Filed with the Securities and Exchange Commission on April 26, 2000
Registration No. 33-88362 Investment Company Act No. 811-8884
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-effective Amendment No. 5
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 5
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.
GENERAL COUNSEL
One Corporate Drive, Shelton, CT 06484 (203) 925-6922
Approximate Date of Proposed Sale to the Public:
May 1, 2000 or as soon as practicable after the effective date
of this Registration Statement.
It is proposed that this filing become effective: (check appropriate space) ___
immediately upon filing pursuant to paragraph (b) of Rule 485.
X on May 1, 2000 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 1999 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 45. The Annuity or
certain of its investment options and/or features 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 annuity payments (1) for life; (2) for life with a guaranteed
minimum number of payments; (3) based on joint lives; (4) for a
guaranteed number of payments; or other options we may make available.
|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.
- --------------------------------------------------------------------------------
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.
FOR FURTHER INFORMATION CALL 1-800-444-3970.
Prospectus Dated: May 1, 2000
Statement of Additional Information Dated: May 1, 2000
GAL3-PROS- (05/2000) GVAPROPROD
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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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American Skandia offers several different annuities which your financial
professional may be authorized to offer to you. Each annuity has different
features and benefits that may be appropriate for you based on your financial
situation, your age and how you intend to use the annuity. The different
features and benefits include variations in death benefit protection, the
ability to access your annuity's account value and the charges that you will be
subject to if you choose to surrender the annuity. The fees and charges may also
be different between each annuity.
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If you are purchasing the Annuity as a replacement for existing variable annuity
or variable life coverage, you should consider any surrender or penalty charges
you may incur when replacing your existing coverage and that this Annuity may be
subject to a contingent deferred sales charge if you elect to surrender the
Annuity or take a partial withdrawal. You should consider your need to access
the annuity's account value and whether the annuity's liquidity features will
satisfy that need.
Trustees of qualified retirement plans considering using this Annuity as a
funding vehicle for such plans should consult with counsel when evaluating the
annuity's benefits and costs. In addition, if you are purchasing this Annuity as
an Individual Retirement Annuity or Tax Sheltered Annuity, you should discuss
with your financial professional how the benefits and costs of this annuity will
fit within your overall financial plan.
Mailing Addresses:
New Business/Additional Purchase Payments:
American Skandia Life Assurance Corporation
P.O. Box 7040
Bridgeport, CT 06601-7040
Exchange Paperwork:
American Skandia Life Assurance Corporation
P.O. Box 7039
Bridgeport, CT 06601-7039
All other correspondence:
American Skandia Life Assurance Corporation
P.O. Box 7038
Bridgeport, CT 06601-7038
Express/Overnight Mail:
American Skandia Life Assurance Corporation
Three Corporate Drive
Shelton, CT 06484
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TABLE OF CONTENTS
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GLOSSARY OF TERMS..................................................................................................................5
SUMMARY OF CONTRACT FEES AND CHARGES...............................................................................................6
EXPENSE EXAMPLES...................................................................................................................8
INVESTMENT OPTIONS................................................................................................................10
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?.............................................................10
WHAT ARE THE FIXED INVESTMENT OPTIONS?.........................................................................................14
FEES AND CHARGES..................................................................................................................14
WHAT ARE THE CONTRACT FEES AND CHARGES?........................................................................................14
WHAT CHARGES APPLY SOLELY TO THE VARIABLE INVESTMENT OPTIONS?..................................................................15
WHAT CHARGES APPLY TO THE FIXED ALLOCATIONS?...................................................................................15
WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYOUT?..............................................................................15
PURCHASING YOUR ANNUITY...........................................................................................................15
WHAT ARE OUR REQUIREMENTS FOR PURCHASING THE ANNUITY?..........................................................................16
MANAGING YOUR ANNUITY.............................................................................................................16
MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS?................................................................16
MAY I RETURN THE ANNUITY IF I CHANGE MY MIND?..................................................................................16
MAY I MAKE ADDITIONAL PURCHASE PAYMENTS?.......................................................................................17
MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT?...................................................................17
MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM?...............................................................17
ADDITIONAL AMOUNTS ON EXCHANGES................................................................................................17
MANAGING YOUR ACCOUNT VALUE.......................................................................................................18
HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED?...................................................................................18
ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?.....................................................19
DO YOU OFFER DOLLAR COST AVERAGING?............................................................................................19
DO YOU OFFER A PROGRAM TO BALANCE FIXED AND VARIABLE INVESTMENTS?..............................................................19
MAY I AUTHORIZE MY FINANCIAL REPRESENTATIVE TO MANAGE MY ACCOUNT?..............................................................20
HOW DO THE FIXED INVESTMENT OPTIONS WORK?......................................................................................20
HOW DO YOU DETERMINE RATES FOR FIXED ALLOCATIONS?..............................................................................20
HOW DOES THE MARKET VALUE ADJUSTMENT WORK?.....................................................................................20
WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES?.................................................................................21
AMERICAN SKANDIA'S PERFORMANCE ADVANTAGE..........................................................................................21
ACCESS TO ACCOUNT VALUE...........................................................................................................23
WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME?...............................................................................23
ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS?..................................................................................23
CAN I WITHDRAW A PORTION OF MY ANNUITY?........................................................................................23
IS THERE A CHARGE FOR A PARTIAL WITHDRAWAL?....................................................................................23
CAN I MAKE WITHDRAWALS FROM MY ANNUITY WITHOUT A CDSC?.........................................................................24
HOW MUCH CAN I WITHDRAW AS A FREE WITHDRAWAL?..................................................................................24
CAN I MAKE PERIODIC WITHDRAWALS FROM THE ANNUITY DURING THE ACCUMULATION PERIOD?...............................................24
WHAT ARE MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM?.............................................................25
CAN I SURRENDER MY ANNUITY FOR ITS VALUE?......................................................................................25
WHAT IS A MEDICALLY-RELATED SURRENDER AND HOW DO I QUALIFY?....................................................................25
WHAT TYPES OF ANNUITY PAYMENT OPTIONS ARE AVAILABLE UPON ANNUITIZATION?........................................................25
HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION?...........................................................................26
HOW ARE ANNUITY PAYMENTS CALCULATED?...........................................................................................26
DEATH BENEFIT.....................................................................................................................27
WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT?..................................................................................27
DEATH BENEFIT OPTIONS..........................................................................................................27
VALUING YOUR INVESTMENT...........................................................................................................29
HOW IS MY ACCOUNT VALUE DETERMINED?............................................................................................30
WHAT IS THE SURRENDER VALUE OF MY ANNUITY?.....................................................................................30
HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS?....................................................................................30
HOW DO YOU VALUE FIXED ALLOCATIONS?............................................................................................30
WHEN DO YOU PROCESS AND VALUE TRANSACTIONS?....................................................................................30
TAX CONSIDERATIONS................................................................................................................31
WHAT ARE SOME OF THE FEDERAL TAX CONSIDERATIONS OF THIS ANNUITY?...............................................................31
HOW ARE AMERICAN SKANDIA AND THE SEPARATE ACCOUNTS TAXED?......................................................................31
IN GENERAL, HOW ARE ANNUITIES TAXED?...........................................................................................31
HOW ARE DISTRIBUTIONS TAXED?...................................................................................................31
WHAT TAX CONSIDERATIONS ARE THERE FOR TAX-QUALIFIED RETIREMENT PLANS OR QUALIFIED CONTRACTS?...................................33
HOW ARE DISTRIBUTIONS FROM QUALIFIED CONTRACTS TAXED?..........................................................................34
GENERAL TAX CONSIDERATIONS.....................................................................................................35
GENERAL INFORMATION...............................................................................................................36
HOW WILL I RECEIVE STATEMENTS AND REPORTS?.....................................................................................36
WHO IS AMERICAN SKANDIA?.......................................................................................................36
WHAT ARE SEPARATE ACCOUNTS?....................................................................................................36
WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS?...........................................................................37
WHO DISTRIBUTES ANNUITIES OFFERED BY AMERICAN SKANDIA?.........................................................................38
AVAILABLE INFORMATION..........................................................................................................39
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................................................................39
HOW TO CONTACT US..............................................................................................................39
INDEMNIFICATION................................................................................................................40
LEGAL PROCEEDINGS..............................................................................................................40
EXECUTIVE OFFICERS AND DIRECTORS.....................................................................
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION............................................................................45
APPENDIX A - FINANCIAL INFORMATION ABOUT AMERICAN SKANDIA..........................................................................1
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 ("CDSC") 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
- ------------------------------- ----------------------------------------------------------------------------------------------------
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, 1999. The total annual
expenses are the sum of the investment management fee, other expenses and any
12b-1 fees. 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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Estimated
Management Other Distribution Total Annual Fee Waivers Net
UNDERLYING PORTFOLIO Fees Expenses and Portfolio and Expense Annual
Service Operating Reimburse- Fund
(12b-1) Expenses ment (2) Operating
Fees (1) Expenses
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The Galaxy VIP Fund:
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Money Market 0.40% 0.42% 0.00% 0.82% 0.41% 0.41%
Equity 0.75% 0.21% 0.00% 0.96% 0.00% 0.96%
High Quality Bond 0.55% 0.48% 0.00% 1.03% 0.39% 0.64%
Asset Allocation 0.75% 0.27% 0.00% 1.02% 0.00% 1.02%
Growth and Income 0.75% 0.74% 0.00% 1.49% 0.00% 1.49%
Small Company Growth 0.75% 5.22% 0.00% 5.97% 4.37% 1.60%
Columbia Real Estate Equity II 0.75% 5.16% 0.00% 5.91% 4.21% 1.70%
Columbia High Yield II 0.60% 2.29% 0.00% 2.89% 1.29% 1.60%
American Skandia Trust:
AST American Century International Growth 1.00% 0.50% 0.00% 1.50% N/A 1.50%
AST American Century International Growth II 1.00% 0.26% 0.02% 1.28% N/A 1.28%
AST Janus Small-Cap Growth 0.90% 0.18% 0.01% 1.09% N/A 1.09%
AST Neuberger Berman Mid-Cap Value 0.90% 0.23% 0.12% 1.25% N/A 1.25%
AST Alger All-Cap Growth (3) 0.95% 0.22% 0.06% 1.23% N/A 1.23%
AST JanCap Growth 0.90% 0.14% 0.01% 1.05% 0.04% 1.01%
AST INVESCO Equity Income 0.75% 0.18% 0.04% 0.97% N/A 0.97%
AST T. Rowe Price Global Bond 0.80% 0.31% 0.00% 1.11% N/A 1.11%
The Alger American Fund:
MidCap Growth 0.80% 0.05% N/A 0.85% 0.00% 0.85%
Montgomery Variable Series:
Emerging Markets 1.25% 0.50% N/A 1.75% 0.00% 1.75%
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1 American Skandia Trust (the "Trust") adopted a Distribution Plan (the
"Distribution Plan") under Rule 12b-1 of the Investment Company Act of 1940
to permit an affiliate of the Trust's Investment Manager to receive
brokerage commissions in connection with purchases and sales of securities
held by Portfolios of the Trust, and to use these commissions to promote
the sale of shares of such Portfolios. The staff of the Securities and
Exchange Commission takes the position that commission amounts received
under the Distribution Plan should be reflected as distribution expenses of
the Portfolios. The Portfolios would pay the same or comparable commission
amounts irrespective of the Distribution Plan; accordingly, total returns
for the Portfolios are not expected to be adversely affected. The
Distribution Fee estimates are derived from data regarding each Portfolio's
brokerage transactions, and the proportions of such transactions directed
to selling dealers, for the period ended December 31, 1999. However, it is
not possible to determine with accuracy actual amounts that will be
received under the Distribution Plan. Such amounts will vary based upon the
level of a Portfolio's brokerage activity, the proportion of such activity
directed under the Distribution Plan, and other factors.
2 The Investment Manager of American Skandia Trust has agreed to reimburse
and/or waive fees for certain Portfolios until at least October 17, 2000.
The caption "Total Annual Fund Operating Expenses" reflects the Portfolios'
fees and expenses before such waivers and reimbursements, while the caption
"Net Annual Fund Operating Expenses" reflects the effect of such waivers
and reimbursements.
3 This Portfolio commenced operations as of December 30, 1999. "Other
Expenses" shown are based on estimated amounts for the fiscal year ending
December 31, 2000.
<PAGE>
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.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Expense Examples
(amounts shown are rounded to the nearest dollar)
- ------------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------- ------- --------------------------------------
If you surrender your Annuity at the end of If you do not surrender your Annuity
the applicable time period, and your Account at the end of the applicable time
Value is $50,000 or higher, so that the period or begin taking annuity
annual maintenance fee does not apply, you payments at such time, and your
would pay the following expenses on a $1,000 Account Value is $50,000 or higher, 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 55 62 77 174 15 42 77 174
GAL Equity 3 60 82 106 229 20 62 106 229
GAL High Quality Bond 3 57 71 89 197 17 51 89 197
GAL Asset Allocation 3 61 84 109 234 21 64 109 234
GAL Growth and Income 3 65 96 129 275 25 76 129 275
GAL Small Company Growth 3 66 98 133 282 26 78 133 282
GAL Columbia Real Estate Equity II 3 67 102 140 296 27 82 140 296
GAL Columbia High Yield II 3 66 98 133 282 26 78 133 282
AST American Century International Growth 3 60 83 107 231 20 63 107 231
AST American Century International Growth 63 92 123 262 23 72 123 262
II 3
AST Janus Small-Cap Growth 3 61 86 113 243 21 66 113 243
AST Neuberger Berman Mid-Cap Value 3 62 89 118 254 22 69 118 254
AST Alger All-Cap Growth 3 62 89 118 253 22 69 118 253
AST JanCap Growth 3 60 84 109 234 20 64 109 234
AST INVESCO Equity Income 3 60 83 107 230 20 63 107 230
AST T. Rowe Price Global Bond 3 62 87 114 245 22 67 114 245
AA MidCap Growth 3 59 79 101 219 19 59 101 219
MV Emerging Markets 3 67 103 141 299 27 83 141 299
- -------------------------------------------- ---- ---------- --------- ---------- ------- ---------- --------- ---------- ----------
</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 57 68 87 184 17 48 87 184
GAL Equity 3 62 88 116 249 22 68 116 249
GAL High Quality Bond 3 59 77 99 211 19 57 99 211
GAL Asset Allocation 3 63 90 119 254 23 70 119 254
GAL Growth & Income 3 62 88 116 247 22 68 116 247
GAL Small Company Growth 3 66 100 136 288 26 80 136 288
GAL Columbia Real Estate Equity II 3 69 108 149 313 29 88 149 313
GAL Columbia High Yield II 3 66 100 136 288 26 80 136 288
AST American Century International Growth 3 62 89 117 251 22 69 117 251
AST American Century International Growth 64 95 128 272 24 75 128 272
II 3
AST Janus Small-Cap Growth 3 63 92 123 261 23 72 123 261
AST Neuberger Berman Mid-Cap Value 3 64 95 128 271 24 75 128 271
AST Alger All-Cap Growth 3 64 95 128 270 24 75 128 270
AST JanCap Growth 3 62 89 119 254 22 69 119 254
AST INVESCO Equity Income 3 62 88 117 250 22 68 117 250
AST T. Rowe Price Global Bond 3 64 93 124 260 24 73 124 264
AA MidCap Growth 3 61 84 111 236 21 64 111 236
MV Emerging Markets 3 69 109 151 318 29 89 151 318
- ----------------------------------------------------- ---------- --------- ---------- ------- ---------- --------- ---------- -----
</TABLE>
<PAGE>
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. There is
no guarantee that any underlying mutual fund portfolio will meet its investment
objective.
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.
Some of the Portfolios available as Sub-accounts under the Annuity are managed
by the same portfolio advisor or sub-advisor as a retail mutual fund that the
Portfolio may have been modeled after at the Portfolio's inception. Certain
retail mutual funds may also have been modeled after a Portfolio. While the
investment objective and policies of the funds may be substantially similar, the
actual investments made by the funds will differ to varying degrees. Differences
in the performance of the funds can be expected, and in some cases could be
substantial. Details about the investment objectives, policies, risks, costs and
management of the Portfolios are found in the prospectuses for the underlying
mutual funds.
================================================================================
Effective January 19, 2000, the AST Janus Small-Cap Growth portfolio is no
longer offered as a Sub-account under the Annuity. Owners of Contracts issued on
or before January 18, 2000 may not allocate additional Account Value or make
transfers into the AST Janus Small-Cap Growth Sub-account, except that, Owners
who had previously elected a bank drafting, dollar cost averaging, asset
allocation and/or rebalancing program will be allowed to continue. However, no
changes involving the AST Janus Small-Cap Growth Sub-account may be made to such
programs.
The Portfolio may be offered as a Sub-account to Contract Owners at some future
date; however, at the present time, American Skandia has no intention to do so.
================================================================================
Please refer to Appendix B for certain required financial information related to
the historical performance of the Sub-accounts.
<PAGE>
<TABLE>
<CAPTION>
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
<S> <C> <C>
CAPITAL GAL VIP Money Market: seeks as high a level of current Fleet Investment
PRESERVATION income as is consistent with liquidity and stability of Advisors, Inc.
principal. The Portfolio invests in a diversified portfolio
of money market instruments, including commercial paper,
notes and bonds issued by U.S. corporations, obligations
issued by the U.S. Government and its agencies and
instrumentalities, and obligations issued by U.S. and
foreign banks, such as certificates of deposit. The
Portfolio also invests in repurchase agreements backed by
U.S. Government obligations.
---------- ------------------------------------------------------------------------------------------------ -----------------------
LONG-TERM BOND GAL VIP High Quality Bond: seeks a high level of current Fleet Investment
income consistent with prudent risk of capital. The Advisors, Inc.
Portfolio invests primarily in obligations issued or
guaranteed by the U.S. Government, its agencies and
instrumentalities, as well as in corporate debt obligations
such as notes and bonds. The Portfolio also invests in
asset-backed and mortgage-backed securities and in money
market instruments, such as commercial paper and bank
obligations.
- ----------- ------------------------------------------------------------------------------------------------ -----------------------
HIGH YIELD GAL VIP Columbia High Yield II: seeks a high level of Fleet Investment
BOND current income by investing primarily in lower-rated fixed Advisors, Inc.
income securities. Capital appreciation is a secondary
objective when consistent with the objective of high current
income. The Portfolio normally invests at least 65% of its
total assets in high yielding corporate debt securities,
such as bonds, debentures and notes. Such lower rated
securities are not considered to be of investment grade
quality and are commonly referred to as "junk bonds."
- ------------------- ------------------------------------------------------------------------------------------------ ---------------
AST T. Rowe Price Global Bond: seeks to provide high current Rowe Price-Fleming International, Inc.
GLOBAL BOND income and capital growth by investing in high-quality
foreign and U.S. government bonds. The Portfolio will invest
at least 65% of its total assets in bonds issued or
guaranteed by the U.S. or foreign governments or their
agencies and by foreign authorities, provinces and
municipalities. Corporate bonds may also be purchased. The
Sub-advisor bases its investment decisions on fundamental
market factors, currency 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 the
aggregate in below investment-grade, high-risk bonds ("junk
bonds").
- ----------- ------------------------------------------------------------------------------------------------ -----------------------
ASSET GAL VIP Asset Allocation: seeks a high total return by Fleet Investment
ALLOCATION providing both a current level of income that is greater Advisors, Inc.
than that produced by the popular stock market averages as
well as long-term growth in the value of the Portfolio's
assets. The Portfolio aims to provide income that is higher
than the average income provided by stocks included in the
popular stock market averages. The Portfolio also seeks
long-term growth in the value of its assets. Fleet attempts
to achieve these goals and reduce risk by allocating the
Portfolio's assets among short-term debt securities, common
stocks, preferred stocks and bonds. The Portfolio seeks a
mix of stocks and bonds that will produce both income and
long-term capital growth.
