) it is subsequent to a separation from service after the
taxpayer attains age 55; (f) it does not exceed the employee's allowable
deduction in that tax year for medical care; and (g) it is made to an alternate
payee pursuant to a qualified domestic relations order. The exceptions stated
above in (e), (f) and (g) do not apply to IRAs.
Section 457 Plans: Under Section 457 of the Code, deferred compensation
plans established by governmental and certain other tax exempt employers for
their employees may invest in annuity contracts. The Code limits contributions
and distributions, and imposes eligibility requirements as well. Contributions
are not taxable to employees until distributed from the plan. However, plan
assets remain the property of the employer and are subject to the claims of the
employer's general creditors until such assets are made available to
participants or their beneficiaries.
OTHER MATTERS: Outlined below are certain miscellaneous matters you should
know before investing in an Annuity.
Deferral of Transactions: We may defer any distribution or transfer from a
Fixed Allocation or an annuity payout for a period not to exceed the lesser of 6
months or the period permitted by law. If we defer a distribution or transfer
from any Fixed Allocation or any annuity payout for more than thirty days, or
less where required by law, we pay interest at the minimum rate required by law
but not less than 3%, or at least 4% if required by your contract, per year on
the amount deferred. We may defer payment of proceeds of any distribution from
any Sub-account or any transfer from a Sub-account for a period not to exceed 7
calendar days from the date the transaction is effected. Any deferral period
begins on the date such distribution or transfer would otherwise have been
transacted (see "Pricing of Transfers and Distributions").
All procedures, including payment, based on the valuation of the Sub-accounts
may be postponed during the period: (1) the New York Stock Exchange is closed
(other than customary holidays or weekends) or trading on the New York Stock
Exchange is restricted as determined by the SEC; (2) the SEC permits
postponement and so orders; or (3) the SEC determines that an emergency exists
making valuation or disposal of securities not reasonably practical.
Resolving Material Conflicts: Underlying mutual funds or portfolios may be
available to registered separate accounts offering either or both life and
annuity contracts of insurance companies not affiliated with us. We also may
offer life insurance and/or annuity contracts that offer different variable
investment options from those offered under this Annuity, but which invest in
the same underlying mutual funds or portfolios. It is possible that differences
might arise between our Separate Account B and one or more accounts of other
insurance companies which participate in a portfolio. It is also possible that
differences might arise between a Sub-account offered under this Annuity and
variable investment options offered under different life insurance policies or
annuities we offer, even though such different variable investment options
invest in the same underlying mutual fund or portfolio. In some cases, it is
possible that the differences could be considered "material conflicts". Such a
"material conflict" could also arise due to changes in the law (such as state
insurance law or Federal tax law) which affect either these different life and
annuity separate accounts or differing life insurance policies and annuities. It
could also arise by reason of differences in voting instructions of persons with
voting rights under our policies and/or annuities and those of other companies,
persons with voting rights under annuities and those with rights under life
policies, or persons with voting rights under one of our life policies or
annuities with those under other life policies or annuities we offer. It could
also arise for other reasons. We will monitor events so we can identify how to
respond to such conflicts. If such a conflict occurs, we will take the necessary
action to protect persons with voting rights under our life policies or
annuities vis-a-vis those with rights under life policies or annuities offered
by other insurance companies. We will also take the necessary action to treat
equitably persons with voting rights under this Annuity and any persons with
voting rights under any other life policy or annuity we offer.
Modification: We reserve the right to any or all of the following: (a)
combine a Sub-account with other Sub-accounts; (b) combine Separate Account B or
a portion thereof with other "unitized" separate accounts; (c) terminate
offering certain Guarantee Periods for new or renewing Fixed Allocations; (d)
combine Separate Account D with other "non-unitized" separate accounts; (e)
deregister Separate Account B under the 1940 Act; (f) operate Separate Account B
as a management investment company under the 1940 Act or in any other form
permitted by law; (g) make changes required by any change in the Securities Act
of 1933, the Exchange Act of 1934 or the 1940 Act; (h) make changes that are
necessary to maintain the tax status of your Annuity under the Code; and (i)
make changes required by any change in other Federal or state laws relating to
retirement annuities or annuity contracts.
Also, from time to time, we may make additional Sub-accounts available to you.
These Sub-accounts will invest in underlying mutual funds or portfolios of
underlying mutual funds we believe to be suitable for the Annuity. We may or may
not make a new Sub-account available to invest in any new portfolio of one of
the current underlying mutual funds should such a portfolio be made available to
Separate Account B.
We may eliminate Sub-accounts, combine two or more Sub-accounts or substitute
one or more new underlying mutual funds or portfolios for the one in which a
Sub-account is invested. Substitutions may be necessary if we believe an
underlying mutual fund or portfolio no longer suits the purpose of the Annuity.
This may happen due to a change in laws or regulations, or a change in the
investment objectives or restrictions of an underlying mutual fund or portfolio,
or because the underlying mutual fund or portfolio is no longer available for
investment, or for some other reason. We would obtain prior approval from the
insurance department of our state of domicile, if so required by law, before
making such a substitution, deletion or addition. We also would obtain prior
approval from the SEC so long as required by law, and any other required
approvals before making such a substitution, deletion or addition.
We reserve the right to transfer assets of Separate Account B, which we
determine to be associated with the class of contracts to which your Annuity
belongs, to another "unitized" separate account. We also reserve the right to
transfer assets of Separate Account D which we determine to be associated with
the class of contracts to which your annuity belongs, to another "non-unitized"
separate account. We notify you (and/or any payee during the payout phase) of
any modification to your Annuity. We may endorse your Annuity to reflect the
change.
Misstatement of Age or Sex: If there has been a misstatement of the age
and/or sex of any person upon whose life annuity payments or the minimum death
benefit are based, we make adjustments to conform to the facts. As to annuity
payments: (a) any underpayments by us will be remedied on the next payment
following correction; and (b) any overpayments by us will be charged against
future amounts payable by us under your Annuity.
Ending the Offer: We may limit or discontinue offering Annuities. Existing
Annuities will not be affected by any such action.
Indemnification: Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers or persons
controlling the registrant pursuant to the foregoing provisions, the registrant
has been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
Legal Proceedings: As of the date of this Prospectus, neither we nor ASM,
Inc. were involved in any litigation outside of the ordinary course of business,
and know of no material claims.
THE COMPANY: American Skandia Life Assurance Corporation is a stock
insurance company domiciled in Connecticut with licenses in all 50 states. It is
a wholly owned subsidiary of American Skandia Investment Holding Corporation,
whose indirect parent is Skandia Insurance Company Ltd. Skandia Insurance
Company Ltd. is part of a group of companies whose predecessor commenced
operations in 1855. Two of our affiliates, American Skandia Marketing,
Incorporated, and American Skandia Information Services and Technology
Corporation, may undertake certain administrative functions on our behalf. Our
affiliate, American Skandia Investment Services, Incorporated, currently acts as
the investment manager to the American Skandia Trust. We currently engage
Skandia Investment Management, Inc., an affiliate whose indirect parent is
Skandia Insurance Company Ltd., as investment manager for our general account.
We are under no obligation to engage or continue to engage any investment
manager.
During 1995, Skandia Vida, S.A. de C.V. was formed by the ultimate parent
Skandia Insurance Company Ltd. The Company owns 99.9% ownership in Skandia Vida,
S.A. de C.V. which is a life insurance company domiciled in Mexico. This Mexican
life insurer is a start up company with expectations of selling long term
savings product within Mexico. Total shareholders' equity of Skandia Vida, S.A.
de C.V. is $881,648 at December 31, 1995.
Lines of Business: The Company is in the business of issuing annuity
policies, and has been so since its business inception in 1988. The Company
currently offers the following annuity products: a) certain deferred annuities
that are registered with the Securities and Exchange Commission, including
variable annuities and fixed interest rate annuities that include a market value
adjustment feature; b) certain other fixed deferred annuities that are not
registered with the Securities and Exchange Commission; and c) fixed and
adjustable immediate annuities. We may, in the future, offer other annuities,
life insurance and other forms of insurance.
Selected Financial Data: The following selected financial data are
qualified by reference to, and should be read in conjunction with, the financial
statements, including related notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus. The selected financial data as of and for each of the five
years ended December 31, 1995, 1994, 1993, 1992 and 1991 has not been audited.
The selected financial data has been derived from the full financial statements
for the years ended December 31, 1995, 1994, 1993, 1992 and 1991 which were
presented in accordance with generally accepted accounting principles and which
were audited by Deloitte & Touch LLP, independent auditors, whose report thereon
is included herein.
Income Statement Data:
[to be updated upon amendment]
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operation: The Company's long term business plan was developed
reflecting the current sales and marketing approach. Annuity sales increased
19%, 54% and 210% in 1995, 1994 and 1993, respectively. The Company continues to
show significant growth in sales volume and increased market share within the
variable annuity industry. Total assets grew 75%, 84% and 182% in 1995, 1994 and
1993, respectively. These increases were a direct result of the substantial
sales volume increasing separate account assets and deferred acquisition costs.
Liabilities grew 76%, 87%, and 198% in 1995, 1994 and 1993, respectively, as a
result of the reserves required for the increased sales activity and borrowing
during 1995, 1994 and 1993. The borrowing is needed to fund the acquisition
costs of the Company's variable annuity business.
The Company experienced a net loss after tax in 1995 and 1994, which was in
excess of plan. The 1995 result was related to higher than anticipated expense
levels and additional reserving requirements on our market value adjusted
annuities. The increase in expenses was primarily attributable to improving our
service infrastructure and marketing related costs.
The 1994 loss is a result of additional reserving of approximately $4.6 million
to cover the minimum death benefit exposure in the Company's annuity contracts
along with higher than expected general expenses relative to sales volume. The
additional reserve may be required from time to time, within the variable
annuity market place, and is a result of volatility in the financial markets as
it relates to the underlying separate account investments. The Company achieved
profits in 1993 of $2 million which was expected.
Increasing volume of annuity sales results in higher assets under management.
The fees realized on assets under management has resulted in annuity charges and
fees to increase 57%, 111% and 143% in 1995, 1994 and 1993, respectively.
Net investment income increased 23% and 88% in 1995 and 1994, respectively, and
decreased 22% in 1993. The increase in 1995 is a result of a higher average
level of Company bonds and short-term investments. The increase in 1994 is a
result of an increase in the Company's bonds and short-term investments, which
were $33.6 million and $29.1 million at December 31, 1994 and 1993,
respectively. The decrease in 1993 is a result of the need to liquidate
investments to support the cash needs required to fund the acquisition costs on
the variable annuity business.
Fee income has increased 194%, 125% and 650% in 1995, 1994 and 1993,
respectively, as a result of income from transfer agency type activities.
Annuity benefits represent payments on annuity contracts with mortality risks,
this being the immediate annuity with life contingencies and supplementary
contracts with life contingencies.
Increase in annuity policy reserves represent change in reserves for the
immediate annuity with life contingencies, supplementary contracts with life
contingencies and minimum death benefit. During 1995 the Company entered into an
agreement to reinsure the guaranteed minimum death benefit exposure on most of
the variable annuity contracts. The costs associated with reinsuring the minimum
death benefit reserve approximates the change in the minimum death benefit
reserve during 1995, thereby having no significant effect on the statement of
operations. The significant increase in 1994 reflects the required increase in
the minimum death benefit reserve on variable annuity contracts. This increase
covers the escalating death benefit in the product which was further enhanced as
a result of poor performance of the underlying mutual funds within the variable
annuity contract.
Return credited to contractowners represents revenues on the variable and market
value adjusted annuities offset by the benefit payments and change in reserves
required on this business. Also included are the benefit payments and change in
reserves on immediate annuity contracts without significant mortality risks. In
1995, the Company earned a lower than anticipated separate account investment
return on the market value adjusted contracts in support of the benefits and
required reserves. In addition, the 1995 result includes an increase in the
required reserves associated with this product.
The result for 1994 was better than anticipated due to separate account
investment return on the market value adjusted contracts being in excess of the
benefits and required reserves.
Underwriting, acquisition and other insurance expenses for 1995 is made up of
$62.8 million of commissions and $42.2 million of general expenses offset by the
net capitalization of deferred acquisition costs totaling $69.2 million. This
compares to the same period last year of $46.2 million of commissions and $26.2
million of general expenses offset by the net capitalization of deferred
acquisition costs totaling $53.7 million.
Underwriting, acquisition and other insurance expenses in 1993 were made up of
$36.7 million of commissions and $19.3 million of general expenses offset by the
net capitalization of deferred acquisition costs totaling $46.3 million.
Interest expense increased $2.9 million and $3.4 million in 1995 and 1994,
respectively, as a result of Surplus Notes totaling $103 million and $69
million, at 1995 and 1994, respectively.
Liquidity and Capital Resources: The liquidity requirement of ASLAC was met
by cash from insurance operations, investment activities and borrowings from its
parent.
As previously stated, the Company had significant growth during 1995. The sales
volume of $1.628 billion was primarily (approximately 80%) variable annuities
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 insurance operations and investments of the Company.
During 1995, the Company borrowed an additional $34 million from its parent in
the form of Surplus Notes and extended the reinsurance agreement (which was
initiated in 1993 and 1994) along with entering into a third reinsurance
agreement with a large reinsurer in support of its cash needs. The reinsurance
agreements are modified coinsurance arrangements where the reinsurer shares in
the experience of a specific book of business. The income and expense items
presented above are net of reinsurance.
The Company is reviewing various options to fund the cash strain anticipated
from the acquisition costs on the coming years' sales volume.
The tremendous growth of this young organization has depended on capital support
from its parent.
As of December 31, 1995 and December 31, 1994, shareholder's equity was
$59,713,000 and $52,205,524 respectively, which includes the carrying value of
the state insurance licenses in the amount of $4,862,500 and $5,012,500
respectively.
ASLAC has long term surplus notes with its parent and a short term borrowing
with an affiliate. No dividends have been paid to its parent company.
Segment Information: As of the date of this Prospectus, we offered only
variable and fixed deferred annuities and immediate annuities.
Reinsurance: The Company cedes reinsurance under modified coinsurance
arrangements. The reinsurance arrangements provide additional capacity for
growth in supporting the cash flow strain from the Company's variable annuity
business. The reinsurance is effected under quota share contracts.
Effective January 1, 1995, the Company reinsured certain mortality risks. These
risks result from the guaranteed minimum death benefit feature in the variable
annuity products.
The effect of the reinsurance agreements on the Company's operations was to
reduce annuity charges and fee income, death benefit expense, and policy
reserves.
Such ceded reinsurance does not relieve the Company from its obligations to
policyholders. The Company remains liable to its policyholders for the portion
reinsured to the extent that any reinsurer does not meet the obligations assumed
under the reinsurance agreement.
Surplus Notes: During 1995, the Company received $34 million from its
parent in exchange for three surplus notes. The amounts were $10 million, $15
million and $9 million, at interest rates of 7.52%, 7.49% and 7.47%,
respectively. Interest expense for these notes was $83,281 for the year ended
December 31, 1995.
During 1994, the Company received $49 million from its parent in exchange for
four surplus notes, two in the amount of $10 million, one in the amount of $15
million and one in the amount of $14 million, at interest rates of 7.28%, 7.90%,
9.13% and 9.78%, respectively. Interest expense for these notes was $4,319,612
and $1,618,504 for the years ended December 31, 1995 and 1994, respectively.
During 1993, the Company received $20 million from its parent in exchange
for a surplus note in the amount of $20 million at a 6.84% interest rate.
Interest expense for this note was $1,387,000, $1,387,000 and $11,400 for the
years ended December 31, 1995, 1994 and 1993, respectively.
Payment of interest and repayment of principal for these notes requires approval
by the Commissioner of the State of Connecticut. In 1995, approval was granted
for the payment of surplus note interest with the stipulation that it be funded
through a capital contribution from the Parent.
Reserves: We are obligated to carry on our statutory books, as liabilities,
actuarial reserves to meet our obligations on outstanding annuity or life
insurance contracts. This is required by the life insurance laws and regulations
in the jurisdictions in which we do business. Such reserves are based on
mortality and/or morbidity tables in general use in the United States. In
general, reserves are computed amounts that, with additions from premiums to be
received, and with interest on such reserves compounded at certain assumed
rates, are expected to be sufficient to meet our policy obligations at their
maturities if death occurs in accordance with the mortality tables employed. In
the accompanying Financial Statements these reserves for policy obligations are
determined in accordance with generally accepted accounting principles and are
included in the liabilities of our separate accounts and the general account
liabilities for future benefits of annuity or life insurance contracts we issue.
Competition: We are engaged in a business that is highly competitive due to
the large number of insurance companies and other entities competing in the
marketing and sale of insurance products. There are approximately 2300 stock,
mutual and other types of insurers in the life insurance business in the United
States.
Employees: As of December 31, 1995, we had 198 direct salaried employees.
An affiliate, American Skandia Information Services and Technology Corporation,
which provides services almost exclusively to us, had 67 direct salaried
employees.
Regulation: We are organized as a Connecticut stock life insurance company,
and are subject to Connecticut law governing insurance companies. We are
regulated and supervised by the Connecticut Commissioner of Insurance. By March
1 of every year, we must prepare and file an annual statement, in a form
prescribed by the Connecticut Insurance Department, which covers our operations
for the preceding calendar year, and must prepare and file our statement of
financial condition as of December 31 of such year. The Commissioner and his or
her agents have the right at all times to review or examine our books and
assets. A full examination of our operations will be conducted periodically
according to the rules and practices of the National Association of Insurance
Commissioners ("NAIC"). We are subject to the insurance laws and various federal
and state securities laws and regulations and to regulatory agencies, such as
the Securities and Exchange Commission (the "SEC") and the Connecticut Banking
Department, which administer those laws and regulations.
We can be assessed up to prescribed limits for policyholder losses incurred by
insolvent insurers under the insurance guaranty fund laws of most states. We
cannot predict or estimate the amount any such future assessments we may have to
pay. However, the insurance guaranty laws of most states provide for deferring
payment or exempting a company from paying such an assessment if it would
threaten such insurer's financial strength.
Several states, including Connecticut, regulate insurers and their affiliates
under insurance holding company laws and regulations. This applies to us and our
affiliates. Under such laws, inter-company transactions, such as dividend
payments to parent companies and transfers of assets, may be subject to prior
notice and approval, depending on factors such as the size of the transaction in
relation to the financial position of the companies.
Currently, the federal government does not directly regulate the business of
insurance. However, federal legislative, regulatory and judicial decisions and
initiatives often have significant effects on our business. Types of changes
that are most likely to affect our business include changes to: (a) the taxation
of life insurance companies; (b) the tax treatment of insurance products; (c)
the securities laws, particularly as they relate to insurance and annuity
products; (d) the "business of insurance" exemption from many of the provisions
of the anti-trust laws; (e) the barriers preventing most banks from selling or
underwriting insurance: and (f) any initiatives directed toward improving the
solvency of insurance companies. We would also be affected by federal
initiatives that have impact on the ownership of or investment in United States
companies by foreign companies or investors.
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.
<TABLE>
<CAPTION>
Name/ Position with American Skandia
Age Life Assurance Corporation Principal Occupation
<S> <C> <C> <C> <C>
Alan Blank Employee Vice President and,
48 National Sales Manager:
American Skandia
Marketing, Incorporated
Mr. Blank joined us in 1994. He previously held the position of Vice-Chairman at Liberty Securities.
Gordon C. Boronow* President President and
43 and Chief Chief Operating Officer:
Operating Officer, American Skandia Life
Director (since July, 1991) Assurance Corporation
Nancy F. Brunetti Senior Vice President, Senior Vice President, Business and
34 Business and Application Application Development:
Development American Skandia Life
Director (since February, 1996) Assurance Corporation
Ms. Brunetti joined us in 1992. She previously held the position of Senior Business Analyst at Monarch Life Insurance Company.
Malcolm M. Campbell Director (since April, 1991) Director of Operations,
40 Assurance and Financial
Services Division:
Skandia Insurance Company Ltd.
Jan R. Carendi* Chief Executive Executive Vice President and
51 Officer and Member of Corporate Management Group:
Chairman of the Skandia Insurance Company Ltd.
Board of Directors
Director (since May, 1988)
Lincoln R. Collins Senior Vice President, Senior Vice President,
Product Management Product Management:
36 Director (since February, 1996) American Skandia Life
Assurance Corporation
Henrik Danckwardt Director (since July, 1991) Director of Finance
43 and Administration,
Assurance and Financial
Services Division:
Skandia Insurance Company Ltd.
Wade A. Dokken Director (since July, 1991) Director:
36 and Employee American Skandia Life
Assurance Corporation;
President, Chief Operating Officer
and Chief Marketing Officer:
American Skandia Marketing, Incorporated
N. David Kuperstock Vice President, Vice President,
44 Product Development Product Development:
American Skandia Life
Assurance Corporation
Thomas M. Mazzaferro Executive Vice President and Executive Vice President and
43 Chief Financial Officer, Chief Financial Officer:
Director (since October, 1994) American Skandia Life
Assurance Corporation
Dianne B. Michael Senior Vice President, Senior Vice President,
41 Customer Service Customer Service:
Director (since February, 1996) American Skandia Life
Assurance Corporation
Ms. Michael joined us in 1995. She previously held the position of Vice President with J. P. Morgan Investment Management Inc.
Gunnar Moberg Director (since November, 1994) Director - Marketing and Sales,
42 Assurances and Financial
Services Division:
Skandia Insurance Company Ltd.
M. Patricia Paez Assistant Vice President Assistant Vice President
36 and Corporate Secretary and Corporate Secretary:
American Skandia Life
Assurance Corporation
<PAGE>
Don Thomas Peck Employee Vice President,
52 National Sales Manager:
American Skandia
Marketing, Incorporated
Mr. Peck joined us in 1995. He previously held the position of Regional Vice President with MFS Financial Services Inc.
