Filed with the Securities and Exchange Commission on April 27, 1999
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
Post-effective Amendment No. 4
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 4
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 , TEL. #: (203) 926-1888
(Address of Depositor's Principal Executive Offices and
Depositor's Telephone Number
M. PRISCILLA PANNELL, CORPORATE SECRETARY
One Corporate Drive, Shelton, Connecticut 06484
(Name and Address of Agent for Service of Process)
Copy To:
T. RICHARD KENNEDY, ESQ.
WERNER & KENNEDY
1633 Broadway, New York, New York 10019 (212) 408-6900
Approximate Date of Proposed Sale to the Public:
May 3, 1999 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 3, 1999 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
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 1998 was filed within
90 days of the close of the fiscal year.
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Gal3
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 Glossary of Terms
3. Synopsis or Highlights What are Some of the Key Features of the Annuity?
Summary of Contract, Fees and Charges
4. Condensed Financial Information Condensed Financial Information About
Separate Accoount B
5. General Description of Registrant, Depositor Who Is American Skandia?
and Portfolio Companies What Are Separate Accounts?
6. Deductions Investment Options, Fees and Charges
7. General Description of Variable Annuity Contracts Purchasing Your Annuity, Why Would I
Choose to Purchase this Annuity?
What are Some of the Key Features of the Annuity?
8. Annuity Period Managing Your Account Value,
Access to Account Value
9. Death Benefit What Triggers the Payment of a Death Benefit?
What Options are Available to my Beneficiary upon my Death?
When Do You Determine the Death Benefit?
10. Purchases and Contract Value Managing Your Account Value
11. Redemptions Access to Account Value, Valuing Your Investment
12. Taxes Tax Considerations
13. Legal Proceedings Legal Proceedings
14. Table of Contents of the Statement of Additional Information Available Information
SAI Heading
15. Cover Page Statement of Additional Information
16. Table of Contents Table of Contents
17. General Information and History General Information About American Skandia
18. Services Independent Auditors
19. Purchase of Securities Being Offered Noted in Prospectus under Managing Your
Account Value
20. Underwriters Principal Underwriter/Distribution
(Continued)
CROSS REFERENCE SHEET PURSUANT TO RULE 495(a)
N-4 Item No. SAI Headings
21. Calculation of Performance Data How Performance Data is Calculated
22. Annuity Payments Noted in Prospectus under Access to Account Value
23. Financial Statements Appendix A
Part C Heading
24. Financial Statements and Exhibits Financial Statements
and Exhibits
25. Directors and Officers of the Depositor Noted in Prospectus under Executive
Officers and Directors
26. Persons Controlled by or Under Persons Controlled By or
Common Control with the Under Common Control with the
Depositor or Registrant Depositor or Registrant
27. Number of Contractowners Number of Contractowners
28. Indemnification Indemnification
29. Principal Underwriters Principal Underwriters
30. Location of Accounts and Records Location of Accounts
and Records
31. Management Services Management Services
32. Undertakings Undertakings
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AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
One Corporate Drive, Shelton, Connecticut 06484
This Prospectus describes the Galaxy Variable Annuity, a flexible premium
deferred annuity (the "Annuity") offered by American Skandia Life Assurance
Corporation ("we", "our" or "us") exclusively to customers of Fleet Financial
Group, Inc. and its affiliates. The Annuity may be offered as an individual
annuity contract or as an interest in a group annuity. This Prospectus describes
the important features of the Annuity and what you should consider before
purchasing the Annuity. We have also filed a Statement of Additional Information
that is available from us, without charge, upon your request. The contents of
the Statement of Additional Information are described on page 40. The Annuity or
certain of its investment options may not be available in all states. Various
rights and benefits may differ between states to meet applicable laws and/or
regulations. Certain terms are capitalized in this prospectus. Those terms are
either defined in the Glossary of Terms or in the context of the particular
section.
WHY WOULD I CHOOSE TO PURCHASE THIS ANNUITY?
This Annuity is frequently used for retirement planning. It may be used as an
investment vehicle for an IRA, SEP-IRA, Roth IRA or Tax Sheltered Annuity (or
403(b)). It may also be used for other purposes that are not "qualified"
investments. The Annuity allows you to invest your money in a number of variable
investment options as well as in one or more fixed investment options. You are
not taxed on any investment gains the Annuity earns until you make a withdrawal
from the Annuity or begin to receive annuity payments. This feature, referred to
as "tax-deferral", can be beneficial to the growth of your Account Value because
money that would otherwise be needed to pay taxes on investment gains each year
remains invested and can earn additional money. However, because the Annuity is
designed for long-term retirement savings, a 10% penalty tax may be applied on
withdrawals you make before you reach age 59 1/2.
WHAT ARE SOME OF THE KEY FEATURES OF THE ANNUITY?
|X| The Annuity is a "flexible premium deferred annuity." It is called
"flexible premium" because you have considerable flexibility in the
timing and amount of premium payments. Generally, investors "defer"
receiving annuity payments until after an accumulation period.
|X| This Annuity offers both variable and fixed investment options. If you
allocate your Account Value to variable investment options, the value of
your Annuity will vary daily to reflect the investment performance of the
underlying investment options. Fixed investment options of different
durations are offered that are guaranteed by us, but may have a Market
Value Adjustment.
|X| The Annuity features two distinct phases - the accumulation period and
the payout period. During the accumulation period your Account Value is
allocated to one or more underlying investment options. The variable
investment options, each a Class 3 Sub-account of American Skandia Life
Assurance Corporation Variable Account B, invest in an underlying mutual
fund portfolio. Currently, portfolios of the following underlying mutual
funds are being offered: Galaxy VIP Fund, American Skandia Trust, The
Alger American Fund and Montgomery Variable Series.
|X| During the payout period, commonly called "annuitization," you can elect
to receive fixed annuity payments (1) for life; (2) for life with a
guaranteed minimum number of payments; (3) based on joint lives; or (4)
for a guaranteed number of payments.
|X| The Annuity provides an additional 1% credit on Purchase Payments made
within the first year and may provide certain additional benefits if your
Account Value has not reached a Target Value on its 10th anniversary.
|X| This Annuity offers a basic Death Benefit. It also offers two Optional
Death Benefits that provide an enhanced level of protection for your
beneficiary(ies) for an additional charge.
|X| You are allowed to withdraw a certain amount of money from your Annuity
on an annual basis free of any charges. Other product features allow you
to access your Account Value as necessary, although a charge may apply.
|X| Transfers between investment options are tax-free. You may make twelve
transfers each year free of charge. We also offer several programs that
enable you to manage your Account Value as your financial needs and
investment performance change.
|X| The Annuity may provide additional benefits for Owners who exchange an
existing contract from an unaffiliated insurance company for the Annuity.
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These annuities are NOT deposits or obligations of, or issued, guaranteed or
endorsed by, Fleet Bank or its affiliates, are NOT insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation (FDIC), the Federal
Reserve Board or any other agency. An investment in this annuity involves
certain investment risks, including possible loss of principal.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PLEASE
READ THIS PROSPECTUS AND THE CURRENT PROSPECTUS FOR THE UNDERLYING MUTUAL FUNDS.
KEEP THEM FOR FUTURE REFERENCE.
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FOR FURTHER INFORMATION CALL 1-800-444-3970.
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Prospectus Dated: May 3, 1999 Statement of Additional Information Dated: May 3, 1999
GA3-PROS- (05/99) GAL3PROS
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HOW DO I PURCHASE THIS ANNUITY?
We sell the Annuity through licensed, registered financial professionals. To
purchase this Annuity you must be a customer of one or more subsidiaries of
Fleet Financial Group, Inc. at the time the Annuity is issued. You must complete
an application and submit a minimum initial purchase payment of $5,000. We may
allow you to make a lower initial purchase payment provided that the purchase
payments received in the first Annuity Year total at least $5,000. There is no
age restriction to purchase the Annuity.
However, the basic Death Benefit provides greater protection for persons under
age 75.
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TABLE OF CONTENTS
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GLOSSARY OF TERMS..................................................................................................................5
SUMMARY OF CONTRACT FEES AND CHARGES...............................................................................................6
EXPENSE EXAMPLES...................................................................................................................7
INVESTMENT OPTIONS.................................................................................................................9
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?..............................................................9
WHAT ARE THE FIXED INVESTMENT OPTIONS?.........................................................................................12
FEES AND CHARGES..................................................................................................................12
WHAT ARE THE CONTRACT FEES AND CHARGES?........................................................................................12
WHAT CHARGES APPLY SOLELY TO THE VARIABLE INVESTMENT OPTIONS?..................................................................13
WHAT CHARGES APPLY TO THE FIXED ALLOCATIONS?...................................................................................14
WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYOUT?..............................................................................14
PURCHASING YOUR ANNUITY...........................................................................................................14
WHAT ARE OUR REQUIREMENTS FOR PURCHASING THE ANNUITY?..........................................................................14
MANAGING YOUR ANNUITY.............................................................................................................14
MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS?................................................................14
MAY I RETURN THE ANNUITY IF I CHANGE MY MIND?..................................................................................15
MAY I MAKE ADDITIONAL PURCHASE PAYMENTS?.......................................................................................15
MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT?...................................................................15
MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM?...............................................................15
ADDITIONAL AMOUNTS ON EXCHANGES................................................................................................15
MANAGING YOUR ACCOUNT VALUE.......................................................................................................16
HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED?...................................................................................17
ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?.....................................................17
DO YOU OFFER DOLLAR COST AVERAGING?............................................................................................17
DO YOU OFFER A PROGRAM TO BALANCE FIXED AND VARIABLE INVESTMENTS?..............................................................18
MAY I AUTHORIZE MY FINANCIAL REPRESENTATIVE TO MANAGE MY ACCOUNT?..............................................................18
HOW DO THE FIXED INVESTMENT OPTIONS WORK?......................................................................................18
HOW DO YOU DETERMINE RATES FOR FIXED ALLOCATIONS?..............................................................................18
HOW DOES THE MARKET VALUE ADJUSTMENT WORK?.....................................................................................19
WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES?.................................................................................20
AMERICAN SKANDIA'S PERFORMANCE ADVANTAGE..........................................................................................20
ACCESS TO ACCOUNT VALUE...........................................................................................................21
WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME?...............................................................................21
ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS?..................................................................................21
CAN I WITHDRAW A PORTION OF MY ANNUITY?........................................................................................22
IS THERE A CHARGE FOR A PARTIAL WITHDRAWAL?....................................................................................22
CAN I MAKE WITHDRAWALS FROM MY ANNUITY WITHOUT A CDSC?.........................................................................22
HOW MUCH CAN I WITHDRAW AS A FREE WITHDRAWAL?..................................................................................22
CAN I MAKE PERIODIC WITHDRAWALS FROM THE ANNUITY DURING THE ACCUMULATION PERIOD?...............................................23
WHAT ARE MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM?.............................................................23
CAN I SURRENDER MY ANNUITY FOR ITS VALUE?......................................................................................23
WHAT IS A MEDICALLY-RELATED SURRENDER AND HOW DO I QUALIFY?....................................................................23
WHAT TYPES OF ANNUITY PAYMENT OPTIONS ARE AVAILABLE UPON ANNUITIZATION?........................................................24
HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION?...........................................................................25
HOW ARE ANNUITY PAYMENTS CALCULATED?...........................................................................................25
DEATH BENEFIT.....................................................................................................................25
WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT?..................................................................................25
DEATH BENEFIT OPTIONS..........................................................................................................25
VALUING YOUR INVESTMENT...........................................................................................................28
HOW IS MY ACCOUNT VALUE DETERMINED?............................................................................................28
WHAT IS THE SURRENDER VALUE OF MY ANNUITY?.....................................................................................28
HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS?....................................................................................28
HOW DO YOU VALUE FIXED ALLOCATIONS?............................................................................................29
WHEN DO YOU PROCESS AND VALUE TRANSACTIONS?....................................................................................29
TAX CONSIDERATIONS................................................................................................................29
WHAT ARE SOME OF THE FEDERAL TAX CONSIDERATIONS OF THIS ANNUITY?...............................................................29
HOW ARE AMERICAN SKANDIA AND THE SEPARATE ACCOUNTS TAXED?......................................................................29
IN GENERAL, HOW ARE ANNUITIES TAXED?...........................................................................................29
HOW ARE DISTRIBUTIONS TAXED?...................................................................................................30
WHAT TAX CONSIDERATIONS ARE THERE FOR TAX-QUALIFIED RETIREMENT PLANS OR QUALIFIED CONTRACTS?...................................31
HOW ARE DISTRIBUTIONS FROM QUALIFIED CONTRACTS TAXED?..........................................................................32
GENERAL TAX CONSIDERATIONS.....................................................................................................33
GENERAL INFORMATION...............................................................................................................34
HOW WILL I RECEIVE STATEMENTS AND REPORTS?.....................................................................................34
WHO IS AMERICAN SKANDIA?.......................................................................................................34
WHAT ARE SEPARATE ACCOUNTS?....................................................................................................35
WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS?...........................................................................36
WHO DISTRIBUTES ANNUITIES OFFERED BY AMERICAN SKANDIA?.........................................................................36
AVAILABLE INFORMATION..........................................................................................................37
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................................................................37
HOW TO CONTACT US..............................................................................................................38
INDEMNIFICATION................................................................................................................38
LEGAL PROCEEDINGS..............................................................................................................38
EXECUTIVE OFFICERS AND DIRECTORS...............................................................................................38
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION............................................................................40
APPENDIX A -FINANCIAL INFORMATION ABOUT AMERICAN SKANDIA...........................................................................1
SELECTED FINANCIAL DATA.........................................................................................................2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........................................3
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF....................................................................................1
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION.....................................................................................1
DECEMBER 31, 1998...............................................................................................................8
APPENDIX B -CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B...............................................................1
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GLOSSARY OF TERMS
Many terms used within this Prospectus are described within the text where they
appear. The description of those terms are not repeated in this Glossary of
Terms.
Account Value: The value of each allocation to a Sub-account or a Fixed
Allocation prior to the Annuity Date, plus any earnings, and/or less any losses,
distributions and charges. The Account Value is calculated before we assess any
applicable Contingent Deferred Sales Charge and/or any Annual Maintenance Fee.
The Account Value includes any additional amounts we applied to your Purchase
Payments that we are entitled to recover upon surrender of your Annuity. The
Account Value is determined separately for each Sub-account and for each Fixed
Allocation, and then totaled to determine Account Value for your entire Annuity.
The Account Value of each Fixed Allocation on other than its Maturity Date may
be calculated using a market value adjustment.
Annuity Date: The date you choose for annuity payments to commence. There may be
a maximum Annuity Date in certain states.
Annuity Year: A 12-month period commencing on the Issue Date of the Annuity and
each successive 12-month period thereafter.
Code: The Internal Revenue Code of 1986, as amended from time to time.
Fixed Allocation: An allocation of Account Value that is to be credited a fixed
rate of interest for a specified Guarantee Period during the accumulation
period.
Guarantee Period: A period of time during the accumulation period where we
credit a fixed rate of interest on a Fixed Allocation.
Interim Value: As of any particular date, the initial value allocated to the
Fixed Allocation plus all interest credited to the Fixed Allocation as of the
date calculated, less any transfers or withdrawals from the Fixed Allocation.
Issue Date: The effective date of your Annuity.
MVA: A market value adjustment used in the determination of Account Value of
each Fixed Allocation on a day other than such Fixed Allocation's Maturity Date.
Participant: The eligible entity or person named as having ownership rights in
relation to the Annuity, whether the Annuity is issued as a certificate under a
group annuity contract or as an individual contract.
Surrender Value: The value of your Annuity available upon surrender prior to the
Annuity Date. It equals the Account Value as of the date we price the surrender
minus any applicable CDSC and Annual Maintenance Fee and any additional amounts
we applied to your Purchase Payments that we are entitled to recover upon
surrender of your Annuity.
Unit: A measure used to calculate your Account Value in a Sub-account during the
accumulation period.
Valuation Day: Every day the New York Stock Exchange is open for trading or any
other day the Securities and Exchange Commission requires mutual funds or unit
investment trusts to be valued.
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SUMMARY OF CONTRACT FEES AND CHARGES
Below is a summary of the fees and expenses we charge for the Annuity. Some
charges are assessed against your Annuity while others are assessed against
assets allocated to the variable investment options. The charges that are
assessed against the Annuity include the Contingent Deferred Sales Charge,
Annual Maintenance Fee, Transfer Fee and the Tax Charge. The charge that is
assessed against the variable investment options is the Insurance Charge, which
is the combination of a mortality and expense risk charge and a charge for
administration of the Annuity. Each underlying mutual fund portfolio assesses a
charge for investment management and for other expenses. The prospectus for each
underlying mutual fund provides more detailed information about the expenses for
the underlying funds. In certain states, a premium tax charge may be applicable.
All of these fees and expenses are described in more detail within this
Prospectus.
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Your Transaction Expenses
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Amount Deducted/
Fee/Expense Description Of Charge When Deducted
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Contingent Deferred Sales Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr. 5+ Upon Surrender or
Charge Partial Withdrawal
The charge is a percentage of Applicable period measured from the
each applicable purchase date each purchase payment is
payment allocated
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4.0% 3.0% 2.0% 1.0% 0.0%
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Annual Maintenance Fee Smaller of $35 or 2% of Account Value Annually on the contract's
(Only applicable if Account Value is under $50,000) anniversary date or upon surrender
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Transfer Fee $10.00 After the 12th transfer each annuity
year
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Tax Charge Depends on the requirements of the applicable jurisdiction Various
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Annual Expenses of the Sub-Accounts
(as a percentage of the average daily net assets of the Sub-accounts)
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Mortality & Expense Risk
Charge 0.85%
Daily
Administration Charge 0.15%
Total Annual Expenses of the 1.00% per year of the value of each Sub-account Applies to Variable Investment
Sub-accounts* Options only
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* The combination of the Mortality and Expense Risk Charges and Administration
Charge is referred to as the "Insurance Charge" elsewhere in this prospectus.
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Optional Benefits
We offer two different Optional Death Benefits that provide an enhanced level of
protection for your beneficiary(ies). Please refer to the section entitled
"Death Benefit" for a complete discussion of the Optional Death Benefits we
offer.
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Death Benefit Option Death Benefit equal to the greater of: Additional Charge (annually)
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1. Account Value (no MVA)
2. Sum of Purchase Payments minus
OPTION 1 the proportional impact of 0.35% of the current Death Benefit
withdrawals increasing at 5.0%
annually
3. Highest Anniversary Value
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1. Account Value (no MVA)
2. Sum of Purchase Payments minus
OPTION 2 the proportional impact of 0.55% of the current Death Benefit
withdrawals increasing at 7.2%
annually
3. Highest Anniversary Value
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Underlying Mutual Fund Portfolio Annual Expenses
(as a percentage of the average net assets of the underlying Portfolios)
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Below are the investment management fee, other expenses, and the total annual
expenses for each underlying Portfolio as of December 31, 1998. The total annual
expenses are the sum of the investment management fee and other expenses. Each
figure is stated as a percentage of the underlying Portfolio's average daily net
assets. For certain of the underlying Portfolios, a portion of the management
fee is being waived and/or other expenses are being partially reimbursed. "N/A"
indicates that no portion of the management fee and/or other expenses is being
waived and/or reimbursed. Any footnotes about expenses appear after the list of
all the portfolios. Those portfolios whose name includes the prefix "AST" are
portfolios of American Skandia Trust. The underlying mutual fund portfolio
information was provided by the underlying mutual funds and has not been
independently verified by us. See the prospectuses or statements of additional
information of the underlying Portfolios for further details.
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Management Fees Other Expenses Total Annual Fee Waivers Net Annual
UNDERLYING PORTFOLIO Portfolio and Expense Fund
Operating Reimbursement Operating
Expenses Expenses
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The Galaxy VIP Fund:
Money Market 0.15% 0.80% 0.95% 0.25% 0.70%
Equity 0.75% 0.30% 1.05% N/A 1.05%
High Quality Bond 0.40% 0.65% 1.05% 0.15% 0.90%
Asset Allocation 0.75% 0.30% 1.05% N/A 1.05%
Growth & Income 0.75% 1.10% 1.85% 0.35% 1.50%
Small Company Growth 0.75% 6.94% 7.69% 6.09% 1.60%
Columbia Real Estate Equity II 0.75% 6.78% 7.53% 5.83% 1.70%
Columbia High Yield II 0.60% 2.52% 3.12% 1.52% 1.60%
AST T. Rowe Price International Equity 1.00% 0.25% 1.25% N/A 1.25%
AST Janus Small-Cap Growth(1) 0.90% 0.22% 1.12% N/A 1.12%
AST Neuberger Berman Mid-Cap Value(2) 0.90% 0.15% 1.05% N/A 1.05%
AST JanCap Growth 0.90% 0.14% 1.04% 0.02% 1.02%
AST INVESCO Equity Income 0.75% 0.18% 0.93% N/A 0.93%
AST T. Rowe Price International Bond 0.80% 0.31% 1.11% N/A 1.11%
The Alger American Fund - MidCap Growth 0.80% 0.04% 0.84% N/A 0.84%
portfolio
Montgomery Variable Series - Emerging 1.25% 0.56% 1.81% 0.06% 1.75%
Markets portfolio
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1 Prior to January 1, 1999, the Investment Manager had engaged Founders Asset
Management, LLC as Sub-advisor for the Portfolio (formerly the Founders
Capital Appreciation portfolio).
2 Prior to May 1, 1998, the Investment Manager had engaged Federated
Investment Counseling as Sub-advisor for the Portfolio (formerly, the
Federated Utility Income portfolio), for a total Investment Management fee
payable at the annual rate of .75% of the first $50 million of the average
daily net assets of the Portfolio, plus .60% of the Portfolio's average
daily net assets in excess of $50 million. As of May 1, 1998, the
Investment Manager engaged Neuberger Berman Management Incorporated as
Sub-advisor for the Portfolio, for a total Investment Management fee
payable at the annual rate of 0.90% of the first $1 billion of the average
daily net assets of the Portfolio plus .85% of the Portfolio's average
daily net assets in excess of $1 billion. The Management Fee in the above
chart reflects the current Investment Management fee payable to the
Investment Manager.
EXPENSE EXAMPLES
These examples are designed to assist you in understanding the various costs and
expenses you will incur with the Annuity over certain periods of time based on
specific assumptions. The examples reflect expenses of our Sub-accounts, as well
as those of the underlying mutual fund portfolios. The Securities and Exchange
Commission ("SEC") requires these examples.
The examples shown assume that: (a) you only allocate Account Value in the
Sub-accounts; (b) fees and expenses remain constant; (c) you make no withdrawals
of Account Value during the period shown; (d) you make no transfers,
withdrawals, surrender or other transaction that we charge a fee during the
period shown; (e) no tax charge applies; and (f) the expenses throughout the
period for the underlying mutual fund portfolios will be the "Net Annual Fund
Operating Expenses," as shown above in the section entitled "Underlying Mutual
Fund Portfolio Annual Expenses." The examples do not reflect the charge for any
optional benefits that may be offered under the Annuity. The examples also do
not reflect the impact of any Target Value Credits that may be applied to
Purchase Payments within the first Annuity Year.
THE EXAMPLES ARE ILLUSTRATIVE ONLY - THEY SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE UNDERLYING MUTUAL FUNDS OR
THEIR PORTFOLIOS - ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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Expense Examples
(amounts shown are rounded to the nearest dollar)
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If you surrender your Annuity at the end of If you do not surrender your Annuity
the applicable time period, and your Account at the end of the applicable time
Value is $50,000 or higher, so that the period or begin taking annuity
annual maintenance fee does not apply, you payments at such time, and your
would pay the following expenses on a $1,000 Account Value is $50,000 or higher, so
investment, assuming 5% annual return on that the annual maintenance fee does
assets: not apply, you would pay the following
expenses on a $1,000 investment,
assuming 5% annual return on assets:
After: After:
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------- --------- ---------- --------- ---------- ------- ---------- --------- ---------- ----------
Sub-Account: 1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
--------- ---------- --------- ---------- ------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GAL Money Market 3 57 74 93 201 17 54 93 201
GAL Equity 3 61 85 111 239 21 65 111 239
GAL High Quality Bond 3 59 80 103 223 19 60 103 223
GAL Asset Allocation 3 61 85 111 239 21 65 111 239
GAL Growth & Income 3 66 99 134 285 26 79 134 285
GAL Small Company Growth 3 67 102 140 296 27 82 140 296
GAL Columbia Real Estate Equity II 3 67 102 140 296 27 82 140 296
GAL Columbia High Yield II 3 68 105 145 306 28 85 145 306
AST T. Rowe Price International Equity 3 63 91 122 260 23 71 122 260
AST Janus Small-Cap Growth 3 62 87 115 247 22 67 115 247
AST Neuberger Berman Mid-Cap Value 3 61 85 111 239 21 65 111 239
AST JanCap Growth 3 61 84 110 237 21 64 110 237
AST INVESCO Equity Income 3 60 81 105 227 20 61 105 227
AST T. Rowe Price International Bond 3 62 87 114 245 22 67 114 245
AA MidCap Growth 3 59 78 100 217 19 58 100 217
MV Emerging Markets 3 68 106 147 310 28 86 147 310
- --------------------------------------- --------- ---------- --------- ---------- ------- ---------- --------- ---------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------- ------- -----------------------------------------
If you surrender your Annuity at the end If you do not surrender your Annuity
of the applicable time period, and your at the end of the applicable time
Account Value is lower than $50,000, so period or begin taking annuity
that the maintenance fee applies, you payments at such time, and your
would pay the following expenses on a Account Value is lower than $50,000,
$1,000 investment, assuming 5% annual so that the maintenance fee applies,
return on assets: you would pay the following expenses
on a $1,000 investment, assuming 5%
annual return on assets:
-------------------------------------------- ------- -----------------------------------------
After: After:
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------- --------- ---------- --------- ---------- ------- ---------- --------- ---------- ----------
Sub-Account: 1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
--------- ---------- --------- ---------- ------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GAL Money Market 3 59 79 102 219 19 59 102 219
GAL Equity 3 63 91 121 258 23 71 121 258
GAL High Quality Bond 3 61 86 113 241 21 66 113 241
GAL Asset Allocation 3 63 91 121 258 23 71 121 258
GAL Growth & Income 3 68 105 144 303 28 85 144 303
GAL Small Company Growth 3 69 108 149 313 29 88 149 313
GAL Columbia Real Estate Equity II 3 69 108 149 313 29 88 149 313
GAL Columbia High Yield II 3 70 111 154 323 30 91 154 323
AST T. Rowe Price International Equity 3 65 97 131 278 25 77 131 278
AST Janus Small-Cap Growth 3 64 93 124 264 24 73 124 264
AST Neuberger Berman Mid-Cap Value 3 63 91 121 258 23 71 121 258
AST JanCap Growth 3 63 90 119 254 23 70 119 254
AST INVESCO Equity Income 3 62 87 114 244 22 67 114 244
AST T. Rowe Price International Bond 3 64 93 124 264 24 73 124 264
AA MidCap Growth 3 61 84 110 235 21 64 110 235
MV Emerging Markets 3 70 112 156 327 30 92 156 327
- ------------------------------------------------- ---------- --------- ---------- ------- ---------- --------- ---------- ----------
</TABLE>
INVESTMENT OPTIONS
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?
Each variable investment option is a Class 3 Sub-account of American Skandia
Life Assurance Corporation Variable Account B (see "What are Separate Accounts"
for more detailed information.) Each Sub-account invests exclusively in one
Portfolio. You should carefully read the prospectus for any Portfolio in which
you are interested. The following chart classifies each of the Portfolios based
on our assessment of their investment style (as of the date of this Prospectus).
The chart also provides a short description of each Portfolio's investment
objective (in italics) and a short, summary description of their key policies to
assist you in determining which Portfolios may be of interest to you. The name
of the advisor/sub-advisor for each Portfolio appears next to the description.
Those portfolios whose name includes the prefix "AST" are portfolios of American
Skandia Trust. The investment manager for AST is American Skandia Investment
Services, Inc. ("ASISI"), an affiliated company. However, a sub-advisor, as
noted below, is engaged to conduct day-to-day investment decisions. Details
about the investment objectives, policies, risks, costs and management of the
Portfolios are found in the prospectuses for the underlying mutual funds. There
is no guarantee that any underlying mutual fund portfolio will meet its
investment objective.
Please refer to Appendix B for certain required financial information related to
the historical performance of the Sub-accounts.
<TABLE>
<CAPTION>
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
<S> <C> <C>
GAL VIP Money Market: seeks as high a level of current
income as is consistent with liquidity and stability of
principal. The Portfolio invests in "money market"
CAPITAL instruments with remaining maturities of 397 days or less, Fleet Investment Advisors, Inc.
PRESERVATION such as domestic and foreign bank certificates of deposit,
bankers' acceptances, commercial paper and corporate bonds
in addition to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and
repurchase agreements relating to such obligations.
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
GAL VIP High Quality Bond: seeks a high level of current
income consistent with prudent risk of capital. Under normal
market and economic conditions, the Portfolio will invest at
LONG-TERM least 80% of its total assets in high quality debt
BOND obligations that are rated at the time of purchase within Fleet Investment Advisors, Inc.
the three highest rating categories assigned by a nationally
recognized statistical rating organization, such as Standard
& Poor's Ratings Group or Moody's Service, Inc. (or which,
if unrated, are of comparable quality), and in obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and other "money market" instruments.
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
GAL VIP Columbia High Yield Portfolio II: to seek to provide
shareholders with a high level of current income by
investing primarily in lower-rated fixed income securities.
Capital appreciation is a secondary objective when
HIGH YIELD consistent with the objective of high current income. In
BOND attempting to achieve its investment objective, the Fleet Investment Advisors, Inc.
Portfolio generally will invest at least 65% of its total
assets in high yielding fixed income securities rated BB or
lower by S&P or Ba or lower by Moody's. Such lower-rated
securities are commonly referred to as "junk bonds."
Investments of this type are subject to greater risk of loss
of principal and nonpayment of interest than are
higher-rated investments.
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
AST T. Rowe Price International Bond: seeks to provide high
current income and capital growth by investing in
high-quality, non dollar-denominated government and
corporate bonds outside the United States. The Portfolio
will invest at least 65% of its assets in high-quality,
non-U.S. dollar denominated government and corporate bonds
INTERNATIONAL outside the United States. The Sub-advisor bases its Rowe Price-Fleming
BOND investment decisions on fundamental market factors, currency International, Inc.
trends, and credit quality. The Portfolio generally invests
in countries where the combination of fixed-income returns
and currency exchange rates appears attractive, or, if the
currency trend is unfavorable, where the Sub-advisor
believes that the currency risk can be minimized through
hedging. The Portfolio may also invest up to 20% of its
assets in below investment-grade, high-risk bonds ("junk
bonds"), including bonds in default or those with the lowest
rating.
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
GAL Asset Allocation Portfolio: to seek a high total return
by providing both a current level of income that is greater
ASSET than that provided by the popular stock market averages as
ALLOCATION well as long-term growth in the value of the Portfolio's
assets. Fleet interprets the objective to refer to the Dow Fleet Investment Advisers, Inc.
Jones Industrial Averages (of 30 companies listed on the New
York Stock Exchange) and the S& 500. Due to the Portfolio's
expenses, net income distributed to shareholders may be less
than that of these averages.
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
GAL Columbia Real Estate Equity Portfolio II: to seek, with
equal emphasis, capital appreciation and above-average
current income by investing primarily in the equity
REAL ESTATE securities of companies in the real estate industry. With
(REIT) respect to current income, the Portfolio seeks to provide a Fleet Investment Advisers, Inc.
yeild that exceeds the composite yield of the securities in
the S&P 500. Under normal market and economic conditions,
the Portfolio will invest at least 65% of its total assets
in the equity securities of companies "principally engaged"
in the real estate industry.
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
AST INVESCO Equity Income: seeks high current income while
following sound investment practices. Capital growth
potential is an additional, but secondary, consideration in
EQUITY the selection of portfolio securities. The Portfolio seeks
INCOME to achieve its objective by investing in securities that INVESCO Funds Group, Inc.
will provide a relatively high yield and stable return and
that, over a period of years, may also provide capital
appreciation. The Portfolio normally will invest at least
65% of its assets in dividend-paying common stocks of
domestic and foreign issuers.
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
<PAGE>
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
GAL Growth and Income Portfolio: to seek a relatively high
total return through long-term capital appreciation and
current income by investing primarily in common stocks of
companies believed to have prospects for above-average
GROWTH growth and dividends or of companies where significant Fleet Investment Advisers, Inc.
& fundamental changes are taking place. Under normal market
INCOME and economic conditions, the Portfolio will invest at least
65% of its total assets in common stock, preferred stock,
common stock warrants and securities convertible into common
stock.
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
GAL VIP Equity: seeks long-term growth by investing in
companies that the Portfolio's investment adviser believes
have above-average earnings potential. Under normal market Fleet Investment Advisors, Inc.
and economic conditions, the Portfolio will invest at least
75% of its total assets in common stock, preferred stock,
common stock warrants and securities convertible into common
stock of such companies.
----------------------------------------------------------------------------------------------------------------
AST JanCap Growth: seeks growth of capital in a manner
consistent with the preservation of capital. Realization of
income is not a significant investment consideration and any
income realized on the Portfolio's investments, therefore,
will be incidental to the Portfolio's objective. The
Portfolio will pursue its objective by investing primarily
GROWTH in common stocks of companies that the Sub-advisor believes Janus Capital
are experiencing favorable demand for their products and Corporation
services, and which operate in a favorable competitive and
regulatory environment. The Sub-advisor generally takes a
"bottom up" approach to choosing investments for the
Portfolio. In other words, the Sub-advisor seeks to identify
individual companies with earnings growth potential that may
not be recognized by the market at large.
---------------------------------------------------------------------------------------- -----------------------
AST Neuberger Berman Mid-Cap Value: seeks capital growth.
The Portfolio primarily invests in the common stocks of
mid-cap companies. Under the Portfolio's value-oriented
investment approach, the Sub-advisor looks for well-managed Neuberger Berman
companies whose stock prices are undervalued and that may Management Incorporated
rise in price before other investors realize their worth.
Factors that the Sub-advisor may use to identify these
companies include strong fundamentals, including a low
price-to-earnings ratio, consistent cash flow, and a sound
track record through all phases of the market cycle.
---------------------------------------------------------------------------------------- -----------------------
The Alger American Fund - MidCap Growth: seeks long-term
capital appreciation. Except during temporary defensive
periods, the Portfolio invests at least 65% of its total Fred Alger
assets in equity securities of companies that, at the time Management, Inc.
of purchase of the securities, have total market
capitalization within the range of companies included in the
S&P MidCap 400 Index, updated quarterly.
