-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UUErETR+TbjhLG1waqQ+VfOWByivzWSLFcGGsC+FTEbCbcqEGia5gydbIh7gaJhF jFuCu7/qotfTuhJRFYv0wg== 0000881453-96-000094.txt : 19960503 0000881453-96-000094.hdr.sgml : 19960503 ACCESSION NUMBER: 0000881453-96-000094 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19960502 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN SKANDIA LIFE ASSURANCE CORP/CT CENTRAL INDEX KEY: 0000881453 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE CARRIERS, NEC [6399] IRS NUMBER: 061241288 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-89676 FILM NUMBER: 96555373 BUSINESS ADDRESS: STREET 1: ONE CORP DR CITY: SHELTON STATE: CT ZIP: 06484 BUSINESS PHONE: 2039261888 MAIL ADDRESS: STREET 1: ONE CORPORATE DRIVE CITY: SHELTON STATE: CT ZIP: 06484 424B3 1 GMA DEF GUARANTEED MATURITY ANNUITY This Prospectus describes the Guaranteed Maturity Annuity (the "Annuity") issued by American Skandia Life Assurance Corporation ("Skandia Life"). We may simultaneously offer several types of contracts. You may or may not be eligible for more than one type of contract. Certain features, such as the existence of or level of certain charges, may differ among various types of contracts. We may also declare different interest rates for different types of contracts. Various rights and benefits may differ among jurisdictions to meet applicable laws and/or regulations. This Annuity is made available as participating interests in a group contract or as an individual contract. Participants in a group contract are issued certificates reflecting their rights and privileges. Eligible individuals who may participate in a group contract include those who have established accounts with certain broker-dealers who have entered into a distribution agreement to offer participating interests in a contract, as well as members of other eligible groups, such as employees of an employer. Purchasers of individual contracts are issued a contract (see "Distribution"). Both the certificates and individual contracts are hereafter referred to as the "Contract." Contracts or certain types of Contracts may not be available in all jurisdictions. We offer various interest rate Guarantee Periods (see "Guarantee Periods"). The minimum premium we will accept from you is $5,000, which may be used to purchase multiple Contracts with different Guarantee Periods. Our minimum amount per Contract is $2,000. The minimum premium we will accept from you which may be used to purchase a contract in conjunction with a qualified plan is $2,000. A Contract is issued as evidence of the acceptance of each premium or portion of a premium. We issue an additional Contract for any subsequent premium accepted (see "Application and Premium Payment"). Values and benefits provided by the Annuity are funded by the general account assets of Skandia Life (see "Investments"). THESE SECURITIES MAY BE SUBJECT TO SUBSTANTIAL CHARGES WHICH COULD RESULT IN YOUR RECEIPT OF LESS THAN YOUR PREMIUM IF YOU SURRENDER YOUR CONTRACT. WHETHER SUCH A RESULT ACTUALLY OCCURS DEPENDS ON THE TIMING OF ANY SURRENDER, THE AMOUNT OF SUCH CHARGES AND THE INTEREST RATES WE ARE CREDITING TO CONTRACTS. SUCH CHARGES ARE THE MARKET VALUE ADJUSTMENT, ANY SALES CHARGE WE MAY DEDUCT FROM YOUR PREMIUM, AND ANY SURRENDER CHARGE. The actual charges will be shown in your Contract. (see "Market Value Adjustment", "Sales Charge" and "Surrenders"). THE INTEREST RATE IN SUBSEQUENT GUARANTEE PERIODS MAY BE MORE OR LESS THAN THE RATE IN A PREVIOUS PERIOD. However, the rates may not be lower than a minimum determined in relation to an index, but may be higher. Such index is not controlled by Skandia Life. A 3% MINIMUM RATE MAY BE REQUIRED FOR CONTRACTS ISSUED IN CERTAIN JURISDICTIONS, INCLUDING CONTRACTS ISSUED FOR DELIVERY IN NEW YORK, IF AVAILABLE (see "Interest Rates"). Purchase payments under these Annuities are not deposits or obligations of, or guaranteed or endorsed by, any bank or bank subsidiary, are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other agency and are not insured by the Securities Investor Protection Corporation ("SIPC") as to the loss of the principal amount invested. - -------------------------------------------------------------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. FOR FURTHER INFORMATION CALL 1-800-752-6342. ================================================================================ GMA-PROS-(5/96) Issued by: American Skandia Life Assurance Corporation Prospectus Dated: May 1, 1996 Supplement to Prospectus Dated May 1, 1996 Supplement Dated May 1, 1996 The Guaranteed Maturity Annuity being offered to you pursuant to this prospectus imposes no sales charges upon receipt by us of premiums. However, a surrender charge will be imposed upon a full or partial surrender, calculated at 6% of the Gross Surrender Value deemed to be a liquidation of premiums, if the surrender or partial surrender is effected within six years of the premium payment. Amounts taken under the free withdrawal privilege are not considered a liquidation of premium. See "Surrender Charge" in the accompanying prospectus for further details. GMA-SUPP (5/96)
TABLE OF CONTENTS DEFINITIONS...............................................................................................................4 SUMMARY...................................................................................................................6 MULTIPLE CONTRACTS.....................................................................................................6 INITIAL GUARANTEE PERIODS..............................................................................................6 SUBSEQUENT GUARANTEE PERIODS...........................................................................................6 ALTERNATE GUARANTEE PERIODS............................................................................................6 SALES CHARGE...........................................................................................................6 INTEREST RATES.........................................................................................................6 DEATH BENEFITS.........................................................................................................6 ANNUITY DATE AND ANNUITY OPTIONS.......................................................................................6 PREMIUM TAXES..........................................................................................................7 SURRENDERS.............................................................................................................7 SURRENDER CHARGE.......................................................................................................7 MARKET VALUE ADJUSTMENT................................................................................................7 MEDICALLY-RELATED WITHDRAWALS..........................................................................................7 FREE WITHDRAWAL PRIVILEGE..............................................................................................8 BREAKPOINTS............................................................................................................8 ANNUITY FEATURES..........................................................................................................8 INTRODUCTION...........................................................................................................8 APPLICATION AND PREMIUM PAYMENT........................................................................................8 RIGHT TO CANCEL........................................................................................................8 SALES CHARGE...........................................................................................................8 INTEREST CREDITING.....................................................................................................9 Guarantee Periods....................................................................................................9 Alternate Guarantee Periods.........................................................................................10 Interest Rates......................................................................................................10 SURRENDERS............................................................................................................11 General.............................................................................................................11 Surrender Charge....................................................................................................12 Market Value Adjustment.............................................................................................13 MEDICALLY-RELATED WITHDRAWALS.........................................................................................13 FREE WITHDRAWAL PRIVILEGE.............................................................................................14 QUALIFIED PLAN WITHDRAWAL LIMITATIONS.................................................................................14 DEFERRAL OF PAYMENT...................................................................................................14 DEATH BENEFIT.........................................................................................................14 ANNUITY DATE..........................................................................................................15 ANNUITY OPTIONS.......................................................................................................15 ADMINISTRATION OF TRANSACTIONS........................................................................................16 AGE LIMITS............................................................................................................16 ASSIGNMENTS OR PLEDGES................................................................................................16 PARTICIPANT, ANNUITANT AND BENEFICIARY DESIGNATIONS...................................................................16 MISSTATEMENT OF AGE OR SEX............................................................................................17 CONTRACT MODIFICATION.................................................................................................17 BREAKPOINTS...........................................................................................................17 INVESTMENTS..............................................................................................................18 GENERAL...............................................................................................................18 INVESTMENT MANAGEMENT.................................................................................................18 CURRENT INVESTMENT GUIDELINES.........................................................................................19 CERTAIN TAX CONSIDERATIONS...............................................................................................19 OUR TAX CONSIDERATIONS................................................................................................19 TAX CONSIDERATIONS RELATING TO YOUR ANNUITY...........................................................................19 Non-natural Persons.................................................................................................19 Natural Persons.....................................................................................................19 Distributions.......................................................................................................19 Assignments and Pledges.............................................................................................20 Penalty on Distributions............................................................................................20 Annuity Payments....................................................................................................21 Gifts...............................................................................................................21 Tax-Free Exchanges..................................................................................................21 Generation-Skipping Transfers.......................................................................................21 Federal Income Tax Withholding......................................................................................21 Tax Considerations When Using Annuities in Conjunction With Qualified Plans...........................................21 Individual Retirement Programs......................................................................................22 Tax Sheltered Annuities.............................................................................................22 Corporate Pension and Profit-sharing Plans..........................................................................22 H.R. 10 Plans.......................................................................................................22 Tax Treatment of Distributions From Qualified Annuities.............................................................22 MISCELLANEOUS MATTERS....................................................................................................23 DISTRIBUTION..........................................................................................................23 REPORTS TO YOU........................................................................................................23 LEGAL PROCEEDINGS.....................................................................................................23 LEGAL COUNSEL.........................................................................................................23 EXPERTS...............................................................................................................23 INDEMNIFICATION.......................................................................................................23 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................................................................23 THE COMPANY..............................................................................................................24 Lines of Business.....................................................................................................24 Selected Financial Data...............................................................................................24 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................25 Results of Operation..................................................................................................25 Liquity and Capital Resources.........................................................................................26 Segment Information.................................................................................................26 Reinsurance...........................................................................................................26 Surplus Notes.........................................................................................................27 Reserves..............................................................................................................27 Competition...........................................................................................................27 Employees.............................................................................................................27 Regulation............................................................................................................27 Executive Officers and Directors......................................................................................28 Executive Compensation................................................................................................30 Summary Compensation Table..........................................................................................30 Long-Term Incentive Plans - Awards in the Last Fiscal Year..........................................................30 Compensation of Directors...........................................................................................31 Compensation Committee Interlocks and Insider Participation.........................................................31 FINANCIAL STATEMENTS.....................................................................................................31 APPENDIX A FINANCIAL STATEMENTS FOR AMERICAN SKANDIA LIFE ASSURANCE CORPORATION.........................................32 APPENDIX B ILLUSTRATION OF MARKET VALUE ADJUSTMENT......................................................................32 APPENDIX C ILLUSTRATION OF INTEREST CREDITING...........................................................................32
DEFINITIONS ANNUITANT is the person upon whose life your Contract is issued. ANNUITY is the Guaranteed Maturity Annuity. ANNUITY DATE is the date on which annuity payments are to commence. BENEFICIARY(IES) is (are) the person(s) designated by you, either as of the Contract Date or at a later date, as the recipient of the death benefit. CONTINGENT ANNUITANT is the person designated by you to become the Annuitant on the Annuitant's death prior to the Annuity Date. CONTRACT, for purposes of this Prospectus, is your individual Annuity, or with respect to a group Annuity, the certificate evidencing your participation in an underlying group Annuity. It also represents an account we set up and maintain to track our obligations to you. CONTRACT DATE is the effective date of your Contract (shown as your "Certificate Date" with respect to a group Annuity). CONTRACT YEARS are continuous 12-month periods commencing on the Contract Date and each anniversary of the Contract Date. CURRENT RATE is the applicable interest rate we offer for a Guarantee Period for your type of Contract. Current Rates are contained in a schedule of rates established by us from time to time for the Guarantee Periods then being offered. We may establish different schedules for different types of Contracts. GROSS SURRENDER VALUE is, as of any date, that portion of the Interim Value you specify for a full or partial surrender. GUARANTEE PERIOD is the period during which the rate at which interest is credited to your Contract is guaranteed. IN WRITING is in a written form satisfactory to us and filed at the Office. INITIAL GUARANTEE RATE is the rate of interest credited during the initial Guarantee Period for a Contract. INTERIM VALUE is, as of any date, the Net Premium credited to a Contract plus all interest credited on such Net Premium, less the sum of all previous Gross Surrender Values and interest thereon from the date of each surrender, plus or minus any market value adjustment made when choosing an alternate Guarantee Period and interest thereon from the date such alternate Guarantee Period begins. NET PREMIUM is a premium less any applicable sales charge applied to premium when received and any applicable premium tax deducted upon receipt of premium. NET SURRENDER VALUE is the amount payable on a full or partial surrender after the application of any charges and market value adjustment. OFFICE is our business office, American Skandia Life Assurance Corporation, One Corporate Drive, P.O. Box 883, Shelton, Connecticut 06484. PARTICIPANT is either an eligible entity or person who participates in a group Contract or is named as having ownership rights in relation to an Annuity issued as an individual contract. Eligibility depends on the specific Contract. SUBSEQUENT GUARANTEE RATE is the rate of interest established by us for crediting to your Contract during a subsequent Guarantee Period. SURRENDER DATE is the date we receive a completed request In Writing for a surrender. "We", "us", "our" or "the Company" means American Skandia Life Assurance Corporation. "You" or "your" means the Participant. Other terms are defined in this Prospectus as they appear. SUMMARY MULTIPLE CONTRACTS We issue a Contract for each acceptable premium or portion thereof, subject to our rules for minimum