Rodney D. Runestad Vice President and Vice President and
46 Valuation Actuary Valuation Actuary:
American Skandia Life
Assurance Corporation
Hayward Sawyer Employee Vice President and
51 National Sales Manager:
American Skandia
Marketing, Incorporated
Mr. Sawyer joined us in 1994. He previously held the position of Regional Vice President with AIM Distributors, Inc.
Todd L. Slade Vice President, Vice President,
38 Applications Development Applications Development:
American Skandia Life
Assurance Corporation
Anders O. Soderstrom Director (since October, 1994) President and
36 Chief Operating Officer:
American Skandia Information
Services and Technology Corporation
Amanda C. Sutyak Executive Vice President Executive Vice President
38 and Deputy Chief and Deputy Chief
Operating Officer, Operating Officer:
Director (since July, 1991) American Skandia Life
Assurance Corporation
C. Ake Svensson Treasurer, Vice President, Treasurer
45 Director (since December, 1994) and Corporate Controller:
American Skandia Investment
Holding Corporation
Mr. Svensson joined us in 1994. He previously held the position of Senior Vice President with Nordenbanken.
Bayard F. Tracy Senior Vice President, Senior Vice President,
48 Institutional Sales, Institutional Sales and Marketing:
Director (since October, 1994) American Skandia Life
Assurance Corporation
</TABLE>
Executive Compensation
Summary Compensation Table: The summary table below summarizes the
compensation payable to our Chief Executive Officer and to the most highly
compensated of our executive officers whose compensation exceeded $100,000 in
the fiscal year immediately preceding the date of this Prospectus.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Name and Principal Annual Annual Other Annual
Position Year Salary Bonus Compensation
($) ($) ($)
Jan R. Carendi - 1995 $200,315
Chief Executive 1994 170,569
Officer 1993 214,121
Gordon C. Boronow - 1995 $157,620
President and 1994 129,121
Chief Operating 1993 123,788
Officer
Lincoln R. Collins - 1995 $156,550
Senior Vice President 1994 92,700
Product Management 1993 72,100
N. David Kuperstock 1995 $133,120
Vice President, 1994 103,000
Product Development 1993 88,864
Bayard F. Tracy 1995 $168,052
Senior Vice President, 1994 127,050
Institutional Sales 1993 123,363
</TABLE>
Long-Term Incentive Plans - Awards in the Last Fiscal Year: The following
table provides information regarding our long-term incentive plan. Units are
awarded to executive officers and other personnel. The table shows units awarded
to our Chief Executive Officer and the most highly compensated of our executive
officers whose compensation exceeded $100,000 in the fiscal year immediately
preceding the date of this Prospectus. This program is designed to induce
participants to remain with the company over long periods of time and to tie a
portion of their compensation to the fortunes of the company. Currently, the
program consists of multiple plans. A new plan may be instituted each year.
Participants are awarded units at the beginning of a plan. Generally,
participants must remain employed by the company or its affiliates at the time
such units are payable in order to receive any payments under the plan. There
are certain exceptions, such as in cases of retirement or death.
Changes in the value of units reflect changes in the "embedded value" of the
company. "Embedded value" is the net asset value of the company (valued at
market value and not including the present value of future profits), plus the
present value of the anticipated future profits (valued pursuant to state
insurance law) on its existing contracts. Units will not have any value for
participants if the embedded value does not increase by certain target
percentages during the first four years of a plan. The target percentages may
differ between each plan. Any amounts available under a plan are paid out in the
fifth through eighth years of a plan. Payments will be postponed if the payment
would exceed 20% of any profit (as determined under state insurance law) earned
by the company in the prior fiscal year or 30% of the individual's current
salary year. The amount to be received by a participant at the time any payment
is due will be the then current number of units payable multiplied by the then
current value of such units.
<TABLE>
<CAPTION>
---------Estimated Future Payouts---------
Name Number of Units Period Until Payout Threshold Target Maximum
(#) ($) ($) ($)
<S> <C> <C> <C>
Jan R. Carendi 120,000 Various $648,060
Gordon C. Boronow 110,000 Various $561,558
Lincoln R. Collins 36,750 Various $198,807
N. David Kuperstock 32,000 Various $200,968
Bayard E. Tracy 52,500 Various $286,263
</TABLE>
Compensation of Directors: The following directors were compensated as
shown below in 1995:
Malcolm M. Campbell $4,000 Gunnar Moberg $2,500
Henrik Danckwardt $4,000
Compensation Committee Interlocks and Insider Participation: The
compensation committee of our board of directors as of December 31, 1995
consisted of Malcolm M. Campbell and Henrik Danckwardt.
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION: The following are the
contents of the Statement of Additional Information:
(1) General Information Regarding American Skandia Life Assurance Corporation
(2) Principal Underwriter
(3) Calculation of Performance Data
(4) Unit Price Determinations
(5) Calculating the Market Value Adjustment
(6) Independent Auditors
(7) Legal Experts
(8) Appendix A - Financial Statements for Separate Account B (Class 1
Sub-accounts)
FINANCIAL STATEMENTS: The financial statements which follow in Appendix A
are those of American Skandia Life Assurance Corporation for the years ended
December 31, 1995, 1994, and 1993, respectively. Financial statements for the
Class 1 Sub-accounts of Separate Account B are found in the Statement of
Additional Information.
<PAGE>
APPENDIXES
APPENDIX A FINANCIAL STATEMENTS FOR AMERICAN SKANDIA LIFE ASSURANCE
CORPORATION
APPENDIX B SHORT DESCRIPTIONS OF THE UNDERLYING MUTUAL FUNDS' PORTFOLIO
INVESTMENT OBJECTIVES AND POLICIES
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX A
FINANCIAL STATEMENTS FOR AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
[to be filed by amendment]
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
American Skandia Life Assurance Corporation
Shelton, Connecticut
We have audited the accompanying consolidated statements of financial condition
of American Skandia Life Assurance Corporation (a wholly-owned subsidiary of
Skandia Insurance Company Ltd.) as of December 31, 1995 and 1994, and the
related consolidated statements of operations, shareholder's equity, and cash
flows for each of the three years in the period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of American Skandia Life
Assurance Corporation as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
March 14, 1996
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1995 1994
--------------------- ----------------------
ASSETS
Investments:
<S> <C> <C>
Fixed maturities - at amortized cost $ 10,112,705 $ 9,621,865
Investment in mutual funds - at market value 1,728,875 840,637
Short-term investments - at amortized cost 15,700,000 24,000,000
--------------------- ----------------------
Total investments 27,541,580 34,462,502
Cash and cash equivalents 13,146,384 23,909,463
Accrued investment income 194,074 173,654
Fixed assets 82,434 0
Deferred acquisition costs 270,222,383 174,009,609
Reinsurance receivable 1,988,042 0
Receivable from affiliates 860,991 459,960
Income tax receivable 563,850 0
State insurance licenses 4,862,500 5,012,500
Other assets 1,589,006 1,261,513
Separate account assets 4,699,961,646 2,625,127,128
--------------------- ----------------------
Total Assets $ 5,021,012,890 $ 2,864,416,329
===================== ======================
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES:
Reserve for future contractowner benefits $ 30,493,018 $ 11,422,381
Annuity policy reserves 19,386,490 24,054,255
Income tax payable 0 36,999
Accounts payable and accrued expenses 32,816,517 31,753,380
Payable to affiliates 314,699 261,552
Payable to reinsurer 64,995,470 40,105,406
Short-term borrowing-affiliate 10,000,000 10,000,000
Surplus notes 103,000,000 69,000,000
Deferred contract charges 332,050 449,704
Separate account liabilities 4,699,961,646 2,625,127,128
--------------------- ----------------------
Total Liabilities 4,961,299,890 2,812,210,805
--------------------- ----------------------
SHAREHOLDER'S EQUITY:
Common stock, $80 par, 25,000 shares
authorized, issued and outstanding 2,000,000 2,000,000
Additional paid-in capital 81,874,666 71,623,932
Unrealized investment gains and losses 111,359 (41,655)
Foreign currency translation (328,252) 0
Accumulated deficit (23,944,773) (21,376,753)
--------------------- ----------------------
Total Shareholder's Equity 59,713,000 52,205,524
--------------------- ----------------------
Total Liabilities and Shareholder's $ 5,021,012,890 $ 2,864,416,329
Equity
===================== ======================
</TABLE>
See notes to consolidated financial statements
10
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1995 1994 1993
---------------- ---------------- ---------------
REVENUES:
<S> <C> <C> <C>
Annuity charges and fees $ 38,837,358 $ 24,779,785 $ 11,752,984
Fee Income 6,205,719 2,111,801 938,336
Net investment income 1,600,674 1,300,217 692,758
Annuity premium income 0 70,000 101,643
Net realized capital gains/(losses) 36,774 (1,942) 330,024
Other 64,882 24,550 1,269
---------------- ---------------- ---------------
Total Revenues 46,745,407 28,284,411 13,817,014
---------------- ---------------- ---------------
BENEFITS AND EXPENSES:
Benefits:
Annuity benefits 555,421 369,652 383,515
Increase/(decrease) in annuity policy reserves (6,778,756) 5,766,003 1,208,454
Cost of minimum death benefit reinsurance 2,056,606 0 0
Return credited to contractowners 10,612,858 (516,730) 252,132
---------------- ---------------- ---------------
6,446,129 5,618,925 1,844,101
---------------- ---------------- ---------------
Expenses:
Underwriting, acquisition and other insurance expenses 35,820,524 18,792,720 9,397,951
Amortization of state insurance licenses 150,000 150,000 150,000
Interest expense 6,499,414 3,615,845 187,156
---------------- ---------------- ---------------
42,469,938 22,558,565 9,735,107
---------------- ---------------- ---------------
Total Benefits and Expenses 48,916,067 28,177,490 11,579,208
---------------- ---------------- ---------------
Income (loss) from operations before federal income taxes (2,170,660) 106,921 2,237,806
Income tax 397,360 247,429 182,965
---------------- ---------------- ---------------
Net income (loss) $ (2,568,020) $ (140,508) $ 2,054,841
================ ================ ===============
</TABLE>
See notes to consolidated financial statements
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1995 1994 1993
----------------- --------------- ---------------
<S> <C> <C> <C>
Common stock, balance at beginning and end of year $ 2,000,000 $ 2,000,000 $ 2,000,000
----------------- --------------- ---------------
Additional paid-in capital:
Balance at beginning of year 71,623,932 71,623,932 67,623,932
Additional contributions 10,250,734 0 4,000,000
----------------- --------------- ---------------
Balance at end of year 81,874,666 71,623,932 71,623,932
----------------- --------------- ---------------
Unrealized investment gains and losses:
Balance at beginning of year (41,655) 0 0
Change in unrealized investment gains and losses 153,014 (41,655) 0
----------------- --------------- ---------------
Balance at end of year 111,359 (41,655) 0
----------------- --------------- ---------------
Foreign currency translation:
Balance at beginning of year 0 0 0
Change in foreign currency translation (328,252) 0 0
----------------- --------------- ---------------
Balance at end of year (328,252) 0 0
----------------- --------------- ---------------
Accumulated deficit:
Balance at beginning of year (21,376,753) (21,236,245) (23,291,086)
Net income (loss) (2,568,020) (140,508) 2,054,841
----------------- --------------- ---------------
Balance at end of year (23,944,773) (21,376,753) (21,236,245)
----------------- --------------- ---------------
TOTAL SHAREHOLDER'S EQUITY $ 59,713,000 $ 52,205,524 $ 52,387,687
================= =============== ===============
</TABLE>
See notes to consolidated financial statements
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1995 1994 1993
------------------ ------------------- -----------------
CASH FLOW FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ (2,568,020) $ (140,508) $ 2,054,841
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
(Decrease)/increase in annuity policy reserves (4,667,765) 6,004,603 4,223,289
Decrease in policy and contract claims 0 0 (52,400)
Amortization of bond discount 23,449 21,964 6,754
Amortization of state insurance licenses 150,000 150,000 150,000
(Decrease)/increase in due to/from affiliates (347,884) 256,779 (397,125)
Change in income tax payable/receivable (600,849) 36,999 0
Increase in other assets (409,927) (742,041) (220,172)
(Increase)/decrease in accrued investment income (20,420) (44,847) 154,902
Change in reinsurance receivable (1,988,042) 0 0
Increase in accounts payables and accrued expenses 1,063,137 13,396,502 14,005,962
Change in deferred acquisition costs (96,212,774) (83,986,073) (57,387,042)
Change in deferred contract charges (117,654) (71,117) 13,898
Change in foreign currency translation (328,252) 0 0
Realized (gain)/loss on sale of investments (36,774) 1,942 (330,024)
------------------ ------------------- -----------------
Net cash used in operating activities (106,061,775) (65,115,797) (37,777,117)
------------------ ------------------- -----------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of fixed maturity investments (614,289) (1,989,120) (6,847,630)
Proceeds from the maturity of fixed maturity investments 100,000 2,010,000 0
Proceeds from the sale of fixed maturity investments 0 0 10,971,574
Purchase of shares in mutual funds (1,566,194) (922,822) 0
Proceeds from sale of shares in mutual funds 867,744 38,588 0
Purchase of short-term investments (202,700,000) (513,100,000) (1,207,575,307)
Sale of short-term investments 211,000,000 508,500,000 1,202,333,907
Investments in separate accounts (1,609,415,439) (1,365,775,177) (890,125,018)
------------------ ------------------- -----------------
Net cash used in investing activities (1,602,328,178) (1,371,238,531) (891,242,474)
------------------ ------------------- -----------------
CASH FLOW FROM FINANCING ACTIVITIES:
Capital contributions from parent 10,250,734 0 4,000,000
Surplus notes 34,000,000 49,000,000 20,000,000
Short-term borrowing 0 0 10,000,000
Increase in payable to reinsurer 24,890,064 28,555,190 11,550,216
Proceeds from annuity sales 1,628,486,076 1,372,873,747 890,639,947
------------------ ------------------- -----------------
Net cash provided by financing activities 1,697,626,874 1,450,428,937 936,190,163
------------------ ------------------- -----------------
Net increase/(decrease) in cash and cash equivalents (10,763,079) 14,074,609 7,170,572
Cash and cash equivalents at beginning of year 23,909,463 9,834,854 2,664,282
------------------ ------------------- -----------------
Cash and cash equivalents at end of year $ 13,146,384 $ 23,909,463 $ 9,834,854
================== =================== =================
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Income taxes paid $ 995,496 $ 161,398 $ 169,339
================== =================== =================
Interest paid $ 540,319 $ 557,639 $ 111,667
================== =================== =================
</TABLE>
See notes to consolidated financial statements
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements
1. BUSINESS OPERATIONS
American Skandia Life Assurance Corporation (the "Company") is a
wholly-owned subsidiary of American Skandia Investment Holding
Corporation (the "Parent"), which in turn is a wholly-owned subsidiary
of Skandia Insurance Company Ltd., a Swedish corporation.
The Company develops annuity products and issues its products through
its affiliated broker/dealer company, American Skandia Marketing,
Incorporated. The Company currently issues variable, fixed, market
value adjusted and immediate annuities.
During 1995, Skandia Vida, S.A. de C.V. was formed by the ultimate
parent Skandia Insurance Company Ltd. The Company owns 99.9% ownership
in Skandia Vida, S.A. de C.V. which is a life insurance company
domiciled in Mexico. This Mexican life insurer is a start up company
with expectations of selling long term savings product within Mexico.
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.
B. Investments
-----------
The Company has classified its fixed maturity investments as
held to maturity as the Company has the ability and intent to
hold those investments to maturity. Such investments are
carried at amortized cost.
The Company has classified its mutual fund investments as
available for sale. Such investments are carried at market
value and changes in unrealized gains and losses are reported
as a component of shareholder's equity.
Short-term investments are reported at cost which approximates
market value.
Realized gains and losses on disposal of investments are
determined by the specific identification method and are
included in revenues.
The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments
in Debt and Equity Securities", effective January 1, 1994. The
adoption of SFAS No. 115 had no impact on the Company's
financial statements.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
C. Cash Equivalents
----------------
The Company considers all highly liquid time deposits
purchased with a maturity of three months or less to be cash
equivalents.
D. State Insurance Licenses
------------------------
Licenses to do business in all states have been capitalized
and reflected at the purchase price of $6 million less
accumulated amortization. The cost of the licenses is being
amortized over 40 years.
E. Fixed Assets
------------
Fixed Assets consisting of furniture, equipment and leasehold
improvements are carried at cost and depreciated on a straight
line basis over a period of three to five years. Accumulated
depreciation at December 31, 1995 and related depreciation
expense for the year ended December 31, 1995 was $3,749.
F. Recognition of Revenue and Contract Benefits
--------------------------------------------
Annuity contracts without significant mortality risk, as
defined by Financial Accounting Standard No. 97, are
classified as investment contracts (variable, market value
adjusted and certain immediate annuities) and those with
mortality risk (immediate annuities) as insurance products.
The policy of revenue and contract benefit recognition is
described below.
Revenues for variable annuity contracts consist of charges
against contractowner account values for mortality and expense
risks and administration fees and an annual maintenance fee
per contract. Benefit reserves for variable annuity contracts
represent the account value of the contracts, and are included
in the separate account liabilities.
Revenues for market value adjusted annuity contracts consist
of separate account investment income reduced by benefit
payments and change in reserves in support of contractowner
obligations, all of which is included in return credited to
contractowners. Benefit reserves for these contracts represent
the account value of the contracts, and are included in the
general account liability for future contractowner benefits to
the extent in excess of the separate account liabilities.
Revenues for immediate annuity contracts without life
contingencies consist of net investment income. Revenues for
immediate annuity contracts with life contingencies consist of
single premium payments recognized as annuity considerations
when received. Benefit reserves for these contracts are based
on the Society of Actuaries 1983 - a Table with an assumed
interest rate of 8.25%.
Annuity sales were $1,628,486,000, $1,372,874,000 and
$890,640,000 for 1995, 1994 and 1993, respectively. Annuity
contract assets under management were $4,704,044,000,
$2,661,161,000 and $1,437,554,000 at December 31, 1995, 1994
and 1993, respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
G. Deferred Acquisition Costs
--------------------------
The costs of acquiring new business, which vary with and are
primarily related to the production of new business, are being
amortized in relation to the present value of estimated gross
profits. These costs include commissions, cost of contract
issuance, and certain selling expenses that vary with
production. Details of the deferred acquisition costs for the
years ended December 31 follow:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $174,009,609 $ 90,023,536 $32,636,494
Acquisition costs deferred
during the year 106,063,698 85,801,180 59,676,296
Acquisition costs amortized
during the year 9,850,924 1,815,107 2,289,254
------------- --------------- -------------
Balance at end of year $270,222,383 $174,009,609 $90,023,536
============ ============= ===========
</TABLE>
H. Deferred Contract Charges
-------------------------
Certain contracts are assessed a front-end fee at the time of
issue. These fees are deferred and recognized in income in
relation to the present value of estimated gross profits of
the related contracts. Details of the deferred contract
charges for the years ended December 31 follow:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $449,704 $520,821 $506,923
Contract charges deferred
during the year 21,513 87,114 144,537
Contract charges amortized
during the year 139,167 158,231 130,639
--------- --------- ---------
Balance at end of year $332,050 $449,704 $520,821
======== ======== ========
</TABLE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
I. Separate Accounts
-----------------
Assets and liabilities in Separate Account are shown as
separate captions in the consolidated statement of financial
condition. The assets consist of long-term bonds, investments
in mutual funds and short-term securities, all of which are
carried at market value.
Included in Separate Account liabilities is $586,233,752 and
$259,556,863 at December 31, 1995 and 1994, respectively,
relating to annuity contracts for which the contractholder is
guaranteed a fixed rate of return. Separate Account assets of
$588,835,051 and $269,488,557 at December 31, 1995 and 1994,
respectively, consisting of long term bonds, short term
securities, transfers due from general account and cash are in
support of these annuity contracts, as pursuant to state
regulation.
J. Income taxes
------------
The Company is included in the consolidated federal income tax
return with all Skandia Insurance Company Ltd. subsidiaries in
the U.S. The federal and state income tax provision is
computed on a separate return basis in accordance with the
provisions of the Internal Revenue Code, as amended. Prior to
1995, the Company filed a separate federal income tax return.
K. Translation of Foreign Currency
-------------------------------
The financial position and results of operations of the
Company's foreign operations are measured using local currency
as the functional currency. Assets and liabilities of the
operations are translated at the exchange rate in effect at
each year-end. Statements of operations and shareholder's
equity accounts are translated at the average rate prevailing
during the year. Translation adjustments arising from the use
of differing exchange rates from period to period are included
in shareholder's equity.
L. 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.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
M. Reinsurance
-----------
The Company cedes reinsurance under modified co-insurance
arrangements. The reinsurance arrangements provides additional
capacity for growth in supporting the cash flow strain from
the Company's variable annuity business. The reinsurance is
effected under quota share contracts.
Effective January 1, 1995, the Company reinsured certain
mortality risks. These risks result from the guaranteed
minimum death benefit feature in the variable annuity
products.
3. INVESTMENTS
The carrying value (amortized cost), gross unrealized gains (losses)
and estimated market value of investments in fixed maturities by
category as of December 31, 1995 and 1994 are shown below. All
securities held at December 31, 1995 are publicly traded.
