-----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, TIs30h3d85gepmtuJjCgJFnplfRKwtNQ2OqqCjlLYZ0H1smT4nDpqCrrvNHKNy6D 4cWlP0yyKUJh96+jyNFdLw== 0000881453-98-000084.txt : 19980430 0000881453-98-000084.hdr.sgml : 19980430 ACCESSION NUMBER: 0000881453-98-000084 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 6 REFERENCES 429: 033-84306 FILED AS OF DATE: 19980428 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN SKANDIA LIFE ASSURANCE CORP/CT CENTRAL INDEX KEY: 0000881453 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE CARRIERS, NEC [6399] IRS NUMBER: 061241288 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: POS AM SEC ACT: SEC FILE NUMBER: 033-89676 FILM NUMBER: 98602580 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 GMA 4/98 Filed with the Securities and Exchange Commission on April 28, 1998 Registration No. 33-89676 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Post-effective Amendment No. 3 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: JOHN T. BUCKLEY, ESQ. WERNER & KENNEDY 1633 Broadway, New York, New York 10019 (212) 408-6900 ------------------------------------------------------- Approximate date of commencement of proposed sale to the public: May 1, 1998 or as soon as practical 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 - ---------------------------------------------------------------------------------------------------------------------------------
*Pursuant to Rule 429 under the Securities Act of 1934, the prospectus contained in this Registration Statement also relates to annuity contracts which are covered by earlier registration statements, including Registration File Numbers 33-26122, 33-58536 and 33-84306. **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. GMA GMA S2 Cross reference sheet pursuant to Regulation S-K, Item 501(b)
Form S-2 Item No. and Caption Prospectus Heading 1. Forepart of the Registration Outside Front Cover Statement and Outside Front Cover Page of Prospectus 2. Inside Front and Outside Inside Front Cover Back Cover Pages of Prospectus 3. Summary Information, Risk Summary; Interest Factors and Ratio of Crediting; Surrenders Earnings to Fixed Charges 4. Use of Proceeds Investments 5. Determination of Offering Price Not applicable 6. Dilution Not applicable 7. Selling Security Holders Not applicable 8. Plan of Distribution Distribution 9. Description of Securities Annuity Features to be Registered 10. Interests of Named Experts Not applicable and Counsel 11. Information with Respect The Company to the Registrant 12. Incorporation of Certain Documents by Reference Incorporation of Certain Documents by Reference 13. Disclosure of Commission Position on Indemnification for Securities Act Liabilities Indemnification Part II Heading 14. Other Expenses of Issuance Other Expenses of Issuance and Distribution and Distribution 15. Indemnification of Directors Indemnification of and Officers Directors and Officers 16. Exhibits Exhibits 17. Undertakings Undertakings
GUARANTEED MATURITY ANNUITY This Prospectus describes the Guaranteed Maturity Annuity (the "Annuity") issued by American Skandia Life Assurance Corporation ("American Skandia"). We may simultaneously offer several types of contracts. You may or may not be eligible for more than one type of contract. Certain features, such as the existence of or level of certain charges, may differ among various types of contracts. We may also declare different interest rates for different types of contracts. Various rights and benefits may differ among jurisdictions to meet applicable laws and/or regulations. This Annuity is made available as participating interests in a group contract or as an individual contract. Participants in a group contract are issued certificates reflecting their rights and privileges. Eligible individuals who may participate in a group contract include those who have established accounts with certain broker-dealers who have entered into a distribution agreement to offer participating interests in a contract, as well as members of other eligible groups, such as employees of an employer. Purchasers of individual contracts are issued a contract (see "Distribution"). Both the certificates and individual contracts are hereafter referred to as the "Contract." Contracts or certain types of Contracts may not be available in all jurisdictions. We offer various interest rate Guarantee Periods (see "Guarantee Periods"). The minimum premium we will accept from you is $5,000, which may be used to purchase multiple Contracts with different Guarantee Periods. Our minimum amount per Contract is $2,000. The minimum premium we will accept from you which may be used to purchase a contract in conjunction with a qualified plan is $2,000. A Contract is issued as evidence of the acceptance of each premium or portion of a premium. We issue an additional Contract for any subsequent premium accepted (see "Application and Premium Payment"). Values and benefits provided by the Annuity are funded by the general account assets of American Skandia (see "Investments"). THESE SECURITIES MAY BE SUBJECT TO SUBSTANTIAL CHARGES WHICH COULD RESULT IN YOUR RECEIPT OF LESS THAN YOUR PREMIUM IF YOU SURRENDER YOUR CONTRACT. WHETHER SUCH A RESULT ACTUALLY OCCURS DEPENDS ON THE TIMING OF ANY SURRENDER, THE AMOUNT OF SUCH CHARGES AND THE INTEREST RATES WE ARE CREDITING TO CONTRACTS. SUCH CHARGES ARE THE MARKET VALUE ADJUSTMENT, ANY SALES CHARGE WE MAY DEDUCT FROM YOUR PREMIUM, AND ANY SURRENDER CHARGE. The actual charges will be shown in your Contract. (see "Market Value Adjustment", "Sales Charge" and "Surrenders"). THE INTEREST RATE IN SUBSEQUENT GUARANTEE PERIODS MAY BE MORE OR LESS THAN THE RATE IN A PREVIOUS PERIOD. However, the rates may not be lower than a minimum determined in relation to an index, but may be higher. Such index is not controlled by American Skandia. A 3% MINIMUM RATE MAY BE REQUIRED FOR CONTRACTS ISSUED IN CERTAIN JURISDICTIONS, INCLUDING CONTRACTS ISSUED FOR DELIVERY IN NEW YORK, IF AVAILABLE (see "Interest Rates"). Purchase payments under these Annuities are not deposits or obligations of, or guaranteed or endorsed by, any bank or bank subsidiary, are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other agency and are not insured by the Securities Investor Protection Corporation ("SIPC") as to the loss of the principal amount invested. - -------------------------------------------------------------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. FOR FURTHER INFORMATION CALL 1-800-752-6342. - -------------------------------------------------------------------------------- GMA-PROS-(5/98) Issued by: American Skandia Life Assurance Corporation Prospectus Dated: May 1, 1998 This page has been intentionally left blank.
TABLE OF CONTENTS DEFINITIONS...............................................................................................................5 SUMMARY...................................................................................................................7 MULTIPLE CONTRACTS.....................................................................................................7 INITIAL GUARANTEE PERIODS..............................................................................................7 SUBSEQUENT GUARANTEE PERIODS...........................................................................................7 ALTERNATE GUARANTEE PERIODS............................................................................................7 SALES CHARGE...........................................................................................................7 INTEREST RATES.........................................................................................................7 DEATH BENEFITS.........................................................................................................7 ANNUITY DATE AND ANNUITY OPTIONS.......................................................................................7 PREMIUM TAXES..........................................................................................................8 SURRENDERS.............................................................................................................8 SURRENDER CHARGE.......................................................................................................8 MARKET VALUE ADJUSTMENT................................................................................................8 MEDICALLY-RELATED WITHDRAWALS..........................................................................................8 FREE WITHDRAWAL PRIVILEGE..............................................................................................8 BREAKPOINTS............................................................................................................8 ANNUITY FEATURES..........................................................................................................8 INTRODUCTION...........................................................................................................9 APPLICATION AND PREMIUM PAYMENT........................................................................................9 RIGHT TO CANCEL........................................................................................................9 SALES CHARGE...........................................................................................................9 INTEREST CREDITING....................................................................................................10 Guarantee Periods...................................................................................................10 Alternate Guarantee Periods.........................................................................................10 Interest Rates......................................................................................................11 SURRENDERS............................................................................................................12 General.............................................................................................................12 Surrender Charge....................................................................................................13 Market Value Adjustment.............................................................................................13 MEDICALLY-RELATED WITHDRAWALS.........................................................................................14 FREE WITHDRAWAL PRIVILEGE.............................................................................................14 QUALIFIED PLAN WITHDRAWAL LIMITATIONS.................................................................................14 DEFERRAL OF PAYMENT...................................................................................................15 DEATH BENEFIT.........................................................................................................15 ANNUITY DATE..........................................................................................................15 ANNUITY OPTIONS.......................................................................................................16 ADMINISTRATION OF TRANSACTIONS........................................................................................17 AGE LIMITS............................................................................................................17 ASSIGNMENTS OR PLEDGES................................................................................................17 PARTICIPANT, ANNUITANT AND BENEFICIARY DESIGNATIONS...................................................................17 MISSTATEMENT OF AGE OR SEX............................................................................................18 CONTRACT MODIFICATION.................................................................................................18 BREAKPOINTS...........................................................................................................18 INVESTMENTS..............................................................................................................19 GENERAL...............................................................................................................19 INVESTMENT MANAGEMENT.................................................................................................19 CURRENT INVESTMENT GUIDELINES.........................................................................................19 CERTAIN TAX CONSIDERATIONS...............................................................................................20 OUR TAX CONSIDERATIONS................................................................................................20 TAX CONSIDERATIONS RELATING TO YOUR ANNUITY...........................................................................20 Non-natural Persons.................................................................................................20 Natural Persons.....................................................................................................20 Distributions.......................................................................................................20 Loans, Assignments and Pledges......................................................................................21 Gifts...............................................................................................................21 Penalty on Distributions............................................................................................21 Annuity Payments....................................................................................................22 Tax-Free Exchanges..................................................................................................22 Estate and Gift Tax Considerations..................................................................................22 Generation-Skipping Transfers.......................................................................................22 Federal Income Tax Withholding......................................................................................22 Tax Considerations When Using Annuities in Conjunction With Qualified Plans...........................................22 Individual Retirement Programs......................................................................................23 Tax Sheltered Annuities.............................................................................................23 Corporate Pension and Profit-sharing Plans..........................................................................23 H.R. 10 Plans.......................................................................................................23 Tax Treatment of Distributions From Qualified Annuities.............................................................23 Section 457 Plans...................................................................................................23 MISCELLANEOUS MATTERS....................................................................................................24 DISTRIBUTION..........................................................................................................24 REPORTS TO YOU........................................................................................................24 LEGAL PROCEEDINGS.....................................................................................................24 LEGAL COUNSEL.........................................................................................................24 EXPERTS...............................................................................................................24 INDEMNIFICATION.......................................................................................................24 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................................................................25 THE COMPANY..............................................................................................................26 Lines of Business.....................................................................................................26 Selected Financial Data...............................................................................................26 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................27 Results of Operations.................................................................................................27 Liquidity and Capital Resources.......................................................................................28 Year 2000 Compliance..................................................................................................29 Reserves..............................................................................................................30 Competition...........................................................................................................30 Employees.............................................................................................................30 Regulation............................................................................................................30 Executive Officers and Directors......................................................................................30 FINANCIAL STATEMENTS.....................................................................................................32 APPENDIX A FINANCIAL STATEMENTS FOR AMERICAN SKANDIA LIFE ASSURANCE CORPORATION.........................................33 APPENDIX B ILLUSTRATION OF MARKET VALUE ADJUSTMENT......................................................................33 APPENDIX C ILLUSTRATION OF INTEREST CREDITING...........................................................................33
DEFINITIONS ANNUITANT is the person upon whose life your Contract is issued. ANNUITY is the Guaranteed Maturity Annuity. ANNUITY DATE is the date on which annuity payments are to commence. BENEFICIARY(IES) is (are) the person(s) designated by you, either as of the Contract Date or at a later date, as the recipient of the death benefit. CONTINGENT ANNUITANT is the person designated by you to become the Annuitant on the Annuitant's death prior to the Annuity Date. CONTRACT, for purposes of this Prospectus, is your individual Annuity, or with respect to a group Annuity, the certificate evidencing your participation in an underlying group Annuity. It also represents an account we set up and maintain to track our obligations to you. CONTRACT DATE is the effective date of your Contract (shown as your "Certificate Date" with respect to a group Annuity). CONTRACT YEARS are continuous 12-month periods commencing on the Contract Date and each anniversary of the Contract Date. CURRENT RATE is the applicable interest rate we offer for a Guarantee Period for your type of Contract. Current Rates are contained in a schedule of rates established by us from time to time for the Guarantee Periods then being offered. We may establish different schedules for different types of Contracts. GROSS SURRENDER VALUE is, as of any date, that portion of the Interim Value you specify for a full or partial surrender. GUARANTEE PERIOD is the period during which the rate at which interest is credited to your Contract is guaranteed. IN WRITING is in a written form satisfactory to us and filed at the Office. INITIAL GUARANTEE RATE is the rate of interest credited during the initial Guarantee Period for a Contract. INTERIM VALUE is, as of any date, the Net Premium credited to a Contract plus all interest credited on such Net Premium, less the sum of all previous Gross Surrender Values and interest thereon from the date of each surrender, plus or minus any market value adjustment made when choosing an alternate Guarantee Period and interest thereon from the date such alternate Guarantee Period begins. NET PREMIUM is a premium less any applicable sales charge applied to premium when received and any applicable premium tax deducted upon receipt of premium. NET SURRENDER VALUE is the amount payable on a full or partial surrender after the application of any charges and market value adjustment. OFFICE is our business office, American Skandia Life Assurance Corporation, One Corporate Drive, P.O. Box 883, Shelton, Connecticut 06484. PARTICIPANT is either an eligible entity or person who participates in a group Contract or is named as having ownership rights in relation to an Annuity issued as an individual contract. Eligibility depends on the specific Contract. SUBSEQUENT GUARANTEE RATE is the rate of interest established by us for crediting to your Contract during a subsequent Guarantee Period. SURRENDER DATE is the date we receive a completed request In Writing for a surrender. "We", "us", "our" or "the Company" means American Skandia Life Assurance Corporation. "You" or "your" means the Participant. Other terms are defined in this Prospectus as they appear. SUMMARY MULTIPLE CONTRACTS We issue a Contract for each acceptable premium or portion thereof, subject to our rules for minimum amounts per Contract. Subsequent discussion in this Prospectus will be in terms of a single Contract. INITIAL GUARANTEE PERIODS You select an initial Guarantee Period among those we currently offer. If we accept the premium, we then issue a Contract. The initial Guarantee Period begins on the Contract Date (see "Application and Premium Payment" and "Guarantee Periods"). SUBSEQUENT GUARANTEE PERIODS At the end of a Guarantee Period, a subsequent Guarantee Period begins, unless you have chosen such date as the Annuity Date. We reserve the right to make available different Guarantee Periods than those which were available when your Contract was issued. The subsequent Guarantee Period will be the same as the previous one (or the next shortest one if that duration is no longer available) unless we receive instructions from you In Writing at least two business days before the close of the Guarantee Period then ending. However, the subsequent Guarantee Period may not end beyond the Annuity Date (see "Guarantee Periods"). ALTERNATE GUARANTEE PERIODS You may choose, subject to certain limitations, to switch to an alternate Guarantee Period that would begin before your current Guarantee Period would normally end. Exercising this privilege will subject your Interim Value to a market value adjustment, but not to a surrender charge. You may also need to change your Annuity Date in order to exercise this privilege (see "Alternate Guarantee Periods"). SALES CHARGE The amount and schedule of the sales charge, if any, will be shown in your Contract. As of the date of this Prospectus, we are not offering Contracts with sales charges in excess of 6% of premium upon receipt. However, we reserve the right to offer new types of Contracts with sales charges of not more than 8.5% of premium upon receipt. Sales charge percentages may be level or decrease according to a specified schedule (see "Sales Charge"). INTEREST RATES We declare interest rates for the available Guarantee Periods from time to time. The rate applicable throughout any Guarantee Period is the one in effect when such Guarantee Period begins. The rates we declare are subject to a minimum, but we may declare higher rates. The minimum is determined in relation to an index we do not control. For Contracts issued for delivery in certain jurisdictions, including New York, if available, rates may not be lower than 3%, irrespective of the index. We reserve the right to simultaneously declare Subsequent Guarantee Rates for existing Contracts that are higher than Current Rates for the Guarantee Periods of the same duration applicable to newly issued Contracts of the same type, where allowed by law and regulation (see "Interest Rates"). DEATH BENEFITS A death benefit of the greater of your Contract's Interim Value or 100% of premium less the sum of all prior Gross Surrender Values, is provided in the event of your death or the Annuitant's death (if there is no Contingent Annuitant) if occurring both (a) prior to the Annuity Date, and (b) before the beginning of the Contract Year which starts following the earlier of your or the Annuitant's 85th birthday (see "Death Benefit"). ANNUITY DATE AND ANNUITY OPTIONS You may choose the Annuity Date. However, it must be the first day of the first month on or after the end of a Guarantee Period, and after the third Contract Year. You may choose among a number of annuity options (see "Annuity Date" and "Annuity Options"). PREMIUM TAXES In several states, a premium tax is payable, either when premiums are received or, when the Interim Value is applied under an annuity option. We will deduct the amount of the premium tax payable, if any, from your premiums or Interim Value. The amount of the premium tax varies from jurisdiction to jurisdiction, which any state legislature may change. Also, any state legislature may decide to impose the tax when premium payments are made. In those jurisdictions imposing such a tax, the tax rates currently in effect range up to 3 1/2%. However, local taxes may be higher. SURRENDERS Total and partial surrenders of your Contract are permitted prior to the Annuity Date. Such total or partial surrenders may be assessed a surrender charge and/or a market value adjustment (see "Surrenders"). A full or partial surrender may result in a taxable event, and in certain situations, a tax penalty (see "Certain Tax Considerations"). SURRENDER CHARGE The surrender charge, if any, applicable to any full or partial surrender is a percentage of either the Gross Surrender Value or that portion of the Gross Surrender Value deemed to be a liquidation of premium. The type and level of charges will be shown in your Contract. The charge may be level for a specified number of years or it may start at a particular level and then grade down to zero over a specified number of years. The surrender charge may also depend on the initial Guarantee Period you select. As of the date of this Prospectus, we were not offering Contracts with surrender charges in excess of 6% of premium. However, we reserve the right to offer new types of Contracts with sales charges of not more than 8.5% of premium (see "Surrender Charge"). MARKET VALUE ADJUSTMENT The market value adjustment may increase or decrease the amount payable to you on a full or partial surrender. Such a surrender at the end of a Guarantee Period, and, where required by law, the 30 days prior to the end of a Guarantee Period, is not affected by this adjustment. In addition, the market value adjustment will be applied to the Interim Value when choosing an alternate Guarantee Period. The adjustment reflects the relationship as of the time of its calculation between: (a) the rate then being credited to your Contract; and (b) the Current Rate for your type of Contract with a Guarantee Period equal to the time remaining to the end of your current Guarantee Period. Our Current Rates are expected to be sensitive to interest rate fluctuations, thereby making this adjustment equally sensitive to such changes. There would be a downward adjustment when the applicable Current Rate plus an adjustment rate exceeds the rate currently being credited to your Contract. There would be an upward adjustment when the applicable Current Rate plus the adjustment rate is lower than the rate currently being credited to your Contract. The adjustment rate is the same for all contracts of the same type, and cannot exceed 0.25% of interest for any type of Contract. (see "Market Value Adjustment"). MEDICALLY-RELATED WITHDRAWALS Where permitted by law, any applicable surrender charge or market value adjustment is waived on a full surrender if we receive satisfactory evidence of certain medically-related events or conditions (see "Medically-Related