Filed with the Securities and Exchange Commission on April 30, 1997
Registration No. 33-88362 Investment Company Act No. 811-8884
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
Registration Statement under The Securities Act of 1933 and
Registration Statement under The Investment Company Act of 1940
Post-effective Amendment No. 2
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B
(CLASS 3 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 and
Depositor's Telephone Number
TEL. #: (203) 926-1888
M. PRISCILLA PANNELL, 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:
May 1, 1997 or as soon as practicable after 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.
X on May 1, 1997 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 checked, 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* $0
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*Pursuant to Rule 24f-2 of the Investment Company Act of 1940
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
90 days of the close of the fiscal year.
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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 (No condensed financial information - new Registrant),
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, Modifications
8. Annuity Period Annuity Payments
9. Death Benefit Death Benefit
10. Purchases and Contract Value Purchasing Annuities, Account Value and Surrender 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 Breakpoints,
Exchange Contracts, Bank Drafting and 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 Noted in Prospectus under The Company
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 Not applicable - new Registrant
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 47. 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
Surrender Value or make withdrawals (see "Distributions"). Such distributions
may be subject to tax, including a tax penalty, and any applicable contingent
deferred sales charges (see "Contingent Deferred Sales Charge"). A death benefit
may be payable during the accumulation phase (see "Death Benefit").
Account Value in the variable investment options increases or decreases daily to
reflect investment performance and the deduction of charges, which may be
assessed against your Annuity, the assets or the underlying mutual fund. No
minimum amount is guaranteed (see "Account Value in the Sub-accounts"). The
variable investment options are Class 3 Sub-accounts of American Skandia Life
Assurance Corporation Variable Account B ("Separate Account B") (see "Separate
Accounts", "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) Galaxy VIP Fund (portfolios - Money Market, Equity,
High Quality Bond, Asset Allocation); and (b) American Skandia Trust (portfolios
- - Founders Capital Appreciation, INVESCO Equity Income, T. Rowe Price
International Equity, T. Rowe Price International Bond).
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, and, where required by law, the 30 days
prior to the 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").
(continued on Page 2)
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Annuities:
Are NOT FDIC insured, or insured by the Federal Reserve Board or any other
agency
Are NOT Obligations of Fleet Bank or its Affiliates
Are NOT guaranteed or endorsed by Fleet Bank or its Affiliates
DO involve risks, including possible loss of principal amount invested
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PLEASE
READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE.
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FOR FURTHER INFORMATION CALL 1-800-444-3970.
Prospectus Dated: May 1, 1997
Statement of Additional Information Dated: May 1, 1997
GA3-PROS (05/97)
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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").
Broker-dealers or entities which may offer variable annuities without
registration as broker-dealers may offer Annuities to persons or entities who
have established an account with such broker-dealer or entity. Such eligible
persons or eligible entities also will be customers of one or more subsidiaries
of Fleet Financial Group, Inc. Fleet Investment Advisors Inc., one of the
investment advisers of one of the underlying mutual funds, is a subsidiary of
Fleet Financial Group, Inc. In certain cases, the broker-dealer may also be an
affiliate of one of the investment advisers of one of the underlying mutual
funds.
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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..................................................................................................................11
CONDENSED FINANCIAL INFORMATION...................................................................................................12
Unit Prices And Numbers Of Units...............................................................................................12
Yields On Money Market Sub-account.............................................................................................13
INVESTMENT OPTIONS................................................................................................................13
Variable Investment Options....................................................................................................13
Fixed Investment Options.......................................................................................................14
OPERATIONS OF THE SEPARATE ACCOUNTS...............................................................................................15
Separate Accounts..............................................................................................................16
Separate Account B.............................................................................................................16
Separate Account D.............................................................................................................16
INSURANCE ASPECTS OF THE ANNUITY..................................................................................................17
CHARGES ASSESSED OR ASSESSABLE AGAINST THE ANNUITY................................................................................17
Contingent Deferred Sales Charge...............................................................................................17
Tax Charges....................................................................................................................18
Transfer Fee...................................................................................................................18
Allocation Of Annuity Charges..................................................................................................18
CHARGES ASSESSED AGAINST THE ASSETS...............................................................................................19
Administration Charge..........................................................................................................19
Mortality and Expense Risk Charges.............................................................................................19
CHARGES OF THE UNDERLYING MUTUAL FUNDS............................................................................................19
PURCHASING ANNUITIES..............................................................................................................19
Uses Of The Annuity............................................................................................................19
Application And Initial Payment................................................................................................20
Exchange Contracts.............................................................................................................20
Bank Drafting..................................................................................................................21
Periodic Purchase Payments.....................................................................................................21
Right to Return the Annuity....................................................................................................22
Allocation of Net Purchase Payments............................................................................................22
Balanced Investment Program....................................................................................................22
Participant, 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
Distributions..................................................................................................................27
Surrender....................................................................................................................27
Medically-Related Surrender..................................................................................................27
Free Withdrawals.............................................................................................................27
Partial Withdrawals..........................................................................................................28
Systematic Withdrawals.......................................................................................................28
Minimum Distributions........................................................................................................28
Death Benefit................................................................................................................29
Annuity Payments.............................................................................................................30
Qualified Plan Withdrawal Limitations........................................................................................31
Pricing of Transfers and Distributions.........................................................................................31
Voting Rights..................................................................................................................32
Transfers, Assignments or Pledges..............................................................................................32
Reports to You.................................................................................................................33
SALE OF THE ANNUITIES.............................................................................................................33
Distribution...................................................................................................................33
Advertising....................................................................................................................33
CERTAIN TAX CONSIDERATIONS........................................................................................................34
Our Tax Considerations.........................................................................................................34
Tax Considerations Relating to Your Annuity....................................................................................34
Non-natural Persons..........................................................................................................34
Natural Persons..............................................................................................................34
Distributions................................................................................................................34
Loans, Assignments and Pledges...............................................................................................35
Gifts........................................................................................................................35
Penalty on Distributions.....................................................................................................35
Annuity Payments.............................................................................................................35
Tax Free Exchanges...........................................................................................................36
Transfers Between Investment Options.........................................................................................36
Estate and Gift Tax Considerations...........................................................................................36
Generation-Skipping Transfers................................................................................................36
Diversification..............................................................................................................36
Federal Income Tax Withholding...............................................................................................36
Tax Considerations When Using Annuities in Conjunction with Qualified Plans....................................................36
Individual Retirement Programs...............................................................................................37
Tax Sheltered Annuities......................................................................................................37
Corporate Pension and Profit-sharing Plans...................................................................................37
H.R. 10 Plans................................................................................................................37
Tax Treatment of Distributions from Qualified Annuities......................................................................37
Section 457 Plans............................................................................................................37
OTHER MATTERS.....................................................................................................................37
Deferral of Transactions.......................................................................................................37
Resolving Material Conflicts...................................................................................................38
Modification...................................................................................................................38
Misstatement of Age or Sex.....................................................................................................38
Ending the Offer...............................................................................................................38
Indemnification................................................................................................................39
Legal Proceedings..............................................................................................................39
THE COMPANY.......................................................................................................................39
Lines of Business..............................................................................................................39
Selected Financial Data........................................................................................................39
Management's Discussion and Analysis of Financial Condition and Results of Operations..........................................40
Results of Operation...........................................................................................................40
Liquidity and Capital Resources................................................................................................42
Segment Information..........................................................................................................42
Reinsurance....................................................................................................................42
Future Fees Payable to Parent..................................................................................................43
Surplus Notes..................................................................................................................43
Reserves.......................................................................................................................44
Competition....................................................................................................................44
Employees......................................................................................................................44
Regulation.....................................................................................................................44
Executive Officers and Directors...............................................................................................44
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION...............................................................................47
FINANCIAL STATEMENTS..............................................................................................................47
APPENDIX A FINANCIAL STATEMENTS FOR AMERICAN SKANDIA LIFE ASSURANCE CORPORATION..................................................48
APPENDIX B SHORT DESCRIPTIONS OF THE UNDERLYING MUTUAL FUNDS' PORTFOLIO INVESTMENT
OBJECTIVES AND POLICIES........................................................................................................48
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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
contingent deferred sales charge and/or 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.
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 a specific type of Systematic Withdrawal such that the
amounts payable are not less than the 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.
PARTICIPANT is either an eligible entity or person named as having ownership
rights in relation to an Annuity issued as a certificate evidencing interest in
a group annuity contract. An Annuity may be issued as an individual contract. If
so, the rights, benefits and requirements of and the events relating to a
Participant, as described in this Prospectus, will be the rights, benefits and
requirements of and events relating to the person or entity designated as the
owner in such contract.
PURCHASE PAYMENT is a cash consideration you give to us for certain rights,
privileges and benefits provided under an Annuity according to its terms.
SUB-ACCOUNT is a division of Separate Account B. We use Sub-accounts to
calculate variable benefits under this Annuity.
SURRENDER VALUE is the value of your Annuity available upon surrender prior to
the Annuity Date. It equals the Account Value as of the date we price the
surrender less any applicable contingent deferred sales charge and any
applicable maintenance fee.
SYSTEMATIC WITHDRAWAL is one of a plan of periodic withdrawals of Surrender
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 Participant.
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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 3 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 advisers, and in certain
cases, various sub-advisers. 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) Galaxy VIP Fund (portfolios - Money
Market, Equity, High Quality Bond, Asset Allocation); (b) American Skandia Trust
(portfolios - Founders Capital Appreciation, INVESCO Equity Income, T.
Rowe Price International Equity, T. Rowe Price International Bond).
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 may choose a Guarantee Period from among those we are 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 3
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 contingent deferred sales charge, 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) Contingent Deferred Sales Charge; (b) Maintenance
Fee; (c) Tax Charges; (d) Transfer Fee; and (e) 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. Such charges are not 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, and any other materials under our
underwriting rules before we agree to issue an Annuity. We may offer special
programs in relation to Annuities obtained as an exchange of a contract issued
by an insurer not affiliated with us. 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 GAL
Money Market 3 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 GAL Money Market 3 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 a
Participant and an Annuitant. You may also make certain other designations that
apply to the Annuity if issued. These designations include, a contingent
Participant, a Contingent Annuitant (Contingents 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) Exchange Contracts; (d) Bank Drafting; (e) Periodic Purchase
Payments; (f) Right to Return the Annuity; (g) Allocation of Net Purchase
Payments; (h) Balanced Investment Program; and (i) Participant, Annuitant and
Beneficiary Designations.
(8) Account Value and Surrender 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. Surrender Value is the Account Value less any applicable contingent
deferred sales charge and any applicable maintenance fee. 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 and, where required by law, the 30 days prior
to the Maturity Date. For more information, see the section entitled Account
Value and Surrender 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 Participants. 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. You may use bank drafting to
make Purchase Payments. We support certain Periodic Purchase Payment programs
subject to our rules. You may change revocable designations. You may transfer
Account Values between investment options. Transfers in excess of 12 per Annuity
Year are subject to a fee. We offer dollar cost averaging during the
accumulation phase. During the accumulation phase, surrender, free withdrawals
and partial withdrawals are available, as are medically-related surrenders under
which the contingent deferred sales charge is waived under specified
circumstances. 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) Distributions (including: (i)
Surrender; (ii) Medically-Related Surrender; (iii) Free Withdrawals; (iv)
Partial Withdrawals; (v) Systematic Withdrawals; (vi) Minimum Distributions;
(vii) Death Benefit; (viii) Annuity Payments; and (ix) Qualified Plan Withdrawal
Limitations); (h) Pricing of Transfers and Distributions (i) Voting Rights; (j)
Transfers, Assignments and Pledges; and (k) 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; and (i) Executive
Officers and Directors.
AVAILABLE INFORMATION: A Statement of Additional Information is available from
us without charge upon request by filling in the coupon at the end of this
Prospectus and sending it (or a written request) to American Skandia Life
Assurance Corporation, Galaxy Annuity Customer Service, P.O. Box 883, Shelton,
CT 06484. You also may forward such a request electronically to our Customer
Service Department or call us at 1-(800)-752-6342. Our electronic mail address
is [email protected]. 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. These documents, as well as documents
incorporated by reference, may also be obtained through the SEC's Internet
Website (http://www.sec.gov) for this registration statement as well as for
other registrants that file electronically with the SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE: The Annual Report on Form 10-K
for the year ended December 31, 1996 previously filed by the Company with the
SEC under the Securities Exchange Act of 1934 is incorporated by reference in
this Prospectus.
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: Galaxy Annuity Customer Service, P.O. Box 883,
Shelton, Connecticut, 06484. Our phone number is 1-(800) 444-3970. Our
electronic mail address is [email protected].
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. The only expense applicable if you allocate
all your Account Value to Fixed Allocations would be the contingent deferred
sales charge. More detail regarding the expenses of the underlying mutual fund
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.
<TABLE>
<CAPTION>
Your Transaction Expenses
<S> <C> <C> <C> <C>
Contingent Deferred Sales Charge, as a Year 1 - 4.0%; year 2 -3.0%; year 3- 2.0%; year 4 - 1.0%
percentage of Purchase Payments liquidated and year 5 and thereafter - 0% of each Purchase
Payment as measured from the date it
was allocated to Account Value
Annual Maintenance Fee Smaller of $35 or 2% of Account Value, applicable
only if at the Valuation Period such fee is payable,
the Account Value of the Annuity is less then $50,000
Tax Charges Dependent on the requirements of the applicable jurisdiction.
Transfer Fee $10 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 0.85%
Administration Charge 0.15%
-----
Total Annual Expenses of the Sub-accounts 1.00%
</TABLE>
Underlying Mutual Fund Portfolio Annual Expenses (as a percentage of average net
assets)
Unless otherwise indicated, the expenses shown below are for the year ending
December 31, 1996. "N/A" indicates that no entity has agreed to reimburse the
particular expense indicated. The expenses of the 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
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.
<TABLE>
<CAPTION>
Total Total
Annual Annual
Management Management Other Other Expenses Expenses
Fee Fee Expenses Expenses after any without any
after any without any after any without any applicable applicable
Portfolio: voluntary voluntary any applicable applicable waiver or waiver or
waiver waiver reimbursement reimbursement reimbursement reimbursement
- ------------------------------------------------------------------------------------------------------------------------------------
The Galaxy VIP Fund
<S> <C> <C> <C> <C> <C> <C>
Money Market 0.15% 0.40% 0.45% 0.68% 0.60% 1.08%
Equity 0.75% 0.75% 0.35% 0.35% 1.10% 1.10%
High Quality Bond 0.15% 0.55% 0.57% 0.83% 0.72% 1.38%
Asset Allocation 0.75% 0.75% 0.58% 0.58% 1.33% 1.33%
American Skandia Trust
T. Rowe Price Int'l Equity N/A 1.00% N/A 0.30% N/A 1.30%
T. Rowe Price Int'l Bond(1) N/A 0.80% N/A 0.36% N/A 1.16%
Founders Capital Appreciation N/A 0.90% N/A 0.26% N/A 1.16%
INVESCO Equity Income N/A 0.75% N/A 0.23% N/A 0.98%
</TABLE>
(1) Prior to May 1, 1996, the Investment Manager had engaged Scudder, Stevens &
Clark, Inc. as Sub-advisor for the Portfolio, for a total Investment Management
fee payable at the annual rate of 1.00% of the average daily net assets of the
Portfolio. As of May 1, 1996, the Investment Manager engaged Rowe Price-Fleming
International, Inc. as Sub-advisor for the Portfolio, for a total Investment
Management fee payable at the annual rate of .80% of the average daily net
assets of the Portfolio. The Management Fee in the above chart reflects the
current Investment Management fee payable to the Investment Manager.
The underlying mutual fund portfolio information was provided by the underlying
mutual funds. The Company has not independently verified such information.
The purpose of the above table is to assist you in understanding the various
costs and expenses that you would bear directly or indirectly as an investor in
the Portfolio(s).
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 of 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
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 FUND
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)
<TABLE>
<CAPTION>
If you surrender your Annuity at the end of the applicable time period,
and your Account Value is $50,000 or higher, so that the maintenance
fee does not apply, you would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets:
If you do not surrender your Annuity at the end of
the applicable time period or begin taking annuity
payments at such time, and your Account Value is
$50,000 or higher, so that the maintenance fee does
not apply, you would pay the following expenses on
a $1,000 investment, assuming 5% annual return on
assets:
Sub-accounts After: After:
1 yr. 3 yrs. 5 yrs. 10 yrs. 1 yr. 3 yrs. 5 yrs. 10 yrs.
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GAL Money Market 3 56 70 87 190 16 50 87 190
GAL Equity 3 62 87 114 245 22 67 114 245
GAL High Quality Bond 3 58 75 94 204 18 55 94 204
GAL Asset Allocation 3 64 93 125 268 24 73 125 268
Founders Capital Appreciation 3 62 88 117 250 22 68 117 250
INVESCO Equity Income 3 60 82 107 231 20 62 107 231
T. Rowe Price International Equity 3 64 93 124 265 24 73 124 265
T. Rowe Price International Bond 3 62 88 117 250 22 68 117 250
</TABLE>
<TABLE>
<CAPTION>
If you surrender your Annuity at the end of the applicable time period,
and your Account Value is lower than $50,000, so that the maintenance
fee applies, you would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets:
If you do not surrender your Annuity at the end of
the applicable time period or begin taking annuity
payments at such time, and your Account Value is
lower than $50,000, so that the maintenance fee
applies, you would pay the following expenses on a
$1,000 investment, assuming 5% annual return on
assets:
Sub-accounts After: After:
1 yr. 3 yrs. 5 yrs. 10 yrs. 1 yr. 3 yrs. 5 yrs. 10 yrs.
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GAL Money Market 3 58 76 97 209 18 56 97 209
GAL Equity 3 64 93 124 262 24 73 124 262
GAL High Quality Bond 3 60 81 104 222 20 61 104 222
GAL Asset Allocation 3 66 99 135 285 26 79 135 285
Founders Capital Appreciation 3 64 94 126 268 24 74 126 268
INVESCO Equity Income 3 62 88 117 250 22 68 117 250
T. Rowe Price International Equity 3 66 99 134 283 26 79 134 283
T. Rowe Price International Bond 3 64 94 126 268 24 74 126 268
</TABLE>
CONDENSED FINANCIAL INFORMATION: The Unit Prices and number of Units in the
Sub-accounts that commenced operations prior to January 1, 1997 are shown below,
as is yield information on the GAL Money Market Sub-account. Some of these
Sub-accounts were available during the periods shown as investment options for
other variable annuities we offer pursuant to different prospectuses. The
charges assessed against the Sub-accounts under the terms of those other
variable annuities are the same as the charges assessed against such
Sub-accounts under the Annuity offered pursuant to this Prospectus.
Unit Prices And Numbers Of Units: The following table shows: (a) the
Unit Price as of the dates shown for Units in each of the Class 3 Sub-accounts
of Separate Account B that commenced operations prior to January 1, 1997 and are
being offered pursuant to this Prospectus or which we offer pursuant to certain
other prospectuses; and (b) the number of Units outstanding in each such
Sub-account as of the dates shown. The year in which operations commenced in
each such Sub-account is noted in parentheses. The portfolios in which a
particular Sub-account invests may or may not have commenced operations prior to
the date such Sub-account commenced operations. The initial offering price for
each Sub-account was $10.00.
<TABLE>
<CAPTION>
Sub-account and the Year Sub-account Operations Commenced
GAL GAL GAL
Money GAL High Quality Asset
Market 3 Equity 3 Bond 3 Allocation 3
(1995) (1995) (1995) (1995)
------ ------ ------ ------
No. of Units
<S> <C> <C> <C> <C>
as of 12/31/96 438,416 844,454 241,376 595,541
as of 12/31/95 290,495 205,306 94,895 199,741
Unit Price
as of 12/31/96 $10.68 $13.69 $11.43 $13.22
as of 12/31/95 10.29 11.38 11.32 11.62
</TABLE>
<TABLE>
<CAPTION>
Sub-account and the Year Sub-account Operations Commenced
T. Rowe T. Rowe
Price Price Founders INVESCO
International International Capital Equity
Bond 3 Equity 3 Appreciation 3 Income 3
(1995) (1995) (1995) (1995)
------ ------ ------ ------
No. of Units
<S> <C> <C> <C> <C>
as of 12/31/96 56,657 783,865 861,999 645,296
as of 12/31/95 24,422 265,448 203,315 155,507
Unit Price
as of 12/31/96 $11.18 $12.08 $14.48 $13.58
as of 12/31/95 10.66 10.69 12.18 11.71
</TABLE>
The financial statements of the Sub-accounts being offered to you are found in
the Statement of Additional Information.
Yields On Money Market Sub-account: Shown below are the current and
effective yields for a hypothetical contract. The yield is calculated based on
the performance of the GAL Money Market 3 Sub-account 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 or 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
GAL Money Market 3.74% 3.81%
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 3
Sub-accounts of 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>
Underlying Mutual Fund: The Galaxy VIP Fund
Sub-account Underlying Mutual Fund Portfolio
GAL Money Market 3 Money Market Portfolio
GAL Equity 3 Equity Portfolio
GAL High Quality Bond 3 High Quality Bond Portfolio
GAL Asset Allocation 3 Asset Allocation Portfolio
Underlying Mutual Fund: American Skandia Trust
Sub-account Underlying Mutual Fund Portfolio
Founders Capital Appreciation 3 Founders Capital Appreciation
INVESCO Equity Income 3 INVESCO Equity Income
T. Rowe Price International Equity 3 T. Rowe Price International Equity
T. Rowe Price International Bond 3 T. Rowe Price International Bond
</TABLE>
Certain Sub-accounts may not be available in all jurisdictions. If and when we
obtain approval of the applicable authorities to make such variable investment
options available, we will notify Participants of the availability of such
Sub-accounts.
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 set out 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 goals.
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 Galaxy Annuity Customer Service,
1-800-444-3970 or writing to us at either P.O. Box 883, Attention: Galaxy
Annuity Customer Service, Shelton, Connecticut, 06484-0883, or to our electronic
mail address which is [email protected].
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. Such an action may have an impact on the MVA (see "Account Value of the
Fixed Allocations").
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 published rate for certificates of indebtedness
(bills, notes or bonds, depending on the term of indebtedness) of the United
States Treasury at the most recent Treasury auction held at least 30 days prior
to the beginning of the applicable Fixed Allocation's Guarantee Period. The term
(length of time from issuance to maturity) of the certificates of indebtedness
upon which the index is based is the same as the duration of the Guarantee
Period. If no certificates of indebtedness are available for such term, the next
shortest term is used. If the United States Treasury's auction program is
discontinued, we will substitute indexes which in our opinion are comparable. If
required, implementation of such substitute indexes will be subject to approval
by the Securities and Exchange Commission and the Insurance Department of the
jurisdiction in which 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
nine-tenths percent of interest (1.90%).
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. However,
such a change will affect the MVA (see "Account Value of the Fixed
Allocations").
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, gain 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 3
Sub-accounts of Separate Account B. Each class of Sub-accounts in Separate
Account B have a different level of asset based charges assessed against such
Sub-accounts.
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 fund portfolios as the Sub-accounts offered pursuant
to this Prospectus. We may offer additional annuities that maintain assets in
Class 3 Sub-accounts. In addition, some of the Class 3 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 fund 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 on its Maturity Date, and, where required by law, the 30 days
prior to the Maturity Date, guaranteed 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; private
placements; 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, Fleet Investment Advisors, 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 contingent
deferred sales charge, 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
Minimum Distributions, and additional reports. As of the date of this
Prospectus, we do not charge you for any special services.
Contingent Deferred Sales Charge: Although we incur sales expenses in connection
with the sale of contracts (for example, preparation of sales literature,
expenses of selling and distributing the contracts, including commissions, and
other promotional costs), we do not deduct any charge from your Purchase
Payments for such expenses. However, a contingent deferred sales charge may be
assessed. We assess a contingent deferred sales charge against the portion of
any withdrawal or surrender that is deemed to be a liquidation of your Purchase
Payments paid within the preceding four years. The contingent deferred sales
charge applies to each Purchase Payment that is liquidated. It is a decreasing
percentage of each Purchase Payment being liquidated. The charge decreases as
the Purchase Payment ages. The aging of a Purchase Payment is measured from the
date it is applied to your Account Value. The charge is: year 1 - 4.0%; year 2 -
3.0%; year 3 - 2.0%; year 4 - 1.0% and year 5 and thereafter - 0%.
Each Annuity Year in the accumulation phase you may withdraw a limited amount of
Account Value without application of any contingent deferred sales charge (see
"Free Withdrawal"). However, for purposes of the contingent deferred sales
charge, amounts withdrawn as a free withdrawal are not considered a liquidation
of Purchase Payments. Account Value is deemed withdrawn according to specific
rules in determining how much, if any, contingent deferred sales charge applies
to a partial withdrawal (see "Partial Withdrawal"). There is no contingent
deferred sales charge if all Purchase Payments were received at least 4 years
prior to the date of either a full surrender or partial withdrawal. Where
permitted by law, any contingent deferred sales charge applicable to a full
surrender is waived if such full surrender qualifies under our rules as a
medically-related withdrawal (see "Medically-Related Surrenders").
From time to time we may reduce the amount of the contingent deferred sales
charge, the period during which it applies, or both, when Annuities are sold to
individuals or a group of individuals in a manner that reduces sales expenses.