Investments in fixed maturities as of December 31, 1995 consist of the
following:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Government
Obligations $ 4,304,731 $183,201 $1,778 $4,486,154
Obligations of
State and Political
Subdivisions 256,095 0 3,165 252,930
Corporate
Securities 5,551,879 13,252 346 5,564,785
------------- ---------- -------- ------------
Totals $10,112,705 $196,453 $5,289 $10,303,869
=========== ======== ====== ===========
</TABLE>
The amortized cost and market value of fixed maturities, by contractual
maturity, at December 31, 1995 are shown below.
<TABLE>
<CAPTION>
<S> <C> <C>
Amortized Market
Cost Value
Due in one year or less $ 379,319 $ 393,745
Due after one through five years 6,358,955 6,519,880
Due after five through ten years 3,374,431 3,390,244
------------ -------------
$10,112,705 $10,303,869
=========== ===========
</TABLE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
Investments in fixed maturities as of December 31, 1994 consist of the
following:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Government
Obligations $3,796,390 $2,119 $156,759 $3,641,750
Obligations of
State and Political
Subdivisions 261,852 0 9,156 252,696
Corporate
Securities 5,563,623 0 547,023 5,016,600
----------- ---------- --------- -----------
Totals $9,621,865 $2,119 $712,938 $8,911,046
========== ====== ======== ==========
</TABLE>
Proceeds from maturities and sales of fixed maturity investments during
1995, 1994 and 1993, were $100,000, $2,010,000 and $10,971,574,
respectively.
<TABLE>
<CAPTION>
Gross gains and gross losses realized were as follows:
<S> <C> <C>
Gross Gross
Gains Losses
----- ------
1995 $ 0 $ 0
1994 $ 0 $ 0
1993 $329,000 $ 0
</TABLE>
19
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
The cost, gross unrealized gains (losses) and market value of
investments in mutual funds at December 31, 1995 and 1994 are shown
below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Gross Gross
Unrealized Unrealized Market
Cost Gains Losses Value
1995 $1,617,516 $111,686 $ 327 $1,728,875
========== ======== ========= ==========
1994 $ 882,292 $ 4,483 $ 46,138 $ 840,637
========== ======== ========= ==========
</TABLE>
Proceeds from sales of investments in mutual funds during 1995 and 1994
were $867,744 and $38,588.
Mutual fund gross gains and gross losses were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Gross Gross
Gains Losses
----- ------
1995 $65,236 $28,462
======= =======
1994 $ 510 $ 2,452
======== =======
</TABLE>
4. NET INVESTMENT INCOME
Additional information with respect to net investment income for the
years ended December 31, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Fixed Maturities $ 629,743 $ 616,987 $409,552
Mutual Funds 59,895 12,049 0
Short-Term Investments 256,351 142,421 394,545
Cash and Cash Equivalents 730,581 633,298 15,034
Interest on Policy Loans 4,025 1,275 1,015
------------- ------------- ----------
Total Investment Income 1,680,595 1,406,030 820,146
Investment Expenses 79,921 105,813 127,388
------------ ----------- ---------
Net investment income $1,600,674 $1,300,217 $692,758
========== ========== ========
</TABLE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes, and (b) operating loss and tax credit carryforwards. The tax
effects of significant items comprising the Company's deferred tax
balance as of December 31, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
Deferred Tax (Liabilities):
<S> <C> <C>
Deferred acquisition costs ($57,399,960) ($37,885,053)
Payable to reinsurer (19,802,861) (12,754,591)
Unrealized investment gains and losses (38,976) 14,579
Other (308,304) (214,505)
-------------- --------------
Total ($77,550,101) ($50,839,570)
------------ ------------
Deferred Tax Assets:
Deferred contract charge $ 116,218 $ 157,396
Net separate account liabilities 72,024,094 51,637,155
Reserve for future contractowner benefits 10,672,556 3,997,833
Net operating loss carryforward 0 1,813,670
AMT credit carryforward 286,094 0
Foreign exchange translation 114,888 0
Other 3,661,104 878,030
------------ -------------
Total $86,874,954 $58,484,084
----------- -----------
Net before valuation allowance $ 9,324,853 $ 7,644,514
Valuation allowance (9,324,853) (7,644,514)
------------ ------------
Net deferred tax balance $ 0 $ 0
----------------- -----------------
</TABLE>
The significant components of federal tax expense are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current tax expense $ 394,648 $184,771 $182,965
Deferred tax benefit:
(exclusive of the effects of
the change in valuation allowance) (1,680,339) (365,288) (404,480)
Change in valuation allowance 1,680,339 365,288 404,480
----------- ---------- ---------
Total deferred tax expense 0 0 0
------------ ---------- ---------
Total income tax expense $ 394,648 $184,771 $182,965
============ ======== ========
</TABLE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
The state income tax expense was $2,712 and $62,658 for the years ended
1995 and 1994, respectively.
The federal 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>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income (loss) before taxes ($2,170,660) $106,921 $2,237,806
Income tax rate 35% 35% 35%
------------ ---------- -----------
Tax expense at federal
statutory income tax rate (759,731) 37,422 783,232
Tax effect of:
Permanent tax differences (253,101) (82,188) 63,535
Difference between financial
statement and taxable income 2,986,464 3,161,331 2,414,254
Utilization of net operating
loss carryforwards (1,487,144) (3,116,565) (3,261,021)
Utilization of AMT credits (91,840) 0 0
Alternative minimum tax 0 184,771 182,965
-------------- ----------- -----------
Income tax expense $ 394,648 $ 184,771 $ 182,965
=========== ========== ==========
</TABLE>
6. RELATED PARTY TRANSACTIONS
Certain operating costs (including personnel, rental of office space,
furniture, and equipment) and investment expenses have been charged to
the Company at cost by American Skandia Information Services and
Technology Corporation, an affiliated company; and likewise, the
Company has charged operating costs to American Skandia Investment
Services, Incorporated, an affiliated company. Income received for
these items was $396,573, $248,799 and $146,134 for the years ended
December 31, 1995, 1994 and 1993, respectively. The total cost to the
Company for these items was $12,687,337, $8,524,840 and $3,537,566 for
the years ended December 31, 1995, 1994 and 1993, respectively. Amounts
receivable from affiliates under this arrangement were $857,156 and
$317,285 as of December 31, 1995 and 1994, respectively. Amounts
payable to affiliates under this arrangement were $304,525 and $261,552
as of December 31, 1995 and 1994, respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
7. LEASES
The Company leases office space under a lease agreement established in
1989 with an affiliate (American Skandia Information Services and
Technology Corporation). The lease expense for 1995, 1994 and 1993 was
$1,265,771, $961,080 and $280,363, respectively. Future minimum lease
payments per year and in aggregate as of December 31, 1995 are as
follows:
1996 1,178,550
1997 1,178,550
1998 1,178,550
1999 1,178,550
2000 and thereafter 6,831,312
-----------
Total $11,545,512
===========
8. RESTRICTED ASSETS
In order to comply with certain state insurance departments'
requirements, the Company maintains bonds/notes on deposit with various
states. The carrying value of these deposits amounted to $3,267,357 and
$3,410,135 as of December 31, 1995, and 1994, respectively. These
deposits are required to be maintained for the protection of
contractowners within the individual states.
9. RETAINED EARNINGS AND DIVIDEND RESTRICTIONS
Statutory basis shareholder's equity was $132,493,899, $95,001,971 and
$60,666,243 at December 31, 1995, 1994 and 1993, respectively.
The statutory basis net income (loss) was ($7,183,003), ($9,789,297)
and $387,695 for the years ended December 31, 1995, 1994 and 1993,
respectively.
Under state insurance laws, the maximum amount of dividends that can be
paid shareholders without prior approval of the state insurance
departments is subject to restrictions relating to statutory surplus
and net gain from operations. At December 31, 1995, no amounts may be
distributed without prior approval.
10. EMPLOYEE BENEFITS
In 1989, the Company established a 401(k) plan for which substantially
all employees are eligible. Company contributions to this plan on
behalf of the participants were $627,161, $431,559 and $250,039 for the
years ended December 31, 1995, 1994 and 1993, respectively.
The Company has a long-term incentive plan where units are awarded to
executive officers and other personnel. The program consists of
multiple plans. A new plan is instituted each year. Generally,
participants must remain employed by the Company or its affiliates at
the time such units are payable in order to receive any payments under
the plan. The accrued liability representing the value of these units
is $4,600,831 and $1,564,407 as of December 31, 1995 and 1994,
respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
In 1994, the Company established a deferred compensation plan which is
available to the internal field marketing staff and certain officers.
Company contributions to this plan on behalf of the participants were
$139,209 in 1995 and $106,882 in 1994.
11. REINSURANCE
The effect of the reinsurance agreements on the Company's operations
was to reduce annuity charges and fee income, death benefit expense and
policy reserves. The effect of reinsurance for the years ended December
31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Annuity Change in Annuity Return Credited
Charges and Fees Policy Reserves to Contractowners
---------------- --------------- -----------------
Gross $50,334,280 ($4,790,714) $10,945,831
Ceded 11,496,922 1,988,042 332,973
------------- ------------- -------------
Net $38,837,358 ($6,778,756) $10,612,858
=========== =========== ===========
</TABLE>
1994 1993
---------------- ----------------
Annuity Annuity
Charges and Fees Charges and Fees
---------------- ----------------
Gross $30,116,166 $12,446,277
Ceded 5,336,381 693,293
------------- -------------
Net $24,779,785 $11,752,984
=========== ===========
Such ceded reinsurance does not relieve the Company from its
obligations to policyholders. The Company remains liable to its
policyholders for the portion reinsured to the extent that any
reinsurer does not meet the obligations assumed under the reinsurance
agreements.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
12. SURPLUS NOTES
During 1995, the Company received $34 million from its parent in
exchange for three surplus notes. The amounts were $10 million, $15
million and $9 million, at interest rates of 7.52%, 7.49% and 7.47%,
respectively. Interest expense for these notes was $83,281 for the
year ended December 31, 1995.
During 1994, the Company received $49 million from its parent in
exchange for four surplus notes, two in the amount of $10 million, one
in the amount of $15 million and one in the amount of $14 million, at
interest rates of 7.28%, 7.90%, 9.13% and 9.78%, respectively. Interest
expense for these notes was $4,319,612 and $1,618,504 for the years
ended December 31, 1995 and 1994, respectively.
During 1993, the Company received $20 million from its parent in
exchange for a surplus note in the amount of $20 million at a 6.84%
interest rate. Interest expense for this note was $1,387,000,
$1,387,000 and $11,400 for the years ended December 31, 1995, 1994 and
1993, respectively.
Payment of interest and repayment of principal for these notes requires
approval by the Commissioner of the State of Connecticut. In 1995,
approval was granted for the payment of surplus note interest with the
stipulation that it be funded through a capital contribution from the
Parent.
13. SHORT-TERM BORROWING
During 1993, the Company received a $10 million loan from Skandia AB, a
Swedish affiliate. Upon the last renewal the loan became payable to the
Parent rather than Skandia AB. The loan matures on March 6, 1996 and
bears interest at 6.75.%. The total interest expense to the Company was
$709,521, $569,618 and $149,861 for the years ended December 31, 1995,
1994 and 1993, respectively, of which $219,375 and $50,174 was payable
as of December 31, 1995 and 1994, respectively.
14. CONTRACT WITHDRAWAL PROVISIONS
Approximately 98% of the Company's separate account liabilities are
subject to discretionary withdrawal with market value adjustment by
contractholders. Separate account assets which are carried at market
value are adequate to pay such withdrawals which are generally subject
to surrender charges ranging from 7.5% to 1% for contracts held less
than 7 years.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes information with respect to the
operations of the Company.
<TABLE>
<CAPTION>
Three Months Ended
------------------
1995 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
Premiums and other insurance
<S> <C> <C> <C> <C>
revenues $ 8,891,903 $10,066,478 $11,960,530 $14,189,048
Net investment income 551,690 434,273 293,335 321,376
Net realized capital gains (losses) (16,082) (370) 44,644 8,582
------------- ---------------- -------------- ---------------
Total revenues $ 9,427,511 $10,500,381 $12,298,509 $14,519,006
============ =========== =========== ===========
Benefits and expenses $11,438,798 $ 9,968,595 $11,600,587 $15,908,087
=========== ============ =========== ===========
Net income (loss) ($ 2,026,688) $ 531,486 $ 678,312 ($1,751,130)
============ ============= ============= ===========
Three Months Ended
1994 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
Premiums and other insurance
revenues $5,594,065 $6,348,777 $7,411,686 $7,631,608
Net investment income 252,914 336,149 264,605 446,549
Net realized capital gains (losses) 0 (30,829) 25,914 2,973
----------------- ------------- -------------- -------------
Total revenues $5,846,979 $6,654,097 $7,702,205 $8,081,130
========== ========== ========== ==========
Benefits and expenses $5,701,460 $7,883,829 $8,157,535 $6,434,666
========== ========== ========== ==========
Net income (loss) $ 104,636 ($1,257,768) ($503,793) $1,516,417
============ =========== ========= ==========
</TABLE>
APPENDIX B
SHORT DESCRIPTIONS OF THE
UNDERLYING MUTUAL FUNDS' PORTFOLIO INVESTMENT OBJECTIVES AND POLICIES
The investment objectives for each underlying mutual fund are in bold face.
Please refer to the prospectuses of each underlying mutual fund for more
complete details and risk factors applicable to certain portfolios.
American Skandia Trust
JanCap Growth Portfolio: The investment objective of the JanCap Growth Portfolio
is growth of capital in a manner consistent with the preservation of capital.
Realization of income is not a significant investment consideration and any
income realized on investments, therefore, will be incidental to this objective.
The objective will be pursued by emphasizing investments in common stocks.
Common stock investments will be in industries and companies that the
portfolio's sub-advisor believes are experiencing favorable demand for their
products and services, and which operate in a favorable competitive and
regulatory environment. Investments may be made to a lesser degree in preferred
stocks, convertible securities, warrants, and debt securities of U.S. issuers,
when the portfolio's sub-advisor perceives an opportunity for capital growth
from such securities or so that a return may be received on the portfolio's idle
cash. Debt securities which the portfolio may purchase include corporate bonds
and debentures (not to exceed 5% of net assets in bonds rated below investment
grade), mortgage-backed and asset-backed securities, zero-coupon bonds,
indexed/structured notes, high-grade commercial paper, certificates of deposit
and repurchase agreements. Securities of foreign issuers, including securities
of foreign governments and Euromarket securities, also may be purchased.
Although it is the general policy of the JanCap Growth Portfolio to purchase and
hold securities for capital growth, changes will be made whenever the
portfolio's sub-advisor believes they are advisable. Because investment changes
usually will be made without reference to the length of time a security has been
held, a significant number of short-term transactions may result.
Investments also may be made in "special situations" from time to time. A
"special situation" arises when, in the opinion of the portfolio's sub-advisor,
the securities of a particular company will be recognized and appreciate in
value due to a specific development, such as a technological breakthrough,
management change or a new product at that company. Subject to certain
limitations, the JanCap Growth Portfolio may purchase and write options on
securities (including index options) and options on foreign currencies, and may
invest in futures contracts on securities, financial indices and foreign
currencies, ("futures contracts"), options on futures contracts, forward
contracts and swaps and swap-related products. These instruments will be used
primarily for hedging purposes. Investment of up to 15% of the JanCap Growth
Portfolio's total assets may be made in securities that are considered illiquid
because of the absence of a readily available market or due to legal or
contractual restrictions.
Janus Overseas Growth Portfolio: The investment objective of the Janus Overseas
Growth Portfolio is long-term growth of capital in a manner consistent with the
preservation of capital. It is a diversified portfolio that pursues its
objective primarily through investments in common stocks of issuers located
outside the United States. The portfolio has the flexibility to invest on a
worldwide basis in companies and organizations of any size, regardless of
country of organization or place of principal business activity. The portfolio
will normally invest at least 65% of its total assets in securities of issuers
from at least five different countries, excluding the United States. Although
the portfolio intends to invest substantially all of its assets in issuers
located outside the United States, it may at times invest in U.S. issuers and it
may at times invest all of its assets in fewer than five countries or even a
single country. The portfolio invests primarily in common stocks of foreign
issuers selected for their growth potential. The portfolio may invest to a
lesser degree in other types of securities, including preferred stock, warrants
convertible securities and debt securities. Debt securities that the portfolio
may purchase include corporate bonds and debentures (less than 35% of net assets
in high-yield/high-risk securities); government securities; mortgage- and
asset-backed securities (not to exceed 25% of assets); zero-coupon bonds (not to
exceed 10% of assets); indexed/structured notes; high-grade commercial paper;
certificates of deposit; and repurchase agreements. Such securities may offer
growth potential because of anticipated changes in interest rates, credit
standing, currency relationships or other factors. The portfolio may also invest
in short-term debt securities as a means of receiving a return on idle cash.
When the portfolio's Sub-advisor believes that market conditions are not
favorable for profitable investing or when the Sub-advisor is otherwise unable
to locate favorable investment opportunities, the portfolio's investments may be
hedged to a greater degree and/or its cash or similar investments may increase.
The portfolio may use options, futures and other types of derivatives for
hedging purposes or as a means to enhancing return.
Lord Abbett Growth and Income Portfolio: The investment objective of the Lord
Abbett Growth and Income Portfolio is long-term growth of capital and income
while attempting to avoid excessive fluctuations in market value. This objective
will be pursued by investing in securities which are selling at reasonable
prices in relation to value. Normally, investments will be made in common stocks
of seasoned companies which are expected to show above-average growth and which
the Sub-advisor believes to be in sound financial condition.
Seligman Henderson International Equity Portfolio: The investment objective of
Seligman Henderson International Equity Portfolio is long-term capital
appreciation consistent with preservation of capital primarily through
investment in securities of non-United States issuers. The portfolio may invest
in securities of issuers domiciled in any country but under normal conditions
investments may be made in two principal regions: The United Kingdom and
Continental Europe; and the Pacific Basin Countries. Continental European
countries may include, from time to time, Austria, Belgium, Denmark, Federal
Republic of Germany, Finland, France, Greece, Ireland, Italy, Luxembourg,
Netherlands, Norway, Portugal, Spain, Sweden and Switzerland. Countries in the
Pacific Basin may include Australia, Hong Kong, India, Japan, Korea, Malaysia,
New Zealand, People's Republic of China, Philippines, Singapore, Taiwan, and
Thailand. The portfolio believes that it will usually have assets invested in
both of these regions. Although under normal market conditions the portfolio
will invest in a minimum of five countries, it may have assets invested in many
of the above countries. Investments will not normally be made in securities of
issuers located in the United States or Canada.
Seligman Henderson International Small Cap Portfolio: The investment objective
of the Seligman Henderson International Small Cap Portfolio is long-term capital
appreciation. The portfolio seeks to achieve this objective primarily by making
international investments in securities of companies with small to medium market
capitalizations. The portfolio may invest in securities of issuers domiciled in
any country. Under normal conditions investments will be made in three principal
regions: The United Kingdom/Continental Europe; the Pacific Basin; and Latin
American. Under normal market conditions, the portfolio's assets will be
invested in securities of issuers located in at least three different countries.
Investments will not normally be made in securities of issuers located in the
United States or Canada. Some of the countries in which the portfolio may invest
may be considered to be developing and may involve special risks. The portfolio
may invest in all types of securities, most of which will be denominated in
currencies other than the U.S. dollar. The portfolio will normally invest its
assets in equity securities, including common stock, securities convertible into
common stock, depository receipts for these securities and warrants. The
portfolio may, however, invest up to 25% of its assets in preferred stock and
debt securities if the Sub-advisor believes that the capital appreciation
available from an investment in such securities will equal or exceed the capital
appreciation available from an investment in equity securities. In extraordinary
circumstances, the portfolio may invest for temporary defensive purposes,
without limit, in large capitalization companies or increase its investments in
debt securities.
Equity securities in which the portfolio will invest may be listed on a foreign
stock exchange or traded in foreign over-the-counter markets. Under normal
market conditions, the portfolio will invest at least 65% of its total assets in
securities of small-to medium-sized companies with market capitalizations up to
$750 million, although up to 35% of its total assets may be invested in
securities of companies with market capitalizations over $750 million There is
no requirement that the debt securities in which the portfolio may invest be
rated by a recognized rating agency. However, it is the portfolio's policy that
investments in debt securities, whether rated or unrated, will be made only if
they are "investment grade" securities or are, in the opinion of the
Sub-advisor, of equivalent quality to "investment grade" securities. The
portfolio may also invest in securities represented by European Depository
Receipts ("EDRs") or American Depository Receipts ("ADRs"). Investments in small
companies may involve greater risks, such as limited product lines, markets and
financial or managerial resources. Less frequently-traded securities may be
subject to more abrupt price movements than securities of larger companies.
Federated Utility Income Portfolio: The investment objective of the Federated
Utility Income Portfolio is to achieve high current income and moderate capital
appreciation by investing primarily in a professionally managed and diversified
portfolio of equity and debt securities of utility companies. The portfolio
intends to achieve its investment objective by investing in equity and debt
securities of utility companies that produce, transmit or distribute gas and
electric energy as well as those companies that provide communications
facilities, such as telephone and telegraph companies. As a matter of investment
policy that can be changed without shareholder vote, the portfolio will invest
at least 65% of its total assets in securities of utility companies.
Federated High Yield Portfolio: The investment objective of the Federated High
Yield Portfolio is to seek high current income by investing primarily in a
diversified portfolio of fixed income securities. The portfolio will invest at
least 65% of its assets in lower-rated fixed income bonds. Lower-rated debt
obligations are generally considered to be high-risk investments. The corporate
debt obligations in which the portfolio invests are usually not in the three
highest rating categories of a nationally recognized rating organization (AAA,
AA, or A for Standard & Poor's and Aaa, Aa or A for Moody's) but are in the
lower rating categories or are unrated but are of comparable quality and have
speculative characteristics or are speculative. Lower-rated or unrated bonds are
commonly referred to as "junk bonds". There is no minimal acceptable rating for
a security to be purchased or held in the portfolio, and the portfolio may, from
time to time, purchase or hold securities rated in the lowest rating category.