- ----------- ------------------------------------------------------------------------------------------------ -----------------------
EQUITY INCOME AST INVESCO Equity Income: seeks capital growth and current INVESCO Funds Group, Inc.
income while following sound investment practices. The
Portfolio seeks to achieve its objective by investing in
securities that are expected to produce relatively high
levels of income and consistent, stable returns. The
Portfolio normally will invest at least 65% of its assets in
dividend-paying common and preferred stocks of domestic and
foreign issuers. Up to 30% of the Portfolio's assets may be
invested in equity securities that do not pay regular
dividends.
- ----------- ------------------------------------------------------------------------------------------------ -----------------------
<PAGE>
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
GROWTH GAL VIP Growth and Income: seeks to provide a relatively Fleet Investment
& high total return through long-term capital appreciation and Advisors, Inc.
INCOME current income. The Portfolio normally invests at least 65%
of its total assets in the common stocks of U.S. companies
with large market capitalizations (generally over $2
billion) that have prospects for above-average growth and
dividends. The Advisor focuses on stocks which are believed
to be attractively priced relative to expectations for the
future performance of the issuing company.
- ----------- ------------------------------------------------------------------------------------------------ -----------------------
REAL ESTATE GAL VIP Columbia Real Estate Equity II: seeks, with equal Fleet Investment
(REIT) emphasis, capital appreciation and above-average current Advisors, Inc.
income by investing primarily in the equity securities of
companies in the real estate industry. The Portfolio
normally invests at least 65% of its total assets in the
equity securities, primarily common stocks, of companies
principally engaged in the real estate industry, primarily
real estate investment trusts ("REITs"). The Portfolio
invests primarily in the securities of U.S. companies.
- ------------------------------------------------------------------------------------------------------------ -----------------------
AST JanCap Growth: seeks growth of capital in a manner Janus Capital Corporation
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
in common stocks of companies that the Sub-advisor believes
are experiencing favorable demand for their products and
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.
LARGE CAP EQUITY
------------------------------------------------------------------------------------------------ ---------------
GAL VIP Equity: seeks long-term growth by investing in Fleet Investment
companies that the Portfolio's investment adviser believes Advisors, Inc.
have above-average earnings potential. The Portfolio
normally invests at least 75% of its total assets in a
broadly diversified portfolio of equity securities issued by
U.S. companies, primarily common stocks and securities that
can be converted into common stocks. The Portfolio normally
invests at least 65% of its total assets in the common
stocks of U.S. companies with large market capitalizations
(generally over $2 billion) that have prospects for
above-average growth and dividends.
- ------------------------------------------------------------------------------------------------ -----------------------------------
ALL-CAP AST Alger All-Cap Growth: seeks long-term capital growth. Fred Alger Management, Inc.
EQUITY The Portfolio invests primarily in equity securities, such
as common or preferred stocks, that are listed on U.S.
exchanges or in the over-the-counter market. The Portfolio
may invest in the equity securities of companies of all
sizes, and may emphasize either larger or smaller companies
at a given time based on the Sub-advisor's assessment of
particular companies and market conditions.
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
AST Neuberger Berman Mid-Cap Value: seeks capital growth. Neuberger Berman Management Incorporated
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
companies whose stock prices are undervalued and that may
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.
MID-CAP EQUITY ----------------------------------------------------------------------------------------------------------------
The Alger American Fund - MidCap Growth: seeks long-term Fred Alger Management, Inc.
capital appreciation. The Portfolio focuses on midsize
companies with promising growth potential. Under normal
circumstances, the Portfolio invests primarily in the equity
securities of companies having a market capitalization
within the range of companies in the S&P MidCap 400 Index.
- ------------------------------ ----------------------------------------------------------------------------------------------------
<PAGE>
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
PORTFOLIO
STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/
TYPE SUB-ADVISOR
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
- ------------------- ---------------------------------------------------------------------------------------- -----------------------
AST Janus Small-Cap Growth: seeks capital growth. The Janus Capital Corporation
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
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.
----------------------------------------------------------------------------------------------------------------
SMALL CAP EQUITY
GAL VIP Small Company Growth: seeks capital appreciation. Fleet Investment Advisors, Inc.
The Portfolio attempts to achieve this objective by
investing at least 65% of its total assets in the equity
securities, primarily common stocks, of small companies that
have market capitalizations of $1.5 billion or less. The
Portfolio invests primarily in the common stock of U.S.
companies but may invest up to 20% of its total assets in
foreign equity securities.
- ------------------------------ ----------------------------------------------------------------------------------------------------
AST American Century International Growth: seeks capital American Century Investment Management, Inc.
growth. The Portfolio will seek to achieve its investment
objective by investing primarily in equity securities of
foreign companies that the Sub-advisor believes will
increase in value over time. Under normal conditions, the
Portfolio will invest at least 65% of its assets in equity
securities of issuers from at least three countries outside
of the United States. The Sub-advisor uses a growth
investment strategy it developed that looks for companies
with earnings and revenue growth. The Sub-advisor will
consider a number of other factors in making investment
selections, including the prospects for relative economic
growth among countries or regions, economic and political
conditions, expected inflation rates, currency exchange
fluctuations and tax considerations.
INTERNATIONAL ----------------------------------------------------------------------------------------------------------------
EQUITY AST American Century International Growth II: The investment American Century Investment Management, Inc.
objective, policies and risks of the Portfolio are
substantially identical to those of the AST American Century
International Growth Portfolio as described immediately
above.
- ------------------------------ ----------------------------------------------------------------------------------------------------
EMERGING MARKETS Montgomery Variable Series - Emerging Markets: seeks capital Montgomery Asset Management, LLC
appreciation, which under normal conditions it seeks by
investing at least 65% of its total assets in equity
securities of companies in countries having emerging
markets. Under normal conditions, investments are maintained
in at least six emerging market countries at all times and
no more than 25% of total assets are invested in any one
emerging market country.
- ------------------------------ ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
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. We may
allow a higher number of transfers each Annuity Year without charging a Transfer
Fee or may eliminate the Transfer Fee for transfer requests transmitted
electronically or through other means that reduce our processing costs.
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. 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?
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. We must approve any Purchase
Payment in excess of $500,000.
Age Restrictions: There is no age restriction to purchase the Annuity. However,
the basic Death Benefit provides greater protection for persons under age 75.
You should consider your need to access the value in your contract and whether
the Annuity's liquidity features will satisfy that need. If you take a
distribution prior to age 59 1/2, you may be subject to a 10% penalty in
addition to ordinary income taxes on any gain.
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 during the accumulation period. 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;
|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.
We will allocate any additional Purchase Payments you make according to your
most recent allocation instructions, unless you request new allocations when you
submit a new Purchase Payment.
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 current allocation instructions. If any rebalancing
or asset allocation programs are in effect, the allocation should 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 twenty (20). 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 may allow a higher number of transfers each Annuity Year
without charging a Transfer Fee or may eliminate the Transfer Fee for transfer
requests transmitted electronically or through other means that reduce our
processing costs.
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 6.13%*. 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 0.551593. That means that $55,159 will
be allocated to the Fixed Allocation and the remaining Account Value ($44,841)
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 = $57,881.25
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 = $57,881.25
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
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 during the accumulation
phase. 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
1/2may 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 "Additional 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 fixed Annuity Payment Options. Additional
Annuity Payment Options, including variable 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 fixed
Annuity Payment Options or any option we make available for death proceeds.
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.
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
--------------------------- ------------------------
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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 and continue the contract instead of receiving
the Death Benefit.
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, endowment, or annuity contracts under Section
1035 of the Code. Unless "after-tax" or non-deductible contributions have
been made to a Qualified Contract, the "investment in the contract" for a
Qualified Contract will be considered zero for tax reporting purposes.
Distributions After Annuitization: A portion of each annuity payment received on
or after the Annuity Date will generally be taxable. The taxable portion of each
annuity payment is determined by a formula which establishes the ratio that the
"investment in the contract" bears to the total value of annuity payments to be
made. This is called the "exclusion ratio." The investment in the contract is
excluded from gross income. Any additional payments received that exceed the
exclusion ratio will be entirely includible in gross income. The formula for
determining the exclusion ratio differs between fixed and variable annuity
payments. When annuity payments cease because of the death of the person upon
whose life payments are based and, as of the date of death, the amount of
annuity payments excluded from taxable income by the exclusion ratio does not
exceed the "investment in the contract," then the remaining portion of
unrecovered investment is allowed as a deduction by the beneficiary in the tax
year of such death.
Penalty Tax on Distributions: Generally, any distribution from an annuity not
used in conjunction with a Qualified Contract (Qualified Contracts are discussed
below) is subject to a penalty equal to 10% of the amount includible in gross
income. This penalty does not apply to certain distributions, including:
|X| Distributions made on or after the taxpayer has attained age 591/2;
|X| Distributions made on or after the death of the contract owner, or, if the
owner is an entity, the death of the annuitant;
|X| Distributions attributable to the taxpayer's becoming disabled;
|X| Distributions which are part of a series of substantially equal periodic
payments for the life (or life expectancy) of the taxpayer (or the joint
lives of the taxpayer and the taxpayer's Beneficiary);
|X| Distributions of amounts which are treated as "investments in the contract"
made prior to August 14, 1982;
|X| Payments under an immediate annuity as defined in the Code;
|X| Distributions under a qualified funding asset under Code Section 130(d); or
|X| Distributions from an annuity purchased by an employer on the termination
of a qualified pension plan that is held by the employer until the employee
separates from service.
Special rules applicable to "related contracts": Contracts issued by the same
insurer to the same contract owner within the same calendar year (other than
certain contracts owned in connection with a tax-qualified retirement
arrangement) are to be treated as one annuity contract when determining the
taxation of distributions before annuitization. We refer to these contracts as
"related contracts." In situations involving related contracts we believe that
the values under such contracts and the investment in the contracts will be
added together to determine the proper taxation of a distribution from any one
contract described under the section "Distributions before Annuitization."
Distributions will be treated as coming first from income on the contract until
all of the income on all such related contracts is withdrawn, and then as a
return of the investment in the contract. There is some uncertainty regarding
the manner in which the Internal Revenue Service would view related contracts
when one or more contracts are immediate annuities or are contracts that have
been annuitized. The Internal Revenue Service has not issued guidance clarifying
this issue as of the date of this Prospectus. You are particularly cautioned to
seek advice from your own tax advisor on this matter.
Special concerns regarding "substantially equal periodic payments": (also known
as "72(t)" or "72(q)" distributions) Any modification to a program of
distributions which are part of a series of substantially equal periodic
payments that occur before the later of the taxpayer reaching age 59 1/2 or five
(5) years from the first of such payments will result in the requirement to pay
the taxes that would have been due had the payments been treated as subject to
tax in the years received, plus interest. This does not apply when the
modification is due by reason of death or disability. It is our understanding
that the Internal Revenue Service may not consider a scheduled series of
distributions to qualify under Sections 72(q) or 72(t) if the holder of the
annuity retains the right to modify such distributions at will, even if such
right is not exercised, or, for a variable annuity, depending on how payments
are structured.
Special concerns regarding immediate annuities: The Internal Revenue Service has
ruled that the exception to the 10% penalty described above for "non-qualified"
immediate annuities as defined under the Code may not apply to annuity payments
under a contract recognized as an immediate annuity under state insurance law
obtained pursuant to an exchange of a contract if: (a) purchase payments for the
exchanged contract were contributed or deemed to be contributed more than one
year prior to the annuity starting date under the immediate annuity; and (b) the
annuity payments under the immediate annuity do not meet the requirements of any
other exception to the 10% penalty.
Special rules in relation to tax-free exchanges under Section 1035: Section 1035
of the Code permits certain tax-free exchanges of a life insurance, annuity or
endowment contract for an annuity. If an annuity is purchased through a tax-free
exchange of a life insurance, annuity or endowment contract that was purchased
prior to August 14, 1982, then any distributions other than as annuity payments
will be considered to come:
|X| First, from the amount of "investment in the contract" made prior to August
14, 1982 and exchanged into the annuity;
|X| Then, from any "income on the contract" that is attributable to the
purchase payments made prior to August 14, 1982 (including income on such
original purchase payments after the exchange);
|X| Then, from any remaining "income on the contract"; and
|X| Lastly, from the amount of any "investment in the contract" made after
August 13, 1982.
Therefore, to the extent a distribution is equal to or less than the investment
in the contract made prior to August 14, 1982, such amounts are not included in
taxable income. Further, distributions received that are considered to be a
return of investment on the contract from purchase payments made prior to August
14, 1982, such distributions are not subject to the 10% tax penalty. In all
other respects, the general provisions of the Code apply to distributions from
annuities obtained as part of such an exchange.
On November 22, 1999, the Internal Revenue Service issued an acquiescence in the
decision of the United States Tax Court in Conway v. Commissioner (111 T.C. 350
(1998)) that a taxpayer's partial surrender of an annuity contract and direct
transfer of the resulting proceeds for the purchase of a new annuity contract
qualifies as a non-taxable exchange under Section 1035 of the Internal Revenue
Code. "Acquiescence" means that the IRS accepts the holding of the Court in a
case and that the IRS will follow it in disposing of cases with the same
controlling facts. Prior to the Conway decision, industry practice has been to
treat a partial surrender of account value as fully taxable to the extent of any
gain in the contract for tax reporting purposes and to "step-up" the basis in
the contract accordingly. However with the IRS' acquiescence in the Conway
decision, partial surrenders may be treated in the same way as tax-free 1035
exchanges of entire contracts, therefore avoiding current taxation of any gains
in the contract as well as the 10% IRS tax penalty on pre-age 59 1/2
withdrawals. The IRS reserved the right to treat transactions it considers
abusive as ineligible for this favorable partial 1035 exchange treatment. We do
not know what transactions may be considered abusive. For example, we do not
know how the IRS may view early withdrawals or annuitizations after a partial
exchange. As of the date of this Prospectus, we continue to report partial
surrenders of non-qualified annuities as subject to current taxation to the
extent of any gain. However, we may change our reporting procedures to treat
certain of these transactions as partial 1035 exchanges. Should we do so, we
reserve the right to report transactions that may have been designed to receive
partial 1035 exchange treatment as partial surrenders subject to current
taxation if we, as a reporting and withholding agent, believe that we would be
expected to deem a transaction to be abusive.
While the principles expressed in the Conway decision appear applicable to
partial exchanges from life insurance, there is no guidance from the Internal
Revenue Service as to whether it concurs with non-recognition treatment under
Section 1035 of the Code for such transactions. In addition, please be cautioned
that no specific guidance has been provided as to the impact of such a
transaction for the remaining life insurance policy, particularly as to the
subsequent methods to be used to test for compliance under the Code for both the
definition of life insurance and the definition of a modified endowment
contract.
WHAT TAX CONSIDERATIONS ARE THERE FOR TAX-QUALIFIED RETIREMENT PLANS OR
QUALIFIED CONTRACTS?
An annuity may be suitable as a funding vehicle for various types of
tax-qualified retirement plans. We have provided summaries of the types of
tax-qualified retirement plans with which we may issue an Annuity. These
summaries provide general information about the tax rules and are not intended
to be complete discussions. The tax rules regarding qualified plans are complex.
These rules may include limitations on contributions and restrictions on
distributions, including additional taxation of distributions and additional
penalties. The terms and conditions of the tax-qualified retirement plan may
impose other limitations and restrictions that are in addition to the terms of
the Annuity. The application of these rules depends on individual facts and
circumstances. Before purchasing an Annuity for use in a qualified plan, you
should obtain competent tax advice, both as to the tax treatment and suitability
of such an investment. American Skandia does not offer all of its annuities to
all of these types of tax-qualified retirement plans.
Corporate Pension and Profit-sharing Plans: Annuities may be used to fund
employee benefits of various corporate pension and profit-sharing plans
established by corporate employers under Section 401(a) of the Code including
401(k) plans. Contributions to such plans are not taxable to the employee until
distributions are made from the retirement plan. The Code imposes limitations on
the amount that may be contributed and the timing of distributions. The tax
treatment of distributions is subject to special provisions of the Code, and
also depends on the design of the specific retirement plan. There are also
special requirements as to participation, nondiscrimination, vesting and
nonforfeitability of interests.
H.R. 10 Plans: Annuities may also be used to fund benefits of retirement plans
established by self-employed individuals for themselves and their employees.
These are commonly known as "H.R. 10 Plans" or "Keogh Plans". These plans are
subject to most of the same types of limitations and requirements as retirement
plans established by corporations. However, the exact limitations and
requirements may differ from those for corporate plans.
Tax Sheltered Annuities: Under Section 403(b) of the Code, a tax sheltered
annuity ("TSA") is a contract into which contributions may be made by certain
qualifying employers such as public schools and certain charitable, educational
and scientific organizations specified in Section 501(c)(3) for the benefit of
their employees. Such contributions are not taxable to the employee until
distributions are made from the TSA. The Code imposes limits on contributions,
transfers and distributions. Nondiscrimination requirements also apply.
- --------------------------------------------------------------------------------
Under a TSA, you may be prohibited from taking distributions from the contract
attributable to contributions made pursuant to a salary reduction agreement
unless the distribution is made:
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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).
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Section 457 Plans: Under Section 457 of the Code, deferred compensation plans
established by governmental and certain other tax exempt employers for their
employees may invest in annuity contracts. The Code limits contributions and
distributions, and imposes eligibility requirements as well. Contributions are
not taxable to employees until distributed from the plan. However, plan assets
remain the property of the employer and are subject to the claims of the
employer's general creditors until such assets are made available to
participants or their beneficiaries.
Individual Retirement Programs or "IRAs": Section 408 of the Code allows
eligible individuals to maintain an individual retirement account or individual
retirement annuity ("IRA"). IRAs are subject to limitations on the amount that
may be contributed, the contributions that may be deducted from taxable income,
the persons who may be eligible to establish an IRA and the time when
distributions must commence. Further, an Annuity may be established with
"roll-over" distributions from certain tax-qualified retirement plans and
maintain the tax-deferred status of these amounts.
Roth IRAs: A form of IRA is also available called a "Roth IRA". Contributions to
a Roth IRA are not tax deductible. However, distributions from a Roth IRA are
free from Federal income taxes and are not subject to the 10% penalty tax if
five (5) tax years have passed since the first contribution was made or any
conversion from a traditional IRA was made and the distribution is made (a) once
the taxpayer is age 59 1/2 or older, (b) upon the death or disability of the
taxpayer, or (c) for qualified first-time home buyer expenses, subject to
certain limitations. Distributions from a Roth IRA that are not "qualified" as
described above may be subject to Federal income and penalty taxes.
Purchasers of IRAs and Roth IRAs will receive a special disclosure document,
which describes limitations on eligibility, contributions, transferability and
distributions. It also describes the conditions under which distributions from
IRAs and qualified plans may be rolled over or transferred into an IRA on a
tax-deferred basis and the conditions under which distributions from traditional
IRAs may be rolled over to, or the traditional IRA itself may be converted into,
a Roth IRA.
SEP IRAs: Eligible employers that meet specified criteria may establish
Simplified Employee Pensions or SEP IRAs. Employer contributions that may be
made to employee SEP IRAs are larger than the amounts that may be contributed to
other IRAs, and may be deductible to the employer.
HOW ARE DISTRIBUTIONS FROM QUALIFIED CONTRACTS TAXED?