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
GAL Small Company Growth Portfolio: to seek capital
appreciation. The Portfolio attempts to achieve this
objective by investing primarily in the securities of
companies with market capitalizations of $750 million or
SMALL less ("Small Capitalization Securities") which Fleet
CAPITALIZATION believes have the potential for significant capital Fleet Investment Advisers, Inc.
appreciation. The Portfolio may invest in common stocks,
preferred stocks, securities convertible into common stocks,
rights and warrants. The issuers of Small Capitalization
Securities tend to be companies which are smaller or newer
than those listed on the New York or American Stock
Exchanges.
---------------------------------------------------------------------------------------- -----------------------
AST Janus Small-Cap Growth: seeks capital growth. The
Portfolio pursues its objective by normally investing at
least 65% of its total assets in the common stocks of
small-sized companies, i.e., those that have market
capitalizations of less than $1.5 billion or annual gross Janus Capital Corporation
revenues of less than $500 million. As a Portfolio that
invests primarily in smaller or newer issuers, the Portfolio
may be subject to greater risk of loss and share price
fluctuation than funds investing primarily in larger or more
established issuers.
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
AST T. Rowe Price International Equity: seeks total return
from long-term growth of capital and income, principally
through investments in common stocks of established,
non-U.S. companies. Investments may be made solely for
INTERNATIONAL capital appreciation or solely for income or any combination Rowe Price-Fleming
EQUITY of both for the purpose of achieving a higher overall International, Inc.
return. The Sub-advisor expects to invest substantially all
of the Portfolio's assets (with a minimum of 65%) in .
established foreign companies. Geographic diversification
will be wide, including both developed and developing
countries, and there will normally be at least three
different countries represented in the Portfolio.
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
Montgomery Variable Series - Emerging Markets: seeks capital
appreciation, which under normal conditions it seeks by
EMERGIN investing at least 65% of its total assets in equity Montgomery Asset
MARKETS securities of companies in countries having emerging Management, L.P.
markets. Under normal conditions, investments are maintained
in at least six emerging market countries at all times and
no more than 35% of total assets are invested in any one
emerging market country.
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
</TABLE>
WHAT ARE THE FIXED INVESTMENT OPTIONS?
We offer fixed investment options of different durations during the accumulation
phase. These "Fixed Allocations" earn a guaranteed fixed rate of interest for a
specified period of time, called the "Guarantee Period." In most states, we
offer Fixed Allocations with Guarantee Periods of 1, 2, 3, 5, 7 and 10 years. We
guarantee the fixed rate for the entire Guarantee Period. However, if you
withdraw or transfer Account Value before the end of the Guarantee Period, we
will adjust the value of your withdrawal or transfer based on a formula, called
a "Market Value Adjustment." The Market Value Adjustment can either be positive
or negative, depending on the rates that are currently being credited on Fixed
Allocations. Please refer to the section entitled "How does the Market Value
Adjustment Work?" for a description of the formula along with examples of how it
is calculated. You may allocate Account Value to more than one Fixed Allocation
at a time.
FEES AND CHARGES
WHAT ARE THE CONTRACT FEES AND CHARGES?
(The Contingent Deferred Sales Charge is often referred to as a "Surrender
Charge" or "CDSC".)
Contingent Deferred Sales Charge: We may assess a Contingent Deferred Sales
Charge or CDSC if you surrender your Annuity or when you make a partial
withdrawal. The CDSC is calculated as a percentage of your Purchase Payment
being surrendered or withdrawn during the applicable Annuity Year. The amount of
the CDSC decreases over time, measured from the date the Purchase Payment is
applied. The CDSC percentages are shown below.
------------------ ---------- ---------- ---------- ---------- ----------
YEARS 1 2 3 4 5+
------------------ ---------- ---------- ---------- ---------- ----------
------------------ ---------- ---------- ---------- ---------- ----------
CHARGE (%) 4.0 3.0 2.0 1.0 0.0
------------------ ---------- ---------- ---------- ---------- ----------
Each Purchase Payment has its own CDSC period. When you make a withdrawal, we
assume that the oldest Purchase Payment is being withdrawn first so that the
lowest CDSC is deducted from the amount withdrawn. After four (4) complete years
from the date you make a Purchase Payment, no CDSC will be assessed if you
withdraw or surrender that Purchase Payment.
Under certain circumstances you can withdraw a limited amount of Account Value
without paying a CDSC. This is referred to as a "Free Withdrawal." We may waive
the CDSC under certain medically-related circumstances or when taking a Minimum
Distribution under an Annuity issued in connection with a qualified contract.
Free Withdrawals, Medically-Related Waivers and Minimum Distributions are each
explained more fully in the section entitled "Access to Your Account Value".
Reductions to the Contingent Deferred Sales Charge
We may reduce the amount of the CDSC or the length of time it applies if we
determine that our sales expenses for a particular individual or group are lower
than expected. Some of the factors we might consider in making such a decision
are: (a) the size and type of group; (b) the amounts of Purchase Payments; (c)
present Participants making additional Purchase Payments; and/or (d) other
transactions where sales expenses are likely to be reduced. We will not
discriminate unfairly between Annuity purchasers if and when we reduce the
length or amount of the CDSC.
Exceptions to the Contingent Deferred Sales Charge
We do not apply the CDSC provision on Annuities owned by: (a) any parent
company, affiliate or subsidiary of ours; (b) an officer, director, employee,
retiree, sales representative, or in the case of an affiliated broker-dealer,
registered representative of such company; (c) a director, officer or trustee of
any underlying mutual fund; (d) a director, officer or employee of any
investment manager, sub-advisor, transfer agent, custodian, auditing, legal or
administrative services provider that is providing investment management,
advisory, transfer agency, custodianship, auditing, legal and/or administrative
services to an underlying mutual fund or any affiliate of such firm; (e) a
director, officer, employee or registered representative of a broker-dealer or
insurance agency that has a then current selling agreement with us and/or with
American Skandia Marketing, Incorporated; (f) a director, officer, employee or
authorized representative of any firm providing us or our affiliates with
regular legal, actuarial, auditing, underwriting, claims, administrative,
computer support, marketing, office or other services; (g) the then current
spouse of any such person noted in (b) through (f), above; (h) the parents of
any such person noted in (b) through (g), above; (i) such person's child(ren) or
other legal dependent under the age of 21; and (j) the siblings of any such
persons noted in (b) through (h) above. We will not provide any Additional
Amounts on Exchanges (see "Additional Amounts on Exchanges").
Annual Maintenance Fee: During the accumulation period we deduct an Annual
Maintenance Fee. The Annual Maintenance Fee is $35.00 or 2% of your Account
Value invested in the variable investment options, whichever is less. This fee
will be deducted annually on the anniversary of the Issue Date of your Annuity
or, if you surrender your Annuity during the Annuity Year, the fee is deducted
at the time of surrender. The Annual Maintenance Fee is only deducted if your
Account Value is less than $50,000 on the anniversary of the Issue Date or at
the time of surrender. We may increase the Annual Maintenance Fee. However, any
increase will only apply to Annuities issued after the date of the increase.
We may reduce or eliminate the amount of the Annual Maintenance Fee when
Annuities are sold to individuals or a group of individuals in a manner that
reduces our maintenance expenses. We would consider such factors as: (a) the
size and type of group; (b) the number of Annuities purchased by a Participant;
(c) the amount of Purchase Payments; and/or (d) other transactions where
maintenance expenses are likely to be reduced. We will not discriminate unfairly
between Annuity purchasers if and when we eliminate or reduce the Annual
Maintenance Fee.
Optional Death Benefits: If you elect to purchase one of the Optional Death
Benefits, we will deduct a charge from your Account Value on the anniversary of
your Annuity's Issue Date or, under certain circumstances on a date other than
the anniversary date. Please refer to the section entitled "Death Benefit" for a
description of the charge for each Optional Death Benefit.
Transfer Fee: You may make twelve (12) free transfers between investment options
each Annuity Year. We will charge $10.00 for each transfer after the twelfth in
each Annuity Year. We do not consider transfers made as part of a dollar cost
averaging program when we count the twelve free transfers. Transfers made as
part of a rebalancing, market timing or third party investment advisory service
will be subject to the twelve-transfer limit. However, all transfers made on the
same day will be treated as one (1) transfer. Renewals or transfers of Account
Value from a Fixed Allocation at the end of its Guarantee Period are not subject
to the Transfer Fee and are not counted toward the twelve free transfers.
Tax Charges: Several states and some municipalities charge premium taxes or
similar taxes. The amount of tax will vary from jurisdiction to jurisdiction and
is subject to change. The tax charge currently ranges up to 3 1/2%. We generally
will deduct the amount of tax payable at the time the tax is imposed, but may
also decide to deduct tax charges from each Purchase Payment at the time of a
withdrawal or surrender of your Annuity or at the time you elect to begin
receiving annuity payments. We may assess a charge against the Sub-accounts and
the Fixed Allocations equal to any taxes which may be imposed upon the separate
accounts.
WHAT CHARGES APPLY SOLELY TO THE VARIABLE INVESTMENT OPTIONS?
Insurance Charge: We deduct an Insurance Charge daily against the average daily
assets allocated to the Sub-accounts. The charge is equal to 1.00% on an annual
basis. This charge is for insurance benefits, including the Annuity's basic
death benefit that provides guaranteed benefits to your beneficiary even if the
market declines and the risk that persons we guarantee annuity payments to will
live longer than our assumptions. The charge also covers administrative costs
associated with providing the Annuity benefits, including preparation of the
contract, confirmation statements, annual account statements and annual reports,
legal and accounting fees as well as various related expenses. Finally, the
charge covers the risk that our assumptions about the administrative and
non-mortality expenses under this Annuity are incorrect. The Insurance Charge is
not deducted against assets allocated to a fixed investment option. We may
increase the portion of the Insurance Charge for administrative costs. However,
any increase will only apply to Annuities issued after the date of the increase.
We may reduce the portion of the Insurance Charge for administrative costs when
Annuities are sold to individuals or a group of individuals in a manner that
reduces our administrative expenses. We would consider such factors as: (a) the
size and type of group; (b) the number of Annuities purchased by an Owner; (c)
the amount of Purchase Payments; and/or (d) other transactions where
administration expenses are likely to be reduced. We will not discriminate
unfairly between Annuity purchasers if and when we reduce the portion of the
Insurance Charge attributed to the charge covering administrative costs.
WHAT CHARGES APPLY TO THE FIXED ALLOCATIONS?
We take into consideration mortality, expense, administration, profit and other
factors in determining the interest rates we credit to Fixed Allocations. No
specific fee or expenses are deducted when determining the rate we credit. Any
CDSC or Tax Charge applies to amounts that are taken from the variable
investment options or the Fixed Allocations. A Market Value Adjustment may also
apply to transfers, certain withdrawals or surrender from a Fixed Allocation.
WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYOUT?
In certain states a tax is due if and when you exercise your right to receive
periodic annuity payments. We do not deduct any specific charges during the
payout period. However, the amount payable will depend on the applicable
jurisdiction and on the annuity payment option you select. If you select an
option that guarantees payment for life, then the payment amount also will
depend on your age and, where permitted by law, your gender. In all cases, the
amount of each payment will depend on the Account Value of your Annuity when you
elect to begin annuity payments.
PURCHASING YOUR ANNUITY
WHAT ARE OUR REQUIREMENTS FOR PURCHASING THE ANNUITY?
Minimum Initial Purchase Payment: To purchase this Annuity, you must be a
customer of one or more subsidiaries of Fleet Financial Group, Inc., at the time
the Annuity is issued. You must make a minimum initial Purchase Payment of
$5,000. However, if you decide to make payments under a "bank drafting" program,
we will accept a lower initial Purchase Payment provided that, within the first
Annuity Year, you make at least $5,000 in total Purchase Payments.
Age Restrictions: There is no age restriction to purchase the Annuity. However,
the basic Death Benefit provides greater
protection for persons under age 75.
Participant, Annuitant and Beneficiary Designations: On your Application, we
will ask you to name the Participant(s), Annuitant and one or more Beneficiaries
for your Annuity.
|X| Participant: The Participant(s) holds all rights under the Annuity. You
may name more than one Participant in which case all ownership rights are
held jointly. However, this Annuity does not provide a right of
survivorship. Refer to the Glossary of Terms for a complete description
of the term "Participant."
|X| Annuitant: The Annuitant is the person we agree to make annuity payments
to and upon whose life we continue to make such payments. You must name
an Annuitant who is a natural person. We do not accept a designation of
joint Annuitants. Where allowed by law, you may name one or more
Contingent Annuitants. A Contingent Annuitant will become the Annuitant
if the Annuitant dies before the Annuity Date.
|X| Beneficiary: The Beneficiary is the person(s) or entity you name to
receive the death benefit. If no beneficiary is named the death benefit
will be paid to you or your estate.
You should seek competent tax advice on the income, estate and gift tax
implications of your designations.
MANAGING YOUR ANNUITY
MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS?
You may change the Participant, Annuitant and Beneficiary designations by
sending us a request in writing. Where allowed by law, such changes will be
subject to our acceptance. Some of the changes we will not accept include, but
are not limited to:
|X| a new 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 an Participant's death;
|X| a new Annuitant subsequent to the Annuity Date if the annuity option
selected includes a life contingency;
|X| a new Annuitant prior to the Annuity Date if the Annuity is owned by an
entity; and
|X| a change in Beneficiary if the Participant had previously made the
designation irrevocable.
Spousal Participants/Spousal Beneficiaries
If an Annuity is owned jointly by spouses, the death benefit will be payable
upon the death of the first spouse. However, if the sole primary Beneficiary is
designated as one of the following:
[X] "surviving spouse";
|X| each spouse named individually upon the death of the other; or
|X| a designation which we, in our sole discretion, determine to be of
similar intent; then
upon the death of either Participant, the surviving spouse may elect to be
treated as the Participant and continue the Annuity, subject to its existing
terms and conditions, instead of taking the Death Benefit.
MAY I RETURN THE ANNUITY IF I CHANGE MY MIND?
(The right to return the Annuity is referred to as the "free-look" right or
"right to cancel.")
If after purchasing your Annuity you change your mind and decide that you do not
want it, you may return it to us within a certain period of time known as a
free-look period. Depending on the state in which you purchased your Annuity,
the free-look period may be ten (10) days, twenty-one (21) days or longer,
measured from the time that you received your Annuity. If you free-look your
Annuity, we will refund your current Account Value plus any tax charge deducted.
This amount may be higher or lower than your original Purchase Payment. Certain
states require that we return your current Account Value or the amount of your
initial Purchase Payment, whichever is greater. The same rule applies to an
Annuity that is purchased as an IRA. In those states where we are required to
return the greater of your Purchase Payment or Account Value, we will allocate
your Account Value to the GAL Money Market Sub-account during the free-look
period and for a reasonable additional amount of time to allow for delivery of
your Annuity. If you free-look your Annuity, we will not return any additional
amounts we applied to your Annuity based on your Purchase Payments.
MAY I MAKE ADDITIONAL PURCHASE PAYMENTS?
The minimum amount that we accept as an additional Purchase Payment is $100
unless you participate in bank drafting or a periodic purchase payment program.
An additional Purchase Payment will be returned if we have not received written
allocation instructions.
MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT?
You can make additional Purchase Payments to your Annuity by authorizing us to
deduct money directly from your bank account and applying it to your Annuity.
This type of program is often called "bank drafting". Purchase Payments made
through bank drafting may only be allocated to the variable investment options.
Bank drafting allows you to invest in an Annuity with a lower initial Purchase
Payment, as long as you authorize payments that will equal at least $5,000
during the first 12 months of your Annuity. The minimum payment we will accept
using bank drafting is $50. We may suspend or cancel bank drafting privileges if
sufficient funds are not available from the applicable financial institution on
any date that a transaction is scheduled to occur.
MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM?
These types of programs are only available with certain types of plans. If your
employer sponsors such a program, we may agree to accept periodic Purchase
Payments through a salary reduction program as long as the allocations are made
only to variable investment options and the periodic Purchase Payments received
in the first year total at least $5,000.
ADDITIONAL AMOUNTS ON EXCHANGES
Under certain circumstances we may credit Additional Amounts to your Annuity if
you 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, Additional Amounts on Exchanges are
being offered where allowed by law. However, we may modify, suspend or terminate
this program at any time at our sole discretion. Any Additional Amounts are
provided from our general account.
Additional Amounts on Exchanges are payable in an amount equal to the lesser of
the Exchange Credit Limit (shown below) or the amount of any contingent deferred
sales charge (or surrender charge) you paid to surrender your Exchange Contract.
The Exchange Credit Limit is a percentage of the net amount payable upon
surrender of the Exchange Contract. The Exchange Credit Limit depends on the
amount we receive upon surrender of the Exchange Contract (called the "Exchange
Proceeds") and the age of the oldest of any Participant on the date we apply the
Purchase Payment to your Annuity. If the Participant of the Annuity is an
entity, the age is determined based on the age of the Annuitant.
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Age of oldest Participant/Annuitant Exchange Credit Limit*
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Less than Age 75 2.0%
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At least Age 75 but less than Age 85 1.0%
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At least Age 85 0.50%
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* as a percentage of the Exchange Proceeds
Any Additional Amounts on Exchanges are only payable on Exchange Proceeds from
an Exchange Contract. Additional Amounts are not payable on any additional
Purchase Payments applied to the Annuity unless they also independently qualify
as Exchange Proceeds.
How do I qualify for Additional Amounts on Exchanges?
We apply the following rules to be eligible to receive Additional Amounts on
Exchanges:
|X| You must provide us with satisfactory evidence of the amount of any
surrender charge you paid to surrender the Exchange Contract; and
|X| You must acknowledge in writing that you are aware that this Annuity is
also subject to a Contingent Deferred Sales Charge or CDSC if you elect
to surrender the Annuity or make a partial withdrawal during certain
prescribed periods.
How are Additional Amounts on Exchanges applied to my Account Value?
Additional Amounts on Exchanges are applied to your Account Value on the later
of:
1. the date the applicable Purchase Payment is allocated to the investment
options;
2. 30 days after the Issue Date of the Annuity; or
3. the date we receive satisfactory evidence of the amount of any surrender
charge you paid to surrender the Exchange Contract.
Additional Amounts on Exchanges are allocated pro-rata among the Sub-accounts
based on your Account Value in the Sub-accounts at the time we apply the
Additional Amounts. If you have Account Value allocated to a Fixed Allocation on
the date that we apply Additional Amounts, we will apply a proportionate amount
of any Additional Amounts to the appropriate Fixed Allocation. We will apply any
interest on Additional Amount applied to the Fixed Allocation according to the
rules shown above.
What types of contracts are eligible to receive Additional Amounts on Exchanges?
Additional Amounts on Exchanges are only payable on Exchange Contracts that are
not deemed to be securities issued by an entity registered under the Investment
Company Act of 1940 (the "Investment Company Act"). An exchange of a variable
annuity or variable life insurance policy under Section 1035 of the Code, or
certain "rollovers" or other transfers to an Annuity pursuant to certain other
sections of the Code will not qualify for Additional Amounts on Exchanges. You
and your financial representative should carefully evaluate whether you will
benefit from surrendering your Exchange Contract and purchasing the Annuity.
In particular, you should consider the following factors:
1. whether a contingent deferred sales charge or surrender charge will be
assessed under your Exchange Contract upon surrender and how much will be
charged;
2. the amount of time remaining under your Exchange Contract during which a
Contingent Deferred Sales Charge or surrender charge will apply;
3. the other charges made under your Exchange Contract versus the other
charges under this Annuity. These charges generally include the Insurance
Charge, Transfer Fees and Annual Maintenance Fee;
4. the Contingent Deferred Sales Charge we apply under this Annuity;
5. the potential costs if the Contingent Deferred Sales Charge on this Annuity
or the surrender charge on your Exchange Contract is greater than the
Exchange Credit Limit under this provision.
6. You should consult with your tax advisor as to any adverse federal income
tax consequences of such an exchange.
Special Treatment of Additional Amounts
|X| Any Additional Amounts on Exchanges applied to your Annuity can be
recovered by American Skandia if you elect to "free-look" your Annuity.
The amount returned to you will not include any Additional Amounts.
|X| We do not consider Additional Amounts on Exchanges to be "investment in
the contract" for income tax purposes.
|X| You may not withdraw any Additional Amounts on Exchanges under the Free
Withdrawal provision without assessment of the Contingent Deferred Sales
Charge (see "Can I make withdrawals from my Annuity without a CDSC?").
|X| We reserve the right o increase or decrease the Exchange Credit Limit.
However, the Exchange Credit Limit in effect at any time will apply to
all purchases qualifying for Additional Amounts on Exchanges.
|X| If you qualify to receive Additional Amounts on Exchanges and, due to the
size of the Exchange Proceeds, also are eligible to receive Additional
Amounts on Qualifying Purchase Payments, the total amount of all such
Additional Amounts will not exceed the applicable Exchange Credit Limit
(see "Additional Amounts on Qualifying Purchase Payments").
MANAGING YOUR ACCOUNT VALUE
HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED?
(See "Valuing Your Investment" for a description of our procedure for pricing
initial and subsequent Purchase Payments.)
Initial Purchase Payment: Once we accept your application, we invest your net
Purchase Payment in the Annuity. The net Purchase Payment is your initial
Purchase Payment minus any tax charges that may apply. On your application we
ask you to provide us with instructions for allocating your Account Value. You
can allocate Account Value to one or more variable investment options or Fixed
Allocations. In those states where we are required to return your Purchase
Payment if you elect to "free-look" your Annuity, we initially allocate all
amounts that you choose to allocate to the variable investment options to the
GAL Money Market Sub-account. At the end of the "free-look" period we will
reallocate your Account Value according to your most recent allocation
instructions. Where permitted by law, we will allocate your Purchase Payments
according to your initial instructions, without temporarily allocating to the
GAL Money Market Sub-account. To do this, we will ask that you execute our form
called a "return waiver" that authorizes us to allocate your Purchase Payment to
your chosen Sub-accounts immediately. If you submit the "return waiver" and then
decide to return your Annuity during the free-look period, you will receive your
current Account Value which may be more or less than your initial Purchase
Payment (see "May I Return the Annuity if I Change my Mind?").
Subsequent Purchase Payments: We will allocate any additional Purchase Payments
you make according to your most recent allocation instructions. If any
rebalancing, asset allocation or market timing programs are in effect, the
allocation must conform with such a program. We assume that your current
allocation instructions are valid for subsequent Purchase Payments until you
make a change to those allocations or request new allocations when you submit a
new Purchase Payment.
ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?
During the accumulation period you may transfer Account Value between investment
options. Transfers are not subject to taxation. We currently limit the number of
Sub-accounts you can invest in at any one time to ten (10). However, you can
invest in an unlimited number of Fixed Allocations. We may require a minimum of
$500 in each Sub-account you allocate Account Value to at the time of any
allocation or transfer. If you request a transfer and, as a result of the
transfer, there would be less than $500 in the Sub-account, we may transfer the
remaining Account Value in the Sub-account pro rata to the other investment
options to which you transferred.
We will charge $10.00 for each transfer after the twelfth (12th) in each Annuity
Year. Transfers made as part of a dollar cost averaging program do not count
toward the twelve free transfer limit. Renewals or transfers of Account Value
from a Fixed Allocation at the end of its Guarantee Period are not subject to
the transfer charge.
We reserve the right to limit the number of transfers in any Annuity Year for
all existing or new 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: (a) we believe that excessive trading or
a specific transfer request or group of transfer requests may have a detrimental
effect on Unit Values or the share prices of the Portfolios; or (b) we are
informed by one or more of the Portfolios that the purchase or redemption of
shares must be restricted because of excessive trading or a specific transfer or
group of transfers is deemed to have a detrimental effect on the share prices of
affected Portfolios. Without limiting the above, the most likely scenario where
either of the above could occur would be if the aggregate amount of a trade or
trades represented a relatively large proportion of the total assets of a
particular Portfolio. Under such a circumstance, we will process transfers
according to our rules then in effect and provide notice if the transfer request
was denied. If a transfer request is denied, a new transfer request may be
required.
DO YOU OFFER DOLLAR COST AVERAGING?
Yes. We offer Dollar Cost Averaging during the accumulation period. Dollar Cost
Averaging allows you to systematically transfer an amount each month from one
investment option to one or more other investment options. You can choose to
transfer earnings only, principal plus earnings or a flat dollar amount. Dollar
Cost Averaging allows you to invest regularly each month, regardless of the
current unit value (or price) of the Sub-account(s) you invest in. This enables
you to purchase more units when the market price is low and fewer units when the
market price is high. This may result in a lower average cost of units over
time. However, there is no guarantee that Dollar Cost Averaging will result in a
profit or protect against a loss in a declining market.
You must have a minimum Account Value of at least $20,000 to enroll in a Dollar
Cost Averaging program.
You can Dollar Cost Average from variable investment options or Fixed
Allocations. Dollar Cost Averaging from Fixed Allocations is subject to a number
of rules that include, but are not limited to the following:
|X| You may only use Fixed Allocations with Guarantee Periods of 1, 2 or 3
years.
|X| You may only Dollar Cost Average earnings or principal plus earnings. If
transferring principal plus earnings, the program must be designed to
last the entire Guarantee Period for the Fixed Allocation.
|X| Dollar Cost Averaging transfers from Fixed Allocations are not subject to
a Market Value Adjustment.
DO YOU OFFER A PROGRAM TO BALANCE FIXED AND VARIABLE INVESTMENTS?
Some investors wish to invest in the variable investment options but also wish
to protect a portion of their investment from market fluctuations. We offer a
balanced investment program where a portion of your Purchase Payment is
allocated to a Fixed Allocation for a Guarantee Period that you select and the
remaining Account Value is allocated to the variable investment options that you
select. The amount that we allocate to the Fixed Allocation is the amount (not
including any additional amounts we applied to your Annuity based on your
Purchase Payments) that will grow to a specific "principal amount" such as your
initial Purchase Payment. We determine the amount based on the rates then in
effect for the Guarantee Period you choose. If no amounts are transferred or
withdrawn from the Fixed Allocation, at the end of the Guarantee Period, it will
have grown to equal the "principal amount". The remaining Account Value that was
not allocated to the Fixed Allocation can be allocated to any of the
Sub-accounts that you choose. Account Value allocated to the variable investment
options is subject to market fluctuations and may increase or decrease in value.
Example
Assume you have $100,000 to invest. You choose to allocate a portion of your
Account Value to a Fixed Allocation with a 10-year Guarantee Period. The rate
for the 10-year Guarantee Period is 4.24%*. Based on the chosen Guarantee Period
and interest rate, the factor for determining how much of your Account Value can
be allocated to the Fixed Allocation is 0.660170. That means that $66,017 will
be allocated to the Fixed Allocation and the remaining Account Value ($33,983)
will be allocated to the variable investment options. Assuming that you do not
make any withdrawals from the Fixed Allocation, it will grow to $100,000 at the
end of the Guarantee Period. Of course we cannot predict the value of the
remaining Account Value that was allocated to the variable investment options.
* The rate in this example is hypothetical and may not reflect the current rate
for Guarantee Periods of this duration. The hypothetical values in this example
do not reflect the amount of any Target Value Credits that may apply.
MAY I AUTHORIZE MY FINANCIAL REPRESENTATIVE TO MANAGE MY ACCOUNT?
You may authorize your financial representative to decide on the allocation of
your Account Value and to make financial transactions between investment
options, subject to our rules. However, we can suspend or cancel these
privileges at any time. We will notify you if we do. We may restrict the
available investment options if you authorize a financial representative to make
transfers for you. We do this so that no financial representative is in a
position to control transfers of large amounts of money for multiple clients
into or out of any of the underlying portfolios that have expressed concern
about movement of a large proportion of a portfolio's assets.
We or an affiliate of ours may provide administrative support to financial
representatives who make transfers on your behalf. These financial
representatives may be firms or persons who also are appointed by us as
authorized sellers of the Annuity. However, we do not offer you advice about how
to allocate your Account Value under any circumstance. Any financial firm or
representative you engage to provide advice and/or make transfers for you is not
acting on our behalf. We are not responsible for any recommendations such
financial representatives make, any market timing or asset allocation programs
they choose to follow or any specific transfers they make on your behalf.
HOW DO THE FIXED INVESTMENT OPTIONS WORK?
(Fixed Allocations may not be available in all states and may not be available
in certain durations.)
Fixed Allocations currently are offered with Guarantee Periods of 1, 2, 3, 5, 7
and 10 years. We credit the fixed interest rate to the Fixed Allocation
throughout a set period of time called a "Guarantee Period." The interest rate
credited to a Fixed Allocation is the rate in effect when the Guarantee Period
begins and does not change during the Guarantee Period. The rates are an
effective annual rate of interest. We determine the interest rates for the
various Guarantee Periods. At the time that we confirm your Fixed Allocation, we
will advise you of the interest rate in effect and the date your Fixed
Allocation matures. We may change the rates we credit new Fixed Allocations at
any time. To inquire as to the current rates for Fixed Allocations, please call
1-800-444-3970.
A Guarantee Period for a Fixed Allocation begins:
|X| when all or part of a net Purchase Payment is allocated to that particular
Guarantee Period;
|X| upon transfer of any of your Account Value to a Fixed Allocation for that
particular Guarantee Period; or
|X| when a Guarantee Period attributable to a Fixed Allocation "renews" after
its Maturity Date.
HOW DO YOU DETERMINE RATES FOR FIXED ALLOCATIONS?
We do not have a specific formula for determining the fixed interest rates for
Fixed Allocations. Generally the interest rates we offer for Fixed Allocations
will reflect the investment returns available on the types of investments we
make to support our fixed rate guarantees. These investment types may include
cash, debt securities guaranteed by the United States government and its
agencies and instrumentalities, money market instruments, corporate debt
obligations of different durations, private placements, asset-backed obligations
and municipal bonds. In determining rates we also consider factors such as the
length of the Guarantee Period for the Fixed Allocation, regulatory and tax
requirements, liquidity of the markets for the type of investments we make,
commissions, administrative and investment expenses, our insurance risks in
relation to the Fixed Allocations, general economic trends and competition.
We will credit interest on a new Fixed Allocation in an existing Annuity at a
rate not less than the rate we are then crediting to Fixed Allocations for the
same Guarantee Period selected by new Annuity purchasers in the same class.
HOW DOES THE MARKET VALUE ADJUSTMENT WORK?
If you transfer or withdraw Account Value from a Fixed Allocation before the end
of its Guarantee Period, we will adjust the value of your investment based on a
formula, called a "Market Value Adjustment" or "MVA". The Market Value
Adjustment formula compares the interest rates credited for Fixed Allocations at
the time you invested, to interest rates being credited when you make a transfer
or withdrawal. The amount of any Market Value Adjustment can be either positive
or negative, depending on the rates that are currently being credited on Fixed
Allocations.
MVA Formula
The MVA formula is applied separately to each Fixed Allocation. The formula is
as follows:
[(1+I) / (1+J+0.0010)]N/12
where:
I is the fixed interest rate we guaranteed to credit to the
Fixed Allocation as of its starting date;
J is the fixed interest rate for your class of annuities at
the time of the withdrawal for a new Fixed Allocation with a
Guarantee Period equal to the remaining number of years in
your original Guarantee Period;
N is the number of months remaining in the original Guarantee
Period.
If you surrender your Annuity under the "free-look" provision, the MVA formula
is [(1 + I)/(1 + J)]N/12.
If the transfer or withdrawal does not occur on the yearly or monthly
anniversary of the beginning of the Fixed Allocation, the numbers used in `J'
and `N' will be rounded to the next highest integer.
MVA Examples
The following hypothetical examples show the effect of the MVA in determining
Account Value. Assume the following:
|X| You allocate $50,000 into a Fixed Allocation with a Guarantee Period of 5
years.
|X| The interest rate for your Fixed Allocation is 5.0% (I = 5.0%).
|X| You make no withdrawals or transfers until you decided to withdraw the
entire Fixed Allocation after exactly three (3) years, therefore 24
months remain before the Maturity Date (N = 24).
Example of Positive MVA
Assume that at the time you request the withdrawal, the fixed interest rate for
a new Fixed Allocation with a Guarantee Period of 24 months is 3.5% (J = 3.5%).
Based on these assumptions, the MVA would be calculated as follows:
MVA Factor = [(1+I)/(I+J+0.0010)]N/12 = [1.05/1.036]2 = 1.027210
Interim Value = $57881.25
Account Value after MVA = Interim Value X MVA Factor = $59,456.20.
Example of Negative MVA
Assume that at the time you request the withdrawal, the fixed interest rate for
a new Fixed Allocation with a Guarantee Period of 24 months is 6.0% (J = 6.0%).
Based on these assumptions, the MVA would be calculated as follows:
MVA Factor = [(1+I)/(1+J+0.0010)]N/12 = [1.05/1.061)]2 = 0.979372
Interim Value = $57881.25
Account Value after MVA = Interim Value X MVA Factor = $56,687.28.
WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES?
The "Maturity Date" for a Fixed Allocation is the last day of the Guarantee
Period. On the Maturity Date, you may choose to renew the Fixed Allocation for a
new Guarantee Period of the same or different length or you may transfer all or
part of that Fixed Allocation's Account Value to another Fixed Allocation or to
one or more Sub-accounts. If you do not specify how you want a Fixed Allocation
to be allocated on its Maturity Date, it will be renewed for a Fixed Allocation
of the same duration if then available. We will notify you 60 days before the
end of the Guarantee Period about the fixed interest rates that we are currently
crediting to all Fixed Allocations that are being offered. The rates being
credited to Fixed Allocations may change before the Maturity Date. We will not
charge a MVA if you choose to renew a Fixed Allocation on its Maturity Date or
transfer the Account Value to one or more variable investment options.
AMERICAN SKANDIA'S PERFORMANCE ADVANTAGE
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This benefit is being offered as of May 15, 1999 in those jurisdictions where we
have received regulatory approvals. Certain terms and conditions may differ
between jurisdictions once approved.
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Do you provide any guarantees on my investment?
The Annuity provides variable investment options and fixed investment options.
Only the fixed investment options provide a guaranteed return on your
investment, subject to certain terms and conditions. However, your Annuity
includes a feature at no additional cost that provides certain benefits if your
Account Value has not reached or exceeded a "target value" on its 10th
anniversary. If, on the 10th anniversary of your Annuity's Issue Date, your
Account Value has not reached the target value (as defined below) you can choose
either of the following benefits:
|X| You may continue your Annuity without electing to receive Annuity payments
and receive an annual credit to your Account Value payable until you begin
receiving Annuity payments. The credit is equal to 0.25% of the average of
your Annuity's Account Value for the preceding four complete calendar
quarters. This credit is applied to your investment options pro-rata based
on the allocation of your then current Account Value.
|X| You may begin receiving Annuity payments within one year and accept a
one-time credit to your Annuity equal to 10% of the net of the Account
Value on the 10th anniversary of its Issue Date minus the sum of all
Purchase Payments allocated in the prior five years. The annuity option you
select must initially guarantee payments for not less than seven years.