Under normal circumstances, the portfolio will not invest more than 10% of the
value of its total assets in equity securities. The fixed income securities in
which the portfolio may invest include, but are not limited to: preferred
stocks, bonds, debentures, notes, equipment lease certificates and equipment
trust certificates. The portfolio will invest primarily in fixed rate corporate
debt obligations.
AST Phoenix Balanced Asset Portfolio: This AST Phoenix Balanced Asset Portfolio
seeks as its investment objectives reasonable income, long-term capital growth
and conservation of capital. The portfolio intends to invest based on combined
considerations of risk, income, capital enhancement and protection of capital
value. The portfolio may invest in any type or class of security. Normally, the
portfolio will invest in common stocks and fixed income securities; however, it
may also invest in securities convertible into common stocks. At least 25% of
the value of its assets will be invested in fixed income senior securities. The
portfolio may also engage in certain options transactions and enter into
financial futures contracts and related options for hedging purposes and may
invest in deferred or zero coupon debt obligations. In implementing the
investment objectives of the portfolio, the sub-advisor will select securities
believed to have potential for the production of current income, with emphasis
on securities that also have potential for capital enhancement. In an effort to
protect its assets against major market declines, or for other temporary
defensive purposes, the portfolio may actively pursue a policy of retaining cash
or investing part or all of its assets in cash equivalents, such as government
securities and high grade commercial paper.
AST Money Market Portfolio: The investment objectives of the AST Money Market
Portfolio are to maximize current income and maintain high levels of liquidity.
This portfolio attempts to accomplish its objectives by maintaining a
dollar-weighted average maturity of not more than 90 days and by investing in
the types of securities described below which have effective maturities of not
more than 397 days. Investments may include obligations of the United States
government, its agencies or instrumentalities; certificates of deposit, time
deposits and bankers' acceptances of certain financial institutions which have
more than $2 billion in total assets; commercial paper and corporate bonds;
asset-backed securities; and repurchase and reverse repurchase agreements.
Securities may be purchased on a when-issued or delayed delivery basis. Subject
to applicable investment restrictions, the AST Money Market Portfolio also may
lend its securities.
T. Rowe Price Asset Allocation Portfolio: The investment objective of the T.
Rowe Price Asset Allocation Portfolio is to seek a high level of total return by
investing primarily in a diversified group of fixed income and equity
securities. The Portfolio is designed to balance the potential appreciation of
common stocks with the income and principal stability of bonds over the long
term. Under normal market conditions over the long-term, the Portfolio expects
to allocate its assets so that approximately 40% of such assets will be in fixed
income securities and approximately 60% in equity securities.
The Portfolio's fixed income securities will be allocated among investment
grade, high yield and non-dollar debt securities. The weighted average maturity
for this portion of the Portfolio is generally expected to be intermediate,
although it may vary significantly. High-yielding, income-producing debt
securities (commonly referred to as "junk bonds") and preferred stocks including
convertible securities may be purchased without regard to maturity, however, the
average maturity of the bonds is expected to be approximately 10 years, although
it may vary if market conditions warrant. Quality will generally range from
lower-medium to low and the Portfolio may also purchase bonds in default if, in
the opinion of the Sub-advisor, there is significant potential for capital
appreciation.
The Portfolio's equity securities will be allocated among large and small-cap
U.S. and non-dollar equity securities. Large-cap will generally be stocks of
well-established companies with capitalization over $1 billion which can produce
increasing dividend income. Small-cap will be common stocks of small companies
or companies which offer the possibility of accelerated earnings growth because
of rejuvenated management, new products or structural changes in the economy.
Current income is not a factor in the selection of these stocks.
The Portfolio will generally trade in securities (either common stocks or bonds)
for short-term profits, but, when circumstances warrant, securities may be
purchased and sold without regard to the length of time held.
T. Rowe Price International Equity Portfolio: The investment objective of the T.
Rowe Price International Equity Portfolio is to seek total return on its assets
from long-term growth of capital and income, principally through investments in
common stocks of established, non-U.S. companies. Investments may be made solely
for capital appreciation or solely for income or any combination of both for the
purpose of achieving a higher overall return. Total return consists of capital
appreciation or depreciation, dividend income, and currency gains or losses. The
Portfolio intends to diversify investments broadly among countries and to
normally have at least three different countries represented in the Portfolio.
The Portfolio may invest in countries of the Far East and Western Europe as well
as South Africa, Australia, Canada and other areas (including developing
countries). Under unusual circumstances, the Portfolio may invest substantially
all of its assets in one or two countries.
T. Rowe Price Natural Resources: The investment objective of the T. Rowe Price
Natural Resources Portfolio is to seek long-term growth of capital through
investment primarily in common stocks of companies which own or develop natural
resources and other basic commodities. Current income is not a factor in the
selection of stocks for investment by the Portfolio. Total return will consist
primarily of capital appreciation (or depreciation). The Portfolio will invest
primarily (at least 65% of its total assets) in common stocks of companies which
own or develop natural resources and other basic commodities. However, it may
also purchase other types of securities, such as selected, non-resource growth
companies, foreign securities, convertible securities and warrants, when
considered consistent with the Portfolio's investment objective and policies.
The Portfolio may also engage in a variety of investment management practices,
such as buying and selling futures and options.
Some of the most important factors evaluated by the Sub-advisor in selecting
natural resource companies are the capability for expanded production, superior
exploration programs and production facilities, and the potential to accumulate
new resources. The Portfolio expects to invest in those natural resource
companies which own or develop energy sources (such as oil, gas, coal and
uranium), precious metals, forest products, real estate, nonferrous metals,
diversified resources, and other basic commodities which, in the opinion of the
Sub-advisor, can be produced and marketed profitably during periods of rising
labor costs and prices. However, the percentage of the Portfolio's assets
invested in natural resource and related businesses versus the percentage
invested in non-resource companies may vary greatly depending upon economic
monetary conditions and the outlook for inflation. The earnings of natural
resource companies may be expected to follow irregular patterns, because these
companies are particularly influenced by the forces of nature and international
politics. Companies which own or develop real estate might also be subject to
irregular fluctuations of earnings, because these companies are affected by
changes in the availability of money, interest rates, and other factors.
The Portfolio may invest up to 50% of its total assets in foreign securities.
These include non-dollar denominated securities traded outside of the U.S. and
dollar denominated securities traded in the U.S. (such as ADRs). Some of the
countries in which the Portfolio may invest may be considered to be developing
and may involve special risks. The Portfolio will not purchase a non-investment
grade debt security (or junk bond) if immediately after such purchase the
Portfolio would have more than 10% of its total assets invested in such
securities. Junk bonds are regarded as predominantly speculative and high risk.
The Portfolio may invest up to 10% of its total assets in hybrid instruments.
Such instruments may take a variety of forms, such as debt instruments with
interest or principal payments determined by reference to the value of a
currency, security index or commodity at a future point in time.
T. Rowe Price International Bond Portfolio: The T. Rowe Price International Bond
Portfolio seeks to provide high current income and capital appreciation by
investing in high-quality, non dollar-denominated government and corporate bonds
outside the United States. The Portfolio is intended for long-term investors who
can accept the risks associated with investing in international bonds. Total
return consists of income after expenses, bond price gains (or losses) in terms
of the local currency and currency gains (or losses). The value of the Portfolio
will fluctuate in response to various economic factors, the most important of
which are fluctuations in foreign currency exchange rates and interest rates.
The Portfolio will invest at least 65% of its assets in high-quality, non
dollar-denominated government and corporate bonds outside the United States.
Because the Portfolio's investments are primarily denominated in foreign
currencies, exchange rates are likely to have a significant impact on total
Portfolio performance. Investors should be aware that exchange rate movements
can be significant and endure for long periods of time.
The Portfolio may also invest up to 20% of its assets in below investment-grade,
high-risk bonds, including bonds in default or those with the lowest rating.
Defaulted bonds are acquired only if the Sub-advisor foresees the potential for
significant capital appreciation. Securities rated below investment-grade are
commonly referred to as "junk bonds" and involve greater price volatility and
higher degrees of speculation with respect to the payment of principal and
interest than higher quality fixed-income securities.
The Portfolio may also invest more than 5% of its assets in the fixed-income
securities of individual foreign governments. The Portfolio generally will not
invest more than 5% of its assets in any individual corporate issuer. Since, as
a nondiversified investment company, the Portfolio is permitted to invest a
greater proportion of its assets in the securities of a smaller number of
issuers, the Portfolio may be subject to greater credit risk with respect to its
portfolio securities than an investment company that is more broadly
diversified.
Because of the Portfolio's long-term investment objective, investors should not
rely on an investment in the Portfolio for their short-term financial needs and
should not view the Portfolio as a vehicle for playing short-term swings in the
international bond and foreign exchange markets. Shares of the Portfolio alone
should not be regarded as a complete investment program. Also, investors should
be aware that investing in international bonds may involve a higher degree of
risk than investing in U.S. bonds.
Founders Capital Appreciation Portfolio: The investment objective of Founders
Capital Appreciation Portfolio is capital appreciation. The portfolio will
normally invest at least 65% of its total assets in common stocks of U.S.
companies with market capitalizations of $1.5 billion or less. These stocks
normally will be traded in the over-the-counter market. Since it may engage in
short-term trading, the portfolio may have annual portfolio turnover rates in
excess of 100%.
Founders Passport Portfolio: The investment objective of the Founders Passport
Portfolio is capital appreciation. To achieve its objective, the portfolio will
invest primarily in securities issued by foreign companies which have market
capitalizations or annual revenues of $1 billion or less. These securities may
represent companies in both established and emerging economies throughout the
world. At lease 65% of the portfolio's total assets will normally be invested in
foreign securities representing a minimum of three countries. The portfolio may
invest in larger foreign companies or in U.S.-based companies if, in the
Sub-advisor's opinion they represent better prospects for appreciation.
INVESCO Equity Income Portfolio: The investment objective of the INVESCO Equity
Income Portfolio is to seek high current income while following sound investment
practices. Capital growth potential is an additional, but secondary,
consideration in the selection of portfolio securities. The portfolio seeks to
achieve its objective by investing in securities which will provide a relatively
high-yield and stable return and which, over a period of years, may also provide
capital appreciation. The portfolio normally will invest between 60% and 75% of
its assets in dividend-paying, marketable common stocks of domestic and foreign
industrial issuers. The portfolio also will invest in convertible bonds,
preferred stocks and debt securities. The portfolio may depart from the basic
investment objective and assume a defensive position with a large portion of its
assets temporarily invested in high quality corporate bonds, or notes and
government issues, or held in cash. The portfolio's investments in common stocks
may decline in value. To minimize the risk this presents, the portfolio only
invests in dividend-paying common stocks of domestic and foreign industrial
issuers which are marketable, and will not invest more than 5% of the
portfolio's assets in the securities of any one company or more than 25% of the
portfolio's assets in any one industry. The portfolio's investments in debt
securities will generally be subject to both credit risk and market risk. There
are no fixed-limitations regarding portfolio turnover. The rate of portfolio
turnover may fluctuate as a result of constantly changing economic conditions
and market circumstances. Securities initially satisfying the portfolio's basic
objectives and policies may be disposed of when they are no longer suitable. As
a result, it is anticipated that the portfolio's annual portfolio turnover rate
may be in excess of 100%, and may be higher than that of other investment
companies seeking current income with capital growth as a secondary
consideration. Increased portfolio turnover would cause the portfolio to incur
greater brokerage costs than would otherwise be the case.
PIMCO Total Return Bond Portfolio: The investment objective of the PIMCO Total
Return Bond Portfolio is to seek to maximize total return. A secondary objective
is preservation of capital. The Sub-advisor will seek to employ prudent
investment management techniques, especially in light of the broad range of
investment instruments in which the portfolio may invest. The proportion of the
portfolio's assets committed to investment in securities with particular
characteristics (such as maturity, type and coupon rate) will vary based on the
outlook for the U.S. and foreign economies, the financial markets and other
factors. The portfolio will invest at least 65% of its assets in the following
types of securities which may be issued by domestic or foreign entities and
denominated in U.S. dollars or foreign currencies: securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities; corporate
debt securities; corporate commercial paper; mortgage and other asset-backed
securities; variable and floating rate debt securities; bank certificates of
deposit; fixed time deposits and bankers' acceptances; repurchase agreements and
reverse repurchase agreements; obligations of foreign governments or their
subdivisions, agencies and instrumentalities, international agencies or
supranational entities; and foreign currency exchange-related securities,
including foreign currency warrants. The portfolio will invest in a diversified
portfolio of fixed-income securities of varying maturities with a portfolio
duration from three to six years. The portfolio may invest up to 20% of assets
in corporate debt securities that are rated below investment grade (i.e., rated
below Baa by Moody's or BBB by S&P or, if unrated, determined by the Sub-advisor
to be of comparable quality). These securities are regarded as high risk and
predominantly speculative with respect to the issuer's continuing ability to
meet principal and interest payments (see the underlying fund prospectus for
details).
PIMCO Limited Maturity Bond Portfolio: The investment objective of the PIMCO
Limited Maturity Bond Portfolio is to seek to maximize total return, consistent
with preservation of capital and prudent investment management. The portfolio
will invest at least 65% of its total assets in the following types of
securities, which may be issued by domestic or foreign entities and denominated
in U.S. dollars or foreign currencies: securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities ("U.S. Government
securities"); corporate debt securities; corporate commercial paper; mortgage
and other asset-backed securities; variable and floating rate debt securities;
bank certificates of deposit, fixed time deposits and bankers' acceptances;
repurchase agreements and reverse repurchase agreements; obligations of foreign
governments or their subdivisions, agencies and instrumentalities, international
agencies or supranational entities; and foreign currency exchange-related
securities, including foreign currency warrants.
The portfolio may hold different percentages of its assets in these various
types of securities, and may invest all of its assets in derivative instruments
or in mortgage- or asset-backed securities. There are special risks involved in
these instruments. The portfolio will invest in a diversified portfolio of fixed
income securities of varying maturities with a portfolio duration from one to
three years. The portfolio may invest up to 10% of its assets in corporate debt
securities that are rated below investment grade but rated B or higher by
Moody's or S&P (or, if unrated, determined by the Sub-advisor to be of
comparable quality). The portfolio may also invest up to 20% of its assets in
securities denominated in foreign currencies. The "total return" sought by the
portfolio will consist of interest and dividends from underlying securities,
capital appreciation reflected in unrealized increases in value of portfolio
securities (realized by the shareholder only upon selling shares) or realized
from the purchase and sale of securities, and use of futures and options, or
gains from favorable changes in foreign currency exchange rates The portfolio
may invest directly in U.S. dollar- or foreign currency-denominated fixed income
securities of non-U.S. issuers. The portfolio will limit its foreign investments
to securities of issuers based in developed countries (including Newly
Industrialized Countries, "NICs", such as Taiwan, South Korea and Mexico).
Investing in the securities of issuers in any foreign country involves special
risks.
Berger Capital Growth Portfolio: The investment objective of the Berger Capital
Growth Portfolio is long-term capital appreciation. The Portfolio seeks to
achieve this objective by investing primarily in common stocks of established
companies which the Sub-advisor believes offer favorable growth prospects.
Current income is not an investment objective of the Portfolio, and any income
produced will be a by-product of the effort to achieve the Portfolio's
objective.
In general, investment decisions for the Portfolio are based on an approach
which seeks out successful companies because they are believed to be more apt to
become profitable investments. To evaluate a prospective investment, the
Sub-advisor analyzes information from various sources, including industry
economic trends, earnings expectations and fundamental securities valuation
factors to identify companies which in the Sub-advisor's opinion are more likely
to have predictable, above average earnings growth, regardless of the company's
size and geographic location. The Sub-advisor also takes into account a
company's management and its innovations in products and services in evaluating
its prospects for continued or future earnings growth.
In selecting its portfolio securities, the Portfolio places primary emphasis on
established companies which it believes to have favorable growth prospects.
Common stocks usually constitute all or most of the Portfolio's investment
holdings, but the Portfolio remains free to invest in securities other than
common stocks, and may do so when deemed appropriate by the Sub-advisor to
achieve the objective of the Portfolio. The Portfolio may, from time to time,
take substantial positions in securities convertible into common stocks, and it
may also purchase government securities, preferred stocks and other senior
securities if its Sub-advisor believes these are likely to be the best suited at
that time to achieve the Portfolio's objective. The Portfolio's policy of
investing in securities believed to have a potential for capital growth means
that a Portfolio share may be subject to greater fluctuations in value than if
the Portfolio invested in other securities.
Robertson Stephens Value + Growth Portfolio: The investment objective of the
Robertson Stephens Value + Growth Portfolio is to seek capital appreciation. The
Portfolio will invest primarily in growth companies believed by the Sub-advisor
to have favorable relationships between price/earnings ratios and growth rates
in sectors offering the potential for above-average returns.
In selecting investments for the Portfolio, the Sub-advisor's primary emphasis
is typically on evaluating a company's management, growth prospects, business
operations, revenues, earnings, cash flows, and balance sheet in relationship to
its share price. The Sub-advisor may select stocks which it believes are
undervalued relative to the current stock price. When the Sub-advisor
anticipates that the price of a security will decline, it may sell the security
short and borrow the same security from a broker or other institution to
complete the sale.
The Portfolio may invest a substantial portion of its assets in securities
issued by small companies. Such companies may offer greater opportunities for
capital appreciation than larger companies, but investments in such companies
may involve certain special risks such as limited product lines, markets and
financial or managerial resources. These securities may be less frequently
traded and the values may fluctuate more sharply than other securities.
The Portfolio may invest up to 35% of its net assets in securities principally
traded in foreign markets. The Portfolio may buy or sell foreign currencies and
options and futures contracts on foreign currencies for hedging purposes in
connection with its foreign investments. The Portfolio may also at times invest
a substantial portion of their assets in securities of issuers in developing
countries. Although many of the securities in which the Portfolio may invest are
traded on securities exchanges, the Portfolio may trade in limited volume, and
the exchanges may not provide all of the conveniences or protections provided by
securities exchanges in more developed markets.
At times, the Portfolio may invest more than 25% of its assets in securities of
issuers in one or more market sectors such as, for example, the technology
sector. A market sector may be made up of companies in a number of related
industries. The Portfolio would only concentrate its investments in a particular
market sector if the Sub-advisor were to believe the investment return available
from concentration in that sector justifies any additional risk associated with
concentration in that sector.
Putnam Growth and Income: The investment objective of the Putnam Growth and
Income Portfolio is to seek capital growth. Current income is a secondary
objective. The portfolio invests primarily in common stocks that offer potential
for capital growth, and may, consistent with its investment objective, invest in
stocks that offer potential for current income. The portfolio may also purchase
corporate bonds, notes and debentures, preferred stocks, convertible securities
(both debt securities and preferred stocks) or U.S. government securities if the
sub-advisor determines that their purchase would help further the portfolio's
investment objective. The types of securities held by the portfolio may vary
from time to time in light of the portfolio's investment objective, changes in
interest rates, and economic and other factors. The portfolio may also hold a
portion of its assets in cash or money market instruments. The portfolio may
invest up to 20% of its assets in securities principally traded in foreign
markets. The portfolio may invest in both higher-rated and lower-rated
fixed-income securities, and is not subject to investment limitations on credit
ratings.
Putnam Overseas Equity Portfolio: The investment objective of the Putnam
Overseas Equity Portfolio is to seek capital appreciation. The portfolio is
designed for investors seeking capital appreciation primarily through a
diversified portfolio of equity securities of companies located outside the
United States of America. The portfolio's investments will normally include
common stocks, preferred stocks, securities convertible into common or preferred
stocks, and warrants to purchase common or preferred stocks. The portfolio may
also invest to a lesser extent in debt securities and other types of investments
of the sub-advisor believes purchasing them would help achieve the portfolio's
objective. The portfolio will under normal circumstances, invest at least 65% of
its assets in at least three different countries outside of the United States.
Twentieth Century Balanced Portfolio: The investment objective of the Twentieth
Century Balanced Portfolio is to seek capital growth and current income. It is
the intention of the sub-advisor to maintain approximately 60% of the
portfolio's assets in common stocks that are considered by the sub-advisor to
have better-than-average prospects for appreciation and the balance in bonds and
other fixed income securities. The sub-advisor expects that a minimum of 25% of
the amount to be maintained in fixed income securities will be invested in fixed
income senior securities. Under normal market conditions the weighted average
portfolio maturity of the fixed income securities will be in the three-to
10-year range. At least 80% of fixed income assets will be invested in
securities which at the time of purchase are rated with the three highest
categories by a nationally recognized statistical rating organization (at least
A by Moody's or Standard & Poor's). The remaining portion of the fixed income
assets may be invested in issues in the fourth highest category (Baa by Moody's
or BBB by S&P).