amounts per Contract. Subsequent discussion in this Prospectus will be in terms of a single Contract. INITIAL GUARANTEE PERIODS You select an initial Guarantee Period among those we currently offer. If we accept the premium, we then issue a Contract. The initial Guarantee Period begins on the Contract Date (see "Application and Premium Payment" and "Guarantee Periods"). SUBSEQUENT GUARANTEE PERIODS At the end of a Guarantee Period, a subsequent Guarantee Period begins, unless you have chosen such date as the Annuity Date. We reserve the right to make available different Guarantee Periods than those which were available when your Contract was issued. The subsequent Guarantee Period will be the same as the previous one (or the next shortest one if that duration is no longer available) unless we receive instructions from you In Writing at least two business days before the close of the Guarantee Period then ending. However, the subsequent Guarantee Period may not end beyond the Annuity Date (see "Guarantee Periods"). ALTERNATE GUARANTEE PERIODS You may choose, subject to certain limitations, to switch to an alternate Guarantee Period that would begin before your current Guarantee Period would normally end. Exercising this privilege will subject your Interim Value to a market value adjustment, but not to a surrender charge. You may also need to change your Annuity Date in order to exercise this privilege (see "Alternate Guarantee Periods"). SALES CHARGE The amount and schedule of the sales charge, if any, will be shown in your Contract. As of the date of this Prospectus, we are not offering Contracts with sales charges in excess of 6% of premium upon receipt. However, we reserve the right to offer new types of Contracts with sales charges of not more than 8.5% of premium upon receipt. Sales charge percentages may be level or decrease according to a specified schedule (see "Sales Charge"). INTEREST RATES We declare interest rates for the available Guarantee Periods from time to time. The rate applicable throughout any Guarantee Period is the one in effect when such Guarantee Period begins. The rates we declare are subject to a minimum, but we may declare higher rates. The minimum is determined in relation to an index we do not control. For Contracts issued for delivery in certain jurisdictions, including New York, if available, rates may not be lower than 3%, irrespective of the index. We reserve the right to simultaneously declare Subsequent Guarantee Rates for existing Contracts that are higher than Current Rates for the Guarantee Periods of the same duration applicable to newly issued Contracts of the same type, where allowed by law and regulation (see "Interest Rates"). DEATH BENEFITS A death benefit of the greater of your Contract's Interim Value or 100% of premium less the sum of all prior Gross Surrender Values, is provided in the event of your death or the Annuitant's death (if there is no Contingent Annuitant) if occurring both (a) prior to the Annuity Date, and (b) before the beginning of the Contract Year which starts following the earlier of your or the Annuitant's 85th birthday (see "Death Benefit"). ANNUITY DATE AND ANNUITY OPTIONS You may choose the Annuity Date. However, it must be the first day of the first month on or after the end of a Guarantee Period, and after the third Contract Year. You may choose among a number of annuity options (see "Annuity Date" and "Annuity Options"). PREMIUM TAXES In several states, a premium tax is payable, either when premiums are received or, when the Interim Value is applied under an annuity option. We will deduct the amount of the premium tax payable, if any, from your premiums or Interim Value. The amount of the premium tax varies from jurisdiction to jurisdiction, which any state legislature may change. Also, any state legislature may decide to impose the tax when premium payments are made. In those jurisdictions imposing such a tax, the tax rates currently in effect range up to 3 1/2%. However, local taxes may be higher. SURRENDERS Total and partial surrenders of your Contract are permitted prior to the Annuity Date. Such total or partial surrenders may be assessed a surrender charge and/or a market value adjustment (see "Surrenders"). A full or partial surrender may result in a taxable event, and in certain situations, a tax penalty (see "Certain Tax Considerations"). SURRENDER CHARGE The surrender charge, if any, applicable to any full or partial surrender is a percentage of either the Gross Surrender Value or that portion of the Gross Surrender Value deemed to be a liquidation of premium. The type and level of charges will be shown in your Contract. The charge may be level for a specified number of years or it may start at a particular level and then grade down to zero over a specified number of years. The surrender charge may also depend on the initial Guarantee Period you select. As of the date of this Prospectus, we were not offering Contracts with surrender charges in excess of 6% of premium. However, we reserve the right to offer new types of Contracts with sales charges of not more than 8.5% of premium (see "Surrender Charge"). MARKET VALUE ADJUSTMENT The market value adjustment may increase or decrease the amount payable to you on a full or partial surrender. Such a surrender at the end of a Guarantee Period, and, where required by law, the 30 days prior to the end of a Guarantee Period, is not affected by this adjustment. In addition, the market value adjustment will be applied to the Interim Value when choosing an alternate Guarantee Period. The adjustment reflects the relationship as of the time of its calculation between: (a) the rate then being credited to your Contract; and (b) the Current Rate for your type of Contract with a Guarantee Period equal to the time remaining to the end of your current Guarantee Period. Our Current Rates are expected to be sensitive to interest rate fluctuations, thereby making this adjustment equally sensitive to such changes. There would be a downward adjustment when the applicable Current Rate plus an adjustment rate exceeds the rate currently being credited to your Contract. There would be an upward adjustment when the applicable Current Rate plus the adjustment rate is lower than the rate currently being credited to your Contract. The adjustment rate is the same for all contracts of the same type, and cannot exceed 0.25% of interest for any type of Contract. (see "Market Value Adjustment"). MEDICALLY-RELATED WITHDRAWALS Where permitted by law, any applicable surrender charge or market value adjustment is waived on a full surrender if we receive satisfactory evidence of certain medically-related events or conditions (see "Medically-Related Withdrawals"). FREE WITHDRAWAL PRIVILEGE Once each Contract Year after the first you may withdraw an amount without any applicable surrender charge being assessed. This amount equals the "growth" in the Contract. "Growth" is defined as: (a) the interest credited to your Contract in the prior Contract Year, plus (b) the interest credited to your Contract in Contract Years previous to the last, subject to a market value adjustment, provided that immediately after the withdrawal (including any market value adjustment) the remaining Interim Value times the market value adjustment is at least equal to the unliquidated premium plus the value at the time credited of any amounts added due to premium size (see "Free Withdrawal Privilege"). BREAKPOINTS We reserve the right to make additions to the Interim Values of Contracts of Owners submitting large amounts of premium, wherever allowed by law. As of the date of this Prospectus, the breakpoints for such treatment are premiums of $500,000, $1,000,000 and $5,000,000. We reserve the right to change these breakpoints (see "Breakpoints"). ANNUITY FEATURES INTRODUCTION The Guaranteed Maturity Annuity is designed to allow you to accumulate funds for long term goals, such as retirement, on a tax-deferred basis. You may apply the accumulated funds on the Annuity Date to receive a stream of income payments. APPLICATION AND PREMIUM PAYMENT We may require a properly completed application or enrollment form, a premium, and any other materials under our underwriting rules before we agree to issue an Annuity. We may issue an Annuity without completion of an application or enrollment form for certain classes of Annuities, where permitted by law. We offer various initial Guarantee Periods. Subject to our rules, you may choose to have your Net Premium or portions thereof accumulate interest for one or more of the Guarantee Periods then available. While we may issue multiple Contracts, such multiple Contracts may be treated for tax purposes as if they were a single Contract (see "Certain Tax Considerations"). No Guarantee Period may end later than the Annuity Date. Once we accept your premium and all our requirements are met, we issue a Contract for each initial Guarantee Period you choose. The minimum premium we will accept from you is $5,000. Our minimum amount per Contract is $2,000. Therefore, you could choose one but not more than two Guarantee Periods if you sent the minimum premium amount. The minimum premium we will accept from you which may be used to purchase a Contract in conjunction with a qualified plan is $2,000. Our prior approval is required before we will accept a premium of any amount that would cause the combined Interim Value of all your Contracts to exceed $500,000. We confirm each premium payment in writing. RIGHT TO CANCEL You may return your Contract for a refund within twenty-one days after you receive it or longer where required by law. Unless we are required by law to return the premium amount, the amount of the refund will equal the Interim Value times the market value adjustment as of the date we receive the cancellation request plus any amount deducted for premium tax and/or any sales charge, less the accumulated value of any additions we make because of the amount of premium paid. When your Contract is issued, you will be informed of the amount due if you exercise this right. Exercising the right requires return of the Contract to us or to the representative who solicited your purchase. SALES CHARGE The amount and schedule of the sales charge, if any, is shown on the inside front cover of this Prospectus and will be shown in your Contract. As of the date of this Prospectus, we were not offering Contracts with sales charges in excess of 6% of premium upon receipt. However, we reserve the right to offer new types of Contracts with sales charges of not more than 8.5% of premium upon receipt. Sales charge percentages may be level or may decrease according to a specified schedule. For example, a Contract could have a schedule of sales charges such that 5% is assessed against the first $10,000 of the cumulative premiums paid by a Participant, 4% is assessed against the next $10,000 of cumulative premiums paid by that Participant, and 3% assessed against cumulative premiums paid by a Participant in excess of $20,000. This example is hypothetical. The actual amount and schedule for such a charge, if any, will be shown on the inside front cover of your Prospectus as well as in your Contract. From time to time we may structure sales charges for a group Contract, or we may reduce or waive sales charges for individual Contracts, when either are sold in a manner that reduces sales expenses or spreads them out over time. We would consider various factors, including (1) the size and type of group, (2) the amount of premiums, (3) additional premiums from existing Participants, and/or (4) other transactions where our sales expenses are likely to be reduced, eliminated or spread out over time. No sales charge is imposed when any group Contract or any individual Contract issued pursuant to this Prospectus is owned on its Contract Date by: (a) any parent company, affiliate or subsidiary of American Skandia Life Assurance Corporation; (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 employee of any entity providing investment management and/or advisory services to a separate account in which assets supporting the annuities are maintained or any affiliate of such entity; (d) a director, officer, employee or registered representative of a broker-dealer that has a then current selling agreement with American Skandia Marketing, Incorporated, formerly Skandia Life Equity Sales Corporation; (e) the then current spouse of any such person noted in (b) through (d) above; (f) parents of any such person noted in (b) through (d) above, and (g) such person's child or other legal dependent under the age of 21. No such group Contract or individual Contract is eligible for any Additional Amount due to the size of premiums (see "Breakpoints"). Any elimination of any sales charge or any reduction to the amount of such charges will not discriminate unfairly between Contract purchasers. We will not make any such changes to this charge where prohibited by law. DEPENDING ON THE GUARANTEE PERIOD YOU CHOOSE AND THE INTEREST RATE CREDITED TO YOUR CONTRACT, ASSESSMENT OF A SUBSTANTIAL SALES CHARGE COULD RESULT IN YOUR RECEIPT OF LESS THAN YOUR PREMIUM EVEN IF YOU SURRENDER YOUR CONTRACT AT THE END OF A GUARANTEE PERIOD. For example, if you chose a one-year Guarantee Period, we were crediting 4% interest per year when your Guarantee Period began, and the sales charge was 5% of your premium, you would receive less than your premium if you surrendered your Contract at the end of the initial Guarantee Period. You could also receive less than your premium due to any applicable surrender charge and the market value adjustment (see "Surrenders"). INTEREST CREDITING Guarantee Periods As of the date of this Prospectus, we offer Guarantee Periods with annual durations of one to ten years. We may change the Guarantee Periods we offer at some future date; however, any such change will not have an impact on any Guarantee Period then in effect. See Appendix C for an illustration of how interest is credited during a Guarantee Period. At the end of a Guarantee Period that occurs prior to the Annuity Date, a subsequent Guarantee Period begins. At least 30 days prior to the end of any Guarantee Period of at least a year's duration, or earlier where required by law or regulation, we inform you of the Guarantee Periods available as of the date of such notice. We do not provide a similar notice if the Guarantee Period that is ending is of less than a year's duration. Subject to our rules, a subsequent Guarantee Period will begin according to your instructions, if received at our Office not less than two business days prior to the last day of the Guarantee Period then coming to an end. If you don't send us instructions or instructions are not received in a timely fashion, the subsequent Guarantee Period will be equal in duration to the one just ended. WE MAY CHANGE THE GUARANTEE PERIODS AVAILABLE AT ANY TIME, INCLUDING THE PERIOD BETWEEN THE DATE WE MAIL YOU NOTICE AND THE DATE YOUR SUBSEQUENT GUARANTEE PERIOD BEGINS. If you choose a duration that is no longer available on the date your subsequent Guarantee Period begins and we cannot reach you to choose a different duration, the next shortest duration will apply. Similarly, if you have made no choice but we no longer are making available Guarantee Periods equaling the one then ending for your Contract, the next shortest duration will apply. However, in no event will the Guarantee Period end after the Annuity Date. Alternate Guarantee Periods You may choose to switch to an alternate Guarantee Period that would begin before your current Guarantee Period would normally end, subject to the following rules: 1. We must receive your request In Writing at our Office. 2. The beginning of the new Guarantee Period is the first business day after the date we receive all the information we need to process your request. 3. The Guarantee Period you choose must be one we are making available on the date the new Guarantee Period is to begin. 4. Your Annuity Date must be the first day of the month on or immediately after an anniversary of the date on which the new Guarantee Period begins. If necessary to meet this requirement, you must choose a new Annuity Date before we will process your request. 5. The new Guarantee Period may not extend beyond the Annuity Date. 6. We will process only one such request per Contract per Contract Year. 7. In certain Contracts, you may not choose a shorter Guarantee Period than the Initial Guarantee Period until after the date the Initial Guaranteed Period was scheduled to end. Any applicable market value adjustment formula will be applied to your Contract's Interim Value immediately prior to the beginning of the new Guarantee Period. No surrender charge will be assessed. The resulting Interim Value will be credited interest at the Subsequent Guarantee Rate for the new Guarantee Period. EXERCISING THIS PRIVILEGE MAY OR MAY NOT INCREASE YOUR INTERIM VALUE OVER TIME. That will depend on such factors as any market value adjustment applicable at the time the privilege is exercised, the Guarantee Period you choose and Subsequent Guarantee Rate we are then crediting for that Guarantee Period, the length of time you subsequently hold your Contract, and any subsequent partial surrenders or withdrawals under the Free Withdrawal Privilege. Interest Rates Declared rates are effective annual rates of interest. The rate is guaranteed throughout the Guarantee Period. The Initial Guarantee Rate applies to the Net Premium less all Gross Surrender Values during the initial Guarantee Period. The Subsequent Guarantee Rate for any subsequent Guarantee Period applies to the Interim Value on the date such subsequent Guarantee Period begins less all Gross Surrender Values after that date. We inform you of the Initial Guarantee Rate when we confirm acceptance of your premium and issuance of your Contract. You will be informed of the Subsequent Guarantee Rate applicable to any subsequent Guarantee Period as part of the annual report we send you. AT ANY TIME WE MAY CHANGE INTEREST RATES. Any such change does not have an impact on the rates applicable to Guarantee Periods already in effect. However, such a change will affect the Market Value Adjustment (see "Market Value Adjustment). When a subsequent Guarantee Period begins, the rate applied to your Contract will not be less than the rate then applicable to new Contracts of the same type with the same Guarantee Period. Interest rates are subject to a minimum. We may declare higher rates. The minimum for each Guarantee Period is based on both an index and a reduction to the interest rate determined according to the index. Each 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 Guarantee Period to which the minimum is to apply. The term (length of time from issuance to maturity) of the certificates of indebtedness upon which the index used for any Guarantee Period is the same as the Guarantee Period. If no certificates of indebtedness are available for such term, the next shortest term is used. If the United States Treasury's auction program is discontinued, we will substitute indexes which in our opinion are comparable. If required, implementation of such substitute indexes will be subject to approval by the Securities and Exchange Commission and the Insurance Department of the jurisdiction in which the Contract was delivered. (For group Contracts, it is our expectation that approval of only the jurisdiction in which the underlying group contract was delivered would apply.) The reduction used in determining the minimum is an amount not to exceed 2% percent of interest. We may reduce this amount for a particular type of Contract if we can expect reduced sales expenses or other expenses in relation to sales of that Contract. In certain jurisdictions, including New York, if available, in no event will the minimum be less than 3% per year, compounded yearly. Your Contract may include a provision committing us to declare Subsequent Guarantee Rates applicable to certain Subsequent Guarantee Periods at higher rates than the Current Rates for that type of Contract. The manner in which Subsequent