We would consider such factors as: (a) the size and type of group; (b) the
amount of Purchase Payments; (c) present Participants making additional Purchase
Payments; and/or (d) other transactions where sales expenses are likely to be
reduced.
No contingent deferred sales charge is imposed when any group annuity contract
or any Annuity issued pursuant to this Prospectus is owned on its Issue Date by:
(a) any parent company, affiliate or subsidiary of ours; (b) an officer,
director, employee, retiree, sales representative, or in the case of an
affiliated broker-dealer, registered representative of such company; (c) a
director or trustee of any underlying mutual fund; (d) a director, officer or
employee of any investment manager or sub-adviser providing investment
management and/or advisory services to an underlying mutual fund or any
affiliate of such investment manager or sub-adviser; (e) a director, officer,
employee or registered representative of a broker-dealer that has a then current
selling agreement with American Skandia Marketing, Incorporated; (f) the then
current spouse of any such person noted in (b) through (e), above; (g) the
parents of any such person noted in (b) through (f), above; and (h) such
person's child or other legal dependent under the age of 21. No such group
annuity contract or Annuity may qualify under any Exchange Program (see
"Exchange Contracts").
No contingent deferred sales charge is assessed on Minimum Distributions, to the
extent such Minimum Distributions are required from your Annuity at the time it
is taken. However, the charge may be assessed for any partial withdrawal taken
in excess of the Minimum Distribution, even if such amount is taken to meet
minimum distribution requirements in relation to other savings or investments
held pursuant to various retirement plans designed to qualify for preferred tax
treatment under various sections of the Code (see "Minimum Distributions").
Any elimination of the contingent deferred sales charge or any reduction to the
amount or duration of such charges will not discriminate unfairly between
Annuity purchasers. We will not make any such changes to this charge where
prohibited by law.
Maintenance Fee: A maintenance fee equaling the smaller of $35 or 2% of
your then current Account Value is deducted from the Account Values in the
Sub-accounts annually and upon surrender only if your Account Value is below
$50,000 at the Valuation Period such fee is payable. The fee is taken only if
funds are allocated to the Sub-accounts as of the Valuation Period such fee is
payable.
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 3 1/2% 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. Renewals or transfers of Account Value from a Fixed
Allocation at the end of its Guarantee Period are not subject to the transfer or
charge and are not counted in determining whether other transfers may be subject
to the transfer charge (see "Renewals"). 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: Charges applicable to a surrender are
used in calculating Surrender Value. Charges applicable to any type of
withdrawal are taken from the investment options in the same ratio as such a
withdrawal is taken from the investment options (see "Allocation Rules").
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, if applicable, 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 3 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.
The administration charge and maintenance fee can be increased only for
Annuities issued subsequent to the effective date of any such change. 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 a Participant; (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 3 Sub-accounts, the
mortality risk charge is 0.55% per year and the expense risk charge is 0.30% per
year. These charges are assessed in combination each day against each
Sub-account at the rate of 0.85% 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 administration costs.
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 are available to certain classes of purchasers, including, but not
limited to, those who are exchanging a contract issued by another insurer for an
Annuity. 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. We may elect to no longer offer Annuities
in connection with various 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 Considerations".
Application And Initial Payment: Where allowed by law, you must meet
our underwriting requirements and forward a Purchase Payment if you seek to
purchase an Annuity. One requirement is that, at the time of issue of your
Annuity, you must be a customer of one or more subsidiaries of Fleet Financial
Group, Inc. These requirements may also include a properly completed
Application. Where permitted by law, we may issue an Annuity without completion
of an Application for certain classes of Annuities.
The minimum initial Purchase Payment we accept is $5,000 unless you authorize
the use of bank drafting to make Purchase Payments (See "Bank Drafting"). If you
choose bank drafting, we will accept a lower initial Purchase Payment provided
that the Purchase Payments received in the first year total at least $5,000. The
initial Purchase Payment must be paid in cash. It cannot be made through bank
drafting. 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 $500,000. We confirm each Purchase Payment in writing.
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.
Exchange Contracts: We reserve the right to offer an exchange program
(the "Exchange Program") available only to purchasers who exchange an existing
contract issued by another insurance company not affiliated with us (an
"Exchange Contract") for an Annuity or who add, under certain qualified plans,
to an existing Annuity by exchanging an Exchange Contract. As of the date of
this Prospectus, such a program is available where allowed by law. However, we
reserve the right to modify, suspend, or terminate it at any time or from time
to time without notice. If such an Exchange Program is in effect, it will apply
to all such exchanges for an Annuity.
Such a program would be available only where permitted by law to owners of
insurance or annuity contracts deemed not to constitute "securities" issued by
an investment company. Therefore, while a currently owned variable annuity or
variable life insurance policy may be exchanged for an Annuity pursuant to
Section 1035 of the Code, or where applicable, may qualify for a "rollover" or
transfer to an Annuity pursuant to certain other sections of the Code, such an
exchange, "rollover" or transfer of such a currently owned variable annuity or
variable life insurance policy subject to the 1940 Act will not qualify for any
Exchange Program being offered in relation to Annuities offered pursuant to this
Prospectus. You should carefully evaluate whether any particular Exchange
Program we offer benefits you more than if you continue to hold your Exchange
Contract. Factors to consider include, but are not limited to: (a) the amount,
if any, of the surrender charges under your Exchange Contract, which you should
ascertain from your insurance company; (b) the time remaining under your
Exchange Contract during which surrender charges apply; (c) the ongoing charges,
if any, under your Exchange Contract versus the on-going charges under an
Annuity; (d) the contingent deferred sales charge under an Annuity; (e) the
amount and timing of any benefits under such an Exchange Program; and (f) the
potentially greater cost to you if the contingent deferred sales charge on an
Annuity or the surrender charge on your Exchange Contract exceeds the benefits
under such an Exchange Program. There could be adverse federal income tax
consequences. You should consult with your tax advisor as to the tax
consequences of such an exchange (see "Tax Free Exchanges").
Under the Exchange Program available as of the date of this Prospectus we add
certain amounts to your Account Value as exchange credits ("Exchange Credits").
Such Exchange Credits are credited by us on behalf of the Owners of Exchange
Contracts with funds from our general account. Subject to a specified limit (the
"Exchange Credit Limit") discussed below, the Exchange Credits equal the
surrender charge paid, if any, to the other insurance company plus the
difference, if any, between the "annuity value" and the "Surrender Value"
attributable to a difference in interest rates that have or would be credited to
such values in amounts typically referred to as "two tier" annuities. (A
"two-tier" annuity is generally credited higher interest rates if there are no
or limited withdrawals before annuitization, and a lower interest rate would
apply upon surrender and most withdrawals.) Both such amounts hereafter are
referred to as a "surrender charge". Exchange Credits are not included in any
amounts returned to you during the "free-look" period described below.
Determination of whether an Exchange Contract is a "two tier" annuity qualifying
for Exchange Credits is in our sole discretion. This Exchange Program is subject
to the following rules:
(1) We do not add Exchange Credits unless we receive In Writing
evidence satisfactory to us:
(a) of the surrender charge, if any, you paid to surrender the
Exchange Contract and the amount of any such charge (you may have particular
difficulty in obtaining satisfactory evidence of any surrender charge paid to
surrender an Exchange Contract typically referred to as a "two tier" annuity);
and
(b) that you acknowledge that you are aware that the
contingent deferred sales charge under this Annuity will be assessed in full
against any subsequent surrender or partial withdrawal to the extent then
applicable.
(2) The ratio of the Exchange Credits to be added to any Fixed
Allocation is the ratio between such Fixed Allocation and the Purchase Payment
that qualifies for this Exchange Credit on the date we allocate the Purchase
Payment. Exchange Credits not added to Fixed Allocations, if any, are allocated
pro-rata among the Sub-accounts based on your Account Values in such
Sub-accounts at the time we allocate the Exchange Credits.
(3) The Exchange Credit is allocated as of the later of (a), (b) or
(c); where
(a) is the date the applicable Purchase Payment is allocated
to the investment options;
(b) the Issue Date; and
(c) is the date we receive, In Writing, evidence satisfactory
to us of the amount of the surrender charge you paid to surrender the Exchange
Contract.
For the fixed investment options, interest on the Exchange Credits is credited
as of the later of (a) or (b), where:
(a) is the date the applicable Purchase Payment was allocated;
and
(b) is the date we receive, In Writing, evidence satisfactory
to us of the amount of the surrender charge you paid to surrender the Exchange
Contract, if more than 30 days after the Issue Date.
(4) The value of the Exchange Credits as of the date of the allocation
to the investment options equals the lesser of the Exchange Credit Limit or the
surrender charge you paid to surrender the Exchange Contract. The Exchange
Credit Limit depends on the age of the oldest of any Participant, if the
Participant is a person, or the Annuitant, if the Participant is an entity, on
the date we receive the applicable Purchase Payment at our Office. The current
limits are as follows:
Age of the oldest of any Participant or the Annuitant when Exchange Credit
we receive the applicable Purchase Payment at our Office Limit
Less than 75 2%
At least 75 but less than 85 1%
At least 85 0.50%
The Exchange Credit Limit is not based on any other Purchase Payment. We reserve
the right at any time and from time to time to increase or decrease the Exchange
Credit Limit. However, the Exchange Credit Limit in effect at any time will
apply to all purchases qualifying for the Exchange Program.
(5) The value of any Exchange Credits is not considered "growth" for
purposes of determining amounts available as a free withdrawal (see "Free
Withdrawal").
(6) We do not consider additional amounts credited to Account Value
under the Exchange Program to be an increase in your "investment in the
contract" (see "Certain Tax Considerations").
Bank Drafting: You may make Purchase Payments to your Annuity using
bank drafting, but only for allocations to variable investment options. However,
you must pay at least one prior Purchase Payment by check. We will accept an
initial Purchase Payment in an amount as low as $100, if you furnish bank
drafting instructions that provide amounts that will meet a $5,000 minimum
Purchase Payment requirement to be paid within 12 months.
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. 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 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 specified period 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 certain charges (see "Charges Assessed or Assessable Against the
Annuity").
For annuities subject to New York law, notice given by mail and return of the
Annuity by mail are effective on being postmarked, properly addressed and
postage prepaid. If the Annuity is returned to the agent, other than by mail,
the effective date of surrender of the Annuity will be the date the Annuity is
received by the agent. The amount payable as to any amounts allocated to the
variable investment options equals the Account Values as of the date postmarked
or returned to the agent. If you choose to allocate any portion of your Purchase
Payment to the variable investment options, you bear the investment risk during
this period. The amount payable as to any amounts allocated to the fixed
investment options equals the greater of (i) the Purchase Payment, less any
withdrawals, or (ii) the current Account Value of the Annuity on the date the
cancellation request is either postmarked or returned to the agent.
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 GAL Money Market 3 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 GAL Money Market 3 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 Payment, as well as other Purchase Payments will be
allocated in accordance with the then current requirements of any asset
allocation or market timing program which you have authorized an independent
third party to use in connection with your Annuity (see "Allocation Rules"). You
must provide us with allocation instructions In Writing if you wish to change
your current allocations when making subsequent Purchase Payments.
Balanced Investment Program: We offer a balanced investment program in
relation to your initial Purchase Payment, if Fixed Allocations are available
under your Annuity. If you choose this program, we commit a portion of your
initial Net Purchase Payment 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 initial Purchase Payment at the end of its initial Guarantee
Period if no amounts are transferred or withdrawn from such Fixed Allocation.
The rest of your initial Net Purchase Payment is invested in the other
investment options you select.
Participant, 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 a Participant, a contingent
Participant, 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 Participant 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.
A Participant must be named. You may name more than one Participant. If you do,
all rights reserved to Participants are then held jointly. We require the
consent In Writing of all joint Participants for any transaction for which we
require the written consent of Participants. Where required by law, we require
the consent 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
Participant may have gift, estate or other tax implications.
Where allowed by law, you may name a contingent Participant. However, this
designation takes effect only on or after the Annuity Date.
You must name a Participant. We do not accept a designation of joint Annuitants.
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 extent 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 adviser 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 at the time of the death upon which death proceeds become payable or in
the absence of any Beneficiary designation, the proceeds will vest in you or
your estate.
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. Surrender Value is the Account Value less any applicable
contingent deferred sales charge and 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 AllocationsAccount 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:
[(1+I) / (1+J+0.0010)]N/12
where:
I is the interest rate being credited to the Fixed Allocation;
J is the interest rate for your class of annuities for new
Fixed Allocations with Guarantee Periods of durations equal to
the number of years (rounded to the next higher integer when
occurring on other than an anniversary of the beginning of the
Fixed Allocation's Guarantee Period) remaining in such
Guarantee Period;
N is the number of months (rounded to the next higher integer
when occurring on other than a monthly anniversary of the
beginning of the Guarantee Period) 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/12.
No MVA applies in determining a Fixed Allocation's Account Value on its Maturity
Date and, where required by law, the 30 days prior to the Maturity Date. If we
are not offering a Guarantee Period with a duration equal to the number of years
remaining in a Fixed Allocation's Guarantee Period, we calculate a rate for "J"
above using a specific formula. This formula is described in the Statement of
Additional Information.
Our Current Rates are expected to be sensitive to interest rate fluctuations,
thereby making each MVA equally sensitive to such changes. There would be a
downward adjustment when the applicable Current Rate plus 0.10 percent of
interest exceeds the rate credited to the Fixed Allocation and an upward
adjustment when the applicable Current Rate is more than 0.10 percent of
interest lower than the rate being credited to the Fixed Allocation. See the
Statement of Additional Information for an illustration of how the MVA works.
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 telephone or other electronic means. We
forward your PIN to you shortly after your Annuity is issued. To the extent
permitted by law or regulation, neither we or any person authorized by us will
be responsible for any claim, loss, liability or expense in connection with a
telephonic or electronic transfer if we or such other person acted on such
transfer instructions in good faith in reliance on your authorization of
telephone and/or electronic transfers 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, except as part of a bank drafting program (see "Bank
Drafting"), or unless we authorize lower payments to a Periodic Purchase Payment
program (see "Periodic Purchase Payments") or less where required by law. If
payments are made by bank drafting, the minimum payment is $50. 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 written allocation instructions. Should no written instructions be received
with an additional Purchase Payment, 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 Participant, 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 Participant subsequent to the death
of the Participant or the first of any joint Participants to die, except where a
spouse-Beneficiary has become the Participant as a result of a Participant'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: As of the date of this Prospectus, during the
accumulation phase, you may maintain Account Value in multiple Sub-accounts and
an unlimited number of Fixed Allocations. We reserve the right, to the extent
permitted by law, to limit the number of Sub-accounts or the amount you may
allocate to any Fixed Allocation. As of the date of this Prospectus, we limited
the number of Sub-accounts available at any one time to ten. 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.
Should you either: (a) authorize an independent third party to transact
transfers on your behalf and such third party arranges for rebalancing of your
Account Value in accordance with any asset allocation strategy; or (b) 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 must be
allocated to the same investment options and in the same proportions as then
required pursuant to the applicable asset allocation or market timing program,
but only to the extent we have received instructions to that effect. Such
allocation requirements terminate simultaneous to the termination of any
authorization to a third party to transact transfers on your behalf. Upon
termination of any of the above arrangements, you must provide us with
allocation instructions In Writing for all subsequent Purchase Payments.
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. Transfers transacted as part of a dollar cost averaging
program are not counted in determining the applicability of the transfer fee.
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 or through means such as
electronic mail with appropriate authorization.
We reserve the right to limit the number of transfers in any Annuity Year for
all existing or new Participants. We also reserve the right to limit the number
of transfers in any Annuity Year or to refuse any transfer request for a
Participant or certain Participants if we believe that: (a) excessive trading by
such Participant or Participants 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 require 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 1-800-444-3970 or contract our customer service department electronically at
[email protected]. When calling us by phone, please have readily
available your Annuity number and your PIN number. When contacting us
electronically, please provide your PIN number, social security or tax I.D.
number and the Annuity contract number.
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 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 independent third parties 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 third party may employ, or transferring Account Values between
investment options in accordance with market timing strategies employed by such
third parties. Such independent third parties may or may not be appointed our
agents for the sale of Annuities. However, we do not engage any third parties 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 third
parties or any investment allocation recommendations made by such persons. We do
not currently charge you 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, and where required by law, the 30 days prior to 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 $20,000 at the time we accept your request for a dollar cost
averaging program. Transfers under a dollar cost averaging program are not
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. 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 an asset
allocation or market timing type of program is used in connection with your
Annuity.
Dollar cost averaging from Fixed Allocations are 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").
Distributions: available from your Annuity during the accumulation phase include
surrender, medically-related surrender, free withdrawals, partial withdrawals,
Systematic Withdrawals, (including 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. Distributions from
your Annuity of any amounts derived from Purchase Payments paid by personal
check may be delayed until such time as the check has cleared the applicable
financial institution upon which such check was drawn.
Surrender: Surrender of your Annuity for its Surrender Value is
permitted during the accumulation phase. A contingent deferred sales charge may
apply to such surrender (see "Contingent Deferred Sales Charge"). Your Annuity
must accompany your surrender request.
Medically-Related Surrender: Where permitted by law, you may apply to
surrender your Annuity prior to the Annuity Date without application of any
contingent deferred sales charge, upon occurrence of a "Contingency Event". This
waiver of any applicable contingent deferred sales charge is subject to our
rules, including but not limited to the following: (a) the Annuitant must be
alive as of the date we pay the proceeds of such surrender request; (b) if the
Participant is one or more natural persons, all such Participants must also be
alive at such time; (c) we must receive satisfactory proof of the Annuitant's
confinement or Fatal Illness In Writing; and (d) this benefit is not available
if the total Purchase Payments received exceed $500,000.00 for all annuities
issued by us with this benefit for which the same person is named as Annuitant.
For contracts issued before May 1, 1996, a "Contingency Event" occurs if the
Annuitant is:
(1) First confined in a "Medical Care Facility" while your Annuity is
in force and remains confined for at least 90 days in a row; or
(2) First diagnosed as having a "Fatal Illness" while your Annuity is
in force.
For contracts issued on or after May 1, 1996, and where allowed by law, the
Annuitant must have been named or any change of Annuitant must have been
accepted by us, prior to the "Contingent Event" described above, in order to
qualify for a Medically-Related Surrender.
"Medical Care Facility" means any state licensed facility providing medically
necessary in-patient care which is prescribed by a licensed "Physician" in
writing and based on physical limitations which prohibit daily living in a
non-institutional setting. "Fatal Illness" means a condition diagnosed by a
licensed "Physician" which is expected to result in death within 2 years for 80%
of the diagnosed cases. "Physician" means a person other than you, the Annuitant
or a member of either your or the Annuitant's families who is state licensed to
give medical care or treatment and is acting within the scope of that license.
Specific details and definitions of terms in relation to this benefit may differ
in certain jurisdiction.
Free Withdrawals: Each Annuity Year in the accumulation phase you may
withdraw a limited amount of Account Value without application of any applicable
contingent deferred sales charge. Such free withdrawals are available to meet
liquidity needs. Free withdrawals are not available at the time of a surrender
of an Annuity. Withdrawals of any type made prior to age 59 1/2 may be subject
to a 10% tax penalty (see "Penalty on Distributions").
Your free withdrawal request must be at least $100. Amounts received as
Systematic Withdrawals or as Minimum Distributions are deemed to come first from
the amount available under this Free Withdrawal provision (see "Systematic
Withdrawals" and "Minimum Distributions"). You may also request to receive as a
lump sum any free withdrawal amount not already received that Annuity Year under
a plan of Systematic Withdrawals or as Minimum Distributions.
The maximum amount available as a free withdrawal during an Annuity Year is the
greater of your Annuity's "growth" or 10% of "new" Purchase Payments. "Growth"
equals the then current Account Value less all "unliquidated" Purchase Payments
and less the value at the time credited of any Exchange Credits (see "Exchange
Contracts"). "Unliquidated" means not previously surrendered or withdrawn. "New"
Purchase Payments are those received in the four (4) years prior to the date as
of which a free withdrawal occurs. For purposes of the contingent deferred sales
charge, amounts withdrawn as a free withdrawal are not considered a liquidation
of Purchase Payments. Therefore, any free withdrawal will not reduce the amount
of any applicable contingent deferred sales charge upon any partial withdrawal
or subsequent surrender.
Partial Withdrawals: You may withdraw part of your Surrender Value. The
minimum partial withdrawal is $100. The Surrender Value that must remain in the
Annuity as of the date of this transaction is $1,000. 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.
On a partial withdrawal, the contingent deferred sales charge is assessed
against any "unliquidated" "new" Purchase Payments withdrawn. "Unliquidated"
means not previously surrendered or withdrawn. For these purposes, amounts are
deemed to be withdrawn in the following order:
(1) From any amount then available as a free withdrawal; then from
(2) "Old" Purchase Payments (Purchase Payments allocated to Account
Value more than seven years prior to the partial withdrawal); then from
(3) "New" Purchase Payments (If there are multiple "new" Purchase
Payments, the one received earliest is liquidated first, then the one received
next earliest, and so forth); then from
(4) Other Surrender Value.
Systematic Withdrawals: We offer Systematic Withdrawals of earnings
only, principal plus earnings or a flat dollar amount. Generally, Systematic
Withdrawals from Fixed Allocations are limited to earnings accrued after the
program of Systematic Withdrawals begins, or payments of fixed dollar amounts
that do not exceed such earnings. A program of Systematic Withdrawals begins on
the date we accept, at our Office, your request for such a program. Systematic
Withdrawals are deemed to be withdrawn from Surrender Value in the same order as
partial withdrawals for purposes of determining if the contingent deferred sales
charge applies. Penalties may apply (see "Free Withdrawals").
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 asset allocation
program is in effect in relation to your Annuity.
The Surrender Value of your Annuity must be at least $20,000 when we accept your
request for a program of Systematic Withdrawals. The minimum for each Systematic
Withdrawal is $100. 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.
Should we suspend or cancel offering Systematic Withdrawals, such suspension or
cancellation will not affect any Systematic Withdrawal programs then in effect.
Minimum Distributions: Minimum Distributions are a specific type of
Systematic Withdrawal program. Minimum Distributions are subject to all the
rules applicable to Systematic Withdrawals unless we specifically indicate that
one or more of such rules do not apply. In addition, certain rules apply only to
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. Requests to
calculate a Minimum Distribution amount must be made three (3) days prior to the
date that your Minimum Distribution payment is processed to allow for
calculation and processing of the required amount. 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 concurrently available with any other programs of Systematic Withdrawals.
You may elect to have Minimum Distributions paid out monthly, quarterly,
semi-annually or annually. The $100 minimum for Systematic Withdrawals does not
apply to Minimum Distributions.
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 Allocations if such Fixed
Allocation is being used in a dollar cost averaging program (see "Dollar Cost
Averaging"). Minimum Distributions from Fixed Allocations are not subject to the
limitation on Systematic Withdrawals that limits a program of Systematic
Withdrawals from Fixed Allocations only to earnings accrued after program
inception.
No contingent deferred sales charge is assessed against amounts withdrawn as a
Minimum Distribution, but only to the extent of the Minimum Distribution
required from your Annuity at the time it is taken. The contingent deferred
sales charge may apply to additional amounts withdrawn to meet minimum
distribution requirements in relation to other retirement programs you may
maintain.
Amounts withdrawn as Minimum Distributions are considered to come first from the
amounts available as a free withdrawal (see "Free Withdrawals") as of the date
of the yearly calculation of the Minimum Distribution amount. Minimum
Distributions over that amount are not deemed to be a liquidation of Purchase
Payments (see "Partial Withdrawals").
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 Participants. 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 Participants if they
name a Contingent Annuitant (see "Participant, 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 (free withdrawals, partial withdrawals, Systematic
Withdrawals, Minimum Distributions) before assessment of any applicable
contingent deferred sales charge and after any applicable MVA. For purposes of
this provision, persons named Participant or Annuitant within 60 days of the
Issue Date are treated as if they were a Participant 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 prior to the decedent's age 75: the death benefit
is the greater of your Account Value in Sub-accounts plus the Interim Value of
any Fixed Allocations, or 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 when the decedent is age 75 or older: the death
benefit is your Account Value.
(3) If a decedent was not named a Participant or Annuitant as of the
Issue Date and did not become such as a result of a prior Participant'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 a Participant or
Annuitant. If that person's death occurs during the suspension period and prior
to age 75, the death benefit is your Account Value in Sub-accounts plus the
Interim Value of any Fixed Allocations. If death occurs during the suspension
period when such decedent is age 75 or older, the death benefit is your Account
Value. After the suspension period is completed, the death benefit is the same
as if such person had been a Participant or Annuitant on the Issue Date.
The amount of the death benefit is determined as of the date we receive In
Writing "due proof of death". The following constitutes "due proof of death":
(a)(i) a certified copy of a death certificate, (ii) a certified copy of a
decree of a court of competent jurisdiction as to the finding of death, or (iii)
any other proof satisfactory to us; (b) all representations we require or which
are mandated by applicable law or regulation in relation to the death claim and
the payment of death proceeds; and (c) any applicable election of the mode of
payment of the death benefit, if not previously elected by the Participant. The
death benefit is reduced by any annuity payments made prior to the date we
receive In Writing such due proof of death.
If the death benefit becomes payable prior to the Annuity Date due to the death
of the Participant and the Beneficiary is the Participant's spouse, then in lieu
of receiving the death benefit, such Participant's spouse may elect to be
treated as a Participant 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 Participants 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. For annuities subject to New York
law, the Annuity Date may not exceed the first day of the calendar month
following the Annuitant's 85th birthday.