Withdrawals"). FREE WITHDRAWAL PRIVILEGE Once each Contract Year after the first you may withdraw an amount without any applicable surrender charge being assessed. This amount equals the "growth" in the Contract. "Growth" is defined as: (a) the interest credited to your Contract in the prior Contract Year, plus (b) the interest credited to your Contract in Contract Years previous to the last, subject to a market value adjustment, provided that immediately after the withdrawal (including any market value adjustment) the remaining Interim Value times the market value adjustment is at least equal to the unliquidated premium plus the value at the time credited of any amounts added due to premium size (see "Free Withdrawal Privilege"). BREAKPOINTS We reserve the right to make additions to the Interim Values of Contracts of Owners submitting large amounts of premium, wherever allowed by law. As of the date of this Prospectus, the breakpoints for such treatment are premiums of $500,000, $1,000,000 and $5,000,000. We reserve the right to change these breakpoints (see "Breakpoints"). ANNUITY FEATURES INTRODUCTION The Guaranteed Maturity Annuity is designed to allow you to accumulate funds for long term goals, such as retirement, on a tax-deferred basis. You may apply the accumulated funds on the Annuity Date to receive a stream of income payments. APPLICATION AND PREMIUM PAYMENT We may require a properly completed application or enrollment form, a premium, and any other materials under our underwriting rules before we agree to issue an Annuity. We may issue an Annuity without completion of an application or enrollment form for certain classes of Annuities, where permitted by law. We offer various initial Guarantee Periods. Subject to our rules, you may choose to have your Net Premium or portions thereof accumulate interest for one or more of the Guarantee Periods then available. While we may issue multiple Contracts, such multiple Contracts may be treated for tax purposes as if they were a single Contract (see "Certain Tax Considerations"). No Guarantee Period may end later than the Annuity Date. Once we accept your premium and all our requirements are met, we issue a Contract for each initial Guarantee Period you choose. The minimum premium we will accept from you is $5,000. Our minimum amount per Contract is $2,000. Therefore, you could choose one but not more than two Guarantee Periods if you sent the minimum premium amount. The minimum premium we will accept from you which may be used to purchase a Contract in conjunction with a qualified plan is $2,000. Our prior approval is required before we will accept a premium of any amount that would cause the combined Interim Value of all your Contracts to exceed $500,000. We confirm each premium payment in writing. RIGHT TO CANCEL You may return your Contract for a refund within a specified period. Depending on the applicable legal and regulatory requirements, this period may be within ten days of receipt, twenty-one days of receipt or longer. Unless we are required by law to return the premium amount, the amount of the refund will equal the Interim Value times the market value adjustment as of the date we receive the cancellation request plus any amount deducted for premium tax and/or any sales charge, less the accumulated value of any additions we make because of the amount of premium paid. When your Contract is issued, you will be informed of the amount due if you exercise this right. Exercising the right requires return of the Contract to us or to the representative who solicited your purchase. SALES CHARGE The amount and schedule of the sales charge, if any, is shown on the inside front cover of this Prospectus and will be shown in your Contract. As of the date of this Prospectus, we were not offering Contracts with sales charges in excess of 6% of premium upon receipt. However, we reserve the right to offer new types of Contracts with sales charges of not more than 8.5% of premium upon receipt. Sales charge percentages may be level or may decrease according to a specified schedule. For example, a Contract could have a schedule of sales charges such that 5% is assessed against the first $10,000 of the cumulative premiums paid by a Participant, 4% is assessed against the next $10,000 of cumulative premiums paid by that Participant, and 3% assessed against cumulative premiums paid by a Participant in excess of $20,000. This example is hypothetical. The actual amount and schedule for such a charge, if any, will be shown on the inside front cover of your Prospectus as well as in your Contract. From time to time we may structure sales charges for a group Contract, or we may reduce or waive sales charges for individual Contracts, when either are sold in a manner that reduces sales expenses or spreads them out over time. We would consider various factors, including (1) the size and type of group, (2) the amount of premiums, (3) additional premiums from existing Participants, and/or (4) other transactions where our sales expenses are likely to be reduced, eliminated or spread out over time. No sales charge is imposed when any group Contract or any individual Contract issued pursuant to this Prospectus is owned on its Contract Date by: (a) any parent company, affiliate or subsidiary of ours; (b) an officer, director, employee, retiree, sales representative, or in the case of an affiliated broker-dealer, registered representative of such company; (c) a director, officer or trustee of any underlying mutual fund; (d) a director, officer or employee of any investment manager, sub-advisor, transfer agent, custodian, auditing, legal or administrative services provider that is providing investment management, advisory, transfer agency, custodianship, auditing, legal and/or administrative services to an underlying mutual fund or any affiliate of such firm; (e) a director, officer, employee or registered representative of a broker-dealer or insurance agency that has a then current selling agreement with us and/or with American Skandia Marketing, Incorporated; (f) a director, officer, employee or authorized representative of any firm providing us or our affiliates with regular legal, actuarial, auditing, underwriting, claims, administrative, computer support, marketing, office or other services; (g) the then current spouse of any such person noted in (b) through (f), above; (h) the parents of any such person noted in (b) through (g), above; (i) such person's child(ren) or other legal dependent under the age of 21; and (j) the siblings of any such persons noted in (b) through (h) above. No such group Contract or individual Contract is eligible for any Additional Amount due to the size of premiums (see "Breakpoints"). Any elimination of any sales charge or any reduction to the amount of such charges will not discriminate unfairly between Contract purchasers. We will not make any such changes to this charge where prohibited by law. DEPENDING ON THE GUARANTEE PERIOD YOU CHOOSE AND THE INTEREST RATE CREDITED TO YOUR CONTRACT, ASSESSMENT OF A SUBSTANTIAL SALES CHARGE COULD RESULT IN YOUR RECEIPT OF LESS THAN YOUR PREMIUM EVEN IF YOU SURRENDER YOUR CONTRACT AT THE END OF A GUARANTEE PERIOD. For example, if you chose a one-year Guarantee Period, we were crediting 4% interest per year when your Guarantee Period began, and the sales charge was 5% of your premium, you would receive less than your premium if you surrendered your Contract at the end of the initial Guarantee Period. You could also receive less than your premium due to any applicable surrender charge and the market value adjustment (see "Surrenders"). INTEREST CREDITING Guarantee Periods As of the date of this Prospectus, we offer Guarantee Periods with annual durations of one to ten years. We may change the Guarantee Periods we offer at some future date; however, any such change will not have an impact on any Guarantee Period then in effect. See Appendix C for an illustration of how interest is credited during a Guarantee Period. At the end of a Guarantee Period that occurs prior to the Annuity Date, a subsequent Guarantee Period begins. At least 30 days prior to the end of any Guarantee Period of at least a year's duration, or earlier where required by law or regulation, we inform you of the Guarantee Periods available as of the date of such notice. We do not provide a similar notice if the Guarantee Period that is ending is of less than a year's duration. Subject to our rules, a subsequent Guarantee Period will begin according to your instructions, if received at our Office not less than two business days prior to the last day of the Guarantee Period then coming to an end. If you don't send us instructions or instructions are not received in a timely fashion, the subsequent Guarantee Period will be equal in duration to the one just ended. WE MAY CHANGE THE GUARANTEE PERIODS AVAILABLE AT ANY TIME, INCLUDING THE PERIOD BETWEEN THE DATE WE MAIL YOU NOTICE AND THE DATE YOUR SUBSEQUENT GUARANTEE PERIOD BEGINS. If you choose a duration that is no longer available on the date your subsequent Guarantee Period begins and we cannot reach you to choose a different duration, the next shortest duration will apply. Similarly, if you have made no choice but we no longer are making available Guarantee Periods equaling the one then ending for your Contract, the next shortest duration will apply. However, in no event will the Guarantee Period end after the Annuity Date. Alternate Guarantee Periods You may choose to switch to an alternate Guarantee Period that would begin before your current Guarantee Period would normally end, subject to the following rules: 1. We must receive your request In Writing at our Office. 2. The beginning of the new Guarantee Period is the first business day after the date we receive all the information we need to process your request. 3. The Guarantee Period you choose must be one we are making available on the date the new Guarantee Period is to begin. 4. Your Annuity Date must be the first day of the month on or immediately after an anniversary of the date on which the new Guarantee Period begins. If necessary to meet this requirement, you must choose a new Annuity Date before we will process your request. 5. The new Guarantee Period may not extend beyond the Annuity Date. 6. We will process only one such request per Contract per Contract Year. 7. In certain Contracts, you may not choose a shorter Guarantee Period than the Initial Guarantee Period until after the date the Initial Guaranteed Period was scheduled to end. Any applicable market value adjustment formula will be applied to your Contract's Interim Value immediately prior to the beginning of the new Guarantee Period. No surrender charge will be assessed. The resulting Interim Value will be credited interest at the Subsequent Guarantee Rate for the new Guarantee Period. EXERCISING THIS PRIVILEGE MAY OR MAY NOT INCREASE YOUR INTERIM VALUE OVER TIME. That will depend on such factors as any market value adjustment applicable at the time the privilege is exercised, the Guarantee Period you choose and Subsequent Guarantee Rate we are then crediting for that Guarantee Period, the length of time you subsequently hold your Contract, and any subsequent partial surrenders or withdrawals under the Free Withdrawal Privilege. Interest Rates Declared rates are effective annual rates of interest. The rate is guaranteed throughout the Guarantee Period. The Initial Guarantee Rate applies to the Net Premium less all Gross Surrender Values during the initial Guarantee Period. The Subsequent Guarantee Rate for any subsequent Guarantee Period applies to the Interim Value on the date such subsequent Guarantee Period begins less all Gross Surrender Values after that date. We inform you of the Initial Guarantee Rate when we confirm acceptance of your premium and issuance of your Contract. You will be informed of the Subsequent Guarantee Rate applicable to any subsequent Guarantee Period as part of the annual report we send you. AT ANY TIME WE MAY CHANGE INTEREST RATES. Any such change does not have an impact on the rates applicable to Guarantee Periods already in effect. However, such a change will affect the Market Value Adjustment (see "Market Value Adjustment). When a subsequent Guarantee Period begins, the rate applied to your Contract will not be less than the rate then applicable to new Contracts of the same type with the same Guarantee Period. Interest rates are subject to a minimum. We may declare higher rates. The minimum for each Guarantee Period is based on both an index and a reduction to the interest rate determined according to the index. Each index is based on the published rate for certificates of indebtedness (bills, notes or bonds, depending on the term of indebtedness) of the United States Treasury at the most recent Treasury auction held at least 30 days prior to the beginning of the Guarantee Period to which the minimum is to apply. The term (length of time from issuance to maturity) of the certificates of indebtedness upon which the index used for any Guarantee Period is the same as the Guarantee Period. If no certificates of indebtedness are available for such term, the next shortest term is used. If the United States Treasury's auction program is discontinued, we will substitute indexes which in our opinion are comparable. If required, implementation of such substitute indexes will be subject to approval by the Securities and Exchange Commission and the Insurance Department of the jurisdiction in which the Contract was delivered. (For group Contracts, it is our expectation that approval of only the jurisdiction in which the underlying group contract was delivered would apply.) The reduction used in determining the minimum is an amount not to exceed 2% percent of interest. We may reduce this amount for a particular type of Contract if we can expect reduced sales expenses or other expenses in relation to sales of that Contract. In certain jurisdictions, including New York, if available, in no event will the minimum be less than 3% per year, compounded yearly. Your Contract may include a provision committing us to declare Subsequent Guarantee Rates applicable to certain Subsequent Guarantee Periods at higher rates than the Current Rates for that type of Contract. The manner in which Subsequent Guarantee Rates are increased will be uniform for all Participants in any one particular group Contract. The manner in which such Subsequent Guarantee Rates are increased will be uniform for all owners of any one particular type of individual Contract, wherever such an increase in rates is allowed by law and/or regulation. For any particular Contract, the number of Contract Years required before such an increase in rates applies or the size of such increase will depend on our expectations as to sales expenses and other expenses in relation to sales of that type of Contract. We have no specific formula for determining the interest rates we declare. Rates may differ, between types of Contracts, even for Guarantee Periods of the same duration starting at the same time. We expect such rates to reflect the returns available on the type of investments we make to support these types of Contracts. However, we may also take into consideration in determining rates such factors including, but not limited to, the duration of the Guarantee Period, regulatory and tax requirements, the liquidity of the secondary markets for the type of investments we make, commissions, administrative expenses, investment expenses, general economic trends and competition. OUR MANAGEMENT MAKES THE FINAL DETERMINATION AS TO INTEREST RATES TO BE CREDITED. WE CANNOT PREDICT THE RATES WE WILL DECLARE IN THE FUTURE. YOU MAY OBTAIN OUR CURRENT RATES BY WRITING US OR CALLING US AT 1-800-766-4530. SURRENDERS General You may request a full or partial surrender. Your Annuity must accompany your surrender request. Partial surrenders may only be made if: (a) the Gross Surrender Value is at least $1,000; and (b) the Gross Surrender Value plus $1,000 does not exceed the amount payable if you completely surrender your Contract on that date. The amount payable to you is the Net Surrender Value. The method for determining the Net Surrender Value is shown in your Contract, and is either expressed as a percentage of the Gross Surrender Value or as a percentage of the premium being liquidated. Assuming that: A = the Gross Surrender Value; B = the surrender charge, if any, as of the date we receive the surrender request In Writing; and C = the market value adjustment described below as of the date we receive the surrender request In Writing; i. if the surrender charge is expressed as a percentage of the Gross Surrender Value, then the Net Surrender Value equals (A - B) X C; ii. if the surrender charge is expressed as a percentage of the premium being liquidated, then the Net Surrender Value equals (A X C) - B; and iii. if there is no surrender charge, then the Net Surrender Value equals A X C. THESE SECURITIES MAY BE SUBJECT TO A SUBSTANTIAL SURRENDER CHARGE AND/OR MARKET VALUE ADJUSTMENT IF NOT HELD TO THE END OF A GUARANTEE PERIOD, WHICH COULD RESULT IN YOUR RECEIPT OF LESS THAN YOUR PREMIUM. You may avoid any applicable surrender charge by holding your Contract until the time surrender charges no longer apply, which will be shown in your Contract. No market value adjustment applies to any surrender occurring at the end of a Guarantee Period, and, where required by law, the 30 days prior to the end of the Guarantee Period. However, any sales charges, if applicable, could also result in your receipt of less than your premium under certain circumstances (see "Sales Charge"). Where permitted by law, any applicable surrender charge is waived if a full surrender qualifies under our rules as a medically-related withdrawal (see "Medically-Related Withdrawals"). Under certain circumstances, some or all of the monies surrendered may be considered as taxable income and may also be subject to certain penalty provisions of the Internal Revenue Code (see "Certain Tax Considerations"). Surrender Charge The surrender charge, if any, applicable to any full or partial surrender is a percentage of either the Gross Surrender Value or that portion of the Gross Surrender Value deemed to be a liquidation of premium. The type and level of charges will be shown in your Contract. The charge may be level for a specified number of years or it may start at a particular level and then grade down to zero over a specified number of years. The charge may also depend on the duration of the Initial Guarantee Period you select. As of the date of this Prospectus, we were not offering Contracts with surrender charges in excess of 6% of premium. However, we reserve the right to offer new types of Contracts with sales charges of not more than 8.5% of premium. In addition, if both a Sales Charge and a Surrender Charge exist in the same Contract, the total of both charges will not exceed 8.5% of premium. When the surrender charge is assessable against the amount of premium being liquidated, then surrenders or partial surrenders, except for those amounts taken under the free withdrawal provision, are deemed for the purpose of this charge to be first a liquidation of premium. Amounts taken under the free withdrawal privilege are not considered a liquidation of premium. On a partial surrender, Gross Surrender Value is deemed to come first from: (a) any interest then available under the free withdrawal provision; then from (b) any premium not yet liquidated, and then from (c) any remaining interest and any amounts credited due to premium size (see "Breakpoints"). This does not coincide with the treatment of such surrenders for tax purposes (see "Certain Tax Considerations). From time to time we may structure surrender charges for a group Contract, or we may reduce or waive surrender charges for individual Contracts, when either are sold in a manner that reduces sales expenses or spreads them out over time. We would consider various factors including (1) the size and type of group, (2) the amount of premiums, (3) additional premiums from existing Participants, and/or (4) other transactions where our sales expenses are likely to be reduced, eliminated or spread out over time. No surrender charge is imposed when any group Contract or any individual Contract issued pursuant to this Prospectus is owned on its Contract Date by: (a) any parent company, affiliate or subsidiary of ours; (b) an officer, director, employee, retiree, sales representative, or in the case of an affiliated broker-dealer, registered representative of such company; (c) a director, officer or trustee of any underlying mutual fund; (d) a director, officer or employee of any investment manager, sub-advisor, transfer agent, custodian, auditing, legal or administrative services provider that is providing investment management, advisory, transfer agency, custodianship, auditing, legal and/or administrative services to an underlying mutual fund or any affiliate of such firm; (e) a director, officer, employee or registered representative of a broker-dealer or insurance agency that has a then current selling agreement with us and/or with American Skandia Marketing, Incorporated; (f) a director, officer, employee or authorized representative of any firm providing us or our affiliates with regular legal, actuarial, auditing, underwriting, claims, administrative, computer support, marketing, office or other services; (g) the then current spouse of any such person noted in (b) through (f), above; (h) the parents of any such person noted in (b) through (g), above; (i) such person's child(ren) or other legal dependent under the age of 21; and (j) the siblings of any such persons noted in (b) through (h) above. No such group Contract or individual Contract is eligible for any Additional Amount due to the size of premiums (see "Breakpoints"). Any elimination of any surrender charge or any reduction to the amount of such charges will not discriminate unfairly between Contract purchasers. We will not make any such changes to this charge where prohibited by law. Market Value Adjustment The market value adjustment ("MVA") may increase or decrease the amount payable to you on a full or partial surrender. Such a surrender at the end of a Guarantee Period, and, where required by law, the 30 days prior to the end of a Guarantee Period, or which qualifies under our rules as a medically-related withdrawal is not affected by the MVA. In addition, the market value adjustment will be applied to the Interim Value when choosing an alternate Guarantee Period, except where required by law, if the change to an alternate Guarantee Period occurs not more than 30 days before the end of the Guarantee Period. The MVA reflects the relationship as of the time it is calculated between: (a) the rate then being credited to your Contract; and (b) our Current Rate for your type of Contract with a Guarantee Period equal to the time remaining to the end of your current Guarantee Period. Our Current Rates are expected to be sensitive to interest rate fluctuations, thereby making this adjustment sensitive to such fluctuations. There would be a downward adjustment when the applicable Current Rate plus an adjustment rate exceeds the rate currently being credited to your Contract. There would be an upward adjustment when the applicable Current Rate plus the adjustment rate is lower than the rate currently being credited to your Contract. The adjustment rate is the same for all Contracts of the same type, and cannot exceed 0.25% for any type of Contract. We reserve the right, from time to time, to determine the MVA using an interest rate lower than the Current Rate for all transactions applicable to a class of Contracts. This would benefit all such Contracts if transactions to which the MVA applies occur while we use such lower interest rate. The formula we use to determine the MVA is: [(1+I)/(1+J+the adjustment amount)] N/12 where: I is the Guarantee Rate applicable to the Guarantee Period for your Contract; J is the Current Rate for your type of Contract for the Guarantee Period equal to the number of years (rounded to the next higher number when occurring on other than an anniversary of the beginning of the current Guarantee Period) remaining in your current Guarantee Period; and N is the number of months (rounded to the next higher number when occurring on other than a monthly anniversary of the beginning of the current Guarantee Period) remaining to the end of your Guarantee Period. The formula that applies if amounts are surrendered pursuant to the right to return the Annuity is [(1+I)/(1+J)]N/12. Nonetheless, a full or partial surrender at the end of a Guarantee Period is not affected by the MVA. See Appendix B for illustrations of how the MVA works. MEDICALLY-RELATED WITHDRAWALS Where permitted by law, you may apply to surrender your rights under your Contract for its Interim Value prior to the Annuity Date upon occurrence of a "Contingency Event". The Annuitant must be alive as of the date we pay the proceeds of such surrender request. If the Owner is one or more natural persons, all such Owners must be alive at such time. This waiver of any applicable surrender charge and market value adjustment is subject to our rules. For contracts issued before May 1, 1996, a "Contingency Event" occurs if the Annuitant is: 1. First confined in a "Medical Care Facility" while your Contract is in force and remains confined for at least 90 days in a row; or 2. First diagnosed as having a Fatal Illness while your Contract is in force. "Medical Care Facility" means any state licensed facility providing medically necessary in-patient care which is prescribed by a licensed "Physician" in writing and based on physical limitations which prohibit daily living in a non-institutional setting. "Fatal Illness" means a condition diagnosed by a licensed Physician which is expected to result in death within 2 years for 80% of the diagnosed cases. "Physician" means a person other than you, the Annuitant or a member of either your or the Annuitant's families who is state licensed to give medical care or treatment and is acting within the scope of that license. We must receive satisfactory proof of the Annuitant's confinement or Fatal Illness In Writing. Specific details and definitions of terms in relation to this benefit may differ in certain jurisdictions. FREE WITHDRAWAL PRIVILEGE Once each Contract Year after the first you may withdraw an amount without any applicable surrender charge being assessed. This amount equals the "growth" in the Contract. "Growth" is defined as: (a) the interest credited to your Contract in the prior Contract Year, plus (b) the interest credited to your Contract in Contract Years previous to the last, subject to a market value adjustment, provided that immediately after the withdrawal (including any market value adjustment) the remaining Interim Value times the market value adjustment is at least equal to the unliquidated premium plus the value at the time credited of any amounts or due to premium size. Amounts credited due to premium size are not considered to be interest only for purposes of this free withdrawal privilege (see "Breakpoints"). Withdrawals of any type made prior to age 59 1/2 may be subject to 10% tax penalty (see "Penalty on Distributions"). QUALIFIED PLAN WITHDRAWAL LIMITATIONS There are surrender or withdrawal limitations in relation to certain retirement plans for employees which qualify under various sections of the Internal Revenue Code of 1986, as amended (the "Code"). These limitations do not affect certain roll-overs or exchanges between qualified plans. Generally, distribution of amounts attributable to contributions made pursuant to a salary reduction agreement (as defined in Code section 402(g)(3)(A)), or attributable to