Following the 10th anniversary of your Annuity's Issue Date, we will inform you
if your Account Value did not meet or exceed the Target Value. We will assume
that you have elected to receive the annual credit to your Account Value unless,
not less than 30 days prior to the next anniversary of the Annuity, we receive
at our home office your election to begin receiving Annuity payments.
Certain provisions of this benefit and of the Target Value Credits described
below may differ if you purchase your Annuity as part of an exchange,
replacement or transfer, in whole or in part, from any other Annuity we issue.
What is the "Target Value" and how is it calculated?
The Target Value is a tool used to determine whether you are eligible to elect
either of the benefits described above. The Target Value does not impact the
Account Value available if you surrender your Annuity or make a partial
withdrawal and does not impact the Death Benefit available to your
Beneficiary(ies). The Target Value assumes a rate of return over ten (10)
Annuity Years that will allow your initial investment to double in value,
adjusted for any withdrawals and/or additional Purchase Payments you make during
the 10 year period. We calculate the "Target Value" as follows:
1. Accumulate the initial Purchase Payment at an annual interest rate of 7.2%
until the 10th anniversary of the Annuity's Issue Date; plus
2. Accumulate any additional Purchase Payments at an annual interest rate of
7.2% from the date applied until the 10th anniversary of the Annuity's
Issue Date; minus
3. Each "proportional reduction" resulting from any withdrawal, accumulating
at an annual interest rate of 7.2% from the date the withdrawal is
processed until the 10th anniversary of the Annuity's Issue Date. We
determine each "proportional reduction" by determining the percentage of
your Account Value then withdrawn and reducing the Target Value by that
same percentage. We include any withdrawals under your Annuity in this
calculation, as well as the charge we deduct for any optional benefits you
elect under the Annuity, but not the charge we deduct for the Annual
Maintenance Fee or the Transfer Fee.
Examples
1. Assume you make an initial Purchase Payment of $10,000 and make no further
Purchase Payments. The Target Value on the 10th anniversary of your
Annuity's Issue Date would be $20,042, assuming no withdrawals are made.
This is equal to $10,000 accumulating at an annual rate of 7.2% for the
10-year period.
2. Assume you make an initial Purchase Payment of $10,000 and make no further
Purchase Payments. Assume at the end of Year 6, your Account Value has
increased to $15,000 and you make a withdrawal of 10% or $1,500. The Target
Value on the 10th anniversary would be $18,722. This is equal to $10,000
accumulating at an annual rate of 7.2% for the 10-year period, minus the
proportional reduction accumulating at an annual interest rate of 7.2%.
Can I restart the 10-year Target Value calculation?
Yes, you can elect to lock in the growth in your Annuity by "restarting" the
10-year period on any anniversary of the Issue Date. If you elect to restart the
calculation period, we will treat your Account Value on the restart date as if
it was your Purchase Payment when determining if your Annuity's Account Value
meets or exceeds the Target Value on the appropriate tenth (10th) anniversary.
You may elect to restart the calculation more than once, in which case, the
10-year calculation period will begin on the date of the last restart date. We
must receive your election to restart the calculation at our home office not
later than 30 days after each anniversary of the Issue Date.
What are Target Value Credits?
Target Value Credits are additional amounts that we apply to your Account Value
to increase the likelihood that your Account Value will meet or exceed the
Target Value. Target Value Credits are payable on all Purchase Payments applied
before the first anniversary of the Issue Date of your Annuity.
The amount of the Target Value Credit is equal to 1.0% of each qualifying
Purchase Payment. Target Value Credits are only payable on qualifying Purchase
Payments if the Owner(s) of the Annuity is(are) less than age 81 on its Issue
Date. If the Annuity is owned by an entity, the age restriction applies to the
age of the Annuitant on the Issue Date. The Target Value Credit is payable from
our general account and is allocated to the investment options in the same ratio
that the qualifying Purchase Payment is allocated.
Target Value Credits will not be available if you purchase your Annuity as part
of an exchange, replacement or transfer, in whole or in part, of an Annuity we
issued that has the same or a similar benefit.
Recovery of Target Value Credits
We can recover the amount of any Target Value Credit under the following
circumstances:
1. If you surrender your Annuity before the 10th anniversary of the Issue Date
of the Annuity.
2. If you elect to begin receiving Annuity payments before the first
anniversary of the Issue Date.
3. If a person on whose life we pay the Death Benefit dies, or if a
"contingency event" occurs which triggers a medically-related surrender
(a) within 12 months after the date a Target Value Credit was allocated to
your Account Value; or
(b) within 10 years after the date a Target Value Credit was allocated to
your Account Value if any owner was over age 70 on the Issue Date, or,
if the Annuity was then owned by an entity, the Annuitant was over age
70 on the Issue Date.
ACCESS TO ACCOUNT VALUE
WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME?
During the accumulation phase you can access your Account Value through Partial
Withdrawals, Systematic Withdrawals, and where required for tax purposes,
Minimum Distributions. You can also surrender your Annuity at any time. We may
deduct a portion of the Account Value being withdrawn or surrendered as a CDSC
and we may also apply a Market Value Adjustment to any Fixed Allocations.
Certain amounts may be available to you each Annuity Year that are not subject
to a CDSC. These are called "Free Withdrawals." In addition, under certain
circumstances, we may waive the CDSC for surrenders made for qualified medical
reasons or for withdrawals made to satisfy Minimum Distribution requirements.
Unless you notify us differently, withdrawals are taken pro-rata based on the
Account Value in the investment options at the time we receive your withdrawal
request. Each of these types of distributions is described more fully below.
ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS?
(For more information, see "Tax Considerations")
During the Accumulation Period
A distribution during the accumulation period is deemed to come first from any
"gain" in your Annuity and second as a return of your "tax basis", if any.
Distributions from your Annuity are generally subject to ordinary income
taxation on the amount of any investment gain. If you take a distribution prior
to the taxpayer's age 59 1/2, you may be subject to a 10% penalty in addition to
ordinary income taxes on any gain. You may wish to consult a professional tax
advisor for advice before requesting a distribution.
During the Annuitization Period
During the annuitization period, a portion of each annuity payment is taxed as
ordinary income at the tax rate you are subject to at the time you receive the
payment. The Code and regulations have "exclusionary rules" that we use to
determine what portion of each annuity payment should be treated as a return of
any tax basis you have in the Annuity. Once the tax basis in the Annuity has
been distributed, the remaining annuity payments are taxable as ordinary income.
The tax basis in the Annuity may be based on the tax-basis from a prior contract
in the case of a 1035 exchange or other qualifying transfer.
CAN I WITHDRAW A PORTION OF MY ANNUITY?
Yes, you can make a withdrawal during the accumulation phase. We call this a
"Partial Withdrawal." The amount that you may withdraw will depend on the
Annuity's Surrender Value. After any Partial Withdrawal, your Annuity must have
a Surrender Value of at least $1,000, or we may treat the Partial Withdrawal
request as a request to fully surrender your Annuity. The minimum Partial
Withdrawal you may request is $100.
IS THERE A CHARGE FOR A PARTIAL WITHDRAWAL?
A CDSC may be assessed against a Partial Withdrawal. Whether a CDSC applies and
the amount to be charged depends on whether the Partial Withdrawal exceeds any
Free Withdrawal amount and, if so, the length of time that the Purchase Payment
being withdrawn has been invested in the Annuity.
If you request a Partial Withdrawal:
1. we determine if the amount you requested is available as a Free Withdrawal
(in which case it would not be subject to a CDSC);
Then if the amount requested exceeds the available Free Withdrawal amount:
2. we withdraw the amount from Purchase Payments that have been invested for
longer than the CDSC period (with your Annuity, seven (7) years), if any;
Then if the amount requested exceeds that amount:
3. we withdraw the remaining amount from the Purchase Payments that are still
subject to a CDSC. We withdraw the amount from the "oldest" of your
Purchase Payments, which will result in the lowest CDSC being applied to
the amount withdrawn.
Then if the amount requested exceeds Purchase Payments still subject to a CDSC:
4. we withdraw the remaining amount from other surrender value due to Target
Value Credits and any Additional Amounts on Exchanges.
CAN I MAKE WITHDRAWALS FROM MY ANNUITY WITHOUT A CDSC?
Yes. During the accumulation phase you may withdraw a limited amount of Account
Value each Annuity Year from which we do not deduct a CDSC. This amount is
called the "Free Withdrawal" amount. Free Withdrawals are available to meet
liquidity needs. The amount of any Free Withdrawal is not available at the time
an Annuity is surrendered. NOTE: Withdrawals of any type made prior to age 59
1/2 may be subject to a 10% tax penalty.
HOW MUCH CAN I WITHDRAW AS A FREE WITHDRAWAL?
The maximum Free Withdrawal amount during any Annuity Year is the greater of:
|X| the "Growth" in the Annuity; or
|X| 10% of Purchase Payments that, as of the date of the withdrawal, have been
invested for less than the CDSC period (with your Annuity, four (4) years).
The 10% amount is not cumulative.
"Growth" equals the current Account Value less all Purchase Payments that have
been invested for less than the CDSC period and have not been previously
withdrawn. "Growth" does not include any additional amounts we applied to your
Annuity based on your Purchase Payments (see "Additonal Amounts on Exchanges"
and "What are Target Value Credits").
NOTE: Free withdrawals do not reduce the amount of any CDSC that would apply
upon a partial withdrawal or subsequent surrender. The minimum Free Withdrawal
you may request is $100.
Examples
Assume you make a $10,000 Purchase Payment at the time your Annuity is issued.
You make no additional Purchase Payments, yet due to positive investment
performance, your Account Value is $14,000 in your second Annuity Year. Your
maximum Free Withdrawal amount would be the greater of Growth (Account Value
minus Purchase Payments = $4,000) or 10% of Purchase Payments ($1,000). Your
maximum Free Withdrawal amount would therefore be $4,000.
Further assume that in your third Annuity Year, you choose to surrender your
Annuity. Assume that after taking your $4,000 Free Withdrawal in Year 2, your
Account Value has increased to $11,000 due to positive investment performance.
Upon surrender, we will deduct a CDSC of 2.0% based on the number of years that
your Purchase Payment has been invested times the amount of your Purchase
Payment that has not been previously withdrawn (2.0% of $10,000 = $200). The
amount of the previous Free Withdrawal was not subject to a CDSC when withdrawn.
Therefore, upon surrender, the amount of the entire Purchase Payment is subject
to the CDSC. You would receive $10,800 minus the Annual Maintenance Fee (since
the Account value is less than $50,000) and any Target Value Credits.
These examples do not reflect the effect of any Target Value Credits. These
amounts are not available as a free withdrawal.
When we determine if a CDSC applies to Partial Withdrawals and Systematic
Withdrawals, we will first determine what, if any, amounts qualify as a Free
Withdrawal. Those amounts are not subject to the CDSC. Partial Withdrawal or
Systematic Withdrawal of amounts greater than the maximum Free Withdrawal amount
will be subject to a CDSC.
CAN I MAKE PERIODIC WITHDRAWALS FROM THE ANNUITY DURING THE ACCUMULATION PERIOD?
Yes. We call these "Systematic Withdrawals." You can receive Systematic
Withdrawals of earnings only, principal plus earnings or a flat dollar amount.
Systematic Withdrawals may be subject to a CDSC. We will determine whether a
CDSC applies and the amount in the same way as we would for a Partial
Withdrawal.
Systematic Withdrawals can be made from Account Value allocated to the variable
investment options or Fixed Allocations. Generally, Systematic Withdrawals from
Fixed Allocations are limited to earnings accrued after the program of
Systematic Withdrawals begins, or payments of fixed dollar amounts that do not
exceed such earnings. Systematic Withdrawals are available on a monthly,
quarterly, semi-annual or annual basis. The Surrender Value of your Annuity must
be at least $20,000 before we will allow you to begin a program of Systematic
Withdrawals.
The minimum amount for each Systematic Withdrawal is $100. If any scheduled
Systematic Withdrawal is for less than $100, we may postpone the withdrawal and
add the expected amount to the amount that is to be withdrawn on the next
scheduled Systematic Withdrawal.
WHAT ARE MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM? (See "Tax
Considerations" for a further discussion of Minimum Distributions.)
Minimum Distributions are a type of Systematic Withdrawal we allow to meet
distribution requirements under Sections 401, 403(b) or 408 of the Code. Under
the Code, you may be required to begin receiving periodic amounts from your
Annuity. In such case, we will allow you to make Systematic Withdrawals in
amounts that satisfy the minimum distribution rules under the Code. We do not
assess a CDSC on Minimum Distributions from your Annuity if you are required by
law to take such Minimum Distributions from your Annuity at the time it is
taken. However, a CDSC may be assessed on that portion of a Systematic
Withdrawal that is taken to satisfy the minimum distribution requirements in
relation to other savings or investment plans under other qualified retirement
plans not maintained with American Skandia.
If you request, we will calculate the annual required Minimum Distribution under
your Annuity. The amount of the required Minimum Distribution for your
particular situation may depend on other annuities, savings or investments. We
will only calculate the amount of your required Minimum Distribution based on
the value of your Annuity. We require three (3) days advance written notice to
calculate and process the amount of your payments. We may charge you for
calculating required Minimum Distributions. You may elect to have Minimum
Distributions paid out monthly, quarterly, semi-annually or annually. The $100
minimum that applies to Systematic Withdrawals does not apply to Minimum
Distributions.
CAN I SURRENDER MY ANNUITY FOR ITS VALUE?
Yes. During the accumulation phase you can surrender your Annuity at any time.
Upon surrender, you will receive the Surrender Value. Upon surrender of your
Annuity, you will no longer have any rights under the Annuity.
WHAT IS A MEDICALLY-RELATED SURRENDER AND HOW DO I QUALIFY?
Where permitted by law, you may request to surrender your Annuity prior to the
Annuity Date without application of any CDSC upon occurrence of a
medically-related "Contingency Event". The amount payable will be your Account
Value minus the amount of any Target Value Credits under certain circumstances.
This waiver of any applicable CDSC is subject to our rules, including but not
limited to the following:
|X| the Annuitant must be alive as of the date we pay the proceeds of such
surrender request;
|X| if the Participant is one or more natural persons, all such Participants
must also be alive at such time;
|X| we must receive satisfactory proof of the Annuitant's confinement in a
Medical Care Facility or Fatal Illness in writing on a form satisfactory to
us; and
|X| this benefit is not available if the total Purchase Payments received
exceed $500,000 for all annuities issued by us with this benefit where the
same person is named as Annuitant.
For contracts issued before May 1, 1996 a "Contingency Event" occurs if the
Annuitant is:
|X| first confined in a "Medical Care Facility" while your Annuity is in force
and remains confined for at least 90 days in a row; or
|X| first diagnosed as having a "Fatal Illness" while your Annuity is in force.
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 "Contingency Event" described above, in order to
qualify for a medically-related surrender.
The definitions of "Medical Care Facility" and "Fatal Illness," as well as
additional terms and conditions, are provided in your Annuity. Specific details
and definitions in relation to this benefit may differ in certain jurisdictions.
WHAT TYPES OF ANNUITY PAYMENT OPTIONS ARE AVAILABLE UPON ANNUITIZATION?
Annuity payments can be guaranteed for the life of the Annuitant, for the life
of the Annuitant with a certain period guaranteed, or for a certain fixed period
of time with no life contingency. We currently make available fixed payments and
adjustable payments. However, adjustable annuity payments may not be available
on your Annuity Date.
You may choose an Annuity Date, an annuity option and the frequency of annuity
payments when you purchase an Annuity, or at a later date. You may change your
choices up to 30 days before the Annuity Date. Any change to these options must
be in writing. The Annuity Date must be the first or the fifteenth day of a
calendar month. A maximum Annuity Date may be required by law.
We currently offer the following Annuity Payment Options. Additional Annuity
Payment Options may be offered in the future.
Key Life: is the person or persons upon whose life annuity payments with a life
contingency are based.
Option 1
Payments for Life: Under this option, income is payable periodically until the
death of the "key life". No additional annuity payments are made after the death
of the key life. Since no minimum number of payments is guaranteed, this option
offers the largest amount of periodic payments of the life contingent annuity
options. It is possible that only one payment will be payable if the death of
the key life occurs before the date the second payment was due, and no other
payments nor death benefits would be payable.
Option 2
Payments for Life with 10, 15, or 20 Years Certain: Under this option, income is
payable until the death of the key life. However, if the key life dies before
the end of the period selected (10, 15, or 20 years), the remaining payments are
paid to the Beneficiary until the end of such period.
Option 3
Payments Based on Joint Lives: Under this option, income is payable periodically
during the joint lifetime of two key lives, and thereafter during the remaining
lifetime of the survivor, ceasing with the last payment prior to the survivor's
death. No minimum number of payments is guaranteed under this option. It is
possible that only one payment will be payable if the death of all the key lives
occurs before the date the second payment was due, and no other payments or
death benefits would be payable.
Option 4
Payments for a Certain Period: Under this option, income is payable periodically
for a specified number of years. If the payee dies before the end of the
specified number of years, the remaining payments are paid to the Beneficiary to
the end of such period. Note that under this option, payments are not based on
any assumptions of life expectancy. Therefore, that portion of the Insurance
Charge assessed to cover the risk that key lives outlive our expectations
provides no benefit to a Participant selecting this option.
HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION?
Unless prohibited by law, we require that you elect either a life annuity or an
annuity with a certain period of at least 5 years if any CDSC would apply were
you to surrender your Annuity on the Annuity Date. Therefore, making a purchase
payment within seven years of the Annuity Date limits your annuity payment
options.
If you have not provided us with your Annuity Date or Annuity Payment Option in
writing, then:
|X| the Annuity Date will be the first day of the calendar month following the
later of the Annuitant's 85th birthday or the fifth anniversary of our
receipt of your request to purchase an Annuity; and
|X| the Annuity Payments, where allowed by law, will be fixed monthly payments
for life with 10 years certain (See Option 2).
If you have not made an election prior to death benefit proceeds becoming due,
the Beneficiary may elect to receive the death benefit under one of the annuity
payment options. However, if you made an election, the Beneficiary may not alter
such election.
HOW ARE ANNUITY PAYMENTS CALCULATED?
The first annuity payment varies according to the annuity payment option and
payment frequency selected. The first payment is determined by multiplying the
Account Value plus any additional amounts applied by us under the Performance
Advantage benefit by the factor determined from our table of annuity rates. Your
Account Value will be determined as of the close of business on the fifteenth
day preceding the Annuity Date, plus interest at not less that 3% per year from
such date to the Annuity Date. The table of annuity rates differ based on the
type of annuity chosen and the frequency of payment selected. Our rates will not
be less than our guaranteed minimum rates. These guaranteed minimum rates are
derived from the 1983a Individual Annuity Mortality Table with ages set back one
year for males and two years for females and with an assumed interest rate of 3%
per annum. Where required by law or regulation, such annuity table will have
rates that do not differ according to the gender of the key life.
Otherwise, the rates will differ according to the gender of the key life.
DEATH BENEFIT
WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT?
The Annuity provides a Death Benefit during its accumulation phase. If the
Annuity is owned by one or more natural persons, the Death Benefit is payable
upon the first death of an Owner. If the Annuity is owned by an entity, the
Death Benefit is payable upon the Annuitant's death, if there is no Contingent
Annuitant. If a Contingent Annuitant was designated before the Annuitant's death
and the Annuitant dies, then the Contingent Annuitant becomes the Annuitant and
a Death Benefit will not be paid at that time. The person upon whose death the
Death Benefit is paid is referred to below as the "decedent."
DEATH BENEFIT OPTIONS
Your Annuity provides a "basic" Death Benefit at no additional charge and also
offers two different optional Death Benefits that can be purchased for an
additional charge. Under certain circumstances, your Death Benefit may be
reduced by the amount of any Target Value Credits we applied to your Purchase
Payments. (see "Recovery of Target Value Credits")
Basic Death Benefit
The basic Death Benefit depends on the decedent's age on the date of death:
If death occurs before the decedent's age 75: The Death Benefit is the
greater of:
|X| The sum of all Purchase Payments less the sum of all withdrawals; and
|X| The sum of your Account Value in the variable investment options and your
Interim Value in the Fixed Allocations.
If death occurs when the decedent is age 75 or older: The Death Benefit
is your Account Value.
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The Optional Death Benefits are being offered as of May 15, 1999 in those
jurisdictions where we have received regulatory approval. Certain terms and
conditions may differ between jurisdictions once approved.
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Optional Death Benefits
We offer two optional Death Benefits to provide an enhanced level of protection
for your beneficiaries. Currently, these benefits are only offered and must be
elected at the time that you purchase your Annuity. We may, at a later date,
allow existing Annuity Owners to purchase either of the optional Death Benefits
subject to our rules.
If the Annuity has one Owner, the Owner must be age 80 or less at the time
either optional Death Benefit is purchased. If the Annuity has joint Owners, the
oldest Owner must be age 80 or less. If the Annuity is owned by an entity, the
Annuitant must be age 80 or less.
Key Terms Used with the Optional Death Benefits
|X| The Death Benefit Target Date is the contract anniversary on or after the
80th birthday of the current Owner, the oldest of either joint Owner or the
Annuitant, if entity owned.
|X| The Highest Anniversary Value equals the highest of all previous
"Anniversary Values" on or before the earlier of the Owner's date of death
and the "Death Benefit Target Date".
|X| The Anniversary Value is the Account Value as of each anniversary of the
Issue Date plus the sum of all Purchase Payments on or after such
anniversary less the sum of all "Proportional Reductions" since such
anniversary.
|X| A Proportional Reduction is a reduction to the value being measured caused
by a withdrawal, equaling the percentage of the withdrawal as compared to
the Account Value as of the date of the withdrawal. For example, if your
Account Value is $10,000 and you withdraw $2,000 (a 20% reduction), we will
reduce both your Anniversary Value and the amount determined by Purchase
Payments increasing at the appropriate interest rate by 20%.
|X| The Assumed Accumulation Rate is the rate of interest that we will apply to
your Purchase Payments only for purposes of calculating this benefit The
Assumed Accumulation Rate is different depending on which Optional Death
Benefit you select as shown below:
--------------------------- ------------------------
Option 1 Option 2
5.0% per year 7.2% per year
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Certain terms and conditions may differ if you purchase your Annuity as part of
an exchange, replacement or transfer, in whole or in part, from any other
Annuity we issue.
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Calculation of Optional Death Benefits
The optional Death Benefit calculations depend on whether death occurs before or
after the Death Benefit Target Date.
Annuities with one Owner
The optional Death Benefits are calculated as follows:
If the Owner dies before the Death Benefit Target Date, the Death
Benefit equals the greatest of:
1. the Account Value in the Sub-accounts plus the Interim Value of any Fixed
Allocations (no MVA) as of the date we receive in writing "due proof of
death"; and
2. the sum of all Purchase Payments minus the sum of all Proportional
Reductions, each increasing daily until the Owner's date of death at the
applicable Assumed Accumulation Rate for the option you elect, subject to a
limit of 200% of the difference between the sum of all Purchase Payments
and the sum of all withdrawals as of the Owner's date of death; and
3. the "Highest Anniversary Value" on or immediately preceding the Owner's
date of death.
The amount determined by this calculation is increased by any Purchase
Payments received after the Owner's date of death and decreased by any
Proportional Reductions since such date. The amount calculated in Item 1 &
3 above may be reduced by any Target Value Credits under certain
circumstances.
If the Owner dies on or after the Death Benefit Target Date, the Death
Benefit equals the greater of:
1. the Account Value as of the date we receive in writing "due proof of death"
(an MVA may be applicable to amounts in any Fixed Allocations); and
2. the greater of Item 2 & 3 above on the Death Benefit Target Date plus the
sum of all Purchase Payments less the sum of all Proportional Reductions
since the Death Benefit Target Date.
The amount calculated in Item 1 above may be reduced by any Target
Value Credits under certain circumstances.
Annuities with joint Owners
For Annuities with Joint Owners, the Death Benefit is calculated as shown above
except that the age of the oldest of the Joint Owners is used to determine the
Death Benefit Target Date. NOTE: If you and your spouse own the Annuity jointly,
we will pay the Death Benefit to the Beneficiary. If the sole primary
Beneficiary is the surviving spouse, then the surviving spouse can elect to
assume ownership of the Annuity.
Annuities owned by entities
For Annuities owned by an entity, the Death Benefit is calculated as shown above
except that the age of the Annuitant is used to determine the Death Benefit
Target Date. Payment of the Death Benefit is based on the death of the Annuitant
(or Contingent Annuitant, if applicable).
Examples of Optional Death Benefit Calculation
The following are examples of how the Optional Death Benefits are calculated.
Each example assumes that a $50,000 initial Purchase Payment is made and that no
withdrawals are made prior to the Owner's death. Each example assumes that there
is one Owner who is age 50 on the Issue Date and that all Account Value is
maintained in the variable investment options.
Example of market increase greater than Assumed Accumulation Rate
Assume that the Owner's Account Value has generally been increasing. On the date
we receive due proof of death (the Owner's 58th birthday), the Account Value is
$90,000. The Highest Anniversary Value at the end of any previous period is
$72,000. The Death Benefit would be the Account Value ($90,000) because it is
greater than the Highest Anniversary Value ($72,000) or the sum of prior
Purchase Payments increased by 5.0% annually ($73,872.77 - Option 1) or 7.2%
annually for ($87,202.36 - Option 2).
Example of market decrease
Assume that the Owner's Account Value generally increased until the fifth
anniversary but generally has been decreasing since the fifth contract
anniversary. On the date we receive due proof of death (the Owner's 58th
birthday), the Account Value is $48,000. The Highest Anniversary Value at the
end of any previous period is $54,000. The Death Benefit would be the sum of
prior Purchase Payments increased by 5.0% annually ($73872.77 - Option 1) or
7.2% annually for ($87202.36 - Option 2) because it is greater than the Highest
Anniversary Value ($54,000) or the Account Value ($48,000).
Example of Highest Anniversary Value
Assume that the Owner's Account Value increased significantly during the first
six years following the Issue Date. On the sixth anniversary date the Account
Value was $90,000. During the seventh Annuity Year, the Account Value increases
to as high as $100,000 but then subsequently falls to $80,000 on the date we
receive due proof of death (the Owner's 58th birthday). The Death Benefit would
be the Highest Anniversary Value at the end of any previous period ($90,000),
which occurred on the sixth anniversary, although the Account Value was higher
during the subsequent period. The Account Value on the date we receive due proof
of death ($80,000) is lower, as is the sum of all prior Purchase Payments
increased by 5.0% annually ($73,872.77 - Option 1)
or 7.2% annually for ($87,202.36 - Option 2).
How much do you charge for the optional death benefits?
We deduct a charge from your Account Value if you elect to purchase either
Optional Death Benefit. For Option 1, each deduction is 0.35% of the then
current Death Benefit when the deduction is taken. For Option 2, each deduction
is 0.55% of the then current Death Benefit when the deduction is taken. No
charge applies after the Annuity Date.
We deduct the charge:
1. on each anniversary of the Issue Date;
2. when Account Value is transferred to our general account prior to the
Annuity Date;
3. if you surrender your Annuity; and
4. if you choose to terminate the benefit.
If you surrender the Annuity, elect to begin receiving Annuity payments or
terminate the benefit on a date other than an anniversary of the Issue Date, the
charge will be prorated. During the first year after the Issue Date, the charge
would be prorated from the Issue Date. In all subsequent years, it would be
prorated from the last anniversary of the Issue Date.
We first deduct the amount of the charge pro-rata from the Account Value in the
variable investment options. We only deduct the charge pro-rata from the Fixed
Allocations to the extent there is insufficient Account Value in the variable
investment options to pay the charge. If your Annuity's Account Value is
insufficient to pay the charge, we may deduct your remaining Account Value and
terminate your Annuity. We will notify you if your Account Value is insufficient
to pay the charge and allow you to submit an additional Purchase Payment to
continue your Annuity.
Are there any exceptions to these rules for paying the Death Benefit?
Yes, there are exceptions that apply no matter how your Death Benefit is
calculated. There are exceptions to the Death Benefit if the decedent was not
the Owner or Annuitant as of the Issue Date and did not become the Owner or
Annuitant due to the prior Owner's or Annuitant's death. Any minimum Death
Benefit that applies will be suspended for a two-year period from the date he or
she first became Owner or Annuitant. After the two-year suspension period is
completed, the Death Benefit is the same as if this person had been an Owner or
Annuitant on the Issue Date.
What options are available to my Beneficiary upon my death?
|X| During the accumulation period, if you die and the sole Beneficiary is your
spouse, then your spouse may elect to be treated as the current Owner. The
Annuity can be continued, subject to its terms and conditions, in lieu of
receiving the death benefit. Your spouse may only assume ownership of the
Annuity if he or she is designated as the sole primary Beneficiary.
|X| In the event of your death, the death benefit must be distributed within:
(a) five years of the date of death; or
(b) over a period not extending beyond the life expectancy of the
Beneficiary or over the life of the Beneficiary. Payments under this
option must begin within one year of the date of death.
When do you determine the Death Benefit?
We determine the amount of the death benefit as of the date we receive "due
proof of death" and any other written representations we require to determine
the proper payment of the Death Benefit to all Beneficiaries. "Due proof of
death" may include a certified copy of a death certificate, a certified copy of
a decree of a court of competent jurisdiction as to the finding of death or
other satisfactory proof of death.
We will require written acknowledgment of all named Beneficiaries before we can
determine the Death Benefit. During the period from the date of death until we
receive all required paper work, the amount of the Death Benefit may be subject
to market fluctuations.
VALUING YOUR INVESTMENT
HOW IS MY ACCOUNT VALUE DETERMINED?
During the accumulation period, the Annuity has an Account Value. The Account
Value is determined separately for each Sub-account allocation and for each
Fixed Allocation. The Account Value is the sum of the values of each Sub-account
allocation and the value of each Fixed Allocation. The Account Value does not
reflect any CDSC that may apply to a withdrawal or surrender. The Account Value
includes any additional amounts we applied to your Purchase Payments that we are
entitled to recover upon surrender of your Annuity. When determining the Account
Value on a day other than a Fixed Allocation's Maturity Date, the Account Value
may include any Market Value Adjustment that would apply to a Fixed Allocation
(if withdrawn or transferred) on that day.
WHAT IS THE SURRENDER VALUE OF MY ANNUITY?
The Surrender Value of your Annuity is the value available to you on any day
during the accumulation period. The Surrender Value is equal to your Account
Value minus any CDSC, the Annual Maintenance Fee and any additional amounts we
applied to your Purchase Payments that we are entitled to recover upon surrender
of your Annuity. The Surrender Value will also include any Market Value
Adjustment that may apply.
HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS?
When you allocate Account Value to a Sub-Account, you are purchasing units of
the Sub-account. Each Sub-account invests exclusively in shares of an underlying
Portfolio. The value of the Units fluctuate with the market fluctuations of the
Portfolios. The value of the Units also reflect the daily accrual for the
Insurance Charge.
Each Valuation Day, we determine the price for a Unit of each Sub-account,
called the "Unit Price." The Unit Price is used for determining the value of
transactions involving Units of the Sub-accounts. We determine the number of
Units involved in any transaction by dividing the dollar value of the
transaction by the Unit Price of the Sub-account as of the Valuation Day.
Example
Assume you allocate $5,000 to a Sub-account. On the Valuation Day you make the
allocation, the Unit Price is $14.83. Your $5,000 buys 337.154 Units of the
Sub-account. Assume that later, you wish to transfer $3,000 of your Account
Value out of that Sub-account and into another Sub-account. On the Valuation Day
you request the transfer, the Unit Price of the original Sub-account has
increased to $16.79. To transfer $3,000, we sell 178.677 Units at the current
Unit Price, leaving you 158.477 Units. We then buy $3,000 of Units of the new
Sub-account at the Unit Price of $17.83. You would then have 168.255 Units of
the new Sub-account.
HOW DO YOU VALUE FIXED ALLOCATIONS?
During the Guarantee Period, we use the concept of an Interim Value. The Interim
Value can be calculated on any day and is equal to the initial value allocated
to a Fixed Allocation plus all interest credited to a Fixed Allocation as of the
date calculated. The Interim Value does not include the impact of any Market
Value Adjustment. If you made any transfers or withdrawals from a Fixed
Allocation, the Interim Value will reflect the withdrawal of those amounts and
any interest credited to those amounts before they were withdrawn. To determine
the Account Value of a Fixed Allocation on any day other than its Maturity Date,
we multiply the Account Value of the Fixed Allocation times the Market Value
Adjustment factor.
WHEN DO YOU PROCESS AND VALUE TRANSACTIONS?
Initial Purchase Payments: We are required to allocate your initial Purchase
Payment to the Sub-accounts within two (2) days after we receive all of our
requirements to issue the Annuity. If we do not have all the required
information to allow us to issue your Annuity, we may retain the Purchase
Payment while we try to reach you or your representative to obtain all of our
requirements. If we are unable to obtain all of our required information within
five (5) days, we are required to return the Purchase Payment to you at that
time, unless you specifically consent to our retaining the Purchase Payment
while we gather the required information. Once we obtain the required
information, we will invest the Purchase Payment and issue the Annuity within
two (2) days. During any period that we are trying to obtain the required
information, your money is not invested.
Additional Purchase Payments: We will apply any additional Purchase Payments on
the Valuation Day that we receive the Purchase Payment with satisfactory
instructions.
Scheduled Transactions: "Scheduled" transactions include transfers under a
Dollar Cost Averaging, rebalancing, or asset allocation program, Systematic
Withdrawals, Minimum Distributions or Annuity payments. Scheduled transactions
are processed and valued as of the date they are scheduled, unless the scheduled
day is not a Valuation Day. In that case, the transaction will be processed and
valued on Valuation Day prior to the scheduled transaction date.
Unscheduled Transactions: "Unscheduled" transactions include any other
non-scheduled transfers and requests for Partial Withdrawals or Free Withdrawals
or Surrenders. Unscheduled transactions are processed and valued as of the
Valuation Day we receive the request at our Office in good order.
Medically-related Surrenders & Death Benefits: Medically-related surrender
requests and Death Benefit claims require our review and evaluation before
processing. We price such transactions as of the date we receive at our Office
all materials we require for such transaction and that are satisfactory to us.
TAX CONSIDERATIONS
WHAT ARE SOME OF THE FEDERAL TAX CONSIDERATIONS OF THIS ANNUITY?
Following is a brief summary of some of the Federal tax considerations relating
to this Annuity. However, since the tax laws are complex and tax consequences
are affected by your individual circumstances, this summary of our
interpretation of the relevant tax laws is not intended to be fully
comprehensive nor is it intended as tax advice. Therefore, you may wish to
consult a professional tax advisor for tax advice as to your particular
situation.