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. For annuities
subject to New York law, in the absence of an election In Writing: (a) the
Annuity Date is the first day of the calendar month following the Annuitant's
90th birthday; and (b) fixed monthly payments will commence under Option 2,
described below, with 10 years certain. 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. If there is any remaining contingent deferred sales charge applicable as
of the Annuity Date, then the annuity option you select must include a certain
period of not less than 5 years' duration. As a result of this rule, making
additional Purchase Payments within four years of the Annuity Date will prevent
you from choosing an annuity option with a certain period of less than 5 years'
duration. 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.
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
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 a Participant 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 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"). With respect to the restrictions on withdrawals set forth
above, the Company is relying upon 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 Company.
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 ongoing asset allocation or similar program, and annuity payments.
(2) We price "unscheduled" transfers, partial withdrawals and free
withdrawals as of the date we receive In Writing 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 asset allocation or similar
program which 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, medically-related 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",
"Medically-related 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 Participants. Participants 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 Participants, 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 Participants 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 Participants 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 for each such additional
report. Instead of immediately confirming transactions made pursuant to some
type of periodic transfer program (such as a dollar cost averaging program) or a
periodic Purchase Payment program, such as a salary reduction arrangement, we
may confirm such transactions in quarterly statements. You should review the
information in these statements carefully. All errors or corrections must be
reported to us at our Office as soon as possible and no later than the date
below to assure proper accounting to your Annuity. For transactions for which we
immediately send confirmations, we assume all transactions are accurate unless
you notify us otherwise within 10 days from the date you receive the
confirmation. For transactions that are only confirmed on the quarterly
statement, we assume all transactions are accurate unless you notify us within
10 days from the date you receive the quarterly statement. All transactions
confirmed immediately or by quarterly statement are deemed conclusive after the
applicable 10 day period. We may also send 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. Such eligible persons also will be customers of one or
more subsidiaries of Fleet Financial Group, Inc. Fleet Investment Advisors,
Inc., one of the investment advisors of one of the underlying mutual funds, is a
subsidiary of Fleet Financial Group, Inc. In certain cases, the broker-dealer
may also be an affiliate of one of the investment advisors of one of the
underlying mutual funds. In addition, ASM, Inc. may offer Annuities directly to
potential purchasers. The maximum initial concession to be paid on premiums
received is up to 4.5% and a portion of compensation may be paid from time to
time based on all or a portion of Account Value.
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. Rates will be included in advertisements to the extent permitted
by law. Given that the actual rates applicable to any Fixed Allocation are as of
the date of any such Fixed Allocation's Guarantee Period begins, the rate
credited to a Fixed Allocation may be more or less than those quoted in an
advertisement.
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 invest in such
underlying mutual fund or portfolio. In addition, the amount of charges assessed
against each Sub-account will affect performance.
Some of the underlying mutual fund portfolios existed prior to the inception of
these Sub-accounts. Performance quoted in advertising regarding such
Sub-accounts may indicate periods during which the Sub-accounts have been in
existence but prior to the initial offering of the Annuities, or periods during
which the underlying mutual fund portfolios have been in existence, but the
Sub-accounts have not. Such hypothetical performance is calculated using the
same assumptions employed in calculating actual performance since inception of
the Sub-accounts.
As part of any advertisement of Standard Total Return, we may advertise the
"Non-standard Total Return" of the Sub-accounts. Non-standard Total Return does
not take into consideration the Annuity's contingent deferred sales charge
and/or the Annual Maintenance Fee.
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 or Separate Account D.
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 as an agent or
nominal owner for a natural person who is the beneficial owner. 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: Generally, 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
policyholder 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.
Amounts received under a contract on its complete surrender, redemption, or
maturity are includible in gross income to the extent that they exceed the cost
of the contract, i.e., they exceed the total premiums or other consideration
paid for the contract minus amounts received under the contract that were not
reportable as gross income.
Loans, Assignments and Pledges: Any amount received directly
or indirectly as a loan from, or any assignment or pledge of any portion of the
value of an annuity before annuity payments have begun are treated as a
distribution subject to taxation under the distribution rules set forth above.
Any gain in an annuity 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.
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 income
tax purposes as a distribution.
Penalty on Distributions: Subject to certain exceptions, any
distribution from an annuity no used in conjunction with qualified plans 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 received
as an annuity on or after the annuity start date 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.
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.
Estate and Gift Tax Considerations: You should obtain
competent tax advice with respect to possible federal and state gift tax
consequences flowing from the ownership and transfer of annuities.
Generation-Skipping Transfers: Under the Code certain taxes
may be due when all or part of an annuity is transferred to or a death benefit
is paid to an individual two or more generations younger than the contract
holder. These 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 savings incentive match plans for employees using the employees' IRAs.
These arrangements are known as Simple-IRAs. Employer contributions that may be
made to Simple-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; (i) make
changes required by any change in other Federal or state laws relating to
retirement annuities or annuity contracts; and (j) discontinue offering any
variable investment option at any time.
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 (ASLAC) 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
(ASIHC), whose ultimate parent is Skandia Insurance Company Ltd., a Swedish
company. The Company markets its products to broker-dealers and financial
planners through an internal field marketing staff. In addition, the Company
markets through and in conjunction with financial institutions such as banks
that are permitted directly, or through affiliates, to sell annuities.
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 products within Mexico. The Company's investment in Skandia Vida, S.A.
de C.V. is $1,398,285 at December 31,1996.
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.
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 years
ended December 31, 1996, 1995, 1994, 1993 and 1992 has not been audited. The
selected financial data has been derived from the full financial statements for
the years ended December 31, 1996, 1995, 1994, 1993 and 1992 which were
presented in conformity with generally accepted accounting principles and which
were audited by Deloitte & Touche LLP, independent auditors, whose report on the
Company's consolidated financial statements as of December 31, 1996 and 1995,
and for the three years in the period ended December 31, 1996, is included
herein.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Income Statement Data:
Revenues:
<S> <C> <C> <C> <C> <C>
Annuity charges and fees* $ 69,779,522 $ 38,837,358 $ 24,779,785 $ 11,752,984 $ 4,846,134
Fee income 16,419,690 6,205,719 2,111,801 938,336 125,179
Net investment income 1,585,819 1,600,674 1,300,217 692,758 892,053
Annuity premium income 125,000 0 70,000 101,643 1,304,629
Net realized capital
gains/(losses) 134,463 36,774 (1,942) 330,024 195,848
Other income 34,154 64,882 24,550 1,269 15,119
---------------------------------------- ------------------ -----------------------
Total revenues $ 88,078,648 $ 46,745,407 $ 28,284,411 $ 13,817,014 $ 7,378,962
================ ================ ============== ============== =============
Benefits and Expenses:
Annuity benefits 613,594 555,421 369,652 383,515 276,997
Increase/(decrease) in annuity
policy reserves 634,540 (6,778,756) 5,766,003 1,208,454 1,331,278
Cost of minimum death benefit
reinsurance 2,866,835 2,056,606 0 0 0
Return credited
to contractowners 672,635 10,612,858 (516,730) 252,132 560,243
Underwriting, acquisition and
other insurance expenses 49,915,661 35,970,524 18,942,720 9,547,951 11,338,765
Interest expense 10,790,716 6,499,414 3,615,845 187,156 0
----------------------------------- ----------------- ----------------- ---------
Total benefits and expenses$ 65,493,981 $ 48,916,067 $ 28,177,490 $ 11,579,208 $ 13,507,283
================================ =============== ============== =============
Income tax (benefit) expense$ (4,038,357)$ 397,360 $ 247,429 $ 182,965 $ 0
=================================== ================= ========================
Net income (loss) $ 26,623,024 $ (2,568,020) $ (140,508) $ 2,054,841 $ (6,128,321)
================================= ================= =============================
Balance Sheet Data:
Total Assets $ 8,334,662,876 $ 5,021,012,890 $2,864,416,329 $1,558,548,537 $ 552,345,206
============== ============== ============== ============== ===============
Future fees payable
to parent $ 47,111,936 $ 0 $ 0 $ 0 $ 0
=============== ================ =============== =============== ===============
Surplus Notes $ 213,000,000 $ 103,000,000 $ 69,000,000 $ 20,000,000 $ 0
=============== =============== ================ ==============================
Shareholder's Equity $ 126,345,031 $ 59,713,000 $ 52,205,524 $ 52,387,687 $ 46,332,846
=============== =============== ================ ================= ===========
</TABLE>
*On annuity sales of $2,795,114,000, $1,628,486,000, $1,372,874,000,
$890,640,000 and $287,596,000 during the years ended December 31, 1996, 1995,
1994, 1993, and 1992, respectively, with contractowner assets under management
of $7,764,891,000, $4,704,044,000, $2,661,161,000, $1,437,554,000 and
$495,176,000 as of December 31, 1996, 1995, 1994, 1993 and 1992, respectively.
The above selected financial data should be read in conjunction with the
financial statements and the notes thereto.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations: The Company's long term business plan was
developed reflecting the current sales and marketing approach. Annuity sales
increased 72%, 19% and 54% in 1996, 1995 and 1994, respectively. The Company
continues to show significant growth in sales volume and increased market share
within the variable annuity industry. This growth is a result of innovative
product development activities, expansion of distribution channels and a focused
effort on customer orientation.
The Company primarily offers and sells a wide range of deferred annuities
through three focused marketing, sales and service teams, each of which
specializes in addressing one of the Company's primary distribution channels:
(a) financial planning firms; (b) broker-dealers that generally are members of
the New York Stock Exchange, including "wirehouse" and regional broker-dealer
firms; and (c) broker-dealers affiliated with banks or which specialize in
marketing to customers of banks. Starting in 1994, the Company expanded these
teams, adding more field marketing and internal sales support personnel. The
Company also offers a number of specialized products distributed by select,
large distributors. In 1995 and 1996 the Company restructured its internal
support operations to support the specialized marketing, sales and service needs
of the primary distribution channels and of the select distributors of
specialized products. There has been continued growth and success in expanding
the number of selling agreements in the primary distribution channels. There has
also been increased success in enhancing the relationships with the registered
representative/insurance agents of all the selling firms.
Total assets grew 66%, 75% and 84% in 1996, 1995 and 1994, respectively. These
increases were a direct result of the substantial sales volume increasing
separate account assets and deferred acquisition costs. Liabilities grew 65%,
76%, and 87% in 1996, 1995 and 1994, respectively, as a result of the reserves
required for the increased sales activity along with borrowing during 1996, 1995
and 1994. The borrowing is needed to fund the acquisition costs of the Company's
variable annuity business.
The Company experienced a net gain after tax in 1996 and a net loss after tax in
1995 and 1994. The 1996 result was related to the strong sales volume, favorable
market climate, expense savings relative to sales volume and recognition of
certain tax benefits.
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, which was in part responsible for
this strong sales and financial performance in 1996.
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.
Increasing volume of annuity sales results in higher assets under management.
The fees realized on assets under management have resulted in annuity charges
and fees increasing 80%, 57% and 111% in 1996, 1995 and 1994, respectively.
Net investment income decreased 1% in 1996 and increased 23% and 88% in 1995 and
1994 respectively. The level net investment income in 1996 is a result of the
consistent investment holdings throughout most of the year. The increase in 1995
and 1994 was a result of a higher average level of Company bonds and short-term
investments.
Fee income has increased 165%, 194% and 125% in 1996, 1995 and 1994,
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/(decrease) in annuity policy reserves represents 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 1996 and 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 one of the Company's
products which was further enhanced as a result of poor market conditions which
resulted in lower returns in 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. The
1996 return credited to contractowners in the amount of $0.7 million represents
a favorable investment return on the market value adjusted contracts relating to
the benefits and required reserves, offset by the effect of bond market
fluctuations on December 31, 1996 in the amount of $1.8 million. While the
assets relating to the market value adjusted contracts reflect the market
interest rate fluctuations which occurred on December 31, 1996, the liabilities
are based on the interest rates set for new contracts which are generally based
on the prior day's interest rates. During the first week of January 1997
interest rates were established for new contracts, thereby bringing the
liabilities relating to the market value adjusted contracts in line with the
related assets.
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 1996 is made up of
$133.9 million of commissions and $19.8 million of general expenses offset by
the net capitalization of deferred acquisition costs totaling $153.9 million.
This compares to the same period last year 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.
Underwriting, acquisition and other insurance expenses in 1994 were made up 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.
Interest expense increased $4.3 million, $2.9 million and $3.4 million in 1996,
1995 and 1994, respectively, as a result of Surplus Notes totaling $213 million,
$103 million and $69 million, at December 31, 1996, 1995 and 1994, respectively.
Income tax reflected a benefit of $4,038,357 for the year ended December 31,
1996, compared with expense of $397,360 and $247,429 for the years ended
December 31, 1995 and 1994, respectively. The 1996 benefit is related to
management's release of the deferred tax valuation allowance of $9,324,853
established at December 31, 1995. Management believes that based on the taxable
income produced in the current year and the continued growth in annuity
products, the Company will produce sufficient taxable income in the future to
realize its deferred tax assets. Income tax expense in 1995 and 1994 relates
principally to increases in the deferred tax valuation allowance of $1,680,339
and $365,288 for the years ended December 31, 1995 and 1994, respectively, as
well as the Company being in an Alternative Minimum Tax position for both years.
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 1996. The sales
volume of $2.795 billion was primarily (approximately 96%) 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 1996, the Company borrowed an additional $110 million from its parent in
the form of Surplus Notes and extended its reinsurance agreements (which were
initiated in 1993, 1994 and 1995). The reinsurance agreements are modified
coinsurance arrangements where the reinsurer shares in the experience of a
specific book of business. The income and expense items presented above are net
of reinsurance.
In addition, on December 17, 1996 the company sold to its Parent, effective
September 1, 1996, certain rights to receive future fees and charges expected to
be realized on the variable portion of a designated block of deferred annuity
contracts issued during the period January 1, 1994 through June 30, 1996. In
connection with this transaction the Parent issued collateralized notes through
a trust in a private placement which are secured by the rights to receive future
fees and charges purchased from the Company.
Under the terms of the Purchase Agreement, the rights sold provide for the
Parent to receive 80% of future mortality and expense charges and contingent
deferred sales charges, after reinsurance, expected to be realized over the
remaining surrender charge period of the designated contracts (generally, 6.5
years). The company did not sell the right to receive future fees and charges
after the expiration of the surrender charge period.
The proceeds from the sale have been recorded as a liability and are being
amortized over the remaining surrender charge period of the designated contracts
using the interest method. The present value at September 1, 1996 (discounted at
7.5%) of future fees and charges expected to be realized on the designated
contracts was $50,221,438.
The Company expects to use borrowing, reinsurance and the sale of future fee
revenues 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. On December 19, 1996, the company received $39 million from its
parent to support the capital needs of its anticipated 1997 growth in business.
As of December 31, 1996 and December 31, 1995, shareholder's equity was
$126,345,031 and $59,713,000 respectively, which includes the carrying value of
state insurance licenses in the amount of $4,712,500 and $4,862,500,
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 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.
The Company reinsures 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 agreements.
Future Fees Payable to Parent: On December 17, 1996 the Company sold to
its Parent, effective September 1, 1996, certain rights to receive future fees
and charges expected to be realized on the variable portion of a designated
block of deferred annuity contracts issued during the period January 1, 1994
through June 30, 1996. In connection with this transaction, the Parent issued
collateralized notes in a private placement which are secured by the rights to
receive future fees and charges purchased from the Company.
Under the terms of the Purchase Agreement, the rights sold provide for the
Parent to receive 80% of future mortality and expense charges and contingent
deferred sales charges, after reinsurance, expected to be realized over the
remaining surrender charge period of the designated contracts (generally, 6.5
years). The Company did not sell the right to receive future fees and charges
after the expiration of the surrender charge period.
The proceeds from the sale have been recorded as a liability and are being
amortized over the remaining surrender charge period of the designated contracts
using the interest method. The present value at September 1, 1996 (discounted at
7.5%), of future fees and charges expected to be realized on the designated
contracts was $50,221,438. Payments representing fees and charges realized
during the period September 1, 1996 through December 31, 1996 in the aggregate
amount of $3,109,502, were made by the Company to the Parent. Interest expense
of $42,260 has been included in the statement of operations.
Surplus Notes: The Company has issued surplus notes to its Parent in
exchange for cash. Surplus notes outstanding as of December 31, 1996 were as
follows:
Issue
Interest
Amount
Date Rate
December 29, 1993 $ 20,000,000 6.84%
February 18, 1994 10,000,000 7.28%
March 28, 1994 10,000,000 7.90%
September 30, 1994 15,000,000 9.13%
December 28, 1994 14,000,000 9.78%
December 19, 1995 10,000,000 7.52%
December 20, 1995 15,000,000 7.49%
December 22, 1995 9,000,000 7.47%
June 28, 1996 40,000,000 8.41%
December 30, 1996 70,000,000 8.03%
---- ----------
Total $213,000,000
Payment of interest and repayment of principal for these notes is subject to
certain conditions and requires approval by the Insurance Commissioner of the
State of Connecticut.
Interest expense on surplus notes was $10,087,347, $5,789,893 and $3,016,905 for
the years ended December 31, 1996, 1995 and 1994, respectively. Interest
approved and paid during 1996 was $6,438,867. Interest accrued at December 31,
1996 amounted to $3,648,480, of which $2,080,680 has been approved and paid in
1997. The remaining $1,567,800 was not approved for payment. The 1995 and 1994
amounts were approved at December 31, 1995 with stipulation that they 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, 1996, we had 310 direct salaried
employees. An affiliate, American Skandia Information Services and Technology
Corporation, which provides services almost exclusively to us, had 54 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.
<TABLE>
<CAPTION>
Executive Officers and Directors:
Our executive officers, directors and certain significant employees, their ages,
positions with us and principal occupations are indicated below. The immediately
preceding work experience is provided for officers that have not been employed
by us or an affiliate for at least five years as of the date of this Prospectus.
<S> <C> <C> <C> <C>
Name/ Position with American Skandia
Age Life Assurance Corporation Principal Occupation
Gordon C. Boronow* President President and
44 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, Customer
35 Customer Service and Service and Business Operations:
Business Operations 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,
41 Assurance and Financial
Services Division:
Skandia Insurance Company Ltd.
Jan R. Carendi* Chief Executive Executive Vice President and
52 Officer and Member of Corporate Management Group:
Chairman of the Skandia Insurance Company Ltd.
Board of Directors
Director (since May, 1988)
Cindy C. Ciccarello Vice President, Vice President,
38 Customer Service Customer Service:
American Skandia Life
Assurance Corporation
Ms. Ciccarello joined us in 1997. She previously held the position of Assistant
Vice President at Phoenix Duff & Phelps from 1996 to 1997 and positions of
Director and Operations Manager at Phoenix Equity Planning Corporation from 1989
to 1996.
Lincoln R. Collins Senior Vice President, Senior Vice President,
36 Product Management Product Management:
Director (since February, 1996) American Skandia Life
Assurance Corporation
William F. Cordner, Jr. Vice President, Vice President,
50 Customer Focus Teams Customer Focus Teams:
American Skandia Life
Assurance Corporation
Mr. Cordner joined us in 1996. He previously held the position of Vice President
at United Healthcare from 1993 to 1996 and Vice President at The Travelers
Insurance Company from 1990 to 1993.
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:
37 and Employee American Skandia Life
Assurance Corporation;
President, Chief Operating Officer
and Chief Marketing Officer:
American Skandia Marketing, Incorporated
Teresa Grove Vice President, Vice President,
41 Customer Service Customer Service:
American Skandia Life
Assurance Corporation
Ms. Grove joined us in 1996. She previously held positions of Operations Manager
at Twentieth Century/Benham from January, 1992 to September, 1996 and Operations
Manager at Lateef Management Association from January, 1989 to June, 1991.
Brian L. Hirst Vice President, Vice President,
49 Corporate Actuary Corporate Actuary:
American Skandia Life
Assurance Corporation
Mr. Hirst joined us in 1996. He previously held the positions of Vice President
from 1993 to 1996 and Second Vice President from 1987 to 1992 at Allmerica
Financial.
N. David Kuperstock Vice President, Vice President,
45 Product Development Product Development:
American Skandia Life
Assurance Corporation
Thomas M. Mazzaferro Executive Vice President and Executive Vice President and
44 Chief Financial Officer, Chief Financial Officer:
Director (since October, 1994) American Skandia Life
Assurance Corporation
Gunnar J. Moberg Director (since November, 1994) Director - Marketing and Sales,
42 Assurances and Financial
Services Division:
Skandia Insurance Company Ltd.
David R. Monroe Vice President and Vice President and
35 Controller Controller:
American Skandia Life
Assurance Corporation
Mr. Monroe joined us in 1996. He previously held positions of Assistant Vice
President and Director at Allmerica Financial from August, 1994 to July, 1996
and Senior Manager at KPMG Peat Marwick from July, 1983 to July, 1994.
Polly Rae Vice President, Vice President,
34 Service Development Service Development:
American Skandia Life
Assurance Corporation
Rodney D. Runestad Vice President Vice President:
47 American Skandia Life
Assurance Corporation
Anders O. Soderstrom Director (since October, 1994) President and
37 Chief Operating Officer:
American Skandia Information
Services and Technology Corporation
Amanda C. Sutyak Executive Vice President Executive Vice President
39 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
46 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 Director (since October, 1994) Senior Vice President
49 and National Sales Manager:
American Skandia
Marketing, Incorporated
Jeffrey M. Ulness Vice President, Vice President,
36 Product Management Product Management:
American Skandia Life
Assurance Corporation
Mr. Ulness joined us in 1994. He previously held the positions of Counsel at
North American Security Life Insurance Company from March, 1991 to July, 1994
and Associate at LeBoeuf, Lamb, Leiby, Green and MacRae from January, 1990 to
March 1991.
- --------
* Trustees of American Skandia Trust, one of the underlying mutual funds in
which the Sub-accounts offered pursuant to this Prospectus invest.
