-----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, UXx1Tge/gWyubCew6N/oAFhd5y7GjmLz2Uy7Ptug5pMe1T/PdJ2+a0ovphfeFOgX IIXwyqwWlpAxFBH7w96F2A== 0000881453-00-000099.txt : 20000427 0000881453-00-000099.hdr.sgml : 20000427 ACCESSION NUMBER: 0000881453-00-000099 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20000426 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: POS AM SEC ACT: SEC FILE NUMBER: 033-62953 FILM NUMBER: 609050 BUSINESS ADDRESS: STREET 1: ONE CORPORATE DRIVE CITY: SHELTON STATE: CT ZIP: 06484 BUSINESS PHONE: 2039261888 MAIL ADDRESS: STREET 1: ONE CORPORATE DRIVE CITY: SHELTON STATE: CT ZIP: 06484 POS AM 1 ASL S2 4/2000 Filed with the Securities and Exchange Commission on April 26, 2000 Registration No. 33-62953 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Post-effective Amendment No. 4 On Form S-2 Registration Statement Under The Securities Act of 1933 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (Exact name of registrant as specified in its charter) CONNECTICUT (State or other jurisdiction of incorporation or organization) 63 (Primary Standard Industrial Classification Code Number) 06-1241288 (I.R.S. Employer Identification No.) ONE CORPORATE DRIVE, SHELTON, CONNECTICUT 06484 (203) 926-1888 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) M. PRISCILLA PANNELL, CORPORATE SECRETARY ONE CORPORATE DRIVE, SHELTON, CONNECTICUT 06484 (203) 926-1888 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copy To: T. RICHARD KENNEDY, ESQ. GENERAL COUNSEL One Corporate Drive, Shelton, CT 06484 (203) 925-6922 ------------------------------------------------------- Approximate date of commencement of proposed sale to the public: May 1, 2000 or as soon as practicable after the effective date of this Registration Statement If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following: X . -- If the registrant elects to deliver its latest annual report to security holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1) of the Form, check the following: ___. Calculation of Registration Fee
================================================================================================================================= Title of each Proposed Proposed class of maximum maximum securities Amount offering aggregate Amount of to be to be price offering registration registered registered per unit price* fee - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- Annuity Contracts $0 $0
- -------------------------------------------------------------------------------- The proposed aggregate offering price is estimated solely for determining the registration fee. The amount to be registered and the proposed maximum offering price per unit are not applicable since these securities are not issued in predetermined amounts or units. ================================================================================ Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with the provisions of Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ASL{Wells Flex}
CROSS REFERENCE SHEET PURSUANT TO REGULATION S-K, ITEM 501 S-2 Item No. Prospectus Heading 1. Forepart of the Registration Statement and Facing Page, Cross Reference Sheet, Outside Front Cover Page of Prospectus Outside Front Cover Page 2. Inside Front Cover and Outside Back Cover of Prospectus Available Information, Incorporation of Certain Documents by Reference, How Will I Receive Statements, Table of Contents 3. Summary Information, Risk Factors and Ratio of Earnings Investment Options, Fees and Charges, Managing Your Account Value 4. Use of Proceeds Managing Your Account Value, What are Separate Accounts 5. Determination of the Offering Price Fees and Charges, Managing Your Account Value 6. Dilution Not applicable 7. Selling Security Holders Not applicable 8. Plan of Distribution Who Distributes Annuities Offered by American Skandia 9. Description of Securities to be Registered Investment Options, Purchasing Your Annuity, Valuing Your Investment, What are Separate Accounts, Rights, Benefits and Services 10. Interests of named Expert and Counsel Not Applicable 11. Information with Respect to the Registrant Who Is American Skandia? 12. Incorporation of Certain Documents by Reference Incorporation of Certain Documents by Reference 13. Disclosure of Commission Position on Indemnification for Indemnification Securities Act Liabilities Part II Heading 14. Other Expenses of Issuance Other Expenses of Issuance and Distribution and Distribution 15. Indemnification of Directors and Officers Indemnification of Directors and Officers 16. Exhibits Exhibits 17. Undertakings Undertakings
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION One Corporate Drive, Shelton, Connecticut 06484 This Prospectus describes American Skandia LifeVest(R), a flexible premium deferred annuity (the "Annuity") offered by American Skandia Life Assurance Corporation ("we", "our" or "us"). The Annuity may be offered as an individual annuity contract or as an interest in a group annuity. This Prospectus describes the important features of the Annuity and what you should consider before purchasing the Annuity. We have also filed a Statement of Additional Information that is available from us, without charge, upon your request. The contents of the Statement of Additional Information are described on page 49. The Annuity or certain of its investment options and/or features may not be available in all states. Various rights and benefits may differ between states to meet applicable laws and/or regulations. In particular, please refer to Appendix C for a description of certain provisions that apply to Annuities sold to New York residents. Certain terms are capitalized in this prospectus. Those terms are either defined in the Glossary of Terms or in the context of the particular section. WHY WOULD I CHOOSE TO PURCHASE THIS ANNUITY? This Annuity is frequently used for retirement planning. It may be used as an investment vehicle for an IRA, SEP-IRA, Roth IRA, Section 401(a) plans (defined benefit plans and defined contribution plans such as 401(k), profit sharing and money purchase plans) or Tax Sheltered Annuity (or 403(b)). It may also be used for other purposes that are not "qualified" investments. The Annuity allows you to invest your money in a number of variable investment options as well as in one or more fixed investment options. You are not taxed on any investment gains the Annuity earns until you make a withdrawal from the Annuity or begin to receive annuity payments. This feature, referred to as "tax-deferral", can be beneficial to the growth of your Account Value because money that would otherwise be needed to pay taxes on investment gains each year remains invested and can earn additional money. However, because the Annuity is designed for long-term retirement savings, a 10% penalty tax may be applied on withdrawals you make before you reach age 59 1/2. WHAT ARE SOME OF THE KEY FEATURES OF THE ANNUITY? |X| The Annuity is a "flexible premium deferred annuity." It is called "flexible premium" because you have considerable flexibility in the timing and amount of premium payments. Generally, investors "defer" receiving annuity payments until after an accumulation period. |X| This Annuity offers both variable and fixed investment options. If you allocate your Account Value to variable investment options, the value of your Annuity will vary daily to reflect the investment performance of the underlying investment options. Fixed investment options of different durations are offered that are guaranteed by us, but may have a Market Value Adjustment. |X| The Annuity features two distinct phases - the accumulation period and the payout period. During the accumulation period your Account Value is allocated to one or more underlying investment options. The variable investment options, each a Class 1 Sub-account of American Skandia Life Assurance Corporation Variable Account B, invest in an underlying mutual fund portfolio. Currently, portfolios of the following underlying mutual funds are being offered: American Skandia Trust, The Alger American Fund, Montgomery Variable Series, Wells Fargo Variable Trust, Rydex Variable Trust, INVESCO Variable Investment Funds, Inc., Evergreen Variable Annuity Trust and ProFund VP. |X| During the payout period, commonly called "annuitization," you can elect to receive annuity payments (1) for life; (2) for life with a guaranteed minimum number of payments; (3) based on joint lives; (4) for a guaranteed number of payments; or other options we may make available. |X| The Annuity provides an additional 1% credit on Purchase Payments made within the first year and may provide certain additional benefits if your Account Value has not reached a Target Value on its 10th anniversary. |X| This Annuity offers a basic Death Benefit. It also offers two Optional Death Benefits that provide an enhanced level of protection for your beneficiary(ies) for an additional charge. |X| There is no Contingent Deferred Sales Charge on surrenders or withdrawals. You can withdraw Account Value from your Annuity free of any charges. |X| Transfers between investment options are tax-free. You may make twelve transfers each year free of charge. We also offer several programs that enable you to manage your Account Value as your financial needs and investment performance change. - -------------------------------------------------------------------------------- These annuities are NOT deposits or obligations of, or issued, guaranteed or endorsed by, any bank, are NOT insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board or any other agency. An investment in this annuity involves certain investment risks, including possible loss of principal. - -------------------------------------------------------------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PLEASE READ THIS PROSPECTUS AND THE CURRENT PROSPECTUS FOR THE UNDERLYING MUTUAL FUNDS. KEEP THEM FOR FUTURE REFERENCE. FOR FURTHER INFORMATION CALL 1-800-752-6342. Prospectus Dated: May 1, 2000 Statement of Additional Information Dated: May 1, 2000 ASL-PROS- (05/2000) ASLPROS HOW DO I PURCHASE THIS ANNUITY? We sell the Annuity through licensed, registered financial professionals. You must complete an application and submit a minimum initial purchase payment of $15,000. We may allow you to make a lower initial purchase payment provided that the purchase payments received in the first Annuity Year total at least $15,000. There is no age restriction to purchase the Annuity. However, the basic Death Benefit provides greater protection for a period of ten (10) years from the Issue Date or for persons under age 90. ================================================================================ American Skandia offers several different annuities which your financial professional may be authorized to offer to you. Each annuity has different features and benefits that may be appropriate for you based on your financial situation, your age and how you intend to use the annuity. The different features and benefits include variations in death benefit protection, the ability to access your annuity's account value and the charges that you will be subject to if you choose to surrender the annuity. The fees and charges may also be different between each annuity. ================================================================================ If you are purchasing the Annuity as a replacement for existing variable annuity or variable life coverage, you should consider any surrender or penalty charges you may incur when replacing your existing coverage. Trustees of qualified retirement plans considering using this Annuity as a funding vehicle for such plans should consult with counsel when evaluating the annuity's benefits and costs. In addition, if you are purchasing this Annuity as an Individual Retirement Annuity or Tax Sheltered Annuity, you should discuss with your financial professional how the benefits and costs of this annuity will fit within your overall financial plan. Mailing Addresses: New Business/Additional Purchase Payments: American Skandia Life Assurance Corporation P.O. Box 7040 Bridgeport, CT 06601-7040 Exchange Paperwork: American Skandia Life Assurance Corporation P.O. Box 7039 Bridgeport, CT 06601-7039 All other correspondence: American Skandia Life Assurance Corporation P.O. Box 7038 Bridgeport, CT 06601-7038 Express/Overnight Mail: American Skandia Life Assurance Corporation Three Corporate Drive Shelton, CT 06484
TABLE OF CONTENTS GLOSSARY OF TERMS..................................................................................................................5 SUMMARY OF CONTRACT FEES AND CHARGES...............................................................................................6 EXPENSE EXAMPLES...................................................................................................................9 INVESTMENT OPTIONS................................................................................................................11 WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?.............................................................11 WHAT ARE THE FIXED INVESTMENT OPTIONS?.........................................................................................20 FEES AND CHARGES..................................................................................................................20 WHAT ARE THE CONTRACT FEES AND CHARGES?........................................................................................20 WHAT CHARGES APPLY SOLELY TO THE VARIABLE INVESTMENT OPTIONS?..................................................................21 WHAT CHARGES APPLY TO THE FIXED ALLOCATIONS?...................................................................................21 WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYOUT?..............................................................................21 PURCHASING YOUR ANNUITY...........................................................................................................21 WHAT ARE OUR REQUIREMENTS FOR PURCHASING THE ANNUITY?..........................................................................21 MANAGING YOUR ANNUITY.............................................................................................................22 MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS?................................................................22 MAY I RETURN THE ANNUITY IF I CHANGE MY MIND?..................................................................................22 MAY I MAKE ADDITIONAL PURCHASE PAYMENTS?.......................................................................................22 MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT?...................................................................22 MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM?...............................................................23 MANAGING YOUR ACCOUNT VALUE.......................................................................................................23 HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED?...................................................................................23 ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?.....................................................23 DO YOU OFFER DOLLAR COST AVERAGING?............................................................................................23 DO YOU OFFER ANY AUTOMATIC REBALANCING PROGRAMS?...............................................................................24 DO YOU OFFER A PROGRAM TO BALANCE FIXED AND VARIABLE INVESTMENTS?..............................................................24 MAY I AUTHORIZE MY FINANCIAL REPRESENTATIVE TO MANAGE MY ACCOUNT?..............................................................25 HOW DO THE FIXED INVESTMENT OPTIONS WORK?......................................................................................25 HOW DO YOU DETERMINE RATES FOR FIXED ALLOCATIONS?..............................................................................25 HOW DOES THE MARKET VALUE ADJUSTMENT WORK?.....................................................................................26 WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES?.................................................................................26 ADDITIONAL AMOUNTS IN THE FIXED ALLOCATIONS....................................................................................27 AMERICAN SKANDIA'S PERFORMANCE ADVANTAGE..........................................................................................27 ACCESS TO ACCOUNT VALUE...........................................................................................................28 WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME?...............................................................................28 ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS?..................................................................................29 CAN I WITHDRAW A PORTION OF MY ANNUITY?........................................................................................29 CAN I MAKE PERIODIC WITHDRAWALS FROM THE ANNUITY DURING THE ACCUMULATION PERIOD?...............................................29 DO YOU OFFER A PROGRAM FOR WITHDRAWALS UNDER SECTION 72(T) OF THE INTERNAL REVENUE CODE?.......................................29 WHAT ARE MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM?.............................................................29 CAN I SURRENDER MY ANNUITY FOR ITS VALUE?......................................................................................30 WHAT TYPES OF ANNUITY PAYMENT OPTIONS ARE AVAILABLE UPON ANNUITIZATION?........................................................30 HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION?...........................................................................30 HOW ARE ANNUITY PAYMENTS CALCULATED?...........................................................................................30 DEATH BENEFIT.....................................................................................................................31 WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT?..................................................................................31 DEATH BENEFIT OPTIONS..........................................................................................................31 VALUING YOUR INVESTMENT...........................................................................................................34 HOW IS MY ACCOUNT VALUE DETERMINED?............................................................................................34 WHAT IS THE SURRENDER VALUE OF MY ANNUITY?.....................................................................................34 HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS?....................................................................................34 HOW DO YOU VALUE FIXED ALLOCATIONS?............................................................................................34 WHEN DO YOU PROCESS AND VALUE TRANSACTIONS?....................................................................................34 TAX CONSIDERATIONS................................................................................................................35 WHAT ARE SOME OF THE FEDERAL TAX CONSIDERATIONS OF THIS ANNUITY?...............................................................35 HOW ARE AMERICAN SKANDIA AND THE SEPARATE ACCOUNTS TAXED?......................................................................35 IN GENERAL, HOW ARE ANNUITIES TAXED?...........................................................................................35 HOW ARE DISTRIBUTIONS TAXED?...................................................................................................35 WHAT TAX CONSIDERATIONS ARE THERE FOR TAX-QUALIFIED RETIREMENT PLANS OR QUALIFIED CONTRACTS?...................................37 HOW ARE DISTRIBUTIONS FROM QUALIFIED CONTRACTS TAXED?..........................................................................38 GENERAL TAX CONSIDERATIONS.....................................................................................................39 GENERAL INFORMATION...............................................................................................................40 HOW WILL I RECEIVE STATEMENTS AND REPORTS?.....................................................................................40 WHO IS AMERICAN SKANDIA?.......................................................................................................40 WHAT ARE SEPARATE ACCOUNTS?....................................................................................................41 WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS?...........................................................................42 WHO DISTRIBUTES ANNUITIES OFFERED BY AMERICAN SKANDIA?.........................................................................42 AVAILABLE INFORMATION..........................................................................................................43 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................................................................43 HOW TO CONTACT US..............................................................................................................44 INDEMNIFICATION................................................................................................................44 LEGAL PROCEEDINGS..............................................................................................................44 EXECUTIVE OFFICERS AND DIRECTORS...............................................................................................44 CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION............................................................................49 APPENDIX A - FINANCIAL INFORMATION ABOUT AMERICAN SKANDIA..........................................................................1 AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF....................................................................................8 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION.....................................................................................8 INDEPENDENT AUDITOR'S REPORT....................................................................................................9 DECEMBER 31, 1999..............................................................................................................14 APPENDIX B - CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B..............................................................1 APPENDIX C - SALE OF CONTRACTS TO RESIDENTS OF THE STATE OF NEW YORK...............................................................1 GLOSSARY OF TERMS..................................................................................................................1 INVESTMENT OPTIONS.................................................................................................................1 FEES AND CHARGES...................................................................................................................1 PURCHASING YOUR ANNUITY............................................................................................................1 MANAGING YOUR ANNUITY..............................................................................................................1 MANAGING YOUR ACCOUNT VALUE........................................................................................................1 AMERICAN SKANDIA'S PERFORMANCE ADVANTAGE...........................................................................................2 As of the date of this Prospectus, this benefit is not available...................................................................2 ACCESS TO ACCOUNT VALUE............................................................................................................2 TAX CONSIDERATIONS.................................................................................................................2
GLOSSARY OF TERMS Many terms used within this Prospectus are described within the text where they appear. The description of those terms are not repeated in this Glossary of Terms. Account Value: The value of each allocation to a Sub-account or a Fixed Allocation prior to the Annuity Date, plus any earnings, and/or less any losses, distributions and charges. The Account Value is calculated before we assess any applicable Annual Maintenance Fee. The Account Value includes any additional amounts we applied to your Purchase Payments that we are entitled to recover upon surrender of your Annuity. The Account Value is determined separately for each Sub-account and for each Fixed Allocation, and then totaled to determine Account Value for your entire Annuity. The Account Value of each Fixed Allocation on other than its Maturity Date may be calculated using a market value adjustment. Annuity Date: The date you choose for annuity payments to commence. There may be a maximum Annuity Date in certain states. Annuity Year: A 12-month period commencing on the Issue Date of the Annuity and each successive 12-month period thereafter. Code: The Internal Revenue Code of 1986, as amended from time to time. Fixed Allocation: An allocation of Account Value that is to be credited a fixed rate of interest for a specified Guarantee Period during the accumulation period. Guarantee Period: A period of time during the accumulation period where we credit a fixed rate of interest on a Fixed Allocation. Interim Value: As of any particular date, the initial value allocated to the Fixed Allocation plus all interest credited to the Fixed Allocation as of the date calculated, less any transfers or withdrawals from the Fixed Allocation. Issue Date: The effective date of your Annuity. MVA: A market value adjustment used in the determination of Account Value of each Fixed Allocation on a day other than such Fixed Allocation's Maturity Date. Owner: With an Annuity issued as an individual annuity contract, the Owner is either an eligible entity or person named as having ownership rights in relation to the Annuity. With an Annuity issued as a certificate under a group annuity contract, the "Owner" refers to the person or entity who has the rights and benefits designated as to the "Participant" in the certificate. Surrender Value: The value of your Annuity available upon surrender prior to the Annuity Date. It equals the Account Value as of the date we price the surrender minus the Annual Maintenance Fee and any additional amounts we applied to your Purchase Payments that we are entitled to recover upon surrender of your Annuity. There is no Contingent Deferred Sales Charge upon surrender. Unit: A measure used to calculate your Account Value in a Sub-account during the accumulation period. Valuation Day: Every day the New York Stock Exchange is open for trading or any other day the Securities and Exchange Commission requires mutual funds or unit investment trusts to be valued. SUMMARY OF CONTRACT FEES AND CHARGES Below is a summary of the fees and expenses we charge for the Annuity. Some charges are assessed against your Annuity while others are assessed against assets allocated to the variable investment options. The charges that are assessed against the Annuity include the Annual Maintenance Fee, Transfer Fee and the Tax Charge. The charge that is assessed against the variable investment options is the Insurance Charge, which is the combination of a mortality and expense risk charge and a charge for administration of the Annuity. Each underlying mutual fund portfolio assesses a charge for investment management and for other expenses. The prospectus for each underlying mutual fund provides more detailed information about the expenses for the underlying funds. In certain states, a premium tax charge may be applicable. All of these fees and expenses are described in more detail within this Prospectus.
- ------------------------------------------------------------------------------------------------------------------------------------ Your Transaction Expenses - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------- ----------------------------------------------------------------- ---------------------------------- Amount Deducted/ Fee/Expense Description Of Charge When Deducted - ------------------------------- ----------------------------------------------------------------- ---------------------------------- Contingent Deferred Sales There is no Contingent Deferred Charge Not Applicable Sales Charge deducted upon surrender The charge is a percentage of or partial withdrawal each applicable purchase payment - --------------------------- ----------------------------------------------------------------- -------------------------------------- Annual Maintenance Fee Smaller of $30 or 2% of Account Value Annually on the contract's anniversary date or upon surrender - --------------------------- ----------------------------------------------------------------- -------------------------------------- Transfer Fee $10.00 After the 12th transfer each annuity year - --------------------------- ----------------------------------------------------------------- -------------------------------------- Tax Charge Depends on the requirements of the applicable jurisdiction Various - ------------------------------- ----------------------------------------------------------------- ---------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ Annual Expenses of the Sub-Accounts (as a percentage of the average daily net assets of the Sub-accounts) - ------------------------------- ----------------------------------------------------------------- ---------------------------------- Mortality & Expense Risk Charge 1.25% Daily Administration Charge 0.15% Total Annual Expenses of the 1.40% per year of the value of each Sub-account Applies to Variable Investment Sub-accounts* Options only - ------------------------------- ----------------------------------------------------------------- ---------------------------------- * The combination of the Mortality and Expense Risk Charges and Administration Charge is referred to as the "Insurance Charge" elsewhere in this prospectus. - ------------------------------------------------------------------------------------------------------------------------------------
Optional Benefits We offer two different Optional Death Benefits that provide an enhanced level of protection for your beneficiary(ies). Please refer to the section entitled "Death Benefit" for a complete discussion of the Optional Death Benefits we offer.
- ----------------------------------------- -------------------------------------------- -------------------------------------------- Death Benefit Option Death Benefit equal to the greater of: Additional Charge (annually) - ------------------------------------------ -------------------------------------------- -------------------------------------------- 1. Account Value (no MVA) 2. Sum of Purchase Payments minus OPTION 1 the proportional impact of 0.35% of the current Death Benefit withdrawals increasing at 5.0% annually 3. Highest Anniversary Value - ---------------------------------------------- -------------------------------------------- ---------------------------------------- 1. Account Value (no MVA) 2. Sum of Purchase Payments minus OPTION 2 the proportional impact of 0.55% of the current Death Benefit withdrawals increasing at 7.2% annually 3. Highest Anniversary Value - ---------------------------------------------- -------------------------------------------- ----------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ Underlying Mutual Fund Portfolio Annual Expenses (as a percentage of the average net assets of the underlying Portfolios) - ------------------------------------------------------------------------------------------------------------------------------------ Below are the investment management fee, other expenses, and the total annual expenses for each underlying Portfolio as of December 31, 1999. The total annual expenses are the sum of the investment management fee, other expenses and any 12b-1 fees. Each figure is stated as a percentage of the underlying Portfolio's average daily net assets. For certain of the underlying Portfolios, a portion of the management fee is being waived and/or other expenses are being partially reimbursed. "N/A" indicates that no portion of the management fee and/or other expenses is being waived and/or reimbursed. Any footnotes about expenses appear after the list of all the portfolios. Those portfolios whose name includes the prefix "AST" are portfolios of American Skandia Trust. The underlying mutual fund portfolio information was provided by the underlying mutual funds and has not been independently verified by us. See the prospectuses or statements of additional information of the underlying Portfolios for further details. - --------------------------------------------- --------------- ------------- -------------- ------------- ------------ ------------- Management Other Estimated Total Annual Fee Net Fees Expenses Distribution Portfolio Waivers Annual UNDERLYING PORTFOLIO and Service Operating and Fund (12b-1) Expenses Expense Operating Fees (1) Reimbursement Expenses - ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ ---------- American Skandia Trust: AST Founders Passport 1.00% 0.29% 0.00% 1.29% N/A 1.29% AST AIM International Equity 0.87% 0.31% 0.04% 1.22% N/A 1.22% AST Janus Overseas Growth 1.00% 0.23% 0.02% 1.25% N/A 1.25% AST American Century International Growth 1.00% 0.50% 0.00% 1.50% N/A 1.50% AST American Century International Growth II 1.00% 0.26% 0.02% 1.28% N/A 1.28% AST MFS Global Equity (3) 1.00% 1.11% 0.00% 2.11% 0.36% 1.75% AST Janus Small-Cap Growth 0.90% 0.18% 0.01% 1.09% N/A 1.09% AST Kemper Small-Cap Growth 0.95% 0.19% 0.03% 1.17% N/A 1.17% AST Lord Abbett Small Cap Value 0.95% 0.29% 0.00% 1.24% N/A 1.24% AST T. Rowe Price Small Company Value 0.90% 0.21% 0.00% 1.11% N/A 1.11% AST Janus Mid-Cap Growth (4) 1.00% 0.22% 0.04% 1.26% N/A 1.26% AST Neuberger Berman Mid-Cap Growth 0.90% 0.23% 0.04% 1.17% N/A 1.17% AST Neuberger Berman Mid-Cap Value 0.90% 0.23% 0.12% 1.25% N/A 1.25% AST Alger All-Cap Growth(5) 0.95% 0.22% 0.06% 1.23% N/A 1.23% AST T. Rowe Price Natural Resources 0.90% 0.26% 0.01% 1.17% N/A 1.17% AST Alliance Growth 0.90% 0.21% 0.00% 1.11% N/A 1.11% AST MFS Growth (3) 0.90% 0.45% 0.00% 1.35% N/A 1.35% AST Marsico Capital Growth 0.90% 0.18% 0.04% 1.12% N/A 1.12% AST JanCap Growth 0.90% 0.14% 0.01% 1.05% 0.04% 1.01% AST Sanford Bernstein Managed Index 500 0.60% 0.19% 0.00% 0.79% N/A 0.79% AST Cohen & Steers Realty 1.00% 0.27% 0.02% 1.29% N/A 1.29% AST American Century Income & Growth 0.75% 0.23% 0.00% 0.98% N/A 0.98% AST Alliance Growth and Income 0.75% 0.18% 0.08% 1.01% 0.01% 1.00% AST MFS Growth with Income (3) 0.90% 0.33% 0.00% 1.23% N/A 1.23% AST INVESCO Equity Income 0.75% 0.18% 0.04% 0.97% N/A 0.97% AST AIM Balanced 0.74% 0.26% 0.02% 1.02% N/A 1.02% AST American Century Strategic Balanced 0.85% 0.25% 0.00% 1.10% N/A 1.10% AST T. Rowe Price Asset Allocation 0.85% 0.22% 0.00% 1.07% N/A 1.07% AST T. Rowe Price Global Bond 0.80% 0.31% 0.00% 1.11% N/A 1.11% AST Federated High Yield 0.75% 0.19% 0.00% 0.94% N/A 0.94% AST PIMCO Total Return Bond 0.65% 0.17% 0.00% 0.82% N/A 0.82% AST PIMCO Limited Maturity Bond 0.65% 0.21% 0.00% 0.86% N/A 0.86% AST Money Market 0.50% 0.15% 0.00% 0.65% 0.05% 0.60% The Alger American Fund: Growth 0.75% 0.04% N/A 0.79% 0.00% 0.79% MidCap Growth 0.80% 0.05% N/A 0.85% 0.00% 0.85% Montgomery Variable Series: Emerging Markets 1.25% 0.50% N/A 1.75% 0.00% 1.75% - ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ ---------- - ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ ---------- Management Other Estimated Total Annual Fee Net Fees Expenses Distribution Portfolio Waivers Annual UNDERLYING PORTFOLIO and Service Operating and Fund (12b-1) Expenses Expense Operating Fees (1) Reimbursement Expenses - ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ ---------- Wells Fargo Variable Trust: Equity Value 0.55% 0.37% 0.25% 1.17% 0.17% 1.00% Rydex Variable Trust: Nova 0.75% 0.80% None 1.55% 0.00% 1.55% Ursa 0.90% 0.83% None 1.73% 0.00% 1.73% OTC 0.75% 0.80% None 1.55% 0.00% 1.55% INVESCO Variable Investment Funds, Inc.: Technology 0.75% 0.78% None 1.53% 0.21% 1.32% Health Sciences 0.75% 2.11% None 2.86% 1.37% 1.49% Financial Services 0.75% 1.75% None 2.50% 1.09% 1.41% Telecommunications 0.75% 0.55% None 1.30% 0.02% 1.28% Dynamics 0.75% 1.53% None 2.28% 0.99% 1.29% Evergreen Variable Annuity Trust: Global Leaders (6) 0.95% 0.25% N/A 1.20% 0.19% 1.01% Special Equity (6) 1.36% 2.35% N/A 3.71% 2.68% 1.03% ProFund VP: Europe 30 0.75% 1.39% 0.25% 2.39% 0.61% 1.78% UltraSmall-Cap 1.53% 1.53% 0.25% 2.53% 0.83% 1.70% UltraOTC 0.75% 0.97% 0.25% 1.97% 0.32% 1.65% - ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ ----------
1 American Skandia Trust (the "Trust") adopted a Distribution Plan (the "Distribution Plan") under Rule 12b-1 of the Investment Company Act of 1940 to permit an affiliate of the Trust's Investment Manager to receive brokerage commissions in connection with purchases and sales of securities held by Portfolios of the Trust, and to use these commissions to promote the sale of shares of such Portfolios. The staff of the Securities and Exchange Commission takes the position that commission amounts received under the Distribution Plan should be reflected as distribution expenses of the Portfolios. The Portfolios would pay the same or comparable commission amounts irrespective of the Distribution Plan; accordingly, total returns for the Portfolios are not expected to be adversely affected. The Distribution Fee estimates are derived from data regarding each Portfolio's brokerage transactions, and the proportions of such transactions directed to selling dealers, for the period ended December 31, 1999. However, it is not possible to determine with accuracy actual amounts that will be received under the Distribution Plan. Such amounts will vary based upon the level of a Portfolio's brokerage activity, the proportion of such activity directed under the Distribution Plan, and other factors. 2 The Investment Manager of American Skandia Trust has agreed to reimburse and/or waive fees for certain Portfolios until at least October 17, 2000. The caption "Total Annual Fund Operating Expenses" reflects the Portfolios' fees and expenses before such waivers and reimbursements, while the caption "Net Annual Fund Operating Expenses" reflects the effect of such waivers and reimbursements. 3 These Portfolios commenced operations on October 18, 1999. "Other Expenses" are based on estimated amounts for the fiscal year ending December 31, 2000. 4 This Portfolio commenced operations on May 1, 2000. "Other Expenses" are based on estimated amounts for the fiscal year ending December 31, 2000. 5 This Portfolio commenced operations as of December 30, 1999. "Other Expenses" shown are based on estimated amounts for the fiscal year ending December 31, 2000. 6 These portfolios commenced operations on September 30, 1999. Expenses have been estimated based upon current fund contracts. EXPENSE EXAMPLES These examples are designed to assist you in understanding the various costs and expenses you will incur with the Annuity over certain periods of time based on specific assumptions. The examples reflect expenses of our Sub-accounts, as well as those of the underlying mutual fund portfolios. The Securities and Exchange Commission ("SEC") requires these examples. The examples shown assume that: (a) you only allocate Account Value in the Sub-accounts; (b) fees and expenses remain constant; (c) you make no withdrawals of Account Value during the period shown; (d) you make no transfers, withdrawals, surrender or other transaction that we charge a fee during the period shown; (e) no tax charge applies; and (f) the expenses throughout the period for the underlying mutual fund portfolios will be the "Net Annual Fund Operating Expenses," as shown above in the section entitled "Underlying Mutual Fund Portfolio Annual Expenses." The examples do not reflect the charge for any optional benefits that may be offered under the Annuity. The examples also do not reflect the impact of any Target Value Credits that may be applied to Purchase Payments within the first Annuity Year. THE EXAMPLES ARE ILLUSTRATIVE ONLY - THEY SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE UNDERLYING MUTUAL FUNDS OR THEIR PORTFOLIOS - ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. - -------------------------------------------------------------------------------- Expense Examples (amounts shown are rounded to the nearest dollar) - -------------------------------------------------------------------------------- ------------------------------------- There is no Contingent Deferred Sales Charge on withdrawals. Therefore, whether or not you surrender your Annuity at the end of the applicable time period or begin taking annuity payments at such time, you would pay the following expenses on a $1,000 investment, assuming 5% annual return on assets: ------------------------------------- After: - -------------------------------------- --------- ---------- --------- ---------- Sub-Account: 1 Year 3 Years 5 Years 10 Years - -------------------------------------- --------- ---------- --------- ---------- AST Founders Passport 28 87 147 310 AST AIM International Equity 28 84 143 304 AST Janus Overseas Growth 28 85 145 307 AST American Century International Growth 30 92 157 329 AST American Century International Growth 28 86 146 309 II AST MFS Global Equity 33 100 169 353 AST Janus Small-Cap Growth 26 80 137 290 AST Kemper Small-Cap Growth 27 82 141 298 AST Lord Abbett Small Cap Value 28 85 144 306 AST T. Rowe Price Small Company Value 26 81 138 291 AST Janus Mid-Cap Growth 28 86 146 308 AST Neuberger Berman Mid-Cap Growth 27 82 141 298 AST Neuberger Berman Mid-Cap Value 28 85 145 307 AST Alger All-Cap Growth 28 84 144 305 AST T. Rowe Price Natural Resources 27 82 141 298 AST Alliance Growth 26 81 138 291 AST MFS Growth 29 88 150 315 AST Marsico Capital Growth 26 81 138 293 AST JanCap Growth 25 78 133 282 AST Sanford Bernstein Managed Index 500 23 71 122 260 AST Cohen & Steers Realty 28 86 147 309 AST American Century Income & Growth 25 77 131 278 AST Alliance Growth and Income 25 77 132 280 AST MFS Growth with Income 28 84 144 305 AST INVESCO Equity Income 25 76 131 278 - ------------------------------------------------ ---------- --------- ---------- After: - -------------------------------------- --------- ---------- --------- ---------- Sub-Account: 1 Year 3 Years 5 Years 10 Years - -------------------------------------- --------- ---------- --------- ---------- AST AIM Balanced 25 78 133 283 AST American Century Strategic Balanced 26 81 137 290 AST T. Rowe Price Asset Allocation 26 79 135 287 AST T. Rowe Price Global Bond 26 81 138 291 AST Federated High Yield 25 76 129 275 AST PIMCO Total Return Bond 23 72 123 262 AST PIMCO Limited Maturity Bond 24 73 125 267 AST Money Market 21 65 112 240 AA Growth 23 71 122 260 AA MidCap Growth 24 73 125 266 MV Emerging Markets 33 100 169 353 WFVT Equity Value 25 77 132 280 Rydex Nova 31 94 160 334 Rydex Ursa 33 99 168 351 Rydex OTC 31 94 160 334 INVESCO VIF Technology 28 87 149 312 INVESCO VIF Health Sciences 30 92 157 329 INVESCO VIF Financial Services 30 90 153 321 INVESCO VIF Telecommunications 28 86 146 309 INVESCO VIF Dynamics 28 87 147 310 Evergreen VA Global Leaders 25 78 133 282 Evergreen VA Special Equity 25 78 134 284 ProFund VP Europe 30 33 101 171 356 ProFund VP UltraSmall-Cap 33 99 167 349 ProFund VP UltraOTC 32 97 165 344 - -------------------------------------- --------- ---------- --------- ---------- INVESTMENT OPTIONS WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS? Each variable investment option is a Class 1 Sub-account of American Skandia Life Assurance Corporation Variable Account B (see "What are Separate Accounts" for more detailed information.) Each Sub-account invests exclusively in one Portfolio. You should carefully read the prospectus for any Portfolio in which you are interested. The following chart classifies each of the Portfolios based on our assessment of their investment style (as of the date of this Prospectus). The chart also provides a short description of each Portfolio's investment objective (in italics) and a short, summary description of their key policies to assist you in determining which Portfolios may be of interest to you. There is no guarantee that any underlying mutual fund portfolio will meet its investment objective. The name of the advisor/sub-advisor for each Portfolio appears next to the description. Those portfolios whose name includes the prefix "AST" are portfolios of American Skandia Trust. The investment manager for AST is American Skandia Investment Services, Inc. ("ASISI"), an affiliated company. However, a sub-advisor, as noted below, is engaged to conduct day-to-day investment decisions. Some of the Portfolios available as Sub-accounts under the Annuity are managed by the same portfolio advisor or sub-advisor as a retail mutual fund that the Portfolio may have been modeled after at the Portfolio's inception. Certain retail mutual funds may also have been modeled after a Portfolio. While the investment objective and policies of the funds may be substantially similar, the actual investments made by the funds will differ to varying degrees. Differences in the performance of the funds can be expected, and in some cases could be substantial. Details about the investment objectives, policies, risks, costs and management of the Portfolios are found in the prospectuses for the underlying mutual funds. ================================================================================ Effective January 19, 2000, the AST Janus Small-Cap Growth portfolio is no longer offered as a Sub-account under the Annuity. Owners of Contracts issued on or before January 18, 2000 may not allocate additional Account Value or make transfers into the AST Janus Small-Cap Growth Sub-account, except that, Owners who had previously elected a bank drafting, dollar cost averaging, asset allocation and/or rebalancing program will be allowed to continue. However, no changes involving the AST Janus Small-Cap Growth Sub-account may be made to such programs. Effective March 1, 2000, the AST Janus Overseas Growth portfolio is no longer offered as a Sub-account under the Annuity, except as noted below. Owners of Contracts issued on or before February 29, 2000 with Account Value allocated to the AST Janus Overseas Growth Sub-account may continue to allocate Account Value and make transfers into the AST Janus Overseas Growth Sub-account, including any bank drafting, dollar cost averaging, asset allocation and rebalancing programs. Contracts issued on or after March 1, 2000 will not be allowed to allocate Account Value to the AST Janus Overseas Growth Sub-account. The Portfolios may be offered as a Sub-account to Contract Owners at some future date; however, at the present time, American Skandia has no intention to do so. ================================================================================ Please refer to Appendix B for certain required financial information related to the historical performance of the Sub-accounts.
- ------------------------------ ---------------------------------------------------------------------------------------------------- PORTFOLIO STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/ TYPE SUB-ADVISOR - ------------------------------ ------------------------------------------------------------------------------------------ - ------------------------------ ------------------------------------------------------------------------------------------ AST Money Market: seeks to maximize current J.P. Morgan Investment Management CAPITAL income and maintain high levels of liquidity. Inc. PRESERVATION The Portfolio attempts to accomplish its objective by maintaining a dollar-weighted average maturity of not more than 90 days and by investing in securities which have effective maturities of not more than 397 days. - ------------------------------------------------------------------------------------------------------------------------------------ AST PIMCO Limited Maturity Bond: seeks to Pacific Investment Management SHORT-TERM BOND maximize total return consistent with Company preservation of capital and prudent investment management. The Portfolio will invest in a diversified portfolio of fixed-income securities of varying maturities. The average portfolio duration of the Portfolio generally will vary within a one- to three-year time frame based on the Sub-advisor's forecast for interest rates. - ------------------------------ ---------------------------------------------------------------------------------------------------- AST PIMCO Total Return Bond: seeks to maximize Pacific Investment Management LONG-TERM total return consistent with preservation of Company BOND capital and prudent investment management. The Portfolio will invest in a diversified portfolio of fixed-income securities of varying maturities. The average portfolio duration of the Portfolio generally will vary within a three- to six-year time frame based on the Sub-advisor's forecast for interest rates. - ------------------------------ ---------------------------------------------------------------------------------------------------- AST Federated High Yield: seeks high current Federated Investment Counseling HIGH YIELD BOND income by investing primarily in a diversified portfolio of fixed income securities. The Portfolio will invest at least 65% of its assets in lower-rated corporate fixed income securities ("junk bonds"). These fixed income securities may include preferred stocks, convertible securities, bonds, debentures, notes, equipment lease certificates and equipment trust certificates. A fund that invests primarily in lower-rated fixed income securities will be subject to greater risk and share price fluctuation than a typical fixed income fund, and may be subject to an amount of risk that is comparable to or greater than many equity funds. - ------------------------------ ---------------------------------------------------------------------------------------------------- GLOBAL BOND AST T. Rowe Price Global Bond: seeks to provide Rowe Price-Fleming International, Inc. high current income and capital growth by investing in high-quality foreign and U.S. government bonds. The Portfolio will invest at least 65% of its total assets in bonds issued or guaranteed by the U.S. or foreign governments or their agencies and by foreign authorities, provinces and municipalities. Corporate bonds may also be purchased. The Sub-advisor bases its investment decisions on fundamental market factors, currency trends, and credit quality. The Portfolio generally invests in countries where the combination of fixed-income returns and currency exchange rates appears attractive, or, if the currency trend is unfavorable, where the Sub-advisor believes that the currency risk can be minimized through hedging. The Portfolio may also invest up to 20% of its assets in the aggregate in below investment-grade, high-risk bonds ("junk bonds"). - ------------------------------ ---------------------------------------------------------------------------------------------------- ASSET ALLOCATION AST T. Rowe Price Asset Allocation: seeks a T. Rowe Price Associates, Inc. high level of total return by investing primarily in a diversified portfolio of fixed income and equity securities. The Portfolio normally invests approximately 60% of its total assets in equity securities and 40% in fixed income securities. The Sub-advisor concentrates common stock investments in larger, more established companies, but the Portfolio may include small and medium-sized companies with good growth prospects. The fixed income portion of the Portfolio will be allocated among investment grade securities, high yield or "junk" bonds, foreign high quality debt securities and cash reserves. - ------------------------------ ---------------------------------------------------------------------------------------------------- BALANCED AST AIM Balanced: seeks to provide a A I M Capital Management, Inc. well-diversified portfolio of stocks and bonds that will produce both capital growth and current income. The Portfolio attempts to meet its objective by investing, normally, a minimum of 30% and a maximum of 70% of its total assets in equity securities and a minimum of 30% and a maximum of 70% of its total assets in non-convertible debt securities. The Sub-advisor will primarily purchase equity securities for growth of capital and debt securities for income purposes. - ------------------------------ ---------------------------------------------------------------------------------------------------- PORTFOLIO STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/ TYPE SUB-ADVISOR - ------------------------------ ---------------------------------------------------------------------------------------------------- - ------------------------------ ---------------------------------------------------------------------------------------------------- BALANCED AST American Century Strategic Balanced: seeks American Century Investment Management, Inc. (Cont.) capital growth and current income. The Sub-advisor intends to maintain approximately 60% of the Portfolio's assets in equity securities and the remainder in bonds and other fixed income securities. Both the Portfolio's equity and fixed income investments will fluctuate in value. The equity securities will fluctuate depending on the performance of the companies that issued them, general market and economic conditions, and investor confidence. The fixed income investments will be affected primarily by rising or falling interest rates and the credit quality of the issuers. - ------------------------------ ---------------------------------------------------------------------------------------------------- EQUITY INCOME AST INVESCO Equity Income: seeks capital growth INVESCO Funds Group, Inc. and current income while following sound investment practices. The Portfolio seeks to achieve its objective by investing in securities that are expected to produce relatively high levels of income and consistent, stable returns. The Portfolio normally will invest at least 65% of its assets in dividend-paying common and preferred stocks of domestic and foreign issuers. Up to 30% of the Portfolio's assets may be invested in equity securities that do not pay regular dividends. - ------------------------------ ---------------------------------------------------------------------------------------------------- AST Alliance Growth and Income: seeks long-term Alliance Capital Management L.P. growth of capital and income while attempting to avoid excessive fluctuations in market value. The Portfolio normally will invest in common stocks (and securities convertible into common stocks). The Sub-advisor will take a value-oriented approach, in that it will try to keep the Portfolio's assets invested in securities that are selling at reasonable prices in relation to their value. The stocks that the Portfolio will normally invest in are those of seasoned companies that are expected to show above-average growth and that the Sub-advisor believes are in sound financial condition. --------------------------------------------------------------------------------------------------- AST American Century Income & Growth: seeks American Century Investment Management, Inc. capital growth with current income as a secondary objective. The Portfolio invests primarily in common stocks that offer potential GROWTH for capital growth, and may, consistent with its investment objective, invest in stocks that & offer potential for current income. The INCOME Sub-advisor utilizes a quantitative management technique with a goal of building an equity portfolio that provides better returns than the S&P 500 Index without taking on significant additional risk and while attempting to create a dividend yield that will be greater than the S&P 500 Index. ---------------------------------------------------------------------------------------------------- AST MFS Growth with Income: seeks reasonable Massachusetts Financial Services Company current income and long-term capital growth and income. Under normal market conditions, the Portfolio invests at least 65% of its total assets in common stocks and related securities, such as preferred stocks, convertible securities and depositary receipts. The stocks in which the Portfolio invests generally will pay dividends. While the Portfolio may invest in companies of any size, the Portfolio generally focuses on companies with larger market capitalizations that the Sub-advisor believes have sustainable growth prospects and attractive valuations based on current and expected earnings or cash flow. The Portfolio may invest up to 20% of its net assets in foreign securities. - ------------------------------ ---------------------------------------------------------------------------------------------------- REAL ESTATE AST Cohen & Steers Realty: seeks to maximize Cohen & Steers Capital Management, (REIT) total return through investment in real estate Inc. securities. The Portfolio pursues its investment objective by seeking, with approximately equal emphasis, capital growth and current income. Under normal circumstances, the Portfolio will invest substantially all of its assets in the equity securities of real estate companies, i.e., a company that derives at least 50% of its revenues from the ownership, construction, financing, management or sale of real estate or that has at least 50% of its assets in real estate. Real estate companies may include real estate investment trusts or REITs. - ------------------------------ ---------------------------------------------------------------------------------------------------- PORTFOLIO STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/ TYPE SUB-ADVISOR - ------------------------------ ---------------------------------------------------------------------------------------------------- - ------------------------------ ---------------------------------------------------------------------------------------------------- MANAGED INDEX AST Sanford Bernstein Managed Index 500: seeks Sanford C. Bernstein & Co., Inc. to outperform the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500(R)") through stock selection resulting in different weightings of common stocks relative to the index. The Portfolio will invest primarily in the common stocks of companies included in the S&P 500(R). In seeking to outperform the S&P 500, the Sub-advisor starts with a portfolio of stocks representative of the holdings of the index. It then uses a set of fundamental quantitative criteria that are designed to indicate whether a particular stock will predictably perform better or worse than the S&P 500. Based on these criteria, the Sub-advisor determines whether the Portfolio should over-weight, under-weight or hold a neutral position in the stock relative to the proportion of the S&P 500 that the stock represents. In addition, the Sub-advisor also may determine that based on the quantitative criteria, certain equity securities that are not included in the S&P 500 should be held by the Portfolio. - ------------------------------ ---------------------------------------------------------------------------------------------------- AST Alliance Growth: seeks long-term capital Alliance Capital Management L.P. growth. The Portfolio invests at least 85% of its total assets in the equity securities of a limited number of large, carefully selected, high-quality U.S. companies that are judged likely to achieve superior earnings growth. Normally, about 40-60 companies will be represented in the Portfolio, with the 25 companies most highly regarded by the Sub-advisor usually constituting approximately 70% of the Portfolio's net assets. An emphasis is placed on identifying companies whose substantially above average prospective earnings growth is not fully reflected in current market valuations. --------------------------------------------------------------------------------------------------- AST JanCap Growth: seeks growth of capital in a Janus Capital Corporation manner consistent with the preservation of capital. Realization of income is not a significant investment consideration and any income realized on the Portfolio's investments, therefore, will be incidental to the Portfolio's objective. The Portfolio will pursue its objective by investing primarily in common stocks of companies that the Sub-advisor believes are experiencing favorable demand for their products and services, and which operate in a favorable competitive and regulatory environment. The Sub-advisor generally takes a "bottom up" approach to choosing investments LARGE CAP for the Portfolio. In other words, the EQUITY Sub-advisor seeks to identify individual companies with earnings growth potential that may not be recognized by the market at large. ---------------------------------------------------------------------------------------------------- AST Marsico Capital Growth: seeks capital Marsico Capital Management, LLC growth. Income realization is not an investment objective and any income realized on the Portfolio's investments, therefore, will be incidental to the Portfolio's objective. The Portfolio will pursue its objective by investing primarily in common stocks of larger, more established companies. In selecting investments for the Portfolio, the Sub-advisor uses an approach that combines "top down" economic analysis with "bottom up" stock selection. The "top down" approach identifies sectors, industries and companies that should benefit from the trends the Sub-advisor has observed. The Sub-advisor then looks for individual companies with earnings growth potential that may not be recognized by the market at large. This is called "bottom up" stock selection. ---------------------------------------------------------------------------------------------------- AST MFS Growth: seeks long-term capital growth Massachusetts Financial Services and future income. Under normal market Company conditions, the Portfolio invests at least 80% of its total assets in common stocks and related securities, such as preferred stocks, convertible securities and depositary receipts, of companies that the Sub-advisor believes offer better than average prospects for long-term growth. The Sub-advisor seeks to purchase securities of companies that it considers well-run and poised for growth. The Portfolio may invest up to 35% of its net assets in foreign securities. --------------------------------------------------------------------------------------------------- The Alger American Fund - Growth: seeks Fred Alger Management, Inc. long-term capital appreciation. The Portfolio focuses on growing companies that generally have broad product lines, markets, financial resources and depth of management. Under normal circumstances, the Portfolio invests primarily in the equity securities of large companies. The Portfolio considers a large company to have a market capitalization of $1 billion or greater. - ------------------------------ ---------------------------------------------------------------------------------------------------- PORTFOLIO STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/ TYPE SUB-ADVISOR - ------------------------------ ---------------------------------------------------------------------------------------------------- - ------------------------------ ---------------------------------------------------------------------------------------------------- NATURAL RESOURCES AST T. Rowe Price Natural Resources: seeks T. Rowe Price Associates, Inc. long-term capital growth primarily through the common stocks of companies that own or develop natural resources (such as energy products, precious metals, and forest products) and other basic commodities. The Portfolio normally invests primarily (at least 65% of its total assets) in the common stocks of natural resource companies whose earnings and tangible assets could benefit from accelerating inflation. The Portfolio looks for companies that have the ability to expand production, to maintain superior exploration programs and production facilities, and the potential to accumulate new resources. - ------------------------------ ---------------------------------------------------------------------------------------------------- ALL-CAP AST Alger All-Cap Growth: seeks long-term Fred Alger Management, Inc. EQUITY capital growth. The Portfolio invests primarily in equity securities, such as common or preferred stocks, that are listed on U.S. exchanges or in the over-the-counter market. The Portfolio may invest in the equity securities of companies of all sizes, and may emphasize either larger or smaller companies at a given time based on the Sub-advisor's assessment of particular companies and market conditions. - ------------------------------ ---------------------------------------------------------------------------------------------------- AST Janus Mid-Cap Growth: seeks long-term Janus Capital Corporation capital growth. The Portfolio invests primarily in common stocks, selected for their growth potential, and normally invests at least 65% of its equity assets in medium-sized companies. For purposes of the Portfolio, medium-sized companies are those whose market capitalizations (measured at the time of investment) fall within the range of companies in the Standard & Poor's MidCap 400 Index. The Sub-advisor seeks to identify individual companies with earnings growth potential that may not be recognized by the market at large. ---------------------------------------------------------------------------------------------------- AST Neuberger Berman Mid-Cap Growth: seeks Neuberger Berman Management Incorporated capital growth. The Portfolio primarily invests in the common stocks of mid-cap companies, i.e., companies with equity market capitalizations from $300 million to $10 billion at the time of investment. The Portfolio is normally managed using a growth-oriented investment approach. The Sub-advisor looks for fast-growing companies that are in new or rapidly evolving industries. --------------------------------------------------------------------------------------------------- AST Neuberger Berman Mid-Cap Value: seeks Neuberger Berman Management Incorporated capital growth. The Portfolio primarily invests in the common stocks of mid-cap companies. Under the Portfolio's value-oriented investment approach, the Sub-advisor looks for well-managed companies whose stock prices are undervalued and that may rise in price before other investors realize their worth. Factors that the Sub-advisor may use to identify these companies include strong fundamentals, including a low price-to-earnings ratio, consistent cash flow, and a sound track record MID-CAP EQUITY through all phases of the market cycle. --------------------------------------------------------------------------------------------------- INVESCO Variable Investment Funds - Dynamics: INVESCO Funds Group, Inc. seeks securities that will increase in value over the long term. The Portfolio invests in a variety of securities which are believed to present opportunities for capital growth - primarily common stocks of companies traded on U.S. securities exchanges, as well as over-the-counter. The Portfolio also may invest in preferred stocks and debt instruments that are convertible into common stocks, as well as in securities of foreign companies. In general, the Portfolio invests in securities of companies in industries that are growing globally and usually avoids stocks of companies in cyclical, mature or slow-growing industries or economic sectors. The Portfolio seeks to invest in stocks of leading companies in attractive markets or industries, or emerging leaders that have developed a new competitive advantage. ---------------------------------------------------------------------------------------------------- The Alger American Fund - MidCap Growth: seeks Fred Alger Management, Inc. long-term capital appreciation. The Portfolio focuses on midsize companies with promising growth potential. Under normal circumstances, the Portfolio invests primarily in the equity securities of companies having a market capitalization within the range of companies in the S&P MidCap 400 Index. - ------------------------------ ---------------------------------------------------------------------------------------------------- PORTFOLIO STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/ TYPE SUB-ADVISOR - ------------------------------ ---------------------------------------------------------------------------------------------------- - ------------------------------ ---------------------------------------------------------------------------------------------------- MID-CAP EQUITY WFVT Equity Value: seeks long-term capital Wells Fargo Bank, N.A. (Cont.) appreciation. The Portfolio pursues its objective by investing in a diversified portfolio composed primarily of equity securities that are trading at low price-to-earnings ratios, as measured against the stock market as a whole or against the individual stock's own price history. Under normal market conditions, the Portfolio invests primarily in common stocks of both large, well-established companies and smaller companies with market capitalization exceeding $50 million at the time of purchase. The Portfolio may also invest in debt instruments that may be converted into the common stocks of both U.S. and foreign companies. - ------------------------------ ---------------------------------------------------------------------------------------------------- AST Janus Small-Cap Growth: seeks capital Janus Capital Corporation growth. The Portfolio pursues its objective by normally investing at least 65% of its total assets in the common stocks of small-sized companies, i.e., those that have market capitalizations of less than $1.5 billion or annual gross revenues of less than $500 million. As a Portfolio that invests primarily in smaller or newer issuers, the Portfolio may be subject to greater risk of loss and share price fluctuation than funds investing primarily in larger or more established issuers. ---------------------------------------------------------------------------------------------------- AST Kemper Small-Cap Growth: seeks maximum Scudder Kemper Investments, Inc. growth of investors' capital from a portfolio primarily of growth stocks of smaller companies. At least 65% of the Portfolio's total assets normally will be invested in the equity securities of smaller companies, i.e., those having a market capitalization of $1.5 billion or less at the time of investment, many of which would be in the early stages of their life cycle. The Portfolio seeks attractive areas for investment that arise from factors such as technological advances, new marketing methods, and changes in the economy and population. Because of the Portfolio's focus on the stocks of smaller growth companies, investment in the Portfolio may involve substantially greater than average share price fluctuation and investment risk. ---------------------------------------------------------------------------------------------------- SMALL CAP AST Lord Abbett Small Cap Value: seeks Lord, Abbett & Co. EQUITY long-term capital appreciation. The Portfolio will seek its objective through investments primarily in equity securities that are believed to be undervalued in the marketplace. The Portfolio primarily seeks companies that are small-sized, based on the value of their outstanding stock. Specifically, under normal circumstances, at least 65% of the Portfolio's total assets will be invested in common stocks issued by smaller, less well-known companies (with market capitalizations of less than $2 billion) selected on the basis of fundamental investment analysis. The small capitalization companies in which the Portfolio primarily invests may offer significant appreciation potential. However, smaller companies may carry more risk than larger companies. ---------------------------------------------------------------------------------------------------- AST T. Rowe Price Small Company Value: seeks to T. Rowe Price Associates, Inc. provide long-term capital growth by investing primarily in small-capitalization stocks that appear to be undervalued. The Portfolio will normally invest at least 65% of its total assets in stocks and equity-related securities of small companies ($1 billion or less in market capitalization). Reflecting a value approach to investing, the Portfolio will seek the stocks of companies whose current stock prices do not appear to adequately reflect their underlying value as measured by assets, earnings, cash flow or business franchises. Investing in small companies involves greater risk of loss than is customarily associated with more established companies. - ------------------------------ ---------------------------------------------------------------------------------------------------- PORTFOLIO STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/ TYPE SUB-ADVISOR - ------------------------------ ---------------------------------------------------------------------------------------------------- - ------------------------------ ---------------------------------------------------------------------------------------------------- SMALL CAP Evergreen VA Special Equity: seeks capital Meridian Investment Company EQUITY growth. The Portfolio strives to provide a (Cont.) return greater than broad stock market indices such as the Russell 2000(R)Index by investing principally in a diversified portfolio of common stocks of domestic companies. The Portfolio's investment advisor principally chooses companies which it expects will experience growth in earnings and price, and which have small market capitalizations (under $1 billion) and medium market capitalizations (between $1 billion and $5 billion). The Portfolio may also invest in companies that have large market capitalizations (over $5 billion). - ------------------------------ ---------------------------------------------------------------------------------------------------- AST MFS Global Equity: seeks capital growth. Massachusetts Financial Services Company Under normal market conditions, the Portfolio invests at least 65% of its total assets in common stocks and related securities, such as preferred stock, convertible securities and depositary receipts, of U.S. and foreign issuers (including issuers in developing countries). The Portfolio generally seeks to purchase securities of companies with relatively large market capitalizations relative to the market in which they are traded. GLOBAL EQUITY ---------------------------------------------------------------------------------------------------- Evergreen VA Global Leaders: seeks to provide Evergreen Asset Management Corp. investors with long-term capital growth. The Portfolio normally invests as least 65% of its assets in a diversified portfolio of U.S. and non-U.S. equity securities of companies located in the world's major industrialized countries. The Portfolio will invest in no less than three countries, which may include the U.S., but may invest more than 25% of its total assets in one country. The Portfolio invests only in the best 100 companies, which are selected by the investment advisor based on qualitative and quantitative criteria such as high return on equity, consistent earnings growth and established market presence. - ------------------------------ ---------------------------------------------------------------------------------------------------- AST AIM International Equity: seeks capital A I M Capital Management, Inc. growth. The Portfolio seeks to meet its objective by investing, normally, at least 70% of its assets in marketable equity securities of foreign companies that are listed on a recognized foreign securities exchange or traded in a foreign over-the-counter market. The Portfolio will normally invest in a diversified portfolio that includes companies from at least four countries outside the United States, emphasizing countries of Western Europe and the Pacific Basin. ---------------------------------------------------------------------------------------------------- AST American Century International Growth: American Century Investment Management, Inc. seeks capital growth. The Portfolio will seek to achieve its investment objective by investing primarily in equity securities of foreign companies that the Sub-advisor believes will increase in value over time. Under normal conditions, the Portfolio will invest at least 65% of its assets in equity securities of issuers from at least three countries outside of the United States. The Sub-advisor uses a growth investment strategy it developed that looks for companies with earnings and revenue growth. The Sub-advisor will consider a number of other factors in making investment selections, including the prospects for relative economic growth among countries or regions, economic and political conditions, expected inflation rates, currency exchange fluctuations and tax considerations. ---------------------------------------------------------------------------------------------------- INTERNATIONAL EQUITY AST American Century International Growth II: American Century Investment Management, Inc. The investment objective, policies and risks of the Portfolio are substantially identical to those of the AST American Century International Growth Portfolio as described immediately above. ---------------------------------------------------------------------------------------------------- AST Founders Passport: seeks capital growth. Founders Asset Management LLC The Portfolio normally invests primarily in equity securities issued by foreign companies that have market capitalizations or annual revenues of $1 billion or less. These securities may represent companies in both established and emerging economies throughout the world. At least 65% of the Portfolio's total assets normally will be invested in foreign securities representing a minimum of three countries. Foreign securities are generally considered to involve more risk than those of U.S. companies, and securities of smaller companies are generally considered to be riskier than those of larger companies. - ------------------------------ ---------------------------------------------------------------------------------------------------- PORTFOLIO STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/ TYPE SUB-ADVISOR - ------------------------------ ---------------------------------------------------------------------------------------------------- - ------------------------------ ---------------------------------------------------------------------------------------------------- AST Janus Overseas Growth: seeks long-term Janus Capital Corporation growth of capital. The Portfolio pursues its objective primarily through investments in common stocks of issuers from at least five different countries, excluding the United States. Securities are generally selected without regard to any defined allocation among countries, geographic regions or industry sectors, or other similar selection procedure. --------------------------------------------------------------------------------------------------- INTER-NATIONAL EQUITY ProFund VP Europe 30: seeks daily investment ProFund Advisors LLC (Cont.) results that correspond to the performance of the ProFunds Europe Index. The ProFunds Europe Index ("PEI") is a combined measure of European stock performance created by the investment advisor from the leading stock indexes of Europe's three largest economies giving equal weight to each index each day. The PEI averages the daily results of The Financial Times Stock Exchange 100, The Deutsche Aktienindex and the CAC-40. The Portfolio principally invests in futures contracts on stock indexes and options on futures contracts and financial instruments such as equity caps, collars, floors and options on securities and stock indexes of large capitalization, widely traded, European stocks. The Portfolio invests in financial instruments with values that reflect the performance of stocks of European companies. - ----------------------------- ----------------------------------------------------------------------------------------------------- EMERGING MARKETS Montgomery Variable Series - Emerging Markets: Montgomery Asset Management, LLC seeks capital appreciation, which under normal conditions it seeks by investing at least 65% of its total assets in equity securities of companies in countries having emerging markets. Under normal conditions, investments are maintained in at least six emerging market countries at all times and no more than 25% of total assets are invested in any one emerging market country. - ------------------------------------------------------------------------------------------------------------------------------------ Sector funds generally diversify their investments across particular economic sectors. However, because those investments are limited to a comparatively narrow segment of the economy, sector funds are generally not as diversified as most mutual funds. Sector funds tend to be more volatile than other types of funds. The value of fund shares may go up and down more rapidly than other funds. Each sector of the economy may also have different regulatory or other risk factors that can cause greater fluctuations in the share price. Please read the prospectus for the underlying sector fund for further details about the risks of the particular sector of the economy. - ------------------------------ ---------------------------------------------------------------------------------------------------- INVESCO Variable Investment Funds - Financial INVESCO Funds Group, Inc. Services: seeks capital appreciation. The Portfolio normally invests at least 80% of its assets in the equity securities of companies involved in the financial services sector. This sector includes, among others, banks (regional and money-centers), insurance companies (life, property and casualty, and multiline), and investment and miscellaneous industries (asset managers, brokerage firms, and government-sponsored agencies). The investment advisor seeks companies which it believes can grow their revenues and earnings regardless of the interest rate environment - although securities prices of financial services companies generally are interest rate-sensitive. SECTOR ---------------------------------------------------------------------------------------------------- INVESCO Variable Investment Funds - Health INVESCO Funds Group, Inc. Sciences: seeks capital appreciation. The Portfolio invests at least 80% of its assets in the equity securities of companies that develop, produce or distribute products or services related to health care. These industries include, but are not limited to, medical equipment or supplies, pharmaceuticals, health care facilities, and applied research and development of new products or services. The investment advisor attempts to blend well-established healthcare firms with faster-growing, more dynamic health care companies, which have new products or are increasing their market share of existing products. - ------------------------------ ---------------------------------------------------------------------------------------------------- PORTFOLIO STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/ TYPE SUB-ADVISOR - ------------------------------ ---------------------------------------------------------------------------------------------------- - ------------------------------ ---------------------------------------------------------------------------------------------------- INVESCO Variable Investment Funds - Technology: INVESCO Funds Group, Inc. seeks capital appreciation. The Portfolio normally invests at least 80% of its assets in the equity securities of companies engaged in technology-related industries. These include, but are not limited to, communications, computers, video, electronics, oceanography, office and factory automation, and robotics. A core portion of the Portfolio's holdings are invested in market-leading technology companies which the investment advisor believes will maintain or improve their market share regardless of overall conditions. SECTOR ---------------------------------------------------------------------------------------------------- (Cont.) INVESCO Variable Investment Funds - INVESCO Funds Group, Inc. Telecommunications: seeks capital appreciation. The Portfolio normally invests at least 80% of its assets in the equity securities of companies that are primarily engaged in the design, development, manufacture, distribution, or sale of communications services and equipment, and companies that are involved in developing, constructing, or operating communications infrastructure projects throughout the world, or in supplying equipment or services to such companies. The telecommunications sector includes companies that offer telephone services, wireless communications, satellite communications, television and movie programming and broadcasting. Normally, the Portfolio will invest at least 65% of its assets in companies located in at least three different countries, although U.S. issuers will often dominate the holdings. - ------------------------------------------------------------------------------------------------------------------------------------ The ProFund VP UltraOTC and UltraSmall-Cap portfolios and the Nova, Ursa and OTC portfolios of the Rydex Variable Trust are available to all Owners. It is recommended that only those Owners who engage a financial advisor to allocate their funds in strategic or tactical asset allocation strategies invest in these portfolios. There can be no assurance that any financial advisor will successfully predict market fluctuations. - ------------------------------ ---------------------------------------------------------------------------------------------------- ProFund VP UltraOTC: seeks daily investment ProFund Advisors LLC results that correspond to twice (200%) the performance of the NASDAQ 100 Index(TM). The Portfolio principally invests in futures contracts on stock indexes and options on futures contracts and financial instruments such as equity caps, collars, floors and options on securities and stock indexes of large capitalization companies. If the Portfolio is successful in meeting its objective, it should gain approximately twice as much as the growth oriented NASDAQ 100 Index(TM) when the prices of the securities in that index rise on a given day and should lose approximately twice as much when such prices decline on that day. ---------------------------------------------------------------------------------------------------- ProFund VP UltraSmall-Cap: seeks daily ProFund Advisors LLC investment results that correspond to twice (200%) the performance of the Russell 2000(R) Index. The Portfolio principally invests in futures contracts on stock indexes and options STRATEGIC OR TACTICAL on futures contracts and financial instruments ALLOCATION such as equity caps, collars, floors and options on securities and stock indexes of diverse, widely traded, small capitalization companies. If the Portfolio is successful in meeting its objective, it should gain approximately twice as much as the growth oriented Russell 2000(R) Index when the prices of the securities in that index rise on a given day and should lose approximately twice as much when such prices decline on that day. ---------------------------------------------------------------------------------------------------- Rydex Variable Trust - Nova: seeks to provide PADCO Advisors II, Inc. investment returns that are 150% of the daily price movement of the S&P 500 Composite Stock Price Index by investing to a significant extent in futures contracts and options on securities, futures contracts and stock indexes. If the Portfolio meets its objective the value of its shares will tend to increase by 150% of the daily value of any increase in the S&P 500 Index. However, when the value of the S&P 500 Index declines, the value of its shares should also decrease by 150% of the daily value of any decrease in the S&P 500 Index. ---------------------------------------------------------------------------------------------------- Rydex Variable Trust - Ursa: seeks to provide PADCO Advisors II, Inc. investment results that will inversely correlate (e.g. be the opposite) to the performance of the S&P 500 Composite Stock Price Index by investing to a significant extent in futures contracts and options on securities, futures contracts and stock indexes. The Portfolio will generally not invest in the securities included in the S&P 500 Index. If the Portfolio meets its objective the value of its shares will tend to increase when the value of the S&P 500 Index is decreasing. However, when the value of the S&P 500 Index is increasing, the value of its STRATEGIC OR TACTICAL shares should decrease by an inversely ALLOCATION proportional amount. (Cont.) ---------------------------------------------------------------------------------------------------- Rydex Variable Trust - OTC: seeks to provide PADCO Advisors II, Inc. investment results that correspond to a benchmark for over-the-counter securities, currently the NASDAQ 100 Index(TM), by investing principally in the securities of companies included in that Index. The Portfolio may also invest in other instruments whose performance is expected to correspond to that of the Index, and may engage in futures and options transactions. If the Portfolio meets its objective the value of its shares will tend to increase by the amount of the increase in the NASDAQ 100 Index(TM). However, when the value of the NASDAQ 100 Index(TM) declines, the value of its shares should also decrease by the amount of the decrease in the value of the Index(TM). - ------------------------------ ----------------------------------------------------------------------------------------------------
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and "500" are trademarks of the McGraw-Hill Companies, Inc. and have been licensed for use by American Skandia Investment Services, Incorporated and Sanford Bernstein. The Portfolio is not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's makes no representation regarding the advisability of investing in the Portfolio. WHAT ARE THE FIXED INVESTMENT OPTIONS? We offer fixed investment options of different durations during the accumulation phase. These "Fixed Allocations" earn a guaranteed fixed rate of interest for a specified period of time, called the "Guarantee Period." In most states, we offer Fixed Allocations with Guarantee Periods of 1, 2, 3, 5, 7 and 10 years. We guarantee the fixed rate for the entire Guarantee Period. However, if you withdraw or transfer Account Value before the end of the Guarantee Period, we will adjust the value of your withdrawal or transfer based on a formula, called a "Market Value Adjustment." The Market Value Adjustment can either be positive or negative, depending on the rates that are currently being credited on Fixed Allocations. Please refer to the section entitled "How does the Market Value Adjustment Work?" for a description of the formula along with examples of how it is calculated. You may allocate Account Value to more than one Fixed Allocation at a time. Fixed Allocations are currently not available in the state of Maryland, Nevada, Oregon, Utah and Washington. FEES AND CHARGES WHAT ARE THE CONTRACT FEES AND CHARGES? There is no Contingent Deferred Sales Charge applied if you surrender your Annuity or make a partial withdrawal. Annual Maintenance Fee: During the accumulation period we deduct an Annual Maintenance Fee. The Annual Maintenance Fee is $30.00 or 2% of your Account Value invested in the variable investment options, whichever is less. This fee will be deducted annually on the anniversary of the Issue Date of your Annuity or, if you surrender your Annuity during the Annuity Year, the fee is deducted at the time of surrender. We may increase the Annual Maintenance Fee. However, any increase will only apply to Annuities issued after the date of the increase. We may reduce or eliminate the amount of the Annual Maintenance Fee when Annuities are sold to individuals or a group of individuals in a manner that reduces our maintenance expenses. We would consider such factors as: (a) the size and type of group; (b) the number of Annuities purchased by an Owner; (c) the amount of Purchase Payments; and/or (d) other transactions where maintenance expenses are likely to be reduced. We will not discriminate unfairly between Annuity purchasers if and when we eliminate or reduce the Annual Maintenance Fee. Optional Death Benefits: If you elect to purchase one of the Optional Death Benefits, we will deduct a charge from your Account Value on the anniversary of your Annuity's Issue Date or, under certain circumstances on a date other than the anniversary date. Please refer to the section entitled "Death Benefit" for a description of the charge for each Optional Death Benefit. Transfer Fee: You may make twelve (12) free transfers between investment options each Annuity Year. We will charge $10.00 for each transfer after the twelfth in each Annuity Year. We do not consider transfers made as part of a dollar cost averaging program when we count the twelve free transfers. Transfers made as part of a rebalancing, market timing or third party investment advisory service will be subject to the twelve-transfer limit. However, all transfers made on the same day will be treated as one (1) transfer. Renewals or transfers of Account Value from a Fixed Allocation at the end of its Guarantee Period are not subject to the Transfer Fee and are not counted toward the twelve free transfers. We may allow a higher number of transfers each Annuity Year without charging a Transfer Fee or may eliminate the Transfer Fee for transfer requests transmitted electronically or through other means that reduce our processing costs. Tax Charges: Several states and some municipalities charge premium taxes or similar taxes. The amount of tax will vary from jurisdiction to jurisdiction and is subject to change. The tax charge currently ranges up to 3 1/2%. We generally will deduct the amount of tax payable at the time the tax is imposed, but may also decide to deduct tax charges from each Purchase Payment at the time of a withdrawal or surrender of your Annuity or at the time you elect to begin receiving annuity payments. We may assess a charge against the Sub-accounts and the Fixed Allocations equal to any taxes which may be imposed upon the separate accounts. WHAT CHARGES APPLY SOLELY TO THE VARIABLE INVESTMENT OPTIONS? Insurance Charge: We deduct an Insurance Charge daily against the average daily assets allocated to the Sub-accounts. The charge is equal to 1.40% on an annual basis. This charge is for insurance benefits, including the Annuity's basic death benefit that provides guaranteed benefits to your beneficiary even if the market declines and the risk that persons we guarantee annuity payments to will live longer than our assumptions. The charge also covers administrative costs associated with providing the Annuity benefits, including preparation of the contract, confirmation statements, annual account statements and annual reports, legal and accounting fees as well as various related expenses. Finally, the charge covers the risk that our assumptions about the administrative and non-mortality expenses under this Annuity are incorrect. The Insurance Charge is not deducted against assets allocated to a fixed investment option. We may increase the portion of the Insurance Charge for administrative costs. However, any increase will only apply to Annuities issued after the date of the increase. We may reduce the portion of the Insurance Charge for administrative costs when Annuities are sold to individuals or a group of individuals in a manner that reduces our administrative expenses. We would consider such factors as: (a) the size and type of group; (b) the number of Annuities purchased by an Owner; (c) the amount of Purchase Payments; and/or (d) other transactions where administration expenses are likely to be reduced. We will not discriminate unfairly between Annuity purchasers if and when we reduce the portion of the Insurance Charge attributed to the charge covering administrative costs. WHAT CHARGES APPLY TO THE FIXED ALLOCATIONS? We take into consideration mortality, expense, administration, profit and other factors in determining the interest rates we credit to Fixed Allocations. No specific fee or expenses are deducted when determining the rate we credit. Any Tax Charge applies to amounts that are taken from the variable investment options or the Fixed Allocations. A Market Value Adjustment may also apply to transfers, certain withdrawals or surrender from a Fixed Allocation. WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYOUT? In certain states a tax is due if and when you exercise your right to receive periodic annuity payments. The amount payable will depend on the applicable jurisdiction and on the annuity payment option you select. If you select an option that guarantees payment for life, then the payment amount also will depend on your age and, where permitted by law, your gender. In all cases, the amount of each payment will depend on the Account Value of your Annuity when you elect to begin annuity payments. PURCHASING YOUR ANNUITY WHAT ARE OUR REQUIREMENTS FOR PURCHASING THE ANNUITY? Initial Purchase Payment: You must make a minimum initial Purchase Payment of $15,000. However, if you decide to make payments under a systematic investment or "bank drafting" program, we will accept a lower initial Purchase Payment provided that, within the first Annuity Year, you make at least $15,000 in total Purchase Payments. We must approve any Purchase Payment in excess of $500,000. Age Restrictions: There is no age restriction to purchase the Annuity. However, the basic Death Benefit provides greater protection for a period of ten (10) years from the Issue Date but not beyond age 90. There is no Contingent Deferred Sales Charge deducted upon surrender or partial withdrawal. However, if you take a distribution prior to age 59 1/2, you may be subject to a 10% penalty in addition to ordinary income taxes on any gain. Owner, Annuitant and Beneficiary Designations: On your Application, we will ask you to name the Owner(s), Annuitant and one or more Beneficiaries for your Annuity. |X| Owner: The Owner(s) holds all rights under the Annuity. You may name more than one Owner in which case all ownership rights are held jointly. However, this Annuity does not provide a right of survivorship. Refer to the Glossary of Terms for a complete description of the term "Owner." |X| Annuitant: The Annuitant is the person we agree to make annuity payments to and upon whose life we continue to make such payments. You must name an Annuitant who is a natural person. We do not accept a designation of joint Annuitants during the accumulation period. Where allowed by law, you may name one or more Contingent Annuitants. A Contingent Annuitant will become the Annuitant if the Annuitant dies before the Annuity Date. |X| Beneficiary: The Beneficiary is the person(s) or entity you name to receive the death benefit. If no beneficiary is named the death benefit will be paid to you or your estate. You should seek competent tax advice on the income, estate and gift tax implications of your designations. MANAGING YOUR ANNUITY MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS? You may change the Owner, Annuitant and Beneficiary designations by sending us a request in writing. Where allowed by law, such changes will be subject to our acceptance. Some of the changes we will not accept include, but are not limited to: |X| a new Owner subsequent to the death of the Owner or the first of any joint Owners to die, except where a spouse-Beneficiary has become the Owner as a result of an Owner's death; |X| a new Annuitant subsequent to the Annuity Date; |X| a new Annuitant prior to the Annuity Date if the Annuity is owned by an entity; and |X| a change in Beneficiary if the Owner had previously made the designation irrevocable. Spousal Owners/Spousal Beneficiaries If an Annuity is owned jointly by spouses, the death benefit will be payable upon the death of the first spouse. However, if the sole primary Beneficiary is designated as one of the following: |X| "surviving spouse"; |X| each spouse named individually upon the death of the other; or |X| a designation which we, in our sole discretion, determine to be of similar intent; then upon the death of either Owner, the surviving spouse may elect to be treated as the Owner and continue the Annuity, subject to its existing terms and conditions, instead of taking the Death Benefit. MAY I RETURN THE ANNUITY IF I CHANGE MY MIND? (The right to return the Annuity is referred to as the "free-look" right or "right to cancel.") If after purchasing your Annuity you change your mind and decide that you do not want it, you may return it to us within a certain period of time known as a free-look period. Depending on the state in which you purchased your Annuity, the free-look period may be ten (10) days, twenty-one (21) days or longer, measured from the time that you received your Annuity. If you free-look your Annuity, we will refund your current Account Value plus any tax charge deducted. This amount may be higher or lower than your original Purchase Payment. Certain states require that we return your current Account Value or the amount of your initial Purchase Payment, whichever is greater. The same rule applies to an Annuity that is purchased as an IRA. In those states where we are required to return the greater of your Purchase Payment or Account Value, we will allocate your Account Value to the AST Money Market Sub-account during the free-look period and for a reasonable additional amount of time to allow for delivery of your Annuity. If you free-look your Annuity, we will not return any additional amounts we applied to your Annuity based on your Purchase Payments. MAY I MAKE ADDITIONAL PURCHASE PAYMENTS? The minimum amount that we accept as an additional Purchase Payment is $100 unless you participate in American Skandia's Systematic Investment Plan or a periodic purchase payment program. We will allocate any additional Purchase Payments you make according to your most recent allocation instructions, unless you request new allocations when you submit a new Purchase Payment. MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT? You can make additional Purchase Payments to your Annuity by authorizing us to deduct money directly from your bank account and applying it to your Annuity. This type of program is often called "bank drafting". We call our bank drafting program "American Skandia's Systematic Investment Plan." Purchase Payments made through bank drafting may only be allocated to the variable investment options. Bank drafting allows you to invest in an Annuity with a lower initial Purchase Payment, as long as you authorize payments that will equal at least $15,000 during the first 12 months of your Annuity. We may suspend or cancel bank drafting privileges if sufficient funds are not available from the applicable financial institution on any date that a transaction is scheduled to occur. MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM? These types of programs are only available with certain types of plans. If your employer sponsors such a program, we may agree to accept periodic Purchase Payments through a salary reduction program as long as the allocations are made only to variable investment options and the periodic Purchase Payments received in the first year total at least $15,000. MANAGING YOUR ACCOUNT VALUE HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED? (See "Valuing Your Investment" for a description of our procedure for pricing initial and subsequent Purchase Payments.) Initial Purchase Payment: Once we accept your application, we invest your net Purchase Payment in the Annuity. The net Purchase Payment is your initial Purchase Payment minus any tax charges that may apply. On your application we ask you to provide us with instructions for allocating your Account Value. You can allocate Account Value to one or more variable investment options or Fixed Allocations. In those states where we are required to return your Purchase Payment if you elect to "free-look" your Annuity, we initially allocate all amounts that you choose to allocate to the variable investment options to the AST Money Market Sub-account. At the end of the "free-look" period we will reallocate your Account Value according to your most recent allocation instructions. Where permitted by law, we will allocate your Purchase Payments according to your initial instructions, without temporarily allocating to the AST Money Market Sub-account. To do this, we will ask that you execute our form called a "return waiver" that authorizes us to allocate your Purchase Payment to your chosen Sub-accounts immediately. If you submit the "return waiver" and then decide to return your Annuity during the free-look period, you will receive your current Account Value which may be more or less than your initial Purchase Payment (see "May I Return the Annuity if I Change my Mind?"). Subsequent Purchase Payments: We will allocate any additional Purchase Payments you make according to your current allocation instructions. If any rebalancing or asset allocation programs are in effect, the allocation should conform with such a program. We assume that your current allocation instructions are valid for subsequent Purchase Payments until you make a change to those allocations or request new allocations when you submit a new Purchase Payment. ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS? During the accumulation period you may transfer Account Value between investment options. Transfers are not subject to taxation. We currently limit the number of Sub-accounts you can invest in at any one time to twenty (20). However, you can invest in an unlimited number of Fixed Allocations. We may require a minimum of $500 in each Sub-account you allocate Account Value to at the time of any allocation or transfer. If you request a transfer and, as a result of the transfer, there would be less than $500 in the Sub-account, we may transfer the remaining Account Value in the Sub-account pro rata to the other investment options to which you transferred. We will charge $10.00 for each transfer after the twelfth (12th) in each Annuity Year, including transfers made as part of any rebalancing, market timing, asset allocation or similar program which you have authorized. Transfers made as part of a dollar cost averaging program do not count toward the twelve free transfer limit. Renewals or transfers of Account Value from a Fixed Allocation at the end of its Guarantee Period are not subject to the transfer charge. We may allow a higher number of transfers each Annuity Year without charging a Transfer Fee or may eliminate the Transfer Fee for transfer requests transmitted electronically or through other means that reduce our processing costs. We reserve the right to limit the number of transfers in any Annuity Year for all existing or new Owners. We also reserve the right to limit the number of transfers in any Annuity Year or to refuse any transfer request for an Owner or certain Owners if: (a) we believe that excessive trading or a specific transfer request or group of transfer requests may have a detrimental effect on Unit Values or the share prices of the Portfolios; or (b) we are informed by one or more of the Portfolios that the purchase or redemption of shares must be restricted because of excessive trading or a specific transfer or group of transfers is deemed to have a detrimental effect on the share prices of affected Portfolios. Without limiting the above, the most likely scenario where either of the above could occur would be if the aggregate amount of a trade or trades represented a relatively large proportion of the total assets of a particular Portfolio. Under such a circumstance, we will process transfers according to our rules then in effect and provide notice if the transfer request was denied. If a transfer request is denied, a new transfer request may be required. DO YOU OFFER DOLLAR COST AVERAGING? Yes. We offer Dollar Cost Averaging during the accumulation period. Dollar Cost Averaging allows you to systematically transfer an amount each month from one investment option to one or more other investment options. You can choose to transfer earnings only, principal plus earnings or a flat dollar amount. Dollar Cost Averaging allows you to invest regularly each month, regardless of the current unit value (or price) of the Sub-account(s) you invest in. This enables you to purchase more units when the market price is low and fewer units when the market price is high. This may result in a lower average cost of units over time. However, there is no guarantee that Dollar Cost Averaging will result in a profit or protect against a loss in a declining market. You must have a minimum Account Value of at least $10,000 to enroll in a Dollar Cost Averaging program. You can Dollar Cost Average from variable investment options or Fixed Allocations. Dollar Cost Averaging from Fixed Allocations is subject to a number of rules that include, but are not limited to the following: |X| You may only use Fixed Allocations with Guarantee Periods of 1, 2 or 3 years. |X| You may only Dollar Cost Average earnings or principal plus earnings. If transferring principal plus earnings, the program must be designed to last the entire Guarantee Period for the Fixed Allocation. |X| Dollar Cost Averaging transfers from Fixed Allocations are not subject to a Market Value Adjustment. We may credit additional amounts to your Account Value if you allocate Purchase Payments to Fixed Allocations as part of a dollar cost averaging program. Any such offer is at our sole discretion and may be cancelled at any point. Specific rules may also apply including a change to the MVA formula. For more information see "Additional Amounts in the Fixed Allocation." DO YOU OFFER ANY AUTOMATIC REBALANCING PROGRAMS? Yes. During the accumulation period, we offer automatic rebalancing among the variable investment options you choose. You can choose to have your Account Value rebalanced quarterly, semi-annually, or annually. On the appropriate date, your variable investment options are rebalanced to the allocation percentages you request. For example, over time the performance of the variable investment options will differ, causing your percentage allocations to shift. With automatic rebalancing, we transfer the appropriate amount from the "overweighted" Sub-accounts to the "underweighted" Sub-accounts to return your allocations to the percentages you request. If you request a transfer from or into any variable investment option participating in the automatic rebalancing program, we will assume that you wish to change your rebalancing percentages as well, and will automatically adjust the rebalancing percentages in accordance with the transfer unless we receive alternate instructions from you. You must have a minimum Account Value of at least $10,000 to enroll in automatic rebalancing. All rebalancing transfers made on the same day as part of an automatic rebalancing program are considered as one transfer when counting the number of transfers each year toward the maximum number of free transfers. DO YOU OFFER A PROGRAM TO BALANCE FIXED AND VARIABLE INVESTMENTS? Some investors wish to invest in the variable investment options but also wish to protect a portion of their investment from market fluctuations. We offer a balanced investment program where a portion of your Purchase Payment is allocated to a Fixed Allocation for a Guarantee Period that you select and the remaining Account Value is allocated to the variable investment options that you select. The amount that we allocate to the Fixed Allocation is the amount (not including any additional amounts we applied to your Annuity based on your Purchase Payments) that will grow to a specific "principal amount" such as your initial Purchase Payment. We determine the amount based on the rates then in effect for the Guarantee Period you choose. If no amounts are transferred or withdrawn from the Fixed Allocation, at the end of the Guarantee Period, it will have grown to equal the "principal amount". The remaining Account Value that was not allocated to the Fixed Allocation can be allocated to any of the Sub-accounts that you choose. Account Value allocated to the variable investment options is subject to market fluctuations and may increase or decrease in value. Example Assume you have $100,000 to invest. You choose to allocate a portion of your Account Value to a Fixed Allocation with a 10-year Guarantee Period. The rate for the 10-year Guarantee Period is 6.13%*. Based on the chosen Guarantee Period and interest rate, the factor for determining how much of your Account Value can be allocated to the Fixed Allocation is 0.551593. That means that $55,159 will be allocated to the Fixed Allocation and the remaining Account Value ($44,841) will be allocated to the variable investment options. Assuming that you do not make any withdrawals from the Fixed Allocation, it will grow to $100,000 at the end of the Guarantee Period. Of course we cannot predict the value of the remaining Account Value that was allocated to the variable investment options. * The rate in this example is hypothetical and may not reflect the current rate for Guarantee Periods of this duration. The hypothetical values in this example do not include the amount of any Target Value Credits that may apply. We may credit additional amounts to Fixed Allocations if you allocate Purchase Payments in accordance with the balanced investment program we offer. Any such offer is at our sole discretion and may be cancelled at any point. Specific rules may also apply, including a change to the MVA formula. For more information see "Additional Amounts in the Fixed Allocations." MAY I AUTHORIZE MY FINANCIAL REPRESENTATIVE TO MANAGE MY ACCOUNT? You may authorize your financial representative to decide on the allocation of your Account Value and to make financial transactions between investment options, subject to our rules. However, we can suspend or cancel these privileges at any time. We will notify you if we do. We may restrict the available investment options if you authorize a financial representative to make transfers for you. We do this so that no financial representative is in a position to control transfers of large amounts of money for multiple clients into or out of any of the underlying portfolios that have expressed concern about movement of a large proportion of a portfolio's assets. We may also establish different "cut-off times" by which we must receive all financial transactions for certain underlying portfolios. Currently, the portfolios of Rydex Variable Trust and ProFund VP are subject to this restriction. Financial transactions involving a Rydex or ProFund VP Sub-account must be received by us no later than one hour prior to any announced closing time of the applicable securities exchange (generally, 3:00 p.m. Eastern time) to be processed on the current Valuation Day. If you request a transaction involving the purchase or redemption of Units in one of the Rydex or ProFund VP Sub-accounts after the "cut-off" time, we will deem your request as received by us on the next Valuation Day. You may be required to submit a new request on the following day. We or an affiliate of ours may provide administrative support to financial representatives who make transfers on your behalf. These financial representatives may be firms or persons who also are appointed by us as authorized sellers of the Annuity. However, we do not offer you advice about how to allocate your Account Value under any circumstance. Any financial firm or representative you engage to provide advice and/or make transfers for you is not acting on our behalf. We are not responsible for any recommendations such financial representatives make, any market timing or asset allocation programs they choose to follow or any specific transfers they make on your behalf. HOW DO THE FIXED INVESTMENT OPTIONS WORK? (Fixed Allocations may not be available in all states and may not be available in certain durations.) Fixed Allocations currently are offered with Guarantee Periods of 1, 2, 3, 5, 7 and 10 years. We credit the fixed interest rate to the Fixed Allocation throughout a set period of time called a "Guarantee Period." The interest rate credited to a Fixed Allocation is the rate in effect when the Guarantee Period begins and does not change during the Guarantee Period. The rates are an effective annual rate of interest. We determine the interest rates for the various Guarantee Periods. At the time that we confirm your Fixed Allocation, we will advise you of the interest rate in effect and the date your Fixed Allocation matures. We may change the rates we credit new Fixed Allocations at any time. To inquire as to the current rates for Fixed Allocations, please call 1-800-766-4530. A Guarantee Period for a Fixed Allocation begins: |X| when all or part of a net Purchase Payment is allocated to that particular Guarantee Period; |X| upon transfer of any of your Account Value to a Fixed Allocation for that particular Guarantee Period; or |X| when a Guarantee Period attributable to a Fixed Allocation "renews" after its Maturity Date. To the extent permitted by law, we may increase interest rates offered to a class of Owners who choose to participate in various services we make available. This may include, but is not limited to, Owners who elect to use dollar cost averaging from Fixed Allocations (see "Do You Offer Dollar Cost Averaging?") or the balanced investment program (see "Do You Offer a Program to Balance Fixed and Variable Investments?"). Any such program is at our sole discretion. HOW DO YOU DETERMINE RATES FOR FIXED ALLOCATIONS? We do not have a specific formula for determining the fixed interest rates for Fixed Allocations. Generally the interest rates we offer for Fixed Allocations will reflect the investment returns available on the types of investments we make to support our fixed rate guarantees. These investment types may include cash, debt securities guaranteed by the United States government and its agencies and instrumentalities, money market instruments, corporate debt obligations of different durations, private placements, asset-backed obligations and municipal bonds. In determining rates we also consider factors such as the length of the Guarantee Period for the Fixed Allocation, regulatory and tax requirements, liquidity of the markets for the type of investments we make, commissions, administrative and investment expenses, our insurance risks in relation to the Fixed Allocations, general economic trends and competition. We will credit interest on a new Fixed Allocation in an existing Annuity at a rate not less than the rate we are then crediting to Fixed Allocations for the same Guarantee Period selected by new Annuity purchasers in the same class. HOW DOES THE MARKET VALUE ADJUSTMENT WORK? If you transfer or withdraw Account Value from a Fixed Allocation before the end of its Guarantee Period, we will adjust the value of your investment based on a formula, called a "Market Value Adjustment" or "MVA". The Market Value Adjustment formula compares the interest rates credited for Fixed Allocations at the time you invested, to interest rates being credited when you make a transfer or withdrawal. The amount of any Market Value Adjustment can be either positive or negative, depending on the rates that are currently being credited on Fixed Allocations. MVA Formula The MVA formula is applied separately to each Fixed Allocation. The formula is as follows: [(1+I) / (1+J+0.0010)]N/12 where: I is the fixed interest rate we guaranteed to credit to the Fixed Allocation as of its starting date; J is the fixed interest rate for your class of annuities at the time of the withdrawal for a new Fixed Allocation with a Guarantee Period equal to the remaining number of years in your original Guarantee Period; N is the number of months remaining in the original Guarantee Period. If you surrender your Annuity under the "free-look" provision, the MVA formula is [(1 + I)/(1 + J)]N/12. If the transfer or withdrawal does not occur on the yearly or monthly anniversary of the beginning of the Fixed Allocation, the numbers used in 'J' and 'N' will be rounded to the next highest integer. MVA Examples The following hypothetical examples show the effect of the MVA in determining Account Value. Assume the following: |X| You allocate $50,000 into a Fixed Allocation with a Guarantee Period of 5 years. |X| The interest rate for your Fixed Allocation is 5.0% (I = 5.0%). |X| You make no withdrawals or transfers until you decided to withdraw the entire Fixed Allocation after exactly three (3) years, therefore 24 months remain before the Maturity Date (N = 24). Example of Positive MVA Assume that at the time you request the withdrawal, the fixed interest rate for a new Fixed Allocation with a Guarantee Period of 24 months is 3.5% (J = 3.5%). Based on these assumptions, the MVA would be calculated as follows: MVA Factor = [(1+I)/(I+J+0.0010)]N/12 = [1.05/1.036]2 = 1.027210 Interim Value = $57,881.25 Account Value after MVA = Interim Value X MVA Factor = $59,456.20. Example of Negative MVA Assume that at the time you request the withdrawal, the fixed interest rate for a new Fixed Allocation with a Guarantee Period of 24 months is 6.0% (J = 6.0%). Based on these assumptions, the MVA would be calculated as follows: MVA Factor = [(1+I)/(1+J+0.0010)]N/12 = [1.05/1.061)]2 = 0.979372 Interim Value = $57,881.25 Account Value after MVA = Interim Value X MVA Factor = $56,687.28. WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES? The "Maturity Date" for a Fixed Allocation is the last day of the Guarantee Period. On the Maturity Date, you may choose to renew the Fixed Allocation for a new Guarantee Period of the same or different length or you may transfer all or part of that Fixed Allocation's Account Value to another Fixed Allocation or to one or more Sub-accounts. If you do not specify how you want a Fixed Allocation to be allocated on its Maturity Date, it will be renewed for a Fixed Allocation of the same duration if then available. We will notify you 60 days before the end of the Guarantee Period about the fixed interest rates that we are currently crediting to all Fixed Allocations that are being offered. The rates being credited to Fixed Allocations may change before the Maturity Date. We will not charge a MVA if you choose to renew a Fixed Allocation on its Maturity Date or transfer the Account Value to one or more variable investment options. ADDITIONAL AMOUNTS IN THE FIXED ALLOCATIONS If you allocate Account Value to the Fixed Allocations and participate in certain programs we offer to help you to manage your Annuity's Account Value, under certain circumstances we may apply Additional Amounts to your Account Value allocated to the Fixed Allocation. Additional Amounts may be offered at any time at our sole discretion. When offered, Additional Amounts are provided from our general account. Any program to provide Additional Amounts to Fixed Allocations are subject to the following rules: |X| Additional Amounts are only offered if you participate in a balanced investment program (see "Do you offer a program to balance fixed and variable investment options?") or dollar cost averaging (see " Do you offer Dollar Cost Averaging?"). |X| Additional Amounts are only available on initial or additional Purchase Payments. Account Value transferred to a Fixed Allocation for use in the applicable programs will not receive the Additional Amounts. Additional Amounts are not available on an Annuity that is issued following an exchange of another annuity issued by us. |X| You may not withdraw any Additional Amounts under the Free Withdrawal provision without assessment of the contingent deferred sales charge (see "Can I make withdrawals from my Annuity without a CDSC?). |X| If Additional Amounts are applied to a Fixed Allocation, the MVA formula is revised as follows: [(1+I) / (1+J+0.0020)]N/12 Please refer to the section of the Prospectus entitled "How does the Market Value Adjustment Work?" for a discussion of the MVA formula. |X| We do not consider Additional Amounts as "investment in the contract" for income tax purposes. |X| We may require that you allocate Account Value to a Fixed Allocation with a Guarantee Period of certain duration (i.e. 10 years). |X| Specific rules apply in relation to the duration of the Guarantee Period you must choose to be eligible to receive any Additional Amounts, and the date on which we allocate any Additional Amounts to the Fixed Allocation and begin crediting interest on the Additional Amount. AMERICAN SKANDIA'S PERFORMANCE ADVANTAGE Do you provide any guarantees on my investment? The Annuity provides variable investment options and fixed investment options. Only the fixed investment options provide a guaranteed return on your investment, subject to certain terms and conditions. However, your Annuity includes a feature at no additional cost that provides certain benefits if your Account Value has not reached or exceeded a "target value" on its 10th anniversary. If, on the 10th anniversary of your Annuity's Issue Date, your Account Value has not reached the target value (as defined below) you can choose either of the following benefits: |X| You may continue your Annuity without electing to receive Annuity payments and receive an annual credit to your Account Value payable until you begin receiving Annuity payments. The credit is equal to 0.25% of the average of your Annuity's Account Value for the preceding four complete calendar quarters. This credit is applied to your investment options pro-rata based on the allocation of your then current Account Value. |X| You may begin receiving Annuity payments within one year and accept a one-time credit to your Annuity equal to 10% of the net of the Account Value on the 10th anniversary of its Issue Date minus the sum of all Purchase Payments allocated in the prior five years. The annuity option you select must initially guarantee payments for not less than seven years. Following the 10th anniversary of your Annuity's Issue Date, we will inform you if your Account Value did not meet or exceed the Target Value. We will assume that you have elected to receive the annual credit to your Account Value unless, not less than 30 days prior to the next anniversary of the Annuity, we receive at our home office your election to begin receiving Annuity payments. Certain provisions of this benefit and of the Target Value Credits described below may differ if you purchase your Annuity as part of an exchange, replacement or transfer, in whole or in part, from any other Annuity we issue. What is the "Target Value" and how is it calculated? The Target Value is a tool used to determine whether you are eligible to elect either of the benefits described above. The Target Value does not impact the Account Value available if you surrender your Annuity or make a partial withdrawal and does not impact the Death Benefit available to your Beneficiary(ies). The Target Value assumes a rate of return over ten (10) Annuity Years that will allow your initial investment to double in value, adjusted for any withdrawals and/or additional Purchase Payments you make during the 10 year period. We calculate the "Target Value" as follows: 1. Accumulate the initial Purchase Payment at an annual interest rate of 7.2% until the 10th anniversary of the Annuity's Issue Date; plus 2. Accumulate any additional Purchase Payments at an annual interest rate of 7.2% from the date applied until the 10th anniversary of the Annuity's Issue Date; minus 3. Each "proportional reduction" resulting from any withdrawal, accumulating at an annual interest rate of 7.2% from the date the withdrawal is processed until the 10th anniversary of the Annuity's Issue Date. We determine each "proportional reduction" by determining the percentage of your Account Value then withdrawn and reducing the Target Value by that same percentage. We include any withdrawals under your Annuity in this calculation, as well as the charge we deduct for any optional benefits you elect under the Annuity, but not the charge we deduct for the Annual Maintenance Fee or the Transfer Fee. Examples 1. Assume you make an initial Purchase Payment of $10,000 and make no further Purchase Payments. The Target Value on the 10th anniversary of your Annuity's Issue Date would be $20,042, assuming no withdrawals are made. This is equal to $10,000 accumulating at an annual rate of 7.2% for the 10-year period. 2. Assume you make an initial Purchase Payment of $10,000 and make no further Purchase Payments. Assume at the end of Year 6, your Account Value has increased to $15,000 and you make a withdrawal of 10% or $1,500. The Target Value on the 10th anniversary would be $18,722. This is equal to $10,000 accumulating at an annual rate of 7.2% for the 10-year period, minus the proportional reduction accumulating at an annual interest rate of 7.2%. Can I restart the 10-year Target Value calculation? Yes, you can elect to lock in the growth in your Annuity by "restarting" the 10-year period on any anniversary of the Issue Date. If you elect to restart the calculation period, we will treat your Account Value on the restart date as if it was your Purchase Payment when determining if your Annuity's Account Value meets or exceeds the Target Value on the appropriate tenth (10th) anniversary. You may elect to restart the calculation more than once, in which case, the 10-year calculation period will begin on the date of the last restart date. We must receive your election to restart the calculation at our home office not later than 30 days after each anniversary of the Issue Date. What are Target Value Credits? Target Value Credits are additional amounts that we apply to your Account Value to increase the likelihood that your Account Value will meet or exceed the Target Value. Target Value Credits are payable on all Purchase Payments applied before the first anniversary of the Issue Date of your Annuity. The amount of the Target Value Credit is equal to 1.0% of each qualifying Purchase Payment. Target Value Credits are only payable on qualifying Purchase Payments if the Owner(s) of the Annuity is(are) less than age 81 on its Issue Date. If the Annuity is owned by an entity, the age restriction applies to the age of the Annuitant on the Issue Date. The Target Value Credit is payable from our general account and is allocated to the investment options in the same ratio that the qualifying Purchase Payment is allocated. Target Value Credits will not be available if you purchase your Annuity as part of an exchange, replacement or transfer, in whole or in part, of an Annuity we issued that has the same or a similar benefit. Recovery of Target Value Credits We can recover the amount of any Target Value Credit under the following circumstances: 1. If you surrender your Annuity before the 10th anniversary of the Issue Date of the Annuity. 2. If you elect to begin receiving Annuity payments before the first anniversary of the Issue Date. 3. If a person on whose life we pay the Death Benefit dies, (a) within 12 months after the date a Target Value Credit was allocated to your Account Value; or (b) within 10 years after the date a Target Value Credit was allocated to your Account Value if any owner was over age 70 on the Issue Date, or, if the Annuity was then owned by an entity, the Annuitant was over age 70 on the Issue Date. ACCESS TO ACCOUNT VALUE WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME? During the accumulation phase you can access your Account Value through Partial Withdrawals, Systematic Withdrawals, and where required for tax purposes, Minimum Distributions. You can also surrender your Annuity at any time. There is no Contingent Deferred Sales Charge applied upon withdrawal or surrender. However, we may apply a Market Value Adjustment to any Fixed Allocations being withdrawn or surrendered. We may also recover the amount of any Target Value Credits upon surrender. Unless you notify us differently, withdrawals are taken pro-rata based on the Account Value in the investment options at the time we receive your withdrawal request. Each of these types of distributions is described more fully below. ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS? (For more information, see "Tax Considerations") During the Accumulation Period A distribution during the accumulation period is deemed to come first from any "gain" in your Annuity and second as a return of your "tax basis", if any. Distributions from your Annuity are generally subject to ordinary income taxation on the amount of any investment gain. If you take a distribution prior to the taxpayer's age 59 1/2, you may be subject to a 10% penalty in addition to ordinary income taxes on any gain. You may wish to consult a professional tax advisor for advice before requesting a distribution. During the Annuitization Period During the annuitization period, a portion of each annuity payment is taxed as ordinary income at the tax rate you are subject to at the time you receive the payment. The Code and regulations have "exclusionary rules" that we use to determine what portion of each annuity payment should be treated as a return of any tax basis you have in the Annuity. Once the tax basis in the Annuity has been distributed, the remaining annuity payments are taxable as ordinary income. The tax basis in the Annuity may be based on the tax-basis from a prior contract in the case of a 1035 exchange or other qualifying transfer. CAN I WITHDRAW A PORTION OF MY ANNUITY? Yes, you can make a withdrawal during the accumulation phase. We call this a "Partial Withdrawal." The amount that you may withdraw will equal your Surrender Value as of the date we process the withdrawal request. There is no Contingent Deferred Sales Charge applied if you surrender your Annuity or make a partial withdrawal. After any Partial Withdrawal, your Annuity must have a Surrender Value of at least $1,000, or we may treat the Partial Withdrawal request as a request to fully surrender your Annuity. The minimum Partial Withdrawal you may request is $100. CAN I MAKE PERIODIC WITHDRAWALS FROM THE ANNUITY DURING THE ACCUMULATION PERIOD? Yes. We call these "Systematic Withdrawals." You can receive Systematic Withdrawals of earnings only, principal plus earnings or a flat dollar amount. Systematic Withdrawals can be made from Account Value allocated to the variable investment options or Fixed Allocations. Generally, Systematic Withdrawals from Fixed Allocations are limited to earnings accrued after the program of Systematic Withdrawals begins, or payments of fixed dollar amounts that do not exceed such earnings. Systematic Withdrawals are available on a monthly, quarterly, semi-annual or annual basis. The Account Value of your Annuity must be at least $20,000 before we will allow you to begin a program of Systematic Withdrawals. The minimum amount for each Systematic Withdrawal is $100. If any scheduled Systematic Withdrawal is for less than $100, we may postpone the withdrawal and add the expected amount to the amount that is to be withdrawn on the next scheduled Systematic Withdrawal. DO YOU OFFER A PROGRAM FOR WITHDRAWALS UNDER SECTION 72(t) OF THE INTERNAL REVENUE CODE? Yes. If your Annuity is used as a funding vehicle for certain retirement plans that receive special tax treatment under Sections 401, 403(b) or 408 of the Code, Section 72(t) of the Code may provide an exception to the 10% penalty tax on distributions made prior to age 59 1/2 if you elect to receive distributions as a series of "substantially equal periodic payments". To request a program that complies with Section 72(t), you must provide us with certain required information in writing on a form acceptable to us. We may require advance notice to allow us to calculate the amount of 72(t) withdrawals. The Surrender Value of your Annuity must be at least $20,000 before we will allow you to begin a program for withdrawals under Section 72(t). The minimum amount for any such withdrawal is $100. WHAT ARE MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM? (See "Tax Considerations" for a further discussion of Minimum Distributions.) Minimum Distributions are a type of Systematic Withdrawal we allow to meet distribution requirements under Sections 401, 403(b) or 408 of the Code. Under the Code, you may be required to begin receiving periodic amounts from your Annuity. In such case, we will allow you to make Systematic Withdrawals in amounts that satisfy the minimum distribution rules under the Code. If you request, we will calculate the annual required Minimum Distribution under your Annuity. The amount of the required Minimum Distribution for your particular situation may depend on other annuities, savings or investments. We will only calculate the amount of your required Minimum Distribution based on the value of your Annuity. We require three (3) days advance written notice to calculate and process the amount of your payments. We may charge you for calculating required Minimum Distributions. You may elect to have Minimum Distributions paid out monthly, quarterly, semi-annually or annually. The $100 minimum that applies to Systematic Withdrawals does not apply to Minimum Distributions. CAN I SURRENDER MY ANNUITY FOR ITS VALUE? Yes. During the accumulation phase you can surrender your Annuity at any time. Upon surrender, you will receive the Surrender Value. Upon surrender of your Annuity, you will no longer have any rights under the Annuity. WHAT TYPES OF ANNUITY PAYMENT OPTIONS ARE AVAILABLE UPON ANNUITIZATION? Annuity payments can be guaranteed for the life of the Annuitant, for the life of the Annuitant with a certain period guaranteed, or for a certain fixed period of time with no life contingency. We currently make available fixed payments and adjustable payments. However, adjustable annuity payments may not be available on your Annuity Date. You may choose an Annuity Date, an annuity option and the frequency of annuity payments when you purchase an Annuity, or at a later date. You may change your choices up to 30 days before the Annuity Date. Any change to these options must be in writing. The Annuity Date must be the first or the fifteenth day of a calendar month. A maximum Annuity Date may be required by law. We currently offer the following fixed Annuity Payment Options. Additional Annuity Payment Options, including variable options, may be offered in the future. Key Life: is the person or persons upon whose life annuity payments with a life contingency are based. Option 1 Payments for Life: Under this option, income is payable periodically until the death of the "key life". No additional annuity payments are made after the death of the key life. Since no minimum number of payments is guaranteed, this option offers the largest amount of periodic payments of the life contingent annuity options. It is possible that only one payment will be payable if the death of the key life occurs before the date the second payment was due, and no other payments nor death benefits would be payable. Option 2 Payments for Life with 10, 15, or 20 Years Certain: Under this option, income is payable until the death of the key life. However, if the key life dies before the end of the period selected (10, 15, or 20 years), the remaining payments are paid to the Beneficiary until the end of such period. Option 3 Payments Based on Joint Lives: Under this option, income is payable periodically during the joint lifetime of two key lives, and thereafter during the remaining lifetime of the survivor, ceasing with the last payment prior to the survivor's death. No minimum number of payments is guaranteed under this option. It is possible that only one payment will be payable if the death of all the key lives occurs before the date the second payment was due, and no other payments or death benefits would be payable. Option 4 Payments for a Certain Period: Under this option, income is payable periodically for a specified number of years. If the payee dies before the end of the specified number of years, the remaining payments are paid to the Beneficiary to the end of such period. Note that under this option, payments are not based on any assumptions of life expectancy. Therefore, that portion of the Insurance Charge assessed to cover the risk that key lives outlive our expectations provides no benefit to an Owner selecting this option. HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION? If you have not provided us with your Annuity Date or Annuity Payment Option in writing, then: |X| the Annuity Date will be the first day of the calendar month following the later of the Annuitant's 85th birthday or the fifth anniversary of our receipt of your request to purchase an Annuity; and |X| the Annuity Payments, where allowed by law, will be fixed monthly payments for life with 10 years certain (See Option 2). If you have not made an election prior to death benefit proceeds becoming due, the Beneficiary may elect to receive the death benefit under one of the fixed Annuity Payment Options or any option we make available for death proceeds. However, if you made an election, the Beneficiary may not alter such election. HOW ARE ANNUITY PAYMENTS CALCULATED? The first annuity payment varies according to the annuity payment option and payment frequency selected. The first payment is determined by multiplying the Account Value plus any additional amounts applied by us under the Performance Advantage benefit by the factor determined from our table of annuity rates. Your Account Value will be determined as of the close of business on the fifteenth day preceding the Annuity Date, plus interest at not less that 3% per year from such date to the Annuity Date. The table of annuity rates differ based on the type of annuity chosen and the frequency of payment selected. Our rates will not be less than our guaranteed minimum rates. These guaranteed minimum rates are derived from the 1983a Individual Annuity Mortality Table with ages set back one year for males and two years for females and with an assumed interest rate of 3% per annum. Where required by law or regulation, such annuity table will have rates that do not differ according to the gender of the key life. Otherwise, the rates will differ according to the gender of the key life. DEATH BENEFIT WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT? The Annuity provides a Death Benefit during its accumulation phase. If the Annuity is owned by one or more natural persons, the Death Benefit is payable upon the first death of an Owner. If the Annuity is owned by an entity, the Death Benefit is payable upon the Annuitant's death, if there is no Contingent Annuitant. If a Contingent Annuitant was designated before the Annuitant's death and the Annuitant dies, then the Contingent Annuitant becomes the Annuitant and a Death Benefit will not be paid at that time. The person upon whose death the Death Benefit is paid is referred to below as the "decedent." DEATH BENEFIT OPTIONS Your Annuity provides a "basic" Death Benefit at no additional charge and also offers two different optional Death Benefits that can be purchased for an additional charge. Under certain circumstances, your Death Benefit may be reduced by the amount of any Target Value Credits we applied to your Purchase Payments. (see "Recovery of Target Value Credits") Basic Death Benefit The basic Death Benefit depends on the decedent's age on the date of death: If death occurs before the earlier of the decedent's age 90 or the end of the tenth Annuity Year: The Death Benefit is the greater of: |X| The sum of all Purchase Payments less the sum of all withdrawals; and |X| The sum of your Account Value in the variable investment options and your Interim Value in the Fixed Allocations. If death occurs after the earlier of the decedent's age 90 or the tenth Annuity Year: The Death Benefit is your Account Value. Optional Death Benefits We offer two optional Death Benefits to provide an enhanced level of protection for your beneficiaries. Currently, these benefits are only offered and must be elected at the time that you purchase your Annuity. We may, at a later date, allow existing Annuity Owners to purchase either of the optional Death Benefits subject to our rules. If the Annuity has one Owner, the Owner must be age 80 or less at the time either optional Death Benefit is purchased. If the Annuity has joint Owners, the oldest Owner must be age 80 or less. If the Annuity is owned by an entity, the Annuitant must be age 80 or less. Key Terms Used with the Optional Death Benefits |X| The Death Benefit Target Date is the contract anniversary on or after the 80th birthday of the current Owner, the oldest of either joint Owner or the Annuitant, if entity owned. |X| The Highest Anniversary Value equals the highest of all previous "Anniversary Values" on or before the earlier of the Owner's date of death and the "Death Benefit Target Date". |X| The Anniversary Value is the Account Value as of each anniversary of the Issue Date plus the sum of all Purchase Payments on or after such anniversary less the sum of all "Proportional Reductions" since such anniversary. |X| A Proportional Reduction is a reduction to the value being measured caused by a withdrawal, equaling the percentage of the withdrawal as compared to the Account Value as of the date of the withdrawal. For example, if your Account Value is $10,000 and you withdraw $2,000 (a 20% reduction), we will reduce both your Anniversary Value and the amount determined by Purchase Payments increasing at the appropriate interest rate by 20%. |X| The Assumed Accumulation Rate is the rate of interest that we will apply to your Purchase Payments only for purposes of calculating this benefit The Assumed Accumulation Rate is different depending on which Optional Death Benefit you select as shown below: --------------------------- ------------------------ Option 1 Option 2 5.0% per year 7.2% per year --------------------------- ------------------------ - -------------------------------------------------------------------------------- Certain terms and conditions may differ if you purchase your Annuity as part of an exchange, replacement or transfer, in whole or in part, from any other Annuity we issue. - -------------------------------------------------------------------------------- Calculation of Optional Death Benefits The optional Death Benefit calculations depend on whether death occurs before or after the Death Benefit Target Date. Annuities with one Owner The optional Death Benefits are calculated as follows: If the Owner dies before the Death Benefit Target Date, the Death Benefit equals the greatest of: 1. the Account Value in the Sub-accounts plus the Interim Value of any Fixed Allocations (no MVA) as of the date we receive in writing "due proof of death"; and 2. the sum of all Purchase Payments minus the sum of all Proportional Reductions, each increasing daily until the Owner's date of death at the applicable Assumed Accumulation Rate for the option you elect, subject to a limit of 200% of the difference between the sum of all Purchase Payments and the sum of all withdrawals as of the Owner's date of death; and 3. the "Highest Anniversary Value" on or immediately preceding the Owner's date of death. The amount determined by this calculation is increased by any Purchase Payments received after the Owner's date of death and decreased by any Proportional Reductions since such date. The amount calculated in Item 1 & 3 above may be reduced by any Target Value Credits under certain circumstances. If the Owner dies on or after the Death Benefit Target Date, the Death Benefit equals the greater of: 1. the Account Value as of the date we receive in writing "due proof of death" (an MVA may be applicable to amounts in any Fixed Allocations); and 2. the greater of Item 2 & 3 above on the Death Benefit Target Date plus the sum of all Purchase Payments less the sum of all Proportional Reductions since the Death Benefit Target Date. The amount calculated in Item 1 above may be reduced by any Target Value Credits under certain circumstances. Annuities with joint Owners For Annuities with Joint Owners, the Death Benefit is calculated as shown above except that the age of the oldest of the Joint Owners is used to determine the Death Benefit Target Date. NOTE: If you and your spouse own the Annuity jointly, we will pay the Death Benefit to the Beneficiary. If the sole primary Beneficiary is the surviving spouse, then the surviving spouse can elect to assume ownership of the Annuity and continue the contract instead of receiving the Death Benefit. Annuities owned by entities For Annuities owned by an entity, the Death Benefit is calculated as shown above except that the age of the Annuitant is used to determine the Death Benefit Target Date. Payment of the Death Benefit is based on the death of the Annuitant (or Contingent Annuitant, if applicable). Examples of Optional Death Benefit Calculation The following are examples of how the Optional Death Benefits are calculated. Each example assumes that a $50,000 initial Purchase Payment is made and that no withdrawals are made prior to the Owner's death. Each example assumes that there is one Owner who is age 50 on the Issue Date and that all Account Value is maintained in the variable investment options. Example of market increase greater than Assumed Accumulation Rate Assume that the Owner's Account Value has generally been increasing. On the date we receive due proof of death (the Owner's 58th birthday), the Account Value is $90,000. The Highest Anniversary Value at the end of any previous period is $72,000. The Death Benefit would be the Account Value ($90,000) because it is greater than the Highest Anniversary Value ($72,000) or the sum of prior Purchase Payments increased by 5.0% annually ($73,872.77 - Option 1) or 7.2% annually for ($87,202.36 - Option 2). Example of market decrease Assume that the Owner's Account Value generally increased until the fifth anniversary but generally has been decreasing since the fifth contract anniversary. On the date we receive due proof of death (the Owner's 58th birthday), the Account Value is $48,000. The Highest Anniversary Value at the end of any previous period is $54,000. The Death Benefit would be the sum of prior Purchase Payments increased by 5.0% annually ($73872.77 - Option 1) or 7.2% annually for ($87202.36 - Option 2) because it is greater than the Highest Anniversary Value ($54,000) or the Account Value ($48,000). Example of Highest Anniversary Value Assume that the Owner's Account Value increased significantly during the first six years following the Issue Date. On the sixth anniversary date the Account Value was $90,000. During the seventh Annuity Year, the Account Value increases to as high as $100,000 but then subsequently falls to $80,000 on the date we receive due proof of death (the Owner's 58th birthday). The Death Benefit would be the Highest Anniversary Value at the end of any previous period ($90,000), which occurred on the sixth anniversary, although the Account Value was higher during the subsequent period. The Account Value on the date we receive due proof of death ($80,000) is lower, as is the sum of all prior Purchase Payments increased by 5.0% annually ($73,872.77 - Option 1) or 7.2% annually for ($87,202.36 - Option 2). How much do you charge for the optional death benefits? We deduct a charge from your Account Value if you elect to purchase either Optional Death Benefit. For Option 1, each deduction is 0.35% of the then current Death Benefit when the deduction is taken. For Option 2, each deduction is 0.55% of the then current Death Benefit when the deduction is taken. No charge applies after the Annuity Date. We deduct the charge: 1. on each anniversary of the Issue Date; 2. when Account Value is transferred to our general account prior to the Annuity Date; 3. if you surrender your Annuity; and 4. if you choose to terminate the benefit. If you surrender the Annuity, elect to begin receiving Annuity payments or terminate the benefit on a date other than an anniversary of the Issue Date, the charge will be prorated. During the first year after the Issue Date, the charge would be prorated from the Issue Date. In all subsequent years, it would be prorated from the last anniversary of the Issue Date. We first deduct the amount of the charge pro-rata from the Account Value in the variable investment options. We only deduct the charge pro-rata from the Fixed Allocations to the extent there is insufficient Account Value in the variable investment options to pay the charge. If your Annuity's Account Value is insufficient to pay the charge, we may deduct your remaining Account Value and terminate your Annuity. We will notify you if your Account Value is insufficient to pay the charge and allow you to submit an additional Purchase Payment to continue your Annuity. Are there any exceptions to these rules for paying the Death Benefit? Yes, there are exceptions that apply no matter how your Death Benefit is calculated. There are exceptions to the Death Benefit if the decedent was not the Owner or Annuitant as of the Issue Date and did not become the Owner or Annuitant due to the prior Owner's or Annuitant's death. Any minimum Death Benefit that applies will be suspended for a two-year period from the date he or she first became Owner or Annuitant. After the two-year suspension period is completed, the Death Benefit is the same as if this person had been an Owner or Annuitant on the Issue Date. What options are available to my Beneficiary upon my death? |X| During the accumulation period, if you die and the sole Beneficiary is your spouse, then your spouse may elect to be treated as the current Owner. The Annuity can be continued, subject to its terms and conditions, in lieu of receiving the death benefit. Your spouse may only assume ownership of the Annuity if he or she is designated as the sole primary Beneficiary. |X| In the event of your death, the death benefit must be distributed within: (a) five years of the date of death; or (b) over a period not extending beyond the life expectancy of the Beneficiary or over the life of the Beneficiary. Payments under this option must begin within one year of the date of death. When do you determine the Death Benefit? We determine the amount of the Death Benefit as of the date we receive "due proof of death" and any other written representations we require to determine the proper payment of the Death Benefit to all Beneficiaries. "Due proof of death" may include a certified copy of a death certificate, a certified copy of a decree of a court of competent jurisdiction as to the finding of death or other satisfactory proof of death. We will require written acknowledgment of all named Beneficiaries before we can determine the Death Benefit. During the period from the date of death until we receive all required paper work, the amount of the Death Benefit may be subject to market fluctuations. VALUING YOUR INVESTMENT HOW IS MY ACCOUNT VALUE DETERMINED? During the accumulation period, the Annuity has an Account Value. The Account Value is determined separately for each Sub-account allocation and for each Fixed Allocation. The Account Value includes any additional amounts we applied to your Purchase Payments that we are entitled to recover upon surrender of your Annuity. The Account Value is the sum of the values of each Sub-account allocation and the value of each Fixed Allocation. When determining the Account Value on a day other than a Fixed Allocation's Maturity Date, the Account Value may include any Market Value Adjustment that would apply to a Fixed Allocation (if withdrawn or transferred) on that day. WHAT IS THE SURRENDER VALUE OF MY ANNUITY? The Surrender Value of your Annuity is the value available to you on any day during the accumulation period. The Surrender Value is equal to your Account Value minus the Annual Maintenance Fee and any additional amounts we applied to your Purchase Payments that we are entitled to recover upon surrender of your Annuity. The Surrender Value will also include any Market Value Adjustment that may apply. HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS? When you allocate Account Value to a Sub-Account, you are purchasing units of the Sub-account. Each Sub-account invests exclusively in shares of an underlying Portfolio. The value of the Units fluctuate with the market fluctuations of the Portfolios. The value of the Units also reflect the daily accrual for the Insurance Charge. Each Valuation Day, we determine the price for a Unit of each Sub-account, called the "Unit Price." The Unit Price is used for determining the value of transactions involving Units of the Sub-accounts. We determine the number of Units involved in any transaction by dividing the dollar value of the transaction by the Unit Price of the Sub-account as of the Valuation Day. Example Assume you allocate $5,000 to a Sub-account. On the Valuation Day you make the allocation, the Unit Price is $14.83. Your $5,000 buys 337.154 Units of the Sub-account. Assume that later, you wish to transfer $3,000 of your Account Value out of that Sub-account and into another Sub-account. On the Valuation Day you request the transfer, the Unit Price of the original Sub-account has increased to $16.79. To transfer $3,000, we sell 178.677 Units at the current Unit Price, leaving you 158.477 Units. We then buy $3,000 of Units of the new Sub-account at the Unit Price of $17.83. You would then have 168.255 Units of the new Sub-account. HOW DO YOU VALUE FIXED ALLOCATIONS? During the Guarantee Period, we use the concept of an Interim Value. The Interim Value can be calculated on any day and is equal to the initial value allocated to a Fixed Allocation plus all interest credited to a Fixed Allocation as of the date calculated. The Interim Value does not include the impact of any Market Value Adjustment. If you made any transfers or withdrawals from a Fixed Allocation, the Interim Value will reflect the withdrawal of those amounts and any interest credited to those amounts before they were withdrawn. To determine the Account Value of a Fixed Allocation on any day other than its Maturity Date, we multiply the Account Value of the Fixed Allocation times the Market Value Adjustment factor. WHEN DO YOU PROCESS AND VALUE TRANSACTIONS? Initial Purchase Payments: We are required to allocate your initial Purchase Payment to the Sub-accounts within two (2) days after we receive all of our requirements to issue the Annuity. If we do not have all the required information to allow us to issue your Annuity, we may retain the Purchase Payment while we try to reach you or your representative to obtain all of our requirements. If we are unable to obtain all of our required information within five (5) days, we are required to return the Purchase Payment to you at that time, unless you specifically consent to our retaining the Purchase Payment while we gather the required information. Once we obtain the required information, we will invest the Purchase Payment and issue the Annuity within two (2) days. During any period that we are trying to obtain the required information, your money is not invested. Additional Purchase Payments: We will apply any additional Purchase Payments on the Valuation Day that we receive the Purchase Payment with satisfactory instructions. Scheduled Transactions: "Scheduled" transactions include transfers under a Dollar Cost Averaging, rebalancing, or asset allocation program, Systematic Withdrawals, Minimum Distributions or Annuity payments. Scheduled transactions are processed and valued as of the date they are scheduled, unless the scheduled day is not a Valuation Day. In that case, the transaction will be processed and valued on Valuation Day prior to the scheduled transaction date. Unscheduled Transactions: "Unscheduled" transactions include any other non-scheduled transfers and requests for Partial Withdrawals or Surrenders. Unscheduled transactions are processed and valued as of the Valuation Day we receive the request at our Office in good order. Death Benefits: Death Benefit claims require our review and evaluation before processing. We price such transactions as of the date we receive at our Office all materials we require for such transaction and that are satisfactory to us. Transactions in Rydex and ProFund VP Sub-accounts: Any financial transactions involving the Rydex or ProFund VP Sub-accounts must be received by us no later than one hour prior to any announced closing of the applicable securities exchange (generally, 3:00 p.m. Eastern time) to be processed on the current Valuation Day. If you request a transaction involving the purchase or redemption of Units in one of the Rydex or ProFund VP Sub-accounts after the "cut-off" time, we will deem your request as received by us on the next Valuation Day. You may be required to submit a new request on the following day. TAX CONSIDERATIONS WHAT ARE SOME OF THE FEDERAL TAX CONSIDERATIONS OF THIS ANNUITY? Following is a brief summary of some of the Federal tax considerations relating to this Annuity. However, since the tax laws are complex and tax consequences are affected by your individual circumstances, this summary of our interpretation of the relevant tax laws is not intended to be fully comprehensive nor is it intended as tax advice. Therefore, you may wish to consult a professional tax advisor for tax advice as to your particular situation. HOW ARE AMERICAN SKANDIA AND THE SEPARATE ACCOUNTS TAXED? The Separate Accounts are taxed as part of American Skandia. American Skandia is taxed as a life insurance company under Part I, subchapter L of the Code. No taxes are due on interest, dividends and short-term or long-term capital gains earned by the Separate Accounts with respect to the Annuities. IN GENERAL, HOW ARE ANNUITIES TAXED? Section 72 of the Code governs the taxation of annuities in general. Taxation of the Annuity will depend in large part on: 1. whether the Annuity is used by: |X| a qualified pension plan, profit sharing plan or other retirement arrangement that is eligible for special treatment under the Code (for purposes of this discussion, a "Qualified Contract"); or |X| an individual or a corporation, trust or partnership (a "Non-qualified Contract"); and 2. whether the Owner is: |X| an individual person or persons; or |X| an entity including a corporation, trust or partnership. Individual Ownership: If one or more individuals own an Annuity, the Owner of the Annuity is generally not taxed on any increase in the value of the Annuity until an amount is received (a "distribution"). This is commonly referred to as "tax deferral". A distribution can be in the form of a lump sum payment including payment of a Death Benefit, or in annuity payments under one of the annuity payment options. Certain other transactions may qualify as a distribution and be subject to taxation. Entity Ownership: If the Annuity is owned by an entity and is not a Qualified Contract, generally the Owner of the Annuity must currently include any increase in the value of the Annuity during a tax year in its gross income. An exception from current taxation applies for annuities held by a structured settlement company, by an employer with respect to a terminated tax-qualified retirement plan, a trust holding an annuity as an agent for a natural person, or by a decedent's estate by reason of the death of the decedent. A tax-exempt entity for Federal tax purposes will not be subject to income tax as a result of this provision. HOW ARE DISTRIBUTIONS TAXED? Distributions from an Annuity are taxed as ordinary income and not as capital gains. Distributions Before Annuitization: Distributions received before annuity payments begin are generally treated as coming first from "income on the contract" and then as a return of the "investment in the contract". The amount of any distribution that is treated as receipt of "income on the contract" is includible in the taxpayer's gross income and taxable in the year it is received. The amount of any distribution treated as a return of the "investment in the contract" is not includible in gross income. |X| "Income on the contract" is calculated by subtracting the taxpayer's "investment in the contract" from the aggregate value of all "related contracts" (discussed below). |X| "Investment in the contract" is equal to total purchase payments for all "related contracts" minus any previous distributions or portions of such distributions from such "related contracts" that were not includible in gross income. "Investment in the contract" may be affected by whether an annuity or any "related contract" was purchased as part of a tax-free exchange of life insurance, endowment, or annuity contracts under Section 1035 of the Code. Unless "after-tax" or non-deductible contributions have been made to a Qualified Contract, the "investment in the contract" for a Qualified Contract will be considered zero for tax reporting purposes. Distributions After Annuitization: A portion of each annuity payment received on or after the Annuity Date will generally be taxable. The taxable portion of each annuity payment is determined by a formula which establishes the ratio that the "investment in the contract" bears to the total value of annuity payments to be made. This is called the "exclusion ratio." The investment in the contract is excluded from gross income. Any additional payments received that exceed the exclusion ratio will be entirely includible in gross income. The formula for determining the exclusion ratio differs between fixed and variable annuity payments. When annuity payments cease because of the death of the person upon whose life payments are based and, as of the date of death, the amount of annuity payments excluded from taxable income by the exclusion ratio does not exceed the "investment in the contract," then the remaining portion of unrecovered investment is allowed as a deduction by the beneficiary in the tax year of such death. Penalty Tax on Distributions: Generally, any distribution from an annuity not used in conjunction with a Qualified Contract (Qualified Contracts are discussed below) is subject to a penalty equal to 10% of the amount includible in gross income. This penalty does not apply to certain distributions, including: |X| Distributions made on or after the taxpayer has attained age 591/2; |X| Distributions made on or after the death of the contract owner, or, if the owner is an entity, the death of the annuitant; |X| Distributions attributable to the taxpayer's becoming disabled; |X| Distributions which are part of a series of substantially equal periodic payments for the life (or life expectancy) of the taxpayer (or the joint lives of the taxpayer and the taxpayer's Beneficiary); |X| Distributions of amounts which are treated as "investments in the contract" made prior to August 14, 1982; |X| Payments under an immediate annuity as defined in the Code; |X| Distributions under a qualified funding asset under Code Section 130(d); or |X| Distributions from an annuity purchased by an employer on the termination of a qualified pension plan that is held by the employer until the employee separates from service. Special rules applicable to "related contracts": Contracts issued by the same insurer to the same contract owner within the same calendar year (other than certain contracts owned in connection with a tax-qualified retirement arrangement) are to be treated as one annuity contract when determining the taxation of distributions before annuitization. We refer to these contracts as "related contracts." In situations involving related contracts we believe that the values under such contracts and the investment in the contracts will be added together to determine the proper taxation of a distribution from any one contract described under the section "Distributions before Annuitization." Distributions will be treated as coming first from income on the contract until all of the income on all such related contracts is withdrawn, and then as a return of the investment in the contract. There is some uncertainty regarding the manner in which the Internal Revenue Service would view related contracts when one or more contracts are immediate annuities or are contracts that have been annuitized. The Internal Revenue Service has not issued guidance clarifying this issue as of the date of this Prospectus. You are particularly cautioned to seek advice from your own tax advisor on this matter. Special concerns regarding "substantially equal periodic payments": (also known as "72(t)" or "72(q)" distributions) Any modification to a program of distributions which are part of a series of substantially equal periodic payments that occur before the later of the taxpayer reaching age 59 1/2 or five (5) years from the first of such payments will result in the requirement to pay the taxes that would have been due had the payments been treated as subject to tax in the years received, plus interest. This does not apply when the modification is due by reason of death or disability. It is our understanding that the Internal Revenue Service may not consider a scheduled series of distributions to qualify under Sections 72(q) or 72(t) if the holder of the annuity retains the right to modify such distributions at will, even if such right is not exercised, or, for a variable annuity, depending on how payments are structured. Special concerns regarding immediate annuities: The Internal Revenue Service has ruled that the exception to the 10% penalty described above for "non-qualified" immediate annuities as defined under the Code may not apply to annuity payments under a contract recognized as an immediate annuity under state insurance law obtained pursuant to an exchange of a contract if: (a) purchase payments for the exchanged contract were contributed or deemed to be contributed more than one year prior to the annuity starting date under the immediate annuity; and (b) the annuity payments under the immediate annuity do not meet the requirements of any other exception to the 10% penalty. Special rules in relation to tax-free exchanges under Section 1035: Section 1035 of the Code permits certain tax-free exchanges of a life insurance, annuity or endowment contract for an annuity. If an annuity is purchased through a tax-free exchange of a life insurance, annuity or endowment contract that was purchased prior to August 14, 1982, then any distributions other than as annuity payments will be considered to come: |X| First, from the amount of "investment in the contract" made prior to August 14, 1982 and exchanged into the annuity; |X| Then, from any "income on the contract" that is attributable to the purchase payments made prior to August 14, 1982 (including income on such original purchase payments after the exchange); |X| Then, from any remaining "income on the contract"; and |X| Lastly, from the amount of any "investment in the contract" made after August 13, 1982. Therefore, to the extent a distribution is equal to or less than the investment in the contract made prior to August 14, 1982, such amounts are not included in taxable income. Further, distributions received that are considered to be a return of investment on the contract from purchase payments made prior to August 14, 1982, such distributions are not subject to the 10% tax penalty. In all other respects, the general provisions of the Code apply to distributions from annuities obtained as part of such an exchange. On November 22, 1999, the Internal Revenue Service issued an acquiescence in the decision of the United States Tax Court in Conway v. Commissioner (111 T.C. 350 (1998)) that a taxpayer's partial surrender of an annuity contract and direct transfer of the resulting proceeds for the purchase of a new annuity contract qualifies as a non-taxable exchange under Section 1035 of the Internal Revenue Code. "Acquiescence" means that the IRS accepts the holding of the Court in a case and that the IRS will follow it in disposing of cases with the same controlling facts. Prior to the Conway decision, industry practice has been to treat a partial surrender of account value as fully taxable to the extent of any gain in the contract for tax reporting purposes and to "step-up" the basis in the contract accordingly. However with the IRS' acquiescence in the Conway decision, partial surrenders may be treated in the same way as tax-free 1035 exchanges of entire contracts, therefore avoiding current taxation of any gains in the contract as well as the 10% IRS tax penalty on pre-age 59 1/2 withdrawals. The IRS reserved the right to treat transactions it considers abusive as ineligible for this favorable partial 1035 exchange treatment. We do not know what transactions may be considered abusive. For example, we do not know how the IRS may view early withdrawals or annuitizations after a partial exchange. As of the date of this Prospectus, we continue to report partial surrenders of non-qualified annuities as subject to current taxation to the extent of any gain. However, we may change our reporting procedures to treat certain of these transactions as partial 1035 exchanges. Should we do so, we reserve the right to report transactions that may have been designed to receive partial 1035 exchange treatment as partial surrenders subject to current taxation if we, as a reporting and withholding agent, believe that we would be expected to deem a transaction to be abusive. While the principles expressed in the Conway decision appear applicable to partial exchanges from life insurance, there is no guidance from the Internal Revenue Service as to whether it concurs with non-recognition treatment under Section 1035 of the Code for such transactions. In addition, please be cautioned that no specific guidance has been provided as to the impact of such a transaction for the remaining life insurance policy, particularly as to the subsequent methods to be used to test for compliance under the Code for both the definition of life insurance and the definition of a modified endowment contract. WHAT TAX CONSIDERATIONS ARE THERE FOR TAX-QUALIFIED RETIREMENT PLANS OR QUALIFIED CONTRACTS? An annuity may be suitable as a funding vehicle for various types of tax-qualified retirement plans. We have provided summaries of the types of tax-qualified retirement plans with which we may issue an Annuity. These summaries provide general information about the tax rules and are not intended to be complete discussions. The tax rules regarding qualified plans are complex. These rules may include limitations on contributions and restrictions on distributions, including additional taxation of distributions and additional penalties. The terms and conditions of the tax-qualified retirement plan may impose other limitations and restrictions that are in addition to the terms of the Annuity. The application of these rules depends on individual facts and circumstances. Before purchasing an Annuity for use in a qualified plan, you should obtain competent tax advice, both as to the tax treatment and suitability of such an investment. American Skandia does not offer all of its annuities to all of these types of tax-qualified retirement plans. Corporate Pension and Profit-sharing Plans: Annuities may be used to fund employee benefits of various corporate pension and profit-sharing plans established by corporate employers under Section 401(a) of the Code including 401(k) plans. Contributions to such plans are not taxable to the employee until distributions are made from the retirement plan. The Code imposes limitations on the amount that may be contributed and the timing of distributions. The tax treatment of distributions is subject to special provisions of the Code, and also depends on the design of the specific retirement plan. There are also special requirements as to participation, nondiscrimination, vesting and nonforfeitability of interests. H.R. 10 Plans: Annuities may also be used to fund benefits of retirement plans established by self-employed individuals for themselves and their employees. These are commonly known as "H.R. 10 Plans" or "Keogh Plans". These plans are subject to most of the same types of limitations and requirements as retirement plans established by corporations. However, the exact limitations and requirements may differ from those for corporate plans. Tax Sheltered Annuities: Under Section 403(b) of the Code, a tax sheltered annuity ("TSA") is a contract into which contributions may be made by certain qualifying employers such as public schools and certain charitable, educational and scientific organizations specified in Section 501(c)(3) for the benefit of their employees. Such contributions are not taxable to the employee until distributions are made from the TSA. The Code imposes limits on contributions, transfers and distributions. Nondiscrimination requirements also apply. - -------------------------------------------------------------------------------- Under a TSA, you may be prohibited from taking distributions from the contract attributable to contributions made pursuant to a salary reduction agreement unless the distribution is made: - -------------------------------------------------------------------------------- |X| After the participating employee attains age 59 1/2; |X| Upon separation from service, death or disability; or |X| In the case of financial hardship (subject to restrictions). - -------------------------------------------------------------------------------- Section 457 Plans: Under Section 457 of the Code, deferred compensation plans established by governmental and certain other tax exempt employers for their employees may invest in annuity contracts. The Code limits contributions and distributions, and imposes eligibility requirements as well. Contributions are not taxable to employees until distributed from the plan. However, plan assets remain the property of the employer and are subject to the claims of the employer's general creditors until such assets are made available to participants or their beneficiaries. Individual Retirement Programs or "IRAs": Section 408 of the Code allows eligible individuals to maintain an individual retirement account or individual retirement annuity ("IRA"). IRAs are subject to limitations on the amount that may be contributed, the contributions that may be deducted from taxable income, the persons who may be eligible to establish an IRA and the time when distributions must commence. Further, an Annuity may be established with "roll-over" distributions from certain tax-qualified retirement plans and maintain the tax-deferred status of these amounts. Roth IRAs: A form of IRA is also available called a "Roth IRA". Contributions to a Roth IRA are not tax deductible. However, distributions from a Roth IRA are free from Federal income taxes and are not subject to the 10% penalty tax if five (5) tax years have passed since the first contribution was made or any conversion from a traditional IRA was made and the distribution is made (a) once the taxpayer is age 59 1/2 or older, (b) upon the death or disability of the taxpayer, or (c) for qualified first-time home buyer expenses, subject to certain limitations. Distributions from a Roth IRA that are not "qualified" as described above may be subject to Federal income and penalty taxes. Purchasers of IRAs and Roth IRAs will receive a special disclosure document, which describes limitations on eligibility, contributions, transferability and distributions. It also describes the conditions under which distributions from IRAs and qualified plans may be rolled over or transferred into an IRA on a tax-deferred basis and the conditions under which distributions from traditional IRAs may be rolled over to, or the traditional IRA itself may be converted into, a Roth IRA. SEP IRAs: Eligible employers that meet specified criteria may establish Simplified Employee Pensions or SEP IRAs. Employer contributions that may be made to employee SEP IRAs are larger than the amounts that may be contributed to other IRAs, and may be deductible to the employer. HOW ARE DISTRIBUTIONS FROM QUALIFIED CONTRACTS TAXED? Distributions from Qualified Contracts are generally taxed under Section 72 of the Code. Under these rules, a portion of each distribution may be excludable from income. The excludable amount is the proportion of a distribution representing after-tax contributions. Generally, a 10% penalty tax applies to the taxable portion of a distribution from a Qualified Contract made prior to age 59 1/2. However, the 10% penalty tax does not apply when the distribution: |X| is part of a properly executed transfer to another IRA or another eligible qualified account; |X| is subsequent to the death or disability of the taxpayer (for this purpose disability is as defined in Section 72(m)(7) of the Code); |X| is part of a series of substantially equal periodic payments to be paid not less frequently than annually for the taxpayer's life or life expectancy or for the joint lives or life expectancies of the taxpayer and a designated beneficiary; |X| is subsequent to a separation from service after the taxpayer attains age 55*; |X| does not exceed the employee's allowable deduction in that tax year for medical care*; |X| is made to an alternate payee pursuant to a qualified domestic relations order*; and |X| is made pursuant to an IRS levy. The exceptions above which are followed by an asterisk (*) do not apply to IRAs. Certain other exceptions may be available. Minimum Distributions after age 70 1/2: A participant's interest in a Qualified Contract must generally be distributed, or begin to be distributed, by the "required beginning date". This is April 1st of the calendar year following the later of: |X| the calendar year in which the individual attains age 70 1/2; or |X| the calendar year in which the individual retires from service with the employer sponsoring the plan. The retirement option is not available to IRAs. The participant's entire interest must be distributed beginning no later than the required beginning date over a period which may not extend beyond a maximum of the life or life expectancy of the participant (or the life expectancies of the owner and a designated Beneficiary). Each annual distribution must equal or exceed a "minimum distribution amount" which is determined by dividing the account value by the applicable life expectancy or pursuant to an annuity payout. If the account balance is used, it generally is based upon the Account Value as of the close of business on the last day of the previous calendar year. If the participant dies before reaching his or her "required beginning date", his or her entire interest must generally be distributed within five (5) years of death. However, this rule will be deemed satisfied if distributions begin before the close of the calendar year following death to a designated Beneficiary (or over a period not extending beyond the life expectancy of the beneficiary). If the Beneficiary is the individual's surviving spouse, distributions may be delayed until the deceased owner would have attained age 70 1/2. A surviving spouse would also have the option to assume the IRA as his or her own if he or she is the sole designated beneficiary. If a participant dies after reaching his or her required beginning date or after distributions have commenced, the individual's interest must generally be distributed at least as rapidly as under the method of distribution in effect at the time of the individual's death. If the amount distributed is less than the minimum required distribution for the year, the participant is subject to a 50% tax on the amount that was not properly distributed. GENERAL TAX CONSIDERATIONS Diversification: Section 817(h) of the Code provides that a variable annuity contract, in order to qualify as an annuity, must have an "adequately diversified" segregated asset account (including investments in a mutual fund by the segregated asset account of insurance companies). If the diversification requirements under the Code are not met and the annuity is not treated as an annuity, the taxpayer will be subject to income tax on the annual gain in the contract. The Treasury Department's regulations prescribe the diversification requirements for variable annuity contracts. We believe the underlying mutual fund portfolios should comply with the terms of these regulations. Transfers Between Investment Options: Transfers between investment options are not subject to taxation. The Treasury Department may promulgate guidelines under which a variable annuity will not be treated as an annuity for tax purposes if persons with ownership rights have excessive control over the investments underlying such variable annuity. Such guidelines may or may not address the number of investment options or the number of transfers between investment options offered under a variable annuity. It is not known whether such guidelines, if in fact promulgated, would have retroactive effect. It is also not known what effect, if any, such guidelines may have on transfers between the investment options of the Annuity offered pursuant to this Prospectus. We will take any action, including modifications to your Annuity or the Sub-accounts, required to comply with such guidelines if promulgated. Federal Income Tax Withholding: Section 3405 of the Code provides for Federal income tax withholding on the portion of a distribution which is includible in the gross income of the recipient. Amounts to be withheld depend upon the nature of the distribution. However, under most circumstances a recipient may elect not to have income taxes withheld or have income taxes withheld at a different rate by filing a completed election form with us. Certain distributions, including rollovers, from most Qualified Contracts, may be subject to automatic 20% withholding for Federal income taxes. This will not apply to: |X| any portion of a distribution paid as Minimum Distributions; |X| direct transfers to the trustee of another retirement plan; |X| distributions from an individual retirement account or individual retirement annuity; |X| distributions made as substantially equal periodic payments for the life or life expectancy of the participant in the retirement plan or the life or life expectancy of such participant and his or her designated beneficiary under such plan; and |X| certain other distributions where automatic 20% withholding may not apply. Loans, Assignments and Pledges: Any amount received directly or indirectly as a loan from, or any assignment or pledge of any portion of the value of, an annuity before annuity payments have begun are treated as a distribution subject to taxation under the distribution rules set forth above. Any gain in an annuity on or after the assignment or pledge of an entire annuity and while such assignment or pledge remains in effect is treated as "income on the contract" in the year in which it is earned. For annuities not issued for as Qualified Contracts, the cost basis of the annuity is increased by the amount of any assignment or pledge includible in gross income. The cost basis is not affected by any repayment of any loan for which the annuity is collateral or by payment of any interest thereon. Gifts: The gift of an annuity to someone other than the spouse of the owner (or former spouse incident to a divorce) is treated, for income tax purposes, as a distribution. Estate and Gift Tax Considerations: You should obtain competent tax advice with respect to possible federal and state estate and gift tax consequences flowing from the ownership and transfer of annuities. Generation-Skipping Transfers: Under the Code certain taxes may be due when all or part of an annuity is transferred to, or a death benefit is paid to, an individual two or more generations younger than the contract holder. These generation-skipping transfers generally include those subject to federal estate or gift tax rules. There is an aggregate $1 million exemption from taxes for all such transfers. We may be required to determine whether a transaction is a direct skip as defined in the Code and the amount of the resulting tax. We will deduct from your Annuity or from any applicable payment treated as a direct skip any amount of tax we are required to pay. Considerations for Contingent Annuitants: There may be adverse tax consequences if a contingent annuitant succeeds an annuitant when the Annuity is owned by a trust that is neither tax exempt nor qualifies for preferred treatment under certain sections of the Code. In general, the Code is designed to prevent indefinite deferral of tax. Continuing the benefit of tax deferral by naming one or more contingent annuitants when the Annuity is owned by a non-qualified trust might be deemed an attempt to extend the tax deferral for an indefinite period. Therefore, adverse tax treatment may depend on the terms of the trust, who is named as contingent annuitant, as well as the particular facts and circumstances. You should consult your tax advisor before naming a contingent annuitant if you expect to use an Annuity in such a fashion. GENERAL INFORMATION HOW WILL I RECEIVE STATEMENTS AND REPORTS? We send any statements and reports required by applicable law or regulation to you at your last known address of record. You should therefore give us prompt notice of any address change. We reserve the right, to the extent permitted by law and subject to your prior consent, to provide any prospectus, prospectus supplements, confirmations, statements and reports required by applicable law or regulation to you through our Internet Website at http://www.americanskandia.com or any other electronic means, including diskettes or CD ROMs. We send a confirmation statement to you each time a transaction is made affecting Account Value, such as making additional Purchase Payments, transfers, exchanges or withdrawals. We also send quarterly statements detailing the activity affecting your Annuity during the calendar quarter. You may request additional reports. We reserve the right to charge up to $50 for each such additional report. Instead of immediately confirming transactions made pursuant to some type of periodic transfer program (such as a dollar cost averaging program) or a periodic Purchase Payment program, such as a salary reduction arrangement, we may confirm such transactions in quarterly statements. You should review the information in these statements carefully. All errors or corrections must be reported to us at our Office as soon as possible to assure proper accounting to your Annuity. For transactions that are confirmed immediately, we assume all transactions are accurate unless you notify us otherwise within 10 days from the date you receive the confirmation. For transactions that are only confirmed on the quarterly statement, we assume all transactions are accurate unless you notify us within 10 days from the date you receive the quarterly statement. All transactions confirmed immediately or by quarterly statement are deemed conclusive after the applicable 10-day period. We may also send an annual report and a semi-annual report containing applicable financial statements, as of December 31 and June 30, respectively, to Owners or, with your prior consent, make such documents available electronically through our Internet Website or other electronic means. WHO IS AMERICAN SKANDIA? American Skandia Life Assurance Corporation ("American Skandia") is a stock life insurance company domiciled in Connecticut with licenses in all 50 states and the District of Columbia. American Skandia is a wholly-owned subsidiary of American Skandia, Inc., formerly known as American Skandia Investment Holding Corporation, whose ultimate parent is Skandia Insurance Company Ltd., a Swedish company. American Skandia markets its products to broker-dealers and financial planners through an internal field marketing staff. In addition, American Skandia markets through and in conjunction with financial institutions such as banks that are permitted directly, or through affiliates, to sell annuities. American Skandia is in the business of issuing variable annuity and variable life insurance contracts. American Skandia currently offers the following products: (a) flexible premium deferred annuities and single premium fixed deferred annuities that are registered with the SEC; (b) certain other fixed deferred annuities that are not registered with the SEC; (c) certain group variable annuities that are exempt from registration with the SEC that serve as funding vehicles for various types of qualified pension and profit sharing plans; (d) a single premium variable life insurance policy that is registered with the SEC; and (e) a flexible premium life insurance policy that is registered with the SEC. WHAT ARE SEPARATE ACCOUNTS? The assets supporting our obligations under the Annuities may be held in various accounts, depending on the obligation being supported. In the accumulation phase, assets supporting Account Values are held in separate accounts established under the laws of the State of Connecticut. We are the legal owner of assets in the separate accounts. In the payout phase, assets supporting fixed annuity payments and any adjustable annuity payments we make available are held in our general account. Income, gains and losses from assets allocated to these separate accounts are credited to or charged against each such separate account without regard to other income, gains or losses of American Skandia or of any other of our separate accounts. These assets may only be charged with liabilities which arise from the annuity contracts issued by American Skandia Life Assurance Corporation. The amount of our obligation in relation to allocations to the Sub-accounts is based on the investment performance of such Sub-accounts. However, the obligations themselves are our general corporate obligations. Separate Account B During the accumulation phase, the assets supporting obligations based on allocations to the variable investment options are held in Class 1 Sub-accounts of American Skandia Life Assurance Corporation Variable Account B, also referred to as "Separate Account B". Separate Account B consists of multiple Sub-accounts. The name of each Sub-account generally corresponds to the name of the underlying Portfolio. The names of each Sub-account are shown in the Statement of Additional Information. Separate Account B was established by us pursuant to Connecticut law. Separate Account B also holds assets of other annuities issued by us with values and benefits that vary according to the investment performance of Separate Account B. The Sub-accounts offered pursuant to this Prospectus are all Class 1 Sub-accounts of Separate Account B. Each class of Sub-accounts in Separate Account B has a different level of charges assessed against such Sub-accounts. You will find additional information about these underlying mutual funds and portfolios in the prospectuses for such funds. Separate Account B is registered with the SEC under the Investment Company Act of 1940 ("Investment Company Act") as a unit investment trust, which is a type of investment company. This does not involve any supervision by the SEC of the investment policies, management or practices of Separate Account B. Each Sub-account invests only in a single mutual fund or mutual fund portfolio. We reserve the right to add Sub-accounts, eliminate Sub-accounts, to combine Sub-accounts, or to substitute underlying mutual funds or portfolios of underlying mutual funds. Values and benefits based on allocations to the Sub-accounts will vary with the investment performance of the underlying mutual funds or fund portfolios, as applicable. We do not guarantee the investment results of any Sub-account. Your Account Value allocated to the Sub-accounts may increase or decrease. You bear the entire investment risk. Separate Account D During the accumulation phase, assets supporting our obligations based on Fixed Allocations are held in American Skandia Life Assurance Corporation Separate Account D, also referred to as Separate Account D. Such obligations are based on the fixed interest rates we credit to Fixed Allocations and the terms of the Annuities. These obligations do not depend on the investment performance of the assets in Separate Account D. Separate Account D was established by us pursuant to Connecticut law. There are no units in Separate Account D. The Fixed Allocations are guaranteed by our general account. An Annuity Owner who allocates a portion of their Account Value to Separate Account D does not participate in the investment gain or loss on assets maintained in Separate Account D. Such gain or loss accrues solely to us. We retain the risk that the value of the assets in Separate Account D may drop below the reserves and other liabilities we must maintain. Should the value of the assets in Separate Account D drop below the reserve and other liabilities we must maintain in relation to the annuities supported by such assets, we will transfer assets from our general account to Separate Account D to make up the difference. We have the right to transfer to our general account any assets of Separate Account D in excess of such reserves and other liabilities. We maintain assets in Separate Account D supporting a number of annuities we offer. We have sole discretion over the investment managers retained to manage the assets maintained in Separate Account D. We currently employ investment managers for Separate Account D including, but not limited to, J.P. Morgan Investment Management, Inc. Each manager we employ is responsible for investment management of a different portion of Separate Account D. From time to time additional investment managers may be employed or investment managers may cease being employed. We are under no obligation to employ or continue to employ any investment manager(s). We are not obligated to invest according to specific guidelines or strategies except as may be required by Connecticut and other state insurance laws. WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS? Each underlying mutual fund is registered as an open-end management investment company under the Investment Company Act. Shares of the underlying mutual fund portfolios are sold to separate accounts of life insurance companies offering variable annuity and variable life insurance products. The shares may also be sold directly to qualified pension and retirement plans. Voting Rights We are the legal owner of the shares of the underlying mutual funds in which the Sub-accounts invest. However, under SEC rules, you have voting rights in relation to Account Value maintained in the Sub-accounts. If an underlying mutual fund portfolio requests a vote of shareholders, we will vote our shares in the manner directed by Owners with Account Value allocated to that Sub-account. Owners have the right to vote an amount equal to the number of shares attributable to their contracts. If we do not receive voting instructions in relation to certain shares, we will vote those shares in the same manner and proportion as the shares for which we have received instructions. We will furnish those Owners who have Account Value allocated to a Sub-account whose underlying mutual fund portfolio has requested a "proxy" vote with the necessary forms to provide us with their instructions. Generally, you will be asked to provide instructions for us to vote on matters such as changes in a fundamental investment strategy, adoption of a new investment advisory agreement, or matters relating to the structure of the underlying mutual fund that require a vote of shareholders. Material Conflicts It is possible that differences may occur between companies that offer shares of an underlying mutual fund portfolio to their respective separate accounts issuing variable annuities and/or variable life insurance products. Differences may also occur surrounding the offering of an underlying mutual fund portfolio to variable life insurance policies and variable annuity contracts that we offer. Under certain circumstances, these differences could be considered "material conflicts," in which case we would take necessary action to protect persons with voting rights under our variable annuity contracts and variable life insurance policies against persons with voting rights under other insurance companies' variable insurance products. If a "material conflict" were to arise between owners of variable annuity contracts and variable life insurance policies issued by us we would take necessary action to treat such persons equitably in resolving the conflict. "Material conflicts" could arise due to differences in voting instructions between owners of variable life insurance and variable annuity contracts of the same or different companies. We monitor any potential conflicts that may exist. WHO DISTRIBUTES ANNUITIES OFFERED BY AMERICAN SKANDIA? American Skandia Marketing, Incorporated ("ASM"), a wholly-owned subsidiary of American Skandia, Inc., is the distributor and principal underwriter of the securities offered through this prospectus. ASM acts as the distributor of a number of annuity and life insurance products we offer and both American Skandia Trust and American Skandia Advisor Funds, Inc., a family of retail mutual funds. ASM also acts as an introducing broker-dealer through which it receives a portion of brokerage commissions in connection with purchases and sales of securities held by portfolios of American Skandia Trust which are offered as underlying investment options under the Annuity. ASM's principal business address is One Corporate Drive, Shelton, Connecticut 06484. ASM is registered as broker-dealer under the Securities Exchange Act of 1934 ("Exchange Act") and is a member of the National Association of Securities Dealers, Inc. ("NASD"). The Annuity is offered on a continuous basis. ASM enters into distribution agreements with independent broker-dealers who are registered under the Exchange Act and with entities that may offer the Annuity but are exempt from registration. Applications for the Annuity are solicited by registered representatives of those firms. Such representatives will also be our appointed insurance agents under state insurance law. In addition, ASM may offer the Annuity directly to potential purchasers. Compensation is paid to firms on sales of the Annuity according to one or more schedules. The individual representative will receive a portion of the compensation, depending on the practice of the firm. Compensation may be payable based on a percentage of Purchase Payments made, up to a maximum of 1.0%. Ongoing compensation of up to 1.25% per year of the Account Value is also payable. We may also provide compensation for providing ongoing service to you in relation to the Annuity. Commissions and other compensation paid in relation to the Annuity do not result in any additional charge to you or to the Separate Account. In addition, firms may receive separate compensation or reimbursement for, among other things, training of sales personnel, marketing or other services they provide to us or our affiliates. We or ASM may enter into compensation arrangements with certain firms. These arrangements will not be offered to all firms and the terms of such arrangements may differ between firms. Any such compensation will be paid by us or ASM and will not result in any additional charge to you. To the extent permitted by NASD rules and other applicable laws and regulations, ASM may pay or allow other promotional incentives or payments in the form of cash or other compensation. Advertising: We may advertise certain information regarding the performance of the investment options. Details on how we calculate performance for the Sub-accounts are found in the Statement of Additional Information. This information may help you review the performance of the investment options and provide a basis for comparison with other annuities. It may be less useful when comparing the performance of the investment options with other savings or investment vehicles. Such other investments may not provide some of the benefits of annuities, or may not be designed for long-term investment purposes. Additionally other savings or investment vehicles may not be receive the beneficial tax treatment given to annuities under the Code. Performance information on the Sub-accounts is based on past performance only and is not an indication or representation of future performance. Performance of the Sub-accounts is not fixed. Actual performance will depend on the type, quality and, for some of the Sub-accounts, the maturities of the investments held by the underlying mutual funds or portfolios and upon prevailing market conditions and the response of the underlying mutual funds to such conditions. Actual performance will also depend on changes in the expenses of the underlying mutual funds or portfolios. Such changes are reflected, in turn, in the Sub-accounts which invest in such underlying mutual fund or portfolio. In addition, the amount of charges assessed against each Sub-account will affect performance. Some of the underlying mutual fund portfolios existed prior to the inception of these Sub-accounts. Performance quoted in advertising regarding such Sub-accounts may indicate periods during which the Sub-accounts have been in existence but prior to the initial offering of the Annuities, or periods during which the underlying mutual fund portfolios have been in existence, but the Sub-accounts have not. Such hypothetical performance is calculated using the same assumptions employed in calculating actual performance since inception of the Sub-accounts. We may advertise the performance of the underlying mutual fund portfolios in the form of "Standard" and "Non-standard" Total Returns. "Standard Total Return" figures assume that all charges and fees are applicable. "Non-standard Total Return" figures may also be used that do not reflect all fees and charges. Non-standard Total Returns are calculated in the same manner as standardized returns. Any performance advertisements will not reflect the impact of any Target Value Credits. The information we may advertise regarding the Fixed Allocations may include the then current interest rates we are crediting to new Fixed Allocations. Information on current rates will be as of the date specified in such advertisement. Rates will be included in advertisements to the extent permitted by law. Given that the actual rates applicable to any Fixed Allocation are as of the date of any such Fixed Allocation's Guarantee Period begins, the rate credited to a Fixed Allocation may be more or less than those quoted in an advertisement. Advertisements we distribute may also compare the performance of our Sub-accounts with: (a) certain unmanaged market indices, including but not limited to the Dow Jones Industrial Average, the Standard & Poor's 500, the NASDAQ 100, the Shearson Lehman Bond Index, the Frank Russell non-U.S. Universal Mean, the Morgan Stanley Capital International Index of Europe, Asia and Far East Funds, and the Morgan Stanley Capital International World Index; and/or (b) other management investment companies with investment objectives similar to the mutual fund or portfolio underlying the Sub-accounts being compared. This may include the performance ranking assigned by various publications, including but not limited to the Wall Street Journal, Forbes, Fortune, Money, Barron's, Business Week, USA Today and statistical services, including but not limited to Lipper Analytical Services Mutual Funds Survey, Lipper Annuity and Closed End Survey, the Variable Annuity Research Data Survey, SEI, the Morningstar Mutual Fund Sourcebook and the Morningstar Variable Annuity/Life Sourcebook. American Skandia Life Assurance Corporation may advertise its rankings and/or ratings by independent financial ratings services. Such rankings may help you in evaluating our ability to meet our obligations in relation to Fixed Allocations, pay minimum death benefits, pay annuity payments or administer Annuities. Such rankings and ratings do not reflect or relate to the performance of Separate Account B. AVAILABLE INFORMATION A Statement of Additional Information is available from us without charge upon your request. This Prospectus is part of the registration statement we filed with the SEC regarding this offering. Additional information on us and this offering is available in those registration statements and the exhibits thereto. You may obtain copies of these materials at the prescribed rates from the SEC's Public Reference Section, 450 Fifth Street N.W., Washington, D.C., 20549. You may inspect and copy those registration statements and exhibits thereto at the SEC's public reference facilities at the above address, Room 1024, and at the SEC's Regional Offices, 7 World Trade Center, New York, NY, and the Everett McKinley Dirksen Building, 219 South Dearborn Street, Chicago, IL. These documents, as well as documents incorporated by reference, may also be obtained through the SEC's Internet Website (http://www.sec.gov) for this registration statement as well as for other registrants that file electronically with the SEC. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE To the extent and only to the extent that any statement in a document incorporated by reference into this Prospectus is modified or superseded by a statement in this Prospectus or in a later-filed document, such statement is hereby deemed so modified or superseded and not part of this Prospectus. The Annual Report on Form 10-K for the year ended December 31, 1999 previously filed by the Company with the SEC under the Exchange Act is incorporated by reference in this Prospectus. We will furnish you without charge a copy of any or all of the documents incorporated by reference in this Prospectus, including any exhibits to such documents which have been specifically incorporated by reference. We will do so upon receipt of your written or oral request. HOW TO CONTACT US You can contact us by: |X| calling our Customer Service Team at 1-800-752-6342 or our automated telephone access and response system (STARS) at 1-800-766-4530 |X| writing to us at American Skandia Life Assurance Corporation, Attention: Customer Service, P.O. Box 7038, Bridgeport, Connecticut 06601-7038 |X| sending an email to customerservice@americanskandia.com or visiting our Internet Website at www.americanskandia.com |X| accessing information about your Annuity through our Internet Website at www.americanskandia.com You can obtain account information through our automated telephone access and response system (STARS) and at www.americanskandia.com, our Internet Website. Our Customer Service representatives are also available during business hours to provide you with information about your account. You can request certain transactions through our telephone voice response system, our Internet Website or through a customer service representative. You can provide authorization for a third party, including your attorney-in-fact acting pursuant to a power of attorney or a financial professional, to access your account information and perform certain transactions on your account. You will need to complete a form provided by us which identifies those transactions that you wish to authorize via telephonic and electronic means and whether you wish to authorize a third party to perform any such transactions. We require that you or your representative provide proper identification before performing transactions over the telephone or through our Internet Website. This may include a Personal Identification Number (PIN) that will be provided to you upon issue of your Annuity or you may establish or change your PIN through our automated telephone access and response system (STARS) and at www.americanskandia.com, our Internet Website. Any third party that you authorize to perform financial transactions on your account will be assigned a PIN for your account. Transactions requested via telephone are recorded. To the extent permitted by law, we will not be responsible for any claims, loss, liability or expense in connection with a transaction requested by telephone or other electronic means if we acted on such transaction instructions after following reasonable procedures to identify those persons authorized to perform transactions on your Annuity using verification methods which may include a request for your Social Security number, PIN or other form of electronic identification. We may be liable for losses due to unauthorized or fraudulent instructions if we did not follow such procedures. American Skandia does not guarantee access to telephonic and electronic information or that we will be able to accept transaction instructions via the telephone or electronic means at all times. American Skandia reserves the right to limit, restrict or terminate telephonic and electronic transaction privileges at any time. INDEMNIFICATION Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. LEGAL PROCEEDINGS As of the date of this Prospectus, neither we nor ASM were involved in any litigation outside of the ordinary course of business, and know of no material claims.
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 - --- -------------------------- -------------------- Patricia J. Abram Senior Vice President Senior Vice President 48 and National Sales Manager, Variable Life: American Skandia Marketing, Incorporated Ms. Abram joined us in 1998. She previously held the position of Senior Vice President, Chief Marketing Officer with Mutual Service Corporation. Ms. Abram was employed there since 1982. Lori Allen Vice President Vice President: 30 American Skandia Life Assurance Corporation Kimberly Anderson Vice President Vice President, 33 National Sales Manager/ Qualified Plans: American Skandia Marketing, Incorporated Robert M. Arena Vice President Vice President: 31 American Skandia Life Assurance Corporation Mr. Arena joined us in 1995. He previously held an internship position with KPMG Peat Marwick in 1994 and the position of Group Sales Representative with Paul Revere Insurance from October, 1990 to August, 1993. Gordon C. Boronow President and President and 47 Deputy Chief Executive Officer Deputy Chief Executive Officer: Director (since July, 1991) American Skandia Life Assurance Corporation Robert W. Brinkman Senior Vice President Senior Vice President, 35 National Sales Manager: American Skandia Marketing, Incorporated Malcolm M. Campbell Director (since July, 1991) Director of Operations and 44 Chief Actuary, Assurance and Financial Services Division: Skandia Insurance Company Ltd. Jan R. Carendi Chief Executive Senior Executive Vice President and 55 Officer and Member of Executive Management Group: Chairman of the Skandia Insurance Company Ltd. Board of Directors Director (since May, 1988) Carl Cavaliere Vice President Vice President: 37 American Skandia Life Assurance Corporation Mr. Cavaliere joined us in 1998. He previously held the position of Director of Operations with Aetna, Inc. since 1989. Y.K. Chan Senior Vice President Senior Vice President 42 and Chief Information Officer: American Skandia Information Services and Technology Corporation Mr. Chan joined us in 1999. He previously held the position of Chief Information Officer with E.M. Warburg Pincus from January 1995 until April 1999 and the position of Vice President, Client Server Application Development with Scudder, Stevens and Clark from January 1991 until January 1995. Lucinda C. Ciccarello Vice President Vice President, Mutual Funds: 41 American Skandia Marketing, Incorporated Ms. Ciccarello joined us in 1997. She previously held the position of Assistant Vice President with Phoenix Duff & Phelps since 1984. Lincoln R. Collins Senior Vice President Senior Vice President: 39 Director (since February, 1996) American Skandia Life Assurance Corporation Tim Cronin Vice President Vice President: 34 American Skandia Life Assurance Corporation Mr. Cronin joined us in 1998. He previously held the position of Manager/Client Investor with Columbia Circle Investors since 1995. Henrik Danckwardt Director (since July, 1991) Director of Finance 46 and Administration, Assurance and Financial Services Division: Skandia Insurance Company Ltd. Harold Darak Vice President Vice President: 39 American Skandia Life Assurance Corporation Mr. Darak joined us in 1999. He previously held the position of Consultant/Senior Manager with Deloitte & Touche since 1998 and the positions of Second Vice President with The Guardian since 1996 and The Travelers from October, 1982 until December, 1995. Wade A. Dokken Deputy Chief Executive Officer DCEO and COO: 40 and Chief Operating Officer American Skandia Life Director (since July, 1991) Assurance Corporation Elaine C. Forsyth Vice President Vice President: 38 American Skandia Life Assurance Corporation Larisa Gromyko Director, Insurance Compliance Director, Insurance Compliance: 53 American Skandia Life Assurance Corporation Maureen Gulick Director, Business Operations Director, Business Operations: 37 American Skandia Life Assurance Corporation Berthann Jones Vice President Vice President: 45 American Skandia Life Assurance Corporation Ms. Jones joined us in 1997. She previously held the position of Vice President/Trust Officer with Ridgefield Bank since 1996 and Manager with Wright Investors Service since 1993. Ian Kennedy Senior Vice President Senior Vice President, 52 Customer Service: American Skandia Marketing, Incorporated Mr. Ian Kennedy joined us in 1998. He previously was self-employed since 1996 and held the position of Vice President, Customer Service with SunLife of Canada from September, 1968 to August, 1995. T. Richard Kennedy General Counsel and General Counsel: 65 Director (since March, 2000) American Skandia Life Assurance Corporation Mr. T. Richard Kennedy joined us in 1999. He previously was Managing Partner with the law firm of Werner & Kennedy. N. David Kuperstock Vice President Vice President: 48 American Skandia Life Assurance Corporation Thomas M. Mazzaferro Executive Vice President and Executive Vice President and 47 Chief Financial Officer, Chief Financial Officer: Director (since September, 1994) American Skandia Life Assurance Corporation Gunnar J. Moberg Director (since October, 1994) Director - Marketing and Sales, 45 Assurances and Financial Services Division: Skandia Insurance Company Ltd. David R. Monroe Senior Vice President, Senior Vice President, 38 Treasurer and Treasurer and Corporate Controller Corporate Controller: American Skandia Life Assurance Corporation Mr. Monroe joined us in 1996. He previously held positions of Assistant Vice President at Allmerica Financial since 1994. Michael A. Murray Senior Vice President Vice President, 31 National Sales Manager: American Skandia Marketing, Incorporated Brian O'Connor Vice President Vice President, 35 National Sales Manager, Internal Wholesaling: American Skandia Marketing, Incorporated M. Patricia Paez Vice President Chief of Staff: 39 American Skandia, Inc. Polly Rae Vice President Vice President: 37 American Skandia Life Assurance Corporation Rebecca Ray Vice President Vice President: 44 American Skandia Life Assurance Corporation Ms. Ray joined us in 1999. She previously held the position of First Vice President with Prudential Securities since 1997 and Vice President with Merrill Lynch since 1995. Rodney D. Runestad Vice President Vice President: 50 American Skandia Life Assurance Corporation Hayward L. Sawyer Senior Vice President Executive Vice President 55 National Sales Manager: American Skandia Marketing, Incorporated Lisa Shambelan Vice President Vice President: 34 American Skandia Life Assurance Corporation Karen Stockla Vice President Vice President, 33 Intellectual Resources Department: American Skandia Life Assurance Corporation Ms. Stockla joined us in 1998. She previously held the position of Manager, Application Development with Citizens Utilities Company since 1996 and HRIS Tech Support Representative with Yale New Haven Hospital since 1993. William H. Strong Vice President Vice President: 56 American Skandia Life Assurance Corporation Mr. Strong joined us in 1997. He previously held the position of Vice President with American Financial Systems from June 1994 to October 1997 and the position of Actuary with Connecticut Mutual Life from June 1965 to June 1994. Leslie S. Sutherland Vice President Vice President, 46 National Key Accounts Manager: American Skandia Marketing, Incorporated Amanda C. Sutyak Vice President Vice President: 42 Director (since July, 1991) American Skandia Life Assurance Corporation Christian A. Thwaites Senior Vice President Senior Vice President, 42 National Marketing Director: American Skandia Marketing, Incorporated Mr. Thwaites joined us in 1996. He previously held the position of consultant with Monitor Company since October 1995 and Vice President with Aetna, Inc. since 1995. Mary Toumpas Vice President Vice President and 48 Compliance Director: American Skandia Marketing, Incorporated Ms. Toumpas joined us in 1997. She previously held the position of Assistant Vice President with Chubb Life/Chubb Securities since 1973. Bayard F. Tracy Senior Vice President and Senior Vice President, 52 Director (since September, 1994) National Sales Manager: American Skandia Marketing, Incorporated Deborah G. Ullman Senior Vice President Senior Vice President and 45 Chief Operating Officer: American Skandia Marketing, Incorporated Ms. Ullman joined us in 1998. She previously held the position of Vice President with Aetna, Inc. since 1977. Jeffrey M. Ulness Vice President Vice President: 39 American Skandia Life Assurance Corporation Derek Winegard Vice President Vice President: 41 American Skandia Life Assurance Corporation Mr. Winegard joined us in 1999. He previously held the position of Senior Vice President with Trust Consultants, Inc. since 1991. Brett M. Winson Senior Vice President and Senior Vice President, 44 Director (since March 2000) Intellectual Resource Development American Skandia, Inc. Mr. Winson joined us in 1998. He previously held the position of Senior Vice President with Sakura Bank, Ltd. since 1990.