Twentieth Century International Growth Portfolio: The investment objective of
the Twentieth Century International Growth Portfolio is capital growth. The
portfolio will seek to achieve its investment objective by investing primarily
in securities of foreign companies that meet certain fundamental and technical
standards of selection and have, in the opinion of the Sub-advisor, potential
for appreciation. The portfolio will invest primarily in common stocks (defined
to include depository receipts for common stock and other equity equivalents) of
such companies. The portfolio will try to stay fully invested in such
securities, regardless of the movement of stock prices generally. Although the
primary investment of the portfolio will be common stocks, the portfolio may
also invest in other types of securities consistent with the accomplishment of
the portfolio's objective. When the Sub-advisor believes that total capital
growth potential of other securities equals or exceeds the potential return of
common stocks, the portfolio may invest up to 35% of its assets in such other
securities. The portfolio will limit its purchases of debt securities to
investment-grade obligations. Under normal conditions, the portfolio will invest
at least 65% of its assets in common stocks or other equity equivalents of
issuers from at least three countries outside of the United States. The
principal criterion for inclusion of a security in the portfolio is its ability
to meet the fundamental and technical standards of selection and, in the opinion
of the Sub-advisor, to achieve better-than-average appreciation. The Sub-advisor
also will consider a number of other factors in making investment selections
including: the prospects for relative economic growth among countries or
regions, economic and political conditions, expected inflation rates, currency
exchange fluctuations and tax considerations.
The Alger American Fund
Alger American Small Capitalization Portfolio: The investment objective of the
Portfolio is long-term capital appreciation. Except during temporary defensive
periods, the Portfolio invests at least 65% of its total assets in equity
securities of companies that, at the time of purchase of the securities, have
total market capitalization within the range of companies included in the
Russell 2000 Growth Index, updated quarterly. The Russell 2000 Growth Index is
designed to track the performance of small capitalization companies. At the date
of this Prospectus, the range of market capitalization of these companies was
$20 million to $3.0 billion. The Portfolio may invest up to 35% of its total
assets in equity securities of companies that, at the time of purchase, have
total market capitalization outside the range of companies included in the
Russell 2000 Growth Index and in excess of that amount (up to 100% of its
assets) during temporary defensive periods.
Alger American Growth Portfolio: The investment objective of the Alger American
Growth Portfolio is long-term capital appreciation. Except during temporary
defensive periods, the Portfolio invests at least 65 percent of its total assets
in equity securities of companies that, at the time of purchase of the
securities, have total market capitalization of $1 billion or greater. The
Portfolio may invest up to 35% of its total assets in equity securities of
companies that, at the time of purchase, have total market capitalization of
less than $1 billion and in excess of that amount (up to 100% of its assets)
during temporary defensive periods.
Alger American MidCap Growth Portfolio: The investment objective of the
Portfolio is long-term capital appreciation. Except during temporary defensive
periods, the Portfolio invests at least 65% of its total assets in equity
securities of companies that, at the time of purchase of the securities, have
total market capitalization within the range of companies included in the S&P
MidCap 400 Index, updated quarterly. The S&P MidCap 400 Index is designed to
track the performance of medium capitalization companies. At the date of this
Prospectus, the range of market capitalization of these companies was $153
million to $8.9 billion. The Portfolio may invest up to 35% of its total assets
in equity securities of companies that, at the time of purchase, have total
market capitalization outside the range of companies included in the S&P MidCap
400 Index and in excess of that amount (up to 100% of its assets) during
temporary defensive periods.
Neuberger & Berman Advisers Management Trust
(Each portfolio of the Neuberger & Berman Advisers Management Trust invests
exclusively in a corresponding series of Advisers Managers Trust in what is
sometimes known as a "master/feeder" fund structure. Therefore, the investment
objective of each portfolio matches that of the series of the Advisers Managers
Trust in which the portfolio invests. Therefore, the following information is
presented in terms of the applicable series of the Advisers Management Trust).
AMT Partners Investments: The investment objective of the AMT Partners
Investments is to seek capital growth. This investment objective is
non-fundamental.
The AMT Partners Investments invests primarily in common stocks of established
companies, using the value-oriented investment approach. The series seeks
capital growth through an investment approach that is designed to increase
capital with reasonable risk. Its investment program seeks securities believed
to be undervalued based on strong fundamentals such as low price-to-earnings
ratios, consistent cash flow, and support from asset values.
Up to 15% of the series' net assets may be invested in corporate debt securities
rated below investment grade or in comparable unrated securities. Securities
rated below investment grade as well as unrated securities are often considered
to be speculative and usually entail greater risk.
Montgomery Variable Series
Emerging Markets Fund: The investment objective of the Montgomery Variable
Series Emerging Markets Fund is capital appreciation, which under normal
conditions it seeks by investing at least 65% of its total assets in equity
securities of companies in countries having emerging markets. For these
purposes, the Fund defines an emerging market country as having an economy that
is or would be considered by the World Bank or the United Nations to be emerging
or developing. This Fund considers emerging market companies to be companies the
securities of which are principally traded in the capital market of an emerging
market country, companies that derive at least 50% of their total revenue from
either goods produced or services rendered in emerging market countries or from
sales made in such emerging market countries, regardless of where the securities
of such companies are principally traded, or companies organized under the laws
of, and with a principal office in, an emerging market country.
This Fund uses a proprietary, quantitative asset allocation model created by the
Manager. This model employs mean-variance optimization, a process used in
developed markets based on modern portfolio theory and statistics. Mean-variance
optimization helps determine the percent of assets to invest in each country to
maximize expected returns for a given risk level. This Fund's aims are to invest
in those countries that are expected to have the highest risk/reward tradeoff
when incorporated into a total portfolio context and to construct a portfolio of
emerging market investments approximating the risk level of an internationally
diversified portfolio of securities in developed markets. This "top-down"
country selection is combined with "bottom-up" fundamental industry analysis and
stock selection based on original research, publicly available information, and
company visits.
This Fund invests primarily in common stock but also may invest in other types
of equity and equity derivatives securities. It may invest up to 35% of its
total assets in debt securities, including up to 5% in debt securities rated
below investment grade. The Fund has the right to purchase securities in foreign
countries. Accordingly, shareholders should consider carefully the substantial
risks involved in investing in securities issued by companies and governments of
foreign nations, which are in addition to the usual risks inherent in domestic
investments. While the Fund may invest in mature suppliers of products and
services, and technologies, the Fund also may invest in smaller companies that
may benefit from the development of new products and services. These smaller
companies may present greater opportunities for capital appreciation but may
involve greater risk than larger, mature issuers. The Fund is authorized to
invest in medium quality (rated or equivalent to BBB by S&P or Baa by Moody's)
and in limited amounts of high risk, lower quality debt securities, sometimes
called "junk bonds," (i.e., securities rated below BBB or Baa) or, if unrated,
deemed to be of equivalent investment quality as determined by the Manager.
Medium quality debt securities have speculative characteristics, and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade debt securities.
American Skandia Life Assurance Corporation
Attention: Concierge Desk
P.O. Box 883
Shelton, Connecticut 06484
================================================================================
PLEASE SEND ME A STATEMENT OF ADDITIONAL INFORMATION THAT CONTAINS FURTHER
DETAILS ABOUT THE AMERICAN SKANDIA ANNUITY DESCRIBED IN PROSPECTUS
CHC2 PROS (10/96)
================================================================================
================================================================================
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(print your name)
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(address)
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(city/state/zip code)
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ADDITIONAL INFORMATION: Inquiries will be answered by calling your
representative or by writing to:
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
P.O. Box 883
Shelton, Connecticut 06484
Issued by: Serviced at:
AMERICAN SKANDIA LIFE AMERICAN SKANDIA LIFE
ASSURANCE CORPORATION ASSURANCE CORPORATION
One Corporate Drive P.O. Box 883
Shelton, Connecticut 06484 Shelton, Connecticut 06484
Telephone: 1-800-752-6342 Telephone: 1-800-752-6342
Distributed by:
AMERICAN SKANDIA MARKETING, INCORPORATED
One Corporate Drive
Shelton, Connecticut 06484
Telephone: (203) 926-1888
- --------
* Trustees of American Skandia Trust, one of the underlying mutual funds in
which the Sub-accounts offered pursuant to this Prospectus invest.
STATEMENT OF ADDITIONAL lNFORMATION
The variable investment options under the annuity contracts, registered under
the Securities Act of 1933 and the Investment Company Act of 1940, are issued by
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B (CLASS 2
SUB-ACCOUNTS) and AMERICAN SKANDIA LIFE ASSURANCE CORPORATION. The fixed
investment options thereunder, registered solely under the Securities Act of
1933, are issued by AMERICAN SKANDIA LIFE ASSURANCE CORPORATION and the assets
supporting such securities are maintained in AMERICAN SKANDIA LIFE ASSURANCE
CORPORATION SEPARATE ACCOUNT D.
THIS STATEMENT OF ADDITIONAL lNFORMATlON IS NOT A PROSPECTUS. THE INFORMATION
CONTAINED HEREIN SHOULD BE READ IN CONJUNCTlON WITH THE PROSPECTUS FOR THE
ANNUITIES WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR OUGHT TO KNOW
BEFORE lNVESTING. FOR A COPY OF THE PROSPECTUS SEND A WRITTEN REQUEST TO
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION, P.O. BOX 883, SHELTON, CONNECTICUT
06484, OR TELEPHONE 1-800-752-6342.
Date of Prospectus: October 14, 1996 Date of Statement of Additional
Information: October 14, 1996
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Item Page
General Information Regarding American Skandia Life Assurance Corporation 1
Principal Underwriter 1
Calculation of Performance Data 2
Unit Price Determinations 4
Calculating the Market Value Adjustment 4
Independent Auditors 5
Legal Experts 5
Appendix A Financial Statements for Separate Account B (Class 2 Sub-accounts) 7
</TABLE>
GENERAL INFORMATION REGARDING AMERICAN SKANDIA LIFE ASSURANCE CORPORATION:
American Skandia Life Assurance Corporation ("we", "our" or "us") is a
wholly-owned subsidiary of American Skandia Investment Holding Corporation
whose indirect parent is Skandia Insurance Company Ltd. Skandia Insurance
Company Ltd. is part of a group of companies whose predecessor commenced
operations in 1855. Skandia Insurance Company Ltd. is a major worldwide
insurance company operating from Stockholm, Sweden which owns and controls,
directly or through subsidiary companies, numerous insurance and related
companies. We are organized as a Connecticut stock life insurance company, and
are subject to Connecticut law governing insurance companies. Our mailing
address is P.O. Box 883, Shelton, Connecticut 06484.
PRINCIPAL UNDERWRITER: American Skandia Marketing, Incorporated ("ASM, Inc.")
serves as principal underwriter for the Annuities. We, ASM, Inc. and American
Skandia Investment Services, Incorporated ("ASISI") the investment manager of
the American Skandia Trust, are wholly-owned subsidiaries of American Skandia
Investment Holding Corporation. Most of the Class 2 Sub-accounts of Separate
Account B invest in portfolios offered by American Skandia Trust.
CHC2 SAI (10/96)
<PAGE>
Annuities may be sold by agents of ASM, Inc. or agents of securities brokers or
insurance brokers who enter into agreements with ASM, Inc. and who are legally
qualified under federal and state law to sell the Annuities in those states
where the Annuities are to be offered. The Annuities are offered on a continuous
basis. ASM, Inc. is registered with the Securities and Exchange Commission under
the Securities Exchange Act of 1934 as a broker dealer and is a member of the
National Association of Securities Dealers, Inc. ASM, Inc. receives no
underwriting commissions.
CALCULATION OF PERFORMANCE DATA: We may advertise our Current Rates for new
Fixed Allocations.
We may advertise the performance of Sub-accounts using two types of measures.
These measures are "current and effective yield", which may be used for money
market-type Sub-accounts, and "total return", which may be used with other types
of Sub-accounts. The following descriptions provide details on how we calculate
these measures for Sub-accounts:
(1) Current and effective yield: The current yield of a money
market-type Sub-account is calculated based upon a seven day period ending on
the date of calculation. The current yield of such a Sub-account is computed by
determining the change (exclusive of capital changes) in the Account Value of a
hypothetical pre-existing allocation by an Owner to such a Sub-account (the
"Hypothetical Allocation") having a balance of one Unit at the beginning of the
period, subtracting a hypothetical maintenance fee, and dividing such net change
in the Account Value of the Hypothetical Allocation by the Account Value of the
Hypothetical Allocation at the beginning of the same period to obtain the base
period return, and multiplying the result by (365/7). The resulting figure will
be carried to at least the nearest l00th of one percent.
We compute effective compound yield for a money market-type Sub-account
according to the method prescribed by the Securities and Exchange Commission.
The effective yield reflects the reinvestment of net income earned daily on
assets of such a Sub-account. Net investment income for yield quotation purposes
will not include either realized or capital gains and losses or unrealized
appreciation and depreciation.
(2) Total Return: Total return for the other Sub-accounts is computed by using
the formula:
P(1+T)n = ERV
where:
P = a hypothetical allocation of $1,000;
T = average annual total return;
n = the number of years over which total return is being measured; and
ERV = the Account Value of the hypothetical $1,000 payment as of the end of the
period over which total return is being measured.
Many of the Sub-accounts offered as variable investment options for the
Annuities have been available as variable investment options in other annuities
we offer. In addition, some of the underlying mutual fund portfolios existed
prior to the inception of these Sub-accounts. Performance quoted in advertising
regarding such Sub-accounts may indicate periods during which the underlying
mutual fund portfolios have been in existence, but before the Annuities were
frist offered. Such hypothetical performance is calculated using the same
assumptions employed in calculating actual performance since the Annuities were
first offered.
As described in the Prospectus, Annuities may be offered in certain situations
in which the administration charge and/or the maintenance fee may be eliminated
or reduced. Advertisements of performance in connection with the offer of such
Annuities will be based on the charges applicable to such Annuities.
<PAGE>
Shown below are Standard Total Return figures for the periods shown, ending as
of [ ], for the Sub-accounts that existed prior to the date of this Statement of
Additional Information. The "inception-to-date" figures shown below are based on
the inception date of an underlying mutual fund portfolio. Any performance of
such portfolios prior to the date Annuities were first offered is provided by
the underlying mutual funds. The total return for any Sub-account reflecting
performance prior to the date we started offereing Annuities is based on such
information.
<TABLE>
<CAPTION>
Standard Total Return
<S> <C> <C> <C> <C> <C>
Incep-
1 3 5 10 tion-to
Yr. Yr. Yr. Yr. -Date
JanCap Growth
LA Growth and Income
Seligman Henderson International Equity
Seligman Henderson International Small Cap
Fed Utility Inc
Fed High Yield
AST Phoenix Balanced Asset
T. Rowe Price Asset Allocation
T. Rowe Price International Equity
T. Rowe Price Natural Resources
T. Rowe Price International Bond(1)
Founders Capital Appreciation
INVESCO Equity Income
PIMCO Total Return Bond
PIMCO Limited Maturity Bond
Berger Capital Growth
RS Value + Growth
AA Growth
AA Small Capitalization
AA MidCap Growth
NB Partners
MV Emerging Markets
</TABLE>
(1) During these periods, the Portfolio (formerly known as the "AST Scudder
International Bond Portfolio") was managed by American Skandia Investment
Services, Incorporated ("ASISI"), as investment manager, and was sub-advised by
Scudder, Steven & Clark, as sub-adviser. As of May 1, 1996, the Portfolio is
managed by ASISI, as investment manager, and sub-advised by Rowe Price-Fleming
International, Inc., as sub-adviser. As of May 1, 1996 various changes have been
made to the Portfolio's investment objective and to its fundamental and
non-fundamental investment restrictions.
The performance quoted in any advertising should not be considered a
representation of the performance of these Sub-accounts in the future since
performance is not fixed. Actual performance will depend on the type, quality
and, for some of the Sub-accounts, the maturities of the investments held by the
underlying mutual funds and upon prevailing market conditions and the response
of the underlying mutual funds to such conditions. Actual performance will also
depend on changes in the expenses of the underlying mutual funds. In addition,
the amount of charges against each Sub-account will affect performance.
The information provided by these measures may be useful in reviewing
the performance of the Sub-accounts, and for providing a basis for comparison
with other annuities. These measures may be less useful in providing a basis for
comparison with other investments that neither provide some of the benefits of
such annuities nor are treated in a similar fashion under the Code.
UNIT PRICE DETERMINATIONS: For each Sub-account the initial Unit Price was
$10.00. The Unit Price for each subsequent period is the net investment factor
for that period, multiplied by the Unit Price for the immediately preceding
Valuation Period. The Unit Price for a Valuation Period applies to each day in
the period. The net investment factor is an index that measures the investment
performance of and charges assessed against a Sub-account from one Valuation
Period to the next. The net investment factor for a Valuation Period is: (a)
divided by (b), less (c) where:
(a) is the net result of:
(1) the net asset value per share of the underlying mutual
fund shares held by that Sub-account at the end of the current Valuation Period
plus the per share amount of any dividend or capital gain distribution declared
and unpaid by the underlying mutual fund during that Valuation Period; plus or
minus
(2) any per share charge or credit during the Valuation Period
as a provision for taxes attributable to the operation or maintenance of that
Sub-account.
(b) is the net result of:
(1) the net asset value per share plus any declared and unpaid
dividends per share of the underlying mutual fund shares held in that
Sub-account at the end of the preceding Valuation Period; plus or minus
(2) any per share charge or credit during the preceding
Valuation Period as a provision for taxes attributable to the operation or
maintenance of that Sub-account.
(c) is the mortality and expense risk charges and the administration charge.
We value the assets in each Sub-account at their fair market value in accordance
with accepted accounting practices and applicable laws and regulations. The net
investment factor may be greater than, equal to, or less than one.
CALCULATING THE MARKET VALUE ADJUSTMENTS: The market value adjustment ("MVA") is
used in determining the Account Value of each Fixed Allocation. The formula used
to determine the MVA is applied separately to each Fixed Allocation. Values and
time durations used in the formula are as of the date the Account Value is being
determined. Current Rates and available Guarantee Periods are those for the
class of Annuities you purchase pursuant to the Prospectus available in
conjunction with this Statement of Additional Information. The formula is:
[(1+I) / (1+J+0.0010)]N/365
where:
I is the Strip Yield as of the date the Guarantee Period began
for Strips maturing at the end of the applicable Fixed
Allocation's Guarantee Period. If there are no Strips maturing
at that time, we use the Strip Yield for the Strips maturing
as soon as possible after the Guarantee Period ends.
J is the Strip Yield as of the date the MVA formula is to be
applied, for Strips maturing at the end of the applicable
Fixed Allocation's Guarantee Period. If there are no Strips
maturing at that time, we use the Strip Yield for the Strips
maturing as soon as possible after the Guarantee Period ends.
N is the number of days remaining in such Guarantee Period.
The formula that applies if amounts are surrendered pursuant to the right to
return the annuity is [(1 + I)/(1 + J)]N/365.
No MVA applies in determining a Fixed Allocation's Account Value on its Maturity
Date.
The following examples show the effect of the MVA in determining Account Value.
The example assumes:
(a) Account Value of $50,000 for the Fixed Allocation at the beginning of its
Guarantee Period;
(b) a Guarantee Period of 5 years ending December 31, 2001;
(c) an interest rate of 5.00%, which is an effective annual rate;
(d) Strip Yields, as of the date the Guarantee Period begins, of 5.50% for
Strips maturing on 12/31/2001; and
(e) the date of the calculation is the end of the third year since the
beginning of the Guarantee Period. That means there are two exact years
remaining to the end of the Guarantee Period. The Interim Value at such time
(12/31/1999) would be $57,881.25.
Example of Upward Adjustment: Assuming no prior transfers or
withdrawals from the Fixed Allocation, and Strip Yields, as of the date of the
calculation, of 4.00% for Strips maturing on 12/31/2001, then:
(a) MVA = [(1+I)/(I+J+0.0010)]N/365 = [1.0550/1.0410]2 = 1.027078; and
(b) Account Value = Interim Value X MVA = $57,881.25 X 1.027078 = $59,448.56
Example of Downward Adjustment: Assuming no prior transfers or
withdrawals from the Fixed Allocation, and Strip Yields, as of the date of the
calculation, of 7.00% for Strips maturing on 12/31/2001, then:
(a) MVA = [(1+I)/(I+J+0.0010)]N/365 = [1.0550/1.0710]2 = 0.970345; and
(b) Account Value = Interim Value X MVA = $57,881.25 X 0.970345 = $56,164.78.
INDEPENDENT AUDITORS: Deloitte & Touche LLP, Two World Financial Center, New
York, New York 10281-1433, independent auditors, have performed an annual audit
of American Skandia Life Assurance Corporation and an annual audit of American
Skandia Life Assurance Corporation Variable Account B (Class 2 Sub-accounts).
Audited financial statements regarding American Skandia Life Assurance
Corporation as of December 31, 1995 and 1994, and the related statements of
operations, shareholders's equity and cash flows for each of the three years in
the period ended December 31, 1995 are included in the Prospectus. Audited
financial statements for Variable Account B (Class 2 Sub-accounts) are included
herein. The financial statements included herein and in the Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in the report
herein and in the Prospectus, and are included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
LEGAL EXPERTS: Counsel with respect to Federal laws and regulations applicable
to the issue and sale of the Annuities and with respect to Connecticut law is
Werner & Kennedy, 1633 Broadway, New York, New York 10019.
FINANCIAL STATEMENTS FOR SEPARATE ACCOUNT B (CLASS 2 SUB-ACCOUNTS): The
financial statements which follow in Appendix A are those of American Skandia
Life Insurance Corporation Variable Account B (Class 2 Sub-accounts) for the
year ended December 31, 1995. There are other Sub-accounts included in Account B
that are not available in the product described in the applicable prospectus.
To the extent and only to the extent that any statement in a document
incorporated by reference into this Statement of Additional Information is
modified or superseded by a statement in this Statement of Additional
Information or in a later-filed document, such statement is hereby deemed so
modified or superseded and not part of this Statement of Additional Information.
We furnish you without charge a copy of any or all the documents incorporated by
reference in this Statement of Additional Information, including any exhibits to
such documents which have been specifically incorporated by reference. We do so
upon receipt of your written or oral request. Please address your request to
American Skandia Life Assurance Corporation, Attention: Concierge Desk, P.O. Box
883, Shelton, Connecticut, 06484. Our phone number is 1-(800) 752-6342.