</TABLE>
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 3
Sub-accounts)
FINANCIAL STATEMENTS: The consolidated financial statements which follow in
Appendix A are those of American Skandia Life Assurance Corporation as of
December 31, 1996 and 1995, and for the three years in the period ended December
31, 1996. Financial statements for the Class 3 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
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 and subsidiary (a wholly-owned
subsidiary of Skandia Insurance Company Ltd.) as of December 31, 1996 and 1995,
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, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our 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 and subsidiary as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche, LLP
New York, New York
March 10, 1997
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
<S> <C> <C>
1996 1995
ASSETS
Investments:
Fixed maturities - at amortized cost $ 10,090,369 $ 10,112,705
Fixed maturities - at market value 87,369,724 0
Investment in mutual funds - at market value 2,637,731 1,728,875
Short-term investments - at amortized cost 18,100,000 15,700,000
Total investments 118,197,824 27,541,580
Cash and cash equivalents 14,199,412 13,146,384
Accrued investment income 1,958,546 194,074
Fixed assets 229,780 82,434
Deferred acquisition costs 438,640,918 270,222,383
Reinsurance receivable 2,167,818 1,988,042
Receivable from affiliates 691,532 860,991
Income tax receivable - current 0 563,850
Income tax receivable - deferred 17,217,582 0
State insurance licenses 4,712,500 4,862,500
Other assets 2,207,171 1,589,006
Separate account assets 7,734,439,793 4,699,961,646
Total Assets $ 8,334,662,876 $ 5,021,012,890
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES:
Reserve for future contractowner benefits $ 36,245,936 $ 30,493,018
Annuity policy reserves 21,238,749 19,386,490
Income tax payable 1,124,151 0
Accounts payable and accrued expenses 65,198,965 32,816,517
Payable to affiliates 685,724 314,699
Future fees payable to parent 47,111,936 0
Payable to reinsurer 79,000,262 64,995,470
Short-term borrowing-affiliate 10,000,000 10,000,000
Surplus notes 213,000,000 103,000,000
Deferred contract charges 272,329 332,050
Separate account liabilities 7,734,439,793 4,699,961,646
Total Liabilities 8,208,317,845 4,961,299,890
SHAREHOLDER'S EQUITY:
Common stock, $80 par, 25,000 shares
authorized, issued and outstanding 2,000,000 2,000,000
Additional paid-in capital 122,250,117 81,874,666
Unrealized investment gains and losses, net (319,631) 111,359
Foreign currency translation, net (263,706) (328,252)
Retained earnings (deficit) 2,678,251 (23,944,773)
Total Shareholder's Equity 126,345,031 59,713,000
Total Liabilities and Shareholder's Equity $ 8,334,662,876 $ 5,021,012,890
</TABLE>
See notes to consolidated financial statements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1996 1995 1994
------------ ------------ ------------
REVENUES:
Annuity charges and fees $ 69,779,522 $ 38,837,358 $ 24,779,785
Fee income 16,419,690 6,205,719 2,111,801
Net investment income 1,585,819 1,600,674 1,300,217
Annuity premium income 125,000 0 70,000
Net realized capital gains/(losses) 134,463 36,774 (1,942)
Other 34,154 64,882 24,550
------------ ------------ ------------
Total Revenues 88,078,648 46,745,407 28,284,411
------------ ------------ ------------
BENEFITS AND EXPENSES:
Benefits:
Annuity benefits 613,594 555,421 369,652
Increase/(decrease) in annuity policy reserves 634,540 (6,778,756) 5,766,003
Cost of minimum death benefit reinsurance 2,866,835 2,056,606 0
Return credited to contractowners 672,635 10,612,858 (516,730)
------------ ------------ ------------
4,787,604 6,446,129 5,618,925
------------ ------------ ------------
Expenses:
Underwriting, acquisition and other insurance expenses 49,765,661 35,820,524 18,792,720
Amortization of state insurance licenses 150,000 150,000 150,000
Interest expense 10,790,716 6,499,414 3,615,845
------------ ------------ ------------
60,706,377 42,469,938 22,558,565
------------ ------------ ------------
Total Benefits and Expenses 65,493,981 48,916,067 28,177,490
------------ ------------ ------------
Income (loss) from operations before federal income taxes 22,584,667 (2,170,660) 106,921
Income tax (benefit) expense (4,038,357) 397,360 247,429
------------ ------------ ------------
Net income (loss) $ 26,623,024 $ (2,568,020) $ (140,508)
============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1996 1995 1994
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 81,874,666 71,623,932 71,623,932
Additional contributions 40,375,451 10,250,734 0
----------- ----------- -----------
Balance at end of year 122,250,117 81,874,666 71,623,932
----------- ----------- -----------
Unrealized investment gains and losses:
Balance at beginning of year 111,359 (41,655) 0
Change in unrealized investment gains and losses, net (430,990) 153,014 (41,655)
----------- ----------- -----------
Balance at end of year (319,631) 111,359 (41,655)
Foreign currency translation:
Balance at beginning of year (328,252) 0 0
Change in foreign currency translation, net 64,546 (328,252) 0
----------- ----------- -----------
Balance at end of year (263,706) (328,252) 0
----------- ----------- -----------
Retained earnings (deficit):
Balance at beginning of year (23,944,773) (21,376,753) (21,236,245)
Net income (loss) 26,623,024 (2,568,020) (140,508)
----------- ----------- -----------
Balance at end of year 2,678,251 (23,944,773) (21,376,753)
----------- ----------- -----------
TOTAL SHAREHOLDER'S EQUITY $ 126,345,031 $ 59,713,000 $ 52,205,524
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1996 1995 1994
--------------- --------------- ---------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 26,623,024 $ (2,568,020) $ (140,508)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Increase/decrease) in annuity policy reserves 1,852,259 (4,667,765) 6,004,603
Increase/(decrease) in policy contract claims
Amortization of bond discount 27,340 23,449 21,964
Amortization of state insurance licenses 150,000 150,000 150,000
Change in due to/from affiliates 540,484 (347,884) 256,779
Change in income tax payable/receivable 1,688,001 (600,849) 36,999
Increase in other assets (765,511) (409,927) (742,041)
Increase in accrued investment income (1,764,472) (20,420) (44,847)
Increase in reinsurance receivable (179,776) (1,988,042) 0
Increase in accounts payables and accrued expenses 32,382,448 1,063,137 13,396,502
Increase in deferred acquisition costs (168,418,535) (96,212,774) (83,986,073)
Decrease in deferred contract charges (59,721) (117,654) (71,117)
Increase in foreign currency translation, net (77,450) (328,252) 0
Deferred income taxes (16,903,477) 0 0
Realized (gain)/loss on sale of investments (134,463) (36,774) 1,942
------------- -------------- -------------
Net cash used in operating activities (125,039,849) (106,061,775) (65,115,797)
------------- ------------- -------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of fixed maturities (96,812,903) (614,289) (1,989,120)
Proceeds from sales and maturities of available-for-sale fixed maturities 8,732,390 0 0
Proceeds from maturities of held-to-maturity fixed maturities 215,000 100,000 2,010,000
Purchase of shares in mutual funds (2,160,347) (1,566,194) (922,822)
Proceeds from sale of shares in mutual funds 1,273,640 867,744 38,588
Net sale (purchase) of short-term investments (2,400,000) 8,300,000 (4,600,000)
Investments in separate accounts (2,789,361,685) (1,609,415,439) (1,365,775,177)
------------- ------------- -------------
Net cash used in investing activities (2,880,513,905) (1,602,328,178) (1,371,238,531)
------------- ------------- -------------
CASH FLOW FROM FINANCING ACTIVITIES:
Capital contributions from parent 40,375,451 10,250,734 0
Surplus notes 110,000,000 34,000,000 49,000,000
Increase in future fees payable to parent 47,111,936 0 0
Short-term borrowing
Increase in payable to reinsurer 14,004,792 24,890,064 28,555,190
Proceeds from annuity sales 2,795,114,603 1,628,486,076 1,372,873,747
------------- ------------- -------------
Net cash provided by financing activities 3,006,606,782 1,697,626,874 1,450,428,937
------------- ------------- -------------
Net increase/(decrease) in cash and cash equivalents 1,053,028 (10,763,079) 14,074,609
Cash and cash equivalents at beginning of year 13,146,384 23,909,463 9,834,854
------------- ------------- -------------
Cash and cash equivalents at end of year $ 14,199,412 $ 13,146,384 $ 23,909,463
============= ============= =============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Income taxes paid $ 11,177,120 $ 995,496 $ 161,398
============= ============= =============
Interest paid $ 7,094,767 $ 540,319 $ 557,639
============= ============= =============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
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.
The Company's consolidated financial statements include the accounts of
Skandia Vida, S.A. de C.V. ("Skandia Vida"), a life insurance company
domiciled in Mexico, which was formed in 1995 by the ultimate parent
Skandia Insurance Company Ltd. The Company has a 99.9% ownership
interest in Skandia Vida, which is a start up company with expectations
of selling long term savings products 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
either held-to-maturity or available-for-sale. Investments
classified as held-to-maturity are investments that the
Company has the ability and intent to hold to maturity. Such
investments are carried at amortized cost. Those investments
which are classified as available-for-sale are carried at
market value and changes in unrealized gains and losses are
reported as a component of shareholder's equity.
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.
<PAGE>
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 amounted to $32,641 and $3,749 at December 31,
1996 and 1995, respectively. Depreciation expense for the
years ended December 31, 1996 and 1995 was $28,892 and $3,749
respectively.
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 Table-a with assumed interest
rates that vary by issue year. Assumed interest rates ranged
from 6.5% to 8.25% at both December 31, 1996 and 1995.
Annuity sales were $2,795,114,000, $1,628,486,000 and
$1,372,874,000 for the years ended December 31, 1996, 1995 and
1994, respectively. Annuity contract assets under management
were $7,764,891,000, $4,704,044,000 and $2,661,161,000 at
December 31, 1996, 1995 and 1994, respectively.
<PAGE>
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
deferred and 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>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Balance at beginning of year $270,222,383 $174,009,609 $ 90,023,536
Acquisition costs deferred
during the year 190,995,588 106,063,698 85,801,180
Acquisition costs amortized
during the year 22,577,053 9,850,924 1,815,107
------------ ------------ ------------
Balance at end of year $438,640,918 $270,222,383 $174,009,609
============ ============ ============
</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>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Balance at beginning of year $332,050 $449,704 $520,821
Contract charges deferred
during the year 42,740 21,513 87,114
Contract charges amortized
during the year 102,461 139,167 158,231
-------- -------- --------
Balance at end of year $272,329 $332,050 $449,704
======== ======== ========
</TABLE>
<PAGE>
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. Separate Account 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 $644,233,883 and
$586,233,752 at December 31, 1996 and 1995, respectively,
relating to annuity contracts for which the contractholder is
guaranteed a fixed rate of return. Separate Account assets of
$644,233,883 and $588,835,051 at December 31, 1996 and 1995,
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 as adjusted for
consolidated items such as net operating losses which are
utilized in the consolidated federal income tax return in
accordance with the provisions of the Internal Revenue Code,
as amended. Prior to 1995, the Company filed a separate 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.
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.
The Company reinsures certain mortality risks. These risks
result from the guaranteed minimum death benefit feature in
the variable annuity products.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
3. INVESTMENTS
The amortized cost, gross unrealized gains (losses) and estimated
market value of available-for-sale and held-to-maturity fixed
maturities and equity securities by category as of December 31, 1996
and 1995 are shown below. All securities held at December 31, 1996 are
publicly traded.
Investments in fixed maturities as of December 31, 1996 consist of the
following:
Held-to-Maturity
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Government
Obligations $ 4,299,803 $88,268 $22,937 $ 4,365,134
Obligations of
State and Political
Subdivisions 250,119 229 0 250,348
Corporate
Securities 5,540,447 0 62,660 5,477,787
----------- ------- ------- -----------
Totals $10,090,369 $88,497 $85,597 $10,093,269
=========== ======= ======= ===========
</TABLE>
<TABLE>
<CAPTION>
Available-for-Sale
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Government
Obligations $14,508,780 0 $ 79,745 $14,429,035
Obligations of
State and Political
Subdivisions 202,516 26 0 202,542
Other Government
Obligations 5,047,790 0 7,440 5,040,350
Corporate
Securities 68,101,413 83,312 486,928 67,697,797
----------- ------- -------- -----------
Totals $87,860,499 $83,338 $574,113 $87,369,724
=========== ======= ======== ===========
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
The amortized cost and market value of fixed maturities, by contractual
maturity, at December 31, 1996 are shown below.
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
<S> <C> <C> <C> <C>
Amortized Market Amortized Market
Cost Value Cost Value
Due in one year or less $ 697,626 $ 699,861 $ 5,047,790 $ 5,040,350
Due after one through five years 9,138,036 9,143,290 29,864,609 29,756,002
Due after five through ten years 254,707 250,118 52,948,100 52,573,372
----------- ----------- ----------- -----------
Total $10,090,369 $10,093,269 $87,860,499 $87,369,724
=========== =========== =========== ===========
</TABLE>
Investments in fixed maturities as of December 31, 1995 consist of the
following:
<TABLE>
<CAPTION>
Held-to-Maturity
<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>
Proceeds from sales and maturities of fixed maturity investments during
1996, 1995 and 1994, were $8,947,390, $100,000 and $2,010,000,
respectively.
There were no gross gains and losses realized during the years ended
December 31, 1996, 1995 and 1994.
<PAGE>
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, 1996 and 1995 are shown
below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Gross Gross
Unrealized Unrealized Market
Cost Gains Losses Value
1996 $2,638,695 $ 59,278 $60,242 $2,637,731
========== ======== ======= ==========
1995 $1,617,516 $111,686 $ 327 $1,728,875
========== ======== ======= ==========
</TABLE>
Proceeds from sales of investments in mutual funds during 1996, 1995
and 1994 were $1,273,640, $867,744 and $38,588, respectively.
Mutual fund gross realized gains and losses were as follows:
Gross Gross
Gains Losses
1996 $139,814 $ 5,351
======== =======
1995 $ 65,236 $28,462
======== =======
1994 $ 510 $ 2,452
======== =======
4. NET INVESTMENT INCOME
Additional information with respect to net investment income for the
years ended December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Fixed maturities $ 836,591 $ 629,743 $ 616,987
Mutual funds 143,737 59,895 12,049
Short-term investments 92,987 256,351 142,421
Cash and cash equivalents 591,666 730,581 633,298
Interest on policy loans 5,274 4,025 1,275
---------- ---------- ----------
Total investment income 1,670,255 1,680,595 1,406,030
Investment expenses 84,436 79,921 105,813
---------- ---------- ----------
Net investment income $1,585,819 $1,600,674 $1,300,217
========== ========== ==========
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES
The significant components of income tax expense are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Current tax expense $12,865,120 $397,360 $247,429
Deferred tax (benefit) expense (16,903,477) 0 0
------------- -------- --------
Total income tax (benefit) expense ($ 4,038,357) $397,360 $247,429
============= ======== ========
</TABLE>
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, 1996 and 1995, are as follows:
<TABLE>
<S> <C> <C>
1996 1995
---- ----
Deferred Tax (Liabilities):
Deferred acquisition costs ($103,072,477) ($57,399,960)
Payable to reinsurer (23,025,326) (19,802,861)
Policy Fees (491,640) (308,304)
Unrealized investment gains 0 (38,976)
------------ -----------
Total (126,589,443) (77,550,101)
------------ -----------
Deferred Tax Assets:
Net separate account liabilities 121,092,798 72,024,094
Reserve for future contractowner benefits 12,686,078 10,672,556
Other reserve differences 4,527,886 1,492,044
Deferred compensation 4,392,526 2,169,060
Surplus notes blocked interest 548,730 0
Unrealized investment losses 172,109 0
Foreign exchange translation 141,996 114,888
Deferred contract charge 95,315 116,218
AMT credit carryforward 0 286,094
Other 149,587 0
------------ -----------
Total 143,807,025 86,874,954
------------ -----------
Net before valuation allowance 17,217,582 9,324,853
Valuation allowance 0 (9,324,853)
------------ -----------
Net deferred tax balance $ 17,217,582 $ 0
============ ===========
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
Management believes that based on the taxable income produced in the
current year and the continued growth in annuity products, the Company
will produce sufficient taxable income in the furture to realize its
deferred tax assets. As such, the Company released the deferred tax
valuation allowance of $9,324,853 established as of December 31, 1995.
The income tax expense was different from the amount computed by
applying the federal statutory tax rate of 35% to pre-tax income from
continuing operations as follows:
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Income (loss) before taxes $22,584,667 ($2,170,660) $106,921
Income tax rate 35% 35% 35%
----------- ----------- ---------
Tax expense at federal
statutory income tax rate 7,904,633 (759,731) 37,422
Tax effect of:
Change in valuation allowance (9,324,853) 1,680,339 365,288
Dividend received deduction (2,266,051) (477,139) 0
Other (352,086) (46,109) (155,281)
----------- ---------- --------
Income tax (benefit) expense ($ 4,038,357) $ 397,360 $247,429
============ ========== ========
</TABLE>
6. RELATED PARTY TRANSACTIONS
Certain operating costs (including personnel, rental of office space,
furniture, and equipment) have been charged to the Company at cost by
American Skandia Information Services and Technology Corporation, an
affiliated company; and likewise, the Company has charged operating
costs to American Skandia Investment Services, Incorporated, an
affiliated company. Operating costs for these items was $11,581,114,
$12,687,337 and $8,524,840 for the years ended December 31, 1996, 1995
and 1994, respectively. Income received for these items was $1,148,364,
$396,573 and $248,799 for the years ended December 31, 1996, 1995 and
1994, respectively. Amounts receivable from affiliates under this
arrangement were $548,792 and $857,156 as of December 31, 1996 and
1995, respectively. Amounts payable to affiliates under this
arrangement were $619,089 and $304,525 as of December 31, 1996 and
1995, respectively.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
7. FUTURE FEES PAYABLE TO PARENT
On December 17, 1996 the Company sold to its Parent, effective
September 1, 1996, certain rights to receive future fees and charges
expected to be realized on the variable portion of a designated block
of deferred annuity contracts issued during the period January 1, 1994
through June 30, 1996. In connection with this transaction, the Parent
issued collateralized notes in a private placement which are secured by
the rights to receive future fees and charges purchased from the
Company.
Under the terms of the Purchase Agreement, the rights sold provide for
the Parent to receive 80% of future mortality and expense charges and
contingent deferred sales charges, after reinsurance, expected to be
realized over the remaining surrender charge period of the designated
contracts (generally, 6.5 years). The Company did not sell the right to
receive future fees and charges after the expiration of the surrender
charge period.
The proceeds from the sale have been recorded as a liability and are
being amortized over the remaining surrender charge period of the
designated contracts using the interest method. The present value at
September 1, 1996 (discounted at 7.5%), of future fees and charges
expected to be realized on the designated contracts was $50,221,438.
Payments representing fees and charges realized during the period
September 1, 1996 through December 31, 1996 in the aggregate amount of
$3,109,502, were made by the Company to the Parent. Interest expense of
$42,260 has been included in the statement of operations.
Expected payments of future fees payable to Parent are as follows:
Year Ending
December 31, Amount
1997 $ 9,308,527
1998 9,782,558
1999 10,002,274
2000 10,061,058
2001 6,412,114
2002 1,392,003
2003 153,402
-----------
Total $47,111,936
The Commissioner of the State of Connecticut has approved the sale of
future fees and charges; however, in the event that the Company becomes
subject to an order of liquidation or rehabilitation, the Commissioner
has the ability to stop the payments due to the Parent under the
Purchase Agreement, subject to certain terms and conditions.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
8. LEASES
The Company leases office space under a lease agreement established in
1989 with American Skandia Information Services and Technology
Corporation. The lease expense for 1996, 1995 and 1994 was $1,583,391,
$1,218,806 and $961,080, respectively. Future minimum lease payments
per year and in aggregate as of December 31, 1996 are as follows:
1997 1,413,180
1998 1,571,400
1999 1,571,400
2000 1,740,750
2001 and thereafter 6,527,813
-----------
Total $12,824,543
9. RESTRICTED ASSETS
In order to comply with certain state insurance departments'
requirements, the Company maintains cash, bonds and notes on deposit
with various states. The carrying value of these deposits amounted to
$3,766,564 and $3,267,357 as of December 31, 1996, and 1995,
respectively. These deposits are required to be maintained for the
protection of contractowners within the individual states.
10. RETAINED EARNINGS AND DIVIDEND RESTRICTIONS
Statutory basis shareholder's equity was $275,835,076, $132,493,899 and
$95,001,971 at December 31, 1996, 1995 and 1994, respectively.
The statutory basis net loss was $5,405,179, $7,183,003 and $9,789,297
for the years ended December 31, 1996, 1995 and 1994, 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, 1996, no amounts may be
distributed without prior approval.
11. 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 $850,111, $627,161 and $431,559 for the
years ended December 31, 1996, 1995 and 1994, respectively.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
The Company and it's affiliate cooperatively have 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 $9,212,369 and $4,600,831 as of December 31,
1996 and 1995, respectively. Payments under this plan were $601,603 for
the year ended December 31, 1996.
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
$244,601 in 1996 and $139,209 in 1995.
12. 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, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996
------------------------------------------------------------------
<S> <C> <C> <C>
Annuity Change in Annuity Return Credited
Charges and Fees Policy Reserves to Contractowners
Gross $87,369,693 $814,306 $779,070
Ceded 17,590,171 179,766 106,435
----------- -------- --------
Net $69,779,522 $634,540 $672,635
=========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1995 1994
------------------------------------------------------------------ ----------------
<S> <C> <C> <C> <C>
Annuity Change in Annuity Return Credited Annuity
Charges and Fees Policy Reserves to Contractowners Charges and Fees
Gross $50,334,280 ($4,790,714) $10,945,831 $30,116,166
Ceded 11,496,922 1,988,042 332,973 5,336,381
----------- ---------- ----------- -----------
Net $38,837,358 ($6,778,756) $10,612,858 $24,779,785
=========== =========== =========== ===========
</TABLE>
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.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
13. SURPLUS NOTES
The Company has issued surplus notes to its Parent in exchange for
cash. Surplus notes outstanding as of December 31, 1996 were as
follows:
Issue Interest
Date Amount Rate
December 29, 1993 $ 20,000,000 6.84%
February 18, 1994 10,000,000 7.28%
March 28, 1994 10,000,000 7.90%
September 30, 1994 15,000,000 9.13%
December 28, 1994 14,000,000 9.78%
December 19, 1995 10,000,000 7.52%
December 20, 1995 15,000,000 7.49%
December 22, 1995 9,000,000 7.47%
June 28, 1996 40,000,000 8.41%
December 30, 1996 70,000,000 8.03%
------------
Total $213,000,000
Payment of interest and repayment of principal for these notes is
subject to certain conditions and requires approval by the Insurance
Commissioner of the State of Connecticut.
Interest expense on surplus notes was $10,087,347, $5,789,893 and
$3,016,905 for the years ended December 31, 1996, 1995 and 1994,
respectively. Interest approved and paid during 1996 was $6,438,867.
Interest accrued at December 31, 1996 amounted to $3,648,480, of which
$2,080,680 has been approved and paid in 1997. The remaining $1,567,800
was not approved for payment. The 1995 and 1994 amounts were approved
at December 31, 1995 with stipulation that they be funded through a
capital contribution from the parent.
14. SHORT-TERM BORROWING
During 1993, the Company received a $10 million loan from Skandia AB, a
Swedish affiliate. Upon renewal during 1995 the loan became payable to
the Parent rather than Skandia AB. The loan matures on March 10, 1997
and bears interest at 6.46%. The total interest expense to the Company
was $642,886, $709,521 and $569,618 and for the years ended December
31, 1996, 1995 and 1994, respectively, of which $206,361 and $219,375
was payable as of December 31, 1996 and 1995, respectively.
15. 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
8.5% to 1% for contracts held less than 8 years.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes information with respect to the
operations of the Company on a quarterly basis:
<TABLE>
<CAPTION>
Three Months Ended
<S> <C> <C> <C> <C>
1996 March 31 June 30 September 30 December 31
---- ----------- ----------- ------------ -----------
Premiums and other insurance
revenues $16,605,765 $20,452,733 $22,366,166 $26,933,702
Net investment income 455,022 282,926 270,092 577,779
Net realized capital gains 92,072 13,106 5,606 23,679
----------- ----------- ----------- -----------
Total revenues $17,152,859 $20,748,765 $22,641,864 $27,535,160
=========== =========== =========== ===========
Benefits and expenses $12,725,411 $ 9,429,735 $17,007,137 $25,191,857
=========== =========== =========== ===========
Net income $ 2,658,941 $ 7,695,490 $ 2,538,513 $14,470,976
=========== =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
<S> <C> <C> <C> <C>
1995 March 31 June 30 September 30 December 31
---- ----------- ----------- ------------ -----------
Premiums and other insurance
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)
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
<S> <C> <C> <C> <C>
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>
As described in Note 5, the valuation allowance relating to deferred
income taxes was released during the three months ended December 31,
1996.
APPENDIX B
SHORT DESCRIPTIONS OF THE
UNDERLYING MUTUAL FUNDS' PORTFOLIO INVESTMENT OBJECTIVES AND POLICIES
The investment objectives for the portfolio of 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.
Galaxy VIP Fund
GAL Money Market Fund: The Money Market Fund's investment objective is to seek
as high a level of current income as is consistent with liquidity and stability
of principal. The Fund seeks to achieve its objective by investing in "money
market" instruments that are determined by the investment adviser to present
minimal credit risk and meet certain rating criteria. Instruments that may be
purchased by the Money Market Fund include obligations of domestic and foreign
banks (including negotiable certificates of deposit, non-negotiable time
deposits, savings deposits, and bankers' acceptances); commercial paper
(including variable and floating rate notes); obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities; and repurchase
agreements issued by financial institutions such as banks and broker/dealers.
These instruments have remaining maturities of thirteen months or less (except
for certain variable and floating rate notes and securities underlying certain
repurchase agreements).
In accordance with a rule promulgated by the Securities and Exchange Commission,
the Money Market Fund will purchase only those instruments which meet the
applicable quality requirements described below. The Money Market Fund will not
purchase a security (other than a U.S. Government security) unless the security
or the issuer with respect to comparable securities (i) is rated by at least two
nationally recognized statistical rating organizations ("Rating Organizations")
(such as S&P, Moody's or Fitch Investor Services, L.P.) in the highest category
for short-term debt securities, (ii) is rated by the only Rating Organization
that has issued a rating with respect to such security or issuer in such Rating
Organization's highest category for short-term debt, or (iii) if not rated, the
security is determined to be of comparable quality. These rating categories are
determined without regard to sub-categories and gradations. The investment
adviser will follow applicable regulations in determining whether a security
rated by more than one Rating Agency can be treated as being in the highest
short-term rating category. Determinations of comparable quality will be made in
accordance with procedures established by the Board of Trustees. Generally, if a
security has not been rated by a Rating Agency, the Fund may acquire the
security if the investment adviser determines that the security is of comparable
quality to securities that have received the requisite ratings. The investment
adviser also considers other relevant information in its evaluation of unrated
short-term securities.
The Fund will maintain a dollar-weighted average portfolio maturity of 90 days
or less in an effort to maintain a stable net asset value per share of $1.00.
The value of the Fund's portfolio securities will generally vary inversely with
changes in prevailing interest rates.
GAL Equity Fund: The Equity Fund's investment objective is to seek long-term
growth by investing in companies that the Fund's investment adviser believes
have above-average earnings potential. The Fund seeks to achieve its investment
objective by investing, under normal market and economic conditions, at least
75% of its total assets in a broadly diversified portfolio of equity securities
such as common stock, preferred stock, common stock warrants and securities
convertible into common stock of companies that the investment adviser believes
will increase future earnings to a level above the average earnings of similar
issuers. Such companies often retain their earnings to finance current and
future growth and, for this reason, generally pay little or no dividends. Equity
securities in which the Fund invests are selected based on analyses of trends in
industries and companies, earning power, growth features, quality and depth of
management, marketing and manufacturing skills, financial conditions and other
investment criteria. By investing in convertible securities, the Fund will seek
the opportunity, through the conversion feature, to participate in the capital
appreciation of the common stock into which the securities are convertible.
All debt obligations, including convertible bonds, purchased by the Fund will be
rated at the time of purchase in one of the four highest rating categories by
S&P (AAA, AA, A and BBB) or Moody's (Aaa, Aa, A and Baa) or, if not rated, will
be determined to be of an equivalent quality by the investment adviser. Debt
securities rated BBB by S&P or Baa by Moody's are generally considered to be
investment grade securities although they may have speculative characteristics
and changes in economic conditions or circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case for
higher grade debt obligations.