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION The following are the contents of the Statement of Additional Information: General Information about American Skandia |X| American Skandia Life Assurance Corporation |X| American Skandia Life Assurance Corporation Variable Account B (Class 1 Sub-accounts) |X| American Skandia Life Assurance Corporation Separate Account D Principal Underwriter/Distributor - American Skandia Marketing, Incorporated How Performance Data is Calculated |X| Current and Effective Yield |X| Total Return How the Unit Price is Determined Additional Information on Fixed Allocations |X| How We Calculate the Market Value Adjustment General Information |X| Voting Rights |X| Modification |X| Deferral of Transactions |X| Misstatement of Age or Sex |X| Ending the Offer Independent Auditors Legal Experts Financial Statements |X| Appendix A - American Skandia Life Assurance Corporation Variable Account B (Class 1 Sub-accounts) APPENDIX A - FINANCIAL INFORMATION ABOUT AMERICAN SKANDIA SELECTED FINANCIAL DATA The following table summarizes information with respect to the operations of the Company:
(in thousands) For the Year Ended December 31, 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- STATEMENT OF OPERATIONS DATA Revenues: Annuity and life insurance charges and fees* $ 289,989 $ 186,211 $ 121,158 $ 69,780 $ 38,837 Fee income 83,243 50,839 27,593 16,420 6,206 Net investment income 10,441 11,130 8,181 1,586 1,601 Premium income and other revenues 3,688 1,360 1,082 265 45 ------------- ------------- ------------ ----------- ----------- Total revenues $ 387,361 $ 249,540 $ 158,014 $ 88,051 $ 46,689 ============= ============= ============ =========== =========== Benefits and Expenses: Annuity and life insurance benefits $ 612 $ 558 $ 2,033 $ 613 $ 555 Change in annuity policy reserves 3,078 1,053 37 635 (6,779) Cost of minimum death benefit reinsurance 2,945 5,144 4,545 2,867 2,057 Return credited to contractowners (1,639) (8,930) (2,018) 673 10,613 Underwriting, acquisition and other insurance expenses 206,350 167,790 90,496 49,887 35,914 Interest expense 69,502 41,004 24,895 10,791 6,500 ------------- ------------- ------------- ------------ ------------ Total benefits and expenses $ 280,848 $ 206,619 $ 119,988 $ 65,466 $ 48,860 ============= ============= ============= ============ ============ Income tax expense (benefit) $ 30,344 $ 8,154 $ 10,478 $ (4,038) $ 397 ============= ============= ============= ============ ============ Net income (loss) $ 76,169 $ 34,767 $ 27,548 $ 26,623 $ (2,568) ============= ============= ============= ============ ============= STATEMENT OF FINANCIAL CONDITION Total Assets $ 30,849,414 $ 18,848,273 $ 12,894,290 $ 8,268,696 $ 4,956,018 ============= ============= ============= ============ ============ Future fees payable to parent $ 576,034 $ 368,978 $ 233,034 $ 47,112 $ - ============= ============= ============= ============ ============ Surplus Notes $ 179,000 $ 193,000 $ 213,000 $ 213,000 $ 103,000 ============= ============= ============= ============ ============ Shareholder's Equity $ 359,434 $ 250,417 $ 184,421 $ 126,345 $ 59,713 ============= ============= ============= =========== ============
* On annuity and life insurance sales of $6,862,968, $4,159,662, $3,697,990, $2,795,114, and $1,628,486 during the years ended December 31, 1999, 1998, 1997, 1996, and 1995, respectively, with contractowner assets under management of $29,396,693, $17,854,761, $12,119,191, $7,764,891, and $4,704,044 as of December 31, 1999, 1998, 1997, 1996 and 1995, respectively. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and the notes thereto and Item 6, Selected Financial Data. Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking statements pursuant to the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on estimates and assumptions that involve certain risks and uncertainties, therefore actual results could differ materially due to factors not currently known. These factors include significant changes in financial markets and other economic and business conditions, state and federal legislation and regulation, ownership and competition. Results of Operations Annuity and life insurance sales increased 65%, 12%, and 32% in 1999, 1998 and 1997, respectively. The Company continues to show significant growth in sales volume as a result of innovative product development activities, the recruitment and retention of top producers, and the success of its highly rated customer service teams. The sales growth was also attributable to the strong performance of the underlying mutual funds, which support the Separate Account assets. All three major distribution channels achieved significant sales growth in 1999. As a result of the significant growth in sales and assets under management, contractowner fees and charges and fees generated from transfer agency-type and investment support activities increased considerably over the past three years: (annual percentage growth) 1999 1998 1997 Annuity and life insurance charges and fees 56% 54% 74% Fee income 64% 84% 68% Net investment income decreased 6% in 1999, increased 36% and 416% in 1998 and 1997, respectively. The decrease in 1999 was the result of $1,036,000 of amortization of the premium paid on a derivative instrument purchased during 1999. As noted in Note 2C of Notes to Consolidated Financial Statements, the derivative instrument, an equity put option, was purchased as a hedge against potential GMDB reserves increases. Excluding the derivative amortization, 1999 net investment income increased 3% as a result of increased bond holdings in support of the Company's risk-based capital initiatives. The increases in 1998 and 1997 were generated from the bond holdings, which were increased in 1998 and 1997 to meet risk based capital goals, which in turn, have increased as a result of the growth in business. Premium income represents premiums earned on sale of ancillary contracts; immediate annuities with life contingencies, supplementary contracts with life contingencies and certain life insurance products. Sales of supplementary contracts increased in 1999 and decreased in slightly in 1998 and 1997. There were no immediate annuities sold in 1999 and sales in 1998 and 1997 were modest. Annuity benefits, which represent immediate annuities, supplementary contracts and death benefits paid on annuity contracts with mortality risks were not significant in each of the past three years due primarily to the age of the policies in force. The change in annuity policy reserves includes changes in reserves related to annuity contracts with mortality risks as well as the Company's guaranteed minimum death benefit ("GMDB") liability. During the second quarter of 1999, the Company's agreement to reinsure substantially all of its exposure on the GMDB was terminated and the business was recaptured, as the reinsurer had announced its intention to exit this market. The increase in reserves resulting from this change was offset by a decrease in reserves associated with the change to reserve methodology on the GMDB. The new reserve methodology complies with the National Association of Insurance Commissioners Actuarial Guideline XXXIV. In the later half of 1999, the Company instituted a hedge program to manage the market risk and reserve fluctuations associated with the GMDB policies through the use of equity put options. The Company is currently continuing this program while evaluating alternative hedging strategies. The reinsurance premium associated with the GMDB exposure is based on levels of assets under management. Due to increased sales and account growth, this cost had increased in 1997 and 1998 and through May 1999. The termination of the reinsurance treaty as of May 31, 1999 resulted in the year to year decrease in this benefit for the twelve months ended December 31, 1999. Return credited to contractowners consists of revenues on the variable and market value adjusted annuities and variable life insurance, offset by the benefit payments and change in reserves required on this business. Market value adjusted annuity activity has the largest impact on this benefit. In 1999, the Separate Account investment returns on these contracts did not meet the expected returns calculated in the reserves. In 1998, the actual returns significantly outperformed the expected returns and in 1997, these expectations were met. Underwriting, acquisition and other insurance expenses for 1999, 1998 and 1997 were as follows:
(in thousands) 1999 1998 1997 ---- ---- ---- Commissions and general expenses $ 576,649 $ 342,594 $ 281,560 Net capitalization of deferred acquisition costs (370,299) (174,804) (191,064) --------- --------- --------- Underwriting, acquisition and other insurance expenses $ 206,350 $167,790 $90,496 ========= ======== =======
Commissions, general operating expenses and the net deferral of acquisition costs have all increased in 1999, due largely to record sales. Current sales trends have resulted in a shift to asset based commission agreements. This coupled with increased asset levels from increased sales and equity market appreciation have led to the increase in commissions and general expenses. In 1998, commissions and general expenses increased as a result of strong sales and start up costs associated with the Company's entry into variable life insurance and qualified plans. The net capitalization of acquisition costs decreased in 1998 as a result of increased amortization. In 1997, expense increases were driven primarily from strong sales. Interest expense increased $28,498,000, $16,109,000 and $14,104,000 in 1999, 1998 and 1997, respectively, as a result of additional financing transactions, which consisted of the sale of future fees to the Parent ("securitization transactions"). In addition, the Company retired surplus notes on December 10, 1999 and December 31, 1998 of $14,000,000 and $20,000,000 respectively. Surplus notes outstanding as of December 31, 1999 and 1998 totaled $179,000,000 and $193,000,000, respectively. The effective income tax rates for the years ended December 31, 1999, 1998 and 1997 were 28%, 19% and 28%, respectively. The effective rate is lower than the corporate rate of 35% due to permanent differences, with the most significant item being the dividend received deduction. Management believes that based on the taxable income produced in the past two years, as well as the continued growth in annuity sales, the Company will produce sufficient taxable income in future years to realize its deferred tax assets. The Company generated net income after tax of $76,169,000, $34,767,000 and $27,548,000 in 1999, 1998 and 1997, respectively. The Company benefited in each of the past three years from strong sales growth and favorable market conditions. The Company considers Mexico an emerging market and has invested in the Skandia Vida operations with the expectation of generating profits from long-term savings products in future years. As such, Skandia Vida has generated net losses of $2,523,000, $2,514,000 and $1,438,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Total assets grew 64%, 46%, and 56% in 1999, 1998 and 1997, respectively. These increases were a direct result of the substantial sales volume and market growth of the separate account assets. The sales and market growth also drove increases in deferred acquisition costs, as well as fixed maturity investments held in support of the Company's risk based capital requirements. Liabilities grew 64%, 46%, and 56% in 1999, 1998 and 1997, respectively, as a result of the reserves required for the increased sales activity along with the sale of future fees and charges during these periods. These sales of future fees and charges to the Parent are needed to fund the acquisition costs of the Company's variable annuity and life insurance business. Liquidity and Capital Resources The Company's liquidity requirement was met by cash from insurance operations, investment activities, borrowings from its Parent and the sale of rights to future fees and charges to its Parent. The majority of the operating cash outflow resulted from the sale of variable annuity and variable life products which carry a contingent deferred sales charge. This type of product causes a temporary cash strain in that 100% of the proceeds are invested in separate accounts supporting the product leaving a cash (but not capital) strain caused by the acquisition cost for the new business. This cash strain required the Company to look beyond the cash made available by insurance operations and investments of the Company to financing in the form of surplus notes, capital contributions, the sale of certain rights to future fees and charges as well as modified coinsurance reinsurance arrangements: o During 1999 and 1998, the Company received $34,800,000 and $22,600,000, respectively, from ASI to support the capital needs of its U.S. operations during the current year along with the following year's anticipated growth in business. In addition, the Company received $1,690,000 and $5,762,000 from ASI in 1999 and 1998 to support its investment in Skandia Vida. o Funds received from new securitization transactions amounted to $265,710,000, $169,881,000, and $194,512,000 for 1999, 1998 and 1997, respectively (see Note 8 of the Notes to Audited Consolidated Financial Statements). In addition, $71,000,000 was received from ASI in the fourth quarter of 1999 in advance of a securitization transaction completed in the first quarter of 2000. o During 1999, 1998 and 1997, the Company extended its reinsurance agreements. The reinsurance agreements are modified coinsurance arrangements where the reinsurer shares in the experience of a specific book of business. The Company expects the continued use of reinsurance and securitization transactions to fund the cash strain anticipated from the acquisition costs on the coming years' sales volume. As of December 31, 1999 and 1998, shareholder's equity was $359,434,000 and $250,417,000, respectively. The increases were driven by the previously mentioned capital contributions received from ASI and net income from operations. The Company has long-term surplus notes and short-term borrowings with ASI. No dividends have been paid to ASI. The National Association of Insurance Commissioners ("NAIC") requires insurance companies to report information regarding minimum Risk Based Capital ("RBC") requirements. These requirements are intended to allow insurance regulators to identify companies which may need regulatory attention. The RBC model law requires that insurance companies apply various factors to asset, premium and reserve items, all of which have inherent risks. The formula includes components for asset risk, insurance risk, interest risk and business risk. The Company has complied with the NAIC's RBC reporting requirements and has total adjusted capital well above required capital. Effects of Inflation The rate of inflation has not had a significant effect on the Company's financial statements. Year 2000 Compliance The Company's computer support is provided by its affiliate, American Skandia Information Services and Technology Corporation, which also provides such support for the Company's affiliated broker-dealer, American Skandia Marketing, Incorporated and the Company's affiliated investment advisory firm, American Skandia Investment Services, Incorporated. Because of the nature of the Company's business, any assessment of the potential impact of the Year 2000 issues on the Company must be an assessment of the potential impact of these issues on all these companies, which are referred to below as "American Skandia". The Company experienced no significant errors or disruptions in computer service, interfaces with computer systems of investment managers, sub-advisors, third party administrators, vendors and other business partners on or after January 1, 2000. American Skandia engaged external information technology specialists to review its operating systems and internally developed software. The costs associated with these assessments and Year 2000 related remediation was $1,400,000 in 1999 and $750,000 in 1998 and prior. The Company was allocated the majority of these costs. American Skandia continues to review new and existing systems and has contingency plans in place as part of its Business Continuity Plan. This plan involves virtually all aspects of the business and will continue to be a focus of management beyond the Year 2000 event. Outlook The Company believes that it is well positioned to retain and enhance its position as a leading provider of financial products for long-term savings and retirement purposes as well as to address the economic impact of premature death, estate and business planning concerns and supplemental retirement needs. Strength in the areas of investment options offered, innovative and leading edge product offerings and superior customer service are expected to allow the Company to continue to grow market share in a marketplace which continues to grow. Certain regulatory and legislative initiatives or proposed accounting standards, if adopted, could adversely impact the Company, despite it's strong market position. Of particular importance is President Clinton's proposed budget for 2001, which includes proposed revenue-raising tax changes such as the "DAC tax" on annuity and life products that could further increase the Company's cash strain. In addition, the recently enacted Financial Services Modernization Act, which allows banks and insurance companies to affiliate under a common holding company, may create previously unseen competitive pressures that could impact the Company's ability to do business in the same manner it has previously. Additionally, discussions on regulation of the Internet may impact on the way the Company does business in the future. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to potential fluctuations in earnings and the fair value of certain of its assets and liabilities, as well as variations in expected cash flows due to changes in market interest rates and equity prices. The following discussion focuses on specific exposures the Company has to interest rate and equity price risk and describes strategies used to manage these risks. The discussion is limited to financial instruments subject to market risks and is not intended to be a complete discussion of all of the risks the Company is exposed to. Interest Rate Risk Fluctuations in interest rates can potentially impact the Company's profitability and cash flows. The Company has 97% of assets held under management that are in non-guaranteed Separate Accounts for which the Company's exposure is not significant as the contractowner assumes substantially all the investment risk. On the remaining 3% of assets the interest rate risk from contracts that carry interest rate exposure, is managed through an asset/liability matching program which takes into account the risk variables of the insurance liabilities supported by the assets. At December 31, 1999, the Company held in its general account $201,509,000 of fixed maturity investments that are sensitive to changes in interest rates. These securities are held in support of the Company's fixed immediate annuities and supplementary contracts ($29,912,000 in reserves at December 31, 1999) and in support of the Company's target solvency capital. The Company has a conservative investment philosophy with regard to these investments. All investments are investment grade corporate securities, government agency or U.S. government securities. The Company's deferred annuity products offer a fixed option which subjects the Company to interest rate risk. The fixed option guarantees a fixed rate of interest for a period of time selected by the contractowner. Guarantee period options available range from 1 to 10 years. Withdrawal of funds before the end of the guarantee period subjects the contract holder to a market value adjustment ("MVA"). In the event of rising interest rates, which make the fixed maturity securities underlying the guarantee less valuable, the MVA could be negative. In the event of declining interest rates, which make the fixed maturity securities underlying the guarantee more valuable, the MVA could be positive. The resulting increase or decrease in the value of the fixed option, from calculation of the MVA, should substantially offset the increase or decrease in the market value of the securities underlying the guarantee. The Company maintains strict asset/liability matching to enable this offset. However, the Company still takes on the default risk for the underlying securities, the interest rate risk of reinvestment of interest payments and the risk of failing to maintain the asset/liability matching program with respect to duration and convexity. At December 31, 1999 the Company had $939,585,000 in fixed investment options subject to these risks. Equity Market Exposure The primary equity market risk to the Company comes from the nature of the variable annuity and variable life products sold by the Company. Various fees and charges earned are substantially derived as a percentage of the market value of assets under management. In a market decline, this income would be reduced. This could be further compounded by customer withdrawals, net of applicable surrender charge revenues, partially offset by transfers to the fixed option discussed above. A 10% decline in the market value of the assets under management at December 31, 1999, sustained throughout 2000, would result in an approximate drop in related annual fee income of $48,178,000. As discussed in Note 2 of the Consolidated Financial Statements, in 1999 the Company utilized derivative instruments to hedge against the risk of significant decreases in equity markets which would expose the Company to increases in guaranteed minimum death benefits liabilities. Prior to the implementation of this program the Company utilized reinsurance to transfer this risk. The Company has a small portfolio of equity investments; mutual funds which are held in support of a deferred compensation program. In the event of a decline in market values of underlying securities, the value of the portfolio would decline, however the accrued benefits payable under the related deferred compensation program would decline by a corresponding amount. In addition, it is not clear what the impact of a prolonged downturn in the equity markets would have on ongoing sales. Customer's perceptions of a downturn in equity markets coupled with rising interest rates could move them into financial products other than variable annuities or variable life; however, the Company's products might remain attractive to purchasers in relation to other long-term savings vehicles even after such a decline. AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN SKANDIA LIFE ASSURANCE CORPORATION INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Shareholder of American Skandia Life Assurance Corporation Shelton, Connecticut We have audited the consolidated statements of financial condition of American Skandia Life Assurance Corporation (the "Company" which is a wholly-owned subsidiary of Skandia Insurance Company Ltd.) as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholder's equity, and cash flows for each of the three years in the period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Skandia Life Assurance Corporation at December 31, 1999 and 1998, and the consolidated results of their operations and cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. /s/Ernst & Young LLP Hartford, Connecticut February 11, 2000, except for Note 18 as to which the date is March 22, 2000 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Consolidated Statements of Financial Condition (in thousands)
As of December 31, 1999 1998 --------------- ---------------- ASSETS Investments: Fixed maturities - at amortized cost $ 3,360 $ 8,289 Fixed maturities - at fair value 198,165 141,195 Investment in mutual funds - at fair value 16,404 8,210 Derivative instruments 189 - Policy loans 1,270 569 -------------- -------------- Total investments 219,388 158,263 Cash and cash equivalents 89,212 77,525 Accrued investment income 4,054 2,880 Deferred acquisition costs 1,087,705 721,507 Reinsurance receivable 4,062 4,191 Receivable from affiliates - 1,161 Income tax receivable - deferred 51,726 38,861 State insurance licenses 4,263 4,413 Fixed assets 3,305 328 Other assets 4,533 3,744 Separate account assets 29,381,166 17,835,400 --------------- ---------------- Total assets $ 30,849,414 $ 18,848,273 =============== ================
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities: Reserve for future contractowner benefits $ 11,215 $ 37,508 Policy reserves 29,912 25,545 Drafts outstanding 51,059 28,941 Accounts payable and accrued expenses 158,590 91,827 Income tax payable 24,268 6,657 Payable to affiliates 68,736 - Future fees payable to parent 576,034 368,978 Short-term borrowing 10,000 10,000 Surplus notes 179,000 193,000 Separate account liabilities 29,381,166 17,835,400 --------------- ---------------- Total Liabilities 30,489,980 18,597,856 --------------- ---------------- Shareholder's equity: Common stock, $100 and $80 par value, 25,000 shares authorized, issued and outstanding 2,500 2,000 Additional paid-in capital 215,879 179,889 Retained earnings 141,162 64,993 Accumulated other comprehensive income (107) 3,535 --------------- ---------------- Total Shareholder's equity 359,434 250,417 --------------- ---------------- Total liabilities and shareholder's equity $ 30,849,414 $ 18,848,273 =============== ================
See notes to consolidated financial statements. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Consolidated Statements of Operations (in thousands)
For the Year Ended December 31, 1999 1998 1997 -------------- ------------- ------------- REVENUES Annuity and life insurance charges and fees $ 289,989 $ 186,211 $ 121,158 Fee income 83,243 50,839 27,593 Net investment income 10,441 11,130 8,181 Premium income 1,278 874 920 Net realized capital gains 578 99 87 Other 1,832 387 75 -------------- ------------- ------------- Total revenues 387,361 249,540 158,014 -------------- ------------- ------------- EXPENSES Benefits: Annuity and life insurance benefits 612 558 2,033 Change in annuity and life insurance policy reserves 3,078 1,053 37 Cost of minimum death benefit reinsurance 2,945 5,144 4,545 Return credited to contractowners (1,639) (8,930) (2,018) -------------- ------------- ------------- 4,996 (2,175) 4,597 Expenses: Underwriting, acquisition and other insurance expenses 206,350 167,790 90,496 Interest expense 69,502 41,004 24,895 -------------- ------------- ------------- 275,852 208,794 115,391 -------------- ------------- ------------- Total benefits and expenses 280,848 206,619 119,988 -------------- ------------- ------------- Income from operations before income tax 106,513 42,921 38,026 Income tax expense 30,344 8,154 10,478 -------------- ------------- ------------- Net income $ 76,169 $ 34,767 $ 27,548 ============== ============= =============
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 (in thousands)
For the Year Ended December 31, 1999 1998 1997 -------------- -------------- -------------- Common stock: Beginning balance $ 2,000 $ 2,000 $ 2,000 Increase in par value 500 - - -------------- -------------- -------------- Ending balance 2,500 2,000 2,000 -------------- -------------- -------------- Additional paid in capital: Beginning balance 179,889 151,527 122,250 Transferred to common stock (500) - - Additional contributions 36,490 28,362 29,277 -------------- -------------- -------------- Ending balance 215,879 179,889 151,527 -------------- -------------- -------------- Retained earnings: Beginning balance 64,993 30,226 2,678 Net income 76,169 34,767 27,548 -------------- -------------- -------------- Ending balance 141,162 64,993 30,226 -------------- -------------- -------------- Accumulated other comprehensive income: Beginning balance 3,535 668 (584) Other comprehensive income (3,642) 2,867 1,252 -------------- -------------- -------------- Ending Balance (107) 3,535 668 -------------- -------------- -------------- Total shareholder's equity $ 359,434 $ 250,417 $ 184,421 ============== ============== ==============
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 (in thousands)
For the Year Ended December 31, 1999 1998 1997 -------------- ------------- -------------- Cash flow from operating activities: Net income $ 76,169 34,767 $ 27,548 Adjustments to reconcile net income to net cash used in operating activities: Amortization and depreciation 1,495 251 223 Deferred tax expense (10,903) (14,242) (9,631) Change in unrealized losses on derivatives 3,749 - - Increase in policy reserves 4,367 1,130 3,176 Change in receivable from/payable to affiliates 69,897 166 (1,321) Change in income tax payable 17,611 7,704 (2,172) Increase in other assets (789) (1,173) (415) Increase in accrued investment income (1,174) (438) (483) Decrease/(increase) in reinsurance receivable 129 2,152 (268) Increase in deferred acquisition costs (366,198) (174,804) (190,969) Increase in accounts payable and accrued expenses 66,763 20,637 5,719 Increase in drafts outstanding 22,118 9,663 6,245 Change in foreign currency translation, net 701 (22) (34) Realized capital gain (578) (99) (87) -------------- ------------- -------------- Net cash used in operating activities (116,643) (114,308) (162,469) -------------- ------------- -------------- Cash flow from investing activites: Purchase of fixed maturity investments (99,250) (31,828) (28,905) Proceeds from sale and maturity of fixed maturity investments 36,226 4,049 10,755 Purchase of derivatives (4,974) - - Purchase of shares in mutual funds (17,703) (7,158) (5,595) Proceeds from sale of shares in mutual funds 14,657 6,086 1,415 Purchase of fixed assets (3,178) (18) (189) Increase in policy loans (701) 118 (528) -------------- ------------- -------------- Net cash used in investing activities (74,923) (28,751) (23,047) -------------- ------------- -------------- Cash flow from financing activities: Capital contribution from parent 22,490 8,362 29,277 Increase in future fees payable to parent 207,056 135,944 185,922 Net withdrawals from contractowner accounts (26,293) (5,696) 6,959 -------------- ------------- -------------- Net cash provided by financing activities 203,253 138,610 222,158 -------------- ------------- -------------- Net increase/(decrease) in cash and cash equivalents 11,687 (4,449) 36,642 Cash and cash equivalents at beginning of year 77,525 81,974 45,332 -------------- ------------- -------------- Cash and cash equivalent at end of year $ 89,212 77,525 $ 81,974 ============== ============= ============== Income taxes paid $ 23,637 14,651 $ 22,308 ============== ============= ============== Interest paid $ 69,697 35,588 $ 16,916 ============== ============= ==============
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 December 31, 1999 1. ORGANIZATION AND OPERATION American Skandia Life Assurance Corporation (the "Company") is a wholly-owned subsidiary of American Skandia, Inc. ("ASI", formerly known as American Skandia Investment Holding Corporation) whose ultimate parent is Skandia Insurance Company Ltd., a Swedish Corporation. The Company develops long-term savings and retirement products which are distributed through its affiliated broker/dealer company, American Skandia Marketing, Incorporated ("ASM"). The Company currently issues variable life insurance and variable, fixed, market value adjusted and immediate annuities for individuals, groups and qualified pension plans. The Company has 99.9% ownership in Skandia Vida, S.A. de C.V. ("Skandia Vida") which is a life insurance company domiciled in Mexico. Skandia Vida had total shareholder's equity of $4,592,000 and $4,724,000 as of December 31, 1999, and 1998, respectively. The Company considers Mexico an emerging market and has invested in the Skandia Vida operations with the expectation of generating profits from long-term savings products in future years. As such, Skandia Vida has generated net losses of $2,523,000, $2,514,000 and $1,438,000 for the years ended December 31, 1999, 1998 and 1997, respectively. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Basis of Reporting The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles. Intercompany transactions and balances have been eliminated in consolidation. Certain reclassifications have been made to prior year amounts to conform with the current year presentation. B. New Accounting Pronouncements In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Software Developed or Obtained for Internal Use. The SOP, which has been adopted prospectively as of January 1, 1999, requires the capitalization of certain costs incurred in connection with developing or obtaining internal use software. Prior to the adoption of SOP 98-1, the Company expensed all internal use software related costs as incurred. The Company has identified and capitalized $3,035,000 of costs associated with internal use software during 1999 and is amortizing the applicable costs on a straight-line basis over a three year period. At December 31, 1999, the unamortized balance was $2,920,000 and is included in fixed assets. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS 133). Subsequently, in July 1999, FASB issued FAS 137 "Deferral of the Effective Date of FASB Statement 133". The adoption date was delayed to fiscal years beginning after June 15, 2000. The Company is currently evaluating the potential impact on its financial position. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) C. Investments The Company has classified its fixed maturity investments as either held-to-maturity or available-for-sale. Investments classified as held-to-maturity are investments that the Company has the ability and intent to hold to maturity. Such investments are carried at amortized cost. Those investments which are classified as available-for-sale are carried at fair value and changes in unrealized gains and losses are reported as a component of other comprehensive income. The Company has classified its mutual fund investments held in support of a deferred compensation plan are available-for-sale. Such investments are carried at fair value and changes in unrealized gains and losses are reported as a component of other comprehensive income. Derivative instruments are recorded consistent with hedged items. The Company hedges the market value fluctuations of the guaranteed minimum death benefit ("GMDB") exposure embedded in its policy reserves and as such, the portion of the derivative instrument which constitutes an effective hedge is carried at market value. The cost associated with the portion of the instrument which is not considered an effective hedge is amortized to investment income over the life of the instrument. Policy loans are carried at their unpaid principal balances. Realized gains and losses on disposal of investments are determined by the specific identification method and are included in revenues. D. Derivative Instruments During the second quarter of 1999, the Company's agreement to reinsure substantially all of its exposure on its GMDB liability was terminated and the business was recaptured, as the reinsurer had recently announced its intention to exit this market. In response, the Company instituted a hedge program to effectively manage the market risk associated with GMDB reserve fluctuations using put options. The cash invested in the put options is at risk to the extent that the value of the underlying index is less than the strike price at the exercise date. This would be offset by a corresponding decrease in the hedged GMDB exposure. E. Cash Equivalents The Company considers all highly liquid time deposits, commercial paper and money market mutual funds purchased with a maturity of three months or less to be cash equivalents. F. Fair Values of Financial Instruments The methods and assumptions used to determine the fair value of financial instruments are as follows: Fair values of fixed maturities with active markets are based on quoted market prices. For fixed maturities that trade in less active markets, fair values are obtained from an independent pricing service. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) F. Fair Values of Financial Instruments (continued) Fair values of investments in mutual funds are based on quoted market prices. The fair value of the portion of the derivative instrument which constitutes an effective hedge is determined based on current value of the underlying index. The carrying value of cash and cash equivalents approximates fair value due to the short-term nature of these investments. The carrying value of short-term borrowing approximates fair value due to the short-term nature of these liabilities. Fair values of certain financial instruments, such as future fees payable to parent and surplus notes are not readily determinable and are excluded from fair value disclosure requirements. G. State Insurance Licenses Licenses to do business in all states have been capitalized and reflected at the purchase price of $6,000,000 less accumulated amortization. The cost of the licenses is being amortized on a straight line basis over 40 years. H. Income Taxes The Company is included in the consolidated federal income tax return and combined state income tax return of an upstream company, Skandia AFS Development Holding Corporation and certain of its subsidiaries. In accordance with the tax sharing agreement, the federal and state income tax provisions are computed on a separate return basis as adjusted for consolidated items such as net operating loss carryforwards. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. I. Recognition of Revenue and Contract Benefits Revenues for variable annuity contracts consist of charges against contractowner account values for mortality and expense risks, administration fees, surrender charges and an annual maintenance fee per contract. Benefit reserves for variable annuity contracts represent the account value of the contracts and are included in the separate account liabilities. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) I. Recognition of Revenue and Contract Benefits (continued) Revenues for market value adjusted fixed annuity contracts consist of separate account investment income reduced by benefit payments and changes in reserves in support of contractowner obligations, all of which are included in return credited to contractowners. Benefit reserves for these contracts represent the account value of the contracts, and are included in the general account reserve for future contractowner benefits to the extent in excess of the separate account liabilities. Revenues for immediate annuity contracts without life contingencies consist of net investment income. Revenues for immediate annuity contracts with life contingencies consist of single premium payments recognized as annuity considerations when received. Benefit reserves for these contracts are based on the Society of Actuaries 1983 Table-a with assumed interest rates that vary by issue year. Assumed interest rates ranged from 6.25% to 8.25% at December 31, 1999 and 1998. Revenues for variable life insurance contracts consist of charges against contractowner account values for mortality and expense risk fees, cost of insurance fees, taxes and surrender charges. Certain contracts also include charges against premium to pay state premium taxes. Benefit reserves for variable life insurance contracts represent the account value of the contracts and are included in the separate account liabilities. J. Deferred Acquisition Costs The costs of acquiring new business, which vary with and are primarily related to the production of new business, are being deferred net of reinsurance. These costs include commissions, costs of contract issuance, and certain selling expenses that vary with production. These costs are being amortized generally in proportion to expected gross profits from surrender charges, policy and asset based fees and mortality and expense margins. This amortization is adjusted retrospectively and prospectively when estimates of current and future gross profits to be realized from a group of products are revised. Details of the deferred acquisition costs and related amortization for the years ended December 31, are as follows:
(in thousands) 1999 1998 1997 ---- ---- ---- Balance at beginning of year $721,507 $546,703 $355,734 -------- -------- -------- Acquisition costs deferred during the year 450,059 261,432 243,476 Acquisition costs amortized during the year (83,861) (86,628) (52,507) --------- -------- -------- 366,198 174,804 190,969 ------- ------- ------- Balance at end of year $1,087,705 $721,507 $546,703 ========== ======== ========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) K. Reinsurance The Company cedes reinsurance under modified co-insurance arrangements. These reinsurance arrangements provide additional capacity for growth in supporting the cash flow strain from the Company's variable annuity and variable life insurance business. The reinsurance is effected under quota share contracts. As noted in Note 2D, the Company reinsured its exposure to market fluctuations associated with its GMDB liability in 1999, 1998 and the beginning of 1997. Under this reinsurance agreement, the Company ceded premiums of $2,945,000, $5,144,000 and $4,545,000; received claim reimbursements of $242,000, $9,000 and $46,000; and, recorded increases/(decreases) in reserves of ($2,763,000), ($323,000) and $918,000 in each of the three years, respectively. At December 31, 1999 and 1998, in accordance with the provisions of a modified coinsurance agreement, the Company accrued $41,000 and $1,976,000, respectively, for amounts receivable from favorable reinsurance experience on a block of variable annuity business. L. Translation of Foreign Currency The financial position and results of operations of the Company's Mexican subsidiary are measured using local currency as the functional currency. Assets and liabilities of the subsidiary are translated at the exchange rate in effect at each year-end. Statements of income and shareholder's equity accounts are translated at the average rate prevailing during the year. Translation adjustments arising from the use of differing exchange rates from period to period are reported as a component of other comprehensive income. M. Separate Accounts Assets and liabilities in Separate Accounts are included as separate captions in the consolidated statements of financial condition. Separate Account assets consist principally of long term bonds, investments in mutual funds, short-term securities and cash and cash equivalents, all of which are carried at fair value. The investments are managed predominately through the Company's investment advisory affiliate, American Skandia Investment Services, Inc. ("ASISI"), utilizing various fund managers as sub-advisors. The remaining investments are managed by independent investment firms. The contractowner has the option of directing funds to a wide variety of mutual funds. The investment risk on the variable portion of a contract is borne by the contractowner. A fixed option with a minimum guaranteed interest rate is also available. The Company is responsible for the credit risk associated with these investments. Included in Separate Account liabilities are $896,205,000 and $771,195,000 at December 31, 1999 and 1998, respectively, relating to annuity contracts for which the contractowner is guaranteed a fixed rate of return. Separate Account assets of $896,205,000 and $771,195,000 at December 31, 1999 and 1998, respectively, consisting of long term bonds, short term securities, transfers due from the general account and cash and cash equivalents which are held in support of these annuity contracts, pursuant to state regulation. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) N. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires that management make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant estimates and assumptions are related to deferred acquisition costs and involve policy lapses, investment return and maintenance expenses. Actual results could differ from those estimates. 3. COMPREHENSIVE INCOME The components of comprehensive income, net of tax, for the years ended December 31, 1998, 1997 and 1996 were as follows:
(in thousands) 1999 1998 1997 ---- ---- ---- Net income $76,169 $34,767 $27,548 Other comprehensive income: Unrealized investment gains/(losses) on available for sale securities (3,082) 2,751 1,288 Reclassification adjustment for realized losses/(gains) included in investment income (1,016) 138 (14) ------- --------- --------- Net unrealized gains/(losses) on securities (4,098) 2,889 1,274 Foreign currency translation 456 (22) (22) --------- ---------- ---------- Other comprehensive income (3,642) 2,867 1,252 --------- -------- -------- Comprehensive income $72,527 $37,634 $28,800 ======= ======= =======
The components of accumulated other comprehensive income, net of tax, as of December 31, 1999 and 1998 were as follows:
(in thousands) 1999 1998 ---- ---- Unrealized investment gains ($255) $3,843 Foreign currency translation 148 (308) ------ ------- Accumulated other comprehensive income ($107) $3,535 ====== ======
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 4. INVESTMENTS The amortized cost, gross unrealized gains/losses and estimated fair value of available-for-sale and held-to-maturity fixed maturities and investments in mutual funds as of December 31, 1999 and 1998 are shown below. All securities held at December 31, 1999 and 1998 were publicly traded. Investments in fixed maturities as of December 31, 1999 consisted of the following:
(in thousands) Held-to-Maturity Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value U.S. Government obligations $1,105 $ - $ (1) $1,104 Corporate securities 2,255 - (15) 2,240 ----- ---- ----- ------- Totals $3,360 $ - $(16) $3,344 ====== ==== ===== ====== (in thousands) Available-for-Sale Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value U.S. Government obligations $ 81,183 $ - $ (678) $ 80,505 Obligations of state and political subdivisions 253 (3) 250 Corporate securities 121,859 - (4,449) 117,410 --------- ---- ------ --------- Totals $203,295 $ - $ (5,130) $198,165 ======== ==== ========= ======== The amortized cost and fair value of fixed maturities, by contractual maturity, at December 31, 1999 are shown below. (in thousands) Held-to-Maturity Available-for-Sale ---------------- ------------------ Amortized Fair Amortized Fair Cost Value Cost Value Due in one year or less $3,107 $3,097 $ - $ - Due after one through five years 253 247 130,284 128,250 Due after five through ten years - - 73,011 69,915 ---------- ---------- ---------- ---------- Total $3,360 $3,344 $203,295 $198,165 ====== ====== ======== ========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 4. INVESTMENTS (continued) Investments in fixed maturities as of December 31, 1998 consisted of the following:
(in thousands) Held-to-Maturity Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- U.S. Government obligations $3,774 $57 $- $3,831 Obligations of state and political subdivisions - - - - Corporate securities 4,515 34 - 4,549 ------- ---- --- ------- Totals $8,289 $91 $ - $8,380 ====== === === ====== (in thousands) Available for Sale Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- U.S. Government obligations $ 17,399 $ 678 $ - $ 18,077 Obligations of state and political subdivisions 253 7 - 260 Corporate securities 117,774 5,160 (76) 122,858 --------- ------- ------- ---------- Totals $135,426 $5,845 $ (76) $141,195 ======== ====== ====== ======== Proceeds from sales of fixed maturities during 1999, 1998 and 1997 were $32,196,000, $999,000, and $5,056,000, respectively. Proceeds from maturities during 1999, 1998 and 1997 were $4,030,000, $3,050,000, and $5,700,000, respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 4. INVESTMENTS (continued) The cost, gross unrealized gains/losses and fair value of investments in mutual funds at December 31, 1999 and 1998 are shown below:
(in thousands) Gross Gross Unrealized Unrealized Fair Cost Gains Losses Value 1999 $11,667 $4,763 $ (26) $16,404 ======= ====== ====== ======= 1998 $8,068 $416 $ (274) $8,210 ====== ==== ======= ====== Net realized investment gains (losses) were as follows for the years ended December 31: (in thousands) 1999 1998 1997 ------ ---- ---- Fixed maturities: Gross gains $ 253 $ - $ 10 Gross losses (228) (1) - Investment in mutual funds: Gross gains 990 281 116 Gross losses (437) (181) (39) ------- ------ ------ Totals $ 578 $ 99 $ 87 ====== ===== =====
5. NET INVESTMENT INCOME The sources of net investment income for the years ended December 31, 1999, 1998 and 1997 were as follows: (in thousands) 1999 1998 1997 ---- ---- ---- Fixed maturities $ 9,461 $ 8,534 $6,617 Cash and cash equivalents 2,159 1,717 1,153 Investment in mutual funds 32 1,013 554 Policy loans 31 45 28 Derivative Instruments (1,036) - - --------- ---------- --------- Total investment income 10,647 11,309 8,352 Investment expenses 206 179 171 ---------- ---------- -------- Net investment income $10,441 $11,130 $8,181 ======= ======= ======
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 6. INCOME TAXES The significant components of income tax expense for the years ended December 31 were as follows:
(in thousands) 1999 1998 1997 ---- ---- ---- Current tax expense $41,248 $22,384 $20,108 Deferred tax benefit (10,904) (14,230) (9,630) -------- -------- --------- Total income tax expense $30,344 $ 8,154 $10,478 ======= ======== =======
The tax effects of significant items comprising the Company's deferred tax balance as of December 31, 1999 and 1998, are as follows:
(in thousands) 1999 1998 ---- ---- Deferred tax liabilities: Deferred acquisition costs ($321,873) ($210,731) Payable to reinsurers (26,733) (25,585) Policy fees (1,146) (859) Net unrealized gains (80) (2,069) ------------ ----------- Total (349,832) (239,244) -------- --------- Deferred tax assets: Net separate account liabilities 333,521 225,600 Future contractowner benefits 3,925 13,128 Other reserve differences 39,645 25,335 Deferred compensation 18,844 9,619 Surplus notes interest 5,030 3,375 Foreign exchange translation 137 166 Other 456 882 ----------- ------------ Total 401,558 278,105 -------- --------- Income tax receivable - deferred $ 51,726 $ 38,861 ========= =========
Management believes that based on the taxable income produced in the current year and the continued growth in annuity products, the Company will produce sufficient taxable income in the future to realize its deferred tax asset. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 6. INCOME TAXES (continued) The income tax expense was different from the amount computed by applying the federal statutory tax rate of 35% to pre-tax income from continuing operations as follows:
(in thousands) 1999 1998 1997 ---- ---- ---- Income (loss) before taxes Domestic $109,036 $45,435 $39,464 Foreign (2,523) (2,514) (1,438) ---------- --------- --------- Total 106,513 42,921 38,026 Income tax rate 35% 35% 35% --------- --------- --------- Tax expense at federal statutory income tax rate 37,280 15,022 13,309 Tax effect of: Dividend received deduction (9,572) (9,085) (4,585) Losses of foreign subsidiary 883 880 503 Meals and entertainment 664 487 340 State income taxes 1,071 673 577 Other 18 177 334 --------- -------- ------- Income tax expense $ 30,344 $ 8,154 $10,478 ========= ======== =======
7. RECEIVABLE FROM/PAYABLE TO AFFILIATES Certain operating costs (including personnel, rental of office space, furniture, and equipment) have been charged to the Company at cost by American Skandia Information Services and Technology Corporation ("ASIST"), an affiliated company; and likewise, the Company has charged operating costs to ASISI. The total cost to the Company for these items was $11,136,000, $7,722,000, and $5,572,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Income received for these items was $3,919,000, $1,355,000 and $3,225,000 for the years ended December 31, 1999, 1998 and 1997, respectively. The Company had a $10 million short-term loan payable to ASI at December 31, 1999 and 1998. The total interest expense thereon to the Company was $585,000, $622,000 and $642,000 for the years ended December 31, 1999, 1998 and 1997 respectively, of which $182,000 was payable as of December 31, 1999 and 1998. Beginning in 1999, the Company was reimbursed by ASM for certain distribution related costs associated with the sales of business through an investment firm where ASM serves as an introducing broker dealer. Under this agreement, the expenses reimbursed in 1999 were $1,441,000. As of December 31,1999, amounts receivable under this agreement were $245,000. As of December 31,1999, the Company had received $71,000,000 from ASI in advance of the sale of certain rights to receive future fees and contract charges. This sale is expected to be completed in the first quarter of 2000. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 8. FUTURE FEES PAYABLE TO PARENT In a series of transactions with ASI, the Company sold certain rights to receive future fees and contract charges expected to be realized on variable portions of designated blocks of deferred annuity contracts. The effective dates and issue periods these transactions cover are as follows:
Closing Effective Contract Issue Transaction Date Date Period 1996-1 12/16/96 9/1/96 1/1/94 - 6/30/96 1997-1 7/23/97 6/1/97 3/1/96 - 4/30/97 1997-2 12/30/97 12/1/97 5/1/95 - 12/31/96 1997-3 12/30/97 12/1/97 5/1/96 - 10/31/97 1998-1 6/30/98 6/1/98 1/1/97 - 5/31/98 1998-2 11/10/98 10/1/98 5/1/97 - 8/31/98 1998-3 12/30/98 12/1/98 7/1/96 - 10/31/98 1999-1 6/23/99 6/1/99 4/1/94 - 4/30/99 1999-2 12/14/99 10/1/99 11/1/98 - 7/31/99
In connection with these transactions, ASI issued collateralized notes in a private placement which are secured by the rights to receive future fees and charges purchased from the Company. Under the terms of the Purchase Agreements, the rights sold provide for ASI to receive a percentage (80% or 100% depending on the underlying commission option) of future mortality and expense charges and contingent deferred sales charges, after reinsurance, expected to be realized over the remaining surrender charge period of the designated contracts (6 to 8 years). The Company did not sell the right to receive future fees and charges after the expiration of the surrender charge period. The proceeds from the sales have been recorded as a liability and are being amortized over the remaining surrender charge period of the designated contracts using the interest method. The present values of the transactions as of the respective effective date were as follows:
Present (in thousands) Transaction Discount Rate Value ----------- ------------- ----- 1996-1 7.5% $50,221 1997-1 7.5% 58,767 1997-2 7.5% 77,552 1997-3 7.5% 58,193 1998-1 7.5% 61,180 1998-2 7.0% 68,573 1998-3 7.0% 40,128 1999-1 7.5% 120,632 1999-2 7.5% 145,078
Payments representing fees and charges in the aggregate amount of $131,420,000, $69,226,000 and $22,250,000 were made by the Company to the Parent for the years ended December 31, 1999, 1998 and 1997, respectively. Related interest expense of $52,840,000, $22,978,000 and $6,842,000 has been included in the statement of income for the years ended December 31, 1999, 1998 and 1997, respectively. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 8. FUTURE FEES PAYABLE TO PARENT (continued) Expected payments of future fees payable to ASI as of December 31, 1999 are as follows:
Year Ended (in thousands) December 31, Amount ----------- ------ 2000 $103,975 2001 107,262 2002 106,491 2003 97,550 2004 78,512 2005 51,839 2006 25,712 2007 4,693 --------- Total $576,034
The Commissioner of the State of Connecticut has approved the sale of future fees and charges; however, in the event that the Company becomes subject to an order of liquidation or rehabilitation, the Commissioner has the ability to stop the payments due to the Parent under the Purchase Agreement subject to certain terms and conditions. 9. LEASES The Company leases office space under a lease agreement established in 1989 with ASIST. The lease expense for 1999, 1998 and 1997 was $5,003,000, $3,588,000 and $2,428,000 respectively. Future minimum lease payments per year and in aggregate as of December 31, 1999 are as follows: (in thousands) 2000 $ 7,004 2001 7,004 2002 6,854 2003 6,756 2004 6,929 2005 and thereafter 51,865 -------- Total $86,412 ======= 10. RESTRICTED ASSETS To comply with certain state insurance departments' requirements, the Company maintains cash, bonds and notes on deposit with various states. The carrying value of these deposits amounted to $4,868,000 and $3,747,000 as of December 31, 1999, and 1998, respectively. These deposits are required to be maintained for the protection of contractowners within the individual states. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 11. RETAINED EARNINGS AND DIVIDEND RESTRICTIONS On November 8, 1999, the Board of Directors authorized the Company to increase the par value of its capital stock from $80 per share to $100 per share in order to comply with minimum capital levels as required by the California Department of Insurance. This transaction resulted in a corresponding decrease in paid in and contributed surplus of $500,000 and had no effect on capital and surplus. Statutory basis shareholder's equity was $286,385,000 and $285,553,000 at December 31, 1999 and 1998, respectively. The statutory basis net loss was $17,672,000, $13,152,000 and $8,970,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Under various state insurance laws, the maximum amount of dividends that can be paid to shareholders without prior approval of the state insurance department is subject to restrictions relating to statutory surplus and net gain from operations. At December 31, 1999, no amounts may be distributed without prior approval. 12. EMPLOYEE BENEFITS The Company has a 401(k) plan for which substantially all employees are eligible. Under this plan, the Company contributes 3% of salary for all participating employees and matches employee contributions at a 50% level up to an additional 3% Company contribution. Company contributions to this plan on behalf of the participants were $3,164,000, $2,115,000 and $1,220,000 for the years ended December 31, 1999, 1998 and 1997, respectively. The Company has a deferred compensation plan, which is available to the internal field marketing staff and certain officers. Company contributions to this plan on behalf of the participants were $193,000, $342,000 and $270,000 for the years ended December 31, 1999, 1998 and 1997, respectively. The Company and an affiliate cooperatively have a long-term incentive program under which units are awarded to executive officers and other personnel. The Company also has a profit sharing program which benefits all employees below the officer level. These programs consist of multiple plans with new plans instituted each year. Generally, participants must remain employed by the Company or its affiliates at the time such units are payable in order to receive any payments under the program. The accrued liability representing the value of these units was $42,619,000 and $21,372,000 as of December 31, 1999 and 1998, respectively. Payments under this plan were $4,079,000, $2,407,000 and $1,119,000 for the years ended December 31, 1999, 1998, and 1997, respectively. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 13. REINSURANCE The effect of reinsurance for the years ended December 31, 1999, 1998 and 1997 is as follows: (in thousands) 1999 ----
Annuity and Life Annuity and Life Insurance Insurance Return Credited Charges and Fees Policy Reserves to Contractowners Gross $326,670 $315 ($1,397) Ceded (36,681) 2,763 (242) -------- ------ -------- Net $289,989 $3,078 ($1,639) ======== ====== ======== 1998 ---- Annuity and Life Annuity and Life Insurance Insurance Return Credited Charges and Fees Policy Reserves to Contractowners Gross $215,425 $ 691 ($8,921) Ceded (29,214) 362 (9) -------- ------ -------- Net $186,211 $1,053 ($8,930) ======== ====== ======== 1997 ---- Annuity and life Annuity and Life Insurance Insurance Return Credited Charges and Fees Policy Reserves to Contractowners Gross $144,417 $955 ($1,972) Ceded (23,259) (918) (46) -------- ----- -------- Net $121,158 $ 37 ($2,018) ======== ===== ========
Such ceded reinsurance does not relieve the Company of its obligations to policyholders. The Company remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet its obligations assumed under the reinsurance agreements. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 14. SURPLUS NOTES The Company has issued surplus notes to its Parent in exchange for cash. Surplus notes outstanding as of December 31, 1999 and 1998 were as follows:
(in thousands) Interest for the Interest 1999 1998 Years Ended December 31, Issue Date Rate Amount Amount 1999 1998 1997 ---------- ---- ------ ------ ---- ---- ---- December 29, 1993 6.84% - - - 1,387 1,387 February 18, 1994 7.28% 10,000 10,000 738 738 738 March 28, 1994 7.90% 10,000 10,000 801 801 801 September 30, 1994 9.13% 15,000 15,000 1,389 1,389 1,389 December 28, 1994 9.78% - 14,000 1,308 1,388 1,388 December 19, 1995 7.52% 10,000 10,000 762 762 762 December 20, 1995 7.49% 15,000 15,000 1,139 1,139 1,139 December 22, 1995 7.47% 9,000 9,000 682 682 682 June 28, 1996 8.41% 40,000 40,000 3,411 3,411 3,411 December 30, 1996 8.03% 70,000 70,000 5,698 5,699 5,699 Total $179,000 $193,000 $15,928 $17,396 $17,396 ======== ======== ======= ======= =======
The surplus note for $14,000,000 dated December 28, 1994 was converted to additional paid-in capital on December 10, 1999. A surplus note for $20,000,000 dated December 29, 1993 was converted to additional paid-in capital on December 31, 1998. All surplus notes mature seven years from the issue date. Payment of interest and repayment of principal for these notes is subject to certain conditions and require approval by the Insurance Commissioner of the State of Connecticut. At December 31, 1999 and 1998, $14,372,000 and $9,644,000, respectively, of accrued interest on surplus notes was not approved for payment under these criteria. 15. SHORT-TERM BORROWING The Company had a $10 million short-term loan payable to the Parent at December 31, 1999 and 1998. The total interest expense to the Company was $585,000, $622,000 and $642,000 and for the years ended December 31, 1999, 1998 and 1997, respectively, of which $197,000 and $182,000 was payable as of December 31, 1999 and 1998, respectively. 16. CONTRACT WITHDRAWAL PROVISIONS Approximately 99% of the Company's separate account liabilities are subject to discretionary withdrawal by contractowners at market value or with market value adjustment. Separate account assets which are carried at fair value are adequate to pay such withdrawals which are generally subject to surrender charges ranging from 10% to 1% for contracts held less than 10 years. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 17. SEGMENT REPORTING During 1998, to complement its annuity products, the Company launched specific marketing and operational activities towards the release of variable life insurance and qualified retirement plan annuity products. Assets under management and sales for the products other than variable annuities have not been significant enough to warrant full segment disclosures as required by SFAS 131, "Disclosures about Segments of an Enterprise and Related Information." 18. SUBSEQUENT EVENT On March 22, 2000, the Company sold certain rights to receive future fees and contract charges expected to be received on variable portions of deferred annuity contracts issued between August 1, 1999 and January 31, 2000. This transaction is the latest in a series of agreements with ASI, as described in Note 8. This transaction has an effective date of March 22, 2000. The present value as of this date, discounted at 7.5%, was $171,781,000. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 19. QUARTERLY FINANCIAL DATA (UNAUDITED) The following table summarizes information with respect to the operations of the Company on a quarterly basis:
(in thousands) Three months Ended ------------------ March 31 June 30 September 30 December 31 -------- ------- ------------ ----------- 1999 Premiums and other insurance revenues $78,412 $88,435 $97,955 $111,540 Net investment income 2,654 2,842 2,735 2,210 Net realized capital gains 295 25 206 52 ---------- ----------- ---------- ----------- Total revenues 81,361 91,302 100,896 113,802 Benefits and expenses 64,107 67,803 71,597 77,341 -------- -------- -------- -------- Pre-tax net income 17,254 23,499 29,299 36,461 Income taxes 3,844 7,142 7,898 11,460 --------- --------- --------- ------- Net income $ 13,410 $ 16,357 $ 21,401 $25,001 ======== ======== ======== ======= 1998 Premiums and other insurance revenues $50,593 $57,946 $62,445 $67,327 Net investment income 3,262 2,410 2,469 2,989 Net realized capital gains (losses) 156 13 (46) (24) ---------- ----------- ----------- ----------- Total revenues 54,011 60,369 64,868 70,292 Benefits and expenses 46,764 42,220 48,471 69,164 -------- -------- -------- -------- Pre-tax net income 7,247 18,149 16,397 1,128 Income taxes 1,175 4,174 2,223 582 --------- --------- -------- --------- Net income $ 6,072 $13,975 $14,174 $ 546 ======== ======= ======= ======== 1997 Premiums and other insurance revenues $30,186 $34,056 $41,102 $44,402 Net investment income 1,369 2,627 2,031 2,154 Net realized capital gains 20 43 21 3 ----------- ----------- ----------- ------------ Total revenues 31,575 36,726 43,154 46,559 Benefits and expenses 18,319 30,465 31,179 40,025 -------- -------- -------- -------- Pre-tax net income 13,256 6,261 11,975 6,534 Income taxes 4,260 2,614 3,354 250 --------- --------- --------- ---------- Net income $ 8,996 $ 3,647 $ 8,621 $ 6,284 ======== ======== ======== ========
APPENDIX B - CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B The Unit Prices and number of Units in the Sub-accounts that commenced operations prior to January 1, 2000 are shown below. All or some of these Sub-accounts were available during the periods shown as investment options for other variable annuities we offer pursuant to different prospectuses. The Insurance Charge assessed against the Sub-accounts under the terms of those other variable annuities are the same as the charges assessed against such Sub-accounts under the Annuity offered pursuant to this Prospectus. Unit Prices And Numbers Of Units: The following table shows: (a) the Unit Price, as of the dates shown, for Units in each of the Class 1 Sub-accounts of Separate Account B that commenced operations prior to January 1, 2000 and are being offered pursuant to this Prospectus or which we offer pursuant to certain other prospectuses; and (b) the number of Units outstanding in each such Sub-account as of the dates shown. The year in which operations commenced in each such Sub-account is noted in parentheses. The portfolios in which a particular Sub-account invests may or may not have commenced operations prior to the date such Sub-account commenced operations. The initial offering price for each Sub-account was $10.00.
Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------------------------------ AST Founders Passport (1) (1994) Unit Price $23.45 12.54 11.46 11.39 10.23 - - - - - Number of Units 8,818,599 9,207,623 9,988,104 9,922,698 2,601,283 - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST AIM International Equity (2) (1989) Unit Price $43.99 27.18 22.95 19.70 18.23 16.80 16.60 12.37 13.69 12.98 Number of Units 16,903,883 17,748,560 17,534,233 17,220,688 14,393,137 14,043,215 9,063,464 1,948,773 1,092,902 398,709 - ------------------------------------------------------------------------------------------------------------------------------------ AST Janus Overseas Growth (1997) Unit Price $24.16 13.41 11.70 - - - - - - - Number of Units 61,117,418 43,711,763 21,405,891 - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST American Century International Growth (1997) Unit Price $21.66 13.30 11.35 - - - - - - - Number of Units 6,855,601 5,670,336 2,857,188 - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST American Century International Growth II (3) (1994) Unit Price $17.10 13.14 11.69 11.70 10.39 9.49 - - - - Number of Units 28,704,924 34,328,425 37,784,426 32,628,595 17,935,251 11,166,758 - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST MFS Global Equity (4) (1999) Unit Price $11.01 - - - - - - - - - Number of Units 116,756 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST Janus Small-Cap Growth (5) (1994) Unit Price $42.08 17.64 17.28 16.54 13.97 10.69 - - - - Number of Units 32,134,969 15,003,001 14,662,728 12,282,211 6,076,373 2,575,105 - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------------------------------ AST Kemper Small- Cap Growth (1999) Unit Price $15.37 - - - - - - - - - Number of Units 53,349,003 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST Lord Abbett Small Cap Value (1998) Unit Price $10.57 9.85 - - - - - - - - Number of Units 6,597,544 4,081,870 - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST T. Rowe Price Small Company Value (1997) Unit Price $11.11 11.20 12.70 - - - - - - - Number of Units 21,340,168 24,700,211 14,612,510 - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST Neuberger Berman Mid-Cap Growth (6) (1994) Unit Price $28.58 19.15 16.10 13.99 12.20 9.94 - - - - Number of Units 13,460,525 13,389,289 11,293,799 9,563,858 3,658,836 301,267 - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST Neuberger Berman Mid-Cap Value (7) (1993) Unit Price $16.78 16.10 16.72 13.41 12.20 9.81 10.69 - - - Number of Units 37,864,586 16,410,121 11,745,440 9,062,152 8,642,186 7,177,232 5,390,887 - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST T. Rowe Price Natural Resources (1995) Unit Price $15.88 12.57 14.46 14.19 11.01 - - - - - Number of Units 6,201,327 5,697,453 7,550,076 6,061,852 808,605 - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST Alliance Growth (8) (1996) Unit Price $20.44 15.48 12.33 10.89 - - - - - - Number of Units 17,059,819 19,009,242 18,736,994 4,324,161 - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ AST MFS Growth (4) (1999) Unit Price $11.27 - - - - - - - - - Number of Units 409,467 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST Marsico Capital Growth (1997) Unit Price $21.06 14.00 10.03 - - - - - - - Number of Units 78,684,943 40,757,449 714,309 - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST JanCap Growth (1992) Unit Price $60.44 39.54 23.83 18.79 14.85 10.91 11.59 10.51 - - Number of Units 94,850,623 80,631,598 62,486,302 46,779,164 28,662,737 22,354,170 13,603,637 1,476,139 - - - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------------------------------ AST Sanford Bernstein Managed Index 500 (9) (1998) Unit Price $15.08 12.61 - - - - - - - - Number of Units 39,825,951 22,421,754 - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST Cohen & Steers Realty (1998) Unit Price $8.35 8.28 - - - - - - - - Number of Units 6,224,365 3,771,461 - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST American Century Income & Growth (10) (1997) Unit Price $16.19 13.35 12.06 - - - - - - - Number of Units 21,361,995 13,845,190 9,523,815 - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST Alliance Growth and Income (11) (1992) Unit Price $27.60 24.11 21.74 17.79 15.22 11.98 11.88 10.60 - - Number of Units 52,766,579 47,979,349 42,197,002 28,937,085 18,411,759 7,479,449 4,058,228 956,949 - - - ------------------------------------------------------------------------------------------------------------------------------------ AST MFS Growth with Income (4) (1999) Unit Price $10.49 - - - - - - - - - Number of Units 741,323 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST INVESCO Equity Income (1994) Unit Price $21.31 19.34 17.31 14.23 12.33 9.61 - - - - Number of Units 46,660,160 40,994,187 33,420,274 23,592,226 13,883,712 6,633,333 - - - - - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ AST AIM Balanced (12) (1993) Unit Price $21.19 17.78 15.98 13.70 12.49 10.34 10.47 - - - Number of Units 23,102,272 22,634,344 22,109,373 20,691,852 20,163,848 13,986,604 8,743,758 - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST American Century Strategic Balanced (1997) Unit Price $14.90 13.37 11.18 - - - - - - - Number of Units 13,944,535 6,714,065 2,560,866 - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST T. Rowe Price Asset Allocation (1994) Unit Price $19.70 18.12 15.53 13.30 11.92 9.80 - - - - Number of Units 22,002,028 18,469,315 13,524,781 8,863,840 4,868,956 2,320,063 - - - - - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ AST T. Rowe Price Global Bond (13) (1994) Unit Price $10.69 11.82 10.45 10.98 10.51 9.59 - - - - Number of Units 12,533,037 12,007,692 12,089,872 8,667,712 4,186,695 1,562,364 - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------------------------------ AST Federated High Yield (1994) Unit Price $14.38 14.30 14.13 12.62 11.27 9.56 - - - - Number of Units 41,588,401 40,170,144 29,663,242 15,460,522 6,915,158 2,106,791 - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST PIMCO Total Return Bond (1994) Unit Price $13.09 13.43 12.44 11.48 11.26 9.61 - - - - Number of Units 73,530,507 64,224,618 44,098,036 29,921,643 19,061,840 4,577,708 - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST PIMCO Limited Maturity Bond (1995) Unit Price $11.96 11.73 11.26 10.62 10.37 - - - - - Number of Units 32,560,943 28,863,932 25,008,310 18,894,375 15,058,644 - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST Money Market (1992) Unit Price $12.38 12.00 11.57 11.16 10.77 10.35 10.12 10.01 - - Number of Units 187,609,708 75,855,442 66,869,998 42,435,169 30,564,442 27,491,389 11,422,783 457,872 - - - ------------------------------------------------------------------------------------------------------------------------------------ The Alger American Fund - AA Growth (1988) Unit Price $83.17 63.07 43.20 34.84 31.18 23.18 23.18 19.19 17.32 12.51 Number of Units 20,747,944 17,168,792 15,854,570 15,666,357 12,092,291 5,614,760 2,997,458 1,482,037 559,779 82,302 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ The Alger American Fund - AA MidCap Growth (1993) Unit Price $39.69 30.53 23.76 20.96 19.00 13.34 13.74 - - - Number of Units 18,904,907 17,559,963 14,687,032 14,528,945 8,299,743 4,308,374 1,450,892 - - - - ------------------------------------------------------------------------------------------------------------------------------------ The Montgomery Variable Series - MV Emerging Markets (1996) Unit Price $10.06 6.19 10.05 10.25 - - - - - - Number of Units 12,060,035 10,534,383 10,371,104 2,360,940 - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Wells Fargo Variable Trust - Equity Value (1998) Unit Price $9.17 9.53 - - - - - - - - Number of Units 2,826,839 1,148,849 - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------------------------------ Rydex Variable Trust - -Nova (14) (1999) Unit Price $10.82 - - - - - - - - - Number of Units 5,474,129 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Rydex Variable Trust - -Ursa (14) (1999) Unit Price $9.28 - - - - - - - - - Number of Units 1,803,669 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Rydex Variable Trust - -OTC (14) (1999) Unit Price $17.07 - - - - - - - - - Number of Units 18,520,440 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ INVESCO VIF - Technology (4) (1999) Unit Price $16.52 - - - - - - - - - Number of Units 4,622,242 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ INVESCO VIF - Health Sciences (4) (1999) Unit Price $11.34 - - - - - - - - - Number of Units 786,518 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ INVESCO VIF - Financial Services (4) (1999) Unit Price $11.41 - - - - - - - - - Number of Units 759,104 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ INVESCO VIF - Telecommunications (4) (1999) Unit Price $15.17 - - - - - - - - - Number of Units 4,184,526 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ INVESCO VIF - Dynamics (4) (1999) Unit Price $13.91 - - - - - - - - - Number of Units 2,022,584 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Evergreen VA - Global Leaders (4) (1999) Unit Price $11.72 - - - - - - - - - Number of Units 23,101 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------------------------------ Evergreen VA - Special Equity (4) (1999) Unit Price $12.19 - - - - - - - - - Number of Units 152,342 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ ProFund VP - Europe 30 (4) (1999) Unit Price $12.24 - - - - - - - - - Number of Units 273,963 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ ProFund VP - UltraSmall-Cap (4) (1999) Unit Price $11.96 - - - - - - - - - Number of Units 813,904 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ ProFund VP - UltraOTC (4) (1999) Unit Price $23.58 - - - - - - - - - Number of Units 2,906,024 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------
1. Effective October 15, 1996, Founders Asset Management, Inc. became Sub-advisor of the Portfolio. Prior to October 15, 1996, Seligman Henderson Co. served as Sub-advisor of the Portfolio, then named "Seligman Henderson International Small Cap Portfolio." 2. Effective May 3, 1999, A I M Capital Management, Inc. became Sub-advisor of the Portfolio. Between October 15, 1996 and May 3, 1999, Putnam Investment Management, Inc. served as Sub-advisor of the Portfolio, then named "AST Putnam International Equity." Prior to October 15, 1996, Seligman Henderson Co. served as Sub-advisor of the Portfolio, then named "Seligman Henderson International Equity Portfolio." 3. Effective May 1, 2000, American Century Investment Management, Inc. became Sub-advisor of the Portfolio. Prior to May 1, 2000, Rowe Price-Fleming International, Inc. served as Sub-advisor of the Portfolio, then named "AST T. Rowe Price International Equity Portfolio." 4. These Portfolios were first offered as Sub-accounts on October 18, 1999. 5. Effective December 31, 1998 Janus Capital Corporation became Sub-advisor of the Portfolio. Prior to December 31, 1998, Founders Asset Management, LLC served as Sub-advisor of the Portfolio, then named "Founders Capital Appreciation Portfolio." 6. Effective May 1, 1998, Neuberger Berman Management, Inc. became Sub-advisor to the Portfolio. Prior to May 1, 1998, Berger Associates, Inc. served as Sub-advisor to the Portfolio, then named "Berger Capital Growth Portfolio." 7. Effective May 1, 1998, Neuberger Berman Management, Inc. became Sub-advisor to the Portfolio. Prior to May 1, 1998, Federated Investment Counseling served as Sub-advisor of the Portfolio, then named "Federated Utility Income Portfolio." 8. Effective May 1, 2000, Alliance Capital Management, L.P. became Sub-advisor of the Portfolio. Between December 31, 1998 and May 1, 2000, OppenheimerFunds, Inc. served as Sub-advisor of the Portfolio, then named "AST Oppenheimer Large-Cap Growth Portfolio." Prior to December 31, 1998, Robertson, Stephens & Company Investment Management, L.P. served as Sub-advisor of the Portfolio, then named "Robertson Stephens Value + Growth Portfolio." 9. Effective May 1, 2000, Sanford C. Bernstein & Co., Inc. became Sub-advisor of the Portfolio. Prior to May 1, 2000, Bankers Trust Company served as Sub-advisor of the Portfolio, then named "AST Bankers Trust Managed Index 500 Portfolio." 10. Effective May 3, 1999, American Century Investment Management, Inc. became Sub-advisor of the Portfolio. Between October 15, 1996 and May 3, 1999, Putnam Investment Management, Inc. served as Sub-advisor of the Portfolio, then named "AST Putnam Value Growth & Income." 11. Effective May 1, 2000, Alliance Capital Management, L.P. became Sub-advisor of the Portfolio. Prior to May 1, 2000, Lord, Abbett & Co. served as Sub-advisor of the Portfolio, then named "AST Lord Abbett Growth and Income Portfolio." 12. Effective May 3, 1999, A I M Capital Management, Inc. became Sub-advisor of the Portfolio. Between October 15, 1996 and May 3, 1999, Putnam Investment Management, Inc. served as Sub-advisor of the Portfolio, then named "AST Putnam Balanced." Prior to October 15, 1996, Phoenix Investment Counsel, Inc. served as Sub-advisor of the Portfolio, then named "AST Phoenix Balanced Asset Portfolio." 13. Effective May 1, 2000, the name of the Portfolio was changed to the "AST T. Rowe Price Global Bond". Effective May 1, 1996, Rowe Price-Fleming International, Inc. became Sub-advisor of the Portfolio. Prior to May 1, 1996, Scudder, Stevens & Clark, Inc. served as Sub-advisor of the Portfolio, then named "AST Scudder International Bond Portfolio." 14. These Portfolios were first offered as Sub-accounts on May 3, 1999. APPENDIX C - SALE OF CONTRACTS TO RESIDENTS OF THE STATE OF NEW YORK Some of the provisions of the Annuity are different for contracts offered to residents of the State of New York. GLOSSARY OF TERMS MVA: For New York contracts, you may transfer or withdraw all or part of the Account Value from a Fixed Allocation during the 30 days prior to the Maturity Date of such Fixed Allocation without application of a market value adjustment. INVESTMENT OPTIONS WHAT ARE THE FIXED INVESTMENT OPTIONS? The State of New York does not allow a Guarantee Period to exceed ten years in duration. For New York contracts, the interest rate we credit to the Fixed Allocation is subject to a minimum of 3%. FEES AND CHARGES Tax Charges: For New York contracts a charge for taxes may also be assessed against the Sub-accounts and/or the Fixed Allocations. PURCHASING YOUR ANNUITY Owner, Annuitant and Beneficiary Designations: For contracts issued in the State of New York, the designation of contingent Owner is not allowed. MANAGING YOUR ANNUITY MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS? Unless you indicated that a prior choice was irrevocable or your Annuity has been endorsed to limit certain changes, you may request to change Owner, Annuitant and Beneficiary designations by sending a request In Writing. Where allowed by law, such changes will be subject to our acceptance. For New York contracts, some of the changes we will not accept include, but are not limited to: (a) a new Owner subsequent to the death of the Owner or the first of any joint Owners to die, except where a spouse-Beneficiary has become the Owner as a result of an Owner's death and (b) a new Annuitant prior to the Annuity Date if the Annuity is owned by an entity. MAY I RETURN THE ANNUITY IF I CHANGE MY MIND? For New York contracts the "free-look" period is within 21 days of receipt of the Annuity and within 10 days of receipt for IRAs. The amount to be refunded for New York contracts is the Account Value in the Sub-accounts plus the Interim Value of the Fixed Allocations and for IRAs the amount to be refunded is the greater of Premium or Account Value. MANAGING YOUR ACCOUNT VALUE MVA Formula: For annuities issued in New York, we apply certain formulas to determine "I" and "J" when we do not offer Guarantee Periods with a duration equal to the remaining period. These formulas are as follows: (a) If we offer Guarantee Periods to your class of Annuities with durations that are both shorter and longer than the remaining period, we interpolate a rate for "J" between our then current interest rates for Guarantee Periods with the next shortest and next longest durations then available for new Fixed Allocations for your class of Annuities. (b) If we no longer offer Guarantee Periods to your class of Annuities with durations that are both longer and shorter than the remaining period, we determine rates for "J" and, for purposes of determining the MVA only, for "I" based on the Moody's Corporate Bond Yield Average - Monthly average Corporates (the "Average"), as published by Moody's Investor Services, Inc., its successor, or an equivalent service should such Average no longer be published by Moody's. For determining I, we will use the Average published on or immediately prior to the start of the applicable Guarantee Period. ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS? For New York contracts the minimum amount allowed in an investment option is $500. Your transfer request must be In Writing. For New York contracts, a specific authorization form MUST be completed which authorizes us to accept transfers via phone or through means such as electronic mail. The following services which we may offer are not available for New York contracts: (1) authorization of an independent third party to transact transfers on your behalf and (2) market timing program. WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES? For New York contracts we will notify you of the Guarantee Periods available as of the date of such notice, at least 45 days and not more than 60 days prior to the Maturity Date. No MVA applies to any amounts allocated to a particular Fixed Allocation if you withdraw all or part of the Account Value in such Fixed Allocation within 30 days of maturity. If you are age 55 or older you may invest in a Fixed Allocation with a Guarantee Period of less than five years. AMERICAN SKANDIA'S PERFORMANCE ADVANTAGE As of the date of this Prospectus, this benefit is not available. ACCESS TO ACCOUNT VALUE HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION? The Annuity Date must be the first or the fifteenth day of a calendar month. However, for New York contracts, if the contract's accumulated value, at the time of annuitization, is less than $2,000, or would provide an income, the initial amount of which is less than $20 per month, in lieu of commencing the annuity payments, we reserve the right to cancel the annuity and pay you the total of the Account Value in any Sub-account plus the Interim Value of any Fixed Allocation. For New York contracts the Annuity Date may not exceed the first day of the calendar month following the Annuitant's 90th birthday. DEATH BENEFIT For New York contracts paragraphs (2) and (3)(b) are amended as follows: If that person's death occurs after the earlier of the decedent's age 90 or the tenth Annuity Year, the death benefit is your Account Value in the Sub-accounts plus the Interim Value of any Fixed Allocation. As of the date of this Prospectus, the optional death benefits are not available. TAX CONSIDERATIONS HOW ARE DISTRIBUTIONS FROM TAX-QUALIFIED RETIREMENT PLANS TAXED? Minimum Distributions after age 70 1/2: For New York contracts the Minimum Distribution provision is only available for annuities issued under Section 403(b) of the IRS Code or for IRA's where Minimum Distributions are required. Minimum Distributions are not available for any other contracts. Deferral of Transactions: For New York contracts we may defer any distribution or transfer from a Fixed Allocation or an annuity payout for a period not to exceed 6 months. If we defer a distribution or transfer from any Fixed Allocation or any fixed annuity payout for more than ten days, we pay interest using our then current crediting rate for this purpose, which is not less than 3% per year on the amount deferred. Modification: In addition to obtaining prior approval from the insurance department of our state of domicile before making such a substitution, deletion or addition, we will also obtain prior approval from the Superintendent of Insurance for New York. Misstatement of Age or Sex: For New York contracts the following provision (c) is added: (c) as to any annuity payments, we shall credit or charge interest using our then current crediting rate for this purpose, which is not greater than 6% interest per year, calculated from the date of any underpayment or overpayment to the date actual payment is made. American Skandia Life Assurance Corporation Attention: Concierge Desk For Written Requests: P.O. Box 883 Shelton, Connecticut 06484 For Electronic Requests: customerservice@americanskandia.com For Requests by Phone: 1-800-752-6342 - -------------------------------------------------------------------------------- PLEASE SEND ME A STATEMENT OF ADDITIONAL INFORMATION THAT CONTAINS FURTHER DETAILS ABOUT THE AMERICAN SKANDIA ANNUITY DESCRIBED IN PROSPECTUS ASL-PROS (05/2000). - -------------------------------------------------------------------------------- ------------------------------------------------------- (print your name) ------------------------------------------------------- (address) ------------------------------------------------------- (city/state/zip code) ADDITIONAL INFORMATION: Inquiries will be answered by calling your representative or by writing to: AMERICAN SKANDIA LIFE ASSURANCE CORPORATION at P.O. Box 883 Shelton, Connecticut 06484 or customerservice@americanskandia.com Issued by: Serviced at: AMERICAN SKANDIA LIFE AMERICAN SKANDIA LIFE ASSURANCE CORPORATION ASSURANCE CORPORATION One Corporate Drive P.O. Box 883 Shelton, Connecticut 06484 Shelton, Connecticut 06484 Telephone: 1-800-752-6342 Telephone: 1-800-752-6342 http://www.americanskandia.com http://www.americanskandia.com Distributed by: AMERICAN SKANDIA MARKETING, INCORPORATED One Corporate Drive Shelton, Connecticut 06484 Telephone: 203-926-1888 http://www.americanskandia.com AMERICAN SKANDIA LIFE ASSURANCE CORPORATION One Corporate Drive, Shelton, Connecticut 06484 This Prospectus describes Stagecoach Variable Annuity Flex, a flexible premium deferred annuity (the "Annuity") offered by American Skandia Life Assurance Corporation ("we", "our" or "us"). The Annuity may be offered as an individual annuity contract or as an interest in a group annuity. This Prospectus describes the important features of the Annuity and what you should consider before purchasing the Annuity. We have also filed a Statement of Additional Information that is available from us, without charge, upon your request. The contents of the Statement of Additional Information are described on page 44. The Annuity or certain of its investment options and/or features may not be available in all states. Various rights and benefits may differ between states to meet applicable laws and/or regulations. Certain terms are capitalized in this prospectus. Those terms are either defined in the Glossary of Terms or in the context of the particular section. WHY WOULD I CHOOSE TO PURCHASE THIS ANNUITY? This Annuity is frequently used for retirement planning. It may be used as an investment vehicle for an IRA, SEP-IRA, Roth IRA, Section 401(a) plans (defined benefit plans and defined contribution plans such as 401(k), profit sharing and money purchase plans) or Tax Sheltered Annuity (or 403(b)). It may also be used for other purposes that are not "qualified" investments. The Annuity allows you to invest your money in a number of variable investment options as well as in one or more fixed investment options. You are not taxed on any investment gains the Annuity earns until you make a withdrawal from the Annuity or begin to receive annuity payments. This feature, referred to as "tax-deferral", can be beneficial to the growth of your Account Value because money that would otherwise be needed to pay taxes on investment gains each year remains invested and can earn additional money. However, because the Annuity is designed for long-term retirement savings, a 10% penalty tax may be applied on withdrawals you make before you reach age 59 1/2. WHAT ARE SOME OF THE KEY FEATURES OF THE ANNUITY? |X| The Annuity is a "flexible premium deferred annuity." It is called "flexible premium" because you have considerable flexibility in the timing and amount of premium payments. Generally, investors "defer" receiving annuity payments until after an accumulation period. |X| This Annuity offers both variable and fixed investment options. If you allocate your Account Value to variable investment options, the value of your Annuity will vary daily to reflect the investment performance of the underlying investment options. Fixed investment options of different durations are offered that are guaranteed by us, but may have a Market Value Adjustment. |X| The Annuity features two distinct phases - the accumulation period and the payout period. During the accumulation period your Account Value is allocated to one or more underlying investment options. The variable investment options, each a Class 1 Sub-account of American Skandia Life Assurance Corporation Variable Account B, invest in an underlying mutual fund portfolio. Currently, portfolios of the following underlying mutual funds are being offered: Wells Fargo Variable Trust, American Skandia Trust, The Alger American Fund, Montgomery Variable Series and INVESCO Variable Investment Funds, Inc. |X| During the payout period, commonly called "annuitization," you can elect to receive annuity payments (1) for life; (2) for life with a guaranteed minimum number of payments; (3) based on joint lives; (4) for a guaranteed number of payments; or other options we may make available. |X| The Annuity provides an additional 1% credit on Purchase Payments made within the first year and may provide certain additional benefits if your Account Value has not reached a Target Value on its 10th anniversary. |X| This Annuity offers a basic Death Benefit. It also offers two Optional Death Benefits that provide an enhanced level of protection for your beneficiary(ies) for an additional charge. |X| There is no Contingent Deferred Sales Charge on surrenders or withdrawals. You can withdraw Account Value from your Annuity free of any charges. |X| Transfers between investment options are tax-free. You may make twelve transfers each year free of charge. We also offer several programs that enable you to manage your Account Value as your financial needs and investment performance change. - -------------------------------------------------------------------------------- These annuities are NOT deposits or obligations of, or issued, guaranteed or endorsed by, any bank, or bank subsidiary of Wells Fargo Bank, N.A., are NOT insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board or any other agency. An investment in this annuity involves certain investment risks, including possible loss of principal. - -------------------------------------------------------------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PLEASE READ THIS PROSPECTUS AND THE CURRENT PROSPECTUS FOR THE UNDERLYING MUTUAL FUNDS. KEEP THEM FOR FUTURE REFERENCE. FOR FURTHER INFORMATION CALL 1-800-680-8920. Prospectus Dated: May 1, 2000 Statement of Additional Information Dated: May 1, 2000 WFVASL-PROS-(05/2000) WFASL HOW DO I PURCHASE THIS ANNUITY? We sell the Annuity through licensed, registered financial professionals. You must complete an application and submit a minimum initial purchase payment of $15,000. We may allow you to make a lower initial purchase payment provided that the purchase payments received in the first Annuity Year total at least $15,000. There is no age restriction to purchase the Annuity. However, the basic Death Benefit provides greater protection for a period of ten (10) years from the Issue Date or for persons under age 90. ================================================================================ American Skandia offers several different annuities which your financial professional may be authorized to offer to you. Each annuity has different features and benefits that may be appropriate for you based on your financial situation, your age and how you intend to use the annuity. The different features and benefits include variations in death benefit protection, the ability to access your annuity's account value and the charges that you will be subject to if you choose to surrender the annuity. The fees and charges may also be different between each annuity. ================================================================================ If you are purchasing the Annuity as a replacement for existing variable annuity or variable life coverage, you should consider any surrender or penalty charges you may incur when replacing your existing coverage. Trustees of qualified retirement plans considering using this Annuity as a funding vehicle for such plans should consult with counsel when evaluating the annuity's benefits and costs. In addition, if you are purchasing this Annuity as an Individual Retirement Annuity or Tax Sheltered Annuity, you should discuss with your financial professional how the benefits and costs of this annuity will fit within your overall financial plan. Mailing Addresses: New Business/Additional Purchase Payments: American Skandia Life Assurance Corporation P.O. Box 7040 Bridgeport, CT 06601-7040 Exchange Paperwork: American Skandia Life Assurance Corporation P.O. Box 7039 Bridgeport, CT 06601-7039 All other correspondence: American Skandia Life Assurance Corporation P.O. Box 7038 Bridgeport, CT 06601-7038 Express/Overnight Mail: American Skandia Life Assurance Corporation Three Corporate Drive Shelton, CT 06484
TABLE OF CONTENTS GLOSSARY OF TERMS..................................................................................................................5 SUMMARY OF CONTRACT FEES AND CHARGES...............................................................................................6 EXPENSE EXAMPLES...................................................................................................................8 INVESTMENT OPTIONS................................................................................................................10 WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?.............................................................10 WHAT ARE THE FIXED INVESTMENT OPTIONS?.........................................................................................15 FEES AND CHARGES..................................................................................................................15 WHAT ARE THE CONTRACT FEES AND CHARGES?........................................................................................15 WHAT CHARGES APPLY SOLELY TO THE VARIABLE INVESTMENT OPTIONS?..................................................................16 WHAT CHARGES APPLY TO THE FIXED ALLOCATIONS?...................................................................................16 WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYOUT?..............................................................................16 PURCHASING YOUR ANNUITY...........................................................................................................16 WHAT ARE OUR REQUIREMENTS FOR PURCHASING THE ANNUITY?..........................................................................16 MANAGING YOUR ANNUITY.............................................................................................................17 MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS?................................................................17 MAY I RETURN THE ANNUITY IF I CHANGE MY MIND?..................................................................................17 MAY I MAKE ADDITIONAL PURCHASE PAYMENTS?.......................................................................................17 MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT?...................................................................17 MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM?...............................................................18 MANAGING YOUR ACCOUNT VALUE.......................................................................................................18 HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED?...................................................................................18 ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?.....................................................18 DO YOU OFFER DOLLAR COST AVERAGING?............................................................................................18 DO YOU OFFER ANY AUTOMATIC REBALANCING PROGRAMS?...............................................................................19 DO YOU OFFER A PROGRAM TO BALANCE FIXED AND VARIABLE INVESTMENTS?..............................................................19 MAY I AUTHORIZE MY FINANCIAL REPRESENTATIVE TO MANAGE MY ACCOUNT?..............................................................19 HOW DO THE FIXED INVESTMENT OPTIONS WORK?......................................................................................20 HOW DO YOU DETERMINE RATES FOR FIXED ALLOCATIONS?..............................................................................20 HOW DOES THE MARKET VALUE ADJUSTMENT WORK?.....................................................................................20 WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES?.................................................................................21 ADDITIONAL AMOUNTS IN THE FIXED ALLOCATIONS....................................................................................21 AMERICAN SKANDIA'S PERFORMANCE ADVANTAGE..........................................................................................22 ACCESS TO ACCOUNT VALUE...........................................................................................................23 WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME?...............................................................................23 ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS?..................................................................................23 CAN I WITHDRAW A PORTION OF MY ANNUITY?........................................................................................24 CAN I MAKE PERIODIC WITHDRAWALS FROM THE ANNUITY DURING THE ACCUMULATION PERIOD?...............................................24 DO YOU OFFER A PROGRAM FOR WITHDRAWALS UNDER SECTION 72(T) OF THE INTERNAL REVENUE CODE?.......................................24 WHAT ARE MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM?.............................................................24 CAN I SURRENDER MY ANNUITY FOR ITS VALUE?......................................................................................24 WHAT TYPES OF ANNUITY PAYMENT OPTIONS ARE AVAILABLE UPON ANNUITIZATION?........................................................24 HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION?...........................................................................25 HOW ARE ANNUITY PAYMENTS CALCULATED?...........................................................................................25 DEATH BENEFIT.....................................................................................................................25 WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT?..................................................................................26 DEATH BENEFIT OPTIONS..........................................................................................................26 VALUING YOUR INVESTMENT...........................................................................................................28 HOW IS MY ACCOUNT VALUE DETERMINED?............................................................................................28 WHAT IS THE SURRENDER VALUE OF MY ANNUITY?.....................................................................................29 HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS?....................................................................................29 HOW DO YOU VALUE FIXED ALLOCATIONS?............................................................................................29 WHEN DO YOU PROCESS AND VALUE TRANSACTIONS?....................................................................................29 TAX CONSIDERATIONS................................................................................................................29 WHAT ARE SOME OF THE FEDERAL TAX CONSIDERATIONS OF THIS ANNUITY?...............................................................30 HOW ARE AMERICAN SKANDIA AND THE SEPARATE ACCOUNTS TAXED?......................................................................30 IN GENERAL, HOW ARE ANNUITIES TAXED?...........................................................................................30 HOW ARE DISTRIBUTIONS TAXED?...................................................................................................30 WHAT TAX CONSIDERATIONS ARE THERE FOR TAX-QUALIFIED RETIREMENT PLANS OR QUALIFIED CONTRACTS?...................................32 HOW ARE DISTRIBUTIONS FROM QUALIFIED CONTRACTS TAXED?..........................................................................33 GENERAL TAX CONSIDERATIONS.....................................................................................................34 GENERAL INFORMATION...............................................................................................................35 HOW WILL I RECEIVE STATEMENTS AND REPORTS?.....................................................................................35 WHO IS AMERICAN SKANDIA?.......................................................................................................35 WHAT ARE SEPARATE ACCOUNTS?....................................................................................................35 WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS?...........................................................................36 WHO DISTRIBUTES ANNUITIES OFFERED BY AMERICAN SKANDIA?.........................................................................37 AVAILABLE INFORMATION..........................................................................................................38 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................................................................38 HOW TO CONTACT US..............................................................................................................38 INDEMNIFICATION................................................................................................................39 LEGAL PROCEEDINGS..............................................................................................................39 EXECUTIVE OFFICERS AND DIRECTORS...............................................................................................39 CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION............................................................................44 APPENDIX A - FINANCIAL INFORMATION ABOUT AMERICAN SKANDIA..........................................................................1 APPENDIX B - CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B..............................................................1
GLOSSARY OF TERMS Many terms used within this Prospectus are described within the text where they appear. The description of those terms are not repeated in this Glossary of Terms. Account Value: The value of each allocation to a Sub-account or a Fixed Allocation prior to the Annuity Date, plus any earnings, and/or less any losses, distributions and charges. The Account Value is calculated before we assess any applicable Annual Maintenance Fee. The Account Value includes any additional amounts we applied to your Purchase Payments that we are entitled to recover upon surrender of your Annuity. The Account Value is determined separately for each Sub-account and for each Fixed Allocation, and then totaled to determine Account Value for your entire Annuity. The Account Value of each Fixed Allocation on other than its Maturity Date may be calculated using a market value adjustment. Annuity Date: The date you choose for annuity payments to commence. There may be a maximum Annuity Date in certain states. Annuity Year: A 12-month period commencing on the Issue Date of the Annuity and each successive 12-month period thereafter. Code: The Internal Revenue Code of 1986, as amended from time to time. Fixed Allocation: An allocation of Account Value that is to be credited a fixed rate of interest for a specified Guarantee Period during the accumulation period. Guarantee Period: A period of time during the accumulation period where we credit a fixed rate of interest on a Fixed Allocation. Interim Value: As of any particular date, the initial value allocated to the Fixed Allocation plus all interest credited to the Fixed Allocation as of the date calculated, less any transfers or withdrawals from the Fixed Allocation. Issue Date: The effective date of your Annuity. MVA: A market value adjustment used in the determination of Account Value of each Fixed Allocation on a day other than such Fixed Allocation's Maturity Date. Owner: With an Annuity issued as an individual annuity contract, the Owner is either an eligible entity or person named as having ownership rights in relation to the Annuity. With an Annuity issued as a certificate under a group annuity contract, the "Owner" refers to the person or entity who has the rights and benefits designated as to the "Participant" in the certificate. Surrender Value: The value of your Annuity available upon surrender prior to the Annuity Date. It equals the Account Value as of the date we price the surrender minus the Annual Maintenance Fee and any additional amounts we applied to your Purchase Payments that we are entitled to recover upon surrender of your Annuity. There is no Contingent Deferred Sales Charge upon surrender. Unit: A measure used to calculate your Account Value in a Sub-account during the accumulation period. Valuation Day: Every day the New York Stock Exchange is open for trading or any other day the Securities and Exchange Commission requires mutual funds or unit investment trusts to be valued. SUMMARY OF CONTRACT FEES AND CHARGES Below is a summary of the fees and expenses we charge for the Annuity. Some charges are assessed against your Annuity while others are assessed against assets allocated to the variable investment options. The charges that are assessed against the Annuity include the Annual Maintenance Fee, Transfer Fee and the Tax Charge. The charge that is assessed against the variable investment options is the Insurance Charge, which is the combination of a mortality and expense risk charge and a charge for administration of the Annuity. Each underlying mutual fund portfolio assesses a charge for investment management and for other expenses. The prospectus for each underlying mutual fund provides more detailed information about the expenses for the underlying funds. In certain states, a premium tax charge may be applicable. All of these fees and expenses are described in more detail within this Prospectus.
- ------------------------------------------------------------------------------------------------------------------------------------ Your Transaction Expenses - ------------------------------- ----------------------------------------------------------------- ---------------------------------- Amount Deducted/ Fee/Expense Description Of Charge When Deducted - ------------------------------- ----------------------------------------------------------------- ---------------------------------- - ------------------------------- ----------------------------------------------------------------- ---------------------------------- Contingent Deferred Sales There is no Contingent Deferred Charge Not Applicable Sales Charge deducted upon surrender The charge is a percentage of or partial withdrawal each applicable purchase payment - ------------------------------- ----------------------------------------------------------------- ---------------------------------- Annual Maintenance Fee Smaller of $30 or 2% of Account Value Annually on the contract's anniversary date or upon surrender - ------------------------------- ----------------------------------------------------------------- ---------------------------------- Transfer Fee $10.00 After the 12th transfer each annuity year - ------------------------------- ----------------------------------------------------------------- ---------------------------------- Tax Charge Depends on the requirements of the applicable jurisdiction Various - ------------------------------- ----------------------------------------------------------------- ---------------------------------- Annual Expenses of the Sub-Accounts (as a percentage of the average daily net assets of the Sub-accounts) - ------------------------------- ----------------------------------------------------------------- ---------------------------------- Mortality & Expense Risk Charge 1.25% Daily Administration Charge 0.15% Total Annual Expenses of the 1.40% per year of the value of each Sub-account Applies to Variable Investment Sub-accounts* Options only - ------------------------------- ----------------------------------------------------------------- ---------------------------------- * The combination of the Mortality and Expense Risk Charges and Administration Charge is referred to as the "Insurance Charge" elsewhere in this prospectus.