<PAGE>
Appendix A
Financial Statements for Separate Account B
(Class 2 Sub-accounts)
<PAGE>
APPENDIX A
To be filed by Amendment
PART C
OTHER INFORMATION
<TABLE>
<CAPTION>
Item 24. Financial Statements and Exhibits:
<S> <C> <C> <C>
(a) All financial statements are included in Parts A & B of this Registration Statement.
(b) Exhibits are attached as indicated.
(1) Copy of the resolution of the board of directors of Depositor authorizing the establishment of the Registrant for
Separate Account B (previously filed in the initial Registration Statement to Registration Statement No.
33-19363, filed December 30, 1987).
(2) Not applicable. American Skandia Life Assurance Corporation maintains custody of all assets.
(3) (a) Form of revised Principal Underwriting Agreement between American Skandia Life Assurance Corporation and
American Skandia Marketing, Incorporated, formerly known as Skandia Life Equity Sales Corporation
(previously filed in Post-Effective Amendment No. 3 to Registration Statement No. 33-44436, filed April
20, 1993).
(b) Form of Revised Dealer Agreement (previously filed in Post-Effective Amendment No. 3 to Registration
Statement No. 33-44436, filed April 20, 1993).
(4) Copy of the form of the Annuity (to be filed by amendment).
(5) A copy of the application form used with the Annuity provided in response to (4) above (previously filed in
Pre-Effective Amendment No. 9 to Registration Statement No. 33-44436, filed February 17, 1995).
(6) (a) Copy of the certificate of incorporation of American Skandia Life Assurance Corporation (previously
filed in Pre-Effective Amendment No. 2 to Registration Statement No. 33-19363, filed July 27, 1988).
(b) Copy of the By-Laws of American Skandia Life Assurance Corporation (previously filed in Pre-Effective
Amendment No. 2 to Registration Statement No. 33-19363, filed July 27, 1988).
(7) Not applicable.
(8) Agreements between Depositor and:
(a) Neuberger & Berman Advisers Management Trust (previously filed in Post-Effective Amendment No. 5 to
Registration Statement No. 33-19363, filed February 28, 1990).
(b) The Alger American Fund (previously filed in Post-Effective Amendment No. 5 to Registration Statement
No. 33-19363, filed February 28, 1990).
(c) American Skandia Trust (previously filed in Post-Effective Amendment No. 5 to Registration Statement No.
33-19363, filed February 28, 1990. At such time, what later became American Skandia Trust was known as
the Henderson Global Asset Trust).
(d) The Montgomery Funds III
(9) Opinion and consent of Werner & Kennedy (to be filed by amendment).
(10) Consent of Deloitte & Touche LLP (to be filed by amendment).
(11) Not applicable.
(12) Not applicable.
(13) Calculation of Performance Information for Advertisement of Performance.
(14) Not applicable.
</TABLE>
Item 25. Directors and Officers of the Depositor: The Directors and Officers of
the Depositor are shown in Part A.
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant: The Depositor does not directly or indirectly control any
person. The following persons are under common control with the Depositor
by American Skandia Investment Holding Corporation:
(1) American Skandia Information Services and Technology Corporation ("ASIST"):
The organization is a general business corporation organized in the State
of Delaware. Its primary purpose is to provide various types of business
services to American Skandia Investment Holding Corporation and all of its
subsidiaries including computer systems acquisition, development and
maintenance, human resources acquisition, development and management,
accounting and financial reporting services and general office services.
(2) American Skandia Marketing, Incorporated ("ASM, Inc."): The organization is
a general business corporation organized in the State of Delaware. It was
formed primarily for the purpose of acting as a broker-dealer in
securities. It acts as the principal "underwriter" of annuity contracts
deemed to be securities, as required by the Securities and Exchange
Commission, which insurance policies are to be issued by American Skandia
Life Assurance Corporation. It provides securities law supervisory services
in relation to the marketing of those products of American Skandia Life
Assurance Corporation registered as securities. It also may act as the
principal underwriter and/or provide securities law supervisory services in
relation to marketing of other offerings, including certain public mutual
funds. It also has the power to carry on a general financial, securities,
distribution, advisory, or investment advisory business; to act as a
general agent or broker for insurance companies and to render advisory,
managerial, research and consulting services for maintaining and improving
managerial efficiency and operation.
(3) American Skandia Investment Services, Incorporated ("ASISI"): The
organization is a general business corporation organized in the state of
Connecticut. The organization is authorized to provide investment service
and investment management advice in connection with the purchasing,
selling, holding or exchanging of securities or other assets to insurance
companies, insurance-related companies, mutual funds or business trusts.
Its primary role is expected to be as investment manager for certain mutual
funds, including but not limited to funds to be made available primarily
through the variable insurance products of American Skandia Life Assurance
Corporation.
(4) Skandia Vida: This subsidiary of American Skandia Life Assurance
Corporation was organized in March, 1995, and began operations in July,
1995. It offers investment oriented life insurance products designed for
long-term savings through independent banks and brokers. Currently, it is
licensed for this type of business in Mexico.
Item 27. Number of Contract Owners: Not applicable - New Registrant.
Item 28. Indemnification: Under Section 33-320a of the Connecticut General
Statutes, the Depositor 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 Depositor. In any
criminal action or proceeding, it also must be determined that the director
or officer had no reason to believe his conduct was unlawful. The director
or officer must also be indemnified when he is successful on the merits in
the defense of a proceeding or in circumstances where a court determines
that he is fairly and reasonable entitled to be indemnified, and the court
approves the amount. In shareholder derivative suits, the director or
officer must be finally adjudged not to have breached this duty to the
Depositor or a court must determine that he is fairly and reasonably
entitled to be indemnified and must approve the amount. In a claim based
upon the director's or officer's purchase or sale of the Registrants'
securities, the director or officer may obtain indemnification only if a
court determines that, in view of all the circumstances, he is fairly and
reasonably entitled to be indemnified and then for such amount as the court
shall determine. The By-Laws of American Skandia Life Assurance Corporation
("ASLAC") also provide directors and officers with rights of
indemnification, consistent with Connecticut Law.
The foregoing statements are subject to the provisions of Section 33-320a.
Directors and officers of ASLAC and ASM, Inc. can also be indemnified pursuant
to indemnity agreements between each director and officer and American Skandia
Investment Holding Corporation, a corporation organized under the laws of the
state of Delaware. The provisions of the indemnity agreement are governed by
Section 45 of the General Corporation Law of the State of Delaware.
The directors and officers of ASLAC and ASM, Inc. are covered under a directors
and officers liability insurance policy issued by an unaffiliated insurance
company to Skandia Insurance Company Ltd., their ultimate parent. Such policy
will reimburse ASLAC or ASM, Inc., as applicable, for any payments that it
shall make to directors and officers pursuant to law and, subject to certain
exclusions contained in the policy, will pay any other costs, charges and
expenses, settlements and judgments arising from any proceeding involving any
director or officer of ASLAC or ASM, Inc., as applicable, in his or her past or
present capacity as such.
Registrant hereby undertakes as follows: Insofar as indemnification for
liabilities arising under the Securities Act of 1933 (the "Act") may be
permitted to directors, officers and controlling persons of Registrant pursuant
to the foregoing provisions, or otherwise, 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, therefore, is unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by Registrant of expenses incurred or paid by a director,
officer or controlling person of 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, unless
in the opinion of Registrant's counsel the matter has been settled by
controlling precedent, Registrant will 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.
Item 29. Principal Underwriters:
(a) At present, ASM, Inc. acts as principal underwriter only for annuities to
be issued by ASLAC.
(b) Directors and officers of ASM, Inc.
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Principal Business Address Positions and Offices with Underwriter
Alan H. Blank Vice President and
American Skandia Life Assurance Corporation National Sales Manager
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
Gordon C. Boronow Director
American Skandia Life Assurance Corporation
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
Jan R. Carendi Chief Executive Officer
Skandia Insurance Company Ltd. and Chairman of the
Sveavagen 44, S-103 50 Stockholm, Sweden Board of Directors
Paul De Simone Controller
American Skandia Life Assurance Corporation
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
Wade A. Dokken President, Chief Operating
American Skandia Life Assurance Corporation Officer, Chief Marketing Officer
One Corporate Drive, P.O. Box 883 and Director
Shelton, Connecticut 06484-0883
N. David Kuperstock Vice President and Director
American Skandia Life Assurance Corporation
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
Thomas M. Mazzaferro Executive Vice President and
American Skandia Life Assurance Corporation Chief Financial Officer
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
Don Thomas Peck Vice President and
American Skandia Life Assurance Corporation National Sales Manager
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
Hayward Sawyer Vice President and
American Skandia Life Assurance Corporation National Sales Manager
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
M. Priscilla Pannell Corporate Secretary
American Skandia Life Assurance Corporation
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
Kristen Newall Assistant Corporate Secretary
American Skandia Life Assurance Corporation
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
Amanda C. Sutyak Executive Vice President
American Skandia Life Assurance Corporation
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
</TABLE>
Item 30. Location of Accounts and Records: Accounts and records are maintained
by ASLAC at its principal office in Shelton, Connecticut.
Item 31. Management Services: None
Item 32. Undertakings:
(a) Registrant hereby undertakes to file a post-effective amendment to this
Registration Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16
months old so long as payments under the annuity contracts may be accepted and
allocated to the Sub-accounts of Separate Account B.
(b) Registrant hereby undertakes to include either (1) as part of any
enrollment form or application to purchase a contract offered by the
prospectus, a space that an applicant or enrollee can check to request a
Statement of Additional Information, or (2) a post card or similar written
communication affixed to or included in the prospectus that the applicant can
remove to send for a Statement of Additional Information.
(c) Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this form promptly upon written or oral request.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant has duly caused this registration statement to be
signed on its behalf, in the Town of Shelton and State of Connecticut, on this
24th day of July, 1996.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B
(CLASS 2 SUB-ACCOUNTS)
Registrant
By: American Skandia Life Assurance Corporation
By:/s/ M. Patricia Paez Attest:/s/ Diana D. Steigauf
M. Patricia Paez, Corporate Secretary Diana D. Steigauf
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
Depositor
By:/s/ M. Patricia Paez Attest:/s/ Diana D. Steigauf
M. Patricia Paez, Corporate Secretary Diana D. Steigauf
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Signature Title Date
(Principal Executive Officer)
Jan R. Carendi* Chief Executive Officer,
Jan R. Carendi Chairman of the Board and Director July 24, 1996
(Principal Financial Officer and Principal Accounting Officer)
/s/ Thomas M. Mazzaferro Executive Vice President and
Thomas M. Mazzaferro Chief Financial Officer July 24, 1996
(Board of Directors)
Jan. R. Carendi* Gordon C. Boronow* Malcolm M. Campbell*
Jan. R. Carendi Gordon C. Boronow Malcolm M. Campbell
Henrik Danckwardt* Amanda C. Sutyak* Wade A. Dokken*
Henrik Danckwardt Amanda C. Sutyak Wade A. Dokken
Thomas M. Mazzaferro** Gunnar Moberg** Bayard F. Tracy**
Thomas M. Mazzaferro Gunnar Moberg Bayard F. Tracy
Anders Soderstrom** C. Ake Svensson*** Lincoln R. Collins****
Anders Soderstrom C. Ake Svensson Lincoln R. Collins
Nancy F. Brunetti**** Dianne B. Michael****
Nancy F. Brunetti Dianne B. Michael
*/**/***/****By: /s/ M. Patricia Paez
M. Patricia Paez
<FN>
*Pursuant to Powers of Attorney previously filed with Post-Effective Amendment No. 10 to Registration Statement No. 33-19363
**Pursuant to Powers of Attorney previously filed with the initial filing of Registration Statement No. 33-86918.
***Pursuant to Power of Attorney previously filed with the initial filing of Registration Statement No. 33-88360.
****Pursuant to Powers of Attorney previously filed with the initial filing of Registration Statement No. 333-00941
</FN>
</TABLE>
EXHIBITS
As noted in Item 24(b), various exhibits are incorporated by reference or are
not applicable. The exhibits included are as follows:
No. 4 Copy of the form of Annuity (to be filed by amendment)
No. 8(d) Copy of Agreement Between Depositor and The Montgomery Funds III
No. 9 Opinion and consent of Werner & Kennedy (to be filed by amendment)
No. 10 Consent of Deloitte & Touche LLP (to be filed by amendment)
No. 13 Calculation of Performance Information for Advertisement of Performance
Exhibit No. 4 (to be filed by amendment)
Exhibit No. 8(d)
Exhibit No. 9 (to be filed by amendment)
Exhibit No. 10 (to be filed by amendment)
Exhibit No. 13
April 30, 1996
American Skandia Life Assurance Corporation
1 Corporate Drive
P.O. Box 883
Shelton, CT 08484-0883
Ladies and Gentlemen:
This letter sets forth the agreement between Montgomery Asset Management, L.P.
(the "Adviser") and American Skandia Life Assurance Corporation (the "Company")
concerning certain administrative services.
1. Administrative Services and Expenses. Administrative services for (i)
each separate account (individually, the "Account" and collectively,
the "Accounts") of the Company which invests in the Montgomery Variable
Series: Emerging Markets Fund, (the "Fund") pursuant to the
Participation Agreement among the Company, the Fund and the Adviser
dated May 1, 1996 (the "Participation Agreement"), and (ii) purchasers
(the "Contracts") issued through the Account, are the responsibility of
the Company. Administrative services for the Funds, in which each
Account invests, and for purchasers of shares of the Funds, are the
responsibility of the Funds or the Adviser.
The Adviser recognizes the Company as the sole shareholder of shares of
the Funds purchased under the Participation Agreement on behalf of the
Account. The Adviser further recognizes that it will derive a
substantial savings in administrative expenses by virtue of having a
sole shareholder of record of shares of the Fund purchased under the
Participation Agreement, rather than multiple shareholders having
record ownership of such shares. The administrative services with
respect to which the Adviser will derive such savings are set forth in
Schedule A to this letter agreement.
2. Administrative Expense Payments. In consideration of the anticipated
administrative expense savings resulting to the Adviser from the
Company's services set forth in Paragraph 1 above, the Adviser agrees
to pay the Company a fee, computed daily and paid monthly in arrears,
equal to thirty (30) basis points (0.30%) applied to the average daily
value of the total number of shares of each Fund held in the
subaccounts of the Account, including such shares purchased through
reinvestment of dividends and distributions.
As soon as practicable after the end of each month, for each Fund, the
Adviser will send the Company, at the address and in the manner set
forth in the Participation Agreement, a statement of the amount of such
fee. Such statement shall also include the average daily value for the
preceding month of shares of each Fund as to which the fee stated in
this Paragraph 2 is calculated.
The Adviser will pay the Company such fee within ten (10) days after
Company's receipt of such statement. Each such payment will be by wire
transfer unless the amount of such payment in less than $500. Wire
transfers will be sent to the accounts and in the manner specified by
the Company. Such wire transfers will be separate from wire transfers
of redemption proceeds and distribution sent to the Company pursuant to
the Participation Agreement. Amounts less than $500 may be paid by
check or by another method acceptable to the parties.
3. Nature of Payments. The parties to this letter agreement recognize and
agree that the Adviser's payments to the Company relate to
administrative services only and do not constitute payment in any
manner for investment advisory services or for costs of distribution of
Contracts or of shares of the Fund; and that these payments are not
otherwise related to investment advisory or distribution services or
expenses. The amount of administrative expense payments made by the
Adviser to the Company pursuant to Paragraph 2 of this letter agreement
will not be deemed to be conclusive with respect to the actual
administrative expenses or savings of the Adviser.
4. Term. This letter agreement will remain in full force and effect for so
long as assets of the Fund are attributable to amounts invested by the Company
under the Participation Agreement, unless terminated in accordance with
Paragraph 5 of this letter agreement.
5. Termination. This letter agreement will be terminated upon mutual
agreement of the parties hereto in writing.
6. Amendment. This letter agreement may be amended only upon mutual
agreement of the parties hereto in
writing.
7. Counterparts. This letter agreement may be executed in counterparts,
each of which will be deemed an original but all of which will together
constitute one and the same instrument.
If this letter agreement is consistent with your understanding of
the matters we discussed concerning administrative expense payments, kindly sign
below and return a signed copy to us.
Very truly yours,
MONTGOMERY ASSET MANAGEMENT, L.P.
By:/s/John L. Story
- -------------------
Title:Exec. V.P.
- ----------------
Acknowledged and Agreed
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
By:Gordon C. Boronow
- --------------------
Title:President
- ---------------
Attachment: Schedule A
<PAGE>
Schedule A
Maintenance of Books and Records
Record issuance of shares
Record transfers (via net purchase orders)
Reconciliation and balancing of the separate account at the fund level in
the general ledger
Communication with the Fund
Purchase Orders
- - Determination of net amount available for investment by the Fund(s)
- - Deposit of receipts at the Funds' custodian (generally by wire transfer)
Redemption Orders
- - Determination of net amount required for redemptions by the Fund(s)
- - Notification of the custodian and Fund(s) of cash required to meet payments
- - Cost of share redemptions
Processing Distributions from the Fund(s)
Allocate ordinary dividends and capital gains to contractowners
Fund-related Contractowner Services
- - Financial consultant's advice to contractowners with respect to inquiries
related to Fund(s)(not including information about performance or related to
sales)
- - Communications to contractowners regarding Fund and subaccount performance
- - Portfolio Support Services
- Including the Fund(s) that are offered as underlying investment options
for Accounts in the ASSESSJ software program ("Portfolio Support Services").
Such Portfolio Support Services are described in Appendix A to this Schedule A
and are made available to financial professionals that service the Company's
products or provide investment allocation services to contractowners in relation
to such products.
- Updating the Portfolio Support Services and other printed Fund
Information on a quarterly basis
- Provide name and address changes
- Provide change of distribution of contractowner payments to the Account
Other Administrative Support
- Providing other administrative support for the Funds as mutually agreed
between the Company and the Funds or Adviser
- Relieving the Funds of other usual or incidental administrative services
provided to individual contractowners
Appendix A
Portfolio Support Services consist of supplying ASSESSJ or any successor program
as described below.
ASSESSJ is a package of detailed statistical information regarding the
performance and portfolio characteristics of certain sub-accounts which serve as
investment options of various annuities issued by the Company, as well as the
underlying mutual fund portfolios in which such sub-accounts invest. This
package of information may be made available through various means, including
computer disks, electronic transmission, video, CD-ROM, or other means the
Company or an affiliate makes ASSESSJ available to financial professionals,
among others, who sell the Company's products in order for the financial
professionals to monitor and compare the performance of investments so that they
may (a) assist contractowners with asset allocation in particular; (b) assist in
evaluating the suitability of both the annuities and of particular sub-accounts
for contractowners initially and on an ongoing basis; and (c) enhance risk
management in general. Certain portions of ASSESSJ have been filed by the
Company's affiliate, American Skandia Marketing, Incorporated, with the National
Association of Securities Dealers for client use, therefore, the financial
professional can use these portions of the ASSESSJ program with their clients,
which directly aids in the initial and ongoing servicing of the annuities and
the portfolios thereby assisting their clients in meeting their personal
investment goals.
The services provided to the financial professional through ASSESSJ include a
quarterly analysis with respect to the performance of each of the portfolios.
There are over 25 discrete displays on each investment option
the Company offers, beginning with an analyst's report of quarterly performance
and ending with stock listings of each market sector. Types of information
displayed includes, but is not limited to:
1. An Analyst's Report on how the Fund performed during the past quarter
under its current management.
2. Performance - Historical and annualized performance is available in
charts and tables. A risk return rating is provided. Comparisons to other
sub-accounts and to applicable indices (i.e. Standard & Poor's 500) are
available.
3. Characteristics - The characteristics section includes such information
as Price/Earnings Ratio, Earnings per Share, 3 Year Dividend Yield,
Debt-to-Equity Ratio, Capitalization, 5 Year Return on Equity, etc.
4. Sections - Information on the breakdown of the percentages in each
investment sector that comprises a portfolio is available. Information on types
of debt instruments and ratings is available for bond type options. A
percentages option can show a bar graph of the percentages in each sector vs. a
standard market index such as the S&P 500 Index. The return and table options
display the quarterly returns by sector vs. the index. A breakdown of each
sector, as well as the 3, 6 and 12 month returns are available.
5. Investment Selections - For equity sub-accounts, the stock selection
section includes three options, largest issue, best performance and worst
performance. All three options are represented in table format. Largest issues
also include a 3 month return and best performance and worst performance include
a 3, 6 and 12 month return.
PARTICIPATION AGREEMENT
By and Among
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
And
MONTGOMERY FUNDS III
And
MONTGOMERY ASSET MANAGEMENT, L.P.
THIS AGREEMENT, made and entered into this 1st day of May, 1996 by and among
American Skandia Life Assurance Corporation, organized under the laws of the
State of Connecticut (the "Company"), on its own behalf and on behalf of each
separate account of the Company named in Schedule I to this Agreement, as may be
amended from time to time (each account referred to as the "Account"),
Montgomery Funds III, an open-end management investment company and business
trust organized under the laws of the State of Delaware (the "Fund") and
Montgomery Asset Management, L.P., a limited partnership organized under the
laws of the State of California (the "Adviser").