Distributions from Qualified Contracts are generally taxed under Section 72 of
the Code. Under these rules, a portion of each distribution may be excludable
from income. The excludable amount is the proportion of a distribution
representing after-tax contributions. Generally, a 10% penalty tax applies to
the taxable portion of a distribution from a Qualified Contract made prior to
age 59 1/2. However, the 10% penalty tax does not apply when the distribution:
|X| is part of a properly executed transfer to another IRA or another eligible
qualified account;
|X| is subsequent to the death or disability of the taxpayer (for this purpose
disability is as defined in Section 72(m)(7) of the Code);
|X| is part of a series of substantially equal periodic payments to be paid not
less frequently than annually for the taxpayer's life or life expectancy or
for the joint lives or life expectancies of the taxpayer and a designated
beneficiary;
|X| is subsequent to a separation from service after the taxpayer attains age
55*;
|X| does not exceed the employee's allowable deduction in that tax year for
medical care*;
|X| is made to an alternate payee pursuant to a qualified domestic relations
order*; and
|X| is made pursuant to an IRS levy.
The exceptions above which are followed by an asterisk (*) do not apply to IRAs.
Certain other exceptions may be available.
Minimum Distributions after age 70 1/2: A participant's interest in a Qualified
Contract must generally be distributed, or begin to be distributed, by the
"required beginning date". This is April 1st of the calendar year following the
later of:
|X| the calendar year in which the individual attains age 70 1/2; or
|X| the calendar year in which the individual retires from service with the
employer sponsoring the plan. The retirement option is not available to
IRAs.
The participant's entire interest must be distributed beginning no later than
the required beginning date over a period which may not extend beyond a maximum
of the life or life expectancy of the participant (or the life expectancies of
the owner and a designated Beneficiary). Each annual distribution must equal or
exceed a "minimum distribution amount" which is determined by dividing the
account value by the applicable life expectancy or pursuant to an annuity
payout. If the account balance is used, it generally is based upon the Account
Value as of the close of business on the last day of the previous calendar year.
If the participant dies before reaching his or her "required beginning date",
his or her entire interest must generally be distributed within five (5) years
of death. However, this rule will be deemed satisfied if distributions begin
before the close of the calendar year following death to a designated
Beneficiary (or over a period not extending beyond the life expectancy of the
beneficiary). If the Beneficiary is the individual's surviving spouse,
distributions may be delayed until the deceased owner would have attained age 70
1/2. A surviving spouse would also have the option to assume the IRA as his or
her own if he or she is the sole designated beneficiary. If a participant dies
after reaching his or her required beginning date or after distributions have
commenced, the individual's interest must generally be distributed at least as
rapidly as under the method of distribution in effect at the time of the
individual's death.
If the amount distributed is less than the minimum required distribution for the
year, the participant is subject to a 50% tax on the amount that was not
properly distributed.
GENERAL TAX CONSIDERATIONS
Diversification: Section 817(h) of the Code provides that a variable annuity
contract, in order to qualify as an annuity, must have an "adequately
diversified" segregated asset account (including investments in a mutual fund by
the segregated asset account of insurance companies). If the diversification
requirements under the Code are not met and the annuity is not treated as an
annuity, the taxpayer will be subject to income tax on the annual gain in the
contract. The Treasury Department's regulations prescribe the diversification
requirements for variable annuity contracts. We believe the underlying mutual
fund portfolios should comply with the terms of these regulations.
Transfers Between Investment Options: Transfers between investment options are
not subject to taxation. The Treasury Department may promulgate guidelines under
which a variable annuity will not be treated as an annuity for tax purposes if
persons with ownership rights have excessive control over the investments
underlying such variable annuity. Such guidelines may or may not address the
number of investment options or the number of transfers between investment
options offered under a variable annuity. It is not known whether such
guidelines, if in fact promulgated, would have retroactive effect. It is also
not known what effect, if any, such guidelines may have on transfers between the
investment options of the Annuity offered pursuant to this Prospectus. We will
take any action, including modifications to your Annuity or the Sub-accounts,
required to comply with such guidelines if promulgated.
Federal Income Tax Withholding: Section 3405 of the Code provides for Federal
income tax withholding on the portion of a distribution which is includible in
the gross income of the recipient. Amounts to be withheld depend upon the nature
of the distribution. However, under most circumstances a recipient may elect not
to have income taxes withheld or have income taxes withheld at a different rate
by filing a completed election form with us.
Certain distributions, including rollovers, from most Qualified Contracts, may
be subject to automatic 20% withholding for Federal income taxes. This will not
apply to:
|X| any portion of a distribution paid as Minimum Distributions;
|X| direct transfers to the trustee of another retirement plan;
|X| distributions from an individual retirement account or individual
retirement annuity;
|X| distributions made as substantially equal periodic payments for the life or
life expectancy of the participant in the retirement plan or the life or
life expectancy of such participant and his or her designated beneficiary
under such plan; and
|X| certain other distributions where automatic 20% withholding may not apply.
Loans, Assignments and Pledges: Any amount received directly or indirectly as a
loan from, or any assignment or pledge of any portion of the value of, an
annuity before annuity payments have begun are treated as a distribution subject
to taxation under the distribution rules set forth above. Any gain in an annuity
on or after the assignment or pledge of an entire annuity and while such
assignment or pledge remains in effect is treated as "income on the contract" in
the year in which it is earned. For annuities not issued for as Qualified
Contracts, the cost basis of the annuity is increased by the amount of any
assignment or pledge includible in gross income. The cost basis is not affected
by any repayment of any loan for which the annuity is collateral or by payment
of any interest thereon.
Gifts: The gift of an annuity to someone other than the spouse of the owner (or
former spouse incident to a divorce) is treated, for income tax purposes, as a
distribution.
Estate and Gift Tax Considerations: You should obtain competent tax advice with
respect to possible federal and state estate and gift tax consequences flowing
from the ownership and transfer of annuities.
Generation-Skipping Transfers: Under the Code certain taxes may be due when all
or part of an annuity is transferred to, or a death benefit is paid to, an
individual two or more generations younger than the contract holder. These
generation-skipping transfers generally include those subject to federal estate
or gift tax rules. There is an aggregate $1 million exemption from taxes for all
such transfers. We may be required to determine whether a transaction is a
direct skip as defined in the Code and the amount of the resulting tax. We will
deduct from your Annuity or from any applicable payment treated as a direct skip
any amount of tax we are required to pay.
Considerations for Contingent Annuitants: There may be adverse tax consequences
if a contingent annuitant succeeds an annuitant when the Annuity is owned by a
trust that is neither tax exempt nor qualifies for preferred treatment under
certain sections of the Code. In general, the Code is designed to prevent
indefinite deferral of tax. Continuing the benefit of tax deferral by naming one
or more contingent annuitants when the Annuity is owned by a non-qualified trust
might be deemed an attempt to extend the tax deferral for an indefinite period.
Therefore, adverse tax treatment may depend on the terms of the trust, who is
named as contingent annuitant, as well as the particular facts and
circumstances. You should consult your tax advisor before naming a contingent
annuitant if you expect to use an Annuity in such a fashion.
GENERAL INFORMATION
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, Inc. formerly known as American Skandia Investment Holding
Corporation, whose ultimate parent is Skandia Insurance Company Ltd., a Swedish
company. American Skandia markets its products to broker-dealers and financial
planners through an internal field marketing staff. In addition, American
Skandia markets through and in conjunction with financial institutions such as
banks that are permitted directly, or through affiliates, to sell annuities.
American Skandia is in the business of issuing variable annuity and variable
life insurance contracts. American Skandia currently offers the following
products: (a) flexible premium deferred annuities and single premium fixed
deferred annuities that are registered with the SEC; (b) certain other fixed
deferred annuities that are not registered with the SEC; (c) certain group
variable annuities that are exempt from registration with the SEC that serve as
funding vehicles for various types of qualified pension and profit sharing
plans; (d) a single premium variable life insurance policy that is registered
with the SEC; and (e) a flexible premium life insurance policy that is
registered with the SEC.
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, Inc., 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 also acts as an introducing broker-dealer through which it receives a
portion of brokerage commissions in connection with purchases and sales of
securities held by portfolios of American Skandia Trust which are offered as
underlying investment options under the Annuity.
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
NASDAQ 100, 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, 1999 previously filed
by the Company with the SEC under the Exchange Act is incorporated by reference
in this Prospectus.
We will furnish you without charge a copy of any or all of the documents
incorporated by reference in this Prospectus, including any exhibits to such
documents which have been specifically incorporated by reference. We will do so
upon receipt of your written or oral request.
HOW TO CONTACT US
You can contact us by:
|X| calling our Customer Service Team at 1-800-444-3970 or our automated
telephone access and response system (STARS) at 1-800-766-4530
|X| writing to us at American Skandia Life Assurance Corporation, Attention:
Galaxy Annuity Customer Service, P.O. Box 7038, Bridgeport, Connecticut
06601-7038
|X| sending an email to [email protected] or visiting our
Internet Website at www.americanskandia.com
|X| accessing information about your Annuity through our Internet Website at
www.americanskandia.com
You can obtain account information through our automated telephone access and
response system (STARS) and at www.americanskandia.com, our Internet Website.
Our Customer Service representatives are also available during business hours to
provide you with information about your account. You can request certain
transactions through our telephone voice response system, our Internet Website
or through a customer service representative. You can provide authorization for
a third party, including your attorney-in-fact acting pursuant to a power of
attorney or a financial professional, to access your account information and
perform certain transactions on your account. You will need to complete a form
provided by us which identifies those transactions that you wish to authorize
via telephonic and electronic means and whether you wish to authorize a third
party to perform any such transactions. We require that you or your
representative provide proper identification before performing transactions over
the telephone or through our Internet Website. This may include a Personal
Identification Number (PIN) that will be provided to you upon issue of your
Annuity or you may establish or change your PIN through our automated telephone
access and response system (STARS) and at www.americanskandia.com, our Internet
Website. Any third party that you authorize to perform financial transactions on
your account will be assigned a PIN for your account.
Transactions requested via telephone are recorded. To the extent permitted by
law, we will not be responsible for any claims, loss, liability or expense in
connection with a transaction requested by telephone or other electronic means
if we acted on such transaction instructions after following reasonable
procedures to identify those persons authorized to perform transactions on your
Annuity using verification methods which may include a request for your Social
Security number, PIN or other form of electronic identification. We may be
liable for losses due to unauthorized or fraudulent instructions if we did not
follow such procedures.
American Skandia does not guarantee access to telephonic and electronic
information or that we will be able to accept transaction instructions via the
telephone or electronic means at all times. American Skandia reserves the right
to limit, restrict or terminate telephonic and electronic transaction privileges
at any time.
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.
Name/ Position with American Skandia
<S> <C> <C> <C> <C>
Age Life Assurance Corporation Principal Occupation
- --- -------------------------- --------------------
Patricia J. Abram Senior Vice President Senior Vice President
48 and National Sales Manager,
Variable Life:
American Skandia
Marketing, Incorporated
Ms. Abram joined us in 1998. She previously held the position of Senior Vice
President, Chief Marketing Officer with Mutual Service Corporation. Ms. Abram
was employed there since 1982.
Lori Allen Vice President Vice President:
30 American Skandia Life
Assurance Corporation
Kimberly Anderson Vice President Vice President,
33 National Sales Manager/
Qualified Plans:
American Skandia Marketing, Incorporated
Robert M. Arena Vice President Vice President:
31 American Skandia Life
Assurance Corporation
Mr. Arena joined us in 1995. He previously held an internship position with KPMG
Peat Marwick in 1994 and the position of Group Sales Representative with Paul
Revere Insurance from October, 1990 to August, 1993.
Gordon C. Boronow President and President and
47 Deputy Chief Executive Officer Deputy Chief Executive Officer:
Director (since July, 1991) American Skandia Life
Assurance Corporation
Robert W. Brinkman Senior Vice President Senior Vice President,
35 National Sales Manager:
American Skandia
Marketing, Incorporated
Malcolm M. Campbell Director (since July, 1991) Director of Operations and
44 Chief Actuary, Assurance and
Financial Services Division:
Skandia Insurance Company Ltd.
Jan R. Carendi Chief Executive Senior Executive Vice President and
55 Officer and Member of Executive Management Group:
Chairman of the Skandia Insurance Company Ltd.
Board of Directors
Director (since May, 1988)
Carl Cavaliere Vice President Vice President:
37 American Skandia Life
Assurance Corporation
Mr. Cavaliere joined us in 1998. He previously held the position of Director of
Operations with Aetna, Inc. since 1989.
Y.K. Chan Senior Vice President Senior Vice President
42 and Chief Information Officer:
American Skandia Information
Services and Technology Corporation
Mr. Chan joined us in 1999. He previously held the position of Chief Information
Officer with E.M. Warburg Pincus from January 1995 until April 1999 and the
position of Vice President, Client Server Application Development with Scudder,
Stevens and Clark from January 1991 until January 1995.
Lucinda C. Ciccarello Vice President Vice President, Mutual Funds:
41 American Skandia
Marketing, Incorporated
Ms. Ciccarello joined us in 1997. She previously held the position of Assistant
Vice President with Phoenix Duff & Phelps since 1984.
Lincoln R. Collins Senior Vice President Senior Vice President:
39 Director (since February, 1996) American Skandia Life
Assurance Corporation
Tim Cronin Vice President Vice President:
34 American Skandia Life
Assurance Corporation
Mr. Cronin joined us in 1998. He previously held the position of Manager/Client
Investor with Columbia Circle Investors since 1995.
Henrik Danckwardt Director (since July, 1991) Director of Finance
46 and Administration,
Assurance and Financial
Services Division:
Skandia Insurance Company Ltd.
Harold Darak Vice President Vice President:
39 American Skandia Life
Assurance Corporation
Mr. Darak joined us in 1999. He previously held the position of
Consultant/Senior Manager with Deloitte & Touche since 1998 and the positions of
Second Vice President with The Guardian since 1996 and The Travelers from
October, 1982 until December, 1995.
Wade A. Dokken Deputy Chief Executive Officer DCEO and COO:
40 and Chief Operating Officer American Skandia Life
Director (since July, 1991) Assurance Corporation
Elaine C. Forsyth Vice President Vice President:
38 American Skandia Life
Assurance Corporation
Larisa Gromyko Director, Insurance Compliance Director, Insurance Compliance:
53 American Skandia Life
Assurance Corporation
Maureen Gulick Director, Business Operations Director, Business Operations:
37 American Skandia Life
Assurance Corporation
Berthann Jones Vice President Vice President:
45 American Skandia Life
Assurance Corporation
Ms. Jones joined us in 1997. She previously held the position of Vice
President/Trust Officer with Ridgefield Bank since 1996 and Manager with Wright
Investors Service since 1993.
Ian Kennedy Senior Vice President Senior Vice President,
52 Customer Service:
American Skandia
Marketing, Incorporated
Mr. Ian Kennedy joined us in 1998. He previously was self-employed since 1996
and held the position of Vice President, Customer Service with SunLife of Canada
from September, 1968 to August, 1995.
T. Richard Kennedy General Counsel and General Counsel:
65 Director (since March, 2000) American Skandia Life
Assurance Corporation
Mr. T. Richard Kennedy joined us in 1999. He previously was Managing Partner
with the law firm of Werner & Kennedy.
N. David Kuperstock Vice President Vice President:
48 American Skandia Life
Assurance Corporation
Thomas M. Mazzaferro Executive Vice President and Executive Vice President and
47 Chief Financial Officer, Chief Financial Officer:
Director (since September, 1994) American Skandia Life
Assurance Corporation
Gunnar J. Moberg Director (since October, 1994) Director - Marketing and Sales,
45 Assurances and Financial
Services Division:
Skandia Insurance Company Ltd.
David R. Monroe Senior Vice President, Senior Vice President,
38 Treasurer and Treasurer and
Corporate Controller Corporate Controller:
American Skandia Life
Assurance Corporation
Mr. Monroe joined us in 1996. He previously held positions of Assistant Vice
President at Allmerica Financial since 1994.
Michael A. Murray Senior Vice President Vice President,
31 National Sales Manager:
American Skandia
Marketing, Incorporated
Brian O'Connor Vice President Vice President,
35 National Sales Manager,
Internal Wholesaling:
American Skandia
Marketing, Incorporated
M. Patricia Paez Vice President Chief of Staff:
39 American Skandia, Inc.
Polly Rae Vice President Vice President:
37 American Skandia Life
Assurance Corporation
Rebecca Ray Vice President Vice President:
44 American Skandia Life
Assurance Corporation
Ms. Ray joined us in 1999. She previously held the position of First Vice
President with Prudential Securities since 1997 and Vice President with Merrill
Lynch since 1995.
Rodney D. Runestad Vice President Vice President:
50 American Skandia Life
Assurance Corporation
Hayward L. Sawyer Senior Vice President Executive Vice President
55 National Sales Manager:
American Skandia
Marketing, Incorporated
Lisa Shambelan Vice President Vice President:
34 American Skandia Life
Assurance Corporation
Karen Stockla Vice President Vice President,
33 Intellectual Resources Department:
American Skandia Life
Assurance Corporation
Ms. Stockla joined us in 1998. She previously held the position of Manager,
Application Development with Citizens Utilities Company since 1996 and HRIS Tech
Support Representative with Yale New Haven Hospital since 1993.
William H. Strong Vice President Vice President:
56 American Skandia Life
Assurance Corporation
Mr. Strong joined us in 1997. He previously held the position of Vice President
with American Financial Systems from June 1994 to October 1997 and the position
of Actuary with Connecticut Mutual Life from June 1965 to June 1994.
Leslie S. Sutherland Vice President Vice President,
46 National Key Accounts Manager:
American Skandia
Marketing, Incorporated
Amanda C. Sutyak Vice President Vice President:
42 Director (since July, 1991) American Skandia Life
Assurance Corporation
Christian A. Thwaites Senior Vice President Senior Vice President,
42 National Marketing Director:
American Skandia
Marketing, Incorporated
Mr. Thwaites joined us in 1996. He previously held the position of consultant
with Monitor Company since October 1995 and Vice President with Aetna, Inc.
since 1995.
Mary Toumpas Vice President Vice President and
48 Compliance Director:
American Skandia
Marketing, Incorporated
Ms. Toumpas joined us in 1997. She previously held the position of Assistant
Vice President with Chubb Life/Chubb Securities since 1973.
Bayard F. Tracy Senior Vice President and Senior Vice President,
52 Director (since September, 1994) National Sales Manager:
American Skandia
Marketing, Incorporated
Deborah G. Ullman Senior Vice President Senior Vice President and
45 Chief Operating Officer:
American Skandia
Marketing, Incorporated
Ms. Ullman joined us in 1998. She previously held the position of Vice President
with Aetna, Inc. since 1977.
Jeffrey M. Ulness Vice President Vice President:
39 American Skandia Life
Assurance Corporation
Derek Winegard Vice President Vice President:
41 American Skandia Life
Assurance Corporation
Mr. Winegard joined us in 1999. He previously held the position of Senior Vice
President with Trust Consultants, Inc. since 1991.
Brett M. Winson Senior Vice President and Senior Vice President,
44 Director (since March 2000) Intellectual Resource Development
American Skandia, Inc.
Mr. Winson joined us in 1998. He previously held the position of Senior Vice
President with Sakura Bank, Ltd. since 1990.