Guarantee Rates are increased will be uniform for all Participants in any one particular group Contract. The manner in which such Subsequent Guarantee Rates are increased will be uniform for all owners of any one particular type of individual Contract, wherever such an increase in rates is allowed by law and/or regulation. For any particular Contract, the number of Contract Years required before such an increase in rates applies or the size of such increase will depend on our expectations as to sales expenses and other expenses in relation to sales of that type of Contract. We have no specific formula for determining the interest rates we declare. Rates may differ, between types of Contracts, even for Guarantee Periods of the same duration starting at the same time. We expect such rates to reflect the returns available on the type of investments we make to support these types of Contracts. However, we may also take into consideration in determining rates such factors including, but not limited to, the duration of the Guarantee Period, regulatory and tax requirements, the liquidity of the secondary markets for the type of investments we make, commissions, administrative expenses, investment expenses, 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. YOU MAY OBTAIN OUR CURRENT RATES BY WRITING US OR CALLING US AT 1-800-766-4530. SURRENDERS General You may request a full or partial surrender. Your Annuity must accompany your surrender request. Partial surrenders may only be made if: (a) the Gross Surrender Value is at least $1,000; and (b) the Gross Surrender Value plus $1,000 does not exceed the amount payable if you completely surrender your Contract on that date. The amount payable to you is the Net Surrender Value. The method for determining the Net Surrender Value is shown in your Contract, and is either expressed as a percentage of the Gross Surrender Value or as a percentage of the premium being liquidated. Assuming that: A = the Gross Surrender Value; B = the surrender charge, if any, as of the date we receive the surrender request In Writing; and C = the market value adjustment described below as of the date we receive the surrender request In Writing; i. if the surrender charge is expressed as a percentage of the Gross Surrender Value, then the Net Surrender Value equals (A - B) X C; ii. if the surrender charge is expressed as a percentage of the premium being liquidated, then the Net Surrender Value equals (A X C) - B; and iii. if there is no surrender charge, then the Net Surrender Value equals A X C. THESE SECURITIES MAY BE SUBJECT TO A SUBSTANTIAL SURRENDER CHARGE AND/OR MARKET VALUE ADJUSTMENT IF NOT HELD TO THE END OF A GUARANTEE PERIOD, WHICH COULD RESULT IN YOUR RECEIPT OF LESS THAN YOUR PREMIUM. You may avoid any applicable surrender charge by holding your Contract until the time surrender charges no longer apply, which will be shown in your Contract. No market value adjustment applies to any surrender occurring at the end of a Guarantee Period, and, where required by law, the 30 days prior to the end of the Guarantee Period. However, any sales charges, if applicable, could also result in your receipt of less than your premium under certain circumstances (see "Sales Charge"). Where permitted by law, any applicable surrender charge is waived if a full surrender qualifies under our rules as a medically-related withdrawal (see "Medically-Related Withdrawals"). Under certain circumstances, some or all of the monies surrendered may be considered as taxable income and may also be subject to certain penalty provisions of the Internal Revenue Code (see "Certain Tax Considerations"). Surrender Charge The surrender charge, if any, applicable to any full or partial surrender is a percentage of either the Gross Surrender Value or that portion of the Gross Surrender Value deemed to be a liquidation of premium. The type and level of charges will be shown in your Contract. The charge may be level for a specified number of years or it may start at a particular level and then grade down to zero over a specified number of years. The charge may also depend on the duration of the Initial Guarantee Period you select. As of the date of this Prospectus, we were not offering Contracts with surrender charges in excess of 6% of premium. However, we reserve the right to offer new types of Contracts with sales charges of not more than 8.5% of premium. In addition, if both a Sales Charge and a Surrender Charge exist in the same Contract, the total of both charges will not exceed 8.5% of premium. When the surrender charge is assessable against the amount of premium being liquidated, then surrenders or partial surrenders, except for those amounts taken under the free withdrawal provision, are deemed for the purpose of this charge to be first a liquidation of premium. Amounts taken under the free withdrawal privilege are not considered a liquidation of premium. On a partial surrender, Gross Surrender Value is deemed to come first from: (a) any interest then available under the free withdrawal provision; then from (b) any premium not yet liquidated, and then from (c) any remaining interest and any amounts credited due to premium size (see "Breakpoints"). This does not coincide with the treatment of such surrenders for tax purposes (see "Certain Tax Considerations). From time to time we may structure surrender charges for a group Contract, or we may reduce or waive surrender charges for individual Contracts, when either are sold in a manner that reduces sales expenses or spreads them out over time. We would consider various factors including (1) the size and type of group, (2) the amount of premiums, (3) additional premiums from existing Participants, and/or (4) other transactions where our sales expenses are likely to be reduced, eliminated or spread out over time. No surrender charge is imposed when any group Contract or any individual Contract issued pursuant to this Prospectus is owned on its Contract Date by: (a) any parent company, affiliate or subsidiary of American Skandia Life Assurance Corporation; (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 employee of any entity providing investment management and/or advisory services to a separate account in which assets supporting the annuities are maintained or an affiliate of such entity; (d) a director, officer, employee or registered representative of a broker-dealer that has a then current selling agreement with American Skandia Marketing, Incorporated, formerly Skandia Life Equity Sales Corporation; (e) the then current spouse of any such person noted in (b) through (d) above; (f) parents of any such person noted in (b) through (d) above; and (g) such person's child or other legal dependent under the age of 21. No such group Contract or individual Contract is eligible for any Additional Amount due to the size of premiums (see "Breakpoints"). Any elimination of any surrender charge or any reduction to the amount of such charges will not discriminate unfairly between Contract purchasers. We will not make any such changes to this charge where prohibited by law. Market Value Adjustment The market value adjustment ("MVA") may increase or decrease the amount payable to you on a full or partial surrender. Such a surrender at the end of a Guarantee Period, and, where required by law, the 30 days prior to the end of a Guarantee Period, or which qualifies under our rules as a medically-related withdrawal is not affected by the MVA. In addition, the market value adjustment will be applied to the Interim Value when choosing an alternate Guarantee Period, except where required by law, if the change to an alternate Guarantee Period occurs not more than 30 days before the end of the Guarantee Period. The MVA reflects the relationship as of the time it is calculated between: (a) the rate then being credited to your Contract; and (b) our Current Rate for your type of Contract with a Guarantee Period equal to the time remaining to the end of your current Guarantee Period. Our Current Rates are expected to be sensitive to interest rate fluctuations, thereby making this adjustment sensitive to such fluctuations. There would be a downward adjustment when the applicable Current Rate plus an adjustment rate exceeds the rate currently being credited to your Contract. There would be an upward adjustment when the applicable Current Rate plus the adjustment rate is lower than the rate currently being credited to your Contract. The adjustment rate is the same for all Contracts of the same type, and cannot exceed 0.25% for any type of Contract. 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 Contracts. This would benefit all such Contracts if transactions to which the MVA applies occur while we use such lower interest rate. The formula we use to determine the MVA is: [(1+I)/(1+J+the adjustment amount)] N/12 where: I is the Guarantee Rate applicable to the Guarantee Period for your Contract; J is the Current Rate for your type of Contract for the Guarantee Period equal to the number of years (rounded to the next higher number when occurring on other than an anniversary of the beginning of the current Guarantee Period) remaining in your current Guarantee Period; and N is the number of months (rounded to the next higher number when occurring on other than a monthly anniversary of the beginning of the current Guarantee Period) remaining to the end of your Guarantee Period. The formula that applies if amounts are surrendered pursuant to the right to return the Annuity is [(1+I)/(1+J)]N/12. Nonetheless, a full or partial surrender at the end of a Guarantee Period is not affected by the MVA. See Appendix B for illustrations of how the MVA works. MEDICALLY-RELATED WITHDRAWALS Where permitted by law, you may apply to surrender your rights under your Contract for its Interim Value prior to the Annuity Date upon occurrence of a "Contingency Event". The Annuitant must be alive as of the date we pay the proceeds of such surrender request. If the Owner is one or more natural persons, all such Owners must be alive at such time. This waiver of any applicable surrender charge and market value adjustment is subject to our rules. For contracts issued before May 1, 1996, a "Contingency Event" occurs if the Annuitant is: 1. First confined in a "Medical Care Facility" while your Contract is in force and remains confined for at least 90 days in a row; or 2. First diagnosed as having a Fatal Illness while your Contract is in force. "Medical Care Facility" means any state licensed facility providing medically necessary in-patient care which is prescribed by a licensed "Physician" in writing and based on physical limitations which prohibit daily living in a non-institutional setting. "Fatal Illness" means a condition diagnosed by a licensed Physician which is expected to result in death within 2 years for 80% of the diagnosed cases. "Physician" means a person other than you, the Annuitant or a member of either your or the Annuitant's families who is state licensed to give medical care or treatment and is acting within the scope of that license. We must receive satisfactory proof of the Annuitant's confinement or Fatal Illness In Writing. FREE WITHDRAWAL PRIVILEGE Once each Contract Year after the first you may withdraw an amount without any applicable surrender charge being assessed. This amount equals the "growth" in the Contract. "Growth" is defined as: (a) the interest credited to your Contract in the prior Contract Year, plus (b) the interest credited to your Contract in Contract Years previous to the last, subject to a market value adjustment, provided that immediately after the withdrawal (including any market value adjustment) the remaining Interim Value times the market value adjustment is at least equal to the unliquidated premium plus the value at the time credited of any amounts or due to premium size. Amounts credited due to premium size are not considered to be interest only for purposes of this free withdrawal privilege (see "Breakpoints"). Withdrawals of any type made prior to age 59 1/2 may be subject to 10% tax penalty (see "Penalty on Distributions"). QUALIFIED PLAN WITHDRAWAL LIMITATIONS There are surrender or withdrawal limitations in relation to certain retirement plans for employees which qualify under various sections of the Internal Revenue Code of 1986, as amended (the "Code"). These limitations do not affect certain roll-overs or exchanges between qualified plans. Generally, distribution of amounts attributable to contributions made pursuant to a salary reduction agreement (as defined in Code section 402(g)(3)(A)), or attributable to transfers from a custodial account (as defined in Code section 403(b)(7)), is restricted to the employee's: (a) separation from service; (b) death; (c) disability (as defined in Section 72(m)(7) of the Code); (d) reaching age 59 1/2; or (e) hardship (as defined for purposes of Code Section 401(k)). Hardship withdrawals are restricted to amounts attributable to salary reduction contributions, and do not include investment results. In the case of tax sheltered annuities, these limitations do not apply to certain salary reduction contributions made and investment results earned prior to dates specified in the Code. In addition, the limitation on hardship withdrawals does not apply to salary reduction contributions made and investment results earned prior to dates specified in the Code which have been transferred from custodial accounts. Rollovers from the types of plans noted to an individual retirement account or individual retirement annuity are not subject to the limitations noted. Certain distributions, including rollovers, that are not transferred directly to the trustee of another qualified plan, the custodian of an individual retirement account or the issuer of an individual retirement annuity may be subject to automatic 20% withholding for Federal income tax. This may also trigger withholding for state income taxes. DEFERRAL OF PAYMENT We may defer payment of any partial or total surrender for the period permitted by law. In no event may this deferral of payment exceed 6 months from the date we receive the request In Writing. If we defer payment for more than 30 days, we pay interest on the amount deferred in accordance with your Contract. DEATH BENEFIT On the Contracts we offer as of the date of this Prospectus, "death" means either your death, or the Annuitant's death if there is no Contingent Annuitant. The amount payable on death prior to the Annuity Date and before the Contract anniversary following the earlier of your or the Annuitant's 85th birthday is the greater of (1) the Interim Value of your Contract as of the date we receive due proof of death, or (2) the premium allocated to your Contract less the sum of all prior Gross Surrender Values. The amount of the death benefit at any later date prior to the Annuity Date is the Interim Value as of the date we receive "due proof of death". The following constitutes "due proof of death": (a)(i) a certified copy of a death certificate, (ii) a certified copy of a decree of a court of competent jurisdiction as to the finding of death, or (iii) any other proof satisfactory to us; (b) all representations we require or which are mandated by applicable law or regulation in relation to the death claim and the payment of death proceeds; and (c) any applicable election of the mode of payment of the death benefit, if not previously elected by the Participant. The amount of the death benefit is reduced by any annuity payments made prior to the date we receive In Writing due "proof of death". We may offer contracts that pay the death benefit upon the death of: (a) the Participant when the Participant is a natural person; and (b) the Annuitant (unless a Contingent Annuitant was previously designated) when the Participant is not a natural person (such as a trustee). In such Contracts the death benefit would be payable if the death occurred before the 85th birthday of the applicable decedent. In the absence of your election In Writing prior to proceeds becoming due, the Beneficiary may elect to receive the death benefit under one of the annuity options. However, if you made an election, the Beneficiary may not modify such election. In the event of your death, the benefit must be distributed within: (a) five years of the date of death; or (b) over a period not extending beyond the life expectancy of the Beneficiary or over the life of the Beneficiary. Distribution after your death to be paid under (b) above must commence within one year of the date of death. If the Annuitant dies before the Annuity Date, the Contingent Annuitant will become the Annuitant. However, if the Contingent Annuitant predeceased the Annuitant or there is no Contingent Annuitant designation, the death benefit becomes payable to the Beneficiary. The death of the first of any joint Participant is deemed the death of the Participant for determining payment of the death benefit. If the Beneficiary is your spouse and your death occurs prior to the Annuity Date and the Annuitant or Contingent Annuitant is living, then in lieu of receiving the death benefit, your spouse may elect to be treated as the Participant. ANNUITY DATE You may choose an Annuity Date when you purchase an Annuity or at a later date. It must be the first day of the first month on or after the end of a Guarantee Period. It must also be after the third Contract Year unless the Annuitant has a medically-related condition that would permit a medically-related withdrawal (see "Medically-Related Withdrawals"). It can be changed at any time but such requests must be received In Writing at our Office at least 30 days before the current Annuity Date. In the absence of an election In Writing and where permitted by law: (a) the Annuity Date is the start of the Contract Year first following the later of the Annuitant's 85th birthday or the fifth anniversary of our receipt at our Office of your request to purchase an Annuity. Your choice of Annuity Date may be limited in certain jurisdictions. ANNUITY OPTIONS You may select an annuity option when you purchase an Annuity, or at a later date. You may change this at any time up to 30 days before the Annuity Date by sending us a request In Writing. In the absence of an election from you, payments will automatically commence on the Annuity Date under option 2, with 120 payments certain. The amount to be applied is the value of your Contract on the Annuity Date. Annuity options in addition to those shown are available with our consent. You may elect to have any amount of the proceeds due to the Beneficiary applied under any of the options described below. Except where a lower amount is required by law, the minimum monthly annuity payment is $50. If you have not made an election prior to proceeds becoming due, the Beneficiary may elect to receive the death benefit under one of the annuity options. However, if you made an election, the Beneficiary may not alter such election. Option 1: Life Annuity This annuity is payable monthly during the lifetime of the payee, terminating with the last payment due prior to the death of the payee. Since no minimum number of payments is guaranteed, this option offers the maximum level of monthly payments of the annuity options. It is possible that the payee could receive only one payment if he or she died before the date the second payment was due, and no others payments nor death benefits would be payable. Option 2: Life Annuity with 120, 180, or 240 Monthly Payments Certain This annuity provides monthly income to the payee for a fixed period of 120, 180, or 240 months, as selected, and for as long thereafter as the payee lives. Should the payee die before the end of the fixed period, the remaining payments are paid to the Beneficiary to the end of such period. Option 3: Payments Based on Joint Lives Under this option, income is payable monthly 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 key lives occurs before the date the second payment was due, and no other payments nor death benefits would be payable. Option 4: Payments for a Designated Period This annuity provides an amount payable for