WHEREAS, the Fund engages in business as an open-end management investment
company and was established for the purpose of serving as the investment vehicle
for separate accounts established for variable life insurance contracts and
variable annuity contracts to be offered by insurance companies which have
entered into participation agreements substantially identical to this Agreement
(the "Participating Insurance Companies"), and
WHEREAS, beneficial interests in the Fund are divided into several series of
shares, each representing the interest in a particular managed portfolio of
securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has received an order from the Securities & Exchange
Commission (alternatively referred to as the "SEC" or the "Commission") granting
Participating Insurance Companies and variable annuity separate accounts and
variable life insurance separate accounts relief from the provisions of Sections
9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the
extent necessary to permit shares of the Fund to be sold to and held by variable
annuity separate accounts and variable life insurance separate accounts of both
affiliated and unaffiliated Participating Insurance Companies and qualified
pension and retirement plans outside of the separate account context (the "Mixed
and Shared Funding Exemptive Order"). The parties to this Agreement agree that
the conditions or undertakings specified in the Mixed and Shared Funding
Exemptive Order and that may be imposed on the Company, the Fund and/or the
Adviser by virtue of the receipt of such order by the SEC will be incorporated
herein by reference, and such parties agree to comply with such conditions and
undertakings to the extent applicable to each such party; and
WHEREAS, the Fund is registered as an open-end management investment company
under the 1940 Act and its shares are registered under the Securities Act of
1933, as amended (the "1933 Act"); and
WHEREAS, the Company has registered or will register certain variable annuity
contracts (the "Contracts") under the 1933 Act; and
WHEREAS, the Account is a duly organized, validly existing segregated asset
account, established by resolution of the Board of Directors of the Company
under the insurance laws of the State of Connecticut, to set aside and invest
assets attributable to the Contracts; and
WHEREAS, the Company has registered the Account as a unit investment trust under
the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares of the Portfolios named in Schedule 2, as
such schedule may be amended from time to time (the "Designated Portfolios") on
behalf of the Account to fund the Contracts, and the Fund is authorized to sell
such shares to unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the Fund
and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund agrees to sell to the Company those shares of the Designated
Portfolios which each Account orders, executing such orders on a daily basis at
the net asset value next computed after receipt and acceptance by the Fund or
its designee of the order for the shares of the Fund. For purposes of this
Section 1.1, the Company will be the designee of the Fund for receipt of such
orders from each Account and receipt by such designee will constitute receipt by
the Fund; provided that the Fund receives notice of such order by 9:00 a.m.
Central Time on the next following business day. "Business Day" will mean any
day on which the New York Stock Exchange is open for trading and on which the
Fund calculates its net asset value pursuant to the rules of the SEC. The Fund
may net the notice of redemptions it receives from the Company under Section 1.6
of this Agreement against the notice of purchases it receives from the Company
under this Section 1.1.
1.2. The Company will pay for Fund shares on the next Business Day after an
order to purchase Fund shares is made in accordance with Section 1.1 above.
Payment will be in federal funds transmitted by wire. Upon receipt by the Fund
of the payment, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.3. The Fund agrees to make shares of the Designated Portfolios available
indefinitely for purchase at the applicable net asset value per share by
Participating Insurance Companies and their separate accounts on those days on
which the Fund calculates its Designated Portfolio net asset value pursuant to
rules of the SEC; provided, however, that the Board of Trustees of the Fund (the
"Fund Board") may refuse to sell shares of any Portfolio to any person, or
suspend or terminate the offering of shares of any Portfolio if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the Fund Board, acting in good faith and in light of its
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of such Portfolio.
1.4. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts, qualified pension
and retirement plans or such other persons as are permitted under applicable
provisions of the Internal Revenue Code of 1986, as amended, (the "Internal
Revenue Code"), and regulations promulgated thereunder, the sale to which will
not impair the tax treatment currently afforded the Contracts. No shares of any
Portfolio will be sold directly to the general public.
1.5. The Fund will not sell Fund shares to any insurance company or
separate account unless an agreement containing provisions substantially the
same as Articles I, III, V, and VI of this Agreement are in effect to govern
such sales.
1.6. The Fund agrees to redeem for cash, upon the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the request for redemption. For purposes
of this Section 1.6, the Company will be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee will
constitute receipt by the Fund; provided the Fund receives notice of such
requests for redemption by 9:00 a.m. Central Time on the next following Business
Day. Payment will be in federal funds transmitted by wire to the Company's
account as designated by the Company in writing from time to time, on the same
Business Day the Fund receives notice of the redemption order from the Company.
After consulting with the Company, the Fund reserves the right to delay payment
of redemption proceeds, but in no event may such payment be delayed longer than
the period permitted under Section 22(e) of the 1940 Act. The Fund will not bear
any responsibility whatsoever for the proper disbursement or crediting of
redemption proceeds; the Company alone will be responsible for such action. If
notification of redemption is received after 9:00 a.m. Central Time, payment for
redeemed shares will be made on the next following Business Day. The Fund may
net the notice of purchases it receives from the Company under Section 1.1 of
this Agreement against the notice of redemptions it receives from the Company
under this Section 1.6.
1.7. The Company agrees to purchase and redeem the shares of the
Designated Portfolios offered by the then current prospectus of the
Fund in accordance with the provisions of such prospectus.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or to
any Account. Purchase and redemption orders for Fund shares will be
recorded in an appropriate title for each Account or the
appropriate subaccount of each Account.
1.9. The Fund will furnish same day notice (by facsimile) to the Company
of the declaration of any income, dividends or capital gain
distributions payable on each Designated Portfolio's shares. The
Company hereby elects to receive all such dividends and
distributions as are payable on the Portfolio shares in the form of
additional shares of that Portfolio. The Company reserves the right
to revoke this election and to receive all such dividends and
distributions in cash. The Fund will notify the Company of the
number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund will make the net asset value per share for each
Designated Portfolio available to the Company on a daily basis as
soon as reasonably practical after the net asset value per share is
calculated and will use its best efforts to make such net asset
value per share available by 5:30 p.m., Eastern Time, each business
day.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act and that the Contracts will be issued and sold in
compliance with all applicable federal and state laws. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account as a separate account under applicable state law and
has registered each such account as a unit investment trust in accordance with
the provisions of the 1940 Act to serve as a segregated investment account for
the Contracts, and that it will maintain such registration for so long as any
Contracts are outstanding. The Company will amend the registration statement
under the 1933 Act for the Contracts and the registration statement under the
1940 Act for the Account from time to time as required in order to effect the
continuous offering of the Contracts or as may otherwise be required by
applicable law. The Company will register and qualify the Contracts for sale in
accordance with the securities laws of the various states only if and to the
extent deemed necessary by the Company.
2.2. The Company represents that the Contracts are currently and at the
time of issuance will be treated as annuity contracts under applicable
provisions of the Internal Revenue Code of 1986, as amended, and that it will
make every effort to maintain such treatment and that it will notify the Fund
and the Adviser immediately upon having a reasonable basis for believing that
the Contracts have ceased to be so treated or that they might not be so treated
in the future.
2.3. The Company represents and warrants that it will not purchase shares
of the Designated Portfolio[s] with assets derived from tax-qualified retirement
plans except, indirectly, through Contracts purchased in connection with such
plans.
2.4. The Fund represents and warrants that Fund shares of the Designated
Portfolio[s] sold pursuant to this Agreement will be registered under the 1933
Act and duly authorized for issuance in accordance with applicable law and that
the Fund is and will remain registered under the 1940 Act for as long as such
shares of the Designated Portfolio[s] are sold. The Fund will amend the
registration statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund will register and qualify the shares of the Designated
Portfolio[s] for sale in accordance with the laws of the various states only if
and to the extent deemed advisable by the Fund.
2.5. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code, and that it
will maintain such qualification (under Subchapter M or any successor or similar
provision) and that it will notify the Company immediately upon having a
reasonable basis for believing that it has ceased to so qualify or that it might
not so qualify in the future.
2.6. The Fund represents that its investment objectives, policies and
restrictions comply with applicable state investment laws as they may apply to
the Fund. The Fund represents that it will use its best efforts to comply with
any applicable state insurance laws or regulations, to the extent specifically
requested in writing by the Company. If the Fund cannot comply with such state
insurance laws or regulations, it will so notify the Company in writing. The
Fund makes no other representation as to whether any aspect of its operations
(including, but not limited to, fees and expenses, and investment policies)
complies with the insurance laws or regulations of any state. The Company
represents that it will use its best efforts to notify the Fund of any
restrictions imposed by state insurance laws that may become applicable to the
Fund as a result of the Accounts' investments therein. The Fund and the Adviser
agree that they will furnish the information required by state insurance laws so
that the Company can obtain the authority needed to issue the Contracts in
various states.
2.7. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it reserves the right to make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
the Fund undertakes to have the trustees of its Fund Board, a majority of whom
are not "interested" persons of the Fund, formulate and approve any plan under
Rule 12b-1 to finance distribution expenses.
2.8. The Fund represents that it is lawfully organized and validly existing
under the laws of the State of Delaware and that it does and will comply in all
material respects with applicable provisions of the 1940 Act.
2.9. The Adviser represents and warrants that it is and will remain duly
registered under all applicable federal and state securities laws and that it
will perform its obligations for the Fund in accordance in all material respects
with the laws-of the State of California and any applicable state and federal
securities laws.
2.10. The Fund represents and warrants that all of its trustees, officers,
employees, investment advisers, and other individuals/entities having access to
the funds and/or securities of the Fund are and continue to be at all times
covered by a blanket fidelity bond or similar coverage for the benefit of the
Fund in an amount not less than the minimal coverage as required currently by
Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from
time to time. The aforesaid bond includes coverage for larceny and embezzlement
and is issued by a reputable bonding company.
2.11. The Fund will at all times invest money from the Contracts in such a
manner as to ensure that the Contracts will be treated as variable contracts
under the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations issued thereunder; provided that the Fund will at all times comply
with Section 817(h) of the Code and Treasury Regulation 1.817-5, as amended from
time to time, relating to the diversification requirements for variable annuity,
endowment, or life insurance contracts and any amendments or other modifications
to such Section or Regulations; and provided further, that in the event of a
breach of this representation by the Fund, it will take all reasonable steps:
(a) to notify the Company of such breach; and (b) to adequately diversify the
Fund so as to achieve compliance within the grace period afforded by Treasury
Regulation 1.817-5.
ARTICLE III. Prospectuses and Proxy Statements: Voting
3.1. The Fund will provide the Company, at the Fund's expense, with as many
copies of the current Fund prospectus and any supplements thereto for the
Designated Portfolio[s] as the Company may reasonably request for distribution,
at the Company's expense, to prospective contractowners and applicants. The Fund
will provide, at the Fund's expense, as many copies of said prospectus as
necessary for distribution, at the Fund's expense, to existing contractowners.
The Fund will provide the copies of said prospectus to the Company or to its
mailing agent. The Company will distribute the prospectus to existing
contractowners and will bill the Fund for the reasonable cost of such
distribution. If requested by the Company in lieu thereof, the Fund will provide
such documentation, including a final copy of a current prospectus set in type
at the Fund's expense, and other assistance as is reasonably necessary in order
for the Company at least annually (or more frequently if the Fund prospectus is
amended more frequently) to have the new prospectus for the Contracts and the
Fund's new prospectus printed together, in which case the Fund will pay its
share of reasonable expenses directly related to the required disclosure of
information concerning the Fund. The Fund will, upon request, provide the
Company with a copy of the Fund's prospectus on computer disc.
3.2. The Fund's prospectus will state that the statement of additional
information for the Fund is available from the Company. The Fund will provide
the Company, at the Fund's expense, with as many copies of the statement of
additional information and any supplements thereto as the Company may reasonably
request for distribution, at the Company's expense, to prospective
contractowners and applicants. The Fund will provide, at the Fund's expense, as
many copies of said statement of additional information as necessary for
distribution, at the Fund's expense, to any existing contractowner who requests
such statement or whenever state or federal law otherwise requires that such
statement be provided. The Fund will provide the copies of said statement of
additional information to the Company or to its mailing agent. The Company will
distribute the statement of additional information as requested or required and
will bill the Fund for the reasonable cost of such distribution.
3.3. The Fund, at its expense, will provide the Company or its mailing
agent with copies of its proxy material, if any, reports to
shareholders/contractowners and other communications to
shareholders/contractowners in such quantity as the Company will reasonably
require. The Company will distribute this proxy material, reports and other
communications to existing contractowners and will bill the Fund for the
reasonable cost of such distribution.
3.4. If and to the extent required by law the Company will:
(a) solicit voting instructions from contractowners;
(b) vote the shares of the Designated Portfolios held in the Account in
accordance with instructions received from contractowners; and
(c) vote shares of the Designated Portfolios held in the Account for which
no timely instructions have been received, in the same proportion as shares of
such Designated Portfolio for which instructions have been received from the
Company's contractowners;
so long as and to the extent that the SEC continues to interpret the 1940
Act to require pass-through voting privileges for variable contractowners. The
Company reserves the right to vote Fund shares held in any segregated asset
account in its own right, to the extent permitted by law. Participating
Insurance Companies will be responsible for assuring that each of their separate
accounts participating in the Fund calculates voting privileges in a manner
consistent with all legal requirements, including the Mixed and Shared Funding
Exemptive Order.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular, the Fund either will provide for
annual meetings (except insofar as the SEC may interpret Section 16 of the 1940
Act not to require such meetings) or, as the Fund currently intends, to comply
with Section 16(c) of the 1940 Act (although the Fund is not one of the trusts
described in Section 16(c) of that Act) as well as with Sections 16(a) and, if
and when applicable, 16(b). Further, the Fund will act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors and with whatever rules the Commission may
promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company will furnish, or will cause to be furnished, to the Fund
or the Adviser, each piece of sales literature or other promotional material in
which the Fund or the Adviser is named, at least ten (10) Business Days prior to
its use. No such material will be used if the Fund or the Adviser reasonably
objects to such use within five (5) Business Days after receipt of such
material.
4.2. The Company will not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement, prospectus or statement of additional
information for Fund shares, as such registration statement, prospectus and
statement of additional information may be amended or supplemented from time to
time, or in reports or proxy statements for the Fund, or in published reports
for the Fund which are in the public domain or approved by the Fund or the
Adviser for distribution, or in sales literature or other material provided by
the Fund or by the Adviser, except with permission of the Fund or the Adviser.
The Fund and the Adviser agree to respond to any request for approval on a
prompt and timely basis. Nothing in this Section 4.2 will be construed as
preventing the Company or its employees or agents from giving advice on
investment in the Fund.
4.3. The Fund or the Adviser will furnish, or will cause to be furnished,
to the Company or its designee, each piece of sales literature or other
promotional material in which the Company or its separate account is named, at
least ten (10) Business Days prior to its use. No such material will be used if
the Company reasonably objects to such use within five (5) Business Days after
receipt of such material.
4.4. The Fund and the Adviser will not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, each Account, or the Contracts other than the information or
representations contained in a registration statement, prospectus or statement
of additional information for the Contracts, as such registration statement,
prospectus and statement of additional information may be amended or
supplemented from time to time, or in published reports for each Account or the
Contracts which are in the public domain or approved by the Company for
distribution to contractowners, or in sales literature or other material
provided by the Company, except with permission of the Company. The Company
agrees to respond to any request for approval on a prompt and timely basis.
4.5. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of each such document with the SEC or the NASD.
4.6. The Company will provide to the Fund at least one complete copy of all
definitive prospectuses, definitive statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, contemporaneously with the filing of each such document with the
SEC or the NASD (Except that with respect to post-effective amendments to such
prospectuses and statements of additional information, only those post-effective
amendments that relate to or refer to the Fund will be provided.) In addition,
the Company will provide to the Fund at least one complete copy of (i) a
registration statement that relates to the Contracts or each Account, containing
representative and relevant disclosure concerning the Fund; and (ii) any
post-effective amendments to any registration statements relating to the
Contracts or such Account that refer to or relate to the Fund.
4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media, (i.e., on-line
networks such as the Internet or other electronic messages)), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, registration statements, prospectuses,
statements of additional information, shareholder reports, and proxy materials
and any other material constituting sales literature or advertising under the
NASD rules, the 1933 Act or the 1940 Act.
4.8. The Fund and the Adviser hereby consent to the Company's use of the
names Montgomery, Montgomery Funds III, Montgomery Variable Series and
Montgomery Asset Management, as well as the names of the Portfolios set forth in
Schedule 2 of this Agreement, in connection with marketing the Contracts,
subject to the terms of Sections 4.1 and 4.2 of this Agreement. Such consent
will terminate with the termination of this Agreement.
ARTICLE V. Fees and Expenses
5.1. The Fund will pay no fee or other compensation to the Company under
this Agreement, except as provided below: (a) if the Fund or any Designated
Portfolio adopts and implements a plan pursuant to Rule 12b-1 under the 1940 Act
to finance distribution expenses, then, subject to obtaining any required
exemptive orders or other regulatory approvals, the Fund may make payments to
the Company or to the underwriter for the Contracts if and in such amounts
agreed to by the Fund in writing; (b) the Fund may pay fees to the Company for
services provided to contractowners that are not primarily intended to result in
the sale of shares of the Designated Portfolio or of underlying Contracts.
5.2. All expenses incident to performance by the Fund of this Agreement
will be paid by the Fund to the extent permitted by law. All shares of the
Designated Portfolios will be duly authorized for issuance and registered in
accordance with applicable federal law and, to the extent deemed advisable by
the Fund, in accordance with applicable state law, prior to sale. The Fund will
bear the expenses for the cost of registration and qualification of the Fund's
shares; preparation and filing of the Fund's prospectus, statement of additional
information and registration statement, proxy materials and reports; setting the
Fund's prospectus in type; setting in type and printing proxy materials and
reports to contractowners (including the costs of printing a Fund prospectus
that constitutes an annual report); the preparation of all statements and
notices required by any federal or state law; all taxes on the issuance or
transfer of the Fund's shares; any expenses permitted to be paid or assumed by
the Fund pursuant to a plan, if any, under Rule 12b-1 under the 1940 Act; and
all other typesetting, printing and distribution expenses as set forth in
Article III of this Agreement.
ARTICLE VI. Potential Conflicts
6.1. The Fund Board will monitor the Fund for the existence of any
irreconcilable material conflict among the interests of the contractowners of
all separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by Participating Insurance Companies or by variable annuity
and variable life insurance contractowners; or (f) a decision by an insurer to
disregard the voting instructions of contractowners. The Fund Board will
promptly inform the Company if it determines that an irreconcilable material
conflict exists and the implications thereof. A majority of the Fund Board will
consist of persons who are not "interested" persons of the Fund.
6.2. The Company will report any potential or existing conflicts of which
it is aware to the Fund Board. The Company agrees to assist the Fund Board in
carrying out its responsibilities, as delineated in the Mixed and Shared Funding
Exemptive Order, by providing the Fund Board with all information reasonably
necessary for the Fund Board to consider any issues raised. This includes, but
is not limited to, an obligation by the Company to inform the Fund Board
whenever contractowner voting instructions are to be disregarded. The Fund Board
will record in its minutes, or other appropriate records, all reports received
by it and all action with regard to a conflict.
6.3. If it is determined by a majority of the Fund Board, or a majority of
its disinterested trustees, that an irreconcilable material conflict exists, the
Company and other Participating Insurance Companies will, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (a)
withdrawing the assets allocable to some or all of the Accounts from the Fund or
any Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Fund, or submitting the
question whether such segregation should be implemented to a vote of all
affected contractowners and, as appropriate, segregating the assets of any
appropriate group (i.e., variable annuity contractowners or variable life
insurance contractowners of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected contractowners
the option of making such a change; and (b) establishing a new registered
management investment company or managed separate account.
6.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contractowner voting instructions, and such disregard
of voting instructions could conflict with the majority of contractowner voting
instructions, and the Company's judgment represents a minority position or would
preclude a majority vote, the Company may be required, at the Fund's election,
to withdraw the affected subaccount of the Account's investment in the Fund and
terminate this Agreement with respect to such subaccount; provided, however,
that such withdrawal and termination will be limited to the extent required by
the foregoing irreconcilable material conflict as determined by a majority of
the disinterested trustees of the Fund Board. No charge or penalty will be
imposed as a result of such withdrawal. Any such withdrawal and termination must
take place within six (6) months after the Fund gives written notice to the
Company that this provision is being implemented. Until the end of such
six-month period the Adviser and Fund will, to the extent permitted by law and
any exemptive relief previously granted to the Fund, continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
6.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state insurance regulators, then the Company will withdraw
the affected subaccount of the Account's investment in the Fund and terminate
this Agreement with respect to such subaccount; provided, however, that such
withdrawal and termination will be limited to the extent required by the
foregoing irreconcilable material conflict as determined by a majority of the
disinterested directors of the Fund Board. No charge or penalty will be imposed
as a result of such withdrawal. Any such withdrawal and termination must take
place within six (6) months after the Fund gives written notice to the Company
that this provision is being implemented. Until the end of such six-month period
the Advisor and Fund will, to the extent permitted by law and any exemptive
relief previously granted to the Fund, continue to accept and implement orders
by the Company for the purchase (and redemption) of shares of the Fund.
6.6. For purposes of Sections 6.3 through 6.6 of this Agreement, a majority
of the disinterested members of the Fund Board will determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company will not be required by Section 6.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of contractowners affected by the irreconcilable material
conflict.
6.7. The Company will at least annually submit to the Fund Board such
reports, materials or data as the Fund Board may reasonably request so that the
Fund Board may fully carry out the duties imposed upon it as delineated in the
Mixed and Shared Funding Exemptive Order, and said reports, materials and data
will be submitted more frequently if deemed appropriate by the Fund Board.