</TABLE>
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)
<PAGE>
APPENDIX A - FINANCIAL INFORMATION ABOUT AMERICAN SKANDIA
SELECTED FINANCIAL DATA
The following table summarizes information with respect to the operations of the
Company:
<TABLE>
<CAPTION>
(in thousands) For the Year Ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA
Revenues:
Annuity and life insurance
<S> <C> <C> <C> <C> <C>
charges and fees* $ 289,989 $ 186,211 $ 121,158 $ 69,780 $ 38,837
Fee income 83,243 50,839 27,593 16,420 6,206
Net investment income 10,441 11,130 8,181 1,586 1,601
Premium income and
other revenues 3,688 1,360 1,082 265 45
------------- ------------- ------------ ----------- -----------
Total revenues $ 387,361 $ 249,540 $ 158,014 $ 88,051 $ 46,689
============= ============= ============ =========== ===========
Benefits and Expenses:
Annuity and life insurance benefits $ 612 $ 558 $ 2,033 $ 613 $ 555
Change in annuity policy reserves 3,078 1,053 37 635 (6,779)
Cost of minimum death benefit
reinsurance 2,945 5,144 4,545 2,867 2,057
Return credited to contractowners (1,639) (8,930) (2,018) 673 10,613
Underwriting, acquisition and
other insurance expenses 206,350 167,790 90,496 49,887 35,914
Interest expense 69,502 41,004 24,895 10,791 6,500
------------- ------------- ------------- ------------ ------------
Total benefits and expenses $ 280,848 $ 206,619 $ 119,988 $ 65,466 $ 48,860
============= ============= ============= ============ ============
Income tax expense (benefit) $ 30,344 $ 8,154 $ 10,478 $ (4,038) $ 397
============= ============= ============= ============ ============
Net income (loss) $ 76,169 $ 34,767 $ 27,548 $ 26,623 $ (2,568)
============= ============= ============= ============ =============
STATEMENT OF FINANCIAL CONDITION
Total Assets $ 30,849,414 $ 18,848,273 $ 12,894,290 $ 8,268,696 $ 4,956,018
============= ============= ============= ============ ============
Future fees payable to parent $ 576,034 $ 368,978 $ 233,034 $ 47,112 $ -
============= ============= ============= ============ ============
Surplus Notes $ 179,000 $ 193,000 $ 213,000 $ 213,000 $ 103,000
============= ============= ============= ============ ============
Shareholder's Equity $ 359,434 $ 250,417 $ 184,421 $ 126,345 $ 59,713
============= ============= ============= =========== ============
</TABLE>
* On annuity and life insurance sales of $6,862,968, $4,159,662, $3,697,990,
$2,795,114, and $1,628,486 during the years ended December 31, 1999, 1998, 1997,
1996, and 1995, respectively, with contractowner assets under management of
$29,396,693, $17,854,761, $12,119,191, $7,764,891, and $4,704,044 as of December
31, 1999, 1998, 1997, 1996 and 1995, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the financial statements and the
notes thereto and Item 6, Selected Financial Data.
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains certain forward-looking statements pursuant to the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
based on estimates and assumptions that involve certain risks and uncertainties,
therefore actual results could differ materially due to factors not currently
known. These factors include significant changes in financial markets and other
economic and business conditions, state and federal legislation and regulation,
ownership and competition.
Results of Operations
Annuity and life insurance sales increased 65%, 12%, and 32% in 1999, 1998 and
1997, respectively. The Company continues to show significant growth in sales
volume as a result of innovative product development activities, the recruitment
and retention of top producers, and the success of its highly rated customer
service teams. The sales growth was also attributable to the strong performance
of the underlying mutual funds, which support the Separate Account assets. All
three major distribution channels achieved significant sales growth in 1999.
As a result of the significant growth in sales and assets under management,
contractowner fees and charges and fees generated from transfer agency-type and
investment support activities increased considerably over the past three years:
(annual percentage growth) 1999 1998 1997
Annuity and life insurance
charges and fees 56% 54% 74%
Fee income 64% 84% 68%
Net investment income decreased 6% in 1999, increased 36% and 416% in 1998 and
1997, respectively. The decrease in 1999 was the result of $1,036,000 of
amortization of the premium paid on a derivative instrument purchased during
1999. As noted in Note 2C of Notes to Consolidated Financial Statements, the
derivative instrument, an equity put option, was purchased as a hedge against
potential GMDB reserves increases. Excluding the derivative amortization, 1999
net investment income increased 3% as a result of increased bond holdings in
support of the Company's risk-based capital initiatives. The increases in 1998
and 1997 were generated from the bond holdings, which were increased in 1998 and
1997 to meet risk based capital goals, which in turn, have increased as a result
of the growth in business.
Premium income represents premiums earned on sale of ancillary contracts;
immediate annuities with life contingencies, supplementary contracts with life
contingencies and certain life insurance products. Sales of supplementary
contracts increased in 1999 and decreased in slightly in 1998 and 1997. There
were no immediate annuities sold in 1999 and sales in 1998 and 1997 were modest.
Annuity benefits, which represent immediate annuities, supplementary contracts
and death benefits paid on annuity contracts with mortality risks were not
significant in each of the past three years due primarily to the age of the
policies in force.
The change in annuity policy reserves includes changes in reserves related to
annuity contracts with mortality risks as well as the Company's guaranteed
minimum death benefit ("GMDB") liability. During the second quarter of 1999, the
Company's agreement to reinsure substantially all of its exposure on the GMDB
was terminated and the business was recaptured, as the reinsurer had announced
its intention to exit this market. The increase in reserves resulting from this
change was offset by a decrease in reserves associated with the change to
reserve methodology on the GMDB. The new reserve methodology complies with the
National Association of Insurance Commissioners Actuarial Guideline XXXIV. In
the later half of 1999, the Company instituted a hedge program to manage the
market risk and reserve fluctuations associated with the GMDB policies through
the use of equity put options. The Company is currently continuing this program
while evaluating alternative hedging strategies.
<PAGE>
The reinsurance premium associated with the GMDB exposure is based on levels of
assets under management. Due to increased sales and account growth, this cost
had increased in 1997 and 1998 and through May 1999. The termination of the
reinsurance treaty as of May 31, 1999 resulted in the year to year decrease in
this benefit for the twelve months ended December 31, 1999.
Return credited to contractowners consists of revenues on the variable and
market value adjusted annuities and variable life insurance, offset by the
benefit payments and change in reserves required on this business. Market value
adjusted annuity activity has the largest impact on this benefit. In 1999, the
Separate Account investment returns on these contracts did not meet the expected
returns calculated in the reserves. In 1998, the actual returns significantly
outperformed the expected returns and in 1997, these expectations were met.
Underwriting, acquisition and other insurance expenses for 1999, 1998 and 1997
were as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Commissions and general expenses $ 576,649 $ 342,594 $ 281,560
Net capitalization of deferred
acquisition costs (370,299) (174,804) (191,064)
--------- --------- ---------
Underwriting, acquisition and other
insurance expenses $ 206,350 $167,790 $90,496
========= ======== =======
</TABLE>
Commissions, general operating expenses and the net deferral of acquisition
costs have all increased in 1999, due largely to record sales. Current sales
trends have resulted in a shift to asset based commission agreements. This
coupled with increased asset levels from increased sales and equity market
appreciation have led to the increase in commissions and general expenses. In
1998, commissions and general expenses increased as a result of strong sales and
start up costs associated with the Company's entry into variable life insurance
and qualified plans. The net capitalization of acquisition costs decreased in
1998 as a result of increased amortization. In 1997, expense increases were
driven primarily from strong sales.
Interest expense increased $28,498,000, $16,109,000 and $14,104,000 in 1999,
1998 and 1997, respectively, as a result of additional financing transactions,
which consisted of the sale of future fees to the Parent ("securitization
transactions"). In addition, the Company retired surplus notes on December 10,
1999 and December 31, 1998 of $14,000,000 and $20,000,000 respectively. Surplus
notes outstanding as of December 31, 1999 and 1998 totaled $179,000,000 and
$193,000,000, respectively.
The effective income tax rates for the years ended December 31, 1999, 1998 and
1997 were 28%, 19% and 28%, respectively. The effective rate is lower than the
corporate rate of 35% due to permanent differences, with the most significant
item being the dividend received deduction. Management believes that based on
the taxable income produced in the past two years, as well as the continued
growth in annuity sales, the Company will produce sufficient taxable income in
future years to realize its deferred tax assets.
The Company generated net income after tax of $76,169,000, $34,767,000 and
$27,548,000 in 1999, 1998 and 1997, respectively. The Company benefited in each
of the past three years from strong sales growth and favorable market
conditions. The Company considers Mexico an emerging market and has invested in
the Skandia Vida operations with the expectation of generating profits from
long-term savings products in future years. As such, Skandia Vida has generated
net losses of $2,523,000, $2,514,000 and $1,438,000 for the years ended December
31, 1999, 1998 and 1997, respectively.
Total assets grew 64%, 46%, and 56% in 1999, 1998 and 1997, respectively. These
increases were a direct result of the substantial sales volume and market growth
of the separate account assets. The sales and market growth also drove increases
in deferred acquisition costs, as well as fixed maturity investments held in
support of the Company's risk based capital requirements. Liabilities grew 64%,
46%, and 56% in 1999, 1998 and 1997, respectively, as a result of the reserves
required for the increased sales activity along with the sale of future fees and
charges during these periods. These sales of future fees and charges to the
Parent are needed to fund the acquisition costs of the Company's variable
annuity and life insurance business.
Liquidity and Capital Resources
The Company's liquidity requirement was met by cash from insurance operations,
investment activities, borrowings from its Parent and the sale of rights to
future fees and charges to its Parent.
The majority of the operating cash outflow resulted from the sale of variable
annuity and variable life products which carry a contingent deferred sales
charge. This type of product causes a temporary cash strain in that 100% of the
proceeds are invested in separate accounts supporting the product leaving a cash
(but not capital) strain caused by the acquisition cost for the new business.
This cash strain required the Company to look beyond the cash made available by
insurance operations and investments of the Company to financing in the form of
surplus notes, capital contributions, the sale of certain rights to future fees
and charges as well as modified coinsurance reinsurance arrangements:
o During 1999 and 1998, the Company received $34,800,000 and $22,600,000,
respectively, from ASI to support the capital needs of its U.S. operations
during the current year along with the following year's anticipated growth
in business. In addition, the Company received $1,690,000 and $5,762,000
from ASI in 1999 and 1998 to support its investment in Skandia Vida.
o Funds received from new securitization transactions amounted to
$265,710,000, $169,881,000, and $194,512,000 for 1999, 1998 and 1997,
respectively (see Note 8 of the Notes to Audited Consolidated Financial
Statements). In addition, $71,000,000 was received from ASI in the fourth
quarter of 1999 in advance of a securitization transaction completed in the
first quarter of 2000.
o During 1999, 1998 and 1997, the Company extended its reinsurance
agreements. The reinsurance agreements are modified coinsurance
arrangements where the reinsurer shares in the experience of a specific
book of business.
The Company expects the continued use of reinsurance and securitization
transactions to fund the cash strain anticipated from the acquisition costs on
the coming years' sales volume.
As of December 31, 1999 and 1998, shareholder's equity was $359,434,000 and
$250,417,000, respectively. The increases were driven by the previously
mentioned capital contributions received from ASI and net income from
operations.
The Company has long-term surplus notes and short-term borrowings with ASI. No
dividends have been paid to ASI.
The National Association of Insurance Commissioners ("NAIC") requires insurance
companies to report information regarding minimum Risk Based Capital ("RBC")
requirements. These requirements are intended to allow insurance regulators to
identify companies which may need regulatory attention. The RBC model law
requires that insurance companies apply various factors to asset, premium and
reserve items, all of which have inherent risks. The formula includes components
for asset risk, insurance risk, interest risk and business risk. The Company has
complied with the NAIC's RBC reporting requirements and has total adjusted
capital well above required capital.
Effects of Inflation
The rate of inflation has not had a significant effect on the Company's
financial statements.
<PAGE>
Year 2000 Compliance
The Company's computer support is provided by its affiliate, American Skandia
Information Services and Technology Corporation, which also provides such
support for the Company's affiliated broker-dealer, American Skandia Marketing,
Incorporated and the Company's affiliated investment advisory firm, American
Skandia Investment Services, Incorporated. Because of the nature of the
Company's business, any assessment of the potential impact of the Year 2000
issues on the Company must be an assessment of the potential impact of these
issues on all these companies, which are referred to below as "American
Skandia".
The Company experienced no significant errors or disruptions in computer
service, interfaces with computer systems of investment managers, sub-advisors,
third party administrators, vendors and other business partners on or after
January 1, 2000.
American Skandia engaged external information technology specialists to review
its operating systems and internally developed software. The costs associated
with these assessments and Year 2000 related remediation was $1,400,000 in 1999
and $750,000 in 1998 and prior. The Company was allocated the majority of these
costs.
American Skandia continues to review new and existing systems and has
contingency plans in place as part of its Business Continuity Plan. This plan
involves virtually all aspects of the business and will continue to be a focus
of management beyond the Year 2000 event.
Outlook
The Company believes that it is well positioned to retain and enhance its
position as a leading provider of financial products for long-term savings and
retirement purposes as well as to address the economic impact of premature
death, estate and business planning concerns and supplemental retirement needs.
Strength in the areas of investment options offered, innovative and leading edge
product offerings and superior customer service are expected to allow the
Company to continue to grow market share in a marketplace which continues to
grow.
Certain regulatory and legislative initiatives or proposed accounting standards,
if adopted, could adversely impact the Company, despite it's strong market
position. Of particular importance is President Clinton's proposed budget for
2001, which includes proposed revenue-raising tax changes such as the "DAC tax"
on annuity and life products that could further increase the Company's cash
strain. In addition, the recently enacted Financial Services Modernization Act,
which allows banks and insurance companies to affiliate under a common holding
company, may create previously unseen competitive pressures that could impact
the Company's ability to do business in the same manner it has previously.
Additionally, discussions on regulation of the Internet may impact on the way
the Company does business in the future.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to potential fluctuations in earnings and the fair value
of certain of its assets and liabilities, as well as variations in expected cash
flows due to changes in market interest rates and equity prices. The following
discussion focuses on specific exposures the Company has to interest rate and
equity price risk and describes strategies used to manage these risks. The
discussion is limited to financial instruments subject to market risks and is
not intended to be a complete discussion of all of the risks the Company is
exposed to.
Interest Rate Risk
Fluctuations in interest rates can potentially impact the Company's
profitability and cash flows. The Company has 97% of assets held under
management that are in non-guaranteed Separate Accounts for which the Company's
exposure is not significant as the contractowner assumes substantially all the
investment risk. On the remaining 3% of assets the interest rate risk from
contracts that carry interest rate exposure, is managed through an
asset/liability matching program which takes into account the risk variables of
the insurance liabilities supported by the assets.
At December 31, 1999, the Company held in its general account $201,509,000 of
fixed maturity investments that are sensitive to changes in interest rates.
These securities are held in support of the Company's fixed immediate annuities
and supplementary contracts ($29,912,000 in reserves at December 31, 1999) and
in support of the Company's target solvency capital. The Company has a
conservative investment philosophy with regard to these investments. All
investments are investment grade corporate securities, government agency or U.S.
government securities.
The Company's deferred annuity products offer a fixed option which subjects the
Company to interest rate risk. The fixed option guarantees a fixed rate of
interest for a period of time selected by the contractowner. Guarantee period
options available range from 1 to 10 years. Withdrawal of funds before the end
of the guarantee period subjects the contract holder to a market value
adjustment ("MVA"). In the event of rising interest rates, which make the fixed
maturity securities underlying the guarantee less valuable, the MVA could be
negative. In the event of declining interest rates, which make the fixed
maturity securities underlying the guarantee more valuable, the MVA could be
positive. The resulting increase or decrease in the value of the fixed option,
from calculation of the MVA, should substantially offset the increase or
decrease in the market value of the securities underlying the guarantee. The
Company maintains strict asset/liability matching to enable this offset.
However, the Company still takes on the default risk for the underlying
securities, the interest rate risk of reinvestment of interest payments and the
risk of failing to maintain the asset/liability matching program with respect to
duration and convexity. At December 31, 1999 the Company had $939,585,000 in
fixed investment options subject to these risks.
Equity Market Exposure
The primary equity market risk to the Company comes from the nature of the
variable annuity and variable life products sold by the Company. Various fees
and charges earned are substantially derived as a percentage of the market value
of assets under management. In a market decline, this income would be reduced.
This could be further compounded by customer withdrawals, net of applicable
surrender charge revenues, partially offset by transfers to the fixed option
discussed above. A 10% decline in the market value of the assets under
management at December 31, 1999, sustained throughout 2000, would result in an
approximate drop in related annual fee income of $48,178,000.
As discussed in Note 2 of the Consolidated Financial Statements, in 1999 the
Company utilized derivative instruments to hedge against the risk of significant
decreases in equity markets which would expose the Company to increases in
guaranteed minimum death benefits liabilities. Prior to the implementation of
this program the Company utilized reinsurance to transfer this risk.
The Company has a small portfolio of equity investments; mutual funds which are
held in support of a deferred compensation program. In the event of a decline in
market values of underlying securities, the value of the portfolio would
decline, however the accrued benefits payable under the related deferred
compensation program would decline by a corresponding amount.
In addition, it is not clear what the impact of a prolonged downturn in the
equity markets would have on ongoing sales. Customer's perceptions of a downturn
in equity markets coupled with rising interest rates could move them into
financial products other than variable annuities or variable life; however, the
Company's products might remain attractive to purchasers in relation to other
long-term savings vehicles even after such a decline.
<PAGE>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholder of
American Skandia Life Assurance Corporation
Shelton, Connecticut
We have audited the consolidated statements of financial condition of American
Skandia Life Assurance Corporation (the "Company" which is a wholly-owned
subsidiary of Skandia Insurance Company Ltd.) as of December 31, 1999 and 1998,
and the related consolidated statements of income, shareholder's equity, and
cash flows for each of the three years in the period ended December 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American Skandia
Life Assurance Corporation at December 31, 1999 and 1998, and the consolidated
results of their operations and cash flows for each of the three years in the
period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States.