a specified number of years. The number of years is subject to our then current rules. Should the payee die before the end of the specified number of years, the remaining payments are paid to the Beneficiary to the end of such period. Note that under this option, payments are not based on how long we expect Annuitants to live. The monthly payment varies according to the annuity option you select. The monthly payment is determined by multiplying the value of your Contract on the Annuity Date (expressed in thousands of dollars) less any amount then assessed for premium tax, by the amount of the first monthly payment per $1,000 obtained from our annuity rates. These rates will not be less than those provided in the tables included in the Contract. These tables 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 4% per annum. Where required by law or regulation, such annuity tables 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. Annuity payments will be made on the first day of each month once payments begin. ADMINISTRATION OF TRANSACTIONS In administering transactions by telephone, we may require presentation of proper identification prior to processing, including the use of a personal identification number ("PIN") issued by us, prior to accepting any instruction by telephone. We forward your PIN to you shortly after your Annuity is issued. To the extent permitted by law or regulation, neither we or any person authorized by us will be responsible for any claim, loss, liability or expense in connection with a switch to an alternate Guarantee Period or any other transaction for which we accept instructions by telephone if we or such other person acted on telephone instructions in good faith in reliance on your telephone instruction authorization and on reasonable procedures to identify persons so authorized through verification methods which may include a request for your Social Security number or a personal identification number (PIN) as issued by us. We may be liable for losses due to unauthorized or fraudulent instructions should we not follow such reasonable procedures. AGE LIMITS Both you and the Annuitant, if you are not the Annuitant, must be less than 85 years of age on the Contract Date. ASSIGNMENTS OR PLEDGES Generally, your rights in a Contract may be assigned or pledged for loans at any time. However, these rights may be limited depending on your use of the Annuity. The assignment and/or loan proceeds may be subject to income taxes and certain penalty taxes (see "Certain Tax Considerations"). You may assign your rights to another person at any time, during the Annuitant's lifetime. You must give us a copy of the assignment In Writing. An assignment is subject to our acceptance. Prior to receipt of this notice, we will not be deemed to know of or be obligated under the assignment prior to our receipt and acceptance thereof. We assume no responsibility for the validity or sufficiency of any assignment. PARTICIPANT, ANNUITANT AND BENEFICIARY DESIGNATIONS When you purchase an Annuity, you must make certain designations, including a Participant and an Annuitant. You may also make certain other designations. These designations include a contingent Participant, a Contingent Annuitant, a Beneficiary, and a contingent Beneficiary. Certain designations are required, as indicated below. Such designations will be revocable unless you indicate otherwise or we endorse your Annuity to indicate that such designation is irrevocable to meet certain regulatory or statutory requirements. Some of the tax implications of the various designations are discussed in the section entitled "Certain Tax Considerations". However, there are other tax issues than those addressed in that section, including, but not limited to, estate and inheritance tax issues. You should consult with a competent tax counselor regarding the tax implications of various designations. You should also consult with a competent legal advisor as to the implications of certain designations in relation to an estate, bankruptcy, community property where applicable and other matters. A Participant must be designated. You may designate more than one Participant. If you do, all rights reserved to Participants are then held jointly. We require consent In Writing of all joint Participants for any transaction for which we require the written consent of Participants. Where required by law, we require the consent of the spouse of any person with a vested interest in an Annuity. Naming someone other than the payor of a premium as the Participant may have gift, estate or other tax implications. You may designate more than one primary or contingent Beneficiary and if you do, the proceeds will be paid in equal shares to the survivors in the appropriate beneficiary class, unless you have requested otherwise In Writing. The Beneficiary is the person or persons entitled to receive the death benefit or remaining certain payments under an annuity option with certain payments. Unless you indicated that a prior choice was irrevocable, you may change these designations at any time during the Annuitant's lifetime by sending a request In Writing. If the primary Beneficiary dies before death proceeds become payable, the proceeds will become payable to the contingent Beneficiary. If no Beneficiary is alive at the time of the death upon which death proceeds become payable or in the absence of any Beneficiary designation, the proceeds will vest in you or your estate. You may name one or more Contingent Annuitants. There may be adverse tax consequences if a Contingent Annuitant succeeds an Annuitant and the Contract is owned by a trust that is neither tax exempt nor does not qualify for preferred treatment under certain sections of the Code, such as Section 401 (a "non-qualified" trust). In general, the Code is designed to prevent the benefit of tax deferral from continuing for long periods of time on an indefinite basis. Continuing the benefit of tax deferral by naming one or more Contingent Annuitants when the Contract 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 a Contract in such a fashion. You must name Contingent Annuitants according to our rules when a Contract is used as a funding vehicle for certain retirement plans designed to meet the requirements of Section 401 of the Internal Revenue Code. MISSTATEMENT OF AGE OR SEX If the age and/or sex of the Annuitant has been misstated, we make adjustments to conform to the facts. Any underpayments by us will be remedied on the next payment following correction. Any overpayments by us will be charged against future amounts payable by us under your annuity. CONTRACT MODIFICATION We reserve the right to make changes that are necessary to maintain the tax status of the Annuity under the Internal Revenue Code and/or make changes required by any change in other Federal or state laws relating to retirement annuities or annuity contracts. Where required by law or regulation, approval of the contract owner will be obtained prior to any such change. BREAKPOINTS Wherever allowed by law, we reserve the right to make additions to the Interim Values of Contracts of Participants submitting large amounts of premium. The current breakpoints for qualifying for such additional amounts and the amount we credit are as follows: Premiums received Additional Amount as a percentage of premium At least $500,000 but less than $1,000,000 1.25% At least $1,000,000 but less than $5,000,000 3.00% At least $5,000,000 or more 3.75% As of the date of the Prospectus we make such a program available for Contracts that do not otherwise differentiate sales charges or surrender charges on the amount of premium received. However, we reserve the right to modify, suspend or terminate it at any time, or from time to time, without notice. If you submit premium to purchase multiple Contracts, we divide the additions to the Contracts then being purchased in the same proportion as the premium is being divided among such Contracts. Should you have a right to cancel your Contract (see "Right to Cancel") and exercise such a right, the accumulated value of the additional amount credited will not be included in the amount returned to you. We do not consider additional amounts credited due to premium size to be an increase in your "investment in the contract" (see "Certain Tax Considerations). Additional amounts credited are not included in any amounts you may withdraw without assessment of any applicable surrender charge (see "Free Withdrawal Privilege"). INVESTMENTS GENERAL Our investments are subject to the requirements of applicable state laws. Such laws address the nature and quality of investments, as well as the percentage of our assets which we may commit to a particular type of investment. Subject to certain limitations and qualifications, such laws generally permit investment in federal, state and municipal obligations, corporate bonds, preferred and common stock, real estate mortgages, real estate and certain other investments. Assets supporting the Annuities are accounted for in one or more non-unitized separate accounts established by us under the laws of the State of Connecticut. Such separate accounts may contain assets from various types of annuities we offer, the assets of which are permitted to be held in such accounts under applicable law and regulation. Neither you nor the owner of any underlying group Annuity participate in the performance of the assets through any unit values in such a non-unitized separate account. There are no discrete units for such a separate account. Contracts do not represent units of ownership of assets belonging to this separate account. We own the assets in each separate account. The assets accrue solely to our benefit. Neither you nor any group Contract owner participate in the investment gain or loss from assets belonging to such separate account(s). Such gain or loss accrues solely to us. We believe that the assets equal to the reserve and other liabilities of such separate accounts are not chargeable with liabilities arising from our other business if so stated in our annuity contract and certificate forms. We have obtained approval in each jurisdiction in which our annuities are available for sale of language stating that: (A) Income, gains and losses, whether or not realized, from assets allocated to any such separate account are credited to or charged against such separate account without regard to our other income, gains or losses; (B) Assets equal to the reserves and other liabilities of such separate accounts are not chargeable with liabilities that arise from any business we conduct other than from the operation of the Annuities or other annuities which are supported by such separate accounts; and (C) We have the right to transfer to our general account any assets of such separate account which are in excess of such reserves and other liabilities. All benefits attributable to Contracts and interests purchased in the group contracts are contract guarantees we make and are accounted for in the separate account(s). However, all of our general account assets are available to meet our obligations under the Contracts. INVESTMENT MANAGEMENT We have the sole discretion to employ investment managers that we believe are qualified, experienced and reputable to manage the assets supporting the Guaranteed Maturity Annuity including, but not limited to, J. P. Morgan Investment Management Inc. Each manager is responsible for investment management of different portions of a separate account supporting one or more Contracts. We are under no obligation to employ or continue to employ any investment manager(s). CURRENT INVESTMENT GUIDELINES Some of the guidelines of our current investment strategy are outlined below. However, we are not obligated to invest according to this or any other strategy except as may be required by Connecticut and other state insurance laws. Our current guidelines for the portfolio of investments in any non-unitized separate account include, but are not limited to the following: 1. Investments may be made in 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. 2. At the time of purchase, fixed income securities will be in one of the top four generic lettered rating classifications as established by Standard & Poor's, Moody's Investor Services, Inc. or any Nationally Recognized Statistical Rating Organization ("NRSRO"). Should a fixed income security fall below one of these top four generic lettered rating classifications subsequent to purchase, we may or may not sell such security. We may change these guidelines at any time. THE COMPANY CERTAIN TAX CONSIDERATIONS The following is a brief summary of certain Federal income tax laws as they are currently interpreted. No one can be certain that the laws or interpretations will remain unchanged or that agencies or courts will always agree as to how the tax law or regulations are to be interpreted. This discussion is not intended as tax advice. You may wish to consult a professional tax advisor for tax advice as to your particular situation. OUR TAX CONSIDERATIONS We are taxed as a life insurance company under Part I, subchapter L, of the Code. TAX CONSIDERATIONS RELATING TO YOUR ANNUITY Section 72 of the Code governs the taxation of annuities in general. Taxation of an annuity is largely dependent upon: (a) whether it is used in a qualified pension or profit sharing plan or other retirement arrangement eligible for special treatment under the Code; and (b) the status of the beneficial owner as either a natural or non-natural person (when the annuity is not used in a retirement plan eligible for special tax treatment). Non-natural persons include corporations, trusts, and partnerships, except where these entities own an annuity for the benefit of natural persons. Natural persons are individuals. Non-natural Persons Any increase during a tax year in the value of an annuity if not used in a retirement plan eligible for special treatment under the Code is currently includible in the gross income of a non-natural person that is the contractholder. There are exceptions if an annuity is held by: (a) a structured settlement company; (b) an employer with respect to a terminated pension plan; (c) entities other than employers, such as a trust, holding an annuity as an agent for a natural person; or (d) a decedent's estate by reason of the death of the decedent. Natural Persons Increases in the value of an annuity when the contractholder is a natural person generally are not taxed until distribution occurs. Distribution can be in a lump sum payment or in annuity payments under the annuity option elected. Certain other transactions may be deemed to be a distribution. The provisions of Section 72 of the Code concerning these distributions are summarized briefly below. Distributions Distributions received before the annuity payments begin are treated as being derived first from "income on the contract" and includible in gross income. The amount of the distribution exceeding "income on the contract" is not included in gross income. "Income on the contract" for an annuity is computed by subtracting from the value of all "related contracts" (our term, discussed below) the taxpayer's "investment in the contract": an amount equal to total purchase payments for all "related contracts" less any previous distributions or portions of such distributions from such "related contracts" not includible in gross income. "Investment in the contract" may be affected by whether an annuity or any "related contract" was purchased as part of a tax-free exchange of life insurance or annuity contracts under Section 1035 of the Code. "Related contracts" may mean all annuity contracts or certificates evidencing participation in a group annuity contract for which the taxpayer is the beneficial owner and which are issued by the same insurer within the same calendar year, irrespective of the named annuitants. It is clear that "related contracts" include contracts prior to when annuity payments begin,. However, there may be circumstances under which "related contracts" may include contracts recognized as immediate annuities under state insurance law or annuities for which annuity payments have begun. In a ruling addressing the applicability of a penalty on distributions, the Internal Revenue Service treated distributions from a contract recognized as an immediate annuity under state insurance law like distributions from a deferred annuity. The situation addressed by such ruling included the fact that: (a) the immediate annuity was obtained pursuant to an exchange of contracts; and (b) the purchase payments for the exchanged contract were contributed more than one year prior to the first annuity payment payable under the immediate annuity. This ruling also may or may not imply that annuity payments from a deferred annuity on or after its annuity date may be treated the same as distributions prior to the annuity date if such deferred annuity was: (a) obtained pursuant to an exchange of contracts; and (b) the purchase payments for the exchanged contract were made or may be deemed to have been made more than one year prior to the first annuity payment. If "related contracts" include immediate annuities or annuities for which annuity payments have begun, then "related contracts" would have to be taken into consideration in determining the taxable portion of each annuity payment (as outlined in the "Annuity Payments" subsection below) as well as in determining the taxable portion of distributions from an annuity or any "related contracts" before annuity payments have begun. We cannot guarantee that immediate annuities or annuities for which annuity payments have begun could not be deemed to be "related contracts". You are particularly cautioned to seek advice from your own tax advisor on this matter. Assignments and Pledges Any assignment or pledge of any portion of the value of an annuity before annuity payments have begun are treated as a distribution subject to taxation under the distribution rules set forth above. Any gain in an annuity subsequent to the assignment or pledge of an entire annuity while such assignment or pledge remains in effect is treated as "income on the contract" in the year in which it is earned. For annuities not issued for use as qualified plans (see "Tax Considerations when Using Annuities in Conjunction with Qualified Plans"), the cost basis of the annuity is increased by the amount of any assignment or pledge includible in gross income. The cost basis is not affected by any repayment of any loan for which the annuity is collateral or by payment of any interest thereon. Penalty on Distributions Subject to certain exceptions, any distribution is subject to a penalty equal to 10% of the amount includible in gross income. This penalty does not apply to certain distributions, including: (a) distributions made on or after the taxpayer's age 59 1/2; (b) distributions made on or after the death of the holder of the contract, or, where the holder of the contract is not a natural person, the death of the annuitant; (c) distributions attributable to the taxpayer's becoming disabled; (d) distributions which are part of a scheduled series of substantially equal periodic payments for the life (or life expectancy) of the taxpayer (or the joint lives of the taxpayer and the taxpayer's Beneficiary); (e) distributions of amounts which are allocable to "investments in the contract" made prior to August 14, 1982; (f) payments under an immediate annuity as defined in the Code; (g) distributions under a qualified funding asset under Code Section 130(d); or (h) distributions from an annuity purchased by an employer on the termination of a qualified pension plan that is held by the employer until the employee separates from service. Any modification, other than by reason of death or disability, of distributions which are part of a scheduled series of substantially equal periodic payments as noted in (d), above, that occur before the taxpayer's age 59 1/2 or within 5 years of the first of such scheduled payments will result in the requirement to pay the taxes that would have been due had the payments