transfers from a custodial account (as defined in Code section 403(b)(7)), is restricted to the employee's: (a) separation from service; (b) death; (c) disability (as defined in Section 72(m)(7) of the Code); (d) reaching age 59 1/2; or (e) hardship (as defined for purposes of Code Section 401(k)). Hardship withdrawals are restricted to amounts attributable to salary reduction contributions, and do not include investment results. In the case of tax sheltered annuities, these limitations do not apply to certain salary reduction contributions made and investment results earned prior to dates specified in the Code. In addition, the limitation on hardship withdrawals does not apply to salary reduction contributions made and investment results earned prior to dates specified in the Code which have been transferred from custodial accounts. Rollovers from the types of plans noted to an individual retirement account or individual retirement annuity are not subject to the limitations noted. Certain distributions, including rollovers, that are not transferred directly to the trustee of another qualified plan, the custodian of an individual retirement account or the issuer of an individual retirement annuity may be subject to automatic 20% withholding for Federal income tax. This may also trigger withholding for state income taxes. DEFERRAL OF PAYMENT We may defer payment of any partial or total surrender for the period permitted by law. In no event may this deferral of payment exceed 6 months from the date we receive the request In Writing. If we defer payment for more than 30 days, we pay interest on the amount deferred in accordance with your Contract. DEATH BENEFIT On the Contracts we offer as of the date of this Prospectus, "death" means either your death, or the Annuitant's death if there is no Contingent Annuitant. The amount payable on death prior to the Annuity Date and before the Contract anniversary following the earlier of your or the Annuitant's 85th birthday is the greater of (1) the Interim Value of your Contract as of the date we receive due proof of death, or (2) the premium allocated to your Contract less the sum of all prior Gross Surrender Values. The amount of the death benefit at any later date prior to the Annuity Date is the Interim Value as of the date we receive "due proof of death". The following constitutes "due proof of death": (a)(i) a certified copy of a death certificate, (ii) a certified copy of a decree of a court of competent jurisdiction as to the finding of death, or (iii) any other proof satisfactory to us; (b) all representations we require or which are mandated by applicable law or regulation in relation to the death claim and the payment of death proceeds; and (c) any applicable election of the mode of payment of the death benefit, if not previously elected by the Participant. The amount of the death benefit is reduced by any annuity payments made prior to the date we receive In Writing due "proof of death". We may offer contracts that pay the death benefit upon the death of: (a) the Participant when the Participant is a natural person; and (b) the Annuitant (unless a Contingent Annuitant was previously designated) when the Participant is not a natural person (such as a trustee). In such Contracts the death benefit would be payable if the death occurred before the 85th birthday of the applicable decedent. In the absence of your election In Writing prior to proceeds becoming due, the Beneficiary may elect to receive the death benefit under one of the annuity options. However, if you made an election, the Beneficiary may not modify such election. In the event of your death, the benefit must be distributed within: (a) five years of the date of death; or (b) over a period not extending beyond the life expectancy of the Beneficiary or over the life of the Beneficiary. Distribution after your death to be paid under (b) above must commence within one year of the date of death. If the Annuitant dies before the Annuity Date, the Contingent Annuitant will become the Annuitant. However, if the Contingent Annuitant predeceased the Annuitant or there is no Contingent Annuitant designation, the death benefit becomes payable to the Beneficiary. The death of the first of any joint Participant is deemed the death of the Participant for determining payment of the death benefit. If the Beneficiary is your spouse and your death occurs prior to the Annuity Date and the Annuitant or Contingent Annuitant is living, then in lieu of receiving the death benefit, your spouse may elect to be treated as the Participant and continue the Annuity at its current Account Value, subject to its terms and conditions. A Participant's spouse may only assume ownership of the Annuity if such spouse is designated as the sole primary Beneficiary. ANNUITY DATE You may choose an Annuity Date when you purchase an Annuity or at a later date. It must be the first day of the first month on or after the end of a Guarantee Period. It must also be after the third Contract Year unless the Annuitant has a medically-related condition that would permit a medically-related withdrawal (see "Medically-Related Withdrawals"). It can be changed at any time but such requests must be received In Writing at our Office at least 30 days before the current Annuity Date. In the absence of an election In Writing and where permitted by law: (a) the Annuity Date is the start of the Contract Year first following the later of the Annuitant's 85th birthday or the fifth anniversary of our receipt at our Office of your request to purchase an Annuity. Your choice of Annuity Date may be limited in certain jurisdictions. ANNUITY OPTIONS You may select an annuity option when you purchase an Annuity, or at a later date. You may change this at any time up to 30 days before the Annuity Date by sending us a request In Writing. In the absence of an election from you, payments will automatically commence on the Annuity Date under option 2, with 120 payments certain. The amount to be applied is the value of your Contract on the Annuity Date. Annuity options in addition to those shown are available with our consent. You may elect to have any amount of the proceeds due to the Beneficiary applied under any of the options described below. Except where a lower amount is required by law, the minimum monthly annuity payment is $50. If you have not made an election prior to proceeds becoming due, the Beneficiary may elect to receive the death benefit under one of the annuity options. However, if you made an election, the Beneficiary may not alter such election. Option 1: Life Annuity This annuity is payable monthly during the lifetime of the payee, terminating with the last payment due prior to the death of the payee. Since no minimum number of payments is guaranteed, this option offers the maximum level of monthly payments of the annuity options. It is possible that the payee could receive only one payment if he or she died before the date the second payment was due, and no others payments nor death benefits would be payable. Option 2: Life Annuity with 120, 180, or 240 Monthly Payments Certain This annuity provides monthly income to the payee for a fixed period of 120, 180, or 240 months, as selected, and for as long thereafter as the payee lives. Should the payee die before the end of the fixed period, the remaining payments are paid to the Beneficiary to the end of such period. Option 3: Payments Based on Joint Lives Under this option, income is payable monthly during the joint lifetime of two key lives, and thereafter during the remaining lifetime of the survivor, ceasing with the last payment prior to the survivor's death. No minimum number of payments is guaranteed under this option. It is possible that only one payment will be payable if the death of all key lives occurs before the date the second payment was due, and no other payments nor death benefits would be payable. Option 4: Payments for a Designated Period This annuity provides an amount payable for a specified number of years. The number of years is subject to our then current rules. Should the payee die before the end of the specified number of years, the remaining payments are paid to the Beneficiary to the end of such period. Note that under this option, payments are not based on how long we expect Annuitants to live. The monthly payment varies according to the annuity option you select. The monthly payment is determined by multiplying the value of your Contract on the Annuity Date (expressed in thousands of dollars) less any amount then assessed for premium tax, by the amount of the first monthly payment per $1,000 obtained from our annuity rates. These rates will not be less than those provided in the tables included in the Contract. These tables are derived from the 1983a Individual Annuity Mortality Table with ages set back one year for males and two years for females and with an assumed interest rate of 4% per annum. Where required by law or regulation, such annuity tables will have rates that do not differ according to the gender of the key life. Otherwise the rates will differ according to the gender of the key life. Annuity payments will be made on the first day of each month once payments begin. ADMINISTRATION OF TRANSACTIONS In administering transactions, we may require presentation of proper identification prior to processing, including the use of a personal identification number ("PIN") issued by us, prior to accepting any instruction by telephone or other electronic means. We forward your PIN to you shortly after your Annuity is issued. To the extent permitted by law or regulation, neither we or any person authorized by us will be responsible for any claim, loss, liability or expense in connection with a switch to an alternate Guarantee Period or any other transaction for which we accept instructions by telephone if we or such other person acted on telephone instructions in good faith in reliance on your telephone instruction authorization and on reasonable procedures to identify persons so authorized through verification methods which may include a request for your Social Security or tax I.D. number or a personal identification number (PIN) as issued by us. We may be liable for losses due to unauthorized or fraudulent instructions should we not follow such reasonable procedures. AGE LIMITS Both you and the Annuitant, if you are not the Annuitant, must be less than 85 years of age on the Contract Date. ASSIGNMENTS OR PLEDGES Generally, your rights in a Contract may be assigned or pledged for loans at any time. However, these rights may be limited depending on your use of the Annuity. The assignment and/or loan proceeds may be subject to income taxes and certain penalty taxes (see "Certain Tax Considerations"). You may assign your rights to another person at any time, during the Annuitant's lifetime. You must give us a copy of the assignment In Writing. An assignment is subject to our acceptance. Prior to receipt of this notice, we will not be deemed to know of or be obligated under the assignment prior to our receipt and acceptance thereof. We assume no responsibility for the validity or sufficiency of any assignment. PARTICIPANT, ANNUITANT AND BENEFICIARY DESIGNATIONS When you purchase an Annuity, you must make certain designations, including a Participant and an Annuitant. You may also make certain other designations. These designations include a contingent Participant, a Contingent Annuitant, a Beneficiary, and a contingent Beneficiary. Certain designations are required, as indicated below. Such designations will be revocable unless you indicate otherwise or we endorse your Annuity to indicate that such designation is irrevocable to meet certain regulatory or statutory requirements. Some of the tax implications of the various designations are discussed in the section entitled "Certain Tax Considerations". However, there are other tax issues than those addressed in that section, including, but not limited to, estate and inheritance tax issues. You should consult with a competent tax counselor regarding the tax implications of various designations. You should also consult with a competent legal advisor as to the implications of certain designations in relation to an estate, bankruptcy, community property where applicable and other matters. A Participant must be designated. You may designate more than one Participant. If you do, all rights reserved to Participants are then held jointly. We require consent In Writing of all joint Participants for any transaction for which we require the written consent of Participants. Where required by law, we require the consent of the spouse of any person with a vested interest in an Annuity. Naming someone other than the payor of a premium as the Participant may have gift, estate or other tax implications. You may designate more than one primary or contingent Beneficiary and if you do, the proceeds will be paid in equal shares to the survivors in the appropriate beneficiary class, unless you have requested otherwise In Writing. The Beneficiary is the person or persons entitled to receive the death benefit or remaining certain payments under an annuity option with certain payments. Unless you indicated that a prior choice was irrevocable, you may change these designations at any time during the Annuitant's lifetime by sending a request In Writing. If a Participant's spouse is designated as the sole primary Beneficiary of the Annuity and the Participant dies prior to the Annuity Date, the Participant's Spouse, as Beneficiary, may elect to be treated as Participant and continue the Annuity at its current Account Value, subject to its terms and conditions. If the Annuity is owned jointly by both spouses, and the primary Beneficiary is designated as "surviving spouse", each spouse named individually, or a designation of similar intent, then upon the death of either Participant, the surviving spouse may elect to be treated as Participant. If the primary Beneficiary dies before death proceeds become payable, the proceeds will become payable to the contingent Beneficiary. If no Beneficiary is alive at the time of the death upon which death proceeds become payable or in the absence of any Beneficiary designation, the proceeds will vest in you or your estate. You may name one or more Contingent Annuitants. There may be adverse tax consequences if a Contingent Annuitant succeeds an Annuitant and the Contract is owned by a trust that is neither tax exempt nor does not qualify for preferred treatment under certain sections of the Code, such as Section 401 (a "non-qualified" trust). In general, the Code is designed to prevent the benefit of tax deferral from continuing for long periods of time on an indefinite basis. Continuing the benefit of tax deferral by naming one or more Contingent Annuitants when the Contract is owned by a non-qualified trust might be deemed an attempt to extend the tax deferral for an indefinite period. Therefore, adverse tax treatment may depend on the terms of the trust, who is named as Contingent Annuitant, as well as the particular facts and circumstances. You should consult your tax advisor before naming a Contingent Annuitant if you expect to use a Contract in such a fashion. You must name Contingent Annuitants according to our rules when a Contract is used as a funding vehicle for certain retirement plans designed to meet the requirements of Section 401 of the Internal Revenue Code. MISSTATEMENT OF AGE OR SEX If the age and/or sex of the Annuitant has been misstated, we make adjustments to conform to the facts. Any underpayments by us will be remedied on the next payment following correction. Any overpayments by us will be charged against future amounts payable by us under your annuity. CONTRACT MODIFICATION We reserve the right to make changes that are necessary to maintain the tax status of the Annuity under the Internal Revenue Code and/or make changes required by any change in other Federal or state laws relating to retirement annuities or annuity contracts. Where required by law or regulation, approval of the contract owner will be obtained prior to any such change. BREAKPOINTS Wherever allowed by law, we reserve the right to make additions to the Interim Values of Contracts of Participants submitting large amounts of premium. The current breakpoints for qualifying for such additional amounts and the amount we credit are as follows: Premiums received Additional Amount as a percentage of premium At least $500,000 but less than $1,000,000 1.25% At least $1,000,000 but less than $5,000,000 3.00% At least $5,000,000 or more 3.75% As of the date of the Prospectus we make such a program available for Contracts that do not otherwise differentiate sales charges or surrender charges on the amount of premium received. However, we reserve the right to modify, suspend or terminate it at any time, or from time to time, without notice. If you submit premium to purchase multiple Contracts, we divide the additions to the Contracts then being purchased in the same proportion as the premium is being divided among such Contracts. Should you have a right to cancel your Contract (see "Right to Cancel") and exercise such a right, the accumulated value of the additional amount credited will not be included in the amount returned to you. We do not consider additional amounts credited due to premium size to be an increase in your "investment in the contract" (see "Certain Tax Considerations). Additional amounts credited are not included in any amounts you may withdraw without assessment of any applicable surrender charge (see "Free Withdrawal Privilege"). INVESTMENTS GENERAL Our investments are subject to the requirements of applicable state laws. Such laws address the nature and quality of investments, as well as the percentage of our assets which we may commit to a particular type of investment. Subject to certain limitations and qualifications, such laws generally permit investment in federal, state and municipal obligations, corporate bonds, preferred and common stock, real estate mortgages, real estate and certain other investments. Assets supporting the Annuities are accounted for in one or more non-unitized separate accounts established by us under the laws of the State of Connecticut. Such separate accounts may contain assets from various types of annuities we offer, the assets of which are permitted to be held in such accounts under applicable law and regulation. Neither you nor the owner of any underlying group Annuity participate in the performance of the assets through any unit values in such a non-unitized separate account. There are no discrete units for such a separate account. Contracts do not represent units of ownership of assets belonging to this separate account. We own the assets in each separate account. The assets accrue solely to our benefit. Neither you nor any group Contract owner participate in the investment gain or loss from assets belonging to such separate account(s). Such gain or loss accrues solely to us. We believe that the assets equal to the reserve and other liabilities of such separate accounts are not chargeable with liabilities arising from our other business if so stated in our annuity contract and certificate forms. We have obtained approval in each jurisdiction in which our annuities are available for sale of language stating that: (A) Income, gains and losses, whether or not realized, from assets allocated to any such separate account are credited to or charged against such separate account without regard to our other income, gains or losses; (B) Assets equal to the reserves and other liabilities of such separate accounts are not chargeable with liabilities that arise from any business we conduct other than from the operation of the Annuities or other annuities which are supported by such separate accounts; and (C) We have the right to transfer to our general account any assets of such separate account which are in excess of such reserves and other liabilities. All benefits attributable to Contracts and interests purchased in the group contracts are contract guarantees we make and are accounted for in the separate account(s). However, all of our general account assets are available to meet our obligations under the Contracts. INVESTMENT MANAGEMENT We have the sole discretion to employ investment managers that we believe are qualified, experienced and reputable to manage the assets supporting the Guaranteed Maturity Annuity including, but not limited to, J. P. Morgan Investment Management Inc. Each manager is responsible for investment management of different portions of a separate account supporting one or more Contracts. We are under no obligation to employ or continue to employ any investment manager(s). CURRENT INVESTMENT GUIDELINES Some of the guidelines of our current investment strategy are outlined below. However, we are not obligated to invest according to this or any other strategy except as may be required by Connecticut and other state insurance laws. Our current guidelines for the portfolio of investments in any non-unitized separate account include, but are not limited to the following: 1. Investments may be made in cash; debt securities issued by the United States Government or its agencies and instrumentalities; money market instruments; short, intermediate and long-term corporate obligations; private placements; asset-backed obligations; and municipal bonds. 2. At the time of purchase, fixed income securities will be in one of the top four generic lettered rating classifications as established by a nationally recognized statistical rating Organization ("NRSRO") such as Standard & Poor's or Moody's Investor Services, Inc. or any Should a fixed income security fall below one of these top four generic lettered rating classifications subsequent to purchase, we may or may not sell such security. We may change these guidelines at any time. CERTAIN TAX CONSIDERATIONS The following is a brief summary of certain Federal income tax laws as they are currently interpreted. No one can be certain that the laws or interpretations will remain unchanged or that agencies or courts will always agree as to how the tax law or regulations are to be interpreted. This discussion is not intended as tax advice. You may wish to consult a professional tax advisor for tax advice as to your particular situation. OUR TAX CONSIDERATIONS We are taxed as a life insurance company under Part I, subchapter L, of the Code. TAX CONSIDERATIONS RELATING TO YOUR ANNUITY Section 72 of the Code governs the taxation of annuities in general. Taxation of an annuity is largely dependent upon: (a) whether it is used in a qualified pension or profit sharing plan or other retirement arrangement eligible for special treatment under the Code; and (b) the status of the beneficial owner as either a natural or non-natural person (when the annuity is not used in a retirement plan eligible for special tax treatment). Non-natural persons include corporations, trusts, and partnerships, except where these entities own an annuity as an agent or nominal owner for a natural person who is the beneficial owner. Natural persons are individuals. Non-natural Persons Any increase during a tax year in the value of an annuity if not used in a retirement plan eligible for special treatment under the Code is currently includible in the gross income of a non-natural person that is the contractholder. There are exceptions if an annuity is held by: (a) a structured settlement company; (b) an employer with respect to a terminated pension plan; (c) entities other than employers, such as a trust, holding an annuity as an agent for a natural person; or (d) a decedent's estate by reason of the death of the decedent. Natural Persons Increases in the value of an annuity when the contractholder is a natural person generally are not taxed until distribution occurs. Distribution can be in a lump sum payment or in annuity payments under the annuity option elected. Certain other transactions may be deemed to be a distribution. The provisions of Section 72 of the Code concerning these distributions are summarized briefly below. Distributions Generally, distributions received before the annuity payments begin are treated as being derived first from "income on the contract" and includible in gross income. The amount of the distribution exceeding "income on the contract" is not included in gross income. "Income on the contract" for an annuity is computed by subtracting from the value of all "related contracts" (our term, discussed below) the taxpayer's "investment in the contract": an amount equal to total purchase payments for all "related contracts" less any previous distributions or portions of such distributions from such "related contracts" not includible in gross income. "Investment in the contract" may be affected by whether an annuity or any "related contract" was purchased as part of a tax-free exchange of life insurance or annuity contracts under Section 1035 of the Code. "Related contracts" may mean all annuity contracts or certificates evidencing participation in a group annuity contract for which the taxpayer is the policyholder and which are issued by the same insurer within the same calendar year, irrespective of the named annuitants. It is clear that "related contracts" include contracts prior to when annuity payments begin,. However, there may be circumstances under which "related contracts" may include contracts recognized as immediate annuities under state insurance law or annuities for which annuity payments have begun. In a ruling addressing the applicability of a penalty on distributions, the Internal Revenue Service treated distributions from a contract recognized as an immediate annuity under state insurance law like distributions from a deferred annuity. The situation addressed by such ruling included the fact that: (a) the immediate annuity was obtained pursuant to an exchange of contracts; and (b) the purchase payments for the exchanged contract were contributed more than one year prior to the first annuity payment payable under the immediate annuity. This ruling also may or may not imply that annuity payments from a deferred annuity on or after its annuity date may be treated the same as distributions prior to the annuity date if such deferred annuity was: (a) obtained pursuant to an exchange of contracts; and (b) the purchase payments for the exchanged contract were made or may be deemed to have been made more than one year prior to the first annuity payment. If "related contracts" include immediate annuities or annuities for which annuity payments have begun, then "related contracts" would have to be taken into consideration in determining the taxable portion of each annuity payment (as outlined in the "Annuity Payments" subsection below) as well as in determining the taxable portion of distributions from an annuity or any "related contracts" before annuity payments have begun. We cannot guarantee that immediate annuities or annuities for which annuity payments have begun could not be deemed to be "related contracts". You are particularly cautioned to seek advice from your own tax advisor on this matter. Amounts received under a contract on its complete surrender, redemption, or maturity are includible in gross income to the extent that they exceed the cost of the contract, i.e., they exceed the total premiums or other consideration paid for the contract minus amounts received under the contract that were not reportable as gross income. 