/s/Ernst & Young LLP
Hartford, Connecticut
February 11, 2000,
except for Note 18 as to which the date is March 22, 2000
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Financial Condition
(in thousands)
<TABLE>
<CAPTION>
As of December 31,
1999 1998
--------------- ----------------
ASSETS
Investments:
<S> <C> <C>
Fixed maturities - at amortized cost $ 3,360 $ 8,289
Fixed maturities - at fair value 198,165 141,195
Investment in mutual funds - at fair value 16,404 8,210
Derivative instruments 189 -
Policy loans 1,270 569
-------------- --------------
Total investments 219,388 158,263
Cash and cash equivalents 89,212 77,525
Accrued investment income 4,054 2,880
Deferred acquisition costs 1,087,705 721,507
Reinsurance receivable 4,062 4,191
Receivable from affiliates - 1,161
Income tax receivable - deferred 51,726 38,861
State insurance licenses 4,263 4,413
Fixed assets 3,305 328
Other assets 4,533 3,744
Separate account assets 29,381,166 17,835,400
--------------- ----------------
Total assets $ 30,849,414 $ 18,848,273
=============== ================
</TABLE>
LIABILITIES AND SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Liabilities:
Reserve for future contractowner benefits $ 11,215 $ 37,508
Policy reserves 29,912 25,545
Drafts outstanding 51,059 28,941
Accounts payable and accrued expenses 158,590 91,827
Income tax payable 24,268 6,657
Payable to affiliates 68,736 -
Future fees payable to parent 576,034 368,978
Short-term borrowing 10,000 10,000
Surplus notes 179,000 193,000
Separate account liabilities 29,381,166 17,835,400
--------------- ----------------
Total Liabilities 30,489,980 18,597,856
--------------- ----------------
Shareholder's equity:
Common stock, $100 and $80 par value, 25,000 shares authorized,
issued and outstanding 2,500 2,000
Additional paid-in capital 215,879 179,889
Retained earnings 141,162 64,993
Accumulated other comprehensive income (107) 3,535
--------------- ----------------
Total Shareholder's equity 359,434 250,417
--------------- ----------------
Total liabilities and shareholder's equity $ 30,849,414 $ 18,848,273
=============== ================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Operations
(in thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31,
1999 1998 1997
-------------- ------------- -------------
REVENUES
<S> <C> <C> <C>
Annuity and life insurance charges and fees $ 289,989 $ 186,211 $ 121,158
Fee income 83,243 50,839 27,593
Net investment income 10,441 11,130 8,181
Premium income 1,278 874 920
Net realized capital gains 578 99 87
Other 1,832 387 75
-------------- ------------- -------------
Total revenues 387,361 249,540 158,014
-------------- ------------- -------------
EXPENSES
Benefits:
Annuity and life insurance benefits 612 558 2,033
Change in annuity and life insurance policy reserves 3,078 1,053 37
Cost of minimum death benefit reinsurance 2,945 5,144 4,545
Return credited to contractowners (1,639) (8,930) (2,018)
-------------- ------------- -------------
4,996 (2,175) 4,597
Expenses:
Underwriting, acquisition and other insurance
expenses 206,350 167,790 90,496
Interest expense 69,502 41,004 24,895
-------------- ------------- -------------
275,852 208,794 115,391
-------------- ------------- -------------
Total benefits and expenses 280,848 206,619 119,988
-------------- ------------- -------------
Income from operations before income tax 106,513 42,921 38,026
Income tax expense 30,344 8,154 10,478
-------------- ------------- -------------
Net income $ 76,169 $ 34,767 $ 27,548
============== ============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Shareholder's Equity
(in thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31,
1999 1998 1997
-------------- -------------- --------------
Common stock:
<S> <C> <C> <C>
Beginning balance $ 2,000 $ 2,000 $ 2,000
Increase in par value 500 - -
-------------- -------------- --------------
Ending balance 2,500 2,000 2,000
-------------- -------------- --------------
Additional paid in capital:
Beginning balance 179,889 151,527 122,250
Transferred to common stock (500) - -
Additional contributions 36,490 28,362 29,277
-------------- -------------- --------------
Ending balance 215,879 179,889 151,527
-------------- -------------- --------------
Retained earnings:
Beginning balance 64,993 30,226 2,678
Net income 76,169 34,767 27,548
-------------- -------------- --------------
Ending balance 141,162 64,993 30,226
-------------- -------------- --------------
Accumulated other comprehensive income:
Beginning balance 3,535 668 (584)
Other comprehensive income (3,642) 2,867 1,252
-------------- -------------- --------------
Ending Balance (107) 3,535 668
-------------- -------------- --------------
Total shareholder's equity $ 359,434 $ 250,417 $ 184,421
============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31,
1999 1998 1997
-------------- ------------- --------------
Cash flow from operating activities:
<S> <C> <C> <C>
Net income $ 76,169 34,767 $ 27,548
Adjustments to reconcile net income to net
cash used in operating activities:
Amortization and depreciation 1,495 251 223
Deferred tax expense (10,903) (14,242) (9,631)
Change in unrealized losses on derivatives 3,749 - -
Increase in policy reserves 4,367 1,130 3,176
Change in receivable from/payable to affiliates 69,897 166 (1,321)
Change in income tax payable 17,611 7,704 (2,172)
Increase in other assets (789) (1,173) (415)
Increase in accrued investment income (1,174) (438) (483)
Decrease/(increase) in reinsurance receivable 129 2,152 (268)
Increase in deferred acquisition costs (366,198) (174,804) (190,969)
Increase in accounts payable and accrued expenses 66,763 20,637 5,719
Increase in drafts outstanding 22,118 9,663 6,245
Change in foreign currency translation, net 701 (22) (34)
Realized capital gain (578) (99) (87)
-------------- ------------- --------------
Net cash used in operating activities (116,643) (114,308) (162,469)
-------------- ------------- --------------
Cash flow from investing activites:
Purchase of fixed maturity investments (99,250) (31,828) (28,905)
Proceeds from sale and maturity of fixed
maturity investments 36,226 4,049 10,755
Purchase of derivatives (4,974) - -
Purchase of shares in mutual funds (17,703) (7,158) (5,595)
Proceeds from sale of shares in mutual funds 14,657 6,086 1,415
Purchase of fixed assets (3,178) (18) (189)
Increase in policy loans (701) 118 (528)
-------------- ------------- --------------
Net cash used in investing activities (74,923) (28,751) (23,047)
-------------- ------------- --------------
Cash flow from financing activities:
Capital contribution from parent 22,490 8,362 29,277
Increase in future fees payable to parent 207,056 135,944 185,922
Net withdrawals from contractowner accounts (26,293) (5,696) 6,959
-------------- ------------- --------------
Net cash provided by financing activities 203,253 138,610 222,158
-------------- ------------- --------------
Net increase/(decrease) in cash and cash
equivalents 11,687 (4,449) 36,642
Cash and cash equivalents at beginning of year 77,525 81,974 45,332
-------------- ------------- --------------
Cash and cash equivalent at end of year $ 89,212 77,525 $ 81,974
============== ============= ==============
Income taxes paid $ 23,637 14,651 $ 22,308
============== ============= ==============
Interest paid $ 69,697 35,588 $ 16,916
============== ============= ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements
December 31, 1999
1. ORGANIZATION AND OPERATION
American Skandia Life Assurance Corporation (the "Company") is a
wholly-owned subsidiary of American Skandia, Inc. ("ASI", formerly known as
American Skandia Investment Holding Corporation) whose ultimate parent is
Skandia Insurance Company Ltd., a Swedish Corporation.
The Company develops long-term savings and retirement products which are
distributed through its affiliated broker/dealer company, American Skandia
Marketing, Incorporated ("ASM"). The Company currently issues variable life
insurance and variable, fixed, market value adjusted and immediate annuities
for individuals, groups and qualified pension plans.
The Company has 99.9% ownership in Skandia Vida, S.A. de C.V. ("Skandia
Vida") which is a life insurance company domiciled in Mexico. Skandia Vida
had total shareholder's equity of $4,592,000 and $4,724,000 as of December
31, 1999, and 1998, respectively. The Company considers Mexico an emerging
market and has invested in the Skandia Vida operations with the expectation
of generating profits from long-term savings products in future years. As
such, Skandia Vida has generated net losses of $2,523,000, $2,514,000 and
$1,438,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Reporting
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. Intercompany
transactions and balances have been eliminated in consolidation.
Certain reclassifications have been made to prior year amounts to
conform with the current year presentation.
B. New Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Software Developed or Obtained for Internal Use. The SOP, which has been
adopted prospectively as of January 1, 1999, requires the capitalization
of certain costs incurred in connection with developing or obtaining
internal use software. Prior to the adoption of SOP 98-1, the Company
expensed all internal use software related costs as incurred. The
Company has identified and capitalized $3,035,000 of costs associated
with internal use software during 1999 and is amortizing the applicable
costs on a straight-line basis over a three year period. At December 31,
1999, the unamortized balance was $2,920,000 and is included in fixed
assets.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards 133, "Accounting for
Derivative Instruments and Hedging Activities" (FAS 133). Subsequently,
in July 1999, FASB issued FAS 137 "Deferral of the Effective Date of
FASB Statement 133". The adoption date was delayed to fiscal years
beginning after June 15, 2000. The Company is currently evaluating the
potential impact on its financial position.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
C. Investments
The Company has classified its fixed maturity investments as either
held-to-maturity or available-for-sale. Investments classified as
held-to-maturity are investments that the Company has the ability and
intent to hold to maturity. Such investments are carried at amortized
cost. Those investments which are classified as available-for-sale are
carried at fair value and changes in unrealized gains and losses are
reported as a component of other comprehensive income.
The Company has classified its mutual fund investments held in support
of a deferred compensation plan are available-for-sale. Such investments
are carried at fair value and changes in unrealized gains and losses are
reported as a component of other comprehensive income.
Derivative instruments are recorded consistent with hedged items. The
Company hedges the market value fluctuations of the guaranteed minimum
death benefit ("GMDB") exposure embedded in its policy reserves and as
such, the portion of the derivative instrument which constitutes an
effective hedge is carried at market value. The cost associated with the
portion of the instrument which is not considered an effective hedge is
amortized to investment income over the life of the instrument.
Policy loans are carried at their unpaid principal balances.
Realized gains and losses on disposal of investments are determined by
the specific identification method and are included in revenues.
D. Derivative Instruments
During the second quarter of 1999, the Company's agreement to reinsure
substantially all of its exposure on its GMDB liability was terminated
and the business was recaptured, as the reinsurer had recently announced
its intention to exit this market. In response, the Company instituted a
hedge program to effectively manage the market risk associated with GMDB
reserve fluctuations using put options. The cash invested in the put
options is at risk to the extent that the value of the underlying index
is less than the strike price at the exercise date. This would be offset
by a corresponding decrease in the hedged GMDB exposure.
E. Cash Equivalents
The Company considers all highly liquid time deposits, commercial paper
and money market mutual funds purchased with a maturity of three months
or less to be cash equivalents.
F. Fair Values of Financial Instruments
The methods and assumptions used to determine the fair value of
financial instruments are as follows:
Fair values of fixed maturities with active markets are based on quoted
market prices. For fixed maturities that trade in less active markets,
fair values are obtained from an independent pricing service.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
F. Fair Values of Financial Instruments (continued)
Fair values of investments in mutual funds are based on quoted market
prices.
The fair value of the portion of the derivative instrument which
constitutes an effective hedge is determined based on current value of
the underlying index.
The carrying value of cash and cash equivalents approximates fair value
due to the short-term nature of these investments.
The carrying value of short-term borrowing approximates fair value due
to the short-term nature of these liabilities.
Fair values of certain financial instruments, such as future fees
payable to parent and surplus notes are not readily determinable and are
excluded from fair value disclosure requirements.
G. State Insurance Licenses
Licenses to do business in all states have been capitalized and
reflected at the purchase price of $6,000,000 less accumulated
amortization. The cost of the licenses is being amortized on a straight
line basis over 40 years.
H. Income Taxes
The Company is included in the consolidated federal income tax return
and combined state income tax return of an upstream company, Skandia AFS
Development Holding Corporation and certain of its subsidiaries. In
accordance with the tax sharing agreement, the federal and state income
tax provisions are computed on a separate return basis as adjusted for
consolidated items such as net operating loss carryforwards.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes.
I. Recognition of Revenue and Contract Benefits
Revenues for variable annuity contracts consist of charges against
contractowner account values for mortality and expense risks,
administration fees, surrender charges and an annual maintenance fee per
contract. Benefit reserves for variable annuity contracts represent the
account value of the contracts and are included in the separate account
liabilities.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
I. Recognition of Revenue and Contract Benefits (continued)
Revenues for market value adjusted fixed annuity contracts consist of
separate account investment income reduced by benefit payments and
changes in reserves in support of contractowner obligations, all of
which are included in return credited to contractowners. Benefit
reserves for these contracts represent the account value of the
contracts, and are included in the general account reserve for future
contractowner benefits to the extent in excess of the separate account
liabilities.
Revenues for immediate annuity contracts without life contingencies
consist of net investment income. Revenues for immediate annuity
contracts with life contingencies consist of single premium payments
recognized as annuity considerations when received. Benefit reserves for
these contracts are based on the Society of Actuaries 1983 Table-a with
assumed interest rates that vary by issue year. Assumed interest rates
ranged from 6.25% to 8.25% at December 31, 1999 and 1998.
Revenues for variable life insurance contracts consist of charges
against contractowner account values for mortality and expense risk
fees, cost of insurance fees, taxes and surrender charges. Certain
contracts also include charges against premium to pay state premium
taxes. Benefit reserves for variable life insurance contracts represent
the account value of the contracts and are included in the separate
account liabilities.
J. Deferred Acquisition Costs
The costs of acquiring new business, which vary with and are primarily
related to the production of new business, are being deferred net of
reinsurance. These costs include commissions, costs of contract
issuance, and certain selling expenses that vary with production. These
costs are being amortized generally in proportion to expected gross
profits from surrender charges, policy and asset based fees and
mortality and expense margins. This amortization is adjusted
retrospectively and prospectively when estimates of current and future
gross profits to be realized from a group of products are revised.
Details of the deferred acquisition costs and related amortization for
the years ended December 31, are as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $721,507 $546,703 $355,734
-------- -------- --------
Acquisition costs deferred
during the year 450,059 261,432 243,476
Acquisition costs amortized
during the year (83,861) (86,628) (52,507)
--------- -------- --------
366,198 174,804 190,969
------- ------- -------
Balance at end of year $1,087,705 $721,507 $546,703
========== ======== ========
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
K. Reinsurance
The Company cedes reinsurance under modified co-insurance arrangements.
These reinsurance arrangements provide additional capacity for growth in
supporting the cash flow strain from the Company's variable annuity and
variable life insurance business. The reinsurance is effected under
quota share contracts.
As noted in Note 2D, the Company reinsured its exposure to market
fluctuations associated with its GMDB liability in 1999, 1998 and the
beginning of 1997. Under this reinsurance agreement, the Company ceded
premiums of $2,945,000, $5,144,000 and $4,545,000; received claim
reimbursements of $242,000, $9,000 and $46,000; and, recorded
increases/(decreases) in reserves of ($2,763,000), ($323,000) and
$918,000 in each of the three years, respectively.
At December 31, 1999 and 1998, in accordance with the provisions of a
modified coinsurance agreement, the Company accrued $41,000 and
$1,976,000, respectively, for amounts receivable from favorable
reinsurance experience on a block of variable annuity business.
L. Translation of Foreign Currency
The financial position and results of operations of the Company's
Mexican subsidiary are measured using local currency as the functional
currency. Assets and liabilities of the subsidiary are translated at the
exchange rate in effect at each year-end. Statements of income and
shareholder's equity accounts are translated at the average rate
prevailing during the year. Translation adjustments arising from the use
of differing exchange rates from period to period are reported as a
component of other comprehensive income.
M. Separate Accounts
Assets and liabilities in Separate Accounts are included as separate
captions in the consolidated statements of financial condition. Separate
Account assets consist principally of long term bonds, investments in
mutual funds, short-term securities and cash and cash equivalents, all
of which are carried at fair value. The investments are managed
predominately through the Company's investment advisory affiliate,
American Skandia Investment Services, Inc. ("ASISI"), utilizing various
fund managers as sub-advisors. The remaining investments are managed by
independent investment firms. The contractowner has the option of
directing funds to a wide variety of mutual funds. The investment risk
on the variable portion of a contract is borne by the contractowner. A
fixed option with a minimum guaranteed interest rate is also available.
The Company is responsible for the credit risk associated with these
investments.
Included in Separate Account liabilities are $896,205,000 and
$771,195,000 at December 31, 1999 and 1998, respectively, relating to
annuity contracts for which the contractowner is guaranteed a fixed rate
of return. Separate Account assets of $896,205,000 and $771,195,000 at
December 31, 1999 and 1998, respectively, consisting of long term bonds,
short term securities, transfers due from the general account and cash
and cash equivalents which are held in support of these annuity
contracts, pursuant to state regulation.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
N. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make estimates
and assumptions that affect the reported amount of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. The more
significant estimates and assumptions are related to deferred
acquisition costs and involve policy lapses, investment return and
maintenance expenses. Actual results could differ from those estimates.
3. COMPREHENSIVE INCOME
The components of comprehensive income, net of tax, for the years ended
December 31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income $76,169 $34,767 $27,548
Other comprehensive income:
Unrealized investment gains/(losses) on
available for sale securities (3,082) 2,751 1,288
Reclassification adjustment for realized
losses/(gains) included in investment income (1,016) 138 (14)
------- --------- ---------
Net unrealized gains/(losses) on securities (4,098) 2,889 1,274
Foreign currency translation 456 (22) (22)
--------- ---------- ----------
Other comprehensive income (3,642) 2,867 1,252
--------- -------- --------
Comprehensive income $72,527 $37,634 $28,800
======= ======= =======
</TABLE>
The components of accumulated other comprehensive income, net of tax, as of
December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
---- ----
<S> <C> <C>
Unrealized investment gains ($255) $3,843
Foreign currency translation 148 (308)
------ -------
Accumulated other comprehensive income ($107) $3,535
====== ======
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
4. INVESTMENTS
The amortized cost, gross unrealized gains/losses and estimated fair value
of available-for-sale and held-to-maturity fixed maturities and investments
in mutual funds as of December 31, 1999 and 1998 are shown below. All
securities held at December 31, 1999 and 1998 were publicly traded.
Investments in fixed maturities as of December 31, 1999 consisted of the
following:
<TABLE>
<CAPTION>
(in thousands) Held-to-Maturity
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Government
obligations $1,105 $ - $ (1) $1,104
Corporate securities 2,255 - (15) 2,240
----- ---- ----- -------
Totals $3,360 $ - $(16) $3,344
====== ==== ===== ======
(in thousands) Available-for-Sale
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Government
obligations $ 81,183 $ - $ (678) $ 80,505
Obligations of
state and political
subdivisions 253 (3) 250
Corporate securities 121,859 - (4,449) 117,410
--------- ---- ------ ---------
Totals $203,295 $ - $ (5,130) $198,165
======== ==== ========= ========
The amortized cost and fair value of fixed maturities, by contractual
maturity, at December 31, 1999 are shown below.
(in thousands) Held-to-Maturity Available-for-Sale
---------------- ------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
Due in one year or less $3,107 $3,097 $ - $ -
Due after one through five years 253 247 130,284 128,250
Due after five through ten years - - 73,011 69,915
---------- ---------- ---------- ----------
Total $3,360 $3,344 $203,295 $198,165
====== ====== ======== ========
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
4. INVESTMENTS (continued)
Investments in fixed maturities as of December 31, 1998 consisted of the
following:
<TABLE>
<CAPTION>
(in thousands) Held-to-Maturity
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government
obligations $3,774 $57 $- $3,831
Obligations of
state and political
subdivisions - - - -
Corporate
securities 4,515 34 - 4,549
------- ---- --- -------
Totals $8,289 $91 $ - $8,380
====== === === ======
(in thousands) Available for Sale
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Government
obligations $ 17,399 $ 678 $ - $ 18,077
Obligations of
state and political
subdivisions 253 7 - 260
Corporate
securities 117,774 5,160 (76) 122,858
--------- ------- ------- ----------
Totals $135,426 $5,845 $ (76) $141,195
======== ====== ====== ========
Proceeds from sales of fixed maturities during 1999, 1998 and 1997 were
$32,196,000, $999,000, and $5,056,000, respectively. Proceeds from
maturities during 1999, 1998 and 1997 were $4,030,000, $3,050,000, and
$5,700,000, respectively.