been treated as subject to tax in the years received, plus interest for the deferral period. It is our understanding that the Internal Revenue Service does not consider a scheduled series of distributions to qualify under (d), above, if the holder of the annuity retains the right to modify such distributions at will, even if such right is not exercised. The Internal Revenue Service has ruled that the exception to the 10% penalty described above for "non-qualified" immediate annuities as defined under the Code may not apply to annuity payments under a contract recognized as an immediate annuity under state insurance law obtained pursuant to an exchange of contracts if: (a) purchase payments for the exchanged contract were contributed or deemed to be contributed more than one year prior to the first annuity payment payable under the immediate annuity; and (b) the annuity payments under the immediate annuity do not meet the requirements of any other exception to the 10% penalty. This ruling may or may not imply that the exception to the 10% penalty may not apply to annuity payments paid pursuant to a deferred annuity obtained pursuant to an exchange contract if: (a) purchase payments for the exchanged contract were contributed or may be deemed to be contributed more than one year prior to the first annuity payment pursuant to the deferred annuity contract; or (b) the annuity payments pursuant to the deferred annuity do not meet the requirements of any other exception to the 10% penalty. Annuity Payments The taxable portion of each payment is determined by a formula which establishes the ratio that "investment in the contract" bears to the total value of annuity payments to be made. However, the total amount excluded under this ratio is limited to the "investment in the contract". Where the annuity payments cease because of the death of the person upon whose life payments are based and, as of the date of death, the amount of annuity payments excluded from taxable income by the exclusion ratio does not exceed the investment in the contract, then the remaining portion of unrecovered investment is allowed as a deduction in the tax year of such death. Gifts The gift of an annuity to other than the spouse of the contract holder (or former spouse incident to a divorce) is treated for tax purposes as a distribution. Tax-Free Exchanges Section 1035 of the Code permits certain tax-free exchanges of a life insurance, annuity or endowment contract for an annuity. If an annuity is obtained by a tax-free exchange of a life insurance, annuity or endowment contract purchased prior to August 14, 1982, then any distributions other than as annuity payments which do not exceed the portion of the "investment in the contract" (purchase payments made into the other contract, less prior distributions) prior to August 14, 1982, are not included in taxable income. In all other respects, the general provisions apply to distributions from annuities obtained as part of such an exchange. Generation-Skipping Transfers Under the Code certain taxes may be due when all or part of an annuity is transferred to or a death benefit is paid to an individual two or more generations younger than the contract holder. These taxes tend to apply to transfers of significantly large dollar amounts. We may be required to determine whether a transaction must be treated as a direct skip as defined in the Code and the amount of the resulting tax. If so required, we will deduct from your Annuity or from any applicable payment to be treated as a direct skip any amount we are required to pay as a result of the transaction. 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, a recipient may elect not to have income taxes withheld or have income taxes withheld at a different rate by filing a completed election form with us. Certain distributions, including rollovers, from most retirement plans, may be subject to automatic 20% withholding for Federal income taxes. This will not apply to: (a) any portion of a distribution paid as a required minimum distribution when an annuity is used in conjunction with certain retirement plans; (b) direct transfers to trustees of another retirement plan; (c) distributions from an individual retirement account or individual retirement annuity; (d) distributions made as substantially equal periodic payments for the life or life expectancy of the participant in the retirement plan or the life or life expectancy of such participant and his or her designated beneficiary under such plan; and (e) certain other distributions where automatic 20% withholding may not apply. Tax Considerations When Using Annuities in Conjunction With Qualified Plans There are various types of qualified plans for which an annuity may be suitable. Benefits under a qualified plan may be subject to that plan's terms and conditions irrespective of the terms and conditions of any annuity used to fund such benefits ("qualified contract"). We have provided below general descriptions of the types of qualified plans in conjunction with which we may issue an Annuity. These descriptions are not exhaustive and are for general informational purposes only. We are not obligated to make or continue to make new Annuities available for use with all the types of qualified plans shown below. The tax rules regarding qualified plans are complex. The application of these rules depend on individual facts and circumstances. Before purchasing an Annuity for use in funding a qualified plan, you should obtain competent tax advice, both as to the tax treatment and suitability of such an investment. Qualified contracts include special provisions changing or restricting certain rights and benefits otherwise available to non-qualified annuities. You should read your Annuity carefully to review any such changes or limitations. The changes and limitations may include, but may not be limited to restrictions on ownership, transferability, assignability, contributions, distributions, as well as reductions to the minimum allowable purchase payment for an annuity and any subsequent annuity you may purchase for use as a qualified contract. Additionally, various penalty and excise taxes may apply to contributions or distributions made in violation of applicable limitations. Individual Retirement Programs Eligible individuals may maintain an individual retirement account or annuity ("IRA"). Subject to limitations, contributions of certain amounts may be deductible from gross income. Purchasers of IRAs are to receive a special disclosure document, which describes limitations on eligibility, contributions, transferability and distributions. It also describes the conditions under which distributions from IRAs and other qualified plans may be rolled over or transferred into an IRA on a tax-deferred basis. Eligible employers that meet specified criteria may establish simplified employee pensions for employees using the employees' IRAs. These arrangements are know as SEP-IRAs, and may be deductible to the employer. Tax Sheltered Annuities A tax sheltered annuity ("TSA") under Section 403(b) of the Code is a contract into which contributions may be made for the benefit of their employees by certain qualifying employers: public schools and certain charitable, educational and scientific organizations. Such contributions are not taxable to the employee until distributions are made from the TSA. The Code imposes limits on contributions, transfers and distributions. Nondiscrimination requirements apply as well. Corporate Pension and Profit-sharing Plans Annuities may be used to fund employee benefits of various retirement plans established by corporate employers. Contributions to such plans are not taxable to the employee until distributions are made from the retirement plan. The Code imposes limitations on contributions and distributions. The tax treatment of distributions is subject to special provisions of the Code, and also depends on the design of the specific retirement plan. There are also special requirements as to participation, nondiscrimination, vesting and nonforfeitability of interests. H.R. 10 Plans Annuities may also be used to fund benefits of retirement plans established by self-employed individuals for themselves and their employees. These are commonly known as "H.R. 10 Plans" or "Keogh Plans". These plans are subject to most of the same types of limitations and requirements as retirement plans established by corporations. However, the exact limitations and requirements may differ from those for corporate plans. Tax Treatment of Distributions From Qualified Annuities A 10% penalty tax applies to the taxable portion of a distribution from a qualified contract unless one of the following exceptions apply to such distribution: (a) it is part of a properly executed transfer to another IRA, an individual retirement account or another eligible qualified plan; (b) it occurs on or after the taxpayer's age 59 1/2; (c) it is subsequent to the death or disability of the taxpayer (for this purpose disability is as defined in Section 72(m)(7) of the Code); (d) it is part of substantially equal periodic payments to be paid not less frequently than annually for the taxpayer's life or life expectancy or for the joint lives or life expectancies of the taxpayer and a designated beneficiary; (e) it is subsequent to a separation from service after the taxpayer attains age 55; (f) it does not exceed the employee's allowable deduction in that tax year for medical care; and (g) it is made to an alternate payee pursuant to a qualified domestic relations order. The exceptions stated above in (e), (f) and (g) do not apply to IRAs. MISCELLANEOUS MATTERS DISTRIBUTION American Skandia Marketing, Incorporated, a wholly-owned subsidiary of American Skandia Investment Holding Corporation, acts as the principal underwriter of the Annuities. ASM, Inc.'s principal business address is One Corporate Drive, Shelton, Connecticut 06484. ASM, Inc. is a member of the National Association of Securities Dealers, Inc. ("NASD"). ASM, Inc. will enter into distribution agreements with certain broker-dealers registered under the Securities and Exchange Act of 1934 or with entities which may otherwise offer the Annuities that are exempt from such registration. Under such distribution agreements such broker-dealers or entities may offer Annuities to persons who have established an account with the broker-dealer or the entity. In addition, ASM, Inc. may solicit other eligible groups and certain individuals. The maximum concession to be paid on premiums received is 6.0%. We reserve the right to provide higher levels of compensation for the sale of Contracts when Participants select initial Guarantee Periods with longer durations than we pay in relation to shorter initial Guarantee Periods. As of the date of this Prospectus, we were promoting the sale of our products and solicitation of additional purchase payments, where applicable, for our products, including contracts offered pursuant to this Prospectus, through a program of non-cash rewards to registered representatives of participating broker-dealers. We may withdraw or alter this promotion at any time. REPORTS TO YOU We mail to Participants, at their last known address of record, any statements and reports required by applicable law or regulation. Participants should therefore give us prompt notice of any address change. We send a confirmation statement to Participants each time a transaction is made affecting Interim Value. We may confirm such transactions in quarterly statements. Quarterly statements are also mailed detailing the activity affecting your Annuity during the calendar quarter. You may request additional reports. We reserve the right to charge up to $50 for each such additional report. You should review the information in these statements carefully. All errors or corrections must be reported to us at our Office immediately to assure proper crediting to your Annuity. For transactions for which we immediately send confirmations, we assume all transactions are accurate unless you notify us otherwise within 30 days after the date of the transaction. For transactions that are only confirmed on the quarterly statement, we assume all transactions are accurate unless you notify us within 30 days of the end of the calendar quarter. LEGAL PROCEEDINGS As of the date of this Prospectus we were are not involved in any litigation outside of the ordinary course of business, and know of no material claims. LEGAL COUNSEL Counsel with respect to Federal laws and regulations applicable to the issue and sale of the Contracts and with respect to Connecticut law is Werner & Kennedy, 1633 Broadway, New York, NY 10019. EXPERTS The financial statements included in this Prospectus have been audited by Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281-1433, independent auditors, as stated in this report herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. INDEMNIFICATION Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE To the extent and only to the extent that any statement in a document incorporated by reference into this Prospectus is modified or superseded by a statement in this Prospectus or in a later-filed document, such statement is hereby deemed so modified or superseded and not part of this Prospectus. We furnish you without charge a copy of any or all of the documents incorporated by reference in this Prospectus, including any exhibits to such documents which have been specifically incorporated herein by reference. We do so upon receipt of your written or oral request. Please address your request to American Skandia Life Assurance Corporation, Attention: Concierge Desk, P.O. Box 883, Shelton, Connecticut, 06484. Our phone number is 1-800-752-6342. THE COMPANY: American Skandia Life Assurance Corporation is a stock insurance company domiciled in Connecticut with licenses in all 50 states. It is a wholly owned subsidiary of American Skandia Investment Holding Corporation, whose indirect parent is Skandia Insurance Company Ltd. Skandia Insurance Company Ltd. is part of a group of companies whose predecessor commenced operations in 1855. Two of our affiliates, American Skandia Marketing, Incorporated, and American Skandia Information Services and Technology Corporation, may undertake certain administrative functions on our behalf. Our affiliate, American Skandia Investment Services, Incorporated, currently acts as the investment manager to the American Skandia Trust. We currently engage Skandia Investment Management, Inc., an affiliated whose indirect parent is Skandia Insurance Company Ltd., as investment manager for our general account. We are under no obligation to engage or continue to engage any investment manager. During 1995, Skandia Vida, S.A. de C.V. was formed by the ultimate parent Skandia Insurance Company Ltd. The Company owns 99.9% ownership in Skandia Vida, S.A. de C.V. which is a life insurance company domiciled in Mexico. This Mexican life insurer is a start up company with expectations of selling long term savings product within Mexico. Total shareholders' equity of Skandia Vida, S.A. de C.V. is $881,648 at December 31, 1995. Lines of Business: The Company is in the business of issuing annuity policies, and has been so since its business inception in 1988. The Company currently offers the following annuity products: a) certain deferred annuities that are registered with the Securities and Exchange Commission, including variable annuities and fixed interest rate annuities that include a market value adjustment feature; b) certain other fixed deferred annuities that are not registered with the Securities and Exchange Commission; and c) fixed and adjustable immediate annuities. We may, in the future, offer other annuities, life insurance and other forms of insurance. Selected Financial Data: The following selected financial data are qualified by reference to, and should be read in conjunction with, the financial statements, including related notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus. The selected financial data as of and for each of the five years ended December 31, 1995, 1994, 1993, 1992 and 1991 has not been audited. The selected financial data has been derived from the full financial statements for the years ended December 31, 1995, 1994, 1993, 1992 and 1991 which were presented in accordance with generally accepted accounting principles and which were audited by Deloitte & Touche LLP, independent auditors, whose report thereon is included herein.
Income Statement Data: 1995 1994 1993 1992 1991 ---- ----- ---- ---- ---- Revenues: Net investment income $ 1,600,674 $ 1,300,217 $ 692,758 $ 892,053 $ 723,253 Annuity premium income 0 70,000 101,643 1,304,629 2,068,452 Annuity charges and fees* 38,837,358 24,779,785 11,752,984 4,846,134 1,335,079 Net realized capital gains (losses) 36,774 (1,942) 330,024 195,848 4,278 Fee income 6,205,719 2,111,801 938,336 125,179 0 Other income 64,882 24,550 1,269 15,119 45,010 ----------- ------------ ----------- ---------- ---------- Total revenues $46,745,407 $ 28,284,411 $13,817,014 $7,378,962 $4,176,072 =========== =========== =========== ========== ========== Benefits and Expenses: Return credited to contractowners 10,612,858 (516,730) 252,132 560,243 235,470 Cost of minimum death benefit reinsurance 2,056,606 0 0 0 0 Annuity benefits 555,421 369,652 383,515 276,997 107,536 Increase/(decrease) in annuity policy reserves (6,778,756) 5,766,003 1,208,454 1,331,278 2,045,722 Underwriting, acquisition and other insurance expenses 35,970,524 18,942,720 9,547,951 11,338,765 7,294,400 Interest expense 6,499,414 3,615,845 187,156 0 0 ------------- ----------- ----------- ----------- ---------- Total benefits and expenses $48,916,067 $ 28,177,490 $11,579,208 $13,507,283 $9,683,128 ============= =========== =========== =========== ========== Income tax $ 397,360 $ 247,429 $ 182,965 $ 0 $ 0 ============= ============ =========== ============ ========== Net income (loss) $ (2,568,020) $ 140,508) $ 2,054,841 $ (6,128,321) ($5,507,056 ============== ============= ============ ============ =========== Balance Sheet Data: Total Assets $5,021,012,890 $2,864,416,329 $1,558,548,537 $552,345,206 $239,435,675 ============== ============== ============== ============ ============ Surplus Notes $103,000,000 $ 69,000,000 $ 20,000,000 $ 0 $ 0 ============ =========== ============== ============ ============ Shareholder's Equity $59,713,00 $ 52,205,524 $ 52,387,687 $ 46,332,846 $ 14,292,772 ========== ============ ============== ============ ============