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 subsequent to the assignment or pledge of an entire annuity while such assignment or pledge remains in effect is treated as "income on the contract" in the year in which it is earned. For annuities not issued for use as qualified plans (see "Tax Considerations when Using Annuities in Conjunction with Qualified Plans"), the cost basis of the annuity is increased by the amount of any assignment or pledge includible in gross income. The cost basis is not affected by any repayment of any loan for which the annuity is collateral or by payment of any interest thereon. Gifts The gift of an annuity to other than the spouse of the contract holder (or former spouse incident to a divorce) is treated for tax purposes as a distribution. Penalty on Distributions Subject to certain exceptions, any distribution from an annuity not used in conjunction with qualified plans is subject to a penalty equal to 10% of the amount includible in gross income. This penalty does not apply to certain distributions, including: (a) distributions made on or after the taxpayer's age 59 1/2; (b) distributions made on or after the death of the holder of the contract, or, where the holder of the contract is not a natural person, the death of the annuitant; (c) distributions attributable to the taxpayer's becoming disabled; (d) distributions which are part of a scheduled series of substantially equal periodic payments for the life (or life expectancy) of the taxpayer (or the joint lives of the taxpayer and the taxpayer's Beneficiary); (e) distributions of amounts which are allocable to "investments in the contract" made prior to August 14, 1982; (f) payments under an immediate annuity as defined in the Code; (g) distributions under a qualified funding asset under Code Section 130(d); or (h) distributions from an annuity purchased by an employer on the termination of a qualified pension plan that is held by the employer until the employee separates from service. With respect to Roth IRAs only, distributions are not subject to federal income tax or 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 a penalty tax. Any modification, other than by reason of death or disability, of distributions which are part of a scheduled series of substantially equal periodic payments as noted in (d), above, that occur before the taxpayer's age 59 1/2 or within 5 years of the first of such scheduled payments will result in the requirement to pay the taxes that would have been due had the payments been treated as subject to tax in the years received, plus interest for the deferral period. It is our understanding that the Internal Revenue Service does not consider a scheduled series of distributions to qualify under (d), above, if the holder of the annuity retains the right to modify such distributions at will, even if such right is not exercised. The Internal Revenue Service has ruled that the exception to the 10% penalty described above for "non-qualified" immediate annuities as defined under the Code may not apply to annuity payments under a contract recognized as an immediate annuity under state insurance law obtained pursuant to an exchange of contracts if: (a) purchase payments for the exchanged contract were contributed or deemed to be contributed more than one year prior to the first annuity payment payable under the immediate annuity; and (b) the annuity payments under the immediate annuity do not meet the requirements of any other exception to the 10% penalty. This ruling may or may not imply that the exception to the 10% penalty may not apply to annuity payments paid pursuant to a deferred annuity obtained pursuant to an exchange contract if: (a) purchase payments for the exchanged contract were contributed or may be deemed to be contributed more than one year prior to the first annuity payment pursuant to the deferred annuity contract; or (b) the annuity payments pursuant to the deferred annuity do not meet the requirements of any other exception to the 10% penalty. Annuity Payments The taxable portion of each payment received as an annuity on or after the annuity start date is determined by a formula which establishes the ratio that "investment in the contract" bears to the total value of annuity payments to be made. However, the total amount excluded under this ratio is limited to the "investment in the contract". Where the annuity payments cease because of the death of the person upon whose life payments are based and, as of the date of death, the amount of annuity payments excluded from taxable income by the exclusion ratio does not exceed the investment in the contract, then the remaining portion of unrecovered investment is allowed as a deduction in the tax year of such death. Tax-Free Exchanges Section 1035 of the Code permits certain tax-free exchanges of a life insurance, annuity or endowment contract for an annuity. If an annuity is obtained by a tax-free exchange of a life insurance, annuity or endowment contract purchased prior to August 14, 1982, then any distributions other than as annuity payments which do not exceed the portion of the "investment in the contract" (purchase payments made into the other contract, less prior distributions) prior to August 14, 1982, are not included in taxable income. In all other respects, the general provisions apply to distributions from annuities obtained as part of such an exchange. 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. Federal Income Tax Withholding Section 3405 of the Code provides for Federal income tax withholding on the portion of a distribution which is includible in the gross income of the recipient. Amounts to be withheld depend upon the nature of the distribution. However, a recipient may elect not to have income taxes withheld or have income taxes withheld at a different rate by filing a completed election form with us. Certain distributions, including rollovers, from most retirement plans, may be subject to automatic 20% withholding for Federal income taxes. This will not apply to: (a) any portion of a distribution paid as a required minimum distribution when an annuity is used in conjunction with certain retirement plans; (b) direct transfers to trustees of another retirement plan; (c) distributions from an individual retirement account or individual retirement annuity; (d) distributions made as substantially equal periodic payments for the life or life expectancy of the participant in the retirement plan or the life or life expectancy of such participant and his or her designated beneficiary under such plan; and (e) certain other distributions where automatic 20% withholding may not apply. Tax Considerations When Using Annuities in Conjunction With Qualified Plans There are various types of qualified plans for which an annuity may be suitable. Benefits under a qualified plan may be subject to that plan's terms and conditions irrespective of the terms and conditions of any annuity used to fund such benefits ("qualified contract"). We have provided below general descriptions of the types of qualified plans in conjunction with which we may issue an Annuity. These descriptions are not exhaustive and are for general informational purposes only. We are not obligated to make or continue to make new Annuities available for use with all the types of qualified plans shown below. The tax rules regarding qualified plans are complex. The application of these rules depends on individual facts and circumstances. Before purchasing an Annuity for use in funding a qualified plan, you should obtain competent tax advice, both as to the tax treatment and suitability of such an investment. Qualified contracts include special provisions changing or restricting certain rights and benefits otherwise available to non-qualified annuities. You should read your Annuity carefully to review any such changes or limitations. The changes and limitations may include, but may not be limited to restrictions on ownership, transferability, assignability, contributions, distributions, as well as reductions to the minimum allowable purchase payment for an annuity and any subsequent annuity you may purchase for use as a qualified contract. Additionally, various penalty and excise taxes may apply to contributions or distributions made in violation of applicable limitations. Individual Retirement Programs Eligible individuals may maintain an individual retirement account or annuity ("IRA"). Subject to limitations, contributions of certain amounts may be deductible from gross income. Such persons may also maintain a form of IRA called a "Roth IRA". Contributions to a Roth IRA are not deductible but, under certain circumstances, distributions from such an account are tax-free. 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. Eligible employers that meet specified criteria may establish Simplified Employee Pensions using the employees' IRAs. These arrangements are known as SEP-IRAs, and may be deductible to the employer. Employer contributions that may be made to SEP IRAs are larger than the amounts that may be contributed to other IRAs, and may be deductible to the employer. Tax Sheltered Annuities A tax sheltered annuity ("TSA") under Section 403(b) of the Code is a contract into which contributions may be made for the benefit of their employees by certain qualifying employers: public schools and certain charitable, educational and scientific organizations. Such contributions are not taxable to the employee until distributions are made from the TSA. The Code imposes limits on contributions, transfers and distributions. Nondiscrimination requirements apply as well. Corporate Pension and Profit-sharing Plans Annuities may be used to fund employee benefits of various retirement plans established by corporate employers. Contributions to such plans are not taxable to the employee until distributions are made from the retirement plan. The Code imposes limitations on contributions and distributions. The tax treatment of distributions is subject to special provisions of the Code, and also depends on the design of the specific retirement plan. There are also special requirements as to participation, nondiscrimination, vesting and nonforfeitability of interests. H.R. 10 Plans Annuities may also be used to fund benefits of retirement plans established by self-employed individuals for themselves and their employees. These are commonly known as "H.R. 10 Plans" or "Keogh Plans". These plans are subject to most of the same types of limitations and requirements as retirement plans established by corporations. However, the exact limitations and requirements may differ from those for corporate plans. Tax Treatment of Distributions From Qualified Annuities A 10% penalty tax applies to the taxable portion of a distribution from a qualified contract unless one of the following exceptions apply to such distribution: (a) it is part of a properly executed transfer to another IRA, an individual retirement account or another eligible qualified plan; (b) it occurs on or after the taxpayer's age 59 1/2; (c) it is subsequent to the death or disability of the taxpayer (for this purpose disability is as defined in Section 72(m)(7) of the Code); (d) it is part of substantially equal periodic payments to be paid not less frequently than annually for the taxpayer's life or life expectancy or for the joint lives or life expectancies of the taxpayer and a designated beneficiary; (e) it is subsequent to a separation from service after the taxpayer attains age 55; (f) it does not exceed the employee's allowable deduction in that tax year for medical care; and (g) it is made to an alternate payee pursuant to a qualified domestic relations order. The exceptions stated above in (e), (f) and (g) do not apply to IRAs. 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. MISCELLANEOUS MATTERS DISTRIBUTION American Skandia Marketing, Incorporated, a wholly-owned subsidiary of American Skandia Investment Holding Corporation, acts as the principal underwriter of the Annuities. ASM, Inc.'s principal business address is One Corporate Drive, Shelton, Connecticut 06484. ASM, Inc. is a member of the National Association of Securities Dealers, Inc. ("NASD"). ASM, Inc. will enter into distribution agreements with certain broker-dealers registered under the Securities and Exchange Act of 1934 or with entities which may otherwise offer the Annuities that are exempt from such registration. Under such distribution agreements such broker-dealers or entities may offer Annuities to persons who have established an account with the broker-dealer or the entity. In addition, ASM, Inc. may solicit other eligible groups and certain individuals. The maximum concession to be paid on premiums received is 6.0%. We reserve the right to provide higher levels of compensation for the sale of Contracts when Participants select initial Guarantee Periods with longer durations than we pay in relation to shorter initial Guarantee Periods. As of the date of this Prospectus, we were promoting the sale of our products and solicitation of additional purchase payments, where applicable, for our products, including contracts offered pursuant to this Prospectus, through a program of non-cash rewards to registered representatives of participating broker-dealers. We may withdraw or alter this promotion at any time. REPORTS TO YOU We send any statements and reports required by applicable law or regulation to you at your last known address of record. Participants 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 Interim Value. 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. 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 and no later than the date below 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. LEGAL PROCEEDINGS As of the date of this Prospectus, neither we nor ASM, Inc. were involved in any litigation outside of the ordinary course of business, and know of no material claims. LEGAL COUNSEL Counsel with respect to Federal laws and regulations applicable to the issue and sale of the Contracts and with respect to Connecticut law is Werner & Kennedy, 1633 Broadway, New York, NY 10019. EXPERTS The consolidated financial statements of American Skandia Life Assurance Corporation included in this Prospectus and Registration Statement with respect to the year ended December 31, 1997 have been audited by Ernst & Young LLP, independent auditors, and by Deloitte & Touche LLP, independent auditors, with respect to the years ended December 31, 1996, 1995, 1994, and 1993 as set forth in their respective reports thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firms as experts in accounting and auditing. INDEMNIFICATION Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE To the extent and only to the extent that any statement in a document incorporated by reference into this Prospectus is modified or superseded by a statement in this Prospectus or in a later-filed document, such statement is hereby deemed so modified or superseded and not part of this Prospectus. The Annual Report on Form 10-K for the year ended December 31, 1997 previously filed by the Company with the SEC under the Securities Exchange Act of 1934 is incorporated by reference in this Prospectus. We furnish you without charge a copy of any or all of the documents incorporated by reference in this Prospectus, including any exhibits to such documents which have been specifically incorporated herein by reference. We do so upon receipt of your written or oral request. Please address your request to American Skandia Life Assurance Corporation, Attention: Concierge Desk, P.O. Box 883, Shelton, Connecticut, 06484. Our phone number is 1-800-752-6342. Our electronic mail address is customerservice@Skandia.com. THE COMPANY: American Skandia Life Assurance Corporation (the "Company") is a stock life insurance company domiciled in Connecticut with licenses in all 50 states. It is a wholly-owned subsidiary of American Skandia Investment Holding Corporation (the "Parent"), whose ultimate parent is Skandia Insurance Company Ltd., a Swedish company. The Company markets its products to broker-dealers and financial planners through an internal field marketing staff. In addition, the Company markets through and in conjunction with financial institutions such as banks that are permitted directly, or through affiliates, to sell annuities. In addition, the Company has 99.9% ownership in Skandia Vida, S.A. de C.V. which is a life insurance company domiciled in Mexico. This Mexican life insurer is a start up company with expectations of selling long-term savings products within Mexico. The Company's investment in Skandia Vida, S.A. de C.V. is $1.5 million at December 31,1997. Lines of Business: The Company is in the business of issuing annuity policies, and has been so since its business inception in 1988. The Company currently offers the following annuity products: a) certain deferred annuities that are registered with the Securities and Exchange Commission, including variable annuities and fixed interest rate annuities that include a market value adjustment feature; b) certain other fixed deferred annuities that are not registered with the Securities and Exchange Commission; c) certain group variable annuities that are not registered with the Securities and Exchange Commission that serve as funding vehicles for various types of qualified pension and profit sharing plans; and d) fixed and adjustable immediate annuities. Selected Financial Data: The following selected financial data is qualified by reference to, and should be read in conjunction with, the financial statements, including related notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus. The selected financial data as of and for each of the years ended December 31, 1997, 1996, 1995, 1994 and 1993 has not been audited. The selected financial data has been derived from the full financial statements for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 which were presented in conformity with generally accepted accounting principles and which were audited by Ernst & Young LLP, independent auditors, with respect to the year ended December 31, 1997 and Deloitte & Touche LLP, independent auditors, with respect to the years ended December 31, 1996 and 1995, whose respective reports on the Company's consolidated financial statements as of December 31, 1997 and 1996, and for the three years in the period ended December 31, 1997, are included herein.
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Income Statement Data: Revenues: Annuity charges and fees* $ 121,157,846 $ 69,779,522 $ 38,837,358 $ 24,779,785 $ 11,752,984 Fee income 27,587,231 16,419,690 6,205,719 2,111,801 938,336 Net investment income 8,181,073 1,585,819 1,600,674 1,300,217 692,758 Annuity premium income and other revenues 1,088,144 265,103 45,524 92,608 432,936 --------------- -------------- -------------- -------------- -------------- Total revenues $ 158,014,294 $ 88,050,134 $ 46,689,275 $ 28,284,411 $ 13,817,014 =============== ============== ============== ============== ============== Benefits and Expenses: Annuity benefits 2,033,275 613,594 555,421 369,652 383,515 Increase/(decrease) in annuity policy reserves 37,270 634,540 (6,778,756) 5,766,003 1,208,454 Cost of minimum death benefit reinsurance 4,544,697 2,866,835 2,056,606 - - Return credited to contractowners (2,018,635) 672,635 10,612,858 (516,730) 252,132 Underwriting, acquisition and other insurance expenses 90,496,952 49,887,147 35,914,392 18,942,720 9,547,951 Interest expense 24,895,456 10,790,716 6,499,414 3,615,845 187,156 --------------- -------------- -------------- -------------- -------------- Total benefits and expenses $ 119,989,015 $ 65,465,467 $ 48,859,935 $ 28,177,490 $ 11,579,208 =============== ============== ============== ============== ============== Income tax (benefit) expense $ 10,477,746 $ (4,038,357) $ 397,360 $ 247,429 $ 182,965 =============== ============== ============== ============== ============== Net income (loss) $ 27,547,533 $ 26,623,024 $ (2,568,020) $ (140,508) $ 2,054,841 =============== ============== ============== ============== ============== Balance Sheet Data: Total Assets $12,972,416,108 $8,347,695,595 $5,021,012,890 $2,864,416,329 $1,558,548,537 =============== ============== ============== ============== ============== Future fees payable to parent $ 233,033,818 $ 47,111,936 $ 0 $ 0 $ 0 =============== ============== ============== ============== ============== Surplus Notes $ 213,000,000 $ 213,000,000 $ 103,000,000 $ 69,000,000 $ 20,000,000 =============== ============== ============== ============== ============== Shareholder's Equity $ 184,421,044 $ 126,345,031 $ 59,713,000 $ 52,205,524 $ 52,387,687 =============== ============== ============== ============== ==============
* On annuity sales of $3,697,990,000, $2,795,114,000, $1,628,486,000, $1,372,874,000 and $890,640,000 during the years ended December 31, 1997, 1996, 1995, 1994, and 1993, respectively, with contractowner assets under management of $12,119,191,000, $7,764,891,000, $4,704,044,000, $2,661,161,000 and $1,437,554,000 as of December 31, 1997, 1996, 1995, 1994 and 1993, respectively. The above selected financial data should be read in conjunction with the financial statements and the notes thereto. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS The Company's long term business plan was developed reflecting the current sales and marketing approach. Annuity sales increased 32%, 72% and 19% in 1997, 1996 and 1995, respectively. The Company continues to show significant growth in sales volume and increased market share within the variable annuity industry. This growth is a result of innovative product development activities, expansion of distribution channels and a focused effort on customer orientation. The Company primarily offers and sells a wide range of deferred annuities through three focused marketing, sales and service teams. Each team specializes in addressing one of the Company's primary distribution channels: (a) financial planning firms; (b) broker-dealers that generally are members of the New York Stock Exchange, including "wirehouse" and regional broker-dealer firms; and (c) broker-dealers affiliated with banks or which specialize in marketing to customers of banks. The Company also offers a number of specialized products distributed by select, large distributors. In 1995 and 1996, the Company restructured its internal operations to better support the specialized marketing, sales and service needs of the primary distribution channels and of the select distributors of specialized products. There has been continued growth and success in expanding the number of selling agreements in the primary distribution channels. There has also been increased success in enhancing the relationships with the registered representatives/insurance agents of all the selling firms. Total assets grew 55%, 66% and 75% in 1997, 1996 and 1995, respectively. These increases were a direct result of the substantial sales volume increasing separate account assets and deferred acquisition costs as well as 1997 and 1996 growth in fixed maturity investments in support of the Company's risk based capital requirements. Liabilities grew 56%, 65%, and 76% in 1997, 1996 and 1995, respectively, as a result of the reserves required for the increased sales activity along with borrowings during these periods. The borrowings are needed to fund the acquisition costs of the Company's variable annuity business. The Company experienced a net gain after tax in 1997 and 1996 and a net loss after tax in 1995. The 1997 and 1996 results were related to the strong sales volume, favorable market climate, expense savings relative to sales volume and recognition of certain tax benefits. The 1995 result was related to higher than anticipated expense levels and additional reserving requirements on our market value adjusted annuities. The increase in expenses was primarily attributable to improving our service infrastructure and marketing related costs, which was in part responsible for the strong sales and financial performance in 1996. Increasing volume of annuity sales results in higher assets under management. The fees realized on assets under management have resulted in annuity charges and fees increasing 74%, 80% and 57% in 1997, 1996 and 1995, respectively. Fee income has increased 68%, 165% and 194% in 1997, 1996 and 1995, respectively, as a result of income from transfer agency type activities. These increases are also as a result of increases in assets under management. Net investment income increased 416% in 1997, decreased 1% in 1996 and increased 23% in 1995. The increase in 1997 was a direct result of increased bond holdings in support of the Company's risk based capital. The level net investment income in 1996 was a result of the consistent investment holdings throughout most of the year. The increase in 1995 was a result of a higher average level of Company bonds and short-term investments. Annuity premium income represents premiums earned on sales of immediate annuities with life contingencies and supplementary contracts with life contingencies. Annuity benefits represent payments on annuity contracts with mortality risks, these being immediate annuity contracts with life contingencies and supplementary contracts with life contingencies. Increase/(decrease) in annuity policy reserves represents changes in reserves for the immediate annuity with life contingencies, supplementary contracts with life contingencies and guaranteed minimum death benefits. During 1995, the Company entered into an agreement to reinsure the guaranteed minimum death benefit exposure on most of the variable annuity contracts. The costs associated with reinsuring the guaranteed minimum death benefit reserve exceeded the change in the guaranteed minimum death benefit reserve during 1997 and 1996 as a result of minimum required premiums within the reinsurance contract. The costs associated with reinsuring the guaranteed minimum death benefit reserve approximate the change in the guaranteed minimum death benefit reserve during 1995, thereby having no significant effect on the statement of operations. Return credited to contractowners represents revenues on the variable and market value adjusted annuities offset by the benefit payments and change in reserves required on this business. Also included are the benefit payments and change in reserves on immediate annuity contracts without significant mortality risks. The 1997 return credited to contractowners in the amount of ($2.0) millions represents a break-even year for our market value adjusted product line for the year. The 1996 return credited to contractowners in the amount of $0.7 million represents a favorable investment return on the market value adjusted contracts relating to the benefits and required reserves, offset by the effect of bond market fluctuations on December 31, 1996 in the amount of $1.8 million. While the assets relating to the market value adjusted contracts reflect the market interest rate fluctuations which occurred on December 31, 1996, the liabilities are based on the interest rates set for new contracts which are generally based on the prior day's interest rates. During the first week of January 1997, interest rates were established for new contracts, thereby bringing the liabilities relating to the market value adjusted contracts in line with the related assets. Consequently, the gain realized in 1997 was a result of this liability shift. In 1995, the Company earned a lower than anticipated separate account investment return on the market value adjusted contracts in support of the benefits and required reserves. In addition, the 1995 result includes an increase in the required reserves associated with this product. Underwriting, acquisition and other insurance expenses for 1997 were made up of $186.9 million of commissions and $94.5 million of general expenses offset by the net capitalization of deferred acquisition costs totaling $191.1 million. This compares to the same period last year of $140.4 million of commissions and $63.2 million of general expenses offset by the net capitalization of deferred acquisition costs totaling $153.9 million. Underwriting, acquisition and other insurance expenses for 1995 is made up of $62.8 million of commissions and $42.2 million of general expenses offset by the net capitalization of deferred acquisition costs totaling $69.2 million. Interest expense increased $14.1 million, $4.3 million and $2.9 million in 1997, 1996 and 1995, respectively, as a result of Surplus Notes totaling $213 million, $213 million and $103 million, at December 31, 1997, 1996 and 1995, respectively, along with interest on Securitization (future fees payable to Parent) transactions for the year 1997. Income tax reflected an expense of $10.5 million for the year ended December 31, 1997, a benefit of $4 million for the year ended December 31, 1996 and an expense of $0.4 million for the year ended December 31, 1995. The 1997 income tax expense is a net result of applying the federal income tax rate of 35% to pre-tax earnings reduced by permanent differences, with the most significant item being the dividend received deduction. The 1996 benefit is related to management's release of the deferred tax valuation allowance of $9.3 million, established prior to 1996. 