- ------------------------------------------------------------------------------------------------------------------------------------ Optional Benefits We offer two different Optional Death Benefits that provide an enhanced level of protection for your beneficiary(ies). Please refer to the section entitled "Death Benefit" for a complete discussion of the Optional Death Benefits we offer. - ---------------------------------------------- -------------------------------------------- ---------------------------------------- Death Benefit Option Death Benefit equal to the greater of: Additional Charge (annually) - ---------------------------------------------- -------------------------------------------- ---------------------------------------- 1. Account Value (no MVA) 2. Sum of Purchase Payments minus OPTION 1 the proportional impact of 0.35% of the current Death Benefit withdrawals increasing at 5.0% annually 3. Highest Anniversary Value - ---------------------------------------------- -------------------------------------------- ---------------------------------------- 1. Account Value (no MVA) 2. Sum of Purchase Payments minus OPTION 2 the proportional impact of 0.55% of the current Death Benefit withdrawals increasing at 7.2% annually 3. Highest Anniversary Value - ---------------------------------------------- -------------------------------------------- ----------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ Underlying Mutual Fund Portfolio Annual Expenses (as a percentage of the average net assets of the underlying Portfolios) - ------------------------------------------------------------------------------------------------------------------------------------ Below are the investment management fee, other expenses, and the total annual expenses for each underlying Portfolio as of December 31, 1999. The total annual expenses are the sum of the investment management fee, other expenses and any 12b-1 fees. Each figure is stated as a percentage of the underlying Portfolio's average daily net assets. For certain of the underlying Portfolios, a portion of the management fee is being waived and/or other expenses are being partially reimbursed. "N/A" indicates that no portion of the management fee and/or other expenses is being waived and/or reimbursed. Any footnotes about expenses appear after the list of all the portfolios. Those portfolios whose name includes the prefix "AST" are portfolios of American Skandia Trust. The underlying mutual fund portfolio information was provided by the underlying mutual funds and has not been independently verified by us. See the prospectuses or statements of additional information of the underlying Portfolios for further details. - ---------------------------------------------- ----------------- ------------ --------------- -------------- ------------ ---------- Estimated Management Other Distribution Total Annual Fee Net UNDERLYING PORTFOLIO Fees Expenses and Portfolio Waivers Annual Service Operating and Fund (12b-1) Expenses Expense Operating Fees(1) Reimbursement Expenses - ---------------------------------------------- ----------------- ------------ --------------- -------------- ------------ ---------- Wells Fargo Variable Trust: Equity Income (3) 0.55% 0.37% 0.25% 1.17% 0.17% 1.00% Large Company Growth (3) 0.55% 0.63% 0.25% 1.43% 0.43% 1.00% Asset Allocation (4) 0.55% 0.33% 0.25% 1.13% 0.13% 1.00% Growth (4) 0.55% 0.43% 0.25% 1.23% 0.23% 1.00% Equity Value (4) 0.55% 0.77% 0.25% 1.57% 0.57% 1.00% Corporate Bond (5) 0.45% 0.55% 0.25% 1.25% 0.35% 0.90% Small Cap Growth (6) 0.75% 1.41% 0.25% 2.41% 1.21% 1.20% Money Market (4) 0.40% 0.50% 0.25% 1.15% 0.30% 0.85% American Skandia Trust: AST Janus Overseas Growth 1.00% 0.23% 0.02% 1.25% N/A 1.25% AST American Century International Growth 1.00% 0.50% 0.00% 1.50% N/A 1.50% AST American Century International Growth 1.00% 0.26% 0.02% 1.28% N/A 1.28% II AST Janus Small-Cap Growth 0.90% 0.18% 0.01% 1.09% N/A 1.09% AST Kemper Small-Cap Growth 0.95% 0.19% 0.03% 1.17% N/A 1.17% AST Lord Abbett Small Cap Value 0.95% 0.29% 0.00% 1.24% N/A 1.24% AST T. Rowe Price Small Company Value 0.90% 0.21% 0.00% 1.11% N/A 1.11% AST Janus Mid-Cap Growth (7) 1.00% 0.22% 0.04% 1.26% N/A 1.26% AST Neuberger Berman Mid-Cap Growth 0.90% 0.23% 0.04% 1.17% N/A 1.17% AST Neuberger Berman Mid-Cap Value 0.90% 0.23% 0.12% 1.25% N/A 1.25% AST MFS Growth (8) 0.90% 0.45% 0.00% 1.35% N/A 1.35% AST Marsico Capital Growth 0.90% 0.18% 0.04% 1.12% N/A 1.12% AST JanCap Growth 0.90% 0.14% 0.01% 1.05% 0.04% 1.01% AST Cohen & Steers Realty 1.00% 0.27% 0.02% 1.29% N/A 1.29% AST American Century Income & Growth 0.75% 0.23% 0.00% 0.98% N/A 0.98% AST INVESCO Equity Income 0.75% 0.18% 0.04% 0.97% N/A 0.97% AST PIMCO Total Return Bond 0.65% 0.17% 0.00% 0.82% N/A 0.82% AST PIMCO Limited Maturity Bond 0.65% 0.21% 0.00% 0.86% N/A 0.86% The Alger American Fund: Growth 0.75% 0.04% N/A 0.79% 0.00% 0.79% Montgomery Variable Series: Emerging Markets 1.25% 0.50% N/A 1.75% 0.00% 1.75% INVESCO Variable Investment Funds, Inc.: Technology 0.75% 0.78% None 1.53% 0.21% 1.32% Health Sciences 0.75% 2.11% None 2.86% 1.37% 1.49% - ------------------------------------------------------------------------------------------------------------------------------------
1. American Skandia Trust (the "Trust") adopted a Distribution Plan (the "Distribution Plan") under Rule 12b-1 of the Investment Company Act of 1940 to permit an affiliate of the Trust's Investment Manager to receive brokerage commissions in connection with purchases and sales of securities held by Portfolios of the Trust, and to use these commissions to promote the sale of shares of such Portfolios. The staff of the Securities and Exchange Commission takes the position that commission amounts received under the Distribution Plan should be reflected as distribution expenses of the Portfolios. The Portfolios would pay the same or comparable commission amounts irrespective of the Distribution Plan; accordingly, total returns for the Portfolios are not expected to be adversely affected. The Distribution Fee estimates are derived from data regarding each Portfolio's brokerage transactions, and the proportions of such transactions directed to selling dealers, for the period ended December 31, 1999. However, it is not possible to determine with accuracy actual amounts that will be received under the Distribution Plan. Such amounts will vary based upon the level of a Portfolio's brokerage activity, the proportion of such activity directed under the Distribution Plan, and other factors. 2. The Investment Manager of American Skandia Trust has agreed to reimburse and/or waive fees for certain Portfolios until at least October 17, 2000. The caption "Total Annual Fund Operating Expenses" reflects the Portfolios' fees and expenses before such waivers and reimbursements, while the caption "Net Annual Fund Operating Expenses" reflects the effect of such waivers and reimbursements. 3. These portfolios were first offered as Sub-accounts on September 20, 1999. 4. Pursuant to a shareholder vote, effective September 20, 1999, each Life & Annuity Trust portfolio transferred its assets to a corresponding portfolio of Wells Fargo Variable Trust. 5. This portfolio was first offered as a Sub-account on September 20, 1999 when, pursuant to a shareholder vote, the U.S. Government Allocation portfolio of Life & Annuity Trust was merged with the Income portfolio of Norwest Select Fund. The LAT U.S. Government Allocation portfolio no longer exists. 6. This portfolio was first offered as a Sub-account on September 20, 1999 when, pursuant to a shareholder vote, the Strategic Growth portfolio of Life & Annuity Trust was merged with the Small Company Stock portfolio of Norwest Select Fund. The LAT Strategic Growth portfolio no longer exists. 7. This Portfolio commenced operations on May 1, 2000. "Other Expenses" are based on estimated amounts for the fiscal year ending December 31, 2000. 8. This Portfolio commenced operations on October 18, 1999. "Other Expenses" are based on estimated amounts for the fiscal year ending December 31, 2000. EXPENSE EXAMPLES These examples are designed to assist you in understanding the various costs and expenses you will incur with the Annuity over certain periods of time based on specific assumptions. The examples reflect expenses of our Sub-accounts, as well as those of the underlying mutual fund portfolios. The Securities and Exchange Commission ("SEC") requires these examples. The examples shown assume that: (a) you only allocate Account Value in the Sub-accounts; (b) fees and expenses remain constant; (c) you make no withdrawals of Account Value during the period shown; (d) you make no transfers, withdrawals, surrender or other transaction that we charge a fee during the period shown; (e) no tax charge applies; and (f) the expenses throughout the period for the underlying mutual fund portfolios will be the "Net Annual Fund Operating Expenses," as shown above in the section entitled "Underlying Mutual Fund Portfolio Annual Expenses." The examples do not reflect the charge for any optional benefits that may be offered under the Annuity. The examples also do not reflect the impact of any Target Value Credits that may be applied to Purchase Payments within the first Annuity Year. THE EXAMPLES ARE ILLUSTRATIVE ONLY - THEY SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE UNDERLYING MUTUAL FUNDS OR THEIR PORTFOLIOS - ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. - -------------------------------------------------------------------------------- Expense Examples (amounts shown are rounded to the nearest dollar) - -------------------------------------------------------------------------------- ------------------------------------- There is no Contingent Deferred Sales Charge on withdrawals. Therefore, whether or not you surrender your Annuity at the end of the applicable time period or begin taking annuity payments at such time, you would pay the following expenses on a $1,000 investment, assuming 5% annual return on assets: ------------------------------------- After: - -------------------------------------- --------- --------- ---------- ---------- Sub-Account: 1 Year 3 Years 5 Years 10 Years - ---------------------------------------- ------- --------- ---------- ---------- WFVT Equity Income 25 77 132 280 WFVT Large Company Growth 25 77 132 280 WFVT Asset Allocation 25 77 132 280 WFVT Growth 25 77 132 280 WFVT Equity Value 25 77 132 280 WFVT Corporate Bond 24 74 127 270 WFVT Small Cap Growth 27 83 142 301 WFVT Money Market 24 73 125 266 AST Janus Overseas Growth 28 85 145 307 AST American Century International Growth 30 92 157 329 AST American Century International Growth 28 86 146 309 II AST Janus Small-Cap Growth 26 80 137 290 AST Kemper Small-Cap Growth 27 82 141 298 AST Lord Abbett Small Cap Value 28 85 144 306 AST T. Rowe Price Small Company Value 26 81 138 291 AST Janus Mid-Cap Growth 28 86 146 308 AST Neuberger Berman Mid-Cap Growth 27 82 141 298 AST Neuberger Berman Mid-Cap Value 28 85 145 307 AST MFS Growth 29 88 150 315 AST Marsico Capital Growth 26 81 138 293 AST JanCap Growth 25 78 133 282 AST Cohen & Steers Realty 28 86 147 309 AST American Century Income & Growth 25 77 131 278 AST INVESCO Equity Income 25 76 131 278 AST PIMCO Total Return Bond 23 72 123 262 AST PIMCO Limited Maturity Bond 24 73 125 267 AA Growth 23 71 122 260 MV Emerging Markets 33 100 169 353 INVESCO VIF Technology 28 87 149 312 INVESCO VIF Health Sciences 30 92 157 329 - -------------------------------------------- --- --------- ---------- ---------- INVESTMENT OPTIONS WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS? Each variable investment option is a Class 1 Sub-account of American Skandia Life Assurance Corporation Variable Account B (see "What are Separate Accounts" for more detailed information.) Each Sub-account invests exclusively in one Portfolio. You should carefully read the prospectus for any Portfolio in which you are interested. The following chart classifies each of the Portfolios based on our assessment of their investment style (as of the date of this Prospectus). The chart also provides a short description of each Portfolio's investment objective (in italics) and a short, summary description of their key policies to assist you in determining which Portfolios may be of interest to you. There is no guarantee that any underlying mutual fund portfolio will meet its investment objective. The name of the advisor/sub-advisor for each Portfolio appears next to the description. Those portfolios whose name includes the prefix "AST" are portfolios of American Skandia Trust. The investment manager for AST is American Skandia Investment Services, Inc. ("ASISI"), an affiliated company. However, a sub-advisor, as noted below, is engaged to conduct day-to-day investment decisions. Some of the Portfolios available as Sub-accounts under the Annuity are managed by the same portfolio advisor or sub-advisor as a retail mutual fund that the Portfolio may have been modeled after at the Portfolio's inception. Certain retail mutual funds may also have been modeled after a Portfolio. While the investment objective and policies of the funds may be substantially similar, the actual investments made by the funds will differ to varying degrees. Differences in the performance of the funds can be expected, and in some cases could be substantial. Details about the investment objectives, policies, risks, costs and management of the Portfolios are found in the prospectuses for the underlying mutual funds. ================================================================================ Effective January 19, 2000, the AST Janus Small-Cap Growth portfolio is no longer offered as a Sub-account under the Annuity. Owners of Contracts issued on or before January 18, 2000 may not allocate additional Account Value or make transfers into the AST Janus Small-Cap Growth Sub-account, except that, Owners who had previously elected a bank drafting, dollar cost averaging, asset allocation and/or rebalancing program will be allowed to continue. However, no changes involving the AST Janus Small-Cap Growth Sub-account may be made to such programs. Effective March 1, 2000, the AST Janus Overseas Growth portfolio is no longer offered as a Sub-account under the Annuity, except as noted below. Owners of Contracts issued on or before February 29, 2000 with Account Value allocated to the AST Janus Overseas Growth Sub-account may continue to allocate Account Value and make transfers into the AST Janus Overseas Growth Sub-account, including any bank drafting, dollar cost averaging, asset allocation and rebalancing programs. Contracts issued on or after March 1, 2000 will not be allowed to allocate Account Value to the AST Janus Overseas Growth Sub-account. The Portfolios may be offered as a Sub-account to Contract Owners at some future date; however, at the present time, American Skandia has no intention to do so. ================================================================================ Please refer to Appendix B for certain required financial information related to the historical performance of the Sub-accounts.
- ------------------------------ ---------------------------------------------------------------------------------------------------- PORTFOLIO STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/ TYPE SUB-ADVISOR - ------------------------------ ---------------------------------------------------------------------------------------------------- - ------------------------------ ---------------------------------------------------------------------------------------------------- CAPITAL PRESERVATION WFVT Money Market: seeks high current income, Wells Fargo Bank, N.A. while preserving capital and liquidity. The Investment Advisor actively manages a portfolio of U.S. dollar-denominated high-quality money market instruments, including debt obligations. They also make certain other investments, including repurchase agreements. - ------------------------------ ---------------------------------------------------------------------------------------------------- CORPORATE WFVT Corporate Bond: seeks a high level of Wells Fargo Bank, N.A. BOND current income, consistent with reasonable risk. The Portfolio pursues its objective by actively managing a diversified portfolio consisting primarily of corporate debt securities of any maturity. Under normal market conditions, it expects to maintain a dollar-weighted average maturity for portfolio securities of between 10 and 15 years. The Portfolio may invest up to 25% of its total assets in debt securities that are below investment grade (junk bonds) or in securities of foreign issuers. The Portfolio also may invest in U.S. Government obligations. - ------------------------------ ---------------------------------------------------------------------------------------------------- SHORT-TERM BOND AST PIMCO Limited Maturity Bond: seeks to Pacific Investment Management Company maximize total return consistent with preservation of capital and prudent investment management. The Portfolio will invest in a diversified portfolio of fixed-income securities of varying maturities. The average portfolio duration of the Portfolio generally will vary within a one- to three-year time frame based on the Sub-advisor's forecast for interest rates. - ------------------------------ ---------------------------------------------------------------------------------------------------- LONG-TERM AST PIMCO Total Return Bond: seeks to maximize Pacific Investment Management Company BOND total return consistent with preservation of capital and prudent investment management. The Portfolio will invest in a diversified portfolio of fixed-income securities of varying maturities. The average portfolio duration of the Portfolio generally will vary within a three- to six-year time frame based on the Sub-advisor's forecast for interest rates. - ----------------------------- ----------------------------------------------------------------------------------------------------- ASSET ALLOCATION WFVT Asset Allocation: seeks long-term total Wells Fargo Bank, N.A. return, consistent with reasonable risk. The Portfolio pursues its objective by allocating and reallocating its assets among common stocks, U.S. Treasury Bonds and money market instruments. The Investment Advisor manages the allocation of investments in the Portfolio assuming a "normal" allocation of 60% stocks and 40% bonds. The stock portion of the Portfolio is invested to replicate the weightings of each company comprising the S&P 500 Index. The bond portion of the Portfolio is invested to replicate the Lehman Brothers 20+ Bond Index. - ------------------------------ ---------------------------------------------------------------------------------------------------- AST INVESCO Equity Income: seeks capital growth INVESCO Funds Group, Inc. and current income while following sound investment practices. The Portfolio seeks to achieve its objective by investing in securities that are expected to produce relatively high levels of income and consistent, stable returns. The Portfolio normally will invest at least 65% of its assets in dividend-paying common and preferred stocks of domestic and foreign issuers. Up to 30% of the Portfolio's assets may be invested in equity securities that do not pay regular EQUITY INCOME dividends. ----------------------------------------------------------------------------------------------------- WFVT Equity Income: seeks long-term capital Wells Fargo Bank, N.A. appreciation and above-average dividend income. The Portfolio pursues its objective primarily by investing in the common stocks of large, high-quality domestic companies with above-average return potential based on current market valuations and above-average dividend income. Under normal market conditions, the Portfolio invests at least 65% of its total assets in income producing equity securities and in issues of companies with market capitalizations greater than the median of the Russell 1000 Index. - ------------------------------------------------------------------------------------------------------------------------------------ GROWTH AST American Century Income & Growth: seeks American Century Investment Management, Inc. & capital growth with current income as a INCOME secondary objective. The Portfolio invests primarily in common stocks that offer potential for capital growth, and may, consistent with its investment objectives, invest in stocks that offer potential for current income. The Sub-adviser utilizes a quantitative management technique with a goal of building an equity portfolio that provides better returns than the S&P 500 Index without taking on significant additional risk and while attempting to create a dividend yield that will be greater than the S&P 500 Index. ------------------------------ --------------------------------------------------------------------------------------------------- PORTFOLIO STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/ TYPE SUB-ADVISOR - ------------------------------ ---------------------------------------------------------------------------------------------------- - ------------------------------ ---------------------------------------------------------------------------------------------------- REAL ESTATE AST Cohen & Steers Realty: seeks to maximize Cohen & Steers Capital Management, Inc. (REIT) total return through investment in real estate securities. The Portfolio pursues its investment objective by seeking, with approximately equal emphasis, capital growth and current income. Under normal circumstances, the Portfolio will invest substantially all of its assets in the equity securities of real estate companies, i.e., a company that derives at least 50% of its revenues from the ownership, construction, financing, management or sale of real estate or that has at least 50% of its assets in real estate. Real estate companies may include real estate investment trusts or REITs. - ------------------------------ ---------------------------------------------------------------------------------------------------- AST JanCap Growth: seeks growth of capital in a Janus Capital Corporation manner consistent with the preservation of capital. Realization of income is not a significant investment consideration and any income realized on the Portfolio's investments, therefore, will be incidental to the Portfolio's objective. The Portfolio will pursue its objective by investing primarily in common stocks of companies that the Sub-advisor believes are experiencing favorable demand for their products and services, and which operate in a favorable competitive and regulatory environment. The Sub-advisor generally takes a "bottom up" approach to choosing investments for the Portfolio. In other words, the Sub-advisor seeks to identify individual companies with earnings growth potential that may not be recognized by the market at large. ---------------------------------------------------------------------------------------------------- AST Marsico Capital Growth: seeks capital Marsico Capital Management, LLC growth. Income realization is not an investment objective and any income realized on the Portfolio's investments, therefore, will be incidental to the Portfolio's objective. The Portfolio will pursue its objective by investing primarily in common stocks of larger, more established companies. In selecting investments for the Portfolio, the Sub-advisor uses an approach that combines "top down" economic analysis with "bottom up" stock selection. The "top down" approach identifies sectors, industries and companies that should benefit from the trends the Sub-advisor has observed. The Sub-advisor then looks for individual companies with earnings growth potential that may not be recognized by the market at large. This is called "bottom up" stock selection. LARGE CAP EQUITY ---------------------------------------------------------------------------------------------------- AST MFS Growth: seeks long-term capital growth Massachusetts Financial Services Company and future income. Under normal market conditions, the Portfolio invests at least 80% of its total assets in common stocks and related securities, such as preferred stocks, convertible securities and depositary receipts, of companies that the Sub-advisor believes offer better than average prospects for long-term growth. The Sub-advisor seeks to purchase securities of companies that it considers well-run and poised for growth. The Portfolio may invest up to 35% of its net assets in foreign securities. ---------------------------------------------------------------------------------------------------- The Alger American Fund - Growth: seeks Fred Alger Management, Inc. long-term capital appreciation. The Portfolio focuses on growing companies that generally have broad product lines, markets, financial resources and depth of management. Under normal circumstances, the Portfolio invests primarily in the equity securities of large companies. The Portfolio considers a large company to have a market capitalization of $1 billion or greater. ---------------------------------------------------------------------------------------------------- WFVT Equity Value: seeks long-term capital Wells Fargo Bank, N.A. appreciation. The Portfolio pursues its objective by investing in a diversified portfolio composed primarily of equity securities that are trading at low price-to-earnings ratios, as measured against the stock market as a whole or against the individual stock's own price history. Under normal market conditions, the Portfolio invests primarily in common stocks of both large, well-established companies and smaller companies with market capitalization exceeding $50 million at the time of purchase. The Portfolio may also invest in debt instruments that may be converted into the common stocks of both U.S. and foreign companies. ---------------------------------------------------------------------------------------------------- WFVT Growth: seeks long-term capital Wells Fargo Bank, N.A. appreciation. The Portfolio pursues its objective by investing primarily in common stocks and other equity securities of companies that have a strong earnings growth trend that the Investment Advisor believes have above-average prospects for future growth. Under normal market conditions, the Portfolio invests at least 65% of total assets in equity securities, including common and preferred stocks and securities convertible into common stocks. The investment strategy is focused on larger capitalization stocks that fall within, but towards the higher end of, the range of the Russell 1000 Index. - ------------------------------ ---------------------------------------------------------------------------------------------------- PORTFOLIO STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/ TYPE SUB-ADVISOR - ------------------------------ ---------------------------------------------------------------------------------------------------- - ------------------------------ ---------------------------------------------------------------------------------------------------- LARGE CAP EQUITY WFVT Large Company Growth: seeks long-term Wells Fargo Bank, N.A. (Cont.) capital appreciation. The Portfolio pursues its objective by investing primarily in common stocks of large, high-quality domestic companies that the Investment Advisor believes have superior growth potential. The Investment Advisor looks for companies that are attractively valued with fundamental characteristics that it believes are significantly better than the market average and support internal earnings growth capability. - ------------------------------ ---------------------------------------------------------------------------------------------------- AST Janus Mid-Cap Growth: seeks long-term Janus Capital Corporation capital growth. The Portfolio invests primarily in common stocks, selected for their growth potential, and normally invests at least 65% of its equity assets in medium-sized companies. For purposes of the Portfolio, medium-sized companies are those whose market capitalizations (measured at the time of investment) fall within the range of companies in the Standard & Poor's MidCap 400 Index. The Sub-advisor seeks to identify individual companies with earnings growth potential that may not be recognized by the market at large. ---------------------------------------------------------------------------------------------------- AST Neuberger Berman Mid-Cap Growth: seeks Neuberger Berman Management Incorporated MID-CAP EQUITY capital growth. The Portfolio primarily invests in the common stocks of mid-cap companies, i.e., companies with equity market capitalizations from $300 million to $10 billion at the time of investment. The Portfolio is normally managed using a growth-oriented investment approach. The Sub-advisor looks for fast-growing companies that are in new or rapidly evolving industries. ---------------------------------------------------------------------------------------------------- AST Neuberger Berman Mid-Cap Value: seeks Neuberger Berman Management Incorporated capital growth. The Portfolio primarily invests in the common stocks of mid-cap companies. Under the Portfolio's value-oriented investment approach, the Sub-advisor looks for well-managed companies whose stock prices are undervalued and that may rise in price before other investors realize their worth. Factors that the Sub-advisor may use to identify these companies include strong fundamentals, including a low price-to-earnings ratio, consistent cash flow, and a sound track record through all phases of the market cycle. ------------------------------ ------------------------------------------------------------------------------------------------ AST Janus Small-Cap Growth: seeks capital Janus Capital Corporation growth. The Portfolio pursues its objective by normally investing at least 65% of its total assets in the common stocks of small-sized companies, i.e., those that have market capitalizations of less than $1.5 billion or annual gross revenues of less than $500 million. As a Portfolio that invests primarily in smaller or newer issuers, the Portfolio may be subject to greater risk of loss and share price fluctuation than funds investing primarily in larger or more established issuers. ---------------------------------------------------------------------------------------------------- SMALL CAP EQUITY AST Kemper Small-Cap Growth: seeks maximum Scudder Kemper Investments, Inc. growth of investors' capital from a portfolio primarily of growth stocks of smaller companies. At least 65% of the Portfolio's total assets normally will be invested in the equity securities of smaller companies, i.e., those having a market capitalization of $1.5 billion or less at the time of investment, many of which would be in the early stages of their life cycle. The Portfolio seeks attractive areas for investment that arise from factors such as technological advances, new marketing methods, and changes in the economy and population. Because of the Portfolio's focus on the stocks of smaller growth companies, investment in the Portfolio may involve substantially greater than average share price fluctuation and investment risk. ---------------------------------------------------------------------------------------------------- AST Lord Abbett Small Cap Value: seeks Lord, Abbett & Co. long-term capital appreciation. The Portfolio will seek its objective through investments primarily in equity securities that are believed to be undervalued in the marketplace. The Portfolio primarily seeks companies that are small-sized, based on the value of their outstanding stock. Specifically, under normal circumstances, at least 65% of the Portfolio's total assets will be invested in common stocks issued by smaller, less well-known companies (with market capitalizations of less than $2 billion) selected on the basis of fundamental investment analysis. The small capitalization companies in which the Portfolio primarily invests may offer significant appreciation potential. However, smaller companies may carry more risk than larger companies. - ------------------------------ ---------------------------------------------------------------------------------------------------- PORTFOLIO STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/ TYPE SUB-ADVISOR - ------------------------------ ---------------------------------------------------------------------------------------------------- - ------------------------------ ---------------------------------------------------------------------------------------------------- AST T. Rowe Price Small Company Value: seeks to T. Rowe Price Associates, Inc. provide long-term capital growth by investing primarily in small-capitalization stocks that appear to be undervalued. The Portfolio will normally invest at least 65% of its total assets in stocks and equity-related securities of small companies ($1 billion or less in market capitalization). Reflecting a value approach to investing, the Portfolio will seek the stocks of companies whose current stock prices do not appear to adequately reflect their underlying value as measured by assets, earnings, cash flow or business franchises. Investing in small companies involves greater risk of loss than is customarily associated with more established companies. SMALL CAP EQUITY ---------------------------------------------------------------------------------------------------- (Cont.) WFVT Small Cap Growth: seeks long-term capital Wells Fargo Bank, N.A. appreciation. The Portfolio pursues its objective by investing in a diversified portfolio of common stocks issued by companies whose market capitalization falls with the range of the Russell 2000 Index. The Portfolio invests in common stocks of domestic and foreign companies that the Investment Advisor believes have above-average prospects for capital growth, or that may be involved in new or innovative products, services and processes. Under normal market conditions, the Portfolio invests in an actively managed, broadly diversified portfolio of small-cap growth-oriented common stocks and in at least 20 common stock issues spread across multiple industry groups and sectors of the economy. - ------------------------------ ---------------------------------------------------------------------------------------------------- AST American Century International Growth: American Century Investment Management, Inc. seeks capital growth. The Portfolio will seek to achieve its investment objective by investing primarily in equity securities of foreign companies that the Sub-advisor believes will increase in value over time. Under normal conditions, the Portfolio will invest at least 65% of its assets in equity securities of issuers from at least three countries outside of the United States. The Sub-advisor uses a growth investment strategy it developed that looks for companies with earnings and revenue growth. The Sub-advisor will consider a number of other factors in making investment selections, including the prospects for relative economic growth among countries or regions, economic and political conditions, expected inflation rates, currency exchange fluctuations and tax considerations. INTER-NATIONAL EQUITY ---------------------------------------------------------------------------------------------------- AST American Century International Growth II: American Century Investment Management, Inc. The investment objective, policies and risks of the Portfolio are substantially identical to those of the AST American Century International Growth Portfolio as described immediately above. ---------------------------------------------------------------------------------------------------- AST Janus Overseas Growth: seeks long-term Janus Capital Corporation growth of capital. The Portfolio pursues its objective primarily through investments in common stocks of issuers from at least five different countries, excluding the United States. Securities are generally selected without regard to any defined allocation among countries, geographic regions or industry sectors, or other similar selection procedure. - ------------------------------ ---------------------------------------------------------------------------------------------------- EMERGING MARKETS Montgomery Variable Series - Emerging Markets: Montgomery Asset Management, LLC seeks capital appreciation, which under normal conditions it seeks by investing at least 65% of its total assets in equity securities of companies in countries having emerging markets. Under normal conditions, investments are maintained in at least six emerging market countries at all times and no more than 25% of total assets are invested in any one emerging market country. - ------------------------------ ---------------------------------------------------------------------------------------------------- Sector funds generally diversify their investments across particular economic sectors. However, because those investments are limited to a comparatively narrow segment of the economy, sector funds are generally not as diversified as most mutual funds. Sector funds tend to be more volatile than other types of funds. The value of fund shares may go up and down more rapidly than other funds. Each sector of the economy may also have different regulatory or other risk factors that can cause greater fluctuations in the share price. Please read the prospectus for the underlying sector fund for further details about the risks of the particular sector of the economy. - ------------------------------ ---------------------------------------------------------------------------------------------------- INVESCO VIF Technology: seeks capital INVESCO Funds Group, Inc. appreciation. The Portfolio normally invests at least 80% of its total assets in the equity securities of companies engaged in technology-related industries. These include, but are not limited to, communications, computers, video, electronics, oceanography, office and factory automation, and robotics. A core portion of the Portfolio's holdings are invested in market-leading technology companies which the Investment Advisor believes will maintain or improve their market share regardless of overall conditions. SECTOR ---------------------------------------------------------------------------------------------------- INVESCO VIF Health Sciences: seeks capital INVESCO Funds Group, Inc. appreciation. The Portfolio invests at least 80% of its assets in the equity securities of companies that develop, produce or distribute products or services related to health care. These industries include, but are not limited to, medical equipment or supplies, pharmaceuticals, health care facilities, and applied research and development of new products or services. The Investment Advisor attempts to blend well-established healthcare firms with faster-growing, more dynamic health care companies, which have new products or are increasing their market share of existing products. - ------------------------------ ------------------------------------------------
WHAT ARE THE FIXED INVESTMENT OPTIONS? We offer fixed investment options of different durations during the accumulation phase. These "Fixed Allocations" earn a guaranteed fixed rate of interest for a specified period of time, called the "Guarantee Period." In most states, we offer Fixed Allocations with Guarantee Periods of 1, 2, 3, 5, 7 and 10 years. We guarantee the fixed rate for the entire Guarantee Period. However, if you withdraw or transfer Account Value before the end of the Guarantee Period, we will adjust the value of your withdrawal or transfer based on a formula, called a "Market Value Adjustment." The Market Value Adjustment can either be positive or negative, depending on the rates that are currently being credited on Fixed Allocations. Please refer to the section entitled "How does the Market Value Adjustment Work?" for a description of the formula along with examples of how it is calculated. You may allocate Account Value to more than one Fixed Allocation at a time. Fixed Allocations are currently not available in the state of Maryland, Nevada, Oregon, Utah and Washington. FEES AND CHARGES WHAT ARE THE CONTRACT FEES AND CHARGES? There is no Contingent Deferred Sales Charge applied if you surrender your Annuity or make a partial withdrawal. Annual Maintenance Fee: During the accumulation period we deduct an Annual Maintenance Fee. The Annual Maintenance Fee is $30.00 or 2% of your Account Value invested in the variable investment options, whichever is less. This fee will be deducted annually on the anniversary of the Issue Date of your Annuity or, if you surrender your Annuity during the Annuity Year, the fee is deducted at the time of surrender. We may increase the Annual Maintenance Fee. However, any increase will only apply to Annuities issued after the date of the increase. We may reduce or eliminate the amount of the Annual Maintenance Fee when Annuities are sold to individuals or a group of individuals in a manner that reduces our maintenance expenses. We would consider such factors as: (a) the size and type of group; (b) the number of Annuities purchased by an Owner; (c) the amount of Purchase Payments; and/or (d) other transactions where maintenance expenses are likely to be reduced. We will not discriminate unfairly between Annuity purchasers if and when we eliminate or reduce the Annual Maintenance Fee. Optional Death Benefits: If you elect to purchase one of the Optional Death Benefits, we will deduct a charge from your Account Value on the anniversary of your Annuity's Issue Date or, under certain circumstances on a date other than the anniversary date. Please refer to the section entitled "Death Benefit" for a description of the charge for each Optional Death Benefit. Transfer Fee: You may make twelve (12) free transfers between investment options each Annuity Year. We will charge $10.00 for each transfer after the twelfth in each Annuity Year. We do not consider transfers made as part of a dollar cost averaging program when we count the twelve free transfers. Transfers made as part of a rebalancing, market timing or third party investment advisory service will be subject to the twelve-transfer limit. However, all transfers made on the same day will be treated as one (1) transfer. Renewals or transfers of Account Value from a Fixed Allocation at the end of its Guarantee Period are not subject to the Transfer Fee and are not counted toward the twelve free transfers. We may allow a higher number of transfers each Annuity Year without charging a Transfer Fee or may eliminate the Transfer Fee for transfer requests transmitted electronically or through other means that reduce our processing costs. Tax Charges: Several states and some municipalities charge premium taxes or similar taxes. The amount of tax will vary from jurisdiction to jurisdiction and is subject to change. The tax charge currently ranges up to 3 1/2%. We generally will deduct the amount of tax payable at the time the tax is imposed, but may also decide to deduct tax charges from each Purchase Payment at the time of a withdrawal or surrender of your Annuity or at the time you elect to begin receiving annuity payments. We may assess a charge against the Sub-accounts and the Fixed Allocations equal to any taxes which may be imposed upon the separate accounts. WHAT CHARGES APPLY SOLELY TO THE VARIABLE INVESTMENT OPTIONS? Insurance Charge: We deduct an Insurance Charge daily against the average daily assets allocated to the Sub-accounts. The charge is equal to 1.40% on an annual basis. This charge is for insurance benefits, including the Annuity's basic death benefit that provides guaranteed benefits to your beneficiary even if the market declines and the risk that persons we guarantee annuity payments to will live longer than our assumptions. The charge also covers administrative costs associated with providing the Annuity benefits, including preparation of the contract, confirmation statements, annual account statements and annual reports, legal and accounting fees as well as various related expenses. Finally, the charge covers the risk that our assumptions about the administrative and non-mortality expenses under this Annuity are incorrect. The Insurance Charge is not deducted against assets allocated to a fixed investment option. We may increase the portion of the Insurance Charge for administrative costs. However, any increase will only apply to Annuities issued after the date of the increase. We may reduce the portion of the Insurance Charge for administrative costs when Annuities are sold to individuals or a group of individuals in a manner that reduces our administrative expenses. We would consider such factors as: (a) the size and type of group; (b) the number of Annuities purchased by an Owner; (c) the amount of Purchase Payments; and/or (d) other transactions where administration expenses are likely to be reduced. We will not discriminate unfairly between Annuity purchasers if and when we reduce the portion of the Insurance Charge attributed to the charge covering administrative costs. WHAT CHARGES APPLY TO THE FIXED ALLOCATIONS? We take into consideration mortality, expense, administration, profit and other factors in determining the interest rates we credit to Fixed Allocations. No specific fee or expenses are deducted when determining the rate we credit. Any Tax Charge applies to amounts that are taken from the variable investment options or the Fixed Allocations. A Market Value Adjustment may also apply to transfers, certain withdrawals or surrender from a Fixed Allocation. WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYOUT? In certain states a tax is due if and when you exercise your right to receive periodic annuity payments. The amount payable will depend on the applicable jurisdiction and on the annuity payment option you select. If you select an option that guarantees payment for life, then the payment amount also will depend on your age and, where permitted by law, your gender. In all cases, the amount of each payment will depend on the Account Value of your Annuity when you elect to begin annuity payments. PURCHASING YOUR ANNUITY WHAT ARE OUR REQUIREMENTS FOR PURCHASING THE ANNUITY? Initial Purchase Payment: You must make a minimum initial Purchase Payment of $15,000. However, if you decide to make payments under a systematic investment or "bank drafting" program, we will accept a lower initial Purchase Payment provided that, within the first Annuity Year, you make at least $15,000 in total Purchase Payments. We must approve any Purchase Payment in excess of $500,000. Age Restrictions: There is no age restriction to purchase the Annuity. However, the basic Death Benefit provides greater protection for a period of ten (10) years from the Issue Date but not beyond age 90. There is no Contingent Deferred Sales Charge deducted upon surrender or partial withdrawal. However, if you take a distribution prior to age 59 1/2, you may be subject to a 10% penalty in addition to ordinary income taxes on any gain. Owner, Annuitant and Beneficiary Designations: On your Application, we will ask you to name the Owner(s), Annuitant and one or more Beneficiaries for your Annuity. |X| Owner: The Owner(s) holds all rights under the Annuity. You may name more than one Owner in which case all ownership rights are held jointly. However, this Annuity does not provide a right of survivorship. Refer to the Glossary of Terms for a complete description of the term "Owner." |X| Annuitant: The Annuitant is the person we agree to make annuity payments to and upon whose life we continue to make such payments. You must name an Annuitant who is a natural person. We do not accept a designation of joint Annuitants during the accumulation period. Where allowed by law, you may name one or more Contingent Annuitants. A Contingent Annuitant will become the Annuitant if the Annuitant dies before the Annuity Date. |X| Beneficiary: The Beneficiary is the person(s) or entity you name to receive the death benefit. If no beneficiary is named the death benefit will be paid to you or your estate. You should seek competent tax advice on the income, estate and gift tax implications of your designations. MANAGING YOUR ANNUITY MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS? You may change the Owner, Annuitant and Beneficiary designations by sending us a request in writing. Where allowed by law, such changes will be subject to our acceptance. Some of the changes we will not accept include, but are not limited to: |X| a new Owner subsequent to the death of the Owner or the first of any joint Owners to die, except where a spouse-Beneficiary has become the Owner as a result of an Owner's death; |X| a new Annuitant subsequent to the Annuity Date; |X| a new Annuitant prior to the Annuity Date if the Annuity is owned by an entity; and |X| a change in Beneficiary if the Owner had previously made the designation irrevocable. Spousal Owners/Spousal Beneficiaries If an Annuity is owned jointly by spouses, the death benefit will be payable upon the death of the first spouse. However, if the sole primary Beneficiary is designated as one of the following: |X| "surviving spouse"; |X| each spouse named individually upon the death of the other; or |X| a designation which we, in our sole discretion, determine to be of similar intent; then upon the death of either Owner, the surviving spouse may elect to be treated as the Owner and continue the Annuity, subject to its existing terms and conditions, instead of taking the Death Benefit. MAY I RETURN THE ANNUITY IF I CHANGE MY MIND? (The right to return the Annuity is referred to as the "free-look" right or "right to cancel.") If after purchasing your Annuity you change your mind and decide that you do not want it, you may return it to us within a certain period of time known as a free-look period. Depending on the state in which you purchased your Annuity, the free-look period may be ten (10) days, twenty-one (21) days or longer, measured from the time that you received your Annuity. If you free-look your Annuity, we will refund your current Account Value plus any tax charge deducted. This amount may be higher or lower than your original Purchase Payment. Certain states require that we return your current Account Value or the amount of your initial Purchase Payment, whichever is greater. The same rule applies to an Annuity that is purchased as an IRA. In those states where we are required to return the greater of your Purchase Payment or Account Value, we will allocate your Account Value to the WFVT Money Market Sub-account during the free-look period and for a reasonable additional amount of time to allow for delivery of your Annuity. If you free-look your Annuity, we will not return any additional amounts we applied to your Annuity based on your Purchase Payments. MAY I MAKE ADDITIONAL PURCHASE PAYMENTS? The minimum amount that we accept as an additional Purchase Payment is $100 unless you participate in "Auto Saver" or a periodic purchase payment program. We will allocate any additional Purchase Payments you make according to your most recent allocation instructions, unless you request new allocations when you submit a new Purchase Payment. MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT? You can make additional Purchase Payments to your Annuity by authorizing us to deduct money directly from your bank account and applying it to your Annuity. This type of program is often called "bank drafting". We call our bank drafting program "Auto Saver". Purchase Payments made through Auto Saver may only be allocated to the variable investment options. Auto Saver allows you to invest in an Annuity with a lower initial Purchase Payment, as long as you authorize payments that will equal at least $15,000 during the first 12 months of your Annuity. We may suspend or cancel bank drafting privileges if sufficient funds are not available from the applicable financial institution on any date that a transaction is scheduled to occur. MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM? These types of programs are only available with certain types of plans. If your employer sponsors such a program, we may agree to accept periodic Purchase Payments through a salary reduction program as long as the allocations are made only to variable investment options and the periodic Purchase Payments received in the first year total at least $15,000. MANAGING YOUR ACCOUNT VALUE HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED? (See "Valuing Your Investment" for a description of our procedure for pricing initial and subsequent Purchase Payments.) Initial Purchase Payment: Once we accept your application, we invest your net Purchase Payment in the Annuity. The net Purchase Payment is your initial Purchase Payment minus any tax charges that may apply. On your application we ask you to provide us with instructions for allocating your Account Value. You can allocate Account Value to one or more variable investment options or Fixed Allocations. In those states where we are required to return your Purchase Payment if you elect to "free-look" your Annuity, we initially allocate all amounts that you choose to allocate to the variable investment options to the WFVT Money Market Sub-account. At the end of the "free-look" period we will reallocate your Account Value according to your most recent allocation instructions. Where permitted by law, we will allocate your Purchase Payments according to your initial instructions, without temporarily allocating to the WFVT Money Market Sub-account. To do this, we will ask that you execute our form called a "return waiver" that authorizes us to allocate your Purchase Payment to your chosen Sub-accounts immediately. If you submit the "return waiver" and then decide to return your Annuity during the free-look period, you will receive your current Account Value which may be more or less than your initial Purchase Payment (see "May I Return the Annuity if I Change my Mind?"). Subsequent Purchase Payments: We will allocate any additional Purchase Payments you make according to your current allocation instructions. If any rebalancing or asset allocation programs are in effect, the allocation should conform with such a program. We assume that your current allocation instructions are valid for subsequent Purchase Payments until you make a change to those allocations or request new allocations when you submit a new Purchase Payment. ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS? During the accumulation period you may transfer Account Value between investment options. Transfers are not subject to taxation. We currently limit the number of Sub-accounts you can invest in at any one time to twenty (20). However, you can invest in an unlimited number of Fixed Allocations. We may require a minimum of $500 in each Sub-account you allocate Account Value to at the time of any allocation or transfer. If you request a transfer and, as a result of the transfer, there would be less than $500 in the Sub-account, we may transfer the remaining Account Value in the Sub-account pro rata to the other investment options to which you transferred. We will charge $10.00 for each transfer after the twelfth (12th) in each Annuity Year, including transfers made as part of any rebalancing, market timing, asset allocation or similar program which you have authorized. Transfers made as part of a dollar cost averaging program do not count toward the twelve free transfer limit. Renewals or transfers of Account Value from a Fixed Allocation at the end of its Guarantee Period are not subject to the transfer charge. We may allow a higher number of transfers each Annuity Year without charging a Transfer Fee or may eliminate the Transfer Fee for transfer requests transmitted electronically or through other means that reduce our processing costs. We reserve the right to limit the number of transfers in any Annuity Year for all existing or new Owners. We also reserve the right to limit the number of transfers in any Annuity Year or to refuse any transfer request for an Owner or certain Owners if: (a) we believe that excessive trading or a specific transfer request or group of transfer requests may have a detrimental effect on Unit Values or the share prices of the Portfolios; or (b) we are informed by one or more of the Portfolios that the purchase or redemption of shares must be restricted because of excessive trading or a specific transfer or group of transfers is deemed to have a detrimental effect on the share prices of affected Portfolios. Without limiting the above, the most likely scenario where either of the above could occur would be if the aggregate amount of a trade or trades represented a relatively large proportion of the total assets of a particular Portfolio. Under such a circumstance, we will process transfers according to our rules then in effect and provide notice if the transfer request was denied. If a transfer request is denied, a new transfer request may be required. DO YOU OFFER DOLLAR COST AVERAGING? Yes. We offer Dollar Cost Averaging during the accumulation period. Dollar Cost Averaging allows you to systematically transfer an amount each month from one investment option to one or more other investment options. You can choose to transfer earnings only, principal plus earnings or a flat dollar amount. Dollar Cost Averaging allows you to invest regularly each month, regardless of the current unit value (or price) of the Sub-account(s) you invest in. This enables you to purchase more units when the market price is low and fewer units when the market price is high. This may result in a lower average cost of units over time. However, there is no guarantee that Dollar Cost Averaging will result in a profit or protect against a loss in a declining market. You must have a minimum Account Value of at least $10,000 to enroll in a Dollar Cost Averaging program. You can Dollar Cost Average from variable investment options or Fixed Allocations. Dollar Cost Averaging from Fixed Allocations is subject to a number of rules that include, but are not limited to the following: |X| You may only use Fixed Allocations with Guarantee Periods of 1, 2 or 3 years. |X| You may only Dollar Cost Average earnings or principal plus earnings. If transferring principal plus earnings, the program must be designed to last the entire Guarantee Period for the Fixed Allocation. |X| Dollar Cost Averaging transfers from Fixed Allocations are not subject to a Market Value Adjustment. We may credit additional amounts to your Account Value if you allocate Purchase Payments to Fixed Allocations as part of a dollar cost averaging program. Any such offer is at our sole discretion and may be cancelled at any point. Specific rules may also apply including a change to the MVA formula. For more information see "Additional Amounts in the Fixed Allocation." DO YOU OFFER ANY AUTOMATIC REBALANCING PROGRAMS? Yes. During the accumulation period, we offer automatic rebalancing among the variable investment options you choose. You can choose to have your Account Value rebalanced quarterly, semi-annually, or annually. On the appropriate date, your variable investment options are rebalanced to the allocation percentages you request. For example, over time the performance of the variable investment options will differ, causing your percentage allocations to shift. With automatic rebalancing, we transfer the appropriate amount from the "overweighted" Sub-accounts to the "underweighted" Sub-accounts to return your allocations to the percentages you request. If you request a transfer from or into any variable investment option participating in the automatic rebalancing program, we will assume that you wish to change your rebalancing percentages as well, and will automatically adjust the rebalancing percentages in accordance with the transfer unless we receive alternate instructions from you. You must have a minimum Account Value of at least $10,000 to enroll in automatic rebalancing. All rebalancing transfers made on the same day as part of an automatic rebalancing program are considered as one transfer when counting the number of transfers each year toward the maximum number of free transfers. DO YOU OFFER A PROGRAM TO BALANCE FIXED AND VARIABLE INVESTMENTS? Some investors wish to invest in the variable investment options but also wish to protect a portion of their investment from market fluctuations. We offer a balanced investment program where a portion of your Purchase Payment is allocated to a Fixed Allocation for a Guarantee Period that you select and the remaining Account Value is allocated to the variable investment options that you select. The amount that we allocate to the Fixed Allocation is the amount (not including any additional amounts we applied to your Annuity based on your Purchase Payments) that will grow to a specific "principal amount" such as your initial Purchase Payment. We determine the amount based on the rates then in effect for the Guarantee Period you choose. If no amounts are transferred or withdrawn from the Fixed Allocation, at the end of the Guarantee Period, it will have grown to equal the "principal amount". The remaining Account Value that was not allocated to the Fixed Allocation can be allocated to any of the Sub-accounts that you choose. Account Value allocated to the variable investment options is subject to market fluctuations and may increase or decrease in value. Example Assume you have $100,000 to invest. You choose to allocate a portion of your Account Value to a Fixed Allocation with a 10-year Guarantee Period. The rate for the 10-year Guarantee Period is 6.13%*. Based on the chosen Guarantee Period and interest rate, the factor for determining how much of your Account Value can be allocated to the Fixed Allocation is 0.551593. That means that $55,159 will be allocated to the Fixed Allocation and the remaining Account Value ($44,841) will be allocated to the variable investment options. Assuming that you do not make any withdrawals from the Fixed Allocation, it will grow to $100,000 at the end of the Guarantee Period. Of course we cannot predict the value of the remaining Account Value that was allocated to the variable investment options. * The rate in this example is hypothetical and may not reflect the current rate for Guarantee Periods of this duration. The hypothetical values in this example do not include the amount of any Target Value Credits that may apply. We may credit additional amounts to Fixed Allocations if you allocate Purchase Payments in accordance with the balanced investment program we offer. Any such offer is at our sole discretion and may be cancelled at any point. Specific rules may also apply, including a change to the MVA formula. For more information see "Additional Amounts in the Fixed Allocations." MAY I AUTHORIZE MY FINANCIAL REPRESENTATIVE TO MANAGE MY ACCOUNT? You may authorize your financial representative to decide on the allocation of your Account Value and to make financial transactions between investment options, subject to our rules. However, we can suspend or cancel these privileges at any time. We will notify you if we do. We may restrict the available investment options if you authorize a financial representative to make transfers for you. We do this so that no financial representative is in a position to control transfers of large amounts of money for multiple clients into or out of any of the underlying portfolios that have expressed concern about movement of a large proportion of a portfolio's assets. We or an affiliate of ours may provide administrative support to financial representatives who make transfers on your behalf. These financial representatives may be firms or persons who also are appointed by us as authorized sellers of the Annuity. However, we do not offer you advice about how to allocate your Account Value under any circumstance. Any financial firm or representative you engage to provide advice and/or make transfers for you is not acting on our behalf. We are not responsible for any recommendations such financial representatives make, any market timing or asset allocation programs they choose to follow or any specific transfers they make on your behalf. HOW DO THE FIXED INVESTMENT OPTIONS WORK? (Fixed Allocations may not be available in all states and may not be available in certain durations.) Fixed Allocations currently are offered with Guarantee Periods of 1, 2, 3, 5, 7 and 10 years. We credit the fixed interest rate to the Fixed Allocation throughout a set period of time called a "Guarantee Period." The interest rate credited to a Fixed Allocation is the rate in effect when the Guarantee Period begins and does not change during the Guarantee Period. The rates are an effective annual rate of interest. We determine the interest rates for the various Guarantee Periods. At the time that we confirm your Fixed Allocation, we will advise you of the interest rate in effect and the date your Fixed Allocation matures. We may change the rates we credit new Fixed Allocations at any time. To inquire as to the current rates for Fixed Allocations, please call 1-800-680-8920. A Guarantee Period for a Fixed Allocation begins: |X| when all or part of a net Purchase Payment is allocated to that particular Guarantee Period; |X| upon transfer of any of your Account Value to a Fixed Allocation for that particular Guarantee Period; or |X| when a Guarantee Period attributable to a Fixed Allocation "renews" after its Maturity Date. To the extent permitted by law, we may increase interest rates offered to a class of Owners who choose to participate in various services we make available. This may include, but is not limited to, Owners who elect to use dollar cost averaging from Fixed Allocations (see "Do You Offer Dollar Cost Averaging?") or the balanced investment program (see "Do You Offer a Program to Balance Fixed and Variable Investments?"). Any such program is at our sole discretion. HOW DO YOU DETERMINE RATES FOR FIXED ALLOCATIONS? We do not have a specific formula for determining the fixed interest rates for Fixed Allocations. Generally the interest rates we offer for Fixed Allocations will reflect the investment returns available on the types of investments we make to support our fixed rate guarantees. These investment types may include cash, debt securities guaranteed by the United States government and its agencies and instrumentalities, money market instruments, corporate debt obligations of different durations, private placements, asset-backed obligations and municipal bonds. In determining rates we also consider factors such as the length of the Guarantee Period for the Fixed Allocation, regulatory and tax requirements, liquidity of the markets for the type of investments we make, commissions, administrative and investment expenses, our insurance risks in relation to the Fixed Allocations, general economic trends and competition. We will credit interest on a new Fixed Allocation in an existing Annuity at a rate not less than the rate we are then crediting to Fixed Allocations for the same Guarantee Period selected by new Annuity purchasers in the same class. HOW DOES THE MARKET VALUE ADJUSTMENT WORK? If you transfer or withdraw Account Value from a Fixed Allocation before the end of its Guarantee Period, we will adjust the value of your investment based on a formula, called a "Market Value Adjustment" or "MVA". The Market Value Adjustment formula compares the interest rates credited for Fixed Allocations at the time you invested, to interest rates being credited when you make a transfer or withdrawal. The amount of any Market Value Adjustment can be either positive or negative, depending on the rates that are currently being credited on Fixed Allocations. MVA Formula The MVA formula is applied separately to each Fixed Allocation. The formula is as follows: [(1+I) / (1+J+0.0010)]N/12 where: I is the fixed interest rate we guaranteed to credit to the Fixed Allocation as of its starting date; J is the fixed interest rate for your class of annuities at the time of the withdrawal for a new Fixed Allocation with a Guarantee Period equal to the remaining number of years in your original Guarantee Period; N is the number of months remaining in the original Guarantee Period. If you surrender your Annuity under the "free-look" provision, the MVA formula is [(1 + I)/(1 + J)]N/12. If the transfer or withdrawal does not occur on the yearly or monthly anniversary of the beginning of the Fixed Allocation, the numbers used in 'J' and 'N' will be rounded to the next highest integer. MVA Examples The following hypothetical examples show the effect of the MVA in determining Account Value. Assume the following: |X| You allocate $50,000 into a Fixed Allocation with a Guarantee Period of 5 years. |X| The interest rate for your Fixed Allocation is 5.0% (I = 5.0%). |X| You make no withdrawals or transfers until you decided to withdraw the entire Fixed Allocation after exactly three (3) years, therefore 24 months remain before the Maturity Date (N = 24). Example of Positive MVA Assume that at the time you request the withdrawal, the fixed interest rate for a new Fixed Allocation with a Guarantee Period of 24 months is 3.5% (J = 3.5%). Based on these assumptions, the MVA would be calculated as follows: MVA Factor = [(1+I)/(I+J+0.0010)]N/12 = [1.05/1.036]2 = 1.027210 Interim Value = $57,881.25 Account Value after MVA = Interim Value X MVA Factor = $59,456.20. Example of Negative MVA Assume that at the time you request the withdrawal, the fixed interest rate for a new Fixed Allocation with a Guarantee Period of 24 months is 6.0% (J = 6.0%). Based on these assumptions, the MVA would be calculated as follows: MVA Factor = [(1+I)/(1+J+0.0010)]N/12 = [1.05/1.061)]2 = 0.979372 Interim Value = $57,881.25 Account Value after MVA = Interim Value X MVA Factor = $56,687.28. WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES? The "Maturity Date" for a Fixed Allocation is the last day of the Guarantee Period. On the Maturity Date, you may choose to renew the Fixed Allocation for a new Guarantee Period of the same or different length or you may transfer all or part of that Fixed Allocation's Account Value to another Fixed Allocation or to one or more Sub-accounts. If you do not specify how you want a Fixed Allocation to be allocated on its Maturity Date, it will be renewed for a Fixed Allocation of the same duration if then available. We will notify you 60 days before the end of the Guarantee Period about the fixed interest rates that we are currently crediting to all Fixed Allocations that are being offered. The rates being credited to Fixed Allocations may change before the Maturity Date. We will not charge a MVA if you choose to renew a Fixed Allocation on its Maturity Date or transfer the Account Value to one or more variable investment options. ADDITIONAL AMOUNTS IN THE FIXED ALLOCATIONS If you allocate Account Value to the Fixed Allocations and participate in certain programs we offer to help you to manage your Annuity's Account Value, under certain circumstances we may apply Additional Amounts to your Account Value allocated to the Fixed Allocation. Additional Amounts may be offered at any time at our sole discretion. When offered, Additional Amounts are provided from our general account. Any program to provide Additional Amounts to Fixed Allocations are subject to the following rules: |X| Additional Amounts are only offered if you participate in a balanced investment program (see "Do you offer a program to balance fixed and variable investment options?") or dollar cost averaging (see " Do you offer Dollar Cost Averaging?"). |X| Additional Amounts are only available on initial or additional Purchase Payments. Account Value transferred to a Fixed Allocation for use in the applicable programs will not receive the Additional Amounts. Additional Amounts are not available on an Annuity that is issued following an exchange of another annuity issued by us. |X| You may not withdraw any Additional Amounts under the Free Withdrawal provision without assessment of the contingent deferred sales charge (see "Can I make withdrawals from my Annuity without a CDSC?). |X| If Additional Amounts are applied to a Fixed Allocation, the MVA formula is revised as follows: [(1+I) / (1+J+0.0020)]N/12 Please refer to the section of the Prospectus entitled "How does the Market Value Adjustment Work?" for a discussion of the MVA formula. |X| We do not consider Additional Amounts as "investment in the contract" for income tax purposes. |X| We may require that you allocate Account Value to a Fixed Allocation with a Guarantee Period of certain duration (i.e. 10 years). |X| Specific rules apply in relation to the duration of the Guarantee Period you must choose to be eligible to receive any Additional Amounts, and the date on which we allocate any Additional Amounts to the Fixed Allocation and begin crediting interest on the Additional Amount. AMERICAN SKANDIA'S PERFORMANCE ADVANTAGE Do you provide any guarantees on my investment? The Annuity provides variable investment options and fixed investment options. Only the fixed investment options provide a guaranteed return on your investment, subject to certain terms and conditions. However, your Annuity includes a feature at no additional cost that provides certain benefits if your Account Value has not reached or exceeded a "target value" on its 10th anniversary. If, on the 10th anniversary of your Annuity's Issue Date, your Account Value has not reached the target value (as defined below) you can choose either of the following benefits: |X| You may continue your Annuity without electing to receive Annuity payments and receive an annual credit to your Account Value payable until you begin receiving Annuity payments. The credit is equal to 0.25% of the average of your Annuity's Account Value for the preceding four complete calendar quarters. This credit is applied to your investment options pro-rata based on the allocation of your then current Account Value. |X| You may begin receiving Annuity payments within one year and accept a one-time credit to your Annuity equal to 10% of the net of the Account Value on the 10th anniversary of its Issue Date minus the sum of all Purchase Payments allocated in the prior five years. The annuity option you select must initially guarantee payments for not less than seven years. Following the 10th anniversary of your Annuity's Issue Date, we will inform you if your Account Value did not meet or exceed the Target Value. We will assume that you have elected to receive the annual credit to your Account Value unless, not less than 30 days prior to the next anniversary of the Annuity, we receive at our home office your election to begin receiving Annuity payments. Certain provisions of this benefit and of the Target Value Credits described below may differ if you purchase your Annuity as part of an exchange, replacement or transfer, in whole or in part, from any other Annuity we issue. What is the "Target Value" and how is it calculated? The Target Value is a tool used to determine whether you are eligible to elect either of the benefits described above. The Target Value does not impact the Account Value available if you surrender your Annuity or make a partial withdrawal and does not impact the Death Benefit available to your Beneficiary(ies). The Target Value assumes a rate of return over ten (10) Annuity Years that will allow your initial investment to double in value, adjusted for any withdrawals and/or additional Purchase Payments you make during the 10 year period. We calculate the "Target Value" as follows: 1. Accumulate the initial Purchase Payment at an annual interest rate of 7.2% until the 10th anniversary of the Annuity's Issue Date; plus 2. Accumulate any additional Purchase Payments at an annual interest rate of 7.2% from the date applied until the 10th anniversary of the Annuity's Issue Date; minus 3. Each "proportional reduction" resulting from any withdrawal, accumulating at an annual interest rate of 7.2% from the date the withdrawal is processed until the 10th anniversary of the Annuity's Issue Date. We determine each "proportional reduction" by determining the percentage of your Account Value then withdrawn and reducing the Target Value by that same percentage. We include any withdrawals under your Annuity in this calculation, as well as the charge we deduct for any optional benefits you elect under the Annuity, but not the charge we deduct for the Annual Maintenance Fee or the Transfer Fee. Examples 1. Assume you make an initial Purchase Payment of $10,000 and make no further Purchase Payments. The Target Value on the 10th anniversary of your Annuity's Issue Date would be $20,042, assuming no withdrawals are made. This is equal to $10,000 accumulating at an annual rate of 7.2% for the 10-year period. 2. Assume you make an initial Purchase Payment of $10,000 and make no further Purchase Payments. Assume at the end of Year 6, your Account Value has increased to $15,000 and you make a withdrawal of 10% or $1,500. The Target Value on the 10th anniversary would be $18,722. This is equal to $10,000 accumulating at an annual rate of 7.2% for the 10-year period, minus the proportional reduction accumulating at an annual interest rate of 7.2%. Can I restart the 10-year Target Value calculation? Yes, you can elect to lock in the growth in your Annuity by "restarting" the 10-year period on any anniversary of the Issue Date. If you elect to restart the calculation period, we will treat your Account Value on the restart date as if it was your Purchase Payment when determining if your Annuity's Account Value meets or exceeds the Target Value on the appropriate tenth (10th) anniversary. You may elect to restart the calculation more than once, in which case, the 10-year calculation period will begin on the date of the last restart date. We must receive your election to restart the calculation at our home office not later than 30 days after each anniversary of the Issue Date. What are Target Value Credits? Target Value Credits are additional amounts that we apply to your Account Value to increase the likelihood that your Account Value will meet or exceed the Target Value. Target Value Credits are payable on all Purchase Payments applied before the first anniversary of the Issue Date of your Annuity. The amount of the Target Value Credit is equal to 1.0% of each qualifying Purchase Payment. Target Value Credits are only payable on qualifying Purchase Payments if the Owner(s) of the Annuity is(are) less than age 81 on its Issue Date. If the Annuity is owned by an entity, the age restriction applies to the age of the Annuitant on the Issue Date. The Target Value Credit is payable from our general account and is allocated to the investment options in the same ratio that the qualifying Purchase Payment is allocated. Target Value Credits will not be available if you purchase your Annuity as part of an exchange, replacement or transfer, in whole or in part, of an Annuity we issued that has the same or a similar benefit. Recovery of Target Value Credits We can recover the amount of any Target Value Credit under the following circumstances: 1. If you surrender your Annuity before the 10th anniversary of the Issue Date of the Annuity. 2. If you elect to begin receiving Annuity payments before the first anniversary of the Issue Date. 3. If a person on whose life we pay the Death Benefit dies, (a) within 12 months after the date a Target Value Credit was allocated to your Account Value; or (b) within 10 years after the date a Target Value Credit was allocated to your Account Value if any owner was over age 70 on the Issue Date, or, if the Annuity was then owned by an entity, the Annuitant was over age 70 on the Issue Date. ACCESS TO ACCOUNT VALUE WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME? During the accumulation phase you can access your Account Value through Partial Withdrawals, Systematic Withdrawals, and where required for tax purposes, Minimum Distributions. You can also surrender your Annuity at any time. There is no Contingent Deferred Sales Charge applied upon withdrawal or surrender. However, we may apply a Market Value Adjustment to any Fixed Allocations being withdrawn or surrendered. We may also recover the amount of any Target Value Credits upon surrender. Unless you notify us differently, withdrawals are taken pro-rata based on the Account Value in the investment options at the time we receive your withdrawal request. Each of these types of distributions is described more fully below. ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS? (For more information, see "Tax Considerations") During the Accumulation Period A distribution during the accumulation period is deemed to come first from any "gain" in your Annuity and second as a return of your "tax basis", if any. Distributions from your Annuity are generally subject to ordinary income taxation on the amount of any investment gain. If you take a distribution prior to the taxpayer's age 59 1/2, you may be subject to a 10% penalty in addition to ordinary income taxes on any gain. You may wish to consult a professional tax advisor for advice before requesting a distribution. During the Annuitization Period During the annuitization period, a portion of each annuity payment is taxed as ordinary income at the tax rate you are subject to at the time you receive the payment. The Code and regulations have "exclusionary rules" that we use to determine what portion of each annuity payment should be treated as a return of any tax basis you have in the Annuity. Once the tax basis in the Annuity has been distributed, the remaining annuity payments are taxable as ordinary income. The tax basis in the Annuity may be based on the tax-basis from a prior contract in the case of a 1035 exchange or other qualifying transfer. CAN I WITHDRAW A PORTION OF MY ANNUITY? Yes, you can make a withdrawal during the accumulation phase. We call this a "Partial Withdrawal." The amount that you may withdraw will equal your Surrender Value as of the date we process the withdrawal request. There is no Contingent Deferred Sales Charge applied if you surrender your Annuity or make a partial withdrawal. After any Partial Withdrawal, your Annuity must have a Surrender Value of at least $1,000, or we may treat the Partial Withdrawal request as a request to fully surrender your Annuity. The minimum Partial Withdrawal you may request is $100. CAN I MAKE PERIODIC WITHDRAWALS FROM THE ANNUITY DURING THE ACCUMULATION PERIOD? Yes. We call these "Systematic Withdrawals." You can receive Systematic Withdrawals of earnings only, principal plus earnings or a flat dollar amount. Systematic Withdrawals can be made from Account Value allocated to the variable investment options or Fixed Allocations. Generally, Systematic Withdrawals from Fixed Allocations are limited to earnings accrued after the program of Systematic Withdrawals begins, or payments of fixed dollar amounts that do not exceed such earnings. Systematic Withdrawals are available on a monthly, quarterly, semi-annual or annual basis. The Account Value of your Annuity must be at least $20,000 before we will allow you to begin a program of Systematic Withdrawals. The minimum amount for each Systematic Withdrawal is $100. If any scheduled Systematic Withdrawal is for less than $100, we may postpone the withdrawal and add the expected amount to the amount that is to be withdrawn on the next scheduled Systematic Withdrawal. DO YOU OFFER A PROGRAM FOR WITHDRAWALS UNDER SECTION 72(t) OF THE INTERNAL REVENUE CODE? Yes. If your Annuity is used as a funding vehicle for certain retirement plans that receive special tax treatment under Sections 401, 403(b) or 408 of the Code, Section 72(t) of the Code may provide an exception to the 10% penalty tax on distributions made prior to age 59 1/2 if you elect to receive distributions as a series of "substantially equal periodic payments". To request a program that complies with Section 72(t), you must provide us with certain required information in writing on a form acceptable to us. We may require advance notice to allow us to calculate the amount of 72(t) withdrawals. The Surrender Value of your Annuity must be at least $20,000 before we will allow you to begin a program for withdrawals under Section 72(t). The minimum amount for any such withdrawal is $100. WHAT ARE MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM? (See "Tax Considerations" for a further discussion of Minimum Distributions.) Minimum Distributions are a type of Systematic Withdrawal we allow to meet distribution requirements under Sections 401, 403(b) or 408 of the Code. Under the Code, you may be required to begin receiving periodic amounts from your Annuity. In such case, we will allow you to make Systematic Withdrawals in amounts that satisfy the minimum distribution rules under the Code. If you request, we will calculate the annual required Minimum Distribution under your Annuity. The amount of the required Minimum Distribution for your particular situation may depend on other annuities, savings or investments. We will only calculate the amount of your required Minimum Distribution based on the value of your Annuity. We require three (3) days advance written notice to calculate and process the amount of your payments. We may charge you for calculating required Minimum Distributions. You may elect to have Minimum Distributions paid out monthly, quarterly, semi-annually or annually. The $100 minimum that applies to Systematic Withdrawals does not apply to Minimum Distributions. CAN I SURRENDER MY ANNUITY FOR ITS VALUE? Yes. During the accumulation phase you can surrender your Annuity at any time. Upon surrender, you will receive the Surrender Value. Upon surrender of your Annuity, you will no longer have any rights under the Annuity. WHAT TYPES OF ANNUITY PAYMENT OPTIONS ARE AVAILABLE UPON ANNUITIZATION? Annuity payments can be guaranteed for the life of the Annuitant, for the life of the Annuitant with a certain period guaranteed, or for a certain fixed period of time with no life contingency. We currently make available fixed payments and adjustable payments. However, adjustable annuity payments may not be available on your Annuity Date. You may choose an Annuity Date, an annuity option and the frequency of annuity payments when you purchase an Annuity, or at a later date. You may change your choices up to 30 days before the Annuity Date. Any change to these options must be in writing. The Annuity Date must be the first or the fifteenth day of a calendar month. A maximum Annuity Date may be required by law. We currently offer the following fixed Annuity Payment Options. Additional Annuity Payment Options, including variable options, may be offered in the future. Key Life: is the person or persons upon whose life annuity payments with a life contingency are based. Option 1 Payments for Life: Under this option, income is payable periodically until the death of the "key life". No additional annuity payments are made after the death of the key life. Since no minimum number of payments is guaranteed, this option offers the largest amount of periodic payments of the life contingent annuity options. It is possible that only one payment will be payable if the death of the key life occurs before the date the second payment was due, and no other payments nor death benefits would be payable. Option 2 Payments for Life with 10, 15, or 20 Years Certain: Under this option, income is payable until the death of the key life. However, if the key life dies before the end of the period selected (10, 15, or 20 years), the remaining payments are paid to the Beneficiary until the end of such period. Option 3 Payments Based on Joint Lives: Under this option, income is payable periodically during the joint lifetime of two key lives, and thereafter during the remaining lifetime of the survivor, ceasing with the last payment prior to the survivor's death. No minimum number of payments is guaranteed under this option. It is possible that only one payment will be payable if the death of all the key lives occurs before the date the second payment was due, and no other payments or death benefits would be payable. Option 4 Payments for a Certain Period: Under this option, income is payable periodically for a specified number of years. If the payee dies before the end of the specified number of years, the remaining payments are paid to the Beneficiary to the end of such period. Note that under this option, payments are not based on any assumptions of life expectancy. Therefore, that portion of the Insurance Charge assessed to cover the risk that key lives outlive our expectations provides no benefit to an Owner selecting this option. HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION? If you have not provided us with your Annuity Date or Annuity Payment Option in writing, then: |X| the Annuity Date will be the first day of the calendar month following the later of the Annuitant's 85th birthday or the fifth anniversary of our receipt of your request to purchase an Annuity; and |X| the Annuity Payments, where allowed by law, will be fixed monthly payments for life with 10 years certain (See Option 2). If you have not made an election prior to death benefit proceeds becoming due, the Beneficiary may elect to receive the death benefit under one of the fixed Annuity Payment Options or any option we make available for death proceeds. However, if you made an election, the Beneficiary may not alter such election. HOW ARE ANNUITY PAYMENTS CALCULATED? The first annuity payment varies according to the annuity payment option and payment frequency selected. The first payment is determined by multiplying the Account Value plus any additional amounts applied by us under the Performance Advantage benefit by the factor determined from our table of annuity rates. Your Account Value will be determined as of the close of business on the fifteenth day preceding the Annuity Date, plus interest at not less that 3% per year from such date to the Annuity Date. The table of annuity rates differ based on the type of annuity chosen and the frequency of payment selected. Our rates will not be less than our guaranteed minimum rates. These guaranteed minimum rates are derived from the 1983a Individual Annuity Mortality Table with ages set back one year for males and two years for females and with an assumed interest rate of 3% per annum. Where required by law or regulation, such annuity table will have rates that do not differ according to the gender of the key life. Otherwise, the rates will differ according to the gender of the key life. DEATH BENEFIT WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT? The Annuity provides a Death Benefit during its accumulation phase. If the Annuity is owned by one or more natural persons, the Death Benefit is payable upon the first death of an Owner. If the Annuity is owned by an entity, the Death Benefit is payable upon the Annuitant's death, if there is no Contingent Annuitant. If a Contingent Annuitant was designated before the Annuitant's death and the Annuitant dies, then the Contingent Annuitant becomes the Annuitant and a Death Benefit will not be paid at that time. The person upon whose death the Death Benefit is paid is referred to below as the "decedent." DEATH BENEFIT OPTIONS Your Annuity provides a "basic" Death Benefit at no additional charge and also offers two different optional Death Benefits that can be purchased for an additional charge. Under certain circumstances, your Death Benefit may be reduced by the amount of any Target Value Credits we applied to your Purchase Payments. (see "Recovery of Target Value Credits") Basic Death Benefit The basic Death Benefit depends on the decedent's age on the date of death: If death occurs before the earlier of the decedent's age 90 or the end of the tenth Annuity Year: The Death Benefit is the greater of: |X| The sum of all Purchase Payments less the sum of all withdrawals; and |X| The sum of your Account Value in the variable investment options and your Interim Value in the Fixed Allocations. If death occurs after the earlier of the decedent's age 90 or the tenth Annuity Year: The Death Benefit is your Account Value. Optional Death Benefits We offer two optional Death Benefits to provide an enhanced level of protection for your beneficiaries. Currently, these benefits are only offered and must be elected at the time that you purchase your Annuity. We may, at a later date, allow existing Annuity Owners to purchase either of the optional Death Benefits subject to our rules. If the Annuity has one Owner, the Owner must be age 80 or less at the time either optional Death Benefit is purchased. If the Annuity has joint Owners, the oldest Owner must be age 80 or less. If the Annuity is owned by an entity, the Annuitant must be age 80 or less. Key Terms Used with the Optional Death Benefits |X| The Death Benefit Target Date is the contract anniversary on or after the 80th birthday of the current Owner, the oldest of either joint Owner or the Annuitant, if entity owned. |X| The Highest Anniversary Value equals the highest of all previous "Anniversary Values" on or before the earlier of the Owner's date of death and the "Death Benefit Target Date". |X| The Anniversary Value is the Account Value as of each anniversary of the Issue Date plus the sum of all Purchase Payments on or after such anniversary less the sum of all "Proportional Reductions" since such anniversary. |X| A Proportional Reduction is a reduction to the value being measured caused by a withdrawal, equaling the percentage of the withdrawal as compared to the Account Value as of the date of the withdrawal. For example, if your Account Value is $10,000 and you withdraw $2,000 (a 20% reduction), we will reduce both your Anniversary Value and the amount determined by Purchase Payments increasing at the appropriate interest rate by 20%. |X| The Assumed Accumulation Rate is the rate of interest that we will apply to your Purchase Payments only for purposes of calculating this benefit The Assumed Accumulation Rate is different depending on which Optional Death Benefit you select as shown below: --------------------------- ------------------------ Option 1 Option 2 5.0% per year 7.2% per year --------------------------- ------------------------ - -------------------------------------------------------------------------------- Certain terms and conditions may differ if you purchase your Annuity as part of an exchange, replacement or transfer, in whole or in part, from any other Annuity we issue. - -------------------------------------------------------------------------------- Calculation of Optional Death Benefits The optional Death Benefit calculations depend on whether death occurs before or after the Death Benefit Target Date. Annuities with one Owner The optional Death Benefits are calculated as follows: If the Owner dies before the Death Benefit Target Date, the Death Benefit equals the greatest of: 1. the Account Value in the Sub-accounts plus the Interim Value of any Fixed Allocations (no MVA) as of the date we receive in writing "due proof of death"; and 2. the sum of all Purchase Payments minus the sum of all Proportional Reductions, each increasing daily until the Owner's date of death at the applicable Assumed Accumulation Rate for the option you elect, subject to a limit of 200% of the difference between the sum of all Purchase Payments and the sum of all withdrawals as of the Owner's date of death; and 3. the "Highest Anniversary Value" on or immediately preceding the Owner's date of death. The amount determined by this calculation is increased by any Purchase Payments received after the Owner's date of death and decreased by any Proportional Reductions since such date. The amount calculated in Item 1 & 3 above may be reduced by any Target Value Credits under certain circumstances. If the Owner dies on or after the Death Benefit Target Date, the Death Benefit equals the greater of: 1. the Account Value as of the date we receive in writing "due proof of death" (an MVA may be applicable to amounts in any Fixed Allocations); and 2. the greater of Item 2 & 3 above on the Death Benefit Target Date plus the sum of all Purchase Payments less the sum of all Proportional Reductions since the Death Benefit Target Date. The amount calculated in Item 1 above may be reduced by any Target Value Credits under certain circumstances. Annuities with joint Owners For Annuities with Joint Owners, the Death Benefit is calculated as shown above except that the age of the oldest of the Joint Owners is used to determine the Death Benefit Target Date. NOTE: If you and your spouse own the Annuity jointly, we will pay the Death Benefit to the Beneficiary. If the sole primary Beneficiary is the surviving spouse, then the surviving spouse can elect to assume ownership of the Annuity and continue the contract instead of receiving the Death Benefit. Annuities owned by entities For Annuities owned by an entity, the Death Benefit is calculated as shown above except that the age of the Annuitant is used to determine the Death Benefit Target Date. Payment of the Death Benefit is based on the death of the Annuitant (or Contingent Annuitant, if applicable). Examples of Optional Death Benefit Calculation The following are examples of how the Optional Death Benefits are calculated. Each example assumes that a $50,000 initial Purchase Payment is made and that no withdrawals are made prior to the Owner's death. Each example assumes that there is one Owner who is age 50 on the Issue Date and that all Account Value is maintained in the variable investment options. Example of market increase greater than Assumed Accumulation Rate Assume that the Owner's Account Value has generally been increasing. On the date we receive due proof of death (the Owner's 58th birthday), the Account Value is $90,000. The Highest Anniversary Value at the end of any previous period is $72,000. The Death Benefit would be the Account Value ($90,000) because it is greater than the Highest Anniversary Value ($72,000) or the sum of prior Purchase Payments increased by 5.0% annually ($73,872.77 - Option 1) or 7.2% annually for ($87,202.36 - Option 2). Example of market decrease Assume that the Owner's Account Value generally increased until the fifth anniversary but generally has been decreasing since the fifth contract anniversary. On the date we receive due proof of death (the Owner's 58th birthday), the Account Value is $48,000. The Highest Anniversary Value at the end of any previous period is $54,000. The Death Benefit would be the sum of prior Purchase Payments increased by 5.0% annually ($73872.77 - Option 1) or 7.2% annually for ($87202.36 - Option 2) because it is greater than the Highest Anniversary Value ($54,000) or the Account Value ($48,000). Example of Highest Anniversary Value Assume that the Owner's Account Value increased significantly during the first six years following the Issue Date. On the sixth anniversary date the Account Value was $90,000. During the seventh Annuity Year, the Account Value increases to as high as $100,000 but then subsequently falls to $80,000 on the date we receive due proof of death (the Owner's 58th birthday). The Death Benefit would be the Highest Anniversary Value at the end of any previous period ($90,000), which occurred on the sixth anniversary, although the Account Value was higher during the subsequent period. The Account Value on the date we receive due proof of death ($80,000) is lower, as is the sum of all prior Purchase Payments increased by 5.0% annually ($73,872.77 - Option 1) or 7.2% annually for ($87,202.36 - Option 2). How much do you charge for the optional death benefits? We deduct a charge from your Account Value if you elect to purchase either Optional Death Benefit. For Option 1, each deduction is 0.35% of the then current Death Benefit when the deduction is taken. For Option 2, each deduction is 0.55% of the then current Death Benefit when the deduction is taken. No charge applies after the Annuity Date. We deduct the charge: 1. on each anniversary of the Issue Date; 2. when Account Value is transferred to our general account prior to the Annuity Date; 3. if you surrender your Annuity; and 4. if you choose to terminate the benefit. If you surrender the Annuity, elect to begin receiving Annuity payments or terminate the benefit on a date other than an anniversary of the Issue Date, the charge will be prorated. During the first year after the Issue Date, the charge would be prorated from the Issue Date. In all subsequent years, it would be prorated from the last anniversary of the Issue Date. We first deduct the amount of the charge pro-rata from the Account Value in the variable investment options. We only deduct the charge pro-rata from the Fixed Allocations to the extent there is insufficient Account Value in the variable investment options to pay the charge. If your Annuity's Account Value is insufficient to pay the charge, we may deduct your remaining Account Value and terminate your Annuity. We will notify you if your Account Value is insufficient to pay the charge and allow you to submit an additional Purchase Payment to continue your Annuity. Are there any exceptions to these rules for paying the Death Benefit? Yes, there are exceptions that apply no matter how your Death Benefit is calculated. There are exceptions to the Death Benefit if the decedent was not the Owner or Annuitant as of the Issue Date and did not become the Owner or Annuitant due to the prior Owner's or Annuitant's death. Any minimum Death Benefit that applies will be suspended for a two-year period from the date he or she first became Owner or Annuitant. After the two-year suspension period is completed, the Death Benefit is the same as if this person had been an Owner or Annuitant on the Issue Date. What options are available to my Beneficiary upon my death? |X| During the accumulation period, if you die and the sole Beneficiary is your spouse, then your spouse may elect to be treated as the current Owner. The Annuity can be continued, subject to its terms and conditions, in lieu of receiving the death benefit. Your spouse may only assume ownership of the Annuity if he or she is designated as the sole primary Beneficiary. |X| In the event of your death, the death benefit must be distributed within: (a) five years of the date of death; or (b) over a period not extending beyond the life expectancy of the Beneficiary or over the life of the Beneficiary. Payments under this option must begin within one year of the date of death. When do you determine the Death Benefit? We determine the amount of the Death Benefit as of the date we receive "due proof of death" and any other written representations we require to determine the proper payment of the Death Benefit to all Beneficiaries. "Due proof of death" may include a certified copy of a death certificate, a certified copy of a decree of a court of competent jurisdiction as to the finding of death or other satisfactory proof of death. We will require written acknowledgment of all named Beneficiaries before we can determine the Death Benefit. During the period from the date of death until we receive all required paper work, the amount of the Death Benefit may be subject to market fluctuations. VALUING YOUR INVESTMENT HOW IS MY ACCOUNT VALUE DETERMINED? During the accumulation period, the Annuity has an Account Value. The Account Value is determined separately for each Sub-account allocation and for each Fixed Allocation. The Account Value includes any additional amounts we applied to your Purchase Payments that we are entitled to recover upon surrender of your Annuity. The Account Value is the sum of the values of each Sub-account allocation and the value of each Fixed Allocation. When determining the Account Value on a day other than a Fixed Allocation's Maturity Date, the Account Value may include any Market Value Adjustment that would apply to a Fixed Allocation (if withdrawn or transferred) on that day. WHAT IS THE SURRENDER VALUE OF MY ANNUITY? The Surrender Value of your Annuity is the value available to you on any day during the accumulation period. The Surrender Value is equal to your Account Value minus the Annual Maintenance Fee and any additional amounts we applied to your Purchase Payments that we are entitled to recover upon surrender of your Annuity. The Surrender Value will also include any Market Value Adjustment that may apply. HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS? When you allocate Account Value to a Sub-Account, you are purchasing units of the Sub-account. Each Sub-account invests exclusively in shares of an underlying Portfolio. The value of the Units fluctuate with the market fluctuations of the Portfolios. The value of the Units also reflect the daily accrual for the Insurance Charge. Each Valuation Day, we determine the price for a Unit of each Sub-account, called the "Unit Price." The Unit Price is used for determining the value of transactions involving Units of the Sub-accounts. We determine the number of Units involved in any transaction by dividing the dollar value of the transaction by the Unit Price of the Sub-account as of the Valuation Day. Example Assume you allocate $5,000 to a Sub-account. On the Valuation Day you make the allocation, the Unit Price is $14.83. Your $5,000 buys 337.154 Units of the Sub-account. Assume that later, you wish to transfer $3,000 of your Account Value out of that Sub-account and into another Sub-account. On the Valuation Day you request the transfer, the Unit Price of the original Sub-account has increased to $16.79. To transfer $3,000, we sell 178.677 Units at the current Unit Price, leaving you 158.477 Units. We then buy $3,000 of Units of the new Sub-account at the Unit Price of $17.83. You would then have 168.255 Units of the new Sub-account. HOW DO YOU VALUE FIXED ALLOCATIONS? During the Guarantee Period, we use the concept of an Interim Value. The Interim Value can be calculated on any day and is equal to the initial value allocated to a Fixed Allocation plus all interest credited to a Fixed Allocation as of the date calculated. The Interim Value does not include the impact of any Market Value Adjustment. If you made any transfers or withdrawals from a Fixed Allocation, the Interim Value will reflect the withdrawal of those amounts and any interest credited to those amounts before they were withdrawn. To determine the Account Value of a Fixed Allocation on any day other than its Maturity Date, we multiply the Account Value of the Fixed Allocation times the Market Value Adjustment factor. WHEN DO YOU PROCESS AND VALUE TRANSACTIONS? Initial Purchase Payments: We are required to allocate your initial Purchase Payment to the Sub-accounts within two (2) days after we receive all of our requirements to issue the Annuity. If we do not have all the required information to allow us to issue your Annuity, we may retain the Purchase Payment while we try to reach you or your representative to obtain all of our requirements. If we are unable to obtain all of our required information within five (5) days, we are required to return the Purchase Payment to you at that time, unless you specifically consent to our retaining the Purchase Payment while we gather the required information. Once we obtain the required information, we will invest the Purchase Payment and issue the Annuity within two (2) days. During any period that we are trying to obtain the required information, your money is not invested. Additional Purchase Payments: We will apply any additional Purchase Payments on the Valuation Day that we receive the Purchase Payment with satisfactory instructions. Scheduled Transactions: "Scheduled" transactions include transfers under a Dollar Cost Averaging, rebalancing, or asset allocation program, Systematic Withdrawals, Minimum Distributions or Annuity payments. Scheduled transactions are processed and valued as of the date they are scheduled, unless the scheduled day is not a Valuation Day. In that case, the transaction will be processed and valued on Valuation Day prior to the scheduled transaction date. Unscheduled Transactions: "Unscheduled" transactions include any other non-scheduled transfers and requests for Partial Withdrawals or Surrenders. Unscheduled transactions are processed and valued as of the Valuation Day we receive the request at our Office in good order. Death Benefits: Death Benefit claims require our review and evaluation before processing. We price such transactions as of the date we receive at our Office all materials we require for such transaction and that are satisfactory to us. TAX CONSIDERATIONS WHAT ARE SOME OF THE FEDERAL TAX CONSIDERATIONS OF THIS ANNUITY? Following is a brief summary of some of the Federal tax considerations relating to this Annuity. However, since the tax laws are complex and tax consequences are affected by your individual circumstances, this summary of our interpretation of the relevant tax laws is not intended to be fully comprehensive nor is it intended as tax advice. Therefore, you may wish to consult a professional tax advisor for tax advice as to your particular situation. HOW ARE AMERICAN SKANDIA AND THE SEPARATE ACCOUNTS TAXED? The Separate Accounts are taxed as part of American Skandia. American Skandia is taxed as a life insurance company under Part I, subchapter L of the Code. No taxes are due on interest, dividends and short-term or long-term capital gains earned by the Separate Accounts with respect to the Annuities. IN GENERAL, HOW ARE ANNUITIES TAXED? Section 72 of the Code governs the taxation of annuities in general. Taxation of the Annuity will depend in large part on: 1. whether the Annuity is used by: |X| a qualified pension plan, profit sharing plan or other retirement arrangement that is eligible for special treatment under the Code (for purposes of this discussion, a "Qualified Contract"); or |X| an individual or a corporation, trust or partnership (a "Non-qualified Contract"); and 2. whether the Owner is: |X| an individual person or persons; or |X| an entity including a corporation, trust or partnership. Individual Ownership: If one or more individuals own an Annuity, the Owner of the Annuity is generally not taxed on any increase in the value of the Annuity until an amount is received (a "distribution"). This is commonly referred to as "tax deferral". A distribution can be in the form of a lump sum payment including payment of a Death Benefit, or in annuity payments under one of the annuity payment options. Certain other transactions may qualify as a distribution and be subject to taxation. Entity Ownership: If the Annuity is owned by an entity and is not a Qualified Contract, generally the Owner of the Annuity must currently include any increase in the value of the Annuity during a tax year in its gross income. An exception from current taxation applies for annuities held by a structured settlement company, by an employer with respect to a terminated tax-qualified retirement plan, a trust holding an annuity as an agent for a natural person, or by a decedent's estate by reason of the death of the decedent. A tax-exempt entity for Federal tax purposes will not be subject to income tax as a result of this provision. HOW ARE DISTRIBUTIONS TAXED? Distributions from an Annuity are taxed as ordinary income and not as capital gains. Distributions Before Annuitization: Distributions received before annuity payments begin are generally treated as coming first from "income on the contract" and then as a return of the "investment in the contract". The amount of any distribution that is treated as receipt of "income on the contract" is includible in the taxpayer's gross income and taxable in the year it is received. The amount of any distribution treated as a return of the "investment in the contract" is not includible in gross income. |X| "Income on the contract" is calculated by subtracting the taxpayer's "investment in the contract" from the aggregate value of all "related contracts" (discussed below). |X| "Investment in the contract" is equal to total purchase payments for all "related contracts" minus any previous distributions or portions of such distributions from such "related contracts" that were not includible in gross income. "Investment in the contract" may be affected by whether an annuity or any "related contract" was purchased as part of a tax-free exchange of life insurance, endowment, or annuity contracts under Section 1035 of the Code. Unless "after-tax" or non-deductible contributions have been made to a Qualified Contract, the "investment in the contract" for a Qualified Contract will be considered zero for tax reporting purposes. Distributions After Annuitization: A portion of each annuity payment received on or after the Annuity Date will generally be taxable. The taxable portion of each annuity payment is determined by a formula which establishes the ratio that the "investment in the contract" bears to the total value of annuity payments to be made. This is called the "exclusion ratio." The investment in the contract is excluded from gross income. Any additional payments received that exceed the exclusion ratio will be entirely includible in gross income. The formula for determining the exclusion ratio differs between fixed and variable annuity payments. When annuity payments cease because of the death of the person upon whose life payments are based and, as of the date of death, the amount of annuity payments excluded from taxable income by the exclusion ratio does not exceed the "investment in the contract," then the remaining portion of unrecovered investment is allowed as a deduction by the beneficiary in the tax year of such death. Penalty Tax on Distributions: Generally, any distribution from an annuity not used in conjunction with a Qualified Contract (Qualified Contracts are discussed below) is subject to a penalty equal to 10% of the amount includible in gross income. This penalty does not apply to certain distributions, including: |X| Distributions made on or after the taxpayer has attained age 591/2; |X| Distributions made on or after the death of the contract owner, or, if the owner is an entity, the death of the annuitant; |X| Distributions attributable to the taxpayer's becoming disabled; |X| Distributions which are part of a series of substantially equal periodic payments for the life (or life expectancy) of the taxpayer (or the joint lives of the taxpayer and the taxpayer's Beneficiary); |X| Distributions of amounts which are treated as "investments in the contract" made prior to August 14, 1982; |X| Payments under an immediate annuity as defined in the Code; |X| Distributions under a qualified funding asset under Code Section 130(d); or |X| Distributions from an annuity purchased by an employer on the termination of a qualified pension plan that is held by the employer until the employee separates from service. Special rules applicable to "related contracts": Contracts issued by the same insurer to the same contract owner within the same calendar year (other than certain contracts owned in connection with a tax-qualified retirement arrangement) are to be treated as one annuity contract when determining the taxation of distributions before annuitization. We refer to these contracts as "related contracts." In situations involving related contracts we believe that the values under such contracts and the investment in the contracts will be added together to determine the proper taxation of a distribution from any one contract described under the section "Distributions before Annuitization." Distributions will be treated as coming first from income on the contract until all of the income on all such related contracts is withdrawn, and then as a return of the investment in the contract. There is some uncertainty regarding the manner in which the Internal Revenue Service would view related contracts when one or more contracts are immediate annuities or are contracts that have been annuitized. The Internal Revenue Service has not issued guidance clarifying this issue as of the date of this Prospectus. You are particularly cautioned to seek advice from your own tax advisor on this matter. Special concerns regarding "substantially equal periodic payments": (also known as "72(t)" or "72(q)" distributions) Any modification to a program of distributions which are part of a series of substantially equal periodic payments that occur before the later of the taxpayer reaching age 59 1/2 or five (5) years from the first of such payments will result in the requirement to pay the taxes that would have been due had the payments been treated as subject to tax in the years received, plus interest. This does not apply when the modification is due by reason of death or disability. It is our understanding that the Internal Revenue Service may not consider a scheduled series of distributions to qualify under Sections 72(q) or 72(t) if the holder of the annuity retains the right to modify such distributions at will, even if such right is not exercised, or, for a variable annuity, depending on how payments are structured. Special concerns regarding immediate annuities: The Internal Revenue Service has ruled that the exception to the 10% penalty described above for "non-qualified" immediate annuities as defined under the Code may not apply to annuity payments under a contract recognized as an immediate annuity under state insurance law obtained pursuant to an exchange of a contract if: (a) purchase payments for the exchanged contract were contributed or deemed to be contributed more than one year prior to the annuity starting date under the immediate annuity; and (b) the annuity payments under the immediate annuity do not meet the requirements of any other exception to the 10% penalty. Special rules in relation to tax-free exchanges under Section 1035: Section 1035 of the Code permits certain tax-free exchanges of a life insurance, annuity or endowment contract for an annuity. If an annuity is purchased through a tax-free exchange of a life insurance, annuity or endowment contract that was purchased prior to August 14, 1982, then any distributions other than as annuity payments will be considered to come: |X| First, from the amount of "investment in the contract" made prior to August 14, 1982 and exchanged into the annuity; |X| Then, from any "income on the contract" that is attributable to the purchase payments made prior to August 14, 1982 (including income on such original purchase payments after the exchange); |X| Then, from any remaining "income on the contract"; and |X| Lastly, from the amount of any "investment in the contract" made after August 13, 1982. Therefore, to the extent a distribution is equal to or less than the investment in the contract made prior to August 14, 1982, such amounts are not included in taxable income. Further, distributions received that are considered to be a return of investment on the contract from purchase payments made prior to August 14, 1982, such distributions are not subject to the 10% tax penalty. In all other respects, the general provisions of the Code apply to distributions from annuities obtained as part of such an exchange. On November 22, 1999, the Internal Revenue Service issued an acquiescence in the decision of the United States Tax Court in Conway v. Commissioner (111 T.C. 350 (1998)) that a taxpayer's partial surrender of an annuity contract and direct transfer of the resulting proceeds for the purchase of a new annuity contract qualifies as a non-taxable exchange under Section 1035 of the Internal Revenue Code. "Acquiescence" means that the IRS accepts the holding of the Court in a case and that the IRS will follow it in disposing of cases with the same controlling facts. Prior to the Conway decision, industry practice has been to treat a partial surrender of account value as fully taxable to the extent of any gain in the contract for tax reporting purposes and to "step-up" the basis in the contract accordingly. However with the IRS' acquiescence in the Conway decision, partial surrenders may be treated in the same way as tax-free 1035 exchanges of entire contracts, therefore avoiding current taxation of any gains in the contract as well as the 10% IRS tax penalty on pre-age 59 1/2 withdrawals. The IRS reserved the right to treat transactions it considers abusive as ineligible for this favorable partial 1035 exchange treatment. We do not know what transactions may be considered abusive. For example, we do not know how the IRS may view early withdrawals or annuitizations after a partial exchange. As of the date of this Prospectus, we continue to report partial surrenders of non-qualified annuities as subject to current taxation to the extent of any gain. However, we may change our reporting procedures to treat certain of these transactions as partial 1035 exchanges. Should we do so, we reserve the right to report transactions that may have been designed to receive partial 1035 exchange treatment as partial surrenders subject to current taxation if we, as a reporting and withholding agent, believe that we would be expected to deem a transaction to be abusive. While the principles expressed in the Conway decision appear applicable to partial exchanges from life insurance, there is no guidance from the Internal Revenue Service as to whether it concurs with non-recognition treatment under Section 1035 of the Code for such transactions. In addition, please be cautioned that no specific guidance has been provided as to the impact of such a transaction for the remaining life insurance policy, particularly as to the subsequent methods to be used to test for compliance under the Code for both the definition of life insurance and the definition of a modified endowment contract. WHAT TAX CONSIDERATIONS ARE THERE FOR TAX-QUALIFIED RETIREMENT PLANS OR QUALIFIED CONTRACTS? An annuity may be suitable as a funding vehicle for various types of tax-qualified retirement plans. We have provided summaries of the types of tax-qualified retirement plans with which we may issue an Annuity. These summaries provide general information about the tax rules and are not intended to be complete discussions. The tax rules regarding qualified plans are complex. These rules may include limitations on contributions and restrictions on distributions, including additional taxation of distributions and additional penalties. The terms and conditions of the tax-qualified retirement plan may impose other limitations and restrictions that are in addition to the terms of the Annuity. The application of these rules depends on individual facts and circumstances. Before purchasing an Annuity for use in a qualified plan, you should obtain competent tax advice, both as to the tax treatment and suitability of such an investment. American Skandia does not offer all of its annuities to all of these types of tax-qualified retirement plans. Corporate Pension and Profit-sharing Plans: Annuities may be used to fund employee benefits of various corporate pension and profit-sharing plans established by corporate employers under Section 401(a) of the Code including 401(k) plans. Contributions to such plans are not taxable to the employee until distributions are made from the retirement plan. The Code imposes limitations on the amount that may be contributed and the timing of distributions. The tax treatment of distributions is subject to special provisions of the Code, and also depends on the design of the specific retirement plan. There are also special requirements as to participation, nondiscrimination, vesting and nonforfeitability of interests. H.R. 10 Plans: Annuities may also be used to fund benefits of retirement plans established by self-employed individuals for themselves and their employees. These are commonly known as "H.R. 10 Plans" or "Keogh Plans". These plans are subject to most of the same types of limitations and requirements as retirement plans established by corporations. However, the exact limitations and requirements may differ from those for corporate plans. Tax Sheltered Annuities: Under Section 403(b) of the Code, a tax sheltered annuity ("TSA") is a contract into which contributions may be made by certain qualifying employers such as public schools and certain charitable, educational and scientific organizations specified in Section 501(c)(3) for the benefit of their employees. Such contributions are not taxable to the employee until distributions are made from the TSA. The Code imposes limits on contributions, transfers and distributions. Nondiscrimination requirements also apply. - -------------------------------------------------------------------------------- Under a TSA, you may be prohibited from taking distributions from the contract attributable to contributions made pursuant to a salary reduction agreement unless the distribution is made: - -------------------------------------------------------------------------------- |X| After the participating employee attains age 59 1/2; |X| Upon separation from service, death or disability; or |X| In the case of financial hardship (subject to restrictions). - -------------------------------------------------------------------------------- Section 457 Plans: Under Section 457 of the Code, deferred compensation plans established by governmental and certain other tax exempt employers for their employees may invest in annuity contracts. The Code limits contributions and distributions, and imposes eligibility requirements as well. Contributions are not taxable to employees until distributed from the plan. However, plan assets remain the property of the employer and are subject to the claims of the employer's general creditors until such assets are made available to participants or their beneficiaries. Individual Retirement Programs or "IRAs": Section 408 of the Code allows eligible individuals to maintain an individual retirement account or individual retirement annuity ("IRA"). IRAs are subject to limitations on the amount that may be contributed, the contributions that may be deducted from taxable income, the persons who may be eligible to establish an IRA and the time when distributions must commence. Further, an Annuity may be established with "roll-over" distributions from certain tax-qualified retirement plans and maintain the tax-deferred status of these amounts. Roth IRAs: A form of IRA is also available called a "Roth IRA". Contributions to a Roth IRA are not tax deductible. However, distributions from a Roth IRA are free from Federal income taxes and are not subject to the 10% penalty tax if five (5) tax years have passed since the first contribution was made or any conversion from a traditional IRA was made and the distribution is made (a) once the taxpayer is age 59 1/2 or older, (b) upon the death or disability of the taxpayer, or (c) for qualified first-time home buyer expenses, subject to certain limitations. Distributions from a Roth IRA that are not "qualified" as described above may be subject to Federal income and penalty taxes. Purchasers of IRAs and Roth IRAs will receive a special disclosure document, which describes limitations on eligibility, contributions, transferability and distributions. It also describes the conditions under which distributions from IRAs and qualified plans may be rolled over or transferred into an IRA on a tax-deferred basis and the conditions under which distributions from traditional IRAs may be rolled over to, or the traditional IRA itself may be converted into, a Roth IRA. SEP IRAs: Eligible employers that meet specified criteria may establish Simplified Employee Pensions or SEP IRAs. Employer contributions that may be made to employee SEP IRAs are larger than the amounts that may be contributed to other IRAs, and may be deductible to the employer. HOW ARE DISTRIBUTIONS FROM QUALIFIED CONTRACTS TAXED? Distributions from Qualified Contracts are generally taxed under Section 72 of the Code. Under these rules, a portion of each distribution may be excludable from income. The excludable amount is the proportion of a distribution representing after-tax contributions. Generally, a 10% penalty tax applies to the taxable portion of a distribution from a Qualified Contract made prior to age 59 1/2. However, the 10% penalty tax does not apply when the distribution: |X| is part of a properly executed transfer to another IRA or another eligible qualified account; |X| is subsequent to the death or disability of the taxpayer (for this purpose disability is as defined in Section 72(m)(7) of the Code); |X| is part of a series of substantially equal periodic payments to be paid not less frequently than annually for the taxpayer's life or life expectancy or for the joint lives or life expectancies of the taxpayer and a designated beneficiary; |X| is subsequent to a separation from service after the taxpayer attains age 55*; |X| does not exceed the employee's allowable deduction in that tax year for medical care*; |X| is made to an alternate payee pursuant to a qualified domestic relations order*; and |X| is made pursuant to an IRS levy. The exceptions above which are followed by an asterisk (*) do not apply to IRAs. Certain other exceptions may be available. Minimum Distributions after age 70 1/2: A participant's interest in a Qualified Contract must generally be distributed, or begin to be distributed, by the "required beginning date". This is April 1st of the calendar year following the later of: |X| the calendar year in which the individual attains age 70 1/2; or |X| the calendar year in which the individual retires from service with the employer sponsoring the plan. The retirement option is not available to IRAs. The participant's entire interest must be distributed beginning no later than the required beginning date over a period which may not extend beyond a maximum of the life or life expectancy of the participant (or the life expectancies of the owner and a designated Beneficiary). Each annual distribution must equal or exceed a "minimum distribution amount" which is determined by dividing the account value by the applicable life expectancy or pursuant to an annuity payout. If the account balance is used, it generally is based upon the Account Value as of the close of business on the last day of the previous calendar year. If the participant dies before reaching his or her "required beginning date", his or her entire interest must generally be distributed within five (5) years of death. However, this rule will be deemed satisfied if distributions begin before the close of the calendar year following death to a designated Beneficiary (or over a period not extending beyond the life expectancy of the beneficiary). If the Beneficiary is the individual's surviving spouse, distributions may be delayed until the deceased owner would have attained age 70 1/2. A surviving spouse would also have the option to assume the IRA as his or her own if he or she is the sole designated beneficiary. If a participant dies after reaching his or her required beginning date or after distributions have commenced, the individual's interest must generally be distributed at least as rapidly as under the method of distribution in effect at the time of the individual's death. If the amount distributed is less than the minimum required distribution for the year, the participant is subject to a 50% tax on the amount that was not properly distributed. GENERAL TAX CONSIDERATIONS Diversification: Section 817(h) of the Code provides that a variable annuity contract, in order to qualify as an annuity, must have an "adequately diversified" segregated asset account (including investments in a mutual fund by the segregated asset account of insurance companies). If the diversification requirements under the Code are not met and the annuity is not treated as an annuity, the taxpayer will be subject to income tax on the annual gain in the contract. The Treasury Department's regulations prescribe the diversification requirements for variable annuity contracts. We believe the underlying mutual fund portfolios should comply with the terms of these regulations. Transfers Between Investment Options: Transfers between investment options are not subject to taxation. The Treasury Department may promulgate guidelines under which a variable annuity will not be treated as an annuity for tax purposes if persons with ownership rights have excessive control over the investments underlying such variable annuity. Such guidelines may or may not address the number of investment options or the number of transfers between investment options offered under a variable annuity. It is not known whether such guidelines, if in fact promulgated, would have retroactive effect. It is also not known what effect, if any, such guidelines may have on transfers between the investment options of the Annuity offered pursuant to this Prospectus. We will take any action, including modifications to your Annuity or the Sub-accounts, required to comply with such guidelines if promulgated. Federal Income Tax Withholding: Section 3405 of the Code provides for Federal income tax withholding on the portion of a distribution which is includible in the gross income of the recipient. Amounts to be withheld depend upon the nature of the distribution. However, under most circumstances a recipient may elect not to have income taxes withheld or have income taxes withheld at a different rate by filing a completed election form with us. Certain distributions, including rollovers, from most Qualified Contracts, may be subject to automatic 20% withholding for Federal income taxes. This will not apply to: |X| any portion of a distribution paid as Minimum Distributions; |X| direct transfers to the trustee of another retirement plan; |X| distributions from an individual retirement account or individual retirement annuity; |X| distributions made as substantially equal periodic payments for the life or life expectancy of the participant in the retirement plan or the life or life expectancy of such participant and his or her designated beneficiary under such plan; and |X| certain other distributions where automatic 20% withholding may not apply. Loans, Assignments and Pledges: Any amount received directly or indirectly as a loan from, or any assignment or pledge of any portion of the value of, an annuity before annuity payments have begun are treated as a distribution subject to taxation under the distribution rules set forth above. Any gain in an annuity on or after the assignment or pledge of an entire annuity and while such assignment or pledge remains in effect is treated as "income on the contract" in the year in which it is earned. For annuities not issued for as Qualified Contracts, the cost basis of the annuity is increased by the amount of any assignment or pledge includible in gross income. The cost basis is not affected by any repayment of any loan for which the annuity is collateral or by payment of any interest thereon. Gifts: The gift of an annuity to someone other than the spouse of the owner (or former spouse incident to a divorce) is treated, for income tax purposes, as a distribution. Estate and Gift Tax Considerations: You should obtain competent tax advice with respect to possible federal and state estate and gift tax consequences flowing from the ownership and transfer of annuities. Generation-Skipping Transfers: Under the Code certain taxes may be due when all or part of an annuity is transferred to, or a death benefit is paid to, an individual two or more generations younger than the contract holder. These generation-skipping transfers generally include those subject to federal estate or gift tax rules. There is an aggregate $1 million exemption from taxes for all such transfers. We may be required to determine whether a transaction is a direct skip as defined in the Code and the amount of the resulting tax. We will deduct from your Annuity or from any applicable payment treated as a direct skip any amount of tax we are required to pay. Considerations for Contingent Annuitants: There may be adverse tax consequences if a contingent annuitant succeeds an annuitant when the Annuity is owned by a trust that is neither tax exempt nor qualifies for preferred treatment under certain sections of the Code. In general, the Code is designed to prevent indefinite deferral of tax. Continuing the benefit of tax deferral by naming one or more contingent annuitants when the Annuity is owned by a non-qualified trust might be deemed an attempt to extend the tax deferral for an indefinite period. Therefore, adverse tax treatment may depend on the terms of the trust, who is named as contingent annuitant, as well as the particular facts and circumstances. You should consult your tax advisor before naming a contingent annuitant if you expect to use an Annuity in such a fashion. GENERAL INFORMATION HOW WILL I RECEIVE STATEMENTS AND REPORTS? We send any statements and reports required by applicable law or regulation to you at your last known address of record. You should therefore give us prompt notice of any address change. We reserve the right, to the extent permitted by law and subject to your prior consent, to provide any prospectus, prospectus supplements, confirmations, statements and reports required by applicable law or regulation to you through our Internet Website at http://www.americanskandia.com or any other electronic means, including diskettes or CD ROMs. We send a confirmation statement to you each time a transaction is made affecting Account Value, such as making additional Purchase Payments, transfers, exchanges or withdrawals. We also send quarterly statements detailing the activity affecting your Annuity during the calendar quarter. You may request additional reports. We reserve the right to charge up to $50 for each such additional report. Instead of immediately confirming transactions made pursuant to some type of periodic transfer program (such as a dollar cost averaging program) or a periodic Purchase Payment program, such as a salary reduction arrangement, we may confirm such transactions in quarterly statements. You should review the information in these statements carefully. All errors or corrections must be reported to us at our Office as soon as possible to assure proper accounting to your Annuity. For transactions that are confirmed immediately, we assume all transactions are accurate unless you notify us otherwise within 10 days from the date you receive the confirmation. For transactions that are only confirmed on the quarterly statement, we assume all transactions are accurate unless you notify us within 10 days from the date you receive the quarterly statement. All transactions confirmed immediately or by quarterly statement are deemed conclusive after the applicable 10-day period. We may also send an annual report and a semi-annual report containing applicable financial statements, as of December 31 and June 30, respectively, to Owners or, with your prior consent, make such documents available electronically through our Internet Website or other electronic means. WHO IS AMERICAN SKANDIA? American Skandia Life Assurance Corporation ("American Skandia") is a stock life insurance company domiciled in Connecticut with licenses in all 50 states and the District of Columbia. American Skandia is a wholly-owned subsidiary of American Skandia, Inc., formerly known as American Skandia Investment Holding Corporation, whose ultimate parent is Skandia Insurance Company Ltd., a Swedish company. American Skandia markets its products to broker-dealers and financial planners through an internal field marketing staff. In addition, American Skandia markets through and in conjunction with financial institutions such as banks that are permitted directly, or through affiliates, to sell annuities. American Skandia is in the business of issuing variable annuity and variable life insurance contracts. American Skandia currently offers the following products: (a) flexible premium deferred annuities and single premium fixed deferred annuities that are registered with the SEC; (b) certain other fixed deferred annuities that are not registered with the SEC; (c) certain group variable annuities that are exempt from registration with the SEC that serve as funding vehicles for various types of qualified pension and profit sharing plans; (d) a single premium variable life insurance policy that is registered with the SEC; and (e) a flexible premium life insurance policy that is registered with the SEC. WHAT ARE SEPARATE ACCOUNTS? The assets supporting our obligations under the Annuities may be held in various accounts, depending on the obligation being supported. In the accumulation phase, assets supporting Account Values are held in separate accounts established under the laws of the State of Connecticut. We are the legal owner of assets in the separate accounts. In the payout phase, assets supporting fixed annuity payments and any adjustable annuity payments we make available are held in our general account. Income, gains and losses from assets allocated to these separate accounts are credited to or charged against each such separate account without regard to other income, gains or losses of American Skandia or of any other of our separate accounts. These assets may only be charged with liabilities which arise from the annuity contracts issued by American Skandia Life Assurance Corporation. The amount of our obligation in relation to allocations to the Sub-accounts is based on the investment performance of such Sub-accounts. However, the obligations themselves are our general corporate obligations. Separate Account B During the accumulation phase, the assets supporting obligations based on allocations to the variable investment options are held in Class 1 Sub-accounts of American Skandia Life Assurance Corporation Variable Account B, also referred to as "Separate Account B". Separate Account B consists of multiple Sub-accounts. The name of each Sub-account generally corresponds to the name of the underlying Portfolio. The names of each Sub-account are shown in the Statement of Additional Information. Separate Account B was established by us pursuant to Connecticut law. Separate Account B also holds assets of other annuities issued by us with values and benefits that vary according to the investment performance of Separate Account B. The Sub-accounts offered pursuant to this Prospectus are all Class 1 Sub-accounts of Separate Account B. Each class of Sub-accounts in Separate Account B has a different level of charges assessed against such Sub-accounts. You will find additional information about these underlying mutual funds and portfolios in the prospectuses for such funds. Separate Account B is registered with the SEC under the Investment Company Act of 1940 ("Investment Company Act") as a unit investment trust, which is a type of investment company. This does not involve any supervision by the SEC of the investment policies, management or practices of Separate Account B. Each Sub-account invests only in a single mutual fund or mutual fund portfolio. We reserve the right to add Sub-accounts, eliminate Sub-accounts, to combine Sub-accounts, or to substitute underlying mutual funds or portfolios of underlying mutual funds. Values and benefits based on allocations to the Sub-accounts will vary with the investment performance of the underlying mutual funds or fund portfolios, as applicable. We do not guarantee the investment results of any Sub-account. Your Account Value allocated to the Sub-accounts may increase or decrease. You bear the entire investment risk. Separate Account D During the accumulation phase, assets supporting our obligations based on Fixed Allocations are held in American Skandia Life Assurance Corporation Separate Account D, also referred to as Separate Account D. Such obligations are based on the fixed interest rates we credit to Fixed Allocations and the terms of the Annuities. These obligations do not depend on the investment performance of the assets in Separate Account D. Separate Account D was established by us pursuant to Connecticut law. There are no units in Separate Account D. The Fixed Allocations are guaranteed by our general account. An Annuity Owner who allocates a portion of their Account Value to Separate Account D does not participate in the investment gain or loss on assets maintained in Separate Account D. Such gain or loss accrues solely to us. We retain the risk that the value of the assets in Separate Account D may drop below the reserves and other liabilities we must maintain. Should the value of the assets in Separate Account D drop below the reserve and other liabilities we must maintain in relation to the annuities supported by such assets, we will transfer assets from our general account to Separate Account D to make up the difference. We have the right to transfer to our general account any assets of Separate Account D in excess of such reserves and other liabilities. We maintain assets in Separate Account D supporting a number of annuities we offer. We have sole discretion over the investment managers retained to manage the assets maintained in Separate Account D. We currently employ investment managers for Separate Account D including, but not limited to, Wells Fargo Bank, N.A. Each manager we employ is responsible for investment management of a different portion of Separate Account D. From time to time additional investment managers may be employed or investment managers may cease being employed. We are under no obligation to employ or continue to employ any investment manager(s). We are not obligated to invest according to specific guidelines or strategies except as may be required by Connecticut and other state insurance laws. WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS? Each underlying mutual fund is registered as an open-end management investment company under the Investment Company Act. Shares of the underlying mutual fund portfolios are sold to separate accounts of life insurance companies offering variable annuity and variable life insurance products. The shares may also be sold directly to qualified pension and retirement plans. Voting Rights We are the legal owner of the shares of the underlying mutual funds in which the Sub-accounts invest. However, under SEC rules, you have voting rights in relation to Account Value maintained in the Sub-accounts. If an underlying mutual fund portfolio requests a vote of shareholders, we will vote our shares in the manner directed by Owners with Account Value allocated to that Sub-account. Owners have the right to vote an amount equal to the number of shares attributable to their contracts. If we do not receive voting instructions in relation to certain shares, we will vote those shares in the same manner and proportion as the shares for which we have received instructions. We will furnish those Owners who have Account Value allocated to a Sub-account whose underlying mutual fund portfolio has requested a "proxy" vote with the necessary forms to provide us with their instructions. Generally, you will be asked to provide instructions for us to vote on matters such as changes in a fundamental investment strategy, adoption of a new investment advisory agreement, or matters relating to the structure of the underlying mutual fund that require a vote of shareholders. Material Conflicts It is possible that differences may occur between companies that offer shares of an underlying mutual fund portfolio to their respective separate accounts issuing variable annuities and/or variable life insurance products. Differences may also occur surrounding the offering of an underlying mutual fund portfolio to variable life insurance policies and variable annuity contracts that we offer. Under certain circumstances, these differences could be considered "material conflicts," in which case we would take necessary action to protect persons with voting rights under our variable annuity contracts and variable life insurance policies against persons with voting rights under other insurance companies' variable insurance products. If a "material conflict" were to arise between owners of variable annuity contracts and variable life insurance policies issued by us we would take necessary action to treat such persons equitably in resolving the conflict. "Material conflicts" could arise due to differences in voting instructions between owners of variable life insurance and variable annuity contracts of the same or different companies. We monitor any potential conflicts that may exist. WHO DISTRIBUTES ANNUITIES OFFERED BY AMERICAN SKANDIA? American Skandia Marketing, Incorporated ("ASM"), a wholly-owned subsidiary of American Skandia, Inc., is the distributor and principal underwriter of the securities offered through this prospectus. ASM acts as the distributor of a number of annuity and life insurance products we offer and both American Skandia Trust and American Skandia Advisor Funds, Inc., a family of retail mutual funds. ASM also acts as an introducing broker-dealer through which it receives a portion of brokerage commissions in connection with purchases and sales of securities held by portfolios of American Skandia Trust which are offered as underlying investment options under the Annuity. ASM's principal business address is One Corporate Drive, Shelton, Connecticut 06484. ASM is registered as broker-dealer under the Securities Exchange Act of 1934 ("Exchange Act") and is a member of the National Association of Securities Dealers, Inc. ("NASD"). The Annuity is offered on a continuous basis. ASM enters into distribution agreements with independent broker-dealers who are registered under the Exchange Act and with entities that may offer the Annuity but are exempt from registration. Applications for the Annuity are solicited by registered representatives of those firms. Such representatives will also be our appointed insurance agents under state insurance law. In addition, ASM may offer the Annuity directly to potential purchasers. Compensation is paid to firms on sales of the Annuity according to one or more schedules. The individual representative will receive a portion of the compensation, depending on the practice of the firm. Compensation may be payable based on a percentage of Purchase Payments made, up to a maximum of 1.0%. Ongoing compensation of up to 1.25% per year of the Account Value is also payable. We may also provide compensation for providing ongoing service to you in relation to the Annuity. Commissions and other compensation paid in relation to the Annuity do not result in any additional charge to you or to the Separate Account. In addition, firms may receive separate compensation or reimbursement for, among other things, training of sales personnel, marketing or other services they provide to us or our affiliates. We or ASM may enter into compensation arrangements with certain firms. These arrangements will not be offered to all firms and the terms of such arrangements may differ between firms. Any such compensation will be paid by us or ASM and will not result in any additional charge to you. To the extent permitted by NASD rules and other applicable laws and regulations, ASM may pay or allow other promotional incentives or payments in the form of cash or other compensation. Advertising: We may advertise certain information regarding the performance of the investment options. Details on how we calculate performance for the Sub-accounts are found in the Statement of Additional Information. This information may help you review the performance of the investment options and provide a basis for comparison with other annuities. It may be less useful when comparing the performance of the investment options with other savings or investment vehicles. Such other investments may not provide some of the benefits of annuities, or may not be designed for long-term investment purposes. Additionally other savings or investment vehicles may not be receive the beneficial tax treatment given to annuities under the Code. Performance information on the Sub-accounts is based on past performance only and is not an indication or representation of future performance. Performance of the Sub-accounts is not fixed. Actual performance will depend on the type, quality and, for some of the Sub-accounts, the maturities of the investments held by the underlying mutual funds or portfolios and upon prevailing market conditions and the response of the underlying mutual funds to such conditions. Actual performance will also depend on changes in the expenses of the underlying mutual funds or portfolios. Such changes are reflected, in turn, in the Sub-accounts which invest in such underlying mutual fund or portfolio. In addition, the amount of charges assessed against each Sub-account will affect performance. Some of the underlying mutual fund portfolios existed prior to the inception of these Sub-accounts. Performance quoted in advertising regarding such Sub-accounts may indicate periods during which the Sub-accounts have been in existence but prior to the initial offering of the Annuities, or periods during which the underlying mutual fund portfolios have been in existence, but the Sub-accounts have not. Such hypothetical performance is calculated using the same assumptions employed in calculating actual performance since inception of the Sub-accounts. We may advertise the performance of the underlying mutual fund portfolios in the form of "Standard" and "Non-standard" Total Returns. "Standard Total Return" figures assume that all charges and fees are applicable. "Non-standard Total Return" figures may also be used that do not reflect all fees and charges. Non-standard Total Returns are calculated in the same manner as standardized returns. Any performance advertisements will not reflect the impact of any Target Value Credits. The information we may advertise regarding the Fixed Allocations may include the then current interest rates we are crediting to new Fixed Allocations. Information on current rates will be as of the date specified in such advertisement. Rates will be included in advertisements to the extent permitted by law. Given that the actual rates applicable to any Fixed Allocation are as of the date of any such Fixed Allocation's Guarantee Period begins, the rate credited to a Fixed Allocation may be more or less than those quoted in an advertisement. Advertisements we distribute may also compare the performance of our Sub-accounts with: (a) certain unmanaged market indices, including but not limited to the Dow Jones Industrial Average, the Standard & Poor's 500, the NASDAQ 100, the Shearson Lehman Bond Index, the Frank Russell non-U.S. Universal Mean, the Morgan Stanley Capital International Index of Europe, Asia and Far East Funds, and the Morgan Stanley Capital International World Index; and/or (b) other management investment companies with investment objectives similar to the mutual fund or portfolio underlying the Sub-accounts being compared. This may include the performance ranking assigned by various publications, including but not limited to the Wall Street Journal, Forbes, Fortune, Money, Barron's, Business Week, USA Today and statistical services, including but not limited to Lipper Analytical Services Mutual Funds Survey, Lipper Annuity and Closed End Survey, the Variable Annuity Research Data Survey, SEI, the Morningstar Mutual Fund Sourcebook and the Morningstar Variable Annuity/Life Sourcebook. American Skandia Life Assurance Corporation may advertise its rankings and/or ratings by independent financial ratings services. Such rankings may help you in evaluating our ability to meet our obligations in relation to Fixed Allocations, pay minimum death benefits, pay annuity payments or administer Annuities. Such rankings and ratings do not reflect or relate to the performance of Separate Account B. AVAILABLE INFORMATION A Statement of Additional Information is available from us without charge upon your request. This Prospectus is part of the registration statement we filed with the SEC regarding this offering. Additional information on us and this offering is available in those registration statements and the exhibits thereto. You may obtain copies of these materials at the prescribed rates from the SEC's Public Reference Section, 450 Fifth Street N.W., Washington, D.C., 20549. You may inspect and copy those registration statements and exhibits thereto at the SEC's public reference facilities at the above address, Room 1024, and at the SEC's Regional Offices, 7 World Trade Center, New York, NY, and the Everett McKinley Dirksen Building, 219 South Dearborn Street, Chicago, IL. These documents, as well as documents incorporated by reference, may also be obtained through the SEC's Internet Website (http://www.sec.gov) for this registration statement as well as for other registrants that file electronically with the SEC. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE To the extent and only to the extent that any statement in a document incorporated by reference into this Prospectus is modified or superseded by a statement in this Prospectus or in a later-filed document, such statement is hereby deemed so modified or superseded and not part of this Prospectus. The Annual Report on Form 10-K for the year ended December 31, 1999 previously filed by the Company with the SEC under the Exchange Act is incorporated by reference in this Prospectus. We will furnish you without charge a copy of any or all of the documents incorporated by reference in this Prospectus, including any exhibits to such documents which have been specifically incorporated by reference. We will do so upon receipt of your written or oral request. HOW TO CONTACT US You can contact us by: |X| calling our Customer Service Team at 1-800-680-8920 or our automated telephone access and response system (STARS) at 1-800-766-4530 |X| writing to us at American Skandia Life Assurance Corporation, Attention: Stagecoach Annuity, P.O. Box 7038, Bridgeport, Connecticut 06601-7038 |X| sending an email to customerservice@americanskandia.com or visiting our Internet Website at www.americanskandia.com |X| accessing information about your Annuity through our Internet Website at www.americanskandia.com You can obtain account information through our automated telephone access and response system (STARS) and at www.americanskandia.com, our Internet Website. Our Customer Service representatives are also available during business hours to provide you with information about your account. You can request certain transactions through our telephone voice response system, our Internet Website or through a customer service representative. You can provide authorization for a third party, including your attorney-in-fact acting pursuant to a power of attorney or a financial professional, to access your account information and perform certain transactions on your account. You will need to complete a form provided by us which identifies those transactions that you wish to authorize via telephonic and electronic means and whether you wish to authorize a third party to perform any such transactions. We require that you or your representative provide proper identification before performing transactions over the telephone or through our Internet Website. This may include a Personal Identification Number (PIN) that will be provided to you upon issue of your Annuity or you may establish or change your PIN through our automated telephone access and response system (STARS) and at www.americanskandia.com, our Internet Website. Any third party that you authorize to perform financial transactions on your account will be assigned a PIN for your account. Transactions requested via telephone are recorded. To the extent permitted by law, we will not be responsible for any claims, loss, liability or expense in connection with a transaction requested by telephone or other electronic means if we acted on such transaction instructions after following reasonable procedures to identify those persons authorized to perform transactions on your Annuity using verification methods which may include a request for your Social Security number, PIN or other form of electronic identification. We may be liable for losses due to unauthorized or fraudulent instructions if we did not follow such procedures. American Skandia does not guarantee access to telephonic and electronic information or that we will be able to accept transaction instructions via the telephone or electronic means at all times. American Skandia reserves the right to limit, restrict or terminate telephonic and electronic transaction privileges at any time. INDEMNIFICATION Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. LEGAL PROCEEDINGS As of the date of this Prospectus, neither we nor ASM were involved in any litigation outside of the ordinary course of business, and know of no material claims.
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 - --- -------------------------- -------------------- Patricia J. Abram Senior Vice President Senior Vice President 48 and National Sales Manager, Variable Life: American Skandia Marketing, Incorporated Ms. Abram joined us in 1998. She previously held the position of Senior Vice President, Chief Marketing Officer with Mutual Service Corporation. Ms. Abram was employed there since 1982. Lori Allen Vice President Vice President: 30 American Skandia Life Assurance Corporation Kimberly Anderson Vice President Vice President, 33 National Sales Manager/ Qualified Plans: American Skandia Marketing, Incorporated Robert M. Arena Vice President Vice President: 31 American Skandia Life Assurance Corporation Mr. Arena joined us in 1995. He previously held an internship position with KPMG Peat Marwick in 1994 and the position of Group Sales Representative with Paul Revere Insurance from October, 1990 to August, 1993. Gordon C. Boronow President and President and 47 Deputy Chief Executive Officer Deputy Chief Executive Officer: Director (since July, 1991) American Skandia Life Assurance Corporation Robert W. Brinkman Senior Vice President Senior Vice President, 35 National Sales Manager: American Skandia Marketing, Incorporated Malcolm M. Campbell Director (since July, 1991) Director of Operations and 44 Chief Actuary, Assurance and Financial Services Division: Skandia Insurance Company Ltd. Jan R. Carendi Chief Executive Senior Executive Vice President and 55 Officer and Member of Executive Management Group: Chairman of the Skandia Insurance Company Ltd. Board of Directors Director (since May, 1988) Carl Cavaliere Vice President Vice President: 37 American Skandia Life Assurance Corporation Mr. Cavaliere joined us in 1998. He previously held the position of Director of Operations with Aetna, Inc. since 1989. Y.K. Chan Senior Vice President Senior Vice President 42 and Chief Information Officer: American Skandia Information Services and Technology Corporation Mr. Chan joined us in 1999. He previously held the position of Chief Information Officer with E.M. Warburg Pincus from January 1995 until April 1999 and the position of Vice President, Client Server Application Development with Scudder, Stevens and Clark from January 1991 until January 1995. Lucinda C. Ciccarello Vice President Vice President, Mutual Funds: 41 American Skandia Marketing, Incorporated Ms. Ciccarello joined us in 1997. She previously held the position of Assistant Vice President with Phoenix Duff & Phelps since 1984. Lincoln R. Collins Senior Vice President Senior Vice President: 39 Director (since February, 1996) American Skandia Life Assurance Corporation Tim Cronin Vice President Vice President: 34 American Skandia Life Assurance Corporation Mr. Cronin joined us in 1998. He previously held the position of Manager/Client Investor with Columbia Circle Investors since 1995. Henrik Danckwardt Director (since July, 1991) Director of Finance 46 and Administration, Assurance and Financial Services Division: Skandia Insurance Company Ltd. Harold Darak Vice President Vice President: 39 American Skandia Life Assurance Corporation Mr. Darak joined us in 1999. He previously held the position of Consultant/Senior Manager with Deloitte & Touche since 1998 and the positions of Second Vice President with The Guardian since 1996 and The Travelers from October, 1982 until December, 1995. Wade A. Dokken Deputy Chief Executive Officer DCEO and COO: 40 and Chief Operating Officer American Skandia Life Director (since July, 1991) Assurance Corporation Elaine C. Forsyth Vice President Vice President: 38 American Skandia Life Assurance Corporation Larisa Gromyko Director, Insurance Compliance Director, Insurance Compliance: 53 American Skandia Life Assurance Corporation Maureen Gulick Director, Business Operations Director, Business Operations: 37 American Skandia Life Assurance Corporation Berthann Jones Vice President Vice President: 45 American Skandia Life Assurance Corporation Ms. Jones joined us in 1997. She previously held the position of Vice President/Trust Officer with Ridgefield Bank since 1996 and Manager with Wright Investors Service since 1993. Ian Kennedy Senior Vice President Senior Vice President, 52 Customer Service: American Skandia Marketing, Incorporated Mr. Ian Kennedy joined us in 1998. He previously was self-employed since 1996 and held the position of Vice President, Customer Service with SunLife of Canada from September, 1968 to August, 1995. T. Richard Kennedy General Counsel and General Counsel: 65 Director (since March, 2000) American Skandia Life Assurance Corporation Mr. T. Richard Kennedy joined us in 1999. He previously was Managing Partner with the law firm of Werner & Kennedy. N. David Kuperstock Vice President Vice President: 48 American Skandia Life Assurance Corporation Thomas M. Mazzaferro Executive Vice President and Executive Vice President and 47 Chief Financial Officer, Chief Financial Officer: Director (since September, 1994) American Skandia Life Assurance Corporation Gunnar J. Moberg Director (since October, 1994) Director - Marketing and Sales, 45 Assurances and Financial Services Division: Skandia Insurance Company Ltd. David R. Monroe Senior Vice President, Senior Vice President, 38 Treasurer and Treasurer and Corporate Controller Corporate Controller: American Skandia Life Assurance Corporation Mr. Monroe joined us in 1996. He previously held positions of Assistant Vice President at Allmerica Financial since 1994. Michael A. Murray Senior Vice President Vice President, 31 National Sales Manager: American Skandia Marketing, Incorporated Brian O'Connor Vice President Vice President, 35 National Sales Manager, Internal Wholesaling: American Skandia Marketing, Incorporated M. Patricia Paez Vice President Chief of Staff: 39 American Skandia, Inc. Polly Rae Vice President Vice President: 37 American Skandia Life Assurance Corporation Rebecca Ray Vice President Vice President: 44 American Skandia Life Assurance Corporation Ms. Ray joined us in 1999. She previously held the position of First Vice President with Prudential Securities since 1997 and Vice President with Merrill Lynch since 1995. Rodney D. Runestad Vice President Vice President: 50 American Skandia Life Assurance Corporation Hayward L. Sawyer Senior Vice President Executive Vice President 55 National Sales Manager: American Skandia Marketing, Incorporated Lisa Shambelan Vice President Vice President: 34 American Skandia Life Assurance Corporation Karen Stockla Vice President Vice President, 33 Intellectual Resources Department: American Skandia Life Assurance Corporation Ms. Stockla joined us in 1998. She previously held the position of Manager, Application Development with Citizens Utilities Company since 1996 and HRIS Tech Support Representative with Yale New Haven Hospital since 1993. William H. Strong Vice President Vice President: 56 American Skandia Life Assurance Corporation Mr. Strong joined us in 1997. He previously held the position of Vice President with American Financial Systems from June 1994 to October 1997 and the position of Actuary with Connecticut Mutual Life from June 1965 to June 1994. Leslie S. Sutherland Vice President Vice President, 46 National Key Accounts Manager: American Skandia Marketing, Incorporated Amanda C. Sutyak Vice President Vice President: 42 Director (since July, 1991) American Skandia Life Assurance Corporation Christian A. Thwaites Senior Vice President Senior Vice President, 42 National Marketing Director: American Skandia Marketing, Incorporated Mr. Thwaites joined us in 1996. He previously held the position of consultant with Monitor Company since October 1995 and Vice President with Aetna, Inc. since 1995. Mary Toumpas Vice President Vice President and 48 Compliance Director: American Skandia Marketing, Incorporated Ms. Toumpas joined us in 1997. She previously held the position of Assistant Vice President with Chubb Life/Chubb Securities since 1973. Bayard F. Tracy Senior Vice President and Senior Vice President, 52 Director (since September, 1994) National Sales Manager: American Skandia Marketing, Incorporated Deborah G. Ullman Senior Vice President Senior Vice President and 45 Chief Operating Officer: American Skandia Marketing, Incorporated Ms. Ullman joined us in 1998. She previously held the position of Vice President with Aetna, Inc. since 1977. Jeffrey M. Ulness Vice President Vice President: 39 American Skandia Life Assurance Corporation Derek Winegard Vice President Vice President: 41 American Skandia Life Assurance Corporation Mr. Winegard joined us in 1999. He previously held the position of Senior Vice President with Trust Consultants, Inc. since 1991. Brett M. Winson Senior Vice President and Senior Vice President, 44 Director (since March 2000) Intellectual Resource Development American Skandia, Inc. Mr. Winson joined us in 1998. He previously held the position of Senior Vice President with Sakura Bank, Ltd. since 1990.
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION The following are the contents of the Statement of Additional Information: General Information about American Skandia |X| American Skandia Life Assurance Corporation |X| American Skandia Life Assurance Corporation Variable Account B (Class 1 Sub-accounts) |X| American Skandia Life Assurance Corporation Separate Account D Principal Underwriter/Distributor - American Skandia Marketing, Incorporated How Performance Data is Calculated |X| Current and Effective Yield |X| Total Return How the Unit Price is Determined Additional Information on Fixed Allocations |X| How We Calculate the Market Value Adjustment General Information |X| Voting Rights |X| Modification |X| Deferral of Transactions |X| Misstatement of Age or Sex |X| Ending the Offer Independent Auditors Legal Experts Financial Statements |X| Appendix A - American Skandia Life Assurance Corporation Variable Account B (Class 1 Sub-accounts) APPENDIX A - FINANCIAL INFORMATION ABOUT AMERICAN SKANDIA SELECTED FINANCIAL DATA The following table summarizes information with respect to the operations of the Company:
(in thousands) For the Year Ended December 31, 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- STATEMENT OF OPERATIONS DATA Revenues: Annuity and life insurance charges and fees* $ 289,989 $ 186,211 $ 121,158 $ 69,780 $ 38,837 Fee income 83,243 50,839 27,593 16,420 6,206 Net investment income 10,441 11,130 8,181 1,586 1,601 Premium income and other revenues 3,688 1,360 1,082 265 45 ------------- ------------- ------------ ----------- ----------- Total revenues $ 387,361 $ 249,540 $ 158,014 $ 88,051 $ 46,689 ============= ============= ============ =========== =========== Benefits and Expenses: Annuity and life insurance benefits $ 612 $ 558 $ 2,033 $ 613 $ 555 Change in annuity policy reserves 3,078 1,053 37 635 (6,779) Cost of minimum death benefit reinsurance 2,945 5,144 4,545 2,867 2,057 Return credited to contractowners (1,639) (8,930) (2,018) 673 10,613 Underwriting, acquisition and other insurance expenses 206,350 167,790 90,496 49,887 35,914 Interest expense 69,502 41,004 24,895 10,791 6,500 ------------- ------------- ------------- ------------ ------------ Total benefits and expenses $ 280,848 $ 206,619 $ 119,988 $ 65,466 $ 48,860 ============= ============= ============= ============ ============ Income tax expense (benefit) $ 30,344 $ 8,154 $ 10,478 $ (4,038) $ 397 ============= ============= ============= ============ ============ Net income (loss) $ 76,169 $ 34,767 $ 27,548 $ 26,623 $ (2,568) ============= ============= ============= ============ ============= STATEMENT OF FINANCIAL CONDITION Total Assets $ 30,849,414 $ 18,848,273 $ 12,894,290 $ 8,268,696 $ 4,956,018 ============= ============= ============= ============ ============ Future fees payable to parent $ 576,034 $ 368,978 $ 233,034 $ 47,112 $ - ============= ============= ============= ============ ============ Surplus Notes $ 179,000 $ 193,000 $ 213,000 $ 213,000 $ 103,000 ============= ============= ============= ============ ============ Shareholder's Equity $ 359,434 $ 250,417 $ 184,421 $ 126,345 $ 59,713 ============= ============= ============= =========== ============
* On annuity and life insurance sales of $6,862,968, $4,159,662, $3,697,990, $2,795,114, and $1,628,486 during the years ended December 31, 1999, 1998, 1997, 1996, and 1995, respectively, with contractowner assets under management of $29,396,693, $17,854,761, $12,119,191, $7,764,891, and $4,704,044 as of December 31, 1999, 1998, 1997, 1996 and 1995, respectively. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and the notes thereto and Item 6, Selected Financial Data. Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking statements pursuant to the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on estimates and assumptions that involve certain risks and uncertainties, therefore actual results could differ materially due to factors not currently known. These factors include significant changes in financial markets and other economic and business conditions, state and federal legislation and regulation, ownership and competition. Results of Operations Annuity and life insurance sales increased 65%, 12%, and 32% in 1999, 1998 and 1997, respectively. The Company continues to show significant growth in sales volume as a result of innovative product development activities, the recruitment and retention of top producers, and the success of its highly rated customer service teams. The sales growth was also attributable to the strong performance of the underlying mutual funds, which support the Separate Account assets. All three major distribution channels achieved significant sales growth in 1999. As a result of the significant growth in sales and assets under management, contractowner fees and charges and fees generated from transfer agency-type and investment support activities increased considerably over the past three years: (annual percentage growth) 1999 1998 1997 Annuity and life insurance charges and fees 56% 54% 74% Fee income 64% 84% 68% Net investment income decreased 6% in 1999, increased 36% and 416% in 1998 and 1997, respectively. The decrease in 1999 was the result of $1,036,000 of amortization of the premium paid on a derivative instrument purchased during 1999. As noted in Note 2C of Notes to Consolidated Financial Statements, the derivative instrument, an equity put option, was purchased as a hedge against potential GMDB reserves increases. Excluding the derivative amortization, 1999 net investment income increased 3% as a result of increased bond holdings in support of the Company's risk-based capital initiatives. The increases in 1998 and 1997 were generated from the bond holdings, which were increased in 1998 and 1997 to meet risk based capital goals, which in turn, have increased as a result of the growth in business. Premium income represents premiums earned on sale of ancillary contracts; immediate annuities with life contingencies, supplementary contracts with life contingencies and certain life insurance products. Sales of supplementary contracts increased in 1999 and decreased in slightly in 1998 and 1997. There were no immediate annuities sold in 1999 and sales in 1998 and 1997 were modest. Annuity benefits, which represent immediate annuities, supplementary contracts and death benefits paid on annuity contracts with mortality risks were not significant in each of the past three years due primarily to the age of the policies in force. The change in annuity policy reserves includes changes in reserves related to annuity contracts with mortality risks as well as the Company's guaranteed minimum death benefit ("GMDB") liability. During the second quarter of 1999, the Company's agreement to reinsure substantially all of its exposure on the GMDB was terminated and the business was recaptured, as the reinsurer had announced its intention to exit this market. The increase in reserves resulting from this change was offset by a decrease in reserves associated with the change to reserve methodology on the GMDB. The new reserve methodology complies with the National Association of Insurance Commissioners Actuarial Guideline XXXIV. In the later half of 1999, the Company instituted a hedge program to manage the market risk and reserve fluctuations associated with the GMDB policies through the use of equity put options. The Company is currently continuing this program while evaluating alternative hedging strategies. The reinsurance premium associated with the GMDB exposure is based on levels of assets under management. Due to increased sales and account growth, this cost had increased in 1997 and 1998 and through May 1999. The termination of the reinsurance treaty as of May 31, 1999 resulted in the year to year decrease in this benefit for the twelve months ended December 31, 1999. Return credited to contractowners consists of revenues on the variable and market value adjusted annuities and variable life insurance, offset by the benefit payments and change in reserves required on this business. Market value adjusted annuity activity has the largest impact on this benefit. In 1999, the Separate Account investment returns on these contracts did not meet the expected returns calculated in the reserves. In 1998, the actual returns significantly outperformed the expected returns and in 1997, these expectations were met. Underwriting, acquisition and other insurance expenses for 1999, 1998 and 1997 were as follows:
(in thousands) 1999 1998 1997 ---- ---- ---- Commissions and general expenses $ 576,649 $ 342,594 $ 281,560 Net capitalization of deferred acquisition costs (370,299) (174,804) (191,064) --------- --------- --------- Underwriting, acquisition and other insurance expenses $ 206,350 $167,790 $90,496 ========= ======== =======
Commissions, general operating expenses and the net deferral of acquisition costs have all increased in 1999, due largely to record sales. Current sales trends have resulted in a shift to asset based commission agreements. This coupled with increased asset levels from increased sales and equity market appreciation have led to the increase in commissions and general expenses. In 1998, commissions and general expenses increased as a result of strong sales and start up costs associated with the Company's entry into variable life insurance and qualified plans. The net capitalization of acquisition costs decreased in 1998 as a result of increased amortization. In 1997, expense increases were driven primarily from strong sales. Interest expense increased $28,498,000, $16,109,000 and $14,104,000 in 1999, 1998 and 1997, respectively, as a result of additional financing transactions, which consisted of the sale of future fees to the Parent ("securitization transactions"). In addition, the Company retired surplus notes on December 10, 1999 and December 31, 1998 of $14,000,000 and $20,000,000 respectively. Surplus notes outstanding as of December 31, 1999 and 1998 totaled $179,000,000 and $193,000,000, respectively. The effective income tax rates for the years ended December 31, 1999, 1998 and 1997 were 28%, 19% and 28%, respectively. The effective rate is lower than the corporate rate of 35% due to permanent differences, with the most significant item being the dividend received deduction. Management believes that based on the taxable income produced in the past two years, as well as the continued growth in annuity sales, the Company will produce sufficient taxable income in future years to realize its deferred tax assets. The Company generated net income after tax of $76,169,000, $34,767,000 and $27,548,000 in 1999, 1998 and 1997, respectively. The Company benefited in each of the past three years from strong sales growth and favorable market conditions. The Company considers Mexico an emerging market and has invested in the Skandia Vida operations with the expectation of generating profits from long-term savings products in future years. As such, Skandia Vida has generated net losses of $2,523,000, $2,514,000 and $1,438,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Total assets grew 64%, 46%, and 56% in 1999, 1998 and 1997, respectively. These increases were a direct result of the substantial sales volume and market growth of the separate account assets. The sales and market growth also drove increases in deferred acquisition costs, as well as fixed maturity investments held in support of the Company's risk based capital requirements. Liabilities grew 64%, 46%, and 56% in 1999, 1998 and 1997, respectively, as a result of the reserves required for the increased sales activity along with the sale of future fees and charges during these periods. These sales of future fees and charges to the Parent are needed to fund the acquisition costs of the Company's variable annuity and life insurance business. Liquidity and Capital Resources The Company's liquidity requirement was met by cash from insurance operations, investment activities, borrowings from its Parent and the sale of rights to future fees and charges to its Parent. The majority of the operating cash outflow resulted from the sale of variable annuity and variable life products which carry a contingent deferred sales charge. This type of product causes a temporary cash strain in that 100% of the proceeds are invested in separate accounts supporting the product leaving a cash (but not capital) strain caused by the acquisition cost for the new business. This cash strain required the Company to look beyond the cash made available by insurance operations and investments of the Company to financing in the form of surplus notes, capital contributions, the sale of certain rights to future fees and charges as well as modified coinsurance reinsurance arrangements: o During 1999 and 1998, the Company received $34,800,000 and $22,600,000, respectively, from ASI to support the capital needs of its U.S. operations during the current year along with the following year's anticipated growth in business. In addition, the Company received $1,690,000 and $5,762,000 from ASI in 1999 and 1998 to support its investment in Skandia Vida. o Funds received from new securitization transactions amounted to $265,710,000, $169,881,000, and $194,512,000 for 1999, 1998 and 1997, respectively (see Note 8 of the Notes to Audited Consolidated Financial Statements). In addition, $71,000,000 was received from ASI in the fourth quarter of 1999 in advance of a securitization transaction completed in the first quarter of 2000. o During 1999, 1998 and 1997, the Company extended its reinsurance agreements. The reinsurance agreements are modified coinsurance arrangements where the reinsurer shares in the experience of a specific book of business. The Company expects the continued use of reinsurance and securitization transactions to fund the cash strain anticipated from the acquisition costs on the coming years' sales volume. As of December 31, 1999 and 1998, shareholder's equity was $359,434,000 and $250,417,000, respectively. The increases were driven by the previously mentioned capital contributions received from ASI and net income from operations. The Company has long-term surplus notes and short-term borrowings with ASI. No dividends have been paid to ASI. The National Association of Insurance Commissioners ("NAIC") requires insurance companies to report information regarding minimum Risk Based Capital ("RBC") requirements. These requirements are intended to allow insurance regulators to identify companies which may need regulatory attention. The RBC model law requires that insurance companies apply various factors to asset, premium and reserve items, all of which have inherent risks. The formula includes components for asset risk, insurance risk, interest risk and business risk. The Company has complied with the NAIC's RBC reporting requirements and has total adjusted capital well above required capital. Effects of Inflation The rate of inflation has not had a significant effect on the Company's financial statements. Year 2000 Compliance The Company's computer support is provided by its affiliate, American Skandia Information Services and Technology Corporation, which also provides such support for the Company's affiliated broker-dealer, American Skandia Marketing, Incorporated and the Company's affiliated investment advisory firm, American Skandia Investment Services, Incorporated. Because of the nature of the Company's business, any assessment of the potential impact of the Year 2000 issues on the Company must be an assessment of the potential impact of these issues on all these companies, which are referred to below as "American Skandia". The Company experienced no significant errors or disruptions in computer service, interfaces with computer systems of investment managers, sub-advisors, third party administrators, vendors and other business partners on or after January 1, 2000. American Skandia engaged external information technology specialists to review its operating systems and internally developed software. The costs associated with these assessments and Year 2000 related remediation was $1,400,000 in 1999 and $750,000 in 1998 and prior. The Company was allocated the majority of these costs. American Skandia continues to review new and existing systems and has contingency plans in place as part of its Business Continuity Plan. This plan involves virtually all aspects of the business and will continue to be a focus of management beyond the Year 2000 event. Outlook The Company believes that it is well positioned to retain and enhance its position as a leading provider of financial products for long-term savings and retirement purposes as well as to address the economic impact of premature death, estate and business planning concerns and supplemental retirement needs. Strength in the areas of investment options offered, innovative and leading edge product offerings and superior customer service are expected to allow the Company to continue to grow market share in a marketplace which continues to grow. Certain regulatory and legislative initiatives or proposed accounting standards, if adopted, could adversely impact the Company, despite it's strong market position. Of particular importance is President Clinton's proposed budget for 2001, which includes proposed revenue-raising tax changes such as the "DAC tax" on annuity and life products that could further increase the Company's cash strain. In addition, the recently enacted Financial Services Modernization Act, which allows banks and insurance companies to affiliate under a common holding company, may create previously unseen competitive pressures that could impact the Company's ability to do business in the same manner it has previously. Additionally, discussions on regulation of the Internet may impact on the way the Company does business in the future. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to potential fluctuations in earnings and the fair value of certain of its assets and liabilities, as well as variations in expected cash flows due to changes in market interest rates and equity prices. The following discussion focuses on specific exposures the Company has to interest rate and equity price risk and describes strategies used to manage these risks. The discussion is limited to financial instruments subject to market risks and is not intended to be a complete discussion of all of the risks the Company is exposed to. Interest Rate Risk Fluctuations in interest rates can potentially impact the Company's profitability and cash flows. The Company has 97% of assets held under management that are in non-guaranteed Separate Accounts for which the Company's exposure is not significant as the contractowner assumes substantially all the investment risk. On the remaining 3% of assets the interest rate risk from contracts that carry interest rate exposure, is managed through an asset/liability matching program which takes into account the risk variables of the insurance liabilities supported by the assets. At December 31, 1999, the Company held in its general account $201,509,000 of fixed maturity investments that are sensitive to changes in interest rates. These securities are held in support of the Company's fixed immediate annuities and supplementary contracts ($29,912,000 in reserves at December 31, 1999) and in support of the Company's target solvency capital. The Company has a conservative investment philosophy with regard to these investments. All investments are investment grade corporate securities, government agency or U.S. government securities. The Company's deferred annuity products offer a fixed option which subjects the Company to interest rate risk. The fixed option guarantees a fixed rate of interest for a period of time selected by the contractowner. Guarantee period options available range from 1 to 10 years. Withdrawal of funds before the end of the guarantee period subjects the contract holder to a market value adjustment ("MVA"). In the event of rising interest rates, which make the fixed maturity securities underlying the guarantee less valuable, the MVA could be negative. In the event of declining interest rates, which make the fixed maturity securities underlying the guarantee more valuable, the MVA could be positive. The resulting increase or decrease in the value of the fixed option, from calculation of the MVA, should substantially offset the increase or decrease in the market value of the securities underlying the guarantee. The Company maintains strict asset/liability matching to enable this offset. However, the Company still takes on the default risk for the underlying securities, the interest rate risk of reinvestment of interest payments and the risk of failing to maintain the asset/liability matching program with respect to duration and convexity. At December 31, 1999 the Company had $939,585,000 in fixed investment options subject to these risks. Equity Market Exposure The primary equity market risk to the Company comes from the nature of the variable annuity and variable life products sold by the Company. Various fees and charges earned are substantially derived as a percentage of the market value of assets under management. In a market decline, this income would be reduced. This could be further compounded by customer withdrawals, net of applicable surrender charge revenues, partially offset by transfers to the fixed option discussed above. A 10% decline in the market value of the assets under management at December 31, 1999, sustained throughout 2000, would result in an approximate drop in related annual fee income of $48,178,000. As discussed in Note 2 of the Consolidated Financial Statements, in 1999 the Company utilized derivative instruments to hedge against the risk of significant decreases in equity markets which would expose the Company to increases in guaranteed minimum death benefits liabilities. Prior to the implementation of this program the Company utilized reinsurance to transfer this risk. The Company has a small portfolio of equity investments; mutual funds which are held in support of a deferred compensation program. In the event of a decline in market values of underlying securities, the value of the portfolio would decline, however the accrued benefits payable under the related deferred compensation program would decline by a corresponding amount. In addition, it is not clear what the impact of a prolonged downturn in the equity markets would have on ongoing sales. Customer's perceptions of a downturn in equity markets coupled with rising interest rates could move them into financial products other than variable annuities or variable life; however, the Company's products might remain attractive to purchasers in relation to other long-term savings vehicles even after such a decline. AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN SKANDIA LIFE ASSURANCE CORPORATION INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Shareholder of American Skandia Life Assurance Corporation Shelton, Connecticut We have audited the consolidated statements of financial condition of American Skandia Life Assurance Corporation (the "Company" which is a wholly-owned subsidiary of Skandia Insurance Company Ltd.) as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholder's equity, and cash flows for each of the three years in the period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Skandia Life Assurance Corporation at December 31, 1999 and 1998, and the consolidated results of their operations and cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. /s/Ernst & Young LLP Hartford, Connecticut February 11, 2000, except for Note 18 as to which the date is March 22, 2000 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Consolidated Statements of Financial Condition (in thousands)
As of December 31, 1999 1998 --------------- ---------------- ASSETS Investments: Fixed maturities - at amortized cost $ 3,360 $ 8,289 Fixed maturities - at fair value 198,165 141,195 Investment in mutual funds - at fair value 16,404 8,210 Derivative instruments 189 - Policy loans 1,270 569 -------------- -------------- Total investments 219,388 158,263 Cash and cash equivalents 89,212 77,525 Accrued investment income 4,054 2,880 Deferred acquisition costs 1,087,705 721,507 Reinsurance receivable 4,062 4,191 Receivable from affiliates - 1,161 Income tax receivable - deferred 51,726 38,861 State insurance licenses 4,263 4,413 Fixed assets 3,305 328 Other assets 4,533 3,744 Separate account assets 29,381,166 17,835,400 --------------- ---------------- Total assets $ 30,849,414 $ 18,848,273 =============== ================
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities: Reserve for future contractowner benefits $ 11,215 $ 37,508 Policy reserves 29,912 25,545 Drafts outstanding 51,059 28,941 Accounts payable and accrued expenses 158,590 91,827 Income tax payable 24,268 6,657 Payable to affiliates 68,736 - Future fees payable to parent 576,034 368,978 Short-term borrowing 10,000 10,000 Surplus notes 179,000 193,000 Separate account liabilities 29,381,166 17,835,400 --------------- ---------------- Total Liabilities 30,489,980 18,597,856 --------------- ---------------- Shareholder's equity: Common stock, $100 and $80 par value, 25,000 shares authorized, issued and outstanding 2,500 2,000 Additional paid-in capital 215,879 179,889 Retained earnings 141,162 64,993 Accumulated other comprehensive income (107) 3,535 --------------- ---------------- Total Shareholder's equity 359,434 250,417 --------------- ---------------- Total liabilities and shareholder's equity $ 30,849,414 $ 18,848,273 =============== ================
See notes to consolidated financial statements. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Consolidated Statements of Operations (in thousands)
For the Year Ended December 31, 1999 1998 1997 -------------- ------------- ------------- REVENUES Annuity and life insurance charges and fees $ 289,989 $ 186,211 $ 121,158 Fee income 83,243 50,839 27,593 Net investment income 10,441 11,130 8,181 Premium income 1,278 874 920 Net realized capital gains 578 99 87 Other 1,832 387 75 -------------- ------------- ------------- Total revenues 387,361 249,540 158,014 -------------- ------------- ------------- EXPENSES Benefits: Annuity and life insurance benefits 612 558 2,033 Change in annuity and life insurance policy reserves 3,078 1,053 37 Cost of minimum death benefit reinsurance 2,945 5,144 4,545 Return credited to contractowners (1,639) (8,930) (2,018) -------------- ------------- ------------- 4,996 (2,175) 4,597 Expenses: Underwriting, acquisition and other insurance expenses 206,350 167,790 90,496 Interest expense 69,502 41,004 24,895 -------------- ------------- ------------- 275,852 208,794 115,391 -------------- ------------- ------------- Total benefits and expenses 280,848 206,619 119,988 -------------- ------------- ------------- Income from operations before income tax 106,513 42,921 38,026 Income tax expense 30,344 8,154 10,478 -------------- ------------- ------------- Net income $ 76,169 $ 34,767 $ 27,548 ============== ============= =============
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 (in thousands)
For the Year Ended December 31, 1999 1998 1997 -------------- -------------- -------------- Common stock: Beginning balance $ 2,000 $ 2,000 $ 2,000 Increase in par value 500 - - -------------- -------------- -------------- Ending balance 2,500 2,000 2,000 -------------- -------------- -------------- Additional paid in capital: Beginning balance 179,889 151,527 122,250 Transferred to common stock (500) - - Additional contributions 36,490 28,362 29,277 -------------- -------------- -------------- Ending balance 215,879 179,889 151,527 -------------- -------------- -------------- Retained earnings: Beginning balance 64,993 30,226 2,678 Net income 76,169 34,767 27,548 -------------- -------------- -------------- Ending balance 141,162 64,993 30,226 -------------- -------------- -------------- Accumulated other comprehensive income: Beginning balance 3,535 668 (584) Other comprehensive income (3,642) 2,867 1,252 -------------- -------------- -------------- Ending Balance (107) 3,535 668 -------------- -------------- -------------- Total shareholder's equity $ 359,434 $ 250,417 $ 184,421 ============== ============== ==============
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 (in thousands)
For the Year Ended December 31, 1999 1998 1997 -------------- ------------- -------------- Cash flow from operating activities: Net income $ 76,169 34,767 $ 27,548 Adjustments to reconcile net income to net cash used in operating activities: Amortization and depreciation 1,495 251 223 Deferred tax expense (10,903) (14,242) (9,631) Change in unrealized losses on derivatives 3,749 - - Increase in policy reserves 4,367 1,130 3,176 Change in receivable from/payable to affiliates 69,897 166 (1,321) Change in income tax payable 17,611 7,704 (2,172) Increase in other assets (789) (1,173) (415) Increase in accrued investment income (1,174) (438) (483) Decrease/(increase) in reinsurance receivable 129 2,152 (268) Increase in deferred acquisition costs (366,198) (174,804) (190,969) Increase in accounts payable and accrued expenses 66,763 20,637 5,719 Increase in drafts outstanding 22,118 9,663 6,245 Change in foreign currency translation, net 701 (22) (34) Realized capital gain (578) (99) (87) -------------- ------------- -------------- Net cash used in operating activities (116,643) (114,308) (162,469) -------------- ------------- -------------- Cash flow from investing activites: Purchase of fixed maturity investments (99,250) (31,828) (28,905) Proceeds from sale and maturity of fixed maturity investments 36,226 4,049 10,755 Purchase of derivatives (4,974) - - Purchase of shares in mutual funds (17,703) (7,158) (5,595) Proceeds from sale of shares in mutual funds 14,657 6,086 1,415 Purchase of fixed assets (3,178) (18) (189) Increase in policy loans (701) 118 (528) -------------- ------------- -------------- Net cash used in investing activities (74,923) (28,751) (23,047) -------------- ------------- -------------- Cash flow from financing activities: Capital contribution from parent 22,490 8,362 29,277 Increase in future fees payable to parent 207,056 135,944 185,922 Net withdrawals from contractowner accounts (26,293) (5,696) 6,959 -------------- ------------- -------------- Net cash provided by financing activities 203,253 138,610 222,158 -------------- ------------- -------------- Net increase/(decrease) in cash and cash equivalents 11,687 (4,449) 36,642 Cash and cash equivalents at beginning of year 77,525 81,974 45,332 -------------- ------------- -------------- Cash and cash equivalent at end of year $ 89,212 77,525 $ 81,974 ============== ============= ============== Income taxes paid $ 23,637 14,651 $ 22,308 ============== ============= ============== Interest paid $ 69,697 35,588 $ 16,916 ============== ============= ==============
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 December 31, 1999 1. ORGANIZATION AND OPERATION American Skandia Life Assurance Corporation (the "Company") is a wholly-owned subsidiary of American Skandia, Inc. ("ASI", formerly known as American Skandia Investment Holding Corporation) whose ultimate parent is Skandia Insurance Company Ltd., a Swedish Corporation. The Company develops long-term savings and retirement products which are distributed through its affiliated broker/dealer company, American Skandia Marketing, Incorporated ("ASM"). The Company currently issues variable life insurance and variable, fixed, market value adjusted and immediate annuities for individuals, groups and qualified pension plans. The Company has 99.9% ownership in Skandia Vida, S.A. de C.V. ("Skandia Vida") which is a life insurance company domiciled in Mexico. Skandia Vida had total shareholder's equity of $4,592,000 and $4,724,000 as of December 31, 1999, and 1998, respectively. The Company considers Mexico an emerging market and has invested in the Skandia Vida operations with the expectation of generating profits from long-term savings products in future years. As such, Skandia Vida has generated net losses of $2,523,000, $2,514,000 and $1,438,000 for the years ended December 31, 1999, 1998 and 1997, respectively. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Basis of Reporting The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles. Intercompany transactions and balances have been eliminated in consolidation. Certain reclassifications have been made to prior year amounts to conform with the current year presentation. B. New Accounting Pronouncements In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Software Developed or Obtained for Internal Use. The SOP, which has been adopted prospectively as of January 1, 1999, requires the capitalization of certain costs incurred in connection with developing or obtaining internal use software. Prior to the adoption of SOP 98-1, the Company expensed all internal use software related costs as incurred. The Company has identified and capitalized $3,035,000 of costs associated with internal use software during 1999 and is amortizing the applicable costs on a straight-line basis over a three year period. At December 31, 1999, the unamortized balance was $2,920,000 and is included in fixed assets. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS 133). Subsequently, in July 1999, FASB issued FAS 137 "Deferral of the Effective Date of FASB Statement 133". The adoption date was delayed to fiscal years beginning after June 15, 2000. The Company is currently evaluating the potential impact on its financial position. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) C. Investments The Company has classified its fixed maturity investments as either held-to-maturity or available-for-sale. Investments classified as held-to-maturity are investments that the Company has the ability and intent to hold to maturity. Such investments are carried at amortized cost. Those investments which are classified as available-for-sale are carried at fair value and changes in unrealized gains and losses are reported as a component of other comprehensive income. The Company has classified its mutual fund investments held in support of a deferred compensation plan are available-for-sale. Such investments are carried at fair value and changes in unrealized gains and losses are reported as a component of other comprehensive income. Derivative instruments are recorded consistent with hedged items. The Company hedges the market value fluctuations of the guaranteed minimum death benefit ("GMDB") exposure embedded in its policy reserves and as such, the portion of the derivative instrument which constitutes an effective hedge is carried at market value. The cost associated with the portion of the instrument which is not considered an effective hedge is amortized to investment income over the life of the instrument. Policy loans are carried at their unpaid principal balances. Realized gains and losses on disposal of investments are determined by the specific identification method and are included in revenues. D. Derivative Instruments During the second quarter of 1999, the Company's agreement to reinsure substantially all of its exposure on its GMDB liability was terminated and the business was recaptured, as the reinsurer had recently announced its intention to exit this market. In response, the Company instituted a hedge program to effectively manage the market risk associated with GMDB reserve fluctuations using put options. The cash invested in the put options is at risk to the extent that the value of the underlying index is less than the strike price at the exercise date. This would be offset by a corresponding decrease in the hedged GMDB exposure. E. Cash Equivalents The Company considers all highly liquid time deposits, commercial paper and money market mutual funds purchased with a maturity of three months or less to be cash equivalents. F. Fair Values of Financial Instruments The methods and assumptions used to determine the fair value of financial instruments are as follows: Fair values of fixed maturities with active markets are based on quoted market prices. For fixed maturities that trade in less active markets, fair values are obtained from an independent pricing service. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) F. Fair Values of Financial Instruments (continued) Fair values of investments in mutual funds are based on quoted market prices. The fair value of the portion of the derivative instrument which constitutes an effective hedge is determined based on current value of the underlying index. The carrying value of cash and cash equivalents approximates fair value due to the short-term nature of these investments. The carrying value of short-term borrowing approximates fair value due to the short-term nature of these liabilities. Fair values of certain financial instruments, such as future fees payable to parent and surplus notes are not readily determinable and are excluded from fair value disclosure requirements. G. State Insurance Licenses Licenses to do business in all states have been capitalized and reflected at the purchase price of $6,000,000 less accumulated amortization. The cost of the licenses is being amortized on a straight line basis over 40 years. H. Income Taxes The Company is included in the consolidated federal income tax return and combined state income tax return of an upstream company, Skandia AFS Development Holding Corporation and certain of its subsidiaries. In accordance with the tax sharing agreement, the federal and state income tax provisions are computed on a separate return basis as adjusted for consolidated items such as net operating loss carryforwards. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. I. Recognition of Revenue and Contract Benefits Revenues for variable annuity contracts consist of charges against contractowner account values for mortality and expense risks, administration fees, surrender charges and an annual maintenance fee per contract. Benefit reserves for variable annuity contracts represent the account value of the contracts and are included in the separate account liabilities. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) I. Recognition of Revenue and Contract Benefits (continued) Revenues for market value adjusted fixed annuity contracts consist of separate account investment income reduced by benefit payments and changes in reserves in support of contractowner obligations, all of which are included in return credited to contractowners. Benefit reserves for these contracts represent the account value of the contracts, and are included in the general account reserve for future contractowner benefits to the extent in excess of the separate account liabilities. Revenues for immediate annuity contracts without life contingencies consist of net investment income. Revenues for immediate annuity contracts with life contingencies consist of single premium payments recognized as annuity considerations when received. Benefit reserves for these contracts are based on the Society of Actuaries 1983 Table-a with assumed interest rates that vary by issue year. Assumed interest rates ranged from 6.25% to 8.25% at December 31, 1999 and 1998. Revenues for variable life insurance contracts consist of charges against contractowner account values for mortality and expense risk fees, cost of insurance fees, taxes and surrender charges. Certain contracts also include charges against premium to pay state premium taxes. Benefit reserves for variable life insurance contracts represent the account value of the contracts and are included in the separate account liabilities. J. Deferred Acquisition Costs The costs of acquiring new business, which vary with and are primarily related to the production of new business, are being deferred net of reinsurance. These costs include commissions, costs of contract issuance, and certain selling expenses that vary with production. These costs are being amortized generally in proportion to expected gross profits from surrender charges, policy and asset based fees and mortality and expense margins. This amortization is adjusted retrospectively and prospectively when estimates of current and future gross profits to be realized from a group of products are revised. Details of the deferred acquisition costs and related amortization for the years ended December 31, are as follows:
(in thousands) 1999 1998 1997 ---- ---- ---- Balance at beginning of year $721,507 $546,703 $355,734 -------- -------- -------- Acquisition costs deferred during the year 450,059 261,432 243,476 Acquisition costs amortized during the year (83,861) (86,628) (52,507) --------- -------- -------- 366,198 174,804 190,969 ------- ------- ------- Balance at end of year $1,087,705 $721,507 $546,703 ========== ======== ========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) K. Reinsurance The Company cedes reinsurance under modified co-insurance arrangements. These reinsurance arrangements provide additional capacity for growth in supporting the cash flow strain from the Company's variable annuity and variable life insurance business. The reinsurance is effected under quota share contracts. As noted in Note 2D, the Company reinsured its exposure to market fluctuations associated with its GMDB liability in 1999, 1998 and the beginning of 1997. Under this reinsurance agreement, the Company ceded premiums of $2,945,000, $5,144,000 and $4,545,000; received claim reimbursements of $242,000, $9,000 and $46,000; and, recorded increases/(decreases) in reserves of ($2,763,000), ($323,000) and $918,000 in each of the three years, respectively. At December 31, 1999 and 1998, in accordance with the provisions of a modified coinsurance agreement, the Company accrued $41,000 and $1,976,000, respectively, for amounts receivable from favorable reinsurance experience on a block of variable annuity business. L. Translation of Foreign Currency The financial position and results of operations of the Company's Mexican subsidiary are measured using local currency as the functional currency. Assets and liabilities of the subsidiary are translated at the exchange rate in effect at each year-end. Statements of income and shareholder's equity accounts are translated at the average rate prevailing during the year. Translation adjustments arising from the use of differing exchange rates from period to period are reported as a component of other comprehensive income. M. Separate Accounts Assets and liabilities in Separate Accounts are included as separate captions in the consolidated statements of financial condition. Separate Account assets consist principally of long term bonds, investments in mutual funds, short-term securities and cash and cash equivalents, all of which are carried at fair value. The investments are managed predominately through the Company's investment advisory affiliate, American Skandia Investment Services, Inc. ("ASISI"), utilizing various fund managers as sub-advisors. The remaining investments are managed by independent investment firms. The contractowner has the option of directing funds to a wide variety of mutual funds. The investment risk on the variable portion of a contract is borne by the contractowner. A fixed option with a minimum guaranteed interest rate is also available. The Company is responsible for the credit risk associated with these investments. Included in Separate Account liabilities are $896,205,000 and $771,195,000 at December 31, 1999 and 1998, respectively, relating to annuity contracts for which the contractowner is guaranteed a fixed rate of return. Separate Account assets of $896,205,000 and $771,195,000 at December 31, 1999 and 1998, respectively, consisting of long term bonds, short term securities, transfers due from the general account and cash and cash equivalents which are held in support of these annuity contracts, pursuant to state regulation. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) N. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires that management make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant estimates and assumptions are related to deferred acquisition costs and involve policy lapses, investment return and maintenance expenses. Actual results could differ from those estimates. 3. COMPREHENSIVE INCOME The components of comprehensive income, net of tax, for the years ended December 31, 1998, 1997 and 1996 were as follows:
(in thousands) 1999 1998 1997 ---- ---- ---- Net income $76,169 $34,767 $27,548 Other comprehensive income: Unrealized investment gains/(losses) on available for sale securities (3,082) 2,751 1,288 Reclassification adjustment for realized losses/(gains) included in investment income (1,016) 138 (14) ------- --------- --------- Net unrealized gains/(losses) on securities (4,098) 2,889 1,274 Foreign currency translation 456 (22) (22) --------- ---------- ---------- Other comprehensive income (3,642) 2,867 1,252 --------- -------- -------- Comprehensive income $72,527 $37,634 $28,800 ======= ======= =======
The components of accumulated other comprehensive income, net of tax, as of December 31, 1999 and 1998 were as follows:
(in thousands) 1999 1998 ---- ---- Unrealized investment gains ($255) $3,843 Foreign currency translation 148 (308) ------ ------- Accumulated other comprehensive income ($107) $3,535 ====== ======
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 4. INVESTMENTS The amortized cost, gross unrealized gains/losses and estimated fair value of available-for-sale and held-to-maturity fixed maturities and investments in mutual funds as of December 31, 1999 and 1998 are shown below. All securities held at December 31, 1999 and 1998 were publicly traded. Investments in fixed maturities as of December 31, 1999 consisted of the following:
(in thousands) Held-to-Maturity Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value U.S. Government obligations $1,105 $ - $ (1) $1,104 Corporate securities 2,255 - (15) 2,240 ----- ---- ----- ------- Totals $3,360 $ - $(16) $3,344 ====== ==== ===== ====== (in thousands) Available-for-Sale Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value U.S. Government obligations $ 81,183 $ - $ (678) $ 80,505 Obligations of state and political subdivisions 253 (3) 250 Corporate securities 121,859 - (4,449) 117,410 --------- ---- ------ --------- Totals $203,295 $ - $ (5,130) $198,165 ======== ==== ========= ======== The amortized cost and fair value of fixed maturities, by contractual maturity, at December 31, 1999 are shown below. (in thousands) Held-to-Maturity Available-for-Sale ---------------- ------------------ Amortized Fair Amortized Fair Cost Value Cost Value Due in one year or less $3,107 $3,097 $ - $ - Due after one through five years 253 247 130,284 128,250 Due after five through ten years - - 73,011 69,915 ---------- ---------- ---------- ---------- Total $3,360 $3,344 $203,295 $198,165 ====== ====== ======== ========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 4. INVESTMENTS (continued) Investments in fixed maturities as of December 31, 1998 consisted of the following:
(in thousands) Held-to-Maturity Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- U.S. Government obligations $3,774 $57 $- $3,831 Obligations of state and political subdivisions - - - - Corporate securities 4,515 34 - 4,549 ------- ---- --- ------- Totals $8,289 $91 $ - $8,380 ====== === === ====== (in thousands) Available for Sale Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- U.S. Government obligations $ 17,399 $ 678 $ - $ 18,077 Obligations of state and political subdivisions 253 7 - 260 Corporate securities 117,774 5,160 (76) 122,858 --------- ------- ------- ---------- Totals $135,426 $5,845 $ (76) $141,195 ======== ====== ====== ======== Proceeds from sales of fixed maturities during 1999, 1998 and 1997 were $32,196,000, $999,000, and $5,056,000, respectively. Proceeds from maturities during 1999, 1998 and 1997 were $4,030,000, $3,050,000, and $5,700,000, respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 4. INVESTMENTS (continued) The cost, gross unrealized gains/losses and fair value of investments in mutual funds at December 31, 1999 and 1998 are shown below:
(in thousands) Gross Gross Unrealized Unrealized Fair Cost Gains Losses Value 1999 $11,667 $4,763 $ (26) $16,404 ======= ====== ====== ======= 1998 $8,068 $416 $ (274) $8,210 ====== ==== ======= ====== Net realized investment gains (losses) were as follows for the years ended December 31: (in thousands) 1999 1998 1997 ------ ---- ---- Fixed maturities: Gross gains $ 253 $ - $ 10 Gross losses (228) (1) - Investment in mutual funds: Gross gains 990 281 116 Gross losses (437) (181) (39) ------- ------ ------ Totals $ 578 $ 99 $ 87 ====== ===== =====
5. NET INVESTMENT INCOME The sources of net investment income for the years ended December 31, 1999, 1998 and 1997 were as follows: (in thousands) 1999 1998 1997 ---- ---- ---- Fixed maturities $ 9,461 $ 8,534 $6,617 Cash and cash equivalents 2,159 1,717 1,153 Investment in mutual funds 32 1,013 554 Policy loans 31 45 28 Derivative Instruments (1,036) - - --------- ---------- --------- Total investment income 10,647 11,309 8,352 Investment expenses 206 179 171 ---------- ---------- -------- Net investment income $10,441 $11,130 $8,181 ======= ======= ======
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 6. INCOME TAXES The significant components of income tax expense for the years ended December 31 were as follows:
(in thousands) 1999 1998 1997 ---- ---- ---- Current tax expense $41,248 $22,384 $20,108 Deferred tax benefit (10,904) (14,230) (9,630) -------- -------- --------- Total income tax expense $30,344 $ 8,154 $10,478 ======= ======== =======
The tax effects of significant items comprising the Company's deferred tax balance as of December 31, 1999 and 1998, are as follows:
(in thousands) 1999 1998 ---- ---- Deferred tax liabilities: Deferred acquisition costs ($321,873) ($210,731) Payable to reinsurers (26,733) (25,585) Policy fees (1,146) (859) Net unrealized gains (80) (2,069) ------------ ----------- Total (349,832) (239,244) -------- --------- Deferred tax assets: Net separate account liabilities 333,521 225,600 Future contractowner benefits 3,925 13,128 Other reserve differences 39,645 25,335 Deferred compensation 18,844 9,619 Surplus notes interest 5,030 3,375 Foreign exchange translation 137 166 Other 456 882 ----------- ------------ Total 401,558 278,105 -------- --------- Income tax receivable - deferred $ 51,726 $ 38,861 ========= =========
Management believes that based on the taxable income produced in the current year and the continued growth in annuity products, the Company will produce sufficient taxable income in the future to realize its deferred tax asset. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 6. INCOME TAXES (continued) The income tax expense was different from the amount computed by applying the federal statutory tax rate of 35% to pre-tax income from continuing operations as follows:
(in thousands) 1999 1998 1997 ---- ---- ---- Income (loss) before taxes Domestic $109,036 $45,435 $39,464 Foreign (2,523) (2,514) (1,438) ---------- --------- --------- Total 106,513 42,921 38,026 Income tax rate 35% 35% 35% --------- --------- --------- Tax expense at federal statutory income tax rate 37,280 15,022 13,309 Tax effect of: Dividend received deduction (9,572) (9,085) (4,585) Losses of foreign subsidiary 883 880 503 Meals and entertainment 664 487 340 State income taxes 1,071 673 577 Other 18 177 334 --------- -------- ------- Income tax expense $ 30,344 $ 8,154 $10,478 ========= ======== =======
7. RECEIVABLE FROM/PAYABLE TO AFFILIATES Certain operating costs (including personnel, rental of office space, furniture, and equipment) have been charged to the Company at cost by American Skandia Information Services and Technology Corporation ("ASIST"), an affiliated company; and likewise, the Company has charged operating costs to ASISI. The total cost to the Company for these items was $11,136,000, $7,722,000, and $5,572,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Income received for these items was $3,919,000, $1,355,000 and $3,225,000 for the years ended December 31, 1999, 1998 and 1997, respectively. The Company had a $10 million short-term loan payable to ASI at December 31, 1999 and 1998. The total interest expense thereon to the Company was $585,000, $622,000 and $642,000 for the years ended December 31, 1999, 1998 and 1997 respectively, of which $182,000 was payable as of December 31, 1999 and 1998. Beginning in 1999, the Company was reimbursed by ASM for certain distribution related costs associated with the sales of business through an investment firm where ASM serves as an introducing broker dealer. Under this agreement, the expenses reimbursed in 1999 were $1,441,000. As of December 31,1999, amounts receivable under this agreement were $245,000. As of December 31,1999, the Company had received $71,000,000 from ASI in advance of the sale of certain rights to receive future fees and contract charges. This sale is expected to be completed in the first quarter of 2000. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 8. FUTURE FEES PAYABLE TO PARENT In a series of transactions with ASI, the Company sold certain rights to receive future fees and contract charges expected to be realized on variable portions of designated blocks of deferred annuity contracts. The effective dates and issue periods these transactions cover are as follows:
Closing Effective Contract Issue Transaction Date Date Period 1996-1 12/16/96 9/1/96 1/1/94 - 6/30/96 1997-1 7/23/97 6/1/97 3/1/96 - 4/30/97 1997-2 12/30/97 12/1/97 5/1/95 - 12/31/96 1997-3 12/30/97 12/1/97 5/1/96 - 10/31/97 1998-1 6/30/98 6/1/98 1/1/97 - 5/31/98 1998-2 11/10/98 10/1/98 5/1/97 - 8/31/98 1998-3 12/30/98 12/1/98 7/1/96 - 10/31/98 1999-1 6/23/99 6/1/99 4/1/94 - 4/30/99 1999-2 12/14/99 10/1/99 11/1/98 - 7/31/99
In connection with these transactions, ASI issued collateralized notes in a private placement which are secured by the rights to receive future fees and charges purchased from the Company. Under the terms of the Purchase Agreements, the rights sold provide for ASI to receive a percentage (80% or 100% depending on the underlying commission option) of future mortality and expense charges and contingent deferred sales charges, after reinsurance, expected to be realized over the remaining surrender charge period of the designated contracts (6 to 8 years). The Company did not sell the right to receive future fees and charges after the expiration of the surrender charge period. The proceeds from the sales have been recorded as a liability and are being amortized over the remaining surrender charge period of the designated contracts using the interest method. The present values of the transactions as of the respective effective date were as follows:
Present (in thousands) Transaction Discount Rate Value ----------- ------------- ----- 1996-1 7.5% $50,221 1997-1 7.5% 58,767 1997-2 7.5% 77,552 1997-3 7.5% 58,193 1998-1 7.5% 61,180 1998-2 7.0% 68,573 1998-3 7.0% 40,128 1999-1 7.5% 120,632 1999-2 7.5% 145,078
Payments representing fees and charges in the aggregate amount of $131,420,000, $69,226,000 and $22,250,000 were made by the Company to the Parent for the years ended December 31, 1999, 1998 and 1997, respectively. Related interest expense of $52,840,000, $22,978,000 and $6,842,000 has been included in the statement of income for the years ended December 31, 1999, 1998 and 1997, respectively. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 8. FUTURE FEES PAYABLE TO PARENT (continued) Expected payments of future fees payable to ASI as of December 31, 1999 are as follows:
Year Ended (in thousands) December 31, Amount ----------- ------ 2000 $103,975 2001 107,262 2002 106,491 2003 97,550 2004 78,512 2005 51,839 2006 25,712 2007 4,693 --------- Total $576,034
The Commissioner of the State of Connecticut has approved the sale of future fees and charges; however, in the event that the Company becomes subject to an order of liquidation or rehabilitation, the Commissioner has the ability to stop the payments due to the Parent under the Purchase Agreement subject to certain terms and conditions. 9. LEASES The Company leases office space under a lease agreement established in 1989 with ASIST. The lease expense for 1999, 1998 and 1997 was $5,003,000, $3,588,000 and $2,428,000 respectively. Future minimum lease payments per year and in aggregate as of December 31, 1999 are as follows: (in thousands) 2000 $ 7,004 2001 7,004 2002 6,854 2003 6,756 2004 6,929 2005 and thereafter 51,865 -------- Total $86,412 ======= 10. RESTRICTED ASSETS To comply with certain state insurance departments' requirements, the Company maintains cash, bonds and notes on deposit with various states. The carrying value of these deposits amounted to $4,868,000 and $3,747,000 as of December 31, 1999, and 1998, respectively. These deposits are required to be maintained for the protection of contractowners within the individual states. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 11. RETAINED EARNINGS AND DIVIDEND RESTRICTIONS On November 8, 1999, the Board of Directors authorized the Company to increase the par value of its capital stock from $80 per share to $100 per share in order to comply with minimum capital levels as required by the California Department of Insurance. This transaction resulted in a corresponding decrease in paid in and contributed surplus of $500,000 and had no effect on capital and surplus. Statutory basis shareholder's equity was $286,385,000 and $285,553,000 at December 31, 1999 and 1998, respectively. The statutory basis net loss was $17,672,000, $13,152,000 and $8,970,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Under various state insurance laws, the maximum amount of dividends that can be paid to shareholders without prior approval of the state insurance department is subject to restrictions relating to statutory surplus and net gain from operations. At December 31, 1999, no amounts may be distributed without prior approval. 12. EMPLOYEE BENEFITS The Company has a 401(k) plan for which substantially all employees are eligible. Under this plan, the Company contributes 3% of salary for all participating employees and matches employee contributions at a 50% level up to an additional 3% Company contribution. Company contributions to this plan on behalf of the participants were $3,164,000, $2,115,000 and $1,220,000 for the years ended December 31, 1999, 1998 and 1997, respectively. The Company has a deferred compensation plan, which is available to the internal field marketing staff and certain officers. Company contributions to this plan on behalf of the participants were $193,000, $342,000 and $270,000 for the years ended December 31, 1999, 1998 and 1997, respectively. The Company and an affiliate cooperatively have a long-term incentive program under which units are awarded to executive officers and other personnel. The Company also has a profit sharing program which benefits all employees below the officer level. These programs consist of multiple plans with new plans instituted each year. Generally, participants must remain employed by the Company or its affiliates at the time such units are payable in order to receive any payments under the program. The accrued liability representing the value of these units was $42,619,000 and $21,372,000 as of December 31, 1999 and 1998, respectively. Payments under this plan were $4,079,000, $2,407,000 and $1,119,000 for the years ended December 31, 1999, 1998, and 1997, respectively. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 13. REINSURANCE The effect of reinsurance for the years ended December 31, 1999, 1998 and 1997 is as follows: (in thousands) 1999 ----
Annuity and Life Annuity and Life Insurance Insurance Return Credited Charges and Fees Policy Reserves to Contractowners Gross $326,670 $315 ($1,397) Ceded (36,681) 2,763 (242) -------- ------ -------- Net $289,989 $3,078 ($1,639) ======== ====== ======== 1998 ---- Annuity and Life Annuity and Life Insurance Insurance Return Credited Charges and Fees Policy Reserves to Contractowners Gross $215,425 $ 691 ($8,921) Ceded (29,214) 362 (9) -------- ------ -------- Net $186,211 $1,053 ($8,930) ======== ====== ======== 1997 ---- Annuity and life Annuity and Life Insurance Insurance Return Credited Charges and Fees Policy Reserves to Contractowners Gross $144,417 $955 ($1,972) Ceded (23,259) (918) (46) -------- ----- -------- Net $121,158 $ 37 ($2,018) ======== ===== ========
Such ceded reinsurance does not relieve the Company of its obligations to policyholders. The Company remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet its obligations assumed under the reinsurance agreements. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 14. SURPLUS NOTES The Company has issued surplus notes to its Parent in exchange for cash. Surplus notes outstanding as of December 31, 1999 and 1998 were as follows:
(in thousands) Interest for the Interest 1999 1998 Years Ended December 31, Issue Date Rate Amount Amount 1999 1998 1997 ---------- ---- ------ ------ ---- ---- ---- December 29, 1993 6.84% - - - 1,387 1,387 February 18, 1994 7.28% 10,000 10,000 738 738 738 March 28, 1994 7.90% 10,000 10,000 801 801 801 September 30, 1994 9.13% 15,000 15,000 1,389 1,389 1,389 December 28, 1994 9.78% - 14,000 1,308 1,388 1,388 December 19, 1995 7.52% 10,000 10,000 762 762 762 December 20, 1995 7.49% 15,000 15,000 1,139 1,139 1,139 December 22, 1995 7.47% 9,000 9,000 682 682 682 June 28, 1996 8.41% 40,000 40,000 3,411 3,411 3,411 December 30, 1996 8.03% 70,000 70,000 5,698 5,699 5,699 Total $179,000 $193,000 $15,928 $17,396 $17,396 ======== ======== ======= ======= =======
The surplus note for $14,000,000 dated December 28, 1994 was converted to additional paid-in capital on December 10, 1999. A surplus note for $20,000,000 dated December 29, 1993 was converted to additional paid-in capital on December 31, 1998. All surplus notes mature seven years from the issue date. Payment of interest and repayment of principal for these notes is subject to certain conditions and require approval by the Insurance Commissioner of the State of Connecticut. At December 31, 1999 and 1998, $14,372,000 and $9,644,000, respectively, of accrued interest on surplus notes was not approved for payment under these criteria. 15. SHORT-TERM BORROWING The Company had a $10 million short-term loan payable to the Parent at December 31, 1999 and 1998. The total interest expense to the Company was $585,000, $622,000 and $642,000 and for the years ended December 31, 1999, 1998 and 1997, respectively, of which $197,000 and $182,000 was payable as of December 31, 1999 and 1998, respectively. 16. CONTRACT WITHDRAWAL PROVISIONS Approximately 99% of the Company's separate account liabilities are subject to discretionary withdrawal by contractowners at market value or with market value adjustment. Separate account assets which are carried at fair value are adequate to pay such withdrawals which are generally subject to surrender charges ranging from 10% to 1% for contracts held less than 10 years. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 17. SEGMENT REPORTING During 1998, to complement its annuity products, the Company launched specific marketing and operational activities towards the release of variable life insurance and qualified retirement plan annuity products. Assets under management and sales for the products other than variable annuities have not been significant enough to warrant full segment disclosures as required by SFAS 131, "Disclosures about Segments of an Enterprise and Related Information." 18. SUBSEQUENT EVENT On March 22, 2000, the Company sold certain rights to receive future fees and contract charges expected to be received on variable portions of deferred annuity contracts issued between August 1, 1999 and January 31, 2000. This transaction is the latest in a series of agreements with ASI, as described in Note 8. This transaction has an effective date of March 22, 2000. The present value as of this date, discounted at 7.5%, was $171,781,000. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 19. QUARTERLY FINANCIAL DATA (UNAUDITED) The following table summarizes information with respect to the operations of the Company on a quarterly basis:
(in thousands) Three months Ended ------------------ March 31 June 30 September 30 December 31 -------- ------- ------------ ----------- 1999 Premiums and other insurance revenues $78,412 $88,435 $97,955 $111,540 Net investment income 2,654 2,842 2,735 2,210 Net realized capital gains 295 25 206 52 ---------- ----------- ---------- ----------- Total revenues 81,361 91,302 100,896 113,802 Benefits and expenses 64,107 67,803 71,597 77,341 -------- -------- -------- -------- Pre-tax net income 17,254 23,499 29,299 36,461 Income taxes 3,844 7,142 7,898 11,460 --------- --------- --------- ------- Net income $ 13,410 $ 16,357 $ 21,401 $25,001 ======== ======== ======== ======= 1998 Premiums and other insurance revenues $50,593 $57,946 $62,445 $67,327 Net investment income 3,262 2,410 2,469 2,989 Net realized capital gains (losses) 156 13 (46) (24) ---------- ----------- ----------- ----------- Total revenues 54,011 60,369 64,868 70,292 Benefits and expenses 46,764 42,220 48,471 69,164 -------- -------- -------- -------- Pre-tax net income 7,247 18,149 16,397 1,128 Income taxes 1,175 4,174 2,223 582 --------- --------- -------- --------- Net income $ 6,072 $13,975 $14,174 $ 546 ======== ======= ======= ======== 1997 Premiums and other insurance revenues $30,186 $34,056 $41,102 $44,402 Net investment income 1,369 2,627 2,031 2,154 Net realized capital gains 20 43 21 3 ----------- ----------- ----------- ------------ Total revenues 31,575 36,726 43,154 46,559 Benefits and expenses 18,319 30,465 31,179 40,025 -------- -------- -------- -------- Pre-tax net income 13,256 6,261 11,975 6,534 Income taxes 4,260 2,614 3,354 250 --------- --------- --------- ---------- Net income $ 8,996 $ 3,647 $ 8,621 $ 6,284 ======== ======== ======== ========
APPENDIX B - CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B The Unit Prices and number of Units in the Sub-accounts that commenced operations prior to January 1, 2000 are shown below. All or some of these Sub-accounts were available during the periods shown as investment options for other variable annuities we offer pursuant to different prospectuses. The Insurance Charge assessed against the Sub-accounts under the terms of those other variable annuities are the same as the charges assessed against such Sub-accounts under the Annuity offered pursuant to this Prospectus. Unit Prices And Numbers Of Units: The following table shows: (a) the Unit Price, as of the dates shown, for Units in each of the Class 1 Sub-accounts of Separate Account B that commenced operations prior to January 1, 2000 and are being offered pursuant to this Prospectus or which we offer pursuant to certain other prospectuses; and (b) the number of Units outstanding in each such Sub-account as of the dates shown. The year in which operations commenced in each such Sub-account is noted in parentheses. The portfolios in which a particular Sub-account invests may or may not have commenced operations prior to the date such Sub-account commenced operations. The initial offering price for each Sub-account was $10.00.
Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------------------------------ Wells Fargo Variable Trust - Equity Income (1) Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------------------------------ Wells Fargo Variable Trust - Small Cap Growth (4) (1999) Unit Price $16.48 - - - - - - - - - Number of Units 247,735 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Wells Fargo Variable Trust - Money Market (2) (1994) Unit Price $12.04 $11.68 11.31 10.92 10.58 10.18 - - - - Number of Units 3,500,017 2,250,003 1,304,834 1,157,342 521,291 144,050 - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST Janus Overseas Growth (1997) Unit Price $24.16 $13.41 11.70 - - - - - - - Number of Units 61,117,418 43,711,763 21,405,891 - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST American Century International Growth II (5) (1994) Unit Price $17.10 $13.14 11.69 11.70 10.39 9.49 - - - - Number of Units 28,704,923 34,328,425 37,784,426 32,628,595 17,935,251 11,166,758 - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST Janus Small-Cap Growth (6) (1994) Unit Price $42.08 $17.64 17.28 16.54 13.97 10.69 - - - - Number of Units 32,134,969 15,003,001 14,662,728 12,282,211 6,076,373 2,575,105 - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST Lord Abbett Small Cap Value (1998) Unit Price $10.57 $9.85 - - - - - - - - Number of Units 6,597,544 4,081,870 - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST T. Rowe Price Small Company Value (1997) Unit Price $11.11 $11.20 12.70 - - - - - - - Number of Units 21,340,168 24,700,211 14,612,510 - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST Neuberger Berman Mid-Cap Growth (7) (1994) Unit Price $28.58 $19.15 16.10 13.99 12.20 9.94 - - - - Number of Units 13,460,525 13,389,289 11,293,799 9,563,858 3,658,836 301,267 - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST Neuberger Berman Mid-Cap Value (8) (1993) Unit Price $16.78 $16.10 16.72 13.41 12.20 9.81 10.69 - - - Number of Units 37,864,586 16,410,121 11,745,440 9,062,152 8,642,186 7,177,232 5,390,887 - - - - ------------------------------------------------------------------------------------------------------------------------------------ - ----------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 - ----------------------------------------------------------------------------------------------------------------------------------- AST Marsico Capital Growth (1997) Unit Price $21.06 $14.00 10.03 - - - - - - - Number of Units 78,684,943 40,757,449 714,309 - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST JanCap Growth (1992) Unit Price $60.44 $39.54 23.83 18.79 14.85 10.91 11.59 10.51 - - Number of Units 94,850,623 80,631,598 62,486,302 46,779,164 28,662,737 22,354,170 13,603,637 1,476,139 - - - ------------------------------------------------------------------------------------------------------------------------------------ AST MFS Growth(9) (1999) Unit Price $11.27 - - - - - - - - - Number of Units 409,467 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST Cohen & Steers Realty (1998) Unit Price $8.35 $8.28 - - - - - - - - Number of Units 6,224,365 3,771,461 - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST American Century Income & Growth (10) (1997) Unit Price $16.19 $13.35 12.06 - - - - - - - Number of Units 21,361,995 13,845,190 9,523,815 - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST INVESCO Equity Income (1994) Unit Price $21.31 $19.34 17.31 14.23 12.33 9.61 - - - - Number of Units 46,660,160 40,994,187 33,420,274 23,592,226 13,883,712 6,633,333 - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST PIMCO Total Return Bond (1994) Unit Price $13.09 $13.43 12.44 11.48 11.26 9.61 - - - - Number of Units 73,530,507 64,224,618 44,098,036 29,921,643 19,061,840 4,577,708 - - - - - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ AST PIMCO Limited Maturity Bond (1995) Unit Price $11.96 $11.73 11.26 10.62 10.37 - - - - - Number of Units 32,560,943 28,863,932 25,008,310 18,894,375 15,058,644 - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ The Alger American Fund - AA Growth (1988) Unit Price $83.17 $63.07 43.20 34.84 31.18 23.18 23.18 19.19 17.32 12.51 Number of Units 20,747,944 17,168,792 15,854,570 15,666,357 12,092,291 5,614,760 2,997,458 1,482,037 559,779 82,302 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 The Montgomery Variable Series - MV Emerging Markets (1996) Unit Price $10.06 $6.19 10.05 10.25 - - - - - - Number of Units 12,060,036 10,534,383 10,371,104 2,360,940 - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ INVESCO VIF - Technology(9) (1999) Unit Price $16.52 Number of Units 4,622,242 - ------------------------------------------------------------------------------------------------------------------------------------ INVESCO VIF - Health Sciences(9) (1999) Unit Price $11.34 Number of Units 786,518 - ------------------------------------------------------------------------------------------------------------------------------------
1. These Portfolios were first offered as Sub-accounts on September 20, 1999. 2. The condensed financial information of these Wells Fargo Variable Trust portfolios relate to prior periods when such portfolios were portfolios of Life & Annuity Trust. Pursuant to a shareholder vote, effective September 20, 1999, these Life & Annuity Trust portfolios transferred their assets to a corresponding portfolio of Wells Fargo Variable Trust. 3. This portfolio was first offered as a Sub-account on September 20, 1999 when, pursuant to a shareholder vote, the U.S. Government Allocation portfolio of Life & Annuity Trust was merged with the Income portfolio of Norwest Select Fund. The LAT U.S. Government Allocation portfolio no longer exists. 4. This portfolio was first offered as a Sub-account on September 20, 1999 when, pursuant to a shareholder vote, the Strategic Growth portfolio of Life & Annuity Trust was merged with the Small Company Stock portfolio of Norwest Select Fund. The LAT Strategic Growth portfolio no longer exists. 5. Effective May 1, 2000, American Century Investment Management, Inc. became Sub-advisor of the Portfolio. Prior to May 1, 2000, Rowe Price-Fleming International, Inc. served as Sub-advisor of the Portfolio, then named "AST T. Rowe Price International Equity Portfolio." 6. Effective December 31, 1998, Janus Capital Corporation became Sub-advisor of the Portfolio. Prior to December 31, 1998, Founders Asset Management, LLC served as the Sub-advisor of the Portfolio, then named "Founders Capital Appreciation Portfolio." 7. Effective May 1, 1998, Neuberger Berman Management, Inc. became Sub-advisor to the Portfolio. Prior to May 1, 1998, Berger Associates, Inc. served as Sub-advisor to the Portfolio, then named the "Berger Capital Growth Portfolio." 8. Effective May 1, 1998, Neuberger Berman Management, Inc. became Sub-advisor to the Portfolio. Prior to May 1, 1998, Federated Investment Counseling served as Sub-advisor of the Portfolio, then named "Federated Utility Income Portfolio." 9. These Portfolios were first offered as Sub-accounts on October 18, 1999. 10. Effective May 3, 1999, American Century Investment Management, Inc. became Sub-advisor of the Portfolio. Between October 15, 1996 and May 3, 1999, Putnam Investment Management, Inc. served as Sub-advisor of the Portfolio, then named "AST Putnam Value Growth & Income." American Skandia Life Assurance Corporation Attention: Stagecoach Annuity For Written Requests: P.O. Box 883 Shelton, Connecticut 06484 For Electronic Requests: customerservice@americanskandia.com For Requests by Phone: 1-800-680-8920 - -------------------------------------------------------------------------------- PLEASE SEND ME A STATEMENT OF ADDITIONAL INFORMATION THAT CONTAINS FURTHER DETAILS ABOUT THE AMERICAN SKANDIA ANNUITY DESCRIBED IN PROSPECTUS WFVASL-PROS (05/2000). - -------------------------------------------------------------------------------- ------------------------------------------------------- (print your name) ------------------------------------------------------- (address) ------------------------------------------------------- (city/state/zip code) ADDITIONAL INFORMATION: Inquiries will be answered by calling your representative or by writing to: AMERICAN SKANDIA LIFE ASSURANCE CORPORATION at P.O. Box 883 Shelton, Connecticut 06484 or customerservice@americanskandia.com Issued by: Serviced at: AMERICAN SKANDIA LIFE AMERICAN SKANDIA LIFE ASSURANCE CORPORATION ASSURANCE CORPORATION One Corporate Drive P.O. Box 883 Shelton, Connecticut 06484 Shelton, Connecticut 06484 Telephone: 1-800-752-6342 Telephone: 1-800-752-6342 http://www.americanskandia.com http://www.americanskandia.com Distributed by: AMERICAN SKANDIA MARKETING, INCORPORATED One Corporate Drive Shelton, Connecticut 06484 Telephone: 203-926-1888 http://www.americanskandia.com AMERICAN SKANDIA LIFE ASSURANCE CORPORATION One Corporate Drive, Shelton, Connecticut 06484 This Prospectus describes American Skandia LifeVest(R) Premier, a flexible premium deferred annuity (the "Annuity") offered by American Skandia Life Assurance Corporation ("we", "our" or "us"). The Annuity may be offered as an individual annuity contract or as an interest in a group annuity. This Prospectus describes the important features of the Annuity and what you should consider before purchasing the Annuity. We have also filed a Statement of Additional Information that is available from us, without charge, upon your request. The contents of the Statement of Additional Information are described on page 53. The Annuity or certain of its investment options and/or features may not be available in all states. Various rights and benefits may differ between states to meet applicable laws and/or regulations. In particular, please refer to Appendix C for a description of certain provisions that apply to Annuities sold to New York residents. Certain terms are capitalized in this prospectus. Those terms are either defined in the Glossary of Terms or in the context of the particular section. WHY WOULD I CHOOSE TO PURCHASE THIS ANNUITY? This Annuity is frequently used for retirement planning. It may be used as an investment vehicle for an IRA, SEP-IRA, Roth IRA, Section 401(a) plans (defined benefit plans and defined contribution plans such as 401(k), profit sharing and money purchase plans) or Tax Sheltered Annuity (or 403(b)). It may also be used for other purposes that are not "qualified" investments. The Annuity allows you to invest your money in a number of variable investment options as well as in one or more fixed investment options. You are not taxed on any investment gains the Annuity earns until you make a withdrawal from the Annuity or begin to receive annuity payments. This feature, referred to as "tax-deferral", can be beneficial to the growth of your Account Value because money that would otherwise be needed to pay taxes on investment gains each year remains invested and can earn additional money. However, because the Annuity is designed for long-term retirement savings, a 10% penalty tax may be applied on withdrawals you make before you reach age 59 1/2. WHAT ARE SOME OF THE KEY FEATURES OF THE ANNUITY? |X| The Annuity is a "flexible premium deferred annuity." It is called "flexible premium" because you have considerable flexibility in the timing and amount of premium payments. Generally, investors "defer" receiving annuity payments until after an accumulation period. |X| This Annuity offers both variable and fixed investment options. If you allocate your Account Value to variable investment options, the value of your Annuity will vary daily to reflect the investment performance of the underlying investment options. Fixed investment options of different durations are offered that are guaranteed by us, but may have a Market Value Adjustment. |X| The Annuity features two distinct phases - the accumulation period and the payout period. During the accumulation period your Account Value is allocated to one or more underlying investment options. The variable investment options, each a Class 1 Sub-account of American Skandia Life Assurance Corporation Variable Account B, invest in an underlying mutual fund portfolio. Currently, portfolios of the following underlying mutual funds are being offered: American Skandia Trust, The Alger American Fund, Montgomery Variable Series, Wells Fargo Variable Trust, Rydex Variable Trust, INVESCO Variable Investment Funds, Inc., Evergreen Variable Annuity Trust and ProFund VP. |X| During the payout period, commonly called "annuitization," you can elect to receive annuity payments (1) for life; (2) for life with a guaranteed minimum number of payments; (3) based on joint lives; (4) for a guaranteed number of payments; or other options we may make available. |X| The Annuity provides an additional 1% credit on Purchase Payments made within the first year and may provide certain additional benefits if your Account Value has not reached a Target Value on its 10th anniversary. |X| This Annuity offers a basic Death Benefit. It also offers two Optional Death Benefits that provide an enhanced level of protection for your beneficiary(ies) for an additional charge. |X| There is no Contingent Deferred Sales Charge on surrenders or withdrawals. You can withdraw Account Value from your Annuity free of any charges. |X| Transfers between investment options are tax-free. You may make twelve transfers each year free of charge. We also offer several programs that enable you to manage your Account Value as your financial needs and investment performance change. - -------------------------------------------------------------------------------- These annuities are NOT deposits or obligations of, or issued, guaranteed or endorsed by, any bank are NOT insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board or any other agency. An investment in this annuity involves certain investment risks, including possible loss of principal. - -------------------------------------------------------------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PLEASE READ THIS PROSPECTUS AND THE CURRENT PROSPECTUS FOR THE UNDERLYING MUTUAL FUNDS. KEEP THEM FOR FUTURE REFERENCE. FOR FURTHER INFORMATION CALL 1-800-752-6342. Prospectus Dated: May 1, 2000 Statement of Additional Information Dated: May 1, 2000 FUSI ASL-PROS- (05/2000) FUSI ASLPROS HOW DO I PURCHASE THIS ANNUITY? We sell the Annuity through licensed, registered financial professionals. You must complete an application and submit a minimum initial purchase payment of $15,000. We may allow you to make a lower initial purchase payment provided that the purchase payments received in the first Annuity Year total at least $15,000. There is no age restriction to purchase the Annuity. However, the basic Death Benefit provides greater protection for a period of ten (10) years from the Issue Date or for persons under age 90. ================================================================================ American Skandia offers several different annuities which your financial professional may be authorized to offer to you. Each annuity has different features and benefits that may be appropriate for you based on your financial situation, your age and how you intend to use the annuity. The different features and benefits include variations in death benefit protection, the ability to access your annuity's account value and the charges that you will be subject to if you choose to surrender the annuity. The fees and charges may also be different between each annuity. ================================================================================ If you are purchasing the Annuity as a replacement for existing variable annuity or variable life coverage, you should consider any surrender or penalty charges you may incur when replacing your existing coverage. Trustees of qualified retirement plans considering using this Annuity as a funding vehicle for such plans should consult with counsel when evaluating the annuity's benefits and costs. In addition, if you are purchasing this Annuity as an Individual Retirement Annuity or Tax Sheltered Annuity, you should discuss with your financial professional how the benefits and costs of this annuity will fit within your overall financial plan. Mailing Addresses: New Business/Additional Purchase Payments: American Skandia Life Assurance Corporation P.O. Box 7040 Bridgeport, CT 06601-7040 Exchange Paperwork: American Skandia Life Assurance Corporation P.O. Box 7039 Bridgeport, CT 06601-7039 All other correspondence: American Skandia Life Assurance Corporation P.O. Box 7038 Bridgeport, CT 06601-7038 Express/Overnight Mail: American Skandia Life Assurance Corporation Three Corporate Drive Shelton, CT 06484
TABLE OF CONTENTS GLOSSARY OF TERMS..................................................................................................................5 SUMMARY OF CONTRACT FEES AND CHARGES...............................................................................................6 EXPENSE EXAMPLES...................................................................................................................8 INVESTMENT OPTIONS................................................................................................................12 WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?.............................................................12 WHAT ARE THE FIXED INVESTMENT OPTIONS?.........................................................................................23 FEES AND CHARGES..................................................................................................................24 WHAT ARE THE CONTRACT FEES AND CHARGES?........................................................................................24 WHAT CHARGES APPLY SOLELY TO THE VARIABLE INVESTMENT OPTIONS?..................................................................24 WHAT CHARGES APPLY TO THE FIXED ALLOCATIONS?...................................................................................25 WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYOUT?..............................................................................25 PURCHASING YOUR ANNUITY...........................................................................................................25 WHAT ARE OUR REQUIREMENTS FOR PURCHASING THE ANNUITY?..........................................................................25 MANAGING YOUR ANNUITY.............................................................................................................25 MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS?................................................................25 MAY I RETURN THE ANNUITY IF I CHANGE MY MIND?..................................................................................26 MAY I MAKE ADDITIONAL PURCHASE PAYMENTS?.......................................................................................26 MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT?...................................................................26 MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM?...............................................................26 MANAGING YOUR ACCOUNT VALUE.......................................................................................................26 HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED?...................................................................................26 ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?.....................................................27 DO YOU OFFER DOLLAR COST AVERAGING?............................................................................................27 DO YOU OFFER ANY AUTOMATIC REBALANCING PROGRAMS?...............................................................................27 DO YOU OFFER A PROGRAM TO BALANCE FIXED AND VARIABLE INVESTMENTS?..............................................................28 MAY I AUTHORIZE MY FINANCIAL REPRESENTATIVE TO MANAGE MY ACCOUNT?..............................................................28 HOW DO THE FIXED INVESTMENT OPTIONS WORK?......................................................................................28 HOW DO YOU DETERMINE RATES FOR FIXED ALLOCATIONS?..............................................................................29 HOW DOES THE MARKET VALUE ADJUSTMENT WORK?.....................................................................................29 WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES?.................................................................................30 ADDITIONAL AMOUNTS IN THE FIXED ALLOCATIONS....................................................................................30 AMERICAN SKANDIA'S PERFORMANCE ADVANTAGE..........................................................................................30 ACCESS TO ACCOUNT VALUE...........................................................................................................32 WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME?...............................................................................32 ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS?..................................................................................32 CAN I WITHDRAW A PORTION OF MY ANNUITY?........................................................................................32 CAN I MAKE PERIODIC WITHDRAWALS FROM THE ANNUITY DURING THE ACCUMULATION PERIOD?...............................................32 DO YOU OFFER A PROGRAM FOR WITHDRAWALS UNDER SECTION 72(T) OF THE INTERNAL REVENUE CODE?.......................................33 WHAT ARE MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM?.............................................................33 CAN I SURRENDER MY ANNUITY FOR ITS VALUE?......................................................................................33 WHAT TYPES OF ANNUITY PAYMENT OPTIONS ARE AVAILABLE UPON ANNUITIZATION?........................................................33 HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION?...........................................................................34 HOW ARE ANNUITY PAYMENTS CALCULATED?...........................................................................................34 DEATH BENEFIT.....................................................................................................................34 WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT?..................................................................................34 DEATH BENEFIT OPTIONS..........................................................................................................34 VALUING YOUR INVESTMENT...........................................................................................................37 HOW IS MY ACCOUNT VALUE DETERMINED?............................................................................................37 WHAT IS THE SURRENDER VALUE OF MY ANNUITY?.....................................................................................37 HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS?....................................................................................37 HOW DO YOU VALUE FIXED ALLOCATIONS?............................................................................................38 WHEN DO YOU PROCESS AND VALUE TRANSACTIONS?....................................................................................38 TAX CONSIDERATIONS................................................................................................................38 WHAT ARE SOME OF THE FEDERAL TAX CONSIDERATIONS OF THIS ANNUITY?...............................................................38 HOW ARE AMERICAN SKANDIA AND THE SEPARATE ACCOUNTS TAXED?......................................................................38 IN GENERAL, HOW ARE ANNUITIES TAXED?...........................................................................................38 HOW ARE DISTRIBUTIONS TAXED?...................................................................................................39 WHAT TAX CONSIDERATIONS ARE THERE FOR TAX-QUALIFIED RETIREMENT PLANS OR QUALIFIED CONTRACTS?...................................41 HOW ARE DISTRIBUTIONS FROM QUALIFIED CONTRACTS TAXED?..........................................................................42 GENERAL TAX CONSIDERATIONS.....................................................................................................42 GENERAL INFORMATION...............................................................................................................43 HOW WILL I RECEIVE STATEMENTS AND REPORTS?.....................................................................................43 WHO IS AMERICAN SKANDIA?.......................................................................................................44 WHAT ARE SEPARATE ACCOUNTS?....................................................................................................44 WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS?...........................................................................45 WHO DISTRIBUTES ANNUITIES OFFERED BY AMERICAN SKANDIA?.........................................................................45 AVAILABLE INFORMATION..........................................................................................................47 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................................................................47 HOW TO CONTACT US..............................................................................................................47 INDEMNIFICATION................................................................................................................48 LEGAL PROCEEDINGS..............................................................................................................48 EXECUTIVE OFFICERS AND DIRECTORS...............................................................................................49 CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION............................................................................54 APPENDIX A - FINANCIAL INFORMATION ABOUT AMERICAN SKANDIA..........................................................................1 APPENDIX B - CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B..............................................................1 APPENDIX C - SALE OF CONTRACTS TO RESIDENTS OF THE STATE OF NEW YORK...............................................................7
GLOSSARY OF TERMS Many terms used within this Prospectus are described within the text where they appear. The description of those terms are not repeated in this Glossary of Terms. Account Value: The value of each allocation to a Sub-account or a Fixed Allocation prior to the Annuity Date, plus any earnings, and/or less any losses, distributions and charges. The Account Value is calculated before we assess any applicable Annual Maintenance Fee. The Account Value includes any additional amounts we applied to your Purchase Payments that we are entitled to recover upon surrender of your Annuity. The Account Value is determined separately for each Sub-account and for each Fixed Allocation, and then totaled to determine Account Value for your entire Annuity. The Account Value of each Fixed Allocation on other than its Maturity Date may be calculated using a market value adjustment. Annuity Date: The date you choose for annuity payments to commence. There may be a maximum Annuity Date in certain states. Annuity Year: A 12-month period commencing on the Issue Date of the Annuity and each successive 12-month period thereafter. Code: The Internal Revenue Code of 1986, as amended from time to time. Fixed Allocation: An allocation of Account Value that is to be credited a fixed rate of interest for a specified Guarantee Period during the accumulation period. Guarantee Period: A period of time during the accumulation period where we credit a fixed rate of interest on a Fixed Allocation. Interim Value: As of any particular date, the initial value allocated to the Fixed Allocation plus all interest credited to the Fixed Allocation as of the date calculated, less any transfers or withdrawals from the Fixed Allocation. Issue Date: The effective date of your Annuity. MVA: A market value adjustment used in the determination of Account Value of each Fixed Allocation on a day other than such Fixed Allocation's Maturity Date. Owner: With an Annuity issued as an individual annuity contract, the Owner is either an eligible entity or person named as having ownership rights in relation to the Annuity. With an Annuity issued as a certificate under a group annuity contract, the "Owner" refers to the person or entity who has the rights and benefits designated as to the "Participant" in the certificate. Surrender Value: The value of your Annuity available upon surrender prior to the Annuity Date. It equals the Account Value as of the date we price the surrender minus the Annual Maintenance Fee and any additional amounts we applied to your Purchase Payments that we are entitled to recover upon surrender of your Annuity. There is no Contingent Deferred Sales Charge upon surrender. Unit: A measure used to calculate your Account Value in a Sub-account during the accumulation period. Valuation Day: Every day the New York Stock Exchange is open for trading or any other day the Securities and Exchange Commission requires mutual funds or unit investment trusts to be valued. SUMMARY OF CONTRACT FEES AND CHARGES Below is a summary of the fees and expenses we charge for the Annuity. Some charges are assessed against your Annuity while others are assessed against assets allocated to the variable investment options. The charges that are assessed against the Annuity include the Annual Maintenance Fee, Transfer Fee and the Tax Charge. The charge that is assessed against the variable investment options is the Insurance Charge, which is the combination of a mortality and expense risk charge and a charge for administration of the Annuity. Each underlying mutual fund portfolio assesses a charge for investment management and for other expenses. The prospectus for each underlying mutual fund provides more detailed information about the expenses for the underlying funds. In certain states, a premium tax charge may be applicable. All of these fees and expenses are described in more detail within this Prospectus.
- ------------------------------------------------------------------------------------------------------------------------------------ Your Transaction Expenses - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------- ----------------------------------------------------------------- ---------------------------------- Amount Deducted/ Fee/Expense Description Of Charge When Deducted - ------------------------------- ----------------------------------------------------------------- ---------------------------------- - ------------------------------- ----------------------------------------------------------------- ---------------------------------- Contingent Deferred Sales There is no Contingent Deferred Charge Not Applicable Sales Charge deducted upon surrender The charge is a percentage of or partial withdrawal each applicable purchase payment - ------------------------------- ----------------------------------------------------------------- ---------------------------------- - ------------------------------- ----------------------------------------------------------------- ---------------------------------- Annual Maintenance Fee Smaller of $30 or 2% of Account Value Annually on the contract's anniversary date or upon surrender - ------------------------------- ------------------------------------------------------------- -------------------------------------- Transfer Fee $10.00 After the 12th transfer each annuity year - ------------------------------- ------------------------------------------------------------- -------------------------------------- - ------------------------------- ------------------------------------------------------------- -------------------------------------- Tax Charge Depends on the requirements of the applicable jurisdiction Various - ------------------------------- ------------------------------------------------------------- -------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ Annual Expenses of the Sub-Accounts (as a percentage of the average daily net assets of the Sub-accounts) - ------------------------------- ------------------------------------------------------------- -------------------------------------- Mortality & Expense Risk Charge 1.25% Daily Administration Charge 0.15% Total Annual Expenses of the 1.40% per year of the value of each Sub-account Applies to Variable Investment Sub-accounts* Options only - ------------------------------- ------------------------------------------------------------- --------------------------------------
* The combination of the Mortality and Expense Risk Charges and Administration Charge is referred to as the "Insurance Charge" elsewhere in this prospectus. - -------------------------------------------------------------------------------- Optional Benefits We offer two different Optional Death Benefits that provide an enhanced level of protection for your beneficiary(ies). Please refer to the section entitled "Death Benefit" for a complete discussion of the Optional Death Benefits we offer.
- ------------------------------------------------------------------------------------------------------------------------------------ - ---------------------------------------------- -------------------------------------------- ---------------------------------------- Death Benefit Option Death Benefit equal to the greater of: Additional Charge (annually) - ---------------------------------------------- -------------------------------------------- ---------------------------------------- - ---------------------------------------------- -------------------------------------------- ---------------------------------------- 1. Account Value (no MVA) 2. Sum of Purchase Payments minus OPTION 1 the proportional impact of 0.35% of the current Death Benefit withdrawals increasing at 5.0% annually 3. Highest Anniversary Value - ---------------------------------------------- -------------------------------------------- ---------------------------------------- - ---------------------------------------------- -------------------------------------------- ---------------------------------------- 1. Account Value (no MVA) 2. Sum of Purchase Payments minus OPTION 2 the proportional impact of 0.55% of the current Death Benefit withdrawals increasing at 7.2% annually 3. Highest Anniversary Value - ---------------------------------------------- -------------------------------------------- ----------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ Underlying Mutual Fund Portfolio Annual Expenses (as a percentage of the average net assets of the underlying Portfolios) - ------------------------------------------------------------------------------------------------------------------------------------ Below are the investment management fee, other expenses, and the total annual expenses for each underlying Portfolio as of December 31, 1999. The total annual expenses are the sum of the investment management fee, other expenses and any 12b-1 fees. Each figure is stated as a percentage of the underlying Portfolio's average daily net assets. For certain of the underlying Portfolios, a portion of the management fee is being waived and/or other expenses are being partially reimbursed. "N/A" indicates that no portion of the management fee and/or other expenses is being waived and/or reimbursed. Any footnotes about expenses appear after the list of all the portfolios. Those portfolios whose name includes the prefix "AST" are portfolios of American Skandia Trust. The underlying mutual fund portfolio information was provided by the underlying mutual funds and has not been independently verified by us. See the prospectuses or statements of additional information of the underlying Portfolios for further details. - ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ ---------- Management Other Estimated Total Annual Fee Net Fees Expenses Distribution Portfolio Waivers Annual UNDERLYING PORTFOLIO and Service Operating and Fund (12b-1) Expenses Expense Operating Fees (1) Reimbursement Expenses - ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ ---------- American Skandia Trust: AST Founders Passport 1.00% 0.29% 0.00% 1.29% N/A 1.29% AST AIM International Equity 0.87% 0.31% 0.04% 1.22% N/A 1.22% AST Janus Overseas Growth 1.00% 0.23% 0.02% 1.25% N/A 1.25% AST American Century International Growth 1.00% 0.50% 0.00% 1.50% N/A 1.50% AST American Century International Growth II 1.00% 0.26% 0.02% 1.28% N/A 1.28% AST MFS Global Equity (3) 1.00% 1.11% 0.00% 2.11% 0.36% 1.75% AST Janus Small-Cap Growth 0.90% 0.18% 0.01% 1.09% N/A 1.09% AST Kemper Small-Cap Growth 0.95% 0.19% 0.03% 1.17% N/A 1.17% AST Lord Abbett Small Cap Value 0.95% 0.29% 0.00% 1.24% N/A 1.24% AST T. Rowe Price Small Company Value 0.90% 0.21% 0.00% 1.11% N/A 1.11% AST Janus Mid-Cap Growth (4) 1.00% 0.22% 0.04% 1.26% N/A 1.26% AST Neuberger Berman Mid-Cap Growth 0.90% 0.23% 0.04% 1.17% N/A 1.17% AST Neuberger Berman Mid-Cap Value 0.90% 0.23% 0.12% 1.25% N/A 1.25% AST Alger All-Cap Growth(5) 0.95% 0.22% 0.06% 1.23% N/A 1.23% AST T. Rowe Price Natural Resources 0.90% 0.26% 0.01% 1.17% N/A 1.17% AST Alliance Growth 0.90% 0.21% 0.00% 1.11% N/A 1.11% AST MFS Growth (3) 0.90% 0.45% 0.00% 1.35% N/A 1.35% AST Marsico Capital Growth 0.90% 0.18% 0.04% 1.12% N/A 1.12% AST JanCap Growth 0.90% 0.14% 0.01% 1.05% 0.04% 1.01% AST Sanford Bernstein Managed Index 500 0.60% 0.19% 0.00% 0.79% N/A 0.79% AST Cohen & Steers Realty 1.00% 0.27% 0.02% 1.29% N/A 1.29% AST American Century Income & Growth 0.75% 0.23% 0.00% 0.98% N/A 0.98% AST Alliance Growth and Income 0.75% 0.18% 0.08% 1.01% 0.01% 1.00% AST MFS Growth with Income (3) 0.90% 0.33% 0.00% 1.23% N/A 1.23% AST INVESCO Equity Income 0.75% 0.18% 0.04% 0.97% N/A 0.97% AST AIM Balanced 0.74% 0.26% 0.02% 1.02% N/A 1.02% AST American Century Strategic Balanced 0.85% 0.25% 0.00% 1.10% N/A 1.10% AST T. Rowe Price Asset Allocation 0.85% 0.22% 0.00% 1.07% N/A 1.07% AST T. Rowe Price Global Bond 0.80% 0.31% 0.00% 1.11% N/A 1.11% AST Federated High Yield 0.75% 0.19% 0.00% 0.94% N/A 0.94% AST PIMCO Total Return Bond 0.65% 0.17% 0.00% 0.82% N/A 0.82% AST PIMCO Limited Maturity Bond 0.65% 0.21% 0.00% 0.86% N/A 0.86% AST Money Market 0.50% 0.15% 0.00% 0.65% 0.05% 0.60% The Alger American Fund: Growth 0.75% 0.04% N/A 0.79% 0.00% 0.79% MidCap Growth 0.80% 0.05% N/A 0.85% 0.00% 0.85% Montgomery Variable Series: Emerging Markets 1.25% 0.50% N/A 1.75% 0.00% 1.75% - ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ ---------- - ------------------------------------------------- --------------- ------------- -------------- ------------- ------------ ---------- Management Other Estimated Total Annual Fee Net Fees Expenses Distribution Portfolio Waivers Annual UNDERLYING PORTFOLIO and Service Operating and Fund (12b-1) Expenses Expense Operating Fees (1) Reimbursement Expenses - ---------------------------------------------- --------------- ------------- -------------- ------------- ------------ ------------- Wells Fargo Variable Trust: Equity Value 0.55% 0.37% 0.25% 1.17% 0.17% 1.00% Rydex Variable Trust: Nova 0.75% 0.80% None 1.55% 0.00% 1.55% Ursa 0.90% 0.83% None 1.73% 0.00% 1.73% OTC 0.75% 0.80% None 1.55% 0.00% 1.55% INVESCO Variable Investment Funds, Inc.: Technology 0.75% 0.78% None 1.53% 0.21% 1.32% Health Sciences 0.75% 2.11% None 2.86% 1.37% 1.49% Financial Services 0.75% 1.75% None 2.50% 1.09% 1.41% Telecommunications 0.75% 0.55% None 1.30% 0.02% 1.28% Dynamics 0.75% 1.53% None 2.28% 0.99% 1.29% Evergreen Variable Annuity Trust: Omega 0.60% 0.36% N/A 0.96% 0.00% 0.96% Equity Index (6) 0.40% 0.42% N/A 0.82% 0.51% 0.31% Foundation 0.83% 0.12% N/A 0.95% 0.00% 0.95% Global Leaders 0.95% 0.25% N/A 1.20% 0.19% 1.01% Capital Growth 0.80% 0.38% N/A 1.18% 0.00% 1.18% Special Equity (6) 1.36% 2.35% N/A 3.71% 2.68% 1.03% Perpetual International 1.00% 0.96% N/A 1.96% 0.00% 1.96% Blue Chip 0.61% 0.65% N/A 1.26% 0.26% 1.00% ProFund VP: Europe 30 0.75% 1.39% 0.25% 2.39% 0.61% 1.78% UltraSmall-Cap 1.53% 1.53% 0.25% 2.53% 0.83% 1.70% UltraOTC 0.75% 0.97% 0.25% 1.97% 0.32% 1.65% - ------------------------------------------------- --------------- ------------- ---------------------------------------------------
1 American Skandia Trust (the "Trust") adopted a Distribution Plan (the "Distribution Plan") under Rule 12b-1 of the Investment Company Act of 1940 to permit an affiliate of the Trust's Investment Manager to receive brokerage commissions in connection with purchases and sales of securities held by Portfolios of the Trust, and to use these commissions to promote the sale of shares of such Portfolios. The staff of the Securities and Exchange Commission takes the position that commission amounts received under the Distribution Plan should be reflected as distribution expenses of the Portfolios. The Portfolios would pay the same or comparable commission amounts irrespective of the Distribution Plan; accordingly, total returns for the Portfolios are not expected to be adversely affected. The Distribution Fee estimates are derived from data regarding each Portfolio's brokerage transactions, and the proportions of such transactions directed to selling dealers, for the period ended December 31, 1999. However, it is not possible to determine with accuracy actual amounts that will be received under the Distribution Plan. Such amounts will vary based upon the level of a Portfolio's brokerage activity, the proportion of such activity directed under the Distribution Plan, and other factors. 2 The Investment Manager of American Skandia Trust has agreed to reimburse and/or waive fees for certain Portfolios until at least October 17, 2000. The caption "Total Annual Fund Operating Expenses" reflects the Portfolios' fees and expenses before such waivers and reimbursements, while the caption "Net Annual Fund Operating Expenses" reflects the effect of such waivers and reimbursements. 3 These Portfolios commenced operations on October 18, 1999. "Other Expenses" are based on estimated amounts for the fiscal year ending December 31, 2000. 4 This Portfolio commenced operations on May 1, 2000. "Other Expenses" are based on estimated amounts for the fiscal year ending December 31, 2000. 5 This Portfolio commenced operations as of December 30, 1999. "Other Expenses" shown are based on estimated amounts for the fiscal year ending December 31, 2000. 6 These portfolios commenced operations on September 30, 1999. Expenses have been estimated based upon current fund contracts. EXPENSE EXAMPLES These examples are designed to assist you in understanding the various costs and expenses you will incur with the Annuity over certain periods of time based on specific assumptions. The examples reflect expenses of our Sub-accounts, as well as those of the underlying mutual fund portfolios. The Securities and Exchange Commission ("SEC") requires these examples. The examples shown assume that: (a) you only allocate Account Value in the Sub-accounts; (b) fees and expenses remain constant; (c) you make no withdrawals of Account Value during the period shown; (d) you make no transfers, withdrawals, surrender or other transaction that we charge a fee during the period shown; (e) no tax charge applies; and (f) the expenses throughout the period for the underlying mutual fund portfolios will be the "Net Annual Fund Operating Expenses," as shown above in the section entitled "Underlying Mutual Fund Portfolio Annual Expenses." The examples do not reflect the charge for any optional benefits that may be offered under the Annuity. The examples also do not reflect the impact of any Target Value Credits that may be applied to Purchase Payments within the first Annuity Year. THE EXAMPLES ARE ILLUSTRATIVE ONLY - THEY SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE UNDERLYING MUTUAL FUNDS OR THEIR PORTFOLIOS - ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. - -------------------------------------------------------------------------------- Expense Examples (amounts shown are rounded to the nearest dollar) - -------------------------------------------------------------------------------- ------------------------------------- There is no Contingent Deferred Sales Charge on withdrawals. Therefore, whether or not you surrender your Annuity at the end of the applicable time period or begin taking annuity payments at such time, you would pay the following expenses on a $1,000 investment, assuming 5% annual return on assets: ------------------------------------- After: - -------------------------------------- --------- ---------- --------- ---------- Sub-Account: 1 Year 3 Years 5 Years 10 Years - -------------------------------------- -------- --------- --------- ---------- AST Founders Passport 28 87 147 310 AST AIM International Equity 28 84 143 304 AST Janus Overseas Growth 28 85 145 307 AST American Century International Growth 30 92 157 329 AST American Century International Growth 28 86 146 309 II AST MFS Global Equity 33 100 169 353 AST Janus Small-Cap Growth 26 80 137 290 AST Kemper Small-Cap Growth 27 82 141 298 AST Lord Abbett Small Cap Value 28 85 144 306 AST T. Rowe Price Small Company Value 26 81 138 291 AST Janus Mid-Cap Growth 28 86 146 308 AST Neuberger Berman Mid-Cap Growth 27 82 141 298 AST Neuberger Berman Mid-Cap Value 28 85 145 307 AST Alger All-Cap Growth 28 84 144 305 AST T. Rowe Price Natural Resources 27 82 141 298 AST Alliance Growth 26 81 138 291 AST MFS Growth 29 88 150 315 AST Marsico Capital Growth 26 81 138 293 AST JanCap Growth 25 78 133 282 AST Sanford Bernstein Managed Index 500 23 71 122 260 AST Cohen & Steers Realty 28 86 147 309 AST American Century Income & Growth 25 77 131 278 AST Alliance Growth and Income 25 77 132 280 AST MFS Growth with Income 28 84 144 305 AST INVESCO Equity Income 25 76 131 278 AST AIM Balanced 25 78 133 283 AST American Century Strategic Balanced 26 81 137 290 AST T. Rowe Price Asset Allocation 26 79 135 287 AST T. Rowe Price Global Bond 26 81 138 291 AST Federated High Yield 25 76 129 275 AST PIMCO Total Return Bond 23 72 123 262 AST PIMCO Limited Maturity Bond 24 73 125 267 AST Money Market 21 65 112 240 AA Growth 23 71 122 260 AA MidCap Growth 24 73 125 266 MV Emerging Markets 33 100 169 353 WFVT Equity Value 25 77 132 280 - --------------------------------------- -------- ---------- --------- ---------- After: - --------------------------------------- -------- ---------- --------- ---------- Sub-Account: 1 Year 3 Years 5 Years 10 Years - --------------------------------------- -------- ---------- --------- ---------- Rydex Nova 31 94 160 334 Rydex Ursa 33 99 168 351 Rydex OTC 31 94 160 334 INVESCO VIF Technology 28 87 149 312 INVESCO VIF Health Sciences 30 92 157 329 INVESCO VIF Financial Services 30 90 153 321 INVESCO VIF Telecommunications 28 86 146 309 INVESCO VIF Dynamics 28 87 147 310 Evergreen VA Omega 25 76 130 277 Evergreen VA Equity Index 18 56 97 209 Evergreen VA Foundation 25 76 130 276 Evergreen VA Global Leaders 25 78 133 282 Evergreen VA Capital Growth 27 83 141 299 Evergreen VA Special Equity 25 78 134 284 Evergreen VA Perpetual International 35 107 181 375 Evergreen VA Blue Chip 25 77 132 280 ProFund VP Europe 30 33 101 171 356 ProFund VP UltraSmall-Cap 33 99 167 349 ProFund VP UltraOTC 32 97 165 344 - --------------------------------------- -------- ---------- --------- ---------- INVESTMENT OPTIONS WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS? Each variable investment option is a Class 1 Sub-account of American Skandia Life Assurance Corporation Variable Account B (see "What are Separate Accounts" for more detailed information.) Each Sub-account invests exclusively in one Portfolio. You should carefully read the prospectus for any Portfolio in which you are interested. The following chart classifies each of the Portfolios based on our assessment of their investment style (as of the date of this Prospectus). The chart also provides a short description of each Portfolio's investment objective (in italics) and a short, summary description of their key policies to assist you in determining which Portfolios may be of interest to you. There is no guarantee that any underlying mutual fund portfolio will meet its investment objective. The name of the advisor/sub-advisor for each Portfolio appears next to the description. Those portfolios whose name includes the prefix "AST" are portfolios of American Skandia Trust. The investment manager for AST is American Skandia Investment Services, Inc. ("ASISI"), an affiliated company. However, a sub-advisor, as noted below, is engaged to conduct day-to-day investment decisions. Some of the Portfolios available as Sub-accounts under the Annuity are managed by the same portfolio advisor or sub-advisor as a retail mutual fund that the Portfolio may have been modeled after at the Portfolio's inception. Certain retail mutual funds may also have been modeled after a Portfolio. While the investment objective and policies of the funds may be substantially similar, the actual investments made by the funds will differ to varying degrees. Differences in the performance of the funds can be expected, and in some cases could be substantial. Details about the investment objectives, policies, risks, costs and management of the Portfolios are found in the prospectuses for the underlying mutual funds. ================================================================================ Effective January 19, 2000, the AST Janus Small-Cap Growth portfolio is no longer offered as a Sub-account under the Annuity. Owners of Contracts issued on or before January 18, 2000 may not allocate additional Account Value or make transfers into the AST Janus Small-Cap Growth Sub-account, except that, Owners who had previously elected a bank drafting, dollar cost averaging, asset allocation and/or rebalancing program will be allowed to continue. However, no changes involving the AST Janus Small-Cap Growth Sub-account may be made to such programs. Effective March 1, 2000, the AST Janus Overseas Growth portfolio is no longer offered as a Sub-account under the Annuity, except as noted below. Owners of Contracts issued on or before February 29, 2000 with Account Value allocated to the AST Janus Overseas Growth Sub-account may continue to allocate Account Value and make transfers into the AST Janus Overseas Growth Sub-account, including any bank drafting, dollar cost averaging, asset allocation and rebalancing programs. Contracts issued on or after March 1, 2000 will not be allowed to allocate Account Value to the AST Janus Overseas Growth Sub-account. The Portfolios may be offered as a Sub-account to Contract Owners at some future date; however, at the present time, American Skandia has no intention to do so. ================================================================================ Please refer to Appendix B for certain required financial information related to the historical performance of the Sub-accounts.
- ------------------------------ ---------------------------------------------------------------------------------------------------- PORTFOLIO STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/ TYPE SUB-ADVISOR - ------------------------------ ---------------------------------------------------------------------------------------------------- - ------------------------------ ---------------------------------------------------------------------------------------------------- AST Money Market: seeks to maximize current J.P. Morgan Investment Management CAPITAL income and maintain high levels of liquidity. Inc. PRESERVATION The Portfolio attempts to accomplish its objective by maintaining a dollar-weighted average maturity of not more than 90 days and by investing in securities which have effective maturities of not more than 397 days. - ------------------------------------------------------------------------------------------------------------------------------------ AST PIMCO Limited Maturity Bond: seeks to Pacific Investment Management SHORT-TERM BOND maximize total return consistent with Company preservation of capital and prudent investment management. The Portfolio will invest in a diversified portfolio of fixed-income securities of varying maturities. The average portfolio duration of the Portfolio generally will vary within a one- to three-year time frame based on the Sub-advisor's forecast for interest rates. - ------------------------------ ---------------------------------------------------------------------------------------------------- AST PIMCO Total Return Bond: seeks to maximize Pacific Investment Management LONG-TERM total return consistent with preservation of Company BOND capital and prudent investment management. The Portfolio will invest in a diversified portfolio of fixed-income securities of varying maturities. The average portfolio duration of the Portfolio generally will vary within a three- to six-year time frame based on the Sub-advisor's forecast for interest rates. - ------------------------------ ---------------------------------------------------------------------------------------------------- HIGH YIELD BOND AST Federated High Yield: seeks high current Federated Investment Counseling income by investing primarily in a diversified portfolio of fixed income securities. The Portfolio will invest at least 65% of its assets in lower-rated corporate fixed income securities ("junk bonds"). These fixed income securities may include preferred stocks, convertible securities, bonds, debentures, notes, equipment lease certificates and equipment trust certificates. A fund that invests primarily in lower-rated fixed income securities will be subject to greater risk and share price fluctuation than a typical fixed income fund, and may be subject to an amount of risk that is comparable to or greater than many equity funds. - ------------------------------ ---------------------------------------------------------------------------------------------------- GLOBAL BOND AST T. Rowe Price Global Bond: seeks to provide Rowe Price-Fleming International, Inc. high current income and capital growth by investing in high-quality foreign and U.S. government bonds. The Portfolio will invest at least 65% of its total assets in bonds issued or guaranteed by the U.S. or foreign governments or their agencies and by foreign authorities, provinces and municipalities. Corporate bonds may also be purchased. The Sub-advisor bases its investment decisions on fundamental market factors, currency trends, and credit quality. The Portfolio generally invests in countries where the combination of fixed-income returns and currency exchange rates appears attractive, or, if the currency trend is unfavorable, where the Sub-advisor believes that the currency risk can be minimized through hedging. The Portfolio may also invest up to 20% of its assets in the aggregate in below investment-grade, high-risk bonds ("junk bonds"). - ------------------------------ ---------------------------------------------------------------------------------------------------- ASSET ALLOCATION AST T. Rowe Price Asset Allocation: seeks a T. Rowe Price Associates, Inc. high level of total return by investing primarily in a diversified portfolio of fixed income and equity securities. The Portfolio normally invests approximately 60% of its total assets in equity securities and 40% in fixed income securities. The Sub-advisor concentrates common stock investments in larger, more established companies, but the Portfolio may include small and medium-sized companies with good growth prospects. The fixed income portion of the Portfolio will be allocated among investment grade securities, high yield or "junk" bonds, foreign high quality debt securities and cash reserves. - ------------------------------ ---------------------------------------------------------------------------------------------------- BALANCED AST AIM Balanced: seeks to provide a A I M Capital Management, Inc. well-diversified portfolio of stocks and bonds that will produce both capital growth and current income. The Portfolio attempts to meet its objective by investing, normally, a minimum of 30% and a maximum of 70% of its total assets in equity securities and a minimum of 30% and a maximum of 70% of its total assets in non-convertible debt securities. The Sub-advisor will primarily purchase equity securities for growth of capital and debt securities for income purposes. - ------------------------------ ---------------------------------------------------------------------------------------------------- PORTFOLIO STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/ TYPE SUB-ADVISOR - ------------------------------ ---------------------------------------------------------------------------------------------------- - ------------------------------ ---------------------------------------------------------------------------------------------------- BALANCED AST American Century Strategic Balanced: seeks American Century Investment Management, Inc. (Cont.) capital growth and current income. The Sub-advisor intends to maintain approximately 60% of the Portfolio's assets in equity securities and the remainder in bonds and other fixed income securities. Both the Portfolio's equity and fixed income investments will fluctuate in value. The equity securities will fluctuate depending on the performance of the companies that issued them, general market and economic conditions, and investor confidence. The fixed income investments will be affected primarily by rising or falling interest rates and the credit quality of the issuers. ---------------------------------------------------------------------------------------------------- Evergreen VA Foundation: seeks, in order of Evergreen Asset Management Corp. priority, reasonable income, conservation of capital and capital appreciation. The Portfolio invests principally in a combination of common stocks, securities convertible into or exchangeable for common stocks and fixed income securities. Common stocks are selected based on a combination of financial strength and estimated growth potential. Fixed income securities are selected based on the investment adviser's projections of interest rates, varying amounts and maturities in order to achieve capital protection and, when possible, capital appreciation. Under normal circumstances, the Portfolio anticipates that at least 25% of its net assets will consist of fixed income securities. - ------------------------------ ---------------------------------------------------------------------------------------------------- EQUITY INCOME AST INVESCO Equity Income: seeks capital growth INVESCO Funds Group, Inc. and current income while following sound investment practices. The Portfolio seeks to achieve its objective by investing in securities that are expected to produce relatively high levels of income and consistent, stable returns. The Portfolio normally will invest at least 65% of its assets in dividend-paying common and preferred stocks of domestic and foreign issuers. Up to 30% of the Portfolio's assets may be invested in equity securities that do not pay regular dividends. - ------------------------------ ---------------------------------------------------------------------------------------------------- AST Alliance Growth and Income: seeks long-term Alliance Capital Management L.P. growth of capital and income while attempting to avoid excessive fluctuations in market value. The Portfolio normally will invest in common stocks (and securities convertible into common stocks). The Sub-advisor will take a value-oriented approach, in that it will try to keep the Portfolio's assets invested in securities that are selling at reasonable prices in relation to their value. The stocks that the Portfolio will normally invest in are those of seasoned companies that are expected to show above-average growth and that the Sub-advisor believes are in sound financial condition. --------------------------------------------------------------------------------------------------- AST American Century Income & Growth: seeks American Century Investment Management, Inc. capital growth with current income as a secondary objective. The Portfolio invests primarily in common stocks that offer potential GROWTH for capital growth, and may, consistent with its investment objective, invest in stocks that & offer potential for current income. The INCOME Sub-advisor utilizes a quantitative management technique with a goal of building an equity portfolio that provides better returns than the S&P 500 Index without taking on significant additional risk and while attempting to create a dividend yield that will be greater than the S&P 500 Index. ---------------------------------------------------------------------------------------------------- AST MFS Growth with Income: seeks reasonable Massachusetts Financial Services Company current income and long-term capital growth and income. Under normal market conditions, the Portfolio invests at least 65% of its total assets in common stocks and related securities, such as preferred stocks, convertible securities and depositary receipts. The stocks in which the Portfolio invests generally will pay dividends. While the Portfolio may invest in companies of any size, the Portfolio generally focuses on companies with larger market capitalizations that the Sub-advisor believes have sustainable growth prospects and attractive valuations based on current and expected earnings or cash flow. The Portfolio may invest up to 20% of its net assets in foreign securities. - ------------------------------ ---------------------------------------------------------------------------------------------------- REAL ESTATE AST Cohen & Steers Realty: seeks to maximize Cohen & Steers Capital Management, (REIT) total return through investment in real estate Inc. securities. The Portfolio pursues its investment objective by seeking, with approximately equal emphasis, capital growth and current income. Under normal circumstances, the Portfolio will invest substantially all of its assets in the equity securities of real estate companies, i.e., a company that derives at least 50% of its revenues from the ownership, construction, financing, management or sale of real estate or that has at least 50% of its assets in real estate. Real estate companies may include real estate investment trusts or REITs. - ------------------------------ ---------------------------------------------------------------------------------------------------- PORTFOLIO STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/ TYPE SUB-ADVISOR - ------------------------------ ---------------------------------------------------------------------------------------------------- - ------------------------------ ---------------------------------------------------------------------------------------------------- S&P 500 INDEX Evergreen VA Equity Index: seeks investment Evergreen Investment Management Company results that achieve price and yield performance similar to the Standards and Poor's 500 Composite Price Index ("S&P 500 Index"). The Portfolio invests substantially all of its total assets in equity securities that represent a composite of the S&P 500 Index. The correlation between the performance of the Portfolio and the S&P 500 Index is expected to be, before expenses, 0.98 or higher. The S&P 500 is an unmanaged index of 500 common stocks chosen to reflect the industries of the U.S. economy and is often considered a proxy for the stock market in general. - ------------------------------ ---------------------------------------------------------------------------------------------------- MANAGED INDEX AST Sanford Bernstein Managed Index 500: seeks Sanford C. Bernstein & Co., Inc. to outperform the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500(R)") through stock selection resulting in different weightings of common stocks relative to the index. The Portfolio will invest primarily in the common stocks of companies included in the S&P 500(R). In seeking to outperform the S&P 500, the Sub-advisor starts with a portfolio of stocks representative of the holdings of the index. It then uses a set of fundamental quantitative criteria that are designed to indicate whether a particular stock will predictably perform better or worse than the S&P 500. Based on these criteria, the Sub-advisor determines whether the Portfolio should over-weight, under-weight or hold a neutral position in the stock relative to the proportion of the S&P 500 that the stock represents. In addition, the Sub-advisor also may determine that based on the quantitative criteria, certain equity securities that are not included in the S&P 500 should be held by the Portfolio. - ------------------------------ ---------------------------------------------------------------------------------------------------- AST Alliance Growth: seeks long-term capital Alliance Capital Management L.P. growth. The Portfolio invests at least 85% of its total assets in the equity securities of a limited number of large, carefully selected, high-quality U.S. companies that are judged likely to achieve superior earnings growth. Normally, about 40-60 companies will be represented in the Portfolio, with the 25 companies most highly regarded by the Sub-advisor usually constituting approximately 70% of the Portfolio's net assets. An emphasis is placed on identifying companies whose substantially above average prospective earnings growth is not fully reflected in current market valuations. --------------------------------------------------------------------------------------------------- AST JanCap Growth: seeks growth of capital in a Janus Capital Corporation manner consistent with the preservation of capital. Realization of income is not a significant investment consideration and any income realized on the Portfolio's investments, therefore, will be incidental to the Portfolio's objective. The Portfolio will pursue its objective by investing primarily in common stocks of companies that the Sub-advisor believes are experiencing favorable demand for their products and services, and which operate in a favorable competitive and regulatory environment. The Sub-advisor generally takes a "bottom up" approach to choosing investments LARGE CAP for the Portfolio. In other words, the EQUITY Sub-advisor seeks to identify individual companies with earnings growth potential that may not be recognized by the market at large. ---------------------------------------------------------------------------------------------------- AST Marsico Capital Growth: seeks capital Marsico Capital Management, LLC growth. Income realization is not an investment objective and any income realized on the Portfolio's investments, therefore, will be incidental to the Portfolio's objective. The Portfolio will pursue its objective by investing primarily in common stocks of larger, more established companies. In selecting investments for the Portfolio, the Sub-advisor uses an approach that combines "top down" economic analysis with "bottom up" stock selection. The "top down" approach identifies sectors, industries and companies that should benefit from the trends the Sub-advisor has observed. The Sub-advisor then looks for individual companies with earnings growth potential that may not be recognized by the market at large. This is called "bottom up" stock selection. ---------------------------------------------------------------------------------------------------- AST MFS Growth: seeks long-term capital growth Massachusetts Financial Services and future income. Under normal market Company conditions, the Portfolio invests at least 80% of its total assets in common stocks and related securities, such as preferred stocks, convertible securities and depositary receipts, of companies that the Sub-advisor believes offer better than average prospects for long-term growth. The Sub-advisor seeks to purchase securities of companies that it considers well-run and poised for growth. The Portfolio may invest up to 35% of its net assets in foreign securities. - ------------------------------ ---------------------------------------------------------------------------------------------------- PORTFOLIO STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/ TYPE SUB-ADVISOR - ------------------------------ ---------------------------------------------------------------------------------------------------- - ------------------------------ ---------------------------------------------------------------------------------------------------- Evergreen VA Blue Chip: seeks capital growth Evergreen Investment Management Company with the potential for income. The Portfolio invests primarily in common stocks of well-established, large U.S. companies with a long history of performance, typically recognizable names representing a broad range of industries. To provide balance, the Portfolio also invests in quality medium-sized companies. The Portfolio's stock selection is based on a diversified style of equity investment management that allows it to invest in both value and growth-oriented equity securities. ---------------------------------------------------------------------------------------------------- Evergreen VA Capital Growth: seeks to provide Mentor Investment Advisors LLC LARGE CAP long-term appreciation of capital. The EQUITY Portfolio invests primarily in common stocks. (Cont.) The Portfolio may also invest in preferred stocks, investment grade bonds (i.e., rated at the time of purchase at least Baa by Moody's Investors Service, Inc. or BBB- by Standard & Poor's Ratings Services or deemed by the portfolio manager to be of comparable quality), convertible preferred stocks, convertible debentures, and any other class or type of security which the investment adviser believes offers the potential for capital appreciation. In selecting investments, the investment adviser attempts to identify securities it believes will provide capital appreciation over the intermediate or long term due to changes in the financial condition of issuers, changes in financial conditions generally, or other factors. --------------------------------------------------------------------------------------------------- The Alger American Fund - Growth: seeks Fred Alger Management, Inc. long-term capital appreciation. The Portfolio focuses on growing companies that generally have broad product lines, markets, financial resources and depth of management. Under normal circumstances, the Portfolio invests primarily in the equity securities of large companies. The Portfolio considers a large company to have a market capitalization of $1 billion or greater. - ------------------------------ ---------------------------------------------------------------------------------------------------- NATURAL RESOURCES AST T. Rowe Price Natural Resources: seeks T. Rowe Price Associates, Inc. long-term capital growth primarily through the common stocks of companies that own or develop natural resources (such as energy products, precious metals, and forest products) and other basic commodities. The Portfolio normally invests primarily (at least 65% of its total assets) in the common stocks of natural resource companies whose earnings and tangible assets could benefit from accelerating inflation. The Portfolio looks for companies that have the ability to expand production, to maintain superior exploration programs and production facilities, and the potential to accumulate new resources. - ------------------------------ ---------------------------------------------------------------------------------------------------- ALL-CAP AST Alger All-Cap Growth: seeks long-term Fred Alger Management, Inc. EQUITY capital growth. The Portfolio invests primarily in equity securities, such as common or preferred stocks, that are listed on U.S. exchanges or in the over-the-counter market. The Portfolio may invest in the equity securities of companies of all sizes, and may emphasize either larger or smaller companies at a given time based on the Sub-advisor's assessment of particular companies and market conditions. - ------------------------------ ---------------------------------------------------------------------------------------------------- AST Janus Mid-Cap Growth: seeks long-term Janus Capital Corporation capital growth. The Portfolio invests primarily in common stocks, selected for their growth potential, and normally invests at least 65% of its equity assets in medium-sized companies. For purposes of the Portfolio, medium-sized companies are those whose market capitalizations (measured at the time of investment) fall within the range of companies in the Standard & Poor's MidCap 400 Index. The Sub-advisor seeks to identify individual companies with earnings growth potential that may not be recognized by the market at large. MID-CAP EQUITY ---------------------------------------------------------------------------------------------------- AST Neuberger Berman Mid-Cap Growth: seeks Neuberger Berman Management Incorporated capital growth. The Portfolio primarily invests in the common stocks of mid-cap companies, i.e., companies with equity market capitalizations from $300 million to $10 billion at the time of investment. The Portfolio is normally managed using a growth-oriented investment approach. The Sub-advisor looks for fast-growing companies that are in new or rapidly evolving industries. - ------------------------------ ---------------------------------------------------------------------------------------------------- PORTFOLIO STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/ TYPE SUB-ADVISOR - ------------------------------ ---------------------------------------------------------------------------------------------------- - ------------------------------ ---------------------------------------------------------------------------------------------------- AST Neuberger Berman Mid-Cap Value: seeks Neuberger Berman Management Incorporated capital growth. The Portfolio primarily invests in the common stocks of mid-cap companies. Under the Portfolio's value-oriented investment approach, the Sub-advisor looks for well-managed companies whose stock prices are undervalued and that may rise in price before other investors realize their worth. Factors that the Sub-advisor may use to identify these companies include strong fundamentals, including a low price-to-earnings ratio, consistent cash flow, and a sound track record through all phases of the market cycle. ---------------------------------------------------------------------------------------------------- Evergreen VA Omega: seeks maximum capital Evergreen Investment Management Company growth. The Portfolio invests primarily in common stocks and securities convertible into common stocks. The Portfolio utilizes the fully-managed investment concept whereby the Portfolio's manager will continuously review the Portfolio's holdings in light of market conditions, business developments and economic trends. During this review process, the Portfolio's manager seeks to identify and invest in industries that are growing faster than the economy. The Portfolio invests in companies of all sizes. The continuous review may lead to high portfolio turnover, but that will not limit investment decisions. The Portfolio may also invest up to 25% of its assets in foreign securities. --------------------------------------------------------------------------------------------------- MID-CAP EQUITY INVESCO Variable Investment Funds - Dynamics: INVESCO Funds Group, Inc. (Cont.) seeks securities that will increase in value over the long term. The Portfolio invests in a variety of securities which are believed to present opportunities for capital growth - primarily common stocks of companies traded on U.S. securities exchanges, as well as over-the-counter. The Portfolio also may invest in preferred stocks and debt instruments that are convertible into common stocks, as well as in securities of foreign companies. In general, the Portfolio invests in securities of companies in industries that are growing globally and usually avoids stocks of companies in cyclical, mature or slow-growing industries or economic sectors. The Portfolio seeks to invest in stocks of leading companies in attractive markets or industries, or emerging leaders that have developed a new competitive advantage. ---------------------------------------------------------------------------------------------------- The Alger American Fund - MidCap Growth: seeks Fred Alger Management, Inc. long-term capital appreciation. The Portfolio focuses on midsize companies with promising growth potential. Under normal circumstances, the Portfolio invests primarily in the equity securities of companies having a market capitalization within the range of companies in the S&P MidCap 400 Index. ---------------------------------------------------------------------------------------------------- WFVT Equity Value: seeks long-term capital Wells Fargo Bank, N.A. appreciation. The Portfolio pursues its objective by investing in a diversified portfolio composed primarily of equity securities that are trading at low price-to-earnings ratios, as measured against the stock market as a whole or against the individual stock's own price history. Under normal market conditions, the Portfolio invests primarily in common stocks of both large, well-established companies and smaller companies with market capitalization exceeding $50 million at the time of purchase. The Portfolio may also invest in debt instruments that may be converted into the common stocks of both U.S. and foreign companies. - ------------------------------- ---------------------------------------------------------------------------------------------------- AST Janus Small-Cap Growth: seeks capital Janus Capital Corporation growth. The Portfolio pursues its objective by normally investing at least 65% of its total assets in the common stocks of small-sized companies, i.e., those that have market capitalizations of less than $1.5 billion or annual gross revenues of less than $500 million. As a Portfolio that invests primarily in smaller or newer issuers, the Portfolio may be subject to greater risk of loss and share price fluctuation than funds investing primarily in larger or more established issuers. ---------------------------------------------------------------------------------------------------- SMALL CAP AST Kemper Small-Cap Growth: seeks maximum Scudder Kemper Investments, Inc. EQUITY growth of investors' capital from a portfolio primarily of growth stocks of smaller companies. At least 65% of the Portfolio's total assets normally will be invested in the equity securities of smaller companies, i.e., those having a market capitalization of $1.5 billion or less at the time of investment, many of which would be in the early stages of their life cycle. The Portfolio seeks attractive areas for investment that arise from factors such as technological advances, new marketing methods, and changes in the economy and population. Because of the Portfolio's focus on the stocks of smaller growth companies, investment in the Portfolio may involve substantially greater than average share price fluctuation and investment risk. - ------------------------------ ---------------------------------------------------------------------------------------------------- PORTFOLIO STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/ TYPE SUB-ADVISOR - ------------------------------ ---------------------------------------------------------------------------------------------------- - ------------------------------ ---------------------------------------------------------------------------------------------------- AST Lord Abbett Small Cap Value: seeks Lord, Abbett & Co. long-term capital appreciation. The Portfolio will seek its objective through investments primarily in equity securities that are believed to be undervalued in the marketplace. The Portfolio primarily seeks companies that are small-sized, based on the value of their outstanding stock. Specifically, under normal circumstances, at least 65% of the Portfolio's total assets will be invested in common stocks issued by smaller, less well-known companies (with market capitalizations of less than $2 billion) selected on the basis of fundamental investment analysis. The small capitalization companies in which the Portfolio primarily invests may offer significant appreciation potential. However, smaller companies may carry more risk than larger companies. ---------------------------------------------------------------------------------------------------- AST T. Rowe Price Small Company Value: seeks to T. Rowe Price Associates, Inc. provide long-term capital growth by investing primarily in small-capitalization stocks that appear to be undervalued. The Portfolio will normally invest at least 65% of its total assets in stocks and equity-related securities of small companies ($1 billion or less in market capitalization). Reflecting a value approach to investing, the Portfolio will seek the stocks of companies whose current stock prices do not appear to adequately reflect their underlying value as measured by assets, earnings, cash flow or business franchises. Investing in small companies involves greater risk of loss than is customarily associated with more established companies. ---------------------------------------------------------------------------------------------------- SMALL CAP Evergreen VA Special Equity: seeks capital Meridian Investment Company EQUITY growth. The Portfolio strives to provide a (Cont.) return greater than broad stock market indices such as the Russell 2000(R)Index by investing principally in a diversified portfolio of common stocks of domestic companies. The Portfolio's investment advisor principally chooses companies which it expects will experience growth in earnings and price, and which have small market capitalizations (under $1 billion) and medium market capitalizations (between $1 billion and $5 billion). The Portfolio may also invest in companies that have large market capitalizations (over $5 billion). - ------------------------------ ---------------------------------------------------------------------------------------------------- AST MFS Global Equity: seeks capital growth. Massachusetts Financial Services Company Under normal market conditions, the Portfolio invests at least 65% of its total assets in common stocks and related securities, such as preferred stock, convertible securities and depositary receipts, of U.S. and foreign issuers (including issuers in developing countries). The Portfolio generally seeks to purchase securities of companies with relatively large market capitalizations relative to the market in which they are traded. GLOBAL EQUITY ---------------------------------------------------------------------------------------------------- Evergreen VA Global Leaders: seeks to provide Evergreen Asset Management Corp. investors with long-term capital growth. The Portfolio normally invests as least 65% of its assets in a diversified portfolio of U.S. and non-U.S. equity securities of companies located in the world's major industrialized countries. The Portfolio will invest in no less than three countries, which may include the U.S., but may invest more than 25% of its total assets in one country. The Portfolio invests only in the best 100 companies, which are selected by the investment advisor based on qualitative and quantitative criteria such as high return on equity, consistent earnings growth and established market presence. - ------------------------------ ---------------------------------------------------------------------------------------------------- AST AIM International Equity: seeks capital A I M Capital Management, Inc. growth. The Portfolio seeks to meet its objective by investing, normally, at least 70% of its assets in marketable equity securities of foreign companies that are listed on a recognized foreign securities exchange or traded in a foreign over-the-counter market. The Portfolio will normally invest in a diversified portfolio that includes companies from at least four countries outside the United States, emphasizing countries of Western Europe and the Pacific Basin. ---------------------------------------------------------------------------------------------------- INTERNATIONAL EQUITY AST American Century International Growth: American Century Investment Management, Inc. seeks capital growth. The Portfolio will seek to achieve its investment objective by investing primarily in equity securities of foreign companies that the Sub-advisor believes will increase in value over time. Under normal conditions, the Portfolio will invest at least 65% of its assets in equity securities of issuers from at least three countries outside of the United States. The Sub-advisor uses a growth investment strategy it developed that looks for companies with earnings and revenue growth. The Sub-advisor will consider a number of other factors in making investment selections, including the prospects for relative economic growth among countries or regions, economic and political conditions, expected inflation rates, currency exchange fluctuations and tax considerations. - ------------------------------ ---------------------------------------------------------------------------------------------------- PORTFOLIO STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/ TYPE SUB-ADVISOR - ------------------------------ ---------------------------------------------------------------------------------------------------- - ------------------------------ ---------------------------------------------------------------------------------------------------- AST American Century International Growth II: American Century Investment Management, Inc. The investment objective, policies and risks of the Portfolio are substantially identical to those of the AST American Century International Growth Portfolio as described immediately above. ---------------------------------------------------------------------------------------------------- AST Founders Passport: seeks capital growth. Founders Asset Management LLC The Portfolio normally invests primarily in equity securities issued by foreign companies that have market capitalizations or annual revenues of $1 billion or less. These securities may represent companies in both established and emerging economies throughout the world. At least 65% of the Portfolio's total assets normally will be invested in foreign securities representing a minimum of three countries. Foreign securities are generally considered to involve more risk than those of U.S. companies, and securities of smaller companies are generally considered to be riskier than those of larger companies. ---------------------------------------------------------------------------------------------------- AST Janus Overseas Growth: seeks long-term Janus Capital Corporation INTERNATIONAL EQUITY growth of capital. The Portfolio pursues its (Cont.) objective primarily through investments in common stocks of issuers from at least five different countries, excluding the United States. Securities are generally selected without regard to any defined allocation among countries, geographic regions or industry sectors, or other similar selection procedure. --------------------------------------------------------------------------------------------------- Evergreen VA Perpetual International: seeks Mentor Perpetual Advisors LLC long-term capital appreciation. The Portfolio invests principally in a diversified portfolio of equity securities of issuers located outside of the United States. The Portfolio seeks to invest in companies, large or small, where earnings are believed to be in a relatively strong growth trend, or where significant further growth is not anticipated but where shares are thought to be undervalued. The Portfolio may invest a substantial portion of its assets in securities of smaller companies and in issuers located in emerging markets. --------------------------------------------------------------------------------------------------- ProFund VP Europe 30: seeks daily investment ProFund Advisors LLC results that correspond to the performance of the ProFunds Europe Index. The ProFunds Europe Index ("PEI") is a combined measure of European stock performance created by the investment advisor from the leading stock indexes of Europe's three largest economies giving equal weight to each index each day. The PEI averages the daily results of The Financial Times Stock Exchange 100, The Deutsche Aktienindex and the CAC-40. The Portfolio principally invests in futures contracts on stock indexes and options on futures contracts and financial instruments such as equity caps, collars, floors and options on securities and stock indexes of large capitalization, widely traded, European stocks. The Portfolio invests in financial instruments with values that reflect the performance of stocks of European companies. - ----------------------------- ----------------------------------------------------------------------------------------------------- EMERGING MARKETS Montgomery Variable Series - Emerging Markets: Montgomery Asset Management, LLC seeks capital appreciation, which under normal conditions it seeks by investing at least 65% of its total assets in equity securities of companies in countries having emerging markets. Under normal conditions, investments are maintained in at least six emerging market countries at all times and no more than 25% of total assets are invested in any one emerging market country. - ------------------------------ ---------------------------------------------------------------------------------------------------- PORTFOLIO STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/ TYPE SUB-ADVISOR - ------------------------------ ---------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ Sector funds generally diversify their investments across particular economic sectors. However, because those investments are limited to a comparatively narrow segment of the economy, sector funds are generally not as diversified as most mutual funds. Sector funds tend to be more volatile than other types of funds. The value of fund shares may go up and down more rapidly than other funds. Each sector of the economy may also have different regulatory or other risk factors that can cause greater fluctuations in the share price. Please read the prospectus for the underlying sector fund for further details about the risks of the particular sector of the economy. - ------------------------------ ---------------------------------------------------------------------------------------------------- INVESCO Variable Investment Funds - Financial INVESCO Funds Group, Inc. Services: seeks capital appreciation. The Portfolio normally invests at least 80% of its assets in the equity securities of companies involved in the financial services sector. This sector includes, among others, banks (regional and money-centers), insurance companies (life, property and casualty, and multiline), and investment and miscellaneous industries (asset managers, brokerage firms, and government-sponsored agencies). The investment advisor seeks companies which it believes can grow their revenues and earnings regardless of the interest rate environment - although securities prices of financial services companies generally are interest rate-sensitive. SECTOR ---------------------------------------------------------------------------------------------------- INVESCO Variable Investment Funds - Health INVESCO Funds Group, Inc. Sciences: seeks capital appreciation. The Portfolio invests at least 80% of its assets in the equity securities of companies that develop, produce or distribute products or services related to health care. These industries include, but are not limited to, medical equipment or supplies, pharmaceuticals, health care facilities, and applied research and development of new products or services. The investment advisor attempts to blend well-established healthcare firms with faster-growing, more dynamic health care companies, which have new products or are increasing their market share of existing products. --------------------------------------------------------------------------------------------------- INVESCO Variable Investment Funds - Technology: INVESCO Funds Group, Inc. seeks capital appreciation. The Portfolio normally invests at least 80% of its assets in the equity securities of companies engaged in technology-related industries. These include, but are not limited to, communications, computers, video, electronics, oceanography, office and factory automation, and robotics. A core portion of the Portfolio's holdings are invested in market-leading technology companies which the investment advisor believes will maintain or improve their market share regardless of overall conditions. ---------------------------------------------------------------------------------------------------- INVESCO Variable Investment Funds - INVESCO Funds Group, Inc. Telecommunications: seeks capital appreciation. The Portfolio normally invests at least 80% of its assets in the equity securities of companies that are primarily engaged in the design, development, manufacture, distribution, or sale of communications services and equipment, and companies that are involved in developing, constructing, or operating communications infrastructure projects throughout the world, or in supplying equipment or services to such companies. The telecommunications sector includes companies that offer telephone services, wireless communications, satellite communications, television and movie programming and broadcasting. Normally, the Portfolio will invest at least 65% of its assets in companies located in at least three different countries, although U.S. issuers will often dominate the holdings. - ------------------------------ ---------------------------------------------------------------------------------------------------- PORTFOLIO STYLE/ INVESTMENT OBJECTIVES/POLICIES ADVISOR/ TYPE SUB-ADVISOR - ------------------------------ ---------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ The ProFund VP UltraOTC and UltraSmall-Cap portfolios and the Nova, Ursa and OTC portfolios of the Rydex Variable Trust are available to all Owners. It is recommended that only those Owners who engage a financial advisor to allocate their funds in strategic or tactical asset allocation strategies invest in these portfolios. There can be no assurance that any financial advisor will successfully predict market fluctuations. - ------------------------------ ---------------------------------------------------------------------------------------------------- ProFund VP UltraOTC: seeks daily investment ProFund Advisors LLC results that correspond to twice (200%) the performance of the NASDAQ 100 Index(TM). The Portfolio principally invests in futures contracts on stock indexes and options on futures contracts and financial instruments such as equity caps, collars, floors and options on securities and stock indexes of large capitalization companies. If the Portfolio is successful in meeting its objective, it should gain approximately twice as much as the growth oriented NASDAQ 100 Index(TM) when the prices of the securities in that index rise on a given day and should lose approximately twice as much when such prices decline on that day. ---------------------------------------------------------------------------------------------------- ProFund VP UltraSmall-Cap: seeks daily ProFund Advisors LLC investment results that correspond to twice (200%) the performance of the Russell 2000(R) Index. The Portfolio principally invests in futures contracts on stock indexes and options STRATEGIC OR TACTICAL on futures contracts and financial instruments ALLOCATION such as equity caps, collars, floors and options on securities and stock indexes of diverse, widely traded, small capitalization companies. If the Portfolio is successful in meeting its objective, it should gain approximately twice as much as the growth oriented Russell 2000(R) Index when the prices of the securities in that index rise on a given day and should lose approximately twice as much when such prices decline on that day. ---------------------------------------------------------------------------------------------------- Rydex Variable Trust - Nova: seeks to provide PADCO Advisors II, Inc. investment returns that are 150% of the daily price movement of the S&P 500 Composite Stock Price Index by investing to a significant extent in futures contracts and options on securities, futures contracts and stock indexes. If the Portfolio meets its objective the value of its shares will tend to increase by 150% of the daily value of any increase in the S&P 500 Index. However, when the value of the S&P 500 Index declines, the value of its shares should also decrease by 150% of the daily value of any decrease in the S&P 500 Index. --------------------------------------------------------------------------------------------------- Rydex Variable Trust - Ursa: seeks to provide PADCO Advisors II, Inc. investment results that will inversely correlate (e.g. be the opposite) to the performance of the S&P 500 Composite Stock Price Index by investing to a significant extent in futures contracts and options on securities, futures contracts and stock indexes. The Portfolio will generally not invest in the securities included in the S&P 500 Index. If the Portfolio meets its objective the value of its shares will tend to increase when the value of the S&P 500 Index is decreasing. However, when the value of the S&P 500 Index is increasing, the value of its shares should decrease by an inversely proportional amount. ---------------------------------------------------------------------------------------------------- Rydex Variable Trust - OTC: seeks to provide PADCO Advisors II, Inc. investment results that correspond to a benchmark for over-the-counter securities, currently the NASDAQ 100 Index(TM), by investing principally in the securities of companies included in that Index. The Portfolio may also invest in other instruments whose performance is expected to correspond to that of the Index, and may engage in futures and options transactions. If the Portfolio meets its objective the value of its shares will tend to increase by the amount of the increase in the NASDAQ 100 Index(TM). However, when the value of the NASDAQ 100 Index(TM) declines, the value of its shares should also decrease by the amount of the decrease in the value of the Index(TM). - ------------------------------ ----------------------------------------------------------------------------------------------------