*On annuity sales of $1,628,486,000, $1,372,874,000, $890,640,000, $287,596,000, and $141,017,000 during the years ended December 31, 1995, 1994, 1993, 1992 and 1991, respectively, with contractowner assets under management of $4,704,044,001, $2,661,161,000, $1,437,554,000, $495,176,000, and $217,425,000 as of December 31, 1995, 1994, 1993, 1992, and 1991, respectively. The above selected financial data should be read in conjunction with the financial statements and the notes thereto. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operation: The Company's long term business plan was developed reflecting the current sales and marketing approach. Annuity sales increased 19%, 54% and 210% in 1995, 1994 and 1993, respectively. The Company continues to show significant growth in sales volume and increased market share within the variable annuity industry. Total assets grew 75%, 84% and 182% in 1995, 1994 and 1993, respectively. These increases were a direct result of the substantial sales volume increasing separate account assets and deferred acquisition costs. Liabilities grew 76%, 87%, and 198% in 1995, 1994 and 1993, respectively, as a result of the reserves required for the increased sales activity and borrowing during 1995, 1994 and 1993. The borrowing is needed to fund the acquisition costs of the Company's variable annuity business. The Company experienced a net loss after tax in 1995 and 1994, which was in excess of plan. The 1995 result was related to higher than anticipated expense levels and additional reserving requirements on our market value adjusted annuities. The increase in expenses was primarily attributable to improving our service infrastructure and marketing related costs. The 1994 loss is a result of additional reserving of approximately $4.6 million to cover the minimum death benefit exposure in the Company's annuity contracts along with higher than expected general expenses relative to sales volume. The additional reserve may be required from time to time, within the variable annuity market place, and is a result of volatility in the financial markets as it relates to the underlying separate account investments. The Company achieved profits in 1993 of $2 million which was expected. Increasing volume of annuity sales results in higher assets under management. The fees realized on assets under management has resulted in annuity charges and fees to increase 57%, 111% and 143% in 1995, 1994 and 1993, respectively. Net investment income increased 23% and 88% in 1995 and 1994, respectively, and decreased 22% in 1993. The increase in 1995 is a result of a higher average level of Company bonds and short-term investments. The increase in 1994 is a result of an increase in the Company's bonds and short-term investments, which were $33.6 million and $29.1 million at December 31, 1994 and 1993, respectively. The decrease in 1993 is a result of the need to liquidate investments to support the cash needs required to fund the acquisition costs on the variable annuity business. Fee income has increased 194%, 125% and 650% in 1995, 1994 and 1993, respectively, as a result of income from transfer agency type activities. Annuity benefits represent payments on annuity contracts with mortality risks, this being the immediate annuity with life contingencies and supplementary contracts with life contingencies. Increase in annuity policy reserves represent change in reserves for the immediate annuity with life contingencies, supplementary contracts with life contingencies and minimum death benefit. During 1995 the Company entered into an agreement to reinsure the guaranteed minimum death benefit exposure on most of the variable annuity contracts. The costs associated with reinsuring the minimum death benefit reserve approximates the change in the minimum death benefit reserve during 1995, thereby having no significant effect on the statement of operations. The significant increase in 1994 reflects the required increase in the minimum death benefit reserve on variable annuity contracts. This increase covers the escalating death benefit in the product which was further enhanced as a result of poor performance of the underlying mutual funds within the variable annuity contract. Return credited to contractowners represents revenues on the variable and market value adjusted annuities offset by the benefit payments and change in reserves required on this business. Also included are the benefit payments and change in reserves on immediate annuity contracts without significant mortality risks. In 1995, the Company earned a lower than anticipated separate account investment return on the market value adjusted contracts in support of the benefits and required reserves. In addition, the 1995 result includes an increase in the required reserves associated with this product. The result for 1994 was better than anticipated due to separate account investment return on the market value adjusted contracts being in excess of the benefits and required reserves. Underwriting, acquisition and other insurance expenses for 1995 is made up of $62.8 million of commissions and $42.2 million of general expenses offset by the net capitalization of deferred acquisition costs totaling $69.2 million. This compares to the same period last year of $46.2 million of commissions and $26.2 million of general expenses offset by the net capitalization of deferred acquisition costs totaling $53.7 million. Underwriting, acquisition and other insurance expenses in 1993 were made up of $36.7 million of commissions and $19.3 million of general expenses offset by the net capitalization of deferred acquisition costs totaling $46.3 million. Interest expense increased $2.9 million and $3.4 million in 1995 and 1994, respectively, as a result of Surplus Notes totaling $103 million and $69 million, at 1995 and 1994, respectively. Liquidity and Capital Resources: The liquidity requirement of ASLAC was met by cash from insurance operations, investment activities and borrowings from its parent. As previously stated, the Company had significant growth during 1995. The sales volume of $1.628 billion was primarily (approximately 80%) variable annuities which carry a contingent deferred sales charge. This type of product causes a temporary cash strain in that 100% of the proceeds are invested in separate accounts supporting the product leaving a cash (but not capital) strain caused by the acquisition cost for the new business. This cash strain required the Company to look beyond the insurance operations and investments of the Company. During 1995, the Company borrowed an additional $34 million from its parent in the form of Surplus Notes and extended the reinsurance agreement (which was initiated in 1993 and 1994) along with entering into a third reinsurance agreement with a large reinsurer in support of its cash needs. The reinsurance agreements are modified coinsurance arrangements where the reinsurer shares in the experience of a specific book of business. The income and expense items presented above are net of reinsurance. The Company is reviewing various options to fund the cash strain anticipated from the acquisition costs on the coming years' sales volume. The tremendous growth of this young organization has depended on capital support from its parent. As of December 31, 1995 and December 31, 1994, shareholder's equity was $59,713,000 and $52,205,524 respectively, which includes the carrying value of the state insurance licenses in the amount of $4,862,500 and $5,012,500 respectively. ASLAC has long term surplus notes with its parent and a short term borrowing with an affiliate. No dividends have been paid to its parent company. Segment Information: As of the date of this Prospectus, we offered only variable and fixed deferred annuities and immediate annuities. Reinsurance: The Company cedes reinsurance under modified coinsurance arrangements. The reinsurance arrangements provide additional capacity for growth in supporting the cash flow strain from the Company's variable annuity business. The reinsurance is effected under quota share contracts. Effective January 1, 1995, the Company reinsured certain mortality risks. These risks result from the guaranteed minimum death benefit feature in the variable annuity products. The effect of the reinsurance agreements on the Company's operations was to reduce annuity charges and fee income, death benefit expense, and policy reserves. Such ceded reinsurance does not relieve the Company from its obligations to policyholders. The Company remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet the obligations assumed under the reinsurance agreement. Surplus Notes: During 1995, the Company received $34 million from its parent in exchange for three surplus notes. The amounts were $10 million, $15 million and $9 million, at interest rates of 7.52%, 7.49% and 7.47%, respectively. Interest expense for these notes was $83,281 for the year ended December 31, 1995. During 1994, the Company received $49 million from its parent in exchange for four surplus notes, two in the amount of $10 million, one in the amount of $15 million and one in the amount of $14 million, at interest rates of 7.28%, 7.90%, 9.13% and 9.78%, respectively. Interest expense for these notes was $4,319,612 and $1,618,504 for the years ended December 31, 1995 and 1994, respectively. During 1993, the Company received $20 million from its parent in exchange for a surplus note in the amount of $20 million at a 6.84% interest rate. Interest expense for this note was $1,387,000, $1,387,000 and $11,400 for the years ended December 31, 1995, 1994 and 1993, respectively. Payment of interest and repayment of principal for these notes requires approval by the Commissioner of the State of Connecticut. In 1995, approval was granted for the payment of surplus note interest with the stipulation that it be funded through a capital contribution from the Parent. Reserves: We are obligated to carry on our statutory books, as liabilities, actuarial reserves to meet our obligations on outstanding annuity or life insurance contracts. This is required by the life insurance laws and regulations in the jurisdictions in which we do business. Such reserves are based on mortality and/or morbidity tables in general use in the United States. In general, reserves are computed amounts that, with additions from premiums to be received, and with interest on such reserves compounded at certain assumed rates, are expected to be sufficient to meet our policy obligations at their maturities if death occurs in accordance with the mortality tables employed. In the accompanying Financial Statements these reserves for policy obligations are determined in accordance with generally accepted accounting principles and are included in the liabilities of our separate accounts and the general account liabilities for future benefits of annuity or life insurance contracts we issue. Competition: We are engaged in a business that is highly competitive due to the large number of insurance companies and other entities competing in the marketing and sale of insurance products. There are approximately 2300 stock, mutual and other types of insurers in the life insurance business in the United States. Employees: As of December 31, 1995, we had 198 direct salaried employees. An affiliate, American Skandia Information Services and Technology Corporation, which provides services almost exclusively to us, had 67 direct salaried employees. Regulation: We are organized as a Connecticut stock life insurance company, and are subject to Connecticut law governing insurance companies. We are regulated and supervised by the Connecticut Commissioner of Insurance. By March 1 of every year, we must prepare and file an annual statement, in a form prescribed by the Connecticut Insurance Department, which covers our operations for the preceding calendar year, and must prepare and file our statement of financial condition as of December 31 of such year. The Commissioner and his or her agents have the right at all times to review or examine our books and assets. A full examination of our operations will be conducted periodically according to the rules and practices of the National Association of Insurance Commissioners ("NAIC"). We are subject to the insurance laws and various federal and state securities laws and regulations and to regulatory agencies, such as the Securities and Exchange Commission (the "SEC") and the Connecticut Banking Department, which administer those laws and regulations. We can be assessed up to prescribed limits for policyholder losses incurred by insolvent insurers under the insurance guaranty fund laws of most states. We cannot predict or estimate the amount any such future assessments we may have to pay. However, the insurance guaranty laws of most states provide for deferring payment or exempting a company from paying such an assessment if it would threaten such insurer's financial strength. Several states, including Connecticut, regulate insurers and their affiliates under insurance holding company laws and regulations. This applies to us and our affiliates. Under such laws, inter-company transactions, such as dividend payments to parent companies and transfers of assets, may be subject to prior notice and approval, depending on factors such as the size of the transaction in relation to the financial position of the companies. Currently, the federal government does not directly regulate the business of insurance. However, federal legislative, regulatory and judicial decisions and initiatives often have significant effects on our business. Types of changes that are most likely to affect our business include changes to: (a) the taxation of life insurance companies; (b) the tax treatment of insurance products; (c) the securities laws, particularly as they relate to insurance and annuity products; (d) the "business of insurance" exemption from many of the provisions of the anti-trust laws; (e) the barriers preventing most banks from selling or underwriting insurance: and (f) any initiatives directed toward improving the solvency of insurance companies. We would also be affected by federal initiatives that have impact on the ownership of or investment in United States companies by foreign companies or investors. Executive Officers and Directors: Our executive officers, directors and certain significant employees, their ages, positions with us and principal occupations are indicated below. The immediately preceding work experience is provided for officers that have not been employed by us or an affiliate for at least five years as of the date of this Prospectus.
Name/ Position with American Skandia Age Life Assurance Corporation Principal Occupation Alan Blank Employee Vice President and, 47 National Sales Manager: American Skandia Marketing, Incorporated Mr. Blank joined us in 1994. He previously held the position of Vice-Chairman at Liberty Securities. Gordon C. Boronow* President President and 43 and Chief Chief Operating Officer: Operating Officer, American Skandia Life Director (since July, 1991) Assurance Corporation Nancy F. Brunetti Senior Vice President, Senior Vice President, Business and 34 Business and Application Application Development: Development American Skandia Life Director (since February, 1996) Assurance Corporation Ms. Brunetti joined us in 1992. She previously held the position of Senior Business Analyst at Monarch Life Insurance Company. Malcolm M. Campbell Director (since April, 1991) Director of Operations, 40 Assurance and Financial Services Division: Skandia Insurance Company Ltd. Jan R. Carendi* Chief Executive Executive Vice President and 51 Officer and Member of Corporate Management Group: Chairman of the Skandia Insurance Company Ltd. Board of Directors Director (since May, 1988) Lincoln R. Collins Senior Vice President, Senior Vice President, Product Management Product Management: 35 Director (since February, 1996) American Skandia Life Assurance Corporation Henrik Danckwardt Director (since July, 1991) Director of Finance 42 and Administration, Assurance and Financial Services Division: Skandia Insurance Company Ltd. Wade A. Dokken Director (since July, 1991) Director: 36 and Employee American Skandia Life Assurance Corporation; President, Chief Operating Officer and Chief Marketing Officer: American Skandia Marketing, Incorporated N. David Kuperstock Vice President, Vice President, 44 Product Development Product Development: American Skandia Life Assurance Corporation Thomas M. Mazzaferro Executive Vice President and Executive Vice President and 43 Chief Financial Officer, Chief Financial Officer: Director (since October, 1994) American Skandia Life Assurance Corporation Dianne B. Michael Senior Vice President, Senior Vice President, 41 Customer Service Customer Service: Director (since February, 1996) American Skandia Life Assurance Corporation Ms. Michael joined us in 1995. She previously held the position of Vice President with J. P. Morgan Investment Management Inc. Gunnar Moberg Director (since November, 1994) Director - Marketing and Sales, 41 Assurances and Financial Services Division: Skandia Insurance Company Ltd. M. Patricia Paez Assistant Vice President Assistant Vice President 35 and Corporate Secretary and Corporate Secretary: American Skandia Life Assurance Corporation Don Thomas Peck Employee Vice President, 52 National Sales Manager: American Skandia Marketing, Incorporated Mr. Peck joined us in 1995. He previously held the position of Regional Vice President with MFS Financial Services Inc. Rodney D. Runestad Vice President and Vice President and 46 Valuation Actuary Valuation Actuary: American Skandia Life Assurance Corporation Hayward Sawyer Employee Vice President and 51 National Sales Manager: American Skandia Marketing, Incorporated Mr. Sawyer joined us in 1994. He previously held the position of Regional Vice President with AIM Distributors, Inc. Todd L. Slade Vice President, Vice President, 38 Applications Development Applications Development: American Skandia Life Assurance Corporation Anders O. Soderstrom Director (since October, 1994) President and 36 Chief Operating Officer: American Skandia Information Services and Technology Corporation Amanda C. Sutyak Executive Vice President Executive Vice President 38 and Deputy Chief and Deputy Chief Operating Officer, Operating Officer: Director (since July, 1991) American Skandia Life Assurance Corporation C. Ake Svensson Treasurer, Vice President, Treasurer 45 Director (since December, 1994) and Corporate Controller: American Skandia Investment Holding Corporation Mr. Svensson joined us in 1994. He previously held the position of Senior Vice President with Nordenbanken. Bayard F. Tracy Senior Vice President, Senior Vice President, 48 Institutional Sales, Institutional Sales and Marketing: Director (since October, 1994) American Skandia Life Assurance Corporation
Executive Compensation Summary Compensation Table: The summary table below summarizes the compensation payable to our Chief Executive Officer and to the most highly compensated of our executive officers whose compensation exceeded $100,000 in the fiscal year immediately preceding the date of this Prospectus.
Name and Principal Annual Annual Other Annual Position Year Salary Bonus Compensation Jan R. Carendi 1995 $200,315 Chief Executive Officer 1994 170,569 1993 214,121 Gordon C. Boronow 1995 $157,620 President & Chief 1994 129,121 Operating Officer 1993 123,788 Lincoln R. Collins 1995 $156,550 Senior Vice President 1994 92,700 Product Management 1993 72,100 N. David Kuperstock 1995 $133,120 Vice President, Product 1994 103,000 Development 1993 88,864 Bayard F. Tracy 1995 $168,052 Senior Vice President 1994 127,050 Institutional Sales 1993 123,363
Long-Term Incentive Plans - Awards in the Last Fiscal Year: The following table provides information regarding our long-term incentive plan. Units are awarded to executive officers and other personnel. The table shows units awarded to our Chief Executive Officer and the most highly compensated of our executive officers whose compensation exceeded $100,000 in the fiscal year immediately preceding the date of this Prospectus. This program is designed to induce participants to remain with the company over long periods of time and to tie a portion of their compensation to the fortunes of the company. Currently, the program consists of multiple plans. A new plan may be instituted each year. Participants are awarded units at the beginning of a plan. Generally, participants must remain employed by the company or its affiliates at the time such units are payable in order to receive any payments under the plan. There are certain exceptions, such as in cases of retirement or death. Changes in the value of units reflect changes in the "embedded value" of the company. "Embedded value" is the net asset value of the company (valued at market value and not including the present value of future profits), plus the present value of the anticipated future profits (valued pursuant to state insurance law) on its existing contracts. Units will not have any value for participants if the embedded value does not increase by certain target percentages during the first four years of a plan. The target percentages may differ between each plan. Any amounts available under a plan are paid out in the fifth through eighth years of a plan. Payments will be postponed if the payment would exceed 20% of any profit (as determined under state insurance law) earned by the company in the prior fiscal year or 30% of the individual's current year salary. The amount to be received by a participant at the time any payment is due will be the then current number of units payable multiplied by the then current value of such units.