HOW ARE AMERICAN SKANDIA AND THE SEPARATE ACCOUNTS TAXED?
The Separate Accounts are taxed as part of American Skandia. American Skandia is
taxed as a life insurance company under Part I, subchapter L of the Code. No
taxes are due on interest, dividends and short-term or long-term capital gains
earned by the Separate Accounts with respect to the Annuities.
IN GENERAL, HOW ARE ANNUITIES TAXED?
Section 72 of the Code governs the taxation of annuities in general. Taxation of
the Annuity will depend in large part on:
1. whether the Annuity is used by:
|X| a qualified pension plan, profit sharing plan or other retirement
arrangement that is eligible for special treatment under the Code (for
purposes of this discussion, a "Qualified Contract"); OR
|X| an individual or a corporation, trust or partnership (a "Non-qualified
Contract"); and
2. whether the Owner is:
|X| an individual person or persons; or
|X| an entity including a corporation, trust or partnership.
Individual Ownership: If one or more individuals own an Annuity, the Owner of
the Annuity is generally not taxed on any increase in the value of the Annuity
until an amount is received (a "distribution"). This is commonly referred to as
"tax deferral". A distribution can be in the form of a lump sum payment
including payment of a Death Benefit, or in annuity payments under one of the
annuity payment options. Certain other transactions may qualify as a
distribution and be subject to taxation.
Entity Ownership: If the Annuity is owned by an entity and is not a Qualified
Contract, generally the Owner of the Annuity must currently include any increase
in the value of the Annuity during a tax year in its gross income. An exception
from current taxation applies for annuities held by a structured settlement
company, by an employer with respect to a terminated tax-qualified retirement
plan, a trust holding an annuity as an agent for a natural person, or by a
decedent's estate by reason of the death of the decedent. A tax-exempt entity
for Federal tax purposes will not be subject to income tax as a result of this
provision.
HOW ARE DISTRIBUTIONS TAXED?
Distributions from an Annuity are taxed as ordinary income and not as capital
gains.
Distributions Before Annuitization: Distributions received before annuity
payments begin are generally treated as coming first from "income on the
contract" and then as a return of the "investment in the contract". The amount
of any distribution that is treated as receipt of "income on the contract" is
includible in the taxpayer's gross income and taxable in the year it is
received. The amount of any distribution treated as a return of the "investment
in the contract" is not includible in gross income.
|X| "Income on the contract" is calculated by subtracting the taxpayer's
"investment in the contract" from the aggregate value of all "related
contracts" (discussed below).
|X| "Investment in the contract" is equal to total purchase payments for all
"related contracts" minus any previous distributions or portions of such
distributions from such "related contracts" that were not includible in
gross income. "Investment in the contract" may be affected by whether an
annuity or any "related contract" was purchased as part of a tax-free
exchange of life insurance or annuity contracts under Section 1035 of the
Code. Unless "after-tax" or non-deductible contributions have been made to
a Qualified Contract, the "investment in the contract" for a Qualified
Contract will be considered zero for tax reporting purposes.
Distributions After Annuitization: A portion of each annuity payment received on
or after the Annuity Date will generally be taxable. The taxable portion of each
annuity payment is determined by a formula which establishes the ratio that the
"investment in the contract" bears to the total value of annuity payments to be
made. This is called the "exclusion ratio." The investment in the contract is
excluded from gross income. Any additional payments received that exceed the
exclusion ratio will be entirely includible in gross income. The formula for
determining the exclusion ratio differs between fixed and variable annuity
payments. When annuity payments cease because of the death of the person upon
whose life payments are based and, as of the date of death, the amount of
annuity payments excluded from taxable income by the exclusion ratio does not
exceed the "investment in the contract," then the remaining portion of
unrecovered investment is allowed as a deduction in the tax year of such death.
Penalty Tax on Distributions: Generally, any distribution from an annuity not
used in conjunction with a Qualified Contract (Qualified Contracts are discussed
below) is subject to a penalty equal to 10% of the amount includible in gross
income. This penalty does not apply to certain distributions, including:
|X| Distributions made on or after the taxpayer has attained age 59 1/2;
|X| Distributions made on or after the death of the contract owner, or, if the
owner is an entity, the death of the annuitant,;
|X| Distributions attributable to the taxpayer's becoming disabled;
|X| Distributions which are part of a series of substantially equal periodic
payments for the life (or life expectancy) of the taxpayer (or the joint
lives of the taxpayer and the taxpayer's Beneficiary);
|X| Distributions of amounts which are treated as "investments in the contract"
made prior to August 14, 1982;
|X| Payments under an immediate annuity as defined in the Code;
|X| Distributions under a qualified funding asset under Code Section 130(d); or
|X| Distributions from an annuity purchased by an employer on the termination
of a qualified pension plan that is held by the employer until the employee
separates from service.
Special rules applicable to "related contracts": Contracts issued by the same
insurer to the same contract owner within the same calendar year (other than
certain contracts owned in connection with a tax-qualified retirement
arrangement) are to be treated as one annuity contract when determining the
taxation of distributions before annuitization. We refer to these contracts as
"related contracts." In situations involving related contracts we believe that
the values under such contracts and the investment in the contracts will be
added together to determine the proper taxation of a distribution from any one
contract described under the section "Distributions before Annuitization."
Distributions will be treated as coming first from income on the contract until
all of the income on all such related contracts is withdrawn, and then as a
return of the investment in the contract. There is some uncertainty regarding
the manner in which the Internal Revenue Service would view related contracts
when one or more contracts are immediate annuities or are contracts that have
been annuitized. The Internal Revenue Service has not issued guidance clarifying
this issue as of the date of this Prospectus. You are particularly cautioned to
seek advice from your own tax advisor on this matter.
Special concerns regarding "substantially equal periodic payments": (also known
as "72(t) distributions") Any modification to a program of distributions which
are part of a series of substantially equal periodic payments that occur before
the later of the taxpayer reaching age 59 1/2 or 5 years from the first of such
payments will result in the requirement to pay the taxes that would have been
due had the payments been treated as subject to tax in the years received, plus
interest. This does not apply when the modification is due by reason of death or
disability. It is our understanding that the Internal Revenue Service may not
consider a scheduled series of distributions to qualify under Sections 72(q) or
72(t) if the holder of the annuity retains the right to modify such
distributions at will, even if such right is not exercised, or, for a variable
annuity, depending on how payments are structured.
Special concerns regarding immediate annuities: The Internal Revenue Service has
ruled that the exception to the 10% penalty described above for "non-qualified"
immediate annuities as defined under the Code may not apply to annuity payments
under a contract recognized as an immediate annuity under state insurance law
obtained pursuant to an exchange of a contract if: (a) purchase payments for the
exchanged contract were contributed or deemed to be contributed more than one
year prior to the first annuity payment payable under the immediate annuity; and
(b) the annuity payments under the immediate annuity do not meet the
requirements of any other exception to the 10% penalty. It is unclear whether
the exception to the 10% penalty applies to annuity payments where the purchase
payment originates from a deferred annuity contract established as a result of
an exchange if: (a) purchase payments for the exchanged contract were
contributed or are deemed to be contributed more than one year prior to the
first annuity payment pursuant to the deferred annuity contract; or (b) the
annuity payments pursuant to the deferred annuity do not meet the requirements
of any other exception to the 10% penalty.
Special rules in relation to tax-free exchanges under Section 1035: Section 1035
of the Code permits certain tax-free exchanges of a life insurance, annuity or
endowment contract for an annuity. If an annuity is purchased through a tax-free
exchange of a life insurance, annuity or endowment contract that was purchased
prior to August 14, 1982, then any distributions other than as annuity payments
will be considered to come:
|X| First, from the amount of "investment in the contract" made prior to August
14, 1982 and exchanged into the annuity;
|X| Then, from any "income on the contract" that is attributable to the
purchase payments made prior to August 14, 1982 (including income on such
original purchase payments after the exchange);
|X| Then, from any remaining "income on the contract"; and
|X| Lastly, from the remaining "investment in the contract."
Therefore, to the extent a distribution is equal to or less than the investment
in the contract made prior to August 14, 1982, such amounts are not included in
taxable income. Further, distributions received that are considered to be a
return of investment on the contract from purchase payments made prior to August
14, 1982, such distributions are not subject to the 10% tax penalty. In all
other respects, the general provisions of the Code apply to distributions from
annuities obtained as part of such an exchange.
WHAT TAX CONSIDERATIONS ARE THERE FOR TAX-QUALIFIED RETIREMENT PLANS OR
QUALIFIED CONTRACTS?
An annuity may be suitable as a funding vehicle for various types of
tax-qualified retirement plans. We have provided summaries of the types of
tax-qualified retirement plans with which we may issue an Annuity. These
summaries provide general information about the tax rules and are not intended
to be complete discussions. The tax rules regarding qualified plans are complex.
These rules may include limitations on contributions and restrictions on
distributions, including additional taxation of distributions and additional
penalties. The terms and conditions of the tax-qualified retirement plan may
impose other limitations and restrictions that are in addition to the terms of
the Annuity. The application of these rules depends on individual facts and
circumstances. Before purchasing an Annuity for use in a qualified plan, you
should obtain competent tax advice, both as to the tax treatment and suitability
of such an investment. American Skandia does not offer all of its annuities to
all of these types of tax-qualified retirement plans.
Corporate Pension and Profit-sharing Plans: Annuities may be used to fund
employee benefits of various corporate pension and profit-sharing plans
established by corporate employers under Sections 401(a) and 401(k) of the Code.
Contributions to such plans are not taxable to the employee until distributions
are made from the retirement plan. The Code imposes limitations on the amount
that may be contributed and the timing of distributions. The tax treatment of
distributions is subject to special provisions of the Code, and also depends on
the design of the specific retirement plan. There are also special requirements
as to participation, nondiscrimination, vesting and nonforfeitability of
interests.
H.R. 10 Plans: Annuities may also be used to fund benefits of retirement plans
established by self-employed individuals for themselves and their employees.
These are commonly known as "H.R. 10 Plans" or "Keogh Plans". These plans are
subject to most of the same types of limitations and requirements as retirement
plans established by corporations. However, the exact limitations and
requirements may differ from those for corporate plans.
Tax Sheltered Annuities: Under Section 403(b) of the Code a tax sheltered
annuity ("TSA") is a contract into which contributions may be made by certain
qualifying employers such as public schools and certain charitable, educational
and scientific organizations specified in Section 501(c)(3) for the benefit of
their employees. Such contributions are not taxable to the employee until
distributions are made from the TSA. The Code imposes limits on contributions,
transfers and distributions. Nondiscrimination requirements also apply.
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Under a TSA, you may be prohibited from taking distributions from the contract
attributable to contributions made pursuant to a salary reduction agreement
unless the distribution is made:
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|X| After the participating employee attains age 59 1/2;
|X| Upon separation from service, death or disability; or
|X| In the case of financial hardship (subject to restrictions).
Section 457 Plans: Under Section 457 of the Code, deferred compensation plans
established by governmental and certain other tax exempt employers for their
employees may invest in annuity contracts. The Code limits contributions and
distributions, and imposes eligibility requirements as well. Contributions are
not taxable to employees until distributed from the plan. However, plan assets
remain the property of the employer and are subject to the claims of the
employer's general creditors until such assets are made available to
participants or their beneficiaries.
Individual Retirement Programs or "IRAs": Section 408 of the Code allows
eligible individuals to maintain an individual retirement account or individual
retirement annuity ("IRA"). IRAs are subject to limitations on the amount that
may be contributed, the contributions that may be deducted from taxable income,
the persons who may be eligible to establish an IRA and the time when
distributions must commence. Further, an Annuity may be used to "roll-over"
distributions from certain tax-qualified retirement plans and maintain their
tax-deferral.
Roth IRAs: A form of IRA is also available called a "Roth IRA". Contributions to
a Roth IRA are not tax deductible. However, distributions from a Roth IRA are
free from Federal income taxes and are not subject to the 10% penalty tax if
five (5) tax years have passed since the first contribution was made or any
conversion from a traditional IRA was made and the distribution is made (a) once
the taxpayer is age 59 1/2 or older, (b) upon the death or disability of the
taxpayer, or (c) for qualified first-time home buyer expenses, subject to
certain limitations. Distributions from a Roth IRA that are not "qualified" as
described above may be subject to Federal income and penalty taxes.
Purchasers of IRAs and Roth IRAs will receive a special disclosure document,
which describes limitations on eligibility, contributions, transferability and
distributions. It also describes the conditions under which distributions from
IRAs and qualified plans may be rolled over or transferred into an IRA on a
tax-deferred basis and the conditions under which distributions from traditional
IRAs may be rolled over to, or the traditional IRA itself may be converted into,
a Roth IRA.
SEP IRAs: Eligible employers that meet specified criteria may establish
Simplified Employee Pensions or SEP IRAs. Employer contributions that may be
made to employee SEP IRAs are larger than the amounts that may be contributed to
other IRAs, and may be deductible to the employer.
HOW ARE DISTRIBUTIONS FROM QUALIFIED CONTRACTS TAXED?
Distributions from Qualified Contracts are generally taxed under Section 72 of
the Code. Under these rules, a portion of each distribution may be excludable
from income. The excludable amount is the proportion of a distribution
representing any investment gain on the after-tax contributions. Generally, a
10% penalty tax applies to the taxable portion of a distribution from a
Qualified Contract made prior to age 59 1/2. However, the 10% penalty tax does
not apply when the distribution: |X| is part of a properly executed transfer to
another IRA or another eligible qualified account; |X| is subsequent to the
death or disability of the taxpayer (for this purpose disability is as defined
in Section 72(m)(7)
of the Code);
|X| is part of a series of substantially equal periodic payments to be paid not
less frequently than annually for the taxpayer's life or life expectancy or
for the joint lives or life expectancies of the taxpayer and a designated
beneficiary;
|X| is subsequent to a separation from service after the taxpayer attains age
55*;
|X| does not exceed the employee's allowable deduction in that tax year for
medical care*; and
|X| is made to an alternate payee pursuant to a qualified domestic relations
order*.
The exceptions above which are followed by an asterisk (*) do not apply to IRAs.
Minimum Distributions after age 70 1/2: A participant's interest in a Qualified
Contract must generally be distributed, or begin to be distributed, by the
"required beginning date". This is April 1st of the calendar year following the
later of:
|X| the calendar year in which the individual attains age 70 1/2; or
|X| the calendar year in which the individual retires from service with the
employer sponsoring the plan. The retirement option is not available to
IRAs.
The participant's entire interest must be distributed beginning no later than
the required beginning date over a period which may not extend beyond a maximum
of the life expectancy of the participant or the life expectancies of the owner
and a designated Beneficiary. Each annual distribution must equal or exceed a
"minimum distribution amount" which is determined by dividing the account value
by the applicable life expectancy. The account balance is generally based upon
the Account Value as of the close of business on the last day of the previous
calendar year. A larger annual distribution may be required under certain
circumstances.
If the participant dies before reaching his or her "required beginning date",
his or her entire interest must generally be distributed within five years of
death. However, this rule will be deemed satisfied if distributions begin before
the close of the calendar year following death to a designated Beneficiary (or
over a period not extending beyond the life expectancy of the beneficiary). If
the Beneficiary is the individual's surviving spouse, distributions may be
delayed until the deceased owner would have attained age 70 1/2. A surviving
spouse would also have the option to assume the IRA as his or her own if he or
she is the sole designated beneficiary. If a participant dies after reaching his
or her required beginning date or after distributions have commenced, the
individual's interest must generally be distributed at least as rapidly as under
the method of distribution in effect at the time of the individual's death.
If the amount distributed is less than the minimum required distribution for the
year, the participant is subject to a 50% tax on the amount that was not
properly distributed.
GENERAL TAX CONSIDERATIONS
Diversification: Section 817(h) of the Code provides that a variable annuity
contract, in order to qualify as an annuity, must have an "adequately
diversified" segregated asset account (including investments in a mutual fund by
the segregated asset account of insurance companies). If the diversification
requirements under the Code are not met and the annuity is not treated as an
annuity, the taxpayer will be subject to income tax on the annual gain in the
contract. The Treasury Department's regulations prescribe the diversification
requirements for variable annuity contracts. We believe the underlying mutual
fund portfolios should comply with the terms of these regulations.
Transfers Between Investment Options: Transfers between investment options are
not subject to taxation. The Treasury Department may promulgate guidelines under
which a variable annuity will not be treated as an annuity for tax purposes if
persons with ownership rights have excessive control over the investments
underlying such variable annuity. Such guidelines may or may not address the
number of investment options or the number of transfers between investment
options offered under a variable annuity. It is not known whether such
guidelines, if in fact promulgated, would have retroactive effect. It is also
not known what effect, if any, such guidelines may have on transfers between the
investment options of the Annuity offered pursuant to this Prospectus. We will
take any action, including modifications to your Annuity or the Sub-accounts,
required to comply with such guidelines if promulgated.
Federal Income Tax Withholding: Section 3405 of the Code provides for Federal
income tax withholding on the portion of a distribution which is includible in
the gross income of the recipient. Amounts to be withheld depend upon the nature
of the distribution. However, under most circumstances a recipient may elect not
to have income taxes withheld or have income taxes withheld at a different rate
by filing a completed election form with us.
Certain distributions, including rollovers, from most Qualified Contracts, may
be subject to automatic 20% withholding for Federal income taxes. This will not
apply to:
|X| any portion of a distribution paid as Minimum Distributions;
|X| direct transfers to the trustee of another retirement plan;
|X| distributions from an individual retirement account or individual
retirement annuity;
|X| distributions made as substantially equal periodic payments for the life or
life expectancy of the participant in the retirement plan or the life or
life expectancy of such participant and his or her designated beneficiary
under such plan; and
|X| certain other distributions where automatic 20% withholding may not apply.
Loans, Assignments and Pledges: Any amount received directly or indirectly as a
loan from, or any assignment or pledge of any portion of the value of, an
annuity before annuity payments have begun are treated as a distribution subject
to taxation under the distribution rules set forth above. Any gain in an annuity
on or after the assignment or pledge of an entire annuity and while such
assignment or pledge remains in effect is treated as "income on the contract" in
the year in which it is earned. For annuities not issued for as Qualified
Contracts, the cost basis of the annuity is increased by the amount of any
assignment or pledge includible in gross income. The cost basis is not affected
by any repayment of any loan for which the annuity is collateral or by payment
of any interest thereon.
Gifts: The gift of an annuity to someone other than the spouse of the owner (or
former spouse incident to a divorce) is treated, for income tax purposes, as a
distribution.
Estate and Gift Tax Considerations: You should obtain competent tax advice with
respect to possible federal and state estate and gift tax consequences flowing
from the ownership and transfer of annuities.
Generation-Skipping Transfers: Under the Code certain taxes may be due when all
or part of an annuity is transferred to, or a death benefit is paid to, an
individual two or more generations younger than the contract holder. These
generation-skipping transfers generally include those subject to federal estate
or gift tax rules. There is an aggregate $1 million exemption from taxes for all
such transfers. We may be required to determine whether a transaction is a
direct skip as defined in the Code and the amount of the resulting tax. We will
deduct from your Annuity or from any applicable payment treated as a direct skip
any amount of tax we are required to pay.
Considerations for Contingent Annuitants: There may be adverse tax consequences
if a contingent annuitant succeeds an annuitant when the Annuity is owned by a
trust that is neither tax exempt nor qualifies for preferred treatment under
certain sections of the Code. In general, the Code is designed to prevent
indefinite deferral of tax. Continuing the benefit of tax deferral by naming one
or more contingent annuitants when the Annuity is owned by a non-qualified trust
might be deemed an attempt to extend the tax deferral for an indefinite period.
Therefore, adverse tax treatment may depend on the terms of the trust, who is
named as contingent annuitant, as well as the particular facts and
circumstances. You should consult your tax advisor before naming a contingent
annuitant if you expect to use an Annuity in such a fashion.
GENERAL INFORMATION
HOW WILL I RECEIVE STATEMENTS AND REPORTS?
We send any statements and reports required by applicable law or regulation to
you at your last known address of record. You should therefore give us prompt
notice of any address change. We reserve the right, to the extent permitted by
law and subject to your prior consent, to provide any prospectus, prospectus
supplements, confirmations, statements and reports required by applicable law or
regulation to you through our Internet Website at http://www.americanskandia.com
or any other electronic means, including diskettes or CD ROMs. We send a
confirmation statement to you each time a transaction is made affecting Account
Value, such as making additional Purchase Payments, transfers, exchanges or
withdrawals. We also send quarterly statements detailing the activity affecting
your Annuity during the calendar quarter. You may request additional reports. We
reserve the right to charge up to $50 for each such additional report. Instead
of immediately confirming transactions made pursuant to some type of periodic
transfer program (such as a dollar cost averaging program) or a periodic
Purchase Payment program, such as a salary reduction arrangement, we may confirm
such transactions in quarterly statements. You should review the information in
these statements carefully.
All errors or corrections must be reported to us at our Office as soon as
possible to assure proper accounting to your Annuity. For transactions that are
confirmed immediately, we assume all transactions are accurate unless you notify
us otherwise within 10 days from the date you receive the confirmation. For
transactions that are only confirmed on the quarterly statement, we assume all
transactions are accurate unless you notify us within 10 days from the date you
receive the quarterly statement. All transactions confirmed immediately or by
quarterly statement are deemed conclusive after the applicable 10-day period. We
may also send an annual report and a semi-annual report containing applicable
financial statements, as of December 31 and June 30, respectively, to Owners or,
with your prior consent, make such documents available electronically through
our Internet Website or other electronic means.
WHO IS AMERICAN SKANDIA?
American Skandia Life Assurance Corporation ("American Skandia") is a stock life
insurance company domiciled in Connecticut with licenses in all 50 states and
the District of Columbia. American Skandia is a wholly-owned subsidiary of
American Skandia Investment Holding Corporation (the "Parent"), whose ultimate
parent is Skandia Insurance Company Ltd., a Swedish company. American Skandia
markets its products to broker-dealers and financial planners through an
internal field marketing staff. In addition, American Skandia markets through
and in conjunction with financial institutions such as banks that are permitted
directly, or through affiliates, to sell annuities.
American Skandia is in the business of issuing variable annuity and variable
life insurance contracts. American Skandia currently offers the following
products: (a) flexible premium deferred annuities and single premium fixed
deferred annuities that are registered with the SEC; (b) certain other fixed
deferred annuities that are not registered with the SEC; (c) certain group
variable annuities that are exempt from registration with the SEC that serve as
funding vehicles for various types of qualified pension and profit sharing
plans; (d) a single premium variable life insurance policy that is registered
with the SEC; and (e) a flexible premium life insurance policy that is
registered with the SEC.
WHAT ARE SEPARATE ACCOUNTS?
The assets supporting our obligations under the Annuities may be held in various
accounts, depending on the obligation being supported. In the accumulation
phase, assets supporting Account Values are held in separate accounts
established under the laws of the State of Connecticut. We are the legal owner
of assets in the separate accounts. In the payout phase, assets supporting fixed
annuity payments and any adjustable annuity payments we make available are held
in our general account. Income, gains and losses from assets allocated to these
separate accounts are credited to or charged against each such separate account
without regard to other income, gains or losses of American Skandia or of any
other of our separate accounts. These assets may only be charged with
liabilities which arise from the annuity contracts issued by American Skandia
Life Assurance Corporation. The amount of our obligation in relation to
allocations to the Sub-accounts is based on the investment performance of such
Sub-accounts. However, the obligations themselves are our general corporate
obligations.
Separate Account B
During the accumulation phase, the assets supporting obligations based on
allocations to the variable investment options are held in Class 3 Sub-accounts
of American Skandia Life Assurance Corporation Variable Account B, also referred
to as "Separate Account B". Separate Account B consists of multiple
Sub-accounts. The name of each Sub-account generally corresponds to the name of
the underlying Portfolio. The names of each Sub-account are shown in the
Statement of Additional Information. Separate Account B was established by us
pursuant to Connecticut law. Separate Account B also holds assets of other
annuities issued by us with values and benefits that vary according to the
investment performance of Separate Account B. The Sub-accounts offered pursuant
to this Prospectus are all Class 3 Sub-accounts of Separate Account B. Each
class of Sub-accounts in Separate Account B has a different level of charges
assessed against such Sub-accounts. You will find additional information about
these underlying mutual funds and portfolios in the prospectuses for such funds.
Separate Account B is registered with the SEC under the Investment Company Act
of 1940 ("Investment Company Act") as a unit investment trust, which is a type
of investment company. This does not involve any supervision by the SEC of the
investment policies, management or practices of Separate Account B. Each
Sub-account invests only in a single mutual fund or mutual fund portfolio. We
reserve the right to add Sub-accounts, eliminate Sub-accounts, to combine
Sub-accounts, or to substitute underlying mutual funds or portfolios of
underlying mutual funds.
Values and benefits based on allocations to the Sub-accounts will vary with the
investment performance of the underlying mutual funds or fund portfolios, as
applicable. We do not guarantee the investment results of any Sub-account. Your
Account Value allocated to the Sub-accounts may increase or decrease. You bear
the entire investment risk
Separate Account D
During the accumulation phase, assets supporting our obligations based on Fixed
Allocations are held in American Skandia Life Assurance Corporation Separate
Account D, also referred to as Separate Account D. Such obligations are based on
the fixed interest rates we credit to Fixed Allocations and the terms of the
Annuities. These obligations do not depend on the investment performance of the
assets in Separate Account D. Separate Account D was established by us pursuant
to Connecticut law.
There are no units in Separate Account D. The Fixed Allocations are guaranteed
by our general account. An Annuity Owner who allocates a portion of their
Account Value to Separate Account D does not participate in the investment gain
or loss on assets maintained in Separate Account D. Such gain or loss accrues
solely to us. We retain the risk that the value of the assets in Separate
Account D may drop below the reserves and other liabilities we must maintain.
Should the value of the assets in Separate Account D drop below the reserve and
other liabilities we must maintain in relation to the annuities supported by
such assets, we will transfer assets from our general account to Separate
Account D to make up the difference. We have the right to transfer to our
general account any assets of Separate Account D in excess of such reserves and
other liabilities. We maintain assets in Separate Account D supporting a number
of annuities we offer.
We have sole discretion over the investment managers retained to manage the
assets maintained in Separate Account D. We currently employ investment managers
for Separate Account D including, but not limited to, Fleet Investment Advisors,
Inc. Each manager we employ is responsible for investment management of a
different portion of Separate Account D. From time to time additional investment
managers may be employed or investment managers may cease being employed. We are
under no obligation to employ or continue to employ any investment manager(s).
We are not obligated to invest according to specific guidelines or strategies
except as may be required by Connecticut and other state insurance laws.
WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS?
Each underlying mutual fund is registered as an open-end management investment
company under the Investment Company Act. Shares of the underlying mutual fund
portfolios are sold to separate accounts of life insurance companies offering
variable annuity and variable life insurance products. The shares may also be
sold directly to qualified pension and retirement plans.
Voting Rights
We are the legal owner of the shares of the underlying mutual funds in which the
Sub-accounts invest. However, under SEC rules, you have voting rights in
relation to Account Value maintained in the Sub-accounts. If an underlying
mutual fund portfolio requests a vote of shareholders, we will vote our shares
in the manner directed by Participants with Account Value allocated to that
Sub-account. Participants have the right to vote an amount equal to the number
of shares attributable to their contracts. If we do not receive voting
instructions in relation to certain shares, we will vote those shares in the
same manner and proportion as the shares for which we have received
instructions. We will furnish those Participants who have Account Value
allocated to a Sub-account whose underlying mutual fund portfolio has requested
a "proxy" vote with the necessary forms to provide us with their instructions.
Generally, you will be asked to provide instructions for us to vote on matters
such as changes in a fundamental investment strategy, adoption of a new
investment advisory agreement, or matters relating to the structure of the
underlying mutual fund that require a vote of shareholders.
Material Conflicts
It is possible that differences may occur between companies that offer shares of
an underlying mutual fund portfolio to their respective separate accounts
issuing variable annuities and/or variable life insurance products. Differences
may also occur surrounding the offering of an underlying mutual fund portfolio
to variable life insurance policies and variable annuity contracts that we
offer. Under certain circumstances, these differences could be considered
"material conflicts," in which case we would take necessary action to protect
persons with voting rights under our variable annuity contracts and variable
life insurance policies against persons with voting rights under other insurance
companies' variable insurance products. If a "material conflict" were to arise
between owners of variable annuity contracts and variable life insurance
policies issued by us we would take necessary action to treat such persons
equitably in resolving the conflict. "Material conflicts" could arise due to
differences in voting instructions between owners of variable life insurance and
variable annuity contracts of the same or different companies. We monitor any
potential conflicts that may exist.
WHO DISTRIBUTES ANNUITIES OFFERED BY AMERICAN SKANDIA?
American Skandia Marketing, Incorporated ("ASM"), a wholly-owned subsidiary of
American Skandia Investment Holding Corporation, is the distributor and
principal underwriter of the securities offered through this prospectus. ASM
acts as the distributor of a number of annuity and life insurance products we
offer and both American Skandia Trust and American Skandia Advisor Funds, Inc.,
a family of retail mutual funds. ASM's principal business address is One
Corporate Drive, Shelton, Connecticut 06484. ASM is registered as broker-dealer
under the Securities Exchange Act of 1934 ("Exchange Act") and is a member of
the National Association of Securities Dealers, Inc. ("NASD").
The Annuity is offered on a continuous basis. ASM enters into distribution
agreements with independent broker-dealers who are registered under the Exchange
Act and with entities that may offer the Annuity but are exempt from
registration. Applications for the Annuity are solicited by registered
representatives of those firms. Such eligible persons also will be customers of
one or more subsidiaries of Fleet Financial Group, Inc., Fleet Investment
Advisers, 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. Such representatives will also be our appointed
insurance agents under state insurance law. In addition, ASM may offer the
Annuity directly to potential purchasers.
Compensation is paid to firms on sales of the Annuity according to one or more
schedules. The individual representative will receive a portion of the
compensation, depending on the practice of the firm. Compensation is generally
based on a percentage of Purchase Payments made, up to a maximum of 4.5%.
Alternative compensation schedules are available that provide a lower initial
commission plus ongoing annual compensation based on all or a portion of Account
Value. We may also provide compensation for providing ongoing service to you in
relation to the Annuity. Commissions and other compensation paid in relation to
the Annuity do not result in any additional charge to you or to the Separate
Account.
In addition, firms may receive separate compensation or reimbursement for, among
other things, training of sales personnel, marketing or other services they
provide to us or our affiliates. We or ASM may enter into compensation
arrangements with certain firms. These arrangements will not be offered to all
firms and the terms of such arrangements may differ between firms. Any such
compensation will be paid by us or ASM and will not result in any additional
charge to you. To the extent permitted by NASD rules and other applicable laws
and regulations, ASM may pay or allow other promotional incentives or payments
in the form of cash or other compensation.
Advertising: We may advertise certain information regarding the performance of
the investment options. Details on how we calculate performance for the
Sub-accounts are found in the Statement of Additional Information. This
information may help you review the performance of the investment options and
provide a basis for comparison with other annuities. It may be less useful when
comparing the performance of the investment options with other savings or
investment vehicles. Such other investments may not provide some of the benefits
of annuities, or may not be designed for long-term investment purposes.
Additionally other savings or investment vehicles may not be receive the
beneficial tax treatment given to annuities under the Code.
Performance information on the Sub-accounts is based on past performance only
and is not an indication or representation of future performance. Performance of
the Sub-accounts is not fixed. Actual performance will depend on the type,
quality and, for some of the Sub-accounts, the maturities of the investments
held by the underlying mutual funds or portfolios and upon prevailing market
conditions and the response of the underlying mutual funds to such conditions.
Actual performance will also depend on changes in the expenses of the underlying
mutual funds or portfolios. Such changes are reflected, in turn, in the
Sub-accounts which invest in such underlying mutual fund or portfolio. In
addition, the amount of charges assessed against each Sub-account will affect
performance.
Some of the underlying mutual fund portfolios existed prior to the inception of
these Sub-accounts. Performance quoted in advertising regarding such
Sub-accounts may indicate periods during which the Sub-accounts have been in
existence but prior to the initial offering of the Annuities, or periods during
which the underlying mutual fund portfolios have been in existence, but the
Sub-accounts have not. Such hypothetical performance is calculated using the
same assumptions employed in calculating actual performance since inception of
the Sub-accounts.
We may advertise the performance of the underlying mutual fund portfolios in the
form of "Standard" and "Non-Standard" Total Returns. "Standard Total Return"
figures assume that all charges and fees are applicable, including any
contingent deferred sales charge that may apply for the period shown.
"Non-standard Total Return" figures may also be used that do not reflect all
fees and charges. Non-standard Total Returns are calculated in the same manner
as standardized returns except that the calculations may assume no redemption at
the end of the applicable periods, thus these figures may not take into
consideration the Annuity's contingent deferred sales charge. Any performance
advertisements will not reflect the impact of any Target Value Credits.
The information we may advertise regarding the Fixed Allocations may include the
then current interest rates we are crediting to new Fixed Allocations.
Information on current rates will be as of the date specified in such
advertisement. Rates will be included in advertisements to the extent permitted
by law. Given that the actual rates applicable to any Fixed Allocation are as of
the date of any such Fixed Allocation's Guarantee Period begins, the rate
credited to a Fixed Allocation may be more or less than those quoted in an
advertisement.
Advertisements we distribute may also compare the performance of our
Sub-accounts with: (a) certain unmanaged market indices, including but not
limited to the Dow Jones Industrial Average, the Standard & Poor's 500, the
Shearson Lehman Bond Index, the Frank Russell non-U.S. Universal Mean, the
Morgan Stanley Capital International Index of Europe, Asia and Far East Funds,
and the Morgan Stanley Capital International World Index; and/or (b) other
management investment companies with investment objectives similar to the mutual
fund or portfolio underlying the Sub-accounts being compared. This may include
the performance ranking assigned by various publications, including but not
limited to the Wall Street Journal, Forbes, Fortune, Money, Barron's, Business
Week, USA Today and statistical services, including but not limited to Lipper
Analytical Services Mutual Funds Survey, Lipper Annuity and Closed End Survey,
the Variable Annuity Research Data Survey, SEI, the Morningstar Mutual Fund
Sourcebook and the Morningstar Variable Annuity/Life Sourcebook.
American Skandia Life Assurance Corporation may advertise its rankings and/or
ratings by independent financial ratings services. Such rankings may help you in
evaluating our ability to meet our obligations in relation to Fixed Allocations,
pay minimum death benefits, pay annuity payments or administer Annuities. Such
rankings and ratings do not reflect or relate to the performance of Separate
Account B.
