Supplement to Prospectus Dated May 1, 2000
Supplement dated October 23, 2000
This Supplement should be retained with the current Prospectus for your variable
annuity contract issued by American Skandia Life Assurance Corporation
("American Skandia"). If you do not have a current prospectus, please contact
American Skandia at 1-800-SKANDIA.
A. MAXIMUM NUMBER OF FREE TRANSFERS
The maximum number of transfers you can make between investment options each
Annuity Year without being subject to a Transfer Fee is increased from twelve
(12) to twenty (20).
B. PARTIAL EXCHANGES
TAX CONSIDERATIONS
The following paragraph replaces the corresponding paragraph under the Tax
Considerations section in your Annuity prospectus:
Special rules in relation to tax-free exchanges under Section 1035:
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 a non-qualified annuity contract
and direct transfer of the resulting proceeds for the purchase of a new
non-qualified 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 supplement, we will
treat a partial surrender of this type as a "tax-free" exchange for future tax
reporting purposes, except to the extent that we, as a reporting and withholding
agent, believe that we would be expected to deem the transaction to be abusive.
However, some insurance companies may not recognize these partial surrenders as
tax-free exchanges and may report them as taxable distributions to the extent of
any gain distributed as well as subjecting the taxable portion of the
distribution to the 10% IRS early distribution penalty. We strongly urge you to
discuss any transaction of this type with your tax advisor before proceeding
with the transaction.
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. We will continue to report a
partial surrender of a life insurance policy as subject to current taxation to
the extent of any gain. 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.
NIKE -SUPP. (10/23/2000) VANIKE 10/23/00