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 assets. Income tax expense in 1995 relates principally to an increase in the deferred tax valuation allowance of $1.7 million, as well as, the Company being in an Alternative Minimum Tax position for the year. Liquidity and Capital Resources: The liquidity requirement of the Company was met by cash from insurance operations, investment activities, borrowings from its Parent and sale of rights to future fees and charges to its Parent. As previously stated, the Company continued to have significant growth during 1997. The sales volume of $3.698 billion was primarily (approximately 94%) variable annuities, most of which carry a contingent deferred sales charge. This type of product causes a temporary cash strain in that 100% of the proceeds are invested in separate accounts supporting the product leaving a cash (but not capital) strain caused by the acquisition cost for the new business. This cash strain required the Company to look beyond the cash made available by insurance operations and investments of the Company. During 1996, the Company borrowed an additional $110 million from its Parent in the form of Surplus Notes. Also, during 1997 and 1996, the Company extended its reinsurance agreements (which were initiated in 1993, 1994 and 1995). The reinsurance agreements are modified coinsurance arrangements where the reinsurer shares in the experience of a specific book of business. The income and expense items presented above are net of reinsurance. In addition, on December 17, 1996, the Company sold to its Parent, effective September 1, 1996, certain rights to receive future fees and charges expected to be realized on the variable portion of a designated block of deferred annuity contracts issued during the period January 1, 1994 through June 30, 1996 (Transaction 1996-1). Also, the Company entered into the following similar transactions during 1997. Closing Effective Contract Issue Transaction Date Date Period ----------- ------- --------- -------------- 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 In connection with these transactions, the Parent, through a trust, issued collateralized notes in a private placement, which are secured by the rights to receive future fees and charges purchased from the Company. Under the terms of the Purchase Agreements, the rights sold provide for the Parent to receive 80% (100% for Transaction 1997-3) of future mortality and expense charges and contingent deferred sales charges, after reinsurance where applicable, 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 value of the transactions (discounted at 7.5%) of future fees as of the respective Effective Date was as follows (amounts in millions): Present Transaction Value ----------- ------- 1996-1 $50.2 1997-1 58.8 1997-2 77.6 1997-3 58.2 The Company expects to use borrowing, reinsurance and the sale of future fee revenues to fund the cash strain anticipated from the acquisition costs on the coming years' sales volume. The tremendous growth of this young organization has depended on capital support from its Parent. During December 1997, the Company received $27.7 million from its Parent to support the capital needs of its increased business during 1997 and the anticipated 1998 growth in business. As of December 31, 1997 and 1996, shareholder's equity was $184.4 million and $126.3 million, respectively, which includes the carrying value of state insurance licenses in the amount of $4.6 million and $4.7 million, respectively. ASLAC has long term surplus notes with its Parent and a short-term borrowing with an affiliate. No dividends have been paid to its parent company. Year 2000 Compliance: The Company is a relatively young company whose internally developed systems were designed from the start with the correct four digit date fields. As a result, the Company anticipates few technical problems related to the year 2000. However, we take this matter seriously and continue to take precautions to ensure year 2000 compliance. Steps taken to date include: 1. Any new, externally developed software is evaluated for year 2000 compliance before purchase. We also evaluate all new service providers. 2. An external specialist had been engaged to perform a complete assessment ofthe Company's operating systems and internally developed software. 3. The Company is working with external business partners and software providers to request and review their year 2000 compliance status and plans. We anticipate full internal compliance by September 1998, followed by continuous evaluation of internal systems, external business partners and software providers until the year 2000. Reserves: We are obligated to carry on our statutory books, as liabilities, actuarial reserves to meet our obligations on outstanding annuity or life insurance contracts. This is required by the life insurance laws and regulations in the jurisdictions in which we do business. Such reserves are based on mortality and/or morbidity tables in general use in the United States. In general, reserves are computed amounts that, with additions from premiums to be received, and with interest on such reserves compounded at certain assumed rates, are expected to be sufficient to meet our policy obligations at their maturities if death occurs in accordance with the mortality tables employed. In the accompanying Financial Statements these reserves for policy obligations are determined in accordance with generally accepted accounting principles and are included in the liabilities of our separate accounts and the general account liabilities for future benefits of annuity or life insurance contracts we issue. Competition: We are engaged in a business that is highly competitive due to the large number of insurance companies and other entities competing in the marketing and sale of insurance products. There are approximately 2300 stock, mutual and other types of insurers in the life insurance business in the United States. Employees: As of December 31, 1997, we had 456 direct salaried employees. An affiliate, American Skandia Information Services and Technology Corporation, which provides services almost exclusively to us, had 79 direct salaried employees. Regulation: We are organized as a Connecticut stock life insurance company, and are subject to Connecticut law governing insurance companies. We are regulated and supervised by the Connecticut Commissioner of Insurance. By March 1 of every year, we must prepare and file an annual statement, in a form prescribed by the Connecticut Insurance Department, which covers our operations for the preceding calendar year, and must prepare and file our statement of financial condition as of December 31 of such year. The Commissioner and his or her agents have the right at all times to review or examine our books and assets. A full examination of our operations will be conducted periodically according to the rules and practices of the National Association of Insurance Commissioners ("NAIC"). We are subject to the insurance laws and various federal and state securities laws and regulations and to regulatory agencies, such as the Securities and Exchange Commission (the "SEC") and the Connecticut Banking Department, which administer those laws and regulations. We can be assessed up to prescribed limits for policyholder losses incurred by insolvent insurers under the insurance guaranty fund laws of most states. We cannot predict or estimate the amount any such future assessments we may have to pay. However, the insurance guaranty laws of most states provide for deferring payment or exempting a company from paying such an assessment if it would threaten such insurer's financial strength. Several states, including Connecticut, regulate insurers and their affiliates under insurance holding company laws and regulations. This applies to us and our affiliates. Under such laws, inter-company transactions, such as dividend payments to parent companies and transfers of assets, may be subject to prior notice and approval, depending on factors such as the size of the transaction in relation to the financial position of the companies. Currently, the federal government does not directly regulate the business of insurance. However, federal legislative, regulatory and judicial decisions and initiatives often have significant effects on our business. Types of changes that are most likely to affect our business include changes to: (a) the taxation of life insurance companies; (b) the tax treatment of insurance products; (c) the securities laws, particularly as they relate to insurance and annuity products; (d) the "business of insurance" exemption from many of the provisions of the anti-trust laws; (e) the barriers preventing most banks from selling or underwriting insurance: and (f) any initiatives directed toward improving the solvency of insurance companies. We would also be affected by federal initiatives that have impact on the ownership of or investment in United States companies by foreign companies or investors.
Executive Officers and Directors: Our executive officers, directors and certain significant employees, their ages, positions with us and principal occupations are indicated below. The immediately preceding work experience is provided for officers that have not been employed by us or an affiliate for at least five years as of the date of this Prospectus. Name/ Position with American Skandia Age Life Assurance Corporation Principal Occupation Gordon C. Boronow* Deputy Chief Executive Deputy Chief Executive 45 Officer and President Officer and President: Director (since July, 1991) American Skandia Life Assurance Corporation Nancy F. Brunetti Director (since February, 1996) Executive Vice President and 36 Chief Operating Officer: American Skandia Information Services and Technology Corporation Malcolm M. Campbell Director (since July, 1991) Director of Operations and 42 Chief Actuary, Assurance and Financial Services Division: Skandia Insurance Company Ltd. Jan R. Carendi* Chief Executive Senior Executive Vice President and 53 Officer and Member of Executive Management Group: Chairman of the Skandia Insurance Company Ltd. Board of Directors Director (since May, 1988) Lincoln R. Collins Executive Vice President and Executive Vice President 37 Chief Operating Officer and Chief Operating Officer: Director (since February, 1996) American Skandia Life Assurance Corporation Henrik Danckwardt Director (since July, 1991) Director of Finance 44 and Administration, Assurance and Financial Services Division: Skandia Insurance Company Ltd. Wade A. Dokken Director (since July, 1991) President and Deputy 38 Chief Executive Officer: American Skandia Marketing, Incorporated Brian L. Hirst Vice President, Vice President, 50 Corporate Actuary Corporate Actuary: American Skandia Life Assurance Corporation Mr. Hirst joined us in 1996. He previously held the positions of Vice President from 1993 to 1996 and Second Vice President from 1987 to 1992 at Allmerica Financial. N. David Kuperstock Vice President, Vice President, 46 Product Development Product Development: American Skandia Life Assurance Corporation Thomas M. Mazzaferro Executive Vice President and Executive Vice President and 45 Chief Financial Officer, Chief Financial Officer: Director (since September, 1994) American Skandia Life Assurance Corporation Gunnar J. Moberg Director (since October, 1994) Director - Marketing and Sales, 43 Assurances and Financial Services Division: Skandia Insurance Company Ltd. David R. Monroe Vice President, Vice President, 36 Controller Controller: American Skandia Life Assurance Corporation Mr. Monroe joined us in 1996. He previously held positions of Assistant Vice President and Director at Allmerica Financial from August, 1994 to July, 1996 and Senior Manager at KPMG Peat Marwick from July, 1983 to July, 1994. Rodney D. Runestad Vice President Vice President: 48 American Skandia Life Assurance Corporation Anders O. Soderstrom Executive Vice President and President and 38 Chief Information Officer Chief Information Officer: Director (since September, 1994) American Skandia Information Services and Technology Corporation Amanda C. Sutyak Executive Vice President Vice President 40 Director (since July, 1991) American Skandia Marketing, Incorporated C. Ake Svensson Treasurer, Vice President, Corporate 47 Director (since December, 1994) Controller and Treasurer: American Skandia Investment Holding Corporation Mr. Svensson joined us in 1994. He previously held the position of Senior Vice President with Nordenbanken. Bayard F. Tracy Director (since September, 1994) Senior Vice President, 50 National Sales Manager: American Skandia Marketing, Incorporated Jeffrey M. Ulness Vice President, Vice President, 37 Product Management Product Management: American Skandia Life Assurance Corporation Mr. Ulness joined us in 1994. He previously held the positions of Counsel at North American Security Life Insurance Company from March, 1991 to July, 1994 and Associate at LeBoeuf, Lamb, Leiby, Green and MacRae from January, 1990 to March 1991. - -------- * Trustees of American Skandia Trust, one of the underlying mutual funds in which the Sub-accounts offered pursuant to this Prospectus invest.
FINANCIAL STATEMENTS: The consolidated financial statements which follow in Appendix A are those of American Skandia Life Assurance Corporation as of December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997. APPENDIXES APPENDIX A FINANCIAL STATEMENTS FOR AMERICAN SKANDIA LIFE ASSURANCE CORPORATION APPENDIX B ILLUSTRATION OF MARKET VALUE ADJUSTMENT APPENDIX C ILLUSTRATION OF INTEREST CREDITING APPENDIX A FINANCIAL STATEMENTS FOR AMERICAN SKANDIA LIFE ASSURANCE CORPORATION INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Shareholder of American Skandia Life Assurance Corporation Shelton, Connecticut We have audited the consolidated statement 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, 1997, and the related consolidated statements of operations, shareholder's equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 1997 consolidated financial statements referred to above present fairly, in all material respects, the financial position of American Skandia Life Assurance Corporation at December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/Ernst & Young LLP - -------------------- Hartford, Connecticut February 20, 1998 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholder of American Skandia Life Assurance Corporation Shelton, Connecticut We have audited the accompanying consolidated statement of financial condition of American Skandia Life Assurance Corporation and subsidiary (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) as of December 31, 1996, and the related consolidated statements of operations, shareholder's equity, and cash flows for each of the two years in the period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of American Skandia Life Assurance Corporation and subsidiary as of December 31, 1996, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/Deloitte & Touche LLP - ------------------------ New York, New York March 10, 1997 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF DECEMBER 31, 1997 1996 --------------- -------------- ASSETS Investments: Fixed maturities - at amortized cost $ 9,366,671 $ 10,090,369 Fixed maturities - at fair value 108,323,668 87,369,724 Investment in mutual funds - at fair value 6,710,851 2,637,731 Policy loans 687,267 159,482 --------------- -------------- Total investments 125,088,457 100,257,306 Cash and cash equivalents 81,974,204 45,332,131 Accrued investment income 2,441,671 1,958,546 Fixed assets 356,153 229,780 Deferred acquisition costs 628,051,995 438,640,918 Reinsurance receivable 3,120,221 2,167,818 Receivable from affiliates 1,910,895 691,532 Income tax receivable - current 1,047,493 - Income tax receivable - deferred 26,174,369 17,217,582 State insurance licenses 4,562,500 4,712,500 Other assets 2,524,581 2,047,689 Separate account assets 12,095,163,569 7,734,439,793 --------------- -------------- Total Assets $12,972,416,108 $8,347,695,595 =============== ============== LIABILITIES AND SHAREHOLDER'S EQUITY LIABILITIES: Reserve for future contractowner benefits $ 43,204,443 $ 36,245,936 Policy reserves 24,414,999 21,238,749 Income tax payable - 1,124,151 Drafts outstanding 19,277,706 13,032,719 Accounts payable and accrued expenses 71,190,019 65,471,294 Payable to affiliates 584,283 685,724 Future fees payable to parent 233,033,818 47,111,936 Payable to reinsurer 78,126,227 79,000,262 Short-term borrowing 10,000,000 10,000,000 Surplus notes 213,000,000 213,000,000 Separate account liabilities 12,095,163,569 7,734,439,793 --------------- -------------- Total Liabilities 12,787,995,064 8,221,350,564 --------------- -------------- SHAREHOLDER'S EQUITY: Common stock, $80 par, 25,000 shares authorized, issued and outstanding 2,000,000 2,000,000 Additional paid-in capital 151,527,229 122,250,117 Unrealized investment gains and losses, net 954,069 (319,631) Foreign currency translation, net (286,038) (263,706) Retained earnings 30,225,784 2,678,251 --------------- -------------- Total Shareholder's Equity 184,421,044 126,345,031 --------------- -------------- Total Liabilities and Shareholder's Equity $12,972,416,108 $8,347,695,595 =============== ==============
See notes to consolidated financial statements. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995 ------------ ------------ ----------- REVENUES: Annuity charges and fees $121,157,846 $69,779,522 $38,837,358 Fee income 27,587,231 16,419,690 6,205,719 Net investment income 8,181,073 1,585,819 1,600,674 Annuity premium income 920,042 125,000 - Net realized capital gains 87,103 134,463 36,774 Other 80,999 5,640 8,750 ------------ ----------- ----------- Total Revenues 158,014,294 88,050,134 46,689,275 ------------ ----------- ----------- BENEFITS AND EXPENSES: Benefits: Annuity benefits 2,033,275 613,594 555,421 Increase/(decrease) in annuity policy reserves 37,270 634,540 (6,778,756) Cost of minimum death benefit reinsurance 4,544,697 2,866,835 2,056,606 Return credited to contractowners (2,018,635) 672,635 10,612,858 ------------ ----------- ----------- 4,596,607 4,787,604 6,446,129 ------------ ----------- ----------- Expenses: Underwriting, acquisition and other insurance expenses 90,346,952 49,737,147 35,764,392 Amortization of state insurance licenses 150,000 150,000 150,000 Interest expense 24,895,456 10,790,716 6,499,414 ------------ ----------- ----------- 115,392,408 60,677,863 42,413,806 ------------ ----------- ----------- Total Benefits and Expenses 119,989,015 65,465,467 48,859,935 ------------ ----------- ----------- Income (loss) from operations before income taxes 38,025,279 22,584,667 (2,170,660) Income tax expense (benefit) 10,477,746 (4,038,357) 397,360 ------------ ----------- ----------- Net income (loss) $ 27,547,533 $26,623,024 $(2,568,020) ============ =========== ===========
See notes to consolidated financial statements. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995 ------------ ------------ ------------ Common stock, balance at beginning and end of year $ 2,000,000 $ 2,000,000 $ 2,000,000 ------------ ------------ ------------ Additional paid-in capital: Balance at beginning of year 122,250,117 81,874,666 71,623,932 Additional contributions 29,277,112 40,375,451 10,250,734 ------------ ------------ ------------ Balance at end of year 151,527,229 122,250,117 81,874,666 ------------ ------------ ------------ Unrealized investment gains and losses: Balance at beginning of year (319,631) 111,359 (41,655) Change in unrealized investment gains and losses, net 1,273,700 (430,990) 153,014 ------------ ------------ ------------ Balance at end of year 954,069 (319,631) 111,359 ------------ ------------ ------------ Foreign currency translation: Balance at beginning of year (263,706) (328,252) - Change in foreign currency translation, net (22,332) 64,546 (328,252) ------------ ------------ ------------ Balance at end of year (286,038) (263,706) (328,252) ------------ ------------ ------------ Retained earnings (deficit): Balance at beginning of year 2,678,251 (23,944,773) (21,376,753) Net income (loss) 27,547,533 26,623,024 (2,568,020) ------------ ------------ ------------ Balance at end of year 30,225,784 2,678,251 (23,944,773) ------------ ------------ ------------ Total Shareholder's Equity $184,421,044 $126,345,031 $ 59,713,000 ============ ============ ============
See notes to consolidated financial statements. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995 --------------- --------------- -------------- CASH FLOW FROM OPERATING ACTIVITIES: Net income/(loss) $ 27,547,533 26,623,024 (2,568,020) Adjustments to reconcile net income/(loss) to net cash used in operating activities: Increase/(decrease) in policy reserves 3,176,250 1,852,259 (4,667,765) Amortization of bond discount 72,986 27,340 23,449 Amortization of insurance licenses 150,000 150,000 150,000 Change in receivable from/payable to affiliates (1,320,804) 540,484 (347,884) Change in income tax receivable/payable (2,171,644) 1,688,001 (600,849) Increase in other assets (603,265) (661,084) (372,120) Increase in accrued investment income (483,125) (1,764,472) (20,420) Increase in reinsurance receivable (952,403) (179,776) (1,988,042) Increase in deferred acquisition costs, net (189,411,077) (168,418,535) (96,212,774) Increase in income tax receivable - deferred (9,630,603) (16,903,477) - Increase in accounts payable and accrued expenses 5,718,725 32,322,727 945,483 Increase in drafts outstanding 6,244,987 13,032,719 - Change in foreign currency translation, net (34,356) (77,450) (328,252) Realized gain on sale of investments (87,103) (134,463) (36,774) --------------- --------------- -------------- Net cash used in operating activities (161,783,899) (111,902,703) (106,023,968) --------------- --------------- -------------- CASH FLOW FROM INVESTING ACTIVITIES: Purchase of fixed maturity investments (28,905,493) (96,812,903) (614,289) Proceeds from sale and maturity of fixed maturity investments 10,755,550 8,947,390 100,000 Purchase of shares in mutual funds (5,595,342) (2,160,347) (1,566,194) Proceeds from sale of shares in mutual funds 1,415,576 1,273,640 867,744 Increase in policy loans (527,785) (104,427) (37,807) Change in investments of separate account assets (3,691,031,470) (2,789,361,685) (1,609,415,439) --------------- --------------- --------------- Net cash used in investing activities (3,713,888,964) (2,878,218,332) (1,610,665,985) --------------- --------------- --------------- CASH FLOW FROM FINANCING ACTIVITIES: Capital contributions from parent 29,277,112 40,375,451 10,250,734 Surplus notes - 110,000,000 34,000,000 Increase in future fees payable to parent 185,921,882 47,111,936 - Increase/(decrease) in payable to reinsurer (874,035) 14,004,792 24,890,064 Proceeds from annuity sales 3,697,989,977 2,795,114,603 1,628,486,076 --------------- --------------- --------------- Net cash provided by financing activities 3,912,314,936 3,006,606,782 1,697,626,874 --------------- --------------- --------------- Net increase/(decrease) in cash and cash equivalents 36,642,073 16,485,747 (19,063,079) --------------- --------------- --------------- Cash and cash equivalents at beginning of year 45,332,131 28,846,384 47,909,463 --------------- --------------- --------------- Cash and cash equivalents at end of year $ 81,974,204 45,332,131 28,846,384 =============== =============== =============== SUPPLEMENTAL CASH FLOW DISCLOSURE: Income taxes paid $ 22,307,992 11,177,120 995,496 =============== =============== =============== Interest paid $ 16,915,835 7,094,767 540,319 =============== =============== ===============