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
4. INVESTMENTS (continued)
The cost, gross unrealized gains/losses and fair value of investments in
mutual funds at December 31, 1999 and 1998 are shown below:
<TABLE>
<CAPTION>
(in thousands) Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C> <C>
1999 $11,667 $4,763 $ (26) $16,404
======= ====== ====== =======
1998 $8,068 $416 $ (274) $8,210
====== ==== ======= ======
Net realized investment gains (losses) were as follows for the years ended
December 31:
(in thousands) 1999 1998 1997
------ ---- ----
Fixed maturities:
Gross gains $ 253 $ - $ 10
Gross losses (228) (1) -
Investment in mutual funds:
Gross gains 990 281 116
Gross losses (437) (181) (39)
------- ------ ------
Totals $ 578 $ 99 $ 87
====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
5. NET INVESTMENT INCOME
The sources of net investment income for the years ended December 31, 1999,
1998 and 1997 were as follows:
(in thousands) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Fixed maturities $ 9,461 $ 8,534 $6,617
Cash and cash equivalents 2,159 1,717 1,153
Investment in mutual funds 32 1,013 554
Policy loans 31 45 28
Derivative Instruments (1,036) - -
--------- ---------- ---------
Total investment income 10,647 11,309 8,352
Investment expenses 206 179 171
---------- ---------- --------
Net investment income $10,441 $11,130 $8,181
======= ======= ======
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES
The significant components of income tax expense for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current tax expense $41,248 $22,384 $20,108
Deferred tax benefit (10,904) (14,230) (9,630)
-------- -------- ---------
Total income tax expense $30,344 $ 8,154 $10,478
======= ======== =======
</TABLE>
The tax effects of significant items comprising the Company's deferred
tax balance as of December 31, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
---- ----
Deferred tax liabilities:
<S> <C> <C>
Deferred acquisition costs ($321,873) ($210,731)
Payable to reinsurers (26,733) (25,585)
Policy fees (1,146) (859)
Net unrealized gains (80) (2,069)
------------ -----------
Total (349,832) (239,244)
-------- ---------
Deferred tax assets:
Net separate account liabilities 333,521 225,600
Future contractowner benefits 3,925 13,128
Other reserve differences 39,645 25,335
Deferred compensation 18,844 9,619
Surplus notes interest 5,030 3,375
Foreign exchange translation 137 166
Other 456 882
----------- ------------
Total 401,558 278,105
-------- ---------
Income tax receivable - deferred $ 51,726 $ 38,861
========= =========
</TABLE>
Management believes that based on the taxable income produced in the
current year and the continued growth in annuity products, the Company
will produce sufficient taxable income in the future to realize its
deferred tax asset.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES (continued)
The income tax expense was different from the amount computed by applying
the federal statutory tax rate of 35% to pre-tax income from continuing
operations as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income (loss) before taxes
Domestic $109,036 $45,435 $39,464
Foreign (2,523) (2,514) (1,438)
---------- --------- ---------
Total 106,513 42,921 38,026
Income tax rate 35% 35% 35%
--------- --------- ---------
Tax expense at federal
statutory income tax rate 37,280 15,022 13,309
Tax effect of:
Dividend received deduction (9,572) (9,085) (4,585)
Losses of foreign subsidiary 883 880 503
Meals and entertainment 664 487 340
State income taxes 1,071 673 577
Other 18 177 334
--------- -------- -------
Income tax expense $ 30,344 $ 8,154 $10,478
========= ======== =======
</TABLE>
7. RECEIVABLE FROM/PAYABLE TO AFFILIATES
Certain operating costs (including personnel, rental of office space,
furniture, and equipment) have been charged to the Company at cost by
American Skandia Information Services and Technology Corporation ("ASIST"),
an affiliated company; and likewise, the Company has charged operating costs
to ASISI. The total cost to the Company for these items was $11,136,000,
$7,722,000, and $5,572,000 for the years ended December 31, 1999, 1998 and
1997, respectively. Income received for these items was $3,919,000,
$1,355,000 and $3,225,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
The Company had a $10 million short-term loan payable to ASI at December 31,
1999 and 1998. The total interest expense thereon to the Company was
$585,000, $622,000 and $642,000 for the years ended December 31, 1999, 1998
and 1997 respectively, of which $182,000 was payable as of December 31, 1999
and 1998.
Beginning in 1999, the Company was reimbursed by ASM for certain
distribution related costs associated with the sales of business through an
investment firm where ASM serves as an introducing broker dealer. Under this
agreement, the expenses reimbursed in 1999 were $1,441,000. As of December
31,1999, amounts receivable under this agreement were $245,000.
As of December 31,1999, the Company had received $71,000,000 from ASI in
advance of the sale of certain rights to receive future fees and contract
charges. This sale is expected to be completed in the first quarter of 2000.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
8. FUTURE FEES PAYABLE TO PARENT
In a series of transactions with ASI, the Company sold certain rights to
receive future fees and contract charges expected to be realized on variable
portions of designated blocks of deferred annuity contracts. The effective
dates and issue periods these transactions cover are as follows:
<TABLE>
<CAPTION>
Closing Effective Contract Issue
Transaction Date Date Period
<S> <C> <C> <C> <C> <C>
1996-1 12/16/96 9/1/96 1/1/94 - 6/30/96
1997-1 7/23/97 6/1/97 3/1/96 - 4/30/97
1997-2 12/30/97 12/1/97 5/1/95 - 12/31/96
1997-3 12/30/97 12/1/97 5/1/96 - 10/31/97
1998-1 6/30/98 6/1/98 1/1/97 - 5/31/98
1998-2 11/10/98 10/1/98 5/1/97 - 8/31/98
1998-3 12/30/98 12/1/98 7/1/96 - 10/31/98
1999-1 6/23/99 6/1/99 4/1/94 - 4/30/99
1999-2 12/14/99 10/1/99 11/1/98 - 7/31/99
</TABLE>
In connection with these transactions, ASI issued collateralized notes in a
private placement which are secured by the rights to receive future fees and
charges purchased from the Company.
Under the terms of the Purchase Agreements, the rights sold provide for ASI
to receive a percentage (80% or 100% depending on the underlying commission
option) of future mortality and expense charges and contingent deferred
sales charges, after reinsurance, expected to be realized over the remaining
surrender charge period of the designated contracts (6 to 8 years).
The Company did not sell the right to receive future fees and charges after
the expiration of the surrender charge period.
The proceeds from the sales have been recorded as a liability and are being
amortized over the remaining surrender charge period of the designated
contracts using the interest method. The present values of the transactions
as of the respective effective date were as follows:
<TABLE>
<CAPTION>
Present
(in thousands) Transaction Discount Rate Value
----------- ------------- -----
<S> <C> <C> <C>
1996-1 7.5% $50,221
1997-1 7.5% 58,767
1997-2 7.5% 77,552
1997-3 7.5% 58,193
1998-1 7.5% 61,180
1998-2 7.0% 68,573
1998-3 7.0% 40,128
1999-1 7.5% 120,632
1999-2 7.5% 145,078
</TABLE>
Payments representing fees and charges in the aggregate amount of
$131,420,000, $69,226,000 and $22,250,000 were made by the Company to
the Parent for the years ended December 31, 1999, 1998 and 1997,
respectively. Related interest expense of $52,840,000, $22,978,000 and
$6,842,000 has been included in the statement of income for the years
ended December 31, 1999, 1998 and 1997, respectively.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
8. FUTURE FEES PAYABLE TO PARENT (continued)
Expected payments of future fees payable to ASI as of December 31, 1999 are
as follows:
<TABLE>
<CAPTION>
Year Ended
(in thousands) December 31, Amount
----------- ------
<S> <C> <C>
2000 $103,975
2001 107,262
2002 106,491
2003 97,550
2004 78,512
2005 51,839
2006 25,712
2007 4,693
---------
Total $576,034
</TABLE>
The Commissioner of the State of Connecticut has approved the sale of
future fees and charges; however, in the event that the Company becomes
subject to an order of liquidation or rehabilitation, the Commissioner
has the ability to stop the payments due to the Parent under the
Purchase Agreement subject to certain terms and conditions.
9. LEASES
The Company leases office space under a lease agreement established in
1989 with ASIST. The lease expense for 1999, 1998 and 1997 was
$5,003,000, $3,588,000 and $2,428,000 respectively. Future minimum
lease payments per year and in aggregate as of December 31, 1999 are as
follows:
(in thousands) 2000 $ 7,004
2001 7,004
2002 6,854
2003 6,756
2004 6,929
2005 and thereafter 51,865
--------
Total $86,412
=======
10. RESTRICTED ASSETS
To comply with certain state insurance departments' requirements, the
Company maintains cash, bonds and notes on deposit with various states.
The carrying value of these deposits amounted to $4,868,000 and
$3,747,000 as of December 31, 1999, and 1998, respectively. These
deposits are required to be maintained for the protection of
contractowners within the individual states.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
11. RETAINED EARNINGS AND DIVIDEND RESTRICTIONS
On November 8, 1999, the Board of Directors authorized the Company to
increase the par value of its capital stock from $80 per share to $100
per share in order to comply with minimum capital levels as required by
the California Department of Insurance. This transaction resulted in a
corresponding decrease in paid in and contributed surplus of $500,000
and had no effect on capital and surplus.
Statutory basis shareholder's equity was $286,385,000 and $285,553,000
at December 31, 1999 and 1998, respectively.
The statutory basis net loss was $17,672,000, $13,152,000 and
$8,970,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
Under various state insurance laws, the maximum amount of dividends
that can be paid to shareholders without prior approval of the state
insurance department is subject to restrictions relating to statutory
surplus and net gain from operations. At December 31, 1999, no amounts
may be distributed without prior approval.
12. EMPLOYEE BENEFITS
The Company has a 401(k) plan for which substantially all employees are
eligible. Under this plan, the Company contributes 3% of salary for all
participating employees and matches employee contributions at a 50%
level up to an additional 3% Company contribution. Company
contributions to this plan on behalf of the participants were
$3,164,000, $2,115,000 and $1,220,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
The Company has a deferred compensation plan, which is available to the
internal field marketing staff and certain officers. Company
contributions to this plan on behalf of the participants were $193,000,
$342,000 and $270,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
The Company and an affiliate cooperatively have a long-term incentive
program under which units are awarded to executive officers and other
personnel. The Company also has a profit sharing program which benefits
all employees below the officer level. These programs consist of
multiple plans with new plans instituted each year. Generally,
participants must remain employed by the Company or its affiliates at
the time such units are payable in order to receive any payments under
the program. The accrued liability representing the value of these
units was $42,619,000 and $21,372,000 as of December 31, 1999 and 1998,
respectively. Payments under this plan were $4,079,000, $2,407,000 and
$1,119,000 for the years ended December 31, 1999, 1998, and 1997,
respectively.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
13. REINSURANCE
The effect of reinsurance for the years ended December 31, 1999, 1998
and 1997 is as follows:
(in thousands) 1999
----
<TABLE>
<CAPTION>
Annuity and Life Annuity and Life
Insurance Insurance Return Credited
Charges and Fees Policy Reserves to Contractowners
<S> <C> <C> <C>
Gross $326,670 $315 ($1,397)
Ceded (36,681) 2,763 (242)
-------- ------ --------
Net $289,989 $3,078 ($1,639)
======== ====== ========
1998
----
Annuity and Life Annuity and Life
Insurance Insurance Return Credited
Charges and Fees Policy Reserves to Contractowners
Gross $215,425 $ 691 ($8,921)
Ceded (29,214) 362 (9)
-------- ------ --------
Net $186,211 $1,053 ($8,930)
======== ====== ========
1997
----
Annuity and life Annuity and Life
Insurance Insurance Return Credited
Charges and Fees Policy Reserves to Contractowners
Gross $144,417 $955 ($1,972)
Ceded (23,259) (918) (46)
-------- ----- --------
Net $121,158 $ 37 ($2,018)
======== ===== ========
</TABLE>
Such ceded reinsurance does not relieve the Company of its obligations
to policyholders. The Company remains liable to its policyholders for
the portion reinsured to the extent that any reinsurer does not meet
its obligations assumed under the reinsurance agreements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
14. SURPLUS NOTES
The Company has issued surplus notes to its Parent in exchange for cash.
Surplus notes outstanding as of December 31, 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
(in thousands)
Interest for the
Interest 1999 1998 Years Ended December 31,
Issue Date Rate Amount Amount 1999 1998 1997
---------- ---- ------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
December 29, 1993 6.84% - - - 1,387 1,387
February 18, 1994 7.28% 10,000 10,000 738 738 738
March 28, 1994 7.90% 10,000 10,000 801 801 801
September 30, 1994 9.13% 15,000 15,000 1,389 1,389 1,389
December 28, 1994 9.78% - 14,000 1,308 1,388 1,388
December 19, 1995 7.52% 10,000 10,000 762 762 762
December 20, 1995 7.49% 15,000 15,000 1,139 1,139 1,139
December 22, 1995 7.47% 9,000 9,000 682 682 682
June 28, 1996 8.41% 40,000 40,000 3,411 3,411 3,411
December 30, 1996 8.03% 70,000 70,000 5,698 5,699 5,699
Total $179,000 $193,000 $15,928 $17,396 $17,396
======== ======== ======= ======= =======
</TABLE>
The surplus note for $14,000,000 dated December 28, 1994 was converted
to additional paid-in capital on December 10, 1999. A surplus note for
$20,000,000 dated December 29, 1993 was converted to additional paid-in
capital on December 31, 1998. All surplus notes mature seven years from
the issue date.
Payment of interest and repayment of principal for these notes is
subject to certain conditions and require approval by the Insurance
Commissioner of the State of Connecticut. At December 31, 1999 and
1998, $14,372,000 and $9,644,000, respectively, of accrued interest on
surplus notes was not approved for payment under these criteria.
15. SHORT-TERM BORROWING
The Company had a $10 million short-term loan payable to the Parent at
December 31, 1999 and 1998. The total interest expense to the Company
was $585,000, $622,000 and $642,000 and for the years ended December
31, 1999, 1998 and 1997, respectively, of which $197,000 and $182,000
was payable as of December 31, 1999 and 1998, respectively.
16. CONTRACT WITHDRAWAL PROVISIONS
Approximately 99% of the Company's separate account liabilities are
subject to discretionary withdrawal by contractowners at market value
or with market value adjustment. Separate account assets which are
carried at fair value are adequate to pay such withdrawals which are
generally subject to surrender charges ranging from 10% to 1% for
contracts held less than 10 years.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
17. SEGMENT REPORTING
During 1998, to complement its annuity products, the Company launched
specific marketing and operational activities towards the release of
variable life insurance and qualified retirement plan annuity products.
Assets under management and sales for the products other than variable
annuities have not been significant enough to warrant full segment
disclosures as required by SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information."
18. SUBSEQUENT EVENT
On March 22, 2000, the Company sold certain rights to receive future
fees and contract charges expected to be received on variable portions
of deferred annuity contracts issued between August 1, 1999 and January
31, 2000. This transaction is the latest in a series of agreements with
ASI, as described in Note 8.
This transaction has an effective date of March 22, 2000. The present
value as of this date, discounted at 7.5%, was $171,781,000.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes information with respect to the
operations of the Company on a quarterly basis:
<TABLE>
<CAPTION>
(in thousands) Three months Ended
------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
1999
Premiums and other insurance
<S> <C> <C> <C> <C>
revenues $78,412 $88,435 $97,955 $111,540
Net investment income 2,654 2,842 2,735 2,210
Net realized capital gains 295 25 206 52
---------- ----------- ---------- -----------
Total revenues 81,361 91,302 100,896 113,802
Benefits and expenses 64,107 67,803 71,597 77,341
-------- -------- -------- --------
Pre-tax net income 17,254 23,499 29,299 36,461
Income taxes 3,844 7,142 7,898 11,460
--------- --------- --------- -------
Net income $ 13,410 $ 16,357 $ 21,401 $25,001
======== ======== ======== =======
1998
Premiums and other insurance
revenues $50,593 $57,946 $62,445 $67,327
Net investment income 3,262 2,410 2,469 2,989
Net realized capital gains (losses) 156 13 (46) (24)
---------- ----------- ----------- -----------
Total revenues 54,011 60,369 64,868 70,292
Benefits and expenses 46,764 42,220 48,471 69,164
-------- -------- -------- --------
Pre-tax net income 7,247 18,149 16,397 1,128
Income taxes 1,175 4,174 2,223 582
--------- --------- -------- ---------
Net income $ 6,072 $13,975 $14,174 $ 546
======== ======= ======= ========
1997
Premiums and other insurance
revenues $30,186 $34,056 $41,102 $44,402
Net investment income 1,369 2,627 2,031 2,154
Net realized capital gains 20 43 21 3
----------- ----------- ----------- ------------
Total revenues 31,575 36,726 43,154 46,559
Benefits and expenses 18,319 30,465 31,179 40,025
-------- -------- -------- --------
Pre-tax net income 13,256 6,261 11,975 6,534
Income taxes 4,260 2,614 3,354 250
--------- --------- --------- ----------
Net income $ 8,996 $ 3,647 $ 8,621 $ 6,284
======== ======== ======== ========
</TABLE>
<PAGE>
APPENDIX B - 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, 2000 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, 2000 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,
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------------
GAL Money Market 3
(1995)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit Price $11.99 11.55 11.10 10.68 10.29 - - - - -
Number of Units 1,253,950 793,937 481,900 438,416 481,900 - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
GAL Equity 3
(1995)
Unit Price $26.65 21.16 17.31 13.69 11.38 - - - - -
Number of Units 2,588,848 2,156,517 1,614,134 844,454 205,306 - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
GAL High Quality
Bond 3
(1995)
Unit Price $12.80 13.44 12.38 11.43 11.32 - - - - -
Number of Units 1,019,059 893,217 449,406 241,376 94,895 - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
GAL Asset Allocation 3
(1995)
Unit Price $19.21 18.04 15.58 13.22 11.62 - - - - -
Number of Units 4,464,357 3,160,151 1,518,788 595,541 199,741 - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
GAL Growth &
Income 3
(1998)
Unit Price $10.93 10.31 - - - - - - - -
Number of Units 1,105,235 740,896 - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
GAL Small Company
Growth 3
(1998)
Unit Price $14.69 8.86 - - - - - - - -
Number of Units 156,817 128,931 - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------------
GAL Columbia Real
Estate Equity II 3
(1998)
Unit Price $8.51 8.97 - - - - - - - -
Number of Units 90,019 62,167 - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
GAL Columbia High
Yield II 3
(1998)
Unit price $10.82 10.87 - - - - - - - -
Number of Units 198,102 200,548 - - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
AST American Century
International Growth 3
(1997)
Unit Price $21.92 13.40 11.40 - - - - - - -
Number of Units 127,367 60,057 14,316 - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
AST American Century
International
Growth II 3 (1)
(1995)
Unit Price $17.87 13.68 12.12 12.08 10.69 - - - - -
Number of Units 867,679 872,504 934,595 783,865 265,448 - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
AST Janus Small-Cap
Growth 3 (2)
(1995)
Unit Price $37.29 15.57 15.19 14.48 12.18 - - - - -
Number of Units 1,334,152 739,417 1,159,570 861,999 203,315 - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
AST Neuberger Berman
Mid-Cap Value 3 (3)
(1995)
Unit Price $16.40 15.67 16.21 12.95 11.73 - - - - -
Number of Units 1,216,796 265,991 37,213 19,077 8,260 - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
AST JanCap Growth 3
(1995)
Unit Price $51.92 33.83 20.31 15.95 12.55 - - - - -
Number of Units 1,661,006 784,771 386,637 252,967 68,509 - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
AST INVESCO Equity
Income 3
(1995)
Unit Price $20.58 18.60 16.58 13.58 11.71 - - - - -
Number of Units 1,912,354 1,551,802 1,112,336 645,296 155,507 - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
AST T. Rowe Price
Global Bond 3 (4)
(1995)
Unit Price $11.02 12.14 10.69 11.18 10.66 - - - - -
Number of Units 159,358 157,857 101,883 56,657 24,422 - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------------
The Alger American
Fund - AA MidCap
Growth 3
(1995)
Unit Price $27.32 20.93 16.23 14.25 12.87 - - - - -
Number of Units 592,420 223,099 146,230 142,950 50,878 - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
The Montgomery Variable
Series - MV Emerging
Markets 3
(1996)
Unit Price $10.21 6.26 10.12 10.28 - - - - - -
Number of Units 231,741 130,849 64,010 37,227 - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. Effective May 1, 2000, American Century Investment Management, Inc. became
Sub-advisor of the Portfolio. Prior to May 1, 2000, Rowe Price-Fleming
International, Inc. served as Sub-advisor of the Portfolio, then named "AST
T. Rowe Price International Equity Portfolio."
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."
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."
4. Effective May 1, 2000, the name of the portfolio was changed to the "AST T.
Rowe Price Global Bond." 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 Sub-advisor of the
Portfolio, then named "AST Scudder International Bond Portfolio."
<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 (05/2000).