AVAILABLE INFORMATION
A Statement of Additional Information is available from us without charge upon
your request. This Prospectus is part of the registration statement we filed
with the SEC regarding this offering. Additional information on us and this
offering is available in those registration statements and the exhibits thereto.
You may obtain copies of these materials at the prescribed rates from the SEC's
Public Reference Section, 450 Fifth Street N.W., Washington, D.C., 20549. You
may inspect and copy those registration statements and exhibits thereto at the
SEC's public reference facilities at the above address, Room 1024, and at the
SEC's Regional Offices, 7 World Trade Center, New York, NY, and the Everett
McKinley Dirksen Building, 219 South Dearborn Street, Chicago, IL. These
documents, as well as documents incorporated by reference, may also be obtained
through the SEC's Internet Website (http://www.sec.gov) for this registration
statement as well as for other registrants that file electronically with the
SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
To the extent and only to the extent that any statement in a document
incorporated by reference into this Prospectus is modified or superseded by a
statement in this Prospectus or in a later-filed document, such statement is
hereby deemed so modified or superseded and not part of this Prospectus. The
Annual Report on Form 10-K for the year ended December 31, 1998 previously filed
by the Company with the SEC under the Exchange Act is incorporated by reference
in this Prospectus.
We will furnish you without charge a copy of any or all of the documents
incorporated by reference in this Prospectus, including any exhibits to such
documents which have been specifically incorporated by reference. We will do so
upon receipt of your written or oral request.
HOW TO CONTACT US You can contact us by:
|X| calling 1-800-444-3970; or
|X| writing to us at American Skandia Life Assurance Corporation, P.O. Box 883,
Shelton, Connecticut 06484-0883, Attention: Galaxy Annuity Customer
Service; or
|X| sending us an email to our electronic mail address at
[email protected]; or |X| accessing information about your
Annuity through our Internet Website at americanskandia.com.
We may require that you present proper identification before performing
transactions over the telephone, email or through our Internet website. This may
include a Personal Identification Number or PIN that will be provided to you on
or about the time that your Annuity is issued. To the extent permitted by law,
we will not be responsible for any claims, loss, liability or expense in
connection with a transaction requested by telephone or other electronic means
if we acted on such transaction instructions after following reasonable
procedures to identify those persons authorized to perform transactions on your
Annuity using verification methods which may include a request for your Social
Security number, PIN or other form of electronic identification. We may be
liable for losses due to unauthorized or fraudulent instructions if we did not
follow such procedures.
INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Securities Act") may be permitted to directors, officers or persons
controlling the registrant pursuant to the foregoing provisions, the registrant
has been informed that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
LEGAL PROCEEDINGS
As of the date of this Prospectus, neither we nor ASM were involved in any
litigation outside of the ordinary course of business, and know of no material
claims.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers, directors and certain significant employees, their ages,
positions with us and principal occupations are indicated below. The immediately
preceding work experience is provided for officers that have not been employed
by us or an affiliate for at least five years as of the date of this Prospectus.
<S> <C> <C> <C>
Name/ Position with American Skandia
Age Life Assurance Corporation Principal Occupation
Robert M. Arena Vice President, Vice President,
30 Director of Product Director of Product Management:
Management American Skandia Life
Assurance Corporation
Mr. Arena joined us in 1995. He previously held an internship position with KPMG
Peat Marwick in 1994 and the position of Group Sales Representative with Paul
Revere Insurance from October, 1990 to August, 1993.
Gordon C. Boronow* President and President and
45 Deputy Chief Executive Officer Deputy Chief Executive Officer:
Director (since July, 1991) American Skandia Life
Assurance Corporation
Nancy F. Brunetti Executive Vice President Executive Vice President,
36 Director (since February, 1996) Chief Logistics Officer:
American Skandia Life
Assurance Corporation
Malcolm M. Campbell Director (since July, 1991) Director of Operations and
42 Chief Actuary, Assurance and
Financial Services Division:
Skandia Insurance Company Ltd.
Jan R. Carendi* Chief Executive Senior Executive Vice President and
53 Officer and Member of Executive Management Group:
Chairman of the Skandia Insurance Company Ltd.
Board of Directors
Director (since May, 1988)
Y.K. Chan Senior Vice President and Senior Vice President and
41 Chief Information Officer Chief Information Officer:
American Skandia Life
Assurance Corporation
Mr. Chan joined us in 1999. He previously held the position of Chief Information
Officer with E.M. Warburg Pincus from January 1995 until April 1999 and the
position of Vice President, Client Server Application Development from January
1991 until January 1995.
Lincoln R. Collins Executive Vice President Executive Vice President,
37 Director (since February, 1996) Chief Operating Officer
American Skandia Life
Assurance Corporation
Henrik Danckwardt Director (since July, 1991) Director of Finance
44 and Administration,
Assurance and Financial
Services Division:
Skandia Insurance Company Ltd.
Wade A. Dokken Director (since July, 1991) President and Deputy
38 Chief Executive Officer:
American Skandia Marketing, Incorporated
Larisa Gromyko Director of Compliance Director of Compliance:
52 American Skandia Life
Assurance Corporation
Teresa Grove Vice President, Vice President,
44 Service Operations Service Operations:
American Skandia Information
Services and Technology Corporation
Ms. Grove joined us in 1996. She previously held the position of Account
Services Manager with Twentieth Century from January, 1992 until September,
1996.
Brian L. Hirst Vice President, Vice President,
50 Corporate Actuary Corporate Actuary:
American Skandia Life
Assurance Corporation
Mr. Hirst joined us in 1996. He previously held the positions of Vice President
from 1993 to 1996 and Second Vice President from 1987 to 1992 at Allmerica
Financial.
N. David Kuperstock Vice President, Vice President,
46 Product Development Product Development:
American Skandia Life
Assurance Corporation
Thomas M. Mazzaferro Executive Vice President and Executive Vice President and
45 Chief Financial Officer, Chief Financial Officer:
Director (since September, 1994) American Skandia Life
Assurance Corporation
Gunnar J. Moberg Director (since October, 1994) Director - Marketing and Sales,
43 Assurances and Financial
Services Division:
Skandia Insurance Company Ltd.
David R. Monroe Senior Vice President, Senior Vice President,
36 Treasurer and Treasurer and
Corporate Controller Corporate Controller:
American Skandia Life
Assurance Corporation
Mr. Monroe joined us in 1996. He previously held positions of Assistant Vice
President and Director at Allmerica Financial from August, 1994 to July, 1996
and Senior Manager at KPMG Peat Marwick from July, 1983 to July, 1994.
Polly Rae Vice President Vice President,
36 Key Account Operations Key Account Operations:
American Skandia Life
Assurance Corporation
Rodney D. Runestad Vice President Vice President:
48 American Skandia Life
Assurance Corporation
Anders O. Soderstrom Executive Vice President Executive Vice President:
38 Director (since September, 1994) American Skandia Life
Assurance Corporation
William H. Strong Vice President, Vice President,
55 Product Innovation Product Innovation
American Skandia Life
Assurance Corporation
Mr. Strong joined us in 1997. He previously held the position of Vice President
with American Financial Systems from June 1994 to October 1997 and the position
of Actuary with Connecticut Mutual Life from June 1965 to June 1994.
Amanda C. Sutyak Executive Vice President Vice President:
40 Director (since July, 1991) American Skandia
Marketing, Incorporated
C. Ake Svensson Director (since December, 1994) Vice President,
47 Business Development:
American Skandia Investment
Holding Corporation
Mr. Svensson joined us in 1994. He previously held the position of Senior Vice
President with Nordenbanken.
Mary Toumpas Director of Advertising Compliance Vice President and
47 Compliance Director:
American Skandia
Marketing, Incorporated
Ms. Toumpas joined us in 1997. She previously held the position of Assistant
Vice President with Chubb Life/Chubb Securities.
Bayard F. Tracy Director (since September, 1994) Senior Vice President,
50 National Sales Manager:
American Skandia
Marketing, Incorporated
Jeffrey M. Ulness Vice President, Vice President,
37 Product Management Product Management:
American Skandia Life
Assurance Corporation
Mr. Ulness joined us in 1994. He previously held the positions of Counsel at
North American Security Life Insurance Company from March, 1991 to July, 1994
and Associate at LeBoeuf, Lamb, Leiby, Green and MacRae from January, 1990 to
March 1991.
- --------
* Trustees of American Skandia Trust, one of the underlying mutual funds in
which the Sub-accounts offered pursuant to this Prospectus invest.
</TABLE>
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
The following are the contents of the Statement of Additional Information:
General Information about American Skandia
|X| American Skandia Life Assurance Corporation
|X| American Skandia Life Assurance Corporation Variable Account B (Class 3
Sub-accounts)
|X| American Skandia Life Assurance Corporation Separate Account D
Principal Underwriter/Distributor - American Skandia Marketing, Incorporated
How Performance Data is Calculated
|X| Current and Effective Yield
|X| Total Return
How the Unit Price is Determined
Additional Information on Fixed Allocations
|X| How We Calculate the Market Value Adjustment
General Information
|X| Voting Rights
|X| Modification
|X| Deferral of Transactions
|X| Misstatement of Age or Sex
|X| Ending the Offer
Independent Auditors
Legal Experts
Financial Statements
|X| Appendix A - American Skandia Life Assurance Corporation Variable Account B
(Class 3 Sub-accounts)
APPENDIX A - FINANCIAL INFORMATION ABOUT AMERICAN SKANDIA
Selected Financial Data
The following table summarizes information with respect to the
operations of the Company. The selected financial data should be
read in conjunction with the financial statements and the notes
thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations.
<TABLE>
<CAPTION>
(in thousands) FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Income Statement Data:
Revenues:
Annuity and life insurance
charges and fees* $ 186,211 $ 121,158 $ 69,780 $ 38,837 $ 24,780
Fee income 50,839 27,593 16,420 6,206 2,112
Net investment income 11,130 8,181 1,586 1,601 1,300
Premium income and
other revenues 1,360 1,082 265 45 92
------------- ------------- ------------ ----------- -----------
Total revenues $ 249,540 $ 158,014 $ 88,051 $ 46,689 $ 28,284
============= ============= ============ =========== ===========
Benefits and Expenses:
Annuity benefits $ 558 $ 2,033 $ 613 $ 555 $ 370
Change in annuity policy reserves 1,053 37 635 (6,779) 5,766
Cost of minimum death benefit
reinsurance 5,144 4,545 2,867 2,057 -
Return credited to contractowners (8,930) (2,018) 673 10,613 (517)
Underwriting, acquisition and
other insurance expenses 167,790 90,496 49,887 35,914 18,943
Interest expense 41,004 24,895 10,791 6,500 3,616
------------- ------------- ------------ ------------ ------------
Total benefits and expenses $ 206,619 $ 119,988 $ 65,466 $ 48,860 $ 28,178
============= ============= ============ ============ ============
Income tax expense (benefit)$ 8,154 $ 10,478 $ (4,038) $ 397 $ 247
============= ============= ============ ============ ============
Net income (loss) $ 34,767 $ 27,548 $ 26,623 $ (2,568) $ (141)
============= ============= ============ ============ ============
Balance Sheet Data:
Total Assets $ 18,848,273 $ 12,894,290 $ 8,268,696 $ 4,956,018 $ 2,824,311
============= ============= ============ ============ ============
Future fees payable
to parent $ 368,978 $ 233,034 $ 47,112 $ - $ -
============= ============= ============ ============ ============
Surplus Notes $ 193,000 $ 213,000 $ 213,000 $ 103,000 $ 69,000
============= ============= ============ ============ ============
Shareholder's Equity $ 250,417 $ 184,421 $ 126,345 $ 59,713 $ 52,206
============= ============= ============ ============ ============
</TABLE>
* On annuity and life insurance sales of $4,159,662, $3,697,990,
$2,795,114, $1,628,486, and $1,372,874, during the years ended
December 31, 1998, 1997, 1996, 1995, and 1994, respectively,
with contractowner assets under management of $17,854,761,
$12,119,191, $7,764,891, $4,704,044, and $2,661,161 as of
December 31, 1998, 1997, 1996, 1995 and 1994, respectively.
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations
American Skandia Life Assurance Corporation (the "Company") is a
stock life insurance company domiciled in Connecticut with
licenses in all 50 states. It is a wholly-owned subsidiary of
American Skandia Investment Holding Corporation (the "Parent"),
whose ultimate parent is Skandia Insurance Company Ltd., a
Swedish company.
The Company is primarily in the business of issuing long-term
savings and retirement products to individuals, groups and
qualified pension plans. Since its business inception in 1988,
the Company has offered a wide array of annuities, including: a)
certain deferred annuities that are registered with the
Securities and Exchange Commission, including variable annuities
and fixed interest rate annuities that include a market value
adjustment feature; b) certain other fixed deferred annuities
that are not registered with the Securities and Exchange
Commission; c) non-registered group variable annuities designed
as funding vehicles for various types of qualified retirement
plans; and d) fixed and adjustable immediate annuities.
In April 1998, the Company began offering a term life insurance
product in support of an affiliate's mutual fund products. In May
1998, the Company launched a single premium variable life
insurance product. In January 1999, the Company launched its
second variable life product, which was designed as a flexible
premium product.
The Company markets its products to independent financial
planners and broker-dealers through an internal field marketing
staff. In addition, the Company markets through and in
conjunction with financial institutions such as banks that are
permitted directly, or through affiliates, to sell annuities and
life insurance.
The Company has a 99.9% ownership in Skandia Vida, S.A. de C.V.
which is a life insurance company domiciled in Mexico. This
Mexican life insurer is a start up company with expectations of
selling long-term savings products within Mexico. Skandia Vida,
S.A. de C.V had total shareholder's equity of $4,724,000 and
$1,509,000 as of December 31, 1998, and 1997, respectively and
has generated net losses of $2,514,000, $1,438,000 and $781,000
for the years ended December 31, 1998, 1997 and 1996,
respectively.
RESULTS OF OPERATIONS
Annuity and life insurance sales increased 12%, 32% and 72% in
1998, 1997 and 1996, respectively. The Company continues to show
significant growth in sales volume and ranked 6th highest in
variable annuity sales during 1998, according to the Variable
Annuity Research and Data Service. The Company's growth is a
result of innovative product development activities, the
recruitment and retention of top producers, and the success of
its highly rated customer service teams.
The Company offers and sells a wide range of deferred annuities
and variable life insurance through three focused marketing,
sales and service teams. Each team specializes in addressing one
of the Company's primary distribution channels: (a) financial
planning firms; (b) broker-dealers that generally are members of
the New York Stock Exchange, including "wirehouse" and regional
broker-dealer firms; and (c) broker-dealers affiliated with banks
or which specialize in marketing to customers of banks. The
Company also offers a number of specialized products distributed
by select, large distributors. There has been continued growth
and success in expanding the number of selling agreements in the
primary distribution channels. There has also been increased
success in enhancing the relationships with the registered
representatives/insurance agents of all the selling firms.
<PAGE>
Total assets grew 46%, 56% and 66% in 1998, 1997 and 1996,
respectively. These increases were a direct result of the
substantial sales volume and market growth of the separate
account assets. The sales and market growth also drove increases
in deferred acquisition costs, as well as, fixed maturity
investments, in support of the Company's risk based capital
requirements. Liabilities grew 46%, 56%, and 65% in 1998, 1997
and 1996, respectively, as a result of the reserves required for
the increased sales activity along with the sale of future fees
and charges during these periods. These sales of future fees and
charges to the Parent are needed to fund the acquisition costs of
the Company's variable annuity and life insurance business.
The Company generated net income after tax of $34,767,000
$27,548,000 and $26,623,000 in 1998, 1997 and 1996, respectively.
The Company benefited in each of the past three years from strong
sales growth and favorable market conditions. In 1996, the
Company also benefited from the recognition of the reversal of
the deferred tax valuation allowance. Assets under management,
from which the Company derives a significant portion of its
revenues grew 47%, 56% and 65% in 1998, 1997 and 1996,
respectively.
REVENUES
As a result of the significant growth in sales and assets under
management, contractowner fees and charges and fees generated
from transfer agency-type activities increased dramatically over
the past three years:
(annual percentage growth) 1998 1997 1996
---- ---- ----
Annuity and life insurance
fees and charges 54% 74% 80%
==== ==== ====
Transfer agency fee income 84% 68% 165%
==== ==== ====
Net investment income increased 36% and 416% in 1998 and 1997,
respectively, and decreased slightly in 1996. The majority of the
income was generated from the bond holdings, which were increased
in 1998 and 1997 to meet risk based capital goals, which in turn,
have increased as a result of the growth in business.
Premium income represents premiums earned on sales of immediate
annuities with life contingencies, supplementary contracts with
life contingencies and certain life insurance products. Sales of
these ancillary products decreased slightly in 1998 and 1996 and
increased in 1997.
BENEFITS
Annuity benefits and the change in annuity policy reserves relate
to annuity contracts with mortality risks, these being immediate
annuity contracts with life contingencies and supplementary
contracts with life contingencies. Due to the age of these
policies in force and the relative insignificance of these
products to the Company's overall portfolio of products,
fluctuations in these benefits were of marginal importance to the
Company's total operations.
The Company reinsures the guaranteed minimum death benefit
exposure on most of the variable annuity contracts. The costs
(minimum guaranteed premium per reinsurance contracts) associated
with reinsuring the guaranteed minimum death benefit reserve
exceeded the change in the guaranteed minimum death benefit
reserve during 1998, 1997 and 1996. This cost increased in each
of the past three years by 13%, 59% and 39%, respectively.
Return credited to contractowners includes primarily revenues on
the variable and market value adjusted annuities and variable
life insurance, offset by the benefit payments and change in
reserves required on this business. The 1998 return credited to
contractowners in the amount of ($8,930,000) represented higher
than expected Separate Account investment returns on the market
value adjusted contracts in support of the benefits and required
reserves.
<PAGE>
The 1997 return credited to contractowners in the amount of
($2,018,000) represents a break-even year for the Company's
market value adjusted product line. The 1996 return credited to
contractowners in the amount of $673,000 represents a favorable
investment return on the market value adjusted contracts relating
to the benefits and required reserves, offset by the effect of
bond market fluctuations on December 31, 1996 in the amount of
$1,800,000. While the assets relating to the market value
adjusted contracts reflect the market interest rate fluctuations
which occurred on December 31, 1996, the liabilities are based on
the interest rates set for new contracts which are generally
based on the prior day's interest rates. During the first week of
January 1997, interest rates were established for new contracts,
thereby bringing the liabilities relating to the market value
adjusted contracts in line with the related assets. Consequently,
the gain realized in 1997 was a result of this liability shift.
EXPENSES
Underwriting, acquisition and other insurance expenses for 1998,
1997 and 1996 were as follows:
(in thousands) 1998 1997 1996
---- ---- ----
Commissions $ 224,916 $ 186,920 $ 140,459
General expenses 117,678 94,640 63,375
Net capitalization of
deferred acquisition costs (174,804) (191,064) (153,947)
--------- --------- ---------
Underwriting, acquisition and
other insurance expenses $ 167,790 $ 90,496 $ 49,887
========= ========= =========
Commissions increased with the growth in sales. General expenses
increased with the growth in sales, along with start up costs
associated with the Company's entry into variable life insurance
and qualified plans. The net capitalization of deferred
acquisition costs decreased in 1998 as a result of increased
amortization.
Interest expense increased $16,109,000, $14,104,000 and
$4,291,000 in 1998, 1997 and 1996, respectively, as a result of
additional financing transactions, which consisted of the sale of
future fees to the Parent ("securitization transactions"). In
addition, the Company had outstanding surplus notes totaling
$213,000,000 throughout 1998 ($20,000,000 was retired on December
31, 1998). Surplus notes as of December 31, 1998 and 1997 totaled
$193,000,000 and $213,000,000, respectively.
The effective income tax rates for the years ended December 31,
1998, 1997 and 1996 were 19%, 28% and (18%), respectively. The
effective rate is lower than the corporate rate of 35% due to
permanent differences, with the most significant item being the
dividend received deduction. Additionally, the Company released
a deferred tax valuation allowance of $9,325,000 in 1996.
LIQUIDITY AND CAPITAL RESOURCES
ASLAC's liquidity requirement was met by cash from insurance
operations, investment activities, borrowings from its Parent and
sale of rights to future fees and charges to its Parent.
Approximately 97% of 1998 sales (94% in 1997 and 1996) were
variable annuity and life insurance products, most of which carry
a contingent deferred sales charge. This type of product causes a
temporary cash strain in that 100% of the proceeds are invested
in separate accounts supporting the product leaving a cash (but
not capital) strain caused by the acquisition cost for the new
business. This cash strain required the Company to look beyond
the cash made available by insurance operations and investments
of the Company to financing in the form of surplus notes, capital
contributions, the sale of certain rights to future fees and
modified coinsurance arrangements.
<PAGE>
- During 1996, the Company issued $110,000,000 of surplus notes to
its Parent.
- During December 1998 and 1997, the Company received
$2,600,000 and $27,700,000, respectively, from its Parent to
support the capital needs of its U.S. operations during the
current year along with the following year's anticipated
growth in business.
- Funds received from new securitization transactions amounted to
$169,881,000, $194,512,000 and $50,221,000 for 1998, 1997
and 1996, respectively.
- During 1998, 1997 and 1996, the Company extended its
reinsurance agreements (which were initiated in 1993, 1994
and 1995). The reinsurance agreements are modified
coinsurance arrangements where the reinsurer shares in the
experience of a specific book of business.
The Company expects the continued use of reinsurance and
securitization transactions to fund the cash strain anticipated
from the acquisition costs on the coming years' sales volume.
As of December 31, 1998 and 1997, shareholder's equity was
$250,417,000 and $184,421,000, respectively. The increases were
driven by the previously mentioned capital contributions received
from the Parent and net income from operations.
ASLAC has long-term surplus notes and a short-term borrowings
with its Parent. No dividends have been paid to its Parent.
The National Association of Insurance Commissioners ("NAIC")
requires insurance companies to report information regarding
minimum Risk Based Capital ("RBC") requirements. These
requirements are intended to allow insurance regulators to
identify companies which may need regulatory attention. The RBC
model law requires that insurance companies apply various factors
to asset, premium and reserve items, all of which have inherent
risks. The formula includes components for asset risk, insurance
risk, interest risk and business risk. The Company has complied
with the NAIC's RBC reporting requirements and has total adjusted
capital well above required capital.
YEAR 2000 COMPLIANCE
The Company is continuing its ongoing assessment of the potential
impact of the Year 2000 issue on various aspects of its business.
The Company's computer support is provided by its affiliate,
American Skandia Information Services and Technology Corporation,
which also provides such support for the Company's affiliated
broker-dealer, American Skandia Marketing, Incorporated and the
Company's affiliated investment advisory firm, American Skandia
Investment Services, Incorporated. Because of the nature of the
Company's business, any assessment of the potential impact of the
Year 2000 issues on the Company must be an assessment of the
potential impact of these issues on all these companies, which
are referred to below as "American Skandia".
Business Partners
Management believes the area where the Company is most vulnerable
to Year 2000 issues is in its interfaces with computer systems of
investment managers, sub-advisors, third party administrators,
vendors and other business partners. The inability to properly
recognize date sensitive electronic information and transfer data
between systems could cause errors or even a complete systems failure
which would result in a temporary inability to process
transactions correctly or engage in normal business activities.
The American Skandia deferred annuity operational business
partners report that all critical interfaces are Year 2000
compliant. All investment managers and sub-advisors are required
by the Securities and Exchange Commission to publicly disclose
their Year 2000 status in December 1998 and June 1999.
<PAGE>
American Skandia has initiated formal communications with parties
that provide third party administration, record keeping and trust
services in connection with its life insurance and qualified
retirement plan annuities business. Management has already
received several written assurances that these firms will be Year
2000 compliant. The Company expects to have certifications from
all remaining parties by July 1999. American Skandia is currently
developing contingency plans in the event that these targets are
not met.
Information Technology Systems
American Skandia is a relatively young company whose internally
developed systems were designed from the start with four digit
year codes. The Company engaged an external information
technology specialist to review American Skandia's operating
systems and internally developed software. The assessment was
completed in December 1997 and the results were favorable.
Specific modifications were suggested, evaluated and implemented
for the annuity administration system. This project was completed
during 1998 and a certificate of compliance has been received.
Other non-critical internally developed applications in the
client/server area have already been or will be remediated during
1999. The costs associated with this aspect of Year 2000
compliance have not had, and are not expected to have, a
significant impact on the Company's results from operations.
Suppliers and Non-Information Technology Systems
Like most companies, American Skandia is reliant on network, and
desktop operating systems and software providers to release
compliant versions of their respective systems. American
Skandia's network is currently at the most compliant level
available. The standard desktop software will be replaced, as
fully compliant versions become available. In addition, the
Company is in the process of contacting the non-information
systems vendors and suppliers regarding their Year 2000
compliance status and will factor the results of these
assessments into its contingency plans.
Management believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. However, should
errors or disruptions in computer service occur, the Company
could realize losses. Given the nature and uncertainty of such
losses, the amounts cannot be reasonably determined.
<PAGE>
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Sensitivity
At December 31, 1998, the Company held in its general account
$149,484,000 of fixed maturity investments that are sensitive to
changes in interest rates. These securities are held in support
of the Company's fixed immediate annuities and supplementary
contracts ($23,699,000 in reserves at December 31, 1998) and in
support of the Company's target solvency capital. With respect to
the insurance contracts, interest rate risk is managed through an
asset/liability matching program which takes into account the
risk variables of the insurance liabilities supported by the
assets. In addition, the Company has a conservative investment
philosophy, with all investments being investment grade corporate
securities, government agency or U.S. government securities.
In addition, the Company's deferred annuity products offer a
fixed option that subjects the Company to interest rate risk. The
fixed option guarantees a fixed rate of interest for a period of
time selected by the contract holder (options available range
from 1 to 10 years). Withdrawal of funds before the end of the
guarantee period subjects the contract holder to a market value
adjustment ("MVA"). In the event of rising interest rates, which
make the fixed maturity securities underlying the guarantee less
valuable, the market value adjustment could be negative. In the
event of falling interest rates, which make the fixed maturity
securities underlying the guarantee more valuable, the market
value adjustment could be positive. Should these contracts be
surrendered early, this increase or decrease in fair value would
be substantially offset through the application of the MVA and
its effect on contractholders choosing to withdraw. The risk to
the Company on these contracts relates to the ability to reinvest
proceeds from interest payments and other activity over the
guarantee term at interest rates required to meet interest rate
guarantees and the risk of default. This risk is managed through
an asset/liability matching program. At December 31, 1998, the
Company had $613,057,000 of contracts subject to MVA.
Equity Market Exposure
The Company has a small portfolio of equity investments; mutual
funds which are held in support of a deferred compensation
program. In the event of a decline in market values of underlying
securities, the value of the portfolio would decline, however the
accrued benefits payable under the related deferred compensation
program would decline by a corresponding amount.
The primary equity market risk to the Company comes from the
nature of the variable annuity and variable life products sold by
ASLAC. Various fees and charges earned by ASLAC are substantially
derived as a percentage of the market value of assets under
management. In a market decline, this income would be reduced.
This could be further compounded by customer withdrawals, net of
applicable surrender charge revenues, partially offset by
transfers to the fixed option discussed above. A 10% decline in
the market value of the assets under management at December 31,
1998, sustained throughout 1999, would result in a $28,000,000
drop in related fee income.
In addition, it is not clear what the impact of a prolonged
downturn in the equity markets would have on ongoing sales.
Customer's perceptions of a downturn in equity markets coupled
with rising interest rates could move them into financial
products other than variable annuities or variable life; however,
the Company's products might remain attractive to purchasers in
relation to other long-term savings vehicles even after such a
decline.
<PAGE>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholder of
American Skandia Life Assurance Corporation
Shelton, Connecticut
We have audited the consolidated statements of financial condition of American
Skandia Life Assurance Corporation (the "Company" which is a wholly-owned
subsidiary of Skandia Insurance Company Ltd.) as of December 31, 1998 and 1997,
and the related consolidated statements of income, shareholder's equity, and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Skandia Life Assurance Corporation at December 31, 1998 and 1997, and
the consolidated results of its operations and cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young, LLP
- ----------------------
Hartford, Connecticut
February 20, 1999
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
American Skandia Life Assurance Corporation
Shelton, Connecticut
We have audited the accompanying consolidated statements of operations,
shareholder's equity, and cash flows of American Skandia Life Assurance
Corporation and subsidiary (a wholly-owned subsidiary of Skandia Insurance
Company Ltd.) for the year ended December 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated results of operations and cash flows of
American Skandia Life Assurance Corporation and subsidiary for the year ended
December 31, 1996 in conformity with generally accepted accounting principles.
/s/Deloitte & Touche LLP
- ------------------------
New York, New York
March 10, 1997
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE
CORPORATION (a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
AS OF DECEMBER 31,
1998 1997
---------- ----------
ASSETS
Investments:
Fixed maturities - at amortized cost $ 8,289 $ 9,367
Fixed maturities - at fair value 141,195 108,323
Investment in mutual funds - at fair value 8,210 6,711
Policy loans 569 687
---------- -----------
Total investments 158,263 125,088
Cash and cash equivalents 77,525 81,974
Accrued investment income 2,880 2,442
Fixed assets 328 356
Deferred acquisition costs 721,507 546,703
Reinsurance receivable 4,191 6,343
Receivable from affiliates 1,161 1,911
Income tax receivable - current - 1,048
Income tax receivable - deferred 38,861 26,174
State insurance licenses 4,413 4,563
Other assets 3,744 2,524
Separate account assets 17,835,400 12,095,164
---------- ----------
Total assets $18,848,273 $12,894,290
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Reserve for future contractowner benefits $ 37,508 $ 43,204
Policy reserves 25,545 24,415
Drafts outstanding 28,941 19,278
Accounts payable and accrued expenses 91,827 71,190
Income tax payable 6,657 -
Payable to affiliates - 584
Future fees payable to parent 368,978 233,034
Short-term borrowing 10,000 10,000
Surplus notes 193,000 213,000
Separate account liabilities 17,835,400 12,095,164
---------- ----------
Total liabilities 18,597,856 12,709,869
---------- ----------
Shareholders Equity:
Common stock, $80 par, 25,000 shares
authorized, issued and outstanding 2,000 2,000
Additional paid-in capital 179,889 151,527
Retained earnings 64,993 30,226
Accumulated other comprehensive income 3,535 668
---------- ----------
Total shareholder's equity 250,417 184,421
---------- ----------
Total liabilities and shareholder's equity $18,848,273 $12,894,290
=========== ===========
See notes to consolidated financial statements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1998 1997 1996
------------ ------------- ------------
REVENUES
Annuity and life insurance charges and fees $186,211 $121,158 $69,780
Fee income 50,839 27,593 16,420
Net investment income 11,130 8,181 1,586
Premium income 874 920 125
Net realized capital gains 99 87 134
Other 387 75 6
------------ ------------- ------------
Total revenues 249,540 158,014 88,051
------------ ------------- ------------
BENEFITS AND EXPENSES
Benefits:
Annuity benefits 558 2,033 613
Change in annuity policy reserves 1,053 37 635
Cost of minimum death benefit reinsurance 5,144 4,545 2,867
Return credited to contractowners (8,930) (2,018) 673
------------ ------------- ------------
(2,175) 4,597 4,788
------------ ------------- ------------
Expenses:
Underwriting, acquisition and
other insurance expenses 167,640 90,346 49,737
Amortization of state insurance licenses 150 150 150
Interest expense 41,004 24,895 10,791
------------ ------------- ------------
208,794 115,391 60,678
------------ ------------- ------------
Total benefits and expenses 206,619 119,988 65,466
------------ ------------- ------------
Income from operations before income taxes 42,921 38,026 22,585
Income tax expense (benefit) 8,154 10,478 (4,038)
------------ ------------- ------------
Net income $34,767 $27,548 $26,623
============ ============= ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(in thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1998 1997 1996
----------- ----------- -----------
Common stock:
Beginning and ending balance $2,000 $ 2,000 $ 2,000
Additional paid in capital:
Beginning balance 151,527 122,250 81,875
Additional contributions 28,362 29,277 40,375
----------- ----------- ----------
Ending balance 179,889 151,527 122,250
Retained earnings (deficit):
Beginning balance 30,226 2,678 (23,945)
Net income 34,767 27,548 26,623
----------- ----------- ----------
Ending balance 64,993 30,226 2,678
Accumulated other comprehensive income:
Beginning balance 668 (584) (217)
Other comprehensive income 2,867 1,252 (367)
----------- ----------- -----------
Ending balance 3,535 668 (584)
----------- ----------- -----------
Total shareholder's equity $250,417 $184,421 $126,345
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1998 1997 1996
------------ ------------ ------------
Cash flow from operating activities:
Net income $ 34,767 $ 27,548 $ 26,623
Adjustments to reconcile net income to net cash
used in operating activities:
Increase in policy reserves 1,130 3,176 1,852
Amortization of bond discount 101 73 27
Amortization of insurance licenses 150 150 150
Change in receivable from/payable to affiliates 166 (1,321) 540
Change in income tax receivable/payable 7,704 (2,172) 1,688
Increase in other assets (1,191) (604) (661)
Increase in accrued investment income (438) (483) (1,764)
Decrease/(increase) in reinsurance receivable 2,152 (268) (676)
Increase in deferred acquisition costs, net (174,804) (190,969) (153,918)
Increase in income tax receivable - deferred (14,242) (9,631) (16,903)
Increase in accounts payable and accrued expenses 20,637 5,719 32,323
Increase in drafts outstanding 9,663 6,245 13,032
Change in foreign currency translation, net (22) (34) (77)
Realized gain on sale of investments (99) (87) (134)
------------ ------------ ------------
Net cash used in operating activities (114,326) (162,658) (97,898)
------------ ------------ ------------
Cash flow from investing activities:
Purchase of fixed maturity investments (31,828) (28,905) (96,813)
Proceeds from sale and maturity of fixed maturity investments 4,049 10,755 8,947
Purchase of shares in mutual funds (7,158) (5,595) (2,160)
Proceeds from sale of shares in mutual funds 6,086 1,415 1,274
Decrease/(increase) in policy loans 118 (528) (104)
------------ ------------ ------------
Net cash used in investing activities (28,733) (22,858) (88,856)
------------ ------------ ------------
Cash flow from financing activities:
Capital contributions from parent 8,362 29,277 40,375
Surplus notes - - 110,000
Increase in future fees payable to Parent 135,944 185,922 47,112
Net (withdrawals from)/deposits to contractowner accounts (5,696) 6,959 5,753
------------ ------------ ------------
Net cash provided by financing activities 138,610 222,158 203,240
------------ ------------ ------------
Net increase/(decrease) in cash and cash equivalents (4,449) 36,642 16,486
------------ ------------ ------------
Cash and cash equivalents at beginning of year 81,974 45,332 28,846
------------ ------------ ------------
Cash and cash equivalents at end of year $ 77,525 $ 81,974 $ 45,332
============ ============ ============
Supplemental cash flow disclosure:
Income taxes paid $ 14,651 $ 22,308 $ 11,177
============ ============ ============
Interest paid $ 35,588 $ 16,916 $ 7,095
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements
December 31, 1998
1. ORGANIZATION AND OPERATION
American Skandia Life Assurance Corporation (the "Company") is a
wholly-owned subsidiary of American Skandia Investment Holding
Corporation (the "Parent"); whose ultimate parent is Skandia Insurance
Company Ltd., a Swedish corporation.