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, 1997 1. ORGANIZATION AND OPERATION American Skandia Life Assurance Corporation (the "Company") is a wholly-owned subsidiary of American Skandia Investment Holding Corporation (the "Parent"); whose ultimate parent is Skandia Insurance Company Ltd., a Swedish corporation. The Company develops annuity products and issues its products through its affiliated broker/dealer company, American Skandia Marketing, Incorporated. The Company currently issues variable, fixed, market value adjusted and immediate annuities. The Company has 99.9% ownership in Skandia Vida, S.A. de C.V. which is a life insurance company domiciled in Mexico. This Mexican life insurer is a start up company with expectations of selling long term savings products within Mexico. Total shareholder's equity of Skandia Vida, S.A. de C.V. is $1,509,146 as of December 31, 1997. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Basis of Reporting The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles. Intercompany transactions and balances have been eliminated in consolidation. Certain reclassifications have been made to prior year amounts to conform with the current year presentation. B. New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") 130, "Reporting Comprehensive Income", which is effective for fiscal years beginning after December 15, 1997. SFAS 130 sets standards for the reporting and display of comprehensive income and its components in financial statements. Application of the new rules will not impact the Company's financial position or net income. The Company expects to adopt this pronouncement in the first quarter of 1998, which will include the presentation of comprehensive income for prior periods presented for comparative purposes, as required by SFAS 130. The primary element of comprehensive income applicable to the Company is changes in unrealized gains and losses on securities classified as available for sale. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) C. Investments The Company has classified its fixed maturity investments as either held-to-maturity or available-for-sale. Investments classified as held-to-maturity are investments that the Company has the ability and intent to hold to maturity. Such investments are carried at amortized cost. Those investments which are classified as available-for-sale are carried at fair value and changes in unrealized gains and losses are reported as a component of shareholder's equity. The Company has classified its mutual fund investments as available-for-sale. Such investments are carried at fair value and changes in unrealized gains and losses are reported as a component of shareholder's equity. Policy loans are carried at their unpaid principal balances. Realized gains and losses on disposal of investments are determined by the specific identification method and are included in revenues. D. Cash Equivalents The Company considers all highly liquid time deposits, commercial paper and money market mutual funds purchased with a maturity of three months or less to be cash equivalents. E. State Insurance Licenses Licenses to do business in all states have been capitalized and reflected at the purchase price of $6 million less accumulated amortization. The cost of the licenses is being amortized over 40 years. F. Fixed Assets Fixed assets consisting of furniture, equipment and leasehold improvements are carried at cost and depreciated on a straight line basis over a period of three to five years. Accumulated depreciation amounted to $95,823 and $32,641 at December 31, 1997 and 1996, respectively. Depreciation expense for the years ended December 31, 1997 and 1996 was $63,182 and $28,892, respectively. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) G. Recognition of Revenue and Contract Benefits Annuity contracts without significant mortality risk, as defined by SFAS 97, "Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts", are classified as investment contracts (variable, market value adjusted and certain immediate annuities) and those with mortality risk (immediate annuities) as insurance products. The policy for revenue and contract benefit recognition is described below. Revenues for variable annuity contracts consist of charges against contractowner account values for mortality and expense risks, administration fees, surrender charges and an annual maintenance fee per contract. Benefit reserves for variable annuity contracts represent the account value of the contracts and are included in the separate account liabilities. Revenues for market value adjusted annuity contracts consist of separate account investment income reduced by benefit payments and changes in reserves in support of contractowner obligations, all of which is included in return credited to contractowners. Benefit reserves for these contracts represent the account value of the contracts, and are included in the general account liability for future contractowner benefits to the extent in excess of the separate account liabilities. Revenues for immediate annuity contracts without life contingencies consist of net investment income. Revenues for immediate annuity contracts with life contingencies consist of single premium payments recognized as annuity considerations when received. Benefit reserves for these contracts are based on the Society of Actuaries 1983 Table-a with assumed interest rates that vary by issue year. Assumed interest rates ranged from 6.5% to 8.25% at both December 31, 1997 and 1996. Annuity sales were $3,697,990,000, $2,795,114,000 and $1,628,486,000 for the years ended December 31, 1997, 1996 and 1995, respectively. Annuity contract assets under management were $12,119,191,000, $7,764,891,000 and $4,704,044,000 at December 31, 1997, 1996 and 1995, respectively. H. 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. These costs include commissions, cost 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. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) Details of the deferred acquisition costs and related amortization for the years ended December 31, are as follows:
1997 1996 1995 ---- ---- ---- Balance at beginning of year $438,640,918 $270,222,383 $174,009,609 Acquisition costs deferred during the year 262,257,543 190,995,588 106,063,698 Acquisition costs amortized during the year 72,846,466 22,577,053 9,850,924 ------------ ------------ ------------ Balance at end of year $628,051,995 $438,640,918 $270,222,383 ============ ============ ============
I. Separate Accounts Assets and liabilities in Separate Accounts are shown as separate captions in the consolidated statements of financial condition. Separate Account assets consist principally of long term bonds, investments in mutual funds and short-term securities, all of which are carried at fair value. Included in Separate Account liabilities are $773,066,633 and $644,233,883 at December 31, 1997 and 1996, respectively, relating to annuity contracts for which the contractholder is guaranteed a fixed rate of return. Separate Account assets of $773,066,633 and $644,233,883 at December 31, 1997 and 1996, respectively, consisting of long term bonds, short term securities, transfers due from general account and cash are held in support of these annuity contracts, pursuant to state regulation. J. Fair Values of Financial Instruments The methods and assumptions used to determine the fair value of financial instruments are as follows: Fair values of fixed maturities with active markets are based on quoted market prices. For fixed maturities that trade in less active markets, fair values are obtained from an independent pricing service. Fair values of investments in mutual funds are based on quoted market prices. The carrying value of cash and cash equivalents approximates fair value due to the short-term nature of these investments. Fair values of certain financial instruments, such as future fees payable to the parent and surplus notes are not readily determinable and are excluded from fair value disclosure requirements. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) K. Income Taxes The Company is included in the consolidated federal income tax return of Skandia U.S. Holding Corporation and its subsidiaries. In accordance with the tax sharing agreement, the federal and state income tax provision is computed on a separate return basis, as adjusted for consolidated items, such as net operating loss carryforwards. Income taxes are provided in accordance with the SFAS 109, "Accounting for Income Taxes", which requires the asset and liability method of accounting for deferred taxes. The object of this method is to recognize an asset and liability for the expected future tax effects due to temporary differences between the financial reporting and the tax basis of assets and liabilities, based on enacted tax rates and other provisions of the tax law. 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 operations and shareholder's equity accounts are translated at the average rate prevailing during the year. Translation adjustments arising from the use of differing exchange rates from period to period are included in shareholder's equity. M. 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. N. Reinsurance The Company cedes reinsurance under modified co-insurance arrangements. The reinsurance arrangements provide additional capacity for growth in supporting the cash flow strain from the Company's variable annuity business. The reinsurance is effected under quota share contracts. The Company also reinsures certain mortality risks. These risks result from the guaranteed minimum death benefit feature in the variable annuity products. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 3. 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, 1997 and 1996 are shown below. All securities held at December 31, 1997 are publicly traded. Investments in fixed maturities as of December 31, 1997 consisted of the following: Held-to-Maturity ----------------
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- ----- U.S. Government Obligations $3,789,498 $71,197 $ 8,517 $3,852,178 Obligations of State and Political Subdivisions 50,000 - - 50,000 Corporate Securities 5,527,173 1,949 19,487 5,509,635 ----------- ------- -------- ----------- Totals $9,366,671 $73,146 $28,004 $9,411,813 ========== ======= ======= ========== Available-for-Sale ------------------ Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- ----- U.S. Government Obligations $ 14,999,291 $ 201,664 - $15,200,955 Obligations of State and Political Subdivisions 202,224 318 - 202,542 Corporate Securities 91,469,384 1,505,656 54,869 92,920,171 -------------- ----------- -------- ------------ Totals $106,670,899 $1,707,638 $54,869 $108,323,668 ============ ========== ======= ============
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) The amortized cost and fair value of fixed maturities, by contractual maturity, at December 31, 1997 are shown below.
Held-to-Maturity Available-for-Sale ---------------- ------------------ Amortized Fair Amortized Fair Cost Value Cost Value --------- ----- --------- ----- Due in one year or less $1,049,977 $1,050,001 $ 2,990,584 $ 2,992,050 Due after one through five years 8,062,630 8,105,822 26,857,218 27,121,041 Due after five through ten years 254,064 255,990 76,823,097 78,210,577 ---------- ---------- ------------ ------------ Total $9,366,671 $9,411,813 $106,670,899 $108,323,668 ========== ========== ============ ============
Investments in fixed maturities as of December 31, 1996 consisted of the following:
Held-to-Maturity ---------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- ----- U.S. Government Obligations $ 4,299,803 $88,268 $22,937 $ 4,365,134 Obligations of State and Political Subdivisions 250,119 229 - 250,348 Corporate Securities 5,540,447 - 62,660 5,477,787 ----------- ---------- -------- ----------- Totals $10,090,369 $88,497 $85,597 $10,093,269 =========== ======= ======= ===========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued)
Available for Sale ------------------ Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- ----- U.S. Government Obligations $14,508,780 - $ 79,745 $14,429,035 Obligations of State and Political Subdivisions 202,516 26 - 202,542 Other Government Obligations 5,047,790 - 7,440 5,040,350 Corporate Securities 68,101,413 83,312 486,928 67,697,797 ----------- ------- -------- ----------- Totals $87,860,499 $83,338 $574,113 $87,369,724 =========== ======= ======== ===========
Proceeds from sales of fixed maturities during 1997, 1996 and 1995 were $5,055,550, $8,732,390 and $0, respectively. Proceeds from maturities during 1997, 1996 and 1995 were $5,700,000, $215,000 and $100,000, respectively. The cost, gross unrealized gains (losses) and fair value of investments in mutual funds at December 31, 1997 and 1996 are shown below:
Gross Gross Unrealized Unrealized Fair Cost Gains Losses Value ---- ---------- ---------- ----- 1997 $6,895,821 $43,506 $228,476 $6,710,851 ========== ======= ======== ========== 1996 $2,638,695 $59,278 $ 60,242 $2,637,731 ========== ======= ========= ==========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) Net realized investment gains (losses) were as follows for the years ended December 31:
1997 1996 1995 ---- ---- ---- Fixed Maturities: Gross gains $ 9,800 $ - $ - Gross losses - - - Investment in Mutual Funds: Gross gains 115,824 139,814 65,236 Gross losses (38,521) (5,351) (28,462) ---------- ----------- -------- Totals $ 87,103 $134,463 $36,774 ========= ======== =======
4. NET INVESTMENT INCOME The sources of net investment income for the years ended December 31, 1997, 1996 and 1995 were as follows:
1997 1996 1995 ---- ---- ---- Fixed maturities $6,616,560 $ 836,591 $ 629,743 Cash and cash equivalents 1,153,790 684,653 986,932 Investment in mutual funds 553,864 143,737 59,895 Policy loans 28,243 5,274 4,025 ---------- ---------- ---------- Total investment income 8,352,457 1,670,255 1,680,595 Investment expenses 171,384 84,436 79,921 ---------- ---------- ---------- Net investment income $8,181,073 $1,585,819 $1,600,674 ========== ========== ==========
5. INCOME TAXES The significant components of income tax expense (benefit) are as follows:
1997 1996 1995 ---- ---- ---- Current tax expense $20,108,348 $12,865,120 $397,360 Deferred tax benefit (9,630,602) (16,903,477) - ----------- ---------- -------- Total income tax expense (benefit) $10,477,746 $(4,038,357) $397,360 =========== ============ ========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) The tax effects of significant items comprising the Company's deferred tax balance as of December 31, 1997 and 1996, are as follows:
1997 1996 ---- ---- Deferred Tax (Liabilities): Deferred acquisition costs ($159,765,795) ($103,072,477) Payable to reinsurer (25,369,078) (23,025,326) Policy fees (656,311) (491,640) Unrealized investment gains and losses (513,731) 172,109 ------------- -------------- Total (186,304,915) (126,417,334) ------------ ------------ Deferred Tax Assets: Net separate account liabilities 175,872,109 121,092,798 Reserve for future contractowner benefits 15,121,555 12,686,078 Other reserve differences 10,534,160 4,527,886 Deferred compensation 7,186,789 4,392,526 Surplus notes interest 2,728,676 548,730 Foreign exchange translation 154,020 141,996 Other 881,975 244,902 ------------- ------------- Total 212,479,284 143,634,916 ------------ ------------ Net deferred tax balance $ 26,174,369 $ 17,217,582 ============ ============
Management believes that based on the taxable income produced in the current year and the continued growth in annuity products, the Company will produce sufficient taxable income in the future to realize its deferred tax asset. As such, the Company released the deferred tax valuation allowance of $9,324,853 in 1996. The income tax expense was different from the amount computed by applying the federal statutory tax rate of 35% to pre-tax income from continuing operations as follows:
1997 1996 1995 ---- ---- ---- Income (loss) before taxes $38,025,279 $22,584,667 ($2,170,660) Income tax rate 35% 35% 35% ----------- ----------- ----------- Tax expense at federal statutory income tax rate 13,308,848 7,904,633 (759,731) Tax effect of: Change in valuation allowance - (9,324,853) 1,680,339 Dividend received deduction (4,585,000) (2,266,051) (477,139) Other 866,973 (707,685) (48,821) State income taxes 886,925 355,599 2,712 ----------- ----------- ----------- Income tax expense (benefit) $10,477,746 ($ 4,038,357) $ 397,360 =========== =========== ===========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 6. 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, an affiliated company; and likewise, the Company has charged operating costs to American Skandia Investment Services, Incorporated, an affiliated company. The total cost to the Company for these items was $5,572,404, $11,581,114 and $12,687,337 for the years ended December 31, 1997, 1996 and 1995, respectively. Income received for these items was $3,224,645, $1,148,364 and $396,573 for the years ended December 31, 1997, 1996 and 1995, respectively. Amounts receivable from affiliates under these arrangements were $548,887 and $548,792 as of December 31, 1997 and 1996, respectively. Amounts payable to affiliates under these arrangements were $263,742 and $619,089 as of December 31, 1997 and 1996, respectively. 7. FUTURE FEES PAYABLE TO PARENT On December 17, 1996, the Company sold to its Parent, effective September 1, 1996, certain rights to receive future fees and charges expected to be realized on the variable portion of a designated block of deferred annuity contracts issued during the period from January 1, 1994 through June 30, 1996 (Transaction 1996-1). In addition, the Company entered into the following similar transactions during 1997: Closing Effective Contract Issue Transaction Date Date Period ----------- ------- --------- -------------- 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 In connection with these transactions, the Parent, through a trust, issued collateralized notes in a private placement which are secured by the rights to receive future fees and charges purchased from the Company. Under the terms of the Purchase Agreements, the rights sold provide for the Parent to receive 80% (100% for Transaction 1997-3) 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 (6.0 to 8.0 years). The Company did not sell the right to receive future fees and charges after the expiration of the surrender charge period. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) The proceeds from the sales have been recorded as a liability and are being amortized over the remaining surrender charge period of the designated contracts using the interest method. The present value of the transactions (discounted at 7.5%) as of the respective Effective Date was as follows: Present Transaction Value ----------- ------- 1996-1 $ 50,221,438 1997-1 58,766,633 1997-2 77,551,736 1997-3 58,193,264 Payments representing fees and charges realized during the period January 1, 1997 through December 31, 1997 in the aggregate amount of $22,250,158, were made by the Company to the Parent. Interest expense of $6,842,469 has been included in the statement of operations. Expected payments of future fees payable to Parent are as follows: Year Ending December 31, Amount ------------ ------ 1998 $ 39,637,610 1999 41,845,736 2000 43,500,530 2001 40,738,800 2002 34,533,624 2003 22,835,020 2004 9,490,399 2005 452,099 -------------- Total $ 233,033,818 ============== 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. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 8. LEASES The Company leases office space under a lease agreement established in 1989 with American Skandia Information Services and Technology Corporation. The lease expense for 1997, 1996 and 1995 was $2,427,502, $1,583,391 and $1,218,806, respectively. Future minimum lease payments per year and in aggregate as of December 31, 1997 are as follows: 1998 $ 2,371,509 1999 2,595,272 2000 2,753,324 2001 2,753,324 2002 2,753,324 2003 and thereafter 21,465,933 ------------ Total $34,692,686 9. RESTRICTED ASSETS In order to comply with certain state insurance departments' requirements, the Company maintains cash, bonds and notes on deposit with various states. The carrying value of these deposits amounted to $3,756,572 and $3,766,564 as of December 31, 1997, and 1996, respectively. These deposits are required to be maintained for the protection of contractowners within the individual states. 10. RETAINED EARNINGS AND DIVIDEND RESTRICTIONS Statutory basis shareholder's equity was $294,585,500, $275,835,076 and $132,493,899 at December 31, 1997, 1996 and 1995, respectively. The statutory basis net loss was $8,970,459, $5,405,179 and $7,183,003 for the years ended December 31, 1997, 1996 and 1995, respectively. Under state insurance laws, the maximum amount of dividends that can be paid to shareholders without prior approval of the state insurance departments is subject to restrictions relating to statutory surplus and net gain from operations. At December 31, 1997, no amounts may be distributed without prior approval. 11. EMPLOYEE BENEFITS In 1989, the Company established 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 $1,220,214, $850,111 and $627,161 for the years ended December 31, 1997, 1996 and 1995, respectively. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) The Company and an affiliate cooperatively have a long-term incentive plan under which units are awarded to executive officers and other personnel. The program consists of multiple plans. A new plan is instituted each year. Generally, participants must remain employed by the Company or its affiliates at the time such units are payable in order to receive any payments under the plan. The accrued liability representing the value of these units is $15,720,067 and $9,212,369 as of December 31, 1997 and 1996, respectively. Payments under this plan were $1,118,803, $601,603 and $0 for the years ended December 31, 1997, 1996, and 1995, respectively. In 1994, the Company established a deferred compensation plan which is available to the internal field marketing staff and certain officers. Company contributions to this plan on behalf of the participants were $269,616 in 1997, $244,601 in 1996 and $139,209 in 1995. 12. REINSURANCE The effect of the reinsurance agreements on the Company's operations was to reduce annuity charges and fee income, death benefit expense and policy reserves. The effect of reinsurance for the years ended December 31, 1997, 1996 and 1995 are as follows:
1997 Annuity Change in Annuity Return Credited Charges and Fees Policy Reserves to Contractowners ---------------- ----------------- ----------------- Gross $144,417,045 $955,677 ($1,971,959) Ceded 23,259,199 918,407 46,676 ------------ --------- ---------- Net $121,157,846 $ 37,270 ($2,018,635) ============ ========= ========== 1996 Annuity Change in Annuity Return Credited Charges and Fees Policy Reserves to Contractowners ---------------- ----------------- ----------------- Gross $87,369,693 $814,306 $779,070 Ceded 17,590,171 179,766 106,435 ----------- -------- -------- Net $69,779,522 $634,540 $672,635 =========== ======== ======== 1995 Annuity Change in Annuity Return Credited Charges and Fees Policy Reserves to Contractowners ---------------- ----------------- ----------------- Gross $50,334,280 ($4,790,714) $10,945,831 Ceded 11,496,922 1,988,042 332,973 ----------- ---------- ----------- Net $38,837,358 ($6,778,756) $10,612,858 =========== ========== ===========
Such ceded reinsurance does not relieve the Company from its obligations to policyholders. The Company remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet the obligations assumed under the reinsurance agreements. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 13. SURPLUS NOTES The Company has issued surplus notes to its Parent in exchange for cash. Surplus notes outstanding as of December 31, 1997, 1996 and 1995 were as follows:
Interest for the Years Ended December 31, ------------------------ Interest Issue Date Amount Rate 1997 1996 1995 ---------- ------ ---- ---- ---- ---- December 29, 1993 $ 20,000,000 6.84% $ 1,387,000 $ 1,390,800 $1,387,000 February 18, 1994 10,000,000 7.28% 738,111 740,133 738,111 March 28, 1994 10,000,000 7.90% 800,972 803,167 800,972 September 30, 1994 15,000,000 9.13% 1,388,521 1,392,325 1,388,521 December 28, 1994 14,000,000 9.78% 1,388,217 1,392,020 1,392,008 December 19, 1995 10,000,000 7.52% 762,444 764,533 27,156 December 20, 1995 15,000,000 7.49% 1,139,104 1,142,225 37,450 December 22, 1995 9,000,000 7.47% 681,638 683,505 18,675 June 28, 1996 40,000,000 8.41% 3,410,722 1,747,411 - December 30, 1996 70,000,000 8.03% 5,699,069 31,228 - ------------ ----------- ------------ ---------- Total $213,000,000 $17,395,798 $10,087,347 $5,789,893 ============ =========== =========== ==========
All surplus notes mature 7 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, 1997 and 1996, $7,796,218 and $1,567,800, respectively, of accrued interest on surplus notes was not approved for payment under these criteria. 14. SHORT-TERM BORROWING The Company has a $10,000,000 loan from the parent which matures on March 10, 1998 and bears interest at 6.39%. The total interest expense to the Company was $641,532, $642,886 and $709,521 and for the years ended December 31, 1997, 1996 and 1995, respectively, of which $200,575 and $206,361 was payable as of December 31, 1997 and 1996, respectively. 15. CONTRACT WITHDRAWAL PROVISIONS Approximately 98% of the Company's separate account liabilities are subject to discretionary withdrawal with market value adjustment by contractholders. Separate account assets which are carried at market value are adequate to pay such withdrawals which are generally subject to surrender charges ranging from 8.5% to 1% for contracts held less than 8 years. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 16. QUARTERLY FINANCIAL DATA (UNAUDITED) The following table summarizes information with respect to the operations of the Company on a quarterly basis:
Three Months Ended ------------------ 1997 March 31 June 30 September 30 December 31 ---- -------- ------- ------------ ----------- Premiums and other insurance revenues $30,185,820 $34,055,549 $41,102,381 $44,402,368 Net investment income 1,368,683 2,626,776 2,031,187 2,154,427 Net realized capital gains 20,604 43,460 20,553 2,486 ----------- ----------- ----------- ----------- Total revenues $31,575,107 $36,725,785 $43,154,121 $46,559,281 =========== =========== =========== =========== Benefits and expenses $18,319,281 $30,465,338 $31,179,403 $40,024,993 =========== =========== =========== =========== Net income $ 8,995,975 $ 3,646,787 $ 8,621,412 $ 6,283,359 ============ ============ ============ ============ Three Months Ended ------------------ 1996 March 31 June 30 September 30 December 31 ---- -------- ------- ------------ ----------- Premiums and other insurance revenues $16,605,765 $20,452,733 $22,366,166 $26,933,702 Net investment income 455,022 282,926 270,092 577,779 Net realized capital gains 92,072 13,106 5,606 23,679 ----------- ----------- ----------- ----------- Total revenues $17,152,859 $20,748,765 $22,641,864 $27,535,160 =========== =========== =========== =========== Benefits and expenses $12,725,411 $ 9,429,735 $17,007,137 $25,191,857 =========== ============ =========== =========== Net income $ 2,658,941 $ 7,695,490 $ 2,538,513 $14,470,976 ============ ============ ============ =========== Three Months Ended ------------------ 1995 March 31 June 30 September 30 December 31 ---- -------- ------- ------------ ----------- Premiums and other insurance revenues $ 8,891,903 $10,066,478 $11,960,530 $14,189,048 Net investment income 551,690 434,273 293,335 321,376 Net realized capital gains (losses) (16,082) (370) 44,644 8,582 ------------ ----------- ----------- ----------- Total revenues $ 9,427,511 $10,500,381 $12,298,509 $14,519,006 ============ =========== =========== =========== Benefits and expenses $11,438,798 $ 9,968,595 $11,600,587 $15,908,087 =========== ============ =========== =========== Net income (loss) ($ 2,026,688) $ 531,486 $ 678,312 ($ 1,751,130) ============= ============= ============= ============
As described in Note 5, the valuation allowance relating to deferred income taxes was released during the three months ended December 31, 1996. APPENDIX B - ILLUSTRATION OF MARKET VALUE ADJUSTMENT The formula used to determine the market value adjustment ("MVA") is applied as of the date we receive a request In Writing for a full or partial surrender. When choosing an alternate Guarantee Period, the formula is applied as of the first business day after the date we receive all the information we need to process your request. Values and time durations used in the formula are as of such date. Current Rates and available Guarantee Periods are those for your type of Contract. The formula is: [ (1+I) / (1+J+ the adjustment amount) ] N/12 where: I is the Guarantee Rate applicable to the Guarantee Period for your Contract; J is the Current Rate for the Guarantee Period equal to the number of years (rounded to the next higher number when occurring on other than an anniversary of the beginning of the current Guarantee Period) remaining in your current Guarantee Period ("Remaining Period"); N is the number of months (rounded to the next higher number when occurring on other than a monthly anniversary of the beginning of the current Guarantee Period) remaining in your Guarantee Period. Nonetheless, a full or partial surrender at the end of a Guarantee Period is not affected by the MVA. If we are no longer offering a Guarantee Period equal to the Remaining Period but are offering Guarantee Periods that are both shorter and longer than the Remaining Period, we will interpolate a rate for J between our Current Rates for the next shortest and next longest Guarantee Periods then being offered. If we are no longer offering a Guarantee Period equal to the Remaining Period and also are no longer offering Guarantee Periods that are both longer and shorter than the Remaining Period, we will determine rates for both I and J based on the Moody's Corporate Bond Yield Average - Monthly Average Corporates (the "Average"), as published by Moody's Investor Services, Inc., its successor, or an equivalent service should such Average no longer be published by Moody's. For determining I, we will use the Average for the applicable Guarantee Period published on or immediately prior to the start of your current Guarantee Period. For determining J, we will use the Average for the Remaining Period published on or immediately prior to the date the MVA is calculated. In the special case where I = J, the MVA is set equal to 1.