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and "500" are trademarks of the McGraw-Hill Companies, Inc. and have been licensed for use by American Skandia Investment Services, Incorporated and Sanford Bernstein. The Portfolio is not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's makes no representation regarding the advisability of investing in the Portfolio. WHAT ARE THE FIXED INVESTMENT OPTIONS? We offer fixed investment options of different durations during the accumulation phase. These "Fixed Allocations" earn a guaranteed fixed rate of interest for a specified period of time, called the "Guarantee Period." In most states, we offer Fixed Allocations with Guarantee Periods of 1, 2, 3, 5, 7 and 10 years. We guarantee the fixed rate for the entire Guarantee Period. However, if you withdraw or transfer Account Value before the end of the Guarantee Period, we will adjust the value of your withdrawal or transfer based on a formula, called a "Market Value Adjustment." The Market Value Adjustment can either be positive or negative, depending on the rates that are currently being credited on Fixed Allocations. Please refer to the section entitled "How does the Market Value Adjustment Work?" for a description of the formula along with examples of how it is calculated. You may allocate Account Value to more than one Fixed Allocation at a time. Fixed Allocations are currently not available in the state of Maryland, Nevada, Oregon, Utah and Washington. FEES AND CHARGES WHAT ARE THE CONTRACT FEES AND CHARGES? There is no Contingent Deferred Sales Charge applied if you surrender your Annuity or make a partial withdrawal. Annual Maintenance Fee: During the accumulation period we deduct an Annual Maintenance Fee. The Annual Maintenance Fee is $30.00 or 2% of your Account Value invested in the variable investment options, whichever is less. This fee will be deducted annually on the anniversary of the Issue Date of your Annuity or, if you surrender your Annuity during the Annuity Year, the fee is deducted at the time of surrender. We may increase the Annual Maintenance Fee. However, any increase will only apply to Annuities issued after the date of the increase. We may reduce or eliminate the amount of the Annual Maintenance Fee when Annuities are sold to individuals or a group of individuals in a manner that reduces our maintenance expenses. We would consider such factors as: (a) the size and type of group; (b) the number of Annuities purchased by an Owner; (c) the amount of Purchase Payments; and/or (d) other transactions where maintenance expenses are likely to be reduced. We will not discriminate unfairly between Annuity purchasers if and when we eliminate or reduce the Annual Maintenance Fee. Optional Death Benefits: If you elect to purchase one of the Optional Death Benefits, we will deduct a charge from your Account Value on the anniversary of your Annuity's Issue Date or, under certain circumstances on a date other than the anniversary date. Please refer to the section entitled "Death Benefit" for a description of the charge for each Optional Death Benefit. Transfer Fee: You may make twelve (12) free transfers between investment options each Annuity Year. We will charge $10.00 for each transfer after the twelfth in each Annuity Year. We do not consider transfers made as part of a dollar cost averaging program when we count the twelve free transfers. Transfers made as part of a rebalancing, market timing or third party investment advisory service will be subject to the twelve-transfer limit. However, all transfers made on the same day will be treated as one (1) transfer. Renewals or transfers of Account Value from a Fixed Allocation at the end of its Guarantee Period are not subject to the Transfer Fee and are not counted toward the twelve free transfers. We may allow a higher number of transfers each Annuity Year without charging a Transfer Fee or may eliminate the Transfer Fee for transfer requests transmitted electronically or through other means that reduce our processing costs. Tax Charges: Several states and some municipalities charge premium taxes or similar taxes. The amount of tax will vary from jurisdiction to jurisdiction and is subject to change. The tax charge currently ranges up to 3 1/2%. We generally will deduct the amount of tax payable at the time the tax is imposed, but may also decide to deduct tax charges from each Purchase Payment at the time of a withdrawal or surrender of your Annuity or at the time you elect to begin receiving annuity payments. We may assess a charge against the Sub-accounts and the Fixed Allocations equal to any taxes which may be imposed upon the separate accounts. WHAT CHARGES APPLY SOLELY TO THE VARIABLE INVESTMENT OPTIONS? Insurance Charge: We deduct an Insurance Charge daily against the average daily assets allocated to the Sub-accounts. The charge is equal to 1.40% on an annual basis. This charge is for insurance benefits, including the Annuity's basic death benefit that provides guaranteed benefits to your beneficiary even if the market declines and the risk that persons we guarantee annuity payments to will live longer than our assumptions. The charge also covers administrative costs associated with providing the Annuity benefits, including preparation of the contract, confirmation statements, annual account statements and annual reports, legal and accounting fees as well as various related expenses. Finally, the charge covers the risk that our assumptions about the administrative and non-mortality expenses under this Annuity are incorrect. The Insurance Charge is not deducted against assets allocated to a fixed investment option. We may increase the portion of the Insurance Charge for administrative costs. However, any increase will only apply to Annuities issued after the date of the increase. We may reduce the portion of the Insurance Charge for administrative costs when Annuities are sold to individuals or a group of individuals in a manner that reduces our administrative expenses. We would consider such factors as: (a) the size and type of group; (b) the number of Annuities purchased by an Owner; (c) the amount of Purchase Payments; and/or (d) other transactions where administration expenses are likely to be reduced. We will not discriminate unfairly between Annuity purchasers if and when we reduce the portion of the Insurance Charge attributed to the charge covering administrative costs. WHAT CHARGES APPLY TO THE FIXED ALLOCATIONS? We take into consideration mortality, expense, administration, profit and other factors in determining the interest rates we credit to Fixed Allocations. No specific fee or expenses are deducted when determining the rate we credit. Any Tax Charge applies to amounts that are taken from the variable investment options or the Fixed Allocations. A Market Value Adjustment may also apply to transfers, certain withdrawals or surrender from a Fixed Allocation. WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYOUT? In certain states a tax is due if and when you exercise your right to receive periodic annuity payments. The amount payable will depend on the applicable jurisdiction and on the annuity payment option you select. If you select an option that guarantees payment for life, then the payment amount also will depend on your age and, where permitted by law, your gender. In all cases, the amount of each payment will depend on the Account Value of your Annuity when you elect to begin annuity payments. PURCHASING YOUR ANNUITY WHAT ARE OUR REQUIREMENTS FOR PURCHASING THE ANNUITY? Initial Purchase Payment: You must make a minimum initial Purchase Payment of $15,000. However, if you decide to make payments under a systematic investment or "bank drafting" program, we will accept a lower initial Purchase Payment provided that, within the first Annuity Year, you make at least $15,000 in total Purchase Payments. We must approve any Purchase Payment in excess of $500,000. Age Restrictions: There is no age restriction to purchase the Annuity. However, the basic Death Benefit provides greater protection for a period of ten (10) years from the Issue Date but not beyond age 90. There is no Contingent Deferred Sales Charge deducted upon surrender or partial withdrawal. However, if you take a distribution prior to age 59 1/2, you may be subject to a 10% penalty in addition to ordinary income taxes on any gain. Owner, Annuitant and Beneficiary Designations: On your Application, we will ask you to name the Owner(s), Annuitant and one or more Beneficiaries for your Annuity. |X| Owner: The Owner(s) holds all rights under the Annuity. You may name more than one Owner in which case all ownership rights are held jointly. However, this Annuity does not provide a right of survivorship. Refer to the Glossary of Terms for a complete description of the term "Owner." |X| Annuitant: The Annuitant is the person we agree to make annuity payments to and upon whose life we continue to make such payments. You must name an Annuitant who is a natural person. We do not accept a designation of joint Annuitants during the accumulation period. Where allowed by law, you may name one or more Contingent Annuitants. A Contingent Annuitant will become the Annuitant if the Annuitant dies before the Annuity Date. |X| Beneficiary: The Beneficiary is the person(s) or entity you name to receive the death benefit. If no beneficiary is named the death benefit will be paid to you or your estate. You should seek competent tax advice on the income, estate and gift tax implications of your designations. MANAGING YOUR ANNUITY MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS? You may change the Owner, Annuitant and Beneficiary designations by sending us a request in writing. Where allowed by law, such changes will be subject to our acceptance. Some of the changes we will not accept include, but are not limited to: |X| a new Owner subsequent to the death of the Owner or the first of any joint Owners to die, except where a spouse-Beneficiary has become the Owner as a result of an Owner's death; |X| a new Annuitant subsequent to the Annuity Date; |X| a new Annuitant prior to the Annuity Date if the Annuity is owned by an entity; and |X| a change in Beneficiary if the Owner had previously made the designation irrevocable. Spousal Owners/Spousal Beneficiaries If an Annuity is owned jointly by spouses, the death benefit will be payable upon the death of the first spouse. However, if the sole primary Beneficiary is designated as one of the following: |X| "surviving spouse"; |X| each spouse named individually upon the death of the other; or |X| a designation which we, in our sole discretion, determine to be of similar intent; then upon the death of either Owner, the surviving spouse may elect to be treated as the Owner and continue the Annuity, subject to its existing terms and conditions, instead of taking the Death Benefit. MAY I RETURN THE ANNUITY IF I CHANGE MY MIND? (The right to return the Annuity is referred to as the "free-look" right or "right to cancel.") If after purchasing your Annuity you change your mind and decide that you do not want it, you may return it to us within a certain period of time known as a free-look period. Depending on the state in which you purchased your Annuity, the free-look period may be ten (10) days, twenty-one (21) days or longer, measured from the time that you received your Annuity. If you free-look your Annuity, we will refund your current Account Value plus any tax charge deducted. This amount may be higher or lower than your original Purchase Payment. Certain states require that we return your current Account Value or the amount of your initial Purchase Payment, whichever is greater. The same rule applies to an Annuity that is purchased as an IRA. In those states where we are required to return the greater of your Purchase Payment or Account Value, we will allocate your Account Value to the AST Money Market Sub-account during the free-look period and for a reasonable additional amount of time to allow for delivery of your Annuity. If you free-look your Annuity, we will not return any additional amounts we applied to your Annuity based on your Purchase Payments. MAY I MAKE ADDITIONAL PURCHASE PAYMENTS? The minimum amount that we accept as an additional Purchase Payment is $100 unless you participate in American Skandia's Systematic Investment Plan or a periodic purchase payment program. We will allocate any additional Purchase Payments you make according to your most recent allocation instructions, unless you request new allocations when you submit a new Purchase Payment. MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT? You can make additional Purchase Payments to your Annuity by authorizing us to deduct money directly from your bank account and applying it to your Annuity. This type of program is often called "bank drafting". We call our bank drafting program "American Skandia's Systematic Investment Plan." Purchase Payments made through bank drafting may only be allocated to the variable investment options. Bank drafting allows you to invest in an Annuity with a lower initial Purchase Payment, as long as you authorize payments that will equal at least $15,000 during the first 12 months of your Annuity. We may suspend or cancel bank drafting privileges if sufficient funds are not available from the applicable financial institution on any date that a transaction is scheduled to occur. MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM? These types of programs are only available with certain types of plans. If your employer sponsors such a program, we may agree to accept periodic Purchase Payments through a salary reduction program as long as the allocations are made only to variable investment options and the periodic Purchase Payments received in the first year total at least $15,000. MANAGING YOUR ACCOUNT VALUE HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED? (See "Valuing Your Investment" for a description of our procedure for pricing initial and subsequent Purchase Payments.) Initial Purchase Payment: Once we accept your application, we invest your net Purchase Payment in the Annuity. The net Purchase Payment is your initial Purchase Payment minus any tax charges that may apply. On your application we ask you to provide us with instructions for allocating your Account Value. You can allocate Account Value to one or more variable investment options or Fixed Allocations. In those states where we are required to return your Purchase Payment if you elect to "free-look" your Annuity, we initially allocate all amounts that you choose to allocate to the variable investment options to the AST Money Market Sub-account. At the end of the "free-look" period we will reallocate your Account Value according to your most recent allocation instructions. Where permitted by law, we will allocate your Purchase Payments according to your initial instructions, without temporarily allocating to the AST Money Market Sub-account. To do this, we will ask that you execute our form called a "return waiver" that authorizes us to allocate your Purchase Payment to your chosen Sub-accounts immediately. If you submit the "return waiver" and then decide to return your Annuity during the free-look period, you will receive your current Account Value which may be more or less than your initial Purchase Payment (see "May I Return the Annuity if I Change my Mind?"). Subsequent Purchase Payments: We will allocate any additional Purchase Payments you make according to your current allocation instructions. If any rebalancing or asset allocation programs are in effect, the allocation should conform with such a program. We assume that your current allocation instructions are valid for subsequent Purchase Payments until you make a change to those allocations or request new allocations when you submit a new Purchase Payment. ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS? During the accumulation period you may transfer Account Value between investment options. Transfers are not subject to taxation. We currently limit the number of Sub-accounts you can invest in at any one time to twenty (20). However, you can invest in an unlimited number of Fixed Allocations. We may require a minimum of $500 in each Sub-account you allocate Account Value to at the time of any allocation or transfer. If you request a transfer and, as a result of the transfer, there would be less than $500 in the Sub-account, we may transfer the remaining Account Value in the Sub-account pro rata to the other investment options to which you transferred. We will charge $10.00 for each transfer after the twelfth (12th) in each Annuity Year, including transfers made as part of any rebalancing, market timing, asset allocation or similar program which you have authorized. Transfers made as part of a dollar cost averaging program do not count toward the twelve free transfer limit. Renewals or transfers of Account Value from a Fixed Allocation at the end of its Guarantee Period are not subject to the transfer charge. We may allow a higher number of transfers each Annuity Year without charging a Transfer Fee or may eliminate the Transfer Fee for transfer requests transmitted electronically or through other means that reduce our processing costs. We reserve the right to limit the number of transfers in any Annuity Year for all existing or new Owners. We also reserve the right to limit the number of transfers in any Annuity Year or to refuse any transfer request for an Owner or certain Owners if: (a) we believe that excessive trading or a specific transfer request or group of transfer requests may have a detrimental effect on Unit Values or the share prices of the Portfolios; or (b) we are informed by one or more of the Portfolios that the purchase or redemption of shares must be restricted because of excessive trading or a specific transfer or group of transfers is deemed to have a detrimental effect on the share prices of affected Portfolios. Without limiting the above, the most likely scenario where either of the above could occur would be if the aggregate amount of a trade or trades represented a relatively large proportion of the total assets of a particular Portfolio. Under such a circumstance, we will process transfers according to our rules then in effect and provide notice if the transfer request was denied. If a transfer request is denied, a new transfer request may be required. DO YOU OFFER DOLLAR COST AVERAGING? Yes. We offer Dollar Cost Averaging during the accumulation period. Dollar Cost Averaging allows you to systematically transfer an amount each month from one investment option to one or more other investment options. You can choose to transfer earnings only, principal plus earnings or a flat dollar amount. Dollar Cost Averaging allows you to invest regularly each month, regardless of the current unit value (or price) of the Sub-account(s) you invest in. This enables you to purchase more units when the market price is low and fewer units when the market price is high. This may result in a lower average cost of units over time. However, there is no guarantee that Dollar Cost Averaging will result in a profit or protect against a loss in a declining market. You must have a minimum Account Value of at least $10,000 to enroll in a Dollar Cost Averaging program. You can Dollar Cost Average from variable investment options or Fixed Allocations. Dollar Cost Averaging from Fixed Allocations is subject to a number of rules that include, but are not limited to the following: |X| You may only use Fixed Allocations with Guarantee Periods of 1, 2 or 3 years. |X| You may only Dollar Cost Average earnings or principal plus earnings. If transferring principal plus earnings, the program must be designed to last the entire Guarantee Period for the Fixed Allocation. |X| Dollar Cost Averaging transfers from Fixed Allocations are not subject to a Market Value Adjustment. We may credit additional amounts to your Account Value if you allocate Purchase Payments to Fixed Allocations as part of a dollar cost averaging program. Any such offer is at our sole discretion and may be cancelled at any point. Specific rules may also apply including a change to the MVA formula. For more information see "Additional Amounts in the Fixed Allocation." DO YOU OFFER ANY AUTOMATIC REBALANCING PROGRAMS? Yes. During the accumulation period, we offer automatic rebalancing among the variable investment options you choose. You can choose to have your Account Value rebalanced quarterly, semi-annually, or annually. On the appropriate date, your variable investment options are rebalanced to the allocation percentages you request. For example, over time the performance of the variable investment options will differ, causing your percentage allocations to shift. With automatic rebalancing, we transfer the appropriate amount from the "overweighted" Sub-accounts to the "underweighted" Sub-accounts to return your allocations to the percentages you request. If you request a transfer from or into any variable investment option participating in the automatic rebalancing program, we will assume that you wish to change your rebalancing percentages as well, and will automatically adjust the rebalancing percentages in accordance with the transfer unless we receive alternate instructions from you. You must have a minimum Account Value of at least $10,000 to enroll in automatic rebalancing. All rebalancing transfers made on the same day as part of an automatic rebalancing program are considered as one transfer when counting the number of transfers each year toward the maximum number of free transfers. DO YOU OFFER A PROGRAM TO BALANCE FIXED AND VARIABLE INVESTMENTS? Some investors wish to invest in the variable investment options but also wish to protect a portion of their investment from market fluctuations. We offer a balanced investment program where a portion of your Purchase Payment is allocated to a Fixed Allocation for a Guarantee Period that you select and the remaining Account Value is allocated to the variable investment options that you select. The amount that we allocate to the Fixed Allocation is the amount (not including any additional amounts we applied to your Annuity based on your Purchase Payments) that will grow to a specific "principal amount" such as your initial Purchase Payment. We determine the amount based on the rates then in effect for the Guarantee Period you choose. If no amounts are transferred or withdrawn from the Fixed Allocation, at the end of the Guarantee Period, it will have grown to equal the "principal amount". The remaining Account Value that was not allocated to the Fixed Allocation can be allocated to any of the Sub-accounts that you choose. Account Value allocated to the variable investment options is subject to market fluctuations and may increase or decrease in value. Example Assume you have $100,000 to invest. You choose to allocate a portion of your Account Value to a Fixed Allocation with a 10-year Guarantee Period. The rate for the 10-year Guarantee Period is 6.13%*. Based on the chosen Guarantee Period and interest rate, the factor for determining how much of your Account Value can be allocated to the Fixed Allocation is 0.551593. That means that $55,159 will be allocated to the Fixed Allocation and the remaining Account Value ($44,841) will be allocated to the variable investment options. Assuming that you do not make any withdrawals from the Fixed Allocation, it will grow to $100,000 at the end of the Guarantee Period. Of course we cannot predict the value of the remaining Account Value that was allocated to the variable investment options. * The rate in this example is hypothetical and may not reflect the current rate for Guarantee Periods of this duration. The hypothetical values in this example do not include the amount of any Target Value Credits that may apply. We may credit additional amounts to Fixed Allocations if you allocate Purchase Payments in accordance with the balanced investment program we offer. Any such offer is at our sole discretion and may be cancelled at any point. Specific rules may also apply, including a change to the MVA formula. For more information see "Additional Amounts in the Fixed Allocations." MAY I AUTHORIZE MY FINANCIAL REPRESENTATIVE TO MANAGE MY ACCOUNT? You may authorize your financial representative to decide on the allocation of your Account Value and to make financial transactions between investment options, subject to our rules. However, we can suspend or cancel these privileges at any time. We will notify you if we do. We may restrict the available investment options if you authorize a financial representative to make transfers for you. We do this so that no financial representative is in a position to control transfers of large amounts of money for multiple clients into or out of any of the underlying portfolios that have expressed concern about movement of a large proportion of a portfolio's assets. We may also establish different "cut-off times" by which we must receive all financial transactions for certain underlying portfolios. Currently, the portfolios of Rydex Variable Trust and ProFund VP are subject to this restriction. Financial transactions involving a Rydex or ProFund VP Sub-account must be received by us no later than one hour prior to any announced closing time of the applicable securities exchange (generally, 3:00 p.m. Eastern time) to be processed on the current Valuation Day. If you request a transaction involving the purchase or redemption of Units in one of the Rydex or ProFund VP Sub-accounts after the "cut-off" time, we will deem your request as received by us on the next Valuation Day. You may be required to submit a new request on the following day. We or an affiliate of ours may provide administrative support to financial representatives who make transfers on your behalf. These financial representatives may be firms or persons who also are appointed by us as authorized sellers of the Annuity. However, we do not offer you advice about how to allocate your Account Value under any circumstance. Any financial firm or representative you engage to provide advice and/or make transfers for you is not acting on our behalf. We are not responsible for any recommendations such financial representatives make, any market timing or asset allocation programs they choose to follow or any specific transfers they make on your behalf. HOW DO THE FIXED INVESTMENT OPTIONS WORK? (Fixed Allocations may not be available in all states and may not be available in certain durations.) Fixed Allocations currently are offered with Guarantee Periods of 1, 2, 3, 5, 7 and 10 years. We credit the fixed interest rate to the Fixed Allocation throughout a set period of time called a "Guarantee Period." The interest rate credited to a Fixed Allocation is the rate in effect when the Guarantee Period begins and does not change during the Guarantee Period. The rates are an effective annual rate of interest. We determine the interest rates for the various Guarantee Periods. At the time that we confirm your Fixed Allocation, we will advise you of the interest rate in effect and the date your Fixed Allocation matures. We may change the rates we credit new Fixed Allocations at any time. To inquire as to the current rates for Fixed Allocations, please call 1-800-766-4530. A Guarantee Period for a Fixed Allocation begins: |X| when all or part of a net Purchase Payment is allocated to that particular Guarantee Period; |X| upon transfer of any of your Account Value to a Fixed Allocation for that particular Guarantee Period; or |X| when a Guarantee Period attributable to a Fixed Allocation "renews" after its Maturity Date. To the extent permitted by law, we may increase interest rates offered to a class of Owners who choose to participate in various services we make available. This may include, but is not limited to, Owners who elect to use dollar cost averaging from Fixed Allocations (see "Do You Offer Dollar Cost Averaging?") or the balanced investment program (see "Do You Offer a Program to Balance Fixed and Variable Investments?"). Any such program is at our sole discretion. HOW DO YOU DETERMINE RATES FOR FIXED ALLOCATIONS? We do not have a specific formula for determining the fixed interest rates for Fixed Allocations. Generally the interest rates we offer for Fixed Allocations will reflect the investment returns available on the types of investments we make to support our fixed rate guarantees. These investment types may include cash, debt securities guaranteed by the United States government and its agencies and instrumentalities, money market instruments, corporate debt obligations of different durations, private placements, asset-backed obligations and municipal bonds. In determining rates we also consider factors such as the length of the Guarantee Period for the Fixed Allocation, regulatory and tax requirements, liquidity of the markets for the type of investments we make, commissions, administrative and investment expenses, our insurance risks in relation to the Fixed Allocations, general economic trends and competition. We will credit interest on a new Fixed Allocation in an existing Annuity at a rate not less than the rate we are then crediting to Fixed Allocations for the same Guarantee Period selected by new Annuity purchasers in the same class. HOW DOES THE MARKET VALUE ADJUSTMENT WORK? If you transfer or withdraw Account Value from a Fixed Allocation before the end of its Guarantee Period, we will adjust the value of your investment based on a formula, called a "Market Value Adjustment" or "MVA". The Market Value Adjustment formula compares the interest rates credited for Fixed Allocations at the time you invested, to interest rates being credited when you make a transfer or withdrawal. The amount of any Market Value Adjustment can be either positive or negative, depending on the rates that are currently being credited on Fixed Allocations. MVA Formula The MVA formula is applied separately to each Fixed Allocation. The formula is as follows: [(1+I) / (1+J+0.0010)]N/12 where: I is the fixed interest rate we guaranteed to credit to the Fixed Allocation as of its starting date; J is the fixed interest rate for your class of annuities at the time of the withdrawal for a new Fixed Allocation with a Guarantee Period equal to the remaining number of years in your original Guarantee Period; N is the number of months remaining in the original Guarantee Period. If you surrender your Annuity under the "free-look" provision, the MVA formula is [(1 + I)/(1 + J)]N/12. If the transfer or withdrawal does not occur on the yearly or monthly anniversary of the beginning of the Fixed Allocation, the numbers used in 'J' and 'N' will be rounded to the next highest integer. MVA Examples The following hypothetical examples show the effect of the MVA in determining Account Value. Assume the following: |X| You allocate $50,000 into a Fixed Allocation with a Guarantee Period of 5 years. |X| The interest rate for your Fixed Allocation is 5.0% (I = 5.0%). |X| You make no withdrawals or transfers until you decided to withdraw the entire Fixed Allocation after exactly three (3) years, therefore 24 months remain before the Maturity Date (N = 24). Example of Positive MVA Assume that at the time you request the withdrawal, the fixed interest rate for a new Fixed Allocation with a Guarantee Period of 24 months is 3.5% (J = 3.5%). Based on these assumptions, the MVA would be calculated as follows: MVA Factor = [(1+I)/(I+J+0.0010)]N/12 = [1.05/1.036]2 = 1.027210 Interim Value = $57,881.25 Account Value after MVA = Interim Value X MVA Factor = $59,456.20. Example of Negative MVA Assume that at the time you request the withdrawal, the fixed interest rate for a new Fixed Allocation with a Guarantee Period of 24 months is 6.0% (J = 6.0%). Based on these assumptions, the MVA would be calculated as follows: MVA Factor = [(1+I)/(1+J+0.0010)]N/12 = [1.05/1.061)]2 = 0.979372 Interim Value = $57,881.25 Account Value after MVA = Interim Value X MVA Factor = $56,687.28. WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES? The "Maturity Date" for a Fixed Allocation is the last day of the Guarantee Period. On the Maturity Date, you may choose to renew the Fixed Allocation for a new Guarantee Period of the same or different length or you may transfer all or part of that Fixed Allocation's Account Value to another Fixed Allocation or to one or more Sub-accounts. If you do not specify how you want a Fixed Allocation to be allocated on its Maturity Date, it will be renewed for a Fixed Allocation of the same duration if then available. We will notify you 60 days before the end of the Guarantee Period about the fixed interest rates that we are currently crediting to all Fixed Allocations that are being offered. The rates being credited to Fixed Allocations may change before the Maturity Date. We will not charge a MVA if you choose to renew a Fixed Allocation on its Maturity Date or transfer the Account Value to one or more variable investment options. ADDITIONAL AMOUNTS IN THE FIXED ALLOCATIONS If you allocate Account Value to the Fixed Allocations and participate in certain programs we offer to help you to manage your Annuity's Account Value, under certain circumstances we may apply Additional Amounts to your Account Value allocated to the Fixed Allocation. Additional Amounts may be offered at any time at our sole discretion. When offered, Additional Amounts are provided from our general account. Any program to provide Additional Amounts to Fixed Allocations are subject to the following rules: |X| Additional Amounts are only offered if you participate in a balanced investment program (see "Do you offer a program to balance fixed and variable investment options?") or dollar cost averaging (see " Do you offer Dollar Cost Averaging?"). |X| Additional Amounts are only available on initial or additional Purchase Payments. Account Value transferred to a Fixed Allocation for use in the applicable programs will not receive the Additional Amounts. Additional Amounts are not available on an Annuity that is issued following an exchange of another annuity issued by us. |X| You may not withdraw any Additional Amounts under the Free Withdrawal provision without assessment of the contingent deferred sales charge (see "Can I make withdrawals from my Annuity without a CDSC?). |X| If Additional Amounts are applied to a Fixed Allocation, the MVA formula is revised as follows: [(1+I) / (1+J+0.0020)]N/12 Please refer to the section of the Prospectus entitled "How does the Market Value Adjustment Work?" for a discussion of the MVA formula. |X| We do not consider Additional Amounts as "investment in the contract" for income tax purposes. |X| We may require that you allocate Account Value to a Fixed Allocation with a Guarantee Period of certain duration (i.e. 10 years). |X| Specific rules apply in relation to the duration of the Guarantee Period you must choose to be eligible to receive any Additional Amounts, and the date on which we allocate any Additional Amounts to the Fixed Allocation and begin crediting interest on the Additional Amount. AMERICAN SKANDIA'S PERFORMANCE ADVANTAGE Do you provide any guarantees on my investment? The Annuity provides variable investment options and fixed investment options. Only the fixed investment options provide a guaranteed return on your investment, subject to certain terms and conditions. However, your Annuity includes a feature at no additional cost that provides certain benefits if your Account Value has not reached or exceeded a "target value" on its 10th anniversary. If, on the 10th anniversary of your Annuity's Issue Date, your Account Value has not reached the target value (as defined below) you can choose either of the following benefits: |X| You may continue your Annuity without electing to receive Annuity payments and receive an annual credit to your Account Value payable until you begin receiving Annuity payments. The credit is equal to 0.25% of the average of your Annuity's Account Value for the preceding four complete calendar quarters. This credit is applied to your investment options pro-rata based on the allocation of your then current Account Value. |X| You may begin receiving Annuity payments within one year and accept a one-time credit to your Annuity equal to 10% of the net of the Account Value on the 10th anniversary of its Issue Date minus the sum of all Purchase Payments allocated in the prior five years. The annuity option you select must initially guarantee payments for not less than seven years. Following the 10th anniversary of your Annuity's Issue Date, we will inform you if your Account Value did not meet or exceed the Target Value. We will assume that you have elected to receive the annual credit to your Account Value unless, not less than 30 days prior to the next anniversary of the Annuity, we receive at our home office your election to begin receiving Annuity payments. Certain provisions of this benefit and of the Target Value Credits described below may differ if you purchase your Annuity as part of an exchange, replacement or transfer, in whole or in part, from any other Annuity we issue. What is the "Target Value" and how is it calculated? The Target Value is a tool used to determine whether you are eligible to elect either of the benefits described above. The Target Value does not impact the Account Value available if you surrender your Annuity or make a partial withdrawal and does not impact the Death Benefit available to your Beneficiary(ies). The Target Value assumes a rate of return over ten (10) Annuity Years that will allow your initial investment to double in value, adjusted for any withdrawals and/or additional Purchase Payments you make during the 10 year period. We calculate the "Target Value" as follows: 1. Accumulate the initial Purchase Payment at an annual interest rate of 7.2% until the 10th anniversary of the Annuity's Issue Date; plus 2. Accumulate any additional Purchase Payments at an annual interest rate of 7.2% from the date applied until the 10th anniversary of the Annuity's Issue Date; minus 3. Each "proportional reduction" resulting from any withdrawal, accumulating at an annual interest rate of 7.2% from the date the withdrawal is processed until the 10th anniversary of the Annuity's Issue Date. We determine each "proportional reduction" by determining the percentage of your Account Value then withdrawn and reducing the Target Value by that same percentage. We include any withdrawals under your Annuity in this calculation, as well as the charge we deduct for any optional benefits you elect under the Annuity, but not the charge we deduct for the Annual Maintenance Fee or the Transfer Fee. Examples 1. Assume you make an initial Purchase Payment of $10,000 and make no further Purchase Payments. The Target Value on the 10th anniversary of your Annuity's Issue Date would be $20,042, assuming no withdrawals are made. This is equal to $10,000 accumulating at an annual rate of 7.2% for the 10-year period. 2. Assume you make an initial Purchase Payment of $10,000 and make no further Purchase Payments. Assume at the end of Year 6, your Account Value has increased to $15,000 and you make a withdrawal of 10% or $1,500. The Target Value on the 10th anniversary would be $18,722. This is equal to $10,000 accumulating at an annual rate of 7.2% for the 10-year period, minus the proportional reduction accumulating at an annual interest rate of 7.2%. Can I restart the 10-year Target Value calculation? Yes, you can elect to lock in the growth in your Annuity by "restarting" the 10-year period on any anniversary of the Issue Date. If you elect to restart the calculation period, we will treat your Account Value on the restart date as if it was your Purchase Payment when determining if your Annuity's Account Value meets or exceeds the Target Value on the appropriate tenth (10th) anniversary. You may elect to restart the calculation more than once, in which case, the 10-year calculation period will begin on the date of the last restart date. We must receive your election to restart the calculation at our home office not later than 30 days after each anniversary of the Issue Date. What are Target Value Credits? Target Value Credits are additional amounts that we apply to your Account Value to increase the likelihood that your Account Value will meet or exceed the Target Value. Target Value Credits are payable on all Purchase Payments applied before the first anniversary of the Issue Date of your Annuity. The amount of the Target Value Credit is equal to 1.0% of each qualifying Purchase Payment. Target Value Credits are only payable on qualifying Purchase Payments if the Owner(s) of the Annuity is(are) less than age 81 on its Issue Date. If the Annuity is owned by an entity, the age restriction applies to the age of the Annuitant on the Issue Date. The Target Value Credit is payable from our general account and is allocated to the investment options in the same ratio that the qualifying Purchase Payment is allocated. Target Value Credits will not be available if you purchase your Annuity as part of an exchange, replacement or transfer, in whole or in part, of an Annuity we issued that has the same or a similar benefit. Recovery of Target Value Credits We can recover the amount of any Target Value Credit under the following circumstances: 1. If you surrender your Annuity before the 10th anniversary of the Issue Date of the Annuity. 2. If you elect to begin receiving Annuity payments before the first anniversary of the Issue Date. 3. If a person on whose life we pay the Death Benefit dies, (a) within 12 months after the date a Target Value Credit was allocated to your Account Value; or (b) within 10 years after the date a Target Value Credit was allocated to your Account Value if any owner was over age 70 on the Issue Date, or, if the Annuity was then owned by an entity, the Annuitant was over age 70 on the Issue Date. ACCESS TO ACCOUNT VALUE WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME? During the accumulation phase you can access your Account Value through Partial Withdrawals, Systematic Withdrawals, and where required for tax purposes, Minimum Distributions. You can also surrender your Annuity at any time. There is no Contingent Deferred Sales Charge applied upon withdrawal or surrender. However, we may apply a Market Value Adjustment to any Fixed Allocations being withdrawn or surrendered. We may also recover the amount of any Target Value Credits upon surrender. Unless you notify us differently, withdrawals are taken pro-rata based on the Account Value in the investment options at the time we receive your withdrawal request. Each of these types of distributions is described more fully below. ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS? (For more information, see "Tax Considerations") During the Accumulation Period A distribution during the accumulation period is deemed to come first from any "gain" in your Annuity and second as a return of your "tax basis", if any. Distributions from your Annuity are generally subject to ordinary income taxation on the amount of any investment gain. If you take a distribution prior to the taxpayer's age 59 1/2, you may be subject to a 10% penalty in addition to ordinary income taxes on any gain. You may wish to consult a professional tax advisor for advice before requesting a distribution. During the Annuitization Period During the annuitization period, a portion of each annuity payment is taxed as ordinary income at the tax rate you are subject to at the time you receive the payment. The Code and regulations have "exclusionary rules" that we use to determine what portion of each annuity payment should be treated as a return of any tax basis you have in the Annuity. Once the tax basis in the Annuity has been distributed, the remaining annuity payments are taxable as ordinary income. The tax basis in the Annuity may be based on the tax-basis from a prior contract in the case of a 1035 exchange or other qualifying transfer. CAN I WITHDRAW A PORTION OF MY ANNUITY? Yes, you can make a withdrawal during the accumulation phase. We call this a "Partial Withdrawal." The amount that you may withdraw will equal your Surrender Value as of the date we process the withdrawal request. There is no Contingent Deferred Sales Charge applied if you surrender your Annuity or make a partial withdrawal. After any Partial Withdrawal, your Annuity must have a Surrender Value of at least $1,000, or we may treat the Partial Withdrawal request as a request to fully surrender your Annuity. The minimum Partial Withdrawal you may request is $100. CAN I MAKE PERIODIC WITHDRAWALS FROM THE ANNUITY DURING THE ACCUMULATION PERIOD? Yes. We call these "Systematic Withdrawals." You can receive Systematic Withdrawals of earnings only, principal plus earnings or a flat dollar amount. Systematic Withdrawals can be made from Account Value allocated to the variable investment options or Fixed Allocations. Generally, Systematic Withdrawals from Fixed Allocations are limited to earnings accrued after the program of Systematic Withdrawals begins, or payments of fixed dollar amounts that do not exceed such earnings. Systematic Withdrawals are available on a monthly, quarterly, semi-annual or annual basis. The Account Value of your Annuity must be at least $20,000 before we will allow you to begin a program of Systematic Withdrawals. The minimum amount for each Systematic Withdrawal is $100. If any scheduled Systematic Withdrawal is for less than $100, we may postpone the withdrawal and add the expected amount to the amount that is to be withdrawn on the next scheduled Systematic Withdrawal. DO YOU OFFER A PROGRAM FOR WITHDRAWALS UNDER SECTION 72(t) OF THE INTERNAL REVENUE CODE? Yes. If your Annuity is used as a funding vehicle for certain retirement plans that receive special tax treatment under Sections 401, 403(b) or 408 of the Code, Section 72(t) of the Code may provide an exception to the 10% penalty tax on distributions made prior to age 59 1/2 if you elect to receive distributions as a series of "substantially equal periodic payments". To request a program that complies with Section 72(t), you must provide us with certain required information in writing on a form acceptable to us. We may require advance notice to allow us to calculate the amount of 72(t) withdrawals. The Surrender Value of your Annuity must be at least $20,000 before we will allow you to begin a program for withdrawals under Section 72(t). The minimum amount for any such withdrawal is $100. WHAT ARE MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM? (See "Tax Considerations" for a further discussion of Minimum Distributions.) Minimum Distributions are a type of Systematic Withdrawal we allow to meet distribution requirements under Sections 401, 403(b) or 408 of the Code. Under the Code, you may be required to begin receiving periodic amounts from your Annuity. In such case, we will allow you to make Systematic Withdrawals in amounts that satisfy the minimum distribution rules under the Code. If you request, we will calculate the annual required Minimum Distribution under your Annuity. The amount of the required Minimum Distribution for your particular situation may depend on other annuities, savings or investments. We will only calculate the amount of your required Minimum Distribution based on the value of your Annuity. We require three (3) days advance written notice to calculate and process the amount of your payments. We may charge you for calculating required Minimum Distributions. You may elect to have Minimum Distributions paid out monthly, quarterly, semi-annually or annually. The $100 minimum that applies to Systematic Withdrawals does not apply to Minimum Distributions. CAN I SURRENDER MY ANNUITY FOR ITS VALUE? Yes. During the accumulation phase you can surrender your Annuity at any time. Upon surrender, you will receive the Surrender Value. Upon surrender of your Annuity, you will no longer have any rights under the Annuity. WHAT TYPES OF ANNUITY PAYMENT OPTIONS ARE AVAILABLE UPON ANNUITIZATION? Annuity payments can be guaranteed for the life of the Annuitant, for the life of the Annuitant with a certain period guaranteed, or for a certain fixed period of time with no life contingency. We currently make available fixed payments and adjustable payments. However, adjustable annuity payments may not be available on your Annuity Date. You may choose an Annuity Date, an annuity option and the frequency of annuity payments when you purchase an Annuity, or at a later date. You may change your choices up to 30 days before the Annuity Date. Any change to these options must be in writing. The Annuity Date must be the first or the fifteenth day of a calendar month. A maximum Annuity Date may be required by law. We currently offer the following fixed Annuity Payment Options. Additional Annuity Payment Options, including variable options, may be offered in the future. Key Life: is the person or persons upon whose life annuity payments with a life contingency are based. Option 1 Payments for Life: Under this option, income is payable periodically until the death of the "key life". No additional annuity payments are made after the death of the key life. Since no minimum number of payments is guaranteed, this option offers the largest amount of periodic payments of the life contingent annuity options. It is possible that only one payment will be payable if the death of the key life occurs before the date the second payment was due, and no other payments nor death benefits would be payable. Option 2 Payments for Life with 10, 15, or 20 Years Certain: Under this option, income is payable until the death of the key life. However, if the key life dies before the end of the period selected (10, 15, or 20 years), the remaining payments are paid to the Beneficiary until the end of such period. Option 3 Payments Based on Joint Lives: Under this option, income is payable periodically during the joint lifetime of two key lives, and thereafter during the remaining lifetime of the survivor, ceasing with the last payment prior to the survivor's death. No minimum number of payments is guaranteed under this option. It is possible that only one payment will be payable if the death of all the key lives occurs before the date the second payment was due, and no other payments or death benefits would be payable. Option 4 Payments for a Certain Period: Under this option, income is payable periodically for a specified number of years. If the payee dies before the end of the specified number of years, the remaining payments are paid to the Beneficiary to the end of such period. Note that under this option, payments are not based on any assumptions of life expectancy. Therefore, that portion of the Insurance Charge assessed to cover the risk that key lives outlive our expectations provides no benefit to an Owner selecting this option. HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION? If you have not provided us with your Annuity Date or Annuity Payment Option in writing, then: |X| the Annuity Date will be the first day of the calendar month following the later of the Annuitant's 85th birthday or the fifth anniversary of our receipt of your request to purchase an Annuity; and |X| the Annuity Payments, where allowed by law, will be fixed monthly payments for life with 10 years certain (See Option 2). If you have not made an election prior to death benefit proceeds becoming due, the Beneficiary may elect to receive the death benefit under one of the fixed Annuity Payment Options or any option we make available for death proceeds. However, if you made an election, the Beneficiary may not alter such election. HOW ARE ANNUITY PAYMENTS CALCULATED? The first annuity payment varies according to the annuity payment option and payment frequency selected. The first payment is determined by multiplying the Account Value plus any additional amounts applied by us under the Performance Advantage benefit by the factor determined from our table of annuity rates. Your Account Value will be determined as of the close of business on the fifteenth day preceding the Annuity Date, plus interest at not less that 3% per year from such date to the Annuity Date. The table of annuity rates differ based on the type of annuity chosen and the frequency of payment selected. Our rates will not be less than our guaranteed minimum rates. These guaranteed minimum rates are derived from the 1983a Individual Annuity Mortality Table with ages set back one year for males and two years for females and with an assumed interest rate of 3% per annum. Where required by law or regulation, such annuity table will have rates that do not differ according to the gender of the key life. Otherwise, the rates will differ according to the gender of the key life. DEATH BENEFIT WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT? The Annuity provides a Death Benefit during its accumulation phase. If the Annuity is owned by one or more natural persons, the Death Benefit is payable upon the first death of an Owner. If the Annuity is owned by an entity, the Death Benefit is payable upon the Annuitant's death, if there is no Contingent Annuitant. If a Contingent Annuitant was designated before the Annuitant's death and the Annuitant dies, then the Contingent Annuitant becomes the Annuitant and a Death Benefit will not be paid at that time. The person upon whose death the Death Benefit is paid is referred to below as the "decedent." DEATH BENEFIT OPTIONS Your Annuity provides a "basic" Death Benefit at no additional charge and also offers two different optional Death Benefits that can be purchased for an additional charge. Under certain circumstances, your Death Benefit may be reduced by the amount of any Target Value Credits we applied to your Purchase Payments. (see "Recovery of Target Value Credits") Basic Death Benefit The basic Death Benefit depends on the decedent's age on the date of death: If death occurs before the earlier of the decedent's age 90 or the end of the tenth Annuity Year: The Death Benefit is the greater of: |X| The sum of all Purchase Payments less the sum of all withdrawals; and |X| The sum of your Account Value in the variable investment options and your Interim Value in the Fixed Allocations. If death occurs after the earlier of the decedent's age 90 or the tenth Annuity Year: The Death Benefit is your Account Value. Optional Death Benefits We offer two optional Death Benefits to provide an enhanced level of protection for your beneficiaries. Currently, these benefits are only offered and must be elected at the time that you purchase your Annuity. We may, at a later date, allow existing Annuity Owners to purchase either of the optional Death Benefits subject to our rules. If the Annuity has one Owner, the Owner must be age 80 or less at the time either optional Death Benefit is purchased. If the Annuity has joint Owners, the oldest Owner must be age 80 or less. If the Annuity is owned by an entity, the Annuitant must be age 80 or less. Key Terms Used with the Optional Death Benefits |X| The Death Benefit Target Date is the contract anniversary on or after the 80th birthday of the current Owner, the oldest of either joint Owner or the Annuitant, if entity owned. |X| The Highest Anniversary Value equals the highest of all previous "Anniversary Values" on or before the earlier of the Owner's date of death and the "Death Benefit Target Date". |X| The Anniversary Value is the Account Value as of each anniversary of the Issue Date plus the sum of all Purchase Payments on or after such anniversary less the sum of all "Proportional Reductions" since such anniversary. |X| A Proportional Reduction is a reduction to the value being measured caused by a withdrawal, equaling the percentage of the withdrawal as compared to the Account Value as of the date of the withdrawal. For example, if your Account Value is $10,000 and you withdraw $2,000 (a 20% reduction), we will reduce both your Anniversary Value and the amount determined by Purchase Payments increasing at the appropriate interest rate by 20%. |X| The Assumed Accumulation Rate is the rate of interest that we will apply to your Purchase Payments only for purposes of calculating this benefit The Assumed Accumulation Rate is different depending on which Optional Death Benefit you select as shown below: --------------------------- ------------------------ Option 1 Option 2 5.0% per year 7.2% per year --------------------------- ------------------------ - -------------------------------------------------------------------------------- Certain terms and conditions may differ if you purchase your Annuity as part of an exchange, replacement or transfer, in whole or in part, from any other Annuity we issue. - -------------------------------------------------------------------------------- Calculation of Optional Death Benefits The optional Death Benefit calculations depend on whether death occurs before or after the Death Benefit Target Date. Annuities with one Owner The optional Death Benefits are calculated as follows: If the Owner dies before the Death Benefit Target Date, the Death Benefit equals the greatest of: 1. the Account Value in the Sub-accounts plus the Interim Value of any Fixed Allocations (no MVA) as of the date we receive in writing "due proof of death"; and 2. the sum of all Purchase Payments minus the sum of all Proportional Reductions, each increasing daily until the Owner's date of death at the applicable Assumed Accumulation Rate for the option you elect, subject to a limit of 200% of the difference between the sum of all Purchase Payments and the sum of all withdrawals as of the Owner's date of death; and 3. the "Highest Anniversary Value" on or immediately preceding the Owner's date of death. The amount determined by this calculation is increased by any Purchase Payments received after the Owner's date of death and decreased by any Proportional Reductions since such date. The amount calculated in Item 1 & 3 above may be reduced by any Target Value Credits under certain circumstances. If the Owner dies on or after the Death Benefit Target Date, the Death Benefit equals the greater of: 1. the Account Value as of the date we receive in writing "due proof of death" (an MVA may be applicable to amounts in any Fixed Allocations); and 2. the greater of Item 2 & 3 above on the Death Benefit Target Date plus the sum of all Purchase Payments less the sum of all Proportional Reductions since the Death Benefit Target Date. The amount calculated in Item 1 above may be reduced by any Target Value Credits under certain circumstances. Annuities with joint Owners For Annuities with Joint Owners, the Death Benefit is calculated as shown above except that the age of the oldest of the Joint Owners is used to determine the Death Benefit Target Date. NOTE: If you and your spouse own the Annuity jointly, we will pay the Death Benefit to the Beneficiary. If the sole primary Beneficiary is the surviving spouse, then the surviving spouse can elect to assume ownership of the Annuity and continue the contract instead of receiving the Death Benefit. Annuities owned by entities For Annuities owned by an entity, the Death Benefit is calculated as shown above except that the age of the Annuitant is used to determine the Death Benefit Target Date. Payment of the Death Benefit is based on the death of the Annuitant (or Contingent Annuitant, if applicable). Examples of Optional Death Benefit Calculation The following are examples of how the Optional Death Benefits are calculated. Each example assumes that a $50,000 initial Purchase Payment is made and that no withdrawals are made prior to the Owner's death. Each example assumes that there is one Owner who is age 50 on the Issue Date and that all Account Value is maintained in the variable investment options. Example of market increase greater than Assumed Accumulation Rate Assume that the Owner's Account Value has generally been increasing. On the date we receive due proof of death (the Owner's 58th birthday), the Account Value is $90,000. The Highest Anniversary Value at the end of any previous period is $72,000. The Death Benefit would be the Account Value ($90,000) because it is greater than the Highest Anniversary Value ($72,000) or the sum of prior Purchase Payments increased by 5.0% annually ($73,872.77 - Option 1) or 7.2% annually for ($87,202.36 - Option 2). Example of market decrease Assume that the Owner's Account Value generally increased until the fifth anniversary but generally has been decreasing since the fifth contract anniversary. On the date we receive due proof of death (the Owner's 58th birthday), the Account Value is $48,000. The Highest Anniversary Value at the end of any previous period is $54,000. The Death Benefit would be the sum of prior Purchase Payments increased by 5.0% annually ($73872.77 - Option 1) or 7.2% annually for ($87202.36 - Option 2) because it is greater than the Highest Anniversary Value ($54,000) or the Account Value ($48,000). Example of Highest Anniversary Value Assume that the Owner's Account Value increased significantly during the first six years following the Issue Date. On the sixth anniversary date the Account Value was $90,000. During the seventh Annuity Year, the Account Value increases to as high as $100,000 but then subsequently falls to $80,000 on the date we receive due proof of death (the Owner's 58th birthday). The Death Benefit would be the Highest Anniversary Value at the end of any previous period ($90,000), which occurred on the sixth anniversary, although the Account Value was higher during the subsequent period. The Account Value on the date we receive due proof of death ($80,000) is lower, as is the sum of all prior Purchase Payments increased by 5.0% annually ($73,872.77 - Option 1) or 7.2% annually for ($87,202.36 - Option 2). How much do you charge for the optional death benefits? We deduct a charge from your Account Value if you elect to purchase either Optional Death Benefit. For Option 1, each deduction is 0.35% of the then current Death Benefit when the deduction is taken. For Option 2, each deduction is 0.55% of the then current Death Benefit when the deduction is taken. No charge applies after the Annuity Date. We deduct the charge: 1. on each anniversary of the Issue Date; 2. when Account Value is transferred to our general account prior to the Annuity Date; 3. if you surrender your Annuity; and 4. if you choose to terminate the benefit. If you surrender the Annuity, elect to begin receiving Annuity payments or terminate the benefit on a date other than an anniversary of the Issue Date, the charge will be prorated. During the first year after the Issue Date, the charge would be prorated from the Issue Date. In all subsequent years, it would be prorated from the last anniversary of the Issue Date. We first deduct the amount of the charge pro-rata from the Account Value in the variable investment options. We only deduct the charge pro-rata from the Fixed Allocations to the extent there is insufficient Account Value in the variable investment options to pay the charge. If your Annuity's Account Value is insufficient to pay the charge, we may deduct your remaining Account Value and terminate your Annuity. We will notify you if your Account Value is insufficient to pay the charge and allow you to submit an additional Purchase Payment to continue your Annuity. Are there any exceptions to these rules for paying the Death Benefit? Yes, there are exceptions that apply no matter how your Death Benefit is calculated. There are exceptions to the Death Benefit if the decedent was not the Owner or Annuitant as of the Issue Date and did not become the Owner or Annuitant due to the prior Owner's or Annuitant's death. Any minimum Death Benefit that applies will be suspended for a two-year period from the date he or she first became Owner or Annuitant. After the two-year suspension period is completed, the Death Benefit is the same as if this person had been an Owner or Annuitant on the Issue Date. What options are available to my Beneficiary upon my death? |X| During the accumulation period, if you die and the sole Beneficiary is your spouse, then your spouse may elect to be treated as the current Owner. The Annuity can be continued, subject to its terms and conditions, in lieu of receiving the death benefit. Your spouse may only assume ownership of the Annuity if he or she is designated as the sole primary Beneficiary. |X| In the event of your death, the death benefit must be distributed within: (a) five years of the date of death; or (b) over a period not extending beyond the life expectancy of the Beneficiary or over the life of the Beneficiary. Payments under this option must begin within one year of the date of death. When do you determine the Death Benefit? We determine the amount of the Death Benefit as of the date we receive "due proof of death" and any other written representations we require to determine the proper payment of the Death Benefit to all Beneficiaries. "Due proof of death" may include a certified copy of a death certificate, a certified copy of a decree of a court of competent jurisdiction as to the finding of death or other satisfactory proof of death. We will require written acknowledgment of all named Beneficiaries before we can determine the Death Benefit. During the period from the date of death until we receive all required paper work, the amount of the Death Benefit may be subject to market fluctuations. VALUING YOUR INVESTMENT HOW IS MY ACCOUNT VALUE DETERMINED? During the accumulation period, the Annuity has an Account Value. The Account Value is determined separately for each Sub-account allocation and for each Fixed Allocation. The Account Value includes any additional amounts we applied to your Purchase Payments that we are entitled to recover upon surrender of your Annuity. The Account Value is the sum of the values of each Sub-account allocation and the value of each Fixed Allocation. When determining the Account Value on a day other than a Fixed Allocation's Maturity Date, the Account Value may include any Market Value Adjustment that would apply to a Fixed Allocation (if withdrawn or transferred) on that day. WHAT IS THE SURRENDER VALUE OF MY ANNUITY? The Surrender Value of your Annuity is the value available to you on any day during the accumulation period. The Surrender Value is equal to your Account Value minus the Annual Maintenance Fee and any additional amounts we applied to your Purchase Payments that we are entitled to recover upon surrender of your Annuity. The Surrender Value will also include any Market Value Adjustment that may apply. HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS? When you allocate Account Value to a Sub-Account, you are purchasing units of the Sub-account. Each Sub-account invests exclusively in shares of an underlying Portfolio. The value of the Units fluctuate with the market fluctuations of the Portfolios. The value of the Units also reflect the daily accrual for the Insurance Charge. Each Valuation Day, we determine the price for a Unit of each Sub-account, called the "Unit Price." The Unit Price is used for determining the value of transactions involving Units of the Sub-accounts. We determine the number of Units involved in any transaction by dividing the dollar value of the transaction by the Unit Price of the Sub-account as of the Valuation Day. Example Assume you allocate $5,000 to a Sub-account. On the Valuation Day you make the allocation, the Unit Price is $14.83. Your $5,000 buys 337.154 Units of the Sub-account. Assume that later, you wish to transfer $3,000 of your Account Value out of that Sub-account and into another Sub-account. On the Valuation Day you request the transfer, the Unit Price of the original Sub-account has increased to $16.79. To transfer $3,000, we sell 178.677 Units at the current Unit Price, leaving you 158.477 Units. We then buy $3,000 of Units of the new Sub-account at the Unit Price of $17.83. You would then have 168.255 Units of the new Sub-account. HOW DO YOU VALUE FIXED ALLOCATIONS? During the Guarantee Period, we use the concept of an Interim Value. The Interim Value can be calculated on any day and is equal to the initial value allocated to a Fixed Allocation plus all interest credited to a Fixed Allocation as of the date calculated. The Interim Value does not include the impact of any Market Value Adjustment. If you made any transfers or withdrawals from a Fixed Allocation, the Interim Value will reflect the withdrawal of those amounts and any interest credited to those amounts before they were withdrawn. To determine the Account Value of a Fixed Allocation on any day other than its Maturity Date, we multiply the Account Value of the Fixed Allocation times the Market Value Adjustment factor. WHEN DO YOU PROCESS AND VALUE TRANSACTIONS? Initial Purchase Payments: We are required to allocate your initial Purchase Payment to the Sub-accounts within two (2) days after we receive all of our requirements to issue the Annuity. If we do not have all the required information to allow us to issue your Annuity, we may retain the Purchase Payment while we try to reach you or your representative to obtain all of our requirements. If we are unable to obtain all of our required information within five (5) days, we are required to return the Purchase Payment to you at that time, unless you specifically consent to our retaining the Purchase Payment while we gather the required information. Once we obtain the required information, we will invest the Purchase Payment and issue the Annuity within two (2) days. During any period that we are trying to obtain the required information, your money is not invested. Additional Purchase Payments: We will apply any additional Purchase Payments on the Valuation Day that we receive the Purchase Payment with satisfactory instructions. Scheduled Transactions: "Scheduled" transactions include transfers under a Dollar Cost Averaging, rebalancing, or asset allocation program, Systematic Withdrawals, Minimum Distributions or Annuity payments. Scheduled transactions are processed and valued as of the date they are scheduled, unless the scheduled day is not a Valuation Day. In that case, the transaction will be processed and valued on Valuation Day prior to the scheduled transaction date. Unscheduled Transactions: "Unscheduled" transactions include any other non-scheduled transfers and requests for Partial Withdrawals or Surrenders. Unscheduled transactions are processed and valued as of the Valuation Day we receive the request at our Office in good order. Death Benefits: Death Benefit claims require our review and evaluation before processing. We price such transactions as of the date we receive at our Office all materials we require for such transaction and that are satisfactory to us. Transactions in Rydex and ProFund VP Sub-accounts: Any financial transactions involving the Rydex or ProFund VP Sub-accounts must be received by us no later than one hour prior to any announced closing of the applicable securities exchange (generally, 3:00 p.m. Eastern time) to be processed on the current Valuation Day. If you request a transaction involving the purchase or redemption of Units in one of the Rydex or ProFund VP Sub-accounts after the "cut-off" time, we will deem your request as received by us on the next Valuation Day. You may be required to submit a new request on the following day. TAX CONSIDERATIONS WHAT ARE SOME OF THE FEDERAL TAX CONSIDERATIONS OF THIS ANNUITY? Following is a brief summary of some of the Federal tax considerations relating to this Annuity. However, since the tax laws are complex and tax consequences are affected by your individual circumstances, this summary of our interpretation of the relevant tax laws is not intended to be fully comprehensive nor is it intended as tax advice. Therefore, you may wish to consult a professional tax advisor for tax advice as to your particular situation. HOW ARE AMERICAN SKANDIA AND THE SEPARATE ACCOUNTS TAXED? The Separate Accounts are taxed as part of American Skandia. American Skandia is taxed as a life insurance company under Part I, subchapter L of the Code. No taxes are due on interest, dividends and short-term or long-term capital gains earned by the Separate Accounts with respect to the Annuities. IN GENERAL, HOW ARE ANNUITIES TAXED? Section 72 of the Code governs the taxation of annuities in general. Taxation of the Annuity will depend in large part on: 1. whether the Annuity is used by: |X| a qualified pension plan, profit sharing plan or other retirement arrangement that is eligible for special treatment under the Code (for purposes of this discussion, a "Qualified Contract"); or |X| an individual or a corporation, trust or partnership (a "Non-qualified Contract"); and 2. whether the Owner is: |X| an individual person or persons; or |X| an entity including a corporation, trust or partnership. Individual Ownership: If one or more individuals own an Annuity, the Owner of the Annuity is generally not taxed on any increase in the value of the Annuity until an amount is received (a "distribution"). This is commonly referred to as "tax deferral". A distribution can be in the form of a lump sum payment including payment of a Death Benefit, or in annuity payments under one of the annuity payment options. Certain other transactions may qualify as a distribution and be subject to taxation. Entity Ownership: If the Annuity is owned by an entity and is not a Qualified Contract, generally the Owner of the Annuity must currently include any increase in the value of the Annuity during a tax year in its gross income. An exception from current taxation applies for annuities held by a structured settlement company, by an employer with respect to a terminated tax-qualified retirement plan, a trust holding an annuity as an agent for a natural person, or by a decedent's estate by reason of the death of the decedent. A tax-exempt entity for Federal tax purposes will not be subject to income tax as a result of this provision. HOW ARE DISTRIBUTIONS TAXED? Distributions from an Annuity are taxed as ordinary income and not as capital gains. Distributions Before Annuitization: Distributions received before annuity payments begin are generally treated as coming first from "income on the contract" and then as a return of the "investment in the contract". The amount of any distribution that is treated as receipt of "income on the contract" is includible in the taxpayer's gross income and taxable in the year it is received. The amount of any distribution treated as a return of the "investment in the contract" is not includible in gross income. |X| "Income on the contract" is calculated by subtracting the taxpayer's "investment in the contract" from the aggregate value of all "related contracts" (discussed below). |X| "Investment in the contract" is equal to total purchase payments for all "related contracts" minus any previous distributions or portions of such distributions from such "related contracts" that were not includible in gross income. "Investment in the contract" may be affected by whether an annuity or any "related contract" was purchased as part of a tax-free exchange of life insurance, endowment, or annuity contracts under Section 1035 of the Code. Unless "after-tax" or non-deductible contributions have been made to a Qualified Contract, the "investment in the contract" for a Qualified Contract will be considered zero for tax reporting purposes. Distributions After Annuitization: A portion of each annuity payment received on or after the Annuity Date will generally be taxable. The taxable portion of each annuity payment is determined by a formula which establishes the ratio that the "investment in the contract" bears to the total value of annuity payments to be made. This is called the "exclusion ratio." The investment in the contract is excluded from gross income. Any additional payments received that exceed the exclusion ratio will be entirely includible in gross income. The formula for determining the exclusion ratio differs between fixed and variable annuity payments. When annuity payments cease because of the death of the person upon whose life payments are based and, as of the date of death, the amount of annuity payments excluded from taxable income by the exclusion ratio does not exceed the "investment in the contract," then the remaining portion of unrecovered investment is allowed as a deduction by the beneficiary in the tax year of such death. Penalty Tax on Distributions: Generally, any distribution from an annuity not used in conjunction with a Qualified Contract (Qualified Contracts are discussed below) is subject to a penalty equal to 10% of the amount includible in gross income. This penalty does not apply to certain distributions, including: |X| Distributions made on or after the taxpayer has attained age 591/2; |X| Distributions made on or after the death of the contract owner, or, if the owner is an entity, the death of the annuitant; |X| Distributions attributable to the taxpayer's becoming disabled; |X| Distributions which are part of a series of substantially equal periodic payments for the life (or life expectancy) of the taxpayer (or the joint lives of the taxpayer and the taxpayer's Beneficiary); |X| Distributions of amounts which are treated as "investments in the contract" made prior to August 14, 1982; |X| Payments under an immediate annuity as defined in the Code; |X| Distributions under a qualified funding asset under Code Section 130(d); or |X| Distributions from an annuity purchased by an employer on the termination of a qualified pension plan that is held by the employer until the employee separates from service. Special rules applicable to "related contracts": Contracts issued by the same insurer to the same contract owner within the same calendar year (other than certain contracts owned in connection with a tax-qualified retirement arrangement) are to be treated as one annuity contract when determining the taxation of distributions before annuitization. We refer to these contracts as "related contracts." In situations involving related contracts we believe that the values under such contracts and the investment in the contracts will be added together to determine the proper taxation of a distribution from any one contract described under the section "Distributions before Annuitization." Distributions will be treated as coming first from income on the contract until all of the income on all such related contracts is withdrawn, and then as a return of the investment in the contract. There is some uncertainty regarding the manner in which the Internal Revenue Service would view related contracts when one or more contracts are immediate annuities or are contracts that have been annuitized. The Internal Revenue Service has not issued guidance clarifying this issue as of the date of this Prospectus. You are particularly cautioned to seek advice from your own tax advisor on this matter. Special concerns regarding "substantially equal periodic payments": (also known as "72(t)" or "72(q)" distributions) Any modification to a program of distributions which are part of a series of substantially equal periodic payments that occur before the later of the taxpayer reaching age 59 1/2 or five (5) years from the first of such payments will result in the requirement to pay the taxes that would have been due had the payments been treated as subject to tax in the years received, plus interest. This does not apply when the modification is due by reason of death or disability. It is our understanding that the Internal Revenue Service may not consider a scheduled series of distributions to qualify under Sections 72(q) or 72(t) if the holder of the annuity retains the right to modify such distributions at will, even if such right is not exercised, or, for a variable annuity, depending on how payments are structured. Special concerns regarding immediate annuities: The Internal Revenue Service has ruled that the exception to the 10% penalty described above for "non-qualified" immediate annuities as defined under the Code may not apply to annuity payments under a contract recognized as an immediate annuity under state insurance law obtained pursuant to an exchange of a contract if: (a) purchase payments for the exchanged contract were contributed or deemed to be contributed more than one year prior to the annuity starting date under the immediate annuity; and (b) the annuity payments under the immediate annuity do not meet the requirements of any other exception to the 10% penalty. Special rules in relation to tax-free exchanges under Section 1035: Section 1035 of the Code permits certain tax-free exchanges of a life insurance, annuity or endowment contract for an annuity. If an annuity is purchased through a tax-free exchange of a life insurance, annuity or endowment contract that was purchased prior to August 14, 1982, then any distributions other than as annuity payments will be considered to come: |X| First, from the amount of "investment in the contract" made prior to August 14, 1982 and exchanged into the annuity; |X| Then, from any "income on the contract" that is attributable to the purchase payments made prior to August 14, 1982 (including income on such original purchase payments after the exchange); |X| Then, from any remaining "income on the contract"; and |X| Lastly, from the amount of any "investment in the contract" made after August 13, 1982. Therefore, to the extent a distribution is equal to or less than the investment in the contract made prior to August 14, 1982, such amounts are not included in taxable income. Further, distributions received that are considered to be a return of investment on the contract from purchase payments made prior to August 14, 1982, such distributions are not subject to the 10% tax penalty. In all other respects, the general provisions of the Code apply to distributions from annuities obtained as part of such an exchange. On November 22, 1999, the Internal Revenue Service issued an acquiescence in the decision of the United States Tax Court in Conway v. Commissioner (111 T.C. 350 (1998)) that a taxpayer's partial surrender of an annuity contract and direct transfer of the resulting proceeds for the purchase of a new annuity contract qualifies as a non-taxable exchange under Section 1035 of the Internal Revenue Code. "Acquiescence" means that the IRS accepts the holding of the Court in a case and that the IRS will follow it in disposing of cases with the same controlling facts. Prior to the Conway decision, industry practice has been to treat a partial surrender of account value as fully taxable to the extent of any gain in the contract for tax reporting purposes and to "step-up" the basis in the contract accordingly. However with the IRS' acquiescence in the Conway decision, partial surrenders may be treated in the same way as tax-free 1035 exchanges of entire contracts, therefore avoiding current taxation of any gains in the contract as well as the 10% IRS tax penalty on pre-age 59 1/2 withdrawals. The IRS reserved the right to treat transactions it considers abusive as ineligible for this favorable partial 1035 exchange treatment. We do not know what transactions may be considered abusive. For example, we do not know how the IRS may view early withdrawals or annuitizations after a partial exchange. As of the date of this Prospectus, we continue to report partial surrenders of non-qualified annuities as subject to current taxation to the extent of any gain. However, we may change our reporting procedures to treat certain of these transactions as partial 1035 exchanges. Should we do so, we reserve the right to report transactions that may have been designed to receive partial 1035 exchange treatment as partial surrenders subject to current taxation if we, as a reporting and withholding agent, believe that we would be expected to deem a transaction to be abusive. While the principles expressed in the Conway decision appear applicable to partial exchanges from life insurance, there is no guidance from the Internal Revenue Service as to whether it concurs with non-recognition treatment under Section 1035 of the Code for such transactions. In addition, please be cautioned that no specific guidance has been provided as to the impact of such a transaction for the remaining life insurance policy, particularly as to the subsequent methods to be used to test for compliance under the Code for both the definition of life insurance and the definition of a modified endowment contract. WHAT TAX CONSIDERATIONS ARE THERE FOR TAX-QUALIFIED RETIREMENT PLANS OR QUALIFIED CONTRACTS? An annuity may be suitable as a funding vehicle for various types of tax-qualified retirement plans. We have provided summaries of the types of tax-qualified retirement plans with which we may issue an Annuity. These summaries provide general information about the tax rules and are not intended to be complete discussions. The tax rules regarding qualified plans are complex. These rules may include limitations on contributions and restrictions on distributions, including additional taxation of distributions and additional penalties. The terms and conditions of the tax-qualified retirement plan may impose other limitations and restrictions that are in addition to the terms of the Annuity. The application of these rules depends on individual facts and circumstances. Before purchasing an Annuity for use in a qualified plan, you should obtain competent tax advice, both as to the tax treatment and suitability of such an investment. American Skandia does not offer all of its annuities to all of these types of tax-qualified retirement plans. Corporate Pension and Profit-sharing Plans: Annuities may be used to fund employee benefits of various corporate pension and profit-sharing plans established by corporate employers under Section 401(a) of the Code including 401(k) plans. Contributions to such plans are not taxable to the employee until distributions are made from the retirement plan. The Code imposes limitations on the amount that may be contributed and the timing of distributions. The tax treatment of distributions is subject to special provisions of the Code, and also depends on the design of the specific retirement plan. There are also special requirements as to participation, nondiscrimination, vesting and nonforfeitability of interests. H.R. 10 Plans: Annuities may also be used to fund benefits of retirement plans established by self-employed individuals for themselves and their employees. These are commonly known as "H.R. 10 Plans" or "Keogh Plans". These plans are subject to most of the same types of limitations and requirements as retirement plans established by corporations. However, the exact limitations and requirements may differ from those for corporate plans. Tax Sheltered Annuities: Under Section 403(b) of the Code, a tax sheltered annuity ("TSA") is a contract into which contributions may be made by certain qualifying employers such as public schools and certain charitable, educational and scientific organizations specified in Section 501(c)(3) for the benefit of their employees. Such contributions are not taxable to the employee until distributions are made from the TSA. The Code imposes limits on contributions, transfers and distributions. Nondiscrimination requirements also apply. - -------------------------------------------------------------------------------- Under a TSA, you may be prohibited from taking distributions from the contract attributable to contributions made pursuant to a salary reduction agreement unless the distribution is made: |X| After the participating employee attains age 59 1/2; |X| Upon separation from service, death or disability; or |X| In the case of financial hardship (subject to restrictions). - -------------------------------------------------------------------------------- Section 457 Plans: Under Section 457 of the Code, deferred compensation plans established by governmental and certain other tax exempt employers for their employees may invest in annuity contracts. The Code limits contributions and distributions, and imposes eligibility requirements as well. Contributions are not taxable to employees until distributed from the plan. However, plan assets remain the property of the employer and are subject to the claims of the employer's general creditors until such assets are made available to participants or their beneficiaries. Individual Retirement Programs or "IRAs": Section 408 of the Code allows eligible individuals to maintain an individual retirement account or individual retirement annuity ("IRA"). IRAs are subject to limitations on the amount that may be contributed, the contributions that may be deducted from taxable income, the persons who may be eligible to establish an IRA and the time when distributions must commence. Further, an Annuity may be established with "roll-over" distributions from certain tax-qualified retirement plans and maintain the tax-deferred status of these amounts. Roth IRAs: A form of IRA is also available called a "Roth IRA". Contributions to a Roth IRA are not tax deductible. However, distributions from a Roth IRA are free from Federal income taxes and are not subject to the 10% penalty tax if five (5) tax years have passed since the first contribution was made or any conversion from a traditional IRA was made and the distribution is made (a) once the taxpayer is age 59 1/2 or older, (b) upon the death or disability of the taxpayer, or (c) for qualified first-time home buyer expenses, subject to certain limitations. Distributions from a Roth IRA that are not "qualified" as described above may be subject to Federal income and penalty taxes. Purchasers of IRAs and Roth IRAs will receive a special disclosure document, which describes limitations on eligibility, contributions, transferability and distributions. It also describes the conditions under which distributions from IRAs and qualified plans may be rolled over or transferred into an IRA on a tax-deferred basis and the conditions under which distributions from traditional IRAs may be rolled over to, or the traditional IRA itself may be converted into, a Roth IRA. SEP IRAs: Eligible employers that meet specified criteria may establish Simplified Employee Pensions or SEP IRAs. Employer contributions that may be made to employee SEP IRAs are larger than the amounts that may be contributed to other IRAs, and may be deductible to the employer. HOW ARE DISTRIBUTIONS FROM QUALIFIED CONTRACTS TAXED? Distributions from Qualified Contracts are generally taxed under Section 72 of the Code. Under these rules, a portion of each distribution may be excludable from income. The excludable amount is the proportion of a distribution representing after-tax contributions. Generally, a 10% penalty tax applies to the taxable portion of a distribution from a Qualified Contract made prior to age 59 1/2. However, the 10% penalty tax does not apply when the distribution: |X| is part of a properly executed transfer to another IRA or another eligible qualified account; |X| is subsequent to the death or disability of the taxpayer (for this purpose disability is as defined in Section 72(m)(7) of the Code); |X| is part of a series of substantially equal periodic payments to be paid not less frequently than annually for the taxpayer's life or life expectancy or for the joint lives or life expectancies of the taxpayer and a designated beneficiary; |X| is subsequent to a separation from service after the taxpayer attains age 55*; |X| does not exceed the employee's allowable deduction in that tax year for medical care*; |X| is made to an alternate payee pursuant to a qualified domestic relations order*; and |X| is made pursuant to an IRS levy. The exceptions above which are followed by an asterisk (*) do not apply to IRAs. Certain other exceptions may be available. Minimum Distributions after age 70 1/2: A participant's interest in a Qualified Contract must generally be distributed, or begin to be distributed, by the "required beginning date". This is April 1st of the calendar year following the later of: |X| the calendar year in which the individual attains age 70 1/2; or |X| the calendar year in which the individual retires from service with the employer sponsoring the plan. The retirement option is not available to IRAs. The participant's entire interest must be distributed beginning no later than the required beginning date over a period which may not extend beyond a maximum of the life or life expectancy of the participant (or the life expectancies of the owner and a designated Beneficiary). Each annual distribution must equal or exceed a "minimum distribution amount" which is determined by dividing the account value by the applicable life expectancy or pursuant to an annuity payout. If the account balance is used, it generally is based upon the Account Value as of the close of business on the last day of the previous calendar year. If the participant dies before reaching his or her "required beginning date", his or her entire interest must generally be distributed within five (5) years of death. However, this rule will be deemed satisfied if distributions begin before the close of the calendar year following death to a designated Beneficiary (or over a period not extending beyond the life expectancy of the beneficiary). If the Beneficiary is the individual's surviving spouse, distributions may be delayed until the deceased owner would have attained age 70 1/2. A surviving spouse would also have the option to assume the IRA as his or her own if he or she is the sole designated beneficiary. If a participant dies after reaching his or her required beginning date or after distributions have commenced, the individual's interest must generally be distributed at least as rapidly as under the method of distribution in effect at the time of the individual's death. If the amount distributed is less than the minimum required distribution for the year, the participant is subject to a 50% tax on the amount that was not properly distributed. GENERAL TAX CONSIDERATIONS Diversification: Section 817(h) of the Code provides that a variable annuity contract, in order to qualify as an annuity, must have an "adequately diversified" segregated asset account (including investments in a mutual fund by the segregated asset account of insurance companies). If the diversification requirements under the Code are not met and the annuity is not treated as an annuity, the taxpayer will be subject to income tax on the annual gain in the contract. The Treasury Department's regulations prescribe the diversification requirements for variable annuity contracts. We believe the underlying mutual fund portfolios should comply with the terms of these regulations. Transfers Between Investment Options: Transfers between investment options are not subject to taxation. The Treasury Department may promulgate guidelines under which a variable annuity will not be treated as an annuity for tax purposes if persons with ownership rights have excessive control over the investments underlying such variable annuity. Such guidelines may or may not address the number of investment options or the number of transfers between investment options offered under a variable annuity. It is not known whether such guidelines, if in fact promulgated, would have retroactive effect. It is also not known what effect, if any, such guidelines may have on transfers between the investment options of the Annuity offered pursuant to this Prospectus. We will take any action, including modifications to your Annuity or the Sub-accounts, required to comply with such guidelines if promulgated. Federal Income Tax Withholding: Section 3405 of the Code provides for Federal income tax withholding on the portion of a distribution which is includible in the gross income of the recipient. Amounts to be withheld depend upon the nature of the distribution. However, under most circumstances a recipient may elect not to have income taxes withheld or have income taxes withheld at a different rate by filing a completed election form with us. Certain distributions, including rollovers, from most Qualified Contracts, may be subject to automatic 20% withholding for Federal income taxes. This will not apply to: |X| any portion of a distribution paid as Minimum Distributions; |X| direct transfers to the trustee of another retirement plan; |X| distributions from an individual retirement account or individual retirement annuity; |X| distributions made as substantially equal periodic payments for the life or life expectancy of the participant in the retirement plan or the life or life expectancy of such participant and his or her designated beneficiary under such plan; and |X| certain other distributions where automatic 20% withholding may not apply. Loans, Assignments and Pledges: Any amount received directly or indirectly as a loan from, or any assignment or pledge of any portion of the value of, an annuity before annuity payments have begun are treated as a distribution subject to taxation under the distribution rules set forth above. Any gain in an annuity on or after the assignment or pledge of an entire annuity and while such assignment or pledge remains in effect is treated as "income on the contract" in the year in which it is earned. For annuities not issued for as Qualified Contracts, the cost basis of the annuity is increased by the amount of any assignment or pledge includible in gross income. The cost basis is not affected by any repayment of any loan for which the annuity is collateral or by payment of any interest thereon. Gifts: The gift of an annuity to someone other than the spouse of the owner (or former spouse incident to a divorce) is treated, for income tax purposes, as a distribution. Estate and Gift Tax Considerations: You should obtain competent tax advice with respect to possible federal and state estate and gift tax consequences flowing from the ownership and transfer of annuities. Generation-Skipping Transfers: Under the Code certain taxes may be due when all or part of an annuity is transferred to, or a death benefit is paid to, an individual two or more generations younger than the contract holder. These generation-skipping transfers generally include those subject to federal estate or gift tax rules. There is an aggregate $1 million exemption from taxes for all such transfers. We may be required to determine whether a transaction is a direct skip as defined in the Code and the amount of the resulting tax. We will deduct from your Annuity or from any applicable payment treated as a direct skip any amount of tax we are required to pay. Considerations for Contingent Annuitants: There may be adverse tax consequences if a contingent annuitant succeeds an annuitant when the Annuity is owned by a trust that is neither tax exempt nor qualifies for preferred treatment under certain sections of the Code. In general, the Code is designed to prevent indefinite deferral of tax. Continuing the benefit of tax deferral by naming one or more contingent annuitants when the Annuity is owned by a non-qualified trust might be deemed an attempt to extend the tax deferral for an indefinite period. Therefore, adverse tax treatment may depend on the terms of the trust, who is named as contingent annuitant, as well as the particular facts and circumstances. You should consult your tax advisor before naming a contingent annuitant if you expect to use an Annuity in such a fashion. GENERAL INFORMATION HOW WILL I RECEIVE STATEMENTS AND REPORTS? We send any statements and reports required by applicable law or regulation to you at your last known address of record. You should therefore give us prompt notice of any address change. We reserve the right, to the extent permitted by law and subject to your prior consent, to provide any prospectus, prospectus supplements, confirmations, statements and reports required by applicable law or regulation to you through our Internet Website at http://www.americanskandia.com or any other electronic means, including diskettes or CD ROMs. We send a confirmation statement to you each time a transaction is made affecting Account Value, such as making additional Purchase Payments, transfers, exchanges or withdrawals. We also send quarterly statements detailing the activity affecting your Annuity during the calendar quarter. You may request additional reports. We reserve the right to charge up to $50 for each such additional report. Instead of immediately confirming transactions made pursuant to some type of periodic transfer program (such as a dollar cost averaging program) or a periodic Purchase Payment program, such as a salary reduction arrangement, we may confirm such transactions in quarterly statements. You should review the information in these statements carefully. All errors or corrections must be reported to us at our Office as soon as possible to assure proper accounting to your Annuity. For transactions that are confirmed immediately, we assume all transactions are accurate unless you notify us otherwise within 10 days from the date you receive the confirmation. For transactions that are only confirmed on the quarterly statement, we assume all transactions are accurate unless you notify us within 10 days from the date you receive the quarterly statement. All transactions confirmed immediately or by quarterly statement are deemed conclusive after the applicable 10-day period. We may also send an annual report and a semi-annual report containing applicable financial statements, as of December 31 and June 30, respectively, to Owners or, with your prior consent, make such documents available electronically through our Internet Website or other electronic means. WHO IS AMERICAN SKANDIA? American Skandia Life Assurance Corporation ("American Skandia") is a stock life insurance company domiciled in Connecticut with licenses in all 50 states and the District of Columbia. American Skandia is a wholly-owned subsidiary of American Skandia, Inc., formerly known as American Skandia Investment Holding Corporation, whose ultimate parent is Skandia Insurance Company Ltd., a Swedish company. American Skandia markets its products to broker-dealers and financial planners through an internal field marketing staff. In addition, American Skandia markets through and in conjunction with financial institutions such as banks that are permitted directly, or through affiliates, to sell annuities. American Skandia is in the business of issuing variable annuity and variable life insurance contracts. American Skandia currently offers the following products: (a) flexible premium deferred annuities and single premium fixed deferred annuities that are registered with the SEC; (b) certain other fixed deferred annuities that are not registered with the SEC; (c) certain group variable annuities that are exempt from registration with the SEC that serve as funding vehicles for various types of qualified pension and profit sharing plans; (d) a single premium variable life insurance policy that is registered with the SEC; and (e) a flexible premium life insurance policy that is registered with the SEC. WHAT ARE SEPARATE ACCOUNTS? The assets supporting our obligations under the Annuities may be held in various accounts, depending on the obligation being supported. In the accumulation phase, assets supporting Account Values are held in separate accounts established under the laws of the State of Connecticut. We are the legal owner of assets in the separate accounts. In the payout phase, assets supporting fixed annuity payments and any adjustable annuity payments we make available are held in our general account. Income, gains and losses from assets allocated to these separate accounts are credited to or charged against each such separate account without regard to other income, gains or losses of American Skandia or of any other of our separate accounts. These assets may only be charged with liabilities which arise from the annuity contracts issued by American Skandia Life Assurance Corporation. The amount of our obligation in relation to allocations to the Sub-accounts is based on the investment performance of such Sub-accounts. However, the obligations themselves are our general corporate obligations. Separate Account B During the accumulation phase, the assets supporting obligations based on allocations to the variable investment options are held in Class 1 Sub-accounts of American Skandia Life Assurance Corporation Variable Account B, also referred to as "Separate Account B". Separate Account B consists of multiple Sub-accounts. The name of each Sub-account generally corresponds to the name of the underlying Portfolio. The names of each Sub-account are shown in the Statement of Additional Information. Separate Account B was established by us pursuant to Connecticut law. Separate Account B also holds assets of other annuities issued by us with values and benefits that vary according to the investment performance of Separate Account B. The Sub-accounts offered pursuant to this Prospectus are all Class 1 Sub-accounts of Separate Account B. Each class of Sub-accounts in Separate Account B has a different level of charges assessed against such Sub-accounts. You will find additional information about these underlying mutual funds and portfolios in the prospectuses for such funds. Separate Account B is registered with the SEC under the Investment Company Act of 1940 ("Investment Company Act") as a unit investment trust, which is a type of investment company. This does not involve any supervision by the SEC of the investment policies, management or practices of Separate Account B. Each Sub-account invests only in a single mutual fund or mutual fund portfolio. We reserve the right to add Sub-accounts, eliminate Sub-accounts, to combine Sub-accounts, or to substitute underlying mutual funds or portfolios of underlying mutual funds. Values and benefits based on allocations to the Sub-accounts will vary with the investment performance of the underlying mutual funds or fund portfolios, as applicable. We do not guarantee the investment results of any Sub-account. Your Account Value allocated to the Sub-accounts may increase or decrease. You bear the entire investment risk. Separate Account D During the accumulation phase, assets supporting our obligations based on Fixed Allocations are held in American Skandia Life Assurance Corporation Separate Account D, also referred to as Separate Account D. Such obligations are based on the fixed interest rates we credit to Fixed Allocations and the terms of the Annuities. These obligations do not depend on the investment performance of the assets in Separate Account D. Separate Account D was established by us pursuant to Connecticut law. There are no units in Separate Account D. The Fixed Allocations are guaranteed by our general account. An Annuity Owner who allocates a portion of their Account Value to Separate Account D does not participate in the investment gain or loss on assets maintained in Separate Account D. Such gain or loss accrues solely to us. We retain the risk that the value of the assets in Separate Account D may drop below the reserves and other liabilities we must maintain. Should the value of the assets in Separate Account D drop below the reserve and other liabilities we must maintain in relation to the annuities supported by such assets, we will transfer assets from our general account to Separate Account D to make up the difference. We have the right to transfer to our general account any assets of Separate Account D in excess of such reserves and other liabilities. We maintain assets in Separate Account D supporting a number of annuities we offer. We have sole discretion over the investment managers retained to manage the assets maintained in Separate Account D. We currently employ investment managers for Separate Account D including, but not limited to, J.P. Morgan Investment Management, Inc. Each manager we employ is responsible for investment management of a different portion of Separate Account D. From time to time additional investment managers may be employed or investment managers may cease being employed. We are under no obligation to employ or continue to employ any investment manager(s). We are not obligated to invest according to specific guidelines or strategies except as may be required by Connecticut and other state insurance laws. WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS? Each underlying mutual fund is registered as an open-end management investment company under the Investment Company Act. Shares of the underlying mutual fund portfolios are sold to separate accounts of life insurance companies offering variable annuity and variable life insurance products. The shares may also be sold directly to qualified pension and retirement plans. Voting Rights We are the legal owner of the shares of the underlying mutual funds in which the Sub-accounts invest. However, under SEC rules, you have voting rights in relation to Account Value maintained in the Sub-accounts. If an underlying mutual fund portfolio requests a vote of shareholders, we will vote our shares in the manner directed by Owners with Account Value allocated to that Sub-account. Owners have the right to vote an amount equal to the number of shares attributable to their contracts. If we do not receive voting instructions in relation to certain shares, we will vote those shares in the same manner and proportion as the shares for which we have received instructions. We will furnish those Owners who have Account Value allocated to a Sub-account whose underlying mutual fund portfolio has requested a "proxy" vote with the necessary forms to provide us with their instructions. Generally, you will be asked to provide instructions for us to vote on matters such as changes in a fundamental investment strategy, adoption of a new investment advisory agreement, or matters relating to the structure of the underlying mutual fund that require a vote of shareholders. Material Conflicts It is possible that differences may occur between companies that offer shares of an underlying mutual fund portfolio to their respective separate accounts issuing variable annuities and/or variable life insurance products. Differences may also occur surrounding the offering of an underlying mutual fund portfolio to variable life insurance policies and variable annuity contracts that we offer. Under certain circumstances, these differences could be considered "material conflicts," in which case we would take necessary action to protect persons with voting rights under our variable annuity contracts and variable life insurance policies against persons with voting rights under other insurance companies' variable insurance products. If a "material conflict" were to arise between owners of variable annuity contracts and variable life insurance policies issued by us we would take necessary action to treat such persons equitably in resolving the conflict. "Material conflicts" could arise due to differences in voting instructions between owners of variable life insurance and variable annuity contracts of the same or different companies. We monitor any potential conflicts that may exist. WHO DISTRIBUTES ANNUITIES OFFERED BY AMERICAN SKANDIA? American Skandia Marketing, Incorporated ("ASM"), a wholly-owned subsidiary of American Skandia, Inc., is the distributor and principal underwriter of the securities offered through this prospectus. ASM acts as the distributor of a number of annuity and life insurance products we offer and both American Skandia Trust and American Skandia Advisor Funds, Inc., a family of retail mutual funds. ASM also acts as an introducing broker-dealer through which it receives a portion of brokerage commissions in connection with purchases and sales of securities held by portfolios of American Skandia Trust which are offered as underlying investment options under the Annuity. ASM's principal business address is One Corporate Drive, Shelton, Connecticut 06484. ASM is registered as broker-dealer under the Securities Exchange Act of 1934 ("Exchange Act") and is a member of the National Association of Securities Dealers, Inc. ("NASD"). The Annuity is offered on a continuous basis. ASM enters into distribution agreements with independent broker-dealers who are registered under the Exchange Act and with entities that may offer the Annuity but are exempt from registration. Applications for the Annuity are solicited by registered representatives of those firms. Such representatives will also be our appointed insurance agents under state insurance law. In addition, ASM may offer the Annuity directly to potential purchasers. Compensation is paid to firms on sales of the Annuity according to one or more schedules. The individual representative will receive a portion of the compensation, depending on the practice of the firm. Compensation may be payable based on a percentage of Purchase Payments made, up to a maximum of 1.0%. Ongoing compensation of up to 1.25% per year of the Account Value is also payable. We may also provide compensation for providing ongoing service to you in relation to the Annuity. Commissions and other compensation paid in relation to the Annuity do not result in any additional charge to you or to the Separate Account. In addition, firms may receive separate compensation or reimbursement for, among other things, training of sales personnel, marketing or other services they provide to us or our affiliates. We or ASM may enter into compensation arrangements with certain firms. These arrangements will not be offered to all firms and the terms of such arrangements may differ between firms. Any such compensation will be paid by us or ASM and will not result in any additional charge to you. To the extent permitted by NASD rules and other applicable laws and regulations, ASM may pay or allow other promotional incentives or payments in the form of cash or other compensation. Advertising: We may advertise certain information regarding the performance of the investment options. Details on how we calculate performance for the Sub-accounts are found in the Statement of Additional Information. This information may help you review the performance of the investment options and provide a basis for comparison with other annuities. It may be less useful when comparing the performance of the investment options with other savings or investment vehicles. Such other investments may not provide some of the benefits of annuities, or may not be designed for long-term investment purposes. Additionally other savings or investment vehicles may not be receive the beneficial tax treatment given to annuities under the Code. Performance information on the Sub-accounts is based on past performance only and is not an indication or representation of future performance. Performance of the Sub-accounts is not fixed. Actual performance will depend on the type, quality and, for some of the Sub-accounts, the maturities of the investments held by the underlying mutual funds or portfolios and upon prevailing market conditions and the response of the underlying mutual funds to such conditions. Actual performance will also depend on changes in the expenses of the underlying mutual funds or portfolios. Such changes are reflected, in turn, in the Sub-accounts which invest in such underlying mutual fund or portfolio. In addition, the amount of charges assessed against each Sub-account will affect performance. Some of the underlying mutual fund portfolios existed prior to the inception of these Sub-accounts. Performance quoted in advertising regarding such Sub-accounts may indicate periods during which the Sub-accounts have been in existence but prior to the initial offering of the Annuities, or periods during which the underlying mutual fund portfolios have been in existence, but the Sub-accounts have not. Such hypothetical performance is calculated using the same assumptions employed in calculating actual performance since inception of the Sub-accounts. We may advertise the performance of the underlying mutual fund portfolios in the form of "Standard" and "Non-standard" Total Returns. "Standard Total Return" figures assume that all charges and fees are applicable. "Non-standard Total Return" figures may also be used that do not reflect all fees and charges. Non-standard Total Returns are calculated in the same manner as standardized returns. Any performance advertisements will not reflect the impact of any Target Value Credits. The information we may advertise regarding the Fixed Allocations may include the then current interest rates we are crediting to new Fixed Allocations. Information on current rates will be as of the date specified in such advertisement. Rates will be included in advertisements to the extent permitted by law. Given that the actual rates applicable to any Fixed Allocation are as of the date of any such Fixed Allocation's Guarantee Period begins, the rate credited to a Fixed Allocation may be more or less than those quoted in an advertisement. Advertisements we distribute may also compare the performance of our Sub-accounts with: (a) certain unmanaged market indices, including but not limited to the Dow Jones Industrial Average, the Standard & Poor's 500, the NASDAQ 100, the Shearson Lehman Bond Index, the Frank Russell non-U.S. Universal Mean, the Morgan Stanley Capital International Index of Europe, Asia and Far East Funds, and the Morgan Stanley Capital International World Index; and/or (b) other management investment companies with investment objectives similar to the mutual fund or portfolio underlying the Sub-accounts being compared. This may include the performance ranking assigned by various publications, including but not limited to the Wall Street Journal, Forbes, Fortune, Money, Barron's, Business Week, USA Today and statistical services, including but not limited to Lipper Analytical Services Mutual Funds Survey, Lipper Annuity and Closed End Survey, the Variable Annuity Research Data Survey, SEI, the Morningstar Mutual Fund Sourcebook and the Morningstar Variable Annuity/Life Sourcebook. American Skandia Life Assurance Corporation may advertise its rankings and/or ratings by independent financial ratings services. Such rankings may help you in evaluating our ability to meet our obligations in relation to Fixed Allocations, pay minimum death benefits, pay annuity payments or administer Annuities. Such rankings and ratings do not reflect or relate to the performance of Separate Account B. AVAILABLE INFORMATION A Statement of Additional Information is available from us without charge upon your request. This Prospectus is part of the registration statement we filed with the SEC regarding this offering. Additional information on us and this offering is available in those registration statements and the exhibits thereto. You may obtain copies of these materials at the prescribed rates from the SEC's Public Reference Section, 450 Fifth Street N.W., Washington, D.C., 20549. You may inspect and copy those registration statements and exhibits thereto at the SEC's public reference facilities at the above address, Room 1024, and at the SEC's Regional Offices, 7 World Trade Center, New York, NY, and the Everett McKinley Dirksen Building, 219 South Dearborn Street, Chicago, IL. These documents, as well as documents incorporated by reference, may also be obtained through the SEC's Internet Website (http://www.sec.gov) for this registration statement as well as for other registrants that file electronically with the SEC. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE To the extent and only to the extent that any statement in a document incorporated by reference into this Prospectus is modified or superseded by a statement in this Prospectus or in a later-filed document, such statement is hereby deemed so modified or superseded and not part of this Prospectus. The Annual Report on Form 10-K for the year ended December 31, 1999 previously filed by the Company with the SEC under the Exchange Act is incorporated by reference in this Prospectus. We will furnish you without charge a copy of any or all of the documents incorporated by reference in this Prospectus, including any exhibits to such documents which have been specifically incorporated by reference. We will do so upon receipt of your written or oral request. HOW TO CONTACT US You can contact us by: |X| calling our Customer Service Team at 1-800-752-6342 or our automated telephone access and response system (STARS) at 1-800-766-4530 |X| writing to us at American Skandia Life Assurance Corporation, Attention: Customer Service, P.O. Box 7038, Bridgeport, Connecticut 06601-7038 |X| sending an email to customerservice@americanskandia.com or visiting our Internet Website at www.americanskandia.com |X| accessing information about your Annuity through our Internet Website at www.americanskandia.com You can obtain account information through our automated telephone access and response system (STARS) and at www.americanskandia.com, our Internet Website. Our Customer Service representatives are also available during business hours to provide you with information about your account. You can request certain transactions through our telephone voice response system, our Internet Website or through a customer service representative. You can provide authorization for a third party, including your attorney-in-fact acting pursuant to a power of attorney or a financial professional, to access your account information and perform certain transactions on your account. You will need to complete a form provided by us which identifies those transactions that you wish to authorize via telephonic and electronic means and whether you wish to authorize a third party to perform any such transactions. We require that you or your representative provide proper identification before performing transactions over the telephone or through our Internet Website. This may include a Personal Identification Number (PIN) that will be provided to you upon issue of your Annuity or you may establish or change your PIN through our automated telephone access and response system (STARS) and at www.americanskandia.com, our Internet Website. Any third party that you authorize to perform financial transactions on your account will be assigned a PIN for your account. Transactions requested via telephone are recorded. To the extent permitted by law, we will not be responsible for any claims, loss, liability or expense in connection with a transaction requested by telephone or other electronic means if we acted on such transaction instructions after following reasonable procedures to identify those persons authorized to perform transactions on your Annuity using verification methods which may include a request for your Social Security number, PIN or other form of electronic identification. We may be liable for losses due to unauthorized or fraudulent instructions if we did not follow such procedures. American Skandia does not guarantee access to telephonic and electronic information or that we will be able to accept transaction instructions via the telephone or electronic means at all times. American Skandia reserves the right to limit, restrict or terminate telephonic and electronic transaction privileges at any time. INDEMNIFICATION Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. LEGAL PROCEEDINGS As of the date of this Prospectus, neither we nor ASM were involved in any litigation outside of the ordinary course of business, and know of no material claims.