---------Estimated Future Payouts--------- Name Number of Units Period Until Payout Threshold Target Maximum (#) ($) ($) ($) Number Period until Estimated Future Payouts Name of Units Payout Threshold Target Maximum Jan R. Carendi 120,000 Various $648,060 Gordon C. Boronow 110,000 Various $561,558 Lincoln R. Collins 36,750 Various $198,807 N. David Kuperstock 32,000 Various $200,968 Bayard E. Tracy 52,500 Various $286,263
Compensation of Directors: The following directors were compensated as shown below in 1995: Malcolm M. Campbell $4,000 Gunnar Moberg $2,500 Henrik Danckwardt $4,000 Compensation Committee Interlocks and Insider Participation: The compensation committee of our board of directors as of December 31, 1995 consisted of Malcolm M. Campbell and Henrik Danckwardt. APPENDIXES APPENDIX A FINANCIAL STATEMENTS FOR AMERICAN SKANDIA LIFE ASSURANCE CORPORATION APPENDIX B ILLUSTRATION OF MARKET VALUE ADJUSTMENT APPENDIX C ILLUSTRATION OF INTEREST CREDITING ================================================================================ APPENDIX A FINANCIAL STATEMENTS FOR AMERICAN SKANDIA LIFE ASSURANCE CORPORATION INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholder of American Skandia Life Assurance Corporation Shelton, Connecticut We have audited the accompanying consolidated statements of financial condition of American Skandia Life Assurance Corporation (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) as of December 31, 1995 and 1994, and the related consolidated statements of operations, shareholder's equity, and cash flows for each of the three years in the period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of American Skandia Life Assurance Corporation as of December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP New York, New York March 14, 1996 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF DECEMBER 31, 1995 1994 --------------------- ---------------------- ASSETS Investments: Fixed maturities - at amortized cost $ 10,112,705 $ 9,621,865 Investment in mutual funds - at market value 1,728,875 840,637 Short-term investments - at amortized cost 15,700,000 24,000,000 --------------------- ---------------------- Total investments 27,541,580 34,462,502 Cash and cash equivalents 13,146,384 23,909,463 Accrued investment income 194,074 173,654 Fixed assets 82,434 0 Deferred acquisition costs 270,222,383 174,009,609 Reinsurance receivable 1,988,042 0 Receivable from affiliates 860,991 459,960 Income tax receivable 563,850 0 State insurance licenses 4,862,500 5,012,500 Other assets 1,589,006 1,261,513 Separate account assets 4,699,961,646 2,625,127,128 --------------------- ---------------------- Total Assets $ 5,021,012,890 $ 2,864,416,329 ===================== ====================== LIABILITIES AND SHAREHOLDER'S EQUITY LIABILITIES: Reserve for future contractowner benefits $ 30,493,018 $ 11,422,381 Annuity policy reserves 19,386,490 24,054,255 Income tax payable 0 36,999 Accounts payable and accrued expenses 32,816,517 31,753,380 Payable to affiliates 314,699 261,552 Payable to reinsurer 64,995,470 40,105,406 Short-term borrowing-affiliate 10,000,000 10,000,000 Surplus notes 103,000,000 69,000,000 Deferred contract charges 332,050 449,704 Separate account liabilities 4,699,961,646 2,625,127,128 --------------------- ---------------------- Total Liabilities 4,961,299,890 2,812,210,805 --------------------- ---------------------- SHAREHOLDER'S EQUITY: Common stock, $80 par, 25,000 shares authorized, issued and outstanding 2,000,000 2,000,000 Additional paid-in capital 81,874,666 71,623,932 Unrealized investment gains and losses 111,359 (41,655) Foreign currency translation (328,252) 0 Accumulated deficit (23,944,773) (21,376,753) --------------------- ---------------------- Total Shareholder's Equity 59,713,000 52,205,524 --------------------- ---------------------- Total Liabilities and Shareholder's $ 5,021,012,890 $ 2,864,416,329 Equity ===================== ======================
See notes to consolidated financial statements 10 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995 1994 1993 ---------------- ---------------- --------------- REVENUES: Annuity charges and fees $ 38,837,358 $ 24,779,785 $ 11,752,984 Fee Income 6,205,719 2,111,801 938,336 Net investment income 1,600,674 1,300,217 692,758 Annuity premium income 0 70,000 101,643 Net realized capital gains/(losses) 36,774 (1,942) 330,024 Other 64,882 24,550 1,269 ---------------- ---------------- --------------- Total Revenues 46,745,407 28,284,411 13,817,014 ---------------- ---------------- --------------- BENEFITS AND EXPENSES: Benefits: Annuity benefits 555,421 369,652 383,515 Increase/(decrease) in annuity policy reserves (6,778,756) 5,766,003 1,208,454 Cost of minimum death benefit reinsurance 2,056,606 0 0 Return credited to contractowners 10,612,858 (516,730) 252,132 ---------------- ---------------- --------------- 6,446,129 5,618,925 1,844,101 ---------------- ---------------- --------------- Expenses: Underwriting, acquisition and other insurance expenses 35,820,524 18,792,720 9,397,951 Amortization of state insurance licenses 150,000 150,000 150,000 Interest expense 6,499,414 3,615,845 187,156 ---------------- ---------------- --------------- 42,469,938 22,558,565 9,735,107 ---------------- ---------------- --------------- Total Benefits and Expenses 48,916,067 28,177,490 11,579,208 ---------------- ---------------- --------------- Income (loss) from operations before federal income taxes (2,170,660) 106,921 2,237,806 Income tax 397,360 247,429 182,965 ---------------- ---------------- --------------- Net income (loss) $ (2,568,020) $ (140,508) $ 2,054,841 ================ ================ ===============
See notes to consolidated financial statements AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995 1994 1993 ----------------- --------------- --------------- Common stock, balance at beginning and end of year $ 2,000,000 $ 2,000,000 $ 2,000,000 ----------------- --------------- --------------- Additional paid-in capital: Balance at beginning of year 71,623,932 71,623,932 67,623,932 Additional contributions 10,250,734 0 4,000,000 ----------------- --------------- --------------- Balance at end of year 81,874,666 71,623,932 71,623,932 ----------------- --------------- --------------- Unrealized investment gains and losses: Balance at beginning of year (41,655) 0 0 Change in unrealized investment gains and losses 153,014 (41,655) 0 ----------------- --------------- --------------- Balance at end of year 111,359 (41,655) 0 ----------------- --------------- --------------- Foreign currency translation: Balance at beginning of year 0 0 0 Change in foreign currency translation (328,252) 0 0 ----------------- --------------- --------------- Balance at end of year (328,252) 0 0 ----------------- --------------- --------------- Accumulated deficit: Balance at beginning of year (21,376,753) (21,236,245) (23,291,086) Net income (loss) (2,568,020) (140,508) 2,054,841 ----------------- --------------- --------------- Balance at end of year (23,944,773) (21,376,753) (21,236,245) ----------------- --------------- --------------- TOTAL SHAREHOLDER'S EQUITY $ 59,713,000 $ 52,205,524 $ 52,387,687 ================= =============== ===============
See notes to consolidated financial statements AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995 1994 1993 ------------------ ------------------- ----------------- CASH FLOW FROM OPERATING ACTIVITIES: Net income (loss) $ (2,568,020) $ (140,508) $ 2,054,841 Adjustments to reconcile net income (loss) to net cash used in operating activities: (Decrease)/increase in annuity policy reserves (4,667,765) 6,004,603 4,223,289 Decrease in policy and contract claims 0 0 (52,400) Amortization of bond discount 23,449 21,964 6,754 Amortization of state insurance licenses 150,000 150,000 150,000 (Decrease)/increase in due to/from affiliates (347,884) 256,779 (397,125) Change in income tax payable/receivable (600,849) 36,999 0 Increase in other assets (409,927) (742,041) (220,172) (Increase)/decrease in accrued investment income (20,420) (44,847) 154,902 Change in reinsurance receivable (1,988,042) 0 0 Increase in accounts payables and accrued expenses 1,063,137 13,396,502 14,005,962 Change in deferred acquisition costs (96,212,774) (83,986,073) (57,387,042) Change in deferred contract charges (117,654) (71,117) 13,898 Change in foreign currency translation (328,252) 0 0 Realized (gain)/loss on sale of investments (36,774) 1,942 (330,024) ------------------ ------------------- ----------------- Net cash used in operating activities (106,061,775) (65,115,797) (37,777,117) ------------------ ------------------- ----------------- CASH FLOW FROM INVESTING ACTIVITIES: Purchase of fixed maturity investments (614,289) (1,989,120) (6,847,630) Proceeds from the maturity of fixed maturity investments 100,000 2,010,000 0 Proceeds from the sale of fixed maturity investments 0 0 10,971,574 Purchase of shares in mutual funds (1,566,194) (922,822) 0 Proceeds from sale of shares in mutual funds 867,744 38,588 0 Purchase of short-term investments (202,700,000) (513,100,000) (1,207,575,307) Sale of short-term investments 211,000,000 508,500,000 1,202,333,907 Investments in separate accounts (1,609,415,439) (1,365,775,177) (890,125,018) ------------------ ------------------- ----------------- Net cash used in investing activities (1,602,328,178) (1,371,238,531) (891,242,474) ------------------ ------------------- ----------------- CASH FLOW FROM FINANCING ACTIVITIES: Capital contributions from parent 10,250,734 0 4,000,000 Surplus notes 34,000,000 49,000,000 20,000,000 Short-term borrowing 0 0 10,000,000 Increase in payable to reinsurer 24,890,064 28,555,190 11,550,216 Proceeds from annuity sales 1,628,486,076 1,372,873,747 890,639,947 ------------------ ------------------- ----------------- Net cash provided by financing activities 1,697,626,874 1,450,428,937 936,190,163 ------------------ ------------------- ----------------- Net increase/(decrease) in cash and cash equivalents (10,763,079) 14,074,609 7,170,572 Cash and cash equivalents at beginning of year 23,909,463 9,834,854 2,664,282 ------------------ ------------------- ----------------- Cash and cash equivalents at end of year $ 13,146,384 $ 23,909,463 $ 9,834,854 ================== =================== ================= SUPPLEMENTAL CASH FLOW DISCLOSURE: Income taxes paid $ 995,496 $ 161,398 $ 169,339 ================== =================== ================= Interest paid $ 540,319 $ 557,639 $ 111,667 ================== =================== =================
See notes to consolidated financial statements AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements 1. BUSINESS OPERATIONS American Skandia Life Assurance Corporation (the "Company") is a wholly-owned subsidiary of American Skandia Investment Holding Corporation (the "Parent"), which in turn is a wholly-owned subsidiary of Skandia Insurance Company Ltd., a Swedish corporation. The Company develops annuity products and issues its products through its affiliated broker/dealer company, American Skandia Marketing, Incorporated. The Company currently issues variable, fixed, market value adjusted and immediate annuities. During 1995, Skandia Vida, S.A. de C.V. was formed by the ultimate parent Skandia Insurance Company Ltd. The Company owns 99.9% ownership in Skandia Vida, S.A. de C.V. which is a life insurance company domiciled in Mexico. This Mexican life insurer is a start up company with expectations of selling long term savings product within Mexico. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Basis of Reporting ------------------ The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles. Intercompany transactions and balances have been eliminated in consolidation. B. Investments ----------- The Company has classified its fixed maturity investments as held to maturity as the Company has the ability and intent to hold those investments to maturity. Such investments are carried at amortized cost. The Company has classified its mutual fund investments as available for sale. Such investments are carried at market value and changes in unrealized gains and losses are reported as a component of shareholder's equity. Short-term investments are reported at cost which approximates market value. Realized gains and losses on disposal of investments are determined by the specific identification method and are included in revenues. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities", effective January 1, 1994. The adoption of SFAS No. 115 had no impact on the Company's financial statements. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) C. Cash Equivalents ---------------- The Company considers all highly liquid time deposits purchased with a maturity of three months or less to be cash equivalents. D. State Insurance Licenses ------------------------ Licenses to do business in all states have been capitalized and reflected at the purchase price of $6 million less accumulated amortization. The cost of the licenses is being amortized over 40 years. E. Fixed Assets ------------ Fixed Assets consisting of furniture, equipment and leasehold improvements are carried at cost and depreciated on a straight line basis over a period of three to five years. Accumulated depreciation at December 31, 1995 and related depreciation expense for the year ended December 31, 1995 was $3,749. F. Recognition of Revenue and Contract Benefits -------------------------------------------- Annuity contracts without significant mortality risk, as defined by Financial Accounting Standard No. 97, are classified as investment contracts (variable, market value adjusted and certain immediate annuities) and those with mortality risk (immediate annuities) as insurance products. The policy of revenue and contract benefit recognition is described below. Revenues for variable annuity contracts consist of charges against contractowner account values for mortality and expense risks and administration fees and an annual maintenance fee per contract. Benefit reserves for variable annuity contracts represent the account value of the contracts, and are included in the separate account liabilities. Revenues for market value adjusted annuity contracts consist of separate account investment income reduced by benefit payments and change in reserves in support of contractowner obligations, all of which is included in return credited to contractowners. Benefit reserves for these contracts represent the account value of the contracts, and are included in the general account liability for future contractowner benefits to the extent in excess of the separate account liabilities. Revenues for immediate annuity contracts without life contingencies consist of net investment income. Revenues for immediate annuity contracts with life contingencies consist of single premium payments recognized as annuity considerations when received. Benefit reserves for these contracts are based on the Society of Actuaries 1983 - a Table with an assumed interest rate of 8.25%. Annuity sales were $1,628,486,000, $1,372,874,000 and $890,640,000 for 1995, 1994 and 1993, respectively. Annuity contract assets under management were $4,704,044,000, $2,661,161,000 and $1,437,554,000 at December 31, 1995, 1994 and 1993, respectively. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) G. Deferred Acquisition Costs -------------------------- The costs of acquiring new business, which vary with and are primarily related to the production of new business, are being amortized in relation to the present value of estimated gross profits. These costs include commissions, cost of contract issuance, and certain selling expenses that vary with production. Details of the deferred acquisition costs for the years ended December 31 follow:
1995 1994 1993 ---- ---- ---- Balance at beginning of year $174,009,609 $ 90,023,536 $32,636,494 Acquisition costs deferred during the year 106,063,698 85,801,180 59,676,296 Acquisition costs amortized during the year 9,850,924 1,815,107 2,289,254 ------------- --------------- ------------- Balance at end of year $270,222,383 $174,009,609 $90,023,536 ============ ============= ===========
H. Deferred Contract Charges ------------------------- Certain contracts are assessed a front-end fee at the time of issue. These fees are deferred and recognized in income in relation to the present value of estimated gross profits of the related contracts. Details of the deferred contract charges for the years ended December 31 follow:
1995 1994 1993 ---- ---- ---- Balance at beginning of year $449,704 $520,821 $506,923 Contract charges deferred during the year 21,513 87,114 144,537 Contract charges amortized during the year 139,167 158,231 130,639 --------- --------- --------- Balance at end of year $332,050 $449,704 $520,821 ======== ======== ========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) I. Separate Accounts ----------------- Assets and liabilities in Separate Account are shown as separate captions in the consolidated statement of financial condition. The assets consist of long-term bonds, investments in mutual funds and short-term securities, all of which are carried at market value. Included in Separate Account liabilities is $586,233,752 and $259,556,863 at December 31, 1995 and 1994, respectively, relating to annuity contracts for which the contractholder is guaranteed a fixed rate of return. Separate Account assets of $588,835,051 and $269,488,557 at December 31, 1995 and 1994, respectively, consisting of long term bonds, short term securities, transfers due from general account and cash are in support of these annuity contracts, as pursuant to state regulation. J. Income taxes ------------ The Company is included in the consolidated federal income tax return with all Skandia Insurance Company Ltd. subsidiaries in the U.S. The federal and state income tax provision is computed on a separate return basis in accordance with the provisions of the Internal Revenue Code, as amended. Prior to 1995, the Company filed a separate federal income tax return. K. Translation of Foreign Currency ------------------------------- The financial position and results of operations of the Company's foreign operations are measured using local currency as the functional currency. Assets and liabilities of the operations are translated at the exchange rate in effect at each year-end. Statements of operations and shareholder's equity accounts are translated at the average rate prevailing during the year. Translation adjustments arising from the use of differing exchange rates from period to period are included in shareholder's equity. L. Estimates --------- The preparation of financial statements in conformity with generally accepted accounting principles requires that management make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant estimates and assumptions are related to deferred acquisition costs and involve policy lapses, investment return and maintenance expenses. Actual results could differ from those estimates. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) M. Reinsurance ----------- The Company cedes reinsurance under modified co-insurance arrangements. The reinsurance arrangements provides additional capacity for growth in supporting the cash flow strain from the Company's variable annuity business. The reinsurance is effected under quota share contracts. Effective January 1, 1995, the Company reinsured certain mortality risks. These risks result from the guaranteed minimum death benefit feature in the variable annuity products. 3. INVESTMENTS The carrying value (amortized cost), gross unrealized gains (losses) and estimated market value of investments in fixed maturities by category as of December 31, 1995 and 1994 are shown below. All securities held at December 31, 1995 are publicly traded. Investments in fixed maturities as of December 31, 1995 consist of the following:
Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value U.S. Government Obligations $ 4,304,731 $183,201 $1,778 $4,486,154 Obligations of State and Political Subdivisions 256,095 0 3,165 252,930 Corporate Securities 5,551,879 13,252 346 5,564,785 ------------- ---------- -------- ------------ Totals $10,112,705 $196,453 $5,289 $10,303,869 =========== ======== ====== ===========
The amortized cost and market value of fixed maturities, by contractual maturity, at December 31, 1995 are shown below.
Amortized Market Cost Value Due in one year or less $ 379,319 $ 393,745 Due after one through five years 6,358,955 6,519,880 Due after five through ten years 3,374,431 3,390,244 ------------ ------------- $10,112,705 $10,303,869 =========== ===========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) Investments in fixed maturities as of December 31, 1994 consist of the following:
Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value U.S. Government Obligations $3,796,390 $2,119 $156,759 $3,641,750 Obligations of State and Political Subdivisions 261,852 0 9,156 252,696 Corporate Securities 5,563,623 0 547,023 5,016,600 ----------- ---------- --------- ----------- Totals $9,621,865 $2,119 $712,938 $8,911,046 ========== ====== ======== ==========
Proceeds from maturities and sales of fixed maturity investments during 1995, 1994 and 1993, were $100,000, $2,010,000 and $10,971,574, respectively.