The Company develops long-term savings and retirement products which
are distributed through its affiliated broker/dealer company, American
Skandia Marketing, Incorporated ("ASM"). The Company currently issues
variable life insurance and variable, fixed, market value adjusted and
immediate annuities for individuals, groups and qualified pension
plans.
The Company has 99.9% ownership in Skandia Vida, S.A. de C.V. which is
a life insurance company domiciled in Mexico. This Mexican life
insurer is a start up company with expectations of selling long-term
savings products within Mexico. Skandia Vida, S.A. de C.V. had total
shareholder's equity of $4,724,000 and $1,509,000 as of December 31,
1998, and 1997, respectively, and has generated net losses of
$2,514,000, $1,438,000 and $781,000 for the years ended December 31,
1998, 1997 and 1996, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Reporting
The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting
principles. Intercompany transactions and balances have been
eliminated in consolidation.
Certain reclassifications have been made to prior year amounts
to conform with the current year presentation.
B. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standard
("SFAS") 133, "Accounting for Derivative Instruments and
Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and hedging
activities. The standard requires that all derivatives be
carried on the balance sheets at fair value. The Company is
currently not involved in derivatives or hedging instruments
as part of its investment strategy. The Company is evaluating
the potential impact of a change in accounting for derivative
instruments embedded in certain products it issues. This
standard is effective for years beginning after June 15, 1999.
In March 1998, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Software Developed or Obtained
for Internal Use," which provides guidance for determining
when computer software developed or obtained for internal use
should be capitalized. It also provides guidance on the
amortization of capitalized costs and the recognition of
impairment. The Company is evaluating the potential impact of
adopting this SOP, which is effective for fiscal years
beginning after December 15, 1998.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
C. Investments
The Company has classified its fixed maturity investments as
either held-to-maturity or available-for-sale. Investments
classified as held-to-maturity are investments that the
Company has the ability and intent to hold to maturity. Such
investments are carried at amortized cost. Those investments
which are classified as available-for-sale, are carried at
fair value and changes in unrealized gains and losses are
reported as a component of other comprehensive income.
The Company has classified its mutual fund investments as
available-for-sale. Such investments are carried at fair value
and changes in unrealized gains and losses are reported as a
component of other comprehensive income.
Policy loans are carried at their unpaid principal balances.
Realized gains and losses on disposal of investments are
determined by the specific identification method and are
included in revenues.
D. Cash Equivalents
The Company considers all highly liquid time deposits,
commercial paper and money market mutual funds purchased with
a maturity of three months or less to be cash equivalents.
E. State Insurance Licenses
Licenses to do business in all states have been capitalized
and reflected at the purchase price of $6,000,000 less
accumulated amortization. The cost of the licenses is being
amortized over 40 years.
F. Fixed Assets
Fixed assets consisting of furniture, equipment and leasehold
improvements are carried at cost and depreciated on a
straight-line basis over a period of three to five years.
Accumulated depreciation amounted to $142,000 and $96,000 at
December 31, 1998 and 1997, respectively. Depreciation expense
for the years ended December 31, 1998, 1997 and 1996 was
$46,000 and $63,000 and $29,000, respectively.
G. Income Taxes
The Company is included in the consolidated federal income tax
return of Skandia U.S. Investment Holding Corporation and its
subsidiaries. In accordance with the tax sharing agreement,
the federal and state income tax provision is computed on a
separate return basis, as adjusted for consolidated items,
such as net operating loss carryforwards.
Income taxes are provided in accordance with SFAS 109,
"Accounting for Income Taxes", which requires the asset and
liability method of accounting for deferred taxes. The object
of this method is to recognize an asset and liability for the
expected future tax effects due to temporary differences
between the financial reporting and the tax basis of assets
and liabilities, based on enacted tax rates and other
provisions of the tax law.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
H. Recognition of Revenue and Contract Benefits
Revenues for variable annuity contracts consist of charges
against contractowner account values for mortality and expense
risks, administration fees, surrender charges and an annual
maintenance fee per contract. Benefit reserves for variable
annuity contracts represent the account value of the contracts
and are included in the separate account liabilities.
Revenues for market value adjusted annuity contracts consist
of separate account investment income reduced by benefit
payments and changes in reserves in support of contractowner
obligations, all of which are included in return credited to
contractowners. Benefit reserves for these contracts represent
the account value of the contracts, and are included in the
general account liability for future contractowner benefits to
the extent in excess of the separate account liabilities.
Revenues for immediate annuity contracts without life
contingencies consist of net investment income. Revenues for
immediate annuity contracts with life contingencies consist of
single premium payments recognized as annuity considerations
when received. Benefit reserves for these contracts are based
on the Society of Actuaries 1983 Table-a with assumed interest
rates that vary by issue year. Assumed interest rates ranged
from 6.25% to 8.25% and 6.5% to 8.25% at December 31, 1998 and
December 31, 1997, respectively.
Revenues for variable life insurance contracts consist of
charges against contractowner account values for the
maintenance and expense fees, cost of insurance fees and
surrender charges. Benefit reserves for variable life
insurance contracts represent the account value of the
contracts and are included in the separate account
liabilities.
I. Deferred Acquisition Costs
The costs of acquiring new business, which vary with and are
primarily related to the production of new business, are being
deferred net of reinsurance. These costs include commissions,
costs of contract issuance, and certain selling expenses that
vary with production. These costs are being amortized
generally in proportion to expected gross profits from
surrender charges, policy and asset based fees and mortality
and expense margins. This amortization is adjusted
retrospectively and prospectively when estimates of current
and future gross profits to be realized from a group of
products are revised.
Details of the deferred acquisition costs and related
amortization for the years ended December 31, are as follows:
(in thousands) 1998 1997 1996
---- ---- ----
Balance at beginning of year $546,703 $355,734 $201,816
Acquisition costs deferred
during the year 261,432 243,476 171,253
Acquisition costs amortized
during the year (86,628) (52,507) (17,335)
--------- --------- ---------
Balance at end of year $721,507 $546,703 $355,734
======== ======== ========
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
J. Reinsurance
The Company cedes reinsurance under modified co-insurance
arrangements. The reinsurance arrangements provide additional
capacity for growth in supporting the cash flow strain from
the Company's variable annuity and variable life insurance
business. The reinsurance is effected under quota share
contracts.
The company reinsures certain mortality risks relating to the
variable life insurance product, as well as, the guaranteed
minimum death benefit feature in the variable annuity product.
At December 31, 1998 and 1997, in accordance with the
provisions of a modified coinsurance agreement, the Company
accrued $1,976,000 and $0, respectively, for amounts
receivable from favorable reinsurance experience on a block of
variable annuity business.
K. Translation of Foreign Currency
The financial position and results of operations of the
Company's Mexican subsidiary are measured using local currency
as the functional currency. Assets and liabilities of the
subsidiary are translated at the exchange rate in effect at
each year-end. Statements of income and shareholder's equity
accounts are translated at the average rate prevailing during
the year. Translation adjustments arising from the use of
differing exchange rates from period to period are reported as
a component of other comprehensive income.
L. Fair Values of Financial Instruments
The methods and assumptions used to determine the fair value
of financial instruments are as follows:
Fair values of fixed maturities with active markets are based
on quoted market prices. For fixed maturities that trade in
less active markets, fair values are obtained from an
independent pricing service.
Fair values of investments in mutual funds are based on quoted
market prices.
The carrying value of cash and cash equivalents approximates
fair value due to the short-term nature of these investments.
The carrying value of short-term borrowing approximates fair
value due to the short-term nature of these liabilities.
Fair values of certain financial instruments, such as future
fees payable to parent and surplus notes are not readily
determinable and are excluded from fair value disclosure
requirements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
M. Separate Accounts
Assets and liabilities in Separate Accounts are included as
separate captions in the consolidated statements of financial
condition. Separate Account assets consist principally of long
term bonds, investments in mutual funds, short-term securities
and cash and cash equivalents, all of which are carried at
fair value. The investments are managed predominately through
the Company's investment advisory affiliate, American Skandia
Investment Services, Inc. ("ASISI"), utilizing various fund
managers as sub-advisors. The remaining investments are
managed by independent investment firms. The contractowner has
the option of directing funds to a wide variety of mutual
funds. The investment risk on the variable portion of a
contract is borne by the contractowner. A fixed option with a
minimum guaranteed interest rate is also available. The
Company is responsible for the credit risk associated with
these investments.
Included in Separate Account liabilities are $771,195,000 and
$773,067,000 at December 31, 1998 and 1997, respectively,
relating to annuity contracts for which the contractowner is
guaranteed a fixed rate of return. Separate Account assets of
$771,195,000 and $773,067,000 at December 31, 1998 and 1997,
respectively, consisting of long term bonds, short term
securities, transfers due from general account and cash and
cash equivalents are held in support of these annuity
contracts, pursuant to state regulation.
N. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires that
management make estimates and assumptions that affect the
reported amount of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. The more significant
estimates and assumptions are related to deferred acquisition
costs and involve policy lapses, investment return and
maintenance expenses. Actual results could differ from those
estimates.
3. COMPREHENSIVE INCOME
As of January 1, 1998 the Company adopted SFAS 130, "Reporting
Comprehensive Income," which sets standards for the reporting and
display of comprehensive income and its components; however, the
adoption of this Statement had no impact on the Company's financial
position or net income. SFAS 130 requires unrealized gains and losses
on the Company's available-for-sale securities and foreign currency
translation adjustments, which prior to adoption were reported
separately in shareholder's equity, to be included in other
comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of SFAS 130.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
The components of comprehensive income, net of tax, for the years ended
December 31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(in thousands) 1998 1997 1996
---- ---- ----
Net income $34,767 $27,548 $26,623
Other comprehensive income:
Unrealized investment gains/(losses) on
available for sale securities 2,751 1,288 (331)
Reclassification adjustment for realized
losses/(gains) included in investment income 138 (14) (99)
--------- --------- ----------
Net unrealized gains/(losses) on securities 2,889 1,274 (430)
Foreign currency translation (22) (22) 64
---------- ---------- ----------
Other comprehensive income 2,867 1,252 (367)
-------- -------- ----------
Comprehensive income $37,634 $28,800 $26,257
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
The components of accumulated other comprehensive income, net of tax,
as of December 31, 1998 and 1997 were as follows:
<S> <C> <C>
(in thousands) 1998 1997
---- ----
Unrealized investment gains $3,843 $954
Foreign currency translation (308) (286)
-------- -----
Accumulated other comprehensive income $3,535 $668
====== ====
</TABLE>
4. INVESTMENTS
The amortized cost, gross unrealized gains/losses and estimated fair
value of available-for-sale and held-to-maturity fixed maturities and
investments in mutual funds as of December 31, 1998 and 1997 are shown
below. All securities held at December 31, 1998 are publicly traded.
Investments in fixed maturities as of December 31, 1998 consisted of
the following:
<TABLE>
<CAPTION>
(in thousands) Held-to-Maturity
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Government
obligations $3,774 $57 $ - $3,831
Corporate securities 4,515 34 - 4,549
------- ---- ----- -------
Totals $8,289 $91 $ - $8,380
====== === ==== ======
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
(in thousands) Available-for-Sale
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Government
obligations $ 17,399 $ 678 $ - $ 18,077
Obligations of
state and political
subdivisions 253 7 - 260
Corporate securities 117,774 5,160 76 122,858
--------- ------- ---- -----------
Totals $135,426 $5,845 $76 $141,195
======== ====== === ========
</TABLE>
The amortized cost and fair value of fixed maturities, by contractual
maturity, at December 31, 1998 are shown below.
<TABLE>
<CAPTION>
(in thousands) Held-to-Maturity Available-for-Sale
<S> <C> <C> <C> <C>
Amortized Fair Amortized Fair
Cost Value Cost Value
Due in one year or less $4,927 $4,982 $ - $ -
Due after one through five years 3,362 3,398 54,789 56,850
Due after five through ten years - - 80,637 84,345
---------- ---------- ---------- ----------
Total $8,289 $8,380 $135,426 $141,195
====== ====== ======== ========
</TABLE>
Investments in fixed maturities as of December 31, 1997 consisted of
the following:
<TABLE>
<CAPTION>
(in thousands) Held-to-Maturity
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Government
obligations $3,790 $71 $9 $3,852
Obligations of
state and political
subdivisions 50 - - 50
Corporate
securities 5,527 2 19 5,510
------- ----- ---- -------
Totals $9,367 $73 $28 $9,412
====== === === ======
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
(in thousands) Available for Sale
------------------
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
U.S. Government
obligations $ 14,999 $ 202 $ - $ 15,201
Obligations of
state and political
subdivisions 202 - - 202
Corporate
securities 91,470 1,505 55 92,920
---------- ------- ---- ----------
Totals $106,671 $1,707 $55 $108,323
======== ====== === ========
</TABLE>
Proceeds from sales of fixed maturities during 1998, 1997 and 1996 were
$999,000, $5,056,000 and $8,732,000, respectively. Proceeds from
maturities during 1998, 1997 and 1996 were $3,050,000, $5,700,000 and
$215,000, respectively.
The cost, gross unrealized gains/losses and fair value of investments
in mutual funds at December 31, 1998 and 1997 are shown below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(in thousands) Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
------ ---------- ---------- ------
1998 $8,068 $416 $274 $8,210
====== ==== ==== ======
1997 $6,896 $ 43 $228 $6,711
====== ==== ==== ======
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
Net realized investment gains (losses) were as follows for the years
ended December 31:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Fixed maturities:
Gross gains $ - $ 10 $ -
Gross losses (1) - -
Investment in mutual funds:
Gross gains 281 116 140
Gross losses (181) (39) (6)
------- ------ -----
Totals $ 99 $ 87 $134
====== ===== ====
</TABLE>
5. NET INVESTMENT INCOME
The sources of net investment income for the years ended December 31,
1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Fixed maturities $ 8,534 $6,617 $ 836
Cash and cash equivalents 1,717 1,153 685
Investment in mutual funds 1,013 554 144
Policy loans 45 28 5
----------- --------- ----------
Total investment income 11,309 8,352 1,670
Investment expenses 179 171 84
---------- -------- ---------
Net investment income $11,130 $8,181 $1,586
======= ====== ======
</TABLE>
6. INCOME TAXES
The significant components of income tax expense (benefit) for the
years ended December 31, are as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current tax expense $22,384 $20,108 $12,865
Deferred tax benefit (14,230) (9,630) (16,903)
-------- --------- --------
Total income tax expense (benefit) $ 8,154 $10,478 ($ 4,038)
======== ======= =======
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
The tax effects of significant items comprising the Company's deferred
tax balance as of December 31, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
---- ----
<S> <C> <C>
Deferred tax liabilities:
Deferred acquisition costs ($210,731) ($159,766)
Payable to reinsurers (25,585) (25,369)
Policy fees (859) (656)
Unrealized investment gains and losses (2,069) (514)
----------- -------------
Total (239,244) (186,305)
--------- ---------
Deferred tax assets:
Net separate account liabilities 225,600 175,872
Reserve for future contractowner benefits 13,128 15,121
Other reserve differences 25,335 10,534
Deferred compensation 9,619 7,187
Surplus notes interest 3,375 2,729
Foreign exchange translation 166 154
Other 882 882
------------ ------------
Total 278,105 212,479
--------- ---------
Income tax receivable - deferred $ 38,861 $ 26,174
========= =========
</TABLE>
Management believes that based on the taxable income produced in the
current year and the continued growth in annuity products, the Company
will produce sufficient taxable income in the future to realize its
deferred tax asset. As such, the Company released the deferred tax
valuation allowance of $9,325,000 in 1996.
The income tax expense was different from the amount computed by
applying the federal statutory tax rate of 35% to pre-tax income from
continuing operations as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income (loss) before taxes
Domestic $45,435 $39,464 $23,366
Foreign (2,514) (1,438) (781)
--------- --------- ---------
Total 42,921 38,026 22,585
Income tax rate 35% 35% 35%
--------- --------- ---------
Tax expense at federal
statutory income tax rate 15,022 13,309 7,905
Tax effect of:
Change in valuation allowance - - (9,325)
Dividend received deduction (9,085) (4,585) (2,266)
Losses of foreign subsidiary 880 503 273
Meals and entertainment 487 340 43
State income taxes 673 577 356
Other 177 334 (1,024)
-------- ------- ---------
Income tax expense (benefit) $ 8,154 $10,478 ($ 4,038)
======== ======= =========
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
7. RECEIVABLE FROM/PAYABLE TO AFFILIATES
Certain operating costs (including personnel, rental of office space,
furniture, and equipment) have been charged to the Company at cost by
American Skandia Information Services and Technology Corporation
("ASIST"), an affiliated company; and likewise, the Company has charged
operating costs to ASISI. The total cost to the Company for these items
was $7,722,000, $5,572,000 and $11,581,000 for the years ended December
31, 1998, 1997 and 1996, respectively. Income received for these items
was $1,355,000, $3,225,000 and $1,148,000 for the years ended December
31, 1998, 1997 and 1996, respectively. Amounts receivable from
affiliates under these arrangements were $98,000 and $549,000 as of
December 31, 1998 and 1997, respectively. Amounts payable to affiliates
under these arrangements were $551,000 and $264,000 as of December 31,
1998 and 1997, respectively.
8. FUTURE FEES PAYABLE TO PARENT
In a series of transactions with its Parent, the Company sold certain
rights to receive future fees and contract charges expected to be
realized on variable portions of designated blocks of deferred annuity
contracts. The effective dates and issue periods these transactions
cover are as follows:
Closing Effective Contract Issue
Transaction Date Date Period
----------- -------- --------- -----------------
1996-1 12/16/96 9/1/96 1/1/94 - 6/30/96
1997-1 7/23/97 6/1/97 3/1/96 - 4/30/97
1997-2 12/30/97 12/1/97 5/1/95 - 12/31/96
1997-3 12/30/97 12/1/97 5/1/96 - 10/31/97
1998-1 6/30/98 6/1/98 1/1/97 - 5/31/98
1998-2 11/10/98 10/1/98 5/1/97 - 8/31/98
1998-3 12/30/98 12/1/98 7/1/96 - 10/31/98
In connection with these transactions, the Parent issued collateralized
notes in a private placement which are secured by the rights to receive
future fees and charges purchased from the Company.
Under the terms of the Purchase Agreements, the rights sold provide for
the Parent to receive a percentage of future mortality and expense
charges and contingent deferred sales charges, after reinsurance,
expected to be realized over the remaining surrender charge period of
the designated contracts (6 to 8 years). The percentage is 100% on
transactions 1997-3 and 1998-3 and 80% on all other transactions.
The Company did not sell the right to receive future fees and charges
after the expiration of the surrender charge period.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
The proceeds from the sales have been recorded as a liability and are
being amortized over the remaining surrender charge period of the
designated contracts using the interest method. The present value of
the transactions as of the respective effective date was as follows:
<TABLE>
<CAPTION>
(in thousands)
Present
<S> <C> <C> <C>
Transaction Discount Rate Value
----------- ------------- -------
1996-1 7.5% $50,221
1997-1 7.5% 58,767
1997-2 7.5% 77,552
1997-3 7.5% 58,193
1998-1 7.5% 61,180
1998-2 7.0% 68,573
1998-3 7.0% 40,128
</TABLE>
Payments representing fees and charges in the aggregate amount of
$69,226,000, $22,250,000 and $0, were made by the Company to the Parent
for the years ended December 31, 1998, 1997 and 1996, respectively.
Related interest expense of $22,978,000, $6,842,000 and $42,000 has
been included in the statement of income for the years ended December
31, 1998, 1997 and 1996, respectively.
Expected payments of future fees payable to Parent as of December 31,
1998 are as follows:
Year Ended
(in thousands) December 31, Amount
------------ ----------
1999 $ 64,520
2000 68,403
2001 67,953
2002 64,238
2003 54,382
2004 35,601
2005 12,441
2006 1,440
----------
Total $ 368,978
==========
The Commissioner of the State of Connecticut has approved the sale of
future fees and charges; however, in the event that the Company becomes
subject to an order of liquidation or rehabilitation, the Commissioner
has the ability to stop the payments due to the Parent under the
Purchase Agreement subject to certain terms and conditions.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
9. LEASES
The Company leases office space under a lease agreement established in
1989 with ASIST. The lease expense for 1998, 1997 and 1996 was
$3,588,000, $2,428,000 and $1,583,000, respectively. Future minimum
lease payments per year and in aggregate as of December 31, 1998 are as
follows:
(in thousands) 1999 $ 3,619
2000 5,070
2001 5,070
2002 5,070
2003 5,070
2004 and thereafter 40,271
--------
Total $ 64,170
========
10. RESTRICTED ASSETS
To comply with certain state insurance departments' requirements, the
Company maintains cash, bonds and notes on deposit with various states.
The carrying value of these deposits amounted to $3,747,000 and
$3,757,000 as of December 31, 1998, and 1997, respectively. These
deposits are required to be maintained for the protection of
contractowners within the individual states.
11. RETAINED EARNINGS AND DIVIDEND RESTRICTIONS
Statutory basis shareholder's equity was $285,553,000 and $294,586,000
at December 31, 1998 and 1997, respectively.
The statutory basis net loss was $13,152,000, $8,970,000 and $5,405,000
for the years ended December 31, 1998, 1997 and 1996, respectively.
Under various state insurance laws, the maximum amount of dividends
that can be paid to shareholders without prior approval of the state
insurance department is subject to restrictions relating to statutory
surplus and net gain from operations. At December 31, 1998, no amounts
may be distributed without prior approval.
12. EMPLOYEE BENEFITS
The Company has a 401(k) plan for which substantially all employees are
eligible. Under this plan, the Company contributes 3% of salary for all
participating employees and matches employee contributions at a 50%
level up to an additional 3% Company contribution. Company
contributions to this plan on behalf of the participants were
$2,115,000, $1,220,000 and $850,000 for the years ended December 31,
1998, 1997 and 1996, respectively.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
The Company has a deferred compensation plan, which is available to the
internal field marketing staff and certain officers. Company
contributions to this plan on behalf of the participants were $342,000,
$270,000 and $245,000 for the years ended December 31, 1998, 1997 and
1996, respectively.
The Company and an affiliate cooperatively have a long-term incentive
plan under which units are awarded to executive officers and other
personnel. The program consists of multiple plans, with a new plan
instituted each year. Generally, participants must remain employed by
the Company or its affiliates at the time such units are payable in
order to receive any payments under the plan. The accrued liability
representing the value of these units was $21,372,000 and $15,720,000
as of December 31, 1998 and 1997, respectively. Payments under this
plan were $2,407,000, $1,119,000 and $602,000 for the years ended
December 31, 1998, 1997, and 1996, respectively.
13. REINSURANCE
The effect of reinsurance for the years ended December 31, 1998, 1997
and 1996 is as follows:
<TABLE>
<CAPTION>
(in thousands) 1998
----
Policy Change in Return Credited
Charges and Fees Policy Reserves to Contractowners
---------------- --------------- -----------------
<S> <C> <C> <C>
Gross $215,425 $ 691 ($8,921)
Ceded 29,214 (362) 9
-------- ------- -------
Net $186,211 $ 1,053 ($8,930)
======== ======= =======
1997
----
Policy Change in Return Credited
Charges and Fees Policy Reserves to Contractowners
---------------- --------------- -----------------
Gross $144,417 $955 ($1,972)
Ceded 23,259 918 46
-------- ----- -------
Net $121,158 $ 37 ($2,018)
======== ===== ======
1996
----
Policy Change in Return Credited
Charges and Fees Policy Reserves to Contractowners
---------------- --------------- -----------------
Gross $87,370 $815 $779
Ceded 17,590 180 106
-------- ----- -----
Net $69,780 $635 $673
======= ==== ====
</TABLE>
Such ceded reinsurance does not relieve the Company of its obligations
to policyholders. The Company remains liable to its policyholders for
the portion reinsured to the extent that any reinsurer does not meet
the obligations assumed under the reinsurance agreements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
14. SURPLUS NOTES
The Company has issued surplus notes to its Parent in exchange for cash.
Surplus notes outstanding as of December 31, 1998 and 1997 were
as follows:
<TABLE>
<CAPTION>
(in thousands)
Interest for the
Interest 1998 1997 Years Ended December 31,
Issue Date Rate Amount Amount 1998 1997 1996
---------- ---- ------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
December 29, 1993 6.84% $ - $ 20,000 $ 1,387 $ 1,387 $ 1,391
February 18, 1994 7.28% 10,000 10,000 738 738 740
March 28, 1994 7.90% 10,000 10,000 801 801 803
September 30, 1994 9.13% 15,000 15,000 1,389 1,389 1,392
December 28, 1994 9.78% 14,000 14,000 1,388 1,388 1,392
December 19, 1995 7.52% 10,000 10,000 762 762 765
December 20, 1995 7.49% 15,000 15,000 1,139 1,139 1,142
December 22, 1995 7.47% 9,000 9,000 682 682 684
June 28, 1996 8.41% 40,000 40,000 3,411 3,411 1,747
December 30, 1996 8.03% 70,000 70,000 5,699 5,699 31
-------- -------- ------- ------- -------
Total $193,000 $213,000 $17,396 $17,396 $10,087
======== ======== ======= ======= =======
</TABLE>
The surplus note for $20,000,000 dated December 29, 1993 was converted
to additional paid-in capital on December 31, 1998.
All surplus notes mature seven years from the issue date.
Payment of interest and repayment of principal for these notes is
subject to certain conditions and require approval by the Insurance
Commissioner of the State of Connecticut. At December 31, 1998 and
1997, $9,644,000 and $7,796,000, respectively, of accrued interest on
surplus notes was not approved for payment under these criteria.
15. SHORT-TERM BORROWING
The Company had a $10 million short-term loan payable to the Parent at
December 31, 1998 and 1997. The total interest expense to the Company
was $622,000, $642,000 and $643,000 and for the years ended December
31, 1998, 1997 and 1996, respectively, of which $182,000 and $201,000
was payable as of December 31, 1998 and 1997, respectively.
16. CONTRACT WITHDRAWAL PROVISIONS
Approximately 99% of the Company's separate account liabilities are
subject to discretionary withdrawal by contractowners at market value
or with market value adjustment. Separate account assets which are
carried at fair value are adequate to pay such withdrawals which are
generally subject to surrender charges ranging from 10% to 1% for
contracts held less than 10 years.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
17. SEGMENT REPORTING
In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS 131 establishes standards
for the way that public enterprises report information about operating
segments in annual financial statements and requires that those
enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes
standards related to disclosures about products and services,
geographic areas and major customers. SFAS 131 is effective for
financial statement periods beginning after December 15, 1997.
During 1998, to complement its annuity products, the Company launched
specific marketing and operational activities towards the release of
variable life insurance and qualified retirement plan annuity products.
As of December 31, 1998, sales were not significant enough to warrant
full segment disclosures. Sales, as measured by premium received, for
the year ended December 31, 1998 and assets under management as of
December 31, 1998, for the respective segments were as follows:
<TABLE>
<CAPTION>
(in thousands) Variable Variable Qualified
Annuity Life Plans Total
------------ -------- --------- -----------
<S> <C> <C> <C> <C>
Sales $ 4,122,272 $1,188 $36,202 $ 4,159,662
=========== ====== ======= ===========
Assets under management $17,809,437 $1,295 $44,029 $17,854,761
=========== ====== ======= ===========
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes information with respect to the
operations of the Company on a quarterly basis:
<TABLE>
<CAPTION>
(in thousands) Three Months Ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
1998
----
<S> <C> <C> <C> <C>
Premiums and other insurance
revenues $ 50,593 $ 57,946 $ 62,445 $ 67,327
Net investment income 3,262 2,410 2,469 2,989
Net realized capital gains (losses) 156 13 (46) (24)
-------- -------- -------- --------
Total revenues 54,011 60,369 64,868 70,292
Benefits and expenses 46,764 42,220 48,471 69,164
-------- -------- -------- --------
Pre-tax net income 7,247 18,149 16,397 1,128
Income taxes 1,175 4,174 2,223 582
-------- -------- -------- --------
Net income $ 6,072 $ 13,975 $ 14,174 $ 546
======== ======== ======== ========
1997
----
Premiums and other insurance
revenues $ 30,186 $ 34,056 $ 41,102 $ 44,402
Net investment income 1,369 2,627 2,031 2,154
Net realized capital gains 20 43 21 3
-------- -------- -------- --------
Total revenues 31,575 36,726 43,154 46,559
Benefits and expenses 18,319 30,465 31,179 40,025
-------- -------- -------- --------
Pre-tax net income 13,256 6,261 11,975 6,534
Income taxes 4,260 2,614 3,354 250
-------- -------- -------- --------
Net income $ 8,996 $ 3,647 $ 8,621 $ 6,284
======== ======== ======== ========
1996
----
Premiums and other insurance
revenues $ 16,606 $ 20,453 $ 22,366 $ 26,906
Net investment income 455 283 270 578
Net realized capital gains 92 13 6 23
-------- -------- -------- --------
Total revenues 17,153 20,749 22,642 27,507
Benefits and expenses 12,725 9,430 17,007 26,304
-------- --------- -------- --------
Pre-tax net income 4,428 11,319 5,635 1,203
Income taxes 1,769 3,624 3,096 (12,527)
-------- --------- -------- --------
Net income $ 2,659 $ 7,695 $ 2,539 $ 13,730
======== ========= ======== ========
</TABLE>
As described in Note 6, the valuation allowance relating to deferred
income taxes was released during the three months ended December 31,
1996.
<PAGE>
APPENDIX B - CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B
The Unit Prices and number of Units in the Sub-accounts that commenced
operations prior to January 1, 1999 are shown below. All or some of these
Sub-accounts were available during the periods shown as investment options for
other variable annuities we offer pursuant to different prospectuses.
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, 1999 and are being
offered pursuant to this Prospectus or which we offer pursuant to certain other
prospectuses; and (b) the number of Units outstanding in each such Sub-account
as of the dates shown. The year in which operations commenced in each such
Sub-account is noted in parentheses. The portfolios in which a particular
Sub-account invests may or may not have commenced operations prior to the date
such Sub-account commenced operations. The initial offering price for each
Sub-account was $10.00.
<TABLE>
<CAPTION>
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
GAL Money Market 3
(1995)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit Price $11.55 11.10 10.68 10.29 - - - - - -
Number of Units 793,937 481,900 438,416 481,900 - - - - - -
GAL Equity 3
(1995)
Unit Price $21.16 17.31 13.69 11.38 - - - - - -
Number of Units 2,156,517 1,614,134 844,454 205,306 - - - - - -
GAL High Quality
Bond 3
(1995)
Unit Price $13.44 12.38 11.43 11.32 - - - - - -
Number of Units 893,217 449,406 241,376 94,895 - - - - - -
GAL Asset Allocation 3
(1995)
Unit Price $18.04 15.58 13.22 11.62 - - - - - -
Number of Units 3,160,151 1,518,788 595,541 199,741 - - - - - -
GAL Growth &
Income 3 (1)
(1998)
Unit Price $10.31 - - - - - - - - -
Number of Units 740,896 - - - - - - - - -
GAL Small Company
Growth 3 (1)
(1998)
Unit Price $8.86 - - - - - - - - -
Number of Units 128,931 - - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
GAL Columbia Real
Estate Equity II 3 (1)
(1998)
Unit Price $8.97 - - - - - - - - -
Number of Units 62,167 - - - - - - - - -
GAL Columbia High
Yield II 3 (1)
(1998)
Unit price $10.87 - - - - - - - - -
Number of Units 200,548 - - - - - - - - -
AST T. Rowe Price
International Equity 3
(1995)
Unit Price $13.68 12.12 12.08 10.69 - - - - - -
Number of Units 872,504 934,595 783,865 265,448 - - - - - -
AST Janus Small-Cap
Growth 3 (2)
(1995)
Unit Price $15.57 15.19 14.48 12.18 - - - - - -
Number of Units 739,417 1,159,570 861,999 203,315 - - - - - -
AST Neuberger Berman
Mid-Cap Value 3 (3)
(1995)
Unit Price
Number of Units $15.67 16.21 12.95 11.73 - - - - - -
265,991 37,213 19,077 8,260 - - - - - -
AST JanCap Growth 3
(1995)
Unit Price $33.83 20.31 15.95 12.55 - - - - - -
Number of Units 784,771 386,637 252,967 68,509 - - - - - -
AST INVESCO Equity
Income 3
(1995)
Unit Price $18.60 16.58 13.58 11.71 - - - - - -
Number of Units 1,551,802 1,112,336 645,296 155,507 - - - - - -
AST T. Rowe Price
International Bond 3
(4)
(1995) $12.14 10.69 11.18 10.66 - - - - - -
Unit Price 157,857 101,883 56,657 24,422 - - - - - -
Number of Units
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
The Alger American
Fund - AA MidCap
Growth 3
(1995)
Unit Price $20.93 16.23 14.25 12.87 - - - - - 0
Number of Units 223,099 146,230 142,950 50,878 - - - - - 0
The Montgomery Variable
Series - MV Emerging
Markets 3
(1996)
Unit Price $6.26 10.12 10.28 - - - - - - 0
Number of Units 130,849 64,010 37,227 - - - - - - 0
</TABLE>
1. These Portfolios were first offered as Sub-accounts on March 2, 1998.
2. Effective December 31, 1998 Janus Capital Corporation became Sub-advisor of
the Portfolio. Prior to December 31, 1998, Founders Asset Management, LLC
served as the Sub-advisor of the Portfolio. In connection with this change
the portfolio's name is changed to "AST Janus Small-Cap Growth." The
performance information provided in the above chart reflects that of the
Portfolio as sub-advised by the prior Sub-advisor from inception until
December 31, 1998.
3. Effective May 1, 1998, Neuberger Berman Management, Inc. became Sub-Advisor
to the Portfolio. Prior to May 1, 1998, Federated Investment Counseling
served as Sub-advisor of the Portfolio, then named the "Federated Utility
Income Portfolio." As of May 1, 1998 various changes have been made to the
Portfolio's investment objective and to its fundamental and non-fundamental
investment restrictions.