The Equity Fund may invest up to 20% of its total assets indirectly in foreign
securities through the purchase of American Depository Receipts("ADRs") and
European Depository Receipts ("EDRs"). In addition, the Fund may invest in
securities issued by foreign branches of U.S. banks and foreign banks, Canadian
commercial paper and Canadian securities listed on a national securities
exchange, and Europaper (U.S. dollar-denominated commercial paper of foreign
issuers). The Fund may also write covered call options.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments and obligations issued or guaranteed by the
U.S. Government, its agencies and instrumentalities at such times and in such
proportions as, in the opinion of the investment adviser, prevailing market or
economic conditions warrant.
GAL Asset Allocation Fund: The investment objective of the Asset Allocation Fund
is to seek a high total return by providing both a current level of income that
is greater than that provided by the popular stock market averages as well as
long-term growth in the value of the Fund's assets. The investment adviser
interprets the objective to refer to the Dow Jones Industrial Averages (of 30
companies listed on the New York Stock Exchange) and the S&P 500. Due to the
Fund's expenses, net income distributed to shareholders may be less than that of
these averages. The Fund seeks to achieve its investment objective and at the
same time reduce volatility by allocating its assets among short-term
obligations, common stock, preferred stock and bonds. The proportion of the
Fund's assets invested in each type of security will vary from time to time as a
result of the investment adviser's interpretation of economic and market
conditions. However, at least 25% of the Fund's total assets will at all times
be invested in fixed-income senior securities, including debt securities and
preferred stock. In selecting common stock for purchase by the Fund, the
investment adviser will analyze the potential for changes in earnings and
dividends for a foreseeable period. Debt securities purchased by the Fund will
be rated at the time of purchase in one of the four highest rating categories by
S&P (AAA, AA, A and BBB) or Moody's (Aaa, Aa, A and Baa) (or which, if unrated,
are determined by the investment adviser to be of comparable quality).
The Asset Allocation Fund may also invest up to 20% of its total assets in
foreign securities. Such foreign investments may be made directly, by purchasing
securities issued or guaranteed by foreign corporations, banks, or governments
or their political subdivisions or instrumentalities, or by supranational banks
or other organizations, or indirectly by purchasing ADRs and EDRs. Supranational
entities include international organizations designated or supported by
governmental entities to promote economic reconstruction and development and
international banking institutions and related governmental agencies. Examples
of these include the International Bank for Reconstruction and Development
("World Bank"), the Asia Development Bank and the Inter American Development
Bank. Obligations of supranational banks may be supported by appropriated but
unpaid commitments of their member countries and there is no assurance that
those commitments will be undertaken or met in the future. The Fund may write
covered call options, purchase asset-backed securities and mortgage-backed
securities and enter into foreign currency exchange transactions.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments and obligations issued or guaranteed by the
U.S. Government, its agencies and instrumentalities at such times and in such
proportions as, in the opinion of the investment adviser, prevailing market and
economic conditions warrant.
Investments in foreign securities involve higher costs for the Fund than
investments in U.S. securities, including higher transaction costs as well as
the imposition in some cases of additional taxes by foreign governments. For
example, fixed commissions on foreign stock exchanges are generally higher than
the negotiated commissions on U.S. exchanges and the Fund may be subject in some
cases to withholding and/or transfer taxes. In addition, foreign investments may
include additional risks associated with currency exchange rates, less complete
financial information about the issuers, less market liquidity, and political
instability. Future political and economic developments, the possible imposition
of withholding taxes on interest income, the possible seizure or nationalization
of foreign holdings, the possible establishment of exchange controls, or the
adoption of other governmental restrictions, might adversely affect the payment
of principal and interest on foreign obligations.
Although the Asset Allocation Fund may invest in securities denominated in
foreign currencies, the Fund values its securities and other assets in U.S.
dollars. As a result, the net asset value of the Fund's shares may fluctuate
with U.S. dollar exchange rates as well as with price changes of the Fund's
securities in the various local markets and currencies. Thus, an increase in the
value of the U.S. dollar compared to the currencies in which the Fund makes its
investments could reduce the effect of increases and magnify the effect of
decreases in the price of the Fund's securities in their local markets.
Conversely, a decrease in the value of the U.S. dollar will have the opposite
effect of magnifying the effect of increases and reducing the effect of
decreases in the prices of the Fund's securities in their local markets. In
addition to favorable and unfavorable currency exchange-rate developments, the
Fund is subject to the possible imposition of exchange control regulations or
freezes on convertibility of currency.
GAL High Quality Bond Fund: The High Quality Bond Fund's investment objective is
to seek a high level of current income consistent with prudent risk of capital.
The Fund invests its assets in corporate debt obligations such as bonds,
debentures, obligations convertible into common stock, "money market"
instruments such as bank obligations and commercial paper, in obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, and in
asset-backed and mortgage-backed securities.
Under normal market and economic conditions, the Fund will invest at least 80%
of its assets in high quality debt obligations that are rated, at the time of
purchase, within the three highest rating categories assigned by S&P (AAA and
AA) or Moody's (Aaa and Aa) (or which, if unrated, are determined by the
investment adviser to be of comparable quality) and in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and other
"money market" instruments. Unrated securities will be determined to be of
comparable quality to high quality debt obligations if, among other things,
other outstanding obligations of the issuers of such securities are rated
better. When, in the opinion of the investment adviser, a defensive investment
posture is warranted, the Fund may invest temporarily and without limitation in
high quality, short-term "money market" instruments.
The Fund may also invest from time to time, in obligations issued by state and
local governmental issuers ("municipal securities"). The purchase of municipal
securities may be advantageous when, as a result of prevailing economic,
regulatory or other circumstances, the performance of such securities, on a
pretax bases, is comparable to that of corporate or U.S. debt obligations. The
High Quality Bond Fund may enter into interest rate futures contracts to hedge
against changes in market values of fixed-income instruments that the Fund holds
or intends to purchase. At least 65% of the Fund's total assets will be invested
in non-convertible bonds. Any common stock received through the conversion of
convertible debt obligations will be sold in an orderly manner as soon as
possible. In addition, the Fund may acquire high quality obligations issued by
Canadian Provincial Governments which are similar to U.S. Municipal Securities
except that the income derived therefrom is fully subject to U.S. Federal
taxation. These instruments are denominated in either Canadian or U.S. dollars
and have an established over-the-counter market in the United States. The Fund
may also invest in debt obligations of supranational entities. See the GAL Asset
Allocation Fund discussion above. The Fund may also invest in dollar-denominated
high quality debt obligations of U.S.
corporations issued outside the United States.
The Fund seeks to provide a current yield greater than that generally available
from a portfolio of high quality short-term obligations. The High Quality Bond
Fund's average weighted maturity will vary from time to time depending on, among
other things, current market and economic conditions and the comparative yields
on instruments with different maturities. The Fund adjusts its average weighted
maturity and its holdings of corporate and U.S. Government debt securities in a
manner consistent with the investment adviser's assessment of prospective
changes in interest rates. The success of this strategy depends upon the
investment adviser's ability to predict changes in interest rates.
The value of the Fund's portfolio securities will generally vary inversely with
changes in prevailing interest rates. The high quality credit criteria applied
to the selection of portfolio securities are intended to reduce adverse price
changes due to credit considerations.
American Skandia Trust
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. The Portfolio may engage
in short-term trading and therefore normally will have annual portfolio turnover
rates which are considered to be high. Investment in such companies may involve
greater risk than is associated with more established companies. The Portfolio
may invest in convertible securities, preferred stocks, bonds, debentures, and
other corporate obligations, when these investments offer opportunities for
capital 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 at least 65% 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. 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 higher than that of
other investment companies seeking current income with capital growth as a
secondary consideration.
T. Rowe Price International Equity Portfolio: The investment objective of the T.
Rowe Price International Equity Portfolio is to seek a 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. The Portfolio may also
invest in a variety of other equity-related securities, such as preferred
stocks, warrants, and convertible securities, as well as corporate and
governmental debt securities, when considered consistent with the Portfolio's
investment objective and program.
T. Rowe Price International Bond Portfolio: The investment objective of the T.
Rowe Price International Bond Portfolio is 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. 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 will invest at least 65% of its assets in high-quality, non
dollar-denominated government and corporate bonds outside the United States. 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.
This prospectus contains a short description of the contents of the Statement of
Additional Information. You have the right to receive from us such Statement of
Additional Information. To do so, please complete the following, detach it and
forward it to us at:
American Skandia Life Assurance Corporation
Attention: Galaxy Annuity Customer Service
For Written Requests:
P.O. Box 883
Shelton, Connecticut 06484
For Electronic Requests:
[email protected]
For Requests by Phone:
1-(800)-752-6342
================================================================================
PLEASE SEND ME A STATEMENT OF ADDITIONAL INFORMATION THAT CONTAINS FURTHER
DETAILS ABOUT THE AMERICAN SKANDIA ANNUITY DESCRIBED IN PROSPECTUS GA3-PROS
(05/97).
================================================================================
-------------------------------------------------------
(print your name)
-------------------------------------------------------
(address)
-------------------------------------------------------
(city/state/zip code)
================================================================================
<PAGE>
ADDITIONAL INFORMATION: Inquiries will be answered by calling your
representative or by writing to:
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
at
P.O. Box 883
Shelton, Connecticut 06484
or
[email protected]
Issued by: Serviced by:
AMERICAN SKANDIA LIFE AMERICAN SKANDIA LIFE
ASSURANCE CORPORATION ASSURANCE CORPORATION
One Corporate Drive P.O. Box 883
Shelton, Connecticut 06484 Shelton, Connecticut 06484
Telephone: 1-800-444-3970 Telephone: 1-800-444-3970
http://www.AmericanSkandia.com http://www.AmericanSkandia.com
Distributed by:
AMERICAN SKANDIA MARKETING, INCORPORATED
One Corporate Drive
Shelton, Connecticut 06484
Telephone: (203) 926-1888
http://www.AmericanSkandia.com
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 3
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 1-800-444-3970. OUR ELECTRONIC MAIL ADDRESS IS
[email protected].
Date of Prospectus: May 1, 1997
Date of Statement of Additional Information: May 1, 1997
<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 5
Independent Auditors 6
Legal Experts 6
Appendix A - Financial Statements for Separate Account B (Class B Sub-accounts) 8
</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
GXY3-SAI (05/97)
<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, to the extent permitted by law.
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.
As of the date of this Statement, all the underlying mutual fund portfolios
existed prior to the inception of the 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 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.
As part of any advertisement of Standard Total Return, we may advertise the
"Non-standard Total Return" of the Sub-accounts. The Standard Total Return
figures reflect all charges and fees and are quoted assuming redemption at the
end of the period. Non-standard Total Return is calculated in the same manner as
the standardized returns except that the calculations assume no redemption at
the end of the applicable periods, thus these figures do not take into
consideration the Annuity's contingent deferred sales charge. In addition, we
may calculate Non-standard Total Return that does not reflect deduction of the
Annual Maintenance Fee.
As described in the Prospectus, Annuities may be offered in certain situations
in which the contingent deferred sales charge or certain other charges or fees
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.
Shown below are hypothetical total return figures for the periods shown. Figures
are shown as if the Sub-accounts were operational prior to December 31, 1996,
with performance calculated for periods ending on that date. All the underlying
mutual fund portfolios, in which the Sub-accounts available as of the date of
this Statement invest, were operational prior to December 31, 1996. The figures
shown use all the assumptions that will be applied to actual performance
calculations. Figures are shown for the all the Sub-accounts, other than the GAL
Money Market 3 Sub-account, available as of the date of this Statement.
"Standard" total return and "Non-standard" total return figures, as described
above, are shown. These figures assume that all charges and fees are applicable,
except that for "Non-standard" total return, the contingent deferred sales
charge is not applied. The "inception-to-date" figures shown below are based on
the inception date of each applicable underlying mutual fund portfolio. The
performance of the portfolios is provided by the underlying mutual fund.
<TABLE>
<CAPTION>
Standard Total Return
(Assuming maximum CDSC and no maintenance fee)
Incep-
1 3 5 10 tion-to
Yr. Yrs. Yrs. Yrs. Date
<S> <C> <C> <C> <C> <C>
GAL Equity 3 16.12% 15.12% N/A N/A 12.29%
GAL High Quality Bond 3 -3.42% 3.93% N/A N/A 4.51%
GAL Asset Allocation 3 9.42% 11.65% N/A N/A 10.26%
T. Rowe Price International Equity 3 8.94% 5.18% N/A N/A 5.20%
T. Rowe Price International Bond 3(1) 0.91% N/A N/A N/A 3.28%
Founders Capital Appreciation 3 14.71% 18.24% N/A N/A 18.31%
INVESCO Equity Income 3 11.80% 12.41% N/A N/A 12.46%
</TABLE>
<TABLE>
<CAPTION>
Non-Standard Total Return
(Assuming no CDSC and no maintenance fee)
Incep-
1 3 5 10 tion-to
Yr. Yrs. Yrs. Yrs. Date
<S> <C> <C> <C> <C> <C>
GAL Equity 3 20.09% 15.62% N/A N/A 12.47%
GAL High Quality Bond 3 0.55% 4.54% N/A N/A 4.73%
GAL Asset Allocation 3 13.38% 12.18% N/A N/A 10.45%
T. Rowe Price International Equity 3 12.90% 5.78% N/A N/A 5.81%
T. Rowe Price International Bond 3(1) 4.87% N/A N/A N/A 3.98%
Founders Capital Appreciation 3 18.67% 18.71% N/A N/A 18.79%
INVESCO Equity Income 3 15.77% 12.93% N/A N/A 12.99%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standard Total Return
(Assuming maximum CDSC and maintenance fee)
Incep-
1 3 5 10 tion-to
Yr. Yrs. Yrs. Yrs. Date
<S> <C> <C> <C> <C> <C>
GAL Equity 3 15.89% 14.88% N/A N/A 12.06%
GAL High Quality Bond 3 -3.62% 3.72% N/A N/A 4.30%
GAL Asset Allocation 3 9.19% 11.42% N/A N/A 10.03%
T. Rowe Price International Equity 3 8.71% 4.97% N/A N/A 4.99%
T. Rowe Price International Bond 3(1) 0.70% N/A N/A N/A 3.04%
Founders Capital Appreciation 3 14.47% 18.00% N/A N/A 18.07%
INVESCO Equity Income 3 11.57% 12.18% N/A N/A 12.23%
</TABLE>
<TABLE>
<CAPTION>
Non-Standard Total Return
(Assuming no CDSC, with maintenance fee)
Incep-
1 3 5 10 tion-to
Yr. Yrs. Yrs. Yrs. Date
<S> <C> <C> <C> <C> <C>
GAL Equity 3 19.85% 15.39% N/A N/A 12.24%
GAL High Quality Bond 3 0.35% 4.33% N/A N/A 4.52%
GAL Asset Allocation 3 13.16% 11.96% N/A N/A 10.22%
T. Rowe Price International Equity 3 12.68% 5.57% N/A N/A 5.59%
T. Rowe Price International Bond 3(1) 4.67% N/A N/A N/A 3.75%
Founders Capital
Appreciation 3 18.43% 18.48% N/A N/A 18.55%
INVESCO Equity Income 3 15.54% 12.71% N/A N/A 12.76%
</TABLE>
(1) Prior to May 1, 1996, Scudder, Stevens & Clark, Inc. served as Sub-advisor
to the Portfolio (formerly, the AST Scudder International Bond Portfolio). As of
May 1, 1996, Rowe Price-Fleming International, Inc. has served as Sub-advisor to
the Portfolio. The performance information provided in the above chart, computed
for the period May 3, 1994 (commencement of operations) to May 1, 1996, reflects
that of the Portfolio as sub-advised by Scudder, Stevens & Clark, Inc. Such
performance information is historical and is not intended to indicate future
performance of the Portfolio.
The performance quoted in any advertising should not be considered a
representation of the performance of the 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 fund portfolios and upon prevailing market conditions and the
response of the underlying mutual fund portfolios to such conditions. Actual
performance will also depend on changes in the expenses of the underlying mutual
fund portfolios. 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/12
where:
I is the interest rate being credited to the Fixed Allocation;
J is the Current Rate for new Fixed Allocations with Guarantee
Periods of durations equal to the number of years (rounded to
the next higher integer when occurring on other than an
anniversary of the beginning of the Fixed Allocation's
Guarantee Period) remaining in such Guarantee Period ( the
"Remaining Period");
N is the number of months (rounded to the next higher integer
when occurring on other than a monthly anniversary of the
beginning of the Guarantee Period) 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/12.
No MVA applies in determining a Fixed Allocation's Account Value on its Maturity
Date.
Irrespective of the above, we apply certain formulas to determine "I" and "J"
when we do not offer Guarantee Periods with a duration equal to the Remaining
Period. These formulas are as follows:
(a) If we offer Guarantee Periods to your class of Annuities with
durations that are both shorter and longer than the Remaining Period, we
interpolate a rate for "J" between our then current interest rates for Guarantee
Periods with the next shortest and next longest durations then available for new
Fixed Allocations for your class of Annuities.
(b) If we no longer offer Guarantee Periods to your class of Annuities
with durations that are both longer and shorter than the Remaining Period, we
determine rates for "J" and, for purposes of determining the MVA only, for "I"
based on the Moody's Corporate Bond Yield Average - Monthly Average Corporates
(the "Average"), as published by Moody's Investor Services, Inc., its successor,
or an equivalent service should such Average no longer be published by Moody's.
For determining I, we will use the Average published on or immediately prior to
the start of the applicable Guarantee Period. For determining J, we will use the
Average for the Remaining Period published on or immediately prior to the date
the MVA is calculated.
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; (c) an
interest rate of 5%, which is an effective annual rate; and (d) 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.
Example of Upward Adjustment: Assume that J = 3.5% and there have been
no transfers or withdrawals. At this point I = 5% (0.05) and N = 24 (number of
months remaining in the Guarantee Period). Then:
(a) MVA = [(1+I)/(I+J+0.0010)]N/12 = [1.05/1.036]2 = 1.027210; and
(b) Account Value = Interim Value X MVA = $59,456.20.
Example of Downward Adjustment: Assume that J = 6% and there have been
no transfers or withdrawals. At this point I = 5% (0.05) and N = 24, the number
of months remaining in the Guarantee Period. Then:
(a) MVA = [(1+I)/(1+J+0.0010)]N/12 = [1.05/1.061]2 = 0.979372; and
(b) Account Value = Interim Value X MVA = $56,687.28.
INDEPENDENT AUDITORS: Deloitte & Touche LLP, Two World Financial Center, New
York, New York 10281-1433, independent auditors, have audited the financial
statements of American Skandia Life Assurance Corporation and American Skandia
Life Assurance Corporation Variable Account B (Class 3 Sub-accounts). Audited
financial statements regarding American Skandia Life Assurance Corporation as of
December 31, 1996 and 1995, and the related statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1996 are included in the Prospectus. Audited financial
statements for Variable Account B (Class 3 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 their 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.
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: Galaxy Annuity Customer
Service, P.O. Box 883, Shelton, Connecticut, 06484. Our phone number is
1-800-444-3970. You may also forward such a request electronically to our
Customer Service Department at [email protected].
<PAGE>
Appendix A
Financial Statements for Separate Account B
(Class 3 Sub-accounts)
<PAGE>
APPENDIX A
<PAGE>
INDEPENDENT AUDITORS' REPORT
- -------------------------------------
To the Contractowners of
American Skandia Life Assurance Corporation
Variable Account B -- Class 3 (Galaxy Annuity) and the
Board of Directors of
American Skandia Life Assurance Corporation
Shelton, Connecticut
We have audited the accompanying statement of assets and liabilities of twelve
sub-accounts of American Skandia Life Assurance Corporation Variable Account
B -- Class 3, referred to in Note 1, as of December 31, 1996, and the related
statements of operations and of changes in net assets for the periods presented.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these 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 audits 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. Our procedures included
confirmation of securities owned as of December 31, 1996 with the managers of
the mutual funds. 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 financial statements present fairly, in all material
respects, the financial position of the twelve sub-accounts of American Skandia
Life Assurance Corporation Variable Account B -- Class 3, referred to in Note 1,
as of December 31, 1996, the results of their operations and the changes in
their net assets for the periods presented in conformity with generally accepted
accounting principles.
/s/DELOITTE & TOUCHE LLP
New York, New York
February 24, 1997
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
VARIABLE ACCOUNT B -- CLASS 3
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investment in mutual funds at market value (Note 2):
Galaxy VIP Funds (GAL):
Money Market Portfolio - 4,682,978 shares (cost $4,682,978)............................ $ 4,682,978
Equity Portfolio - 741,813 shares (cost $10,243,007)................................... 11,557,447
High Quality Bond Portfolio - 276,273 shares (cost $2,774,552)......................... 2,759,965
Asset Allocation Portfolio - 588,950 shares (cost $7,532,729).......................... 7,874,258
American Skandia Trust (AST):
Lord Abbett Growth & Income Portfolio - 304,986 shares (cost $4,833,546)............... 5,236,614
JanCap Growth Portfolio - 214,676 shares (cost $3,600,794)............................. 4,033,764
Federated Utility Income Portfolio - 19,262 shares (cost $226,484)..................... 247,136
Federated High Yield Portfolio - 382,465 shares (cost $4,328,120)...................... 4,639,306
INVESCO Equity Income Portfolio - 626,271 shares (cost $7,991,049)..................... 8,761,535
Founders Capital Appreciation Portfolio - 742,781 shares (cost $11,483,873)............ 12,478,714
T. Rowe Price International Equity Portfolio - 784,314 shares (cost $8,855,558)........ 9,466,665
T. Rowe Price International Bond Portfolio - 58,120 shares (cost $607,671)............. 633,509
-----------
Total Invested Assets.......................................................... 72,371,891
Receivable from American Skandia Life Assurance Corp........................................... 182,895
-----------
Total Assets................................................................... $72,554,786
===========
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
2
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
VARIABLE ACCOUNT B -- CLASS 3
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES (CONCLUDED)
<CAPTION>
AS OF DECEMBER 31, 1996
- --------------------------------------------------------------------------------------------
<S> <C>
LIABILITIES
Payable to Galaxy VIP Funds....................................................... $ 91,333
Payable to American Skandia Trust................................................. 91,705
--------
Total Liabilities................................................. $183,038
--------
<CAPTION>
NET ASSETS
UNIT
CONTRACTOWNERS' EQUITY UNITS VALUE
- ---------------------- ----- -----
<S> <C> <C> <C>
GAL - Money Market..................................... 438,416 $10.68 $ 4,682,978
GAL - Equity........................................... 844,454 13.69 11,557,447
GAL - High Quality Bond................................ 241,376 11.43 2,759,888
GAL - Asset Allocation................................. 595,541 13.22 7,874,258
AST - Lord Abbett Growth and Income.................... 388,009 13.50 5,236,614
AST - JanCap Growth.................................... 252,967 15.95 4,033,764
AST - Federated Utility Income......................... 19,077 12.95 247,088
AST - Federated High Yield............................. 377,336 12.29 4,639,306
AST - INVESCO Equity Income............................ 645,296 13.58 8,761,535
AST - Founders Capital Appreciation.................... 861,999 14.48 12,478,714
AST - T. Rowe Price International Equity............... 783,865 12.08 9,466,665
AST - T. Rowe Price International Bond................. 56,657 11.18 633,491
-----------
Total Net Assets........................... $72,371,748
===========
- --------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
VARIABLE ACCOUNT B -- CLASS 3
STATEMENT OF OPERATIONS
FOR THE PERIODS ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS 3 SUB-ACCOUNTS INVESTING IN:
--------------------------------------------
GAL - MONEY GAL
TOTAL MARKET EQUITY
----------- ----------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Income
Dividends................................................................... $ 849,704 $ 194,519 $ 98,652
Expenses
Mortality and Expense Risks Charges and Administrative Fees (Note 4)........ (495,839) (41,895) (69,137)
---------- ---------- ----------
NET INVESTMENT INCOME (LOSS).................................................... 353,865 152,624 29,515
---------- ---------- ----------
REALIZED GAIN (LOSS) ON INVESTMENTS:
Proceeds from Sales........................................................... 16,952,369 4,426,938 312,948
Cost of Securities Sold....................................................... 15,699,665 4,426,938 255,754
---------- ---------- ----------
Net Gain (Loss)............................................................. 1,252,704 0 57,194
Capital Gain Distributions Received........................................... 533,019 0 0
---------- ---------- ----------
NET REALIZED GAIN (LOSS)........................................................ 1,785,723 0 57,194
UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Beginning of Period........................................................... 676,861 0 98,274
End of Period................................................................. 5,211,530 0 1,314,440
---------- ---------- ----------
NET UNREALIZED GAIN (LOSS)...................................................... 4,534,669 0 1,216,166
---------- ---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................ $ 6,674,257 $ 152,624 $1,302,875
========== ========== ==========
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
4
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS 3 SUB-ACCOUNTS INVESTING IN:
-------------------------------------------------------------------------------------------------------------------------
AST - LORD
GAL - HIGH GAL - ASSET ABBETT GROWTH AST - JANCAP AST - FEDERATED AST - FEDERATED AST - INVESCO
QUALITY BOND ALLOCATION AND INCOME GROWTH UTILITY INCOME HIGH YIELD EQUITY INCOME
------------ ----------- ------------- ------------ --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$112,688 $ 125,142 $ 34,918 $ 1,974 $ 4,943 $ 168,614 $ 44,506
(19,993) (51,911) (39,346) (32,284) (2,110) (40,741) (50,626)
-------- --------- ----------- ---------- --------- ----------- ---------
92,695 73,231 (4,428) (30,310) 2,833 127,873 (6,120)
-------- --------- ----------- ---------- --------- ----------- ---------
172,348 507,384 2,767,320 1,854,748 135,955 2,235,576 258,696
180,313 446,607 2,586,036 1,528,085 130,175 2,171,027 218,236
-------- --------- ----------- ---------- --------- ----------- ---------
(7,965) 60,777 181,284 326,663 5,780 64,549 40,460
0 296,939 70,544 63,312 0 0 60,220
-------- --------- ----------- ---------- --------- ----------- ---------
(7,965) 357,716 251,828 389,975 5,780 64,549 100,680
24,417 105,233 82,489 17,857 7,392 72,266 119,517
(14,587) 341,529 403,068 432,970 20,652 311,186 770,486
-------- --------- ----------- ---------- --------- ----------- ---------
(39,004) 236,296 320,579 415,113 13,260 238,920 650,969
-------- --------- ----------- ---------- --------- ----------- ---------
$ 45,726 $ 667,243 $ 567,979 $ 774,778 $ 21,873 $ 431,342 $ 745,529
======== ========= =========== ========== ========= =========== =========
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
VARIABLE ACCOUNT B -- CLASS 3
STATEMENT OF OPERATIONS (CONCLUDED)
FOR THE PERIODS ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS 3 SUB-ACCOUNTS INVESTING IN:
----------------------------------------------------------
AST - FOUNDERS AST - T. ROWE AST - T. ROWE
CAPITAL PRICE INTERNATIONAL PRICE INTERNATIONAL
APPRECIATION EQUITY BOND
-------------- ------------------- -------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Income
Dividends......................................................... $ 17,771 $ 41,236 $ 4,741
Expenses
Mortality and Expense Risks Charges and Administrative Fees
(Note 4).......................................................... (60,347) (82,223) (5,226)
-------- ----------- ---------
NET INVESTMENT INCOME (LOSS).......................................... (42,576) (40,987) (485)
-------- ----------- ---------
REALIZED GAIN (LOSS) ON INVESTMENTS:
Proceeds from Sales................................................. 321,823 3,741,096 217,537
Cost of Securities Sold............................................. 245,608 3,298,796 212,090
-------- ----------- ---------
Net Gain (Loss)................................................... 76,215 442,300 5,447
Capital Gain Distributions Received................................. 35,992 0 6,012
-------- ----------- ---------
NET REALIZED GAIN (LOSS).............................................. 112,207 442,300 11,459
UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Beginning of Period................................................. 68,061 75,100 6,255
End of Period....................................................... 994,841 611,107 25,838
-------- ----------- ---------
NET UNREALIZED GAIN (LOSS)............................................ 926,780 536,007 19,583
-------- ----------- ---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. $996,411 $ 937,320 $ 30,557
======== =========== =========
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
6
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
7
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
VARIABLE ACCOUNT B -- CLASS 3
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS 3 SUB-ACCOUNTS INVESTING IN:
------------------------------------------------------------------------
GAL - MONEY
TOTAL MARKET
--------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED MAY 24* THRU
DEC. 31, 1996 DEC. 31, 1995 DEC. 31, 1996 DEC. 31, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
OPERATIONS:
Net Investment Income (Loss)......................... $ 353,865 $ 40,826 $ 152,624 $ 36,448
Net Realized Gain (Loss)............................. 1,785,723 26,934 0 0
Net Unrealized Gain (Loss) On Investments............ 4,534,669 687,665 0 0
----------- ----------- ----------- -----------
Net Increase (Decrease) In Net Assets Resulting From
Operations......................................... 6,674,257 755,425 152,624 36,448
----------- ----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Transfers of Annuity Fund Deposits................... 37,561,833 13,580,327 6,187,397 4,622,415
Net Transfers Between Sub-accounts................... 8,878,757 7,125,465 (3,922,530) (1,620,326)
Surrenders........................................... (2,127,860) (76,456) (722,387) (50,663)
----------- ----------- ----------- -----------
Net Increase In Net Assets Resulting From Capital
Share Transactions................................. 44,312,730 20,629,336 1,542,480 2,951,426
----------- ----------- ----------- -----------
TOTAL INCREASE IN NET ASSETS........................... 50,986,987 21,384,761 1,695,104 2,987,874
NET ASSETS:
Beginning of Period.................................. 21,384,761 0 2,987,874 0
----------- ----------- ----------- -----------
End of Period........................................ $72,371,748 $21,384,761 $ 4,682,978 $ 2,987,874
=========== =========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
* Date Operations Commenced.