6.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Mixed and Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Mixed and Shared
Funding Exemptive Order, then: (a) the Fund and/or the Participating Insurance
Companies, as appropriate, will take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.4, 3.5, 6.1, 6.2, 6.3, 6.4,
and 6.5 of this Agreement will continue in effect only to the extent that terms
and conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VII. Indemnification
7.1. Indemnification By The Company
(a) The Company agrees to indemnify and hold harmless the Fund, the
Adviser, and each person, if any, who controls or is associated with the Fund or
the Adviser within the meaning of such terms under the federal securities laws
and any director, trustee, officer, employee or agent of the foregoing
(collectively, the "Indemnified Parties" for purposes of this Section 7.1)
against any and all losses, claims, expenses, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or
litigation (including reasonable legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements:
(1) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact
contained in the registration statement, prospectus
or statement of additional information for the
Contracts or contained in the Contracts or sales
literature or other promotional material for the
Contracts (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a
material fact required to be stated or necessary to
make such statements not misleading in light of the
circumstances in which they were made; provided that
this agreement to indemnify will not apply as to any
Indemnified Party if such statement or omission or
such alleged statement or omission was made in
reliance upon and in conformity with information
furnished to the Company by or on behalf of the
Adviser or the Fund for use in the registration
statement, prospectus or statement of additional
information for the Contracts or in the Contracts or
sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(2) arise out of or as a result of statements or
representations by or on behalf of the Company (other
than statements or representations contained in the
Fund registration statement, prospectus, statement of
additional information or sales literature or other
promotional material of the Fund, or any amendment or
supplement to the foregoing, not supplied by the
Company or persons under its control) or wrongful
conduct of the Company or persons under its control,
with respect to the sale or distribution of the
Contracts or Fund shares; or
(3) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund
registration statement, prospectus, statement of
additional information or sales literature or other
promotional material of the Fund (or amendment or
supplement) or the omission or alleged omission to
state therein a material fact required to be stated
therein or necessary to make such statements not
misleading in light of the circumstances in which
they were made, if such a statement or omission was
made in reliance upon and in conformity with
information furnished to the Fund by or on behalf of
the Company or persons under its control; or
(4) arise as a result of any failure by the Company to
provide the services and furnish the materials under
the terms of this Agreement; or
(5) arise out of any material breach of any
representation and/or warranty made by the Company in
this Agreement or arise out of or result from any
other material breach by the Company of this
Agreement;
except to the extent provided in Sections 7.1(b) and 7.4
hereof. This indemnification will be in addition to any
liability that the Company otherwise may have.
(b) No party will be entitled to indemnification under Section
7.1(a) if such loss, claim, damage, liability or litigation is
due to the willful misfeasance, bad faith, or gross negligence
in the performance of such party's duties under this
Agreement, or by reason of such party's reckless disregard of
its obligations or duties under this Agreement.
(c) The Indemnified Parties promptly will notify the Company of
the commencement of any litigation, proceedings, complaints or
actions by regulatory authorities against them in connection
with the issuance or sale of the Fund shares or the Contracts
or the operation of the Fund.
7.2. Indemnification By The Adviser
(a) The Adviser agrees to indemnify and hold harmless the Company and each
person, if any, who controls or is associated with the Company within the
meaning of such terms under the federal securities laws and any director,
officer, employee or agent of the foregoing (collectively, the "Indemnified
Parties" for purposes of this Section 7.2) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in settlement with the
written consent of the Adviser) or litigation (including reasonable legal and
other expenses) to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements:
(1) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in the registration statement, prospectus
or statement of additional information for the Fund
or sales literature or other promotional material of
the Fund (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a
material fact required to be stated or necessary to
make such statements not misleading in light of the
circumstances in which they were made; provided that
this agreement to indemnify will not apply as to any
Indemnified Party if such statement or omission or
such alleged statement or omission was made in
reliance upon and in conformity with information
furnished to the Adviser or Fund by or on behalf of
the Company for use in the registration statement,
prospectus or statement of additional information for
the Fund or in sales literature of the Fund (or any
amendment or supplement thereto) or otherwise for use
in connection with the sale of the Contracts or Fund
shares; or
(2) arise out of or as a result of statements or
representations (other than statements or
representations contained in the Contracts or in the
Contract or Fund registration statements,
prospectuses or statements of additional information
or sales literature or other promotional material for
the Contracts or of the Fund, or any amendment or
supplement to the foregoing, not supplied by the
Adviser or the Fund or persons under the control of
the Adviser or the Fund respectively) or wrongful
conduct of the Adviser or the Fund or persons under
the control of the Adviser or the Fund respectively,
with respect to the sale or distribution of the
Contracts or Fund shares; or
(3) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a
registration statement, prospectus, statement of
additional information or sales literature or other
promotional material covering the Contracts (or any
amendment or supplement thereto), or the omission or
alleged omission to state therein a material fact
required to be stated or necessary to make such
statement or statements not misleading in light of
the circumstances in which they were made, if such
statement or omission was made in reliance upon and
in conformity with information furnished to the
Company by or on behalf of the Adviser or the Fund or
persons under the control of the Adviser or the Fund;
or
(4) arise as a result of any failure by the Fund or the
Adviser to provide the services and furnish the
materials under the terms of this Agreement; or
(5) arise out of or result from any material breach of
any representation and/or warranty made by the
Adviser or the Fund in this Agreement, or arise out
of or result from any other material breach of this
Agreement by the Adviser or the Fund;
except to the extent provided in Sections 7.2(b) and 7.4 hereof.
(b) No party will be entitled to indemnification under Section
7.2(a) if such loss, claim, damage, liability or litigation is
due to the willful misfeasance, bad faith, or gross negligence
in the performance of such party's duties under this
Agreement, or by reason of such party's reckless disregard or
its obligations or duties under this Agreement.
(c) The Indemnified Parties will promptly notify the Adviser and
the Fund of the commencement of any litigation, proceedings,
complaints or actions by regulatory authorities against them
in connection with the issuance or sale of the Contracts or
the operation of the Account.
7.3. Indemnification By the Fund
(a) The Fund agrees to indemnify and hold harmless the Company and each
person, if any, who controls or is associated with the Company within the
meaning of such terms under the federal securities laws and any director,
officer, employee or agent of the foregoing (collectively, the "Indemnified
Parties" for purposes of this Section 7.3) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in settlement with the
written consent of the Fund) or litigation (including reasonable legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements, are
related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement; or
(ii) arise out of or result from any material breach of any representation
and/or warranty made by the Fund in this Agreement or arise out of or result
from any other material breach of this Agreement by the Fund; or
(iii) arise out of or result from the incorrect or untimely calculation or
reporting of the daily net asset value per share or dividend or capital gain
distribution rate;
except to the extent provided in Sections 7.3(b) and 7.4 hereof.
(b) No party will be entitled to indemnification under Section
7.3(a) if such loss, claim, damage, liability or litigation is
due to the willful misfeasance, bad faith, or gross negligence
in the performance of such party's duties under this
Agreement, or by reason of such party's reckless disregard of
its obligations and duties under this Agreement.
(c) The Indemnified Parties will promptly notify the Fund of the
commencement of any litigation, proceedings, complaints or
actions by regulatory authorities against them in connection
with the issuance or sale of the Contracts or the operation of
the Account.
7.4. Indemnification Procedure
Any person obligated to provide indemnification under this Article
VII ("Indemnifying Party" for the purpose of this Section 7.4) will
not be liable under the indemnification provisions of this Article
VII with respect to any claim made against a party entitled to
indemnification under this Article VII ("Indemnified Party" for the
purpose of this Section 7.4) unless such Indemnified Party will
have notified the Indemnifying Party in writing within a reasonable
time after the summons or other first legal process giving
information of the nature of the claim will have been served upon
such Indemnified Party (or after such party will have received
notice of such service on any designated agent), but failure to
notify the Indemnifying Party of any such claim will not relieve
the Indemnifying Party from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise
than on account of the indemnification provision of this Article
VII, except to the extent that the failure to notify results in the
failure of actual notice to the Indemnifying Party and such
Indemnifying Party is damaged solely as a result of failure to give
such notice. In case any such action is brought against the
Indemnified Party, the Indemnifying Party will be entitled to
participate, at its own expense, in the defense thereof. The
Indemnifying Party also will be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the
action. After notice from the Indemnifying Party to the Indemnified
Party of the Indemnifying Party's election to assume the defense
thereof, the Indemnified Party will bear the fees and expenses of
any additional counsel retained by it, and the Indemnifying Party
will not be liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such party independently
in connection with the defense thereof other than reasonable costs
of investigation, unless: (a) the Indemnifying Party and the
Indemnified Party will have mutually agreed to the retention of
such counsel; or (b) the named parties to any such proceeding
(including any impleaded parties) include both the Indemnifying
Party and the Indemnified Party and representation of both parties
by the same counsel would be inappropriate due to actual or
potential differing interests between them. The Indemnifying Party
will not be liable for any settlement of any proceeding effected
without its written consent but if settled with such consent or if
there is a final judgment for the plaintiff, the Indemnifying Party
agrees to indemnify the Indemnified Party from and against any loss
or liability by reason of such settlement or judgment. A successor
by law of the parties to this Agreement will be entitled to the
benefits of the indemnification contained in this Article VII. The
indemnification provisions contained in this Article VII will
survive any termination of this Agreement.
ARTICLE VIII. Applicable Law
8.1. This Agreement will be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of California.
8.2. This Agreement will be subject to the provisions of the 1933 Act,
the 1934 Act and the 1940 Act, and the rules and regulations and
rulings thereunder, including such exemptions from those statutes,
rules and regulations as the SEC may grant (including, but not
limited to, the Mixed and Shared Funding Exemptive Order) and the
terms hereof will be interpreted and construed in accordance
therewith.
ARTICLE IX. Termination
9.1. This Agreement will terminate:
(a) at the option of any party, with or without cause, with
respect to some or all of the Portfolios, upon six (6) month's
advance written notice to the other parties or, if later, upon
receipt of any required exemptive relief or orders from the
SEC, unless otherwise agreed in a separate written agreement
among the parties; or
(b) at the option of the Company, upon receipt of written notice
by the other parties, with respect to any Portfolio if shares
of the Portfolio are not reasonably available to meet the
requirements of the Contracts as determined in good faith by
the Company; or
(c) at the option of the Company, upon receipt of written notice
by the other parties, with respect to any Portfolio in the
event any of the Portfolio's shares are not registered, issued
or sold in accordance with applicable state and/or federal law
or such law precludes the use of such shares as the underlying
investment media of the Contracts issued or to be issued by
Company; or
(d) at the option of the Fund, upon receipt of written notice by
the other parties, upon institution of formal proceedings
against the Company by the NASD, the SEC, the insurance
commission of any state or any other regulatory body regarding
the Company's duties under this Agreement or related to the
sale of the Contracts, the administration of the Contracts,
the operation of the Account, or the purchase of the Fund
shares, provided that the Fund determines in its sole
judgment, exercised in good faith, that any such proceeding
would have a material adverse effect on the Company's ability
to perform its obligations under this Agreement; or
(e) at the option of the Company, upon receipt of written notice
by the other parties, upon institution of formal proceedings
against the Fund or the Adviser by the NASD, the SEC, or any
state securities or insurance department or any other
regulatory body, provided that the Company determines in its
sole judgment, exercised in good faith, that any such
proceeding would have a material adverse effect on the Fund's
or the Adviser's ability to perform its obligations under this
Agreement; or
(f) at the option of the Company, upon receipt of written notice
by the other parties, if the Fund ceases to qualify as a
Regulated Investment Company under Subchapter M of the
Internal Revenue Code, or under any successor or similar
provision, or if the Company reasonably and in good faith
believes that the Fund may fail to so qualify; or
(g) at the option of the Company, upon receipt of written notice
by the other parties, with respect to any Portfolio if the
Fund fails to meet the diversification requirements specified
in Section 2.11 hereof or if the Company reasonably and in
good faith believes the Fund may fail to meet such
requirements; or
(h) at the option of any party to this Agreement, upon written
notice to the other parties, upon another party's material
breach of any provision of this Agreement; or
(i) at the option of the Company, if the Company determines in its
sole judgment exercised in good faith, that either the Fund or
the Adviser has suffered a material adverse change in its
business, operations or financial condition since the date of
this Agreement or is the subject of material adverse publicity
which is likely to have a material adverse impact upon the
business and operations of the Company, such termination to be
effective sixty (60) days' after receipt by the other parties
of written notice of the election to terminate; or
(j) at the option of the Fund or the Adviser, if the Fund or
Adviser respectively, determines in its sole judgment
exercised in good faith, that the Company has suffered a
material adverse change in its business, operations or
financial condition since the date of this Agreement or is the
subject of material adverse publicity which is likely to have
a material adverse impact upon the business and operations of
the Fund or the Adviser, such termination to be effective
sixty (60) days' after receipt by the other parties of written
notice of the election to terminate; or
(k) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals and/or the vote of the
contractowners having an interest in the Account (or any
subaccount) to substitute the shares of another investment
company for the corresponding Portfolio shares of the Fund in
accordance with the terms of the Contracts for which those
Portfolio shares had been selected to serve as the underlying
investment media. The Company will give sixty (60) days' prior
written notice to the Fund of the date of any proposed vote or
other action taken to replace the Fund's shares; or
(l) at the option of the Company or the Fund upon a determination
by a majority of the Fund Board, or a majority of the
disinterested Fund Board members, that an irreconcilable
material conflict exists among the interests of: (1) all
contractowners of variable insurance products of all separate
accounts; or (2) the interests of the Participating Insurance
Companies investing in the Fund as set forth in Article VI of
this Agreement; or
(m) at the option of the Fund in the event any of the Contracts
are not issued or sold in accordance with applicable federal
and/or state law. Termination will be effective immediately
upon such occurrence without notice.
9.2. Notice Requirement
(a) No termination of this Agreement, except a termination under
Section 9.1(m) of this Agreement, will be effective unless and
until the party terminating this Agreement gives prior written
notice to all other parties of its intent to terminate, which
notice will set forth the basis for the termination.
(b) In the event that any termination of this Agreement is based
upon the provisions of Article VI, such prior written notice
will be given in advance of the effective date of termination
as required by such provisions.
9.3. Effect of Termination
(a) Notwithstanding any termination of this Agreement, the Fund and the
Adviser will, at the option of the Company, continue to make available
additional shares of the Fund pursuant to the terms and conditions of this
Agreement, for all Contracts in effect on the effective date of termination of
this Agreement (hereinafter referred to as "Existing Contracts."). Specifically,
without limitation, the owners of the Existing Contracts will be permitted to
reallocate investments in the Designated Portfolios (as in effect on such date),
redeem investments in the Designated Portfolios and/or invest in the Designated
Portfolios upon the making of additional purchase payments under the Existing
Contracts. The parties agree that this Section 9.3 will not apply to any
terminations under Article VII and the effect of such Article VII terminations
will be governed by Article VII of this Agreement.
9.4 Surviving Provisions
Notwithstanding any termination of this Agreement, each party's
obligations under Article VII to indemnify other parties will
survive and not be affected by any termination of this Agreement.
In addition, with respect to Existing Contracts, all provisions of
this Agreement also will survive and not be affected by any
termination of this Agreement.
ARTICLE X. Notices
Any notice will be deemed duly given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other parties.
If to the Company:
American Skandia Life Assurance Corporation
1 Corporate Drive
P.O. Box 883
Shelton, Connecticut 08484-0883
Attn: Mr. Gordon C. Boronow
If to the Fund:
Montgomery Funds III
600 Montgomery Street
San Francisco, CA 94111
Attn: John Story
Executive Vice President
If to the Adviser:
Montgomery Asset Management, L.P.
600 Montgomery Street
San Francisco, CA 94111
Attn: John Story
Executive Vice President
ARTICLE XI. Miscellaneous
11.1. All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as
neither the trustees, officers, agents or shareholders assume any
personal liability for obligations entered into on behalf of the
Fund.
11.2. The Fund and the Adviser acknowledge that the identities of the
customers of the Company or any of its affiliates (collectively the "Protected
Parties" for purposes of this Section 11.2), information maintained regarding
those customers, and all computer programs and procedures developed by the
Protected Parties or any of their employees or agents in connection with the
Company's performance of its duties under this Agreement are the valuable
property of the Protected Parties. The Fund and the Adviser agree that if they
come into possession of any list or compilation of the identities of or other
information about the Protected Parties' customers, or any other property of the
Protected Parties, other than such information as may be independently developed
or compiled by the Fund or the Adviser from information supplied to them by the
Protected Parties' customers who also maintain accounts directly with the Fund
or the Adviser, the Fund and the Adviser will hold such information or property
in confidence and refrain from using, disclosing or distributing any of such
information or other property except: (a) with the Company's prior written
consent; or (b) as required by law or judicial process. The Fund and the Adviser
acknowledge that any breach of the agreements in this Section 11.2 would result
in immediate and irreparable harm to the Protected Parties for which there would
be no adequate remedy at law and agree that in the event of such a breach, the
Protected Parties will be entitled to equitable relief by way of temporary and
permanent injunctions, as well as such other relief as any court of competent
jurisdiction deems appropriate.
11.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
11.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
11.5. If any provision of this Agreement will be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement will
not be affected thereby.
11.6. This Agreement will not be assigned by any party hereto without the
prior written consent of all the parties.
11.7. Each party to this Agreement will cooperate with each other party and
all appropriate governmental authorities (including without limitation the SEC,
the NASD and state insurance regulators) and will permit each other and such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
11.8. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or board action, as applicable, by
such party and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
11.9. The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the Contracts,
the Accounts or the Portfolios of the Fund or other applicable terms of this
Agreement.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed hereto as of the date specified below.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
SEAL By: /s/Gordon C. Boronow
MONTGOMERY FUNDS III
SEAL By: /s/ John L. Story
MONTGOMERY ASSET MANAGEMENT , L.P.
SEAL By: /s/John L. Story
Schedule 1
PARTICIPATION AGREEMENT
By and Among
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
And
MONTGOMERY FUNDS III
And
MONTGOMERY ASSET MANAGEMENT, L.P.
The following Separate Accounts and Associated Contracts of American Skandia
Life Assurance Corporation are permitted in accordance with the provisions of
this Agreement to invest in Portfolios of the Fund shown in Schedule 2:
<TABLE>
<CAPTION>
<S> <C>
Contracts Funded by Separate Account Name of Separate Account
- ------------------------------------ ------------------------
Personal Security Annuity (PSA) Variable Account B, Class 1
American Skandia Advisers Plan (ASAP & ASAP NY) Variable Account B, Class 1
American Skandia Adviser Plan II (ASAP II) Variable Account B, Class 1
AXIOM Variable Account B, Class 3
Advisers Choice, Design & Select Variable Account B, Class 2
American Skandia XChange & Transfer (ASXT) Variable Account B, Class 1
American Skandia Advisors Plan IV (ASAP IV) Variable Account B, Class 1
</TABLE>
May 1, 1996
Schedule 2
PARTICIPATION AGREEMENT
By and Among
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
And
MONTGOMERY FUNDS III
And
MONTGOMERY ASSET MANAGEMENT, L.P.
The Separate Account(s) shown on Schedule 1 may invest in the following
Portfolios of the Montgomery Funds III:
Montgomery Variable Series: Emerging Markets Fund
May 1, 1996
Calculation of Performance Information for Advertisement of Performance
The Depositor expects to use "inception-to-date" performance data in
advertising, and, when applicable, 1 year, 3 year, 5 year and 10 year figures.
The Depositor also expects to use current and effective yield performance data
in advertising the money-market type Sub-account. As noted in the Statement of
Additional Information, it is expected that performance data will be based on
the inception dates of the underlying mutual fund portfolios assuming all
applicable charges assessable against the Separate Account and the Annuities as
of the initial date such Annuities were offered.
I. Money Market Type Sub-account - Current and Effective Yield
Current and effective yield is to be calculated for a hypothetical contract and
based on the performance of the money-market type Sub-account during the last
seven days of the calendar quarter ending prior to the date of the
advertisement. At the beginning of such period, the hypothetical Annuity is
assumed to have a balance of one Unit in the money-market type Sub-account.
(a) The current yield will be computed by determining the net change,
exclusive of capital changes, in the value of the aforementioned Unit during the
seven-day period, subtracting a hypothetical charge reflecting the charges
against the Annuity, and dividing the difference by the value of the Unit at the
beginning of the seven-day period to obtain a base period return, and then
multiplying such base period return by (365/7) with the resulting yield figure
carried to at least the nearest 100th of one percent.
(b) The effective yield is determined by taking the base period return
noted above and compounding by adding 1, raising the sum to a power equal to 365
divided by 7, and subtracting 1 from the result, according to the formula
EFFECTIVE YIELD = [(BASE PERIOD RETURN +1)365/7 ] - 1.
Standard return will be calculated as of the end of each calendar quarter. The
formulas for calculating standard return for period of 1 year, 3 years and from
inception-to-date are shown below. The formulas for periods of 5 and 10 years
would follow the pattern for the 3 year period. As noted above, periods other
than inception-to-date will be used when the underlying mutual fund portfolios
have aged sufficiently to use such periods. The formulas are as follows:
A. Standard Total Return - 1 Year
Standard Total Return = [(1 + x)(1- y)] - 1; where:
x = Sub-account total return for the period being measured.
y = .07% This percentage is the $35 maintenance fee converted to a percentage
of assets for the period.
Such conversion assumes an average Purchase Payment of $50,000. This average
will be re-evaluated yearly in light of actual Purchase Payments, which in turn
may result in a change to y.
B. Standard Total Return - 3 Year
Standard Total Return = [(1 + x)(1-y)3 ]1/3 - 1; where x and y are as noted in
A, above.
C. Standard Total Return - Inception-to-date
Standard Total Return = [(1 + x)(1-y)T]365/N - 1; where
x and y are as noted in A, above;
N = number of days from inception to the date as of which performance is being
measured; and
T = duration of an Annuity as if issued on the inception date and in force as
of the date performance is being measured.