- --------------------------------------------------------------------------------
-------------------------------------------------------
(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
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 OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
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 9
Additional Information on Fixed Allocations 9
|X| How We Calculate the Market Value Adjustment 10
General Information 11
|X| Voting Rights 11
|X| Modification 11
|X| Deferral of Transactions 12
|X| Misstatement of Age or Sex 12
|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) 14
</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 1, 2000
Date of Statement of Additional Information: May 1, 2000
GAL3 - SAI (05/2000)
<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, Inc. ("ASI") formerly known as
American Skandia Investment Holding Corporation. ASI'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 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 American Century International Growth 3 AST American Century International Growth
AST American Century International Growth II 3 AST American Century International Growth II
AST Janus Small-Cap Growth 3 AST Janus Small-Cap Growth
AST NB Mid-Cap Value 3 AST Neuberger Berman Mid-Cap Value
AST Alger All-Cap Growth 3 AST Alger All-Cap Growth
AST JanCap Growth 3 AST JanCap Growth
AST INVESCO Equity Income 3 AST INVESCO Equity Income
AST T. Rowe Price Global Bond 3 AST T. Rowe Price Global 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
ASI, 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 ASI.
American Skandia Information Services and Technology Corporation ("ASIST"), also
a wholly-owned subsidiary ASI, 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 also acts as an introducing
broker-dealer through which it receives a portion of brokerage commissions in
connection with purchases and sales of securities held by portfolios of American
Skandia Trust which are offered as underlying investment options under the
Annuity.
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 4.69% 4.80%
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, 1999. 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 21.65% 24.19% 23.78% N/A 17.41% 25.65% 24.62% 23.78% N/A 17.41%
GAL High Quality Bond 3 -8.94% 3.01% 6.32% N/A 4.14% -4.94% 3.64% 6.32% N/A 4.14%
GAL Asset Allocation 3 2.30% 12.51% 15.95% N/A 11.44% 6.30% 13.04% 15.95% N/A 11.44%
GAL Growth & Income 3 1.82% N/A N/A N/A 3.17% 5.82% N/A N/A N/A 4.75%
GAL Small Company Growth 3 61.48% N/A N/A N/A 21.64% 65.48% N/A N/A N/A 23.02%
GAL Columbia Real Estate -9.28% N/A N/A N/A -10.39% -5.28% N/A N/A N/A -8.61%
Equity II 3
GAL Columbia High Yield II 3 -4.66% N/A N/A N/A 2.56% -0.66% N/A N/A N/A 4.15%
AST American Century 59.23% 29.25% N/A N/A 29.36% 63.23% 29.65% N/A N/A 29.56%
International Growth 3
AST American Century 26.37% 13.21% 12.72% N/A 9.59% 30.37% 13.73% 12.72% N/A 9.59%
International Growth II 3 1
AST Janus Small-Cap Growth 3 2 135.07% 36.45% 31.76% N/A 27.36% 139.07% 36.81% 31.76% N/A 27.36%
AST Neuberger Berman Mid-Cap 0.40% 7.39% 11.55% N/A 8.28% 4.40% 7.96% 11.55% N/A 8.28%
Value 3 3
AST JanCap Growth 3 49.16% 47.62% 41.06% N/A 28.83% 53.16% 47.92% 41.06% N/A 28.83%
AST INVESCO Equity Income 3 6.40% 14.13% 17.48% N/A 13.69% 10.40% 14.64% 17.48% N/A 13.69%
AST T. Rowe Price Global Bond 3 4 -13.43% -1.37% 2.40% N/A 1.38% -9.43% -0.69% 2.40% N/A 1.38%
AA MidCap Growth 3 26.27% 23.54% 24.60% N/A 23.21% 30.27% 23.98% 24.60% N/A 23.21%
MV Emerging Markets 3 58.84% -1.10% N/A N/A 0.08% 62.84% -0.43% N/A N/A 0.35%
- ------------------------------- -------- --------- --------- --------- ----------- --------- --------- -------- --------- ----------
</TABLE>
<PAGE>
<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 21.91% 24.44% 24.03% N/A 17.64% 25.91% 24.87% 24.03% N/A 17.64%
GAL High Quality Bond 3 -8.75% 3.22% 6.53% N/A 4.35% -4.75% 3.85% 6.53% N/A 4.35%
GAL Asset Allocation 3 2.51% 12.74% 16.18% N/A 11.67% 6.51% 13.27% 16.18% N/A 11.67%
GAL Growth & Income 3 2.03% N/A N/A N/A 3.40% 6.03% N/A N/A N/A 4.98%
GAL Small Company Growth 3 61.82% N/A N/A N/A 21.91% 65.82% N/A N/A N/A 23.29%
GAL Columbia Real Estate -9.09% N/A N/A N/A -10.19% -5.09% N/A N/A N/A -8.41%
Equity II 3
GAL Columbia High Yield II 3 -4.46% N/A N/A N/A 2.79% -0.46% N/A N/A N/A 4.38%
AST American Century 59.56% 29.51% N/A N/A 29.71% 63.56% 29.91% N/A N/A 29.91%
International Growth 3
AST American Century 26.63% 13.44% 12.95% N/A 9.81% 30.63% 13.96% 12.95% N/A 9.81%
International Growth II 3 1
AST Janus Small-Cap Growth 3 2 135.55% 36.73% 32.02% N/A 27.62% 139.55% 37.08% 32.02% N/A 27.62%
AST Neuberger Berman Mid-Cap 0.61% 7.61% 11.77% N/A 8.51% 4.61% 8.18% 11.77% N/A 8.51%
Value 3 3
AST JanCap Growth 3 49.47% 47.91% 41.34% N/A 29.12% 53.47% 48.22% 41.34% N/A 29.12%
AST INVESCO Equity Income 3 6.62% 14.36% 17.71% N/A 13.92% 10.62% 14.87% 17.71% N/A 13.92%
AST T. Rowe Price Global Bond 3 4 -13.25% -1.16% 2.60% N/A 1.59% -9.25% -0.49% 2.60% N/A 1.59%
AA MidCap Growth 3 26.53% 23.79% 24.85% N/A 23.47% 30.53% 24.23% 24.85% N/A 23.47%
MV Emerging Markets 3 59.17% -0.90% N/A N/A 0.30% 63.17% -0.23% N/A N/A 0.57%
- ------------------------------- -------- --------- --------- --------- ----------- --------- --------- -------- --------- ----------
</TABLE>
1. Effective May 1, 2000, American Century Investment Management, Inc. became
Sub-advisor of the Portfolio. Prior to May 1, 2000, Rowe Price-Fleming
International, Inc. served as Sub-advisor of the Portfolio, then named "AST
T. Rowe Price International Equity Portfolio."
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."
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."
4. Effective May 1, 2000, the name of the portfolio was changed to the "AST T.
Rowe Price Global Bond." 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 Sub-advisor of the
Portfolio, then named "AST Scudder International Bond Portfolio."
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.
<PAGE>
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 one and
nine-tenths percent of interest (1.90%).
Where required by the laws of a particular jurisdiction, a specific minimum
interest rate, compounded yearly, will apply should the index less the reduction
be less than the specific minimum interest rate applicable to that jurisdiction.
WE MAY CHANGE THE INTEREST RATES WE CREDIT NEW FIXED ALLOCATIONS AT ANY TIME.
Any such change does not have an impact on the rates applicable to Fixed
Allocations with Guarantee Periods that began prior to such change. However,
such a change will affect the MVA (see "Account Value of the Fixed
Allocations").
We have no specific formula for determining the interest rates we declare. Rates
may differ between classes and between types of annuities we offer, even for
guarantees of the same duration starting at the same time. We expect our
interest rate declarations for Fixed Allocations to reflect the returns
available on the type of investments we make to support the various classes of
annuities supported by the assets in Separate Account D. However, we may also
take into consideration in determining rates such factors including, but not
limited to, the durations offered by the annuities supported by the assets in
Separate Account D, regulatory and tax requirements, the liquidity of the
secondary markets for the type of investments we make, commissions,
administrative expenses, investment expenses, our 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, 1999 and 1998, and for each of the three years in
the period ended December 31, 1999, and the financial statements of American
Skandia Life Assurance Corporation Variable Account B - Class 3 Galaxy at
December 31, 1999 and 1998 and for the years then ended, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.
LEGAL EXPERTS
The General Counsel of American Skandia Life Assurance Corporation has passed on
the legal matters with respect to Federal laws and regulations applicable to the
issue and sale of the Annuities and with respect to Connecticut law.
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, 1999 and for the periods ended December 31, 1999 and 1998. 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 7038, Bridgeport, Connecticut, 06601-7038. Our phone number is
1-800-444-3970. You may also forward such a request electronically to our
Customer Service Department at [email protected].
<PAGE>
APPENDIX A
Financial Statements for 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, 1999 and 1998
<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, 1999, the related statement of operations for the year then ended,
and the statements of changes in net assets for the years ended December 31,
1999 and 1998. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the 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, 1999, the results of its operations for
the year then ended, and its changes in net assets for the years ended December
31, 1999 and 1998 in conformity with accounting principles generally accepted in
the United States.
/s/Ernst & Young LLP
Hartford, Connecticut
February 11, 2000
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
VARAIBLE ACCOUNT B --- CLASS 3 GALAXY
STATEMENT OF ASSETS, LIABILITIES, AND CONTRACTOWNERS' EQUITY
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
ASSETS
Investment in mutual funds at market value ( Note 2 ):
<S> <C>
American Skandia Trust ( AST ):
T. Rowe Price International Bond Portfolio - 182,920 shares ( cost $1,779,265) $ 1,756,034
Invesco Equity Income Portfolio - 2,109,967 shares ( cost $33,972,394) 39,350,883
T. Rowe Price International Equity Portfolio - 930,264 shares ( cost $11,754,491) 15,507,496
JanCap Growth Portfolio - 1,562,065 shares ( cost $57,115,123) 86,241,625
Neuberger & Berman Midcap Value Portfolio - 1,497,915 shares ( cost $20,406,698) 19,952,224
Janus Small Cap Growth Portfolio - 1,167,606 shares ( cost $27,375,622) 49,751,683
The Alger American Fund ( AAF ):
Midcap Growth Portfolio - 502,249 shares ( cost $13,546,800) 16,187,499
Galaxy VIP Funds (GAL):
Money Market Fund - 15,031,949 shares ( cost $15,031,949) 15,031,949
Equity Fund - 3,106,154 shares ( cost $58,451,470) 68,987,672
High Quality Bond Fund - 1,343,838 shares ( cost $13,916,755) 13,048,670
Asset Allocation Fund - 5,057,362 shares ( cost $78,384,483) 85,772,861
Growth & Income Fund - 1,111,662 shares ( cost $11,357,659) 12,083,760
Small Company Growth Fund - 161,173 shares ( cost $1,454,751) 2,303,168
Columbia Real Estate Equity II Fund - 94,813 shares ( cost $849,004) 766,089
Columbia High Yield II Fund - 220,949 shares ( cost $2,235,996) 2,143,204
Montgomery Variable Series (Montgomery):
Emerging Markets Portfolio - 217,860 shares ( cost $1,877,569) 2,365,959
-------------------
Total Invested Assets $ 431,250,776
Receivable from American Skandia Life Assurance Corporation 103,111
Receivable from Galaxy VIP Funds 346,766
-------------------
Total Receivables $ 449,877
-------------------
-------------------
Total Assets $ 431,700,653
===================
- ---------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
<S> <C> <C> <C>
Payable to American Skandia Trust $ 363,804
Payable to The Alger American Fund 36,780
Payable to Montgomery Variable Series 49,573
------------------
Total Liabilities $ 450,157
------------------
NET ASSETS
Unit
Contractowners' Equity Units Value
AST - JanCap Growth 1,661,006 $ 51.92 $ 86,241,625
AST - Neuberger & Berman Midcap Value 1,216,796 16.40 19,952,224
AST - T. Rowe Price International Equity 867,679 17.87 15,507,496
AST - T. Rowe Price International Bond 159,358 11.02 1,755,938
AST - Janus Small Cap Growth 1,334,152 37.29 49,751,683
AST - INVESCO Equity Income 1,912,354 20.58 39,350,883
AAF - Midcap Growth 592,420 27.32 16,187,499
GAL - Asset Allocation 4,464,357 19.21 85,772,861
GAL - Columbia High Yield II 198,102 10.82 2,143,145
GAL - Columbia Real Estate Equity II 90,019 8.51 766,089
GAL - Equity 2,588,848 26.65 68,987,672
GAL - Growth & Income 1,105,235 10.93 12,083,760
GAL - High Quality Bond 1,019,059 12.80 13,048,670
GAL - Money Market 1,253,950 11.99 15,031,949
GAL - Small Company Growth 156,817 14.69 2,303,106
Montgomery - Emerging Markets 231,741 10.21 2,365,896
------------------
Total Contractowners' Equity $431,250,496
------------------
Total Liabilities and Contractowners' Equity $431,700,653
==================
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
VARIABLE ACCOUNT B - CLASS 3 GALAXY
STATEMENT OF OPERATIONS
FOR THE PERIODS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class 3 Sub-account Investing In:
------------------------------------------------------
AST - AST -
T. Rowe Price T. Rowe Price
International AST - INVESCO International
Total Bond Equity Income Equity
------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Income
Dividends $ 4,147,727 $ 120,087 $ 538,723 $ 84,430
Expenses
Mortality and Expense Risk Charges and Administrative Fees (Note 6) (3,236,687) (20,725) (363,232) (126,583)
-------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 911,040 99,362 175,491 (42,153)
-------------------------------------------------------
REALIZED GAIN (LOSS) ON INVESTMENTS:
Proceeds from Sales 52,455,759 1,657,729 3,329,244 3,007,824
Cost of Securities Sold 42,800,252 1,767,846 2,284,381 2,671,603
-------------------------------------------------------
Net Gain (Loss) 9,655,507 (110,117) 1,044,863 336,221
Capital Gain Distributions Received 10,487,101 38,556 835,070 567,877
-------------------------------------------------------
NET REALIZED GAIN (LOSS) 20,142,608 (71,561) 1,879,933 904,098
UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Beginning of Period 23,892,908 186,414 4,113,959 1,064,469
End of Period 81,740,747 (23,231) 5,378,489 3,753,005
-------------------------------------------------------
NET UNREALIZED GAIN (LOSS) 57,847,839 (209,645) 1,264,530 2,688,536
-------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 78,901,487 $ (181,844) $ 3,319,954 $ 3,550,481
=======================================================
- ------------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
* Date Operations Commenced.
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------
AST-Janus
AST-JanCap AST-Neuberger & Small Cap AAF-Midcap
Growth Berman Midcap Value Growth Growth
--------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Income
Dividends $ - $ 67,106 $ - $ -
Expenses
Mortality and Expense Risk Charges and Administrative Fees (Note 6) (516,366) (147,331) (211,388) (86,632)
--------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (516,366) (80,225) (211,388) (86,632)
--------------------------------------------------------
REALIZED GAIN (LOSS) ON INVESTMENTS:
Proceeds from Sales 5,073,644 3,292,286 11,375,875 1,898,922
Cost of Securities Sold 2,309,441 3,247,162 7,983,425 1,384,659
--------------------------------------------------------
Net Gain (Loss) 2,764,203 45,124 3,392,450 514,263
Capital Gain Distributions Received 1,182,463 182,319 - 959,650
--------------------------------------------------------
NET REALIZED GAIN (LOSS) 3,946,666 227,443 3,392,450 1,473,913
UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Beginning of Period 7,840,177 95,832 777,012 860,824
End of Period 29,126,503 (454,474) 22,376,061 2,640,699
--------------------------------------------------------
NET UNREALIZED GAIN (LOSS) 21,286,326 (550,306) 21,599,049 1,779,875
--------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 24,716,626 $ (403,088) $ 24,780,111 $ 3,167,156
========================================================
- ------------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
* Date Operations Commenced.
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------
GAL GAL GAL GAL
Money Equity High Quality Asset
Market Fund Bond Allocation
-----------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Income
Dividends $ 541,472 $ 5,354 $ 750,026 $ 1,818,592
Expenses
Mortality and Expense Risk Charges and Administrative Fees (Note 6) (116,631) (577,187) (137,222) (770,197)
---------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 424,841 (571,833) 612,804 1,048,395
---------------------------------------------------------
REALIZED GAIN (LOSS) ON INVESTMENTS:
Proceeds from Sales 10,872,481 2,983,623 2,193,260 2,390,512
Cost of Securities Sold 10,872,481 1,885,625 2,182,792 1,807,114
---------------------------------------------------------
Net Gain (Loss) - 1,097,998 10,468 583,398
Capital Gain Distributions Received - 5,698,655 19,706 745,103
---------------------------------------------------------
NET REALIZED GAIN (LOSS) - 6,796,653 30,174 1,328,501
UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Beginning of Period - 3,354,273 417,021 5,105,472
End of Period - 10,536,201 (868,085) 7,388,378
---------------------------------------------------------
NET UNREALIZED GAIN (LOSS) - 7,181,928 (1,285,106) 2,282,906
---------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 424,841 $ 13,406,748 $ (642,128) $ 4,659,802
=========================================================
- ------------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
* Date Operations Commenced.
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------
GAL-Small GAL-Columbia
GAL Company Real Estate GAL-Columbia
Growth & Income Growth Equity II High Yield II
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Income
Dividends $ 44,409 $ - $ 29,656 $ 147,635
Expenses
Mortality and Expense Risk Charges and Administrative Fees (Note 6) (104,182) (15,567) (7,430) (21,888)
----------- ------------- ------------ -----------
NET INVESTMENT INCOME (LOSS) (59,773) (15,567) 22,226 125,747
----------- ------------- ------------ -----------
REALIZED GAIN (LOSS) ON INVESTMENTS:
Proceeds from Sales 908,974 174,552 116,191 1,020,231
Cost of Securities Sold 847,652 166,339 134,168 1,023,306
----------- ------------- ------------ -----------
Net Gain (Loss) 61,322 8,213 (17,977) (3,075)
Capital Gain Distributions Received 164,126 90,825 - 2,751
----------- ------------- ------------ -----------
NET REALIZED GAIN (LOSS) 225,448 99,038 (17,977) (324)
UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Beginning of Period 402,830 (12,100) (43,760) 41,538
End of Period 726,102 848,417 (82,916) (92,792)
----------- ------------- ------------ -----------
NET UNREALIZED GAIN (LOSS) 323,272 860,517 (39,156) (134,330)
----------- ------------- ------------ -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 488,947 $ 943,988 $ (34,907) $ (8,907)
=========== ============= ============ ===========
- ------------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
* Date Operations Commenced.
</TABLE>
<TABLE>
<CAPTION>
-----------------------
Montgomery
Emerging Mkts
-----------------------
<S> <C>
INVESTMENT INCOME:
Income
Dividends $ 237
Expenses
Mortality and Expense Risk Charges and Administrative Fees (Note 6) (14,126)
-----------
NET INVESTMENT INCOME (LOSS) (13,889)
-----------
REALIZED GAIN (LOSS) ON INVESTMENTS:
Proceeds from Sales 2,160,411
Cost of Securities Sold 2,232,258
-----------
Net Gain (Loss) (71,847)
Capital Gain Distributions Received -
-----------
NET REALIZED GAIN (LOSS) (71,847)
UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Beginning of Period (311,053)
End of Period 488,390
-----------
NET UNREALIZED GAIN (LOSS) 799,443
-----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 713,707
===========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
VARIABLE ACCOUNT B - CLASS 3 GALAXY
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------------
Class 3 Sub-account Investing In:
- --------------------------------------------------------------------------------------------------------------------------------
AST - T. Rowe Price
Total International Bond
---------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1999 Dec. 31, 1998
---------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C> <C> <C>
OPERATIONS:
Net Investment Income (Loss) $ 911,040 $ 1,141,216 $ 99,362 $ (11,244)
Net Realized Gain (Loss) 20,142,608 15,489,902 (71,561) 10,312
Net Unrealized Gain (Loss) On Investments 57,847,839 11,792,377 (209,645) 196,880
------------- ------------- ----------- -----------
Net Increase (Decrease) In Net Assets Resulting
From Operations 78,901,487 28,423,495 (181,844) 195,948
------------- ------------- ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Transfers of Annuity Fund Deposits 129,980,698 90,713,221 492,308 720,608
Net Transfers Between Sub-accounts 20,425,318 (3,527,593) (259,696) (55,768)
Surrenders (23,836,804) (12,295,486) (211,497) (33,356)
------------- ------------- ----------- -----------
Net Increase (Decrease) In Net Assets Resulting
From Capital Share Transactions 126,569,212 74,890,142 21,115 631,484
------------- ------------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 205,470,699 103,313,637 (160,729) 827,432
------------- ------------- ----------- -----------
NET ASSETS:
Beginning of Period 225,779,797 122,466,160 1,916,667 1,089,235
----------- ----------- --------- ---------
End of Period $ 431,250,496 $ 225,779,797 $ 1,755,938 $ 1,916,667
============= ============= =========== ===========
- --------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
* Date Operations Commenced.