8
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS 3 SUB-ACCOUNTS INVESTING IN:
- ------------------------------------------------------------------------------------------------------------------------
AST LORD
ABBETT
GAL GAL - HIGH GAL - ASSET GROWTH AND
EQUITY QUALITY BOND ALLOCATION INCOME
------------------------------- ------------------------------ ------------------------------- -------------
YEAR ENDED MAY 16* THRU YEAR ENDED MAY 31* THRU YEAR ENDED MAY 19* THRU YEAR ENDED
DEC. 31, 1996 DEC. 31, 1995 DEC. 31, 1996 DEC. 31, 1995 DEC. 31, 1996 DEC. 31, 1995 DEC. 31, 1996
------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 29,515 $ 7,689 $ 92,695 $ 11,043 $ 73,231 $ 14,806 $ (4,428)
57,194 2,971 (7,965) 59 357,716 1,216 251,828
1,216,166 98,274 (39,004) 29,592 236,296 110,862 320,579
----------- ---------- ---------- ---------- ---------- ---------- ----------
1,302,875 108,934 45,726 40,694 667,243 126,884 567,979
----------- ---------- ---------- ---------- ---------- ---------- ----------
7,150,803 1,878,920 1,280,336 901,185 4,814,974 1,673,289 1,906,277
1,031,774 392,602 465,252 140,121 619,823 537,417 862,301
(264,370) (44,091) (110,513) (2,913) (554,647) (10,725) (35,214)
----------- ---------- ---------- ---------- ---------- ---------- ----------
7,918,207 2,227,431 1,635,075 1,038,393 4,880,150 2,199,981 2,733,364
----------- ---------- ---------- ---------- ---------- ---------- ----------
9,221,082 2,336,365 1,680,801 1,079,087 5,547,393 2,326,865 3,301,343
2,336,365 0 1,079,087 0 2,326,865 0 1,935,271
----------- ---------- ---------- ---------- ---------- ---------- ----------
$11,557,447 $2,336,365 $2,759,888 $1,079,087 $7,874,258 $2,326,865 $5,236,614
=========== ========== ========== ========== ========== ========== ==========
<CAPTION>
- ---
JUN. 8* THRU
DEC. 31, 1995
-------------
<S> <C>
$ (4,331)
2,269
82,489
----------
80,427
----------
468,299
1,368,348
18,197
----------
1,854,844
----------
1,935,271
0
----------
$1,935,271
==========
</TABLE>
- -------------------------------------------------------------------------------
9
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
VARIABLE ACCOUNT B -- CLASS 3
STATEMENTS OF CHANGES IN NET ASSETS (CONT'D)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS 3 SUB-ACCOUNTS INVESTING IN:
------------------------------------------------------------------------
AST AST - FEDERATED
JANCAP GROWTH UTILITY INCOME
-------------------------------- ---------------------------------
YEAR ENDED MAY 19* THRU YEAR ENDED JUN 20* THRU
DEC. 31, 1996 DEC. 31, 1995 DEC. 31, 1995 DEC. 31, 1995
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
OPERATIONS:
Net Investment Income (Loss)......................... $ (30,310) $ (2,099) $ 2,833 $ (269)
Net Realized Gain (Loss)............................. 389,975 4,404 5,780 68
Net Unrealized Gain (Loss) On Investments............ 415,113 17,857 13,260 7,392
---------- -------- -------- -------
Net Increase (Decrease) In Net Assets Resulting From
Operations......................................... 774,778 20,162 21,873 7,191
---------- -------- -------- -------
CAPITAL SHARE TRANSACTIONS:
Transfers of Annuity Fund Deposits................... 2,016,600 620,832 79,717 73,502
Net Transfers Between Sub-accounts................... 398,902 219,658 50,032 16,244
Surrenders........................................... (16,267) (901) (1,435) (36)
---------- -------- -------- -------
Net Increase In Net Assets Resulting From Capital
Share Transactions................................. 2,399,235 839,589 128,314 89,710
---------- -------- -------- -------
TOTAL INCREASE IN NET ASSETS........................... 3,174,013 859,751 150,187 96,901
NET ASSETS:
Beginning of Period.................................. 859,751 0 96,901 0
---------- -------- -------- -------
End of Period........................................ $4,033,764 $859,751 $247,088 $96,901
========== ======== ======== =======
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
* Date Operations Commenced.
10
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS 3 SUB-ACCOUNTS INVESTING IN:
- --------------------------------------------------------------------------------------------------------------------------
AST - T. ROWE
PRICE
AST - FEDERATED AST - INVESCO AST - FOUNDERS INTERNATIONAL
HIGH YIELD EQUITY INCOME CAPITAL APPRECIATION EQUITY
------------------------------- ------------------------------ ------------------------------ -------------
YEAR ENDED JUN. 13* THRU
DEC. 31, 1996 DEC. 31, 1995 DEC. 31, 1996 DEC. 31, 1995 DEC. 31, 1996 DEC. 31, 1995 DEC. 31, 1996
------------- ------------- ------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
$ 127,873 $ (4,877) $ (6,120) $ (5,128) $ (42,576) $ (5,707) $ (40,987)
64,549 2,129 100,680 4,548 112,207 2,970 442,300
238,920 72,266 650,969 119,517 926,780 68,061 536,007
----------- ----------- ----------- ---------- ----------- ---------- ----------
431,342 69,518 745,529 118,937 996,411 65,324 937,320
----------- ----------- ----------- ---------- ----------- ---------- ----------
1,102,285 275,751 5,063,947 1,345,090 3,247,466 741,715 4,319,005
738,522 2,014,925 1,349,074 366,022 5,850,291 1,652,865 1,448,029
(197) 7,160 (218,655) (8,409) (92,219) 16,861 (74,304)
----------- ----------- ----------- ---------- ----------- ---------- ----------
1,840,610 2,297,836 6,194,366 1,702,703 9,005,538 2,411,441 5,692,730
----------- ----------- ----------- ---------- ----------- ---------- ----------
2,271,952 2,367,354 6,939,895 1,821,640 10,001,949 2,476,765 6,630,050
2,367,354 0 1,821,640 0 2,476,765 0 2,836,615
----------- ----------- ----------- ---------- ----------- ---------- ----------
$ 4,639,306 $ 2,367,354 $ 8,761,535 $1,821,640 $12,478,714 $2,476,765 $ 9,466,665
=========== =========== =========== ========== =========== ========== ==========
<CAPTION>
MAY 30* THRU
DEC. 31,
1995
------------
<S> <C>
$ (6,138)
6,223
75,100
----------
75,185
----------
798,237
1,964,129
(936)
----------
2,761,430
----------
2,836,615
0
----------
$2,836,615
==========
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
VARIABLE ACCOUNT B -- CLASS 3
STATEMENTS OF CHANGES IN NET ASSETS (CONCLUDED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS 3 SUB-ACCOUNTS INVESTING IN:
--------------------------------------
AST - T. ROWE
PRICE INTERNATIONAL
BOND
--------------------------------------
YEAR ENDED MAY 16* THRU
DEC. 31, 1996 DEC. 31, 1995
------------- -------------
<S> <C> <C>
INCREASE IN NET ASSETS:
OPERATIONS:
Net Investment Income (Loss)........................................................ $ (485) $ (611)
Net Realized Gain (Loss)............................................................ 11,459 77
Net Unrealized Gain (Loss) On Investments........................................... 19,583 6,255
-------- --------
Net Increase (Decrease) In Net Assets Resulting From Operations..................... 30,557 5,721
-------- --------
CAPITAL SHARE TRANSACTIONS:
Transfers of Annuity Fund Deposits.................................................. 393,026 181,092
Net Transfers Between Sub-accounts.................................................. (12,713) 73,460
Surrenders.......................................................................... (37,652) 0
-------- --------
Net Increase In Net Assets Resulting From Capital Share Transactions................ 342,661 254,552
-------- --------
TOTAL INCREASE IN NET ASSETS.......................................................... 373,218 260,273
NET ASSETS:
Beginning of Period................................................................. 260,273 0
-------- --------
End of Period....................................................................... $633,491 $260,273
======== ========
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
* Date Operations Commenced.
12
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
VARIABLE ACCOUNT B -- CLASS 3
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION
American Skandia Life Assurance Corporation Variable Account B -- Class 3 (the
"Account") is a separate investment account of American Skandia Life Assurance
Corporation ("American Skandia"). The Account is registered with the SEC under
the Investment Company Act of 1940 as a unit investment trust. The Account
commenced operations May 1, 1995.
As of December 31, 1996, the Account consisted of twenty-seven sub-accounts.
These financial statements report on twelve sub-accounts offered in the Galaxy
Annuity. Each of the twelve sub-accounts invests only in a single corresponding
portfolio of either the Galaxy VIP Fund or the American Skandia Trust (the
"Trusts"). Fleet Investment Advisors Inc. is the advisor for The Galaxy VIP
Fund. American Skandia Investment Services, Incorporated is the investment
manager for American Skandia Trust, while Lord Abbett & Co, Janus Capital
Corporation, Federated Investment Counseling, Rowe Price-Fleming International,
Inc., Founders Asset Management, Inc. and INVESCO Trust Company are the
sub-advisors. The investment advisors are paid fees for their services by the
respective Trusts.
To reflect the change in investment advisor of the underlying fund made by
proxy, the name of the Scudder International Bond sub-account has changed to T.
Rowe Price International Bond on May 1, 1996.
2. VALUATION OF INVESTMENTS
The market value of the investments in the sub-accounts is based on the net
asset values of the Trust shares held at the end of the current period.
Transactions are accounted for on the trade date and dividend income is
recognized on an accrual basis. Realized gains and losses on sales of
investments are determined on a first-in first-out basis.
3. INCOME TAXES
American Skandia does not expect to incur any Federal income tax liability on
earnings, or realized capital gains attributable to the Account, therefore, no
charges for Federal income taxes are currently deducted from the Account. If
American Skandia incurs income taxes attributable to the Account, or determines
that such taxes will be incurred, it may make a charge for such taxes against
the Account.
Under current laws, American Skandia may incur state and local income taxes (in
addition to premium tax) in several states. The company does not anticipate that
these will be significant. However, American Skandia may make charges to the
Account in the event that the amount of these taxes change.
4. CONTRACT CHARGES
The following contract charges are paid to American Skandia:
Mortality and Expense Risk Charges -- Charged daily against the Account at
an annual rate of 0.85% of the net assets.
Administrative Fees -- Charged daily against the Account at an annual rate
of .15% of the net assets. A maintenance fee equaling the smaller of $35 or
2% of the current Account Value is deducted at the end of each contract
year and on surrender.
Transfer Fees -- Charged at a rate of $10 for each transfer after the
fourth in each annuity year.
Contingent Deferred Sales Charges are computed as set forth in the Galaxy
Annuity. These charges may be imposed on the full, or partial surrender of
certain contracts. There is no contingent deferred sales charge if all
premiums were received at least seven complete years prior to the date of
the full or partial surrender.
13
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
VARIABLE ACCOUNT B -- CLASS 3
NOTES TO FINANCIAL STATEMENTS (CONT'D)
- --------------------------------------------------------------------------------
5. CHANGES IN THE UNITS OUTSTANDING
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
CLASS 3 SUB-ACCOUNTS INVESTING IN:
-----------------------------------------------------------------------
GAL - MONEY GAL
MARKET EQUITY
-------------------------------- --------------------------------
PERIOD ENDED MAY 24* THRU PERIOD ENDED MAY 16* THRU
DEC. 31, 1996 DEC. 31, 1995 DEC. 31, 1996 DEC. 31, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Units Outstanding Beginning of the Period................ 290,495 0 205,306 0
Units Purchased.......................................... 589,739 455,101 557,982 173,110
Units Transferred Between Sub-accounts................... (429,389) (159,658) 102,617 36,280
Units Surrendered........................................ (12,429) (4,948) (21,451) (4,084)
-------- -------- ------- -------
Units Outstanding End of the Period...................... 438,416 290,495 844,454 205,306
======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
CLASS 3 SUB-ACCOUNTS INVESTING IN:
-----------------------------------------------------------------------
AST AST - FEDERATED
JANCAP GROWTH UTILITY INCOME
-------------------------------- --------------------------------
PERIOD ENDED MAY 19* THRU PERIOD ENDED JUN. 20* THRU
DEC. 31, 1996 DEC. 31, 1995 DEC. 31, 1996 DEC. 31, 1995
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Units Outstanding Beginning of the Period................ 68,509 0 8,260 0
Units Purchased.......................................... 140,682 50,863 6,736 6,841
Units Transferred Between Sub-accounts................... 45,185 17,758 4,177 1,426
Units Surrendered........................................ (1,409) (112) (96) (7)
------- ------ ------ -----
Units Outstanding End of the Period...................... 252,967 68,509 19,077 8,260
======= ====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
CLASS 3 SUB-ACCOUNTS INVESTING IN:
-----------------------------------------------------------------------
AST - T. ROWE AST - T. ROWE
PRICE INTL. EQUITY PRICE INTL. BOND
-------------------------------- --------------------------------
PERIOD ENDED MAY 30* THRU PERIOD ENDED MAY 16* THRU
DEC. 31, 1996 DEC. 31, 1995 DEC. 31, 1996 DEC. 31, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Units Outstanding Beginning of the Period................ 265,448 0 24,422 0
Units Purchased.......................................... 374,130 76,823 36,450 17,411
Units Transferred Between Sub-accounts................... 151,056 188,642 (653) 7,012
Units Surrendered........................................ (6,769) (17) (3,562) (1)
------- ------- ------ ------
Units Outstanding End of the Period...................... 783,865 265,448 56,657 24,422
======= ======= ====== ======
</TABLE>
- --------------------------------------------------------------------------------
* Date Operations Commenced.
14
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
CLASS 3 SUB-ACCOUNTS INVESTING IN:
-----------------------------------------------------------------------------------------------------
GAL - HIGH GAL - ASSET AST - LORD ABBETT
QUALITY BOND ALLOCATION GROWTH & INCOME
------------------------------ ------------------------------ -------------------------------
PERIOD ENDED MAY 31* THRU PERIOD ENDED MAY 19* THRU PERIOD ENDED JUN. 8* THRU
DEC. 31, 1996 DEC. 31, 1995 DEC. 31, 1996 DEC. 31, 1995 DEC. 31, 1996 DEC. 31, 1995
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
94,895 0 199,741 0 168,290 0
113,129 82,302 384,734 151,771 137,588 43,269
41,573 12,855 55,705 48,932 84,923 125,110
(8,221) (262) (44,639) (962) (2,792) (89)
------- ------ ------- ------- ------- -------
241,376 94,895 595,541 199,741 388,009 168,290
======= ====== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
CLASS 3 SUB-ACCOUNTS INVESTING IN:
------------------------------------------------------------------------------------------------------
AST - FEDERATED AST - INVESCO AST - FOUNDERS
HIGH YIELD EQUITY INCOME CAPITAL APPRECIATION
------------------------------ ------------------------------ --------------------------------
PERIOD ENDED JUN. 13* THRU PERIOD ENDED MAY 22* THRU PERIOD ENDED MAY 16* THRU
DEC. 31, 1996 DEC. 31, 1995 DEC. 31, 1996 DEC. 31, 1995 DEC. 31, 1996 DEC. 31, 1995
------------- ------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
216,497 0 155,507 0 203,315 0
97,577 25,899 399,764 122,816 238,456 63,628
63,562 190,608 106,839 33,440 427,681 140,067
(300) (10) (16,814) (749) (7,453) (380)
------- ------- ------- ------- ------- -------
377,336 216,497 645,296 155,507 861,999 203,315
======= ======= ======= ======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
15
PART C
OTHER INFORMATION
<PAGE>
<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 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
of Registration Statement No. 33-44436, filed April 20, 1993).
(4) Copy of the form of the Annuity (previously filed in Pre-Effective Amendment No. 1 to this
Registration Statement, filed April 20, 1995).
(5) A copy of the application form used with the Annuity (previously filed in Pre-Effective
Amendment No. 1 to this Registration Statement, filed April 20, 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) 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).
(i) Filed via EDGAR with Post-effective Amendment No. 4 to Registration Statement No.
33-87010, filed February 25, 1997
(b) Form of Sales Agreement between Depositor and The Galaxy VIP Fund (previously filed in
Post-Effective Amendment No. 7 to Registration Statement No. 33-47976, filed March 21,
1994).
(9) Opinion and consent of Werner & Kennedy.
(10) Consent of Deloitte & Touche LLP.
(11) Not applicable.
(12) Not applicable.
(13) Calculation of Performance Information for Advertisement of Performance (previously filed in
Pre-Effective Amendment No. 1 to this Registration Statement, filed April 20, 1995).
(14) Financial Data Schedules.
</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 provides such
services in relation to marketing of 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.
It's primary role is expected to be as investment manager for
certain mutual 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.
Item 27. Number of Contract Owners: As of December 31, 1996, there were 1,622
owners of Annuities.
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>
Name and Principal Business Address Position and Offices with Underwriter
Gordon C. Boronow Director
American Skandia Life Assurance Corporation
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
Kimberly A. Bradshaw Vice President,
American Skandia Life Assurance Corporation National Accounts Manager
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
Daniel R. Darst Senior Vice President,
American Skandia Life Assurance Corporation National Marketing Director
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
Paul DeSimone Vice President, Corporate
American Skandia Life Assurance Corporation Controller and Director
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
Wade A. Dokken President,
American Skandia Life Assurance Corporation Chief Marketing Officer
One Corporate Drive, P.O. Box 883 and Director
Shelton, Connecticut 06484-0883
Walter G. Kenyon Vice President,
American Skandia Life Assurance Corporation National Accounts Manager
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
Lawrence Kudlow Senior Vice President,
American Skandia Life Assurance Corporation Chief Economist
One Corporate Drive, P.O. Box 883
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
Daniel LaBonte Vice President,
American Skandia Life Assurance Corporation Associate Marketing Director
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
Kristen E. Newall Assistant Corporate Secretary
American Skandia Life Assurance Corporation
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
Brian O'Connor Vice President, National Sales
American Skandia Life Assurance Corporation Manager, Internal Wholesaling
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
Don Thomas Peck Senior Vice President,
American Skandia Life Assurance Corporation National Sales Manager
One Corporate Drive, P.O. Box 883 and Director
Shelton, Connecticut 06484-0883
Heidi Ann Richardson Vice President,
American Skandia Life Assurance Corporation Portfolio Marketing Director
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
Hayward Sawyer Senior Vice President,
American Skandia Life Assurance Corporation National Sales Manager
One Corporate Drive, P.O. Box 883 and Director
Shelton, Connecticut 06484-0883
Christian Thwaites Vice President,
American Skandia Life Assurance Corporation Qualified Plans
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
Bayard F. Tracy Senior Vice President,
American Skandia Life Assurance Corporation National Sales Manager and
One Corporate Drive, P.O. Box 883 Director
Shelton, Connecticut 06484-0883
Tamara L. Wood Vice President, National
American Skandia Life Assurance Corporation Sales Director, Special Products
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.
(d) American Skandia Life Assurance Corporation ("Depositor") hereby represents
that the aggregate fees and charges under the annuity contracts are reasonable
in relation to the services rendered, the expenses expected to be incurred and
the risks assumed by the Depositor.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of the Registration Statement and
has duly caused this Registration Statement to be signed on its behalf, in the
Town of Shelton and State of Connecticut, on this 29th day of April, 1997.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B
(CLASS 3 SUB-ACCOUNTS)
Registrant
By: American Skandia Life Assurance Corporation
By:/s/ Mary Priscilla Pannell Attest:/s/ Diana D. Steigauf
Mary Priscilla Pannell, Corporate Secretary Diana D. Steigauf
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
Depositor
By:/s/ Mary Priscilla Pannell Attest:/s/ Diana D. Steigauf
Mary Priscilla Pannell, 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, April 29, 1997
Jan R. Carendi Chairman of the Board and Director
(Principal Financial Officer)
/s/ Thomas M. Mazzaferro Executive Vice President and April 29, 1997
Thomas M. Mazzaferro Chief Financial Officer
(Principal Accounting Officer)
/s/ David R. Monroe Vice President and April 29, 1997
David R. Monroe Controller
(Board of Directors)
Jan. R. Carendi* Gordon C. Boronow* Malcolm M. Campbell*
Jan. R. Carendi Gordon C. Boronow Malcolm M. Campbell
Henrik Danckwardt* Amanda C. Sutyak* Wade A. Dokken*
Henrik Danckwardt Amanda C. Sutyak Wade A. Dokken
Thomas M. Mazzaferro* Gunnar Moberg* Bayard F. Tracy*
Thomas M. Mazzaferro Gunnar Moberg Bayard F. Tracy
Anders Soderstrom* C. Ake Svensson* Lincoln R. Collins*
Anders Soderstrom C. Ake Svensson Lincoln R. Collins
Nancy F. Brunetti*
Nancy F. Brunetti
*By: /s/ Mary Priscilla Pannell
Mary Priscilla Pannell
<FN>
*Pursuant to Powers of Attorney filed with Post-Effective Amendment No. 2 to 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 EDGAR filing of the form of the Annuity
No. 9 Opinion and Consent of Werner & Kennedy
No. 10 Consent of Deloitte & Touche LLP
No. 13 EDGAR filing of the Calculation of Performance
No. 14 Financial Data Schedules
GAL/CRT(1/95)-02
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
SHELTON, CONNECTICUT
(A Stock Company)
This certificate (the "Annuity") is a summary of the provisions of a group
annuity contract. The contract owner and contract are as shown in the Schedule
made part of this Annuity.