4. Effective May 1, 1996, Rowe Price-Fleming International, Inc. became
Sub-advisor of the Portfolio. Prior to May 1, 1996, Scudder, Stevens &
Clark, Inc. served as the Sub-advisor of the Portfolio, then named the "AST
Scudder International Bond Portfolio." The performance information provided
in the above chart reflects that of the Portfolio as sub-advised by the
prior Sub-advisor from inception until May 1, 1996, and the current
Sub-advisor from May 1, 1996 through the current period.
<PAGE>
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
(05/99).
-------------------------------------------------------
(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 at:
AMERICAN SKANDIA LIFE AMERICAN SKANDIA LIFE
ASSURANCE CORPORATION ASSURANCE CORPORATION
One Corporate Drive P.O. Box 883
Shelton, Connecticut 06484 Shelton, Connecticut 06484
Telephone: 1-800-752-6342 Telephone: 1-800-752-6342
http://www.AmericanSkandia.com http://www.AmericanSkandia.com
Distributed by:
AMERICAN SKANDIA MARKETING, INCORPORATED
One Corporate Drive
Shelton, Connecticut 06484
Telephone: 203-926-1888
http://www.AmericanSkandia.com
GAL3 - SAI (05/99)
STATEMENT OF ADDITIONAL INFORMATION
The variable investment options under the Annuity are issued by AMERICAN SKANDIA
LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B (CLASS 3 SUB-ACCOUNTS) and
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION. The variable investment options are
registered under the Securities Act of 1933 and the Investment Company Act of
1940. The fixed investment options under the Annuity are issued by AMERICAN
SKANDIA LIFE ASSURANCE CORPORATION. The assets supporting the fixed investment
options are maintained in AMERICAN SKANDIA LIFE ASSURANCE CORPORATION SEPARATE
ACCOUNT D, a non-unitized separate account, and registered solely under the
Securities Act of 1933.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ITEM PAGE
General Information about American Skandia 2
|X| American Skandia Life Assurance Corporation 2
|X| American Skandia Life Assurance Corporation Variable Account B (Class 3 Sub-accounts) 2
|X| American Skandia Life Assurance Corporation Separate Account D 3
Principal Underwriter/Distributor - American Skandia Marketing, Incorporated 4
How Performance Data is Calculated 5
|X| Current and Effective Yield 5
|X| Total Return 5
How the Unit Price is Determined 8
Additional Information on Fixed Allocations 9
|X| How We Calculate the Market Value Adjustment
General Information 10
|X| Voting Rights 10
|X| Modification 11
|X| Deferral of Transactions 11
|X| Misstatement of Age or Sex 11
|X| Ending the Offer 12
Independent Auditors 12
Legal Experts 12
Financial Statements 12
|X| Appendix A - American Skandia Life Assurance Corporation Variable Account B (Class 3 Sub-accounts) 13
</TABLE>
- --------------------------------------------------------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATlON IS NOT A PROSPECTUS. YOU SHOULD READ
THIS INFORMATION ALONG WITH THE PROSPECTUS FOR THE ANNUITIES FOR WHICH IT
RELATES. THE PROSPECTUS CONTAINS INFORMATION THAT YOU SHOULD CONSIDER BEFORE
INVESTING. 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 3, 1999
Date of Statement of Additional Information: May 3, 1999
<PAGE>
GENERAL INFORMATION ABOUT AMERICAN SKANDIA
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
("ASIHC"). ASIHC's 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.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B (Class 3
Sub-accounts)
American Skandia Life Assurance Corporation Variable Account B (Class 3
Sub-accounts), also referred to as "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 has a different level of charges
assessed against such Sub-accounts. Each Sub-account invests exclusively in an
underlying mutual fund or a portfolio of an underlying mutual fund. You will
find additional information about these underlying mutual funds and portfolios
in the prospectuses for such funds.
Separate Account B is registered with the Securities and Exchange Commission
under the Investment Company Act of 1940 (the "Investment Company Act") as a
unit investment trust, which is a type of investment company. 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. You bear the entire
investment risk.
During the accumulation phase, we offer a number of Sub-accounts as variable
investment options. 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 Owners of the
availability of such Sub-accounts. As of the date of the Prospectus and
Statement of Additional Information, our Sub-accounts and the underlying mutual
funds or portfolios in which they invest are as follows. Those portfolios whose
name includes the prefix "AST" are portfolios of American Skandia Trust.
<TABLE>
<CAPTION>
Underlying Mutual Fund: The Galaxy VIP Fund
Sub-account Underlying Mutual Fund Portfolio
<S> <C> <C>
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
GAL Growth and Income 3 Growth and Income
GAL Small Company Growth 3 Small Company Growth
GAL Columbia Real Estate Equity II 3 Columbia Real Estate Equity II
GAL Columbia High Yield II 3 Columbia High Yield II
Underlying Mutual Fund: American Skandia Trust
Sub-account Underlying Mutual Fund Portfolio
AST T. Rowe Price International Equity 3 AST T. Rowe Price International Equity
AST Janus Small-Cap Growth 3 AST Janus Small-Cap Growth
AST NB Mid-Cap Value 3 AST Neuberger Berman Mid-Cap Value
AST JanCap Growth 3 AST JanCap Growth
AST INVESCO Equity Income 3 AST INVESCO Equity Income
AST T. Rowe Price International Bond 3 AST T. Rowe Price International Bond
Underlying Mutual Fund: The Alger American Fund
Sub-account Underlying Mutual Fund Portfolio
AA MidCap Growth 3 MidCap Growth
Underlying Mutual Fund: Montgomery Variable Series
Sub-account Underlying Mutual Fund Portfolio
MV Emerging Markets 3 Emerging Markets
</TABLE>
A brief summary of the investment objectives and policies of each underlying
mutual fund portfolio is found in the Prospectuses. More detailed information
about the investment objectives, policies, charges, operations, the attendant
risks and other details pertaining to each underlying mutual fund portfolio are
described in the prospectus of each underlying mutual fund and the statements of
additional information for such underlying mutual fund. Also included in such
information is the investment policy of each mutual fund or portfolio regarding
the acceptable ratings by recognized rating services for bonds and other debt
obligations. There can be no guarantee that any underlying mutual fund or
portfolio will meet its investment objectives.
Each underlying mutual fund is registered under the Investment Company Act, as
amended as an open-end management investment company. Each underlying mutual
fund or portfolio thereof may or may not be diversified as defined in the
Investment Company Act. 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.
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.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION SEPARATE ACCOUNT D
American Skandia Life Assurance Corporation Separate Account D, also referred to
as Separate Account D, was established by us pursuant to Connecticut law. During
the accumulation phase, assets supporting our obligations based on Fixed
Allocations are held in Separate Account D. Such obligations are based on the
fixed interest rates we credit to Fixed Allocations and the terms of the
Annuities. These obligations do not depend on the investment performance of the
assets in Separate Account D.
There are no units in Separate Account D. The Fixed Allocations are guaranteed
by our general account. An Annuity Owner who allocates a portion of their
Account Value to Separate Account D does not participate in the investment gain
or loss on assets maintained in Separate Account D. Such gain or loss accrues
solely to us. We retain the risk that the value of the assets in Separate
Account D may drop below the reserves and other liabilities we must maintain.
Should the value of the assets in Separate Account D drop below the reserve and
other liabilities we must maintain in relation to the annuities supported by
such assets, we will transfer assets from our general account to Separate
Account D to make up the difference. We have the right to transfer to our
general account any assets of Separate Account D in excess of such reserves and
other liabilities. We maintain assets in Separate Account D supporting a number
of annuities we offer.
We have sole discretion over the investment managers retained to manage the
assets maintained in Separate Account D. We currently employ investment managers
for Separate Account D including, but not limited to, Fleet Investment Advisors,
Inc. Each manager we employ is responsible for investment management of a
different portion of Separate Account D. From time to time additional investment
managers may be employed or investment managers may cease being employed. We are
under no obligation to employ or continue to employ any investment manager(s).
We 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. The assets in Separate Account D are accounted for at their market value,
rather than at book value.
4. 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.
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.
PRINCIPAL UNDERWRITER/DISTRIBUTOR - American Skandia Marketing, Incorporated
American Skandia Marketing, Incorporated ("ASM"), a wholly-owned subsidiary of
ASIHC, is the distributor and principal underwriter of the securities offered
through this prospectus and Statement of Additional Information. American
Skandia Life Assurance Corporation and American Skandia Investment Services,
Incorporated ("ASISI"), the investment manager of American Skandia Trust and
American Skandia Advisor Funds, Inc., are also wholly-owned subsidiaries of
ASIHC. American Skandia Information Services and Technology Corporation
("ASIST"), also a wholly-owned subsidiary ASIHC, is a service company that
provides systems and information services to American Skandia Life Assurance
Corporation and its affiliated companies.
ASM acts as the distributor of a number of annuity and life insurance products
we offer and both American Skandia Trust and American Skandia Advisor Funds,
Inc., a family of retail mutual funds. ASM's principal business address is One
Corporate Drive, Shelton, Connecticut 06484. ASM is registered as broker-dealer
under the Securities and Exchange Act of 1934 ("Exchange Act") and is a member
of the National Association of Securities Dealers, Inc. ("NASD").
The Annuity is offered on a continuous basis. ASM enters into distribution
agreements with independent broker-dealers who are registered under the Exchange
Act and with entities that may offer the Annuity but are exempt from
registration. Applications for the Annuity are solicited by registered
representatives of those firms. Such representatives will also be our appointed
insurance agents under state insurance law. In addition, ASM may offer the
Annuity directly to potential purchasers.
Compensation is paid to firms on sales of the Annuity according to one or more
schedules. The individual representative will receive a portion of the
compensation, depending on the practice of the firm. Compensation is generally
based on a percentage of Purchase Payments made, up to a maximum of 7.0%.
Alternative compensation schedules are available that provide a lower initial
commission plus ongoing annual compensation based on all or a portion of Account
Value. We may also provide compensation for providing ongoing service to you in
relation to the Annuity. Commissions and other compensation paid in relation to
the Annuity do not result in any additional charge to you or to the Separate
Account.
In addition, firms may receive separate compensation or reimbursement for, among
other things, training of sales personnel, marketing or other services they
provide to us or our affiliates. We or ASM may enter into compensation
arrangements with certain firms. These arrangements will not be offered to all
firms and the terms of such arrangements may differ between firms. Any such
compensation will be paid by us or ASM and will not result in any additional
charge to you. To the extent permitted by NASD rules and other applicable laws
and regulations, ASM may pay or allow other promotional incentives or payments
in the form of cash or other compensation.
HOW PERFORMANCE DATA IS CALCULATED
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 (like the GAL Money Market Sub-account) 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.
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.
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
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 charge 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 3.64% 3.71%
Total Return
Total return for the other Sub-accounts is computed by using the formula:
P(1+T)n = ERV
where:
P = a hypothetical allocation of $1,000;
T = average annual total return;
n = the number of years over which total return is being measured; and
ERV = the Account Value of the hypothetical $1,000 payment as of the end of the
period over which total return is being measured.
Many of the Sub-accounts offered as variable investment options for the
Annuities have been available as variable investment options in other annuities
we offer under one or more separate accounts of American Skandia Life Assurance
Corporation. In addition, some of the underlying mutual fund portfolios existed
prior to the inception of these Sub-accounts. Performance quoted in advertising
regarding any 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.
"Standard Total Return" figures assume that all charges and fees are applicable,
including any contingent deferred sales charge that may apply for the period
shown. "Non-standard Total Return" figures may also be used that do not reflect
all fees and charges. Non-standard Total Returns are calculated in the same
manner as standardized returns except that the calculations may assume no
redemption at the end of the applicable periods, thus these figures may not take
into consideration the Annuity's contingent deferred sales charge.
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 total return figures for the periods shown. Figures are shown
only for Sub-accounts operational as of December 31, 1998. The
"inception-to-date" figures shown below are based on the inception date of an
underlying mutual fund portfolio. "N/A" means "not applicable" and indicates
that the underlying mutual fund portfolio was not in operation for the
applicable period. Any performance of such portfolios prior to inception of a
Sub-account is provided by the underlying mutual funds. The total return for any
Sub-account reflecting performance prior to such Sub-account's inception is
based on such information.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------- -- ------------------------------------------------
Standard Total Return Non-Standard Total Return
-------------------------------------------------- -- ------------------------------------------------
-------------------------------------------------- -- ------------------------------------------------
(Assuming maximum CDSC and (Assuming no CDSC with maintenance fees)
maintenance fees)
---------------------------------------------- -- ------------------------------------------------
- ----------------------------- -------- --------- --------- --------- ---------- -- --------- --------- -------- --------- ---------
1 3 5 10 Inception 1 3 5 Years 10 Inception
Year Years Years Years to Date Year Years Years to Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAL Equity 3 18.04% 22.22% 18.80% N/A 16.08% 22.04% 22.66% 18.80% N/A 16.08%
GAL High Quality Bond 3 4.38% 4.91% 5.87% N/A 5.75% 8.38% 5.51% 5.87% N/A 5.75%
GAL Asset Allocation 3 11.54% 14.91% 13.78% N/A 12.34% 15.54% 15.41% 13.78% N/A 12.34%
GAL Growth & Income 3 1 N/A N/A N/A N/A -1.09% N/A N/A N/A N/A 2.91%
GAL Small Company Growth 3 1 N/A N/A N/A N/A -15.61% N/A N/A N/A N/A -11.61%
GAL Columbia Real Estate N/A N/A N/A N/A -14.51% N/A N/A N/A N/A -10.51%
Equity II 3 1
GAL Columbia High Yield II 3 1 N/A N/A N/A N/A 4.46% N/A N/A N/A N/A 8.46%
AST T. Rowe Price International 8.67% 7.78% 5.83% N/A 5.85% 12.67% 8.34% 5.83% N/A 5.85%
Equity 3
AST Janus Small-Cap Growth 3 2 -1.75% 7.71% 12.24% N/A 12.27% 2.25% 8.28% 12.24% N/A 12.27%
AST Neuberger Berman Mid-Cap -7.50% 9.34% 8.75% N/A 8.98% -3.50% 9.89% 8.75% N/A 8.98%
Value 3 3
AST JanCap Growth 3 62.25% 38.43% 28.06% N/A 25.26% 66.25% 38.78% 28.06% N/A 25.26%
AST INVESCO Equity Income 3 7.98% 15.89% 14.33% N/A 14.37% 11.98% 16.38% 14.33% N/A 14.37%
AST T. Rowe Price International 9.34% 3.61% N/A N/A 3.86% 13.34% 4.22% N/A N/A 3.86%
Bond 3 4
AA MidCap Growth 3 24.74% 16.84% 17.55% N/A 22.01% 28.74% 17.33% 17.55% N/A 22.01%
MV Emerging Markets 3 -42.28% N/A N/A N/A -15.18% -38.28% N/A N/A N/A -14.24%
- ----------------------------- -------- --------- --------- --------- ---------- -- --------- --------- -------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------- -- -------------------------------------------------
Standard Total Return Non-Standard Total Return
-------------------------------------------------- -- -------------------------------------------------
-------------------------------------------------- -- -------------------------------------------------
(Assuming maximum CDSC and (Assuming no CDSC and no maintenance fee)
no maintenance fee)
-------------------------------------------------- -- -------------------------------------------------
- ---------------------------- -------- --------- --------- --------- ---------- -- --------- --------- -------- --------- ----------
1 3 5 10 Inception 1 3 5 Years 10 Inception
Year Years Years Years to Date Year Years Years to Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAL Equity 3 18.28% 22.47% 19.03% N/A 16.31% 22.28% 22.91% 19.03% N/A 16.31%
GAL High Quality Bond 3 4.60% 5.12% 6.08% N/A 5.96% 8.60% 5.72% 6.08% N/A 5.96%
GAL Asset Allocation 3 11.77% 15.15% 14.01% N/A 12.57% 15.77% 15.64% 14.01% N/A 12.57%
GAL Growth & Income 3 1 N/A N/A N/A N/A -0.89% N/A N/A N/A N/A 3.11%
GAL Small Company Growth 3 1 N/A N/A N/A N/A -15.43% N/A N/A N/A N/A -11.43%
GAL Columbia Real Estate N/A N/A N/A N/A -14.33% N/A N/A N/A N/A -10.33%
Equity II 3 1
GAL Columbia High Yield II 3 1 N/A N/A N/A N/A 4.68% N/A N/A N/A N/A 8.68%
AST T. Rowe Price Internationa 8.89% 7.99% 6.04% N/A 6.06% 12.89% 8.56% 6.04% N/A 6.06%
Equity 3
AST Janus Small-Cap Growth 3 2 -1.54% 7.92% 12.47% N/A 12.50% 2.46% 8.49% 12.47% N/A 12.50%
AST Neuberger Berman Mid-Cap -7.31% 9.56% 8.97% N/A 9.22% -3.31% 10.11% 8.97% N/A 9.22%
Value 3 3
AST JanCap Growth 3 62.58% 38.71% 28.32% N/A 25.54% 66.58% 39.05% 28.32% N/A 25.54%
AST INVESCO Equity Income 3 8.20% 16.13% 14.56% N/A 14.60% 12.20% 16.62% 14.56% N/A 14.60%
AST T. Rowe Price International 9.57% 3.82% N/A N/A 4.08% 13.57% 4.43% N/A N/A 4.08%
Bond 3 4
AA MidCap Growth 3 25.00% 17.08% 17.78% N/A 22.27% 29.00% 17.56% 17.78% N/A 22.27%
MV Emerging Markets 3 -42.16% N/A N/A N/A -14.99% -38.16% N/A N/A N/A -14.06%
- ---------------------------- -------- --------- --------- --------- ---------- -- --------- --------- -------- --------- ----------
</TABLE>
1. These Portfolios were first offered as Sub-accounts on March 2, 1998.
2. Effective December 31, 1998 Janus Capital Corporation became Sub-advisor of
the Portfolio. Prior to December 31, 1998, Founders Asset Management, LLC
served as the Sub-advisor of the Portfolio. In connection with this change
the portfolio's name is changed to "AST Janus Small-Cap Growth." The
performance information provided in the above chart reflects that of the
Portfolio as sub-advised by the prior Sub-advisor from inception until
December 31, 1998.
3. Effective May 1, 1998, Neuberger Berman Management, Inc. became Sub-Advisor
to the Portfolio. Prior to May 1, 1998, Federated Investment Counseling
served as Sub-advisor of the Portfolio, then named the "Federated Utility
Income Portfolio." As of May 1, 1998 various changes have been made to the
Portfolio's investment objective and to its fundamental and non-fundamental
investment restrictions.
4. Effective May 1, 1996, Rowe Price-Fleming International, Inc. became
Sub-advisor of the Portfolio. Prior to May 1, 1996, Scudder, Stevens &
Clark, Inc. served as the Sub-advisor of the Portfolio, then named the "AST
Scudder International Bond Portfolio." The performance information provided
in the above chart reflects that of the Portfolio as sub-advised by the
prior Sub-advisor from inception until May 1, 1996, and the current
Sub-advisor from May 1, 1996 through the current period.
Some of the underlying portfolios may be subject to an expense reimbursement or
waiver that in the absence of such reimbursement or waiver would reduce the
portfolio's performance.
The performance quoted in any advertising should not be considered a
representation of the performance of these Sub-accounts in the future since
performance is not fixed. Actual performance will depend on the type, quality
and, for some of the Sub-accounts, the maturities of the investments held by the
underlying mutual funds and upon prevailing market conditions and the response
of the underlying mutual funds to such conditions. Actual performance will also
depend on changes in the expenses of the underlying mutual funds. In addition,
the amount of charges against each Sub-account will affect performance.
The information provided by these measures may be useful in reviewing the
performance of the Sub-accounts, and for providing a basis for comparison with
other annuities. These measures may be less useful in providing a basis for
comparison with other investments that neither provide some of the benefits of
such annuities nor are treated in a similar fashion under the Code.
HOW THE UNIT PRICE IS DETERMINED
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.
ADDITIONAL INFORMATION ON 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. Such an action may have an impact on the MVA.
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 two and one
quarter 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 insurance 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.
How We Calculate the Market Value Adjustment
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 interest rate (for your class of annuity) being
credited to new Fixed Allocations with Guarantee Period
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 your Fixed Allocation 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 you surrender the Annuity pursuant to the free-look
provision 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:
1. 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 .
2. 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.
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.
We reserve the right, from time to time, to determine the MVA using an interest
rate lower than the Current Rate for all transactions applicable to a class of
Annuities. We may do so at our sole discretion. This would benefit all such
Annuities if transactions to which the MVA applies occur while we use such lower
interest rate.
GENERAL INFORMATION
Voting Rights
You have voting rights in relation to Account Value maintained in the
Sub-accounts. You do not have voting rights in relation to Account Value
maintained in any Fixed Allocations or in relation to fixed or adjustable
annuity payments.
We will vote shares of the underlying mutual funds or portfolios in which the
Sub-accounts invest in the manner directed by Owners. Owners give instructions
equal to the number of shares represented by the Sub-account Units attributable
to their Annuity.
We will vote the shares attributable to assets held in the Sub-accounts solely
for us rather than on behalf of Owners, or any share as to which we have not
received instructions, in the same manner and proportion as the shares for which
we have received instructions. We will do so separately for each Sub-account
from various classes that may invest in the same underlying mutual fund
portfolio.
The number of votes for an underlying mutual fund or portfolio will be
determined as of the record date for such underlying mutual fund or portfolio as
chosen by its board of trustees or board of directors, as applicable. We will
furnish Owners with proper forms and proxies to enable them to instruct us how
to vote.
You may instruct us how to vote on the following matters: (a) changes to the
board of trustees or board of directors, as applicable; (b) changing the
independent accountant; (c) approval of changes to the investment advisory
agreement or adoption of a new investment advisory agreement; (d) any change in
the fundamental investment policy; and (e) any other matter requiring a vote of
the shareholders.
With respect to approval of changes to the investment advisory agreement,
approval of a new investment advisory agreement or any change in fundamental
investment policy, only Owners maintaining Account Value as of the record date
in a Sub-account investing in the applicable underlying mutual fund portfolio
will instruct us how to vote on the matter, pursuant to the requirements of Rule
18f-2 under the Investment Company Act.
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 Investment Company Act; (f) operate Separate Account B as a
management investment company under the Investment Company 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 Investment Company 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.
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.
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.
INDEPENDENT AUDITORS
The consolidated financial statements of American Skandia Life Assurance
Corporation at December 31, 1998 and 1997, and for the years then ended, and the
financial statements of American Skandia Life Assurance Corporation Variable
Account B - Class 3 Galaxy at December 31, 1998 and for the two years then
ended, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors. The consolidated financial
statements of American Skandia Life Assurance Corporation for the year ended
December 31, 1996, appearing in this Prospectus and Registration Statement, have
been audited by Deloitte & Touche LLP, independent auditors. The audits, as set
forth in their respective reports thereon appearing elsewhere herein, are
included in reliance upon such reports given upon the authority of such firms as
experts in accounting and auditing.
LEGAL EXPERTS
Counsel with respect to Federal laws and regulations applicable to the issue and
sale of the Annuities and with respect to Connecticut law is Werner & Kennedy,
1633 Broadway, New York, New York 10019.
FINANCIAL STATEMENTS
American Skandia Life Assurance Corporation Variable Account B (Class 3
Sub-accounts)
The statements which follow in Appendix A are those of American Skandia Life
Assurance Corporation Variable Account B (Class 3 Sub-accounts) as of December
31, 1998 and for the periods ended December 31, 1998 and 1997. There are other
Sub-accounts included in Variable Account B that are not available in the
product described in the applicable prospectus.
To the extent and only to the extent that any statement in a document
incorporated by reference into this Statement of Additional Information is
modified or superseded by a statement in this Statement of Additional
Information or in a later-filed document, such statement is hereby deemed so
modified or superseded and not part of this Statement of Additional Information.
We furnish you without charge a copy of any or all the documents incorporated by
reference in this Statement of Additional Information, including any exhibits to
such documents which have been specifically incorporated by reference. We do so
upon receipt of your written or oral request. Please address your request to
American Skandia Life Assurance Corporation, Attention: 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].
APPENDIX A
Financial Statements for American Skandia Life Assurance Corporation
Variable Account B (Class 3 Sub-accounts)
American Skandia Life
Assurance Corporation
Variable Account B - Class 3 Galaxy
Years ended December 31, 1998 and 1997
<PAGE>
Independent Auditor's Report
To the Contractowners of
American Skandia Life Assurance Corporation
Variable Account B - Class 3 (Galaxy Annuity) and the
Board of Directors and Shareholder of
American Skandia Life Assurance Corporation
Shelton, Connecticut
We have audited the accompanying statement of assets, liabilities and
contractowners' equity of the sixteen sub-accounts of American Skandia Life
Assurance Corporation Variable Account B - Class 3, referred to in Note 1, as of
December 31, 1998, the related statement of operations for the year then ended,
and the statements of changes in net assets for the years ended December 31,
1998 and 1997. 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the sixteen sub-accounts of
American Skandia Life Assurance Corporation Variable Account B - Class 3,
referred to in Note 1, at December 31, 1998, the results of their operations for
the year then ended, and their changes in net assets for the years ended
December 31, 1998 and 1997 in conformity with generally accepted accounting
principles.
/s/Ernst & Young LLP
Hartford, Connecticut
February 20, 1999
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
VARAIBLE ACCOUNT B --- CLASS 3 GALAXY
STATEMENT OF ASSETS, LIABILITIES, AND CONTRACTOWNERS' EQUITY
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C>
Investment in mutual funds at market value ( Note 2 ):
The Alger American Fund ( AAF ):
Midcap Growth Portfolio - 161,767 shares ( cost $3,809,390) $ 4,670,214
American Skandia Trust ( AST ):
Jancap Growth Portfolio - 717,596 shares ( cost $18,710,858) 26,551,035
Neuberger & Berman Midcap Value Portfolio - 316,812 shares ( cost $4,073,414) 4,169,246
T. Rowe Price International Equity Portfolio - 891,501 shares ( cost $10,872,725) 11,937,194
T. Rowe Price International Bond Portfolio - 167,253 shares ( cost $1,730,305) 1,916,719
Founders Capital Appreciation Portfolio - 653,633 shares ( cost $10,733,457) 11,510,469
INVESCO Equity Income Portfolio - 1,649,431 shares ( cost $24,751,081) 28,865,040
Montgomery Variable Series (Montgomery):
Emerging Markets Fund - 124,244 shares ( cost $1,129,821) 818,769
Galaxy VIP Funds (GAL):
Money Market Fund - 9,169,108 shares ( cost $9,169,108) 9,169,108
Equity Fund - 2,377,211 shares ( cost $42,288,187) 45,642,460
High Quality Bond Fund - 1,122,242 shares ( cost $11,590,965) 12,007,986
Asset Allocation Fund - 3,499,270 shares ( cost $51,897,639) 57,003,111
Growth & Income Fund - 738,837 shares ( cost $7,236,744) 7,639,574
Small Company Growth Fund - 128,033 shares ( cost $1,154,155) 1,142,055
Columbia Real Estate Equity II Fund - 63,498 shares ( cost $601,270) 557,510
Columbia High Yield II Fund - 210,388 shares ( cost $2,138,083) 2,179,621
---------------
Total Invested Assets $ 225,780,111
Receivable from American Skandia Life Assurance Corporation 382,215
---------------
Total Receivables $ 382,215
---------------
===============
Total Assets $ 226,162,326
===============
- --------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
<S> <C> <C>
Payable to The Alger American Fund $ 5,782
Payable to American Skandia Trust 220,670
Payable to Montgomery Variable Series 8,833
Payable to Galaxy VIP Funds 147,244
---------------
---------------
Total Liabilities $ 382,529
---------------
</TABLE>
<TABLE>
<CAPTION>
NET ASSETS
Unit
<S> <C> <C> <C> <C> <C>
Contractowners' Equity Units Value
AAF - Midcap Growth 223,099 20.93 4,670,214
AST - JanCap Growth 784,771 33.83 26,551,035
AST - Neuberger & Berman Midcap Value 265,991 15.67 4,169,246
AST - T. Rowe Price International Equity 872,504 13.68 11,937,194
AST - T. Rowe Price International Bond 157,857 12.14 1,916,667
AST - Founders Capital Appreciation 739,417 15.57 11,510,469
AST - INVESCO Equity Income 1,551,802 18.60 28,865,041
Montgomery - Emerging Markets 130,849 6.26 818,702
GAL - Money Market 793,937 11.55 9,169,108
GAL - Equity 2,156,517 21.16 45,642,460
GAL - High Quality Bond 893,217 13.44 12,007,986
GAL - Asset Allocation 3,160,151 18.04 57,003,111
GAL - Growth & Income 740,896 10.31 7,639,574
GAL - Small Company Growth 128,931 8.86 1,141,964
GAL - Columbia Real Estate Equity II 62,167 8.97 557,465
GAL - Columbia High Yield II 200,548 10.87 2,179,561
---------------
Total Contractowners' Equity $ 225,779,797
===============
Total Liabilities and Contractowners' Equity $ 226,162,326
===============
- -------------------------------------------------------------------------------
</TABLE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
VARIABLE ACCOUNT B - CLASS 3 GALAXY
STATEMENT OF OPERATIONS
FOR THE PERIODS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Class 3 Sub-account Investing In:
-----------------------------------------------------------------------
AAF - Midcap AST - JanCap AST - Neuberger &
Total Growth Growth Berman Midcap Value
-----------------------------------------------------------------------
INVESTMENT INCOME:
Income
<S> <C> <C> <C> <C>
Dividends $ 37,982 $ - $ 25,895 $ 12,087
Expenses
Mortality and Expense Risk Charges and Administrative Fees
(Note 6) (190,174) (33,176) (135,896) (21,102)
-----------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (152,192) (33,176) (110,001) (9,015)
-----------------------------------------------------------------------
REALIZED GAIN (LOSS) ON INVESTMENTS:
Proceeds from Sales 3,050,514 515,560 1,820,349 714,605
Cost of Securities Sold 2,266,233 435,513 1,089,660 741,060
-----------------------------------------------------------------------
Net Gain (Loss) 784,281 80,047 730,689 (26,455)
Capital Gain Distributions Received 705,496 245,724 415,121 44,651
-----------------------------------------------------------------------
NET REALIZED GAIN (LOSS) 1,489,777 325,771 1,145,810 18,196
UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Beginning of Period 1,391,814 267,750 1,040,033 84,031
End of Period 8,796,833 860,824 7,840,177 95,832
-----------------------------------------------------------------------
NET UNREALIZED GAIN (LOSS) 7,405,019 593,074 6,800,144 11,801
-----------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ 8,742,604 $ 885,669 $ 7,835,953 $ 20,982
=======================================================================
- --------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
* Date Operations Commenced.
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
AST-T. Rowe AST-T. Rowe AST-Founders
Price International Price International Capital AST - INVESCO
Equity Bond Appreciation Equity Income
-----------------------------------------------------------------------
INVESTMENT INCOME:
Income
<S> <C> <C> <C> <C>
Dividends $ 131,764 $ 3,821 $ - $ 380,747
Expenses
Mortality and Expense Risk Charges and Administrative Fees
(Note 6) (122,543) (15,065) (125,815) (249,744)
-----------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 9,221 (11,244) (125,815) 131,003
-----------------------------------------------------------------------
REALIZED GAIN (LOSS) ON INVESTMENTS:
Proceeds from Sales 2,881,243 374,864 9,305,006 963,493
Cost of Securities Sold 2,545,265 373,557 8,103,556 698,536
-----------------------------------------------------------------------
Net Gain (Loss) 335,978 1,307 1,201,450 264,957
Capital Gain Distributions Received 214,381 9,005 569,624 962,558
-----------------------------------------------------------------------
NET REALIZED GAIN (LOSS) 550,359 10,312 1,771,074 1,227,515
UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Beginning of Period 212,828 (10,466) 1,786,227 2,792,322
End of Period 1,064,469 186,414 777,012 4,113,959
-----------------------------------------------------------------------
NET UNREALIZED GAIN (LOSS) 851,641 196,880 (1,009,215) 1,321,637
-----------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ 1,411,221 $ 195,948 $ 636,044 $ 2,680,155
=======================================================================
- --------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
* Date Operations Commenced.
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
GAL GAL GAL
Montgomery Money Equity High Quality
Emerging Mkts Market Fund Bond
-----------------------------------------------------------------------
INVESTMENT INCOME:
Income
<S> <C> <C> <C> <C>
Dividends $ 1,528 $ 370,923 $ 239,237 $ 477,419
Expenses
Mortality and Expense Risk Charges and Administrative Fees
(Note 6) (6,641) (77,953) (388,867) (89,502)
-----------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (5,113) 292,970 (149,630) 387,917
-----------------------------------------------------------------------
REALIZED GAIN (LOSS) ON INVESTMENTS:
Proceeds from Sales 170,553 6,640,008 1,404,485 735,589
Cost of Securities Sold 235,000 6,640,008 881,788 721,578
-----------------------------------------------------------------------
Net Gain (Loss) (64,447) - 522,697 14,011
Capital Gain Distributions Received - - 8,915,467 -
-----------------------------------------------------------------------
NET REALIZED GAIN (LOSS) (64,447) - 9,438,164 14,011
UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Beginning of Period (77,188) - 5,143,292 105,238
End of Period (311,053) - 3,354,273 417,021
-----------------------------------------------------------------------
NET UNREALIZED GAIN (LOSS) (233,865) - (1,789,019) 311,783
-----------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ (303,425) $ 292,970 $ 7,499,515 $ 713,711
=======================================================================
- --------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
* Date Operations Commenced.
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
GAL GAL - Small GAL - Columbia
GAL Growth & Income Company Growth Real Estate Equity II
Asset Mar. 3* thru Mar. 5* thru Apr. 1* thru
Allocation Dec. 31, 1998 Dec. 31, 1998 Dec. 31, 1998
-----------------------------------------------------------------------
INVESTMENT INCOME:
Income
<S> <C> <C> <C> <C>
Dividends $ 1,135,696 $ 26,945 $ 666 $ 13,964
Expenses
Mortality and Expense Risk Charges and Administrative Fees
(Note 6) (428,744) (35,630) (5,095) (2,829)
-----------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 706,952 (8,685) (4,429) 11,135
-----------------------------------------------------------------------
REALIZED GAIN (LOSS) ON INVESTMENTS:
Proceeds from Sales 839,233 353,983 10,082 46,843
Cost of Securities Sold 639,831 373,743 13,543 52,820
-----------------------------------------------------------------------
Net Gain (Loss) 199,402 (19,760) (3,461) (5,977)
Capital Gain Distributions Received 851,606 - - -
-----------------------------------------------------------------------
NET REALIZED GAIN (LOSS) 1,051,008 (19,760) (3,461) (5,977)
UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Beginning of Period 756,464 - - -
End of Period 5,105,472 402,830 (12,100) (43,760)
-----------------------------------------------------------------------
NET UNREALIZED GAIN (LOSS) 4,349,008 402,830 (12,100) (43,760)
-----------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ 6,106,968 $ 374,385 $ (19,990) $ (38,602)
=======================================================================
- --------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
* Date Operations Commenced.