The following examples show the effect of the MVA on a surrender. The examples assume surrender charges do not apply and: Interim Value at Beginning of Guarantee Period: $50,000 Guarantee Period: 5 years Guarantee Rate: 5% effective annual rate Date of Calculation: End of the third year since the beginning of the Guarantee Period (two exact years remaining to the end of the Guarantee Period) Adjustment Amount: 0.25% of interest
Example of Upward Adjustment Assume J = 3.5% (Current Rate for Contracts electing a two year Guarantee Period) At this point I = 5% (0.05) and N = 24 (number of months remaining in the Guarantee Period) Interim Value prior to application of MVA: $57,881.25 MVA = [(1+I)/(1+J+0.0025)] N/12 = [1.05/1.0375] 2 = 1.024242 Net Surrender Value = Interim Value X MVA = $59,284.38. Example of Downward Adjustment Assume J = 6% (Current Rate for Contracts electing a two year Guarantee Period) At this point I = 5% (0.05) and N = 24 (number of months remaining in the Guarantee Period) Interim Value prior to application of MVA: $57,881.25. MVA = [(1+I)/(1+J+0.0025)] N/12 = [1.05/1.0625] 2 = .97661 Net Surrender Value = Interim Value X MVA = $56,527.35. - -------------------------------------------------------------------------------- APPENDIX C - ILLUSTRATION OF INTEREST CREDITING THIS EXAMPLE ASSUMES NO PARTIAL SURRENDERS DURING THE GUARANTEE PERIOD. WHETHER A SURRENDER CHARGE APPLIES TO ANY INTERIM PARTIAL SURRENDERS OR TO A FULL OR PARTIAL SURRENDER AT THE END OF THE GUARANTEE PERIOD DEPENDS ON THE STRUCTURE OF SURRENDER CHARGES AS SHOWN IN YOUR CONTRACT, AND WHETHER THAT GUARANTEE PERIOD EXTENDS BEYOND THE DATE SURRENDER CHARGES APPLY. THE MARKET VALUE ADJUSTMENT WOULD APPLY TO ANY INTERIM PARTIAL SURRENDER EXCEPT, WHERE REQUIRED BY LAW, AN INTERIM PARTIAL SURRENDER OCCURRING NOT MORE THAN 30 DAYS BEFORE THE END OF A GUARANTEE PERIOD. THE HYPOTHETICAL INTEREST RATE USED IS ILLUSTRATIVE ONLY AND IS NOT INTENDED TO PREDICT FUTURE INTEREST RATES TO BE DECLARED FOR ANY CONTRACT. ACTUAL INTEREST RATES DECLARED FOR ANY GIVEN CONTRACT AT ANY GIVEN TIME MAY BE MORE OR LESS THAN THOSE SHOWN. In this example the Guarantee Period begins on the Contract Date. Should an alternate Guarantee Period be chosen, Guarantee Periods may begin and end on other than anniversaries of the Contract Date. Interim Value at beginning of Guarantee Period: $50,000 Guarantee Period: 5 Years Guaranteed Rate: 5% Effective Annual Rate
Interest Credited Cumulative During Interest Year Contract Year Credited ---- ------------- -------- 1 $2,500.00 $2,500.00 2 2,625.00 5,125.00 3 2,756.25 7,881.25 4 2,894.06 10,775.31 5 3,038.77 13,814.08
ADDITIONAL INFORMATION Inquiries will be answered by calling your representative or by writing to: American Skandia Life Assurance Corporation at P.O. Box 883 Shelton, Connecticut 06484 or customerservice@Skandia.com Issued by: Serviced by: AMERICAN SKANDIA LIFE AMERICAN SKANDIA LIFE ASSURANCE CORP. ASSURANCE CORP. One Corporate Drive P.O. Box 883 Shelton, Connecticut 06484 Shelton, Connecticut 06484 Telephone: 1-800-752-6342 Telephone: 1-800-752-6342 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 gma 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 reasonably 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 his 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 Registrant's 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 Skandia Life 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 Skandia Life and American Skandia Marketing, Incorporated ("ASM, Inc.") can also be indemnified pursuant to Indemnity Agreements between each director and officer and American Skandia Investment Holding Corporation, a corporation organized under the laws of the state of Delaware. The provisions of the Indemnity Agreements are governed by Section 45 of the General Corporation Law of the State of Delaware. The directors and officers of Skandia Life and ASM, Inc. are covered under a directors and officers liability insurance policy issued to Skandia Insurance Company Ltd., their ultimate parent. Such policy will reimburse Skandia Life or ASM, Inc., as applicable, for any payments that it shall make to directors, officers and controlling persons of Registrant pursuant to law and, subject certain exclusions in the policy, will pay any other costs, charges, expenses, settlements or judgements arising from any proceeding involving any director or officer of Skandia Life or ASM, Inc., as applicable in his or her past 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. 33-26122, filed March 1, 1990) Filed via EDGAR with Post-Effective Amendment No. 1 to Registration Statement No. 333-25733, filed 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 Pre-Effective Amendment No. 2 to Registration Statement No. 33-19363, filed July 27, 1988) Filed via EDGAR with Post-Effective Amendment No. 6 to Registration Statement No. 33-87010, filed March 2, 1998. 4 Instruments defining the rights of security holders, including indentures (Incorporated by reference to initial Registration Statement No. 33-89676, filed February 22, 1995) FILED HEREWITH VIA EDGAR 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. 5 to Registration Statement No. 33-26122, filed April 23, 1991 Filed via EDGAR with Post-Effective Amendment No. 1 to Registration Statement No. 333-00941, filed February 25, 1997 (b) Agreement with Fleet Investment Advisors Inc., incorporated by reference to the initial filing of Registration Statement No. 33-86918 filed December 1, 1994 Filed via EDGAR with Post-Effective Amendment No. 1 to Registration Statement No. 333-00941, filed February 25, 1997 11 - 22 Not applicable 23a (1) Consent of Ernst & Young LLP FILED HEREWITH (2) Consent of Deloitte & Touche LLP FILED HEREWITH 23b Opinion & Consent of Werner & Kennedy FILED HEREWITH 24 Power of Attorney Directors Boronow, Campbell, Carendi, Danckwardt, Dokken, Sutyak, Mazzaferro, Moberg, Soderstrom, Tracy, Svensson, Brunetti, and Collins filed via EDGAR in the initial Registration Statement to Registration Statement No. 333-25733, filed April 24, 1997 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; (iii) To include any material information with respect to the plan of distribution not previously disclosed 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. Exhibits Exhibit 4 Copy of Instruments defining the rights Exhibit 23a (1) Consent of Ernst & Young LLP (2) Consent of Deloitte & Touche LLP Exhibit 23b Opinion & consent of Werner & Kennedy 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 23, 1998. 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 23, 1998 Jan R. Carendi Chairman of the Board and Director (Principal Financial Officer) /s/ Thomas M. Mazzaferro Executive Vice President and April 23, 1998 Thomas M. Mazzaferro Chief Financial Officer (Principal Accounting Officer) /s/ David R. Monroe Vice President and April 23, 1998 David R. Monroe Controller (Board of Directors) Jan. R. Carendi* Gordon C. Boronow* Malcolm M. Campbell* Jan. R. Carendi Gordon C. Boronow Malcolm M. Campbell Henrik Danckwardt* Amanda C. Sutyak* Wade A. Dokken* Henrik Danckwardt Amanda C. Sutyak Wade A. Dokken Thomas M. Mazzaferro* Gunnar Moberg* Bayard F. Tracy* Thomas M. Mazzaferro Gunnar Moberg Bayard F. Tracy Anders Soderstrom* C. Ake Svensson* Lincoln R. Collins** Anders Soderstrom C. Ake Svensson Lincoln R. Collins Nancy F. Brunetti* Nancy F. Brunetti *By: /s/Kathleen A. Chapman Kathleen A. Chapman *Pursuant to Powers of Attorney filed with Initial Registration Statement No. 333-25733
EX-4 2 COPY OF INSTRUMENTS DEFINING RIGHTS AMERICAN SKANDA LIFE ASSURANCE CORPORATION A Stock Company This Certificate is a summary of the provisions of a group annuity contract. The contract owner and contract number are as shown in the Schedule made part of this Certificate. Signed for American Skandia Life Assurance Corporation: M. Patricia Paez Gordon Boronow Secretary President GROUP DEFERRED ANNUITY CERTIFICATE NON-PARTICIPATING TABLE OF CONTENTS DEFINITIONS....................................................................5 MULTIPLE CERTIFICATES..........................................................7 YOUR RIGHTS AND DESIGNATION OF BENEFICIARY.....................................7 ACCUMULATION PERIOD............................................................8 SURRENDERS....................................................................10 DEATH BENEFITS................................................................12 GENERAL PROVISIONS............................................................14 SETTLEMENT PROVISIONS.........................................................16 ANNUITY TABLES................................................................19 Your enrollment form as well as any riders and endorsements are attached. SCHEDULE PARTICIPANT: [JOHN DOE] CERTIFICATE NUMBER: [001-00001] ANNUITANT: [JOHN DOE] ANNUITY DATE: [MAY 01, 2019] ANNUITANT'S DATE OF BIRTH: (APRIL 01,1934) ANNUITANT'S SEX: (MALE] CERTIFICATE DATE: [MAY 01, 1989] PREMIUM: [$5,000] NET PREMIUM: ($20,000] INITIAL GUARANTEE PERIOD: [05] YEAR[S] INITIAL GUARANTEE RATE: [8.5%] MINIMUM INTERIM VALUE: [$2,000] CONTRACT OWNER: [XYZ Trust] CONTRACT NUMBER: [001] SURRENDER CHARGE: CERTIFICATE PERCENTAGE OF PREMIUM YEAR LIQUIDATED 1 6% 2 6% 3 6% 4 6% 5 6% 6 6% THEREAFTER 0% OFFICE: AMERICAN SKANDIA LIFE ASSURANCE CORPORATION TOWER ONE CORPORATE DRIVE P.O. BOX 883 SHELTON. CONNECTICUT 06484 SCHEDULE (CONTINUED) INTEREST RATE MINIMUM INTEREST RATES ARE DETERMINED BY US. HOWEVER, RATES ARE SUBJECT TO A MINIMUM. THE MINIMUM FOR EACH GUARANTEE PERIOD IS BASED ON BOTH AN INDEX AND A REDUCTION TO THE INTEREST RATE DETERMINED ACCORDING TO THE INDEX. EACH INDEX IS BASED ON THE PUBLISHED RATE FOR CERTIFICATES OF INDEBTEDNESS (BILLS, NOTES, OR BONDS, DEPENDING ON THE TERM OF INDEBTEDNESS) OF THE UNITED STATES TREASURY AT THE MOST RECENT TREASURY AUCTION HELD AT LEAST 30 DAYS PRIOR TO THE BEGINNING OF THE GUARANTEE PERIOD TO WHICH THE MINIMUM RATE IS TO APPLY. THE TERM (LENGTH OF TIME FROM ISSUANCE TO MATURITY) OF THE CERTIFICATES OF INDEBTEDNESS UPON WHICH THE INDEX IS BASED FOR ANY GUARANTEE PERIOD IS THE SAME AS THE GUARANTEE PERIOD. IF NO CERTIFICATES OF INDEBTEDNESS ARE AVAILABLE FOR SUCH TERM. THE NEXT SHORTEST TERM IS USED. IF THE UNITED STATES TREASURY'S AUCTION PROGRAM IS DISCONTINUED, WE WILL SUBSTITUTE INDEXES WHICH IN OUR OPINION ARE COMPARABLE. IF REQUIRED, IMPLEMENTATION OF SUCH SUBSTITUTE INDEXES WILL BE SUBJECT TO APPROVAL BY THE SECURITIES AND EXCHANGE COMMISSION AND THE INSURANCE DEPARTMENT OF THE JURISDICTION IN WHICH THIS CONTRACT IS DELIVERED. THE REDUCTION USED IN DETERMINING THE MINIMUM IS 2.00 PERCENT OF INTEREST. IN NO EVENT WILL THE MINIMUM BE LESS THAN ZERO. DEFINITIONS Annuitant: The person upon whose life this Certificate was issued. Annuity Date: The date on which annuity payments are to commence. Beneficiary(ies): The person or persons named by you, either as of the Certificate Date or at a later date, as the recipient of the death benefit. Certificate: A summary of your rights and benefits under the contract shown in the Schedule. Issuance of such a summary evidences that your premium has been paid. It also represents an account we set up and maintain to track our obligations to you. Certificate Date: The effective date of your participation under the contract shown in the Schedule in relation to the rights and benefits evidenced by this Certificate. Certificate Years: Continuous 12 month periods commencing on the Certificate Date. Contingent Annuitant: The person designated by you to become the Annuitant on the Annuitant's death prior to the Annuity Date. Current Rate: The applicable interest rate we offer for an initial Guarantee Period. Current Rates are contained in a schedule of rates established by us from time to time for the Guarantee Periods then being offered. Gross Surrender Value: As of any date, that portion of the Interim Value you specify for a full or partial surrender. Guarantee Period: The period during which the rate at which interest is credited to your Certificate is guaranteed. In Writing: In a written form satisfactory to us and filed at the Office. Initial Guarantee Rate: The rate of interest credited during the initial Guarantee Period for a Certificate. Interim Value: As of any date, the Net Premium credited to a Certificate plus all interest credited on such Net Premium, less the sum of the Gross Surrender Values and interest thereon from the date of each surrender, plus or minus any market value adjustment made when choosing an alternate Guarantee Period and interest thereon from the date the new Guarantee Period begins. Net Premium: A premium less any applicable premium tax deducted upon receipt of a premium. Net Surrender Value: The amount payable on a full or partial surrender after the application of any charges and market value adjustment. Office: The location shown in the Schedule where all requests regarding transactions affecting this certificate are to be sent. Subsequent Guarantee Rate: The rate of interest established by us for crediting to your Certificate during a subsequent Guarantee Period. Surrender Date: The date we receive a completed request In Writing for a surrender. we, us, our: American Skandia Life Assurance Corporation. you, your: The participant shown in the Schedule. MULTIPLE CERTIFICATES If you chose to allocate your premium to more than one Guarantee Period, we issue multiple Certificates to you. The amount credited to this Certificate is shown in the Schedule. Additional premium may not be added to your Certificate. Submission of additional premium would be evidenced by issuance of one or more additional Certificates. If multiple Certificates have been issued to you and we receive any request from you such as a partial surrender request or a request to change the Beneficiary, we respond to the request only in relation to those Certificates indicated in the request. We do not change any designation under any Certificate or take any action in relation to a Certificate unless we receive instructions in relation to a specified Certificate. Unless otherwise indicated, all rights and privileges provided under the contract are in relation to each Certificate separately. YOUR RIGHTS AND DESIGNATION OF BENEFICIARY You may exercise the rights, options and privileges granted participants by the contract shown in the Schedule or permitted by us. Your rights are subject to the rights of any assignee recorded by us and of any irrevocably designated Beneficiary. The primary and contingent Beneficiaries were first named in your enrollment form. You may change any revocable Beneficiary during the Annuitant's lifetime by sending a request In Writing. The change takes effect on the date you sign the request, but does not apply to any payments we make before we receive the request. Death benefits are payable to the Beneficiary. You may designate more than one primary or contingent Beneficiary. If you make such a designation, the proceeds are payable in equal shares to the survivors in the appropriate Beneficiary class, unless you request otherwise In Writing. If the primary Beneficiary dies before death proceeds become payable, the proceeds are payable to the contingent Beneficiary. If no Beneficiary is alive when the death proceeds become payable or in the absence of any Beneficiary designation, the proceeds vest in you or your estate. Common Disaster If any Beneficiary dies with you or the Annuitant in a common disaster, it must be proved to our satisfaction that you or the Annuitant died first. Unless provided otherwise, the proceeds are payable as if such Beneficiary died first. If you and the Annuitant die in a common disaster, it must be proved to our satisfaction that the Annuitant died before you. Unless provided otherwise, the proceeds are payable as if you died before the Annuitant. If the Annuitant and the Contingent Annuitant die in a common disaster, it must be proved to our satisfaction that the Annuitant died first. Unless provided otherwise, the proceeds are payable as if the Contingent Annuitant died before the Annuitant. Contingent Annuitant You may designate a Contingent Annuitant if you are not the Annuitant. You may designate or change the Contingent Annuitant prior to the Annuity Date. The request must be In Writing. The designation or change takes effect on the date you sign the request, but does not apply to any payments we make before we receive the request. The Contingent Annuitant designation expires on the Annuity Date. Change of Annuitant You may change the Annuitant prior to the Annuity Date. The existing Annuitant and new Annuitant must be alive on the effective date of the change. The request must be In Writing. The change takes effect on the date you sign the request, but does not apply to any payments we make before we receive the request. The new Annuitant must meet our then current requirements for minimum and maximum ages. ACCUMULATION PERIOD Premiums Issuance of a Certificate represents our acceptance of a premium payment and enrollment of a participant. The amount of Net Premium evidenced by this Certificate is shown in the Schedule. The value of your Certificate is determined in accordance with the terms of the contract shown in the Schedule. Initial Guarantee Periods The initial Guarantee Period applicable to your Certificate is shown in the Schedule. We may offer different Guarantee Periods from time to time. Subsequent Guarantee Periods At the end of any Guarantee Period, a subsequent Guarantee Period commences. We may make available different Guarantee Periods upon renewal than those which were available when your certificate was issued. Each subsequent Guarantee Period for your Certificate lasts the same duration as the prior Guarantee Period or the next shortest one if that duration is no longer available unless we receive from you at our Office instructions In Writing at least two business days prior to the close of the Guarantee Period then ending. In no event may a subsequent Guarantee Period extend beyond the Annuity Date then in effect for your Certificate. Alternate Guarantee Periods You may choose an alternate Guarantee Period before your current Guarantee Period ends, subject to the following rules: 1. We must receive your request In Writing at our Office. 2. The beginning of the new Guarantee Period is the first business day after the date we receive all the information we need to process your request. 3. The Guarantee Period you choose must be one we are making available on the date the new Guarantee Period is to begin. 4. Your Annuity Date must be the first day of the month on or after an anniversary of the date on which the new Guarantee Period begins. If necessary to meet this requirement, you must choose a new Annuity Date before we will process your request. 