Gross gains and gross losses realized were as follows: Gross Gross Gains Losses ----- ------ 1995 $ 0 $ 0 1994 $ 0 $ 0 1993 $329,000 $ 0
19 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) The cost, gross unrealized gains (losses) and market value of investments in mutual funds at December 31, 1995 and 1994 are shown below:
Gross Gross Unrealized Unrealized Market Cost Gains Losses Value 1995 $1,617,516 $111,686 $ 327 $1,728,875 ========== ======== ========= ========== 1994 $ 882,292 $ 4,483 $ 46,138 $ 840,637 ========== ======== ========= ==========
Proceeds from sales of investments in mutual funds during 1995 and 1994 were $867,744 and $38,588. Mutual fund gross gains and gross losses were as follows:
Gross Gross Gains Losses ----- ------ 1995 $65,236 $28,462 ======= ======= 1994 $ 510 $ 2,452 ======== =======
4. NET INVESTMENT INCOME Additional information with respect to net investment income for the years ended December 31, 1995, 1994 and 1993 is as follows:
1995 1994 1993 ---- ---- ---- Fixed Maturities $ 629,743 $ 616,987 $409,552 Mutual Funds 59,895 12,049 0 Short-Term Investments 256,351 142,421 394,545 Cash and Cash Equivalents 730,581 633,298 15,034 Interest on Policy Loans 4,025 1,275 1,015 ------------- ------------- ---------- Total Investment Income 1,680,595 1,406,030 820,146 Investment Expenses 79,921 105,813 127,388 ------------ ----------- --------- Net investment income $1,600,674 $1,300,217 $692,758 ========== ========== ========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 5. INCOME TAXES Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating loss and tax credit carryforwards. The tax effects of significant items comprising the Company's deferred tax balance as of December 31, 1995 and 1994, are as follows:
1995 1994 ---- ---- Deferred Tax (Liabilities): Deferred acquisition costs ($57,399,960) ($37,885,053) Payable to reinsurer (19,802,861) (12,754,591) Unrealized investment gains and losses (38,976) 14,579 Other (308,304) (214,505) -------------- -------------- Total ($77,550,101) ($50,839,570) ------------ ------------ Deferred Tax Assets: Deferred contract charge $ 116,218 $ 157,396 Net separate account liabilities 72,024,094 51,637,155 Reserve for future contractowner benefits 10,672,556 3,997,833 Net operating loss carryforward 0 1,813,670 AMT credit carryforward 286,094 0 Foreign exchange translation 114,888 0 Other 3,661,104 878,030 ------------ ------------- Total $86,874,954 $58,484,084 ----------- ----------- Net before valuation allowance $ 9,324,853 $ 7,644,514 Valuation allowance (9,324,853) (7,644,514) ------------ ------------ Net deferred tax balance $ 0 $ 0 ----------------- -----------------
The significant components of federal tax expense are as follows:
1995 1994 1993 ---- ---- ---- Current tax expense $ 394,648 $184,771 $182,965 Deferred tax benefit: (exclusive of the effects of the change in valuation allowance) (1,680,339) (365,288) (404,480) Change in valuation allowance 1,680,339 365,288 404,480 ----------- ---------- --------- Total deferred tax expense 0 0 0 ------------ ---------- --------- Total income tax expense $ 394,648 $184,771 $182,965 ============ ======== ========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) The state income tax expense was $2,712 and $62,658 for the years ended 1995 and 1994, respectively. The federal income tax expense was different from the amount computed by applying the federal statutory tax rate of 35% to pre-tax income from continuing operations as follows:
1995 1994 1993 ---- ---- ---- Income (loss) before taxes ($2,170,660) $106,921 $2,237,806 Income tax rate 35% 35% 35% ------------ ---------- ----------- Tax expense at federal statutory income tax rate (759,731) 37,422 783,232 Tax effect of: Permanent tax differences (253,101) (82,188) 63,535 Difference between financial statement and taxable income 2,986,464 3,161,331 2,414,254 Utilization of net operating loss carryforwards (1,487,144) (3,116,565) (3,261,021) Utilization of AMT credits (91,840) 0 0 Alternative minimum tax 0 184,771 182,965 -------------- ----------- ----------- Income tax expense $ 394,648 $ 184,771 $ 182,965 =========== ========== ==========
6. RELATED PARTY TRANSACTIONS Certain operating costs (including personnel, rental of office space, furniture, and equipment) and investment expenses have been charged to the Company at cost by American Skandia Information Services and Technology Corporation, an affiliated company; and likewise, the Company has charged operating costs to American Skandia Investment Services, Incorporated, an affiliated company. Income received for these items was $396,573, $248,799 and $146,134 for the years ended December 31, 1995, 1994 and 1993, respectively. The total cost to the Company for these items was $12,687,337, $8,524,840 and $3,537,566 for the years ended December 31, 1995, 1994 and 1993, respectively. Amounts receivable from affiliates under this arrangement were $857,156 and $317,285 as of December 31, 1995 and 1994, respectively. Amounts payable to affiliates under this arrangement were $304,525 and $261,552 as of December 31, 1995 and 1994, respectively. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 7. LEASES The Company leases office space under a lease agreement established in 1989 with an affiliate (American Skandia Information Services and Technology Corporation). The lease expense for 1995, 1994 and 1993 was $1,265,771, $961,080 and $280,363, respectively. Future minimum lease payments per year and in aggregate as of December 31, 1995 are as follows: 1996 1,178,550 1997 1,178,550 1998 1,178,550 1999 1,178,550 2000 and thereafter 6,831,312 ----------- Total $11,545,512 =========== 8. RESTRICTED ASSETS In order to comply with certain state insurance departments' requirements, the Company maintains bonds/notes on deposit with various states. The carrying value of these deposits amounted to $3,267,357 and $3,410,135 as of December 31, 1995, and 1994, respectively. These deposits are required to be maintained for the protection of contractowners within the individual states. 9. RETAINED EARNINGS AND DIVIDEND RESTRICTIONS Statutory basis shareholder's equity was $132,493,899, $95,001,971 and $60,666,243 at December 31, 1995, 1994 and 1993, respectively. The statutory basis net income (loss) was ($7,183,003), ($9,789,297) and $387,695 for the years ended December 31, 1995, 1994 and 1993, respectively. Under state insurance laws, the maximum amount of dividends that can be paid shareholders without prior approval of the state insurance departments is subject to restrictions relating to statutory surplus and net gain from operations. At December 31, 1995, no amounts may be distributed without prior approval. 10. EMPLOYEE BENEFITS In 1989, the Company established a 401(k) plan for which substantially all employees are eligible. Company contributions to this plan on behalf of the participants were $627,161, $431,559 and $250,039 for the years ended December 31, 1995, 1994 and 1993, respectively. The Company has a long-term incentive plan where units are awarded to executive officers and other personnel. The program consists of multiple plans. A new plan is instituted each year. Generally, participants must remain employed by the Company or its affiliates at the time such units are payable in order to receive any payments under the plan. The accrued liability representing the value of these units is $4,600,831 and $1,564,407 as of December 31, 1995 and 1994, respectively. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) In 1994, the Company established a deferred compensation plan which is available to the internal field marketing staff and certain officers. Company contributions to this plan on behalf of the participants were $139,209 in 1995 and $106,882 in 1994. 11. REINSURANCE The effect of the reinsurance agreements on the Company's operations was to reduce annuity charges and fee income, death benefit expense and policy reserves. The effect of reinsurance for the years ended December 31, 1995, 1994 and 1993 are as follows:
1995 - ---------------------------------------------------------------------------------------------- Annuity Change in Annuity Return Credited Charges and Fees Policy Reserves to Contractowners ---------------- --------------- ----------------- Gross $50,334,280 ($4,790,714) $10,945,831 Ceded 11,496,922 1,988,042 332,973 ------------- ------------- ------------- Net $38,837,358 ($6,778,756) $10,612,858 =========== =========== ===========
1994 1993 ---------------- ---------------- Annuity Annuity Charges and Fees Charges and Fees ---------------- ---------------- Gross $30,116,166 $12,446,277 Ceded 5,336,381 693,293 ------------- ------------- Net $24,779,785 $11,752,984 =========== =========== Such ceded reinsurance does not relieve the Company from its obligations to policyholders. The Company remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet the obligations assumed under the reinsurance agreements. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 12. SURPLUS NOTES During 1995, the Company received $34 million from its parent in exchange for three surplus notes. The amounts were $10 million, $15 million and $9 million, at interest rates of 7.52%, 7.49% and 7.47%, respectively. Interest expense for these notes was $83,281 for the year ended December 31, 1995. During 1994, the Company received $49 million from its parent in exchange for four surplus notes, two in the amount of $10 million, one in the amount of $15 million and one in the amount of $14 million, at interest rates of 7.28%, 7.90%, 9.13% and 9.78%, respectively. Interest expense for these notes was $4,319,612 and $1,618,504 for the years ended December 31, 1995 and 1994, respectively. During 1993, the Company received $20 million from its parent in exchange for a surplus note in the amount of $20 million at a 6.84% interest rate. Interest expense for this note was $1,387,000, $1,387,000 and $11,400 for the years ended December 31, 1995, 1994 and 1993, respectively. Payment of interest and repayment of principal for these notes requires approval by the Commissioner of the State of Connecticut. In 1995, approval was granted for the payment of surplus note interest with the stipulation that it be funded through a capital contribution from the Parent. 13. SHORT-TERM BORROWING During 1993, the Company received a $10 million loan from Skandia AB, a Swedish affiliate. Upon the last renewal the loan became payable to the Parent rather than Skandia AB. The loan matures on March 6, 1996 and bears interest at 6.75.%. The total interest expense to the Company was $709,521, $569,618 and $149,861 for the years ended December 31, 1995, 1994 and 1993, respectively, of which $219,375 and $50,174 was payable as of December 31, 1995 and 1994, respectively. 14. CONTRACT WITHDRAWAL PROVISIONS Approximately 98% of the Company's separate account liabilities are subject to discretionary withdrawal with market value adjustment by contractholders. Separate account assets which are carried at market value are adequate to pay such withdrawals which are generally subject to surrender charges ranging from 7.5% to 1% for contracts held less than 7 years. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 15. QUARTERLY FINANCIAL DATA (UNAUDITED) The following table summarizes information with respect to the operations of the Company.
Three Months Ended ------------------ 1995 March 31 June 30 September 30 December 31 ---- -------- ------- ------------ ----------- Premiums and other insurance revenues $ 8,891,903 $10,066,478 $11,960,530 $14,189,048 Net investment income 551,690 434,273 293,335 321,376 Net realized capital gains (losses) (16,082) (370) 44,644 8,582 ------------- ---------------- -------------- --------------- Total revenues $ 9,427,511 $10,500,381 $12,298,509 $14,519,006 ============ =========== =========== =========== Benefits and expenses $11,438,798 $ 9,968,595 $11,600,587 $15,908,087 =========== ============ =========== =========== Net income (loss) ($ 2,026,688) $ 531,486 $ 678,312 ($1,751,130) ============ ============= ============= =========== Three Months Ended 1994 March 31 June 30 September 30 December 31 ---- -------- ------- ------------ ----------- Premiums and other insurance revenues $5,594,065 $6,348,777 $7,411,686 $7,631,608 Net investment income 252,914 336,149 264,605 446,549 Net realized capital gains (losses) 0 (30,829) 25,914 2,973 ----------------- ------------- -------------- ------------- Total revenues $5,846,979 $6,654,097 $7,702,205 $8,081,130 ========== ========== ========== ========== Benefits and expenses $5,701,460 $7,883,829 $8,157,535 $6,434,666 ========== ========== ========== ========== Net income (loss) $ 104,636 ($1,257,768) ($503,793) $1,516,417 ============ =========== ========= ==========
================================================================================ APPENDIX B - ILLUSTRATION OF MARKET VALUE ADJUSTMENT The formula used to determine the market value adjustment ("MVA") is applied as of the date we receive a request In Writing for a full or partial surrender. When choosing an alternate Guarantee Period, the formula is applied as of the first business day after the date we receive all the information we need to process your request. Values and time durations used in the formula are as of such date. Current Rates and available Guarantee Periods are those for your type of Contract. The formula is: [ (1+I) / (1+J+ the adjustment amount) ] N/12 where: I is the Guarantee Rate applicable to the Guarantee Period for your Contract; J is the Current Rate for the Guarantee Period equal to the number of years (rounded to the next higher number when occurring on other than an anniversary of the beginning of the current Guarantee Period) remaining in your current Guarantee Period ("Remaining Period"); N is the number of months (rounded to the next higher number when occurring on other than a monthly anniversary of the beginning of the current Guarantee Period) remaining in your Guarantee Period. Nonetheless, a full or partial surrender at the end of a Guarantee Period is not affected by the MVA. If we are no longer offering a Guarantee Period equal to the Remaining Period but are offering Guarantee Periods that are both shorter and longer than the Remaining Period, we will interpolate a rate for J between our Current Rates for the next shortest and next longest Guarantee Periods then being offered. If we are no longer offering a Guarantee Period equal to the Remaining Period and also are no longer offering Guarantee Periods that are both longer and shorter than the Remaining Period, we will determine rates for both I and J 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 for the applicable Guarantee Period published on or immediately prior to the start of your current 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. In the special case where I = J, the MVA is set equal to 1. The following examples show the effect of the MVA on a surrender. The examples assume surrender charges do not apply and: Interim Value at Beginning of Guarantee Period: $50,000 Guarantee Period: 5 years Guarantee Rate: 5% effective annual rate Date of Calculation: End of the third year since the beginning of the Guarantee Period (two exact years remaining to the end of the Guarantee Period) Adjustment Amount: 0.25% of interest Example of Upward Adjustment Assume J = 3.5% (Current Rate for Contracts electing a two year Guarantee Period) At this point I = 5% (0.05) and N = 24 (number of months remaining in the Guarantee Period) Interim Value prior to application of MVA: $57,881.25 MVA = [(1+I)/(1+J+0.0025)] N/12 = [1.05/1.0375] 2 = 1.024242 Net Surrender Value = Interim Value X MVA = $59,284.38. Example of Downward Adjustment Assume J = 6% (Current Rate for Contracts electing a two year Guarantee Period) At this point I = 5% (0.05) and N = 24 (number of months remaining in the Guarantee Period) Interim Value prior to application of MVA: $57,881.25. MVA = [(1+I)/(1+J+0.0025)] N/12 = [1.05/1.0625] 2 = .97661 Net Surrender Value = Interim Value X MVA = $56,527.35. ================================================================================ APPENDIX C - ILLUSTRATION OF INTEREST CREDITING THIS EXAMPLE ASSUMES NO PARTIAL SURRENDERS DURING THE GUARANTEE PERIOD. WHETHER A SURRENDER CHARGE APPLIES TO ANY INTERIM PARTIAL SURRENDERS OR TO A FULL OR PARTIAL SURRENDER AT THE END OF THE GUARANTEE PERIOD DEPENDS ON THE STRUCTURE OF SURRENDER CHARGES AS SHOWN IN YOUR CONTRACT, AND WHETHER THAT GUARANTEE PERIOD EXTENDS BEYOND THE DATE SURRENDER CHARGES APPLY. THE MARKET VALUE ADJUSTMENT WOULD APPLY TO ANY INTERIM PARTIAL SURRENDER EXCEPT, WHERE REQUIRED BY LAW, AN INTERIM PARTIAL SURRENDER OCCURRING NOT MORE THAN 30 DAYS BEFORE THE END OF A GUARANTEE PERIOD. THE HYPOTHETICAL INTEREST RATE USED IS ILLUSTRATIVE ONLY AND IS NOT INTENDED TO PREDICT FUTURE INTEREST RATES TO BE DECLARED FOR ANY CONTRACT. ACTUAL INTEREST RATES DECLARED FOR ANY GIVEN CONTRACT AT ANY GIVEN TIME MAY BE MORE OR LESS THAN THOSE SHOWN. In this example the Guarantee Period begins on the Contract Date. Should an alternate Guarantee Period be chosen, Guarantee Periods may begin and end on other than anniversaries of the Contract Date. Interim Value at beginning of Guarantee Period: $50,000 Guarantee Period: 5 Years Guaranteed Rate: 5% Effective Annual Rate
Interest Credited Cumulative During Interest Year Contract Year Credited ---- ------------- -------- 1 $2,500.00 $2,500.00 2 2,625.00 5,125.00 3 2,756.25 7,881.25 4 2,894.06 10,775.31 5 3,038.77 13,814.08
================================================================================ ADDITIONAL INFORMATION Inquiries will be answered by calling your representative or by writing to: American Skandia Life Assurance Corporation P.O. Box 883 Shelton, Connecticut 06484 Issued by: Serviced by: AMERICAN SKANDIA LIFE AMERICAN SKANDIA LIFE ASSURANCE CORP. ASSURANCE CORP. One Corporate Drive P.O. Box 883 Shelton, Connecticut 06484 Shelton, Connecticut 06484 Telephone: 1-800-752-6342 Telephone: 1-800-752-6342 Distributed by: AMERICAN SKANDIA MARKETING, INCORPORATED One Corporate Drive Shelton, Connecticut 06484 Telephone: (203) 926-1888 - -------- * Trustees of American Skandia Trust, one of the underlying mutual funds in which the Sub-accounts offered pursuant to this Prospectus invest. -----END PRIVACY-ENHANCED MESSAGE-----