</TABLE>
-----------------
GAL - Columbia
High Yield II
Mar. 4* thru
Dec. 31, 1998
-----------------
INVESTMENT INCOME:
Income
Dividends $ 70,530
Expenses
Mortality and Expense Risk Charges and Administrative Fees
(Note 6) (11,404)
-----------------
NET INVESTMENT INCOME (LOSS) 59,126
-----------------
REALIZED GAIN (LOSS) ON INVESTMENTS:
Proceeds from Sales 787,418
Cost of Securities Sold 776,284
-----------------
Net Gain (Loss) 11,134
Capital Gain Distributions Received 20,998
-----------------
NET REALIZED GAIN (LOSS) 32,132
UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Beginning of Period -
End of Period 41,538
-----------------
NET UNREALIZED GAIN (LOSS) 41,538
-----------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 132,796
=================
- --------------------------------------------------------------------------
See Notes to Financial Statements.
* Date Operations Commenced.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
VARIABLE ACCOUNT B - CLASS 3 GALAXY
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Class 3 Sub-account Investing In:
AAF
Total Midcap Growth**
-------------------------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1997
---------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
<S> <C> <C> <C> <C>
Net Investment Income (Loss) $ $ $ $
(152,192) 400,900 (33,176) (22,501)
Net Realized Gain (Loss) 1,489,777 3,565,853 325,771 111,016
Net Unrealized Gain (Loss) On Investments 7,405,019 7,503,277 593,074 172,288
--------- --------- ------- -------
Net Increase (Decrease) In Net Assets
Resulting From Operations 8,742,604 11,470,030 885,669 260,803
--------- ---------- ------- -------
CAPITAL SHARE TRANSACTIONS:
Transfers of Annuity Fund Deposits 90,713,220 50,394,110 1,324,121 357,509
Net Transfers Between Sub-accounts (3,528,397) 813,128 299,461 (210,766)
Surrenders (12,295,486) (5,127,033) (212,010) (72,022)
----------- ---------- -------- -------
Net Increase (Decrease) In Net Assets
Resulting From Capital Share Transactions 74,889,337 46,080,205 1,411,572 74,721
---------- ---------- --------- ------
TOTAL INCREASE (DECREASE) IN NET ASSETS 83,631,941 57,550,235 2,297,241 335,524
---------- ---------- --------- -------
NET ASSETS:
Beginning of Period 122,466,160 64,915,925 2,372,973 2,037,449
----------- ---------- --------- ---------
End of Period $ 206,098,101 $122,466,160 $ 4,670,214 $ 2,372,973
============= ============ =========== ===========
See Notes to Financial Statements.
* Date Operations Commenced.
**Additional portfolios made available to
contractowners
during 1998.
</TABLE>
<TABLE>
<CAPTION>
AST AST - Neuberger & Berman
JanCap Growth Midcap Value
----------------------------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1997
---------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
<S> <C> <C> <C> <C>
Net Investment Income (Loss) $ $ $ $
(110,001) (49,564) (9,015) 3,078
Net Realized Gain (Loss) 1,145,810 629,205 18,196 21,206
Net Unrealized Gain (Loss) On Investments 6,800,144 607,063 11,801 63,379
--------- ------- ------ ------
Net Increase (Decrease) In Net Assets
Resulting From Operations 7,835,953 1,186,704 20,982 87,663
--------- --------- ------ ------
CAPITAL SHARE TRANSACTIONS:
Transfers of Annuity Fund Deposits 8,206,103 2,010,907 1,744,756 175,595
Net Transfers Between Sub-accounts 3,029,875 687,741 1,836,791 95,242
Surrenders (373,557) (66,455) (36,523) (2,348)
-------- ------- ------- ------
Net Increase (Decrease) In Net Assets
Resulting From Capital Share Transactions 10,862,421 2,632,193 3,545,024 268,489
---------- --------- --------- -------
TOTAL INCREASE (DECREASE) IN NET ASSETS 18,698,374 3,818,897 3,566,006 356,152
---------- --------- --------- -------
NET ASSETS:
Beginning of Period 7,852,661 4,033,764 603,240 247,088
--------- --------- ------- -------
End of Period $ 26,551,035 $ 7,852,661 $ 4,169,246 $ 603,240
============ =========== =========== =========
See Notes to Financial Statements.
* Date Operations Commenced.
**Additional portfolios made available to
contractowners
during 1998.
</TABLE>
<TABLE>
<CAPTION>
AST - T. Rowe Price AST - T. Rowe Price
International International
Equity Bond
--------------------------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1997
---------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
<S> <C> <C> <C> <C>
Net Investment Income (Loss) $ 9,221 $ (56,205) $ (11,244) $ 542
Net Realized Gain (Loss) 550,359 466,503 10,312 7,774
Net Unrealized Gain (Loss) On Investments 851,641 (398,279) 196,880 (36,304)
------- -------- ------- -------
Net Increase (Decrease) In Net Assets
Resulting From Operations 1,411,221 12,019 195,948 (27,988)
--------- ------ ------- -------
CAPITAL SHARE TRANSACTIONS:
Transfers of Annuity Fund Deposits 1,650,143 3,374,809 720,608 395,006
Net Transfers Between Sub-accounts (1,769,468) (516,742) (55,768) 102,919
Surrenders (680,976) (1,010,477) (33,356) (14,193)
-------- ---------- ------- -------
Net Increase (Decrease) In Net Assets
Resulting From Capital Share Transactions (800,301) 1,847,590 631,484 483,732
======== ========= ======= =======
TOTAL INCREASE (DECREASE) IN NET ASSETS 610,920 1,859,609 827,432 455,744
------- --------- ------- -------
NET ASSETS:
Beginning of Period 11,326,274 9,466,665 1,089,235 633,491
---------- --------- --------- -------
End of Period $ 11,937,194 $ 11,326,274 $ 1,916,667 $ 1,089,235
============ ============ =========== ===========
See Notes to Financial Statements.
* Date Operations Commenced.
**Additional portfolios made available to
contractowners
during 1998.
</TABLE>
<TABLE>
<CAPTION>
AST - Founders Capital AST - INVESCO
Appreciation Equity Income
----------------------------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1997
---------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
<S> <C> <C> <C> <C>
Net Investment Income (Loss) $ (125,815) $ (157,266) $ 131,003 $ 45,250
Net Realized Gain (Loss) 1,771,074 375,014 1,227,515 372,149
Net Unrealized Gain (Loss) On Investment (1,009,215) 791,386 1,321,637 2,021,836
---------- ------- --------- ---------
Net Increase (Decrease) In Net Assets
Resulting From Operations 636,044 1,009,134 2,680,155 2,439,235
------- --------- --------- ---------
CAPITAL SHARE TRANSACTIONS:
Transfers of Annuity Fund Deposits 1,644,504 3,285,381 7,136,930 7,023,556
Net Transfers Between Sub-accounts (7,079,772) 1,456,791 1,953,753 850,678
Surrenders (1,308,019) (612,308) (1,346,243) (634,558)
---------- -------- ---------- --------
Net Increase (Decrease) In Net Assets
Resulting From Capital Share Transactions (6,743,287) 4,129,864 7,744,440 7,239,676
---------- --------- --------- ---------
TOTAL INCREASE (DECREASE) IN NET ASSETS (6,107,243) 5,138,998 10,424,595 9,678,911
---------- --------- ---------- ---------
NET ASSETS:
Beginning of Period 17,617,712 12,478,714 18,440,446 8,761,535
---------- ---------- ---------- ---------
End of Period $ 11,510,469 $ 17,617,712 $ 28,865,041 $ 18,440,446
============ ============ ============ ============
See Notes to Financial Statements.
* Date Operations Commenced.
**Additional portfolios made available to
contractowners
during 1998.
</TABLE>
<TABLE>
<CAPTION>
Montgomery GAL
Emerging Markets** Money Market
-------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1997
---------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
<S> <C> <C> <C> <C>
Net Investment Income (Loss) $ (5,113) $ (5,628) $ 292,970 $ 182,257
Net Realized Gain (Loss) (64,447) (2,639) - -
Net Unrealized Gain (Loss) On Investments (233,865) (81,704) - -
-------- -------
Net Increase (Decrease) In Net Assets
Resulting From Operations (303,425) (89,971) 292,970 182,257
-------- ------- ------- -------
CAPITAL SHARE TRANSACTIONS:
Transfers of Annuity Fund Deposits 547,068 440,392 12,963,533 5,704,712
Net Transfers Between Sub-accounts (66,181) (82,804) (7,709,203) (4,452,089)
Surrenders (6,356) (2,669) (1,728,504) (767,546)
------ ------ ---------- --------
Net Increase (Decrease) In Net Assets
Resulting From Capital Share Transactions 474,531 354,919 3,525,826 485,077
------- ------- --------- -------
TOTAL INCREASE (DECREASE) IN NET ASSETS 171,106 264,948 3,818,796 667,334
------- ------- --------- -------
NET ASSETS:
Beginning of Period 647,596 382,648 5,350,312 4,682,978
------- ------- --------- ---------
End of Period $ 818,702 $ 647,596 $ 9,169,108 $ 5,350,312
========== ========= =========== ===========
See Notes to Financial Statements.
* Date Operations Commenced.
**Additional portfolios made available to
contractowners
during 1998.
</TABLE>
<TABLE>
<CAPTION>
GAL GAL
Equity High Quality Bond
------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1997
---------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
<S> <C> <C> <C> <C>
Net Investment Income (Loss) $(149,630) $ 32,203 $ 387,917 $ 159,328
Net Realized Gain (Loss) 9,438,164 176,225 14,011 (2,626)
Net Unrealized Gain (Loss) On Investments (1,789,019) 3,828,852 311,783 119,825
---------- --------- ------- -------
Net Increase (Decrease) In Net Assets
Resulting From Operations 7,499,515 4,037,280 713,711 276,527
--------- --------- ------- -------
CAPITAL SHARE TRANSACTIONS:
Transfers of Annuity Fund Deposits 11,904,875 11,955,209 5,694,766 2,699,500
Net Transfers Between Sub-accounts 849,585 1,470,753 760,484 50,334
Surrenders (2,549,327) (1,082,877) (724,373) (222,851)
---------- ---------- -------- --------
Net Increase (Decrease) In Net Assets
Resulting From Capital Share Transactions 10,205,133 12,343,085 5,730,877 2,526,983
---------- ---------- --------- ---------
TOTAL INCREASE (DECREASE) IN NET ASSETS 17,704,648 16,380,365 6,444,588 2,803,510
---------- ---------- --------- ---------
NET ASSETS:
Beginning of Period 27,937,812 11,557,447 5,563,398 2,759,888
---------- ---------- --------- ---------
End of Period $ 45,642,460 $ 27,937,812 $ 12,007,986 $ 5,563,398
============ ============ ============ ===========
See Notes to Financial Statements.
* Date Operations Commenced.
**Additional portfolios made available to
contractowners
during 1998.
</TABLE>
<TABLE>
<CAPTION>
GAL GAL GAL - Small
Asset Allocation Growth & Income Company Growth
-----------------------------------------------------------------
Year Ended Year Ended Mar. 3,* thru Mar. 5,* thru
Dec. 31, 1998 Dec. 31, 1997 December 31, December 31,
--------------------------------------------------------------
1998 1998
--------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
<S> <C> <C> <C> <C>
Net Investment Income (Loss) $ 706,952 $ 269,406 $ (8,685) $ (4,429)
Net Realized Gain (Loss) 1,051,008 1,412,026 (19,760) (3,461)
Net Unrealized Gain (Loss) On Investments 4,349,008 414,935 402,830 (12,100)
--------- ------- ------- -------
Net Increase (Decrease) In Net Assets
Resulting From Operation 6,106,968 2,096,367 374,385 (19,990)
--------- --------- ------- -------
CAPITAL SHARE TRANSACTIONS:
Transfers of Annuity Fund Deposits 27,645,286 12,971,534 6,747,564 937,520
Net Transfers Between Sub-accounts 2,649,575 1,361,071 661,081 235,977
Surrenders (3,063,219) (638,729) (143,456) (11,543)
---------- -------- -------- -------
Net Increase (Decrease) In Net Assets
Resulting From Capital Share Transactions 27,231,642 13,693,876 7,265,189 1,161,954
---------- ---------- --------- ---------
TOTAL INCREASE (DECREASE) IN NET ASSETS 33,338,610 15,790,243 7,639,574 1,141,964
---------- ---------- --------- ---------
NET ASSETS:
Beginning of Period 23,664,501 7,874,258 - -
---------- ---------
End of Period $ 57,003,111 $ 23,664,501 $ 7,639,574 $ 1,141,964
============= ============ =========== ===========
See Notes to Financial Statements.
* Date Operations Commenced.
**Additional portfolios made available to
contractowners
during 1998.
</TABLE>
GAL - Columbia GAL - Columbia
Real Estate Equity II High Yield II
------------------------------------
Apr. 1,* thru Mar. 4,* thru
December 31, 1998 December 31, 1998
-------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net Investment Income (Loss) $ 11,135 $ 59,126
Net Realized Gain (Loss) (5,977) 32,132
Net Unrealized Gain (Loss) On Investments (43,760) 41,538
------- ------
Net Increase (Decrease) In Net Assets
Resulting From Operations (38,602) 132,796
------- -------
CAPITAL SHARE TRANSACTIONS:
Transfers of Annuity Fund Deposits 547,176 1,298,267
Net Transfers Between Sub-accounts 74,940 800,473
Surrenders (26,049) (51,975)
------- -------
Net Increase (Decrease) In Net Assets
Resulting From Capital Share Transactions 596,067 2,046,765
------- ---------
TOTAL INCREASE (DECREASE) IN NET ASSETS 557,465 2,179,561
------- ---------
NET ASSETS:
Beginning of Period - -
End of Period $ 557,465 $ 2,179,561
See Notes to Financial Statements.
* Date Operations Commenced.
**Additional portfolios made available to
contractowners
during 1998.
American Skandia Life Assurance Corporation
Variable Account B - Class 3 Galaxy
Notes to Financial Statements
December 31, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION
American Skandia Life Assurance Corporation Variable Account B - Class
3 Galaxy (the "Account") is a separate investment account of American
Skandia Life Assurance Corporation ("American Skandia" or "Company").
The Account is registered with the SEC under the Investment Company Act
of 1940 as a unit investment trust. The Account commenced operations on
May 1, 1995.
As of December 31, 1998, the Account consisted of forty-two
sub-accounts. These financial statements report on sixteen sub-accounts
offered in the Galaxy Annuity. Each of the sixteen sub-accounts invests
only in a single corresponding portfolio of either the Galaxy VIP Fund,
The Alger American Fund, American Skandia Trust, or Montgomery Variable
Series (the "Trusts"). Fleet Investment Advisors Inc. is the advisor
for The Galaxy VIP Fund. Fred Alger Management, Inc. is the advisor for
The Alger American Fund. American Skandia Investments Services,
Incorporated, an affiliate, is the investment manager for the American
Skandia Trust, while Janus Capital Corporation, Neuberger Berman
Management, Incorporated, Rowe Price-Fleming International, Inc.,
Founders Asset Management, LLC, and INVESCO Funds Group Inc. are the
subadvisors. Montgomery Asset Management L.P. is the investment advisor
for the Montgomery Variable Series. The investment advisors are paid
fees for their services by the respective Trusts.
The following four sub-accounts became available for operations on
March 1, 1998: the Galaxy Growth and Income Fund, the Galaxy Small
Company Growth Fund, the Galaxy Columbia Real Estate Equity II Fund,
and the Galaxy Columbia High Yield II Fund.
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. ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
4. 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.
5. DIVERSIFICATION REQUIREMENTS
Section 817(h) of the Internal Revenue 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 the
insurance companies). If the diversification requirements under the
Internal Revenue Code are not met and the annuity is not treated as an
annuity, the taxpayer will be subject to income tax on the annual gain
in the contract. The Treasury Department's regulations prescribe the
diversification requirements for variable annuity contracts. We believe
the underlying mutual fund portfolios complied with the terms of these
regulations.
6. CONTRACT CHARGES
The following contract charges are paid to American Skandia which
provides administrative services to the Account:
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 0.15% 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 for each contractowner account.
Transfer Fees - Charged at a rate of $10 for each transfer after the
fourth, for each contractowner account, 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 four complete years prior
to the date of the full or partial surrender.
7. YEAR 2000 COMPLIANCE (UNAUDITED)
The Company is continuing its ongoing assessment of the potential
impact of the year 2000 issue on various aspects of its business. The
Company's computer support is provided by its affiliate, American
Skandia Information Services and Technology Corporation, which also
provides such support for the Company's affiliated broker-dealer,
American Skandia Marketing, Incorporated, and the Company's affiliated
investment advisory firm, American Skandia Investment Services,
Incorporated. Because of the nature of the Company's business, any
assessment of the potential impact of the year 2000 issues on the
company must be an assessment of the potential impact of these issues
on all these companies, which are referred to below as "American
Skandia".
Business Partners
Management believes the company is most vulnerable in its interfaces
with computer systems of investment managers, sub-advisors, third party
administrators, vendors and other business partners. The inability to
properly recognize date sensitive electronic information and transfer
data between systems could cause errors or even a complete systems
failure which would result in a temporary inablility to process
transactions correctly or engage in normal business activities.
The American Skandia deferred annuity operational business partners
report that all critical interfaces are Year 2000 compliant. All
investment manager and sub-advisors are required by the Securities and
Exchange Commission to publicly disclose their Year 2000 status is
December 1998 and June 1999.
American Skandia has initiated formal communications with parties that
provide third party administration, record keeping and trust services
in connection with its life insurance and qualified retirement plan
annuities business. Management has already received several written
assurances that these firms will be Year 2000 compliant. The Company
expects to have certifications from all remaining parties by July 1999.
American Skandia is currently developing contingency plans in the event
that these targets are not met.
Information Technology Systems
American Skandia is a relatively young company whose internally
developed systems were designed from the start with the four digit year
codes. The Company engaged an external information technology
specialist to review American Skandia's operating systems and
internally developed software. The assessment was completed in December
1997 and the results were favorable. Specific modifications were
suggested, evaluated, and implemented for the annuity adminsitration
system. This project was completed during 1998 and a ceritificate of
compliance has been received. Other non-critical internally developed
applications in the client/server area have already been or will be
remediated during 1999. The costs associated with this aspect of the
Year 2000 compliance have not had, and are not expected to have, a
significant impact on the Company's results from operations.
Suppliers and Non-Information Technology Systems
Like most companies, American Skandia is reliant on network, and
desktop operating systems and software providers to release compliant
versions of their respective systems. American Skandia's network is
currently at the most compliant level available. The standard desktop
software will be replaced, as fully compliant versions become
available. In addition, the Company is in the process of contacting the
non-information systems vendors and suppliers regarding their Year 2000
compliance status and will factor the results of these assessments into
its contingency plans.
Management believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. However, should errors or
disruptions in computer service occur, the Company could realize
losses. Given the nature and uncertainty of such losses, the amounts
cannot be reasonably determined.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
VARIABLE ACCOUNT B - CLASS 3 GALAXY
NOTES TO FINANCIAL STATEMENTS
8. CHANGES IN THE UNITS OUTSTANDING
<TABLE>
<CAPTION>
Class 3 Sub-account Investing In:
---------------------------------
AAF AST
Midcap Growth JanCap Growth
---------------------------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, Dec. 31,
----------------------------------------------------
1998 1997
-----------------
<S> <C> <C> <C> <C>
Units Outstanding Beginning of the 146,230 142,950 386,637 252,967
Period
Units Purchased 71,740 22,370 302,818 108,961
Units Transferred Between Sub-accounts 15,971 (15,168) 109,173 27,987
Units Surrendered (10,842) (3,922) (13,857) (3,278)
Units Outstanding End of the Period 223,099 146,230 784,771 386,637
* Date Operations Commenced.
</TABLE>
<TABLE>
<CAPTION>
AST- Neuberger & Berman AST-T. Rowe
Midcap Value Price International
Equity
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, Dec. 31,
1998 1997
<S> <C> <C> <C> <C>
Units Outstanding Beginning of the 37,213 19,077 934,595 783,865
Period
Units Purchased 113,829 12,320 124,641 259,294
Units Transferred Between Sub-accounts 117,367 6,026 (132,750) (40,566)
Units Surrendered (2,418) (210) (53,982) (67,998)
Units Outstanding End of the Period 265,991 37,213 872,504 934,595
* Date Operations Commenced.
</TABLE>
<TABLE>
<CAPTION>
AST-T. Rowe AST-Founders
Price International Bond Capital Appreciation
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, Dec. 31,
1998 1997
<S> <C> <C> <C> <C>
Units Outstanding Beginning of the 101,883 56,657 1,159,570 861,999
Period
Units Purchased 63,700 37,063 104,869 227,560
Units Transferred Between Sub-accounts (4,693) 9,533 (442,072) 107,186
Units Surrendered (3,033) (1,370) (82,950) (37,175)
Units Outstanding End of the Period 157,857 101,883 739,417 1,159,570
* Date Operations Commenced.
</TABLE>
<TABLE>
<CAPTION>
AST-INVESCO Montgomery
Equity Income Emerging
Markets
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, Dec. 31,
1998 1997
<S> <C> <C> <C> <C>
Units Outstanding Beginning of the 1,112,336 645,296 64,010 37,227
Period
Units Purchased 400,382 447,778 73,727 38,012
Units Transferred Between Sub-accounts 112,275 55,109 (6,092) (11,104)
Units Surrendered (73,191) (35,847) (796) (125)
Units Outstanding End of the Period 1,551,802 1,112,336 130,849 64,010
* Date Operations Commenced.
</TABLE>
<TABLE>
<CAPTION>
GAL GAL
Money Market Equity
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, Dec. 31,
1998 1997
<S> <C> <C> <C> <C>
Units Outstanding Beginning of the 481,900 438,416 1,614,134 844,454
Period
Units Purchased 1,138,816 510,188 632,587 745,130
Units Transferred Between Sub-accounts (679,466) (408,139) 41,692 90,555
Units Surrendered (147,313) (58,565) (131,896) (66,005)
Units Outstanding End of the Period 793,937 481,900 2,156,517 1,614,134
* Date Operations Commenced.
</TABLE>
<TABLE>
<CAPTION>
GAL GAL
High Quality Bond Asset Allocation
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, Dec. 31,
1998 1997
<S> <C> <C> <C> <C>
Units Outstanding Beginning of the 449,406 241,376 1,518,788 595,541
Period
Units Purchased 438,417 222,917 1,664,818 872,885
Units Transferred Between Sub-accounts 57,433 4,044 156,281 93,570
Units Surrendered (52,039) (18,931) (179,736) (43,208)
Units Outstanding End of the Period 893,217 449,406 3,160,151 1,518,788
* Date Operations Commenced.
</TABLE>
<TABLE>
<CAPTION>
GAL GAL - Small GAL - GAL -
Columbia Columbia
Growth & Company Real Estate High Yield
Income Growth Equity II II
March 3* thru March 5* thru April 1* March 4*
thru thru
December 31, December 31, December December
1998 1998 31, 1998 31, 1998
<S> <C> <C> <C> <C>
Units Outstanding Beginning of the 0 0 0 0
Period
Units Purchased 686,218 101,555 57,179 124,312
Units Transferred Between Sub-accounts 66,311 28,566 7,701 79,430
Units Surrendered (11,633) (1,190) (2,713) (3,194)
Units Outstanding End of the Period 740,896 128,931 62,167 200,548
* Date Operations Commenced.
</TABLE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
VARIABLE ACCOUNT B - CLASS 3 GALAXY
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------
9. SECURITIES TRANSACTIONS
Purchases and sales of securities, other than short-term securities, for the
year ended December 31, 1998 were as follows:
Purchases Sales
------------------------------
AAF - Midcap Growth $ 2,139,680 $ 515,560
AST - JanCap Growth 12,987,890 1,820,349
AST - Neuberger & Berman Midcap Value 4,295,183 714,605
AST - T. Rowe Price International Equity 2,304,853 2,881,243
AST - T. Rowe Price International Bond 1,004,099 374,864
AST - Founders Capital Appreciation 3,005,527 9,305,006
AST - INVESCO Equity Income 9,801,493 963,493
Montgomery - Emerging Markets 640,001 170,553
GAL - Money Market 10,458,198 6,640,008
GAL - Equity 20,376,204 1,404,485
GAL - High Quality Bond 6,853,688 735,589
GAL - Asset Allocation 29,630,069 839,233
GAL - Growth & Income 7,610,487 353,983
GAL - Small Company Growth 1,167,698 10,082
GAL - Columbia Real Estate Equity II 654,090 46,843
GAL - Columbia High Yield II 2,914,367 787,418
==============================
$115,843,529 $ 27,563,314
==============================
PART C
OTHER INFORMATION
<PAGE>
Item 24. Financial Statements and Exhibits:
(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 filed via EDGAR with Post-Effective Amendment No. 6
to Registration Statement No. 33-87010, filed March 2, 1998.
(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 filed via EDGAR with Post-Effective
Amendment No. 6 to Registration Statement No. 33-87010, filed
March 2, 1998.
(b) Form of Revised Dealer Agreement filed via EDGAR with
Post-Effective Amendment No. 7 to Registration Statement No.
33-87010, filed April 24, 1998.
(4) (a) Copy of the form of the Annuity filed via Edgar
with Post-Effective Amendment No. 13 to Registration
Statement No. 33-44436, filed April 29, 1997.
(b) Copy of Guaranteed Minimum Death Benefit Endorsement
filed via EDGAR with Post-Effective Amendment No. 8 to
Registration Statement No. 33-87010.
(c) Copy of Performance-related Benefits and First Year
Credits Endorsement filed via EDGAR with Post- Effective
Amendment No. 8 to Registration Statement No. 33-87010.
(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). FILED VIA EDGAR
with Post-Effective Amendment No. 3 to this Registration
Statement No. 33-88362, filed April 27, 1998.
(6) (a) Copy of the certificate of incorporation of American
Skandia Life Assurance Corporation filed via EDGAR with
Post-Effective Amendment No. 6 to Registration Statement No.
33-87010, filed March 2, 1998.
(b) Copy of the By-Laws of American Skandia Life Assurance
Corporation filed via EDGAR with Post-Effective Amendment No.
6 to Registration Statement No. 33-87010, filed March 2, 1998.
(7) Not applicable.
(8) Agreements between Depositor and:
(a) American Skandia Trust filed via EDGAR with Post-effective
Amendment No. 4 to Registration Statement No. 33-87010, filed
February 25, 1997 (At such time, what later became American
Skandia Trust was known as the Henderson Global Asset Trust).
(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).
FILED VIA EDGAR with Post-Effective Amendment No. 3 to this
Registration Statement No. 33-88362, filed April 27, 1998.
(9) Opinion and consent of Werner & Kennedy. FILED HEREWITH
(10) (a) Consent of Ernst & Young LLP. FILED HEREWITH
(b) Consent of Deloitte & Touche LLP. FILED HEREWITH
(11) Not applicable.
(12) Not applicable.
(13) Calculation of Performance Information for Advertisement of
Performance filed via EDGAR with Post-Effective Amendment No.
2 to this Registration Statement No. 33-88362, filed April 30,
1997.
(14) Financial Data Schedule FILED HEREWITH
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, 1998, there were 4,780
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.
<TABLE>
<CAPTION>
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.
<S> <C>
Name and Principal Business Address Position and Offices with Underwriter
Patricia J. Abram Senior Vice President and National
American Skandia Life Assurance Corporation Sales Manager, Variable Life
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
Gordon C. Boronow Deputy Chief Executive Officer
American Skandia Life Assurance Corporation and Director
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
Kimberly A. Bradshaw Vice President, National Sales
American Skandia Life Assurance Corporation Manager/Qualified Plans
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
Robert Brinkman Senior Vice President,
American Skandia Life Assurance Corporation National Sales Manager
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
Jan R. Carendi Chairman of the Board
American Skandia Life Assurance Corporation of Directors and
One Corporate Drive, P.O. Box 883 Chief Executive Officer
Shelton, Connecticut 06484-0883
Y.K. Chan Senior Vice President and
American Skandia Life Assurance Corporation Chief Information Officer
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
Kathleen A. Chapman Assistant Corporate Secretary
American Skandia Life Assurance Corporation
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
Lucinda C. Ciccarello Vice President, Mutual Funds
American Skandia Life Assurance Corporation
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
Wade A. Dokken President and Deputy Chief
American Skandia Life Assurance Corporation Executive Officer and
One Corporate Drive, P.O. Box 883 Director
Shelton, Connecticut 06484-0883
Ian Kennedy Senior Vice President,
American Skandia Life Assurance Corporation Customer Service
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, Product Development
American Skandia Life Assurance Corporation and Director
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
Thomas M. Mazzaferro Executive Vice President,
American Skandia Life Assurance Corporation Chief Financial Officer
One Corporate Drive, P.O. Box 883 and Director
Shelton, Connecticut 06484-0883
Eileen S. McCann Vice President,
American Skandia Life Assurance Corporation Key Accounts Marketing
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
David R. Monroe Senior Vice President,
American Skandia Life Assurance Corporation Treasurer and
One Corporate Drive, P.O. Box 883 Corporate Controller
Shelton, Connecticut 06484-0883
Michael A. Murray Vice President,
American Skandia Life Assurance Corporation National Sales Manager/
One Corporate Drive, P.O. Box 883 American Skandia Advisor Funds
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. Patricia Paez Director
American Skandia Life Assurance Corporation
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
Kathleen A. Pritchard Vice President,
American Skandia Life Assurance Corporation National Key Accounts/
One Corporate Drive, P.O. Box 883 Financial Institutions
Shelton, Connecticut 06484-0883
Hayward L. Sawyer Executive Vice President,
American Skandia Life Assurance Corporation National Sales Manager
One Corporate Drive, P.O. Box 883 and Director
Shelton, Connecticut 06484-0883
Anders O. Soderstrom Executive Vice President
American Skandia Life Assurance Corporation
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
Leslie S. Sutherland Vice President,
American Skandia Life Assurance Corporation National Key Accounts Manager
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
Amanda C. Sutyak Vice President
American Skandia Life Assurance Corporation
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
Christian Thwaites Senior Vice President,
American Skandia Life Assurance Corporation National Marketing Director
One Corporate Drive, P.O. Box 883
Shelton, Connecticut 06484-0883
Mary Toumpas Vice President and
American Skandia Life Assurance Corporation Compliance Director
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
Deborah G. Ullman Senior Vice President and
American Skandia Life Assurance Corporation Chief Operating Officer,
One Corporate Drive, P.O. Box 883 Finance and Business Operations
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.
EXHIBITS
As noted in Item 24(b), various exhibits are incorporated by
reference or are not applicable. The exhibits included are as
follows:
No. 9 Opinion and Consent of Werner & Kennedy
No. 10 (a) Consent of Ernst & Young LLP
(b) Consent of Deloitte & Touche LLP
No. 14 Financial Data Schedule
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 27th day of April, 1999.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B
(CLASS 3 SUB-ACCOUNTS)
Registrant
By: American Skandia Life Assurance Corporation
By:/s/ Kathleen A. Chapman Attest:/s/ Scott K. Richardson
Kathleen A. Chapman, Assistant Corporate Secretary Scott K. Richardson
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
Depositor
By:/s/ Kathleen A. Chapman Attest:/s/ Scott K. Richardson
Kathleen A. Chapman, Assistant Corporate Secretary Scott K. Richardson
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 27, 1999
Jan R. Carendi Chairman of the Board and Director
(Principal Financial Officer)
/s/ Thomas M. Mazzaferro Executive Vice President and April 27, 1999
Thomas M. Mazzaferro Chief Financial Officer
(Principal Accounting Officer)
/s/ David R. Monroe Senior Vice President, Treasurer April 27, 1999
David R. Monroe and Corporate 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/ Kathleen A. Chapman
Kathleen A. Chapman
<FN>
*Pursuant to Powers of Attorney filed with Initial Registration Statement No. 333-25733
</FN>
</TABLE>
(212) 408-6900
April 23, 1999
American Skandia Life Assurance Corporation
One Corporate Drive
Shelton, Connecticut 06484
Re: Post-effective Amendment No. 4 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
Our File No. 74877-00-101
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. 4 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 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
G:legal/Andrea/FinalN4consentsGALAXY3
Gal 3
INDEPENDENT AUDITORS' CONSENT
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our report dated February 20, 1999 relating to American
Skandia Life Assurance Corporation included in the Registration Statement (Form
N-4 No. 33-88362) and related Prospectus, which is part of this Registration
Statement, and to the use of our report dated February 20, 1999 relating to
American Skandia Life Assurance Corporation Variable Account B - Class 3 Galaxy
appearing in the Statement of Additional Information, which is also part of this
Registration Statement.
We also consent to incorporation by reference herein of our report dated
February 20, 1999 with respect to the financial statements of American Skandia
Life Assurance Corporation for the year ended December 31, 1998 and 1997
included in the Annual Report (Form 10-K) for 1998 filed with the Securities and
Exchange Commission.
/s/Ernst & Young LLP
Hartford, Connecticut
April 23, 1999
Galaxy III
Exhibit 10(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-effective Amendment No. 4 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,
1998, 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 reference to us under the heading
"Independent Auditors" appearing in the Statement of Additional Information,
which is also part of this Registration Statement.
/s/Deloitte & Touche LLP
New York, New York
April 23, 1999
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<CURRENCY> U.S Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 141,195
<DEBT-CARRYING-VALUE> 149,484
<DEBT-MARKET-VALUE> 149,575
<EQUITIES> 8,210
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 158,263
<CASH> 77,525
<RECOVER-REINSURE> 4,191
<DEFERRED-ACQUISITION> 721,507
<TOTAL-ASSETS> 18,848,273 <F1>
<POLICY-LOSSES> 63,053
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 203,000
0
0
<COMMON> 2,000
<OTHER-SE> 248,417
<TOTAL-LIABILITY-AND-EQUITY> 18,848,273 <F2>
874
<INVESTMENT-INCOME> 11,130
<INVESTMENT-GAINS> 99
<OTHER-INCOME> 237,437 <F3>
<BENEFITS> (2,175)
<UNDERWRITING-AMORTIZATION> 86,628
<UNDERWRITING-OTHER> 81,162
<INCOME-PRETAX> 42,921
<INCOME-TAX> 8,154
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,767
<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
$17,835,400.
<F2> Included in Total Liabilities and Equity are Liabilities Related to
Separate Accounts of $17,835,400.
<F3> Other income includes annuity charges and fees of $186,211 and fee
income of $50,839.
</FN>
</TABLE>