RIGHT TO CANCEL
You may return this Annuity to our Office or to the representative who solicited
its purchase for a refund within twenty-one days after you receive it. The
amount of the refund will equal the then current Account Value plus any tax
charge deducted as of the date we receive the cancellation request. You bear the
investment risk during this period. If this Annuity is issued as an individual
retirement annuity ("IRA"), we will refund the greater of (1) the Purchase
Payment or (2) the current Account Value of the Annuity if you exercise the
Right to Cancel provision and we receive your request for refund In Writing at
our Office within ten days after you receive the Annuity.
Signed for American Skandia Life Assurance Corporation:
Secretary President
GROUP DEFERRED ANNUITY
NON-PARTICIPATING
VARIABLE AND FIXED INVESTMENT OPTIONS IN THE ACCUMULATION PERIOD
FIXED ANNUITY PAYMENTS IN THE PAYOUT PERIOD
IN THE ACCUMULATION PERIOD ANY PAYMENTS AND VALUES PROVIDED UNDER THE VARIABLE
INVESTMENT OPTIONS ARE BASED ON THEIR INVESTMENT PERFORMANCE AND ARE,
THEREFORE, NOT GUARANTEED. PLEASE REFER TO THE SECTION ENTITLED "ACCOUNT
VALUE IN THE SUB-ACCOUNTS" FOR A MORE COMPLETE EXPLANATION.
IN THE ACCUMULATION PERIOD ANY PAYMENTS AND VALUES PROVIDED UNDER THE FIXED
INVESTMENT OPTIONS MAY BE SUBJECT TO A MARKET VALUE ADJUSTMENT. SUCH A MARKET
VALUE ADJUSTMENT MAY INCREASE OR DECREASE ANY SUCH PAYMENTS OR VALUES. PLEASE
REFER TO THE SECTION ENTITLED "ACCOUNT VALUE OF THE FIXED ALLOCATIONS" FOR A
MORE COMPLETE EXPLANATION.
<PAGE>
TABLE OF CONTENTS
DEFINITIONS ..................................................................5
INVESTMENT OF ACCOUNT VALUE...................................................7
OPERATIONS OF THE SEPARATE ACCOUNTS...........................................8
CHARGES ...............................................................9
PARTICIPATION RIGHTS AND DESIGNATIONS.........................................9
PURCHASE PAYMENTS............................................................11
ACCOUNT VALUE AND SURRENDER VALUE............................................11
ALLOCATION RULES.............................................................12
TRANSFERS ...................................................................13
DISTRIBUTIONS .............................................................. 14
GENERAL PROVISIONS...........................................................19
ANNUITY TABLES ..............................................................20
A copy of any enrollment form and any riders and endorsements are attached.
<PAGE>
GAL/CRT(1/95)-09 9
SCHEDULE
ANNUITY NUMBER: [001-00001] ISSUE DATE: [JUNE 1, 1990]
TYPE OF BUSINESS: [NON-QUALIFIED]
PARTICIPANT: [JOHN DOE]
DATE OF BIRTH: [OCTOBER 21, 1940] SEX: [MALE]
[PARTICIPANT: [MARY DOE]
DATE OF BIRTH: [OCTOBER 15, 1940] SEX: [FEMALE]]
ANNUITANT: [JOHN DOE]
ANNUITANT'S DATE OF BIRTH: [APRIL 01,1934] ANNUITANT'S SEX: [MALE]
ANNUITY DATE: [NOVEMBER 01, 2025]
CONTINGENT ANNUITANT: AS NAMED IN ANY ENROLLMENT FORM OR LATER CHANGED
BENEFICIARY: AS NAMED IN ANY ENROLLMENT FORM OR LATER CHANGED
PURCHASE PAYMENT: $[5,000] NET PURCHASE PAYMENT: $[5,000]
MINIMUM ADDITIONAL PURCHASE PAYMENT: $[100]
MINIMUM WITHDRAWAL AMOUNT: $[100]
MINIMUM ACCOUNT VALUE AFTER WITHDRAWAL: $[1,000]
MINIMUM ACCOUNT VALUE AT COMMENCEMENT OF
SYSTEMATIC WITHDRAWAL PROGRAM: $[20,000]
MINIMUM ACCOUNT VALUE AT COMMENCEMENT OF
DOLLAR COST AVERAGING PROGRAM: $[20,000]
MINIMUM INITIAL PURCHASE PAYMENT IN RESPECT TO BANK DRAFTING: $[50]
TOTAL AMOUNT OF PURCHASE PAYMENTS (INCLUDING MINIMUM INITIAL PURCHASE
PAYMENT) WHICH MUST BE RECEIVED IN THE FIRST ANNUITY YEAR IN RESPECT TO BANK
DRAFTING: $[5,000]
MINIMUM ANNUITY PAYMENT: $[100 PER MONTH]
CUT OFF DATE: [THE DECEDENT'S 75TH BIRTHDAY]
<PAGE>
SCHEDULE (CONTINUED)
CONTINGENT DEFERRED SALES CHARGE:
LENGTH OF TIME PERCENTAGE OF PURCHASE
SINCE PURCHASE PAYMENT PAYMENTS BEING LIQUIDATED
[0-1 year 4.0%
1-2 years 3.0%
2-3 years 2.0%
3-4 years 1.0%
4+ years 0%]
TRANSFER FEE: $[10 PER TRANSFER AFTER THE TWELFTH IN AN ANNUITY YEAR]
MAINTENANCE FEE [LESSER OF $35 OR 2% OF ACCOUNT VALUE, IF ACCOUNT VALUE IS
LESS THAN $50,000 AS OF THE VALUATION PERIOD SUCH FEE IS DUE]
MORTALITY AND EXPENSE RISK CHARGE: [0.85]%
ADMINISTRATIVE CHARGE: [0.15]%
INTEREST RATE MINIMUM: [1.90 PERCENT (.0190) LESS THAN THE AMOUNT DETERMINED
BY THE INDEX. IN NO EVENT WILL THE MINIMUM BE LESS THAN ZERO.]
VARIABLE SEPARATE ACCOUNT: [AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
VARIABLE ACCOUNT B - CLASS 3
SUB-ACCOUNTS]
FIXED SEPARATE ACCOUNT: [AMERICAN SKANDIA LIFE ASSURANCE CORPORATION SEPARATE
ACCOUNT D]
OWNER: [AMERICAN SKANDIA GALAXY FUND]
CONTRACT: [016]
OFFICE: AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
ONE CORPORATE DRIVE
P.O. BOX 883
SHELTON. CONNECTICUT 06484
Telephone: 1-800-752-6342
<PAGE>
DEFINITIONS
Account Value: The value of each allocation to a Sub-account or a Fixed
Allocation prior to the Annuity Date, plus any earnings and/or less any losses,
distributions, and charges thereon, before assessment of any applicable
contingent deferred sales charge and/or 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 is calculated using a market value adjustment.
Accumulation Period: The period of time from the Issue Date through and
including the 15th day prior to the Annuity Date.
Annuitant: The person upon whose life this Annuity is issued.
Annuity: A summary of your rights and benefits under the contract shown in
the Schedule.
Annuity Date: The date on which annuity payments are to commence.
Annuity Years: Continuous 12 month periods commencing on the Issue Date and
each anniversary of the Issue Date.
Beneficiary: The person designated as the recipient of the death benefit.
Contingent Annuitant: The person named to become the Annuitant on the
Annuitant's death prior to the Annuity Date.
Current Rates: 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: An allocation of Account Value that is to be credited a fixed
rate of interest for a specified Guarantee Period during the Accumulation Period
and is to be supported by assets in the Fixed Separate Account.
Fixed Separate Account: The separate account shown in the Schedule used in
relation to Fixed Allocations.
Guarantee Period: A period of time during the Accumulation Period during
which we credit a fixed rate of interest on a Fixed Allocation.
In Writing: In a written form satisfactory to us and filed at the Office.
Interim Value: 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 and interest
thereon from the date of each withdrawal or transfer.
Issue Date: The effective date of your participation under the contract
shown in the Schedule in relation to the rights and benefits evidenced by this
Annuity.
MVA: 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.
<PAGE>
Maturity Date: The last day in a Guarantee Period.
Minimum Distributions: Minimum amounts that must be distributed each year from
an Annuity if used in relation to certain qualified plans under the Internal
Revenue Code.
Net Purchase Payment: A Purchase Payment less any applicable charge for taxes.
Office: The location shown in the Schedule where all requests regarding
this Annuity are to be sent.
Owner: The person or entity shown in the Schedule unless later changed, that
owns the master group contract under which an Annuity is issued.
Payout Period: The period starting on the Annuity Date during which the
annuity is paid.
Purchase Payment: A cash consideration you give to us for the rights,
privileges and benefits outlined in this Annuity.
Sub-account: A division of the Variable Separate Account shown in the
Schedule. We use Sub-accounts to calculate variable benefits under this Annuity.
Surrender Value: The value of your Annuity available upon surrender prior to the
Annuity Date. It equals the Account Value as of the date we price the surrender
less any applicable contingent deferred sales charge and any applicable
maintenance fee.
Systematic Withdrawal: One of a plan of periodic withdrawals of Surrender
Value during the Accumulation Period. We must approve of such plan.
Unit: A measure used to calculate your Account Value in a Sub-account prior
to the Annuity Date.
Unit Price: 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: 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: The period of time between the close of business of the
New York Stock Exchange on successive Valuation Days.
Variable Separate Account: The variable separate account shown in the
Schedule used in relation to Sub-accounts.
we, us, our: American Skandia Life Assurance Corporation.
you, your: The participant shown in the Schedule.
<PAGE>
INVESTMENT OF ACCOUNT VALUE
General: In the Accumulation Period we offer a range of variable and fixed
options as ways to invest your Account Value. You may maintain Account Value in
multiple investment options, subject to the limits set out in the Allocation
Rules section of this Annuity. You may transfer Account Value between investment
options, subject to the requirements set out in the Transfers section of this
Annuity. Transfers may be subject to a fee.
Variable Investment Options: During the Accumulation Period we offer a
number of Sub-accounts as variable investment options. These are all
Sub-accounts of the Variable Separate Account shown in the Schedule.
Fixed Investment Options: We may offer Fixed Allocations with Guarantee Periods
of different durations. Each such Fixed Allocation is accounted for separately.
Each Fixed Allocation earns a fixed rate of interest throughout its 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.
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 to 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, for the class of contracts to which
this Annuity belongs, 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 an effective annual rate of interest as shown in the
Schedule.
Interest Rate Minimum
Interest rates are determined by us. However, rates are subject to a minimum.
The minimum for a Fixed Allocation is based on both an index and a reduction to
the interest rate determined according to the index. The reduction used in
determining the minimum is as shown in the Schedule. The index is based on the
published rate for certificates of indebtedness (bills, notes, or bonds,
depending on the term of indebtedness) of the United States Treasury at the most
recent Treasury auction held at least 30 days prior to the beginning of the
applicable Fixed Allocation's Guarantee Period. The term (length of time from
issuance to maturity) of the certificates of indebtedness upon which the index
is based is the same as the duration of the Guarantee Period. If no certificates
of indebtedness are available for such term, the next shortest term is used. If
the United States Treasury's auction program is discontinued, we will substitute
indexes which in our opinion are comparable. If required, implementation of such
substitute indexes will be subject to approval by the Securities and Exchange
Commission and the insurance department of the jurisdiction in which the Annuity
is delivered.
<PAGE>
OPERATIONS OF THE SEPARATE ACCOUNTS
General: The assets supporting our obligations under the Annuities may be held
in various accounts, depending on the obligation being supported. In the
Accumulation Period, assets supporting Account Values are held in separate
accounts established under the laws of the State of Connecticut. In the Payout
Period, assets supporting fixed annuity payments 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.
Variable Separate Account: In the Accumulation Period, the assets supporting
obligations based on allocations to the variable investment options are held in
the Variable Separate Account shown in the Schedule. This separate account
consists of multiple Sub-accounts. This separate account was established by us
pursuant to Connecticut law. This separate account also holds assets of other
annuities issued by us with values and benefits that vary according to the
investment performance of this Variable Separate Account.
The amount of our obligations in relation to allocations to the Sub-accounts are
based on the investment performance of such Sub-accounts. However, the
obligations themselves are our general corporate obligations.
The Variable Separate Account is registered with the Securities and Exchange
Commission ("SEC") under the Investment Company Act of 1940 (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 the Variable Separate Account.
Sub-accounts are permitted to invest in underlying mutual funds or portfolios
that we consider suitable. We also reserve the right to change the investment
policy of any or all Sub-accounts, add Sub-accounts, eliminate Sub-accounts,
combine Sub-accounts, or to substitute underlying mutual funds or portfolios of
underlying mutual funds, subject to any required regulatory approvals.
We reserve the right to transfer assets of the Variable Separate Account, which
we determine to be associated with the class of contracts to which this Annuity
belongs, to another Variable Separate Account. If this type of transfer is made,
the term "Variable Separate Account" as used in this Annuity, shall mean the
Variable Separate Account to which the assets were transferred.
Fixed Separate Account: In the Accumulation Period, assets supporting our
obligations based on Fixed Allocations are held in the Fixed Separate Account
shown in the Schedule. This separate account was established by us pursuant to
Connecticut law.
No party with rights under any annuity participates in the investment gain or
loss from assets belonging to the Fixed Separate Account. We have the right to
transfer to our general account any assets of the Fixed Separate Account in
excess of such reserves and other liabilities. We maintain assets in the Fixed
Separate Account supporting a number of annuities we offer.
<PAGE>
The Account Value of a Fixed Allocation is guaranteed to be its then current
Interim Value on its Maturity Date.
CHARGES
Contingent Deferred Sales Charge: The contingent deferred sales charge for each
Purchase Payment is a percentage of the Purchase Payment being liquidated. The
charge decreases as the Purchase Payment ages. The aging of a Purchase Payment
is measured from the date it is allocated to your Annuity. The charge is shown
in the Schedule.
Maintenance Fee: This is an annual fee, if applicable, deducted at the end of
each Annuity Year or on surrender, if earlier. The amount of this charge is
shown in the Schedule. The fee is limited to the Account Values in the
Sub-accounts as of the Valuation Period such fee is payable. The maintenance fee
is not assessed if there is no Account Value in any Sub-account as of the
Valuation Period such fee is payable.
Tax Charges: In several states a tax is payable, either when Purchase Payments
are received or, when the Account Value is applied under an annuity option. We
will deduct the amount of tax payable, if any, from your Purchase Payments or
Account Value.
Transfer Fee: The transfer fee is as shown in the Schedule. However, the fee is
only charged if there is Account Value in at least one Sub-account immediately
subsequent to such transfer. Renewals or transfers of Account Value from a Fixed
Allocation at the end of its Guarantee Period are not subject to the transfer
fee and are not counted in determining whether other transfers may be subject to
the transfer fee.
Allocation Of Annuity Charges: Charges applicable to any type of withdrawal are
taken from the investment options in the same ratio as such a withdrawal is
taken from the investment options. 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 Surrender 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.
Administration Charge: We charge for administering each Sub-account. We assess
this charge each day at the daily equivalent of the rate shown in the Schedule
against the daily total value of each Sub-account.
Mortality and Expense Risk Charges: We assess mortality and expense risk charges
against each Sub-account. We assess these charges each day at the daily
equivalent of the rate shown in the Schedule against the daily total value in
each Sub-account.
PARTICIPATION RIGHTS AND DESIGNATIONS
Participation Rights, Annuitant and Beneficiary Designations: You may exercise
the rights, options and privileges granted participants by the contract as shown
in the Schedule or permitted by us. Your rights are subject to the rights of any
assignee recorded by us and of any irrevocably designated Beneficiary.
<PAGE>
GAL/CRT(1/95)-24 24
If more than one participant is named, all rights reserved to a participant are
then held jointly. We require the consent In Writing of all joint participants
for any transaction for which we require the written consent of a participant.
You may name a contingent participant. However, this designation takes effect
only on or after the Annuity Date. Where required by law, we require the consent
In Writing of the spouse of any person with a vested interest in an Annuity.
You make certain designations that apply to the Annuity. These designations are
subject to our rules and to various regulatory or statutory requirements
depending on the use of the Annuity. These designations include a participant, a
contingent participant, 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.
A participant must be named. You may name more than one participant. If you do,
all rights reserved to participants are then held jointly. We require the
consent In Writing of all joint participants for any transaction for which we
require the written consent of participants. Where required by law, we require
the consent In Writing of the spouse of any person with a vested interest in an
Annuity.
You may name a contingent participant. 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.
You may name one or more Contingent Annuitants. If the Annuitant dies before the
Annuity Date, the Contingent Annuitant will become the Annuitant. If there is
more than one participant, all of whom are natural persons, the oldest of any
such participants not named as the Annuitant immediately becomes the Contingent
Annuitant if the Contingent Annuitant predeceases the Annuitant or if a
Contingent Annuitant is not designated.
Death benefits are payable to the Beneficiary. You may designate more than one
primary or contingent Beneficiary. If you make such a designation, the proceeds
are payable in equal shares to the survivors in the appropriate Beneficiary
class, unless you request 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.
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 participant, contingent participant, Annuitant, Contingent
Annuitant and Beneficiary designations by sending a request In Writing. 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 participant subsequent to the
death of the participant or the first of any joint participants to die, except
where a spouse-Beneficiary has become the participant as a result of a
participant'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.
Common Disaster: If a participant is a natural person and if any Beneficiary
dies with the participant in a common disaster, it must be proved to our
satisfaction that the participant died first. Unless information provided
indicates otherwise, the Annuity is treated as though the Beneficiary died
first. If: (a) the participant is not a natural person; (b) no Contingent
Annuitant has been designated; and (c) the Annuitant and the Beneficiary die in
a common disaster, then it must be proved to our satisfaction that the Annuitant
died first. Unless provided otherwise, the proceeds are payable as if the
Beneficiary died before the Annuitant.
<PAGE>
PURCHASE PAYMENTS
Initial Purchase Payment: Issuance of an Annuity represents both our acceptance
of an initial Purchase Payment and enrollment of a participant. The amount of
your initial Net Purchase Payment evidenced by this Annuity is shown in the
Schedule. Your initial Purchase Payment is subject to our allocation rules (see
"Allocation Rules"). You may make Purchase Payments to your Annuity using bank
drafting, but only for allocations to variable investment options.
Additional Purchase Payments: The minimum for any additional Purchase Payment is
as shown in the Schedule. Additional Purchase Payments may be paid at any time
before the Annuity Date. Subject to the allocation rules herein, we allocate
additional Net Purchase Payments according to the instructions you provide.
Should no instructions be received, we return your additional Purchase Payment.
ACCOUNT VALUE AND SURRENDER VALUE
General: In the Accumulation Period your Annuity has an Account Value and a
Surrender Value. Your total Account Value is the sum of your Account Value in
each Sub-account and each Fixed Allocation. Surrender Value is the Account Value
less any applicable contingent deferred sales charge and 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 your Annuity in that
Sub-account as of that Valuation Period.
Units: The number of Units attributable to this Annuity 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
affected Sub-account as of the Valuation Period applicable to such transaction.
Unit Price: 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.
Net Investment Factor: Each Sub-account has a net investment factor. 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 in the Sub-account at the end
of the current Valuation Period plus the per share
amount of any dividend or capital gain distribution
declared 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 the Sub-account.
(b) is the net result of :
(1) the net asset value per share of the underlying mutual fund shares held
in the Sub-account at the end of the preceding Valuation Period; plus or minus
<PAGE>
(2) any per share charge or credit during the preceding Valuation Period as
a provision for taxes attributable to the operation or maintenance of the
Sub-account.
(c) is the mortality and expense risk charge and the administration fee.
We value the assets in the Sub-accounts 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.
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: [
(1+I) /(1+J+0.0010)] N/12; where:
I is the interest rate being credited to the Fixed Allocation;
J is the interest rate for your class of annuities for a new
Fixed Allocation with Guarantee Period of duration equal to
the number of years (rounded to the next higher integer when
occurring on other than an anniversary of the beginning of the
Guarantee Period) remaining in the Fixed Allocation's
Guarantee Period;
N is the number of months (rounded to the next higher integer
when occurring on other than a monthly anniversary of the
beginning of the Guarantee Period) remaining in the Fixed
Allocation's Guarantee Period.
No MVA applies in determining a Fixed Allocation's Account Value on its Maturity
Date.
ALLOCATION RULES
You may allocate your Account Value among the investment options we make
available. The variable investment options are Sub-accounts of the Variable
Separate Account. The fixed investment options are the Guarantee Periods we make
available for Fixed Allocations. In the Accumulation Period, you may maintain
Account Value in up to ten Sub-accounts. You may also maintain an unlimited
number of Fixed Allocations. 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.
Should you either: (a) authorize an independent third party to transact
transfers on your behalf and such third party arranges for rebalancing of your
Account Value in accordance with any asset allocation strategy; or (b) 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 must be
allocated to the same investment options and in the same proportions as then
required pursuant to the applicable asset allocation or market timing program,
but only to the extent we have received instructions to that effect. Such
allocation requirements terminate simultaneous to the termination of 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
other instructions from you prior to such withdrawal.
<PAGE>
If no instructions are provided for determining the amounts to be taken from
each investment option, then 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 has the shorter Guarantee Period.
TRANSFERS
General: In the Accumulation Period you may transfer Account Value between
investment options, subject to the allocation rules herein. The amount we charge
is shown in the Schedule. 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. Your transfer request must be In Writing unless we
receive a prior written authorization from you permitting transfers based on
instructions we receive over the phone.
Where permitted by law, we may accept your authorization of a third party to
transfer Account Values on your behalf. We may suspend or cancel such acceptance
at any time. We give you prior notification of any such suspension or
cancellation. We may restrict the investment options that will be available to
you for transfers or allocations of Net Purchase Payments during any period in
which you authorize such third party 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 reserve the right to limit the number of transfers in any Annuity Year for
all existing or new participants. We also reserve the right to limit the number
of transfers in any Annuity Year or to refuse any transfer request for a
participant or certain participants if we believe that: (a) excessive trading by
such participant or participants 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.
Dollar Cost Averaging: We offer dollar cost averaging in the Accumulation
Period. You may choose to transfer earnings only, principal plus earnings or a
flat dollar amount. 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. The minimum Account Value you must have in
order for us to accept your request for a dollar cost averaging program is as
shown in the Schedule. We do not permit dollar cost averaging programs where
Account Value is transferred to Fixed Allocations. We reserve the right to limit
the investment options into which Account Value may be transferred as part of a
dollar cost averaging program. Dollar cost averaging is not available while an
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
<PAGE>
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.
Renewals: A renewal is a transaction that occurs automatically as of the last
day of a Fixed Allocation's Guarantee Period unless we receive other
instructions. 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.
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.
As an alternative to a renewal, you may transfer all or part of that Fixed
Allocation's Account Value to make 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.
DISTRIBUTIONS
Surrender: Surrender of your Annuity for its Surrender Value is permitted during
the Accumulation Period. A contingent deferred sales charge and the maintenance
fee may apply to such surrender. You must send your Annuity and surrender
request In Writing to our Office.
Medically-Related Surrender: You may request to surrender your Annuity for its
Account Value prior to the Annuity Date upon occurrence of a "Contingency
Event." The Annuitant must be alive as of the date we pay the proceeds of such
surrender request. If the participant is one or more natural persons, all such
participants must also be alive at such time. This benefit is not available if
the total Purchase Payments received exceed $500,000.00 for all annuities issued
by us with this benefit for which the same person is named as Annuitant.
A Contingency Event occurs if the Annuitant is: (a) first confined in a Medical
Care Facility while this Annuity is in force and remains confined for at least
90 days in a row; or (b) first diagnosed as having a Fatal Illness while this
Annuity is in force. We may require a second opinion regarding such diagnosis at
our expense by a physician chosen by us.
"Medical Care Facility" means any state licensed facility providing medically
necessary in-patient care which is: (a) prescribed by a licensed Physician in
writing; and (b) based on physical limitations which prohibit daily living in a
non-institutional setting.
"Fatal Illness" means a condition: (a) diagnosed by a licensed Physician;
and (b) is expected to result in death within 2 years for 80% of the diagnosed
cases.
<PAGE>
"Physician" means a person who is: (a) state licensed to give medical care or
treatment and is acting within the scope of that license; and (b) not you, the
Annuitant or a member of either your or the Annuitant's families.
We must receive due proof of the Annuitant's confinement or Fatal Illness In
Writing.