5. The new Guarantee Period may not extend beyond the Annuity Date. 6. We will process only one such request per Certificate per Certificate Year. The market value adjustment formula will be applied to your Certificate's Interim Value immediately prior to the beginning of the new Guarantee Period. No surrender charge will be assessed. The resulting Interim Value will be credited interest at the Subsequent Guarantee Rate for the new Guarantee Period. Initial Guarantee Rate We credit interest to your Certificate at the Initial Guarantee Rate shown in the Schedule during the initial Guarantee Period. Subsequent Guarantee Rate When a subsequent Guarantee Period begins, the Subsequent Guarantee Rates applied to your Certificate will not be less than the rate then applicable to new Certificates with the same Guarantee Period. Minimum Interest Rate Interest rates are subject to the minimum shown in the Schedule. Crediting of Interest Declared rates are effective annual rates of interest. The rate applicable throughout any Guarantee Period is the one in effect when such Guarantee Period begins. Premium Taxes We reserve the right to make an assessment for premium taxes, if applicable. The tax is deducted from the premium when received. Alternatively, we may assess premium taxes attributable to your Certificate when we determine your initial annuity payment. SURRENDERS General You may request a full or partial surrender. Partial surrenders may only be made if: (a) the Gross Surrender Value is at least $1,000; and (b) the Gross Surrender Value plus $1,000 does not exceed the amount payable under the Certificate if it were completely surrendered on that date. In the case of all full or partial surrenders the value of a Certificate will be reduced by the Gross Surrender Value on the Surrender Date and the Net Surrender Value will be payable to the Participant. The Net Surrender Value equals: (A X C) - B, where: A = the Gross Surrender Value; B = the Surrender Charge, as of the date we receive the surrender request In Writing, shown in the Contract Schedule; and C = the market value adjustment, described below, as of the date we receive In Writing the surrender request. Surrender Charge The surrender charge applicable to each Certificate Year is shown in the Contract Schedule. The charge is a percentage of the Gross Surrender Value deemed to be a liquidation of premium. Surrenders or partial surrenders, except for those amounts taken under the free withdrawal provision, are deemed for the purpose of this charge to be first a liquidation of premium. Amounts taken under the free withdrawal privilege are not considered a liquidation of premium. On a partial surrender, Gross Surrender Value is deemed to come first from (a) any interest then available under the free withdrawal provision; then from (b) any premium not yet liquidated, and then from (c) any remaining interest. Market Value Adjustment The formula we use to determine the market value adjustment ("MVA") is: [ (1+I) / (1+J+0.0025) ] N/12 where: I is the Guarantee Rate applicable to the Guarantee Period for your Certificate; J is the Current Rate for the Guarantee Period equal to the number of years (rounded to the next higher number when occurring on other than an anniversary of the beginning of the current Guarantee Period) remaining in your current Guarantee Period; and N is the number of months (rounded to the next higher number when occurring on other than a monthly anniversary of the beginning of the current Guarantee Period) remaining in your Guarantee Period. Nonetheless, a full or partial surrender at the end of a Guarantee Period is not affected by the MVA. In the special case where I=J, the MVA is set equal to 1. Free Withdrawal Privilege Once each Certificate Year after the first, a portion of a partial surrender may be free of any applicable surrender charge or MVA. The amount available under this privilege is the interest credited to your Certificate for the prior Certificate Year. Deferral of Payment We may defer payment of any partial or total surrender for the period permitted by law. In no event may this deferral of payment exceed 6 months from the date of receipt of the request to partially or totally surrender. If we defer payment for more than 30 days, we pay interest of at least 4% per year on the amount deferred. DEATH BENEFITS Your Death or the Annuitant's Death If Prior to the Annuity Date Your Death The amount of the death benefit is determined as of the date we receive due proof In Writing of your death if occurring before the Annuity Date. We reserve the right to require both due proof of death and evidence satisfactory to us that the Annuitant did not predecease you. Your spouse may elect to forego payment of the death benefit and become the participant if: a) your death occurs prior to the Annuity Date; b) you predecease the Annuitant and any Contingent Annuitant; and c) your spouse is the designated Beneficiary on the date of your death. For purposes of this provision, the death of the first of any joint participant is deemed your death. Death of Annuitant The designated Contingent Annuitant becomes the Annuitant as of the Annuitant's date of death. A death benefit is payable as of the date we receive due proof In Writing of the Annuitant's death occurring before the Annuity Date if: a) there is no designated Contingent Annuitant; or b) the Contingent Annuitant predeceases the Annuitant. We reserve the right to require evidence satisfactory to us that you did not predecease the Annuitant. Death Benefit For purposes of this provision, "death" means the earlier of either your death or, if there is no Contingent Annuitant, the Annuitant's death. The amount payable on death prior to the Annuity Date and before the beginning of the Certificate Year which starts following the earlier of your or the Annuitant's 85th birthday is the greater of (a) or (b), where: a) is the Interim Value of your Certificate times the MVA as of the date we receive due proof of death; and b) is the premium shown in the Schedule, less the sum of all prior Gross Surrender Values. The death benefit at any later date prior to the Annuity Date equals the Interim Value of your Certificate times the MVA, as of the date we receive due proof of death. The death benefit is reduced by any annuity payments made prior to the date we receive due proof In Writing of death. The death benefit may be taken in one sum or under any of the options described in the Settlement Provisions. In the event of your death, the benefit must be distributed within five years of the date of death or over a period not extending beyond the life expectancy of the Beneficiary or over the life of the Beneficiary. Distribution after your death must commence within one year of the date of death. Your Death If On Or After the Annuity Date Benefits are paid at least as rapidly as under the annuity option then in effect if you die on or after the Annuity Date. For purposes of this provision, the death of the first of any joint participants is deemed your death. Death of the Annuitant On Or After the Annuity Date Any remaining certain payments are payable to the Beneficiary if the Annuitant dies after the Annuity Date. The commuted value of any remaining certain payments is payable in one sum to the Beneficiary's estate if the Beneficiary dies subsequent to the Annuitant's death after the Annuity Date. GENERAL PROVISIONS Entire Contract The contract shown in the Schedule, including any attached riders or endorsements, the attached copy of the application and any supplemental applications and endorsements are the entire contract. As to your Certificate, the contract also includes the copy of the enrollment form attached to your Certificate. All statements made in an application and/or an enrollment form are deemed to be representations and not warranties. No statement is used to void the contract or defend against a claim unless it is contained in the application or supplemental application or an enrollment form. Only our President, a Vice President or Secretary may change or waive any provisions of the contract. Any change or waiver must be In Writing. We are not bound by any promises or representations made by or to any other person. Error in Age [or Sex] If the age [or sex] of an Annuitant has been misstated, we make adjustments to conform to the facts. Any underpayments by us are made up immediately and any overpayments are charged against future amounts becoming payable. Assignment You may assign your rights under the contract at any time prior to the Annuity Date. No assignment is binding on us unless it is In Writing. We are not responsible for the validity of any assignment. Nonparticipation The contract does not share in our profits or surplus earnings. Elections, Designations, Changes and Requests All elections, designations, changes and requests must be In Writing and are effective only after they have been approved by us, subject to any transactions made by us before receipt of such notices. We inform you of any changes to the contract shown in the Schedule that materially affect your rights. We reserve the right to require that this Certificate be returned to our Office for endorsement of any change to such contract or any change affecting only this Certificate. Claims of Creditors To the extent permitted by law, no payment under the contract shown in the Schedule is subject to the claims of the creditors of the Contract Owner, you or any other participant, Annuitant or Beneficiary. Proof of Survival The payment of any annuity is subject to evidence satisfactory to us that the payee is alive on the date such payment is otherwise due. Tax Reporting We intend to make all required regulatory reports regarding taxable events in relation to this Certificate. Such events may include, but are not limited to: a) annuity payments; b) payment of death benefits; c) surrender of value from a Certificate in excess of the tax basis; and d) assignments. Facility of Payment We reserve the right, in settlement of full liability, to make payments to a guardian, relative or other person if a payee is legally incompetent. Modification of the Contract The contract shown in the Schedule may be modified at any time by written agreement between the Contract Owner and us. No modification affects your rights under Certificates issued or the amount or term of any annuity begun prior to the effective date of the modification unless it is required to conform such contract to any Federal or State statutes. No modification of such contract affects the method by which we determine the Interim Value of your Certificate. SETTLEMENT PROVISIONS Annuities Fixed dollar annuity payments are available under the contract. Such annuities remain fixed as to dollar amount throughout the payment period. We use our then current interest, expense and mortality assumptions when payments begin in determining the amount of each payment. However, we guarantee not to use an interest assumption of less than 4% per year, compounded yearly. Annuity Date You select the Annuity Date In Writing. The Annuity Date must be the first day of the first month on or after the end of a Guarantee Period. It must also be after the third Certificate Year. It can be changed at any time but such requests must be received In Writing at least 30 days before the current Annuity Date. In the absence of an election In Writing, the Annuity Date is the start of the Certificate Year first following the Annuitant's 85th birthday. Annuity Option Election All elections to receive payments under an annuity option are subject to our then current rules as to minimum monthly payment amounts. You may have elected on the enrollment form to have the value of your Certificate applied under any one of the annuity options described below. You may change this choice any time prior to 30 days before the Annuity Date. Such requests must be In Writing. If no annuity option is selected, then payments automatically commence on the Annuity Date under the second option, with 120 payments certain, if the monthly payment amount equals or exceeds our then current minimum. Otherwise, payment is made in one sum. Annuity options in addition to those shown are available with our consent. You may elect to have any amount of the proceeds due to the Beneficiary applied under any of the options described below, subject to our rules for minimum annuity payment amounts. In the absence of an election prior to proceeds becoming due, the Beneficiary may make such an election. Such election must be In Writing within one year after proceeds are payable. Proof of Age We reserve the right to require submission prior to commencement of any annuity payments of evidence satisfactory to us of the age of any payee upon whose life payment amounts are calculated. Annuity Options Option One: Life Annuity An annuity payable monthly during the lifetime of the payee, ceasing with the last payment due prior to the death of the payee. Option Two: Life Annuity With 120, 180 or 240 Monthly Payments Certain An annuity providing monthly income to the payee for a fixed period of 120 months, 180 months or 240 months (as selected) and for as long thereafter as the payee lives. Option Three: Joint and Last Survivor Life Annuity An annuity payable monthly during the joint lifetime of the payee and a secondary payee and thereafter during the remaining lifetime of the survivor, ceasing with the last payment prior to the death of the survivor. Option Four: Payments for a Designated Period An annuity payable for a specified number of years. The number of years is subject to our then current rules. ANNUITY TABLES The attached tables show the minimum dollar amount of each monthly payment for each $1,000 applied under the options. The amounts payable when annuity payments commence may be higher, based on our then current assumptions as to interest, expenses and mortality, but will not be lower. Under options one and two, the amount of each payment depends on the age [and sex] of the payee at the time the first payment is due. Under option three, the amount of each payment depends on the age [and sex] of both payees at the time the first payment is due. The tables shown are based on interest at 4% per year compounded annually and the [1983a Individual Annuity Mortality Table set back one year for males and two years for females.] The payee's settlement age is the payee's age, last birthday, on the date of the first payment, minus the age adjustment. The age adjustments are shown below. They are based on the date of the first payment. The age adjustment does not exceed the age of the payee. Annuitization Attained Age Year Set Back 2000 - 2009 1 2010 - 2019 2 2020 and later 3 Amount of Monthly Payment For Each $1,000 Applied First and Second Options - Single Life Annuities With:
Male Payee Female Payee Monthly Payments Monthly Payments Guaranteed Guaranteed None 120 180 240 None 120 180 240 Age $ $ $ $ $ $ $ $ 50 4.79 4.74 4.68 4.60 4.39 4.37 4.35 4.31 55 5.19 5.11 5.01 4.88 4.69 4.66 4.62 4.56 60 5.73 5.59 5.42 5.18 5.09 5.04 4.96 4.85 65 6.49 6.22 5.89 5.48 5.65 5.54 5.39 5.18 70 7.56 6.98 6.37 5.73 6.42 6.19 5.90 5.52 75 9.06 7.83 6.80 5.89 7.55 7.03 6.44 5.78 80 11.18 8.67 7.10 5.97 9.24 8.00 6.90 5.93 Third Option - Joint and Last Survivor Annuity Age of Male Age of Female Payee Payee 35 40 45 50 55 60 65 70 75 80 $ $ $ $ $ $ $ $ $ $ 50 3.78 3.88 4.00 4.12 4.25 4.37 4.48 4.57 4.64 4.70 55 3.79 3.91 4.04 4.19 4.36 4.52 4.69 4.83 4.95 5.04 60 3.81 3.93 4.07 4.25 4.45 4.67 4.90 5.12 5.31 5.47 65 3.82 3.94 4.10 4.29 4.52 4.79 5.10 5.42 5.72 5.99 70 3.82 3.95 4.12 4.32 4.58 4.89 5.27 5.70 6.15 6.58 75 3.83 3.96 4.13 4.35 4.62 4.97 5.40 5.93 6.55 7.21 80 3.83 3.97 4.14 4.36 4.65 5.02 5.50 6.11 6.89 7.79 Fourth Option - Payments for a Designated Period No. Amount of No. Amount of No. Amount of No. Amount of Yrs. Mthly. Pymts. Yrs. Mthly. Pymts. Yrs. Mthly. Pymts. Yrs. Mthly. Pymts. 10 10.06 16 7.00 22 5.64 28 4.90 11 9.31 17 6.71 23 5.49 29 4.80 12 8.69 18 6.44 24 5.35 30 4.72 13 8.17 19 6.21 25 5.22 14 7.72 20 6.00 26 5.10 15 7.34 21 5.81 27 5.00
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION Shelton, Connecticut A stock Company GROUP DEFERRED ANNUITY CERTIFICATE NON-PARTICIPATING EX-23.A1 3 CONSENT OF ERNST & YOUNG LLP GMA INDEPENDENT AUDITORS' CONSENT We consent to the reference to our firm under the caption "Selected Financial Data" and to the incorporation by reference in this Registration Statement (Form S-2 No. 33-89676) of our report dated February 20, 1998, included in the Annual Report on Form 10-K of American Skandia Life Assurance Corporation for the year ended December 31, 1997 and to the use of our report dated February 20, 1998, appearing in the Prospectus, which is part of this Registration Statement. /s/Ernst & Young LLP Hartford, Connecticut April 23, 1998 EX-23.A2 4 CONSENT OF DELOITTE & TOUCHE LLP GMA Exhibit 23a INDEPENDENT AUDITORS' CONSENT We consent to the use in this Post-effective Amendment No. 3 to Registration Statement No. 33-89676 of American Skandia Life Assurance Corporation on Form S-2 of our report dated March 10, 1997, included and incorporated by reference in the Annual Report on Form 10-K of American Skandia Life Assurance Corporation for the year ended December 31, 1997, and to the use of our report dated March 10, 1997, appearing in the Prospectus, which is a part of this Registration Statement. We also consent to the reference to us under the headings "Experts" and "Selected Financial Data" appearing in the Prospectus which is a part of such Registration Statement. /s/ Deloitte & Touche LLP New York, New York April 23, 1998 EX-23.B 5 OPINION & CONSENT OF WERNER & KENNEDY (212) 408-6900 April 17, 1998 American Skandia Life Assurance Corporation One Corporate Drive Shelton, Connecticut 06484 Re: Post-effective Amendment No. 3 on Form S-2 filed by American Skandia Life Assurance Corporation, Registrant Registration No.: 33-89676 Our File No. 74877-00-101 Dear Mesdames and Messrs.: You have requested us, as general counsel to American Skandia Life Assurance Corporation ("American Skandia"), to furnish you with this opinion in connection with the above-referenced registration statement by American Skandia, a Registrant, under the Securities Act of 1933, as amended, (the "Registration Statement") of a certain Modified Guaranteed Annuity Contract (the "Contract") that will be issued by American Skandia. We have made such examination of the statutes and authorities, corporate records of American Skandia, and other documents as in our judgment are necessary to form a basis for opinions hereinafter expressed. In our examinations, we have assumed the genuineness of all signatures on, and authenticity of, and the conformity to original documents of all copies submitted to us. As to various questions of fact material to our opinion, we have relied upon statements and certificates of officers and representatives of American Skandia and others. Based upon the foregoing, we are of the opinion that: 1. American Skandia is a validly existing corporation under the laws of the State of Connecticut. 2. The form of the Contract has been duly authorized by American Skandia, and has been or will be filed in states where it is eligible for approval, and upon issuance in accordance with the laws of such jurisdictions, and with the terms of the Prospectus, will be valid and binding upon American Skandia. American Skandia Life Assurance Corporation April 17, 1998 Page 2 We hereby consent to the use of this opinion as an exhibit to this Post-effective Amendment to the Registration Statement on Form S-2 under the Securities Act of 1933, as amended, and to the reference to our name under the heading "Legal Experts" included in the Registration Statement. Very truly yours, WERNER & KENNEDY /s/WERNER & KENNEDY G:Legal/Andrea/FinalS2consentgma EX-27 6 ASLAC FDS FOR YEAR ENDED DECEMBER 31, 1997
7 881453 ASLAC1296 1 U.S Dollars 12-MOS DEC-31-1997 JAN-1-1997 DEC-31-1997 1 108,323,668 117,690,339 117,735,481 6,710,851 0 0 125,088,457 81,974,204 3,120,221 628,051,995 12,972,416,108 67,619,442 0 0 0 213,000,000 0 0 2,000,000 182,421,044 12,972,416,108 920,042 8,181,073 87,103 148,826,076 4,596,607 52,524,520 37,972,432 38,025,279 10,477,746 0 0 0 0 27,547,533 0 0 0 0 0 0 0 0 0 Included in Total Assets are Assets Held in Separate Accounts of $12,095,163. Included in Total Liabilities and Equity are Liabilities Related to Separate Accounts of $12,095,163,569. Other income includes annuity charges and fees of $121,157,846 and fee income of $27,587,231.
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