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 - --- -------------------------- -------------------- Patricia J. Abram Senior Vice President Senior Vice President 48 and National Sales Manager, Variable Life: American Skandia Marketing, Incorporated Ms. Abram joined us in 1998. She previously held the position of Senior Vice President, Chief Marketing Officer with Mutual Service Corporation. Ms. Abram was employed there since 1982. Lori Allen Vice President Vice President: 30 American Skandia Life Assurance Corporation Kimberly Anderson Vice President Vice President, 33 National Sales Manager/ Qualified Plans: American Skandia Marketing, Incorporated Robert M. Arena Vice President Vice President: 31 American Skandia Life Assurance Corporation Mr. Arena joined us in 1995. He previously held an internship position with KPMG Peat Marwick in 1994 and the position of Group Sales Representative with Paul Revere Insurance from October, 1990 to August, 1993. Gordon C. Boronow President and President and 47 Deputy Chief Executive Officer Deputy Chief Executive Officer: Director (since July, 1991) American Skandia Life Assurance Corporation Robert W. Brinkman Senior Vice President Senior Vice President, 35 National Sales Manager: American Skandia Marketing, Incorporated Malcolm M. Campbell Director (since July, 1991) Director of Operations and 44 Chief Actuary, Assurance and Financial Services Division: Skandia Insurance Company Ltd. Jan R. Carendi Chief Executive Senior Executive Vice President and 55 Officer and Member of Executive Management Group: Chairman of the Skandia Insurance Company Ltd. Board of Directors Director (since May, 1988) Carl Cavaliere Vice President Vice President: 37 American Skandia Life Assurance Corporation Mr. Cavaliere joined us in 1998. He previously held the position of Director of Operations with Aetna, Inc. since 1989. Y.K. Chan Senior Vice President Senior Vice President 42 and Chief Information Officer: American Skandia Information Services and Technology Corporation Mr. Chan joined us in 1999. He previously held the position of Chief Information Officer with E.M. Warburg Pincus from January 1995 until April 1999 and the position of Vice President, Client Server Application Development with Scudder, Stevens and Clark from January 1991 until January 1995. Lucinda C. Ciccarello Vice President Vice President, Mutual Funds: 41 American Skandia Marketing, Incorporated Ms. Ciccarello joined us in 1997. She previously held the position of Assistant Vice President with Phoenix Duff & Phelps since 1984. Lincoln R. Collins Senior Vice President Senior Vice President: 39 Director (since February, 1996) American Skandia Life Assurance Corporation Tim Cronin Vice President Vice President: 34 American Skandia Life Assurance Corporation Mr. Cronin joined us in 1998. He previously held the position of Manager/Client Investor with Columbia Circle Investors since 1995. Henrik Danckwardt Director (since July, 1991) Director of Finance 46 and Administration, Assurance and Financial Services Division: Skandia Insurance Company Ltd. Harold Darak Vice President Vice President: 39 American Skandia Life Assurance Corporation Mr. Darak joined us in 1999. He previously held the position of Consultant/Senior Manager with Deloitte & Touche since 1998 and the positions of Second Vice President with The Guardian since 1996 and The Travelers from October, 1982 until December, 1995. Wade A. Dokken Deputy Chief Executive Officer DCEO and COO: 40 and Chief Operating Officer American Skandia Life Director (since July, 1991) Assurance Corporation Elaine C. Forsyth Vice President Vice President: 38 American Skandia Life Assurance Corporation Larisa Gromyko Director, Insurance Compliance Director, Insurance Compliance: 53 American Skandia Life Assurance Corporation Maureen Gulick Director, Business Operations Director, Business Operations: 37 American Skandia Life Assurance Corporation Berthann Jones Vice President Vice President: 45 American Skandia Life Assurance Corporation Ms. Jones joined us in 1997. She previously held the position of Vice President/Trust Officer with Ridgefield Bank since 1996 and Manager with Wright Investors Service since 1993. Ian Kennedy Senior Vice President Senior Vice President, 52 Customer Service: American Skandia Marketing, Incorporated Mr. Ian Kennedy joined us in 1998. He previously was self-employed since 1996 and held the position of Vice President, Customer Service with SunLife of Canada from September, 1968 to August, 1995. T. Richard Kennedy General Counsel and General Counsel: 65 Director (since March, 2000) American Skandia Life Assurance Corporation Mr. T. Richard Kennedy joined us in 1999. He previously was Managing Partner with the law firm of Werner & Kennedy. N. David Kuperstock Vice President Vice President: 48 American Skandia Life Assurance Corporation Thomas M. Mazzaferro Executive Vice President and Executive Vice President and 47 Chief Financial Officer, Chief Financial Officer: Director (since September, 1994) American Skandia Life Assurance Corporation Gunnar J. Moberg Director (since October, 1994) Director - Marketing and Sales, 45 Assurances and Financial Services Division: Skandia Insurance Company Ltd. David R. Monroe Senior Vice President, Senior Vice President, 38 Treasurer and Treasurer and Corporate Controller Corporate Controller: American Skandia Life Assurance Corporation Mr. Monroe joined us in 1996. He previously held positions of Assistant Vice President at Allmerica Financial since 1994. Michael A. Murray Senior Vice President Vice President, 31 National Sales Manager: American Skandia Marketing, Incorporated Brian O'Connor Vice President Vice President, 35 National Sales Manager, Internal Wholesaling: American Skandia Marketing, Incorporated M. Patricia Paez Vice President Chief of Staff: 39 American Skandia, Inc. Polly Rae Vice President Vice President: 37 American Skandia Life Assurance Corporation Rebecca Ray Vice President Vice President: 44 American Skandia Life Assurance Corporation Ms. Ray joined us in 1999. She previously held the position of First Vice President with Prudential Securities since 1997 and Vice President with Merrill Lynch since 1995. Rodney D. Runestad Vice President Vice President: 50 American Skandia Life Assurance Corporation Hayward L. Sawyer Senior Vice President Executive Vice President 55 National Sales Manager: American Skandia Marketing, Incorporated Lisa Shambelan Vice President Vice President: 34 American Skandia Life Assurance Corporation Karen Stockla Vice President Vice President, 33 Intellectual Resources Department: American Skandia Life Assurance Corporation Ms. Stockla joined us in 1998. She previously held the position of Manager, Application Development with Citizens Utilities Company since 1996 and HRIS Tech Support Representative with Yale New Haven Hospital since 1993. William H. Strong Vice President Vice President: 56 American Skandia Life Assurance Corporation Mr. Strong joined us in 1997. He previously held the position of Vice President with American Financial Systems from June 1994 to October 1997 and the position of Actuary with Connecticut Mutual Life from June 1965 to June 1994. Leslie S. Sutherland Vice President Vice President, 46 National Key Accounts Manager: American Skandia Marketing, Incorporated Amanda C. Sutyak Vice President Vice President: 42 Director (since July, 1991) American Skandia Life Assurance Corporation Christian A. Thwaites Senior Vice President Senior Vice President, 42 National Marketing Director: American Skandia Marketing, Incorporated Mr. Thwaites joined us in 1996. He previously held the position of consultant with Monitor Company since October 1995 and Vice President with Aetna, Inc. since 1995. Mary Toumpas Vice President Vice President and 48 Compliance Director: American Skandia Marketing, Incorporated Ms. Toumpas joined us in 1997. She previously held the position of Assistant Vice President with Chubb Life/Chubb Securities since 1973. Bayard F. Tracy Senior Vice President and Senior Vice President, 52 Director (since September, 1994) National Sales Manager: American Skandia Marketing, Incorporated Deborah G. Ullman Senior Vice President Senior Vice President and 45 Chief Operating Officer: American Skandia Marketing, Incorporated Ms. Ullman joined us in 1998. She previously held the position of Vice President with Aetna, Inc. since 1977. Jeffrey M. Ulness Vice President Vice President: 39 American Skandia Life Assurance Corporation Derek Winegard Vice President Vice President: 41 American Skandia Life Assurance Corporation Mr. Winegard joined us in 1999. He previously held the position of Senior Vice President with Trust Consultants, Inc. since 1991. Brett M. Winson Senior Vice President and Senior Vice President, 44 Director (since March 2000) Intellectual Resource Development American Skandia, Inc. Mr. Winson joined us in 1998. He previously held the position of Senior Vice President with Sakura Bank, Ltd. since 1990.
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION The following are the contents of the Statement of Additional Information: General Information about American Skandia |X| American Skandia Life Assurance Corporation |X| American Skandia Life Assurance Corporation Variable Account B (Class 1 Sub-accounts) |X| American Skandia Life Assurance Corporation Separate Account D Principal Underwriter/Distributor - American Skandia Marketing, Incorporated How Performance Data is Calculated |X| Current and Effective Yield |X| Total Return How the Unit Price is Determined Additional Information on Fixed Allocations |X| How We Calculate the Market Value Adjustment General Information |X| Voting Rights |X| Modification |X| Deferral of Transactions |X| Misstatement of Age or Sex |X| Ending the Offer Independent Auditors Legal Experts Financial Statements |X| Appendix A - American Skandia Life Assurance Corporation Variable Account B (Class 1 Sub-accounts) APPENDIX A - FINANCIAL INFORMATION ABOUT AMERICAN SKANDIA SELECTED FINANCIAL DATA The following table summarizes information with respect to the operations of the Company:
(in thousands) For the Year Ended December 31, 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- STATEMENT OF OPERATIONS DATA Revenues: Annuity and life insurance charges and fees* $ 289,989 $ 186,211 $ 121,158 $ 69,780 $ 38,837 Fee income 83,243 50,839 27,593 16,420 6,206 Net investment income 10,441 11,130 8,181 1,586 1,601 Premium income and other revenues 3,688 1,360 1,082 265 45 ------------- ------------- ------------ ----------- ----------- Total revenues $ 387,361 $ 249,540 $ 158,014 $ 88,051 $ 46,689 ============= ============= ============ =========== =========== Benefits and Expenses: Annuity and life insurance benefits $ 612 $ 558 $ 2,033 $ 613 $ 555 Change in annuity policy reserves 3,078 1,053 37 635 (6,779) Cost of minimum death benefit reinsurance 2,945 5,144 4,545 2,867 2,057 Return credited to contractowners (1,639) (8,930) (2,018) 673 10,613 Underwriting, acquisition and other insurance expenses 206,350 167,790 90,496 49,887 35,914 Interest expense 69,502 41,004 24,895 10,791 6,500 ------------- ------------- ------------- ------------ ------------ Total benefits and expenses $ 280,848 $ 206,619 $ 119,988 $ 65,466 $ 48,860 ============= ============= ============= ============ ============ Income tax expense (benefit) $ 30,344 $ 8,154 $ 10,478 $ (4,038) $ 397 ============= ============= ============= ============ ============ Net income (loss) $ 76,169 $ 34,767 $ 27,548 $ 26,623 $ (2,568) ============= ============= ============= ============ ============= STATEMENT OF FINANCIAL CONDITION Total Assets $ 30,849,414 $ 18,848,273 $ 12,894,290 $ 8,268,696 $ 4,956,018 ============= ============= ============= ============ ============ Future fees payable to parent $ 576,034 $ 368,978 $ 233,034 $ 47,112 $ - ============= ============= ============= ============ ============ Surplus Notes $ 179,000 $ 193,000 $ 213,000 $ 213,000 $ 103,000 ============= ============= ============= ============ ============ Shareholder's Equity $ 359,434 $ 250,417 $ 184,421 $ 126,345 $ 59,713 ============= ============= ============= =========== ============
* On annuity and life insurance sales of $6,862,968, $4,159,662, $3,697,990, $2,795,114, and $1,628,486 during the years ended December 31, 1999, 1998, 1997, 1996, and 1995, respectively, with contractowner assets under management of $29,396,693, $17,854,761, $12,119,191, $7,764,891, and $4,704,044 as of December 31, 1999, 1998, 1997, 1996 and 1995, respectively. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and the notes thereto and Item 6, Selected Financial Data. Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking statements pursuant to the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on estimates and assumptions that involve certain risks and uncertainties, therefore actual results could differ materially due to factors not currently known. These factors include significant changes in financial markets and other economic and business conditions, state and federal legislation and regulation, ownership and competition. Results of Operations Annuity and life insurance sales increased 65%, 12%, and 32% in 1999, 1998 and 1997, respectively. The Company continues to show significant growth in sales volume as a result of innovative product development activities, the recruitment and retention of top producers, and the success of its highly rated customer service teams. The sales growth was also attributable to the strong performance of the underlying mutual funds, which support the Separate Account assets. All three major distribution channels achieved significant sales growth in 1999. As a result of the significant growth in sales and assets under management, contractowner fees and charges and fees generated from transfer agency-type and investment support activities increased considerably over the past three years: (annual percentage growth) 1999 1998 1997 Annuity and life insurance charges and fees 56% 54% 74% Fee income 64% 84% 68% Net investment income decreased 6% in 1999, increased 36% and 416% in 1998 and 1997, respectively. The decrease in 1999 was the result of $1,036,000 of amortization of the premium paid on a derivative instrument purchased during 1999. As noted in Note 2C of Notes to Consolidated Financial Statements, the derivative instrument, an equity put option, was purchased as a hedge against potential GMDB reserves increases. Excluding the derivative amortization, 1999 net investment income increased 3% as a result of increased bond holdings in support of the Company's risk-based capital initiatives. The increases in 1998 and 1997 were generated from the bond holdings, which were increased in 1998 and 1997 to meet risk based capital goals, which in turn, have increased as a result of the growth in business. Premium income represents premiums earned on sale of ancillary contracts; immediate annuities with life contingencies, supplementary contracts with life contingencies and certain life insurance products. Sales of supplementary contracts increased in 1999 and decreased in slightly in 1998 and 1997. There were no immediate annuities sold in 1999 and sales in 1998 and 1997 were modest. Annuity benefits, which represent immediate annuities, supplementary contracts and death benefits paid on annuity contracts with mortality risks were not significant in each of the past three years due primarily to the age of the policies in force. The change in annuity policy reserves includes changes in reserves related to annuity contracts with mortality risks as well as the Company's guaranteed minimum death benefit ("GMDB") liability. During the second quarter of 1999, the Company's agreement to reinsure substantially all of its exposure on the GMDB was terminated and the business was recaptured, as the reinsurer had announced its intention to exit this market. The increase in reserves resulting from this change was offset by a decrease in reserves associated with the change to reserve methodology on the GMDB. The new reserve methodology complies with the National Association of Insurance Commissioners Actuarial Guideline XXXIV. In the later half of 1999, the Company instituted a hedge program to manage the market risk and reserve fluctuations associated with the GMDB policies through the use of equity put options. The Company is currently continuing this program while evaluating alternative hedging strategies. The reinsurance premium associated with the GMDB exposure is based on levels of assets under management. Due to increased sales and account growth, this cost had increased in 1997 and 1998 and through May 1999. The termination of the reinsurance treaty as of May 31, 1999 resulted in the year to year decrease in this benefit for the twelve months ended December 31, 1999. Return credited to contractowners consists of revenues on the variable and market value adjusted annuities and variable life insurance, offset by the benefit payments and change in reserves required on this business. Market value adjusted annuity activity has the largest impact on this benefit. In 1999, the Separate Account investment returns on these contracts did not meet the expected returns calculated in the reserves. In 1998, the actual returns significantly outperformed the expected returns and in 1997, these expectations were met. Underwriting, acquisition and other insurance expenses for 1999, 1998 and 1997 were as follows:
(in thousands) 1999 1998 1997 ---- ---- ---- Commissions and general expenses $ 576,649 $ 342,594 $ 281,560 Net capitalization of deferred acquisition costs (370,299) (174,804) (191,064) --------- --------- --------- Underwriting, acquisition and other insurance expenses $ 206,350 $167,790 $90,496 ========= ======== =======
Commissions, general operating expenses and the net deferral of acquisition costs have all increased in 1999, due largely to record sales. Current sales trends have resulted in a shift to asset based commission agreements. This coupled with increased asset levels from increased sales and equity market appreciation have led to the increase in commissions and general expenses. In 1998, commissions and general expenses increased as a result of strong sales and start up costs associated with the Company's entry into variable life insurance and qualified plans. The net capitalization of acquisition costs decreased in 1998 as a result of increased amortization. In 1997, expense increases were driven primarily from strong sales. Interest expense increased $28,498,000, $16,109,000 and $14,104,000 in 1999, 1998 and 1997, respectively, as a result of additional financing transactions, which consisted of the sale of future fees to the Parent ("securitization transactions"). In addition, the Company retired surplus notes on December 10, 1999 and December 31, 1998 of $14,000,000 and $20,000,000 respectively. Surplus notes outstanding as of December 31, 1999 and 1998 totaled $179,000,000 and $193,000,000, respectively. The effective income tax rates for the years ended December 31, 1999, 1998 and 1997 were 28%, 19% and 28%, respectively. The effective rate is lower than the corporate rate of 35% due to permanent differences, with the most significant item being the dividend received deduction. Management believes that based on the taxable income produced in the past two years, as well as the continued growth in annuity sales, the Company will produce sufficient taxable income in future years to realize its deferred tax assets. The Company generated net income after tax of $76,169,000, $34,767,000 and $27,548,000 in 1999, 1998 and 1997, respectively. The Company benefited in each of the past three years from strong sales growth and favorable market conditions. The Company considers Mexico an emerging market and has invested in the Skandia Vida operations with the expectation of generating profits from long-term savings products in future years. As such, Skandia Vida has generated net losses of $2,523,000, $2,514,000 and $1,438,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Total assets grew 64%, 46%, and 56% in 1999, 1998 and 1997, respectively. These increases were a direct result of the substantial sales volume and market growth of the separate account assets. The sales and market growth also drove increases in deferred acquisition costs, as well as fixed maturity investments held in support of the Company's risk based capital requirements. Liabilities grew 64%, 46%, and 56% in 1999, 1998 and 1997, respectively, as a result of the reserves required for the increased sales activity along with the sale of future fees and charges during these periods. These sales of future fees and charges to the Parent are needed to fund the acquisition costs of the Company's variable annuity and life insurance business. Liquidity and Capital Resources The Company's liquidity requirement was met by cash from insurance operations, investment activities, borrowings from its Parent and the sale of rights to future fees and charges to its Parent. The majority of the operating cash outflow resulted from the sale of variable annuity and variable life products which carry a contingent deferred sales charge. This type of product causes a temporary cash strain in that 100% of the proceeds are invested in separate accounts supporting the product leaving a cash (but not capital) strain caused by the acquisition cost for the new business. This cash strain required the Company to look beyond the cash made available by insurance operations and investments of the Company to financing in the form of surplus notes, capital contributions, the sale of certain rights to future fees and charges as well as modified coinsurance reinsurance arrangements: o During 1999 and 1998, the Company received $34,800,000 and $22,600,000, respectively, from ASI to support the capital needs of its U.S. operations during the current year along with the following year's anticipated growth in business. In addition, the Company received $1,690,000 and $5,762,000 from ASI in 1999 and 1998 to support its investment in Skandia Vida. o Funds received from new securitization transactions amounted to $265,710,000, $169,881,000, and $194,512,000 for 1999, 1998 and 1997, respectively (see Note 8 of the Notes to Audited Consolidated Financial Statements). In addition, $71,000,000 was received from ASI in the fourth quarter of 1999 in advance of a securitization transaction completed in the first quarter of 2000. o During 1999, 1998 and 1997, the Company extended its reinsurance agreements. The reinsurance agreements are modified coinsurance arrangements where the reinsurer shares in the experience of a specific book of business. The Company expects the continued use of reinsurance and securitization transactions to fund the cash strain anticipated from the acquisition costs on the coming years' sales volume. As of December 31, 1999 and 1998, shareholder's equity was $359,434,000 and $250,417,000, respectively. The increases were driven by the previously mentioned capital contributions received from ASI and net income from operations. The Company has long-term surplus notes and short-term borrowings with ASI. No dividends have been paid to ASI. The National Association of Insurance Commissioners ("NAIC") requires insurance companies to report information regarding minimum Risk Based Capital ("RBC") requirements. These requirements are intended to allow insurance regulators to identify companies which may need regulatory attention. The RBC model law requires that insurance companies apply various factors to asset, premium and reserve items, all of which have inherent risks. The formula includes components for asset risk, insurance risk, interest risk and business risk. The Company has complied with the NAIC's RBC reporting requirements and has total adjusted capital well above required capital. Effects of Inflation The rate of inflation has not had a significant effect on the Company's financial statements. Year 2000 Compliance The Company's computer support is provided by its affiliate, American Skandia Information Services and Technology Corporation, which also provides such support for the Company's affiliated broker-dealer, American Skandia Marketing, Incorporated and the Company's affiliated investment advisory firm, American Skandia Investment Services, Incorporated. Because of the nature of the Company's business, any assessment of the potential impact of the Year 2000 issues on the Company must be an assessment of the potential impact of these issues on all these companies, which are referred to below as "American Skandia". The Company experienced no significant errors or disruptions in computer service, interfaces with computer systems of investment managers, sub-advisors, third party administrators, vendors and other business partners on or after January 1, 2000. American Skandia engaged external information technology specialists to review its operating systems and internally developed software. The costs associated with these assessments and Year 2000 related remediation was $1,400,000 in 1999 and $750,000 in 1998 and prior. The Company was allocated the majority of these costs. American Skandia continues to review new and existing systems and has contingency plans in place as part of its Business Continuity Plan. This plan involves virtually all aspects of the business and will continue to be a focus of management beyond the Year 2000 event. Outlook The Company believes that it is well positioned to retain and enhance its position as a leading provider of financial products for long-term savings and retirement purposes as well as to address the economic impact of premature death, estate and business planning concerns and supplemental retirement needs. Strength in the areas of investment options offered, innovative and leading edge product offerings and superior customer service are expected to allow the Company to continue to grow market share in a marketplace which continues to grow. Certain regulatory and legislative initiatives or proposed accounting standards, if adopted, could adversely impact the Company, despite it's strong market position. Of particular importance is President Clinton's proposed budget for 2001, which includes proposed revenue-raising tax changes such as the "DAC tax" on annuity and life products that could further increase the Company's cash strain. In addition, the recently enacted Financial Services Modernization Act, which allows banks and insurance companies to affiliate under a common holding company, may create previously unseen competitive pressures that could impact the Company's ability to do business in the same manner it has previously. Additionally, discussions on regulation of the Internet may impact on the way the Company does business in the future. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to potential fluctuations in earnings and the fair value of certain of its assets and liabilities, as well as variations in expected cash flows due to changes in market interest rates and equity prices. The following discussion focuses on specific exposures the Company has to interest rate and equity price risk and describes strategies used to manage these risks. The discussion is limited to financial instruments subject to market risks and is not intended to be a complete discussion of all of the risks the Company is exposed to. Interest Rate Risk Fluctuations in interest rates can potentially impact the Company's profitability and cash flows. The Company has 97% of assets held under management that are in non-guaranteed Separate Accounts for which the Company's exposure is not significant as the contractowner assumes substantially all the investment risk. On the remaining 3% of assets the interest rate risk from contracts that carry interest rate exposure, is managed through an asset/liability matching program which takes into account the risk variables of the insurance liabilities supported by the assets. At December 31, 1999, the Company held in its general account $201,509,000 of fixed maturity investments that are sensitive to changes in interest rates. These securities are held in support of the Company's fixed immediate annuities and supplementary contracts ($29,912,000 in reserves at December 31, 1999) and in support of the Company's target solvency capital. The Company has a conservative investment philosophy with regard to these investments. All investments are investment grade corporate securities, government agency or U.S. government securities. The Company's deferred annuity products offer a fixed option which subjects the Company to interest rate risk. The fixed option guarantees a fixed rate of interest for a period of time selected by the contractowner. Guarantee period options available range from 1 to 10 years. Withdrawal of funds before the end of the guarantee period subjects the contract holder to a market value adjustment ("MVA"). In the event of rising interest rates, which make the fixed maturity securities underlying the guarantee less valuable, the MVA could be negative. In the event of declining interest rates, which make the fixed maturity securities underlying the guarantee more valuable, the MVA could be positive. The resulting increase or decrease in the value of the fixed option, from calculation of the MVA, should substantially offset the increase or decrease in the market value of the securities underlying the guarantee. The Company maintains strict asset/liability matching to enable this offset. However, the Company still takes on the default risk for the underlying securities, the interest rate risk of reinvestment of interest payments and the risk of failing to maintain the asset/liability matching program with respect to duration and convexity. At December 31, 1999 the Company had $939,585,000 in fixed investment options subject to these risks. Equity Market Exposure The primary equity market risk to the Company comes from the nature of the variable annuity and variable life products sold by the Company. Various fees and charges earned are substantially derived as a percentage of the market value of assets under management. In a market decline, this income would be reduced. This could be further compounded by customer withdrawals, net of applicable surrender charge revenues, partially offset by transfers to the fixed option discussed above. A 10% decline in the market value of the assets under management at December 31, 1999, sustained throughout 2000, would result in an approximate drop in related annual fee income of $48,178,000. As discussed in Note 2 of the Consolidated Financial Statements, in 1999 the Company utilized derivative instruments to hedge against the risk of significant decreases in equity markets which would expose the Company to increases in guaranteed minimum death benefits liabilities. Prior to the implementation of this program the Company utilized reinsurance to transfer this risk. The Company has a small portfolio of equity investments; mutual funds which are held in support of a deferred compensation program. In the event of a decline in market values of underlying securities, the value of the portfolio would decline, however the accrued benefits payable under the related deferred compensation program would decline by a corresponding amount. In addition, it is not clear what the impact of a prolonged downturn in the equity markets would have on ongoing sales. Customer's perceptions of a downturn in equity markets coupled with rising interest rates could move them into financial products other than variable annuities or variable life; however, the Company's products might remain attractive to purchasers in relation to other long-term savings vehicles even after such a decline. AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN SKANDIA LIFE ASSURANCE CORPORATION INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Shareholder of American Skandia Life Assurance Corporation Shelton, Connecticut We have audited the consolidated statements of financial condition of American Skandia Life Assurance Corporation (the "Company" which is a wholly-owned subsidiary of Skandia Insurance Company Ltd.) as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholder's equity, and cash flows for each of the three years in the period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Skandia Life Assurance Corporation at December 31, 1999 and 1998, and the consolidated results of their operations and cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. /s/Ernst & Young LLP Hartford, Connecticut February 11, 2000, except for Note 18 as to which the date is March 22, 2000 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Consolidated Statements of Financial Condition (in thousands)
As of December 31, 1999 1998 --------------- ---------------- ASSETS Investments: Fixed maturities - at amortized cost $ 3,360 $ 8,289 Fixed maturities - at fair value 198,165 141,195 Investment in mutual funds - at fair value 16,404 8,210 Derivative instruments 189 - Policy loans 1,270 569 -------------- -------------- Total investments 219,388 158,263 Cash and cash equivalents 89,212 77,525 Accrued investment income 4,054 2,880 Deferred acquisition costs 1,087,705 721,507 Reinsurance receivable 4,062 4,191 Receivable from affiliates - 1,161 Income tax receivable - deferred 51,726 38,861 State insurance licenses 4,263 4,413 Fixed assets 3,305 328 Other assets 4,533 3,744 Separate account assets 29,381,166 17,835,400 --------------- ---------------- Total assets $ 30,849,414 $ 18,848,273 =============== ================
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities: Reserve for future contractowner benefits $ 11,215 $ 37,508 Policy reserves 29,912 25,545 Drafts outstanding 51,059 28,941 Accounts payable and accrued expenses 158,590 91,827 Income tax payable 24,268 6,657 Payable to affiliates 68,736 - Future fees payable to parent 576,034 368,978 Short-term borrowing 10,000 10,000 Surplus notes 179,000 193,000 Separate account liabilities 29,381,166 17,835,400 --------------- ---------------- Total Liabilities 30,489,980 18,597,856 --------------- ---------------- Shareholder's equity: Common stock, $100 and $80 par value, 25,000 shares authorized, issued and outstanding 2,500 2,000 Additional paid-in capital 215,879 179,889 Retained earnings 141,162 64,993 Accumulated other comprehensive income (107) 3,535 --------------- ---------------- Total Shareholder's equity 359,434 250,417 --------------- ---------------- Total liabilities and shareholder's equity $ 30,849,414 $ 18,848,273 =============== ================
See notes to consolidated financial statements. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Consolidated Statements of Operations (in thousands)
For the Year Ended December 31, 1999 1998 1997 -------------- ------------- ------------- REVENUES Annuity and life insurance charges and fees $ 289,989 $ 186,211 $ 121,158 Fee income 83,243 50,839 27,593 Net investment income 10,441 11,130 8,181 Premium income 1,278 874 920 Net realized capital gains 578 99 87 Other 1,832 387 75 -------------- ------------- ------------- Total revenues 387,361 249,540 158,014 -------------- ------------- ------------- EXPENSES Benefits: Annuity and life insurance benefits 612 558 2,033 Change in annuity and life insurance policy reserves 3,078 1,053 37 Cost of minimum death benefit reinsurance 2,945 5,144 4,545 Return credited to contractowners (1,639) (8,930) (2,018) -------------- ------------- ------------- 4,996 (2,175) 4,597 Expenses: Underwriting, acquisition and other insurance expenses 206,350 167,790 90,496 Interest expense 69,502 41,004 24,895 -------------- ------------- ------------- 275,852 208,794 115,391 -------------- ------------- ------------- Total benefits and expenses 280,848 206,619 119,988 -------------- ------------- ------------- Income from operations before income tax 106,513 42,921 38,026 Income tax expense 30,344 8,154 10,478 -------------- ------------- ------------- Net income $ 76,169 $ 34,767 $ 27,548 ============== ============= =============
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 (in thousands)
For the Year Ended December 31, 1999 1998 1997 -------------- -------------- -------------- Common stock: Beginning balance $ 2,000 $ 2,000 $ 2,000 Increase in par value 500 - - -------------- -------------- -------------- Ending balance 2,500 2,000 2,000 -------------- -------------- -------------- Additional paid in capital: Beginning balance 179,889 151,527 122,250 Transferred to common stock (500) - - Additional contributions 36,490 28,362 29,277 -------------- -------------- -------------- Ending balance 215,879 179,889 151,527 -------------- -------------- -------------- Retained earnings: Beginning balance 64,993 30,226 2,678 Net income 76,169 34,767 27,548 -------------- -------------- -------------- Ending balance 141,162 64,993 30,226 -------------- -------------- -------------- Accumulated other comprehensive income: Beginning balance 3,535 668 (584) Other comprehensive income (3,642) 2,867 1,252 -------------- -------------- -------------- Ending Balance (107) 3,535 668 -------------- -------------- -------------- Total shareholder's equity $ 359,434 $ 250,417 $ 184,421 ============== ============== ==============
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 (in thousands)
For the Year Ended December 31, 1999 1998 1997 -------------- ------------- -------------- Cash flow from operating activities: Net income $ 76,169 34,767 $ 27,548 Adjustments to reconcile net income to net cash used in operating activities: Amortization and depreciation 1,495 251 223 Deferred tax expense (10,903) (14,242) (9,631) Change in unrealized losses on derivatives 3,749 - - Increase in policy reserves 4,367 1,130 3,176 Change in receivable from/payable to affiliates 69,897 166 (1,321) Change in income tax payable 17,611 7,704 (2,172) Increase in other assets (789) (1,173) (415) Increase in accrued investment income (1,174) (438) (483) Decrease/(increase) in reinsurance receivable 129 2,152 (268) Increase in deferred acquisition costs (366,198) (174,804) (190,969) Increase in accounts payable and accrued expenses 66,763 20,637 5,719 Increase in drafts outstanding 22,118 9,663 6,245 Change in foreign currency translation, net 701 (22) (34) Realized capital gain (578) (99) (87) -------------- ------------- -------------- Net cash used in operating activities (116,643) (114,308) (162,469) -------------- ------------- -------------- Cash flow from investing activites: Purchase of fixed maturity investments (99,250) (31,828) (28,905) Proceeds from sale and maturity of fixed maturity investments 36,226 4,049 10,755 Purchase of derivatives (4,974) - - Purchase of shares in mutual funds (17,703) (7,158) (5,595) Proceeds from sale of shares in mutual funds 14,657 6,086 1,415 Purchase of fixed assets (3,178) (18) (189) Increase in policy loans (701) 118 (528) -------------- ------------- -------------- Net cash used in investing activities (74,923) (28,751) (23,047) -------------- ------------- -------------- Cash flow from financing activities: Capital contribution from parent 22,490 8,362 29,277 Increase in future fees payable to parent 207,056 135,944 185,922 Net withdrawals from contractowner accounts (26,293) (5,696) 6,959 -------------- ------------- -------------- Net cash provided by financing activities 203,253 138,610 222,158 -------------- ------------- -------------- Net increase/(decrease) in cash and cash equivalents 11,687 (4,449) 36,642 Cash and cash equivalents at beginning of year 77,525 81,974 45,332 -------------- ------------- -------------- Cash and cash equivalent at end of year $ 89,212 77,525 $ 81,974 ============== ============= ============== Income taxes paid $ 23,637 14,651 $ 22,308 ============== ============= ============== Interest paid $ 69,697 35,588 $ 16,916 ============== ============= ==============
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 December 31, 1999 1. ORGANIZATION AND OPERATION American Skandia Life Assurance Corporation (the "Company") is a wholly-owned subsidiary of American Skandia, Inc. ("ASI", formerly known as American Skandia Investment Holding Corporation) whose ultimate parent is Skandia Insurance Company Ltd., a Swedish Corporation. The Company develops long-term savings and retirement products which are distributed through its affiliated broker/dealer company, American Skandia Marketing, Incorporated ("ASM"). The Company currently issues variable life insurance and variable, fixed, market value adjusted and immediate annuities for individuals, groups and qualified pension plans. The Company has 99.9% ownership in Skandia Vida, S.A. de C.V. ("Skandia Vida") which is a life insurance company domiciled in Mexico. Skandia Vida had total shareholder's equity of $4,592,000 and $4,724,000 as of December 31, 1999, and 1998, respectively. The Company considers Mexico an emerging market and has invested in the Skandia Vida operations with the expectation of generating profits from long-term savings products in future years. As such, Skandia Vida has generated net losses of $2,523,000, $2,514,000 and $1,438,000 for the years ended December 31, 1999, 1998 and 1997, respectively. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Basis of Reporting The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles. Intercompany transactions and balances have been eliminated in consolidation. Certain reclassifications have been made to prior year amounts to conform with the current year presentation. B. New Accounting Pronouncements In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Software Developed or Obtained for Internal Use. The SOP, which has been adopted prospectively as of January 1, 1999, requires the capitalization of certain costs incurred in connection with developing or obtaining internal use software. Prior to the adoption of SOP 98-1, the Company expensed all internal use software related costs as incurred. The Company has identified and capitalized $3,035,000 of costs associated with internal use software during 1999 and is amortizing the applicable costs on a straight-line basis over a three year period. At December 31, 1999, the unamortized balance was $2,920,000 and is included in fixed assets. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS 133). Subsequently, in July 1999, FASB issued FAS 137 "Deferral of the Effective Date of FASB Statement 133". The adoption date was delayed to fiscal years beginning after June 15, 2000. The Company is currently evaluating the potential impact on its financial position. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) C. Investments The Company has classified its fixed maturity investments as either held-to-maturity or available-for-sale. Investments classified as held-to-maturity are investments that the Company has the ability and intent to hold to maturity. Such investments are carried at amortized cost. Those investments which are classified as available-for-sale are carried at fair value and changes in unrealized gains and losses are reported as a component of other comprehensive income. The Company has classified its mutual fund investments held in support of a deferred compensation plan are available-for-sale. Such investments are carried at fair value and changes in unrealized gains and losses are reported as a component of other comprehensive income. Derivative instruments are recorded consistent with hedged items. The Company hedges the market value fluctuations of the guaranteed minimum death benefit ("GMDB") exposure embedded in its policy reserves and as such, the portion of the derivative instrument which constitutes an effective hedge is carried at market value. The cost associated with the portion of the instrument which is not considered an effective hedge is amortized to investment income over the life of the instrument. Policy loans are carried at their unpaid principal balances. Realized gains and losses on disposal of investments are determined by the specific identification method and are included in revenues. D. Derivative Instruments During the second quarter of 1999, the Company's agreement to reinsure substantially all of its exposure on its GMDB liability was terminated and the business was recaptured, as the reinsurer had recently announced its intention to exit this market. In response, the Company instituted a hedge program to effectively manage the market risk associated with GMDB reserve fluctuations using put options. The cash invested in the put options is at risk to the extent that the value of the underlying index is less than the strike price at the exercise date. This would be offset by a corresponding decrease in the hedged GMDB exposure. E. Cash Equivalents The Company considers all highly liquid time deposits, commercial paper and money market mutual funds purchased with a maturity of three months or less to be cash equivalents. F. Fair Values of Financial Instruments The methods and assumptions used to determine the fair value of financial instruments are as follows: Fair values of fixed maturities with active markets are based on quoted market prices. For fixed maturities that trade in less active markets, fair values are obtained from an independent pricing service. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) F. Fair Values of Financial Instruments (continued) Fair values of investments in mutual funds are based on quoted market prices. The fair value of the portion of the derivative instrument which constitutes an effective hedge is determined based on current value of the underlying index. The carrying value of cash and cash equivalents approximates fair value due to the short-term nature of these investments. The carrying value of short-term borrowing approximates fair value due to the short-term nature of these liabilities. Fair values of certain financial instruments, such as future fees payable to parent and surplus notes are not readily determinable and are excluded from fair value disclosure requirements. G. State Insurance Licenses Licenses to do business in all states have been capitalized and reflected at the purchase price of $6,000,000 less accumulated amortization. The cost of the licenses is being amortized on a straight line basis over 40 years. H. Income Taxes The Company is included in the consolidated federal income tax return and combined state income tax return of an upstream company, Skandia AFS Development Holding Corporation and certain of its subsidiaries. In accordance with the tax sharing agreement, the federal and state income tax provisions are computed on a separate return basis as adjusted for consolidated items such as net operating loss carryforwards. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. I. Recognition of Revenue and Contract Benefits Revenues for variable annuity contracts consist of charges against contractowner account values for mortality and expense risks, administration fees, surrender charges and an annual maintenance fee per contract. Benefit reserves for variable annuity contracts represent the account value of the contracts and are included in the separate account liabilities. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) I. Recognition of Revenue and Contract Benefits (continued) Revenues for market value adjusted fixed annuity contracts consist of separate account investment income reduced by benefit payments and changes in reserves in support of contractowner obligations, all of which are included in return credited to contractowners. Benefit reserves for these contracts represent the account value of the contracts, and are included in the general account reserve for future contractowner benefits to the extent in excess of the separate account liabilities. Revenues for immediate annuity contracts without life contingencies consist of net investment income. Revenues for immediate annuity contracts with life contingencies consist of single premium payments recognized as annuity considerations when received. Benefit reserves for these contracts are based on the Society of Actuaries 1983 Table-a with assumed interest rates that vary by issue year. Assumed interest rates ranged from 6.25% to 8.25% at December 31, 1999 and 1998. Revenues for variable life insurance contracts consist of charges against contractowner account values for mortality and expense risk fees, cost of insurance fees, taxes and surrender charges. Certain contracts also include charges against premium to pay state premium taxes. Benefit reserves for variable life insurance contracts represent the account value of the contracts and are included in the separate account liabilities. J. Deferred Acquisition Costs The costs of acquiring new business, which vary with and are primarily related to the production of new business, are being deferred net of reinsurance. These costs include commissions, costs of contract issuance, and certain selling expenses that vary with production. These costs are being amortized generally in proportion to expected gross profits from surrender charges, policy and asset based fees and mortality and expense margins. This amortization is adjusted retrospectively and prospectively when estimates of current and future gross profits to be realized from a group of products are revised. Details of the deferred acquisition costs and related amortization for the years ended December 31, are as follows:
(in thousands) 1999 1998 1997 ---- ---- ---- Balance at beginning of year $721,507 $546,703 $355,734 -------- -------- -------- Acquisition costs deferred during the year 450,059 261,432 243,476 Acquisition costs amortized during the year (83,861) (86,628) (52,507) --------- -------- -------- 366,198 174,804 190,969 ------- ------- ------- Balance at end of year $1,087,705 $721,507 $546,703 ========== ======== ========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) K. Reinsurance The Company cedes reinsurance under modified co-insurance arrangements. These reinsurance arrangements provide additional capacity for growth in supporting the cash flow strain from the Company's variable annuity and variable life insurance business. The reinsurance is effected under quota share contracts. As noted in Note 2D, the Company reinsured its exposure to market fluctuations associated with its GMDB liability in 1999, 1998 and the beginning of 1997. Under this reinsurance agreement, the Company ceded premiums of $2,945,000, $5,144,000 and $4,545,000; received claim reimbursements of $242,000, $9,000 and $46,000; and, recorded increases/(decreases) in reserves of ($2,763,000), ($323,000) and $918,000 in each of the three years, respectively. At December 31, 1999 and 1998, in accordance with the provisions of a modified coinsurance agreement, the Company accrued $41,000 and $1,976,000, respectively, for amounts receivable from favorable reinsurance experience on a block of variable annuity business. L. Translation of Foreign Currency The financial position and results of operations of the Company's Mexican subsidiary are measured using local currency as the functional currency. Assets and liabilities of the subsidiary are translated at the exchange rate in effect at each year-end. Statements of income and shareholder's equity accounts are translated at the average rate prevailing during the year. Translation adjustments arising from the use of differing exchange rates from period to period are reported as a component of other comprehensive income. M. Separate Accounts Assets and liabilities in Separate Accounts are included as separate captions in the consolidated statements of financial condition. Separate Account assets consist principally of long term bonds, investments in mutual funds, short-term securities and cash and cash equivalents, all of which are carried at fair value. The investments are managed predominately through the Company's investment advisory affiliate, American Skandia Investment Services, Inc. ("ASISI"), utilizing various fund managers as sub-advisors. The remaining investments are managed by independent investment firms. The contractowner has the option of directing funds to a wide variety of mutual funds. The investment risk on the variable portion of a contract is borne by the contractowner. A fixed option with a minimum guaranteed interest rate is also available. The Company is responsible for the credit risk associated with these investments. Included in Separate Account liabilities are $896,205,000 and $771,195,000 at December 31, 1999 and 1998, respectively, relating to annuity contracts for which the contractowner is guaranteed a fixed rate of return. Separate Account assets of $896,205,000 and $771,195,000 at December 31, 1999 and 1998, respectively, consisting of long term bonds, short term securities, transfers due from the general account and cash and cash equivalents which are held in support of these annuity contracts, pursuant to state regulation. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) N. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires that management make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant estimates and assumptions are related to deferred acquisition costs and involve policy lapses, investment return and maintenance expenses. Actual results could differ from those estimates. 3. COMPREHENSIVE INCOME The components of comprehensive income, net of tax, for the years ended December 31, 1998, 1997 and 1996 were as follows:
(in thousands) 1999 1998 1997 ---- ---- ---- Net income $76,169 $34,767 $27,548 Other comprehensive income: Unrealized investment gains/(losses) on available for sale securities (3,082) 2,751 1,288 Reclassification adjustment for realized losses/(gains) included in investment income (1,016) 138 (14) ------- --------- --------- Net unrealized gains/(losses) on securities (4,098) 2,889 1,274 Foreign currency translation 456 (22) (22) --------- ---------- ---------- Other comprehensive income (3,642) 2,867 1,252 --------- -------- -------- Comprehensive income $72,527 $37,634 $28,800 ======= ======= =======
The components of accumulated other comprehensive income, net of tax, as of December 31, 1999 and 1998 were as follows:
(in thousands) 1999 1998 ---- ---- Unrealized investment gains ($255) $3,843 Foreign currency translation 148 (308) ------ ------- Accumulated other comprehensive income ($107) $3,535 ====== ======
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 4. INVESTMENTS The amortized cost, gross unrealized gains/losses and estimated fair value of available-for-sale and held-to-maturity fixed maturities and investments in mutual funds as of December 31, 1999 and 1998 are shown below. All securities held at December 31, 1999 and 1998 were publicly traded. Investments in fixed maturities as of December 31, 1999 consisted of the following:
(in thousands) Held-to-Maturity Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value U.S. Government obligations $1,105 $ - $ (1) $1,104 Corporate securities 2,255 - (15) 2,240 ----- ---- ----- ------- Totals $3,360 $ - $(16) $3,344 ====== ==== ===== ====== (in thousands) Available-for-Sale Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value U.S. Government obligations $ 81,183 $ - $ (678) $ 80,505 Obligations of state and political subdivisions 253 (3) 250 Corporate securities 121,859 - (4,449) 117,410 --------- ---- ------ --------- Totals $203,295 $ - $ (5,130) $198,165 ======== ==== ========= ======== The amortized cost and fair value of fixed maturities, by contractual maturity, at December 31, 1999 are shown below. (in thousands) Held-to-Maturity Available-for-Sale ---------------- ------------------ Amortized Fair Amortized Fair Cost Value Cost Value Due in one year or less $3,107 $3,097 $ - $ - Due after one through five years 253 247 130,284 128,250 Due after five through ten years - - 73,011 69,915 ---------- ---------- ---------- ---------- Total $3,360 $3,344 $203,295 $198,165 ====== ====== ======== ========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 4. INVESTMENTS (continued) Investments in fixed maturities as of December 31, 1998 consisted of the following:
(in thousands) Held-to-Maturity Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- U.S. Government obligations $3,774 $57 $- $3,831 Obligations of state and political subdivisions - - - - Corporate securities 4,515 34 - 4,549 ------- ---- --- ------- Totals $8,289 $91 $ - $8,380 ====== === === ====== (in thousands) Available for Sale Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- U.S. Government obligations $ 17,399 $ 678 $ - $ 18,077 Obligations of state and political subdivisions 253 7 - 260 Corporate securities 117,774 5,160 (76) 122,858 --------- ------- ------- ---------- Totals $135,426 $5,845 $ (76) $141,195 ======== ====== ====== ======== Proceeds from sales of fixed maturities during 1999, 1998 and 1997 were $32,196,000, $999,000, and $5,056,000, respectively. Proceeds from maturities during 1999, 1998 and 1997 were $4,030,000, $3,050,000, and $5,700,000, respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 4. INVESTMENTS (continued) The cost, gross unrealized gains/losses and fair value of investments in mutual funds at December 31, 1999 and 1998 are shown below:
(in thousands) Gross Gross Unrealized Unrealized Fair Cost Gains Losses Value 1999 $11,667 $4,763 $ (26) $16,404 ======= ====== ====== ======= 1998 $8,068 $416 $ (274) $8,210 ====== ==== ======= ====== Net realized investment gains (losses) were as follows for the years ended December 31: (in thousands) 1999 1998 1997 ------ ---- ---- Fixed maturities: Gross gains $ 253 $ - $ 10 Gross losses (228) (1) - Investment in mutual funds: Gross gains 990 281 116 Gross losses (437) (181) (39) ------- ------ ------ Totals $ 578 $ 99 $ 87 ====== ===== =====
5. NET INVESTMENT INCOME The sources of net investment income for the years ended December 31, 1999, 1998 and 1997 were as follows: (in thousands) 1999 1998 1997 ---- ---- ---- Fixed maturities $ 9,461 $ 8,534 $6,617 Cash and cash equivalents 2,159 1,717 1,153 Investment in mutual funds 32 1,013 554 Policy loans 31 45 28 Derivative Instruments (1,036) - - --------- ---------- --------- Total investment income 10,647 11,309 8,352 Investment expenses 206 179 171 ---------- ---------- -------- Net investment income $10,441 $11,130 $8,181 ======= ======= ======
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 6. INCOME TAXES The significant components of income tax expense for the years ended December 31 were as follows:
(in thousands) 1999 1998 1997 ---- ---- ---- Current tax expense $41,248 $22,384 $20,108 Deferred tax benefit (10,904) (14,230) (9,630) -------- -------- --------- Total income tax expense $30,344 $ 8,154 $10,478 ======= ======== =======
The tax effects of significant items comprising the Company's deferred tax balance as of December 31, 1999 and 1998, are as follows:
(in thousands) 1999 1998 ---- ---- Deferred tax liabilities: Deferred acquisition costs ($321,873) ($210,731) Payable to reinsurers (26,733) (25,585) Policy fees (1,146) (859) Net unrealized gains (80) (2,069) ------------ ----------- Total (349,832) (239,244) -------- --------- Deferred tax assets: Net separate account liabilities 333,521 225,600 Future contractowner benefits 3,925 13,128 Other reserve differences 39,645 25,335 Deferred compensation 18,844 9,619 Surplus notes interest 5,030 3,375 Foreign exchange translation 137 166 Other 456 882 ----------- ------------ Total 401,558 278,105 -------- --------- Income tax receivable - deferred $ 51,726 $ 38,861 ========= =========
Management believes that based on the taxable income produced in the current year and the continued growth in annuity products, the Company will produce sufficient taxable income in the future to realize its deferred tax asset. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 6. INCOME TAXES (continued) The income tax expense was different from the amount computed by applying the federal statutory tax rate of 35% to pre-tax income from continuing operations as follows:
(in thousands) 1999 1998 1997 ---- ---- ---- Income (loss) before taxes Domestic $109,036 $45,435 $39,464 Foreign (2,523) (2,514) (1,438) ---------- --------- --------- Total 106,513 42,921 38,026 Income tax rate 35% 35% 35% --------- --------- --------- Tax expense at federal statutory income tax rate 37,280 15,022 13,309 Tax effect of: Dividend received deduction (9,572) (9,085) (4,585) Losses of foreign subsidiary 883 880 503 Meals and entertainment 664 487 340 State income taxes 1,071 673 577 Other 18 177 334 --------- -------- ------- Income tax expense $ 30,344 $ 8,154 $10,478 ========= ======== =======
7. RECEIVABLE FROM/PAYABLE TO AFFILIATES Certain operating costs (including personnel, rental of office space, furniture, and equipment) have been charged to the Company at cost by American Skandia Information Services and Technology Corporation ("ASIST"), an affiliated company; and likewise, the Company has charged operating costs to ASISI. The total cost to the Company for these items was $11,136,000, $7,722,000, and $5,572,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Income received for these items was $3,919,000, $1,355,000 and $3,225,000 for the years ended December 31, 1999, 1998 and 1997, respectively. The Company had a $10 million short-term loan payable to ASI at December 31, 1999 and 1998. The total interest expense thereon to the Company was $585,000, $622,000 and $642,000 for the years ended December 31, 1999, 1998 and 1997 respectively, of which $182,000 was payable as of December 31, 1999 and 1998. Beginning in 1999, the Company was reimbursed by ASM for certain distribution related costs associated with the sales of business through an investment firm where ASM serves as an introducing broker dealer. Under this agreement, the expenses reimbursed in 1999 were $1,441,000. As of December 31,1999, amounts receivable under this agreement were $245,000. As of December 31,1999, the Company had received $71,000,000 from ASI in advance of the sale of certain rights to receive future fees and contract charges. This sale is expected to be completed in the first quarter of 2000. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 8. FUTURE FEES PAYABLE TO PARENT In a series of transactions with ASI, the Company sold certain rights to receive future fees and contract charges expected to be realized on variable portions of designated blocks of deferred annuity contracts. The effective dates and issue periods these transactions cover are as follows:
Closing Effective Contract Issue Transaction Date Date Period 1996-1 12/16/96 9/1/96 1/1/94 - 6/30/96 1997-1 7/23/97 6/1/97 3/1/96 - 4/30/97 1997-2 12/30/97 12/1/97 5/1/95 - 12/31/96 1997-3 12/30/97 12/1/97 5/1/96 - 10/31/97 1998-1 6/30/98 6/1/98 1/1/97 - 5/31/98 1998-2 11/10/98 10/1/98 5/1/97 - 8/31/98 1998-3 12/30/98 12/1/98 7/1/96 - 10/31/98 1999-1 6/23/99 6/1/99 4/1/94 - 4/30/99 1999-2 12/14/99 10/1/99 11/1/98 - 7/31/99
In connection with these transactions, ASI issued collateralized notes in a private placement which are secured by the rights to receive future fees and charges purchased from the Company. Under the terms of the Purchase Agreements, the rights sold provide for ASI to receive a percentage (80% or 100% depending on the underlying commission option) of future mortality and expense charges and contingent deferred sales charges, after reinsurance, expected to be realized over the remaining surrender charge period of the designated contracts (6 to 8 years). The Company did not sell the right to receive future fees and charges after the expiration of the surrender charge period. The proceeds from the sales have been recorded as a liability and are being amortized over the remaining surrender charge period of the designated contracts using the interest method. The present values of the transactions as of the respective effective date were as follows:
Present (in thousands) Transaction Discount Rate Value ----------- ------------- ----- 1996-1 7.5% $50,221 1997-1 7.5% 58,767 1997-2 7.5% 77,552 1997-3 7.5% 58,193 1998-1 7.5% 61,180 1998-2 7.0% 68,573 1998-3 7.0% 40,128 1999-1 7.5% 120,632 1999-2 7.5% 145,078
Payments representing fees and charges in the aggregate amount of $131,420,000, $69,226,000 and $22,250,000 were made by the Company to the Parent for the years ended December 31, 1999, 1998 and 1997, respectively. Related interest expense of $52,840,000, $22,978,000 and $6,842,000 has been included in the statement of income for the years ended December 31, 1999, 1998 and 1997, respectively. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 8. FUTURE FEES PAYABLE TO PARENT (continued) Expected payments of future fees payable to ASI as of December 31, 1999 are as follows:
Year Ended (in thousands) December 31, Amount ----------- ------ 2000 $103,975 2001 107,262 2002 106,491 2003 97,550 2004 78,512 2005 51,839 2006 25,712 2007 4,693 --------- Total $576,034
The Commissioner of the State of Connecticut has approved the sale of future fees and charges; however, in the event that the Company becomes subject to an order of liquidation or rehabilitation, the Commissioner has the ability to stop the payments due to the Parent under the Purchase Agreement subject to certain terms and conditions. 9. LEASES The Company leases office space under a lease agreement established in 1989 with ASIST. The lease expense for 1999, 1998 and 1997 was $5,003,000, $3,588,000 and $2,428,000 respectively. Future minimum lease payments per year and in aggregate as of December 31, 1999 are as follows: (in thousands) 2000 $ 7,004 2001 7,004 2002 6,854 2003 6,756 2004 6,929 2005 and thereafter 51,865 -------- Total $86,412 ======= 10. RESTRICTED ASSETS To comply with certain state insurance departments' requirements, the Company maintains cash, bonds and notes on deposit with various states. The carrying value of these deposits amounted to $4,868,000 and $3,747,000 as of December 31, 1999, and 1998, respectively. These deposits are required to be maintained for the protection of contractowners within the individual states. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 11. RETAINED EARNINGS AND DIVIDEND RESTRICTIONS On November 8, 1999, the Board of Directors authorized the Company to increase the par value of its capital stock from $80 per share to $100 per share in order to comply with minimum capital levels as required by the California Department of Insurance. This transaction resulted in a corresponding decrease in paid in and contributed surplus of $500,000 and had no effect on capital and surplus. Statutory basis shareholder's equity was $286,385,000 and $285,553,000 at December 31, 1999 and 1998, respectively. The statutory basis net loss was $17,672,000, $13,152,000 and $8,970,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Under various state insurance laws, the maximum amount of dividends that can be paid to shareholders without prior approval of the state insurance department is subject to restrictions relating to statutory surplus and net gain from operations. At December 31, 1999, no amounts may be distributed without prior approval. 12. EMPLOYEE BENEFITS The Company has a 401(k) plan for which substantially all employees are eligible. Under this plan, the Company contributes 3% of salary for all participating employees and matches employee contributions at a 50% level up to an additional 3% Company contribution. Company contributions to this plan on behalf of the participants were $3,164,000, $2,115,000 and $1,220,000 for the years ended December 31, 1999, 1998 and 1997, respectively. The Company has a deferred compensation plan, which is available to the internal field marketing staff and certain officers. Company contributions to this plan on behalf of the participants were $193,000, $342,000 and $270,000 for the years ended December 31, 1999, 1998 and 1997, respectively. The Company and an affiliate cooperatively have a long-term incentive program under which units are awarded to executive officers and other personnel. The Company also has a profit sharing program which benefits all employees below the officer level. These programs consist of multiple plans with new plans instituted each year. Generally, participants must remain employed by the Company or its affiliates at the time such units are payable in order to receive any payments under the program. The accrued liability representing the value of these units was $42,619,000 and $21,372,000 as of December 31, 1999 and 1998, respectively. Payments under this plan were $4,079,000, $2,407,000 and $1,119,000 for the years ended December 31, 1999, 1998, and 1997, respectively. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 13. REINSURANCE The effect of reinsurance for the years ended December 31, 1999, 1998 and 1997 is as follows: (in thousands) 1999 ----
Annuity and Life Annuity and Life Insurance Insurance Return Credited Charges and Fees Policy Reserves to Contractowners Gross $326,670 $315 ($1,397) Ceded (36,681) 2,763 (242) -------- ------ -------- Net $289,989 $3,078 ($1,639) ======== ====== ======== 1998 ---- Annuity and Life Annuity and Life Insurance Insurance Return Credited Charges and Fees Policy Reserves to Contractowners Gross $215,425 $ 691 ($8,921) Ceded (29,214) 362 (9) -------- ------ -------- Net $186,211 $1,053 ($8,930) ======== ====== ======== 1997 ---- Annuity and life Annuity and Life Insurance Insurance Return Credited Charges and Fees Policy Reserves to Contractowners Gross $144,417 $955 ($1,972) Ceded (23,259) (918) (46) -------- ----- -------- Net $121,158 $ 37 ($2,018) ======== ===== ========
Such ceded reinsurance does not relieve the Company of its obligations to policyholders. The Company remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet its obligations assumed under the reinsurance agreements. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 14. SURPLUS NOTES The Company has issued surplus notes to its Parent in exchange for cash. Surplus notes outstanding as of December 31, 1999 and 1998 were as follows:
(in thousands) Interest for the Interest 1999 1998 Years Ended December 31, Issue Date Rate Amount Amount 1999 1998 1997 ---------- ---- ------ ------ ---- ---- ---- December 29, 1993 6.84% - - - 1,387 1,387 February 18, 1994 7.28% 10,000 10,000 738 738 738 March 28, 1994 7.90% 10,000 10,000 801 801 801 September 30, 1994 9.13% 15,000 15,000 1,389 1,389 1,389 December 28, 1994 9.78% - 14,000 1,308 1,388 1,388 December 19, 1995 7.52% 10,000 10,000 762 762 762 December 20, 1995 7.49% 15,000 15,000 1,139 1,139 1,139 December 22, 1995 7.47% 9,000 9,000 682 682 682 June 28, 1996 8.41% 40,000 40,000 3,411 3,411 3,411 December 30, 1996 8.03% 70,000 70,000 5,698 5,699 5,699 Total $179,000 $193,000 $15,928 $17,396 $17,396 ======== ======== ======= ======= =======
The surplus note for $14,000,000 dated December 28, 1994 was converted to additional paid-in capital on December 10, 1999. A surplus note for $20,000,000 dated December 29, 1993 was converted to additional paid-in capital on December 31, 1998. All surplus notes mature seven years from the issue date. Payment of interest and repayment of principal for these notes is subject to certain conditions and require approval by the Insurance Commissioner of the State of Connecticut. At December 31, 1999 and 1998, $14,372,000 and $9,644,000, respectively, of accrued interest on surplus notes was not approved for payment under these criteria. 15. SHORT-TERM BORROWING The Company had a $10 million short-term loan payable to the Parent at December 31, 1999 and 1998. The total interest expense to the Company was $585,000, $622,000 and $642,000 and for the years ended December 31, 1999, 1998 and 1997, respectively, of which $197,000 and $182,000 was payable as of December 31, 1999 and 1998, respectively. 16. CONTRACT WITHDRAWAL PROVISIONS Approximately 99% of the Company's separate account liabilities are subject to discretionary withdrawal by contractowners at market value or with market value adjustment. Separate account assets which are carried at fair value are adequate to pay such withdrawals which are generally subject to surrender charges ranging from 10% to 1% for contracts held less than 10 years. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 17. SEGMENT REPORTING During 1998, to complement its annuity products, the Company launched specific marketing and operational activities towards the release of variable life insurance and qualified retirement plan annuity products. Assets under management and sales for the products other than variable annuities have not been significant enough to warrant full segment disclosures as required by SFAS 131, "Disclosures about Segments of an Enterprise and Related Information." 18. SUBSEQUENT EVENT On March 22, 2000, the Company sold certain rights to receive future fees and contract charges expected to be received on variable portions of deferred annuity contracts issued between August 1, 1999 and January 31, 2000. This transaction is the latest in a series of agreements with ASI, as described in Note 8. This transaction has an effective date of March 22, 2000. The present value as of this date, discounted at 7.5%, was $171,781,000. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 19. QUARTERLY FINANCIAL DATA (UNAUDITED) The following table summarizes information with respect to the operations of the Company on a quarterly basis:
(in thousands) Three months Ended ------------------ March 31 June 30 September 30 December 31 -------- ------- ------------ ----------- 1999 Premiums and other insurance revenues $78,412 $88,435 $97,955 $111,540 Net investment income 2,654 2,842 2,735 2,210 Net realized capital gains 295 25 206 52 ---------- ----------- ---------- ----------- Total revenues 81,361 91,302 100,896 113,802 Benefits and expenses 64,107 67,803 71,597 77,341 -------- -------- -------- -------- Pre-tax net income 17,254 23,499 29,299 36,461 Income taxes 3,844 7,142 7,898 11,460 --------- --------- --------- ------- Net income $ 13,410 $ 16,357 $ 21,401 $25,001 ======== ======== ======== ======= 1998 Premiums and other insurance revenues $50,593 $57,946 $62,445 $67,327 Net investment income 3,262 2,410 2,469 2,989 Net realized capital gains (losses) 156 13 (46) (24) ---------- ----------- ----------- ----------- Total revenues 54,011 60,369 64,868 70,292 Benefits and expenses 46,764 42,220 48,471 69,164 -------- -------- -------- -------- Pre-tax net income 7,247 18,149 16,397 1,128 Income taxes 1,175 4,174 2,223 582 --------- --------- -------- --------- Net income $ 6,072 $13,975 $14,174 $ 546 ======== ======= ======= ======== 1997 Premiums and other insurance revenues $30,186 $34,056 $41,102 $44,402 Net investment income 1,369 2,627 2,031 2,154 Net realized capital gains 20 43 21 3 ----------- ----------- ----------- ------------ Total revenues 31,575 36,726 43,154 46,559 Benefits and expenses 18,319 30,465 31,179 40,025 -------- -------- -------- -------- Pre-tax net income 13,256 6,261 11,975 6,534 Income taxes 4,260 2,614 3,354 250 --------- --------- --------- ---------- Net income $ 8,996 $ 3,647 $ 8,621 $ 6,284 ======== ======== ======== ========
APPENDIX B - CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B The Unit Prices and number of Units in the Sub-accounts that commenced operations prior to January 1, 2000 are shown below. All or some of these Sub-accounts were available during the periods shown as investment options for other variable annuities we offer pursuant to different prospectuses. The Insurance Charge assessed against the Sub-accounts under the terms of those other variable annuities are the same as the charges assessed against such Sub-accounts under the Annuity offered pursuant to this Prospectus. Unit Prices And Numbers Of Units: The following table shows: (a) the Unit Price, as of the dates shown, for Units in each of the Class 1 Sub-accounts of Separate Account B that commenced operations prior to January 1, 2000 and are being offered pursuant to this Prospectus or which we offer pursuant to certain other prospectuses; and (b) the number of Units outstanding in each such Sub-account as of the dates shown. The year in which operations commenced in each such Sub-account is noted in parentheses. The portfolios in which a particular Sub-account invests may or may not have commenced operations prior to the date such Sub-account commenced operations. The initial offering price for each Sub-account was $10.00.
Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------------------------------ AST Founders Passport (1) (1994) Unit Price $23.45 12.54 11.46 11.39 10.23 - - - - - Number of Units 8,818,599 9,207,623 9,988,104 9,922,698 2,601,283 - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST AIM International Equity (2) (1989) Unit Price $43.99 27.18 22.95 19.70 18.23 16.80 16.60 12.37 13.69 12.98 Number of Units 16,903,883 17,748,560 17,534,233 17,220,688 14,393,137 14,043,215 9,063,464 1,948,773 1,092,902 398,709 - ------------------------------------------------------------------------------------------------------------------------------------ AST Janus Overseas Growth (1997) Unit Price $24.16 13.41 11.70 - - - - - - - Number of Units 61,117,418 43,711,763 21,405,891 - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST American Century International Growth (1997) Unit Price $21.66 13.30 11.35 - - - - - - - Number of Units 6,855,601 5,670,336 2,857,188 - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST American Century International Growth II (3) (1994) Unit Price $17.10 13.14 11.69 11.70 10.39 9.49 - - - - Number of Units 28,704,924 34,328,425 37,784,426 32,628,595 17,935,251 11,166,758 - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST MFS Global Equity (4) (1999) Unit Price $11.01 - - - - - - - - - Number of Units 116,756 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST Janus Small-Cap Growth (5) (1994) Unit Price $42.08 17.64 17.28 16.54 13.97 10.69 - - - - Number of Units 32,134,969 15,003,001 14,662,728 12,282,211 6,076,373 2,575,105 - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------------------------------ AST Kemper Small- Cap Growth (1999) Unit Price $15.37 - - - - - - - - - Number of Units 53,349,003 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST Lord Abbett Small Cap Value (1998) Unit Price $10.57 9.85 - - - - - - - - Number of Units 6,597,544 4,081,870 - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST T. Rowe Price Small Company Value (1997) Unit Price $11.11 11.20 12.70 - - - - - - - Number of Units 21,340,168 24,700,211 14,612,510 - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST Neuberger Berman Mid-Cap Growth (6) (1994) Unit Price $28.58 19.15 16.10 13.99 12.20 9.94 - - - - Number of Units 13,460,525 13,389,289 11,293,799 9,563,858 3,658,836 301,267 - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST Neuberger Berman Mid-Cap Value (7) (1993) Unit Price $16.78 16.10 16.72 13.41 12.20 9.81 10.69 - - - Number of Units 37,864,586 16,410,121 11,745,440 9,062,152 8,642,186 7,177,232 5,390,887 - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST T. Rowe Price Natural Resources (1995) Unit Price $15.88 12.57 14.46 14.19 11.01 - - - - - Number of Units 6,201,327 5,697,453 7,550,076 6,061,852 808,605 - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST Alliance Growth (8) (1996) Unit Price $20.44 15.48 12.33 10.89 - - - - - - Number of Units 17,059,819 19,009,242 18,736,994 4,324,161 - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ AST MFS Growth (4) (1999) Unit Price $11.27 - - - - - - - - - Number of Units 409,467 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST Marsico Capital Growth (1997) Unit Price $21.06 14.00 10.03 - - - - - - - Number of Units 78,684,943 40,757,449 714,309 - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST JanCap Growth (1992) Unit Price $60.44 39.54 23.83 18.79 14.85 10.91 11.59 10.51 - - Number of Units 94,850,623 80,631,598 62,486,302 46,779,164 28,662,737 22,354,170 13,603,637 1,476,139 - - - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------------------------------ AST Sanford Bernstein Managed Index 500 (9) (1998) Unit Price $15.08 12.61 - - - - - - - - Number of Units 39,825,951 22,421,754 - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST Cohen & Steers Realty (1998) Unit Price $8.35 8.28 - - - - - - - - Number of Units 6,224,365 3,771,461 - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST American Century Income & Growth (10) (1997) Unit Price $16.19 13.35 12.06 - - - - - - - Number of Units 21,361,995 13,845,190 9,523,815 - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST Alliance Growth and Income (11) (1992) Unit Price $27.60 24.11 21.74 17.79 15.22 11.98 11.88 10.60 - - Number of Units 52,766,579 47,979,349 42,197,002 28,937,085 18,411,759 7,479,449 4,058,228 956,949 - - - ------------------------------------------------------------------------------------------------------------------------------------ AST MFS Growth with Income (4) (1999) Unit Price $10.49 - - - - - - - - - Number of Units 741,323 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST INVESCO Equity Income (1994) Unit Price $21.31 19.34 17.31 14.23 12.33 9.61 - - - - Number of Units 46,660,160 40,994,187 33,420,274 23,592,226 13,883,712 6,633,333 - - - - - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ AST AIM Balanced (12) (1993) Unit Price $21.19 17.78 15.98 13.70 12.49 10.34 10.47 - - - Number of Units 23,102,272 22,634,344 22,109,373 20,691,852 20,163,848 13,986,604 8,743,758 - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST American Century Strategic Balanced (1997) Unit Price $14.90 13.37 11.18 - - - - - - - Number of Units 13,944,535 6,714,065 2,560,866 - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST T. Rowe Price Asset Allocation (1994) Unit Price $19.70 18.12 15.53 13.30 11.92 9.80 - - - - Number of Units 22,002,028 18,469,315 13,524,781 8,863,840 4,868,956 2,320,063 - - - - - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ AST T. Rowe Price Global Bond (13) (1994) Unit Price $10.69 11.82 10.45 10.98 10.51 9.59 - - - - Number of Units 12,533,037 12,007,692 12,089,872 8,667,712 4,186,695 1,562,364 - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------------------------------ AST Federated High Yield (1994) Unit Price $14.38 14.30 14.13 12.62 11.27 9.56 - - - - Number of Units 41,588,401 40,170,144 29,663,242 15,460,522 6,915,158 2,106,791 - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST PIMCO Total Return Bond (1994) Unit Price $13.09 13.43 12.44 11.48 11.26 9.61 - - - - Number of Units 73,530,507 64,224,618 44,098,036 29,921,643 19,061,840 4,577,708 - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST PIMCO Limited Maturity Bond (1995) Unit Price $11.96 11.73 11.26 10.62 10.37 - - - - - Number of Units 32,560,943 28,863,932 25,008,310 18,894,375 15,058,644 - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ AST Money Market (1992) Unit Price $12.38 12.00 11.57 11.16 10.77 10.35 10.12 10.01 - - Number of Units 187,609,708 75,855,442 66,869,998 42,435,169 30,564,442 27,491,389 11,422,783 457,872 - - - ------------------------------------------------------------------------------------------------------------------------------------ The Alger American Fund - AA Growth (1988) Unit Price $83.17 63.07 43.20 34.84 31.18 23.18 23.18 19.19 17.32 12.51 Number of Units 20,747,944 17,168,792 15,854,570 15,666,357 12,092,291 5,614,760 2,997,458 1,482,037 559,779 82,302 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ The Alger American Fund - AA MidCap Growth (1993) Unit Price $39.69 30.53 23.76 20.96 19.00 13.34 13.74 - - - Number of Units 18,904,907 17,559,963 14,687,032 14,528,945 8,299,743 4,308,374 1,450,892 - - - - ------------------------------------------------------------------------------------------------------------------------------------ The Montgomery Variable Series - MV Emerging Markets (1996) Unit Price $10.06 6.19 10.05 10.25 - - - - - - Number of Units 12,060,035 10,534,383 10,371,104 2,360,940 - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Wells Fargo Variable Trust - Equity Value (1998) Unit Price $9.17 9.53 - - - - - - - - Number of Units 2,826,839 1,148,849 - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------------------------------ Rydex Variable Trust - -Nova (14) (1999) Unit Price $10.82 - - - - - - - - - Number of Units 5,474,129 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Rydex Variable Trust - -Ursa (14) (1999) Unit Price $9.28 - - - - - - - - - Number of Units 1,803,669 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Rydex Variable Trust - -OTC (14) (1999) Unit Price $17.07 - - - - - - - - - Number of Units 18,520,440 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ INVESCO VIF - Technology (4) (1999) Unit Price $16.52 - - - - - - - - - Number of Units 4,622,242 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ INVESCO VIF - Health Sciences (4) (1999) Unit Price $11.34 - - - - - - - - - Number of Units 786,518 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ INVESCO VIF - Financial Services (4) (1999) Unit Price $11.41 - - - - - - - - - Number of Units 759,104 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ INVESCO VIF - Telecommunications (4) (1999) Unit Price $15.17 - - - - - - - - - Number of Units 4,184,526 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ INVESCO VIF - Dynamics (4) (1999) Unit Price $13.91 - - - - - - - - - Number of Units 2,022,584 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Evergreen VA - Global Leaders (4) (1999) Unit Price $11.72 - - - - - - - - - Number of Units 23,101 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------------------------------ Evergreen VA - Special Equity (4) (1999) Unit Price $12.19 - - - - - - - - - Number of Units 152,342 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ ProFund VP - Europe 30 (4) (1999) Unit Price $12.24 - - - - - - - - - Number of Units 273,963 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ ProFund VP - UltraSmall-Cap (4) (1999) Unit Price $11.96 - - - - - - - - - Number of Units 813,904 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ ProFund VP - UltraOTC (4) (1999) Unit Price $23.58 - - - - - - - - - Number of Units 2,906,024 - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------
1. Effective October 15, 1996, Founders Asset Management, Inc. became Sub-advisor of the Portfolio. Prior to October 15, 1996, Seligman Henderson Co. served as Sub-advisor of the Portfolio, then named "Seligman Henderson International Small Cap Portfolio." 2. Effective May 3, 1999, A I M Capital Management, Inc. became Sub-advisor of the Portfolio. Between October 15, 1996 and May 3, 1999, Putnam Investment Management, Inc. served as Sub-advisor of the Portfolio, then named "AST Putnam International Equity." Prior to October 15, 1996, Seligman Henderson Co. served as Sub-advisor of the Portfolio, then named "Seligman Henderson International Equity Portfolio." 3. Effective May 1, 2000, American Century Investment Management, Inc. became Sub-advisor of the Portfolio. Prior to May 1, 2000, Rowe Price-Fleming International, Inc. served as Sub-advisor of the Portfolio, then named "AST T. Rowe Price International Equity Portfolio." 4. These Portfolios were first offered as Sub-accounts on October 18, 1999. 5. Effective December 31, 1998 Janus Capital Corporation became Sub-advisor of the Portfolio. Prior to December 31, 1998, Founders Asset Management, LLC served as Sub-advisor of the Portfolio, then named "Founders Capital Appreciation Portfolio." 6. Effective May 1, 1998, Neuberger Berman Management, Inc. became Sub-advisor to the Portfolio. Prior to May 1, 1998, Berger Associates, Inc. served as Sub-advisor to the Portfolio, then named "Berger Capital Growth Portfolio." 7. Effective May 1, 1998, Neuberger Berman Management, Inc. became Sub-advisor to the Portfolio. Prior to May 1, 1998, Federated Investment Counseling served as Sub-advisor of the Portfolio, then named "Federated Utility Income Portfolio." 8. Effective May 1, 2000, Alliance Capital Management, L.P. became Sub-advisor of the Portfolio. Between December 31, 1998 and May 1, 2000, OppenheimerFunds, Inc. served as Sub-advisor of the Portfolio, then named "AST Oppenheimer Large-Cap Growth Portfolio." Prior to December 31, 1998, Robertson, Stephens & Company Investment Management, L.P. served as Sub-advisor of the Portfolio, then named "Robertson Stephens Value + Growth Portfolio." 9. Effective May 1, 2000, Sanford C. Bernstein & Co., Inc. became Sub-advisor of the Portfolio. Prior to May 1, 2000, Bankers Trust Company served as Sub-advisor of the Portfolio, then named "AST Bankers Trust Managed Index 500 Portfolio." 10. Effective May 3, 1999, American Century Investment Management, Inc. became Sub-advisor of the Portfolio. Between October 15, 1996 and May 3, 1999, Putnam Investment Management, Inc. served as Sub-advisor of the Portfolio, then named "AST Putnam Value Growth & Income." 11. Effective May 1, 2000, Alliance Capital Management, L.P. became Sub-advisor of the Portfolio. Prior to May 1, 2000, Lord, Abbett & Co. served as Sub-advisor of the Portfolio, then named "AST Lord Abbett Growth and Income Portfolio." 12. Effective May 3, 1999, A I M Capital Management, Inc. became Sub-advisor of the Portfolio. Between October 15, 1996 and May 3, 1999, Putnam Investment Management, Inc. served as Sub-advisor of the Portfolio, then named "AST Putnam Balanced." Prior to October 15, 1996, Phoenix Investment Counsel, Inc. served as Sub-advisor of the Portfolio, then named "AST Phoenix Balanced Asset Portfolio." 13. Effective May 1, 2000, the name of the Portfolio was changed to the "AST T. Rowe Price Global Bond". Effective May 1, 1996, Rowe Price-Fleming International, Inc. became Sub-advisor of the Portfolio. Prior to May 1, 1996, Scudder, Stevens & Clark, Inc. served as Sub-advisor of the Portfolio, then named "AST Scudder International Bond Portfolio." 14. These Portfolios were first offered as Sub-accounts on May 3, 1999. APPENDIX C - SALE OF CONTRACTS TO RESIDENTS OF THE STATE OF NEW YORK Some of the provisions of the Annuity are different for contracts offered to residents of the State of New York. GLOSSARY OF TERMS MVA: For New York contracts, you may transfer or withdraw all or part of the Account Value from a Fixed Allocation during the 30 days prior to the Maturity Date of such Fixed Allocation without application of a market value adjustment. INVESTMENT OPTIONS WHAT ARE THE FIXED INVESTMENT OPTIONS? The State of New York does not allow a Guarantee Period to exceed ten years in duration. For New York contracts, the interest rate we credit to the Fixed Allocation is subject to a minimum of 3%. FEES AND CHARGES Tax Charges: For New York contracts a charge for taxes may also be assessed against the Sub-accounts and/or the Fixed Allocations. PURCHASING YOUR ANNUITY Owner, Annuitant and Beneficiary Designations: For contracts issued in the State of New York, the designation of contingent Owner is not allowed. MANAGING YOUR ANNUITY MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS? Unless you indicated that a prior choice was irrevocable or your Annuity has been endorsed to limit certain changes, you may request to change Owner, Annuitant and Beneficiary designations by sending a request In Writing. Where allowed by law, such changes will be subject to our acceptance. For New York contracts, some of the changes we will not accept include, but are not limited to: (a) a new Owner subsequent to the death of the Owner or the first of any joint Owners to die, except where a spouse-Beneficiary has become the Owner as a result of an Owner's death and (b) a new Annuitant prior to the Annuity Date if the Annuity is owned by an entity. MAY I RETURN THE ANNUITY IF I CHANGE MY MIND? For New York contracts the "free-look" period is within 21 days of receipt of the Annuity and within 10 days of receipt for IRAs. The amount to be refunded for New York contracts is the Account Value in the Sub-accounts plus the Interim Value of the Fixed Allocations and for IRAs the amount to be refunded is the greater of Premium or Account Value. MANAGING YOUR ACCOUNT VALUE MVA Formula: For annuities issued in New York, we apply certain formulas to determine "I" and "J" when we do not offer Guarantee Periods with a duration equal to the remaining period. These formulas are as follows: (a) If we offer Guarantee Periods to your class of Annuities with durations that are both shorter and longer than the remaining period, we interpolate a rate for "J" between our then current interest rates for Guarantee Periods with the next shortest and next longest durations then available for new Fixed Allocations for your class of Annuities. (b) If we no longer offer Guarantee Periods to your class of Annuities with durations that are both longer and shorter than the remaining period, we determine rates for "J" and, for purposes of determining the MVA only, for "I" based on the Moody's Corporate Bond Yield Average - Monthly average Corporates (the "Average"), as published by Moody's Investor Services, Inc., its successor, or an equivalent service should such Average no longer be published by Moody's. For determining I, we will use the Average published on or immediately prior to the start of the applicable Guarantee Period. ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS? For New York contracts the minimum amount allowed in an investment option is $500. Your transfer request must be In Writing. For New York contracts, a specific authorization form MUST be completed which authorizes us to accept transfers via phone or through means such as electronic mail. The following services which we may offer are not available for New York contracts: (1) authorization of an independent third party to transact transfers on your behalf and (2) market timing program. WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES? For New York contracts we will notify you of the Guarantee Periods available as of the date of such notice, at least 45 days and not more than 60 days prior to the Maturity Date. No MVA applies to any amounts allocated to a particular Fixed Allocation if you withdraw all or part of the Account Value in such Fixed Allocation within 30 days of maturity. If you are age 55 or older you may invest in a Fixed Allocation with a Guarantee Period of less than five years. AMERICAN SKANDIA'S PERFORMANCE ADVANTAGE As of the date of this Prospectus, this benefit is not available. ACCESS TO ACCOUNT VALUE HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION? The Annuity Date must be the first or the fifteenth day of a calendar month. However, for New York contracts, if the contract's accumulated value, at the time of annuitization, is less than $2,000, or would provide an income, the initial amount of which is less than $20 per month, in lieu of commencing the annuity payments, we reserve the right to cancel the annuity and pay you the total of the Account Value in any Sub-account plus the Interim Value of any Fixed Allocation. For New York contracts the Annuity Date may not exceed the first day of the calendar month following the Annuitant's 90th birthday. DEATH BENEFIT For New York contracts paragraphs (2) and (3)(b) are amended as follows: If that person's death occurs after the earlier of the decedent's age 90 or the tenth Annuity Year, the death benefit is your Account Value in the Sub-accounts plus the Interim Value of any Fixed Allocation. As of the date of this Prospectus, the optional death benefits are not available. TAX CONSIDERATIONS HOW ARE DISTRIBUTIONS FROM TAX-QUALIFIED RETIREMENT PLANS TAXED? Minimum Distributions after age 70 1/2: For New York contracts the Minimum Distribution provision is only available for annuities issued under Section 403(b) of the IRS Code or for IRA's where Minimum Distributions are required. Minimum Distributions are not available for any other contracts. Deferral of Transactions: For New York contracts we may defer any distribution or transfer from a Fixed Allocation or an annuity payout for a period not to exceed 6 months. If we defer a distribution or transfer from any Fixed Allocation or any fixed annuity payout for more than ten days, we pay interest using our then current crediting rate for this purpose, which is not less than 3% per year on the amount deferred. Modification: In addition to obtaining prior approval from the insurance department of our state of domicile before making such a substitution, deletion or addition, we will also obtain prior approval from the Superintendent of Insurance for New York. Misstatement of Age or Sex: For New York contracts the following provision (c) is added: (c) as to any annuity payments, we shall credit or charge interest using our then current crediting rate for this purpose, which is not greater than 6% interest per year, calculated from the date of any underpayment or overpayment to the date actual payment is made. American Skandia Life Assurance Corporation Attention: Concierge Desk For Written Requests: P.O. Box 883 Shelton, Connecticut 06484 For Electronic Requests: customerservice@americanskandia.com For Requests by Phone: 1-800-752-6342 - -------------------------------------------------------------------------------- PLEASE SEND ME A STATEMENT OF ADDITIONAL INFORMATION THAT CONTAINS FURTHER DETAILS ABOUT THE AMERICAN SKANDIA ANNUITY DESCRIBED IN PROSPECTUS FUSI ASL-PROS (05/2000). - -------------------------------------------------------------------------------- ------------------------------------------------------- (print your name) ------------------------------------------------------- (address) ------------------------------------------------------- (city/state/zip code) ADDITIONAL INFORMATION: Inquiries will be answered by calling your representative or by writing to: AMERICAN SKANDIA LIFE ASSURANCE CORPORATION at P.O. Box 883 Shelton, Connecticut 06484 or customerservice@americanskandia.com Issued by: Serviced at: AMERICAN SKANDIA LIFE AMERICAN SKANDIA LIFE ASSURANCE CORPORATION ASSURANCE CORPORATION One Corporate Drive P.O. Box 883 Shelton, Connecticut 06484 Shelton, Connecticut 06484 Telephone: 1-800-752-6342 Telephone: 1-800-752-6342 http://www.americanskandia.com http://www.americanskandia.com Distributed by: AMERICAN SKANDIA MARKETING, INCORPORATED One Corporate Drive Shelton, Connecticut 06484 Telephone: 203-926-1888 http://www.americanskandia.com PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 14. Other Expenses of Issuance and Distribution: Not Applicable. Item 15. Indemnification of Directors and Officers: Under Section 33-320a of the Connecticut General Statutes, the Registrant must indemnify a director or officer against judgments, fines, penalties, amounts paid in settlement and reasonable expenses including attorneys' fees, for actions brought or threatened to be brought against him in his capacity as a director or officer when certain disinterested parties determine that he acted in good faith and in a manner he reasonably believed to be in the best interests of the Registrant. In any criminal action or proceeding, it also must be determined that the director or officer had no reason to believe his conduct was unlawful. The director or officer must also be indemnified when he is successful on the merits in the defense of a proceeding or in circumstances where a court determines that he is fairly and reasonable entitled to be indemnified, and the court approves the amount. In shareholder derivative suits, the director or officer must be finally adjudged not to have breached this duty to the Registrant or a court must determine that he is fairly and reasonably entitled to be indemnified and must approve the amount. In a claim based upon the director's or officer's purchase or sale of the Registrants' securities, the director or officer may obtain indemnification only if a court determines that, in view of all the circumstances, he is fairly and reasonably entitled to be indemnified and then for such amount as the court shall determine. The By-Laws of American Skandia Life Assurance Corporation ("ASLAC") also provide directors and officers with rights of indemnification, consistent with Connecticut Law. The foregoing statements are subject to the provisions of Section 33-320a. Directors and officers of ASLAC and American Skandia Marketing, Incorporated, ("ASM, Inc."), can also be indemnified pursuant to Indemnity Agreements between each director and officer and American Skandia Inc., a corporation organized under the laws of the state of Delaware. The provisions of the Indemnity Agreement are governed by Section 45 of the General Corporation Law of the State of Delaware. The directors and officers of ASLAC and ASM, Inc. are covered under a directors and officers liability insurance policy issued by an unaffiliated insurance company and an insurance policy issued to Skandia Insurance Company Ltd., their ultimate parent. Such policy will reimburse ASLAC or ASM, Inc., as applicable, for any payments that it shall make to directors and officers pursuant to law and, subject to certain exclusions contained in the policy, will pay any other costs, charges and expenses, settlements and judgments arising from any proceeding involving any director or officer of ASLAC or ASM, Inc., as applicable, in his or her past or present capacity as such.
Item 16. Exhibits: Exhibits Page 1 Underwriting agreement incorporated by reference to Post-Effective Amendment No. 1 to Registration Statement No. 333-25733, filed via EDGAR March 2, 1998. 2 Plan of acquisition, reorganization, arrangement, liquidation or succession Not applicable 3 Articles of incorporation and by-laws incorporated by reference to Post-Effective Amendment No. 6 to Registration Statement No. 33-87010, filed via EDGAR March 2, 1998. 4 Instruments defining the rights of security holders, including indentures incorporated by reference to Pre-effective Amendment No. 1 to Registration Statement No. 33-62933, filed via EDGAR April 26, 1996 5 Opinion re legality (included as Exhibit 23b) 6 - 9 Not applicable 10 Material contracts (Investment Management Agreement) (a) Agreement with J.P. Morgan Investment Management Inc. incorporated by reference to Post-Effective Amendment No. 1 to Registration Statement No. 333-00941, filed via EDGAR February 25, 1997. (b) Agreement with Fleet Investment Advisors Inc., incorporated by reference to Post-Effective Amendment No. 1 to Registration Statement No. 333-00941, filed via EDGAR February 25, 1997. 11 - 22 Not applicable 23a Consent of Ernst & Young LLP FILED HEREWITH 23b Opinion & Consent of Counsel FILED HEREWITH 24 Power of Attorney a) Directors Boronow, Campbell, Carendi, Danckwardt, Dokken, Sutyak, Mazzaferro, Moberg, Soderstrom, Tracy, Svensson, and Collins filed via EDGAR in the initial Registration Statement to Registration Statement No. 333-25733, filed April 24, 1997. b) Directors Kennedy and Winson filed via EDGAR with Post-Effective Amendment No. 4 to Registration Statement No. 333-25733. 25 - 28 Not applicable - ------------------------------------------------------------------------------------------------------------------------------------
An index to the financial statement schedules is omitted because it is not required or is not applicable. Item 17. Undertakings: The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, post-effective amendments to this registration statement: (i) To include any prospectus required by section 10 (a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (5) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. - -------------------------------------------------------------------------------- LEGAL EXPERTS: The General Counsel of American Skandia Life Assurance Corporation has passed on the legal matters with respect to Federal laws and regulations applicable to the issue and sale of the Annuities and with respect to Connecticut law. Exhibits Exhibit 23a Consent of Ernst & Young LLP Exhibit 23b Opinion & Consent to Counsel SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-2 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Shelton, State of Connecticut, April 26, 2000. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION Registrant By:/s/ Kathleen A. Chapman Attest:/s/ Scott K. Richardson Kathleen A. Chapman, Assistant Corporate Secretary Scott K. Richardson
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated. Signature Title Date (Principal Executive Officer) Jan R. Carendi* Chief Executive Officer, April 26, 2000 Jan R. Carendi Chairman of the Board and Director (Principal Financial Officer) /s/ Thomas M. Mazzaferro Executive Vice President and April 26, 2000 Thomas M. Mazzaferro Chief Financial Officer (Principal Accounting Officer) /s/ David R. Monroe Senior Vice President, Treasurer April 26, 2000 David R. Monroe and Corporate Controller (Board of Directors) Jan. R. Carendi* Gordon C. Boronow* Malcolm M. Campbell* ---------------- ------------------ -------------------- Jan. R. Carendi Gordon C. Boronow Malcolm M. Campbell Henrik Danckwardt* Amanda C. Sutyak* Wade A. Dokken* ------------------ ----------------- --------------- Henrik Danckwardt Amanda C. Sutyak Wade A. Dokken Thomas M. Mazzaferro* Gunnar Moberg* Bayard F. Tracy* --------------------- -------------- ---------------- Thomas M. Mazzaferro Gunnar Moberg Bayard F. Tracy Anders Soderstrom* C. Ake Svensson* Lincoln R. Collins* ------------------ ---------------- ------------------- Anders Soderstrom C. Ake Svensson Lincoln R. Collins T. Richard Kennedy** Brett M. Winson** -------------------- ----------------- T. Richard Kennedy Brett M. Winson */**By: /s/Kathleen A. Chapman --------------------------- Kathleen A. Chapman *Pursuant to Powers of Attorney filed with Initial Registration Statement No. 333-25733 **Pursuant to Power of Attorney filed with Post-Effective Amendment No. 4 to Registration Statement No. 333-25733
EX-23.A 2 CONSENT OF ERNST & YOUNG LLP ASL INDEPENDENT AUDITORS' CONSENT We consent to the reference to our firm under the caption "Independent Auditors" and to the incorporation by reference in this Registration Statement (Form S-2 No. 33-62953) of our report dated February 11, 2000, included in the Annual Report on Form 10-K of American Skandia Life Assurance Corporation for the year ended December 31, 1999 appearing in the Prospectus, and to the use of our report dated February 11, 2000 on American Skandia Life Assurance Corporation Variable Account B - Class 1, appearing in the Statement of Additional Information, which are part of this Registration Statement. /s/Ernst & Young LLP Hartford, Connecticut April 26, 2000 EX-23.B 3 OPINION & CONSENT OF COUNSEL American Skandia Life Assurance Corporation One Corporate Drive P.O. Box 883 Shelton, CT 06484-0883 Telephone (203) 926-1888 Fax (203) 925-6932 April 25, 2000 American Skandia Life Assurance Corporation One Corporate Drive Shelton, Connecticut 06484 RE: Post-Effective Amendment No. 4 to Registration Statement on Form S-2 filed by American Skandia Life Assurance Corporation, Registrant Securities Act Registration No. 33-62953 Dear Sir/Madam: I have acted as General Counsel to American Skandia Life Assurance Corporation (the "Company"), a Connecticut insurance company, in connection with the registration of certain securities with the Securities and Exchange Commission under the Securities Act of 1933, as amended, in the form of a market value adjustable fixed investment option (the "Contracts") issued by the Company. I have examined or caused to be examined such documents (including the Form S-2 registration statement) and reviewed or caused to be reviewed such questions of law as I considered necessary and appropriate, and on the basis of such examination and review, it is my opinion that: 1. The Company is a corporation duly organized and validly existing as a stock life insurance company under the laws of the State of Connecticut and is duly authorized by the Insurance Department of the State of Connecticut to issue the Contacts. 2. The Contracts, when issued as contemplated by the Form S-2 Registration Statement, will constitute legal, validly issued and binding obligations of the Company. I hereby consent to the filing of this opinion as an exhibit to the Form S-2 registration statement for the Contracts and the Account. Sincerely yours, /s/ T. Richard Kennedy T. Richard Kennedy General Counsel ASL EX-27 4 FDS -- ASLAC XX/XX/XXX
7 0000881453 ASLAC1299 1,000 U.S. Dollars 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 1 198,165 201,525 201,509 16,404 0 0 219,388 89,212 4,062 1,087,705 30,849,414 41,127 0 0 0 189,000 0 0 2,500 356,934 30,849,414 1,278 10,441 578 375,064 4,996 83,861 191,991 106,513 30,344 0 0 0 0 76,169 0 0 0 0 0 0 0 0 0 Included in Total Assets are Assets Held in Separate Accounts of $29,381,166. Included in Total Liabilities and Equity are Liabilities Related to Separate Accounts of $29,381,166. Other income includes annuity charges and fees of $289,989 and fee income of $83,243.
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