Free Withdrawals: Each Annuity Year in the Accumulation Period you may withdraw
a limited amount of Account Value without application of any applicable
contingent deferred sales charge.
The minimum withdrawal amount is as shown in the Schedule. Amounts received as
Systematic Withdrawals or as Minimum Distributions are deemed to come first from
the amount available under this Free Withdrawal provision. You may also request
to receive as a lump sum any free withdrawal amount not already received that
Annuity Year under a plan of Systematic Withdrawals or as Minimum Distributions.
The maximum amount available as a free withdrawal in an Annuity Year is the
greater of this Annuity's "growth" or 10% of "new" Purchase Payments. "Growth"
equals the then current Account Value less all "unliquidated" Purchase Payments
and less any additions credited under any special programs we offer.
"Unliquidated" means not previously withdrawn. "New" Purchase Payments are those
received in the four (4) years prior to the date as of which a withdrawal
occurs. For purposes of the contingent deferred sales charge, amounts withdrawn
as a free withdrawal are not considered a liquidation of Purchase Payments.
Partial Withdrawals: You may withdraw part of your Surrender Value. The minimum
partial withdrawal is as shown in the Schedule. The Surrender Value that must
remain in the Annuity as of the date of this transaction is as shown in the
Schedule. 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.
On a partial withdrawal, the contingent deferred sales charge is assessed
against any "unliquidated" "new" Purchase Payments withdrawn. "Unliquidated"
means not previously withdrawn. For these purposes, amounts are deemed to be
withdrawn from your Annuity in the following order:
(a) From any amount then available as a free withdrawal; then from
(b) "Old" Purchase Payments (Purchase Payments allocated to
Account Value more than seven years prior to the withdrawal);
then from
(c) "New" Purchase Payments (If there are multiple "new" Purchase
Payments, the one received earliest is liquidated first, then
the one received next earliest, and so forth); then from
(d) Other Surrender Value.
Systematic Withdrawals: We may offer Systematic Withdrawals of earnings only,
principal plus earnings or a flat dollar amount. Systematic Withdrawals from
Fixed Allocations are limited to earnings only and must be elected at the time
funds are allocated to the Fixed Investment Option. A Systematic Withdrawal from
a Fixed Allocation is not subject to the MVA. You may choose at any time to
begin such a program if withdrawals are to come solely from Account Value
maintained in the Sub-accounts. If such a program is to be based on withdrawals
in whole or in part from any Fixed Allocations, then withdrawals must be
scheduled for periods measured from the first day of the Guarantee Period for
the applicable Fixed Allocations. Systematic Withdrawals are deemed to be
withdrawn in the same order as partial withdrawals for purposes of determining
if the contingent deferred sales charge applies.
<PAGE>
We offer Systematic Withdrawals on a monthly, quarterly, semi-annual or annual
basis. You may not simultaneously receive Systematic Withdrawals from a Fixed
Allocation and participate in a program of automatic transfers under which
Account Value is transferred from the same Fixed Allocation. Systematic
Withdrawals are not available while you are taking any Minimum Distributions.
The Surrender Value of your Annuity must be at least the minimum amount shown in
the Schedule when you begin a program of Systematic Withdrawals. The minimum for
each Systematic Withdrawal is as shown in the Schedule.
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
Internal Revenue Code. We calculate such amounts assuming the Minimum
Distribution amount is based solely on the value of your Annuity. Minimum
Distributions are not available if you are taking Systematic Withdrawals. You
may elect to have the Minimum Distribution 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 Allocations if such Fixed
Allocations are being used in a dollar cost averaging program or other automatic
transfer programs.
No contingent deferred sales charge is assessed against amounts withdrawn as a
Minimum Distribution, but only to the extent of the Minimum Distribution
required from your Annuity at the time it is taken. The contingent deferred
sales charge may apply to additional amounts withdrawn to meet minimum
distribution requirements in relation to other retirement programs you may
maintain.
Amounts withdrawn as Minimum Distributions are considered to come first
from the amounts available as a free withdrawal as of the date of the yearly
calculation of the Minimum Distribution amount. Minimum Distributions over that
amount are not deemed to be a liquidation of Purchase Payments.
Death Benefit: In the Accumulation Period, a death benefit is payable. If there
is more than one participant, such participants being natural persons, the death
benefit is payable upon the first death of such participants. 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.
In the Payout Period, we distribute any payments due subsequent to a
participant's death or the death of any participant at least as rapidly as under
the method of distribution in effect as of the date of such participant's death.
If the Annuitant dies before the Annuity Date, the Contingent Annuitant will
become the Annuitant. In the Payout Period, subsequent to the death of the
Annuitant, we continue to pay any "certain" payments (payments not contingent on
the continuance of any life) to the Beneficiary.
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 (free withdrawals, partial withdrawals, Systematic
Withdrawals, Minimum Distributions) before assessment of any applicable
contingent deferred sales charge and after any applicable MVA. For purposes of
this provision, persons named participant or Annuitant within 60 days of the
Issue Date are treated as if they were a participant or Annuitant on the Issue
Date.
<PAGE>
The death benefit is as follows, and is subject to the conditions described in
(1),(2) and (3) below:
(1) If death occurs prior to the cutoff date: the death benefit is the
greater of your Account Value in any Sub-accounts plus the Interim Value of any
Fixed Allocations, or the minimum death benefit ("Minimum Death Benefit"). The
"cutoff date" for the Minimum Death Benefit described below is shown in the
Schedule. The Minimum Death Benefit is the sum of all Purchase Payments less the
sum of all withdrawals.
(2) If death occurs when the decedent has reached or passed the cutoff
date, the death benefit is your Account Value.
(3) If a decedent was not named a participant or Annuitant as of the
Issue Date and did not become such as a result of a prior participant'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 a participant or
Annuitant. If that person's death occurs during the suspension period and prior
to the cutoff date, the death benefit is your Account Value in Sub-accounts plus
the Interim Value of any Fixed Allocations. If death occurs during the
suspension period when such decedent has reached or passed the cutoff date, the
death benefit is your Account Value. After the suspension period is completed,
the death benefit is the same as if such person had been a participant or
Annuitant on the Issue Date.
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.
If the death benefit becomes payable prior to the Annuity Date due to a
participant's death and the Beneficiary is the spouse, then in lieu of receiving
the death benefit, the spouse may elect to be treated as a participant and
continue the Annuity.
In the event of a participant's 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 a participant's death to be paid under (b) above, must
commence within one year of the date of death.
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. You
may choose an Annuity Date, an annuity option and the frequency of annuity
payments. Your choice of Annuity Date and annuity option may be limited
depending on your use of the Annuity. 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, monthly payments will
commence under option 2, described below, with 10 years certain. 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, to your Account Value between the date Account Value is applied to an
annuity option and the Annuity Date. If there is any remaining contingent
deferred sales charge applicable as of the Annuity Date, then the annuity option
you select must include a certain period of not less than 5 years' duration.
Annuity options in addition to those shown are available with our consent.
<PAGE>
You may elect to have any amount of the proceeds due to the Beneficiary applied
under any of the options described below. Except where a lower amount is
required by law, the minimum monthly annuity payment is as shown in the
Schedule. In the absence of election prior to proceeds becoming due, the
Beneficiary may make such an election. However, if you made an election, the
Beneficiary may not alter such election. Such election must be made In Writing
within one year after proceeds are payable.
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.
(a) 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.
(b) 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.
(c) 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.
(d) 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.
The first periodic payment is determined by multiplying the portion of the
Account Value being allocated to purchase annuity payments (expressed in
thousands of dollars) as of the close of business of 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 of
value obtained from our then current annuity rates for that type of annuity and
for the frequency of payment selected. These rates will not be less than those
shown in the Annuity Tables shown herein.
We reserve the right to require submission prior to commencement of any annuity
payments of evidence satisfactory to us of the age of any key life upon whose
life payment amounts are calculated.
Pricing Of Transfers And Distributions: Subject to our right to defer
transactions for a limited period, we "price" transfers and distributions on the
dates indicated below. 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.
(a) We price "scheduled" transfers and distributions as of the date
such transactions are so scheduled. "Scheduled" transactions include transfers
previously scheduled with us under an automatic transfer program, Systematic
Withdrawals, Minimum Distributions and annuity payments.
(b) We price "unscheduled" transfers, including transfers under an
automatic transfer program that were not scheduled with us, partial withdrawals
and free withdrawals as of the date we receive In Writing at our Office the
request for such transactions.
<PAGE>
(c) We price surrenders, medically-related 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.
GENERAL PROVISIONS
Entire Contract: The contract shown in the Schedule, including any attached
riders or endorsements, the attached copy of any enrollment form and any
supplemental applications and endorsements are the entire contract. As to your
Annuity, the contract also includes the copy of any enrollment form attached to
your Annuity. All statements made in any application and/or any enrollment form
are deemed to be representations and not warranties. No statement is used to
void the contract or an Annuity or defend against a claim unless it is contained
in any application or any supplemental application or any enrollment form.
Only our President, a Vice President or Secretary may change or waive any
provisions of the contract or of any Annuity. Any change or waiver must be In
Writing. We are not bound by any promises or representations made by or to any
other person.
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.
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. 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.
Nonparticipation: The contract does not share in our profits or surplus
earnings.
Deferral of Transactions: We may defer any annuity payment 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 fixed annuity payout
for more than thirty days, we pay interest of at least 3% per year on the amount
deferred. We may defer 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 other deferral period begins on the date such
distribution or transfer would otherwise have been transacted.
All transactions into, out of or based on any Sub-account may be postponed
whenever (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.
Elections, Designations, Changes and Requests: All elections, designations,
changes and requests must be In Writing and are effective only after they have
been approved by us, subject to any transactions made by us before receipt of
such notices. We inform you of any changes to the contract shown in the Schedule
that materially affect your rights. We reserve the right to require that this
Annuity be returned to our Office for endorsement of any change to such contract
or any change affecting only this Annuity.
<PAGE>
Claims of Creditors: To the extent permitted by law, no payment under the
contract shown in the Schedule or any Annuity thereunder is subject to the
claims of the creditors of the Owner, you or any other participant, Annuitant or
Beneficiary.
Proof of Survival: The payment of any annuity is subject to evidence
satisfactory to us that the payee is alive on the date such payment is otherwise
due.
Tax Reporting: We intend to make all required regulatory reports regarding
taxable events in relation to this Annuity. Such events may include, but are not
limited to: (a) annuity payments; (b) payment of death benefits; (c) surrender
of value from an Annuity in excess of the tax basis; and (d) assignments.
Facility of Payment: We reserve the right, in settlement of full liability, to
make payments to a guardian, relative or other person if a payee is legally
incompetent.
Participation and Termination of Certain Programs We May Offer: To elect to
participate or to terminate participation in any program we may offer, we may
require receipt at our Office of a request In Writing on a form satisfactory to
us.
Reports to You: We provide reports to you during the Accumulation Period. We
will provide you with reports at least once each quarter that you maintain
Account Values in the Sub-accounts. We will provide you with reports once a year
if you maintain Account Value only in one or more Fixed Allocations. You may
request additional reports. We reserve the right to charge up to $50 for each
such additional report.
Reserved Rights: In addition to rights specifically reserved elsewhere in this
Annuity, we reserve the right to any or all of the following: (a) combine a
Sub-account with other Sub-accounts; (b) combine the Variable Separate Account
shown in the Schedule with other "unitized" separate accounts; (c) terminate
offering certain Guarantee Periods for new or renewing Fixed Allocations; (d)
combine the Fixed Separate Account shown in the Schedule with other
"non-unitized separate accounts; (e) deregister the Variable Separate Account
shown in the Schedule under the Investment Company Act of 1940; (f) operate the
Variable Separate Account shown in the Schedule as a management investment
company under the Investment Company Act of 1940 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 Investment Company Act of 1940; (h) make changes
that are necessary to maintain the tax status of your Annuity under the Internal
Revenue Code; and (i) make changes required by any change in other Federal or
state laws relating to retirement annuities or annuity contracts.
We may eliminate 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.
ANNUITY TABLES
The attached tables show the minimum dollar amount of each monthly payment for
each $1,000 applied under the options. The amounts payable when annuity payments
commence may be higher, based on our then current assumptions as to interest,
expenses and mortality, but will not be lower.
Under options one and two, the amount of each payment depends on the age and
sex, if applicable, of the payee at the time the first payment is due. Under
option three, the amount of each payment depends on the age and sex, if
applicable, of both payees at the time the first payment is due. No election can
be changed once payments begin.
The tables shown are based on interest at 3% per year compounded annually and
the 1983a Individual Annuity Mortality Table set back one year for males and two
years for females or the appropriate variation
<PAGE>
of such Table with genderless rates when applicable to the Annuity in order to
meet Federal requirements in relation to the usage of such Annuity.
The payee's settlement age is the payee's age, last birthday, on the date of the
first payment, minus the age adjustment. The age adjustments are shown below.
They are based on the date of the first payment. The age adjustment does not
exceed the age of the payee.
Annuitization Attained Age
Year Set Back
2000 - 2009 1
2010 - 2019 2
2020 and later 3
Amount of Monthly Payment For Each $1,000 Applied
(Based on 3% Annual Interest Rate)
First and Second Options - Single Life Annuities with:
<TABLE>
<CAPTION>
Male Payee with Female Payee with
Monthly Payments Guaranteed Monthly Payments Guaranteed
None 120 180 240 None 120 180 240
Age $ $ $ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 4.19 4.15 4.10 4.03 3.79 3.78 3.76 3.73
55 4.61 4.54 4.45 4.32 4.10 4.08 4.04 3.99
60 5.15 5.03 4.87 4.65 4.52 4.47 4.40 4.30
65 5.91 5.67 5.36 4.97 5.08 4.98 4.85 4.65
70 6.98 6.44 5.87 5.23 5.85 5.65 5.38 5.00
75 8.46 7.32 6.31 5.40 6.98 6.50 5.94 5.28
80 10.57 8.18 6.62 5.48 8.66 7.50 6.41 5.43
Third Option - Joint and Last Survivor Annuity
Age of Female Payee
Age of 35 40 45 50 55 60 65 70 75 80
Male Payee $ $ $ $ $ $ $ $ $ $
50 3.15 3.27 3.39 3.53 3.67 3.79 3.91 4.00 4.07 4.12
55 3.17 3.29 3.44 3.60 3.78 3.96 4.13 4.27 4.39 4.47
60 3.18 3.31 3.47 3.66 3.88 4.11 4.35 4.57 4.76 4.91
65 3.19 3.33 3.50 3.70 3.95 4.23 4.55 4.87 5.18 5.44
70 3.19 3.34 3.52 3.74 4.01 4.33 4.72 5.16 5.62 6.05
75 3.20 3.34 3.53 3.76 4.04 4.40 4.85 5.39 6.02 6.68
80 3.20 3.35 3.53 3.77 4.07 4.45 4.94 5.57 6.35 7.26
Fourth Option - Payments for a Designated Period
Amount of Amount of Amount of Amount of
No. of Monthly No. of Monthly No. of Monthly No. of Monthly
Years Payments Years Payments Years Payments Years Payments
10 9.61 16 6.53 22 5.15 28 4.37
11 8.86 17 6.23 23 4.99 29 4.27
12 8.24 18 5.96 24 4.84 30 4.18
13 7.71 19 5.73 25 4.71
14 7.26 20 5.51 26 4.59
15 6.87 21 5.32 27 4.47
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
Shelton, Connecticut
(A Stock Company)
GROUP DEFERRED ANNUITY
NON-PARTICIPATING
VARIABLE AND FIXED INVESTMENT OPTIONS IN THE ACCUMULATION PERIOD
FIXED ANNUITY PAYMENTS IN THE PAYOUT PERIOD
IN THE ACCUMULATION PERIOD ANY PAYMENTS AND VALUES PROVIDED UNDER THE VARIABLE
INVESTMENT OPTIONS ARE BASED ON THEIR INVESTMENT PERFORMANCE AND ARE,
THEREFORE, NOT GUARANTEED. PLEASE REFER TO THE SECTION ENTITLED "ACCOUNT
VALUE IN THE SUB-ACCOUNTS" FOR A MORE COMPLETE EXPLANATION.
IN THE ACCUMULATION PERIOD ANY PAYMENTS AND VALUES PROVIDED UNDER THE FIXED
INVESTMENT OPTIONS MAY BE SUBJECT TO A MARKET VALUE ADJUSTMENT. SUCH A MARKET
VALUE ADJUSTMENT MAY INCREASE OR DECREASE ANY SUCH PAYMENTS OR VALUES. PLEASE
REFER TO THE SECTION ENTITLED "ACCOUNT VALUE OF THE FIXED ALLOCATIONS" FOR A
MORE COMPLETE EXPLANATION.
(212) 408-6900 Letterhead
Werner & Kennedy
1633 Broadway
New York, NY 10019
April 28, 1997
American Skandia Life Assurance Corporation
One Corporate Drive
Shelton, Connecticut 06484
Re: Post-effective Amendment No. 2 to Form N-4 filed by American Skandia
Life Assurance Corporation, Depositor, and American Skandia Life
Assurance Corporation Variable Account B (Class 3 Sub-Accounts),
Registrant
Registration No.: 33-88362
Investment Company No.: 811-8884
Dear Mesdames and Messrs.:
You have requested us, as general counsel to American Skandia Life
Assurance Corporation ("American Skandia"), to furnish you with this opinion in
connection with the above-referenced registration statement by American Skandia,
as Depositor, and American Skandia Life Assurance Corporation Variable Account B
(Class 3 Sub-Accounts) ("American Skandia Variable Account B Class 3
Sub-Accounts) as Registrant, under the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, Registration Statement No.
33-88362, Investment Company Act No. 811-8884, (the "Registration Statement") of
a certain Variable Annuity Contract (the "Contract") that will be issued by
American Skandia through American Skandia Variable Account B (Class 3
Sub-Accounts). We understand that the above registration is a combination
registration with Post-effective Amendment No. 2 on Form S-2 filed by American
Skandia Life Assurance Corporation, Registrant, Registration No.: 33-88360.
We have made such examination of the statutes and authorities,
corporate records of American Skandia, and other documents as in our judgment
are necessary to form a basis for opinions hereinafter expressed.
In our examinations, we have assumed to genuineness of all signatures
on, and authenticity of, and the conformity to original documents of all copies
submitted to us. As to various questions of fact material to our opinion, we
have relied upon statements and certificates of officers and representatives of
American Skandia and others.
Based upon the foregoing, we are of the opinion that:
1. American Skandia is a validly existing corporation under the laws of the
State of Connecticut.
American Skandia
Life Assurance Corporation
Page 2
2. American Skandia Variable Account B (Class 3 Sub-Accounts) is validly
existing as a separate account pursuant to the laws of the State of Connecticut.
3. The form of the Contract has been duly authorized by American Skandia,
and has been or will be filed in states where it is eligible for approval, and
upon issuance in accordance with the laws of such jurisdictions, and with the
terms of the Prospectus and the Statement of Additional Information included as
part of the Registration Statement, will be valid and binding upon American
Skandia.
We represent that the above-referenced Post-effective Amendment No. 2 to
the Registration Statement does not contain disclosures which would render it
ineligible to become effective pursuant to paragraph (b) of Rule 485.
We hereby consent to the use of this opinion as an exhibit to the
above-referenced Registration Statement of American Skandia on Form N-4 under
the Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended, and to the reference to our name under the heading "Legal Experts"
included in the Registration Statement.
Very truly yours,
/s/WERNER & KENNEDY
(W&K33-88362)
Exhibit 10
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-effective Amendment No. 2 to Registration
Statement No. 33-88362 of American Skandia Life Assurance Corporation Variable
Account B (Class 3 Sub-Accounts) on Form N-4 of our report dated March 10, 1997,
included and incorporated by reference in the Annual Report on Form 10-K of
American Skandia Life Assurance Corporation for the year ended December 31,
1996, to the use of our report dated March 10, 1997 relating to American Skandia
Life Assurance Corporation appearing in the Prospectus, which is part of this
Registration Statement, and to the use of our report dated February 24, 1997
relating to American Skandia Life Assurance Corporation Variable Account B -
Class 3 appearing in the Statement of Additional Information, which is also part
of this Registration Statement. We also consent to the reference to us under the
headings "Independent Auditors" appearing in such Statement of Additional
Information and "Selected Financial Data" appearing in such Prospectus.
/s/ Deloitte & Touche LLP
New York, New York
April 28, 1997
Calculation of Performance Information for Advertisement of Performance
I. Money Market Type Sub-account - Current and Effective Yield
This Registration Statement includes, in the Prospectus, current and effective
yields for a money market type Sub-account in which Units were held during the
seven day period ending December 31, 1994.
The Unit Values used to show the current and effective yields for the Galaxy
Money Market Sub-account were:
Beginning of the period: 10.546745
End of the period: 10.557030
II. Other Types of Sub-accounts - Total Return
This Registration Statement includes, in the Statement of Additional
Information, Total Return figures for the Sub-accounts (other than money
market type Sub-accounts) shown. Both "standard" and "non-standard" figures
were provided for the periods 1 year and inception-to-date for those
Sub-accounts which were available prior to 1995 pursuant to a different offer
made by the Registrant pursuant to a different prospectus. However, the
calculation of the Total Return figures shown uses the charges applicable to
the annuities offered pursuant to this Registration Statement. A description
of how such values were calculated is provided below for all of the figures.
The Registrant expects to currently use 1 year and inception-to-date figures.
As Sub-accounts age, 3 year and 5 year figures will be added. 10 year figures
will also be shown once various Sub-accounts have been offered for such
periods. The inception-to-date figures shown in the Statement of Additional
Information use December 31, 1994 as the end of the measuring period.
The formula for calculating standard and non-standard total return for each
period was as follows:
A. Standard Total Return - 1 Year
Standard Total Return = [(1 + x)(1 - y) - .04] - 1; where x =
Sub-account total return for the year 1994;
y = .175% This percentage is the $35 maintenance fee converted to a
percentage of assets for the period. Such conversion assumes an
average purchase payment of $20,000 for a variable annuity offered by
the Registrant pursuant to a different prospectus; and
.04 represents the contingent deferred sales charge during the first
year subsequent to a Purchase Payment.
B. Non-standard Total Return - 1 Year
Non-standard Total Return = [(1 + x)(1 - y)] - 1; where x and y are
defined as in A, above.
C. Standard Total Return - Inception-to-date
Standard Total Return = [(1 + x)(1 - y)T - CDSC]365/N -1; where
x = Sub-account total return from inception to December 31, 1994;
y = .175% This percentage is the $35 maintenance fee
converted to a percentage of assets for the period.
Such conversion assumes an average purchase payment
of $20,000 for a variable annuity offered by the
Registrant pursuant to a different prospectus;
N = Number of days from inception to December 31, 1994;
T = Duration of an Annuity as if issued on the inception
date and in force on 12/31/94; and CDSC = Contingent
deferred sales charge applicable to such Annuity as of
12/31/94.
D. Non-standard Total Return - Inception-to-date
Non-standard Total Return = [(1 + x)(1 - y)T]365/N -1; where x, y, N
and T are defined as in C, above.
The Total Return values shown in the Statement of Additional Information were
based on the Unit Price of $10.00 on the date of inception, and the Unit Prices
on 12/31/94 as shown in section entitled "Condensed Financial Information" of
the Prospectus.
2
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> Separate Account B Class 3 Galaxy Annuity
</LEGEND>
<CIK> 933426
<NAME> American Skandia Separate Account B Class 3
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-1-1996
<PERIOD-END> Dec-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 67,160,361
<INVESTMENTS-AT-VALUE> 72,371,891
<RECEIVABLES> 182,895
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 72,554,786
<PAYABLE-FOR-SECURITIES> 183,038
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 183,038
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 72,371,748
<DIVIDEND-INCOME> 849,704
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (495,839)
<NET-INVESTMENT-INCOME> 353,865
<REALIZED-GAINS-CURRENT> 1,785,723
<APPREC-INCREASE-CURRENT> 4,534,669
<NET-CHANGE-FROM-OPS> 6,674,257
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 50,986,987
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1
<CURRENCY> U.S Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 87,369,724
<DEBT-CARRYING-VALUE> 97,950,868
<DEBT-MARKET-VALUE> 97,462,993
<EQUITIES> 2,637,731
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 118,197,824
<CASH> 14,199,412
<RECOVER-REINSURE> 2,167,818
<DEFERRED-ACQUISITION> 438,640,918
<TOTAL-ASSETS> 8,334,662,876 <F1>
<POLICY-LOSSES> 57,484,685
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 213,000,000
<COMMON> 2,000,000
0
0
<OTHER-SE> 124,345,031
<TOTAL-LIABILITY-AND-EQUITY> 8,334,662,876 <F2>
125,000
<INVESTMENT-INCOME> 1,585,819
<INVESTMENT-GAINS> 134,463
<OTHER-INCOME> 86,233,366 <F3>
<BENEFITS> 4,787,604
<UNDERWRITING-AMORTIZATION> 22,577,053
<UNDERWRITING-OTHER> 27,188,608
<INCOME-PRETAX> 22,584,667
<INCOME-TAX> (4,038,357)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,623,024
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1> Included in Total Assets are Assets Held in Separate Accounts of
$7,734,439,793.
<F2> Included in Total Liabilities and Equity are Liabilities Related to Separate Accounts of $7,734,439,793.
<F3> Other income includes annuity charges and fees of $69,779,522 and fee income of $16,419,690.
</FN>
</TABLE>