**Additional portfolios made available to contractowners
during 1998.
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------
AST - INVESCO AST - T. Rowe Price
Equity Income International Equity
---------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1999 Dec. 31, 1998
--------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C> <C> <C>
OPERATIONS:
Net Investment Income (Loss) $ 175,491 $ 131,003 $ (42,153) $ 9,221
Net Realized Gain (Loss) 1,879,933 1,227,515 904,098 549,554
Net Unrealized Gain (Loss) On Investments 1,264,530 1,321,637 2,688,536 851,641
----------------------------------------- --------- --------- --------- -------
Net Increase (Decrease) In Net Assets Resulting
From Operations 3,319,954 2,680,155 3,550,481 1,410,416
--------- --------- --------- ---------
CAPITAL SHARE TRANSACTIONS:
Transfers of Annuity Fund Deposits 8,263,864 7,136,930 1,916,323 1,650,144
Net Transfers Between Sub-accounts 1,327,938 1,953,753 (1,086,255) (1,768,664)
Surrenders (2,425,914) (1,346,243) (810,247) (680,976)
---------- ---------- -------- --------
Net Increase (Decrease) In Net Assets Resulting
From Capital Share Transactions 7,165,888 7,744,440 19,821 (799,496)
--------- --------- ------ --------
TOTAL INCREASE (DECREASE) IN NET ASSETS 10,485,842 10,424,595 3,570,302 610,920
---------- ---------- --------- -------
NET ASSETS:
Beginning of Period 28,865,041 18,440,446 11,937,194 11,326,274
---------- ---------- ---------- ----------
End of Period $ 39,350,883 $ 28,865,041 $ 15,507,496 $ 11,937,194
============ ============ ============ ============
- --------------------------------------------------------------------------------------------------------------------------------
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, 1999 Dec. 31, 1998 Dec. 31, 1999 Dec. 31, 1998
-------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C> <C> <C>
OPERATIONS:
Net Investment Income (Loss) $ (516,366) $ (110,001) $ (80,225) $ (9,015)
Net Realized Gain (Loss) 3,946,666 1,145,810 227,443 18,196
Net Unrealized Gain (Loss) On Investments 21,286,326 6,800,144 (550,306) 11,801
---------- --------- -------- ------
Net Increase (Decrease) In Net Assets Resulting
From Operations 24,716,626 7,835,953 (403,088) 20,982
---------- --------- -------- ------
CAPITAL SHARE TRANSACTIONS:
Transfers of Annuity Fund Deposits 32,552,109 8,206,103 2,859,032 1,744,756
Net Transfers Between Sub-accounts 4,950,844 3,029,875 13,729,603 1,836,791
Surrenders (2,528,989) (373,557) (402,569) (36,523)
---------- -------- -------- -------
Net Increase (Decrease) In Net Assets Resulting
From Capital Share Transactions 34,973,964 10,862,421 16,186,066 3,545,024
---------- ---------- ---------- ---------
TOTAL INCREASE (DECREASE) IN NET ASSETS 59,690,590 18,698,374 15,782,978 3,566,006
---------- ---------- ---------- ---------
NET ASSETS:
Beginning of Period 26,551,035 7,852,661 4,169,246 603,240
---------- --------- --------- -------
End of Period $ 86,241,625 $ 26,551,035 $ 19,952,224 $ 4,169,246
============ ============ ============ ===========
See Notes to Financial Statements.
* Date Operations Commenced.
**Additional portfolios made available to contractowners
during 1998.
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
AST - Janus AAF
Small Cap Growth Midcap Growth**
---------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1999 Dec. 31, 1998
---------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C> <C> <C>
OPERATIONS:
Net Investment Income (Loss) $ (211,388) $ (125,815) $ (86,632) $ (33,176)
Net Realized Gain (Loss) 3,392,450 1,771,074 1,473,913 325,771
Net Unrealized Gain (Loss) On Investments 21,599,049 (1,009,215) 1,779,875 593,074
---------- ---------- --------- -------
Net Increase (Decrease) In Net Assets Resulting
From Operations 24,780,111 636,044 3,167,156 885,669
---------- ------- --------- -------
CAPITAL SHARE TRANSACTIONS:
Transfers of Annuity Fund Deposits 8,923,096 1,644,504 6,144,228 1,324,121
Net Transfers Between Sub-accounts 5,549,778 (7,079,772) 2,785,271 299,461
Surrenders (1,011,771) (1,308,019) (579,370) (212,010)
---------- ---------- -------- --------
Net Increase (Decrease) In Net Assets Resulting
From Capital Share Transactions 13,461,103 (6,743,287) 8,350,129 1,411,572
---------- ---------- --------- ---------
TOTAL INCREASE (DECREASE) IN NET ASSETS 38,241,214 (6,107,243) 11,517,285 2,297,241
---------- ---------- ---------- ---------
NET ASSETS:
Beginning of Period 11,510,469 17,617,712 4,670,214 2,372,973
---------- ---------- --------- ---------
End of Period $ 49,751,683 $ 11,510,469 $ 16,187,499 $ 4,670,214
============ ============ ============ ===========
* Date Operations Commenced.
**Additional portfolios made available to contractowners
during 1998.
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
GAL GAL
Money Market Equity
-----------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1999 Dec. 31, 1998
-----------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C> <C> <C>
OPERATIONS:
Net Investment Income (Loss) $ 424,841 $ 292,970 $ (571,833) $ (149,630)
Net Realized Gain (Loss) -- -- 6,796,653 9,438,164
Net Unrealized Gain (Loss) On Investments -- -- 7,181,928 (1,789,019)
--------- ----------
Net Increase (Decrease) In Net Assets Resulting
From Operations 424,841 292,970 13,406,748 7,499,515
------- ------- ---------- ---------
CAPITAL SHARE TRANSACTIONS:
Transfers of Annuity Fund Deposits 17,948,468 12,963,533 13,302,500 11,904,875
Net Transfers Between Sub-accounts (9,965,851) (7,709,203) 1,622,333 849,585
Surrenders (2,544,617) (1,728,504) (4,986,369) (2,549,327)
---------- ---------- ---------- ----------
Net Increase (Decrease) In Net Assets Resulting
From Capital Share Transactions 5,438,000 3,525,826 9,938,464 10,205,133
--------- --------- --------- ----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 5,862,841 3,818,796 23,345,212 17,704,648
--------- --------- ---------- ----------
NET ASSETS:
Beginning of Period 9,169,108 5,350,312 45,642,460 27,937,812
--------- --------- ---------- ----------
End of Period $ 15,031,949 $ 9,169,108 $ 68,987,672 $ 45,642,460
============ ============ ============ ============
- -----------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
* Date Operations Commenced.
**Additional portfolios made available to contractowners
during 1998.
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
GAL GAL
High Quality Bond Asset Allocation
----------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1999 Dec. 31, 1998
----------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C> <C> <C>
OPERATIONS:
Net Investment Income (Loss) $ 612,804 $ 387,917 $ 1,048,395 $ 706,952
Net Realized Gain (Loss) 30,174 14,011 1,328,501 1,051,008
Net Unrealized Gain (Loss) On Investments (1,285,106) 311,783 2,282,906 4,349,008
---------- ------- --------- ---------
Net Increase (Decrease) In Net Assets Resulting
From Operations (642,128) 713,711 4,659,802 6,106,968
-------- ------- --------- ---------
CAPITAL SHARE TRANSACTIONS:
Transfers of Annuity Fund Deposits 3,822,680 5,694,766 27,763,261 27,645,286
Net Transfers Between Sub-accounts (371,097) 760,484 1,971,202 2,649,575
Surrenders (1,768,771) (724,373) (5,624,515) (3,063,219)
---------- -------- ---------- ----------
Net Increase (Decrease) In Net Assets Resulting
From Capital Share Transactions 1,682,812 5,730,877 24,109,948 27,231,642
--------- --------- ---------- ----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 1,040,684 6,444,588 28,769,750 33,338,610
--------- --------- ---------- ----------
NET ASSETS:
Beginning of Period 12,007,986 5,563,398 57,003,111 23,664,501
---------- --------- ---------- ----------
End of Period $ 13,048,670 $ 12,007,986 $ 85,772,861 $ 57,003,111
============ ============ ============ ============
See Notes to Financial Statements.
* Date Operations Commenced.
**Additional portfolios made available to contractowners
during 1998.
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
GAL GAL - Small
Growth & Income Company Growth
---------------------------------------------------------------------
Year Ended Mar. 3,* thru Year Ended Mar. 5,* thru
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1999 Dec. 31, 1998
---------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C> <C> <C>
OPERATIONS:
Net Investment Income (Loss) $ (59,773) $ (8,685) $ (15,567) $ (4,429)
Net Realized Gain (Loss) 225,448 (19,760) 99,038 (3,461)
Net Unrealized Gain (Loss) On Investments 323,272 402,830 860,517 (12,100)
------- ------- ------- -------
Net Increase (Decrease) In Net Assets Resulting
From Operations 488,947 374,385 943,988 (19,990)
------- ------- ------- -------
CAPITAL SHARE TRANSACTIONS:
Transfers of Annuity Fund Deposits 4,049,872 6,747,564 215,140 937,520
Net Transfers Between Sub-accounts 548,233 661,081 12,043 235,977
Surrenders (642,866) (143,456) (10,029) (11,543)
-------- -------- ------- -------
Net Increase (Decrease) In Net Assets Resulting
From Capital Share Transactions 3,955,239 7,265,189 217,154 1,161,954
--------- --------- ------- ---------
TOTAL INCREASE (DECREASE) IN NET ASSETS 4,444,186 7,639,574 1,161,142 1,141,964
--------- --------- --------- ---------
NET ASSETS:
Beginning of Period 7,639,574 -- 1,141,964 --
--------- ---------
End of Period $ 12,083,760 $ 7,639,574 $ 2,303,106 $ 1,141,964
============ =========== =========== ===========
See Notes to Financial Statements.
* Date Operations Commenced.
**Additional portfolios made available to contractowners
during 1998.
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
GAL - Columbia GAL - Columbia
Real Estate Equity II High Yield II
-----------------------------------------------------------------------
Year Ended Apr. 1,* thru Year Ended Mar. 4,* thru
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1999 Dec. 31, 1998
------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C> <C> <C>
OPERATIONS:
Net Investment Income (Loss) $ 22,226 $ 11,135 $ 125,747 $ 59,126
Net Realized Gain (Loss) (17,977) (5,977) (324) 32,132
Net Unrealized Gain (Loss) On Investments (39,156) (43,760) (134,330) 41,538
------- ------- -------- ------
Net Increase (Decrease) In Net Assets Resulting
From Operations (34,907) (38,602) (8,907) 132,796
------- ------- ------ -------
CAPITAL SHARE TRANSACTIONS:
Transfers of Annuity Fund Deposits 241,993 547,176 766,396 1,298,267
Net Transfers Between Sub-accounts 29,481 74,940 (653,838) 800,473
Surrenders (27,943) (26,049) (140,067) (51,975)
------- ------- -------- -------
Net Increase (Decrease) In Net Assets Resulting
From Capital Share Transactions 243,531 596,067 (27,509) 2,046,765
------- ------- ------- ---------
TOTAL INCREASE (DECREASE) IN NET ASSETS 208,624 557,465 (36,416) 2,179,561
------- ------- ------- ---------
NET ASSETS:
Beginning of Period 557,465 -- 2,179,561 --
------- ---------
End of Period $ 766,089 $ 557,465 $ 2,143,145 $ 2,179,561
========= ========= =========== ===========
See Notes to Financial Statements.
* Date Operations Commenced.
**Additional portfolios made available to contractowners
during 1998.
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Montgomery
Emerging Markets**
- --------------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998
- --------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C>
OPERATIONS:
Net Investment Income (Loss) $ (13,889) $ (5,113)
Net Realized Gain (Loss) (71,847) (64,447)
Net Unrealized Gain (Loss) On Investments 799,443 (233,865)
------- --------
Net Increase (Decrease) In Net Assets Resulting
From Operations 713,707 (303,425)
------- --------
CAPITAL SHARE TRANSACTIONS:
Transfers of Annuity Fund Deposits 719,428 547,068
Net Transfers Between Sub-accounts 235,329 (66,181)
Surrenders (121,270) (6,356)
-------- ------
Net Increase (Decrease) In Net Assets Resulting
From Capital Share Transactions 833,487 474,531
------- -------
TOTAL INCREASE (DECREASE) IN NET ASSETS 1,547,194 171,106
--------- -------
NET ASSETS:
Beginning of Period 818,702 647,596
------- -------
End of Period $ 2,365,896 $ 818,702
=========== =========
- ----------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
* Date Operations Commenced.
**Additional portfolios made available to contractowners
during 1998.
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
American Skandia Life Assurance Corporation
Variable Account B - Class 3 Galaxy
Notes to Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
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 May 1, 1995.
As of December 31, 1999, the Account consisted of sixty-eight 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 annuities described above are marketed through American Skandia
Marketing, Inc., an affiliate.
During 1999, the following sub-account incurred a name change: AST Janus
Small Cap Growth, (formerly AST Founders Capital Appreciation).
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
changes.
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. The Company believes 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's computer support is provided by its affiliate, American
Skandia Information Services and Technology Corporation.
The Company has experienced no significant errors or disruptions in
computer service, interfaces with computer systems of investment manager,
sub-advisors, third party administrators, vendors and other business
partners on or after January 1, 2000.
American Skandia engaged external information technology specialists to
review the operating systems and internally developed software. The costs
associated with these assessments and Year 2000 related remediation were
allocated across the American Skandia Group. No cost were allocated to the
Separate Accounts.
American Skandia continues to review new and existing systems and has
contingency plans in place as part of its Business Continuity Plan. The
plan involves virtually all aspects of the business and will continue to be
a focus of management beyond the Year 2000 event.
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, filed April 26, 1999.
(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, filed
April 26, 1999.
(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 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 Counsel. FILED HEREWITH
(10) Consent of Ernst & Young 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 Inc.:
(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 Inc. 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, 1999, there were 6,637
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
Inc., 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
Kimberly Anderson Vice President, National Sales
American Skandia Life Assurance Corporation Manager/Qualified Plans
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
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
T. Richard Kennedy General Counsel
American Skandia Life Assurance Corporation
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. 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 A. 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 and Director
</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 Counsel
No. 10 Consent of Ernst & Young 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 the 26th day of April, 2000.
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 26, 2000
Jan R. Carendi Chairman of the Board and Director
(Principal Financial Officer)
/s/ Thomas M. Mazzaferro Executive Vice President and April 26, 2000
Thomas M. Mazzaferro Chief Financial Officer
(Principal Accounting Officer)
/s/ David R. Monroe Senior Vice President, Treasurer April 26, 2000
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
T. Richard Kennedy** Brett M. Winson**
-------------------- -----------------
T. Richard Kennedy Brett M. Winson
*/**By: /s/Kathleen A. Chapman
---------------------------
Kathleen A. Chapman
<FN>
*Pursuant to Powers of Attorney filed with Initial Registration Statement No. 333-25733
**Pursuant to Power of Attorney filed with Post-Effective Amendment No. 4 to Registration Statement No. 333-25733
</FN>
</TABLE>
American Skandia Life
Assurance Corporation
One Corporate Drive
P.O. Box 883
Shelton, CT 06484-0883
Telephone (203) 926-1888
Fax (203) 925-6932
April 25, 2000
American Skandia Life Assurance Corporation
One Corporate Drive
Shelton, Connecticut 06484
RE: Post-Effective Amendment No. 5 to Registration Statement on
Form N-4 filed by American Skandia Life Assurance Corporation,
Depositor, and American Skandia Life Assurance Corporation
Variable Account B (Class 3), Registrant
Securities Act Registration No. 33-88362
Investment Company Act Registration No. 811-8884
Dear Sir/Madam:
I have acted as General Counsel to American Skandia Life Assurance Corporation
(the "Company"), a Connecticut insurance company, and American Skandia Life
Assurance Corporation Variable Account B (Class 3) (the "Account") in connection
with the registration of an indefinite amount of securities in the form of
variable annuity contracts (the "Contracts") with the Securities and Exchange
Commission under the Securities Act of 1933, as amended.
I have examined or caused to be examined such documents (including the Form N-4
registration statement) and reviewed or caused to be reviewed such questions of
law as I considered necessary and appropriate, and on the basis of such
examination and review, it is my opinion that:
1. The Company is a corporation duly organized and validly existing as a stock
life insurance company under the laws of the State of Connecticut and is
duly authorized by the Insurance Department of the State of Connecticut to
issue the Contracts.
2. The Account is a duly authorized and existing separate account established
pursuant to the provisions of Section 38a-433 of the Connecticut Statutes.
3. To the extent so provided under the Contracts, that portion of the assets
of the Account equal to the reserves and other contract liabilities with
respect to the Account will not be chargeable with liabilities arising out
of any other business that the Company may conduct.
4. The Contracts, when issued as contemplated by the Form N-4 Registration
Statement, will constitute legal, validly issued and binding obligations of
the Company.
I hereby consent to the filing of this opinion as an exhibit to the Form N-4
registration statement for the Contracts and the Account.
Sincerely yours,
/s/ T. Richard Kennedy
T. Richard Kennedy
General Counsel
GAL3
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 11, 2000 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 11, 2000 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 11, 2000 with respect to the financial statements of American Skandia
Life Assurance Corporation at December 31, 1999 and 1998 and for each of the
three years in the period ended December 31, 1999, included in the Annual Report
(Form 10-K) for 1999 filed with the Securities and Exchange Commission.
/s/Ernst & Young LLP
Hartford, Connecticut
April 26, 2000
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 198,165
<DEBT-CARRYING-VALUE> 201,525
<DEBT-MARKET-VALUE> 201,509
<EQUITIES> 16,404
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 219,388
<CASH> 89,212
<RECOVER-REINSURE> 4,062
<DEFERRED-ACQUISITION> 1,087,705
<TOTAL-ASSETS> 30,849,414 <F1>
<POLICY-LOSSES> 41,127
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 189,000
0
0
<COMMON> 2,500
<OTHER-SE> 356,934
<TOTAL-LIABILITY-AND-EQUITY> 30,849,414 <F2>
1,278
<INVESTMENT-INCOME> 10,441
<INVESTMENT-GAINS> 578
<OTHER-INCOME> 375,064 <F3>
<BENEFITS> 4,996
<UNDERWRITING-AMORTIZATION> 83,861
<UNDERWRITING-OTHER> 191,991
<INCOME-PRETAX> 106,513
<INCOME-TAX> 30,344
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 76,169
<EPS-BASIC> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1> Included in Total Assets are Assets Held in Separate Accounts of
$29,381,166.
<F2> Included in Total Liabilities and Equity are Liabilities Related to
Separate Accounts of $29,381,166.
<F3> Other income includes annuity charges and fees of $289,989 and fee income
of $83,243.
</FN>
</TABLE>
